Color of Money Live

Jul 23, 2020

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Thanks for joining the chat today. 

As always looking forward to you questions and testimonies. How are you doing financially? 

So, let's get started. 

I know you've been talking a lot about the IRS delays in direct depositing refunds into people's accounts as those are more urgent for many. But I was wondering if there have also been delays in the IRS direct-withdrawing funds when your return showed taxes owed? What sort of time-frame should we expect? And does it happen faster with electronic filed vs paper filed returns as well?

I haven't heard about delays in the IRS processing direct deposit of taxes owed. That usually just takes a day or two. But if you've mailed a check that could take some time as the IRS continues to dig out from under a backlog of mail. 

So sorry having a bit of technical difficulty. Please stick around.

Hi, My son, a junior, at University of Maryland received a $1,000 check from the school. I saw the credit a few weeks ago while checking his college bill, and it said something like Education CARES. I would have preferred that the credit stay in his college account for the fall semester and be used to pay for tuition and fees. I am not sure what to do. He has 50K in his 529 so he is fine there. I guess this $1,000 will be seen as income by the IRS? Any thoughts you'd like to share? Thanks!

I received refunds for my kids too. I'm just sending the money back to pay for the fall. I think you should do the same. 

I overestimated my tax withholdings this year and ended up with refunds due from both the feds and the state (Uncle Sam and Aunt Virginia) of about $1,000 each. I filed electronically on July 6th. My federal tax refund was in my bank account on July 10th. The state tax refund didn't appear until July 15th. I'm still in shock!!!

I recently wrote about the delays with tax refunds. Count yourself lucky! I'm hearing from a lot of people who filed in Feb. and are still waiting on their refunds.

Read: Months after filing, thousands of Americans are still waiting for their tax refunds

 

Michelle, Happy to report that my husband and I last week finalized our wills, powers of attorney and medical directives. We are both 35 with a toddler and a baby on the way. I can’t tell you how good it feels to have that stuff done! The process was relatively painless and ended up costing less than $600. We used an attorney we found through our alumni network. Have a wonderful day!

So proud of you. Wish more people would do the same, especially when there are kids involved. Don't forget to update it when the new baby arrives.  

At age 70, so grateful to be reaping the rewards of decisions made decades ago. No college debt, bought savings bonds which are now mature and give me extra cash every month. Invested the maximum in the TSP, which now gives me a bigger monthly income than my pension. Husband and I have owned the same house for 34 years - a bit of a stretch when we bought, but has served us well, no need to move to something bigger and better as time went on. Now we are both collecting Social Security plus pensions, and living well. Helping out the younger generation because their lives are so much more precarious. I hope when this COVID thing is over that they can recover; I think it is going to be a tough slog for that generation for a while.

Wow. What a great testimony. Lesson for so many. 

Live below your means

Save

Maximize your retirement savings -- if you can

Buy smart if you're going to get a home.

And give back when you're doing well. 

We have a couple of term life insurance policies on my newly-retired husband. The second policy, for $250,000, which expires in 2029, costs double the first policy ($300,000, expires in 2027) because the insurance company falsely claimed my husband had diabetes, which he did/does not. We appealed that, but no dice. He was still working and the house was not paid off, so that's why we kept the second policy. He wants to dump the more expensive policy. We have savings in the TSP and two government pensions. The house will be paid off this year. I will get a reduced amount on his pensions if he goes before me. We're paying $245 per month for the two policies. Do we need any life insurance at all?

Always keep in mind that life insurance is intended to take care of someone depending on your income. You are at the stage of life that it sounds like you don't need that second expensive policy. If you can cover expenses comfortably upon your husband's death, you don't need the protection especially since the largest expense you have it the mortgage, which will be gone soon. And if you have enough to self-insure to cover possible long-term care needs you don't need the policy. 

Well done with the estate planning and congrats on having a baby on the way. Have you got someone in mind as a guardian?

Good question. I didn't ask the attorney because I'm sure covered this. Or should have.

It sounds like the people who are having the most problems with tax and stimulus issues have filed paper returns, which adds multiple steps to the processing, starting with physically delivering envelopes and paper checks. Is there any good reason NOT to file electronically?

Actually, I'm hearing from a lot of people who are having delays who filed electronically. In a normal tax season, e-filing will get your refund faster. But some folks still have to file a paper return because they have to submit paperwork to prove their identity or resolve some other issue. If you are filing an amended return you have to do it with paper return, although the IRS says by the end of summer that policy may change. 

But I understand why some file by paper. They are afraid that their electronic file make be diverted by a hacker. It's not an unreasonable concern. Still, I'm all for e-filing. I do not miss the days of finding a post office to make the tax deadline. 

I’m hoping you can help me work through some financial planning for minors. I'm childless, middle-aged, and fairly well off. And, since I know you, Michelle, yes, that means debt-free and fully funded retirement. I have nieces and nephews who are now starting to have their own children. I help them out now and I’ve made plans to help provide for each, especially since my brother and SIL struggle financially (but are not irresponsible). One nephew is having a baby with his new girlfriend of less than six months. They are early 20s, high school grads but no college. He is still employed; she’s not but was a barista pre-pandemic. There are no plans to marry (I’m pretty sure there weren’t plans to have a baby either, but here we are). Here’s my problem. The girlfriend already has a child, and the father is not involved. Her parents don’t appear to have much money. While I hope this relationship will be the start of a long-term, stable family for both children, I have my doubts. I’m adding the new baby to my plans, but should I also be planning financial support for the half-sibling? No one wants to be the sibling of someone who’s getting chunks of money for education, etc., while you don’t, but (and I know how cynical this is) it’s not unrealistic to think that if this relationship doesn’t work out, the mother will move on and my newest great niece or nephew will have additional half-siblings down the road. Then what? I don’t want to be responsible for multiple children I’m not actually related to. How do I determine what’s fair?

I really admire this question because it comes from a heart of someone wanting to help and give back. Kudos to you. I come from a family of half-siblings (although we never refer to our relationships as such). Sometimes relatives did give to one and not the other based on "blood." It made for very uncomfortable relationships between us. More children or not, treat them all the same because the siblings are related even if you aren't related to them all. Give what you can with what you have. This may mean less to the child you aren't related to but it's what's fair and won't make his or her siblings feel bad. The family dynamics are already going to be tough so you can bring stability in love and financial treatment. If the couple married and had multiple children you would help as best you can all of them, right? 

 

My father died in January 2019. His simple estate was a mess (had no assets to cover a crazy amount of debt) but we've worked through it and have three things to do to finalize it: (1) get the 2019 federal refund---which based on everything you've written, seems to be coming at some point; (2) return his stimulus money---yes, he was one of the dead people who got $1200 direct deposited but we mailed in a check per your instructions. but the check to the IRS has not yet been cashed; and (3) pay his bills based on what little is left. Here's my question----how long do we wait for #1 and #2 to happen before calling the IRS? Thanks!

I'm so sorry for your loss. At this point calling the IRS probably won't net much help assuming you can get to a real person. They are overwhelmed and trying to plow through a huge backlog of mail. This means it may take some time to get the return processed and the IRS to open the mail with the returned check. Your wait will probably be long but nothing to do but wait. 

Yes, we named guardians and backup guardians in the wills. And our attorney worded everything such that all future children are included, so we won’t need to update!

Great! Still update in a couple of years to just include the names. That's what we did, just to be on the safe side. 

We filed in mid-March, using paper. Just got a refund check last week. So, they’re working away at the backlog.

A refund delivery success story. Thanks for sharing. Gives hope to others I'm sure.

I am self-employed. As soon as the numbers made sense to do so, I opened an individual 401k account in lieu of my SEP-IRA and SIMPLE-IRA, as the contribution limits for the individual 401k are much higher and offer a much greater tax benefit. I am approaching retirement now. My question: do you know if it is possible to roll over the individual 401k to (an existing) rollover IRA once I am sure I will no longer be contributing to it? There are a lot of annual reporting and other administrative requirements associated with the individual 401k that I would love to be done with once it has served its purpose. Thank you for all you do!

This question is best answered by a tax professional. And please do consult one because if you don't do it right there may be some financial consequences. 

My father passed away in December 2019 at age 64. I am the administrator for his estate, which consisted of his bank account (about $50k after paying off all his medical bills), and a car (that he had recently purchased, and still owed money on- luckily, we were able to sell it for slightly more than he owed, but not much). Because he didn't own much and everything was going to myself and my two siblings (he was not married when he died), we were doing a "modified administration" and were told we'd be able to close out everything within six months. A few days before we were going to be able to close out the estate, we received a letter from the Maryland Dept. of Health saying that my father's estate owed almost $30,000 for Medicaid bills paid on his behalf. We were confused, because at the time of his death, he had health insurance through ACA. After some research, we discovered that he had qualified for Medicaid through the Medicaid expansion program after he lost his job in 2017. He was on it for a little over a year before he found another job and got insurance through the Maryland Health Exchange. Now apparently Maryland is trying to collect for ALL of the medical bills that were paid by Medicaid for the time he was on it. Looking into it, there are only 12 states that do non-Long Term Care cost recovery (none of his Medicaid costs were for long term care costs), and CMS has actually told states that they SHOULDN'T do this. I've found articles from when ACA was introduced saying that people worried that states would do this to people who qualified under Medicaid expansion were worrying for nothing, and that states would never actually do this. Apparently they were wrong. We really don't know what to do. If we have to pay this, it will leave almost nothing in his estate. We were all really counting on at least getting some money, especially my sister, who is a single mom with two kids and really struggling to make ends meet with her having to work and schools being closed. Have you ever encountered this Medicaid Estate Recovery before? Is there anything we can do? Please help.

Yes, I have encountered it and you may very well have to turn over the money. You could hire an attorney to perhaps negotiate for you. But in some respects, it's not unfair. If Medicaid paid for bills for your father but he died with money it's fair that they state try to recover these public funds. Why? Because Medicaid is intended to help people with no or little money. (Another argument for universal care by the way). Is it fair to the public that he died with $50k that goes to heirs? It's not that you aren't deserving but we know these programs struggle under the weight of the costs, which taxpayers cover. But again the state may be overreaching. Please consult an attorney. Even with fees, you may end up not having to fork over all the money. 

Reminds me of a classic Irish comedy (can't remember the name) about an elderly farmer who bequeaths all his property to the cousin who lived with him and cared for him for many years. But the will gave it to "my beloved cousin," without actually naming him. Hundreds of "cousins" crawled out of the woodwork to demand a share. Always say what you mean.

Good parable to remember!

Until this year, I always filed on paper because I could get a return receipt to prove that I had timely filed. Sure came in handy one year when the District demanded interest and penalties for an alleged late filing. Stopped 'em dead when they saw that green signed receipt.

True. But you also get an electronic receipt when you e-file. 

Presumably if the relationship between son and girlfriend ends, the son will remain in his child's life, but not in hers. Why not give money to the son, with the expectation/requirement that he will support his child responsibly? Why should the LW give money directly to someone he has no relationship with?

You ask a legit question. But the aunt wants to give directly to the children and I actually agree with that to make sure the money goes where she intends. Plus, when you start to treat siblings different because of their parentage, as I said, that can create resentment. Trust me, I know. My brother married a woman with a child that wasn't his. I treated her the same as my blood niece. Children don't often understand the why behind not being related to someone who comes along showering a sibling with gifts. We should always, always seek to avoid decisions that can cause anyone to feel less than. 

paper return, mailed from DC to Utah campus on March 16th and deposited on July 21st. The certified return receipt indicated that someone signed for it on April 2nd. Refund exceeded my refund calculation by less than a dollar. Now I have to remember to add that to next year's income. They aren't going to send me a 1099-int for $0.65.

It's been a crazy 2020 tax season!

Hi Michelle, Thanks for your previous advice. I'm a 37 year old single woman living in Sacramento, CA. Unbelievably in this climate, I'm getting a 5% raise. What's the best way to use this money? I have no debts besides my mortgage, which is about 25% of my take home salary. Between my employer and my own contributions, I put 20% into retirement each month and pre-pandemic had 1 years salary in my 401-K and IRA. I've got an emergency fund and almost a year's salary in a rainy day fund. As a contract PhD-level scientist, my job may not exist past December 2021 and it can be hard to find a similar position in my field, though being an infectious disease specialist does work in my favor these days. And to add to the discussion about race and generational wealth, I want to be transparent that I'm white and have no school loans due to my parents paying for college and finding grant funds for grad school. My grandparents left me the money that paid for my used car, a down payment on a small house, and started the rainy day fund.

Wow. What a blessing. For now, I would save the raise just in case. During past recessions, high-income people found it could take 12 to 18 months to find a position with a similar salary. If you get another contract you could then just use the raise to pay down your mortgage principal and get rid of that debt sooner. 

Hi Michelle, I recently got locked out of my Capital One credit card after they thought my last attempted purchase was suspicious activity. When I called the fraud department to move the transaction through and lift the hold, they said they needed me to email, fax or mail a copy of my Drivers License--which I felt uncomfortable doing. They left me with saying that until I provide this information, they will not be able to unlock my account. In addition, after I asked them to direct me to the policy that says I must provide this particular piece of information, both of the representatives and a The Fraud Prevention Manager (who said she was the top of the chain of people I could speak to) basically said they didn't know where to direct me to since it might not be a written policy. At this point, I really don't know what to do and they haven't given me any other options to lift the restriction on my account. Any way you can help? I'd really appreciate it!

I had a similar situation and had to give the bank the account number for my checking account. I hesitated but in the end supplied the information because I needed my account unlock. Just double and triple check who is getting the fax, etc. and comply. On the good side, at least they are trying to keep people's accounts safe. 

For the couple who prepared a will, medical directive, etc.--be certain to update your insurance policies after the baby comes (that goes for remarriages as well). We had a family situation where there was to be a second marriage and a baby but the father died unexpectedly and the insurance still had the children from the first marriage as beneficiaries so widow to be got nothing. In addition, because there was no marriage, the mother did not collect Social Security as a beneficiary herself but only the baby.

Good point, too. 

HI Michelle, Help, please! my brother died without a will but named me as the beneficiary of his life insurance, 401K and IRA's, with the email instructions to split it a certain way among sibs and friends. IF I collect all this money and distribute it as he wanted, what complications might I face tax-wise? What pitfalls are facing me? We're not talking huge amounts of money, but the total will be over $100K. Thanks.

Life insurance proceeds generally are not taxed. As for the 401k and IRA they are (unless it's a Roth IRA). If you want to split the money, just be sure to hold back enough to cover any taxes due. Because you are right, you are on the hook alone for the taxes. You should also consult a tax professional about turning over part of the insurance money because it's the giver, not the gift recipient, who owes a gift tax. Although most folks don't hit the gift limit. The estate and gift tax exemption is $11.58 million per individual. The annual gift exclusion is $15,000, meaning that's how much you can give a year without filing a gift tax return. You don't have to pay a gift tax if you stay under the lifetime exemption.

Hi Michelle - I've read your recommendation to check Bankrate.com for getting a better interest rate on a savings account. I did that back in Jan when the account I had then was at around 0.7%. I switched to HSBC which was offering over 2%. Since that time, the interest rate has gone down every month and is now at 0.7% - right where I was 7 months ago. I checked Bankrate and some banks are offering a little more, in the range of 1-1.25%. Do you think it is worth the hassle of setting up and closing accounts yet again? Are there any banks that don't change the interest rate as frequently as others? I just can't see dealing with opening and closing accounts a few times a year over what may amount to $100.

It's not that $100 is insignificant but I've not found it worth the bother to switch when rates only inch up a little. However, the more you have, the more it may be worth it but that would mean six or seven-figure amounts. 

personal information to a private company. The IRS has to have it. No one else does. And I don't need software or an accountant to do my very easy taxes. The forms are fine. I filed with paper in the middle of March and got my refund (very small) on Tuesday. Financial people tell you not to leave yourself in a position to get a large refund because it is lending the money to the government for free all year. I get that some people like having the "enforced savings" that a large refund creates. But if you do that, you are setting yourself up for a delay in very odd circumstances. This year happens to be one of them.

That's why we call it personal finance. You have to do what's comfortable for you. I used to feel the same way but I do like the ease of e-filing and not having to pay for a return receipt to be sure I have proof of a filing when I owe. And, I've long argued that people should strive to reduce refunds unless their tax situation changes due to marriage, having a kid, etc. But many people like their refunds and no amount of my fussing has persuaded them differently. 

in writing. Then you can use it complain to....someone at a later time. Please note that if you have a name that is suggestive of ethnicity then it could be a serious violation of the law for them to ask for you to provide proof of identity when they wouldn't do the same for "Jack Smith." Also, go find a better credit card company when you can.

You know, I agree with you. Thanks.

So sorry for the late start. Thanks for your questions and comments. See you next week. 

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday. Her award-winning column is also carried in more than 120 newspapers. In her spare time, Singletary is the director of a ministry she founded at her church, in which women and men volunteer to mentor others who are having financial challenges.

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