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Liz Weston

This week’s money news

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This week’s top story: Smart Money podcast on financial fears, and if you need life insurance or not. In other news: What makes a good store credit card, and how to avoid bad ones, tackling financial insecurity, and why stocks and bonds are both falling.

Smart Money Podcast: Financial Fears, and Do You Need Life Insurance?
This week’s episode starts with a discussion about overcoming our financial fears.

What Makes a Good Store Credit Card, and How to Avoid Bad Ones
It’s not that store cards can’t deliver value — in some cases, they can be ideal picks. But before you’re pressured into opening one, know which red flags to watch for.

When Pinching Pennies Isn’t Enough: Tackling Financial Insecurity
Financial counselors, nonprofits and other organizations can help you find your financial footing.

Stocks and Bonds Are Both Falling. Here’s Why.
A look at why the markets declined in 2022, and how to cope with falling stocks and bonds as you near an important financial goal.

Q&A: Filling a survivor benefit gap

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Dear Liz: I am a 57-year-old widow. My children are 23, 22, 20 and 17. When my youngest graduates next June, I will lose the last of our Social Security survivor benefits. Our benefits used to be over $5,000 per month but her check is currently $2,084 per month. I am barely making it monthly now with my mortgage and other bills but will definitely not be able to afford to stay in my home once that benefit ends. I don’t know if I would be better off to rent out my home or sell it and buy a condo so my kids have a place to land. I am engaged and plan to live with my fiancé (knowing we can’t get married until I’m 60!). What are some things to consider in making this decision?

Answer: For those who aren’t aware, millions of children receive Social Security benefits because their parents are retired, disabled or deceased. The benefits typically continue until the child turns 18, or 19 if the child is still in high school. People caring for the offspring of a deceased worker also can receive benefits, but those typically end when the child turns 16.

Otherwise, survivor benefits generally are available to qualifying widows and widowers starting at age 60. Remarrying before age 60 can disqualify the survivor from benefits.

You obviously need a plan to bridge that two- or three-year gap before your widow’s benefits begin. But the best approach depends on the details of your situation.

You don’t mention how many of your children are now living at home, although it’s not unreasonable to consider how to house one or more of them in the next few years. Your youngest may want to live at home while going to college, or need a room to come back to in the summers if she goes away to school.

The others may well boomerang home even if they’re currently on their own. Kids can take longer to launch these days, especially in high-cost areas where affording even a modest apartment can be difficult.

That doesn’t mean you have to buy them their own place, of course. What you’re able to offer will depend on your resources and circumstances. You may need the money from the sale or rental of your home to bolster your retirement funds, for example, or to help pay college tuition.

Whether renting or selling is the best move also depends on your circumstances. Selling may be the better option if you can’t rent the home for more than its carrying costs. Even if you could make a profit each month, you may not want the hassles of being a landlord. A bad tenant or an unexpected vacancy could upend your finances, particularly if you don’t have considerable savings.

Also, if you rent out the home for more than a few years, you would lose the ability to exempt up to $250,000 in home sale profits when you did finally sell it. To take advantage of the exemption, you must have owned and lived in the home for at least two of the previous five years.

Consider scheduling a session with an accredited financial counselor. These advisors are fiduciaries, which means they’re required to put your best interests first, and they often work on a sliding scale. You can get referrals from the Assn. for Financial Counseling & Planning Education.

Q&A: Got an old credit card that you no longer use? What to do instead of canceling it

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Dear Liz: I have been keeping a credit card that I no longer use because I’m afraid that canceling it may reduce my credit score. I have had the card since 1983, and it shows on my credit report as my longest credit relationship. I have other credit cards that I use regularly. I no longer have a mortgage. Should I keep the unused card?

Answer: Closing the card certainly won’t help your scores, but it’s impossible to know in advance how much they might be hurt. That doesn’t mean you should never close a card, but you may want to consider alternatives, particularly because this is your oldest card.

Does the issuer offer another type of card with cash back or other rewards you could use? If so, consider asking for a “product change” to the new card. That should preserve your long history with the account while supplying you with a credit card that better suits your needs.

Q&A: A spouse’s debt, your credit score

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Dear Liz: My spouse and I have added each other as authorized users on our credit cards. My spouse has more debt than I do. Does this impact my credit scores?

Answer: Possibly. Credit scoring formulas look at how much available credit is being used on each account. If your spouse has higher balances than you but also higher credit limits, your credit scores may not be harmed much, if at all. If, on the other hand, your spouse is using most of their available credit, your scores could suffer.

Most services that provide credit scores (including possibly your bank and your credit cards) typically offer some explanations about why your scores aren’t higher. If the explanations include anything about excessive credit utilization, you may want to consider getting yourself removed as an authorized user from the problematic cards.

Q&A: Sorting out IRA taxes

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Dear Liz: My traditional IRA contains both pre-tax and after-tax contributions. (Some years I was ineligible to deduct contributions because I was participating in an employer’s retirement program.) Now I am retired and am considering making Roth conversions from the traditional account. I admit I was a little careless about keeping track of the total after-tax contributions. For the past 10 years or so, I have been using one of the more popular tax programs and was letting it track the tax basis and file the Forms 8606. I recently reconstructed all of my IRA contributions since 1985 to check the basis and discovered that the amount the software had calculated was short by about $15,000. Is it possible to correct this so that I don’t end up paying tax on the wrong basis?

Answer: Yes, but this could be a difficult process, according to Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

As you know, when making Roth conversions you’re required to pay income taxes on the portion of your IRA that represents deductible contributions plus any earnings. But you don’t have to pay taxes on the portion of your account that represents your nondeductible contributions — that is what is known as your tax basis. A higher basis means less taxes, so correcting this may be worth the effort.

You’ll have to go back and correct each Form 8606, working from the oldest year, Luscombe says. The corrections need to reflect the traditional IRA contributions for that year, including the dollar amount, any deduction taken and the return of any excess contribution.

Send the corrected 8606s to the same service center where you will send the tax return for the conversion. If you’ve taken any distributions from the account, your calculations for the taxable portion may be in error as well. You can correct that for the past three tax years, but you won’t be able to recover the excess tax paid in any previous years, Luscombe says.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.