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I live in a reasonably small house that was probably worth a bit more than $600,000 at the market's peak and is worth maybe $550,000 now. But my home-owners insurer says I need only $454,000 in replacement coverage. Can the insurance value of my house really be that much less than its market value?
Andy Sprung, South Orange, N.J.
A home's market value and insurance value are two different things. Home-owners insurance pays to rebuild your house; you still own the land even if the building is destroyed. If you live in an area with valuable land, it can cost a lot less to rebuild than to buy.
That's my situation. I live in a row house just down the street from the Capitol in Washington, D.C., and the location of my little plot adds a lot to the home's value. My insurer calculated my rebuilding cost to be much less than the market value. But just to be sure, I bought an endorsement that adds as much as 25% to the insured amount if rebuilding costs end up higher than expected. The endorsement cost me $160 per year, which is about the same amount I saved by boosting my deductible from $500 to $1,000.
The opposite may also be true. If you live in an area where land is cheap or the housing market has tanked, it could cost more to rebuild your house than to buy it -- especially if your home has a lot of special features, high-end materials and expensive architectural details. It's also important to let your insurer know if you've added on or made any major upgrades, which can boost rebuilding costs.
To estimate your cost of rebuilding, go to www.accucoverage.com, which is run by the company that provides rebuilding-price estimates to the insurance industry. For $7.95 you can get an immediate estimate of your home's insurance value. If that number is very different from your insurer's estimate, it might be worthwhile to get an appraisal from a local builder or appraiser.
Buying Dodge & Cox.
I have a Roth IRA with Fidelity Investments and would like to know if I can invest in the newly reopened Dodge & Cox Stock with money from my Fidelity account.
Tina Bastien, Dayton
It's a good news-bad news story. Yes, you can buy Dodge & Cox Stock (or any of the other D&C funds) if you have a Fidelity brokerage account. But you'll have to pay a $75 transaction fee to purchase the fund, no matter how much you're investing (there's no charge for selling). If you invest the minimum $2,500, that's 3% of principal. If you invest $50,000, that's 0.15% of principal.
Dodge & Cox doesn't participate in brokerage firms' no-transaction-fee programs because its fees are so low. Funds usually pay brokers 0.25% to 0.35% of their assets to participate in these arrangements. With a low management fee of 0.50% a year (and low overall expenses of 0.52%), Dodge & Cox would either have to surrender at least half of its management fee or tack on a 12b-1 fee (for marketing expenses) to participate in NTF programs.
Can I open an HSA?
I am 60 and retired with income from investments and pensions but no earned income. Would I qualify for a health savings account if I took out high-deductible health insurance?
E. Catman; Clearwater, Fla.
Yes, and it's a good idea. You do not need earned income to open an HSA or to take advantage of the tax deduction for contributions to an HSA. To qualify, you do need a health-insurance policy with a deductible of at least $1,100 for individual coverage or $2,200 for families. In 2008, your contributions are deductible up to $2,900 for an individual and up to $5,800 for a family.
The money will accumulate tax-deferred, and you can use it for medical expenses in any year tax-free. After you sign up for Medicare at age 65, you may no longer contribute to an HSA, but you can use the HSA money for anything without penalty. However, it's still better to reserve the account for out-of-pocket medical expenses, such as Medicare co-payments, deductibles and premiums, and to pay a portion of the premiums for qualified long-term-care insurance.
401(k) distributions.
Do the required-distribution rules apply to 401(k) accounts as well as IRAs? And do I calculate my minimum withdrawal based on the total year-end balance in all my retirement accounts?
Amelia Shea; Ridgewood, N.J.
In general, the required-minimum-distribution rules apply to both kinds of accounts, but rules vary on how you calculate the minimum withdrawal for IRAs and 401(k)s. And there's another difference: You must start taking IRA withdrawals by April 1 of the year after you turn 70, whether or not you are retired. However, if you're still working, you don't have to begin taking distributions from a 401(k).
To calculate your minimum IRA distribution, add up the balances in all of your accounts, including traditional IRAs, SEPs and SIMPLE IRAs (but not Roth IRAs), says Ed Slott, author of Your Complete Retirement Planning Road Map. Then divide the total by the IRS's life expectancy for someone your age (find the number in IRS Publication 590, or use our calculator. You can withdraw the money from any one of your traditional IRAs or a combination of accounts.
Calculate your required minimum distribution from each 401(k) separately -- and then withdraw the required amount from each account. Use the same life-expectancy figures as you would with an IRA.
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