Personal Finance Q & A

Inside scoop can help assess stocks

Q How important is insider trading in assessing the merits of a stock?

- B.K., Queens, New York

AIt can be very important, especially when insiders buy shares.

Insider trading happens when company managers or directors buy or sell shares in their own firm. Charles Carlson, author of "Chuck Carlson's 60-Second Investor," says that a sale may be based on personal factors, such as putting a child through college. (Of course, if lots of insiders are selling, that's an important sign and a negative one.)

But if a company honcho buys shares, that may indicate well-informed optimism about the company, Mr. Carlson says.

By law, these trades must be reported to the Securities and Exchange Commission. The Wall Street Journal lists major insider transactions each Wednesday.

Q A 77-year-old converts to a Roth IRA to get a four-year tax break. He then dies in 1 to 3 years. Are the remaining taxes due?

- B.L., via e-mail

A"The tax is still due, but who pays depends on the beneficiary," says Ed Slott, a principal in the accounting firm of E. Slott & Company in Rockville Centre, N.Y.

If a spouse is the beneficiary, he or she can roll over the account to their name and continue to pay the tax over four years.

If the beneficiary is a non-spouse, the tax must be paid by the 77-year-old's estate.

"You heard that right," laughs Mr. Slott. "Say the 77-year-old passes away Jan. 1, 1999. The remaining income from the IRA would have to be included in the 77-year-old's last tax filing, which would be due for the 1999 tax year."

Under Roth IRA rules, if you convert a regular IRA to a Roth account, you can spread the earned income over four years. Each amount is taxed as ordinary income. But to get the benefit, the conversion must be made by Dec. 31, 1998.

Q I've been incarcerated for 15 years, but before that was a legal secretary. When I'm released I plan to invest in Microsoft. I also like the Vanguard 500 Index fund, but I'm concerned about the $3,000 minimum. Is this a good plan?

- M.A., Wards Island, N.Y.

AMicrosoft and other high-tech firms are held in a number of mutual funds, including the Vanguard 500 Index fund.

If you ask, fund companies will tell you which of their funds hold Microsoft.

Incidentally, T. Rowe Price (800-225-5132) offers plans that allow you to open a mutual-fund account for as little as $50 a month.

Questions about finances? Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com