FINANCE

ROTH IRAS ARE A GREAT WAY TO TRANSFER MONEY TO YOUR HEIRS

Designed to help people save for retirement, the Roth has become a popular estate planning tool.You can open a Roth over the Internet or at a financial institution by using after tax dollars or by converting a regular IRA to a Roth. That money, plus all earnings including dividends, is later available to you or your heirs tax free. To take advantage of this feature you have to have had the account for five years.

You can put $5,500 in a Roth during 2014; those over age 50 can put in an extra $1,000. For those looking for tax diversification, the Roth is one of the few plans that can ensure they have a stream of tax free income in retirement, according to Ken Hevert, vice president of Fidelity Investments.

To take out more than just the contributions, investors must be at least 59 1/2 years old. Some circumstances and qualified withdrawals include:

• a first time home buyer, up to $10,000;
  
  
• college expenses;
  
  
• disability, death, or unreimbursed medical expenses exceeding 10 percent of income.
  

With a traditional IRA, investors must stop making contributions at 70 1/2 at which point they are forced to take distributions and begin paying taxes on that money. With a Roth, you can live to be 120 without ever tapping it. As long as you are working, you can still contribute. Your heirs, however, are required to empty the account within the five years after your death. If they don't, they'll pay fines and taxes of up to 50 percent of what they withdraw.

CORRECTING CREDIT REPORTS GETS A LITTLE EASIER

The Consumer Financial Protection Bureau has been urging the major credit reporting companies, Equifax, Experian and TransUnion, to make correcting errors on credit reports easier. So, now, the three companies have changed their complaint systems to let people dispute mistakes on their credit reports in greater detail.

Previously, gripes and supporting paperwork you sent to the Big Three were assigned a code that reduced your argument to one of a handful of assertions, such as "Not his/hers." Under the new system, when you provide documents, the agencies have to state your full case to the creditor. The creditor then has to fix any errors with all three agencies. It's no small job. The credit companies received about 8 million complaints about errors in 2011, according to Money magazine.

"The earlier system was like a brick wall," says Bill Hardekoph, CEO of comparison site LowCards.com. "This system gives you some additional clout." You and other consumers will have a better chance of getting the errors, and your credit reports, fixed.

FOUR TERMS YOU SHOULD KNOW WHEN FILING FOR SOCIAL SECURITY

1. "The earnings test." If you apply for Social Security early, but continue to work, some of your Social Security benefits will be deferred until you reach the full retirement age. This is called the Social Security earnings limit. Here is how it works.
   
   In 2014, the earning limit is $15,480. You can earn up to this amount and your Social Security benefits will not be reduced (or deferred). If you earn over this limit, your Social Security check will be lower each month based on your earnings in the current and past year. And it is a big chunk: Social Security will take back $1 of every $2 that you earn over the limit.
   
   Full retirement age for those born between 1943 and 1954, is age 66. When you reach full retirement age, Social Security will stop withholding benefits and increase monthly benefits to replace those taken by the earnings test. After the full retirement age, you can earn as much as you can and not have to worry about an earnings limit.
   
   The amount you can earn before $1 in benefits will be deducted for each $2 you earn is $15,480 in 2014. In the year after you reach full retirement age, the deductions stop. But the money isn't really lost. When you reach full retirement age, Social Security recalculates and increases your future benefits to account for any dollars withheld. Over your lifetime, your total benefits will come out the same.
   
   
2. "Claim and suspend." At full retirement age, you can claim your benefit and then stop payments before they begin. Your benefit, when you do claim it, will have increased in size.
   
   
3. "Claim a spousal benefit, then later claim your own." At full retirement age, if you are eligible for a spousal benefit and your own retirement benefit, you have the option of claiming just the spousal benefit. At a future point in time, you can jump to your own benefit, which will have increased in size.
   
   
4. "Disadvantage of deemed filing." A husband who is already collecting Social Security asks if his wife can take just the spousal benefit at 62, which is probably larger than her own benefit. Yes she can. BUT she will be locked into that benefit amount even after she retires and even if her own benefit would be greater. This is considered to be "deemed filing" and can't be changed.
   

Always tell Social Security about your family circumstances and any change in those circumstances.

© 2014 TLC Magazine Online, Inc.