Q: In a recent column, you recommended investments in a good growth mutual find for a child's education fund, rather than in CATS, TIGRs, etc. Where can I get information about such mutual funds? With Treasury bonds, the borrower is well known and the method of investing clearly defined. How can I tell whether a growth mutual fund is the better choice?
A: Ah, there's the rub; you have identified the major reason why so many people keep their children's college money and their own IRAs in bank accounts, CDs and Treasury securities. To do otherwise requires time and effort.
You can find information about mutual fund performance in a number of places. Financial magazines such as Money, Changing Times and Fortune often have articles on mutual funds, and some run an annual roundup and rating guide. A number of books can be found at your local library; the best and most comprehensive is probably Weisenberger's annual listing.
But you have to work at it. That is, you must do some research to find funds that match your investment objective -- in this case, the long-term accumulation of college money -- and then study the prospectus for each to find such things as investment policies, fees and charges and liquidity.
Treasury zero coupons like those you mentioned, or certificates of deposit from your savings institution, certainly are the simplest way to go. But I still believe that you can accumulate a larger nest egg with a growth mutual fund -- if you're willing to do the homework needed to come up with a good choice.
Q: I am retired and my wife and I file a joint return. On Sept. 1, 1984, I bought a corporate bond with interest dates of June 1 and Dec. 1. Upon purchase I was charged for $400 of interest for the period I didn't own the bond. On Dec. 1, I received an interest check for $800, and in January of this year I got a 1099 form showing the $800. When I enter the $800 on Schedule B (subtracting the $400 I paid on Schedule A), it puts us over the $32,000 ceiling, so we have to pay some tax on our Social Security benefits. This doesn't seem right; is there a way out?
A: Yes, there is a way out. The $400 you prepaid for the interest that had accrued on the bond is not a Schedule A deduction. Instead, you show the $800 (from the 1099) on Schedule B in the normal manner; then on a separate line on Schedule B write in "Prepaid interest on bond purchase" and enter the $400 in brackets.
When you add the figures in Schedule B, subtract the $400 and show only the net amount of interest you earned. When you carry that net figure to your 1040, it will have been reduced by the $400 you paid on purchase, and you will stay under the $32,000 ceiling.
Q: I am past 80, have no immediate survivors, and would like to insure my holdings. As I do not trade actively in stocks, would it be wise to turn my stocks into safer CDs or U.S. Treasuries?
A: At your age you don't really have to be concerned with growth. Since you don't mention the adequacy of the income from your present investments, I assume that isn't a problem. Besides, CDs and Treasuries probably would produce more income for you than is now being generated by your stocks. If you'd feel more comfortable with the government standing behind your investments, make the move.
Q: In reference to the mandatory date for withdrawal of Keogh plan pension funds (assuming a lump-sum withdrawal), I have seen all three of the following in print: (a) when pensioner reaches age 70 1/2; (b) by Dec. 31 of the year he or she reaches 70 1/2; and (c) by April 15 of the year following the year he reaches 70 1/2. Which of the three is correct?
A: The correct answer is "(d) none of the above" for distributions made after Jan. 1, 1985. The rule now is that a lump-sum distribution must be completed by April 1 of the year following the year in which the owner-employe reaches age 70 1/2 (even if he has not retired from active work).