Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: Where’s that tax refund?

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Dear Liz: Like the writer in a recent column, I received a stimulus check for my late mother and dutifully mailed the IRS a check as the agency requested on May 6. The check finally cleared on Aug. 12. So, yes, the IRS will absolutely eventually cash it. However, I’m still waiting for the federal tax refund for my mother’s final tax return, which I mailed on April 20. I figure if it took them over three months to just cash a check, it’ll be at least a couple more months, if not longer, to process the return.

Answer: You’re probably right, and — as the previous column emphasized — the IRS does not need calls from people about non-urgent matters as the agency slowly works through its massive backlog. If you can wait to talk to the IRS, in other words, you should.

Q&A: Social Security ‘child benefit’ math

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Dear Liz: I just turned 62 and I have 3 children, ages 11, 13 and 15. I understand that starting Social Security now means my benefit is permanently reduced. Should I delay or take it now, since my children could get benefits?

Answer: The so-called “child benefit” complicates the math that usually favors delaying the start of Social Security.

Each of your children could get a monthly check equal to half your benefit because they’re under 18 and presumably unmarried. (Unmarried children who are under 19 but still in high school, or 18 or older with a disability that began before age 22, also can qualify.) There’s a family maximum that limits the total that can be paid to any household, which ranges from 150% to 180% of the parent’s full benefit amount.

Your kids can’t receive these benefits unless you’re receiving yours, however. Applying before your own full retirement age, which is 66 years and 8 months, permanently shrinks your check and subjects the family benefits to the earnings test if you’re still working. The earnings test reduces your benefit by $1 for every $2 you make over a certain limit, which this year is $18,240. The earnings test goes away after you reach full retirement age.

If you’re married, your claiming strategy also needs to consider your spouse. A reduced benefit could affect the survivor benefit one of you will have to live on when the other dies.

With so many variables to consider, you’d be smart to consult a Social Security claiming strategy site such as MaximizeMySocialSecurity or Social Security Solutions. These services aren’t free, but an investment of $20 to $50 could result in thousands more over your lifetime.

Q&A: Here’s why two 401(k) accounts aren’t better than one

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Dear Liz: I changed jobs more than three years ago and did not roll over my 401(k) when I started a 401(k) account with my new employer. I’m perfectly happy having separate accounts. However, I’ve read some IRS rules that I cannot understand about being penalized for not contributing to a 401(k) for five years. So my question: After turning 59½, will I face any sort of penalty or loss when I begin withdrawing funds from a 401(k) account that has been sitting idle?

Answer: There’s no penalty for not contributing to an old 401(k). In fact, you cannot contribute to an old 401(k). Once you leave the employer that sponsored the plan, you generally can’t put any more money into it.

What you may have stumbled upon are IRS rules that apply to employers who sponsor 401(k) plans that have a profit-sharing component.

Employers aren’t required to make contributions to these plans every year — there may be years when there’s no profit to share — but their contributions have to be “recurring and substantial.” If the employer hasn’t made contributions in three of the past five consecutive years, the plan could be terminated, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

That obviously doesn’t apply to your situation, and if you want to continue managing two 401(k) accounts, you’re welcome to do so. But consider rolling the money into your new employer’s plan, if it’s a good one and accepts such transfers. That would mean one fewer account you need to track and also could give you access to more money if you wanted to take out a loan.

Friday’s need-to-know money news

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Today’s top story: Why taking Social Security early costs too much. Also in the news: Student loans still cover living costs with classes online, why you should renew your passport right now, and how millennials and Gen Z are using TikTok to learn about personal finance.

Why Taking Social Security Early Costs Too Much
Longer lifetimes make the penalty for taking Social Security early, and the reward for delaying, too high.

College Going Online? Student Loans Still Cover Living Costs
Your cost of attendance might be different if you’re learning remotely due to COVID-19.

Why you should renew your passport right now
Try to beat the long lines.

How millennials and Gen Z are using TikTok to learn about personal finance
Sharing tips they didn’t learn in school.

Why taking Social Security early costs too much

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Starting Social Security early typically means getting a smaller benefit for the rest of your life. The penalty is steep: Someone who applies this year at age 62 would see their monthly benefit check reduced by nearly 30%.

Many Americans have little choice but to accept the diminished payments. Even before the pandemic, about half of retirees said they quit working earlier than they’d planned, often due to job loss or health issues. Some have enough retirement savings to delay claiming Social Security, but many don’t. And now, with unemployment approaching Depression-era levels, claiming early may be the best of bad options for older people who can’t find a job. In my latest for the Associated Press, why it pays to wait with Social Security.

Wednesday’s need-to-know money news

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Today’s top story: Choosing the right vehicle for your off-road adventures. Also in the news: Why a new fee shouldn’t stop you from refinancing your mortgage, what to do when you’ve paid off your credit card debt, and how to manage any credit card debt you may have racked up the last few months.

Choose the Right Vehicle for Your Off-Road Adventures
A versatile SUV can take you almost anywhere, but prepare for trade-offs the farther you venture off-road.

The Property Line: Don’t Let New Fee Stop You From Refinancing
Millions of homeowners could still benefit from refinancing their mortgages to get a lower interest rate.

You paid off all of your credit card debt—what to do next?
Don’t cut up those cards just yet.

How to manage any credit card debt you may have racked up the last few months
Talk to your lenders.