Friday’s need-to-know money news

Today’s top story: How to maximize your Priority Pass Select. Also in the news: Tap your credit cards for spring break savings, how to avoid a spring break money hangover, and why the death of the fiduciary rule is bad news for your retirement.

How to Maximize Your Priority Pass Select Membership
Getting the most from your membership.

Tap Your Credit Cards for Spring Break Savings
Save on foreign transaction fees and more.

Ask Brianna: How to Avoid a Spring Break Money Hangover
Not the souvenir you want to bring home.

The Death of the Fiduciary Rule Is Bad News for Your Retirement
Less protection means more scams.

Q&A: At retirement, should you roll your 401(k) into your IRA? Think about these factors

Dear Liz: I turned 70 last week and therefore I am leaving my part-time job after about 13 years. No big deal, but now that I am retiring I have a 401(k) worth about $60,000 and an IRA that is somewhere around $50,000. Should I roll my 401(k) account into my IRA or just let it sit there collecting dust? I do understand that at age 70½ I am supposed to start withdrawing some of the funds, but am not sure how much. It seems 70 years creeped up on me.

Answer: Years have a nasty habit of doing that.

You mentioned that you’re retiring because you’ve achieved a certain age. Few jobs have mandatory retirement ages, though. If you don’t retire, you can continue putting off required minimum distributions from your 401(k). You would still have to take minimum distributions from your IRA, unless your employer allows you to roll that money into your 401(k) plan.

But we’ll assume you’re happy with your decision. Rolling your 401(k) into your IRA isn’t necessarily the best option. What you should do next depends on the details of both accounts.

Most large-company 401(k)s allow retirees to take regular distributions, including required minimum distributions, from the plans. These plans also tend to offer low-cost institutional funds that may be a much better deal than those you can access as a retail investor with an IRA. If you’ve got a good 401(k) that allows retirement distributions, there may be no need to move your money.

If your employer’s plan doesn’t allow such distributions, don’t automatically assume your current IRA provider is the best choice, especially if it’s a full-service brokerage or insurance company. Compare the fees of the investment options with what’s available from a discount brokerage. Transferring all your retirement money to a lower-cost provider can help you keep more money in your pocket.

Calculating your required minimum distributions isn’t difficult. The IRS has tables on its website, and in Publication 590, to help you figure out how much money to withdraw. Various sites have calculators as well.

One caveat: If you keep your IRA and 401(k) separate, you’ll have to calculate required minimum distribution separately for each account and withdraw those amounts from each account, says Mark Luscombe, principal analyst for taxes and accounting at Wolters Kluwer. That’s different from the rules when you have multiple IRAs. When you have more than one IRA, you calculate the required minimum distribution based on the total of all your IRAs but are allowed to take the distribution itself from any one of them.

Why Millennials Should Care About Medicare Right Now

Medicare provides basic health care to one out of six Americans, most of them 65 and older. Even people decades away from retirement, though, should be concerned about Congress meddling with the program.

Lawmakers understand that cutting current retirees’ benefits is a political nonstarter. Older people vote, and they have one of the most powerful lobbyists, AARP, advocating on their behalf.

Younger people? Not so much. Politicians will be tempted to foist the biggest cuts on people farther away from retirement (who are presumably paying less attention).

In my latest article for the Associated Press, why it’s crucial that Millennials begin to think a

Wednesday’s need-to-know money news

Today’s top story: How debt settlement can make a bad money situation worse. Also in the news: Using an IRA as a legal, last-minute way to lower your taxes, 4 reasons why it’s smart to buy a used cell phone, and how to budget as a freelancer.

Debt Settlement Can Make a Bad Money Situation Worse
Not the perfect solution.

An IRA Is a Legal, Last-Minute Way to Lower Your Taxes
There’s still time for 2017 taxes.

4 Reasons It’s Smart to Buy a Used Cell Phone
Saving on new-to-you tech.

How to Budget as a Freelancer
Budgeting when income isn’t reliable.

Q&A: When rolling your 401(k) into an IRA isn’t a good idea

Dear Liz: I have just retired. I have a 401(k) from work. Do I keep it as is or do I roll it over into an IRA?

Answer: Investment companies and their representatives like to push the idea of rollovers as the best option, but that may profit them more than it does you.

Leaving your money in your employer’s 401(k) has several potential advantages. Many 401(k)s offer access to institutional funds, which can be much cheaper than the retail funds available to IRA investors. Workplace retirement plans also offer unlimited protection from creditors if you’re sued or forced to file bankruptcy. An IRA’s bankruptcy exemption is limited to $1,283,025, and protection from creditors’ claims varies by state. (In California, for example, only amounts “necessary for support” are out of reach of creditors.)

If you retired early, you can access your 401(k) without penalty at age 55. The typical age to avoid penalties from IRA withdrawals is 59½.

You may opt for a rollover if your 401(k) offers only expensive or poorly performing options. Even if you decide to roll over the rest of your 401(k), though, get a tax pro’s advice before you roll over any company stock. You may be better off transferring the stock to a taxable account now so you can let future appreciation qualify for capital gains rates. Ask your tax pro how best to take advantage of this “net unrealized appreciation.”

Wednesday’s need-to-know money news

Today’s top story: How to max out your Roth IRA in 2018. Also in the news: Why smarter cars aren’t saving us money on car insurance, 4 tax breaks that could help those caring for elderly parents, and 5 money moves that will help you retire early.

How to Max Out Your Roth IRA in 2018
Tips to keep you on track.

Why Smarter Cars Aren’t Saving Us Money on Car Insurance
Need a little more time.

If You’re Caring for Elderly Parents, 4 Tax Breaks May Help
See what’s available to you.

5 Money Moves That Will Help You Retire Early
Strategic planning.

Q&A: Don’t get tripped up by invalid Roth IRA contributions

Dear Liz: A friend told me that when he takes out his required minimum distribution from his traditional IRA and pays the tax, he then puts the money in his Roth IRA. I believe since this was not earned income, this was wrong. Who’s right?

Answer: The money contributed to an IRA doesn’t have to be earnings, necessarily, but your friend or his spouse must have income earned from working to make an eligible contribution. Earned income includes wages, salary, tips, bonuses, professional fees or small business profits. Earned income does not include Social Security benefits, pension or annuity checks and distributions from retirement accounts.

Another restriction is that contributions can’t be greater than the amount of earned income. If your friend or his spouse earned $3,000 last year, that’s all he’d be allowed to contribute — not the $6,500 maximum allowed for people 50 and over.

The ability to contribute to a Roth begins to phase out when someone’s modified adjusted gross income exceeds certain amounts. In 2017, single filers’ ability to contribute phased out between $118,000 and $133,000. For married couples filing jointly, the phase out began at $186,000 and ended at $196,000.

The penalty for ineligible contributions is 6% of the ineligible amount. The penalty is owed each year the taxpayer allows the lapse without correcting the oversight. If your friend has been doing this for several years, the penalty will be pretty painful.

He could cross his fingers and hope the IRS doesn’t notice, but the error isn’t that hard for the agency to catch. The IRS would simply need to compare Form 5498, which IRA custodians issue to report contributions, to your friend’s income and the sources of that income to know whether he was eligible to put money in an IRA.

Wednesday’s need-to-know money news

Today’s top story: Your best financial move is also best for the environment. Also in the news: Why you should fly first class at least once, surprising factors that inflate your car insurance rate, and the best and worst states to retire.

Your Best Financial Move Is Also Best for the Environment
Looking at your carbon footprint.

Why You Should Fly First Class at Least Once, and How to Afford It
Treat yourself.

5 Surprising Factors That Inflate Your Car Insurance Rate
Not just about accidents.

Best and worst states to retire
Did yours make the cut?

Thursday’s need-to-know money news

Today’s top story: Whittle down your debt while having bad credit. Also in the news: 6 secrets from flight crews to stave off jet lag, what to buy every month of the year in 2018, and 3 ways you can better save for retirement.

Bad Credit? You Still Have Tools to Whittle Down Debt
You must be proactive.

6 Secrets From Flight Crews to Stave Off Travel Exhaustion
Keeping jet lag away.

What to Buy Every Month of the Year in 2018
Plan your shopping accordingly.

3 ways you can save better for retirement
Every penny counts.

Q&A: How to balance using retirement savings wisely with enjoying what you’ve earned

Dear Liz: I am 82, and my husband is 85. We are retired military, so we have a middling pension and some Social Security. Our monthly income of about $5,000 covers our monthly expenses. We rent in an independent living senior community. We have excellent health benefits via Tricare for Life. We both worked hard and are very thrifty. We have no debts.

We have savings of about $320,000. Our kids say we should spend some of our savings on cruises and things, but we just can’t let go! Are we in danger of running out of money? I am getting tired of always cooking and would like to eat out now and then. We do not want to be a burden for our kids and grandkids.

Answer: Your kids have the right idea. While you can, you should be enjoying some of the pleasures you’ve earned. You’re also smart to be careful.

You face at least two major threats to your financial stability. One is a reduction in income when one of you dies. The survivor will receive one Social Security check instead of two, and the pension income could go away or be reduced, depending on the payment option chosen at retirement.

The other threat is the potential need for custodial care. A long stay in a nursing home or a prolonged period where you need help at home could eat through most if not all your savings. Custodial care that helps people perform daily activities such as bathing, dressing, eating or toileting is not covered by Medicare or other health insurance, including Medicare supplements or wraparounds like the plan you have. Instead, Medicare covers limited periods of skilled nursing care, which typically requires licensed nurses to provide, while supplemental and wraparound policies can help pay co-insurance for such care.

There is a government program that pays for custodial care, called Medicaid. To qualify, the person needing care typically must have no more than $2,000 in assets. The spouse is allowed to have up to $120,900, although the limit can be lower depending on the state.

A visit with a fee-only financial planner could help you determine how much you need to prepare for these events. With that information, you should have a better idea of how much more you can safely spend.