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Q. I would like to put some money aside for my young grandson instead of buying him more toys he doesn't need. Can you suggest any investments that would be an appropriate gift for a child?
A. To start a new tradition of money gifts for birthdays and holidays, I suggest opening an account to which you and others can make additions.
One possibility that looks very promising is the state's new Florida College Investment Plan, which offers investment choices similar to mutual funds. The investment earnings will be tax free if the money is used for qualified higher education expenses. There is a $50 application fee and a minimum contribution of $25. The plan is open to residents of any state. For information, call toll-free 1-800-552-4723 or go to www.florida529plans.com on the Internet. That's also the place to get information on the Florida Prepaid College Plan.
If you like the idea of direct investment in stocks, consider buying your grandson a share of stock and enrolling him in a direct stock purchase program. This can be done directly through many companies (a list is at www.wall-street.com) or by going through a company such as www.sharebuilder.com, which handles small purchases for modest fees. Some grandparents and parents find stock purchases a way to pique a child's interest in investing.
A few mutual fund companies also will accept very small accounts. One that has a special investment program for children is the Monetta Funds (www.monetta.com). You can open an account for a child by signing up for a $25 automatic quarterly investment. For information, call toll-free 1-800-666-3882.
If you want a one-time gift, consider the old standby, a U.S. savings bond. You can buy EE bonds for as little as $25, while inflation-adjusted I bonds start at $50. While it is too late to get an actual bond by Christmas, you can present your grandson with a gift certificate and have the bond mailed to him. Savings bonds are available through banks and online at www.savingsbonds.gov.
Q. My husband has a $116,000 annuity earning 5.45 percent interest and maturing at the end of this year, plus three other investments totaling $56,000. We know very little about investing and are not risk takers. Other than Social Security, this is our only income. We need to draw approximately $12,000 a year. What should we do with this? He is 70 and I am 64.
A. You can get the kind of income you seek if you invest most of the $172,000 in a joint annuity. This type of annuity would make fixed payments as long as at least one of you is alive.
If you want to preserve principal for your heirs and still avoid risk, you will have to settle for less income. Bank certificates of deposit and fixed annuities are safe alternatives, but even the best five-year CDs only pay 4 to 5 percent interest. Some fixed annuities offer higher rates but may guarantee them only for the first year. After that the guarantee drops, but you may still be locked into the investment. Be sure to read the fine print.
Q. I am required to take a withdrawal this year from my individual retirement account. The shares in this fund are currently valued at $31 per share while my cost per share is $71.50. When I take the required withdrawal can I claim a loss on my Schedule D?
Only in rare instances is it possible to deduct a loss from an IRA. Unless your IRA is worth less than the total value of your nondeductible contributions, you can forget about the subject right now.
If you are in that situation, you can realize your loss by closing all your traditional IRAs and withdrawing all the money. Even then, however, your loss will only be considered a miscellaneous itemized deduction, which are deductible only to the extent that they exceed 2 percent of your adjusted gross income.
Online Money Map
Looking for help paying for a college education? FastWeb (www.fastweb.com) is a free scholarship search service designed for high-school students planning for college. The site includes some useful tips on managing credit cards in "A word on responsible credit."
-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.
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