Liz Weston

Audit your credit cards for greater savings

May 1, 2023 By Liz Weston

Credit card rewards help our family save money on groceries, gas and other necessities. We also use rewards for airline tickets, hotel rooms and airport lounge access.

We’re in good company. Most Americans have at least one rewards card, and nearly half of rewards cardholders are using their perks to help offset rising inflation, according to a 2022 Wells Fargo survey.

But a recent review of our cards revealed that some are no longer worth their annual fees or have been eclipsed by better offerings.

Credit card fees, reward rates and benefits change all the time. So do the ways we spend our money, which means a card that used to be a good fit may no longer work as well. Given all that, it’s not surprising that fewer than one-third of credit card users feel that they’re making the most of their rewards cards, according to J.D. Power’s 2022 U.S. Credit Card Satisfaction Study.

In my latest for the Associated Press, learn how to audit your credit cards for greater savings.

Q&A: Taxes on account withdrawals

May 1, 2023 By Liz Weston

Dear Liz: We have two large expenses that need to be paid this year. I’m in my late 60s. My wife is in her 50s. I think that we should pull the money from our brokerage account (which is taxable) and protect the money in our IRA and Roth IRA accounts so that it can continue to grow tax deferred (and tax free in the case of the Roth). My wife feels that the withdrawal should come from the IRA or Roth IRA, saying that the money used from the brokerage account would be “double taxed.” Which account would you pull the money from?

Answer: There should be no double taxation when you sell investments in a brokerage account. You pay taxes only on the growth in value of the investments you bought.

She may be confused if you’ve paid taxes in the interim on dividends and capital gains distributions. If those were paid out to you, they’re no longer part of your investment and won’t be taxed again when you sell. If the dividends and capital gains were reinvested, those amounts should be added to the original purchase price to determine your tax basis, or the amount you can deduct from the sales proceeds to determine your capital gains.

You typically benefit from favorable capital gains rates if you sell investments in a taxable brokerage account that you’ve held for at least a year. By contrast, withdrawals from traditional IRAs are typically taxed at higher income tax rates. A large enough withdrawal from a traditional IRA could throw you into a higher tax bracket. And withdrawals from either the brokerage account or the traditional IRA could increase your Medicare premiums.

Qualified withdrawals from a Roth may not affect your taxes or premiums, but as you noted you’d be giving up future tax-free compounding, which could be an even stiffer price to pay.

It also matters who owns the retirement accounts. For example, a withdrawal from your wife’s IRA could be penalized as well as taxed if she’s not yet 59½.

There are enough moving parts to this decision that you’d be smart to consult a tax pro who can model how the various transactions will affect the rest of your finances.

Q&A: How to help someone else build credit

May 1, 2023 By Liz Weston

Dear Liz: My 30-year-old son lives in Southeast Asia. He has some U.S. bank accounts but no U.S. credit cards. If I add him to my credit card, will that help to establish credit? Or is there another way for him to start getting credit in the U.S.? At some point, he and his wife will move back to the U.S.

Answer: Adding someone to your credit card as an authorized user can be a great way to help them build credit. Your history with the card is typically added to the other person’s credit reports and used in calculating their credit scores. If you can add him to more than one card, even better. As long as you use the cards responsibly — paying the bills on time, using only a fraction of the available credit — his scores should benefit.

You don’t have to give your son access to the cards for this to work. If you do, keep in mind that authorized users aren’t responsible for paying any charges.

Authorized users typically can be added or removed with a phone call to the issuer. You also can add an authorized user online by logging into your credit card account. But removing them may require you to pick up the phone.

Your son can build credit in other ways, including credit builder loans and secured cards, but those may have to wait until he has a U.S. address.