PF QUESTIONS. A selection of responses to readers' financial questions
Q:Earlier this year, I took my money out of my individual retirement account and started another within the 60-day time limit. Now I'm about to receive a pension rollover and I've been told I can put it in my IRA. I thought the tax law only allowed one rollover per year. A:It's true that you only get one 60-day rollover per year, if you're moving the money from one IRA to another. But that doesn't apply to a lump sum distribution from a qualified employee plan, nor does it apply to transfers from one IRA custodian to another. When this happens, you don't actually have possession of the money at any time, but the assets are automatically moved from the first custodian, like a bank or brokerage, to the second, like a mutual fund or insurance company. Usually, the new custodian will be more than happy to supply the paper work needed to make the switch. Q:There's been a lot of talk lately about closed-end funds. Some of them, especially those that invest in Asian countries like Korea and Taiwan, seem to be doing very well. My broker called recently to recommend a new closed-end fund. Is this a good time to be buying one? A:You've obviously been following the closed-end funds, because you're right: country-specific funds, like the Taiwan Fund and the Korea Fund, have done very well indeed. In the first seven months of this year, the Taiwan Fund's price was up more than 79 percent, while the Korea Fund was ahead 45 percent.
Closed-end funds have a limited number of shares which are traded on stock exchanges, with supply and demand determining the price. With an open-end fund, new shares are created every time new money comes in.
Many fund managers prefer handling closed-end funds, because they can work with a fixed amount of money and don't have to worry about constantly changing inflows of cash and redemptions.
Your broker, however, is not helping you by suggesting a new closed-end fund. In most of these funds, the initial offering price includes commissions of 6 to 8 percent, which means they trade for more than the value of the stocks in their portfolios. A few weeks or months later, though, the funds start selling at a discount. This is when you want to buy. Then when you sell, your gain may include the higher price of the fund and the possibility of a narrower discount.
Q:Lately, I've been receiving a lot of letters from gasoline companies asking me to sign up for their premium credit cards. Some of these cards give discounts on hotels and plane tickets, travel insurance, travel agent services, and free MasterCard or Visa credit cards. But they cost $20 to $30 to get one. Are they worth it? A:They may be worth it, but they may also duplicate a service you already have with another card or travel club. The American Automobile Association, for example, already includes many of these services in its membership fee, plus towing, starting a dead battery, free traveler's checks, and trip information. Other auto clubs, including those sponsored by oil companies like Amoco and Mobil, have similar privileges.
Some credit and charge cards, like American Express and Diners Club, also have some of these services, so if you have one of these cards, the newer special gasoline card may not be worth getting.
As for free travel services, travel agency services are free anyway (the airlines, hotels, and resorts pay them a commission), so this is certainly not something worth touting.
Conclusion: If you have no other credit cards, don't belong to any auto club, and aren't conveniently located near a travel agent, these cards may be worthwhile. Otherwise, your regular gas credit card will be all you'll need from these companies.
If you have a question, please send it to: Personal Finance Questions, The Christian Science Monitor, One Norway St., Boston, MA 02115. Questions should be brief and of interest to as many readers as possible. We'll answer as many questions here as we can, but we cannot answer letters individually. Cover illustration: Susan B. Tyner