Ask Liz Weston

Get smart with your money

Q&A

Q&A: Credit union loan helps son pay off debt

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Dear Liz: My son ran up a lot of credit card debt and it got to the point where he could barely pay even the interest, which was exorbitant. He asked me for a loan, but I wanted something to formalize the process. I tried cosigning on a loan with him, but found that, as a retired person, my income is not enough.

Meanwhile, I have enough savings, and it occurred to me that perhaps I could use that money as collateral. Eventually, we found a credit union that would loan money as long as you had enough funds in a savings account. I put $11,000 into a savings account and my son was able to get a loan for $10,000. The interest rate is about 4%, well below the 12-18% we were quoted on personal loans from conventional banks and online lenders.

I had never heard of this type of loan before, and it might be a nice option for people who want to help their kids, but want to formalize the loan rather than just expecting them to pay it back on their own, which can become messy. Furthermore, my son’s payments will be reported to the credit bureaus, so it will boost his credit score.

Answer: Thanks for sharing your experience. Many credit unions offer what’s known as “share secured” or “deposit secured” loans, where a savings account serves as collateral for a loan. While the funds in the account are effectively frozen until the loan is paid off, the account still earns interest, offsetting the total cost of the loan.

When people don’t have enough funds of their own, using a parent’s account may be a possibility. People in a position to help an adult child this way should understand the potential risks, such as damage to the parent’s credit scores if the child misses a payment and the possibility of losing the money if the child defaults. The parent should also find out if it’s possible to be alerted if a payment is overdue, since that could give them time to make the payment and avoid credit damage.

Q&A: How do you set up a savings account for a grandchild who lives overseas?

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Dear Liz: My son lives overseas. He just became a father. He plans to apply for U.S. citizenship for his dependent as an American born abroad. We would like to help save for our new granddaughter’s future. There are 529 accounts here.

Can he set up an account like that if he gets a Social Security number? Are there other options besides a 529 account for children born abroad?

Answer: If your son is a U.S. citizen and the child has a Social Security number or Individual Taxpayer Identification Number (ITIN), then he can open and contribute to a 529 plan benefiting the child.

So can you, and it may be even more beneficial for you to do so. Grandparent-owned 529 accounts, and distributions from those accounts, aren’t counted in federal financial aid calculations.

There are other options for saving for college, including regular savings or investment accounts, but 529s allow money to grow tax-deferred, and withdrawals are tax-free when used for qualifying educational expenses. That’s a significant advantage.

The money can be used at any school eligible to participate in a student aid program administered by the U.S. Department of Education, which includes the vast majority of U.S. colleges and many abroad. In addition, up to $10,000 annually can be used to pay tuition at elementary or secondary public, private or religious schools. Any unused money can be transferred to another family member. Plus, starting in 2024, up to $35,000 can be used to fund a Roth IRA.

Q&A: Is free advanced directive site really free?

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Dear Liz: Your recent column about advanced directives said that people could get a free version at PrepareForYourCare.org. I found there is a charge. Is this for all online directives?

Answer: Prepare is a free site supported by donations, grants and licensing agreements. If you were asked to pay, you either clicked the donate button or weren’t on the correct site.

Q&A: How to fix a mistaken contribution to an IRA

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Dear Liz: When I retired, I had a small 401(k) with about $12,000 in it. Instead of rolling that money into an IRA, I took a distribution and paid taxes on it. I had no immediate need for the remaining funds, so eventually I opened a new IRA account and deposited the money.

I now realize I should have put it in a Roth IRA so I wouldn’t face double taxation on the money. This is the stupidest thing I’ve done in recent memory. Is there any legal mechanism I can use to get that money out and into a Roth without paying taxes the second time?

Answer: You made a mistake, but probably not the one you think.

You can’t contribute to an IRA — or a Roth IRA, for that matter — if you don’t have earned income. So if you’ve fully retired, you should contact your IRA administrator and let them know you need to withdraw your “excess contribution” as well as any earnings the contribution has made.

If you contributed this year, you have until your tax filing deadline — typically April 15, 2026 — to remove the funds without penalty. If you contributed in a previous year, you’ll typically face a 6% excise tax for each year the money remained in your account.

Now, a warning about financial mistakes: They tend to become more common as we age. That can be incredibly unsettling, especially to do-it-yourselfers used to handling finances competently on their own. Retirement is a good time to start implementing some guardrails to protect ourselves and our money.

Hiring a tax pro would be a good first step. Anything to do with a retirement fund should be run past this pro first to make sure you’re following the tax rules.

Q&A: Closing credit accounts doesn’t need to be a big deal

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Dear Liz: Your recent response to the person giving bad advice about closing credit accounts was truly a public service. Over the years, I have opened and closed many credit accounts. Only once was a credit card closed for non-usage by the issuer and there was no major degradation of my credit score. Never has one of my actions altered my score by more than a few points or for more than a few months at a time. Misinformed statements such as those made by that individual can confuse people who are new to the world of credit or unfamiliar with how it works.

Answer: Before the advent of credit scoring, your ability to get a new loan or credit card may have been affected by a notation on your credit reports that a previous account was closed by the issuer. Today, though, it doesn’t matter who closes an account and there’s no need to add a notation that you were the one requesting the closure. If you mishandled the account, that will be evident from the missed payments that would show up on your credit reports (and be incorporated into your scores). If you handled the account responsibly, that will also be evident on your reports.

As mentioned in previous columns, closing credit accounts can have a significant impact on your scores if you have a few accounts or major blemishes on your credit. Closing a card with a high limit can ding your scores more than closing one with a lower limit.

But people with multiple credit accounts and a history of managing credit responsibly aren’t likely to suffer significant or lasting damage to their scores when they close an account.