Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: How to start an IRA for your new Gen Z college graduate

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Dear Liz: My son is about to graduate from college and, as a present, I want to use $10,000 to start an IRA for him. But which is better? A Roth or a standard IRA?

Answer: Congratulations to both of you! Starting a retirement account is a great idea, but you should be aware of the numerous rules that limit who can contribute and how much.

Let’s start with the annual contribution limit, which for 2022 is $6,000 for people under 50. (People 50 and older can make an additional $1,000 “catch up” contribution.) Also, your son needs to have earned income — such as wages, salary or self-employment income — that is at least equal to the size of the contribution you want to make. In other words, he needs to earn $6,000 for you to contribute $6,000. If he’s about to start a full-time job, that probably won’t be an issue, but if he’s not working, or working only part time before starting graduate school, that might further limit how much you can contribute.

For all of those reasons, a Roth IRA contribution may be best. He won’t get an upfront tax deduction but withdrawals in retirement will be tax free. He can withdraw Roth contributions at any time without taxes or penalties, so the Roth can serve as a de facto emergency fund. Obviously, it’s better to leave the money alone to grow, but having access to the cash could be helpful while he builds a regular emergency fund.

Q&A: How to get tax return copies

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Dear Liz: Isn’t it the duty of an accountant to send their client the final tax forms that they filed with the IRS and the state? My accountant keeps “forgetting” to do so, and I’ve called him twice to do this. I’m not sure if his constant “forgetfulness” is due to laziness or a health issue such as dementia. I suspect it might be the latter, as he never used to be this way in past years.

Is there another way to get a copy of my returns? I will obviously be looking for a new accountant.

Answer: Yes, you can request copies or transcripts of your returns from the IRS and your state tax agency.

Transcripts are free, and are available for the previous three years. Personally identifiable information such as your name, address and Social Security number will be hidden, but you’ll be able to see all the financial entries, such as your adjusted gross income, taxes paid and so on. You can request transcripts online at irs.gov/individuals/get-transcript, by phone at (800) 908-9946 or by mail using either Form 4506-T or Form 4506-T-EZ and using the IRS address listed on the form.

Copies of your actual tax returns will cost you $43 each. You can request those by filling out and mailing Form 4506.

Your state will have similar procedures, which you can find by searching for your state’s name and the phrase “How do I get a copy of my state tax return?”

Q&A: Why credit scores drop suddenly

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Dear Liz: The same thing happened to me as to the person in your column whose credit score dropped more than 100 points after large purchases. We bought plane tickets for international travel and our credit score took a significant but temporary hit. This also happened when we made a charitable gift by credit card. After an appeal, I was able to get the credit limit on the credit card we use the most increased, and I’m waiting to see if that prevents the credit score from dropping going forward. I did check our credit reports and there were no missed payments or other problems.

Answer: Credit scores can drop when you use a lot of your available credit, but a 100-plus-point drop is unusual and should be investigated. You’re smart to look for ways to mitigate the damage from high usage. Asking to have credit limits increased is one way; another is making a payment before the statement closing date. The balance on that closing date is what’s generally reported to the credit bureaus, and thus what’s factored into your scores. Just remember to pay off any remaining balance before the due date.

Friday’s need-to-know money news

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Today’s top story: Don’t let your first car be a $30K mistake. Also in the news: House Democrats push Treasury, IRS for repeal of rule blocking state and local taxes cap workaround, should you use a reverse mortgage to pay for long-term care, and the easiest way to make your cell phone bill cheaper.

Don’t Let Your First Car Be a $30K Mistake
Buying your first car right now isn’t easy, but with the right prep you can find a car that won’t become a burden.

House Democrats push Treasury, IRS for repeal of rule blocking state and local taxes cap workaround
Three House Democrats are still pushing for relief on the $10,000 limit on the federal deduction for state and local taxes, known as SALT.

5 ways to get around high credit card interest rates
Credit card interest rates have started going up.

Should you use a reverse mortgage to pay for long-term care?
Someone turning 65 has nearly a 7-in-10 chance of needing long-term care in the future, according to the Department of Health and Human Services.

The Easiest Ways to Make Your Cell Phone Bill Cheaper
Your attention span is already prisoner to your phone; your wallet doesn’t have to be, too.

Thursday’s need-to-know money news

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Today’s top story: Mortgage rates are in for a bumpy ride in June. Also in the news: Should you get a home equity line of credit, common myths about travel insurance, and what to do (and not do) if you’re ever fired or laid off.

Mortgage Rates Are In for a Bumpy Ride in June
Mortgage rates might be volatile in June.

Your New Home Has Grown in loan, Value. Should You Get a HELOC?
Some new homeowners have seen tremendous growth in their equity in a short period of time. If you meet lender requirements, a HELOC is one way to access it.

6 Common Myths About Travel Insurance and What It Covers
Travel insurance isn’t a magic Band-Aid on trip troubles. It’s important to know what coverage you need.

What to Do (and Not Do) If You Ever Get Fired or Laid Off
You might want to tell your boss exactly what you think of them—but let’s hold off on that.

Wednesday’s need-to-know money news

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Today’s top story: 6 common myths about travel insurance and what it covers. Also in the news: Is Disney travel insurance worth the cost, 2022 is the year of all-inclusive travel and the best fast food apps for getting free stuff.

6 Common Myths About Travel Insurance and What It Covers
Travel insurance isn’t a magic Band-Aid on trip troubles. It’s important to know what coverage you need.

Is Disney Travel Insurance Worth the Cost?
Disney’s insurance is good for covering theme park tickets, but you’re likely better off with a different policy.

2022 Is the Year of All-Inclusive Travel, and Here’s Why
Hotel chains are expanding and entirely reimagining their all-inclusive portfolios.

The Best Fast Food Apps For Getting Free Stuff
Whoever said “there’s no such thing as a free lunch” clearly didn’t have a smartphone.