Tuesday’s need-to-know money news

download (1)Today’s top story: Why your irrevocable trust isn’t protecting your assets. Also in the news: Moving recurring credit card payments, the worst financial mistakes new parents can make, and how to prepare for your financial future.

Your Revocable Trust Is Not Protecting Your Assets
Better asset-protection strategies.

Moving Recurring Payments on Credit Cards Is the Worst. Here’s How to Deal.
Move your payments without pulling your hair out.

The 5 worst financial mistakes new parents can make
Besides not getting enough sleep.

Get Into a “Not Yet” Mindset to Prepare For Your Financial Future
The impossible is possible.

Q&A: How to get out from under high brokerage fees

Dear Liz: I have two accounts at a full-service brokerage. One is an inherited IRA and the other is a Roth IRA that I opened. Both have a mix of stocks and mutual funds that I chose. My accounts have done well, but I am not happy with the commissions that my brokerage charges when I trade, which I don’t do often. What do I have to do to move these accounts somewhere else that doesn’t charge such high commissions? I don’t want to sell the stocks and funds in the accounts, but to transfer them intact. If I had to sell the funds, I’d end up paying some of the fees that I’m trying to avoid.

Answer: As long as you don’t own any proprietary mutual funds in those accounts, you should be able to transfer the actual investments and your IRAs to another brokerage — just pick a discount brokerage this time. Those high commissions erode the amount you’ll have at retirement and aren’t necessary if you’re managing your own investments.

The new brokerage will be eager to help — just call and explain you want to transfer the assets “in kind.” You’ll be provided with the information and forms you need to start the process, and the new brokerage will take it from there.

Be prepared for one bite in the form of “account liquidation” fees. Many (but not all) investment firms charge these when you close IRAs, and they can range from $20 to $95 per account.

Q&A: Dealing with a big lottery win

Dear Liz: My brother-in-law won a good chunk of money playing the lottery. He is waiting for the check to come any day now. He is willing to give me $2 million. The question for you is how I can maximize that amount of money short term or long term?

Answer: If your brother-in-law has any sense at all, he’ll realize he shouldn’t have promised any gifts before he assembled a team of professional advisors. And they almost certainly will have a dim view of him giving you a seven-figure sum.

Handouts that large have gift tax consequences. Anything over the annual exemption amount, which this year is $14,000 per recipient, has to be reported on a gift tax return. Amounts over $14,000 count against his lifetime exemption limit, which is $5.45 million this year. Once that limit is exceeded, he’ll owe substantial tax on any gifts.

Also, the $5.45-million limit is for gift and estate taxes combined. Any part of the exemption he uses during his lifetime for gifts won’t be available to shield his estate from estate taxes when he dies. Although, given his apparent generosity, he may not have enough left at his death to trigger an estate tax.

It’s not uncommon for those who receive large windfalls to wind up broke, especially if the amount is much larger than they’re used to handling. More than a few professional athletes and lottery winners have wound up in bankruptcy court. They spend or give away money at a clip that simply isn’t sustainable.

Which may be the road down which your brother-in-law has started. You can take advantage of your relative’s ignorance by holding him to his pledge or you can do the right thing, which is to encourage him to hire fee-only advisors — including a CPA, an estate-planning attorney and a comprehensive financial planner who’s willing to sign a fiduciary oath — to help him deal with this windfall.

Q&A: Refinancing an education loan

Dear Liz: You were asked a question about whether it would be wise to refinance a parent PLUS loan through a private lender and you said yes because the interest rates are so much lower. Doesn’t this ignore the benefit of the IRS tax credit? I figured out that my interest rate is effectively a couple of percentage points lower because I get a $2,500 tax credit every year.

Answer: As long as you’re refinancing with another education loan, the interest is still tax deductible. The deduction is “above the line” — meaning you don’t have to itemize to get it. The student loan interest deduction can reduce your taxable income by up to $2,500 if your modified adjusted gross income is less than $80,000 for singles and $160,000 for married couples filing jointly. The amount you can deduct is phased out at higher incomes and disappears after $90,000 for singles and $180,000 for marrieds.

If you’re not clear whether you’re refinancing into an education loan (rather than, say, a personal loan), you should ask your lender.

To clarify, it’s not always a good idea to refinance, even if you get a better rate. That’s because federal education loans have consumer protections that private lenders don’t offer. For example, you can pause your payments for up to three years if you lose your job or have another financial setback. Private lenders may offer hardship deferments, but typically those max out at 12 months.

Friday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: Life without credit cards. Also in the news: What to splurge (and skimp) on for back-to-school shopping, why you should pay an extra $100 on your student loans right now, and how banks are working to gain your loyalty.

Life Without Credit Cards: How Two Families Make It Work
Could you do it?

What to Splurge (and Skimp) on for Back-to-School
Spending carefully.

5 Reasons to Pay an Extra $100 on Your Student Loans Right Now
Saving on interest.

How Banks Are Working to Gain Your Loyalty
Going beyong the free toaster.

Thursday’s need-to-know money news

refinancingToday’s top story: Mortgage refinance options for people with bad credit. Also in the news: The best cell phone deals for July, steps to financial independence, and 10 personal finance headscratchers.

Mortgage Refinance Options for People With Bad Credit
Hope is not lost.

Best Cell Phone Deals in July
Time for an upgrade?

Five Essential Steps to Financial Independence
Step by step.

10 personal-finance headscratchers that show we’re irrational
Not thinking clearly.

Wednesday’s need-to-know money news

types-of-scholarshipsToday’s top story: Most families don’t plan ahead for college costs. Also in the news: The Brexit effect on mortgages begins to fade, the pros and cons of partial payments, and common money mindsets that are holding you back.

Most Families Don’t Plan Ahead for College Costs, Study Finds
High school graduation is just around the corner.

Brexit Effect Fades; Loan Applications Fall
The Brexit effect on mortgages begins to fade.

Does Making Partial Payments Help?
Is paying someting better than paying nothing?

Common Money Mindsets That Hold You Back
Breaking out of old misconceptions.

Tuesday’s need-to-know money news

o-BOOMERANG-KIDS-facebookToday’s top story: Why not all debt is bad. Also in the news: An explanation of benefits from your health coverage, why your boomerang kid may be sabotaging your retirement, and why it’s time to have the talk about estate planning.

Not All Debt Is Bad
Debt is getting a bad rap.

Check Your Health Coverage With an Explanation of Benefits
Understanding what you’re entitled to.

Everybody Dies. It’s Time to Have the Talk
Avoiding financial disaster.

Your boomerang kid may be sabotaging your retirement
The Bank of Mom and Dad.

Think Twice Before Rolling Over a 401(k)

think-twice-before-401k-rollover-story-570x225-2Wall Street has done a remarkably thorough job of brainwashing investors into rolling their old 401(k) accounts into individual retirement accounts.

IRA rollovers are certainly a better option than cashing out, which is the stupidest thing you can do with a 401(k) account other than not fund it in the first place. But moving money from a workplace retirement plan to an IRA when you switch jobs or retire can be a really lousy idea.

In my latest for Nerdwallet, why you need to think twice before rolling over a 401(k).

Monday’s need-to-know money news

Credit report with score on a desk

Credit report with score on a desk

Today’s top story: Understanding your credit card’s free FICO score. Also in the news: The difference between a soft inquiry and a hard inquiry, surviving Social Security with a minor cost of living adjustment, and how apps can both help and hurt your finances.

To Understand Your Credit Card’s Free FICO Score, Get Your Credit Report
How your credit card use factors into scores.

What’s the Difference Between a Soft Inquiry and a Hard Inquiry on My Credit Report?
Which ones affect your credit score?

Social Security survival strategies with COLA only at 0.2%
Surving a stagnant cost of living increase adjustment.

How Apps Can Help (and Hurt) Your Finances
Could your apps lead you to spend more?