Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: Claiming Social Security benefits

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Dear Liz: My husband turned 70 this past May and waited until then to take his Social Security. I am 61 and will qualify for a benefit based on my work history, although my benefit is substantially less than his. I understand I can take half of his benefit at my full retirement age of 67. I asked a Social Security representative if I could take my (reduced) benefit at age 62 and then switch to half of my husband’s benefit at 67. She told me I should file at 62 and take half of his benefit at that time. That sounds too good to be true, and your article and others I’ve read disagree with her advice.

Answer: Social Security representatives aren’t supposed to give people advice about when or how to claim their benefits. But ideally they would offer correct information about your options.

Congress did away with most people’s ability to switch from a spousal benefit, which is up to 50% of their partner’s amount, to their own benefit. Now when you apply for Social Security, you’ll be considered to be applying for both a spousal benefit and your own benefit and you’ll get the larger of the two. There’s no switching later.

It could be that your own benefit will always be smaller than your spousal benefit, regardless of when you apply. But that doesn’t mean it’s a smart decision to lock in a permanently reduced benefit by applying early.

AARP has a free Social Security claiming calculator you can use to explore the impact of applying at different ages.

More retailers are charging return fees. Here’s how to pay less

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If you’re someone who likes to return and exchange gifts after the holidays, prepare yourself: Making returns could feel a little different this year.

“It’s going to be hard for consumers to navigate,” says shopping expert Trae Bodge. “The return policies are all over the place.” The biggest change, she adds, is that more retailers are charging fees for returned merchandise.

About 40% of online and brick-and-mortar retailers are charging fees for returns this year compared with 31% last year, according to David Morin, vice president of customer strategy at Narvar, which handles shipping, tracking and returns information post-purchase for online retailers. Those return shipping or restocking fees are generally $3.99 to $9.99, he says.

The good news is there are ways to minimize return fees and in some cases avoid them altogether. In Kimberly Palmer’s latest for the Seattle Times, learn how to pay less return fees.

Q&A: Closing credit cards could hurt scores

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Dear Liz: If I have a few credit cards, why would my credit be negatively affected if I paid off and closed some?

Answer: Your credit scores won’t be negatively affected by paying off your card balances — quite the opposite. Paying off debt improves your credit utilization — the amount of your available credit you’re actively using — and that’s a powerful way to boost your scores.

If you close accounts, however, that would reduce your available credit, and that’s bad for your credit scores. That doesn’t mean you can never close a credit card, but you should do so sparingly and try to keep open your cards with the highest limits, if possible.

Q&A: Social Security benefits for exes

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Dear Liz: I divorced after three decades of marriage, and my ex remarried before age 60. If I understand Social Security’s rules correctly, that remarriage disqualified my ex from claiming a survivor’s benefit based on my work history. Here’s my question: If my ex’s current spouse dies before he does, does that then make him eligible to claim a survivor benefit on MY work history? I am retired and collect my Social Security benefit; he too is retired and presumably collecting his.

Answer: Yes. If your ex is widowed, he typically would have the option of taking a survivor benefit based on his most recent spouse’s work history, or a divorced survivor benefit based on your work history, instead of his own benefit. His choice would not affect how much you receive.

Q&A: Their 529 college savings plans have a problem: The students graduated. Now what?

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Dear Liz: My adult children both have money left in 529 accounts that I control as well as uncashed savings bonds given by generous grandparents. We were able to get them through college without needing the funds, but neither has decided to continue with graduate education and the funds have been stranded because of the high tax rate on non-education use. With the recent rule change for 2024, we plan to start converting the 529s into Roth IRAs, but this will take several years as we understand the contribution limits. Can you please discuss the IRA conversion process and make suggestions for cashing or converting the mature savings bonds to minimize the tax burden?

Answer: As you may know, interest on savings bonds isn’t subject to state or local taxes. Federal tax can be paid annually on savings bond interest, but most savers defer paying tax until the bonds are cashed in or reach final maturity, which happens 30 years after their issue date. Savings bond interest can be tax free if used for qualified education expenses, but there are a number of restrictions. For example, bond buyers must be 24 or older; if the bonds were registered in the children’s names, the qualified education exemption wouldn’t be available. (See IRS Publication 970 for details.)

You have more options for preserving tax-free use of the 529 funds. Starting next year, you’ll be able to roll up to $7,000 from each child’s 529 into a Roth IRA for them. The child must have been a beneficiary on the 529 for at least 15 years and contributions made within 5 years, plus their earnings, aren’t eligible to be rolled over. Any amounts they contribute to their own IRA or Roth IRA would reduce the amount you could roll over.

You can continue annual rollovers up to the Roth IRA contribution limit until a total of $35,000 has been transferred. The rollover must be direct or “trustee-to-trustee” — don’t ask the 529 plan to send you a check.

If you have money left over in the accounts after these rollovers, you could consider changing the trustee to a relative of the beneficiary. Eligible relatives include the child’s spouse, children and other descendants, parents and ancestors, in-laws, cousins, aunts, uncles, nephews and nieces and spouses of those relatives.

Even if you decide to pull the money out and pay the penalty, the taxes may not be as exorbitant as you fear. You’ll typically pay income tax and a 10% penalty, but only on the earnings, not the original contributions.