401K and Mortgage Interest advice needed
Hi Terry,
I have two questions (sorry) – one each for me and my sister. Quick summary on us: I’m (Kate) 44 and Stacy’s 50, we live separately, I’m married but she’s single. We both have MS and have been on SSDI for at least 10 years each. I pay taxes on my SSDI as I make over $25K but she doesn’t…plus my husband works FT and we file our taxes jointly.
My question is: I still have my 401k at my former employer. It’s just been sitting there for 10 years making and losing money as the market ebbs and flows. I can’t contribute to it because apparently that’s a rule of being on SSDI. The plan’s funds aren’t that stellar. It was at $200K at the end of the year but I’ve lost nearly $25K since January alone! A week or two ago on the WGN Morning News you advised an older viewer to roll his old 401k into either a Roth IRA or a traditional IRA with conservative funds but I don’t remember which one. Can you refresh my memory please? I look at my 401k as an added “life insurance” policy for my husband as it’s unlikely I will live to see retirement age. My sister is in end-stage MS at age 50 and I’ve always followed close behind in symptoms, plus I have several other underlying medical conditions that will prompt an early death. I’m at peace with it. What I’m not at peace with is my 401k in free fall! What is my best course of action?
Stacy’s question: She was advised by a CPA friend of hers years ago to not file taxes since she doesn’t pay any. That part makes sense. But since 2013 she owns a condo with a mortgage so can’t she write off the property taxes and mortgage interest? Her net monthly income is exactly $1700 and the only thing taken out of her disability check is the Medicare premium. She lives in Cook County. Her monthly mortgage is $820.90. She lives frugally to say the least!
Thank you so much for taking the time to help us! We’ve each had MS since we were 18/19 years old and it’s taken its toll.
Terry Says
Whew, what a tough situation — and thank goodness you have each other. Let me try to answer one-by-one.
I will give you very specific advice for your 40l(k) because you have no time to fool around. Call T. Rowe Price (like Fidelity and Vanguard, it is a low -cost mutual fund company. And it has my all-time favorite fund which I’ve owned for nearly 40 years).
Call them at 800-537-6172. Tell them you need to talk to a “Rollover Specialist.” (Have your latest statement from your current plan handy. It will have info that is needed.) Tell the rollover specialist that you are disabled and need his/her personal help doing the rollover. They are very nice and will be helpful.
Then you will have to decide how to invest the money when it gets there –because all that will be transferred directly is cash.
NOTE: you do not take a check. This is all handled by the rollover directly to T. Rowe Price.
I suggest you tell them to put half in the T. Rowe Price Equity-Income Fund and half in their government securities money market fund.
Then tell them to move $5,000 on the 5th (or any date you pick) of every month from the MM fund to the Equity Income Fund. Do that for one year. At the end there will be some cash left in the MM fund, and that’s fine.
Then just let it grow conservatively for as long as possible, assuming you don’t need to take withdrawals. Any withdrawals will be taxed as ordinary income and might impact your SSDI. so just leave it in the IRA rollover.
And you want to make clear that it’s a traditional IRA rollover — NOT A ROTH — so there are no tax consequences.
And be sure to name your husband as beneficiary.
As for your sister, there might be some CREDITS that she is entitled to — but if you don’t pay taxes, you can’t use the deductions for property tax or mortgage interest.
Did you each get the $1400 stimulus payment this year? If not, you could each file a tax return and ask for it as a refundable credit — with no impact on other benefits such as Medicaid.
And for both of you, I assume you’ve each created a healthcare power of attorney and a living will (end of life instructions). It’s important that your physicians have a copy of those powers and requests. Make sure they are current and updated.
Is it your sister’s intention to leave her condo to you? Has she prepared a will specifying that? Or does she have another relative or charity that she wants to leave her assets to? Again, she needs an updated simple will. And given your thoughtful letter, I’m sure you’ve done all of that.
I can give financial advice, but words beyond that fail me in this very unusual situation. I admire your attitude and your fortitude. Terry
