Basic tax facts about IRAs, insurance, and savings bonds

Q My husband was slightly injured in an auto accident. He was not held legally accountable. He now receives insurance payments. A small part of the proceeds represents compensation for "emotional damage." Do the insurance payments have to be included as income, for tax purposes? What about the proceeds for emotional damage?

S.C., Los Angeles

A According to the "Ernst & Young Tax Guide 2001," insurance payments are not considered income, and thus, not taxed. Damages received for emotional distress related to a physical injury or sickness are also not treated as income.

Q We are late in making a $500 contribution to our granddaughter's education IRA. Can we make the contribution for tax year 2000 up until April 15, as a person can do in funding a regular IRA? We plan on making a double contribution, one for last year and one for this year.

J.M., New York

A Unfortunately, you've missed the deadline for last year, says a spokesman for Vanguard Group (800-662-7447). "Education IRAs have to be funded on a calendar basis" - by Dec. 31 - unlike regular IRAs, which allow contributions to be made up to the tax-filing deadline of the following year (April 16 this year). So you can only make a contribution for calendar year 2001.

Q Some time ago I bought savings bonds for a close relative. Who will pay the tax on the bonds when they are cashed in?

A.R., Seattle

A "The person for whom you purchased the bonds," says a spokeswoman for the US Bureau of Public Debt, in Parkersburg, W.V. (304-480-6112). That assumes that you bought the bonds in his or her name, and that person is entitled to the proceeds, she says.

Q I just received an offer for a credit card that charges no interest for six months. What should I consider in weighing whether to take this card? I try to pay off my cards each month, or carry a very small balance.

F.C., Scotch Plains, N.J.

A Hop on the Internet and check out www.bankrate.com to compare the monthly interest-rate charge and other fees (such as transfer and annual fees) offered by this card against competing cards around the US.

Questions about finances? Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

(c) Copyright 2001. The Christian Science Publishing Society

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