Ask Liz Weston

Get smart with your money

Q&A

Q&A: Should I name a representative payee in advance?

By Leave a Comment

Dear Liz: My question has to do with a bulletin put out by the Social Security Administration last year requiring people with Social Security income to submit the name of a person to be their advanced designation representative. It also said that you need to submit a name for your ADR annually. Many people probably don’t know about this. But can you clarify? Is it just a preliminary or mandatory requirement? If mandatory then what are the consequences if you don’t designate someone?

Answer: When someone is a minor, incapacitated or otherwise unable to manage their own Social Security benefits, the Social Security Administration names a representative payee to handle the funds.

The voluntary Advanced Designation of Representative Payee program allows you to nominate people you trust to perform this role should you become incapacitated. You can choose up to three people as possible representative payees. You can change your nominations at any time and Social Security will ask you to review your choices annually to make sure you’re still comfortable with them (because, as we know, situations and people’s capacities can change over time).

If you do opt into the advanced designation program, your nominees won’t be a shoo-in. Social Security will prioritize your choices, but will still conduct a full evaluation to ensure they can handle the job.

Q&A: “Superfunding” a 529 account requires filing gift tax returns

By Leave a Comment

Dear Liz: You wrote that people could contribute up to five times the annual gift tax exclusion to a 529 college savings plan without having to file a gift tax return. People can contribute that much without the gift reducing their lifetime gift and estate tax exemption amounts, but they must file annual gift tax returns to report the gift.

Answer: To recap, few people will ever have to pay gift taxes, but gifts over the annual exclusion amount (which is $19,000 in 2026) usually require filing a gift tax return. Gift taxes aren’t owed until the amounts in excess of the annual exclusion total more than the giver’s lifetime gift and estate tax exemption amount (which in 2026 is $15 million).

Generous givers can “superfund” a 529 college savings plan by contributing up to five years’ worth of annual exemption amounts at once. In 2026, that would be $95,000. To keep the gift from counting against your lifetime limit, however, you must file gift tax returns annually to indicate the gift is to be spread over multiple years.

It’s also important to know that any other gifts you make to the same beneficiary during the five-year period will reduce the allowance for 529 gifting. And if the giver dies during the five-year period, some of the gift will be added back into their estate.

There are other rules that apply to superfunding a 529, so anyone considering this option should discuss their situation with a tax pro and likely will want to consult an estate planning attorney as well.

Q&A: Should I convert my IRA to a Roth?

By Leave a Comment

Dear Liz: I have $160,000 in a 403(b) retirement plan and I’m 70. I know I have to start taking required minimum distributions (RMDs) at age 73. Should I transfer the funds to a Roth IRA or can I start taking the RMD from the 403(b) and leave the remainder to grow?

Answer: You can take your RMDs from the 403(b). Transferring the money to a Roth IRA would be known as a conversion, and that could make the entire amount taxable.

Late-in-life conversions can make sense if future RMDs will push you into a higher tax bracket than you are now, or if you’re willing to pay the tax bill to provide future tax-free income to your heirs. (Roths don’t have RMDs, so the account can be passed intact to your beneficiaries, who will usually have 10 years to drain the account.) Conversions can have other consequences, such as raising Medicare premiums, so a tax pro’s advice should be sought before proceeding.

Q&A: You can pause Social Security payments

By Leave a Comment

Dear Liz: Are you allowed to stop your Social Security payments if you choose to make over the $23,000 limit?

Answer: When you start Social Security before your full retirement age, you’ll face the earnings test that reduces your benefit by $1 for every $2 you make over a certain limit, which in 2026 is $24,480.

You can suspend your Social Security payments once you reach your full retirement age. At that point, however, the earnings test will no longer apply.

The money you lost to the earnings test isn’t gone forever. The amounts that were withheld will be added back to your benefit over time. What you have lost is the increase in your benefit that would have occurred had you delayed your application until full retirement age.

You still have one last chance to benefit from delay, however. If you opt to suspend your benefit at full retirement age, you can get delayed retirement credits that will boost your check by 8% for each year between your full retirement age and age 70. For most people, that 24% boost plus accrued cost-of-living increases will be well worth the wait.

Q&A: How to help grandchildren pay for college

By Leave a Comment

Dear Liz: What is the best way for us to contribute to our grandchild’s college expenses? I believe federal financial aid formulas no longer count grandparents’ cash or 529 contributions. Would direct cash to the student (who is responsible) or a 529 be the most beneficial to the student or us?

Answer: If the grandchild is already in college, then cash contributions may make the most sense. The tax benefits of a 529 plan at this point would be minimal, and you’d face some restrictions in what expenses qualify.

Keep in mind, though, that you may need to file a gift tax return if you give more than the annual exclusion amount, which in 2026 is $19,000 per recipient. You won’t actually have to pay gift taxes until the amounts you give away over that annual exclusion total more than your lifetime gift and estate tax exclusion amount, which in 2026 is $15 million per person.

Any amount you pay directly to the college for tuition expenses isn’t counted toward the gift tax exclusion. (The same is true for any medical expenses you pay on behalf of someone else, as long as the payments are made directly to the medical provider.) In other words, there’s no limit on how much tuition you can pay, as long as you pay the college directly.

If college is still many years away, then 529 college savings plans are often the best option.

These plans, administered by the states, allow contributions to be invested and grow tax-deferred. Withdrawals are tax-free when used for qualified education expenses, including tuition, room and board, books and supplies, computers and related equipment and repayment of student loans.

Qualified education expenses do not include transportation costs, insurance payments or room and board above what school housing and meal plans would cost.

There’s no federal tax deduction for contributions to 529 college savings plans, although many states offer tax breaks (California and Oregon are among the states that don’t offer such incentives).

The tax breaks typically apply only if you contribute to that state’s plan, but you’re allowed to contribute to any state’s plan and use the money at nearly all accredited two-year, four-year, and graduate schools in the U.S. and many schools abroad.

Morningstar rates each plan annually.

For the wealthy, 529 plans have another benefit: up to five years’ worth of annual exclusion amounts can be contributed at once, without having to file a gift tax return. In 2026, that means you could contribute up to $95,000 per recipient.

In the past, 529 plan assets had only a small impact on financial aid, but distributions were another story. Money distributed from a grandparent-owned account was treated as untaxed income to the student, which could reduce financial aid by up to 50%.

Today’s Free Application for Federal Student Aid (FAFSA) no longer counts such distributions or any cash contributions from people other than the child’s parents. The formula also doesn’t count 529 plans owned by people other than the parents.

Such plans are still counted by the CSS Profile, which is used by about 200 private colleges, and some of the schools also count distributions. If your grandchild attends one of these schools and receives financial aid, check with the school’s financial aid office about how your generosity could affect their aid package.

Q&A: Credit union loan helps son pay off debt

By Leave a Comment

Dear Liz: My son ran up a lot of credit card debt and it got to the point where he could barely pay even the interest, which was exorbitant. He asked me for a loan, but I wanted something to formalize the process. I tried cosigning on a loan with him, but found that, as a retired person, my income is not enough.

Meanwhile, I have enough savings, and it occurred to me that perhaps I could use that money as collateral. Eventually, we found a credit union that would loan money as long as you had enough funds in a savings account. I put $11,000 into a savings account and my son was able to get a loan for $10,000. The interest rate is about 4%, well below the 12-18% we were quoted on personal loans from conventional banks and online lenders.

I had never heard of this type of loan before, and it might be a nice option for people who want to help their kids, but want to formalize the loan rather than just expecting them to pay it back on their own, which can become messy. Furthermore, my son’s payments will be reported to the credit bureaus, so it will boost his credit score.

Answer: Thanks for sharing your experience. Many credit unions offer what’s known as “share secured” or “deposit secured” loans, where a savings account serves as collateral for a loan. While the funds in the account are effectively frozen until the loan is paid off, the account still earns interest, offsetting the total cost of the loan.

When people don’t have enough funds of their own, using a parent’s account may be a possibility. People in a position to help an adult child this way should understand the potential risks, such as damage to the parent’s credit scores if the child misses a payment and the possibility of losing the money if the child defaults. The parent should also find out if it’s possible to be alerted if a payment is overdue, since that could give them time to make the payment and avoid credit damage.