Dear Liz: I am out of work and taking a pause on my job search. While I have plenty of savings in a diversified portfolio, enough to last many years if needed, my adjusted gross income is small (mostly capital gains from gradual sales of assets). I think I qualify for low-income assistance programs for utility bills and healthcare subsidies but I’m reluctant to apply. These programs are supposed to be for people in need and it doesn’t feel right for me to participate. Are there legal reasons why a high-wealth/low-income household can’t apply for assistance? Is it ethical?
Answer: If you meet the income requirements for a program — and there are no asset limits that would rule out your participation — then there’s no legal reason for you not to participate.
If the program’s resources are finite, though, you might well feel an ethical qualm about taking assistance that someone else needs more.
However, there’s no reason to pass up the tax credits that help reduce the cost of health insurance purchased through Affordable Care Act exchanges. The program was deliberately designed so that most Americans, not just those in the greatest need, could get help paying their health insurance premiums.
Dear Liz: After selling my house and downsizing at age 84, I am cash rich for the first time in my life. My goal now is not so much to grow the money substantially, but to avoid paying taxes on my investments, as I would have to do with certificates of deposit. Are tax-free municipal bonds my best option, or what would you suggest?
Answer: If you’re in a high tax bracket — roughly 32% or higher — the lower interest rates paid on municipal bonds can still give you a good-enough return to make buying them worthwhile. If you’re in a low tax bracket, the math doesn’t work so well.
Also, municipal bonds aren’t covered by FDIC insurance the way a certificate of deposit would be. Investing in bonds involves some risk. The chances of default are minimal if you choose highly-rated bonds, but your bonds could lose value if interest rates rise.
Consider using some of your cash to consult a fiduciary, fee-only planner who can help you figure out a strategy that reflects all aspects of your financial situation, not just your tax bill.
Dear Liz: My recently-graduated child got a job and he will be given a 1099 tax form for his earnings. I know he will have to file his taxes differently and will need to pay both state and federal income taxes, but will he also make payments toward Social Security? Will these months (and maybe years) go toward his lifetime “credits” of paying into Social Security?
