Ask Liz Weston

Get smart with your money

Liz Weston

Weak bank? Maybe it’s time to move your money

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Dear Liz: I have all my money (less than $150,000) in one small bank. I love my bank, but Bankrate.com’s Safe and Sound report shows the bank having only a single star. I asked someone at the bank about it, and this person said the rating wasn’t important. Is it?

Answer: Of course it is. Your deposits are under the $250,000 limit protected by the FDIC, but a weak bank can fail, which can be disruptive to depositors. The bank that takes over typically doesn’t have to abide by the policies or interest rates promised by the failed bank. If regulators can’t find another bank willing to take over, you may have limited access to your money for a few days until your deposits are refunded to you.

A bank with “very questionable asset quality, well below standard capitalization and lower than normal liquidity” — phrases Bankrate.com uses to describe your institution — probably isn’t the best place to have your money.

Finding an apartment after foreclosure

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Dear Liz: My wife and I went through a foreclosure last year and need to rent an apartment. We have no credit card debt and over $30,000 in savings on an income of $75,000. We know that our credit will be an issue on apartment applications because of the foreclosure. What can we do to improve our chances of getting a decent apartment in a safe neighborhood?

Answer: Although foreclosures may not carry the same stigma they did before the real estate bubble burst, they still wreak havoc on your credit scores. Your scores will need three to seven years to completely recover, and that’s if you inflict no further damage. Paying your bills on time and using credit responsibly will help you rehabilitate those numbers.

In the meantime, you can increase your odds of finding a good place by looking for mom-and-pop landlords, rather than applying at apartments managed by huge corporations. The big companies usually rely on credit scores to screen out applicants, while a smaller landlord may be more flexible. Offering to make a bigger deposit or to pay several months’ rent in advance might help persuade them, said Stephen Elizas, author of “The Foreclosure Survival Guide.”

Find cheaper checking and ditch your bank

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If you’re sick of rising bank fees, check out a new feature at NerdWallet that allows you to compare the costs of more than 120 different checking accounts across a spectrum of banks and credit unions.

You’ll answer a few questions about how you use your account, including the minimum balance you can maintain and how much you’ll deposit each month. The feature serves up the best matches based on your answers. If you have enough cash on hand to qualify for an interest-bearing checking account, the feature can help you find some good options.

You also might want to read a couple of my previous posts on this topic: “How to shop for a new bank” and “7 steps to say ‘buh-bye’ to your bank.”

Changing banks isn’t hassle-free, but you can save some decent money switching to an institution that actually wants your business, rather than punishing you for it.

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.