Q&A

Q&A: When it comes to Roth IRAs, 59½ and 5 are the magic numbers

February 24, 2025 By Liz Weston

Dear Liz: You recently answered a question about Roth conversions, saying that each conversion triggered its own five-year holding period. It was my understanding that after age 59½, the five-year rule doesn’t apply and earnings aren’t taxed.

Answer: The rules for Roth IRAs can be complicated, and they’re different for accounts that you fund directly versus those that are funded through conversions.

If you contribute directly to a Roth, you can withdraw your contributions any time without tax or penalty. You can withdraw earnings tax free if you’re 59½ or older and the account has been open for at least five years.

But as mentioned in the previous column, the five-year holding period applies to each conversion you make from another retirement account into a Roth. What goes away after age 59½ is the 10% penalty for early withdrawal, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. Earnings withdrawn before five years can be taxed as income. However, it’s assumed that any withdrawals are principal first, so you’d have to withdraw the entire conversion amount before earnings would be taxed.

Luscombe notes that some people set up separate accounts for each conversion to make tracking the five-year periods easier. That could be especially helpful if they plan to make substantial withdrawals that could include earnings before the last conversion amount hits its five-year mark. Once all the five-year periods have expired, the accounts can be combined into one.

Q&A: In estate planning, finding the right trustees can be a challenge

February 18, 2025 By Liz Weston

Dear Liz: My partner of 37 years and I have shared a revocable living trust for much of that time. It has become necessary to update our successor trustees, since one has passed away and the second is our age. It has been pointed out that we ought to name younger people who are more likely be around when the need arises. This is becoming the hard part. Both of us have a single sister but they are also seniors, so not the best long-term choice. Nieces and nephews live out of state and are not the ideal choice, either. I am wondering about designating this task to an accountant or attorney firm but have absolutely no idea how to make this happen.

Answer: Yours is a common issue for “solo agers” — people who don’t have reliable adult children who can take over in case of incapacity or death.

Naming someone younger does increase the odds the person will be able to serve when the time comes, but nothing is guaranteed. That’s why Los Angeles estate planning attorney Burton Mitchell urges his clients to focus first on naming the best choices, rather than eliminating people because of age or geography. He also recommends naming multiple alternates. Circumstances change, and your first choice may not be available when you need them.

You want successor trustees who are trustworthy, dependable and honest. They don’t have to be relatives: Friends or professionals may be good choices if they’re willing to serve. Jennifer Sawday, an estate planning attorney in Long Beach, urges you to ask first before naming a tax pro, attorney or financial advisor, since many are unable or unwilling to serve in this capacity for clients.

Professional fiduciaries may be another option, or you can look for professional or corporate trustees. Your local bank may offer trust administration services, for example. These options obviously would be more costly than a friend or family member. Sawday recommends consulting a knowledgeable estate planning attorney who can recommend trust officers or professional fiduciaries for you to interview.

Even if you opt for a professional to handle the financial side, you may prefer to have a friend or relative serve as your healthcare decision maker should you become incapacitated. In that case, geography may matter, since the person may need to get to the hospital quickly or spend an extended period advocating for you. Even here, though, it’s more important to name the right people, rather than necessarily the closest ones. You want someone who understands your priorities and who will fight to ensure those priorities are honored. Someone older who understands the concept of a “good death” may be more appropriate than someone younger who doesn’t. (Katy Butler’s book “The Art of Dying Well” has helpful information for this choice.)

If you don’t have enough people in your life you can rely on, there’s still time to turn that around. As a fellow solo ager, certified financial planner Carolyn McClanahan recommends building a mixed-age community. McClanahan says this means making “care deposits” starting in your 50s by volunteering and mentoring younger people.

“If you come from a place of giving, when you get older, that tribe is willing to look out for you,” she says.

Q&A: Tapping into a Health Savings Account while on Medicare

February 18, 2025 By Liz Weston

Dear Liz: I’m on Medicare but I also have a health savings account with a fair market value of over $9,000. Am I able to spend this on prescriptions, eye care, etc.? I hate to waste this money. My wife passed away and it’s been sitting there for a while.

Answer: You can’t contribute to an HSA once you’re on Medicare, but you can certainly spend the money you’ve accumulated.

As mentioned in previous columns, HSAs offer a triple tax break in that contributions are deductible, the account grows tax-deferred and withdrawals are tax-free for qualifying medical expenses. Those expenses can include dental and vision costs as well as Medicare premiums.

If anyone other than a spouse inherits the account, the HSA becomes taxable so you’ll definitely want to spend that money while you can.

Q&A: Does insurance cover a home in a living trust?

February 10, 2025 By Liz Weston

Dear Liz: All of our insurance policies list my name and that of my husband. After the recent devastating Los Angeles fires, I heard from friends that we should add the name of our living trust to our home insurance policy because our house is in the trust. Otherwise, they say, some insurance companies may not cover loss or damages to it due to the discrepancy in the names, even if the trust has both of our names as trustees. Would you please confirm this?

Answer: Yes. If your home is in a trust, your insurance policies should list your trust as an “additional insured.” Insurance companies vary in their contract language, but you don’t want to find out after the fact that you aren’t covered.

Q&A: Benefits of Medicare Advantage HMOs

February 10, 2025 By Liz Weston

Dear Liz: You mentioned that Medicare Advantage Plans have networks that can change from year to year, as well as other disadvantages. This is not true for our Medicare Advantage HMO, according to my experience. The HMO has its own doctors and hospitals, but I have not noticed them pulling any surprises. And they do look after your health much better than the traditional Medicare that some of my friends are on. My friends’ care is entirely in their own hands, and some are getting very old and would benefit from the care that my HMO provides.

Answer: You’ve highlighted one of the key advantages of a Medicare Advantage HMO, which is coordinated care.

There are two main types of Medicare Advantage plans, the all-in-one private insurance alternative to original Medicare. With PPOs — preferred provider organizations — people are generally allowed to see medical providers outside their networks, although those visits will cost more. With HMOs — health maintenance organizations — you’re expected to stay in the network for most care, and you often need a referral to see a specialist. You could pay up to 100% of the cost if you use a doctor or hospital not in the HMO.

In exchange for those restrictions, people get a primary care provider who coordinates all of their care. That’s in contrast to PPOs or original Medicare, where a patient may have many providers who never talk to each other.