Ask Liz Weston

Get smart with your money

Liz Weston

Q&A: Old uncashed insurance policies

By

Dear Liz: What advice can you provide to people when they stumble on old life insurance policies that may never have been cashed in?

Answer: My siblings and I have personal experience with this after coming across two policies in our late father’s papers. We learned one policy had indeed been cashed in, but the second — purchased in the 1930s, with a face value of $5,000 — was still in effect.

You typically can use a search engine to determine if the insurer is still in business or if it has changed its name or merged with another company. (Not surprisingly, the insurer that issued the 1930s policy had been involved in several mergers in the intervening decades, but it took just seconds for us to find the current incarnation.) If you’re having trouble tracking down the company, contact the insurance regulator in the state where the insurer was originally located.

Once you have the current insurer name and contact information, you can call and ask if the policy is still in force. If the policy has value, the insurer can instruct you how to make a claim.

Q&A: How a Roth IRA rollover can cause unforeseen problems

By

Dear Liz: I have been contributing to my young adult children’s Roth IRA accounts for the past few years to get them started on retirement savings. My oldest just left her first job to go back to graduate school. Since her income will be low this year, I advised her to roll her defined contribution plan with her former employer into her Roth IRA to consolidate her retirement savings. Will this conversion affect the maximum amount that I can contribute to her Roth beyond the usual rules on maximum contributions?

Answer: A conversion could do more than affect her ability to contribute to a Roth. It also could inflate her tax bill, reduce her eligibility for financial aid and affect any health insurance subsidies she’s receiving. A conversion could still be a smart move because Roth IRAs offer tax-free withdrawals in retirement, but she should understand all the implications before following your advice.

The amount your daughter converts from her 401(k) or other defined contribution plan would be considered a taxable distribution and treated as income. That could affect her eligibility for tax breaks, such as education tax credits and Affordable Care Act subsidies, as well as her ability to contribute to a Roth. (In 2023, the ability for an individual to contribute to a Roth phases out between modified adjusted gross incomes of $138,000 to $153,000.)

Also, to be eligible to make a contribution, she must have earned income at least equal to the amount she (or you) plan to contribute. Retirement plan distributions aren’t considered earned income so she would need wages, salary, tips, bonuses, commissions or self-employment income to qualify.

The conversion could affect her financial aid in future years. Federal aid calculations are based on tax returns from two years prior, so her 2023 tax return could affect her aid if she’s still in school during the 2025-26 academic year.

Also, she needs to figure out how she would pay the tax bill on the conversion. Converting a regular retirement account to a Roth can make sense if someone expects to be in a higher tax bracket later, but the math starts to fall apart if the retirement account itself has to be raided to pay the tax.

Your daughter should consult a tax pro who can review her situation and provide personalized advice.

This week’s money news

By

This week’s top story: Big questions on student debt still loom. In other news: Financial actions speak louder than resolutions, 5 ways to build your credit score in 2023, and how families can get seats together on a plane.

2023 Is Here — And Big Questions on Student Debt Still Loom
As 2023 unfolds, big questions remain around new repayment plans, debt cancellation, bankruptcy rules and more.

Financial Actions Speak Louder Than Resolutions
Skip goals, and go right from intention to action.

5 Ways to Build Your Credit Score in 2023
Here are a few ways experts suggest boosting credit in the new year.

How Families Can Get Seats Together on a Plane
Airlines are making seat selection more difficult and expensive, which can be particularly tough for families.

How to prepare for your next emergency

By

When a power outage knocked out electricity to a multistate region in 2003, Gabriella Barthlow , a financial coach in the Detroit area, was prepared. She had enough money on hand to buy food for herself and her two young children, plus put gas in her car in case they needed to leave home.

“I was so happy I had that cash,” she recalls. Now, Barthlow encourages her clients to be similarly ready for unexpected events. Power outages, weather interruptions and other disasters can inflict chaos and take a financial toll — often with little warning — but being prepared can help minimize the damage.

In Kimberly Palmer’s latest for the Associated Press, learn steps you can take to make sure you’re ready for the next emergency.

Q&A: How to give away your house

By

Dear Liz: I want to make sure a close friend of mine gets my house after I pass away. Which is better tax-wise for this friend, adding her to my deed or leaving the house to her in my will? My fear of leaving it to her in my will is that a family member may try to contest the will. While I will leave my family member money in my will, I want to make sure that the house goes to my friend.

Answer: If you add your friend to the deed, you’re making a gift of the home to her during your lifetime. That means if she ever sells the house, she could owe taxes on the appreciation that happened since you purchased the home. If you bequeath the home to her, on the other hand, the gains that occur during your lifetime won’t be taxed. You can leave her the home via a will, a living trust or, in many states, a transfer-on-death deed. (You can read more about this option in the next section.)

If you’re concerned about someone fighting your decision, please get appropriate legal advice. Estate planning can get complicated, and most people would benefit from an attorney’s help, but that’s especially true if you have contentious relatives.

Q&A: How to improve credit card security

By

Dear Liz: Can you please explain why a personal identification number is not required when one uses a credit card? I know people who’ve had their card stolen and used quickly and for large amounts. That would immediately protect the credit card company from paying millions to cover losses.

Answer: “Chip and PIN” cards — which combine a microchip with a personal identification number — are the norm in most of the rest of the world. In the U.S., however, credit card issuers are reluctant to require their customers to use PINs.

The issuers are worried people would find the PINs to be a hassle and would opt to use a competitor’s card that didn’t require remembering and entering a number. The massive amount of fraud that results is considered a cost of doing business.

Consumers aren’t on the hook to pay for these bogus transactions as long as the fraud is reported within 60 days of the charges appearing on a statement. But compromised cards are still a hassle.

One of the best ways to protect your credit cards from fraud is to use mobile payment systems such as Apple Pay or Google Pay. These systems don’t expose your credit card number to the merchants and allow you to pay for purchases quickly and securely.