Ask Liz Weston

Get smart with your money

Q&A

Q&A: Credit reports vs. credit scores

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Dear Liz: I recently downloaded both my wife’s and my own credit reports. I noticed that, for a number of reasons, her report has much less information than mine. The probability is that I will die before her, so my question is whether you can suggest any ways to be sure she has a good credit rating after I’m gone. Do the credit reporting agencies give any weight to a spouse’s score?

Answer: They do not, unless the spouse is alive and a co-applicant.

The amount of information in a credit report doesn’t dictate someone’s scores, however. People can have good scores with only a few credit accounts, or bad scores with lots of accounts. Your wife should find out what some of her scores are to decide next steps. Her bank or credit card issuer may supply her with scores, or she could get free scores from one of the many sites that offer those. (FICO is the formula most often used by lenders, but VantageScore can give her a good idea how lenders view her, as well.)

If her scores are less than excellent (generally 740 and up), she could look for ways to improve them such as making all credit payments on time, using only a small fraction of her available credit and perhaps adding an account or two. Credit builder loans from credit unions can be a good way to build or rebuild credit.

Q&A: Financial aid and 529 plans

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Dear Liz: As a grandparent who has established 529 accounts for each of my grandchildren, I was particularly interested in your advice to the writer who asked you how to use money that’s left in the 529 account to pay off a loan debt. Although it seems that “the horse had already left the barn,” why didn’t the niece use all the funds in the 529 account before accruing student loan debt? Am I missing something?

Answer: It’s possible the withdrawals could have reduced the niece’s financial aid, so she opted to take out loans instead.

In the past, the federal financial aid formula heavily penalized withdrawals from 529 college savings accounts held by people other than the beneficiary’s parents. The accounts themselves weren’t counted by the formula, but any withdrawals were treated as untaxed income to the student. The standard advice was to wait until the last financial aid form had been filed to begin taking withdrawals.

That’s going to change, although not as soon as originally expected.

The Consolidated Appropriations Act of 2021 required the Free Application for Federal Student Aid, or FAFSA, form to be simplified, removing several questions including one about whether the student got money from people other than parents.

The new FAFSA form was supposed to be released next year, but the Department of Education announced in June that the proposed changes would be delayed but implemented in time for the 2024-25 award year. Until the form has been updated, you’d be smart to hold off on tapping the 529s if your grandchildren will need financial aid.

Q&A: Medicare is complicated. Here’s how it works

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Dear Liz: My husband and I are in our 50s and have widowed moms in their 80s. We always understood that when you begin taking Medicare, you are required to choose a plan such as SCAN or Blue Shield and to follow that plan’s benefits and limits. However, my friend who works in a hospital told me that you can elect to have straight Medicare and have no plan limits. Can you explain this?

Answer: What you’re asking about is known as traditional or original Medicare, which consists of two parts. Part A is usually premium-free and covers hospitalization. Part B covers doctor visits and has a standard monthly premium of $148.50.

Traditional Medicare is administered by the federal government and is accepted by the vast majority of medical providers but doesn’t cover everything. For example, beneficiaries must pay deductibles, 20% of Part B services and a portion of hospital stays. For that reason, many people with traditional Medicare also buy supplemental or “Medigap” policies from private insurers to cover these costs. Most Medigap plans, like traditional Medicare itself, don’t have out-of-pocket limits.

By contract, Medicare Advantage plans, also known as Medicare Part C, do have out-of-pocket limits. Medicare Advantage plans are “all in one” coverage provided by a private insurer rather than the government. These plans provide everything covered by Parts A and B of traditional Medicare, and may cover other costs such as vision, hearing and dental that traditional Medicare doesn’t. The plans typically have networks of doctors and other medical providers. If you get care outside that network, you would pay more and sometimes all of the cost.

The final part of Medicare is Part D, prescription drug coverage. That’s purchased from private insurers and may be included in Medicare Advantage plans.

Obviously, Medicare can be complicated, but you can educate yourself at Medicare.gov and download or request the handbook “Medicare & You.”

Q&A: About spousal and survivor benefits

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Dear Liz: I am 82 and receive $786 from Social Security. My wife is 75 and receives $1,400 from Social Security. I believe you said that a lower beneficiary could get the same amount as the higher beneficiary. When I contacted Social Security, I was informed that my benefit needed to be less than half of my spouse’s in order to qualify. When I asked him where in the regulations I could find that information, he abruptly hung up. Was he right?

Answer: Yes. The only time you would get the same amount as your wife is if she died, and at that point you would get only the survivor benefit (one check for $1,400, instead of the two checks totaling $2,186 you receive now as a couple).

Survivor benefits are different from spousal benefits. Spousal benefits are what you might receive while your wife is alive. Spousal benefits can be as much as 50% of the higher earner’s “primary insurance amount,” or what she was entitled to at her full retirement age. If your retirement benefit is larger than that spousal benefit amount, you would get your own benefit rather than the spousal benefit.

The Social Security site has plenty of information on how benefits work as well as calculators to help you estimate your benefits. You can start by reading its publication titled “Retirement Benefits” at https://www.ssa.gov/pubs/EN-05-10035.pdf.

Q&A: Giving executors account access

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Dear Liz: We are trying to leave our affairs in order for our executors. (Pity them. We have accounts and substantial assets in England and Canada as well as the U.S.!) Thinking of some immediate expenses they will have, I’ve documented details of how to access our accounts online (passwords coded in a way that only a family member will understand). But am I inviting them to do something illegal?

Answer: If a site has a password, then it probably also has a “terms of service” agreement that prohibits you from sharing that password with someone else. You may be able to add someone else’s name to a financial account, but that’s often not desirable, either because you don’t want to give them access in advance of your death or incapacity, or because doing so could have gift tax implications.

The most practical solution is to create a list of the accounts with your login credentials and make sure your executor knows where to find it. (You probably should have only one executor, by the way, with a couple of backups. This is a big job that grows infinitely more complicated when two or more people have to agree on decisions and sign every document.) You’ll also need to keep the list updated, which can be a big task. A password manager could be a good solution, since your executor would only need to know the master password to access your accounts.

Also make sure your executor has the passwords to your email addresses as well as your computers, tablets and cellphones. Otherwise, the executor might not be able to receive identity-verifying codes and links that allow access to your accounts.

Q&A: How a 529 plan can help with education loans after graduation

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Dear Liz: I have a 529 plan for my niece who has now graduated from college. She has student loan debt and would like to use the money left in the 529 account to pay this debt. Is this allowable without incurring penalties?

Answer: Yes, up to $10,000.

The Setting Every Community Up for Retirement Enhancement Act, or SECURE Act, of 2019 allows a beneficiary a lifetime limit of $10,000 to repay the beneficiary’s student loans, including federal and most private loans, without taxes or penalties. You can withdraw an additional $10,000 to repay student loans for each of her siblings.

If there’s still money left in the 529 after that, you have the option of changing the beneficiary to another qualifying family member (including the beneficiary’s spouse, children, siblings, in-laws, aunts and uncles, nieces and cousins, parents and grandparents). You also can change the beneficiary to yourself, as the account owner. Such beneficiary changes preserve your ability to make tax- and penalty-free withdrawals for qualified education expenses.