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YOUR MONEY | MONEY TALK / CARLA LAZZARESCHI

Don't Feel Pressured to Take Company's Stock Buyout Offer; Weigh Your Options

June 09, 1996|CARLA LAZZARESCHI

Q. I own about 25 shares of Baxter International, a well-known national company whose stock has been rising in recent years. It pays minimal dividends, but I don't care. The shares were a gift from my parents years ago, and I had planned to hold on to them until I really needed the money. But now the company has offered to buy back the stock of owners holding fewer than 100 shares. The price seems fair. It will be the highest daily closing price between May 20, 1996, and June 14, 1996. There will be no commission charged on the sale, only a processing fee of 50 cents per share, up to a maximum of $20. Should I accept the offer?

--B.B.C.

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A. Your decision whether to accept the buyback offer should be based on several factors, not the least of which is whether you could put the $1,000 or so you would receive from the sale to better use, either in another investment or the purchase of some needed item or service. Or perhaps the $1,000 is already invested in a very good place: Baxter International.

Clearly Baxter is anxious to clear its books of small investors because of the relatively high costs of servicing these tiny accounts. To achieve this, they are making investors like you an attractive offer: a purchase price that today is about halfway between Baxter's 52-week high and low trading levels, and a sales transaction fee substantially below that charged by even the least expensive of the discount brokerages. The main advantage to accepting the deal may well be saving that fee.

But don't feel that you must sell just because you've received an offer. It is an offer you can refuse, especially if you believe that Baxter shares are likely to do well in the future. If, however, you don't have high expectations for the stock or had been wondering where you could scare up some extra cash for another investment or purchase, this may be just the deal for you. Remember, though, that any profit you realize from the sale will be subject to income taxes--in most cases, a maximum 28% capital-gains rate.

Type of Inherited IRA Dictates Heirs' Use

Q. I have inherited money as a beneficiary of my uncle's individual retirement account. I am age 40. If I want to take this money out and spend it, will I face any penalties or tax obligations?

--C.G.

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A. An inheritor of an IRA who is not the spouse of the deceased is not entitled to treat the funds as his or her own tax-deferred account by either making additional contributions to it or by transferring the funds to another IRA. Instead, the heir must begin taking distributions from the account.

However, how those distributions are taken depends on whether the deceased was taking mandatory distributions from the account and, if so, what method of disbursement was being used. If the deceased was over age 70 1/2 and taking mandatory distributions, the heir generally must receive distributions at least as rapidly as the owner was receiving them. If the deceased died before mandatory distributions began, the plan may give the heir the choice of withdrawing the funds over his or her life expectancy or over the five years following the owner's death. Some plans will say which method is to be used; others allow the owner to choose it.

Distributions of pretax contributions to this account are subject to ordinary income taxes. However, any disbursements a beneficiary receives before age 59 1/2 are not subject to the 10% early-withdrawal penalty normally associated with IRAs.

Getting Social Security Benefits of Ex-Spouse

Q. I am a divorced woman whose ex-husband has died. We were married for 15 years. At what age may I begin collecting on his Social Security?

--J.D.P.

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A. A divorced spouse is entitled to receive Social Security benefits accumulated by her ex-spouse if they had been married at least 10 years.

If the ex-spouse is dead, you may begin collecting benefits at age 60, or as early as age 50 if you are disabled. However, your monthly payments will be just 71.5% of what the wage earner was entitled to receive. The percentage increases until reaching the full 100% if the ex-spouse waits until age 65 to begin drawing benefits. (If the deceased ex-spouse started collecting benefits at age 62, the amount the surviving ex-spouse is entitled to receive is pegged to the amount the recipient had been getting at the time of death.)

You didn't ask, but readers will surely want to know the rules for collecting on an ex-spouse's account when the wage earner is still alive. Under these circumstances, the wage earner must either be drawing benefits, or the couple must have been divorced at least two years and the wage earner must be at least 62.

The applicant must be at least 62 to begin receive benefits, whether able-bodied or disabled. At that age, you are entitled to receive 37.5% of the wage earner's benefits. If you wait until 65 to claim benefits, the payment is 50% of the wage earner's benefits.

Carla Lazzareschi cannot answer inquiries individually but will respond in this column to financial questions of general interest. Send e-mail to carla.lazzareschi@latimes.com

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