Provo Daily Herald | 2005-08-28 | Page 31

Sunday, August28, 2005 DAILY WERALD THE WALL STREETJOURNALSUNDAE Love & Money / By JeffD. Opdyke Encore / By Kelly Greene e were driving in the car day son, Bae it E eee. & gbcad ag g vi aE Ef REGERES SF fret iatl :ii al i Agzeit shgs LSEE pf? gHi itis ry bike : FIER rill E 3 ciikie rf iite! : gs it a fF E 5 Esk zs zg aEs a in f ial Ht 1i af ; | ile iit[§fitif Ei| HUH i i : ine i f E Z i Ere cba: z ieee ahs ef i te I Hy HELE efHis Rich or Poor; How to Explain It to the Kids Inherited IRAs, Continued Helene Guinther of Sun Lakes, Ariz. “If you think your kids are go- they're rich. It means they spent a Jot of money.” pensive getaway, the big vacation I said something similar to my was a long weekend to Alabama's friends tend to live in bigger homesor drive snazzier cars, then they see themselves as poor, even if their family is substantially better off than much of the population. If they weren't allowed to buy something yesterday but can today, they see themselves as rich. That makes it hard to send any kind of nuanced message about rich and poor to a child. A longtime friend of mine recently bought a house, and money suddenly becamea bit tighter. So when her 6-year-old daughter asked about getting a big-screen TV,myfriend told her that it was too expensive.“Is it because we're poor?” her daughter asked. “I said ‘no,’ but it bothered me,” my friend says. “I think in the need to tell her we need to be frugal, I was sending her the wrong message. She thought we didn't have enough moneyfor anything.” Still, my friend says,“it’s a beaches ora visit to Drew's Mom in Houston. During that time, Drew says, his then-kindergarten-aged daugh- Atthat point you haveto decide how forthright you want to be. For my friend Drew, the big- “was that her family wouldn't be gest challenge,he says,is “resisting that immediate reaction to say, ‘No, we're not poor. You just take too much for granted, and don't realize or aren't thankful for all poor anymore.” The teacher subse- the good things you have.’” He ter had a class project where she had to wish for things. “Oneof the things she wished for,” Drew says, quently mentioned to Colleen that the school and church could offer somefinancial support to ease the family's struggles. Drew and Colleen’s experience illustrates what many parents often don't see when it comes to questions of rich and poor: Kids aren't asking their parents for a monetary answer. They just want parental assurance that the world they knowis secure. I was talking to my friend realizes that this will fall on deaf ears, and that kids inevitably will make judgments based on their sampling of friends. So, when his daughter mentioned the wealth of her friend’s Dad, Drew acknowledged those riches and noted how hard the man worked to get there. “I also mentioned that, while we are notrich cot to him, we had ample earnings to support avery comfortablelifestyle,” Drew says. He added that he and Mom son: “Just because they have a pool doesn’t make them rich. Mommyand I have been talking about maybe getting a poolin our backyard. Does that rich?” “No,” he said. I told him that one day when he unde! money, but that for now all he really needs to know is that his family is richer than sume, but not as rich as others, and that ultimately he'll realize that wealth isn’t always determined by dollar signs. “So,” he concluded, “what makes yourich is probably what's in your heart.” Next time, I'll know what to say. Grace aboutthis issue, and as we “could work much harder and fight were chatting she told methat her 6-year-old son, overhearingherdis- our way up the corporate ladder as Jeff Opdyke covers personal finance a way to higher earnings, but it for The Wall Street Journal. Write to him at [e-mail] cussion, walked upto ask: “Mama, wouldcutinto the amount and qual- adult children that I wish to be equal beneficiaries of my IRA,” writes Ron Zerkle of Naples, Fla. “Do I haveto separate my IRA into three IRAs, each having a differentchild as beneficiary?” Go Your Own Way The short answer is “no.” An IRA with two or more designated beneficiaries can be divided into separate accounts, with each of the new accounts being retitled. Once the accountis split up, each beneficiary can use his or her own life expectancy to take the required withdrawals each year. Patti Ruhland of San Diego asks,“Can each child choose his or her own way ofinheriting” an IRA? In other words,could one child take a lump sum outright, and the others elect to spread withdrawals over their lifetimes? Yes, separating the accounts gives each benefi- ciary autonomy, says Twila Slesnick, a Dublin, Calif., accoun- Barron’s Insight / Robin Goldwyn Blumenthal MarketWatch / By Paul B. Farrell eee idle cash in today's risinginterest-rate environment, the autopilot strategy used by the typical buy-and-holdinvestor falls short. Cash tends to pile up andsit parked and forgotten in low-interest money-market accounts. If your cash account now yields eral tax, and state-specific accounts where Parking Places earnings also qualify for Autopilot investing may not be the best investment state and local income- strategy with idle cash in a rising-interest-rate market. tax exclusions. Pretax Call and ask for more. Some recent* yields include: yields are lower than on taxable money funds, wutuaruxo IML vwvESTHENT veo" but in the higher tax yayquarp eroup brackets, these might be bumpthat up to 3%, you'll earn an hetter for you. Vanguard Prime MMF 4. Take on added risk. Admiral Treas MMF If you're willing to take wy TaxEx MMF That'll buy a lot of back-to-school about ultra-short-term FELUTY MVESTIRENTS just 2%, you're getting just $2,000 a year on $100,000. But if you can extra $1,000—a 50% better return. a little more risk, ask VMMXX $3,000 3.18% WSK 50,000 3.08 WRX 3,000 2.40 : clothes for the kids. And with short-term rates ris- bond funds. With at Cash Res MMF FORK $2,500 3.18% SPGVK ing, nowis a great time to demand least $50,000 to invest, spartan Govt inc you'll boost returns about one percentage Ultm-Shert Bond point moving into Van- CHARLES SCHWAB FUSFK Pence «2,500 3.54 fund: Stich funds vare Stent SMO) meres 278 SWWXK $25,000 3.07 more. Pick up the phone,call your broker, adviser or fund company and apply a little pressure to squeeze higher yields out of your 's ultra-short bond parked cash reserves. Here are a fairly stable. But moni- MMValueAdvantage few strategies to keep in mind: tor iterae Te- YieldPlus UltraShort (Investor) SWYPX 1. Ask for higheryield choices. Most fund companies have a variety of money-market accounts. Fidelity has 22. Parking your money in a government-agency money fund rather than a Treasury money fund mayadda little yield. 2. Review all your You membe! interest . yigigpius UtraShort 8 2,500 rates can gO OWT a ea well as up. Note: Money markets are 7-day average; bond-fund yields are 30-day. 5. Know your institu: as of Aug. 23. Sources: iMoneyNet.com and the three companies. tion. If you have ac- counts at discount brokers—Ameritrade, its soon-to-be-aquired TD don't have much cash and don’t want to make a big move to a new Waterhouse, or E*Trade—keep in brokerage firm or fund company, consider an online or commercial bank. You may be able to get as much as a 4% annual interest rateon an insured six-month certifi- plans together, you'll be able to get higher yields on cash. There are two kinds: accounts where interest is exempt from fed- $100,000 balance. 6. Look farther afield. If you HOW TO CONTACT US Stat of the Week Our address; Gasoline has soared to record prices this summer, but when adjusted for to a higher yield. At Charles Schwab, for example, a $25,000 minimum in the brokerage’s “Advantage” account gets you an extra 0.29% yield over the basic cash account. You mayfind that by moving all your taxable and 401(k) 3. Check out municipal funds. er about 0.4 percentage point with a es in 2005 dollars,through July. $3.00 leserinevenson cate of deposit. Look on the Bankrate.com site for CD opportunities. Even if you decideto stay in money-market mutual funds, you might wantto check out the compe- tition. Try IMoneyNet.com online. ———————________ Paul B.Farrell is a columnist for MarketWatch. You may send email to [e-mail] 2.50 ‘SmartMoney [e-mail] 2.00 Barron's insight: [e-mail] 1.50 1.00 Getting Going—Jonathan Clements [e-mail] 0.50 Encore—Kelly Greene encore@ws).com Readers’ Forum: ihe $57billion acquisition of Gillette by Procter & Gamble $70billion, Gillette of Boston are uniting from Mach3razors positions of strength, with big-name. brands, innovative cultures and strong financial track records. and Duracell batteries. It More Global Muscle ket for beauty and male-grooming “What P&G will do is put Gillette on steroids. Gillette's global footprint will dramatically increase” and its supply chain will grow more efficient, says consumer-products con‘sultant Gary Stibel, chief executive of New England Consulting Group. The merged giant, with annual GASOLINE PRICE y A 000 "80 ‘82 ‘84 '86 "88 '90 '92 '94 ‘96 ‘98 ‘00 '02 04°05 $58 will offer items from P&G's Crest toothpaste and Tide or “see-through” trust, meaning your heirs wouldn't qualify to take stretched-out withdrawals—even though you may have set up the trust in the first to make sure they did just that. If you spell out a lot of conditions that your heirs have to meet,or namea charity as an alternative’ beneficiary, the trust may not qualify. Kelly Greene writes for “Encore,” The Wall Street Journal's quarterly Buide to retirement. Write to her at ‘[e-mail] where in the past year and is up 2% from when the merger was an- ‘2 Will Congress take any action On aics saaine cain tax? H.0.A., Arlington, Va. a This problem is getting so sea vere that we could see major changes within a yearor two.It’s ‘simply too big to ignore. The alter- native minimum tax, or AMT, is a mindnumbingly complex system created decades agoin an effort to Prevent a small number of highincome Americans from avoiding federal income taxes entirely. But it wasn't indexed for inflation, and now it's hitting rapidly growing numbers of middle-income Americans. number of people hit by the AMT will soar from about 3.8 million this year to more than 20 million next year, according to Treasury Depart- Gillette's Soure: Thomson/Baseine will be especially strong in the fastgrowing marproducts. P&G nowcaters largely to women, with Pantene shampoo, Olay face cream and more, while Gillette’s shaving items and Right Guard deodorant are oriented ‘ Bob Millen, co-portfolio manager of the $3 billion Jensen Portfolio Fund, figures P&G shares trade at a 30% to 40% discount to their teal value, based on a form of discounted cash-flow analysis. He has lately been addingto his position. Gillette's 26. Bill Pecoriello, house- hold and personal-care analyst at , Morgan Stanley, thinks the com- bined company should trade at $64 by year end, 16% above the current level. Looking good, indeed. heavily to men. Robin Goldwyn Blumenthal is a found online at www.barrons.com ‘the Treasury Department. So what will Congress do? Forstarters, one strong possibi- = If P&G and Gillette were already united, the share price would amount to just 18 times expected earnings for calendar 2006, well below both P&G's historical multiple of about 21 times earnings and P&G's stock looks cheap. Recently near $55, it has gone no- staff writer for Barron's magazine, am In the lower tax bracket. Should | hold on until 20087 1B., Raleigh, N.C. A: This provisionis still on the 2 books. The capitatgains rate is set to go to zero—but only for ity is that Congress will approve a temporary patchlater this year by preventing the basic AMT exemption from declining next year, as it's scheduled to do under current law. That's not much but would give Congress more time to tackle the issues. ‘Some financial advisers think the the year 2008, and only for inves- ‘AMT problem is getting so big that sions.” On your question about whether to hang on to that stock: mental cure. The AMT’srapid ‘Make up your mind based on growth “will create a favorable envi- whether the stock's prospects are solid. It's impossible to knowif Congress will leave this provision in place or change it. i the odds are improving for a fundaronment for tax reform because mitlions of middle-income Americans will face substantial tax increases tors in the two lowest ordinary tax _ brackets. For details on this and other capitalgains rates, see a publication issued June 27 this year by the Joint Committee on Taxation (www.house.gov/jct/pube05.htmi): “Present Law and Background Infor- mation on Certain Expiring Tax Provi- if the AMT isn’t changed,” says a recent report by Andy Laperriere of ISI Group, a New York research and brokerage firm. Mr. Laperriere says near orfull repeal of the AMT “is likely to be a high priority in a tax bill extending the Bush tax cuts and reforming the tax code that we expect to move through Congress in 2006 or 2007." the committee. But proposals for complete repeal face an uphill struggle in ConGress because the AMT now generates huge amounts of revenue for merger won't go smoothly, but P&G is no stranger to big deals, such as its 1985 purchase of Richardson-Vicks (with Olay and Pantene). Reasonably Priced detergent to Ask Dow Jones/ By Tom Herman resents a formula for a political uptoar, and many senators and congressmen are keenly aware ofthat. Among the senators who support repeal of the AMT for individuals are Senate Finance Committee ‘Chairman Chuck Grassley, an lowa Republican, and Montana Sen. Max Baucus, the ranking Democrat on INFLATION. worldwide Procter & Gamble sales of about 52.week stock pice (PC) (PG), slated to close this fall, is likely to be a match made in heaven—and one thatinvestors haven't even begun to celebrate. In contrast to other big mergers that failed to produce hoped-for benefits, P&G of Cincinnati and ment estimates, Inaction clearly rep- ‘Ask Dow Joties—Tom Herman [e-mail] On Eveof Buying Gillette If Congress does nothing, the inflation it's stil cheaper than in the early 1980s, Here's the price of a gallon of South Brunswick, N.J. 08852 ‘Our e-mail: sundayO3@ws}.com Love & Money—Jeff Opdyke 3.70 SWYSK mind that these accounts work best for people who wantto be in stocks, not passive investors with cash to park. Brokers make more commissions the more you trade. ‘Their idea of managingidle cash is to put it in stocks. But discounters do have money funds. The yield on TD Waterhouse'’s basic money fund is slightly below some rivals. You can boost returns there mayfind that your total meets the higher minimums that entitle you on a trust when income exceeds $9,750, compared with $326,450 for individuals.) Plus,the Internal Revenue Service could decide that the trust doesn't qualify as a “look-through” nounced Jan. 28. Some fear the Squeezing More Yield From Your Cash P&G Looks Underrated henit comes to managing ing to blow it, that’s a reason to Mr.Slott. still on the books? | have a rather large capital gain in one stock and a !f Congress makes changes in QQ tn estate tax, wit they be retroactive to Jan. 1? Arey knows, The estate-tax ‘= outlook remainsblurry. Stay tuned for a Senate vote on estate‘tax repeal next month. Tom Herman's “Tax Report” appears Wednesdays in The Wall ‘Street Journal. Send questions on finances, investments or taxes to: [e-mail] and include your name, address and a daytime telephone number. Questions may be edited; we regret ‘that we cannot answerevery letter.