Q&A

Q&A: A required minimum distribution headache

January 14, 2019 By Liz Weston

Dear Liz: For more than four years my husband has had to take a required minimum distribution from his 457 deferred compensation plan. We have always chosen when to do that, knowing that it has to be done by Dec. 31.

This year we processed the distribution on Dec. 28 to take advantage of stock market movements. We saw the direct deposit of that transaction hit our savings account as planned. To our astonishment, we got a letter (dated Dec. 27 but received after Jan. 1) from the plan’s trustee informing us that “as a courtesy” it had initiated a required minimum distribution “on our behalf.” The letter even “assisted” us with information on how we can “establish a recurring RMD” in the future. We received a check in the mail Jan. 5 for this unnecessary and unwanted distribution.

Not only is this a duplication of my husband’s RMD for this account, but this distribution also may push us into a higher tax bracket. It also sets me up for a further increase in my Medicare B premiums because of the higher income.

I have searched but could not find any information on how to roll this back or how they could have been so bold, and under what authority they took the liberty to babysit a depositor. Can you provide any information?

Answer: Before any more time passes, put the money into an IRA and keep documentation of the “redeposit,” said Robert Westley, a CPA and personal financial specialist with the American Institute of CPAs’ PFS Credential Committee.

The plan provider likely will send a 1099-R form that includes the second withdrawal, so you’ll need this documentation to avoid taxation on the extra money. If you don’t already have a tax pro to help you, consider hiring one to help you navigate this.

Some retirement plans, including 457s, have language that allow forced distributions, since many people either don’t understand the requirement or choose to ignore it. But your husband clearly was not in that group.

Your husband can call the 457 plan provider to find out what happened and how to prevent it from happening again. Or he might just roll this 457 into an IRA at another provider.

This advice assumes that the plan is a governmental 457, which allows rollovers into an IRA. If it’s a non-governmental 457, however — the kind used for highly paid executives in private companies — the rollover option doesn’t exist and you might be stuck with a higher tax bill.

Q&A: How to find affordable healthcare insurance

January 7, 2019 By Liz Weston

Dear Liz: I am 25 and work two part-time jobs, neither of which offers health insurance. Once I’m 26, I will no longer be able to remain on my parents’ policy. Do I need a full-time job to receive health benefits, or do I have other options?

Answer: You currently have other options, but you may still want to look for a full-time job that offers this important benefit.

Although a Texas judge ruled the Affordable Care Act unconstitutional, the law giving people access to health insurance remains in effect while legal challenges play out. You can start your search for coverage at www.healthcare.gov. The open enrollment period for most people has ended, but some states including California have extended the deadline to Jan. 15. In addition, you would qualify for a “special enrollment” period once you turn 26 and lose eligibility for coverage on a parent’s plan.

If the ACA does go away, health insurance may become harder to qualify for and more expensive. Group health insurance through an employer may become your best option.

Q&A: Options for high debt, low income

January 7, 2019 By Liz Weston

Dear Liz: I’m 87 and drowning in debt, owing more than $21,000 with an income of $23,000 from Social Security and two small pensions. I don’t like the idea of debt consolidation but is that better than bankruptcy? My only asset is a 2003 car.

Answer: Debt consolidation merely replaces one type of debt (say, credit cards) with another, typically a personal loan. You are unlikely to qualify for such a loan and even if you did, your situation wouldn’t improve much if at all because your debt is so large relative to your income.

You may be confusing debt consolidation with debt settlement, which is where you or someone you hire tries to settle debts for less than what you owe. Debt settlement can take years and may not result in much savings, since the forgiven debt is considered taxable income and hiring a debt settlement company can cost thousands of dollars. In addition, people in the debt settlement process risk being sued by their creditors. Bankruptcy is typically a better option for most people because it costs less, is completed more quickly and ends the threat of lawsuits.

You may not need to file for bankruptcy, however, if you’re “judgment proof,” which means that even if you stop paying your creditors and they successfully sue you, the creditors wouldn’t be able to collect on those judgments. That’s typically the case when someone’s income comes from protected sources, such as Social Security and certain pensions, and they don’t have any assets a creditor can seize.

Please discuss your situation with a bankruptcy attorney who can review your options. You can get a referral from the National Assn. of Consumer Bankruptcy Attorneys at www.nacba.org.

Q&A: Retirement planning needs expert help

January 7, 2019 By Liz Weston

Dear Liz: I am about to retire and have had to make some very important decisions: How should I receive my company pension, when should we start taking Social Security, should we convert some IRAs to Roths, how to best cover our healthcare needs and what the best ways are to manage our tax bill. I think we are OK and on track, but I worry about people who don’t have a college degree and who have not studied these issues trying to make similar decisions. I think it’s scary and we should do more to help people secure their retirement.

Answer: You’re quite right that retirement involves a number of complex choices, many of which are irreversible. It’s easy to make the wrong decisions, even if you do have a college degree and think you know what you’re doing.

Everyone approaching retirement should realize that they don’t know what they don’t know, and if possible seek out an expert, objective second opinion on their retirement plans to ensure they’re making the best possible choices.

Q&A: Don’t value credit rewards over scores

December 31, 2018 By Liz Weston

Dear Liz: You’ve advised people that “it’s important to keep your credit utilization down, even if you pay in full (as you should).” That may be good advice regarding one’s credit score, but there is another perspective. Although we pay in full every month (and have paid no credit card interest since 1971), charging almost every purchase or expense has earned us three pairs of round-trip frequent flier miles tickets to Paris — one pair first class and the other two business class — in the last 15 years.

Answer: Maximizing rewards shouldn’t come at the cost of your credit scores, particularly if you want to qualify for future cards that offer tempting sign-up bonuses. You can continue to charge away, as long as you either spread the charges across several cards or make two or three payments every month on each card you use to keep the balances from getting too high.