Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: How to dump your broker and invest your own money

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Dear Liz: I have a mutual fund and a Roth IRA that are actively managed by a broker. The accounts have not done well. I would like to withdraw them from the broker and reinvest them on my own. How do I safely and securely withdraw them from the broker? What paperwork and fees should I expect?

Answer: Look through your records to find the agreement you signed with the brokerage when these accounts were opened. The agreement may include the steps for closing the account along with any fees. You also could try searching for the name of the brokerage and “account closure fees” to see what, if anything, you might owe.

The brokerage may give you the option to manage the account on your own, or you may want to set up accounts at a new, less expensive discount brokerage. Once the accounts have been opened, your new brokerage will help with the transfers. If any of your money is invested in “proprietary funds” — that is, investments offered only at the old brokerage — those investments probably would have to be sold first. Such a sale wouldn’t incur any tax consequences with your Roth IRA. If your mutual fund is proprietary, though, its sale may incur capital gains taxes.

7 saving strategies you may not have tried yet

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With the holiday shopping season just starting and prices of many consumer goods continuing to rise, saving money can seem impossible. But those financial pressures also make doing so even more important.

“Saving is your margin,” says Eric Maldonado, a certified financial planner and owner of Aquila Wealth Advisors. “When things happen — your car breaks down or there’s a layoff, or smaller stuff like gifts for the holidays — you have something to fall back on.” Maldonado notes that saving can also allow you to have money for fun things.

The personal savings rate for Americans has been dropping in the last few months, and as of July was 3.5%, according to the U.S. Bureau of Economic Analysis.

Maldonado recommends aiming for a savings rate closer to 20% of your take-home income. “You can live off of 80% and put 20% toward deferred gratification,” he suggests.

That guidance matches the popular 50/30/20 budget, which suggests putting 50% of your take-home income toward needs, 30% toward wants, and 20% toward savings and any debt payments. “If you’re just starting out, then it can be too daunting, but you can work toward it,” Maldonado adds.

In Kimberly Palmer’s latest for the Seattle Times, learn 7 saving strategies you may not have tried yet.

This week’s money news

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This week’s top story: The home and auto insurance crisis and how to keep your coverage. In other news: 5 options if you’re crushed by student loan and credit card debt, why Delta’s elite status changes matter, and 8 Latino financial influencers to follow in 2023.

The Home and Auto Insurance Crisis and How to Keep Your Coverage
What good is insurance if you can’t afford it? More people across the U.S. are finding out.

5 Options if You’re Crushed by Student Loan and Credit Card Debt
Make the most of the 12-month on-ramp period by coming up with a debt-payoff strategy.

Ask a Travel Nerd: Why Delta’s Elite Status Changes Matter
Delta is adopting requirements that raise the bar to earn elite status, leaving loyalists annoyed — and for good reason.

8 Latino Financial Influencers to Follow in 2023
Latino financial experts offer advice for building trust in financial systems, generational wealth and how financial institutions can better serve their communities.

Q&A: How to tap an unused 529 college savings plan without getting taxed

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Dear Liz: I opened a 529 college savings plan for our son and over the years it grew. My son was fortunate to receive a full-ride academic scholarship and therefore much of the money stayed in the plan. Recently my son became a new father to my first grandchild. I know that it is permissible to give five years’ worth of tax-free giving in setting up a new 529 plan for a child. My question is: Can I transfer five years of annual gift-tax-free giving ($85,000) to my grandchild from the account originally set up for my son without incurring a gift tax obligation?

Answer: You’re worrying about the wrong taxes.

Few people need to be concerned about gift taxes, since someone would have to give away more than the current gift and estate tax lifetime limit for any gift to be taxable. That limit is currently $12.92 million.

The annual gift tax exclusion limit is the amount you can give away without having to file a gift tax return. The 2023 limit is $17,000 per recipient, and 529 college savings plans allow you to give up to five years’ worth of annual exclusions at one time, or $85,000. (If you are married, you and your spouse can give up to $170,000.)

A 529 college savings plan can have only one beneficiary at a time, however. With few exceptions — and we’ll get to one of those in a moment — withdrawals are tax free only if used to pay qualified education expenses for the plan’s beneficiary. So the transfer you’re proposing would incur income taxes and penalties.

You can, however, change the beneficiary of the 529 plan to your grandchild. As long as the new beneficiary is a family member of the current beneficiary, there will be no tax consequences, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. The IRS’ definition of family includes the beneficiary’s spouse, children or other descendants, parents or other ancestors, siblings and in-laws, along with aunts, uncles, nieces, nephews and first cousins and their spouses.

You may want to wait a few years, however. Starting in 2024, you’ll have the option to roll up to $35,000 from a 529 to a Roth IRA for your son, subject to annual contribution limits, Luscombe said. If next year’s IRA contribution limit is $7,000, for example, that would be the maximum you could roll into the Roth for the year. Your son also would have to have earned income equal to the amount rolled over.

Taking advantage of this option could be a great way to help your son build tax-free income for retirement before you switch the beneficiary designation to benefit your grandchild.

Q&A: Death and document retention

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Dear Liz: After a spouse’s death, I am wondering if there is some guidance on how long to keep items such as a driver’s license, Social Security card, Medicare and health plan card, passport, veteran’s information and so on. I haven’t seen this addressed in your column.

Answer: Guidance about what to keep and discard after a death can vary widely, so you may want to ask your estate attorney for help. In general, though, you can begin to dispose of many documents three years after the estate is settled, said Jennifer Sawday, an estate planning attorney in Long Beach.

In some cases, you can shred them sooner. Social Security numbers are often printed on the death certificate, so the card can be shredded once you verify the number on the certificate is accurate, Sawday said. You also may wish to shred the passport as soon as possible to avoid it falling into the hands of an identity thief. Another option is to mark the passport “void” and keep it as a family history item, she says.

The driver’s license is another possible family history item — and boon to an identity thief — but it can be discarded at the three-year point, Sawday said. Veteran’s information can be kept for family history purposes or discarded three years after any death VA benefits are claimed.

Medicare and health plan cards should be kept in case any medical billing issues arise and then discarded when those issues, if any, are resolved, she said.

Why retirees may want to buy an immediate annuity now

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An immediate annuity is an insurance product that provides guaranteed income: You give an insurer a chunk of money, and the company gives you a stream of payments that can last for life. The payments begin within 12 months of purchase.

Now may be a good time for retirees to buy an immediate annuity, since payouts are the highest they’ve been in a decade, says Rob Williams, managing director of wealth management at Charles Schwab.

But buying an immediate annuity — also known as an income annuity or a fixed immediate annuity — is effectively irreversible, so you’ll want to choose carefully.

In my latest for ABC News, learn why retirees may want to buy an immediate annuity now.