Dear Liz: My husband lost his job and we are on COBRA continuous coverage for our health insurance. We won’t have to pay the premiums until September 30, thanks to the US bailout, which was adopted in March. Is there anything we can enjoy on October 1 if my husband isn’t back to work? I understand that there is currently a special enrollment period for Affordable Care Act coverage that ends August 15th. My husband’s 18 months of COBRA coverage ends in December, but it’s very expensive and we would like something cheaper.
Reply: You should both be allowed to switch to an Affordable Care Act policy after your free COBRA coverage ends.
COBRA allows people to extend their health insurance at work for up to 18 months after losing their job, but as you noted, the costs can be high. COBRA coverage requires payment of the full premium that was once subsidized by the employer, plus administrative costs. ACA policies, on the other hand, are generally subsidized by tax credits that make coverage more affordable.
The US bailout requires employers to pay COBRA premiums for eligible former employees from April through September. Employers will be reimbursed through a tax credit. (The grant can last for less than six months if a person’s COBRA eligibility ends before September or if they become eligible for group coverage through their or their spouse’s employment.)
At the end of the no premium coverage, your husband would be eligible for a special membership period that would allow him to move to an Affordable Care Act policy.
Not only that, but whoever is unemployed at any time in 2021 will be eligible for a full no-premium policy through the ACA for the remainder of the year. HealthCare.gov will have details later this month.
Withdrawals from a legacy 401 (k)
Dear Liz: A parent inherited a 401 (k) as a listed beneficiary, and it was simply transferred into an IRA in their name. Now another family member wants some of the money. The parent continues to try to explain that if she withdraws all or part of the money, it will be taxed and will reduce the amount available if she wanted to share it. She is already retired and does not need to use the money. She wants to keep it in her joint estate with her spouse, who could potentially use it later to pay off her mortgage. Wouldn’t it be foolish to withdraw the money just because another family member thinks he should get some of it?
Reply: Your loved one needs to speak to a tax expert.
Minimum required distribution rules prevent people from holding money in retirement accounts indefinitely, and the rules have recently changed regarding legacy retirement accounts. Your loved one should understand the rules that apply to them, as failure to follow these rules can result in heavy penalties. The exact application of these rules depends on when she inherited the money and her relationship with the deceased.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 removed the so-called Scalable IRA, which allowed non-spousal beneficiaries to minimize distributions so that legacy retirement accounts could continue to grow with tax deferred for periods of time. decades. Now, beneficiaries other than the spouse are generally required to empty the account within 10 years of the death of the original owner. These rules apply to retirement accounts inherited after December 31, 2019. Even if she inherited the money earlier, she will still have to start distributions at some point. Failure to make these required distributions results in a tax penalty equal to 50% of the amount that should have been withdrawn but was not withdrawn.
Of course, just because she has to withdraw the money and pay taxes does not mean that she has to cede to the family member. Withdrawals are hers to spend, invest, share or save as she pleases.
Credit scores and card limits
Dear Liz: I have a credit score of 780, but I noticed that one of my cards does not count towards the percentage of credit used. I’ve had this card for 44 years, and I could charge a few hundred thousand dollars on a single purchase if I chose, but the credit scoring formulas are not included in Amex’s ‘credit at hand’. Does this sound unfair?
Reply: Since credit cards with six-digit limits are rare, what you are describing is probably a charge card. Unlike credit cards, charge cards do not have preset spending limits. They also don’t allow you to carry a balance from month to month, usually.
The âpercentage of credit usedâ that you mention is called credit utilization, and it is an important factor in credit scoring formulas. Credit Usage measures the amount of available credit you use, and the larger the gap between your credit limits and your balances, the better.
But the credit usage calculation cannot be done if one of the digits – the credit limit – is missing. The only way for the formulas to calculate credit usage in this case would be to assume that the amount you charged equals your credit limit, which would be disastrous for your scores.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be directed to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.