Liz Weston

November 13, 2023 By Liz Weston Leave a Comment

How to reduce your ‘widow’s penalty’

After a spouse dies, the survivor often ends up paying higher taxes on less income — something known by accountants and financial planners as the “widow’s penalty,” because women typically outlive their husbands.

Couples who know what’s coming often can take steps to soften the penalty’s effect, but too many don’t think far enough ahead, says Barbara O’Neill, a certified financial planner and educator in Ocala, Florida.

“A lot of people just underestimate what the impact will be financially,” O’Neil says. In my latest for ABC News, learn how to reduce your ‘widow’s penalty.’

Filed Under: Liz's Blog Tagged With: widow's penalty

November 13, 2023 By Liz Weston Leave a Comment

This week’s money news

This week’s top story: What to expect if the Credit Card Competition Act passes. In other news: How to avoid the cost, risk and stress of unneeded medical tests, how to get the best interest rate on your business loan, and get ready for an even busier holiday travel season in 2023.

What to Expect if the Credit Card Competition Act Passes
Will consumers experience lower prices, gutted rewards programs — or nothing at all?

How to Avoid the Cost, Risk and Stress of Unneeded Medical Tests
More than half of the billions of annual tests in the U.S. may be unnecessary. Here’s how to talk to your doctor about it.

How to Get the Best Interest Rate on Your Business Loan
The interest rate you receive is generally tied to the lender’s perception of your ability to repay the loan.

Get Ready for an Even Busier Holiday Travel Season in 2023
In our annual holiday travel survey, 50% of respondents reported plans to hit the road for the holidays.

November 13, 2023 By Liz Weston Leave a Comment

Q&A: Home equity in community property states

Dear Liz: I live in California and have been married for 20 years. My spouse bought our home before our marriage and my name is not on the title as a co-owner. However, I contribute to most of our monthly financial obligations which include paying the mortgage, property taxes, etc. In the event of death or separation, how much of the current home equity am I entitled to? This is our only and primary residence.

Answer: Normally, an asset that was purchased before marriage is considered separate property even in community property states such as California. But if the mortgage is paid down with “community funds” — money earned by either spouse during the marriage — then the spouse who isn’t on the title may be entitled to some of the appreciation that occurs after the wedding.

That may not prevent you from being evicted if your spouse dies, however, or having to fight an expensive battle in court if you divorce. Consulting an attorney now could help you better prepare for either possibility.

Filed Under: Couples & Money, Divorce & Money, Q&A

November 13, 2023 By Liz Weston Leave a Comment

Q&A: What happens to your HSA money when you die?

Dear Liz: What designation or instructions should I make for assets (if any) which remain in my health savings account at the time of my death? Do any remaining funds go directly to my estate or am I allowed to name a beneficiary for this money? If “yes” to the beneficiary question, is the beneficiary subject to the same 10-year payout requirement that applies to most other retirement account beneficiaries? I assume that if the funds go to my estate, the estate would pay tax on the funds given I’ve never paid tax on that money.

Answer: Yes, you can name beneficiaries for health savings accounts. But the tax advantages of these plans often disappear at death.

HSAs, which are paired with high deductible health insurance plans, are known for their rare triple tax benefit. Contributions are tax-deductible and balances can grow tax-deferred, while withdrawals for qualifying medical expenses can be tax free. HSAs don’t have the “use it or lose it” clause that applies to flexible spending accounts; balances can be rolled over from year to year and invested for growth.

What’s more, the withdrawals needn’t happen in the same year you incur the medical costs. As long as you keep good records of unreimbursed medical expenses, you can use them to justify tax-free withdrawals years or even decades in the future.

As a result, many people who can afford to pay medical expenses with other funds use their HSAs as a kind of supplemental retirement fund. There are no required minimum withdrawals, and it can be tempting to leave balances in an HSA as long as possible.

If you’re married and name your spouse as your beneficiary, that may not be a problem. Spouses who inherit HSAs can opt to treat the account as their own, which means they can make tax-free withdrawals to pay for qualified medical expenses.

Other beneficiaries, though, will be required to empty the accounts and pay income tax on the withdrawals. These withdrawals won’t be penalized, but they also can’t be delayed. By contrast, non-spouse beneficiaries typically have 10 years to empty most inherited retirement plan accounts.

If you don’t name a beneficiary, any remaining funds in the account will be paid to your estate and taxed on your final income tax return.

Filed Under: Investing, Q&A, Taxes

November 6, 2023 By Liz Weston Leave a Comment

This week’s money news

This week’s top story: New changes for Medicare in 2024. In other news: Fed hits pause on rate hikes, third times since March 2022, Black Friday shopping could look different this year, and the busiest days to fly during the winter holidays.

What’s New for Medicare in 2024?
Check next year’s premiums and deductibles, as well as program changes.

Fed Hits Pause on Rate Hikes, Third Time Since March 2022
The federal funds rate remains at 5.25% to 5.50%.

Black Friday Shopping Could Look Different This Year, Experts Say
Here’s what marketing, retail and supply chain experts expect for Black Friday 2023.

The Busiest Days to Fly During the Winter Holidays
The Sunday after Thanksgiving is one of the busiest travel days of the year.

Filed Under: Liz's Blog Tagged With: Black Friday 2023, Fed rate 2023, Fly during the winter holidays 2023, Medicare 2024

November 6, 2023 By Liz Weston Leave a Comment

5 strategies for navigating today’s digital tipping culture

The nearly universal experience of finding yourself face-to-face with a checkout counter screen asking you to select an amount to tip for service can prompt a cascade of awkward questions: How much should you tip on a $5 coffee if anything? How can you decide before the cup has even been poured? Is it rude to select “no tip,” then slink away with your drink?

The answers to those questions vary depending on whom you ask, but tipping experts agree on one thing: We get prompted to tip much more frequently these days, largely because of the explosion of cashless payment methods with automated tipping options. Another thing they agree on: You don’t always have to say “yes.”

In Kimberly Palmer’s latest for the Seattle Times, learn 5 strategies for navigating today’s digital tipping culture.

Filed Under: Liz's Blog Tagged With: digital tipping

November 6, 2023 By Liz Weston Leave a Comment

Q&A: Watch out for probate triggers

Dear Liz: My wife and I have a living trust that includes most of our assets. We have two bank accounts that are not in the trust totaling $130,000. Will these accounts be subject to probate? If it matters, she is in memory care and I handle all finances. Our executor son is a signer on one bank account to have ready access to cover final expenses in case I predecease my wife.

Answer: As you know, living trusts are designed to avoid probate, the court process that otherwise follows death to distribute someone’s estate. In some states, including California, probate can be expensive, prolonged and often worth avoiding. Assets typically must be titled in the name of the living trust or have a designated beneficiary to avoid probate. There are some exceptions, but you’d be smart to consult an estate planning attorney to make sure you don’t inadvertently trigger the probate you’re trying to avoid.

Filed Under: Banking, Investing, Legal Matters, Q&A

November 6, 2023 By Liz Weston Leave a Comment

Q&A: Why those great deals banks are offering might be less lucrative than they appear

Dear Liz: I’m receiving numerous email offers from big banks offering significant incentives and bonuses to open checking and savings accounts. I usually don’t pay much attention to them but the latest one is offering $900 to open these accounts. I’ve read all the fine print and understand all the requirements, but I can’t help but think there is a mischievous motive on their part. How do I decide if these offers are a good financial alternative for me?

Answer: Banks offer these incentives to lure in new customers, but you’re wise to consider all the potential costs because the bonuses may be less lucrative than they appear.

For starters, you’ll pay income taxes on any sign-up bonus, which could substantially reduce what you net from the deal. Plus, many banks that offer sign-up incentives pay a paltry interest rate or no interest at all. You could be better off putting your money in a high-yield savings account. (Some online banks are paying around 5%.)

You typically must maintain a certain balance to avoid monthly account fees, and you may need to set up a direct deposit or make a set number of transactions per month as well. The bonus often isn’t paid until after your account has been open 90 days or more. If you close the account, you may face an account closure fee.

Filed Under: Banking, Q&A

November 6, 2023 By Liz Weston Leave a Comment

Q&A: What’s a qualified charitable distribution?

Dear Liz: I have a suggestion for the couple who is facing the start of required minimum distributions from their retirement accounts but who do not need the money. They could consider making a qualified charitable distribution (QCD). A QCD allows you to donate to a charity directly from your IRA and satisfies your RMD requirement. The only caveat is that the money cannot pass through your hands. It must go directly from the IRA to the charity. You can’t take a deduction for the contribution, but the money won’t count as taxable income. Although the age of RMD has been rising in recent years, the age for a QCD remains at 70½. The maximum allowable is $100,000 per taxpayer a year. A husband and wife can each make a QCD if they have separate IRAs.

Answer: Qualified charitable distributions can be a great solution for people who have saved more in their retirement accounts than they need and who want to benefit good causes. The charity must be a 501(c)(3) organization that can receive tax-deductible contributions, and, as you note, the money needs to be transferred directly from the retirement account and the contribution made before the year’s RMD deadline, which is typically Dec. 31. There are a few other rules involved, so consider consulting a tax pro before arranging a QCD.

Filed Under: Couples & Money, Q&A, Taxes

Search