Ask Liz Weston

Get smart with your money

Q&A

Q&A: Early withdrawal penalties on CDs

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Dear Liz: You told a reader to be suspicious of a bank’s offer to waive early withdrawal penalties on a certificate of deposit. But several credit unions allow early withdrawals from five-year CDs after the account holder turns 59 1/2. These credit unions will even allow you to get higher-interest CDs at other credit unions with no penalty after 59 1/2 . My husband and I and sister did this for many years until just a few years ago. I even do Roth conversions every year and take money from five-year CDs with no penalty and go to the place with the highest interest rate. There are many rewards and unexpected privileges at credit unions. When my husband passed and I disclaimed his traditional IRAs, the children were allowed to keep the 6% interest on those CDs until they matured, even after they were changed to inherited IRAs.

Answer: Credit unions, which are owned by their members, often have better rates and terms than banks, although some banks also offer to waive early withdrawal penalties after 591/2 on certain CDs.

But no one should rely on a verbal assurance that a fee will be waived. The offer to waive the fee should be in writing and kept with other financial documentation.

Q&A: Saving for retirement

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Dear Liz: After many years of unemployment, I finally got a full-time position. It is a state job with a pension. How much do I need to save for retirement? Can I focus on paying off debt and saving for college, and trust I will be OK in retirement?

Answer: Your long stint of unemployment should have taught you that no job, and no plan for your life, is guaranteed.

You may have to work for the state for years to become “vested” in the plan, or eligible for a retirement check. In order to actually retire, you typically have to stay employed by the state for a decade or more. Even then, your check in retirement may not replace a big chunk of your salary. Traditional defined benefit pensions tend to offer the highest benefits to those who work for the system for decades.

A lot can happen while you’re waiting for your pension to build. You could get fired or laid off or suffer a disability that limits your ability to work. The pension plan itself could change.

If your employer doesn’t pay into the Social Security system, that adds another layer of uncertainty to your future. You could wind up without a pension, or only a small pension, and less Social Security than you might have had with a job that did pay Social Security taxes.

That’s why it’s essential to save for retirement even with the prospect of a good pension. You may be offered a tax-deferred workplace plan, or you can save on your own through IRAs or taxable accounts.

Q&A: Credit freezes

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Dear Liz: Is there a way to lock my credit history and access to prevent the unscrupulous from opening accounts in my name? Maybe I’m rare, but I have enough existing credit cards, don’t have a mortgage and essentially have no debt, and I want to keep it that way. I suspect businesses that make their living issuing credit reports will resist this ability, but I want to do all I can to make it tough for anyone to steal my identity.

Answer: You can lock up your credit reports with what’s known as a credit freeze (also called a security freeze). The three major credit bureaus — Equifax, Experian and TransUnion — have information about how to do this on their websites. You also can find general information about credit freezes on Consumer Reports’ site.

Credit freezes can prevent new account identity theft — someone opening new credit accounts in your name. Lenders typically check credit reports when they get new credit applications. If they can’t access your reports thanks to a credit freeze, they’re unlikely to approve the application.

Of course, the freeze applies to you as well. If you change your mind and want to apply for a new account, you’ll need to temporarily thaw the freeze.

Other entities also check credit reports, so you may need to lift the freeze if you apply for a job, insurance, new utilities or cellphone service. You typically have to pay fees (which range from $2 to $15, depending on your state) to each bureau to lock up your credit and another set of fees to thaw it.

Credit freezes won’t interfere with your ability to use your credit cards or prevent your current lenders from accessing your reports.

Credit freezes also won’t prevent other types of identity theft, including tax refund fraud, medical identity theft and criminal identity theft (which occurs when criminals give law enforcement your information when they get arrested, rather than their own).

Still, credit freezes are a good solution if your identity has already been stolen or you’re at high risk because your Social Security number has been swiped or exposed in a data breach.

Credit bureaus may suggest you put a temporary fraud alert on your reports instead, or pay for credit monitoring or identity theft “protection” (which actually doesn’t protect you against anything but simply offers an early warning if your reports are compromised). A credit freeze is a more secure solution, but you have to weigh the potential hassle and cost against the benefit.

Q&A: How to help family while on a limited budget

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Dear Liz: My son, who is almost 50, is mentally and emotionally challenged. He has been unemployed and homeless for years. Although not a criminal, he’s been in jail a few times because of his explosive, combative nature. There seems to be no help for him in the state where he lives. I do send a few dollars for his basic needs when I can, but must be careful with my budget. Do you have any tips that might be helpful in this situation?

Answer: You’re living with a heartbreaking situation. You want to help, but given your age and financial circumstances your ability to do so is limited. Unless you set some boundaries, you could run through your savings and possibly wind up homeless yourself.

You’ll find some helpful resources at the National Alliance on Mental Illness (www.nami.org), which offers information and, in many locations, support groups for families. Another place to find comfort, insights and suggestions would be a 12-step group for co-dependency, such as Co-Dependents Anonymous (www.coda.org), Al-Anon (www.al-anon.org) and Nar-Anon (www.nar-anon.org). Substance abuse often accompanies mental illness, so you may find it helpful to talk to others who have dealt with problem drinkers (Al-Anon) or addicts (Nar-Anon).

Every state has at least some resources for the mentally ill. You can start your search at MentalHealth.gov to see what might be available where your son lives and let him know the options. But as the members of any support group will tell you, you cannot fix another human being or force him to change. What you can do is to take care of yourself.

Q&A: Rolling traditional IRA to a 403(b)

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Dear Liz: My husband and I both have employer-sponsored 403(b) retirement plans. We each also have a Roth IRA, and I have a traditional IRA that I started in the 1980s before I started work with my current employer. I do not actively contribute to this traditional IRA as I am contributing the maximum amount allowed into both my Roth IRA and my 403(b) plan. My husband is also maxing out on his Roth and 403(b). We are both in our 50s. Should I contribute anything into my traditional IRA? Should I see if I can roll it into my 403(b)? Or roll it into my Roth? Our adjusted gross income is high enough where I would not be able to take the deduction if I did start contributing. Your thoughts would be greatly appreciated.

Answer: If you can’t get a tax deduction for your contributions, then putting the money in a Roth IRA is usually the better option — assuming, of course, that your income is under the Roth limits (which it sounds like it is). Nondeductible contributions reduce the income taxes owed on any withdrawals from a traditional IRA, but withdrawals from a Roth can be entirely tax-free.

If you have a good, low-cost 403(b), rolling your traditional IRA into it could be a good choice. It would be one less account for you to have to monitor and coordinate with your other savings.

You won’t be able to roll your traditional IRA into a Roth without triggering a (possibly hefty) tax bill. The older you are, the harder it is to make a good argumen

Q&A: Social Security solvency

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Dear Liz: Can you tell us what the status is of the Social Security system? Will the money that I and my employers have paid into the system be there for me when I need it in 15 or 20 years?

Answer: The money you pay into the system provides benefits for current retirees. When you’re retired, other workers will provide the money for your benefits. It isn’t a retirement plan where you contribute money that you later withdraw. It’s an insurance fund to protect you against poverty in old age.

The Social Security system isn’t about to disappear. The depletion of its trust funds is expected in 2033, but that doesn’t mean Social Security will go out of business. The system will continue to receive enough in payroll taxes from current workers to pay 77% of promised benefits. So even if Congress doesn’t get its act together to make necessary and sensible reforms, you’ll still get a check. If Congress does get its act together, the reforms probably will affect younger workers more than those close to retirement.

For more on how Social Security works and its benefits, read “Get What’s Yours: The Secrets to Maxing Out Your Social Security” by Laurence Kotlikoff, Philip Moeller and Paul Solman.