December 27, 2023 By

This week’s money news

This week’s top story: Should you use your home or car as collateral for a credit card? In other news: 5 financial new year’s resolutions for 2024, airline that has been the most reliable in 2023, and to cash a check at any bank or check-cashing service.

Should You Use Your Home or Car as Collateral for a Credit Card?
Asset-secured cards backed by collateral rather than cash can give consumers more spending power and lower interest rates, but they won’t be the best fit for everyone.

5 Financial New Year’s Resolutions for 2024
Use 2024 to shore up your financial knowledge, set goals, earn more interest, pay off student debt and more.

Which Airline Has Been the Most Reliable in 2023?
Alaska and Delta are neck-and-neck for most reliable based on the data, with Alaska coming out slightly ahead.

Can I Cash a Check at Any Bank or Check-Cashing Service?
Not every bank and credit union will cash checks if you aren’t a customer, so you’ll need to evaluate your options.

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December 27, 2023 By

Q&A: Distributing funds from inherited IRAs

Dear Liz: You have referenced the relatively new 10-year rule that sets a deadline for distributing money out of an inherited IRA. You mentioned that surviving spouses are one exception to that rule. Aren’t there others?

Answer: Yes. The 10-year rule applies to IRAs of those who die after Dec. 31, 2019. Most non-spouse inheritors must empty an inherited IRA by the tenth year after the year the original owner died. If the original owners had reached the age where they were expected to make required minimum distributions, the inheritor also must take yearly distributions.

“Eligible designated beneficiaries,” however, have the option of taking distributions more slowly, typically over their own life expectancy. Eligible designated beneficiaries include the original owner’s spouse or minor children, people who are chronically ill or permanently disabled, or inheritors who are not more than 10 years younger than the original account holder. Minor children will be subject to the 10-year rule once they reach the age of majority, which is 18 in most states.

Filed Under: Q&A, Retirement Savings
December 27, 2023 By

Q&A: What is a ‘qualified higher education expense’ for 529 college savings plans?

Dear Liz: We are tapping our child’s 529 college savings plan for the first time and are confused on what qualifies as a “qualified higher education expense.” Obviously tuition counts, but what about other fees, such as student body fees, health insurance coverage and tuition insurance? We’re also trying to figure out how much we can withdraw to cover an off-campus apartment next year. The college website lists three different food plans (with different costs) as well as different room costs depending on whether the student is in a dorm or a college-run apartment on campus.

Answer: A fee must be required to be considered a qualified education expense for a tax-free 529 plan withdrawal, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. The qualified fee can be required either to attend the institution or required of all students in a particular for-credit course of instruction, Luscombe said. The school’s business office can tell you what’s required and what’s optional.

This school year, while your student lives on campus, you can withdraw an amount equal to the actual cost incurred for room and board. You can’t take tax-free withdrawals for other costs, such as dorm furnishings, groceries or restaurant meals. Next year, you can use the school’s official “cost of attendance” figures listed on its website, which will set an upper limit on what qualifies as room and board expenses. The college may list different figures for dorm rooms, on-campus apartments, married or graduate student apartments or living at home.

“If more than one figure for room and board is listed in the COA, you could use the highest figure that would apply to the particular student’s situation,” Luscombe said.

Books, supplies and computers used for school are also considered qualified education expenses. Transportation and commuting costs are not.

Filed Under: College Savings, Q&A
December 27, 2023 By

Q&A: Claiming Social Security benefits

Dear Liz: My husband turned 70 this past May and waited until then to take his Social Security. I am 61 and will qualify for a benefit based on my work history, although my benefit is substantially less than his. I understand I can take half of his benefit at my full retirement age of 67. I asked a Social Security representative if I could take my (reduced) benefit at age 62 and then switch to half of my husband’s benefit at 67. She told me I should file at 62 and take half of his benefit at that time. That sounds too good to be true, and your article and others I’ve read disagree with her advice.

Answer: Social Security representatives aren’t supposed to give people advice about when or how to claim their benefits. But ideally they would offer correct information about your options.

Congress did away with most people’s ability to switch from a spousal benefit, which is up to 50% of their partner’s amount, to their own benefit. Now when you apply for Social Security, you’ll be considered to be applying for both a spousal benefit and your own benefit and you’ll get the larger of the two. There’s no switching later.

It could be that your own benefit will always be smaller than your spousal benefit, regardless of when you apply. But that doesn’t mean it’s a smart decision to lock in a permanently reduced benefit by applying early.

AARP has a free Social Security claiming calculator you can use to explore the impact of applying at different ages.

Filed Under: Q&A, Social Security
December 18, 2023 By

More retailers are charging return fees. Here’s how to pay less

If you’re someone who likes to return and exchange gifts after the holidays, prepare yourself: Making returns could feel a little different this year.

“It’s going to be hard for consumers to navigate,” says shopping expert Trae Bodge. “The return policies are all over the place.” The biggest change, she adds, is that more retailers are charging fees for returned merchandise.

About 40% of online and brick-and-mortar retailers are charging fees for returns this year compared with 31% last year, according to David Morin, vice president of customer strategy at Narvar, which handles shipping, tracking and returns information post-purchase for online retailers. Those return shipping or restocking fees are generally $3.99 to $9.99, he says.

The good news is there are ways to minimize return fees and in some cases avoid them altogether. In Kimberly Palmer’s latest for the Seattle Times, learn how to pay less return fees.

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December 18, 2023 By

Q&A: Closing credit cards could hurt scores

Dear Liz: If I have a few credit cards, why would my credit be negatively affected if I paid off and closed some?

Answer: Your credit scores won’t be negatively affected by paying off your card balances — quite the opposite. Paying off debt improves your credit utilization — the amount of your available credit you’re actively using — and that’s a powerful way to boost your scores.

If you close accounts, however, that would reduce your available credit, and that’s bad for your credit scores. That doesn’t mean you can never close a credit card, but you should do so sparingly and try to keep open your cards with the highest limits, if possible.

Filed Under: Credit Cards, Credit Scoring, Q&A
December 18, 2023 By

Q&A: Social Security benefits for exes

Dear Liz: I divorced after three decades of marriage, and my ex remarried before age 60. If I understand Social Security’s rules correctly, that remarriage disqualified my ex from claiming a survivor’s benefit based on my work history. Here’s my question: If my ex’s current spouse dies before he does, does that then make him eligible to claim a survivor benefit on MY work history? I am retired and collect my Social Security benefit; he too is retired and presumably collecting his.

Answer: Yes. If your ex is widowed, he typically would have the option of taking a survivor benefit based on his most recent spouse’s work history, or a divorced survivor benefit based on your work history, instead of his own benefit. His choice would not affect how much you receive.

Filed Under: Divorce & Money, Q&A, Social Security
December 18, 2023 By

Q&A: Their 529 college savings plans have a problem: The students graduated. Now what?

Dear Liz: My adult children both have money left in 529 accounts that I control as well as uncashed savings bonds given by generous grandparents. We were able to get them through college without needing the funds, but neither has decided to continue with graduate education and the funds have been stranded because of the high tax rate on non-education use. With the recent rule change for 2024, we plan to start converting the 529s into Roth IRAs, but this will take several years as we understand the contribution limits. Can you please discuss the IRA conversion process and make suggestions for cashing or converting the mature savings bonds to minimize the tax burden?

Answer: As you may know, interest on savings bonds isn’t subject to state or local taxes. Federal tax can be paid annually on savings bond interest, but most savers defer paying tax until the bonds are cashed in or reach final maturity, which happens 30 years after their issue date. Savings bond interest can be tax free if used for qualified education expenses, but there are a number of restrictions. For example, bond buyers must be 24 or older; if the bonds were registered in the children’s names, the qualified education exemption wouldn’t be available. (See IRS Publication 970 for details.)

You have more options for preserving tax-free use of the 529 funds. Starting next year, you’ll be able to roll up to $7,000 from each child’s 529 into a Roth IRA for them. The child must have been a beneficiary on the 529 for at least 15 years and contributions made within 5 years, plus their earnings, aren’t eligible to be rolled over. Any amounts they contribute to their own IRA or Roth IRA would reduce the amount you could roll over.

You can continue annual rollovers up to the Roth IRA contribution limit until a total of $35,000 has been transferred. The rollover must be direct or “trustee-to-trustee” — don’t ask the 529 plan to send you a check.

If you have money left over in the accounts after these rollovers, you could consider changing the trustee to a relative of the beneficiary. Eligible relatives include the child’s spouse, children and other descendants, parents and ancestors, in-laws, cousins, aunts, uncles, nephews and nieces and spouses of those relatives.

Even if you decide to pull the money out and pay the penalty, the taxes may not be as exorbitant as you fear. You’ll typically pay income tax and a 10% penalty, but only on the earnings, not the original contributions.

Filed Under: College Savings, Q&A, Taxes
December 12, 2023 By

Investing for retirement — Why you might want to reconsider that 403(b)

Like many other educators, high school science teacher Robert Curtiss of Dearborn, Michigan, thought he was doing the right thing by investing in his school district’s 403(b) retirement plan. Then federal regulators charged the company handling Curtiss’ investments with fraud.

In July 2022, the Securities and Exchange Commission said Equitable Financial Life Insurance Co. had misled investors — mostly public school employees — about what their investments cost. Equitable often issued quarterly statements showing $0 in fees, when in reality the expenses were much higher, according to the SEC. Equitable agreed to pay a $50 million civil penalty to harmed investors.

After hearing about the fine, Curtiss learned that his retirement investments were costing him two to three times what a typical 401(k) investor would pay. Getting his money out would cost even more: the investments, known as variable annuities, had surrender charges of 5% to 6%.

“I felt so frustrated,” Curtiss says. “If I would have known sooner, I would have never put my money there in the first place.” In my latest for ABC News, learn why you might want to reconsider that 403(b).

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