Thursday’s need-to-know money news

605x340xdollar-bills-2015-Dollarphotoclub_67129525.jpg.pagespeed.ic.0DZosyt27WToday’s top story: 3 financial changes you need to know about for 2015. Also in the news: What not to do if you inherit money, how to cash in on uncommon tax breaks, and how visualization can help you manage your finances.

3 Changes That Could Affect Your Financial Life in 2015
Changes to Social Security and retirement savings are on the way.

5 Things Not to Do If You Inherit Money
Don’t quit your day job.

Cash in on uncommon charitable tax breaks
Deductions you may not know about.

How Motivational Images Can Boost Your Finances
Using visualization can keep you in check.

Create Your Budget with Long-Term Life Goals in Mind
Focus on the bigger picture.

January tune-up: Frequent flier programs

Zemanta Related Posts ThumbnailBig recent changes in frequent traveler programs mean that it’s time to rethink your loyalties.

Delta just switched to a frequent flier program that rewards customers based on amounts spent, rather than miles flown. United plans to do the same starting March 1. American will continue to reward based on miles flown, but once its merger with US Airways is completed most fliers will have to pay or use points for upgrades.

If you’re an elite frequent flier who spends a ton on tickets (or whose company spends tons on your behalf), you might be content to stay put. Most other travelers, though, should at least review other options if they’ve been trying to build miles in those programs.

It still makes sense to concentrate most of your business with one airline so you build up miles faster. If it’s hard for you to do that, then consider a frequent traveler program that allows you to more flexible by:

  • Having an extensive network of partners (like Alaska Airlines, which partners with both Delta and American and that has at least one partner in every airline alliance)
  • Using a rewards credit card that allows you to use points in different programs (like American Express’ Member Rewards, which lets you transfer points to Delta, Continental, Virgin Atlantic and British Airways, among others) or that has rewards that can be used like cash for tickets (such as Capital One’s Venture, with its “purchase eraser” feature for travel costs).

When you’re thinking about what loyalty programs to use, sometimes it helps to work backward starting from where you want to go. If you want free flights to Hawaii, for example, American and Hawaiian Airlines are two good options, at least from the West Coast. You could rack up miles on American itself and/or use the American-branded credit card, or apply for a new British Airways card to get the start-up bonus (currently 50,000 points after spending $2,000 in the first three months) and transfer those points to American. Or you could concentrate your flying on JetBlue, which has a relationship with Hawaiian, and your spending on the JetBlue American Express card.

If you don’t have a specific goal but fly mostly domestically in coach seats, consider JetBlue, Southwest and Virgin Atlantic, which typically get high marks from travelers for relative comfort and amenities. All three base rewards on dollars spent, but they don’t have the blackout dates and other restrictions that can make redeeming rewards hard in other airline programs. If a seat doesn’t already have somebody in it, in other words, you can book it with rewards.

Another tip: check in occasionally with frequent flier blogs

While cars no longer require traditional tune-ups, your finances still do. This month I’ll be reviewing some areas of your money that deserve some extra scrutiny and offering suggestions for the best moves now. Stay tuned for more posts–and to make sure you don’t miss any, you can sign up for my newsletter using the link on my home page.

 

 

Wednesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: A month-by-month guide to staying on financial track. Also in the news: How to avoid making a big financial mistake, why you should consider a “money diet”, and how to simplify your 2015 finances.

A month-by-month guide to staying on financial track in 2015
Taking it one month at a time.

Don’t Make This Big Personal Finance Mistake
Why not having a credit card could do more harm than good.

Spending Hangover? Time For A Financial Cleanse
Clearing the financial fog.

Consider a Month-Long “Money Diet” to See How Savings Add Up
No cheating.

5 Ways to Simplify Your Finances in 2015
How to make things easier.

Tuesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: How to choose your first credit card. Also in the news: Creating a secret financial goal number, unnecessary purchases that are killing your budget, and how to decide between a bank or a credit union.

You’re Finally Getting Your First Credit Card: How to Choose
Finding the card that best suits your needs.

Create a “Secret Number” to Make Your Financial Goal More Specific
Having a personalized number will help keep your goal in sight.

10 Unnecessary Purchases That Are Eating Up Your Budget
Small everyday purchases can add up to big bucks.

The Pros and Cons of a Credit Union Versus a Bank
Which one is right for you?

5 New Year’s Resolutions to Save on Taxes
How to keep more money in your pocket instead of the government’s.

Monday’s need-to-know money news

fraud, scam, theftToday’s top story: How to make 2015 your best financial year. Also in the news: Avoiding tax scams, why this tax season could be a nightmare, and how to make sure your retirement funds last as long as you do.

5 Tips for Making 2015 Your Best Financial Year
Resolutions for your wallet.

3 Common Tax Scams and How to Avoid Them
Tax season is officially under way.

‘Miserable’ tax season could be worst in years
And it could be an ugly one.

6 ways to make your retirement funds live longer
How not to outlive your retirement savings.

4 tips for catching up on retirement savings
These tips will help you do that.

Q&A: Terminating private mortgage insurance

Dear Liz: I bought my first home about a year ago. Because I had very little money for the down payment, I have to pay private mortgage insurance, which is a whopping $385 each month. My burning question about this is: How can I get rid of it? There must be a way to pay the loan quicker or pay more each month or something to make it go away.

Answer: Mortgage insurance protects the lender in case you default on your loan. Since loans with small down payments have a higher risk of default, mortgage insurance is typically required until your balance falls to 80% of the original value of your home. At that point, you can request in writing that the mortgage insurance be canceled. If you don’t make the request, the lender is still typically required to terminate PMI when your balance reaches 78% of the home’s original value.

To speed that day, you can pay down your principal, but do it the right way. Call your mortgage servicer and ask how to be sure the extra money you submit is reducing your mortgage balance. Otherwise, your extra money may just be applied to the next month’s payment, which won’t help reduce your balance much.

Q&A: Paying a deceased person’s debts

Dear Liz: When I read the letter from the woman about her mother’s debts, it brought back my situation with my brother and mom. My brother was trustee to my mother’s living will and told her she had no money. At 90, she became worried and wanted to cut back on the care she needed. My brother had the same attitude as the woman who wrote you that her mother’s property was not an asset for her to use but something to be hoarded for the heirs.

Answer: That’s not the situation the daughter described. She was asking whether she and her sister were responsible for her mother’s debts. They are not. The mother’s estate would be responsible, and her estate would include her home. If the estate’s assets aren’t sufficient to pay all the bills, however, the creditors wouldn’t be able to come after the daughters. Still, some collection agencies have been known to contact survivors, telling them they have a “moral obligation” to pay the dead person’s debts.

Q&A: Follow up on the Windfall Elimination Provision

Dear Liz: You recently addressed the issue of the Windfall Elimination Provision, which reduces Social Security benefits for people who paid into Social Security but who also get a pension from an employer that does not pay into the system. My wife taught for nearly 40 years. Neither she nor her employer contributed to Social Security. As a result she falls under the WEP. This also, however, affects her spousal benefits under my Social Security record. So, because of the WEP, any spousal benefits she would be entitled to are essentially zeroed out since she receives a pension. If she had never worked (thereby not contributing to Social Security), she would be entitled to her entire spousal benefit. That doesn’t seem reasonable to me.

Answer: What you’re referring to is a different provision, the Government Pension Offset. People who receive a pension from a federal, state or local government job that didn’t pay into Social Security can have their Social Security spousal or survivor benefit wiped out by the GPO. By contrast, the Windfall Elimination Provision typically leaves at least half of the worker’s Social Security benefit intact.

The rationale for the GPO goes like this: Spousal and survivor benefits are considered dependent’s benefits. The law has always required that these benefits be offset dollar for dollar by the amount of the person’s own retirement benefit. So if your wife had earned a $1,000 monthly Social Security benefit based on her own work record but a $500 spousal benefit based on yours, she would not receive both. Her own benefit would completely offset the spousal benefit.

Before the GPO, though, your wife could have received a $1,000 monthly pension from a job that didn’t pay into Social Security plus a spousal or survivor’s benefit from Social Security, leaving her much better off than someone who had paid into the system.

Q&A: The tax implications of downsizing

Dear Liz: My mother just turned 75 and wants to downsize from her four-bedroom house. My father passed away six years ago. She owns her home outright, and at the time of my father’s death the value of the house was estimated at $1.2 million. Right now she has enough income from retirement accounts and investments to live comfortably. She could even buy another smaller property if need be. As the executor of her estate, I’m trying to help her decide what to do with the house. She could let another family member live in it who couldn’t pay rent but could help with upkeep; she could rent it out for market value; or she could sell. We see advantages and disadvantages with all three options. What do you think?

Answer: If she hasn’t already, your mother needs to hire a good estate-planning attorney who can help her evaluate her options. Consulting a fee-only financial planner and a tax pro may be a good idea, as well.

If she sells, your mother could face a sizable capital gains tax depending on where she lives. Federal law allows a certain amount of capital gains on the sale of a primary residence — $250,000 per person — to be excluded from income, but after that, capital gains taxes apply.

The gain would be the difference between the home sale proceeds and your mother’s tax basis in the home. At least half of the home received a “step up” in basis to the then-current market value when your father died. If your mom lives in a community property state, such as California, both halves of the property would have received this step up at his death. Any increase in value since then would be subject to capital gains tax (minus, again, the $250,000 federal exclusion).

There’s another tax issue to consider. If she dies owning this house, her heirs would get a tax basis equal to the property’s value at her death. In other words, regardless of the state where she lives, none of the house’s appreciation during her lifetime would be taxable.

The tax issues alone shouldn’t dictate what your mother does. But she should be aware of them to make an informed decision about what to do next.

Q&A: Social Security survival and spousal benefits

Dear Liz: If my spouse takes spousal benefits from Social Security before his full retirement age, does that ultimately affect the survivor benefits he could receive?

Answer: As covered in previous columns, applying for spousal benefits before his full retirement age of 66 or 67 will lock him into a diminished check and preclude him from switching to his own benefit later. It does not, however, affect what he would receive as a survivor. His survivor benefit would be equal to what you were receiving at your death. To protect him (and yourself, should you be the survivor), you probably should delay starting benefits as long as possible to make sure you’re receiving the maximum benefit.