Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: How gifting property before you die gives your kids a tax headache

By

Dear Liz: My wife and I have purchased a few properties over the years and now we would like to give these properties to our children. I’ve read that the best way to gift properties is to wait until we pass away, which sounds terrible. Is there any way to transfer or gift properties without paying a huge amount of taxes?

Answer: Yes, although you’d likely be shifting the tax bill to your kids.

Currently you have to give away over $13 million in your lifetime to owe gift taxes. But if you transfer the properties to your children during your lifetime, they will also get your tax basis in the properties.

That means if they sell, they’ll owe taxes on the appreciation that’s occurred since you bought the real estate. If you bequeath the properties at your death, by contrast, the properties get an updated value for tax purposes and the appreciation that occurred during your lifetime isn’t taxed.

Gifting the properties may still be the right choice, but consider talking to an estate planning attorney and a tax pro before proceeding.

Q&A: Qualified charitable distributions

By

Dear Liz: This is the year I turned 73, and I’m planning how to take my required minimum distribution from my IRA and 403(b) accounts. I know from a Google search that I can redirect this distribution to charities without being taxed, up to a certain amount. However, the financial services company holding my 403(b) money tells me they can’t do that and won’t engage. They say take the money, pay the taxes, then donate it and take the tax write-off. Why would they make this difficult?

Answer: Because they’re correct. You can’t make a qualified charitable distribution from a workplace retirement plan. That option is available only for IRAs.

This week’s money news

By

This week’s top story: How to cope debt and chronic pain. In other news: Maximize your credit card rewards with minimal effort, what to do if your hospital drops your Medicare Advantage plan, and how a global pandemic made us richer four years later.

Debt and Chronic Pain Can Be Connected. Here’s How to Cope
Study data points to an association between owing money and pain, but you can find support and strategies to manage your debt.

Maximize Your Credit Card Rewards With Minimal Effort
If redeeming points intimidates you, don’t worry. You can enjoy your rewards without getting too intense about it.

What to Do if Your Hospital Drops Your Medicare Advantage Plan
Why this might happen — and how to handle this change to your coverage if it happens to you.

Economist: How a Global Pandemic Made Us Richer Four Years Later
An author discusses how a massive stimulus in response to the pandemic emergency was key to the quick economic rebound.

Q&A: Paying taxes electronically

By

Dear Liz: I’m a CPA and your answer about paying taxes electronically was spot-on. But there’s a pro tip you might share: I advise all my clients to establish accounts with the IRS and their state tax authority. That allows my clients to schedule payments more easily with a single log-on (rather than having to validate each time with prior year tax information). Such accounts also provide ready access to payment history, making it easier to share that information with me at tax time.

Answer: That’s an excellent suggestion. The IRS’ Direct Pay service offers a free, secure way for people to pay annual and estimated taxes from their bank accounts without having to register in advance. The IRS also provides an option to pay with credit or debit cards, for a fee.

Creating an IRS online account allows you to see amounts you owe, past payments and any scheduled payments, plus you can make a same-day payment from your bank account. You can view details of your most recent tax return, get instant access to tax transcripts and authorize your tax pro to represent you if there’s a problem. In fact, many tax pros recommend setting up an account just in case you get audited or run into other problems, rather than waiting to do it while under duress.

You’ll need a valid email address, a mobile phone number, identification such as a passport or driver’s license and your Social Security or tax identification number. The process typically takes 15 to 30 minutes to complete.

Q&A: How to roll over your 401(k) into an IRA

By

Dear Liz: My question relates to 401(k) rollovers. Are there different tax implications when it comes to rolling the money into a traditional IRA versus a traditional IRA brokerage fund? I’ve always associated the word “brokerage” with after-tax dollars.

Answer: Financial terms can get confusing, so let’s start with the basics. Both 401(k)s and IRAs are tax-advantaged accounts that allow you to save for retirement. Employers offer 401(k)s, but you can open an IRA at a brokerage, bank, credit union, mutual fund company or robo advisor, among other providers. Some people liken 401(k)s and IRAs to buckets that receive your retirement funds, while the providers are where you store the bucket.

If you leave the employer that offers your 401(k), you have the option to roll your account into an IRA so your money can continue to grow tax-deferred. (You often have other options, such as leaving the money in your former employer’s plan or rolling it into a new employer’s plan.)

When you arrange a direct rollover, the money goes straight from the 401(k) to the IRA provider and no taxes will be withheld or charged. By contrast, if you opt to have a check sent to you rather than the IRA provider — something known as an indirect rollover — 20% of your funds will be withheld for federal taxes.

If you want to avoid those taxes and have your money continue to grow tax deferred, you’d have to deposit the check into the IRA within 60 days and come up with that 20% out of your own pocket. You’d get the money back in the form of a tax credit once you file the tax return for that year, but clearly the simpler, better way is to make the rollover a direct one.

Q&A: About those annoying online payment fees

By

Dear Liz: In a recent column you wrote about the importance of paying online and the dangers of writing checks. Why does paying online come with a fee? Is it really justified to pay a “technology fee” of $12 to pay my insurance bill online? It seems to me that it should be faster and easier for the recipient if I pay online, and that NO fee is the correct amount.

Answer: Agreed. “Pay to pay” fees are annoying. It’s one thing if an entity is passing on a small transaction cost, like the 2% or 3% that payment networks may charge to process your credit or debit card payment. It’s quite another when a company charges “convenience fees” simply for accepting online payments, when such payments are far safer and more secure than sending checks through the mail. To be clear, most companies don’t charge such fees but some insurers have been slow to join the 21st century.

You may have other options. Your insurer’s site may allow you to set up automatic payments that come directly from your checking account. Or your bank’s online bill pay may have an option to send electronic payments directly to the insurer from your account.

If not, and your only safe option is to incur the fee, it’s probably time to shop for a better insurer.