Ask Liz Weston

Get smart with your money

Liz Weston

Tuesday’s need-to-know money news

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Today’s top story: Amazon card emails were a mistake, not a hack, says issuer. Also in the news: 5 ways you’re shopping Cyber Monday all wrong, the next 4 weeks will deliver major discounts, and why you should warn your parents about gold and silver coin scams.

Amazon Card Emails Were a Mistake, Not a Hack, Says Issuer
Thousands received confusing emails.

5 Ways You’re Shopping Cyber Monday All Wrong
Coupons are key.

The Next 4 Weeks Will Deliver Major Discounts
What to buy (and skip) in December.

Warn Your Parents About Gold and Silver Coin Scams
Facebook ads are targeting seniors.

Is it time to switch your college savings plan?

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College savings plans are a great way to save for education. But not all college savings plans are great.

Most state-sponsored 529 college savings plans, which allow you to invest in a tax-advantaged account for future education costs, have improved significantly in recent years, says Madeline Hume, analyst for multi-asset and alternative strategies at investment research firm Morningstar. Plans have lowered fees, improved investment options and smoothed investment “glide paths” to reduce risk.

But not every plan is keeping up. In my latest for the Associated Press, which plans have been downgraded and new ones to consider.

Monday’s need-to-know money news

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Today’s top story: Wipe out credit card debt by setting SMART goals. Also in the news: What the Schwab-TD Ameritrade deal could mean for you, 5 financial tasks you should tackle by year-end, and how to get back on track after an early retirement withdrawal.

Wipe Out Credit Card Debt by Setting SMART Goals
Tackling your debt head on.

What the Schwab-TD Ameritrade Deal Could Mean for You
Two of the largest online discount brokers are merging.

5 Financial Tasks You Should Tackle by Year-End
Starting 2020 on the right foot.

How to Get Back on Track After an Early Retirement Withdrawal
Regaining your long-term savings.

Q&A: Finding income for widow and children

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Dear Liz: You recently answered a question from someone about Social Security survivor benefits for her grandchildren. The young father who died had been paid under the table, which meant his employment didn’t qualify the children for survivor benefits. It’s a long shot, but perhaps the young man filed his taxes as if he were self-employed, in which case his employment would count toward Social Security’s requirements. If no returns were filed, perhaps the family could consider preparing and filing the returns for the last several years. That could trigger a tax bill, but the cost probably would be outweighed by the potential benefits to these young children.

Answer: That’s certainly an option worth exploring with a CPA or tax attorney, especially if the father had a bank account or some other way to document the cash he received.

As mentioned in the previous column, Social Security survivor benefits can be paid to the children of qualified deceased workers until the kids turn 18 (or 19, if they are still in high school full time), but the worker needs to have paid into Social Security a certain length of time. The children’s mother also might be eligible for benefits, if she was married to the father. As a widow caring for the deceased person’s minor children, she would be entitled to benefits until the youngest child turned 16.

Q&A: Social Security doesn’t prevent working

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Dear Liz: I have a friend who is in her early 70s and earns income from her own business but she said that she also collects Social Security. How is this possible? I thought that a person cannot earn income from a job or self-employment while also collecting Social Security. Am I wrong?

Answer: Quite wrong.

Nothing prevents people from working while receiving Social Security. If they’re receiving benefits before their full retirement age — which is currently 66 — their checks are subject to the earnings test. That test reduces the amount they receive by $1 for every $2 they earn over a certain limit, which in 2019 was $17,640.

Once people reach full retirement age, the earnings test goes away and they no longer have to worry about its effect on their checks.

Q&A: A surprise pension creates investment concerns

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Dear Liz: Before my husband died, I encouraged him to find out if he had a pension. He worked for his company for more than 10 years and was vested, but he didn’t think he qualified. A few months after he died, I found an unopened letter stating he would receive a pension after he reached his retirement date. I contacted the benefit plan service center and submitted the required documents. I now have two options for receiving the money as his beneficiary: a lump sum or a single-life annuity that would pay a monthly benefit for my lifetime only. The lump sum could be rolled over into an eligible employer plan or traditional IRA, neither of which I have, or paid directly to me, in which case the whole amount is taxable. I am 65 and my only income is his Social Security survivor benefit and a small pension from my company when I retired. So what is the best thing for me to do?

Answer: Thank goodness you found that letter. It’s unfortunate your husband didn’t understand that “vested” meant qualified to receive a pension.

You don’t have to have an employer plan or an existing IRA to keep the lump sum from being taxed right away. You can open an IRA for the sole purpose of receiving the rollover. A bank or brokerage can help you set this up.

Any withdrawals would be taxed, but you wouldn’t be required to start taking withdrawals until you turn 70½. Even then, you would be required to withdraw only a small portion each year (a little less than 4% to start). You can always take more if you want.

Your income is low enough that taxes shouldn’t be driving your decision. Instead, consider whether you’d rather be able to tap the money at will or have more guaranteed income for the rest of your life.

If you don’t have other savings, you may want to have this pool of money standing by to use for emergencies and other spending. On the other hand, an annuity is money that you don’t have to manage and that you can’t outlive or lose to fraud, bad investments or bad decisions. If you have enough emergency savings, adding more guaranteed income could help you live a bit more comfortably.