Q&A

Where to 'tie up' $10,000 Q. I am 18 years old and have $15,000 that I need to invest. I need to keep some of this available for college but could tie up $10,000. What is my best investment?

You don't say how long you could ''tie up'' that $10,000. Do you mean two years, one year, six months, or 30 days? If you are talking about a longer term, you might consider a certificate of deposit from a bank or thrift. Just be sure the bank gives you a rate based on ''effective yield,'' with the most frequent compounding of interest you can find.

Right now, you could probably do just about as well putting the entire $15, 000 in a money market mutual fund. These funds are earning about 10 percent now, and the money is highly ''liquid,'' meaning you can make withdrawals very easily , by writing a check, for example.

You do not need to bother with tax-free investments, since your tax bracket is probably so low you'll get to keep almost all the CD or money fund interest.

Whole life insurance dividends

Q. I have a whole life insurance policy and am having difficulty deciding which dividend option to select. I have no need for the current income, which would be provided by a direct yearly payment to me. Would more retirement income be provided by (1) having the company use my dividends to purchase additional paid-up insurance, (2) leave the dividends with the company to accumulate, or (3 ) receive the dividends and invest them myself? Present dividend payments would be small, since this is only the second year of the policy.

There are three things we don't know about you that could affect your decision, says William Wilde, vice-president and insurance product manager at Merrill Lynch. First, your age, to determine life expectancy as viewed by the insurance company. Second, your tax bracket, to see how much tax you might pay on the interest. Third, the size of your policy, to know how much of a dividend it will generate each year.

Given these qualifications, Mr. Wilde says, in most cases you will probably get a better deal by using dividends to purchase additional insurance. For one thing, this added insurance can also produce more dividends which can buy more insurance, sort of a legal pyramid. Also, if you do need some cash from the policy, you can borrow against it, usually at very favorable - and tax-deductible - interest rates. In your case, you'll have to wait until the policy builds up more cash value.

Mr. Wilde also recommends you go to the agent who sold you the policy in the first place. Have that agent show you the financial outcome of the various options.

What to do with half a million

Q. I have had an offer for my stock in a closely-held corporation. I have owned this share of the business for about 20 years and the offer is for $500, 000. I can take all cash, an annuity made out to me, or have it payable over a 10-year period in payments of $50,000 per year. Which seems the best choice?

The first thing you can know is that this money will qualify for long-term capital gains treatment, says Jay Rabinowitz, vice- president and manager of financial planning at Merrill Lynch, Pierce, Fenner & Smith Inc. This means you will not lose more than 20 percent of it to federal taxes. So the choice is whether to take what is now $400,000 and not have to worry about any more taxes on this money, or defer the tax until a later date.

''You cannot avoid this tax,'' he said. ''You can only defer it.'' While you're deferring, however, the entire $500,000 can be earning interest. You will have to pay tax on the interest this money earns, however, and some of the gains may be the short-term, higher-rate variety.

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