Ask Liz Weston

Get smart with your money

Q&A

Q&A: Stimulus money for Social Security recipients is finally on the way

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Dear Liz: My mother filed a paper return for 2019 in early March but hasn’t received her refund yet. Also, she hasn’t received the stimulus check to which she is entitled. She receives Supplemental Security Income via direct deposit and she included her banking info on her tax return for direct deposit. Given the IRS’ limited staffing, when might she receive her money? Will she still receive her stimulus check if many more months pass before the IRS processes her tax return?

Answer: Your mom may have already received her stimulus paymentby the time you read this. The Social Security Administration said Tuesday that it had started sending payments to SSI recipients.

The best way to check her refund status is via the IRS site. People who filed electronically can check their refund status 24 hours after filing. When a paper return is filed, people should wait four weeks before checking. She’ll need to enter her Social Security number, filing status and exact amount of her expected refund.

Q&A: Stimulus funds don’t count as income

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Dear Liz: I hold power of attorney for my aunt, who is in a local nursing home. Medicaid pays the bulk of her cost to stay there. Her $1,200 stimulus check was just deposited into her bank account at the end of last month. The state Medicaid rules require that she not have more than $2,000 in assets. I try to keep her bank balance below that each month, which can be a challenge. Do you have any idea how the state Medicaid will handle this additional income to her bank account? Will I have to pay the nursing home additional money from it or reimburse Medicaid? Or will she be allowed to keep the whole amount? I want to be judicious with her finances and not screw up her eligibility for Medicaid (her greatest fear is being thrown out on the streets).

Answer: Your aunt is lucky to have you, and fortunately there’s no need to worry. The payments are not considered income for recipients of Supplemental Security Income (SSI), according to a blog post by Social Security commissioner Andrew Saul. State Medicaid programs are not allowed to impose eligibility requirements that are stricter than SSI standards, according to ElderLawAnswers, a referral site for attorneys who specialize in issues relating to seniors.

Q&A: Big debt is bad in the coronavirus downturn. But a consolidation loan might not be the answer

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Dear Liz: I have about $40,000 in credit card debt and am considering a consolidation loan. I’m current with my cards. My income is about $130,000 per year. Can you recommend a lender? Any cautions?

Answer: As you probably know, this is a bad time to be burdened with a lot of debt. But taking out another loan may not be the answer.

Personal loans — the type of unsecured loan often used to consolidate other debt — work out best when you can lower the rate on your debt, get it paid off within three to five years and avoid accruing more debt while you do so.

Unfortunately, people who take out consolidation loans often don’t, or can’t, fix the problem that caused the debt in the first place. If the debt came from overspending, for example, they don’t trim their expenses to match their income and wind up borrowing more. If the debt is from medical bills, ill health may cause them to incur more medical-related debt.

Another issue is interest rates. Personal loans typically have fixed rates, which is good, along with fixed payments so you actually pay off the debt over time. That’s in sharp contrast to credit cards, which usually have variable rates and minimum payments that don’t pay down much of your principal.

Unless your credit is good and your income secure, though, you may wind up paying a higher rate than you are now — assuming you can get a personal loan at all. Lenders have tightened their standards considerably in recent weeks because of the current and expected economic fallout from the pandemic.

Many people are better off paying down their debt on their own, making extra payments to get their highest-rate card paid off first, and then moving to the next-highest-rate card, while paying minimums on the rest. (Another approach is to pay the smallest balance first, to give yourself a psychological win that can motivate you to keep going.)

If you can’t pay more than the minimums, then you’re likely in too much debt to dig your way out on your own. Consider making appointments with a credit counselor affiliated with the National Foundation for Credit Counseling and with a bankruptcy attorney (the National Assn. of Consumer Bankruptcy Attorneys offers referrals) so you can better understand your options.

Q&A: Spousal benefits go to spouse, not partner

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Dear Liz: I’ve been separated from my husband for 50 years but there’s been no legal divorce. If he dies, do I receive his Social Security benefit or does his common-law wife of 20 years?

Answer: You do.

Social Security recognizes common law marriage if a couple lives in a state that recognizes such unions, or lived in one when the marriage began. No state, however, recognizes common-law bigamy. As long as he’s still married to you, he can’t be legally married to someone else.

If the two of you divorced and he re-married, his spouse could qualify for benefits on his work record — but so could you. Since your marriage lasted more than 10 years, you could qualify for divorced spousal benefits (a percentage of his benefit while he was alive) as well as divorced survivor benefits (100% of his benefit when he dies). Your divorced spousal benefits would end if you remarry. If he dies and you get divorced survivor benefits, you would be able to keep those if you’re 60 or older when you remarry.

Q&A: What to do if an employer messes up your 401(k) coronavirus hardship withdrawal

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Dear Liz: I used the Coronavirus Aid, Relief, and Economic Security (CARES) Act to cash out my 401(k). My ex-employer waived the 10% penalty but withheld 20% for federal taxes. It seems unconscionable to keep $20,000 of my money for at least eight months instead of sending it to me. The law states I have three years to pay the taxes and I need that hard-earned money now. Is there anything I can do to make my former employer release my money?

Answer: Please contact your former employer immediately. It sounds like what you got was a regular distribution, which can be penalized as well as taxed and which can’t be paid back. Your employer can’t waive an IRS penalty — it either applies to the distribution by law or it doesn’t — and the 20% withholding indicates this was not a coronavirus hardship withdrawal, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

Coronavirus hardship withdrawals allow qualified people to withdraw as much as $100,000 of their balances from 401(k)s and IRAs, but these withdrawals aren’t available to everyone. You must have been affected physically or financially by the pandemic.

Plus, if you want to take the distribution from a 401(k), check if your employer is offering the option. A majority of employers now offer coronavirus hardship withdrawals, according to a Willis Towers Watson survey, but some are opting not to do so.

If you qualified for a coronavirus hardship withdrawal from a 401(k) plan offering that option, the distribution should not have been subject to withholding.

You would owe income taxes but not the usual 10% federal early withdrawal penalty, and you would have three years to pay the income taxes on the withdrawal. You also would have the option to pay the money back within three years and then amend your tax returns to get the taxes you paid refunded.

If your former employer did not offer coronavirus hardship withdrawals but you otherwise qualified, you had the option of rolling your 401(k) money into an IRA and then taking a coronavirus hardship withdrawal from the IRA. (You can typically roll money out of only a former employer’s plan. If you’re still working for that employer, such rollovers usually aren’t allowed.)

If your employer won’t release the withheld money, you still have a way to limit the damage. You can put the rest of what you received into an IRA, as long as you do so within 60 days, and then take a coronavirus hardship withdrawal from the IRA.

Unless you can come up with the $20,000 that was withheld, however, you’ll have to pay taxes and penalties on that $20,000 and you won’t be able to pay that money back. That’s unfortunate, but it’s better than having the entire $100,000 penalized and not having the option to pay any of it back.

Q&A: Getting your stimulus check

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Dear Liz: Do you have suggestions on what we should do about not receiving our stimulus check? We have our Supplemental Security Income checks direct deposited, making our bank information correct and known to the IRS. I have checked the IRS “Get My Payment” site daily and continue receiving the message, “payment status not available.” I’ve contacted the IRS, our governor, both state senators, our congresswoman, the mayor and several in the media without a response. Whom can I contact to receive an answer and information?

Answer: The U.S. Treasury Department says people who receive SSI should receive their relief payments in early May. The huge volume of payments means the money is being doled out in stages, but the IRS portal that’s supposed to help you track your payment has experienced a number of glitches.

One possible workaround is to enter your address on the IRS website in capitalized letters. Older computer systems and buggy programs sometimes respond to capital letters when they can’t process lowercase ones. The IRS insists the tool is not case sensitive, but it does suggest not using punctuation when entering your address.

The $1,200 payments are being sent automatically, but if you’re on SSI and have children 16 or younger, you only have until May 5 to request an additional $500-per-child payment through the IRS portal.