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Liz Weston

Wednesday’s need-to-know money news

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Today’s top story: Your credit history opens doors – here’s how to build it. Also in the news: what happens to your debt if your school closes for good, and exit strategies for young adults forced home during COVID-19.

Your Credit History Opens Doors — Here’s How to Build It
About 13% of Americans in a survey said that they don’t have a credit history, and some don’t know how to get started.

If Your College Closes for Good, What Happens to Your Debt?
You have two options.

Is That Nearly New Salvage-Title Car Really a Deal?
A few dealers now specialize in professionally rebuilt salvage-title vehicles. The risks remain, though.

Exit Strategies for Young Adults Forced Home During COVID-19
How to make the Great Escape.

Are Medicare Advantage plans worth the risk?

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About 1 in 3 people 65 and older in the U.S. enroll in Medicare Advantage, the private insurance alternative to traditional Medicare. It’s not hard to see why: Medicare Advantage plans often cover stuff that Medicare doesn’t, and most people don’t pay extra for it.

But Medicare Advantage can be more expensive if you get sick because copays and other costs can be higher, says Katy Votava, president of Goodcare.com, a health care consultant for financial advisors and consumers.

Unhappy customers who want to switch back to traditional Medicare may find they no longer qualify for the supplemental policies to help pay their medical bills, or that they would face prohibitively high premiums.

“These are complicated products,” says Votava, author of “Making the Most of Medicare.” “They’re like nothing else, no other insurance that people encounter anywhere until they get to Medicare.”

In my latest for the Associated Press, making sense of the Medicare alphabet soup.

Tuesday’s need-to-know money news

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Today’s top story: For lower-credit homeowners, refinancing is harder, but not hopeless. Also in the news: 4 home insurance pitfalls to avoid during hurricane season, survey finds majority of parents want personal finance taught in high schools, and how to decide between a 15-year and 30-year mortgage.

For Lower-Credit Homeowners, Refinancing Is Harder, but Not Hopeless
With lenders raising minimum qualifications, homeowners with scores below 700 may struggle to refinance.

4 Home Insurance Pitfalls to Avoid During Hurricane Season
Do not skip flood insurance.

Survey finds majority of parents want personal finance taught in high schools
Starting off on the right foot.

How to Decide Between a 15-Year and 30-Year Mortgage
The pros and cons of both.

Monday’s need-to-know money news

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Today’s top story: Should I pay for my hotel using cash, points or both? Also in the news: A new episode of the SmartMoney podcast on fake reviews and saving too much, 5 travel writers draft their favorite airlines, and where to get relief if there isn’t a second stimulus check.

Should I Pay for My Hotel Using Cash, Points or Both?
Here’s how you can figure out which booking option offers the best value.

Smart Money Podcast: Fake Reviews and Saving ‘Too Much’
How to tell if that review is sincere.

5 Travel Writers ‘Draft’ Their Favorite Airlines
In the spirit of the popular sports-related pastime, we’ve created our own fantasy airline draft.

Where to Get Relief if There Isn’t a Second Stimulus Check
Look for aid locally.

Q&A: Finding affordable financial planning

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Dear Liz: I’ve read your advice and that of many others to only use a fee-only financial planner. However, we’ve never felt like we could afford that expense, and many of the planners I’ve found wouldn’t take accounts as small as ours anyway. We’re in our mid-40s and feel like we’ve wasted many years waiting to be “ready” for a fee-only planner. Is it really better to have zero financial planning advice, rather than just using a free planner?

Answer: A “free” planner is typically an advisor who is paid by commission. You may not pay for the advice directly, but you could wind up with underperforming, overpriced investments because the advisor is not required to put your best interests first.

You can find certified financial planners who charge by the hour at Garrett Planning Network, and the XY Planning Network represents planners willing to charge monthly retainers. Many discount brokerages and robo-advisors offer access to certified financial planners, as well. You might also consider an accredited financial counselor or financial fitness coach, which you can find through the Assn. for Financial Counseling & Planning Education. Whereas many certified financial planners cater to higher income people, coaches and counselors handle issues relevant to middle- and lower-income Americans, including budgeting, debt management and retirement planning.

Q&A: Death, taxes and home sales: How to handle the mixture

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Dear Liz: My wife and I bought our house 61 years ago in Southern California. The wife passed away seven years ago, and I became the sole owner. If I should die owning the house, I know my daughter will inherit and her tax basis will be the value of the house on that date. But if I sell the house, I’m not sure what my basis will be. Do I pick up the 50% of what the house was worth on the day my wife died and add to that the 50% of the original purchase price that would be mine? Or is my basis the original price of the house?

Answer: In most states, only your wife’s half of the home would get a new value for tax purposes at her death. In community property states such as California, though, both her half and yours get this step up in tax basis.

Tax basis determines how much taxable profit there might be when property and other assets are sold. For those who aren’t sure how tax basis works, a simplified example might help.

Let’s say Raul and Ramona bought their home for $40,000 in 1959. In 2013, when Ramona died, the home was worth $800,000. Today, it’s worth $1 million.

At her death, Ramona’s half of the home got a new tax basis. Instead of $20,000 (half of the purchase price), her half of the home now has a tax basis of $400,000 (half of its $800,000 value at the time).

In most states, Raul would keep the $20,000 tax basis on his half, so his combined basis in the home would be $420,000. If he should sell the home for $1 million, the profit for tax purposes would be $580,000.

In California and other community property states, the entire house gets a step up in basis to $800,000 when Ramona dies. If Raul sells the house for $1 million, the profit (or capital gain, in tax parlance) would be $200,000.

Of course, there would be no tax owed on this home sale, since Raul can exempt up to $250,000 of home sale profits. Raul could use Ramona’s home sale exclusion, and avoid tax on up to $500,000 of home sale profit, if he sells the home within two years of her death.

If Raul keeps the home until his death, on the other hand, it will get a further step up in tax basis equal to whatever the home’s fair market value is at the time (let’s say $1.2 million). If the daughter sells it for that amount, no capital gain tax would be owed.