A Uniter, Not a Divider WARNING: POLITICAL CONTENT January 11, 2001February 17, 2017 John Ashcroft, soon to be our top enforcer of civil rights statutes, was proud to deliver the 1999 commencement address at Bob Jones University. You know about BJU’s by-now-famous ban on inter-racial dating – it was this policy that led the United States Supreme Court in 1983 to uphold the revocation of its tax-exempt status. But perhaps you missed the description of BJU’s biology major in the 2001 course catalog: BIOLOGY:A BRIEF DESCRIPTION OF THE MAJOR The challenging field of biology, the study of living things, is a natural place for the Christian. Science, as understood by the public, is largely infiltrated and controlled by the godless ideology of evolutionism. Rather than worshipping the anatomical key as does the unbeliever, the Christian sees in the study of biology the evidence of an infinitely wise Creator. Bob Jones University offers a major in biology on a firm philosophical basis that combines scientific excellence with an emphasis on the Biblical account of creation.Believing that God still calls Christians to “subdue the earth and have dominion over it,” the biology faculty trains Christian young people to exercise their God-given ability to study the creation and subdue it and, thus,bring praise to the Creator.’ That Bob Jones chose Ashcroft as its commencement speaker, and that Ashcroft chose to accept the honor, and the honorary degree,is no slur on Ashcroft. This country is the better for its wide range of viewpoints, from one extreme to another. But as a uniter-not-a-divider Attorney General? New York Times columnist Bob Herbert noted last week that ‘Mr.Ashcroft gave a friendly interview to Southern Partisan magazine a couple of years ago, praising it for helping to ‘set the record straight’ about issues related to the Civil War. Southern Partisan just happens to be a rabid neo-Confederate publication that ritually denounces Abraham Lincoln, Martin Luther King Jr. and other champions of freedom and tolerance in America.’ One hopes that Ashcroft, if confirmed, will confound those of his critics who believe he has a thing against appointing black judges. As a senator in 1999, he spearheaded the successful drive against Ronnie White – the first black justice of the Missouri Supreme Court. This was the first time in nearly half a century, the Alliance for Justice notes,according to Herbert, that the full Senate had voted down a district court nominee. Senator Ashcroft and Jesse Helms were the only two Senators on the 18-person Foreign Relations Committee to vote against confirmation of James Hormel as ambassador to Luxemburg. Ambassador Hormel is openly gay. How is the younger Bush’s choice of Ashcroftsupposed to help unite rather than divide? According to the January 8 issue of Time, ‘when he served as Missouri’s attorney general in the 1980s, Ashcroft persuaded the Reagan Administration to oppose school-desegregation plans in St. Louis, then used the issue to win the governorship in 1984.’ Time refers to ‘Ashcroft’s horrendous record on race’ and calls his positions on civil rights issues ‘about as sensitive as a hammer blow to the head.’ There is widespread evidence that African-Americans were discriminated against at Florida polling places this year. Will they feel confident that our next attorney general will work hard to assure them the equal protection under the law? People for the American Way leads off its detailed Ashcroft report with this quote: “There are voices in the RepublicanParty today who preach pragmatism, who champion conciliation, who counsel compromise. I stand here today to reject those deceptions. If ever there was a time to unfurl the banner of unabashed conservatism, it is now.” John D. Ashcroft Human Events, April 10, 1998 The goal of all this protest and criticism is not ‘to undermine the Bush presidency,’ as Republican spinsters would have you think. Nor is it just more ‘whining’from ‘sore losers’ – two phrases that apparently tested well, aimed at stifling further discussion of what happened in Florida. (You’re still talking about that? Whitewater was worth talking about for years, but evidence of a stolen presidential election? Will the media get over it, for crying out loud, and find something important to investigate?) Rather, the goal is to press the President-elect to hie to his better nature, and honor his pledge to be President of ‘all the people,’ a uniter, not a divider. In the confirmation hearings, Senator Ashcroft may set all fears to rest, or at least enough of them. He should be given a full and respectful hearing. If not, Bush should find someone for this job who would draw the kind of warm bipartisan praise that Dr. Paige, his Education Secretary nominee, has. That’s asking a lot; but in a nation of so many talented people,it’s not asking too much.
Recommendations January 10, 2001February 17, 2017 See Traffic – absorbing and thought-provoking. Drink root beer – underrated beverage. Worried about identity theft? To learn more about the American Express Credit Aware Service, call 800-964-3594. For $79.95, you’ll get the same copies of your credit bureau reports you could get for free. But it will be simpler, and the main thing is that the service promises to alert you if people begin applying for credit in your name. I know there are some people who, after the recent market debacle, might actually want their identities stolen. But for the rest of us, this is such an unsettling prospect that, even if $79.95 is not a great deal . . . well, I decided to give it a try. Need exercise? Buy a SONY Walkman – I remember them as$159, because I’m old, but I got one at Walgreen’s last week that has AM, FM,TV (so you can listen to Sixty Minutes) and a tape player all for $29.95. Is this a great country or what? Then buy the boxed set of Tales of the City, if you’ve never read it and are comfortable with an R-Rated San Francisco-type story, and walk, jog, or pedal listening to these tapes (or to Sixty Minutes). Time will fly, you’ll lose five pounds, you’ll have the heart of a 19-year-old. Alternatively, on the off chance you never read Bonfire of the Vanities, buy that instead and let John Lithgow read it to you. (These are abridged versions, and they’re not cheap. But compared to the cost of a heart attack? Plus, if you listen to them carefully, you can wrap them back up and give them as gifts, or sell them on eBay.) Need buttons? Say a birthday is coming up, and you want all 12 people at the party to be wearing a ‘Sally’s the Greatest!’ button when she arrives for dinner. Maybe even put Sally’s photo on it. This little outfit – kbuttons.com – promises fast service and will make up as few as 10 buttons for about $12. So don’t ask me for Re-Elect Al Gore buttons – print ’em up yourself.
Is the Gloom and Doom Overdone? Too Rare? January 9, 2001February 17, 2017 Frank Curzio, whose newsletter I’ve been getting for 20 years now, notes that the capitalization of today’s U.S. stock market is $14 trillion or so, down $3 trillion since March. But that’s still about 150% of our nearly $10 trillion Gross Domestic Product (sort of like a stock selling at one-and-a-half times sales). In the early Seventies, Frank says, before the Nifty Fifty collapsed,the market was selling at just 78% of GDP – and plunged to 34% at its low in 1974. I was writing for New York Magazine back then, and frequently found myself beginning paragraphs with the line . . . ‘If the world doesn’t end – and it usually doesn’t’ . . . to make the point that stocks sure seemed cheap. The market was selling at the equivalent not of one-and-a-half times sales, if you will, but just one-third of sales. In the dreadful period from 1929 to 1932, when the market fell 88%, it went from selling at 81% of GDP, Frank writes, to just 20%. None of this is remotely to say we are headed for anything like 1974, let alone 1932. We’re not. But if you are expecting ‘Dow 36,000’ any time soon – well, put it this way: I don’t expect to see Dow 3,600 or Dow 36,000 any time soon. But if it had to be one or the other (and fortunately it does not), the former would have to be a lot more likely than the latter. The Fed is back on our side, and the prospect of tax cuts could moderate, or perhaps even preclude, any further decline. What’s more, the Dow 36,000 folks still believe the Dow is currently selling for less than a third of its sensible fair value. (I got to spend some time with one of them over New Year’s – a most charming fellow.) But it’s worth noting that by historical standards, anyway, the stock market as a whole – certain special situations notwithstanding – is not yet cheap here. Mark Centuori: ‘[Given the market’s drop], Risk Grades is worth another look. New features have been added since you plugged it in September, among them the ability to expose portfolios to various ‘historic, distress conditions.’ There’s really no other site like it.’
Get Rich Fast with Commodities Speculation January 8, 2001February 17, 2017 Kirk Dolan: ‘I know you are against trading commodities. What about this literature I get from Larry Williams, who supposedly has this system to predict with high accuracy the commodities market, has become a millionaire doing it, and will show me how? He won the Robbins Cup by trading $10,000 into $1.1 million in 1 year. He sells his materials for $200, which is refundable after I try paper-trading for 3 months according to his video stuff. Sounds too good to be true.’ ☞ I know nothing about Larry Williams- or the Robbins Cup – but I’ll bet that someone wins it every year. (If Larry could grow his stake 110-fold every year – or to be conservative, let’s say just 65-fold, after taxes – then within a decade his $10,000 would have grown, after tax, to – well, to be sporting and make it fun, let’s start him off with a penny, not $10,000, because even his penny would have grown to, after tax – nah, let’s just start him off with one-thousandth of a penny – $134 billion. And heck, if you can grow a thousandth of a penny into $134 billion in a decade -after tax, no less! – imagine what you could do with real money over a lifetime, let alone in some offshore tax-haven.) My good friend Brad Queisser recently turned $10 in quarters into $1,700 in four hours playing the slots at the casino on St. Croix. Anyway, my point is that someone will win the contest, and that that someone may even be tempted to capitalize on his success by selling $200 newsletter subscriptions. If he does reasonably well for a few months, he gets to keep the $200. If he doesn’t, you lose $5,000 or $10,000 trying your hand at this, but you get your $200 subscription fee back(presuming he can make good the guarantee). If you read Pulitzer Prize winning author Jim Stewart’s book Blood Sport, you will find about 60 pages on Hillary’s famous foray into commodities, wherein she turned $1,000 into $100,000 and national ridicule. Guess what? As I have written here before, it turns out that this was not a scheme,as I had assumed, whereby (unbeknownst to Mrs. Clinton) the good trades were put in her account and the bad ones in the account of a friend who was trying to help her. Rather, Jim found, she and a whole bunch of others were investing through a broker who was ‘following’ a big pork belly player in Chicago. The leverage in commodities is very great, so 100-to-1 returns are possible. But leverage works both ways. According to Jim Stewart, not long after Hillary took her chips off the table, luck turned and everyone who was following this guy got wiped out. (Brad really did turn $10 into $1,700. But, as you might expect, he did not leave the casino with quite that much.) Commodities speculation is a zero-sum game. For every dollar won, a dollar is lost. Except that commissions make it less than zero. And taxes, should you win, make the odds worse still. It’s possible that you will have the commodities pros at the international grain trading behemoths, etc., at a disadvantage, with your superior knowledge (well, this guy Larry’s knowledge),even if you can’t quite match their resources. But I wouldn’t bet on it. The real problem with commodities speculation is not that you’ll lose your $5,000 or $10,000 stake. That’s the most likely outcome; but the really scary outcome is that you’ll lose far more. With most speculations, the most you can lose is 100%. With commodities speculation, a 100% loss just scratches the surface of the potential calamity. Tomorrow: Is the Gloom and Doom Overdone? Or Too Rare?
Sending the Grandkids to College, Commutatively January 5, 2001February 17, 2017 ‘I bet on this horse at twenty-to-one. It came in at half-past-four.’ – long-dead British comedian Tommy Cooper George Weber: ‘I am a recently retired aerospace engineer and look forward to supporting my grandchildren when they approach college age –several years away. Should I establish Qualified State Tuition Plan accounts on their behalf, using funds from my IRA? My reading of the QSTP vehicle is that the answer is, no, I should simply retain the funds where they are, manage them prudently, and write checks directly to the college(s) of choice, when the time comes — paying the tax at that time. Yes?’ ☞ Yes. The funds are already growing tax-deferred for you. You may as well keep Uncle Sam’s portion of your money working for you as long as you can. Let’s assume you have $100,000 in your IRA and that your combined federal and state tax rate is 40%. If it continues to grow at 9% per year for another 10 years before being drawn out for college, it will grow to $236,736, less 40% tax, netting $142,042 for the grandkids. But if the money were drawn out now, triggering a$40,000 tax bill (plus penalties if you were not yet 59-1/2), there’d be$60,000 left to reinvest in a QSTP. The plans vary from state to state – see savingforcollege.comfor details – but basically, that $60,000 would grow tax-deferred and then,when you withdrew it for your grandkids education, the appreciation of that$60,000 would be taxed at their (presumably low) rate. But if you did this at all, why not just roll over the money into a Roth IRA instead of a QSTP? That way, the appreciation of your $60,000 would never be taxed (and so you’d have more flexibility using the money for something else if you wanted). Assuming your tax bracket remains the same,you’d come out about even: $100,000 growing for 10 years at 9% and then taxed at 40% comes to the same thing as $60,000 growing for 10 years at 9% and nottaxed at the end. (This is either an astounding coincidence, or else rooted in an elemental arithmetic principle we learned in the seventh grade: multiplication is commutative.) The logic for leaving your IRA alone is even stronger if you assume that, in a combined 40% bracket now (say), you may be in a lowertax bracket by the time you begin withdrawing funds. (Then again, if Congress does cut rates sharply, you might then consider cashing in that IRA, paying the tax, and rolling it into a Roth IRA,before the rates went back up.) The one exception to all this are the ‘pre-paid tuition plans’ some states offer. If you’d like the peace of mind of knowing that, however college tuition may inflate in your state, and however badly the stock market may fare, your kid is paid up,no matter what, you might want to go with such a plan. Most allow at least some flexibility if your grandchild should choose to go to a college out of state. The math might favor your forgoing that peace of mind; but peace of mind has a value of its own. Steffan H. Hagendorf: ‘Contrary to what Less said Tuesday, you can establish a 529 Qualified State Tuition Plan with funds from an UTMA (Uniform Transfers to Minors Act) Account. Holdings within an UTMA can be liquidated and that cash can in fact be used to fund a 529 plan. The 529 plan will receive an UTMA designation ensuring that the beneficiary can not be changed.’ The estimable Less Antman replies: ‘I KNEW ONE OF YOUR READERS WOULD SAY THIS! I KNEW IT, I KNEW IT, I KNEW IT! While it is technically true that you can establish a 529 with UTMA funds, it willthen still be an UTMA, which means the child still becomes the account owner at 18 or 21. Since the purpose of someone trying to convert the UTMA to a 529 is to retain control of the account for a longer time, it fails in the most substantive way. Furthermore, since the 529 can’t be rolled to another child in that case, it fails that benefit as well. There is immediate taxation on the liquidated UTMA funds, and the new earnings will then all be taxed at 15% on withdrawal with no capital gains rate possibilities. In other words, it may be technically a possibility, but the type of 529 created is NOT the type of 529 that anyone should seriously contemplate. That, at least, was the consensus view of the other advisors I consulted. (There is virtually no case law on 529 plans given their recent invention.) ‘People putting money into UTMA accounts and then regretting it have long been looking for ways around the loss of control problem for decades, but the fact is that an UTMA is a trust account, and the provisions turning control over to the child are irrevocable. A 529 rollover won’t prevent that, so such a rollover is only a way to increase taxes and reduce investment options with no benefits. ‘That said, I agree with Steffan when he says [not quoted above] that funding an UTMA/529 combination, when you set things up for your kids,is often the best choice. That is actually what I recommended in Tuesday’s column: using the 529 for direct college costs and establishing a small UTMA for spending money and the lesson in dollar-cost averaging. But that is different from the issue of rolling UTMA funds into a 529 Qualified State Tuition Plan.’ ‘I was getting into my car, and this chap says to me, ‘Can you give me a lift?’ I said, ‘Sure. You look great, the world’s your oyster, go for it.” – still long-dead British comedian Tommy Cooper
Rothschild Started as a Coin Dealer, Too January 4, 2001February 17, 2017 My friend Jim Halperin – who in his spare time knocked off a couple of futuristic cyber best-sellers,just to make it look easy – co-owns HeritageCoins. It’s billed as ‘the world’s largest coin dealer and auctioneer.’ Yet he started a personal coin collection this year for the first time in his 33-year numismatic career. (Like a bartender who finally starts drinking.) Here’s why: 1. Two years ago, America had 2 million coin collectors (down from 6 million in 1980). Today there are 60 million. Thanks to the 50-state quarters — those funny-looking coins you’re starting to see in your pocket change — the number of coin collectors in the U.S. has risen 30-fold. That’s more than 10 times as many collectors as has ever existed in our nation’s history. For the first time in 25 years, you can assemble an interesting and challenging collection of coins just by checking the change you get from the Coke machine. The 50 different designs comprise by far the most diverse array of circulating coins the U.S. has ever produced. Sure, the new collectors are mostly teenage and younger, with limited disposable income – they’re collecting new quarters, after all, not something Caesar minted – but Jim looks on that as a plus. ‘It means prices have not yet risen,’ he says. ‘But prices inevitably will rise within the next 5-10 years, once even a small percentage of these teenagers become well off and begin collecting coins on a more serious scale (just as I currently collect the comic books I most enjoyed reading as a kid, though they now cost real money).’ 2. Coins have underperformed most traditional investments over the past 20 years, during which the collector base shrank from about 5-6 million in 1980 to about 2 million in 1998 before the state quarters were issued. Prices only rose about 20% in 1999, and were flat in 2000. (Gold coins were actually down as much as 25-30%, Jim says, but other coins rose somewhat to makeup for it.) Meanwhile, most other collectibles skyrocketed and coin collecting’s base mushroomed. There are two reasons coins lagged behind, Jim says, both temporary: A lot of people bought generic gold and silver coins, often to the exclusion of other rare coins, in 1998-9 in preparation for a Y2K meltdown, which, of course, did not occur. Many of those buyers dumped these coins back on the wholesale market after the world failed to end, bloating dealer inventories and throwing the supply/demand ratio out of whack. The $100 million S.S. Central America shipwreck hoard,recovered in the mid-1980s, finally cleared the court system and was marketed this past year. That’s a lot of new inventory to dump on the market. And,says Jim, the Harry Bass collection of U.S. gold coins was sold at auction in 1999-2000, sucking an additional $37 million out of the market. This may well be the last of the great old-time collections (mostly assembled prior to 1980)ever sold, and there appear to be no other major auctions of that caliber on the horizon. Jim thinks coin prices will be a lot higher five years from now than they are today. But, he cautions, never buy coins as a pure investment. Coins do tend to grow in value over time, but they produce no income,and are best purchased by those who have some appreciation for their history and beauty, and who have a specific collecting goal. They can also be bought as a hedge, since their prices do not seem to track stock prices at all and may even be counter cyclical to stocks. But even then, coins should comprise no more than about 5-10% of the total portfolio and should be thought of as an insurance policy rather than a core holding, Jim suggests. Don’t order rare coins from mail-order ads or telemarketers, says Jim. Even the reputable rare coin investment retailers often have markups of 35-50% over wholesale, and will generally recommend coins that are easiest for them to buy or that their suppliers want to get rid of, rather than those coins that are likely to increase in value. (Heritage, says Jim, prices most of the rare coins it lists on its website at 8% to 12% over wholesale, and you can often buy them for even less by bidding in its auctions.’More important than that, the very freshest coins in the marketplace — the ones that the serious collectors are looking for — get listed on our website first, before they are ever offered to dealers.’) ‘Learn as much as you can before you buy anything significant,’ Jim advises. ‘Decide on an area that appeals to you and that you are likely to want to learn more about. Read numismatic books (especially A Guide Book of U.S. Coins). Join theAmerican Numismatic Association and read its monthly magazine, The Numismatist. The more you know, the better you will do. ‘If you already have a coin collection and are interested in the best tax strategy for selling, bequeathing or donating it, check out a book we recently published entitled The Rare Coin Estate Handbook. And if you’re a knowledgeable collector who knows the grades of his or her coins, Heritage also has a free online computer program called MyCollection,where you can input a list of your holdings, and the estimated value of each coin in your collection is calculated updated daily based on actual market transactions.’ Thus endeth the plug for my pal Jim. I do not collect coins myself and will not start after writing this column. But I like buying things when they’re at the bottom of a cycle, and I like the notion of tens of millions of new coin collectors, sifting through their change for quarters (Pennsylvania and Delaware quarters already fetch a significant premium over face value in the wholesale market, Jim says) and eventually buoying the whole market. So as between coin collecting and skiing, let’s say – two reasonably expensive avocations – I’d take up coin collecting. Although the folks you meet on the slopes, I’m guessing, are likely to have an even healthier glow than the ones you meet at coin shows.
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.
Drive Safely! December 29, 2000February 17, 2017 Oh wait – this is Friday! I won’t see you til next year! Here’s wishing you a terrific New Year. To see how much things can change in a year, and perhaps to have one of those knowing hindsight chuckles (I’ll admit it, one of my favorite kinds), click here to see the column from December 27, 1999, when ICGE – now $3 – was $200 or so.
Losers December 28, 2000February 17, 2017 J. Bakke: ‘My retirement account is a shambles. It’s all my fault, of course. It holds Apple (down 69%) AT&T (down 58%) and Barnes&Noble.com (down 71% — yeah, I know, this one’s my fault entirely), among others. There are also some diversified funds that have done fine, so I’m not a complete fool. (Thanks for recommending Tweedy Browne in your book, it’s my core IRA holding and has gained slowly but steadily this year.) Also, I had nice gains in Sun, EMC and Oracle, which I took earlier in the year, so it hasn’t been a complete wipeout. ‘There’s obviously no tax advantage to taking the losses. (I took losses in my taxable account already for tax purposes.) I have seen the light, learned my lesson, and will stick to diversified funds, indexes even, in the future. Well, mostly anyhow. ‘So here’s the question. I know I should swallow hard and sell off a lot of these losing positions and put the money where I’d rather have it. But human nature is making it tough. Is there some silver-lining way of looking at this to push me over the edge, eat some of these losses magnanimously and move on?’ ☞ You mean, buy high, sell low? It may be the smart thing to sell AT&T now that it’s down from 61 to 18, but if I were you, I wouldn’t be able to do it, either. I’d hold them all for a while, not least because they may be coming under some year-end tax-selling pressure. Craig: ‘My generous mother gave my brother and I each 200 shares of Broadcom today, for Xmas. Today – my first day of ownership – those shares dropped 14% in one day!!!! It’s horrible, but I couldn’t exactly feel as grateful as I should have, because of today’s result. How horrible of me. But why did the shares have to drop 14% in one effing day!!!’ Craig the next day: ‘I wept to you yesterday how a gift of Broadcom stock went down 14% the day it was given to me. This morning it’s gone up about the same amount it dropped yesterday! (same with IBM stock I own). Watching these vacillating stocks whip up and down makes me feel like a manic-depressive!!!!!!’ ☞ Watching is a very bad way to invest. Figure out whether you want to hold the stock, and why, and then largely forget about it. Otherwise, sell it and invest in something you DO want to hold for the long term. Mark McMillion: ‘If a company’s value is based on the projected stream of dividends (although I do realize that there are other methods of valuation, like hope, for dot-coms), then shouldn’t AT&T’s market cap drop considerably following their 83% dividend cut?’ ☞ Well, first, as you suggest, not everyone spends a lot of time trying to figure out the present value of a company’s future stream of dividends. Second, as you know, the market anticipates. Built in to AT&T’s market cap, down by more than two-thirds in the last few months, was a lot of negative expectation. Finally, the projected stream of dividends goes out many years. AT&T hasn’t necessarily cut all future dividends by 83%. Some may think that, in a year or three, the dividend will be restored. (Others may think AT&T will be acquired by one of the Baby Bells.) John Ebert: ‘Is it too late to sell some of my tech losers (LU, JDSU, AOL, MSFT) for a deduction on my 2000 taxes?’ ☞ Legally, no. But often there is a January bounce, so I wouldn’t necessarily rush to sell ‘at any cost’ to get the tax benefit, as so many are doing these last days of the year. ‘ . . . And do you think these will all be significantly higher 31 days from now when I can buy back in? Should I be buying more of these now instead of thinking about selling?’ ☞ No clue. Why not sell the two with the biggest loss, double up on the other two. Then in 31 days reverse. Unless you’re unlucky, you should roughly net out market effect.