Ask Liz Weston

Get smart with your money

Q&A

Q&A: Death doesn’t take a financial holiday. Here’s a cautionary tale

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Dear Liz: My daughter has two children, ages 2 and 4. Recently the children’s father took his own life. He was 27. The job he worked as long as I knew him paid him in cash, so he didn’t pay into Social Security. Does this mean the children cannot receive survivor benefits from Social Security?

Answer: If the father never worked at a job that paid into Social Security, your grandchildren — and your daughter — won’t qualify for the survivor benefits they could have received had he been paid legally rather than under the table.

Their one hope is if he had a previous job that did pay into Social Security.

At 27, he would have needed at least six quarters of coverage to trigger survivor benefits, says Bill Meyer, founder of Social Security Solutions, a claiming strategies site.

The older a person is, the more quarters are needed to qualify for benefits, but no one needs more than 40 quarters. The amount of earnings required for a quarter of coverage is $1,360 in 2019. Once you earn $5,440, you’ve earned your four quarters for the year.

If the father had earned those six quarters, his death would trigger survivor benefits for his children that typically last until age 18 (or until 19, if they are still in high school full time). Your daughter also would be entitled to benefits until the younger child turned 16, because she’s caring for the deceased person’s minor children.

It’s possible this young man was paid under the table because he was not able to work legally in the U.S. If that’s the case, he and his family wouldn’t qualify for Social Security benefits even if payroll taxes had been deducted. If he opted for cash because he or his employer didn’t want to pay taxes, though, that was a choice that had expensive repercussions for the people he left behind.

Q&A: Pension payout planning

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Dear Liz: My husband and I each receive a pension from the companies where we worked. If my husband dies first, will his company continue to pay me his pension and vice versa?

Answer: That depends on how you chose to receive your benefits. Typically people are offered a choice of payouts: a “single life” option that ends at the pensioner’s death, and “joint and survivor” options that continue payments after the pensioner dies. A 50% joint and survivor option would pay half the monthly amount after the pensioner’s death, while a 100% option would continue the payments without reduction.

The option that continues payments without reduction, however, often offers the smallest monthly payment to start. The “single life” option pays the largest monthly amount, but the fact that the payments end at the first death can leave the survivor in a bad way.

Q&A: Living trust viewing restrictions

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Dear Liz: How in the world do I find out the details of my parents’ trust? My father recently died and my mother, who is 89, is not familiar with the details. My older sister is not responsive when I ask questions. She and I are the only children. My husband recently became disabled and it would be a comfort to know if we had any money coming from my parents. Can you give me any advice?

Answer: Presumably you’re asking about a living trust, which is designed to avoid probate, the court process that otherwise follows death. Unlike wills, living trusts don’t have to be filed with the courts so you can’t go down to the county courthouse to look up the details.

Living trusts are revocable trusts, which means they can be changed. People other than the trust creators don’t typically have a right to see the trust until it becomes irrevocable.

In the past, part of a living trust often became irrevocable when one spouse died. Today, it’s more common for trusts to remain revocable until the surviving spouse dies.

To some extent, state law determines who gets to see a copy of the trust once it’s irrevocable. Typically beneficiaries have a right to see the trust, and in some states (including California) so do “heirs at law” — people who aren’t beneficiaries but who would have inherited under state law if there had been no trust or will.

Q&A: Weighing investment choices

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Dear Liz: I felt your advice about using an inherited IRA to pay off a mortgage was spot on, but I would add one suggestion. The person could use their required minimum distribution (or a little extra) from the inherited IRA each year to pay down the principal on the mortgage. Then they could see what the remaining loan balance is when they are approaching retirement in 10 years.

Answer: That could be a good alternative if being debt free is more important than maximizing their returns. Using just the distributions to pay down the mortgage would allow the bulk of the money to continue earning tax-free returns as long as possible, while reducing the mortgage balance over time.

The letter writer might do better financially by investing the distributions, but using them to pay down the mortgage could get them closer to their desired goal of being mortgage free.

Q&A: Inherited Roth IRA distributions

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Dear Liz: You recently answered a question about whether someone should use a Roth IRA to pay off a mortgage. In your answer, you mentioned the requirement to take minimum distributions from the account. One of the huge advantages of a Roth, besides tax-free distributions, is that there are no required minimum withdrawals. Did I miss something?

Answer: You did. You missed the word “inherited.”

The letter writer was asking whether to use an inherited Roth IRA to pay off the mortgage. (Specifically, an inherited non-spousal Roth IRA.) Although the original Roth IRA owner was not required to take distributions, the heirs must. Money can’t be kept in tax-deferred retirement accounts indefinitely.

Q&A: Why this widow can’t get her late husband’s Social Security benefit

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Dear Liz: My husband passed away 10 years ago at age 66. I called then to see if I could collect Social Security, because he was receiving benefits when he died. Our daughter was still a minor, so she was able to collect survivor benefits until she turned 18. I was told I couldn’t collect benefits as I made too much money. (I asked what too much money was and they said around $14,000 annually.)

I am now thinking about retiring at age 66 or 67. I am a mid-career public school teacher, so I’ve been told the “windfall elimination provision” will wipe out my Social Security benefit. I had my own business and worked previously but am told I can’t receive the Social Security benefits that my husband earned, nor will I most likely receive much, if anything, from the Social Security contributions I made. My friends tell me this can’t possibly be right.

Answer: The information you received about Social Security was generally entirely correct.

Let’s start with the windfall elimination provision. If you receive a pension from a job that didn’t pay into Social Security, any Social Security benefit you get may be reduced but not eliminated. You can read more about how the windfall elimination provision works and why it was created at the Social Security Administration website, www.ssa.gov.

A related provision, the government pension offset, can wipe out any spousal or survivor benefit you might have otherwise received.

Before those provisions were enacted, people who had generous government pensions from jobs that didn’t pay into Social Security could get the same or larger benefits than people who had paid into the system throughout their lives. Critics of the provisions, however, say they can leave some low-wage government workers worse off.

Another provision that can reduce or wipe out Social Security benefits is called the earnings test. Before full retirement age, which is currently 66, any Social Security check you receive would be reduced by $1 for every $2 you earn over a certain amount ($17,640 in 2019). The amount was $14,100 from 2009 to 2011 and $14,640 in 2012, so that may have been why you remember the number $14,000.

So technically, you may have been eligible for a survivor’s benefit. Widows and widowers are eligible for survivor’s benefits starting at age 60, or age 50 if they’re disabled, or at any age if they’re caring for the dead person’s child who is under 16 or disabled. But it sounds as if any benefit you received would have been wiped out because of the earnings test.

Your situation is a perfect example of how complicated Social Security can get and how hard it can be to navigate the system without expert help. But even people with more straightforward situations can benefit from advice about how and when to file for benefits. Two of the better do-it-yourself options include Maximize My Social Security ($40) and Social Security Solutions ($19.95 for a basic version or $49.95 for one that allows you to compare scenarios). Or you can consult with a fee-only financial planner who has access to similar software and who can give you personalized advice.