Ask Liz Weston

Get smart with your money

Q&A

Q&A: Don’t try evading Roth IRA requirements

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Dear Liz: My son is a student. He would like to maximize his Roth IRA at the annual $7,000 limit and has the money in savings to do so. However, his income from odd jobs, paid in cash, will probably be less than the $7,000 required to make this maximum contribution. Can he report additional income on his income tax beyond what he earned, pay the associated additional income taxes and thus meet the $7,000 income requirement?

Answer: Your son’s enthusiasm for retirement savings is commendable, but filing fraudulent tax returns is not. He can’t contribute more than he legitimately earns.

Q&A: Finding an affordable fee-only financial advisor

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Dear Liz: You always advocate hiring a fee-only financial advisor. But where do you really find one? I found those who say they are fee-only are really “assets under management” advisors when you dig down deep, and the cheapest fee-only advisor I’ve found costs $6,000. I just want them to look over my financial plan and help craft a retirement investment portfolio.

Answer: The “assets under management” model — where the advisor charges 1% or so of your portfolio in exchange for financial advice — is probably the most common fee-only arrangement. But there are others. The Garrett Planning Network, for example, represents planners who charge by the hour. XY Planning Network and Alliance for Comprehensive Planners offer referrals to planners who charge retainer fees.

You also might consider talking to an accredited financial counselor. These fee-only, fiduciary professionals typically charge less than a comprehensive financial planner does and could be a good fit for those with simpler needs. You can get referrals from the Assn. for Financial Counseling & Planning Education.

Q&A: You might have unclaimed retirement benefits. How to find them

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Dear Liz: My wife recently received from the Social Security Administration a notice of “Potential Private Retirement Benefit Information.” It cites a 401(k) account with a previous employer with a relatively small balance and states the “year reported” as 1992. My wife does not have any recollection of ever cashing out this account. Should the account still be accessible or are 401(k) accounts subject to abandoned property laws?

Answer: Keep in mind that many small accounts in that era were simply cashed out. The company sent the departing worker a check with a certain amount withheld for taxes, and that was that.

Still, even a small account could have grown substantially in the meantime, so it’s worth trying to find out if it might still exist somewhere. A couple of places to check first would be the National Registry of Unclaimed Retirement Benefits, which allows you to search using your Social Security number. Another site to check for missing money of all sorts is the National Assn. of Unclaimed Property Administrators.

If nothing turns up, your wife should try to find the plan’s administrator. If she has any old statements or paperwork from the plan, the administrator or plan provider would be listed. If not, and her former employer is still in business, she can call the human resources department to find out what company administered the plan.

If that doesn’t work, her next stop would be the Department of Labor’s efast system to look for the plan’s Form 5500. Employee benefit plans have to file these annual reports and include contact information. FreeErisa is another site to check for Forms 5500.

Q&A: Options for transferring condo to heirs

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Dear Liz: I would like to get advice on how to transfer my condo to my son and grandchildren. It looks like I don’t have too much living left and need to get a clear understanding of what would be better for me and for them. All the articles are very confusing. Can you advise me on what is better, transfer on death or some other form of transfer that avoids probate?

Answer: Transferring your condo while you’re still alive probably isn’t a good idea, since the property wouldn’t get the favorable step up in tax basis when you die. Without that step up, your heirs could owe capital gains taxes on the appreciation that occurred during your lifetime.

You could leave the property to your heirs in your will, but that would involve your estate going through the court process known as probate. In many states, probate isn’t a big deal. In other states, including California, probate can be lengthy, expensive and worth avoiding.

A living trust is often the best way to transfer an estate to heirs without probate, although the cost can be significant — $2,000 or more.

If the condo is your only asset, a transfer-on-death deed may be a simpler, cheaper way to get the property to your heirs. Many states now offer this option, and you can often find the form by searching “transfer on death deed” and the name of your state. Your county clerk’s office may have downloadable forms as well. You’ll typically need to get the form notarized and then file it with the county property records office for the deed to be effective.

Q&A: Social Security inflation adjustments

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Dear Liz: When the Social Security Administration makes its cost of living adjustments, do these increases get factored into the benefit amounts for people who are not yet collecting their Social Security?

Answer: Social Security’s inflation adjustments are factored into your retirement benefits starting at age 62, whether or not you’re actually collecting checks. So there’s no reason to speed up an application just to lock in a cost of living adjustment.

Q&A: To shred or not to shred

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Dear Liz: In a recent column, an attorney suggested that a veteran’s information can be shredded three years after death. However, surviving spouses of veterans can be eligible for benefits to cover the costs of assisted living and would need to provide that information.

Answer: That’s an excellent point. Many people aren’t aware of the “aid and attendance” benefit that can help veterans and their spouses pay for help with activities of daily living, including bathing, dressing and using the bathroom. These custodial care costs are typically not covered by Medicare.