ROANOKE TIMES
Copyright (c) 1995, Roanoke Times
DATE: Monday, December 4, 1995 TAG: 9512050005
SECTION: MONEY PAGE: A10 EDITION: METRO
COLUMN: Money Matters
SOURCE: MAG POFF
Q: A couple of years ago, I invested in Scudder Mutual Fund GNMA Group. I signed up on an automatic reinvestment plan. Now that I have redeemed all my shares, how will I figure gains and losses on 1995 tax returns when I file next year?
A: Clark Cole, a certified public accountant with the Roanoke firm of Cole and King, said you must consult the summary statement that your mutual fund sends you at the end of the year. It will show the amount of the dividends that were reinvested and on which you have already paid taxes.
Your basis in the stock, Cole said, is the amount of your original investment plus the dividends that were reinvested. All of that money has already been taxed.
You must subtract that basis from the gross proceeds of the sale, Cole said. This is the amount on which you must pay capital gains tax.
Because you purchased the stock several years ago, Cole said, you probably will have a long-term capital gain on the amount you paid originally. The same will be true of most of your dividends.
The profit on any dividends received within a year of sale, he said, should be reported as a short-term capital gain.
401(k) funds for house
Q: I was wondering about taking money out of a 401(k) plan to use as a down payment on a house.
A: This is a bad idea for two reasons.
First, your 401(k) fund contains your retirement money. You will not have enough money for a comfortable retirement unless you leave funds in the plan and let them grow undisturbed. You must contribute to your plan early in life to allow time for your money to compound.
The main point, however, is that you must pay taxes and, unless you have reached the age of 591/2 or are disabled, a 10 percent penalty on the amount you withdraw. This means you must withdraw much more money from your account than you really need, and the primary beneficiary would be the government.
Virtually all financial planners would advise you against using money in a 401(k) plan for another purpose such as a house down payment.
If your plan allows it, you might borrow from your plan, then repay the money with interest that goes to you. You should not do this, however, unless you are certain that you can pay back the loan. If you fail to repay, or if you leave your job, the taxes and penalty will come into play again.
It would be preferable to save money toward making your down payment.
Advertiser's legitimacy
Q: Are the mortgage advertisements in The Roanoke Times, particularly the one for Equity One, for legitimate companies? Are they any good as far as making a mortgage loan?
A: While The Roanoke Times generally does not investigate its advertisers nor does the newspaper warrant their products, it does not accept advertising that it has reason to believe is false or misleading. This applies to retailers, and service companies as well as to mortgage lenders and brokers.
A loan company's ad would not be published if the company itself is not known as reputable, to the best of the newspaper's advertising staff's knowledge, a manager there said. This is also the general policy of other media that accept advertising. It is generally accepted that advertisers have the right to promote their products and consumers have the responsibility of judging that advertising.
Many of the mortgage companies that advertise in the newspaper are second-mortgage companies. Some of them specialize in debt consolidation loans. A few are first-mortgage companies that arrange home loans. You will have to call them and determine whether their products meet your needs.
As a public service, The Roanoke Times each Sunday prints a list of first-mortgage lenders in Southwest Virginia along with the rates they quoted the previous Friday. Not every lender doing business in the market chooses to participate, although the listing is open to every licensed lender willing to quote rates against certain standards. This list, thus, is a sample of rates gathered by the newspaper's staff so readers can compare both interest rates and discount points charged by several lenders. It is unrelated to any advertising that individual lenders may place in the paper.
If you are concerned about the legitimacy of any lender, contact the State Corporation Commission in Richmond, which licenses lenders and brokers and regulates them under the Virginia Mortgage Broker and Lender Act.
Will needs updating
Q: I believe our will is obsolete because it was written in the 1960s. Currently, everything we own is in both names with "or survivor" added. Would you need a will when it's like that? Because of a lot of sickness, we have borrowed on our property, and I figured it would go to the bank at our death. Now I'm wondering what would happen if one or the other of us died.
A: People who own property jointly with survivorship will inherit those assets outside of the will and regardless of what the will says.
But you and your husband should still have parallel wills, and you should be able to have a simple will drawn for about $150. You can provide for the sale of your property, and you can stipulate that the executor of your estate may serve without the expense of posting a bond.
You never know what might happen if you die without an up-to-date will. Suppose you both die together in what lawyers call a common disaster? Who would inherit then? Suppose further that another person was at fault for this accident so that your estate collected a large judgment. What would happen then?
Wills are really written to avoid problems for your survivors.
LENGTH: Long : 101 linesby CNB