Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: Is it better to spread your wealth between two financial advisors?

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Dear Liz: My parents left me with financial accounts at two companies. My instinct is to combine them to deal with one less company. Is there a downside to doing this?

Answer: You should first determine whether any of the inherited accounts is a retirement account because those come with special rules. You can’t simply merge an individual retirement account with a taxable brokerage account, for example. And you’ll want to consult a tax pro to understand how to properly title and take distributions from any inherited retirement account.

If the accounts are regular taxable accounts, then consolidating can have many advantages. Your accounts will be easier to monitor, asset allocation strategies will be simpler to execute and your account expenses could drop, particularly if you use the lower-cost company. Some brokerages offer deposit bonuses, and a higher combined balance also may entitle you to additional perks.

The primary downsides to consolidation involve risk mitigation. Brokerage failures are rare, but they do happen, and some investors opt to use more than one brokerage if their account balances exceed coverage by the Securities Investor Protection Corp.

SIPC provides coverage of up to $500,000, including $250,000 for cash, if cash or securities are missing from an account when a brokerage fails. Similar accounts are combined for SIPC purposes, so multiple IRA accounts at one brokerage will be considered one account. However, the $500,000 limit applies to each category of account. So someone with an individual account, a joint account, an IRA and a Roth would have a total of $2 million in SIPC coverage.

Having accounts at different companies also can help you retain access to at least some of your money if one of your accounts is hacked.

Q&A: Minimizing your taxes is fine — to a point

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Dear Liz: In reading your columns, one can get the impression that reducing tax liability is the primary objective for many financial advisors. I disagree with this. Paying a fair share of taxes is a responsibility to society and the less fortunate, especially for wealthy people. Why are so many financial “professionals” so obsessed with paying less in taxes?

Answer: Tax planning is an essential part of comprehensive financial planning. No one is under an obligation to pay the maximum tax possible. Those who specialize in tax avoidance love to quote a judge named Learned Hand, who wrote in 1934: “Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

Where advisors — and taxpayers — get into trouble is when they prioritize tax avoidance over all other concerns. That’s how you get advisors doing tax loss harvesting on a financial account to reduce capital gains for an older couple in the 0% capital gains bracket (an example of this behavior from a recent column).

What Can You Quit Today?

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For many years, I tried to personally answer as many reader emails as possible. I couldn’t offer personalized advice – I’m a journalist, not a practicing financial planner – but I wanted to at least point people to helpful articles, agencies or sites.

As my readership grew, this task became Sisyphean. I’d spend hours at it and barely make a dent. One morning, I was plugging away while listening to a babysitter play with our young daughter. I had an epiphany: I was giving away hours of my time. MSN, the site I wrote for at the time, certainly wasn’t paying me to answer emails. And those were hours I could spend with my kid.

There was no contest. I created an automated email message and put a note on my site, alerting people that I could not respond personally to messages.

I’ve tried to do regular audits of my time since that day. The goal is to figure out what I can quit so there’s more time for the stuff that offers the best payoff, personally or professionally. At work, my mantra became “If anyone else can do it, someone else probably should.” That allowed me to focus on the things I do best and that brought the most value to my employers or clients. At home, I looked for ways to automate, outsource or just stop doing time-sucking tasks without a lot of payoff.

What tasks could you quit today?

This week’s money news

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This week’s top story: Avoiding 4 Prime Day pit falls. In other news: How to use buy now, pay later like a pro, 60/30/10 budget, and a court ruling that blocked lower student loan bills under the SAVE repayment plan has been overturned.

Avoid These 4 Prime Day Pitfalls
Protect your wallet this month by steering clear of these four shopping mistakes.

How to Use Buy Now, Pay Later Like a Pro
Buy now, pay later is a form of credit that should be used strategically and only on certain occasions.

Is the 60/30/10 Budget Right for You?
The 60/30/10 budget may help you better manage your expenses in an economy with high inflation.

Lower SAVE Student Loan Payments Can Proceed, Court Rules
A court ruling that blocked lower student loan bills under the SAVE repayment plan has been overturned. Meanwhile, 10-year forgiveness is still on hold. Here’s how else SAVE borrowers are impacted.

Q&A: Old inherited IRA is safe from “drain it in 10 years” requirement

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Dear Liz: You have written that non-spouse beneficiaries are now required to drain their inherited IRAs within 10 years. Is this requirement retroactive?

I inherited an IRA from my mother in 2015. I have been taking out the minimum required each year. If I must drain the account within 10 years, will the increase in yearly income affect my Social Security benefits?

Answer: The 10-year requirement applies only to accounts inherited from people who died after Dec. 31, 2019.

IRA distributions don’t affect Social Security benefits, but could affect Medicare premiums if the withdrawal is large enough. Taxable income above certain limits triggers a Medicare surcharge known as an income-related monthly adjustment amount, or IRMAA.