Liz Weston

Ways to reduce tax burden

February 24, 2014 By Liz Weston

Dear Liz: My husband and I have worked very hard and paid off our mortgage and all other debt. However, we find ourselves with no deductions now and are getting killed on income taxes. What can we do to lower our tax burden without incurring mortgage or student loan debt, child-care expenses and so on? We are in about a 33% tax bracket and it seems like we are being punished for being frugal and responsible.

Answer: There’s an old saying, “Don’t let the tail wag the dog.” Incurring expenses just to get a tax break is usually absurd. When you were paying mortgage interest, for example, your tax break was only a fraction of what you paid out. In essence, you were getting about 33 cents back for every dollar you spent in interest.

Better ways to reduce your tax burden may include maxing out retirement plan contributions, taking advantage of flexible spending accounts if your employer offers them and installing alternative energy equipment in your home. (The credit for installing solar panels and similar systems equals just 30% of the cost, but the long-term energy savings may offset the rest of the bill.) If you own a business, consult with a tax pro about the many ways to cut your tax bill when you’re self-employed.

Just remember that you’re not being punished for your frugality. Your reward is more money in your pocket year-round.

Retiree can’t get home equity loan

February 24, 2014 By Liz Weston

Dear Liz: I retired last year. I am 67, have more than $1 million in my retirement accounts, $80,000 in individual stocks, $50,000 in cash and more than $200,000 in equity in my home. I don’t need to tap my Social Security benefit yet and can afford to wait until I am 70 to get the maximum monthly amount. I recently purchased a new car with a 0% loan for five years. That and my mortgage are the extent of my debt. One thing I would like to do is some home improvement. My fee-only financial planner suggested getting a home equity line of credit to cover the repairs and upgrades. This makes sense to me in that it spreads out the burden over time and is tax-deductible. My credit scores are 736, 801 and 839. But I’m finding it difficult to get a commitment from either my credit union or my bank because they don’t see an income. I have been with both of these institutions for more than 30 years and the credit union holds the first mortgage. How do we get the lenders to factor retirement assets into the qualification calculations?

Answer: Last year, mortgage giants Fannie Mae and Freddie Mac issued guidelines on retirement fund annuitization that would allow mortgage lenders to calculate a borrower’s income based on his or her retirement assets.

Lenders, however, have to be willing to go to a little extra effort to learn the rules and apply them properly.

If yours aren’t willing to do so, then it might be time to take your business elsewhere. A mortgage broker (referrals from http://www.namb.org) may be able to connect you with a lender who’s more up to date.

Deceased dad’s rock triggers bitter family fight

February 24, 2014 By Liz Weston

Dear Liz: We are settling my dad’s estate. My dad found a rock, and it sat in my parents’ frontyard for years. He worked in a gravel pit for decades, and that was the only rock he found interesting enough to bring home. When my mom died, we held an auction of their household goods. My dad told me to take the rock home. I said that to be fair, the rock should be sold at auction. A family member then stole the rock and has been hiding it for more than two years. This person says it’s going to be placed on my dad’s grave site. I’m an executor, and I feel that the decision wasn’t the relative’s to make. It’s the only possession of Dad’s that I really want as a remembrance of him. We were extremely close. Dad knew the rock was taken to spite me, and it really bothered him. What are your thoughts?

Answer: Many of the items that trigger bitter family fights after a death don’t have much fair market value. Family members imbue these objects with sentimental value and then go to war over them. They might insist it’s the only thing they really want, or that they want it for their kids. Some go so far as to destroy their relationships with their loved ones to gain control of the supposed heirloom. (Which, often as not, winds up in the next generation’s yard sale, as appraiser Julie Hall once noted.)

Maybe this relative did swipe the rock to spite you. Maybe this is just the latest chapter in a drama that’s been playing out since childhood: “Dad always liked you better!” Maybe you’re especially chafed that your relative took advantage of your attempt to be fair.

But again, the rock probably has only the value you give it. If you decide it’s not worth fighting for, then it’s just a rock.

Friday’s need-to-know money news

February 21, 2014 By Liz Weston

Today’s big story: What you can get removed from your credit report. Also in the news: How to tell if your partner is a sound financial match, which Olympic medal would your savings plan win, and why online dating can be hazardous to your wallet.

What Can I Get Removed From My Credit Reports?
Patience is key.

Want To Know If Your Partner Is A Financial Match? Take These 8 Steps
Financial compatibility is crucial in a relationship.

Which Olympic Medal Would Your Savings Habits Win?
Go for the gold!

The Financial Risks of Online Dating
That dreamboat on the screen could actually be a nightmare.

How I went from $50,000 in debt to $50,000 in savings
It can be done!

High school graduates are losing ground fast

February 21, 2014 By Liz Weston

We’ve known for awhile that incomes have been dropping for people with only high school educations. But there was a statistic in a recent Pew Research Center study that really set me back on my heels: 22% of people aged 25 to 32 who graduated high school, but not college, live in poverty. That compares to 6% of people with college degrees.

The poverty rate overall and for the college educated has doubled since 1979, when the early wave of the Baby Boom was in the same age bracket. For those with just a high school diploma, though, the rate has more than tripled.

Meanwhile, the earnings gap between college graduates and high school graduates is the widest it’s been in 50 years.

For more on the Pew study, read my latest Reuters column. You can subscribe here to weekly updates of my education column.