Ask Our ExpertsÑArchive by Topic
By: Source: AARP Bulletin Date Posted: 2007-06-19 11:04:00-04:00
The AARP Bulletin 's Ask Our Experts column provides answers to important questions affecting older Americans. Scroll below for questions and answers sorted by topic, or use the drop-down menus to jump directly to a topic area or to an individual Ask Our Experts column from a previous month.
CAREERS
Q. I filed an age discrimination claim with the Equal Employment Opportunity Commission. What are my options if the claim is dismissed?
A. Even if your claim is dismissed by the EEOC, you can still move forward and file suit. The Age Discrimination in Employment Act (ADEA) requires that you file a claim first with the EEOC in order to preserve your right to sue. Under this law, unlike other federal employment discrimination laws, you don't have to wait for the EEOC to issue a "right to sue" letter. The ADEA allows you to sue after 60 days have elapsed from the date you filed your claim. If you get a letter from the EEOC saying that it has dismissed your claim and you still wish to sue, you must do so within 90 days.
To learn more, visit www.eeoc.gov.—Expertise provided by Tom Osborne
Q. My husbands company is trying to force a large group of boomers into early retirement by capping the companys contribution for medical benefits on Dec. 31, 2006. If the boomers retire before that date, most would receive less than 80 percent of their projected pension benefit. If they delay until after that date, they may get a larger pension but will have to pay more for medical benefits. Is this legal? (July-August 2005)
Numerous court cases have addressed the issue of whether companies may unilaterally alter the health benefits promised to their employees at retirement and whether that promise is binding and enforceable. Generally, if a plan reserves the companys right to modify the benefit, the courts will uphold that right.
In regard to pension benefits, an employer cannot reduce a workers accrued benefit.
Contact an attorney to find out if legal action is appropriate in your husbands particular situation.—Expertise provided by Mary Ellen Signorille
Q. Could you advise me on how to handle age discrimination in the workplace? I have worked for a company for 16 years, and the son of the owner has just taken over. He won’t fire me, but he's given some of my shifts to other workers and is trying everything to make me quit. What can I do? (December 2004)
The federal Age Discrimination in Employment Act protects workers age 40 and older from discriminatory practices, including reducing workers’ hours because of their age. Your state’s antidiscrimination law may also offer remedies.
An employer is not allowed to make working conditions so onerous that a reasonable employee has no real choice except to quit, a situation legally known as a constructive discharge. An employment attorney can tell you if your case meets that standard and if you have a valid age discrimination claim.
It is important to seek legal advice quickly because of time limits for filing claims under federal and state laws. Call AARP at (202) 434-2121 for more information.—Expertise provided by Tom Osborne
Q. I'm retired and run a small business out of my home. If I had money to buy more materials, I think I could expand. Does the government make business loans to older people? (February 2003)
No, there are no loan programs based on age. The federal Small Business Administration (SBA) does, however, run several loan programs. One provides "microloans"up to $35,000 to help new small businesses. Under the program, the SBA makes funds available to nonprofit, community-based lenders that in turn make the actual loans. You can find out about lenders in your area by calling the SBA at (800) 827-5722 or visiting the SBA website. Each participating lender has credit and lending requirements applicants must meet.—Expertise provided by Jules Lichtenstein
Q. I think I've been discriminated against at work because of my age. Where can I get information? (June 2002)
AARP's booklet entitled "Age Discrimination on the Job"describes your rights, some typical indicators of workplace bias and the process for seeking legal remedies for age discrimination.
It notes that your best defense against age discrimination is a thorough understanding of your rights under age discrimination laws, especially the federal Age Discrimination in Employment Act, enacted in 1967 to protect workers 40 and older. To request a copy of the booklet, write to AARP Foundation Litigation, 601 E St. N.W., Washington, DC 20049. For additional information, visit AARP's web page on recognizing age discrimination in the workplace.
For more information from AARP on Careers:
- 10 Job Ideas for Older Workers (September 2002)
- 7 Tips for an Older Worker ' s Resume (September 2002)
- 8 Interview Questions for Older Workers to Anticipate (September 2002)
- Boomers Feel Sting of Age Bias (March 2003)
- Best Employers for Workers 50+, 2003 (AARPmagazine.org)
- Simple Justice: The Story Behind a Record-Setting Age-Discrimination Settlement (AARPmagazine.org)
- AARP.org ' s Careers channel
- AARP ' s Senior Community Service Employment Program (AARP.org)
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DISABILITIES
Q. I went on disability 13 years ago when I hurt my back on the job. My employer provided full medical coverage for my family and me, but recently I was told the coverage will end. Can they do this?
Yes, if the health plan's provisions say so. And if that's the case, your former employer has more than fulfilled the legal requirements.
Under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA), your employer's only obligation was to let you pay to stay in the plan temporarily, typically for 18 months. Because you had qualified for Social Security disability benefits, you could have added another 11 months of COBRA coverage.
To learn more, go to the U.S. Labor Department's website at www.dol.gov. —Expertise provided by Mary Ellen Signorille
Q. Public places are required by law to be accessible to disabled people. As a disabled person, where can I lodge a complaint if I encounter a problem? (May 2003)
The U.S. Department of Justice enforces the federal Americans with Disabilities Act (ADA), which requires that public places be accessible to disabled people. The Justice Department accepts written complaints and has specific requirements about the information it needs. To learn more, call the ADA information line at (800) 514-0301 or go to the DOJ's web page to learn how to file a complaint.
Under Title III of the ADA, most businesses and service providers—everything from hotels and restaurants to office buildings, hospitals and schools—are considered public accommodations. Title III also permits individuals to enforce their rights in court.—Expertise provided by Susan Ann Silverstein and Dorothy Siemon
For more information from AARP on Disabilities:
- Guide to AARP Foundation Litigation ' s Disability Discrimination Cases (AARP.org)
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FAMILY
Q. My mother wants to put my name on a joint checking account in case she gets sick and needs having her bills paid. All the money in the account is hers. If she does this, would I be responsible if she bounced checks?
A. No. You would not be responsible for her bounced checks. But it would be better if she told the bank she wants you to be able to withdraw money on her behalf under what's called an agency, or convenience, account. That would give you the authority to write checks on her account. But it's not your money, or your responsibility, if she bounces checks. —Expertise provided by Sally Hume
Q. I am 78 and have a 37-year-old dependent son with Down syndrome. He receives a Social Security check monthly that is about half the size of mine. When I die, will he lose his check and pick up mine?
A. No, but his insurance benefit will most likely increase to about 75 percent of what you receive. If, however, you have a spouse or other dependents receiving benefits based on your work record, his payment could be lower.
For more information, call the Social Security Administration at (800) 772-1213 to order the booklet "Benefits for Children With Disabilities" (Publication No. 05-10026). Or download it from www.ssa.gov/pubs/10026.html.—Expertise provided by Laurel Beedon
Q. Our daughter, who is pregnant, says she doesn't want us in her life because we don't get along with her husband. We're worried that he may abuse her and our 12-year-old granddaughter. They live in Pennsylvania, and we live in Virginia. What can we do?
In 2000, in a lawsuit brought by grandparents in Washington state, the U.S. Supreme Court ruled in favor of the rights of parents and substantially narrowed the legal rights of grandparents to seek visitation with their grandchildren.
Since then, laws in many states have gotten stricter. Grandparents in some states, including Pennsylvania, still have the legal right to seek such visits in court. All courts require grandparents to prove that visitation is in the best interest of the child.
If you can't work out visits with your granddaughter through family negotiations or professional mediation, you might want to consult a Pennsylvania attorney about court action.
Get more information on visitation rightsin AARP.org's Grandparenting section.—Expertise provided by Rochelle Bobroff
Q. My 83-year-old father befriended a young couple and their children two years ago. In the last year Ive found out he has given them most of the money in his savings and checking accounts. He only has his house left, and Im afraid hell lose that, too. It doesnt do any good to talk to him. How can I protect him? (July-August 2005)
What you describe could be a classic case of financial exploitation. It often begins when a "new friend"connives to isolate a person from his family, then slowly takes control of his finances. When the money is gone, the "friend" may disappear, leaving the person heartbroken and destitute.
You can report your concerns—anonymously if you wish—to the hotline of adult protective services, the local agencies that are responsible for investigating suspected financial exploitation. (To find your states agency, go online to www.elderabusecenter.org.) Investigators are trained to distinguish between cases of genuine friendship and exploitation. If wrongdoing is suspected, they will turn the case over to law enforcement authorities.—Expertise provided by Sally Hurme
Q. Can I get financial assistance for taking care of my elderly mother in my home? (July-August 2005)
Its possible. Financial assistance is available under certain circumstances to ease the burden of unpaid family members who are sole caregivers.
To find out about help in your area, call the Eldercare Locator at (800) 677-1116. This national public service tells how to contact local agencies on aging, which administer the National Family Caregiver Support Program.
If your mother qualifies for Medicaid, which provides health coverage for low-income people, find out if the program in your state allows beneficiaries to hire a family member to provide in-home services.
You may also be eligible for tax assistance. If your mother lives with you and qualifies as a dependent, you might be able to use the dependent care tax credit. To learn more, check out Publication 503 on the IRS website.
Many states also have caregiver tax credits. In California, for example, if your mother meets certain disability criteria and your income doesnt exceed $100,000, you might qualify for a $500 tax credit.—Expertise provided by Enid Kassner
Q. I’m concerned about my mother, who is getting on in years. Where can I find information to help me judge when she might not be able to take care of herself anymore? (October 2004)
AARP provides such information on its website. Visit "My Parents—How Do I Know if They Need Help?" This guide will help you assess your mother’s ability to remain safely independent by leading you through questions related to her mental, physical, environmental and financial condition.—Expertise provided by Joan Gibala
Q. I want to join a support group for caregivers of parents with Alzheimer's disease. How can I find such a group in my community? (February 2004)
The Alzheimer's Association sponsors many support groups nationwide through its local chapters. Call the association at (800) 272-3900 any time of the day or night to be put in touch with the chapter nearest you. You can also find your nearest chapter online.—Expertise provided by Elizabeth Clemmer
Q. My siblings and I plan to move our mother into a local nursing home. Which facility offers the best care? (November 2003)
At Medicare's website, you'll find a handy tool, Nursing Home Compare, that lets you search for nursing homes by county, city, ZIP code or facility name. As you narrow your hunt, you will discover basic facts and contact information for each facility.
You can also compare how each home performed in three key areas: quality measures (including the percentage of residents with bedsores), inspections (including any health deficiencies found in the most recent state survey) and average time the nursing staff works with each resident a day.
A few caveats:
1. Nursing Home Compare turns up only those facilities certified for Medicare and Medicaid. Assisted living facilities and private nursing homes may not appear.
2. Data on nursing/staff hours are not always accurate.
3. Online "comparison shopping" can never supplant the value of visiting a home. See AARP Bulletin Online's guide to nursing home performance data available by state.—Expertise provided by Faith Mullen
Q. My mother, who's approaching 90 and lives in another part of the country, would benefit from having meals delivered to her. How can I find out if there's such a service in her town? (October 2003)
The place to start is by contacting the Eldercare Locator, a free public service, and asking for the area agency on aging (AAA) nearest your mother. Call the locator at (800) 677-1116.
The local AAA can tell you about services it administers as well as those provided by other local agencies. In addition to meal programs, you may want to inquire about other services in your mother's community, such as homemaker assistance, help with shopping, even adult day care.
You should be aware, however, as you begin your search that all of these programs have eligibility requirements that your mother may or may not meet.—Expertise provided by Enid Kassner
Q. I'll soon be moving to a retirement community in another state. Is the will I had drawn up where I currently live going to be valid in my new state? (September 2003)
Your last will and testament must be probated (presented to the court) where you were living at the time of death. If you own real estate in another state, that will require another, "ancillary,"probate in that state.
Your current will is "valid"in the sense it can be probated in the new state. But since laws can differ considerably from state to state, the best way to ensure that all your intentions are fully met is to have a new will drawn up in your new state.
Most wills typically cost from $100 to $500 to prepare—a worthwhile investment, given how much it may save your heirs. One way to get this done is through an AARP Legal Services Network (LSN) attorney. LSN attorneys are screened to meet standards of experience and service and will draw up a simple will for $75 for an individual, $100 for a couple.
To find an LSN attorney near you, visit the LSN section of AARP's websiteor call (800) 424-3410.
It's important to note that a "will"is different from a "living will."A living will is the document that tells health care providers whether you want life-sustaining steps taken during terminal illness.
Although most providers accept a living will executed in another state, to avoid any complications it's also a good idea to draw up a new living will in your new state.—Expertise provided by Sally Hurme and Jane Margesson
Q. I cared for my brother for several years before he died. Now I hear I could have collected a death benefit from Social Security. Is this true? (March 2003)
No, it is not. The Social Security lump-sum death benefit, a one-time benefit of $255, is payable only to a spouse who was living with the person at the time of death or to a spouse or child eligible for Social Security survivor benefits in the month the person died.—Expertise provided by Laurel Beedon
Q. My mother is 88 years old and needs assistance with bathing, dressing and other tasks. My sister and I take turns helping, but it's getting so we can't handle everything. Where can we turn for assistance? (December 2002)
This kind of non-medical help with daily activities is generally known as long-term care. Most long-term care services are not covered by health insurance or Medicare, although people with low incomes and few savings may be able to get help through the federal-state Medicaid program.
Some help is also provided through programs funded by states or the federal Older Americans Act. Visit the Caregiving section on AARP's websitefor more information. In addition, the federal Eldercare Locator can direct you to help in your community. For more information, call (800) 677-1116 between 9 a.m. and 8 p.m. ET.—Expertise provided by Enid Kassner
Q. My grandchildren live across the country from me. What can I do to keep up my relationship with them? (December 2002)
Authorities say it is very important to let your grandchildren know you are interested in them. Fortunately there are many ways you can do this, even from a distance. The AARP website offers tips for long-distance grandparenting. Among the suggestions you'll find there: Even babies like pictures, and sending them your photo in a soft, safe, cloth frame can foster familiarity. For older children, you can do things like tape yourself reading their favorite books or plan a vacation together.—Expertise provided by Amy Goyer
For more information from AARP on Family:
- State Courts Whittle Away Grandparents ' Visitation Rights (February 2003)
- AARPmagazine.org ' s Family channel
- Bury the Hatchet: Dealing With Family Grudges (AARPmagazine.org)
- Look Who ' s Back: Adult Children Move Back Home (AARPmagazine.org)
- Tell It Like It Was: How to Preserve Your Family History (AARPmagazine.org)
- How to Be the Greatest Grandparent Ever (AARPmagazine.org)
- Guide to Caregiving: A Comprehensive Resource (AARPmagazine.org)
- AARP.org ' s Grandparenting channel
- AARP ' s Grandparent Information Center (AARP.org)
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FINANCIAL PLANNING
Q. My company stopped contributing to my 401(k). Does that mean that I can now take out money without incurring a penalty?
A. Ask your company what your plan allows. Generally, if you withdraw money before age 59 1/2, you have to pay a 10 percent penalty. For details, visit the U.S. Department of Labor. — Expertise provided by Sara Rix
Q. Internet banks are advertising high interest rates (5 percent) for savings accounts. Are these banks safe?
A. It's harder to tell if a bank is legitimate when you can't stop in to talk to the manager. That's why you must check out an Internet bank thoroughly. First, read the material posted on the bank's website. Are there ways to reach the institution for customer assistance? Make sure you understand the terms—are fees and minimum balance requirements eating away at that high interest rate? Next, make sure the Federal Deposit Insurance Corporation insures the bank's deposits. Look for the FDIC logo on the institution's website, but don't stop there. Double-check by going to the FDIC Institution Directory at www2.fdic.gov/idasp for a list of banks it does business with.—Expertise provided by Sally Hurme
Q. I need help with my prescription drug costs and I'm too young for Medicare. What can I do?
A. Contact the manufacturer of your medicine: Most companies offer free or low-cost prescription drugs to low-income people who meet their eligibility guidelines. Also, many states provide help. Call your state health department and check out AARP Bulletin(click on "Your guide to state-run and private pharmacy assistance programs"). Other sources: Needymeds.com(click on "Patient Assistance Programs") and the Pharmaceutical Research and Manufacturers of America. —Expertise provided by Lynda Flowers
Q. I'm thinking of taking out a debt consolidation loan. Will the amount affect my ability to qualify for a reverse mortgage?
A. No. Having the loan wouldn't disqualify you as long as the loan amount plus your remaining mortgage and other debts didn't exceed the value of your home. All your debts must be paid off with the money you get from the reverse mortgage. Here's an example: Let's say you owe $100,000 on your mortgage, your loan and other debts. Based on your age, home value and interest rates, you qualify for $125,000 under the reverse mortgage program. You'd be able to pay off all the existing debt and still have $25,000 left. (The $125,000 must be repaid when you or your heirs sell the house.)
A reverse mortgage can be expensive, but it lets you tap into your home equity and continue living there. The older you are when you take the loan, the more you can get from your home and the less you'll pay in fees compared to the size of your loan. For more information, go to www.aarp.org/money and click on "Reverse Mortgages." —Expertise provided by Sally Hume
Q. My mother wants to put my name on a joint checking account in case she gets sick and needs having her bills paid. All the money in the account is hers. If she does this, would I be responsible if she bounced checks?
A. No. You would not be responsible for her bounced checks. But it would be better if she told the bank she wants you to be able to withdraw money on her behalf under what's called an agency, or convenience, account. That would give you the authority to write checks on her account. But it's not your money, or your responsibility, if she bounces checks. —Expertise provided by Sally Hume
Q. I was fully vested in my firm's defined benefit pension plan when I retired recently at age 68. The problem is that I lied about my age when I was hired, saying I was 54, not 60. The company thinks I'm now 62 and won't give me a pension for another three years. What would happen if I told them I lied and asked to receive my pension now?
A. There's no question that you acted improperly by lying. But according to the IRS, if you provide proof of age, such as a copy of your birth certificate or a passport, you should be able to collect your benefit. If your former company refuses to accept your proof and withholds your pension, contact the U.S. Labor Department's Employee Benefits Security Administration at www.dol.gov/ebsa, or call (866) 444-3272 toll free. — Expertise provided by John Turner
Q. My mom is considering a reverse mortgage, but I'm concerned. What happens if the reverse mortgage leaves her with little equity in her home and she has to go into a nursing home? Who will pay for the nursing home expenses? Her only income is Social Security.
A. If your mother needs to move into a nursing home, the loan from the reverse mortgage will become due. She'll probably need to sell her home to pay off the loan. If this uses up most of her money, she will be able to apply for Medicaid assistance. Generally, she'd be eligible if her assets are below $2,000—check with your state for details.
Once she's on Medicaid, her Social Security income goes to the nursing home—except for a small monthly allowance. Medicaid picks up the balance between what she can pay and the cost of her care. For more information on reverse mortgages, go to www.aarp.org/money/revmort. For Medicaid, go to the Centers for Medicare & Medicaid Services online. — Expertise provided by Sally Hurme
Q. I am eight years older than my husband, who is 54. If he dies before he reaches age 59½, would I be able to cash out his 401(k) plan without penalty?
A. Yes. If your husband dies before age 59½, you could receive the money in his 401(k) plan without having to pay the early-payment penalty (though you would have to pay taxes).
In general, early payouts from 401(k)s are subject to a 10 percent penalty. However, the death of a plan participant is an exception to that rule. — Expertise provided by John Turner
Q. My mother receives Medicaid assistance and lives in subsidized housing for older adults in New York state. She will inherit about $80,000 soon. Will this affect the financial assistance she receives?
A. Housing assistance and Medicaid are separate programs and have different rules and eligibility requirements. Since Medicaid assistance is based on the value of a person’s assets, an $80,000 inheritance would likely cause her to be dropped from the program—at least until the asset is spent down. Normally, a person who qualifies for Medicaid has no more than $2,000 in assets.
As for housing assistance, there are many programs at the federal, state and local levels. Your mother should ask the housing provider where she lives about the eligibility requirements that relate to her program.
Generally, most housing assistance is based on income. So if your mother invested that $80,000 at 5 percent interest, for example, her annual income would increase by $4,000. To get housing assistance, an individual must typically earn no more than 50 percent of a region’s median income. So it’s possible that your mother could remain eligible for subsidized housing even if she no longer qualifies for Medicaid. — Expertise provided by Andrew S. Kochera
Q. Are premiums for a long-term care insurance policy deductible from federal income tax?
A. Premiums paid for private long-term care insurance are deductible if you meet certain conditions.
First, your medical expenses must exceed 7.5 percent of your adjusted gross income and all deductions must be itemized. Second, the long-term care policy must be classified as federally “tax-qualified” based on laws established by the Health Insurance Portability and Accountability Act. The amount that can be deducted is based on the age of the policyholder.
For specific information, visit the Internal Revenue Service online. — Expertise provided by Enid Kassner
Q. My broker wants to sell all my stocks and buy other stocks. I'm concerned he's trying to churn my account to earn commissions. What should I do?
A. Churning occurs when brokers buy and sell clients' stocks frequently to earn commissions, not because it's in the clients' best interest. Experts say investors lose billions a year to churning.
If you don't know your broker well (and even if you do), check out his license and record by contacting your state securities regulator. (Go to the North American Securities Administrators Association websitefor the regulator in your state.)
Next, ask your broker why he's suggesting these transactions and exactly how much he'll earn by making them. Check out what the tax consequences will be. Also, consider getting a second opinion from another financial adviser. In the end, if you suspect that your broker is not acting in your best interest, take your business elsewhere. You can also file a complaint with your state regulator. —Expertise provided by Sally Hurme
Q. I'm 61 and disabled, drawing Social Security disability benefits. My COBRA health insurance from my last job expires soon. No one will insure me because of my chronic asthma. Will I qualify for Medicare at my age?
A. Yes. You'll automatically be enrolled in Medicare once you've received disability benefits for 24 months.
In the interim, you may be able to extend your coverage under COBRA (the Consolidated Omnibus Budget Reconciliation Act, which provides for continuation of group health care benefits for 18 months). You can get an additional 11 months if Social Security administrators find that you were disabled within the first 60 days of your COBRA coverage period. To qualify for the extension, notify your COBRA plan administrator of this finding.
If you are not eligible for the COBRA extension, you will have a 63-day period—before your COBRA coverage ends—in which you can buy an individual policy and insurers cannot turn you down, regardless of your health. Premiums vary and could be expensive.
For more information visit AARP.org. —Expertise provided by Geraldine Smolka
Q. Can a foreigner who is married to an American citizen receive his company pension after his death?
A. Yes, she can receive survivor benefits as long as she was designated as the beneficiary. For information on how pension plans work, go online to the Pension Benefit Guaranty Corp., the federal agency that insures most defined benefit plans in the United States, at www.pbgc.govand click on "Workers &Retirees." —Expertise provided by John Turner
Q. I'm still working, but I borrowed half of my 401(k) plan to pay off a bill. Do I have to pay this back with interest?
A. Many plans allow participants to take loans from their accounts, but they must be repaid with interest so that the funds intended for your retirement are not depleted.
However, an employee age 59½ or older is permitted to make withdrawals while working for the company sponsoring the plan. There's no penalty on the amount withdrawn, but you'll still have to pay income tax. Anyone under 59½ must pay income tax on any withdrawals plus a 10 percent penalty.
For more information about 401(k) plans, go to the Internal Revenue Service online, and use the search box to find the "401(k) Resource Guide."—Expertise provided by John Turner
Q. My mother gave me her assets four years ago. She has been in a nursing home for three years, funded by a long-term care insurance policy that covers only three years of care. She will be going on Medicaid soon to pay for her nursing home. Can New York, the state we live in, seek reimbursement for her Medicaid expenses after she passes away?
A. Before the Deficit Reduction Act became law in February 2006, there was a three-year "look back" period for most asset transfers, meaning that nursing home residents were not eligible for Medicaid if they had given away their assets within three years of going into a nursing home. Because this look-back period was in effect when your mother transferred her assets four years ago, the state of New York cannot attempt to recover assets from you. The state will, however, attempt to recover any assets in your mother's own name after her death.
Anyone who transferred assets after February 2006 will face tougher rules: the look-back period to determine Medicaid eligibility is now five years.
For details, go to the Kaiser Family Foundation online. —Expertise provided by Enid Kassner
Q. I have worked for my company for 26 years. Recently, the company changed the defined benefit retirement plan so that my benefits will be reduced by $750 a month. How can I recover my lost benefit?
A. The "anti-cutback rule," a principle in pension law, states that benefits you have already earned cannot be taken from you. So the pension benefits you had accrued before the plan changed cannot be reduced. However, benefits that you would have accrued after that date can be reduced or eliminated, according to the plan change. To learn more, go online to the Pension Rights Centeror to the Department of Labor employee benefits section.
Q. My husband and I are both retired. Our income is from a pension and Social Security. Can we still put money into our IRA and then deduct it on our federal income tax return in order to reduce our taxes?
A. You must be receiving "earned income" that is taxable-such as wages and commissions-in order to contribute to an IRA. Income from rental property, interest and dividends, or from pensions or annuities, for example, is not considered earned compensation. So if you don't have income that requires a W-2 or 1099 tax form, you may not contribute to an IRA.
Q. I'm in my late 50s and getting ready to retire from my job. When I do, what is the best thing to do with my 401(k)? Also, can I use some of it without paying taxes or penalties?
A. Many people roll their 401(k) funds into IRAs because they allow you to invest in any fund you want rather than be limited by the choices offered in your 401(k). But it is wise to compare the administrative fees you currently pay with your 401(k) and those you would be charged with an IRA. If you leave your job in the year you turn 55, or thereafter, you can take withdrawals from your 401(k) plan without paying an early withdrawal penalty, but you will have to pay income tax on those withdrawals.
Q. My 401(k) plan now offers some life-cycle portfolio funds. I like the idea that age-appropriate diversification and rebalancing are automatically provided, but I'm concerned that the trade-off might be lower returns than those I'd get if I managed the investments myself.
A. A life-cycle portfolio fund is designed for people who don't have the time, interest or ability to manage their own retirement portfolio. If you're willing to research, monitor and rebalance your investments when necessary, then you may want to manage your own portfolio. But if you are not willing or able to do this, then an age-appropriate life-cycle fund with automatic rebalancing may be for you. As for the trade-off, the range of probable returns is small—success depends more on your saving and spending habits over a lifetime.
Q. I would like to phase down my work hours by working part time with my current employer. Can I do this and begin to draw on part of my defined benefit pension to supplement my reduced income?
A. Probably not. A defined benefit plan begins at retirement. To be sure, you should ask the pension plan administrator in your company whether you are required to be separated from employment to receive a distribution. If that's the case, here's something else you might consider: Before you retire, find out if your current employer can hire you as an outside consultant.
Q. Can I use money from my 401(k) plan as a down payment on a house and not be penalized? I am 57½ years old and have been retired about 4½ years.
A. There are two ways you can access money in your 401(k) plan—through loans and withdrawals. You can take a loan without penalty from your 401(k) plan if it provides that option. Your plan's administrator can give you that information.
In general, you cannot make a withdrawal from a 401(k) plan before age 59½ without paying a 10 percent penalty. However, if you leave the company providing the plan in the year you turn 55 or any year thereafter, you may take a withdrawal without penalty—if your plan allows it. But the withdrawal must take place after you leave service.
In your case, you would have to pay the 10 percent penalty for a withdrawal because you retired before age 55. For more information, go to the Internal Revenue Service online at www.irs.gov. Click on "Retirement Plans Community," then on "401(k) Resource Guide."—Expertise provided by John Turner and Mary Ellen Signorille
Q. I lost my job last August and have health care coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA). Can I continue my COBRA coverage until my 65th birthday next year? I live in California.
A. COBRA coverage generally lasts for 18 months. If your coverage started on Sept. 1, 2005, your eligibility will end March 1, 2007. If your birthday falls after that date, you can't continue your COBRA coverage until you are 65.
You can buy an individual health insurance policy within 63 days of the date your COBRA coverage expires. But after that, you lose your guarantee of access to health care coverage and insurers can turn you down. Different states have different rules. In California you are guaranteed the right to buy coverage from private insurers, but each insurer is allowed to limit your choice to two policies.
If you have questions about your rights, contact the California Department of Insurance.—Expertise provided by Geraldine Smolka
Q. My husband was not in his right mind for some time before his death. He left me a list of serial numbers of savings bonds that I have not been able to locate. Is there a way to find them and to learn if they have been cashed?
A. Your situation is not uncommon. More than $13 billion worth of savings bonds have matured and remain unredeemed.
Here's what you should do. If you have only the bond serial numbers, write to Bureau of the Public Debt, P.O. Box 7012, Parkersburg, WV 26106-7012. Describe the bonds as fully as possible—approximate issue date, address or any other information you may have—and request a search of U.S. Department of Treasury records. The department will replace your savings bonds if they haven't been cashed.
You can also try a "Treasury Hunt" at the Treasury Department's online database. To start a search, you will need either your Social Security or employee identification number or your husband's. (You also can find out what your bonds are worth by using the site's calculator.)
Once you have received your replacement bonds by mail, you can redeem them at most financial institutions if you are listed as an owner, co-owner or beneficiary. You will need proper identification. Because your husband is deceased, you will also need to show a certified copy of his death certificate.—Expertise provided by Naomi Karp
Q. I will turn 55 in September. I will need to make a withdrawal from my 401(k) plan this year and want to make it without incurring an early withdrawal penalty. Should I do it after my birthday? Does it matter?
A. In general, you cannot receive a distribution from a 401(k) plan before age 59½ without paying a 10 percent penalty. However, if you leave your job this year (the year of your 55th birthday) or in a subsequent year, and if your plan allows it, you may take a withdrawal once you're 55—without paying the penalty.
If you have already left your job, you may make penalty-free withdrawals starting at age 55 if you take the withdrawals not as a lump sum but in equal periodic payments—for example, from a lifetime annuity that you have set up. In any case, you will pay income taxes on your withdrawals. For more information on 401(k) plans and rules, visit the Federal Citizen Information Centerwebsite. —Expertise provided by John Turner
Q. I'm leaving a job but keeping my 401(k) plan with that employer. My new company also offers a 401(k). Is it legal to have two of these accounts?
A. Yes, you can have more than one 401(k) plan. Many employers will let you keep your 401(k) money in their plan after you leave the company. But you will no longer be able to contribute to the plan or borrow from it.
You may want to consider transferring your 401(k) funds directly into your new employer's plan without incurring taxes or penalties. Or you may want to roll over the funds into an individual retirement account to keep your tax deferment and make it easier to track your investment.
To learn more, call the Federal Citizen Information Center toll-free at (888) 878-3256 and ask for its free publication "401(k) Plans" (Item 583L). Or write the center at Dept. 583L, Pueblo, CO 81009. —Expertise provided by Jules Lichtenstein
Q. My brother died in 2001 and left his money to me. An asset locator company keeps sending me letters saying it found $8,000 that belongs to him. It wants to charge me 35 percent as a finder's fee to reveal where the money is located. How can I find this money on my own?
The National Association of Unclaimed Property Administrators (NAUPA) recommends checking pension funds and records of firms managing retirement accounts or other investments in the states your brother lived in.
If nothing turns up, you might check with unclaimed property offices, found in all states. For links to the offices, go to NAUPA's website at www.unclaimed.org. Unclaimed assets from inactive accounts must by law be turned over to the state, typically within five years, although that can vary from state to state.
You can try to negotiate a more modest finder's fee with the locator company—many states cap the fees at 10 percent. Be sure to check the company's reputation and get a guarantee that there really is $8,000.
Or you can simply wait until the assets are turned over to the state. Then you can file your own claim at no cost. —Expertise provided by Sally Hurme
Q. I am 60 with an outstanding student loan. I have land that I am leaving to my children. If I die before the loan is paid, can the government seize the land to pay off the debt?
A. The answer depends on the type of student loan you have. Certain federal student loans—Direct, FFEL and Perkins—are canceled if the borrower dies. Contact the Federal Student Aid Information Center at (800) 433-3243 for more information, or visit www.studentaid.ed.gov.
In general, the executor of your estate must pay off all your taxes, debts and loans before distributing anything to your children. If there isn't enough money to cover your commitments, the land may have to be sold to clear those liabilities. Then any remaining money can be distributed to your children.—Expertise provided by Sally Hurme
Q. What are the tax implications if I withdraw my IRA funds and buy a charitable gift annuity at age 67?
A. After age 591/2, withdrawals from your IRA are taxed the same as earned income. Donating a withdrawal to a charitable organization in the form of a charitable gift annuity gives you a fixed payment for life and a tax deduction. If you make your withdrawal and gift in the same tax year, some of the taxes will most likely be offset by the deduction.
This can be tricky business, so you may want to consult a financial planner. For more information, visit the American Council on Gift Annuities' website at acga-web.org.—Expertise provided by Craig Hoogstra
Q. We are being inundated by unsolicited credit card offers—220 applications in the last few months alone. We requested in writing that our names be taken off all mailing lists, but to no avail. What can we do to stop the flood?
First write to the offending companies and say you want to be taken off all mailing lists.
Then call (888) 5-OPTOUT—or (888) 567-8688—toll free. You will reach, with just one call, the three major consumer reporting companies. Tell them to stop giving your information to companies that want to send you pre-approved credit offers. You are required to give your Social Security number, name and address.
You can also have your name removed from many national direct mail lists by writing to the Mail Preference Service, Direct Marketing Association, P.O. Box 643, Carmel, NY 10512. Or, for a $5 fee, you can have your name removed from direct mail listsonline.
The stream of offers should slow within 30 to 90 days of your request. For more information, go to www.aarp.org and search "Unwanted Mail."—Expertise provided by Sally Hurme
Q. I worked 15 years for a company with a pension plan. Seven years ago I moved to another town. Now I'm old enough to receive pension benefits, but I can't locate my former employer. How can I find my pension? (September 2005)
There is no single point in the United States for locating a lost pension, but there are ways to track one down. Start by contacting the Social Security Administration to get a copy of your earnings record. Your former employer's federal employer identification number (EIN) will be on the record. The EIN can help you find the company even if its name or location has changed. You can search on FreeERISA.com by EIN numbers.
You can check with the Pension Benefit Guaranty Corp., the federal agency that insures corporate defined benefit plans, to see if it has insured your pension plan. Download the PBGC guidebook "Finding a Lost Pension" (PDF file) from the site, or write to PBGC, Communications and Public Affairs Department, 1200 K St., N.W., Suite 240, Washington, DC 20005-4026.
Another helpful organization is the nonprofit Pension Rights Center in Washington.—Expertise provided by John Turner
Q. I have never paid a credit card bill late, yet MasterCard has doubled my interest rate because I have other credit card balances. Is there anything I can do to remedy the situation? (September 2005)
Very little, except to take your business elsewhere. Credit card companies put many caveats into the fine print of their contracts, including the right to hike your interest rate if you're late paying on another debt or if you've taken on more debt. [See "The Credit Card Sinkhole" from our April 2005 issue.]
Be aware that credit issuers can also change the terms of your contract later, often in hard-to-read inserts with your monthly bill that many consumers don't read.
AARP has urged the Federal Reserve Board to simplify credit card language when it revises its Truth-in-Lending regulations.—Expertise provided by Sally Hurme
Q. A month ago I instructed my former employer to roll over my 401(k) account into another retirement account, but the new account hasnt received the funds. Is this delay common? (July-August 2005)
At this point, the delay doesnt appear to be unreasonable. The federal Employee Retirement Income Security Act (ERISA) does not provide guidelines for the time it takes employers to distribute funds from a 401(k) plan.
Your only recourse is to pursue the matter through your former employers human resources department.
For more information about employee benefit plans, go to the Employee Benefits Security Administrations website or call toll free (866) 444-3272.—Expertise provided by Craig Hoogstra
Q. Before my husband passed away, we set up an irrevocable trust to leave our children something after both of us had died. I’m rethinking this. Our children have young families, and they could use the money now. Can I change to a revocable trust or at least take out some funds now? (June 2005)
No. A trust is a legal contract in which a person transfers assets to a trustee who manages them on behalf of beneficiaries. A trust that’s irrevocable means just that—you can’t change it, terminate it or withdraw money from it, even in emergencies.
Under some highly extenuating circumstances—say, in the case of fraud or undue pressure on a person to establish such a trust—a court could agree to change the terms of an irrevocable trust, but tax consequences are likely to be severe. Ask a tax lawyer to review your trust to determine if it is truly irrevocable. —Expertise provided by Sally Hurme
Q. My ex-husband died last year. He had named me as beneficiary to life insurance and stock plans offered by his employer. Since I was his only beneficiary, would I be entitled to his pension benefits, too? (May 2005)
Spouses do not have automatic rights to their ex-spouses’pensions, even if they are beneficiaries to other assets. If your rights to his pension benefits were not specifically granted in the divorce settlement, you would not be eligible to receive them. —Expertise provided by John Turner and Amy Shannon
Q. My wealthy aunt passed away 11 months ago. She named me sole beneficiary after expenses and her friend as trustee. The trustee will not disclose account balances to me and has not yet closed the estate. How can I get the trustee to move on it, and how can I find out what is legally mine? I have copies of the trust and the will. (February 2005)
What’s happening to you points out a drawback of a trust. Though a trust gives the person creating it more privacy because it doesn’t need to be filed with a court, the trade-off is that the actions of the trustee can escape court supervision.
The trust should contain your aunt’s directions to the trustee as to how and when to distribute the trust assets. You should have an attorney examine both the will and the trust. Depending on where your aunt lived and what each document says, the attorney can ask the court to make the trustee account for the funds in the trust and distribute the trust assets to the beneficiaries.—Expertise provided by Sally Hurme
Q. I am fully vested in the 401(k) plan of a small company where I no longer work. My previous employer has now asked me to pay a quarterly fee of $25 or change to another plan. Can I be forced to pay these fees? (February 2005)
The U.S. Department of Labor allows ex-employers to charge "reasonable"administrative fees to former employees.
If you have a large 401(k) balance and have been satisfied with your plan, it may be worthwhile to pay the extra fee and stay in the plan. If not, you may wish to transfer your account balance to an IRA (individual retirement account).
One way to make a transfer is to have the investment firm managing your new account request a direct rollover.—Expertise provided by John Turner
Q. When I retire in a few years, I’ll be eligible for a traditional defined benefits pension, which I can take as a lump sum or in periodic payments. How do I choose? (January 2005)
Which payment is right for you depends on your financial needs and on your tolerance for volatility. Would you be comfortable with the inevitable ups and downs of managing the lump-sum payout yourself? Or would you prefer a regular payment that is backed by the federal Pension Benefit Guaranty Corp. or an insurance company?
Another consideration is your heirs. Periodic payments stop when the surviving spouse dies. A lump-sum payout enables you to leave a legacy if the money is managed to preserve principal.
A financial planner can help you decide. For a list of fee-only planners, call the National Association of Personal Financial Advisors at (800) 366-2732.—Expertise provided by Craig Hoogstra
Q. I left a company in 1990 after I was vested in its pension plan—but my copies of my pension records were destroyed in a fire. I don't remember the name of the plan, and the company was sold and has moved out of state. How can I locate my pension? (November 2004)
It's up to the employee to track down a lost pension, but there are a number of places to go for help:
- Contact the Social Security Administration to get a copy of your earnings records, which will include your former employer ' s federal ID number. You may be able to use that number to locate the company and apply for the benefit.
- The Pension Benefit Guaranty Corporation , which insures most private-sector plans, helps employees search for lost pensions through its website. Download its booklet (PDF) on the subject.
- The U.S. Labor Department provides limited assistance to workers searching for lost pensions through the Employee Benefits Security Administration ' s Division of Technical Assistance and Inquiries , located in Washington and 15 field offices.
- The nonprofit Pension Rights Center in Washington also offers assistance. — Expertise provided by John Turner
Q. I know I have to start making withdrawals from my IRA when I turn 70 1/2. But can I also keep contributing to it? (October 2004)
If you have a traditional IRA, you can’t contribute to it for the year in which you turn 70 1/2—or for any year after that.
The situation is different if you have a Roth IRA. You can contribute to a Roth IRA regardless of your age, provided you meet other requirements. The chief requirement is that you have taxable compensation in the year in which you contribute. IRS defines compensation as including wages, salaries, commissions and taxable alimony payments.—Expertise provided by Dorothy Leamon
Q. A friend told me that if a bank fails, the FDIC will pay you only the principal on your deposit, not any interest earned. Is this true? (October 2004)
No, you’ve been misinformed. The Federal Deposit Insurance Corporation covers the full balance of a depositor’s account, principal and interest, right up to the day of the insured bank’s closing. The basic insurance limit is $100,000 per depositor, per insured bank.
By law, the FDIC is required to make payment as soon as possible, and in the past, payments to depositors have usually been made in just a few days.—Expertise provided by Sharon Hermanso
Q. I've heard there is a service that enables older people to find out if they qualify for benefits they may not even know about. Is this true? (June 2004)
Yes, there is an online service called BenefitsCheckUp, that identifies benefits open to people 55 and older. Its website covers more than 1,150 public and private programs that help with health care, utility costs and other essential needs.
Visitors to the site can fill out a confidential questionnaire and get a personalized report listing programs for which they may qualify. The report also tells how to apply for these programs.
BenefitsCheckUp, a service of the National Council on the Aging, does not determine anyone's eligibility for benefits. Applicants must deal directly with sponsoring groups to find out if they qualify.—Expertise provided by Enid Kassner
Q. When will I be able to get a free credit report as required by the U.S. Fair and Accurate Credit Transactions Act that became law last December? (May 2004)
The act, which entitles everyone to a free credit report once a year from all three major credit reporting agencies, will begin to take effect in December. But not everyone will be eligible at the same time. The new measure will be rolled out over a period of time to prevent the credit reporting agencies from being flooded with requests all at once.
Under a Federal Trade Commission proposal expected to be made final in June, consumers in the West—including Arizona, California, Colorado, Nevada, Oregon and Washington—could request free credit reports starting Dec. 1. Midwesterners would become eligible on May 1, 2005. Most Southerners could begin making requests on June 1, 2005, and people in the East, from North Carolina to New England, could request reports starting Sept. 1, 2005.
Q. How can I find out if I'm entitled to pension benefits from previous employers? Is there a central source I can contact? (March 2004)
Unfortunately not. Centralized sources for such information exist in some other countries but not in the United States. Your best bet is to try to contact your former employers directly.
If a former employer that once provided defined benefit pensions (that is, traditional pensions with specified monthly benefits) is out of business, the Pension Benefit Guaranty Corporation (PBGC) may be able to help you.
PBGC is a government corporation that insures defined benefit plans. It maintains a pension search directorythat identifies people owed pensions from plans that have ended. —Expertise provided by John Turner
Q. Is there a rule of thumb to help me figure out how much money I will need to retire comfortably? (February 2004)
Yes. Experts say most people can maintain their present living standard in retirement with about 70 to 80 percent of their preretirement income. But they caution that other factors can change that picture radically. If, for example, you hope to travel extensively or anticipate major health care costs, you can count on needing more income.
You should also recognize that, given inflation, what might be adequate income at age 65 may be inadequate at 80 or 85.
Social Security, with its annual cost of living adjustments, can provide some help in keeping pace with inflation. It's estimated that Social Security replaces about 42 percent of preretirement earnings for average wage earners receiving full Social Security benefits. That leaves the rest of your living costs to be made up in other ways—by pensions, savings, investments or part-time work.
For below-average wage earners, Social Security supplies about 56 percent of needed retirement income. But for higher earners, Social Security will cover only about 35 percent of living costs.
If you retire early, you'll get less from Social Security and have to rely more on other sources of income.
The AARP Bulletin Online recently updated a calculator that can help you determine how much you should saveto be comfortable in retirement.
The website of the American Savings Education Council, a nonprofit group in which AARP is a member, has other interactive tools to help you save for retirement and manage your personal finances.—Expertise provided by Sara Rix
Q. I just turned 70 and have both IRA and 401(k) accounts. Will I have to withdraw money from them when I turn 70 1/2 if I'm still working? (November 2003)
Anyone with a traditional IRA has to start making withdrawals at 70 1/2, says the Internal Revenue Service. People with Roth IRAs, however, are not required to make any withdrawals.
If you're still working at 70 1/2, you may not have to withdraw funds from your 401(k) if your plan allows you to put it off and you're currently working for the company that sponsors the plan. If you have a 401(k) with a former employer, you must start taking distributions.
People who fail to take a required distribution face a stiff penalty.
To learn how much you must withdraw and when, go to the IRS' website, and type "minimum distribution"in the search box. Or contact your local Taxpayer Assistance Center.
IRS operators are required to tell IRA owners how large a distribution they must take in 2003.—Expertise provided by Alison Shelton
Q. My credit card company insists on sending me blank checks with my name on them. I'm afraid if one of the checks fell into the wrong hands I'd be left with a big bill. How can I stop this? (July-August 2003)
There's nothing to prevent this practice. Your best course may be to find a company that does not send such checks—though that may be difficult, since the practice is widespread. Barring that, your only defense is to make sure your mailbox is secure and destroy unused checks.—Expertise provided by Sharon Hermanson
Q. With other interest rates so low, U.S. savings bonds seem worth a close look. What's the current rate, and can they be bought online? (June 2003)
Series EE bonds currently pay 2.66 percent, a rate that's good through next October. And yes, they can be bought online—as well as through most banks and credit unions. Before buying, be aware that bonds bought today can't be cashed in until they've been held 12 months and that there is a penalty of three months of interest on bonds redeemed before five years. Savings bonds have the advantage of being exempt from state and local income tax. In addition, you can defer paying federal tax until you redeem the bonds. The bonds stop earning interest after 30 years.—Expertise provided by Craig Hoogstra
Q. I contribute regularly to several health charities and humane societies. But I don't itemize deductions and can't write off my donations. Is there any way I can get a deduction for the money I contribute? (May 2003)
Not currently. President Bush, however, proposes changing the law to allow non-itemizers filing individually to deduct up to $250 in charitable contributions after the first $250. (Someone with $450 in total charitable contributions, for example, would qualify for a $200 tax deduction.)
Married taxpayers filing a joint return could deduct up to $500 in charitable contributions after the first $500. If they contributed $800, for example, they could deduct $300. The Senate approved the measure last month but the House has yet to act.—Expertise provided by Frank Toohey
Q. The tax laws give married couples who sell their homes a $500,000 exclusion from capital gains taxes. But what happens if one spouse dies? Is the amount reduced? (May 2003)
The Internal Revenue Service says that the surviving spouse can claim the $500,000 exclusion only if the sale (or exchange) of the home took place in the calendar year that the other spouse died. This is because such a claim must be filed on a joint tax return. After that year, the exclusion for individual taxpayers—$250,000—would apply. This means that if the death occurred late in the year, the surviving spouse would have to act quickly or risk losing half the exclusion.
IRS regulations also require that the taxpayer must have owned and used the property as his or her principal residence for at least two years during the five-year period ending on the date of the sale or exchange. If you have questions about your specific situation, consult an accountant or tax lawyer.—Expertise provided by Alison Shelton
Q. I received an ad in the mail saying a reverse mortgage could give me extra income in my retirement. How do these mortgages work? And how can I learn more about them? (January 2003)
A reverse mortgage is a way to get money out of your home without having to leave it. It's a loan against the equity built up in your home that is repaid—with interest—when you die or leave or sell the property. Reverse mortgages are available only if you're a homeowner 62 or older and only on your main residence. Although some of these loans are offered by state or local governments, most are underwritten by mortgage companies. Some people find a reverse mortgage a good way to make their later years more comfortable. You should be aware, however, that such a loan can entail significant fees. AARP explains the subject in detail in a free booklet, "Home Made Money: A Consumer's Guide to Reverse Mortgages"(order #D15601). Get the guide to reverse mortgages online or by calling (800) 424-3410.—Expertise provided by Kenneth Scholen
Q. I understand that I can now contribute more each year to my 401(k) plan. Is my employer required to match my higher contribution? (July-August 2002)
No. Employers are not required to contribute anything to their employees' 401(k) plan. Employers who provide such contributions do so on their own, mainly to encourage participation and bolster employee relations.—Expertise provided by Amy Shannon
For more information from AARP on Financial Planning:
- Older Americans Going Deeper in Debt (March 2003)
- 6 Ways to Handle 401(k) Withdrawals (July/August 2002)
- Checklist: 8 Things You Should Know About Your Finances as a Couple (June 2002)
- How to Handle a Lump-Sum Payout (AARPmagazine.org)
- Catch-Up Savings Secrets (AARPmagazine.org)
- AARP.org ' s Financial Planning channel
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