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How to Invest Lump Sum or Small Sums

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Q I'll turn 70 in November, 1997. As a consequence I'll have to take a distribution of my 403(b) (contributory retirement plan) and my Individual Retirement Account (IRA) in 1998.

Are my 403(b) and IRA considered qualified retirement plans? And when I take my distribution in 1998, can I take a lump sum distribution using 10-year income averaging based on the 1986 tax rates?

- B.L., Benicia, Calif.

A According to Gary Schatsky, a fee only financial adviser and attorney in New York, if you receive a qualified lump sum distribution from a company retirement plan or Keogh plan and were born before 1936, your distribution would qualify for 10-year averaging based on 1986 tax rates.

Unfortunately, for purposes of 10-year averaging, neither a 403(b) plan nor an IRA qualify.

Q I recently inherited a substantial sum of money. I would like to invest it in the stock market, but I'm concerned, since market indexes are so high. I am also moving to another state shortly. Should I invest all of the inheritance in the market now?

- A.B., San Francisco

A Many stock market experts say no. According to John Markese, president of the American Association of Individual Investors, in Chicago, a person should use income averaging for sudden inheritances. Invest equal amounts of money over time, such as monthly or quarterly, and perhaps over a year or two. That way you end up buying more shares when the market falls, and fewer shares when prices rise. Keep the surplus cash in a money market fund or bank certificate of deposit. The money will be available if you need it during the move.

Q Our granddaughter is under a year old. We are looking for an appropriate stock investment for her. We plan to have her parents be the custodian of the investment. What should we do?


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