If you need to find tax help, try DIY first

Getting help from the IRS this tax season is going to be a challenge.

The IRS has finally opened the 23.4 million pieces of mail that piled up after the pandemic shuttered its processing centers last spring. But the agency still has a backlog of paperwork from last year even as it ingests this year’s returns, issues a third round of relief payments and gears up to send monthly child tax credit payments to millions of families.

The tax deadline has been moved from April 15 to May 17, giving people more time to file. Getting help is another matter. Callers face long wait times with no guarantee they’ll reach a human being. Meanwhile, many tax help sites are closed or working at reduced capacity because of COVID-19 restrictions.

In my latest for the Associated Press, common questions and answers that could save you some time or point you to resources that will help.

Tuesday’s need-to-know money news

Today’s top story: How to pick the right credit card for a major purchase. Also in the news: How to adjust your credit card strategy for 2021 travel, three factors to consider (and one to ignore) when choosing investment funds, and how you can deduct masks as a medical expense on your taxes.

How to Pick the Right Credit Card for a Major Purchase
That big-ticket item could earn you loads of rewards, or you could snag a lengthy no-interest period to pay off the purchase.

How to Adjust Your Credit Card Strategy for 2021 Travel
A new survey finds many Americans are planning trips this year. Credit card spending rewards can help cover costs.
When Choosing Investment Funds, Look at 3 Factors, Ignore 1
Forget about word of mouth.

How You Can Deduct Masks as a Medical Expense on Your Taxes
Find out how to qualify.

Monday’s need-to-know money news

Today’s top story: 5 pandemic-driven financial habits worth keeping. Also in the news: A new episode of the Smart Money podcast on spring cleaning and COVID taxes, life insurance options when living with HIV, and be on the lookout for streaming service price hikes.

5 Pandemic-Driven Financial Habits Worth Keeping
Americans have picked up new financial habits during the pandemic, and continuing them could boost their finances.

Smart Money Podcast: Spring Cleaning and COVID Taxes
Tidy up your digital life.

Living With HIV? Life Insurance Is Available but Limited
People living with HIV have options, but strict requirements make coverage difficult to secure.

Watch Out for These Streaming Service Price Hikes
Streaming is getting costlier.

Q&A: Where to find the most bang for your savings buck. Spoiler: On Wall Street

Dear Liz: I recently sold my home and want to put away funds for my daughters. I want to place $130,000 each in an account that will earn 7% to 10% interest for 30 years or so, providing them with a comfortable retirement fund. I’m thinking of having them start with a low-cost index mutual fund. What are the drawbacks to placing all of the funds in one mutual fund account?

What are the tax implications?

Answer: Stock market index funds mimic a benchmark, such as the Standard & Poor’s 500. That means you’re typically getting at least some diversification, which can help reduce the volatility of your investment.

You could reduce volatility even more by including bond market index funds, or opting for a target date fund that spreads the money across a mix of investments — stocks, bonds, cash. Target date funds are labeled with a specific year in the future and gradually reduce risk as that date approaches. Or you could consider a robo-advisor, which uses computer algorithms and ultra-low-cost exchange-traded funds to create and manage a portfolio.

These investments typically will generate taxable returns, so you’ll want to discuss the implications with a tax pro.

Also, you mentioned earning interest, but interest is what is paid on bonds and savings accounts. Returns are what investors earn on stocks and other higher-risk investments. No investment currently pays 7% to 10% interest. Over time, stocks typically generate average annual returns of 8% or so, but returns aren’t guaranteed and some years your stocks may lose money.

Q&A: Roth IRA contributions

Dear Liz: I am a retired public employee and receive most of my compensation in monthly payments, for which I get a 1099R form at tax time. The rest of my compensation also comes in monthly installments and I receive an annual W-2 for that. My question is: Can I deposit my W-2 amount in a Roth IRA?

Answer: You must have earned income to contribute to an IRA or Roth IRA — which you apparently have, since you’re getting a W-2 form from an employer. Your ability to contribute to a Roth begins to phase out with adjusted gross income of $125,000 if you’re single or $198,000 if you’re married filing jointly.

Assuming you’re 50 or older, you can contribute a maximum of $7,000 or 100% of what you earn, whichever is less.

Q&A: Backdoor Roth Ira conversions

Dear Liz: I am 65, self-employed and have a SEP IRA as well as a Roth IRA. I’ve had a few low-income years, and I find myself in a very low tax bracket, most likely lower than when I begin to take distributions and collect Social Security in a few years. What are the steps for a “backdoor Roth” conversion? As a self-employed person, do I even qualify?

Answer: A backdoor Roth is a way for higher-paid people to get around the income limit for Roth contributions. If you’re in a low tax bracket, that limit likely isn’t a problem for you.

What you’re probably asking about is a basic Roth conversion, where you roll money from your pre-tax SEP IRA into a Roth and pay the resulting taxes. Such conversions can make sense if you expect to be in a higher tax bracket later and you don’t have to tap your account to pay the taxes, but they’re not a slam dunk.

A too-large conversion could push you into a higher bracket. or increase your Medicare premiums or both. (Higher Medicare premiums are imposed when modified adjusted gross incomes exceed $88,000 for singles or $176,000 for married couples filing jointly.)

Financial planners often recommend converting just enough to “fill out” a low tax bracket. Let’s say you’re single and currently in the 12% federal tax bracket, which ends at $40,525. If your income is $25,000, you might convert about $15,000 of your SEP to avoid being pushed into the next bracket, which is 22%.

A tax pro or fee-only financial planner could advise you about how to proceed.

Thursday’s need-to-know money news

Today’s top story: Will you really run out of money in retirement? Also in the news: What to do if your mortgage forbearance is ending, 5 home remodeling trends to watch for 2021, and how to pay your medical bills without crowdfunding.

Will You Really Run Out of Money in Retirement?
Most people adjust spending to stretch their resources, but you can proactively get help now to ease your worries.

The Property Line: Mortgage Forbearance Ending? Here Are Your Options
When your mortgage forbearance ends, options will include extension, repayment or deferment, and will vary by loan type.

5 Home Remodeling Trends to Watch for in 2021
Say goodbye to neutrals and open floor plans and hello to mood-lifting color and a place for everyone.

How to Pay Your Medical Bills Without Crowdfunding
The limits of crowdfunding.

Wednesday’s need-to-know money news

Today’s top story: How one airline is prioritizing customer safety. Also in the news: Getting your money resolutions back on track, treating your third stimulus differently, and the IRS expands eligibility for $10,2000 unemployment tax break.

Spring Travel Ahead? One Airline Is Prioritizing Customer Safety
Delta is now the only major airline blocking middle seats on all domestic flights through the spring.

Make a Plan to Get Your Money Resolution Back on Track
It’s not too late.

Why You Might Treat Your Third Stimulus Check Differently
Immediate needs come first, then savings. Consider gifts to those in need and teaching your children about money.

IRS Expands Eligibility for $10,200 Unemployment Tax Break
Find out how the tax break works.

Tuesday’s need-to-know money news

Today’s top story: IRS Free File and how to get free tax preparation or free tax help in 2021. Also in the news: How women investors can rewrite their financial futures, options for people who can’t afford their tax bills, and beware of lender’s mistakes in your credit report.

IRS Free File & How to Get Free Tax Preparation or Free Tax Help in 2021
Here’s where to get free tax software, free tax preparation and free tax help this year.

How Women Investors Can Rewrite Their Financial Futures
When preparing for a secure retirement, women can be disadvantaged. But careful planning and intentional actions can help reduce roadblocks to financial health.

5 Options for people who can’t afford their tax bills
If you can’t afford your tax bill, consider an installment plan or an offer in compromise if you qualify.

Beware of Lenders’ Mistakes in Your Credit Report
Another reason why it’s important to monitor your credit report.

Will you really run out of money in retirement?

Many U.S. households retire without enough money to maintain their pre-retirement standard of living. Once retired, though, people often reduce their spending enough to make their money last, according to a recent study by David Blanchett, head of retirement research at Morningstar, and Warren Cormier, executive director of the Defined Contribution Institutional Investment Association’s Retirement Research Center.

“People are finding a way to make it work,” Blanchett says.

The findings challenge a common financial planning assumption that retirees’ spending will increase at the rate of inflation each year. But the research also indicates many people retire without a realistic understanding of how much they can safely spend. In my latest for the Associated Press, a look at running out vs. running short.