Q&A

Q&A: Flexible spending account use-or-lose deadlines are back after a pandemic hiatus

November 14, 2022 By Liz Weston

Dear Liz: The hospital where I work was bought out by another hospital last summer. I was in a flexible savings account at that time with my workplace. I had to enroll in a second FSA through the new medical facility. Trying to keep these two separate FSA accounts was not easy. I thought by March 31 of this year, my 2021 FSA accounts were spent. However, I recently found out I still had $700 left in one of my FSA accounts. I contacted the organization, pleading my case in regards to the midyear takeover and the difficulty of trying to keep two FSA accounts straight. No luck! Do I have any recourse?

Answer: The rules about spending FSA money were loosened after the COVID-19 pandemic hit, but it’s possible your employer didn’t opt in to those changes.

Medical FSAs, which allow employees to put aside pretax money to pay qualified healthcare expenses, have “use it or lose it” provisions that require the money to be spent within certain time frames. Normally, the deadline is Dec. 31, but employers can offer a grace period that extends the cutoff to March 15 of the following year, or allow employees to roll over a few hundred dollars ($550 in 2021 and $570 for 2022).

The federal Taxpayer Certainty and Disaster Tax Relief Act of 2020 gave employers the option of extending their spending deadlines by up to a year, or allowing their workers to roll over all the funds left in their FSAs in 2020 and 2021. Employers weren’t required to make these changes, which have since expired.

If your employer didn’t change its rules, it may not be too late, said Nitasha Kadam, a tax analyst for Wolters Kluwer Tax & Accounting. Plans can be amended retroactively to provide this relief. But the deadline is fast approaching — changes for the 2021 plan year would have to be made by Dec. 31, 2022. It’s worth asking about, although your case might be stronger if you can find co-workers in the same boat.

In any case, this is a timely reminder for other people who have money left in their FSAs: Check the deadlines, and make sure you spend the money before it’s gone forever.

Q&A: Why you need a credit score

November 14, 2022 By Liz Weston

Dear Liz: I use a credit card for most of my shopping and pay the balance in full every month. The card was opened years ago as a business card, but the business has since been closed. My credit scores are high but my card isn’t listed on my credit reports. I believe that is because it’s a business card. Should this be of concern to me? My wife and I own our home outright and have no other debt.

Answer: Your scores should be fine as long as you have (and occasionally use) other credit cards that show up on your reports at the three major credit bureaus.

If you didn’t have other active credit accounts, eventually your credit reports would no longer generate credit scores. That could make it much more difficult and expensive to borrow money, rent an apartment, get a cellphone and, in most states, insure a home or a car.

Q&A: Mom has dementia and credit cards. How does her family cancel the accounts?

November 7, 2022 By Liz Weston

Dear Liz: My mother has two credit cards that have had no activity for a year and a half due to being in an assisted living facility. She is living with dementia and no longer able to make any decisions (personal or financial) on her own. Should I or am I even able to cancel these cards or do I have to wait until she passes and send in a death certificate to the bank?

Answer: Theoretically you could close the accounts for her if you have a legal document known as a financial power of attorney. These documents are designed to help you take over the finances of someone who is incapacitated. Unfortunately, banks and credit card issuers sometimes refuse to honor powers of attorney despite legal requirements that they do so. You might need to hire an attorney to force them to accept your authority. You can get referrals to experienced attorneys from the National Academy of Elder Law Attorneys and the American Bar Assn.

If you don’t have this document and your mother is no longer of sound mind, you probably would have to go to court to become her conservator to make financial decisions for her. That can be an expensive process.

But there might be a simple solution. Some credit cards have an “off” switch that prevents anyone from making charges on the account. If the card has this feature and you can access the account online, you may be able to effectively disable the account even if you can’t formally close it.

Q&A: Offsetting home sale taxes

November 7, 2022 By Liz Weston

Dear Liz: We recently sold a house and have taxes to pay on the proceeds. I’m wondering if we can take some of the proceeds and put them into 401(k) accounts, and pay taxes on them later?

Answer: You can’t do this directly, since 401(k) contributions are made through payroll deductions. If you haven’t already maxed out your retirement contributions, however, you could increase your contribution rate to offset some of the taxable income you created when you sold the house. Some employers allow you to contribute 100% of your pay, up to the IRS contribution limits. In 2022, the limit is $20,500 for people under 50 and $27,000 for people 50 and older.

You also could contribute $6,000 to an IRA (or $7,000 if you’re 50 and older), but your ability to deduct the contribution depends on your income if you’re covered by a workplace plan such as a 401(k). If you’re married filing jointly and have a workplace plan, your ability to deduct an IRA contribution phases out with modified adjusted gross income of $109,000 to $129,000.

Remember that you can exempt up to $250,000 of home sale profits (or $500,000 for a couple) if you owned and lived in the property as your primary residence for at least two of the last five years. You also may be able to reduce the taxable gain if you kept good records of qualifying home improvements. For more information, see IRS Publication 523, Selling Your Home.

Q&A: Don’t forget ‘Where’s My Refund?’

November 7, 2022 By Liz Weston

Dear Liz: My CPA left off some income when electronically filing my return at the end of March. The CPA filed a corrected return a few days later. I’m owed $10,895 and still haven’t received my refund. What happened to the 21-day refund period for e-filing? I can’t get through to the IRS on the phone. The state refunded my money in only eight days.

Answer: The IRS tries to process refunds within three weeks when taxpayers file electronically and use direct deposit. But that timeframe goes out the window if there are any problems, especially in recent years.

The IRS is still dealing with a massive backlog triggered by the pandemic. The agency was already struggling with antiquated computer systems and a dwindling workforce because of years of underfunding. Then its processing centers were shuttered by lockdowns, followed by congressional orders to distribute hundreds of millions of payments (the three economic relief payments, followed by six months of advanced child tax credit payments).

You can use the “Where’s My Refund?” tool on the IRS site to track the status of your refund, but unfortunately there’s not much you can do to hurry things along.

Q&A: Filling a survivor benefit gap

October 31, 2022 By Liz Weston

Dear Liz: I am a 57-year-old widow. My children are 23, 22, 20 and 17. When my youngest graduates next June, I will lose the last of our Social Security survivor benefits. Our benefits used to be over $5,000 per month but her check is currently $2,084 per month. I am barely making it monthly now with my mortgage and other bills but will definitely not be able to afford to stay in my home once that benefit ends. I don’t know if I would be better off to rent out my home or sell it and buy a condo so my kids have a place to land. I am engaged and plan to live with my fiancé (knowing we can’t get married until I’m 60!). What are some things to consider in making this decision?

Answer: For those who aren’t aware, millions of children receive Social Security benefits because their parents are retired, disabled or deceased. The benefits typically continue until the child turns 18, or 19 if the child is still in high school. People caring for the offspring of a deceased worker also can receive benefits, but those typically end when the child turns 16.

Otherwise, survivor benefits generally are available to qualifying widows and widowers starting at age 60. Remarrying before age 60 can disqualify the survivor from benefits.

You obviously need a plan to bridge that two- or three-year gap before your widow’s benefits begin. But the best approach depends on the details of your situation.

You don’t mention how many of your children are now living at home, although it’s not unreasonable to consider how to house one or more of them in the next few years. Your youngest may want to live at home while going to college, or need a room to come back to in the summers if she goes away to school.

The others may well boomerang home even if they’re currently on their own. Kids can take longer to launch these days, especially in high-cost areas where affording even a modest apartment can be difficult.

That doesn’t mean you have to buy them their own place, of course. What you’re able to offer will depend on your resources and circumstances. You may need the money from the sale or rental of your home to bolster your retirement funds, for example, or to help pay college tuition.

Whether renting or selling is the best move also depends on your circumstances. Selling may be the better option if you can’t rent the home for more than its carrying costs. Even if you could make a profit each month, you may not want the hassles of being a landlord. A bad tenant or an unexpected vacancy could upend your finances, particularly if you don’t have considerable savings.

Also, if you rent out the home for more than a few years, you would lose the ability to exempt up to $250,000 in home sale profits when you did finally sell it. To take advantage of the exemption, you must have owned and lived in the home for at least two of the previous five years.

Consider scheduling a session with an accredited financial counselor. These advisors are fiduciaries, which means they’re required to put your best interests first, and they often work on a sliding scale. You can get referrals from the Assn. for Financial Counseling & Planning Education.