Dear Liz: I have a mutual fund and a Roth IRA that are actively managed by a broker. Unfortunately, these accounts have not performed well. I am interested in withdrawing them from the broker and taking control of the investments myself. Could you please guide me on how to safely and securely withdraw them from the broker? I would also like to know what paperwork and fees I should expect.
Answer: To begin, locate the agreement you signed with the brokerage when you opened these accounts. This agreement may include the necessary steps for closing the account, as well as any associated fees. Additionally, try searching for the name of the brokerage along with the term “account closure fees” to determine if any fees would apply in your situation.
The brokerage may provide you with the option to self-manage the account, or you may choose to transfer your investments to a new, more affordable discount brokerage. Once you have established accounts at the new brokerage, they will assist you with the transfer process. If any of your funds are invested in “proprietary funds,” which are exclusive to the old brokerage, you may need to sell these investments first. However, selling these proprietary funds within your Roth IRA will not result in any tax consequences. On the other hand, if your mutual fund is proprietary, selling it may incur capital gains taxes.
Pensions and Social Security Benefits
Dear Liz: I am a retiring teacher. Currently, I am receiving a spousal benefit from my husband’s Social Security. However, I am concerned about the impact of my pension on these benefits. Will I still be able to collect against my husband’s Social Security, considering his benefit amount is greater than mine?
Answer: As you prepare to receive a pension from a job that did not contribute to Social Security, you will be subject to two provisions. The first is the windfall elimination provision, which can reduce your own Social Security benefit but not eliminate it entirely. The second provision is the government pension offset, which can reduce or eliminate any spousal or survivor benefit you may be entitled to receive.
In the event that the government pension offset eliminates your spousal benefit, you may still be eligible for a portion of your own benefit. You can visit websites like Maximize My Social Security and Social Security Solutions for assistance in estimating the effect of these provisions.
Paying a Grandchild’s Student Loans
Dear Liz: I read your response to a grandparent wanting to pay off a grandchild’s student loans. Would it still be considered a gift if the grandparent made the payment directly to the institution that issued the student loan? This could potentially exempt the grandparent from filing a gift tax return.
Answer: You may be thinking of the unlimited exception for a family member’s medical expenses or education. Unfortunately, payments made directly to a student lender do not qualify for this exception.
Normally, any gift over the annual gift exclusion limit, which is currently $17,000 per recipient, would require the filing of a gift tax return. However, gift taxes are only due when the amount given exceeds the lifetime gift and estate exemption limit, which is currently $12.92 million. Generally, only individuals with significant wealth encounter gift tax concerns.
Nevertheless, it is possible to avoid filing a gift tax return for larger gifts if you directly pay for someone else’s education or medical expenses. However, this unlimited exception only applies to tuition payments made directly to the educational institution and payments for medical care made directly to healthcare providers. Payments to other parties, such as lenders or insurance companies, are not eligible for this exception.
Liz Weston, a Certified Financial Planner, is a personal finance columnist for NerdWallet. If you have any further questions, please feel free to contact her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form on asklizweston.com.
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