Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: Taxes on home sales

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Dear Liz: I thought that if you occupied a home as your principal residence for two of the last five years that you could exclude capital gains of up to $250,000 if single or $500,000 if married. Someone recently told me that this has been changed to a pro-rata calculation.

Answer: That someone was wrong. The pro-rata calculation applies to people who have not owned and lived in the home for at least two years but who meet other criteria for a partial exemption. The percentage of gains you can exclude from your income is based on the percentage of the two-year requirement you fulfilled.

Let’s say you had to sell the home after a year because your place of employment changed to one at least 50 miles away. You could exclude capital gains of up to 50% of the exemption amount — $125,000 if single or $250,000 if married — from your income.

Q&A: Roth IRA withdrawal rules

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Dear Liz: In a recent column you mentioned that you can take money out of a Roth IRA at age 59½ without a penalty. I believe a Roth IRA must be in force for at least five years before you can take money out, regardless of age. Is this correct?

Answer: At any time and at any age, you can withdraw an amount equal to what you contributed to a Roth IRA. So if you’ve contributed $5,000 a year for four years to a Roth, you can withdraw $20,000 without worrying about taxes or penalties.

The five-year rule kicks in when you start to withdraw earnings. You can avoid both taxes and penalties on these withdrawals if the account was established at least five years ago and you’re 59½ or older. If the account isn’t at least 5 years old, you must pay taxes on the earnings withdrawn but don’t have to pay the usual 10% penalty if you’re 59½ or older.

A five-year rule also applies to Roth conversions. Each conversion or rollover you make is subject to a separate five-year waiting period.

Q&A: The thought of ending up old and alone can be terrifying. It doesn’t have to be that way

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Dear Liz: My wife and I have no children to take care of us in our old age, and I am scared to death regarding what will happen to the surviving spouse when one of us dies or we become incapacitated. We are 69 and 67 respectively and I think a lot of “boomers” are facing this issue. Any thoughts?

Answer: Consider getting a copy of the book “Essential Retirement Planning for Solo Agers: A Retirement and Aging Roadmap for Single and Childless Adults” by certified retirement coach Sara Zeff Geber. The NextAvenue site also has a wealth of information on how to prepare for aging and incapacity if you don’t have kids or don’t have ones you can rely on.

Geber provides far too much valuable information to summarize here, but one important strategy is to create a strong social network. Not only can this combat social isolation and loneliness — which are as dangerous to your health as smoking — but these folks can help look out for you and vice versa.

If your social circle is small or you’re out of the habit of making new friends, consider activities that put you in contact with others such as volunteering, taking classes or joining exercise groups. Also check out the Village to Village Network, a nonprofit that helps people age in place by encouraging groups of neighbors to help one another with rides, services and activities.

Living in close proximity to others and in areas with robust social services also can make a huge difference for solo agers. Another option, if you have the means, is to consider a continuing care retirement community that allows independent living to start, with assisted living and sometimes nursing home care as needed.

Every adult needs an advance healthcare directive, such as the free ones at Prepare for Your Care. These documents allow someone you trust to make health decisions if you should become incapacitated. It’s OK to name your spouse, but you also should have at least one and preferably two or more backups. Filling one out can help you think deeply about the people currently in your life you can trust with this task, and may encourage you to deepen those ranks if they’ve gotten a little thin.

Shopping on social media the smart way

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When Ziwei Cong bought some sweatpants that caught her eye during a livestream shopping event on social media, she was disappointed when they arrived and didn’t fit well.

“It’s very easy for me to become irrational during these kinds of shopping events,” says the assistant professor of marketing at Georgetown University’s McDonough School of Business. She adds that the hosts can be very persuasive and hook you with limited- time offers to trigger impulse purchases.

Social shopping, or purchases made through social media sites that sometimes incorporate livestreaming events with influencers, is booming. Almost half of U.S. consumers (47%) say they’ve made a purchase on social media, and 39% say they have bought that way and would do so again, according to 2022 data in a report released in April by the market intelligence agency Mintel.

“Shopping on social media has really taken off more with younger consumers. They’re on their phones more and on social media more often, so it’s easier to purchase via social media when they find a product they like,” says Katie Hansen, senior retail and e-commerce analyst at Mintel and author of the report.

In Kimberly Palmer’s latest for the Washington Post, learn guideposts when engaging in social shopping.

This week’s money news

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This week’s top story: Smart Money podcast on travel tips and budgeting for a non-traditional life. In other news: Getting more EVs will require recycling more old batteries, June Fed meeting and a pause on rate hikes, and 7 ways for couples to earn travel points and miles together.

Smart Money Podcast: Nerdy Travel Tips, and Budgeting for a Non-Traditional Life
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

Getting More EVs Will Require Recycling More Old Batteries
Battery recycling is in its infancy. The EV future depends on it growing up.

June Fed Meeting: Finally, a Pause on Rate Hikes
After 10 consecutive rate hikes, the Fed paused the federal funds rate at its June meeting.

7 Ways for Couples to Earn Travel Points and Miles Together
Two wallets are better than one. Earning with your partner can really boost your points game.

Q&A: Finding a fiduciary

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Dear Liz: I am 55 and a single mom of three teenagers. My money has been sitting at a discount brokerage firm unmanaged … ugh!! I need help, but I am afraid to hire someone who will lose my money. Plus, two of my kids are old enough now to open a retirement account. We need help!

Answer: There’s actually no age minimum on contributing to a retirement fund; your kids just need to be earning at least as much money as they’re putting into the account. If they want to contribute the maximum $6,500 to an IRA, for example — or you want to contribute that much on their behalf — they have to earn at least $6,500.

The word you’ll want to keep in mind when seeking help with your money is “fiduciary.” Your advisor should be willing to put in writing that they will put your interests ahead of their own.

Many advisors are held to a lower “suitability” standard, which means they can recommend investments that are more expensive or perform worse than available alternatives, simply because the recommended investment pays the advisor more.

You don’t actually need a human being for investment management, though. Your investing firm probably offers target date mutual funds, which adjust the mix of investments to be more conservative as your retirement date nears. Another option is a robo-advisor, which handles the investing according to a computer algorithm.

Where a human can come in handy is if you have broader financial questions, such as whether you’re saving enough, when you can safely retire and whether your family is adequately insured, among other issues. Your discount brokerage may offer access to fiduciary advisors for a fee or in exchange for investing a certain amount of money.

You can also find fiduciary advisors through the Assn. for Financial Counseling and Planning Education, the XY Planning Network, the Garrett Planning Network, the National Assn. of Personal Financial Advisors and the Alliance of Comprehensive Planners, among others.