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Here’s why emergency savings funds never go out of style

Dear Liz: I was a happy individual and was able to save enough money to cover my expenses for at least six months in case I remained unemployed. I am now retired with a fair amount of guaranteed monthly income through social security and pensions. Do you have a suggestion of what to do with that savings account now that it has served its purpose?

Answer: Emergency funds are not just for job loss. They are also intended to relieve you of unexpected expenses. If you own a home, car or body, you are likely to experience those who are retired because all three have a need to repair as they age.

If you are new to Medicare or relatively healthy, you may not know that Medicare does not cover all of the medical costs you are likely to face. Medicare also doesn’t cover long-term care, which can be quite expensive if you end up needing help with daily life activities like eating, bathing, dressing, moving, and using the bathroom. A study by Vanguard Research and Mercer Health and Benefits found that half of people over the age of 65 will have long-term care, and 15% more than $ 250,000.

Vendor financing and credit reporting

Dear Liz: I bought a house and the seller financed the sale. I made all payments on time, but this is not reflected in my reports to the three credit bureaus. Read also : Protect Your Retirement Accounts From the Tax Man. What can I do to get mortgage payments recognized in my credit reports?

Answer: One of the benefits of selling a dealer – where the person selling the house is your lender – is that getting a mortgage can be easier than applying to a bank or company. Individuals, however, are usually unable to report payments to credit bureaus, so your payments will not appear on credit reports.

If you’re trying to improve your problem credit, you can use other methods, such as adding as an authorized user to someone’s credit card, taking a secured credit card, or applying for a loan for a lender from a credit bureau or online lender. If you are a landlord, you could also subscribe to a rental reporting service that will pass on your rental payment history to bureaus for inclusion in your credit reports.

IRA and tax issues

Dear Liz: I research the backlog of the Roth IRA and find some conflicting information regarding the tax owed on conversions. I have two significant rollover IRAs and one small ($ 1,600) traditional IRA. Can I make a post-tax contribution to a traditional IRA, turn it into a Roth, and pay tax only on that IRA, or do I have to consider all three IRAs?

Answer: Sorry, but you have to consider all three. The conversion tax will be based on the portion of all your pre-tax IRAs, not just the IRA where you contribute.

Backdoor Roths allow people to put money into Roth when their income is too high to be able to contribute directly. Instead, they contribute to the traditional IRA and turn it into a Roth because conversions have no revenue limits. Conversions, however, require proportional payment of taxes on contributions and earnings before tax, so the technique may not be recommended when you have significant pre-tax IRAs that will trigger a large tax bill.

Social security and spouse benefits

Dear Liz: My wife and I are 66 years old and have not yet applied for social security. I do not plan to apply until I am 70. See the article : Do you have to take distributions from an inherited Roth IRA?. Can my wife now apply for her own pension, which is much lower than mine? And then, when I file an application at the age of 70, can she move to the spouse’s benefit rate, without any penalty?

Answer: Yes and yes. This is one of the few cases where people can still switch from one benefit to another.

If you have already applied, your wife’s pension benefit would be compared to the spouse’s benefit and she would receive more than two amounts. However, since you did not register, no spousal benefit is available. Your wife can receive her own allowance and then switch to a larger amount of spouse after you apply at age 70, when your personal benefit is at its maximum.

Also, as long as your wife has reached full retirement age (66 years and two months, if she was born in 1955), she will not face the earnings test if she continues to work. That test normally reduces the benefits by $ 1 for every $ 2 earned in a certain amount, which in 2021 is $ 18,960.

Liz Weston, a certified financial planner, is a columnist for personal finance NerdWallet. Questions can be sent to her at 3940 Laurel Canyon, no. 238, Studio City, CA 91604, or via the “Contact” form at asklizweston.com.