Q&A

Q&A: Don’t be overly fearful about closing credit cards

October 28, 2025 By Liz Weston Leave a Comment

Dear Liz: You recently advised a couple who have excellent credit, no outstanding loans and a low credit utilization rate that they could close their credit card with a company that keeps reducing their credit limit when they don’t spend enough on their card. The writer has to contact the credit card company every time to get it restored to its original credit card limit. You suggested they could close their account but you didn’t address their question about whether they’d be better off settling for a reduced credit limit. Wouldn’t a reduced credit limit harm one’s credit scores less than closing an account?

Answer: Probably, but the point was that closing the account was unlikely to do significant or lasting harm as long as they had other credit cards. The couple could make the effort to try to keep the account open, but the hassle might not be worth the limited benefit to their credit scores.

People with excellent credit are often overly fearful about closing credit cards. It’s true that you generally should avoid closing accounts if your scores aren’t great or if you’re in the market for a major loan, such as a mortgage. It’s also a good idea to keep a big gap between the amount of credit you use (your balance) and the amount you have (your credit limit). That could mean hanging on to your highest-limit cards or having the credit limit of a card you’re closing transferred to another card you’re keeping.

But you shouldn’t be afraid of closing accounts if you have a good reason to do so.

Q&A: RMDs gave me permission to retire

October 28, 2025 By Liz Weston Leave a Comment

Dear Liz: When Roth conversions came along, they were touted as a way to avoid taxable required minimum distributions in retirement. I had built up a solid “traditional” account, and saw no reason to add to my tax bill by converting. I ignored the noise, although I did open and contribute to a Roth account in addition to my traditional IRA.

Now in my 70s, living on Social Security, RMDs and some investment income, I’m grateful I blocked the noise. In fact, I have the RMD income to thank for getting me to realize that I could afford to retire. If I’d converted, I’d probably still be working and afraid to spend my tax-free Roth. And it turns out the tax bite on the RMD isn’t all that bad.

Answer: Thanks for sharing your perspective!

Q&A: Are automatic renewals legal?

October 28, 2025 By Liz Weston Leave a Comment

Dear Liz: I paid for several magazine subscriptions online. At the end of the transaction, I received notice that I had also been signed up for automatic renewal. While I will be notified prior to the end of the current subscription period and given the opportunity to cancel the subscription, this seems like an underhanded way of subscriptions being renewed.

Answer: Many companies in recent years have adopted automatic renewal as a way to take advantage of customers’ inertia. Some companies have even made it difficult to cancel subscriptions as a way of further boosting profits.

Research led by the Stanford Graduate School of Business has found that this may be a short-sighted strategy. The researchers found that subscriptions that automatically cancel attract more customers than those that auto-renew. Many potential customers understand inertia as well and are more willing to try a subscription if they don’t feel locked in.

New York and California now have laws requiring businesses to get affirmative consumer consent before renewing subscriptions. Businesses must also provide an easy cancellation method.

If you’re not in one of those states, consider researching cancellation methods before you sign up for any new subscription. Avoid any company that makes it much harder to cancel than to subscribe. If you can sign up online, for example, you should be able to cancel online and not have to call in during limited business hours or visit a physical location. If you do subscribe, add a note to your calendar when the subscription or trial period ends, so you can evaluate whether you’re getting enough value to continue subscribing.

Q&A: Is a lump-sum Social Security payment taxable?

October 20, 2025 By Liz Weston 1 Comment

Dear Liz: Because of the Social Security Fairness Act, my wife got a huge lump sum check (catchup, I suppose) and will now get monthly Social Security benefits. This is good news and bad news, especially if we get kicked into a higher tax bracket and moreover if we have to pay taxes on that lump sum. Is there anything in the wings at the IRS that will provide some guidance as to the taxable or nontaxable (ha-ha) nature of that lump sum?

Answer: Taxes on Social Security are typically based on your “combined income” for the year. Combined income is your adjusted gross income plus any tax-exempt interest and half your Social Security benefit. If you’re married filing jointly and your combined income is between $32,000 and $44,000, you typically would pay tax on up to 50% of your benefits. If your combined income is over $44,000, you would pay tax on up to 85% of your benefits.

Normally, a lump sum for back benefits would be taxable in the year it was paid out, but there is an option called the Social Security lump-sum election method, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. You can elect to calculate the taxes as if you received the benefits in the year they were due.

You’ll find worksheets in IRS Publication 915 to help with your calculations. Essentially, you’ll determine what portion of the lump sum payment would have been taxable in each prior year. You’ll subtract any previously reported taxable benefits, then add the remainder to your current year’s taxable income, and check line 6c on Form 1040 or 1040SR, Luscombe says.

Q&A: Electronic tax payments don’t require paper forms

October 20, 2025 By Liz Weston Leave a Comment

Dear Liz: You recently answered a reader whose check to the U.S. Treasury had been stolen and forged to another recipient. You suggested sending electronic checks instead. However, our accountant gives us forms that I thought needed to be included with a paper check to ensure the correct accounting of our taxes. Can we just send a check from our bank with the last four digits of our SSNs in the memo field?

Answer: It’s unfortunate your accountant hasn’t walked you through the relatively simple process of paying your taxes online. The electronic systems match your payment with your return. You only need to send in paper forms or vouchers if you’re also sending paper checks.

And you shouldn’t be sending checks in the mail if you can possibly avoid it. Given the surge in mail theft and check fraud, it really is past time to switch to electronic payments.