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Liz Weston

Missing or bogus tax forms? Here’s what to do

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A couple of my Facebook fans haven’t gotten their taxes done because they’re missing key forms–one has a W-2 that’s incorrect, while the other is missing a 1099-R.

These aren’t unusual problems, so I’m hooking you up with the resources you’ll need if you’re facing a similar situation. Here’s what to do:

Gather relevant information. In the case of a missing or incorrect W-2, you’ll want to have handy the employer’s exact name, address and Employer Identification Number (EIN) if possible. (You can find the EIN on a previous year’s W2, if you have that.) It’s also handy to know what the missing or incorrect form SHOULD say, if you have that information from your year-end pay stub or bank records.

Call the IRS at 800-829-1040. Expect to spend a fair bit of time on hold, as they’re a bit busy this time of year. In the future, you can call the agency if you haven’t received a form by Feb. 15 (in other words, don’t wait until the last minute).

Explain the problem. With missing or incorrect W-2s, ask the agent to open a Form W-2 complaint. You’ll need to fill out a Form 4852, which is a substitute W-2 you fill out using the information you have, such as a year-end pay stub. You can find the form and other information here. Missing 1099s often aren’t a big deal, since you don’t need to attach them to your form, with the exception of the 1099-R, which reports tax withheld on retirement plan distributions.

Expect this to delay your refund. If you can’t get a corrected form in time (which is doubtful, at this point), your refund may be held up while the IRS verifies your information.

You may need to file an amended return. If you get a corrected form after the tax-filing deadline and the amounts are different than the ones you entered on your form, you may have to file a 1040X amended return.

You could also consider filing for an automatic six-month extension. You’ll still need to pay any tax owed by April 17, and could face some penalties if you underpay, so use this as a last resort.

20 best cars for teens

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My good buddy Des Toups has a nice piece at CarInsurance.com about the best cars for teens. He started with the 65 cars that made the Insurance Institute for Highway Safety’s 2008 Top Safety Picks list, then whittled them down to those with likely price tags of $15,000 or less, average or better reliability, and gas mileage of 20 mpg or higher. He also has some good suggestions for how to keep somewhat of a lid on insurance costs–although make no mistake: you are going to feel it deep in the wallet when you insure a teen driver.

The #1 car? An Audi. For the rest of the list, click here.

Is a money manager worth the cost?

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Dear Liz: My husband and I are nearing 60. The company where we both have worked for over 30 years recently merged with another firm. The money in our retirement accounts, which totals several hundred thousand dollars, will be distributed to us, and we need to figure out how to manage it.

We took your advice to interview several fee-only financial planners, and all of them are pushing for wealth management. They would manage the money in exchange for a percentage of the assets. How do we find an unbiased opinion of whether it is worth it to spend over $10,000 a year for this service rather than putting that money toward our retirement?

I find it doubtful that any of the planners can earn a return that would be worth at least $10,000 a year. We’re with Vanguard’s Target Fund 2020, which we currently use for retirement funds we have gathered outside of work.

Answer: You’re right that a financial planner — or any money manager, for that matter — is unlikely to offer returns substantially above what you would get in passive investments that seek to match the market, rather than beat it. Study after study shows that few investors, professional or amateur, can consistently outperform the stock market averages.

What wealth management should provide is a suite of services to help you in all areas of your financial life. You should get a comprehensive financial plan as well as assistance with your taxes, insurance needs and estate planning.

Your investments should be targeted to your specific needs, time horizon and risk tolerance. Your planner should advise you about sustainable withdrawal rates once you retire, so that you minimize the risk of running out of money.

Your planner should be willing to act as your fiduciary, meaning your needs come first, so you don’t have to worry about the conflicts of interest that may arise when an advisor is recommending products that pay him or her commissions. The best wealth managers, in short, provide a one-stop shop that alleviates the need for you to try to coordinate all these services yourself.

If you don’t feel you need this level of service, however, seek out a fee-only planner who works by the hour. You can find referrals to this type of fee-only planner from the Garrett Planning Network at http://www.garrettplanningnetwork.com.

Credit scores not perfect? Don’t sweat it

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Dear Liz: I just bought a home and my FICO credit scores are excellent: 842, 813 and 809. I requested copies of my files from all three credit bureaus, and one of them — which showed me with the lowest score — said the reason my score wasn’t higher is that I had “too many inquiries in the last two months” (I had two, one of which was for my mortgage) and an “insufficient length of credit history” (my first credit account was opened in 1980). I called the bureau, but the representative wouldn’t give me any more information and just wanted to sell me my credit score for $7.95. The person I talked to was in India, which upset me even more. If companies want to outsource to foreign lands, that’s up to them, but they are making money of off every American’s personal history. We should have a right to keep our personal information here in the U.S. I have emailed my lawmakers about this, but what more can I do?

Answer: One of the things you can do is stop worrying about why your credit scores aren’t higher. Once you get above 760 or so on the 300-to-850 FICO scale, you’ll get the best rates and terms from virtually any lender. The software that provides the scores is set up to spit out “reason codes” for why your numbers are the way they are, but the higher your scores, the less relevant those reasons may be. The software has to tell you something, even if “fixing” the “problem” wouldn’t really affect your numbers.

You also need to stop turning to the credit bureaus for information about your scores. Although they sell FICO scores to lenders, the bureaus use a proprietary formula purchased from another company (also called FICO). The bureaus can’t really tell you much more about how the formula works than you could find out for yourself at MyFico.com, which is a site FICO co-founded. Plus, the credit scores the bureaus want to sell to you typically aren’t the FICO scores used by most lenders.

As for your right to decide where your credit information is kept, in effect you have none. The credit reporting system was set up to benefit lenders, not consumers. If you want to change that, continue contacting your lawmakers.

More mega millions madness: Money pros weigh in

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Here’s a recent post from Credit.com where a bunch of us money types hold forth about the lottery:

Mega Millions Madness: Money Pros Weigh In (via Credit.com)

Let’s face it. When it comes to things like lottery jackpots, personal finance experts and writers tend to be wet rags. We usually put lottery ticket purchases in the same category of money sins as bottled water or spending $5 for a cup of coffee that can be brewed at home for 25 cents. But whom…

[Read more…] about More mega millions madness: Money pros weigh in

You’re not going to win the lottery. But if you do, read this.

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With so much talk about the record Mega Millions jackpot, I thought I’d throw in my two cents:

First cent: You’re not going to win. The odds are ridiculous.

Second cent: If you should win this or any other windfall, even a much smaller one, you’ve got some work ahead of you.

If you’ve never had money, you may not realize how much effort it takes to manage it wisely–and not lose it. You don’t want to wind up like the folks featured in SmartMoney’s “Why lottery winners go bankrupt“–lottery winners who went bust, or even to jail.

So here’s my MSN column “You won the lottery. Now what?” When you don’t win, you can still read it for advice about what to do should any major windfall enter your life.