Ask Liz Weston

Get smart with your money

Q&A

Q&A: Is it better to spread your wealth between two financial advisors?

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Dear Liz: My parents left me with financial accounts at two companies. My instinct is to combine them to deal with one less company. Is there a downside to doing this?

Answer: You should first determine whether any of the inherited accounts is a retirement account because those come with special rules. You can’t simply merge an individual retirement account with a taxable brokerage account, for example. And you’ll want to consult a tax pro to understand how to properly title and take distributions from any inherited retirement account.

If the accounts are regular taxable accounts, then consolidating can have many advantages. Your accounts will be easier to monitor, asset allocation strategies will be simpler to execute and your account expenses could drop, particularly if you use the lower-cost company. Some brokerages offer deposit bonuses, and a higher combined balance also may entitle you to additional perks.

The primary downsides to consolidation involve risk mitigation. Brokerage failures are rare, but they do happen, and some investors opt to use more than one brokerage if their account balances exceed coverage by the Securities Investor Protection Corp.

SIPC provides coverage of up to $500,000, including $250,000 for cash, if cash or securities are missing from an account when a brokerage fails. Similar accounts are combined for SIPC purposes, so multiple IRA accounts at one brokerage will be considered one account. However, the $500,000 limit applies to each category of account. So someone with an individual account, a joint account, an IRA and a Roth would have a total of $2 million in SIPC coverage.

Having accounts at different companies also can help you retain access to at least some of your money if one of your accounts is hacked.

Q&A: Minimizing your taxes is fine — to a point

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Dear Liz: In reading your columns, one can get the impression that reducing tax liability is the primary objective for many financial advisors. I disagree with this. Paying a fair share of taxes is a responsibility to society and the less fortunate, especially for wealthy people. Why are so many financial “professionals” so obsessed with paying less in taxes?

Answer: Tax planning is an essential part of comprehensive financial planning. No one is under an obligation to pay the maximum tax possible. Those who specialize in tax avoidance love to quote a judge named Learned Hand, who wrote in 1934: “Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

Where advisors — and taxpayers — get into trouble is when they prioritize tax avoidance over all other concerns. That’s how you get advisors doing tax loss harvesting on a financial account to reduce capital gains for an older couple in the 0% capital gains bracket (an example of this behavior from a recent column).

Q&A: Old inherited IRA is safe from “drain it in 10 years” requirement

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Dear Liz: You have written that non-spouse beneficiaries are now required to drain their inherited IRAs within 10 years. Is this requirement retroactive?

I inherited an IRA from my mother in 2015. I have been taking out the minimum required each year. If I must drain the account within 10 years, will the increase in yearly income affect my Social Security benefits?

Answer: The 10-year requirement applies only to accounts inherited from people who died after Dec. 31, 2019.

IRA distributions don’t affect Social Security benefits, but could affect Medicare premiums if the withdrawal is large enough. Taxable income above certain limits triggers a Medicare surcharge known as an income-related monthly adjustment amount, or IRMAA.

Q&A: The GPO can wipe out survivor benefits

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Dear Liz: My husband passed away 10 months ago. I applied for widow benefits.

The Social Security Administration sent me a letter that said they cannot pay because my Social Security benefit would equal two-thirds of the amount of my pension. Please help me with this.

Answer: This is known as the government pension offset, and it applies to people who receive a pension from a job that didn’t pay into Social Security. Any survivor or spousal benefits you might receive are reduced by two-thirds of the pension amount. In your case, your entire benefit was offset.

People are understandably upset to learn they don’t qualify for survivor or spousal benefits through Social Security. But since your pension is large enough to offset any benefit, you’re financially better off with the pension than without it.

For more information, see the government pension offset pamphlet, available online at SSA.gov/pubs or by calling the Social Security Administration toll-free at (800) 772-1213.

Q&A: Missing the paperwork on your IRAs? All is not lost

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Dear Liz: I have four daughters, now in their late 30s and early 40s. When they were very young, I started investing for them. As they began to earn their own money, I started Roth IRAs for them as well.

A decade ago, due to an unexpected divorce, a 30-day escrow and a move, I lost the paperwork for their accounts. After the investment company was acquired by another in 2015, I forwarded the new company’s contact information to my daughters. One transferred her account to another investment company, while her sisters left theirs in place.

Recently I found the old investment paperwork. The company has changed hands again, but the new company says it has no information about my three other daughters’ accounts. Can anything be done?

Answer: Since the latest company can’t find the accounts, your daughters should contact the escheat office of the state where you lived before your move.

Perhaps you didn’t update your address with the original company when you moved and the account statements or other mail were returned as undeliverable. If the company and its successor couldn’t find you — and some companies don’t look very hard — the accounts would be considered unclaimed and would have to be turned over to the state.

Links to state escheat offices can be found online at unclaimed.org, the website for the National Assn.
of Unclaimed Property Administrators.

The good news is that there’s no time limit for claiming previously unclaimed property.

The bad news is that some states will liquidate stocks and other investments after escheatment. If that’s the case, then the three daughters who didn’t move their accounts will have missed out on nearly a decade of investment returns.