(MONEY Magazine) – Q. My wife and I will be buying our first home -- for $100,000, we hope -- after we return from my military assignment in Europe. She wants to pay all cash from our savings and not take out a mortgage. What are the pitfalls? I will be earning about $42,000 a year, and my wife, who is German, will do secretarial work. We have a 13-year-old daughter. Mark C. Pingley Wurzburg, Germany A. Only people who are 70 years old or who have so much dough that they don't worry much about the future should pay cash for a home, and even they run the risk of outlasting their savings. You and your wife, by contrast, will need a fount of money (not always easy to wrest from paid-up houses) for your daughter's schooling and your own dotage. Besides, mortgage interest is tax deductible. For those reasons, Alan Goldfarb, president of Financial Strategies in Dallas, and Kenneth Klegon, of Financial Management Associates in Lansing, both recommend strongly that you take out a loan. True, lenders may refuse to count your wife's income until she logs a year or so of work in the U.S. But your salary alone will qualify you for an $80,000 mortgage, giving you roughly $6,500 in deductible interest -- enough so that you will be eligible to itemize other write-offs like charitable contributions or state and local income taxes. In the meantime, invest your savings in two or three solid growth mutual funds. For suggestions, see our feature article ''Kiss Your Money Worries Good-Bye in Five Years or Less.''

Q. I keep my stock certificates in a bank safe-deposit box that is less than half a mile from the shore. What difficulties, if any, did victims of hurricanes Hugo and Andrew encounter with papers and money stored in their safe-deposit boxes? Sophia M. Podgorski Fort Lauderdale A. Your bank wasn't in the path of either storm, of course. But institutions that endured the two hurricanes weathered them pretty well. South Carolina National Bank, for example, sealed the vaults of its 40 coastal branches with waterproof putty and duct tape before Hurricane Hugo blew ashore three years ago. Result: The boxes stayed bone-dry even though three of the branches suffered extensive water damage. This year, the Campbell Square branch of the Community Bank of Homestead lost its roof and windows to Andrew but its vault -- and the boxes -- survived unharmed (one bank manager even rode out the tempest in there). Be warned, though: If a still more ferocious storm -- Hurricane Brunnhilde, perhaps -- washes away your valuables, you would be out of luck. Banks do not provide safe-deposit insurance, mainly because they don't know what is in those boxes. So if I were you, I would get my own insurance for jewelry and other such valuables kept at the bank. And I would move my stock certificates to a brokerage house, where they are automatically insured by the Securities Investor Protection Corporation, and let that broker-sponsored agency worry about natural disasters and other acts of God.

Q. My wife and I recently set up a so-called joint revocable inter vivos trust. We fund the trust, serve as its sole trustees and intend to be its beneficiaries as long as either of us is alive. A New York City attorney we talked to called this a naked trust or, in essence, no trust at all. Needless / to say, we are confused. Can you explain what he means? S. Arthur and Paula Dunham Mount Dora, Fla. A. Your confusion comes from jawing with out-of-state lawyers. Estate attorney Richard Breit of Fort Lauderdale points out that some states -- New York is one -- do not recognize trusts whose trustees and beneficiaries are identical. But Arizona, California, Florida and other places cram-packed with retired people do permit such arrangements. And the type of trust you have -- known less formally as a living trust -- usually names the trustees as beneficiaries and vice versa. The idea is to give you control over your assets while you are alive and yet pass them to your heirs without going through probate court after both of you die. Just make sure that the trust does not exceed $600,000 in value -- the maximum amount you can pass on untaxed to your heirs. Otherwise you'll need some elegant estate planning to keep the taxhound from snuffling around your money.

Q. We hosted a German exchange student last year, providing room, board, transportation and even vacations at a cost of about $5,000. We plan to take in a Dutch student this year. The organization that sends us our students says we qualify for a small tax benefit, but I can't find out on what or how much. Do you have the answers? Dale Arbush Montgomery A. I admire your international spirit, and so does Section 170(g) of the tax code, which gives you a break -- though one so slight that it's better defined as a hairline fracture. To wit: If you host a foreign student, you can take a charitable deduction of as much as $50 a month for an out-of-pocket saving of $14 a month in the 28% tax bracket. Moreover, the IRS has wrapped this modest gift in lots of provided that's. The guest must be a full-time elementary or secondary school student who is not related to you, for example; he or she must live in your house at least 15 days a month; you must have a written agreement with the student-import agency; and the purpose of the visit must be education, not fun. Finally, you can lose the write-off if your own kid lives with a foreign family in a reciprocal exchange or if you receive money or gifts to defray routine expenses, even a round of that fabulous Gouda cheese or a hunk of chocolate with hazelnoots from her folks -- I mean volks.

Q. In March 1982, I purchased a single-premium deferred annuity for $30,000. This May I can take out the money -- plus $56,000 in accrued tax-deferred interest -- without a surrender charge. I want to invest it for my six-year- old's education. Should I buy a new annuity or do something entirely different? Richard Olderman Bethesda, Md. A. Gee whiz, annuities are complicated! Since you bought yours before Aug. 14, 1982, you can withdraw your $30,000 principal tax-free; only the interest will be subject to federal, state and local taxes. (Had you invested after that date, you would have to take out the interest first, paying all the above taxes plus a 10% penalty for withdrawal before age 59h.) But Richard Wagener, a planner with Financial First Advisors of Columbia, Md., suggests that you avoid paying taxes altogether -- at least for now -- by exchanging the whole thing for a variable-rate annuity that is invested in mutual-fund-like stock, bond and cash portfolios. You won't give up your right to penalty-free early withdrawal. And so long as you have the self-discipline not to touch the money for at least 10 years or so, the annuity should give you a better return (thanks to its tax-free growth) than, say, pulling out the entire sum today, paying all taxes and then reinvesting it in growth mutual funds.