Ask Liz Weston

Get smart with your money

Q&A

The best place to get your credit reports, scores

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Dear Liz: I want to see all three of my credit reports with scores and fix some things on there that could be in error. What site do you recommend to get all three with scores?

Answer: You have a federally mandated right to see your credit reports once a year, and you can access those reports at http://www.annualcreditreport.com. That is the one and only federally authorized site. There are plenty of look-alikes, so make sure you get to the right place. Each of your three reports will include links that will allow you to dispute errors.

When you access your reports, you may be offered credit scores either for a fee or as an inducement to sign up for credit monitoring. Typically, these scores are not the FICO scores that most lenders use. If the word “FICO” is not in the name of the credit score being offered, it’s not an actual FICO score.

To get your FICOs, you’ll need to go to MyFico.com. Currently, you can buy two of your three FICOs — the ones from Equifax and TransUnion — for $19.95 each. Experian has announced it will soon offer FICOs through MyFico.com as well.

How to claim SS now, and claim more later

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Dear Liz: You recently wrote that people who start Social Security benefits before their full retirement age are locked in and can’t switch to a higher benefit later. You are indeed locked in to that reduced benefit, but by switching to a spousal benefit at age 66, for example, it is possible to receive a higher benefit. Getting correct information about this is tough. I’m a certified financial planner and I received three different answers from Social Security personnel. Search the FAQ on the ssa.gov site for “receiving full and reduced benefits.”

Answer: Thanks for that important clarification. The original letter referenced a technique that some married couples can use to significantly boost their overall benefit. The technique allows people to start spousal benefits — Social Security payments based on the work record of a husband or wife — while letting their own benefit grow, to be claimed later. But the option of switching from the spousal benefit to your own benefit is available only if you start spousal benefits at your own full retirement age (which is currently 66). People who start spousal benefits before full retirement age can’t later switch to their own benefit.

As you note, however, people who start with their own benefit may be able to switch to a spousal benefit later. Both their own benefit and their spousal benefit would be reduced because of the early start. Here’s how Social Security explains it:

“When you apply for reduced retirement benefits, we will check to see if you are eligible for both your own retirement benefits and for benefits as a spouse. If you are eligible for both, we always pay your own benefits first. If you are due additional benefits, you will get a combination of benefits equaling the higher spouse’s benefit. If you are not eligible for both because your spouse is not yet entitled, but you are due a higher amount when he or she starts receiving Social Security benefits, then the higher spouse’s benefit is payable to you when your spouse applies for retirement benefits. Remember, you cannot receive spouse’s benefits until your spouse files for retirement.”

Social Security claiming strategies can be complicated. The AARP has an excellent guide at http://bit.ly/153Quvh.

Monday’s need-to-know money news

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collegeWhat to watch out for with credit cards, when you need to pay U.S. taxes and a possible light at the end of the student loan tunnel.

How to Stop a Neverending Student Loan Nightmare

Could there be a real solution to the student loan crisis?

The Case Against Credit Cards: Overspending, Obesity, Inequality

Credit can be a helpful tool, but it also may make us “dumber, fatter, poorer.”

Living Abroad? Your ‘Tax Home’ Could Still Be U.S.

How to pay U.S. tax rates while living in your newly purchased English manor.

How to Get the Most Value From Your Home Inspection

The home inspection could be the most important part of your potential sale.

Friday’s need-to-know money news

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The hackerBanks are watching your Facebook account, escaping a lease, and keeping your cool.

The Identity Theft Flu: 5 Ways to Stay Healthy

There’s no way to completely protect yourself from identity theft, but here are some ways to boost your financial immune system.

Using Social Media to Stop Online Payment Fraud

Your Facebook status updates could soon be used to verify your financial state.

Is Creating a Personal Budget a Good Idea?

Experts debate the pros and cons of personal budgets.

When and How to Break a Lease

Tips on how to break a lease as painlessly as possible.

Smart Ways to Slash Your Summer Bills

How to stay  cool without melting your wallet.

Thursday’s need-to-know money news

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Old Woman Hand on CaneTips on staying debt free, managing an aging parent’s finances and the importance of “the money talk” before heading down the aisle.

How to Stay Debt-Free

Small steps you can take to stay out of debt.

Does This Smell Bad to You? How Long Foods Last

Tips on how to save money by not wasting food.

10 Items Whose Prices Have Jumped the Most in the Past 10 Years

Gasoline, college tuition and…eggs?

Have a Debt Talk Before ‘I Do’

Before walking down the aisle, find out where you both stand on past, present and future debt.

How to Approach Aging Parents’ Mental Decline

Advice on how to deal with parents’ compromised financial situations in a sensitive manner.

Using a Roth for college: hazards and benefits

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Dear Liz: My husband and I have been putting 5% and 6%, respectively, into our 401(k) accounts to get our full company matches. We’re also maxing out our Roth IRAs.

The CPA who does our taxes recommended that we put more money into our 401(k)s even if that would mean putting less into our Roth IRAs. We’re also expecting our first child, and our CPA said he doesn’t like 529 plans.

What’s your opinion on us increasing our 401(k)s by the amount we’d intended to put into a 529, while still maxing out our Roths, and then using our Roth contributions (not earnings) to pay for our child’s college (assuming he goes on to higher education)?

Our CPA liked that idea, but I can’t find anything online that says anyone else is doing things this way. I can’t help but wonder if there’s a catch.

Answer: Other people are indeed doing this, and there’s a big catch: You’d be using money for college that may do you a lot more good in retirement.

Contributions to Roth IRAs are, as you know, not tax deductible, but you can withdraw your contributions at any time without paying taxes or penalties. In retirement, your gains can be withdrawn tax free. Having money in tax-free as well as taxable and tax-deferred accounts gives you greater ability to control your tax bill in retirement.

Also, unlike other retirement accounts, you’re not required to start distributions after age 70 1/2. If you don’t need the money, you can continue to let it grow tax free and leave the whole thing to your heirs, if you want.

That’s a lot of flexibility to give up, and sucking out your contributions early will stunt how much more the accounts can grow.

You’d also miss out on the chance to let future returns help increase your college fund.

Let’s say you contribute $11,000 a year to your Roths ($5,500 each, the current limit). If you withdraw all your contributions after 18 years, you’d have $198,000 (any investment gains would stay in the account to avoid early-withdrawal fees).

Impressive, yes, but if you’d invested that money instead in a 529 and got 6% average annual returns, you could have $339,000. At 8%, the total is $411,000. That may be far more than you need — or it may not be, if you have more than one child or want to help with graduate school. With elite colleges costing $60,000 a year now and likely much more in the future, you may want all the growth you can get.

You didn’t say why your CPA doesn’t like 529s, but they’re a pretty good way for most families to save for college. Withdrawals are tax free when used for higher education and there is a huge array of plans to choose from, since every state except Wyoming offers at least one of these programs and most have multiple investment options.

Clearly, this is complicated, and you probably should run it past a certified financial planner or a CPA who has the personal financial specialist designation. Your CPA may be a great guy, but unless he’s had training in financial planning, he may not be a great choice for comprehensive financial advice.