Posted on: Sunday, October 19, 2003

Go ahead: Test your financial savvy here

By Warren Boroson
Gannett News Service

Which is worse — losing a credit card or losing a video-rental card?

That's one of the questions in a financial quiz in Kiplinger's Personal Finance magazine for October. Most of the questions are tricky — and tough.

The answer to that question happens to be the video-rental card. Reason: Your loss with a credit card is limited by federal law to $50.

But with a rental card, someone can borrow a whole lot of videos and profit from the difference between the rental fees and the cost of the videos.

Here are more questions to test yourself:

Q. At the airport, your connecting flight is canceled because of bad weather. Is the airline required to give you a seat on the next flight, even if it's on a competing airline? Vouchers for a hotel room and meals? Or nothing?

A. Nothing. If a delay is caused by circumstances beyond an airline's control, such as bad weather or labor disputes, it's off the hook.

Q. For a wedding anniversary, you and your spouse spend $5,000 on a trip. You charge it to your credit card. If you pay back the debt at the 2.2 percent minimum payment each month, how long will it take you to pay it off? 13 years? 19 years? 28 years?

A. 28 years. And an additional $7,129.

Q. Your aunt asks you which you would like to inherit when she dies — her stocks worth $1 million or her IRA worth $1.2 million. Which should you choose?

A. The stocks, which will come to you tax-free. With a traditional IRA, however, and not a Roth, you'd owe taxes on the full amount.

Q. At what age can you withdraw money from a traditional IRA without incurring any penalty? 59›? 65? Any age?

A. Any age. But you must take the money in roughly equal payments based on the amount in the account and your life expectancy — as an annuity, in other words. You must stick with this schedule for at least five years or until you're at least 59&Mac253;.

Q: Your spouse of 40 years died a few years ago, and now you want to marry again. But someone tells you that by marrying again, you will forfeit Social Security survivor's benefits based on your late spouse's rich earnings history. True or false?

A. False. Widows and widowers 60 and older may remarry and still collect benefits on their late spouse's record.

Q. You still have $1,000 in your healthcare flexible spending account as the end of the year approaches. To use up the amount, should you have Botox injections? Or buy eyeglasses and contact lenses?

A. Go to your eye doctor. Botox injections and other cosmetic procedures aren't covered by reimbursement accounts.

Q. You just won the lottery, with a jackpot of $100 million. Someone else also has the winning numbers. If you choose to receive cash instead of an annuity, how big will your check be at the awards ceremony? $50 million? $35 million? $20 million?

A. $20 million. First, the award is split between you and the other winner. Then the amount is reduced because you're not taking a 30-year annuity — which brings the award down to $27 million. Next, Uncle Sam takes 25 percent of what's left. So we're down to $20 million, and we're not even considering state withholding taxes.

Q. A year and a half into your four-year car lease, you want to lease a different car. If you return the car early, (a) you must pay the early-termination penalty spelled out in the contract, or (b) you must make the remaining 30 monthly payments, along with the early-termination penalty.

A. (b) Most lease contracts require you to make all the payments, even if you return the car early.