Ask Liz Weston

Get smart with your money

Q&A

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

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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

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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?’

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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

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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.

Q&A: Got an old credit card that you no longer use? What to do instead of canceling it

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Dear Liz: I have been keeping a credit card that I no longer use because I’m afraid that canceling it may reduce my credit score. I have had the card since 1983, and it shows on my credit report as my longest credit relationship. I have other credit cards that I use regularly. I no longer have a mortgage. Should I keep the unused card?

Answer: Closing the card certainly won’t help your scores, but it’s impossible to know in advance how much they might be hurt. That doesn’t mean you should never close a card, but you may want to consider alternatives, particularly because this is your oldest card.

Does the issuer offer another type of card with cash back or other rewards you could use? If so, consider asking for a “product change” to the new card. That should preserve your long history with the account while supplying you with a credit card that better suits your needs.

Q&A: A spouse’s debt, your credit score

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Dear Liz: My spouse and I have added each other as authorized users on our credit cards. My spouse has more debt than I do. Does this impact my credit scores?

Answer: Possibly. Credit scoring formulas look at how much available credit is being used on each account. If your spouse has higher balances than you but also higher credit limits, your credit scores may not be harmed much, if at all. If, on the other hand, your spouse is using most of their available credit, your scores could suffer.

Most services that provide credit scores (including possibly your bank and your credit cards) typically offer some explanations about why your scores aren’t higher. If the explanations include anything about excessive credit utilization, you may want to consider getting yourself removed as an authorized user from the problematic cards.