Ask Liz Weston

Get smart with your money

Q&A

Q&A: What’s ‘substantial’ in the eyes of Uncle Sam?

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Dear Liz: I am retired and subject to both the windfall elimination provision and the government pension offset. In a recent column you indicated someone wouldn’t be subject to the windfall elimination provision if they had 30 years of “substantial earnings” in a job where Social Security tax was withheld. I contributed to Social Security for 32 years. How does one determine if these annual earnings are “substantial”?

Answer: Social Security has a two-page pamphlet about the windfall elimination provision that you can find online or request from the agency by calling (800) 772-1213. The pamphlet features a chart of the earnings required each year to be considered substantial. In 1992, for example, the amount was $10,350. In 2024, it’s $31,275. If you create a My Social Security online account — and you should — you can compare the amounts to what you earned during the years you contributed to the system.

Social Security has already done this and concluded you’re subject to the provision, which reduces but doesn’t eliminate your benefit because of the pension you earned from a job that didn’t pay into Social Security. If your Social Security record is inaccurate, though, you can contact the agency to correct it. You’ll probably need some kind of proof, such as pay stubs or W2s, so hopefully you’ve kept good records over the years.

Q&A: I’ve got a 457(b), not a 401(k). Are they insured the same?

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Dear Liz: As an employee of a public agency that offers a 457(b) account, it would be helpful to know if these accounts are insured in a manner similar to a 401(k).

Answer: Employer-provided, tax-deferred 457(b) accounts are quite similar to 401(k)s. Both allow employees to make pretax contributions to a retirement account that can be invested for future growth. The accounts aren’t insured the same way bank accounts are, but the money is kept in a separate trust that’s protected from creditors.

Q&A: Should I be afraid of payment apps?

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Dear Liz: I pay rent via check (yes, I am aware of the risks). My landlord would prefer that I use Zelle, which has drawbacks. People have had their bank accounts drained. Also, I heard that peer-to-peer money transfer apps should only be used by friends and family, not for business, and not for large sums of money.

Answer: As you may know, Zelle payments are made instantly. If you send the money to the wrong party, you could be out of luck. Federal law protects you if your account was hacked, but not if you make a mistake or have been duped into sending money to a scam artist. (Zelle does investigate allegations of fraud, however, and may return the money if you’ve been deceived.)

Many people are comfortable using Zelle and other payment systems to send money to people and businesses they know well, while others aren’t. If you continue to use checks, make sure to mail them directly at the post office or use a shipping service that offers a tracking number, such as Fedex. Monitor your account closely and set up alerts that notify you when checks over a certain amount are cashed. Fraud related to check theft has soared, so you’ll need to be extra vigilant if you continue sending paper checks.

Q&A: What to do when your financial advisor isn’t doing right by you

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Dear Liz: My husband and I are in our 80s, living in a retirement community. Our investment account is valued at $550,000. This has to see us through till we die. We have no pension, no other assets. Social Security provides $2,760 a month and we are in the lowest tax bracket. Our financial advisor is using tax loss harvesting “to save us from capital gains tax.” We are both uncomfortable with this. Taking a loss on purpose doesn’t feel like a secure path and should be for people with a long-term future. Should we ask him to stop using this method of trading?

Answer: Tax loss harvesting involves selling investments that have gone down in value to offset some or all of the gains from investments that have gained in value. The point is to reduce capital gains taxes. Since you’re in the lowest tax bracket, however, your federal tax rate on long-term capital gains is effectively zero. It’s hard to imagine how your advisor would justify tax loss harvesting, given your situation.

Go ahead and ask them. The answer should give you some insight into how much your advisor knows, or cares, about your individual circumstances. Obviously, you should halt the tax loss harvesting if there’s no good reason to do it, but you might also want to start looking for a new advisor.

Keep in mind that most financial advisors don’t have to put your best interests first. They can recommend investments or pursue strategies that make them money, regardless of whether the recommendations are the best fit for your financial situation.

If you want an advisor committed to putting you first, you’ll need to seek out one who is willing to be held to a fiduciary standard. Such advisors include certified financial planners, certified public accountants (including those who are personal financial specialists) and accredited financial counselors. A fiduciary would have taken the time to understand your financial situation and then crafted a strategy to best fit your circumstances.

Q&A: When an inherited house gets sold, it pays to know the tax rules

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Dear Liz: My sister and I inherited a house from our mom in 2003. Back then, it was appraised at close to $500,000. It’s now worth $1.3 million and we want to sell and split the profits. My sister has lived in the house since Mom passed. Approximately what would the tax liability be?

Answer: You’ll determine the potentially taxable profit by subtracting the tax basis — the amount the house was appraised for at your mother’s death, plus any qualifying improvements — from the sale proceeds. Your sister can exempt $250,000 of her share of the profits, since she has owned and lived in the house for two of the previous five years. If her share of the profit was $400,000, for example, she would owe long-term capital gains taxes on $150,000 of that.

As a non-occupant, you wouldn’t have the option to exempt any of the profit, so you would owe long-term capital gains taxes on your entire $400,000 share. Long-term capital gains rates depend on your income, but the federal rate is 15% for most.

Q&A: A husband dies young, a widow wonders: What are my survivor benefits?

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Dear Liz: My question relates to survivor benefits. How much does the surviving spouse receive in Social Security benefits if the higher-earning spouse dies at 59, before he ever became eligible? He worked for 40-plus years and met all the requirements except not reaching the minimum age. I plan to wait until next year when I’m 60 years old to collect. Will my survivor benefits be based on what he would’ve gotten if he’d reached full retirement age of 67?

Answer: The short answer is yes, but your survivor benefit will be significantly reduced if you start at age 60 and will also be subject to the earnings test, which reduces your check by $1 for every $2 you earn over a certain limit, which in 2024 is $22,320. The earnings test disappears once you reach your own full retirement age.

You’re also allowed to switch from a survivor benefit to your own, or vice versa. Most Social Security benefits don’t allow such flexibility. You could collect survivor benefits while allowing your own to grow, for example, if your own benefit would ultimately be larger.

A paid service such as Social Security Solutions or Maximize My Social Security can help you determine the best claiming strategy.