Oh, Wonderful! January 3, 2001February 17, 2017 Sorry for the glitches. Last Friday’s column was originally going to be yesterday’s, and then I realized it was the last day of the year – the millennium! – and that I ought to at least wish you guys a Happy New Year. So I moved Friday to yesterday and put in a little one Friday around noon that, fora variety of reasons, a lot of you didn’t see – or that, if you tried to see it, produced a 1999 column. And all I can say is that driving along Monday, I realized it was 01/01/01 . . . which,when I started saying it, came out as oh one, oh one, oh one, oh wonderful! Which it is. So let me be the last – but not the least heartfelt – to wish you a Happy New Year and millennium. May this next 1,000 years we embarked upon Monday truly rock for you. Meanwhile . . . a few more jumbled thoughts. 1. Except for Ashcroft, I think Bush is making solid appointments (even if, for whatever reasons, the market doesn’t seem overwhelmed with optimism as we reenter the Bush era). 2. Still feeling exasperated? Click here. Former Naderites Confirm It: Ralph Nader Is a Big Fat Idiot. 3. Bob Fyfe: ‘I made several New Year’s resolutions: Lower my auto insurance costs, give blood, no ice cream until March . . . I checked your book and just got off the phone with Progressive. Saved $400 on my and my wife’s cars by switching to them and raising my deductibles to $1000.’ ☞ Check GEICO, too. 4. Please stop smoking. You will save so much money! 5. Anybody been to Buenos Aires? We were thinking of going to South America for a week in February. If it were you, how would you do it? 6. Now that Amazon is back down from its all time high of 110 or so to 14, at the same time as it has cemented its position with millions of happy customers, including me, I think the bottom, if it hasn’t already been reached, could be in sight. One very smart short-seller tells me ‘it’s a $5 stock’ – at which point it would still be worth close to $2 billion, which isn’t, after all, nothing. 7. Are you old enough to remember’the A&P’? The Great Atlantic & Pacific Tea Company Inc., symbol GAP, runs hundreds of supermarkets under various monikers – including the tony Food Emporiums in New York. It’s a pathetic shrimp next to Amazon – it has a total market cap of about $266 million, down about 75% in the past year, to Amazon’s still hefty $5 billion or so. And it sells shrimp! The company’s ‘9.75% preferred J’ stock pays a preferred dividend of$2.34 a share and traded yesterday under $12. I had previously bought some for $10.50. If the company goes broke, you might lose everything. Otherwise, you get about 20% a year on your investment, plus the possibility of a double if the preferred were ever retired(the call price is $25). There are a lotof high-yield speculations like that these days (thanks to the estimable Joe Cherner for pointing this one out), which is why a lot of the smart money seems to be buying high-yield ‘junk bond’ funds and the like. A&P recently suspended the dividend on its common stock, but who knows? It might be able to keep paying the preferred dividend. 8. “If a word in the dictionary were misspelled, how would we know?” — Steven Wright Tomorrow: Quarters Worth Fifty Cents
Give me a T! Give me a U! January 2, 2001February 17, 2017 Dale Stancil: ‘Now that we’re approaching the end of the year, I’d like your thoughts on choosing between contributing to a Uniform Minor Trust Account versus contributing to a Qualified State Tuition Plan as we plan for our sons’ college costs. (Ok, I confess, I’m hitting up the grandparents as well before the year ends). A plus of the UTMA seems to be a greater range of investment choices. Con is that the children can get their hands on it at age 18 (in our state). The biggest question I have is can a UTMA be later transferred into a QSTP by the custodian? We already have UTMAs funded for both our preschoolers, so the question now is to continue to contribute to those or start going with a QTSP.’ ☞ This stuff sounds so dry until you make a poem or a cheer out of it. Picture 20 enthusiastic kids with pom-poms and a seal, at half-time,shouting: UT-ma! Q-stip! Five two nine! Savings plans are mighty fine! COLL-ege costs ROOM and board How you gonna pay? Either one you pick, bro – start today! You would then imagine other stanzas rhyming ‘today’and hurray,’ and the seal slapping around the playing field balancing your child’s future on his nose. Clowns,mascots – a cannon could be involved. Looked at purely from a tax perspective, advises my friend and college savings guru, the estimable Less Antman, it’s hard to imagine any alternative being better than an UTMA account. Although taxes are due annually on taxable income on the child’s return, the first $750 isn’t taxed and the next $750 is at the child’s rate, until the child is 14. From 14 on, the first $750 isn’t taxed and ALL the remaining income is taxed at the child’s rate. That rate is probably going to be 15%, but a 10% rate will apply to long-term capital gains- 8% for stocks or mutual funds held over 5 years before sale. So, an UTMA is good, but as you say, the child takes control at 18 (or 21, depending on the state), and you never know what damn fool thing he or she might do with it. (Another potential problem: if you die before your kid turns 18 or 21,the account is included in your estate and subject to tax along with the rest of your millions.) The tax advantage of a QSTP (also known as a 529 plan) is that tax is deferred until withdrawal, and then taxed at the child’s rate. The disadvantage is that it is all ordinary income. And you miss that$750 per year taxed at the zero rate. Also, of course, the QSTP is likely to include administrative fees that your UTMA need not. There’s been some discussion in Congress about making 529 withdrawals exempt from tax. If that ever happened, you might wish you’d chosen gone with the 529 plan. But with a QSTP you retain control of the account indefinitely, the assets are not included in your estate should you die, and the assets can be rolled by the owner to another relative with very few restrictions as long as the state plan permits it (when saving for multiple children, excess funds in one UTMA cannot be transferred to another child). Also, 5-year averaging can be used for 529 plans for gift tax purposes, so that the $10,000 annual gift limit can be used to place $50,000 into a 529 plan immediately. If you’re pretty certain you’ll be able to trust your child with substantial funds at age 18 (or 21), and that he or she will be willing to help a sibling if he or she has more money in the UTMA than needed for his or her own college expenses, then the UTMA is the way to go. But how can you know if your preschooler is going to be able to handle such wealth at that time? Says Less: ‘I’ve had too many clients with large UTMAs start to panic as their child approached that point to feel comfortable advising it. With a 529 plan, you KNOW your savings will go for education, and with multiple children, you KNOW you’ll be able to move the money around if one child doesn’t need all of it. Even so, I think it is still a good idea to open an UTMA for a child and fund it MODESTLY each year, giving them some spending money for college and a valuable lesson in compounding. Setting up an automatic transfer of $25 per month (or even per quarter)into a TIAA-CREF mutual fund for a child and saving the statements so they can be shown the progress over the years is an object lesson well worth the pennies per day it will cost.’ Note: The answer to your question is: NO. Money already in an UTMA cannot be transferred into a 529 plan. (There is a small exception to this, Less says, but with little practical effect.) It must be funded with new money. Sell the seal; melt down the cannon. Note: For more on various state college savings plans, see savingforcollege.com.