Q: In a recent column you mentioned that one of the best perks shareholders can receive from their company is the right to reinvest the dividends they get without paying broker's fees. Some companies, you said, even discount their stock for their shareholders. Can you tell me what companies offer this? --R.Q.
A: More than 1,000 publicly traded companies offer dividend reinvestment plans to their shareholders, a service that has proven immensely popular with small investors looking for quick, easy and inexpensive ways of putting their dividends to work for them.
About 70% of the reinvestment plans charge no service fees to shareholders reinvesting their dividends, and about 15% of the the plans offer discounts on the shares purchased with reinvested dividends. Further, nearly half of the companies allow shareholders to make cash purchases of additional shares as well as reinvest their dividends.
For a full listing of all the companies offering dividend reinvestment plans, as well as a detailing of all those offering discounts and optional cash purchases, consult the "Directory of Companies Offering Dividend Reinvestment Plans." This book may be available in your local library or from your stockbroker. Or you may purchase it directly from its publisher, Evergreen Enterprises, P.O. Box 763, Laurel, Md. 20725-0763. The price is $28.95 plus $2 postage and handling.
"Free Lunch on Wall Street" by Charles Carlson (published by McGraw-Hill), lists more than 400 companies offering dividend reinvestment plans and other free services for their shareholders. The book costs $14.95 and should be available in bookstores shortly.
IRS Allows No Tax Loss for IRA Shares
Q: I own 500 shares of stock in my individual retirement account. I paid $15 per share and they are now worth about $7 each. May I transfer the shares out of my IRA, sell them and deduct the loss? -- S.T.A.
A: This is not a winning plan. To begin with, any distribution from an IRA is taxable. You could also be subject to a 10% penalty if you withdraw IRA funds prior to turning age 59 1/2.
Taxpayers have no way of deducting losses suffered by their IRA investments. And Uncle Sam wants to keep it that way. Remember, most IRA accounts contain money contributed on a pretax basis. Why should Uncle Sam give tax write-offs for losses on investments made with money that hasn't yet been taxed?
Your experience underscores why IRAs should be placed in only the safest and most secure investments.
What Do Foreign Firm Initials Stand for?
Q: I often see the initials PLC after the name of a British company. What do they stand for? Also, German companies have the initials AG after their names. What do those mean? -- A.P.R .
A: The initials PLC stand for "public limited company," a type of business registration in Britain. The initials AG stand for Aktiengesellschaft, which means "joint stock company," a registration used in Germany, Austria, Switzerland and Liechtenstein. Both registrations are similar to the "Inc." designation commonly used in the United States.
IRA Owner Can Pick Account Withdrawals
Q: I have a diversified IRA portfolio and must begin taking mandatory disbursements this year. How do I handle these withdrawals? May I pick and choose the accounts, or must I take an even amount from each? Is these some sort of general rule I should follow in selecting the accounts that I tap? -- C.R.T.
A: You may make withdrawals from whatever account or combination of accounts you want, provided that you take the minimum required distribution.
The minimum withdrawal should be calculated on the total in all your IRAs. You simply take the distribution from the account of your choice and then notify the trustees of your other accounts of what you are doing.
This final step is important because these account trustees could review your account activity and determine that you had not made the proper withdrawals and force you into a lengthy discussion. Worse yet, they could just calculate the minimum required withdrawal and send you a check for it. Untangling all this would be a pain.
Which accounts you select to tap is your decision. Obviously, an account that has not yet reached maturity should be left alone if at all possible. Otherwise, you might select a poorly performing account, an account paying the lowest rate of interest or an account whose performance is either likely to stagnate or worsen over time.
For more information about IRA withdrawals, consult publication No. 590 from the Internal Revenue Service. To order this pamphlet, simply call 1-800-TAX-FORM.
Home Seller Must Buy Replacement in 2 Years
Q: My job is transferring me to Europe and I will be forced to sell my home here. How much time do I have to reinvest any profits I realize from the sale? Can I wait until I am transferred back to the United States in five years? --G.W .
A: You have two years from the time you sell your home to purchase a replacement principal residence. The period could stretch backward to include the 24 months prior to the sale or forward to encompass the two years following the sale; the government doesn't care which you choose. However, what's important to you is the fact that the clock begins ticking the day you sell your home. Your moving abroad doesn't matter to Uncle Sam. Any home you purchase in a foreign country will count as a replacement residence.
NOTE: An item in the Sept. 12 column should have mentioned the Fidelity group of mutual funds as among those not charging a commission to invest in California municipal bonds.