A: Zero Coupon bonds are issued at a substantial discount to maturity value and have no periodic interest payments. Instead, they reach fullface value at maturity, which is equal to the principal invested plus interest earned, compounded semi-annually at the original interest rate.

Today, a variety of zero coupon bonds are available to meet investors’ needs and investment objectives. They are debt securities representingownership of future interest or principal payments. They are issued as U.S. treasury notes or bonds, corporate bonds or municipal bonds, and areavailable in various maturities. You may select maturities which willcoincide with your future financial needs.

One benefit to zero coupon bonds is the lack of reinvestment risk. Theyield at which the security is purchased is the yield at which the security compounds or grows to maturity value.

Q: What is a qualified distribution?

A: A qualified distribution is money paid to you by a qualified retirement plan. Such plans include 401(k), thrift, qualified stock purchase oremployee stock option plans (ESOP’s), 403(b), profit sharing and money purchase plans. You can receive a distribution for any number of reasons,such as retirement, termination of your company’s retirement plan, termination of employment, disability or upon reaching age 59 1/2.

Q: Am I required to “rollover” my entire distribution?

A: No. You can rollover as much or as little as you want. The portion you donot rollover is subject to taxation and may also be subject to penalties for premature withdrawal.

Q: When must I begin taking withdrawals from my Rollover IRA?

A: You must take minimum withdrawals each year starting April 1 of the year following the year you reach 70 1/2 or face a 50 percent penalty on the amount you were required to withdraw.

Q: How are withdrawals from a Rollover IRA treated for tax purposes?

A: Qualified distributions are taxed at ordinary income tax rates in the year they are received. Distributions prior to age 59 1/2 may be subjectto a 10 percent early withdrawal penalty.

Q: What happens to the money in my rollover IRA in the event of death?

A: The entire amount in a Rollover IRA at the time of the holder’s death is included in the gross estate. As a result of the Taxpayer Relief Act of1997, the Rollover IRA is no longer subject to excess retirement accumulation penalties.

If you have any questions that you would like answered in this column, please write me c/o Alan S. Moore, L’Observateur, PO Box 1010, LaPlace,LA 70069.

(Alan S. Moore is a financial advisor in the New Orleans office of LeggMason Wood Walker, Inc., a diversified financial services and securitiesbrokerage firm that is a member of the New York Stock Exchange and SIPC.)

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