Ask Liz Weston

Get smart with your money

Q&A

Q&A: Riding the market waves

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Dear Liz: Today’s stock market is one of the most volatile of all time. So many issues affect it, and there seems to be no end in sight to war in Ukraine, inflation, high fuel prices, the pandemic, China conflict concerns and more. Any one of these would cause the market pain, but together it’s scary. I have a broker who’s used to riding ups and downs, and says to me to be patient. In the meantime I’ve lost 25% of a portfolio that was extremely fruitful until January of this year. Please give me guidance on working with a broker, finding one who knows how to navigate this market and isn’t mired in some tradition of riding waves. I need one who sees opportunity and knows how to take advantage and get out appropriately.

Answer: The reason your broker is “mired in some tradition of riding waves” is because that’s the one approach that consistently works. It’s the advisors who promise you that they can “see opportunity” and “get out appropriately” that can cost you big time. Advisors who try to time the market — which is what you’re asking them to do — inevitably fail. They might get out in time to avoid the crash but rebounds happen so swiftly that they’ll miss a good chunk of the recovery before they get back in.

There is no reward without risk, and riding out inevitable downturns is how investors get ahead over time. Trying to outsmart the market just leads to extra costs that lower your ultimate returns.

Q&A: Finding divorce papers

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Dear Liz: My ex passed three years ago. I have done everything to try to get a copy of our divorce papers. I’ve lost out on three years of divorced survivor benefits. Social Security said I must have a copy of the papers before I apply. I have contacted the last places where he lived and sent money orders to the capital cities of those states to no avail. I’m at a loss.

Answer: You need to contact the court clerk in the county where your divorce was finalized and ask for instructions on getting a copy of the documents. Sending out money orders at random won’t do anything but waste your cash. (You may be able to get some money back if the money orders haven’t been cashed, however. You’ll need to contact the issuer, provide a receipt and pay a cancellation fee.)

Q&A: How contribution rules differ for IRA and 401(k) accounts

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Dear Liz: I recently changed jobs. Typically I max out my 401(k) contributions each year. I contributed $20,700 to my previous company’s plan before quitting. Eligibility for my new company’s 401(k) doesn’t kick in until after 12 months of continuous employment, so I won’t be able to access this benefit until 2023. Can I set up an IRA or Roth IRA to reach the $27,500 limit for people 50 and older? I am married, filing jointly and our combined income exceeds $214,000.

Answer: Please talk to your company about fixing this outmoded requirement, which is costing its workers enormously in lost matching funds and compounded returns. Most companies have much shorter waiting periods, and the most enlightened employers enroll workers immediately. It’s hard enough to save adequately for retirement without an arbitrary yearlong delay.

The limits for contributing to workplace plans are separate from those for IRAs and Roth IRAs. For 2022, the limits for 401(k)s are $20,500 for people under 50 and $27,500 for people 50 and older. The contribution limits for IRAs (regular or Roth) are $6,000 for people under 50 and $7,000 for people 50 and older.

If you had access to a workplace plan at any point during the year, your ability to deduct your contribution would phase out with modified adjusted gross income between $109,000 and $129,000 if you are married filing jointly, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. The phaseout is between $68,000 and $78,000 for single taxpayers.

Normally when you can’t deduct an IRA contribution, you’re better off contributing to a Roth IRA. Contributions to a Roth aren’t deductible but withdrawals are tax-free in retirement.

However, the ability to contribute to a Roth IRA phases out with modified adjusted gross incomes between $204,000 and $214,000 for married joint filers and between $129,000 and $144,000 for single filers.

If you can’t contribute directly to a Roth, you could consider what’s called a “back door” Roth contribution, in which you contribute to a regular IRA and then convert the money to a Roth. Although direct Roth contributions have income limits, Roth conversions do not. However, you are required to pay income taxes on a typical conversion, so this maneuver works best if you don’t already have a large pretax IRA.

Q&A: Mortgage payoff or emergency savings?

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Dear Liz: My husband was laid off recently, and he quickly took a new job with a 25% pay cut to continue insurance benefits and the same retirement program. We regularly pay $500 to $1,300 extra on our house payment. We cannot keep that up. However, with his severance package and vacation day payout, we now have more in our bank account than we owe on our mortgage. If we paid off the $80,000 mortgage now (house is valued at $600,000), we’d have an emergency fund of only $10,000, but we could replenish those savings slowly each month with no house payment. We have no other debts. How do we know when is the right time to pay off the mortgage?

Answer: Think about what would happen if you paid off the mortgage and your husband were to be laid off again or you suffered some other financial setback. The $10,000 left in your emergency fund could be depleted quickly. If you don’t have stocks or other assets you could sell, you might have to raid your retirement accounts or turn to high-cost loans.

This is why financial planners recommend having an emergency fund equal to three to six months’ worth of expenses if possible — and why using your savings to pay off a low-rate debt might not be the best use of your money.

If you’re determined to pay off your mortgage, consider setting up a home equity line of credit first. That will give you a relatively inexpensive source of credit in an emergency.

Q&A: Identity theft fears? Get a credit report, credit freeze

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Dear Liz: I divorced 32 years ago. Recently, I received calls from a collection agency about a debt that has not been paid. I discovered that my ex used my phone number as one of his contact numbers. My number is supposed to be unlisted and unpublished, but he found it online. I have stopped receiving calls from the agency, but how do I stop this from happening again?

Answer: Please check your credit reports to make sure your ex didn’t swipe even more sensitive digits: namely, your Social Security number. If his credit is bad, he may be tempted to pretend to be you in order to get credit cards, loans or other accounts. That’s identity theft, and there are steps you should take now to protect yourself.

You can access your credit reports for free at AnnualCreditReport.com. (If you’re asked for a credit card number, you’re on the wrong site.) Look for any accounts that aren’t yours and consider freezing your credit reports at each of the bureaus. Credit freezes prevent someone from opening new accounts in your name. You can thaw the freeze whenever you need credit, also for free.

You can’t prevent someone from adding your phone number to their credit applications, but under federal law you can tell a collection agency to stop contacting you, and it must comply. Make the request in writing.

Q&A: Revisiting a Medicare penalty

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Dear Liz: As a county employee of 44 years, I was offered the option to contribute to Social Security in the mid-1970s. It was not mandatory and I declined. When I retired in 2004, I did not apply for Medicare as I wrongly assumed that I would not qualify. I have since learned that I can apply for Medicare but that I would have to pay $499 per month as a late enrollment penalty on top of the monthly premium. Do you know any way that I can get a portion of the late penalty waived?

Answer: As your situation shows, not getting sound advice about Medicare can be expensive. Failing to sign up for Part B coverage, which pays for doctor’s visits, can incur penalties of 10% for each 12 months you were eligible but didn’t enroll. The penalties are typically permanent.

There is an appeals process, but your chances of success may not be great unless you can prove that you delayed enrollment because of bad advice you got from a government representative. Medicare has more information on its site.