Ask Liz Weston

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Liz Weston

Q&A: Clearing up some confusion over those proprietary funds

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Dear Liz: Your recent column about proprietary funds confused me. You mentioned that selling these funds can trigger capital gains tax. Is it not true we can move investments directly from one money manager to another and not take a capital gain as long as the funds remain invested?

Answer: If you can move a fund from one investment company to another, then it likely is not a proprietary fund. For example, Schwab, Fidelity, Vanguard and many other firms create funds that bear their names, but these investments can be bought and sold at other brokerages.

Proprietary funds, by contrast, typically lock customers into investments that can’t be transferred to another firm. To get your money out, you have to sell the fund, which can trigger a tax bill. This is a significant downside and one investors should understand before committing their money to this type of fund.

Q&A: After a windfall, questions on what to do with the cash

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Dear Liz: After selling my house and downsizing at age 84, I am cash rich for the first time in my life. My goal now is not so much to grow the money substantially, but to avoid paying taxes on my investments, as I would have to do with certificates of deposit. Are tax-free municipal bonds my best option, or what would you suggest?

Answer: If you’re in a high tax bracket — roughly 32% or higher — the lower interest rates paid on municipal bonds can still give you a good-enough return to make buying them worthwhile. If you’re in a low tax bracket, the math doesn’t work so well.

Also, municipal bonds aren’t covered by FDIC insurance the way a certificate of deposit would be. Investing in bonds involves some risk. The chances of default are minimal if you choose highly-rated bonds, but your bonds could lose value if interest rates rise.

Consider using some of your cash to consult a fiduciary, fee-only planner who can help you figure out a strategy that reflects all aspects of your financial situation, not just your tax bill.

Q&A: Medicare Part D Premiums: Balancing Costs and Coverage in 2025

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Dear Liz: I would like to comment on your response to the letter about the high cost of Medicare Part D prescription drug coverage. You correctly noted the $2,000 cap on covered drug costs, starting next year. However, there is no cap on the cost of the monthly premiums. My cost for the Part D monthly premium went up about 25% for the 2025 year. So, although my annual out-of-pocket expense for my prescription drugs will be less in 2025, my total costs including premiums will be higher when compared to 2024.

Answer: The original writer implied that Medicare’s prescription drug coverage is always expensive, when in reality people’s costs vary depending on the drugs they take and the coverage offered by the private insurers they choose.

Monthly premiums for Part D range from $0 to more than $100, according to KFF, the nonprofit health research firm. The average premium for a stand-alone Part D plan is projected to decrease from $41.63 in 2024 to $40 next year, according to the Centers for Medicare & Medicaid Services.

As noted in a previous column, insurers are constantly changing their “formularies” of the drugs they cover. That’s why it’s important to shop each year during Medicare’s open enrollment to make sure you’re getting the best deal.

Q&A: Tax Deductibility of Home Equity Loans and Lines of Credit

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Dear Liz: You recently wrote about home equity lines of credit and home equity loans. You might have mentioned that these are tax deductible under certain circumstances.

Answer: Yes, but the circumstances are increasingly rare.

Technically, the interest on a home equity loan or line of credit can be deductible when the money is used to improve your home. However, you must be able to itemize your deductions to take advantage of this write-off. Thanks to increases in the standard deduction, fewer than 10% of taxpayers itemize.

Q&A: Proprietary investment funds might offer a personal touch, but they come with an important catch

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Dear Liz: One subject I’ve never seen you address is the use of proprietary funds by financial advisors. We’ve taken over the finances of my in-laws, whose advisor put their money in a well-balanced portfolio, but all within a proprietary fund group. We are more or less stuck with continuing with their advisor because only certain agents can manage those funds. Also, getting out of the funds would require paying substantial capital gains. I am counseling my adult children as they make their investment choices to do as we have done and stick with funds that could be ported to other advisors or managed personally so they don’t get in a similar situation. Thoughts?

Answer: Proprietary mutual funds have enough potential disadvantages that people should do plenty of research before committing their money.

Brokerages and other financial institutions create their own proprietary or “house brand” funds to compete with the “name brand” or third-party funds managed by outside companies. But while a name-brand fund can be moved to another brokerage, a proprietary fund is typically just that — proprietary to the firm that created it, and not transferable. To get your money out, you would have to sell the proprietary fund and suffer any tax consequences.

Brokerages typically say that proprietary funds allow them to customize investments for their clients. That may be true, but proprietary funds also allow them to make more money, creating a conflict of interest.

Q&A: Social Security Disability Benefits for Disabled Adult Children

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Dear Liz: This is regarding the writer whose daughter is a 21-year-old single mom with bipolar disorder and major depressive disorder. Adults who are disabled before age 22 can be eligible for Social Security Disability Insurance under the Disabled Adult Child program. After two years of SSDI, she would be eligible for Medicare. An attorney who handles Social Security disability cases can help her apply for this valuable benefit.

Answer: Thank you. Normally, Social Security requires someone to have worked to earn benefits, but there are exceptions, and the Disabled Adult Child program is one of them. Benefits are based on a parent’s earnings record, so the adult child does not need to have a work history.