Ask Liz Weston

Get smart with your money

Q&A

Q&A: Paying taxes electronically

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Dear Liz: I’m a CPA and your answer about paying taxes electronically was spot-on. But there’s a pro tip you might share: I advise all my clients to establish accounts with the IRS and their state tax authority. That allows my clients to schedule payments more easily with a single log-on (rather than having to validate each time with prior year tax information). Such accounts also provide ready access to payment history, making it easier to share that information with me at tax time.

Answer: That’s an excellent suggestion. The IRS’ Direct Pay service offers a free, secure way for people to pay annual and estimated taxes from their bank accounts without having to register in advance. The IRS also provides an option to pay with credit or debit cards, for a fee.

Creating an IRS online account allows you to see amounts you owe, past payments and any scheduled payments, plus you can make a same-day payment from your bank account. You can view details of your most recent tax return, get instant access to tax transcripts and authorize your tax pro to represent you if there’s a problem. In fact, many tax pros recommend setting up an account just in case you get audited or run into other problems, rather than waiting to do it while under duress.

You’ll need a valid email address, a mobile phone number, identification such as a passport or driver’s license and your Social Security or tax identification number. The process typically takes 15 to 30 minutes to complete.

Q&A: How to roll over your 401(k) into an IRA

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Dear Liz: My question relates to 401(k) rollovers. Are there different tax implications when it comes to rolling the money into a traditional IRA versus a traditional IRA brokerage fund? I’ve always associated the word “brokerage” with after-tax dollars.

Answer: Financial terms can get confusing, so let’s start with the basics. Both 401(k)s and IRAs are tax-advantaged accounts that allow you to save for retirement. Employers offer 401(k)s, but you can open an IRA at a brokerage, bank, credit union, mutual fund company or robo advisor, among other providers. Some people liken 401(k)s and IRAs to buckets that receive your retirement funds, while the providers are where you store the bucket.

If you leave the employer that offers your 401(k), you have the option to roll your account into an IRA so your money can continue to grow tax-deferred. (You often have other options, such as leaving the money in your former employer’s plan or rolling it into a new employer’s plan.)

When you arrange a direct rollover, the money goes straight from the 401(k) to the IRA provider and no taxes will be withheld or charged. By contrast, if you opt to have a check sent to you rather than the IRA provider — something known as an indirect rollover — 20% of your funds will be withheld for federal taxes.

If you want to avoid those taxes and have your money continue to grow tax deferred, you’d have to deposit the check into the IRA within 60 days and come up with that 20% out of your own pocket. You’d get the money back in the form of a tax credit once you file the tax return for that year, but clearly the simpler, better way is to make the rollover a direct one.

Q&A: About those annoying online payment fees

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Dear Liz: In a recent column you wrote about the importance of paying online and the dangers of writing checks. Why does paying online come with a fee? Is it really justified to pay a “technology fee” of $12 to pay my insurance bill online? It seems to me that it should be faster and easier for the recipient if I pay online, and that NO fee is the correct amount.

Answer: Agreed. “Pay to pay” fees are annoying. It’s one thing if an entity is passing on a small transaction cost, like the 2% or 3% that payment networks may charge to process your credit or debit card payment. It’s quite another when a company charges “convenience fees” simply for accepting online payments, when such payments are far safer and more secure than sending checks through the mail. To be clear, most companies don’t charge such fees but some insurers have been slow to join the 21st century.

You may have other options. Your insurer’s site may allow you to set up automatic payments that come directly from your checking account. Or your bank’s online bill pay may have an option to send electronic payments directly to the insurer from your account.

If not, and your only safe option is to incur the fee, it’s probably time to shop for a better insurer.

Q&A: Social Security survivor benefits

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Dear Liz: You recently wrote that someone’s Social Security survivor benefit would be the same as her spouse’s, including the 8% annual delayed retirement credits and cost of living increases. My husband just took his Social Security at age 70 but we were told I wouldn’t get his full survivor benefit as I took my own benefit at age 62. Is it because in the other question, the wife took her benefit at her full retirement age of 66 years and 8 months? So confused with all the rules!

Answer: The rules are certainly confusing, but the advice you got was wrong.

Your early start certainly reduced your own retirement benefit, but doesn’t reduce your survivor benefit. If your husband dies first and has the larger benefit, you’ll get a survivor benefit equal to his check and your retirement benefit will cease.

What does reduce survivor benefits is starting them early. Survivor benefits can start as early as 60, but you don’t get the full amount until you’ve reached full retirement age. (Full retirement age was 66 if you were born from 1943 to 1954. Between 1955 and 1959, full retirement age increases by two months each year; for people born in 1960 and later, full retirement age is 67.)

If you’re already past your full retirement age, you don’t need to worry about a reduced survivor benefit. If your husband dies before you reach full retirement age, the correct claiming strategy depends on your situation. Consider getting expert advice about when to switch to the survivor benefit.

Q&A: There’s a new option for leftover funds from a 529 college savings plan — your kid’s retirement

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Dear Liz: We put four kids through college using 529 college savings. All four are out of college with good jobs and we have about $50,000 left over. Would you suggest just letting it build for the grandkids’ college in 20 to 30 years? The amount should grow considerably in that time and may pay for all the grandkids’ college expenses as well.

Answer: You have a number of options with leftover 529 funds, including eventually changing the beneficiaries to your future grandkids. Since none have been born yet, and may not be for a while, you can just leave the accounts alone to grow for now.

In addition to paying qualified college education expenses, up to $10,000 per year of 529 funds can be used for private school tuition for kindergarten through 12th grade. In addition, up to $10,000 per beneficiary can be used to repay student loans.

If you do decide to earmark funds for the grandkids, you may want to think about the best way to divide the money. You may not know for a while how many grandkids you’ll have. It’s entirely possible for the first grandchild to reach college age before the last one even comes along.

Another option that’s new this year is to use the leftover 529 money to fund Roth IRAs for your children, the original beneficiaries. If the account has been open at least 15 years, each year you can roll over an amount equal to the contribution limit, which for 2024 is $7,000. (The lifetime rollover limit for each beneficiary is $35,000.) This assumes the beneficiary has earned income at least equal to the rollover amount.

Q&A: Protecting a daughter’s inheritance

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Dear Liz: We need help knowing what to do regarding leaving our home and money to my unmarried daughter. She has had a boyfriend for over 15 years. How can we protect her inheritance so he can’t claim half?

Answer: Inheritances are considered separate property. So her inheritance could be considered hers alone even if your daughter marries this guy and lives in a community property state where other income and assets accumulated during the marriage would be considered joint property.

She might have to be careful not to commingle funds, however. A partner who contributes toward a mortgage on a house might have a claim on the property, for example.

Please talk to an estate planning attorney who can assess the situation and give you — and your daughter — personalized advice.