MONEY Ask the Expert

The Best Ways to Access Cash Abroad

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Robert A. Di Ieso, Jr.

Q: My 23-year-old daughter will be leaving for France and Spain next week. What is the best and safest way for her to carry money? —K. Bird, Charlotte, N.C.

A: Assuming she’s going for a short time—anywhere from few weeks to several months—her best option will be to carry a debit and credit card issued by an American bank, says John Gower, senior banking analyst at NerdWallet. But she’ll want to be strategic about which institutions she gets these cards from and how she deploys them.

Typically, U.S. banks charge a fee of 1 to 3% of the total transaction amount each time you use a debit or credit card internationally. If you use your debit card to pull out funds from ATMs abroad, you’ll also get hit with an international ATM fee that’s typically around $2, though Gower has seen banks charge upwards of $5. That’s in addition to whatever the ATM you use will charge. So your daughter could be looking at costs of $10 or so each time she takes out $100. This may tempt her to just take out large sums at once, but carrying large amounts of cash through foreign cities isn’t ideal either.

Instead, to cut down on those ATM fees, consider having her open an account with a U.S. bank that has international branches in her destination so she can avoid the international ATM fee. (Citibank is one with many branches overseas.) Or she could open an account with a bank that has international partnerships. Bank of America, for example, is part of the Global ATM Alliance and because of this allows its customers to use their cards at any member banks’ ATMs for free.

Since credit cards offer greater fraud protection than debit cards, Gower recommends that she have a credit card with her as well. The best choice: A card aimed at international travelers that waives foreign transaction fees and has “chip and pin” technology, meaning a microchip is embedded in the card. Because most European countries use this style of card, she will decrease the chances that stores will have trouble reading her card. MONEY likes the GlobeTrek Rewards Visa from Andrews Federal Credit Union, which she can join by signing up for free with the American Consumer Council. This chip-and-pin card has no annual fee and no foreign transaction fees.

If your daughter gets this card, she’d be well advised to use it for her everyday purchases—rather than paying the 3% foreign transaction fee her debit card will charge. Of course, this only makes sense if she’s responsible enough to pay her bill off in full every month.

Does she have plans to be away for quite a while—maybe studying abroad for a year? In that case, she should consider opening an account with a local bank. While there can be hassles involved with understanding another country’s banking rules, she will avoid out-of-network ATM fees and have a debit/credit card that is more universally accepted than an American card might be, says Gower. But she should also keep a U.S. account active in case of emergency, so that someone at home can easily transfer funds to her.

No matter which option your daughter goes with, she’ll want to bring at least two different types of electronic payment. That way if her debit or credit card isn’t accepted by a store or is stolen she has a backup option. She’ll also want to alert her financial institutions prior to departure of where she’ll be going and how long she’ll be there so that the provider doesn’t cancel or halt her card thinking the charges are fraudulent activity.

MONEY Health Care

Why Your Boss Isn’t Dropping Your Health Plan (Yet)

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Robert A. Di Ieso, Jr.

Obamacare requires most employers to offer coverage next year, but fears persist that many will dump workers onto the insurance exchanges instead. Fear not, for now.

Q: I’ve heard that some firms may drop their health plans and have workers purchase a plan on the government exchanges. Will that happen to me?

A: Nine months after the launch of the controversial health insurance exchanges, confusion hasn’t died down over what exactly health reform means for the average American. A new poll found that 65% of workers are very or somewhat worried that their firms will drop health coverage and have employees go it alone on the new federal and state insurance exchanges.

Such a move would hurt, at least in workers’ minds, according to the survey of 1,240 likely voters by Morning Consult, a digital media company. Half said that if their employer exited the benefits business, they would be negatively affected; only 16% expected to benefit from such a switch.

Even though Obamacare requires firms with 50 or more workers to offer insurance or owe a fine starting in 2015, the concern is that some will opt to pay the fine, since individual coverage can cost two to three times as much—and substantially more for a family plan. What’s more, employers with fewer than 50 workers that already offer health benefits—even though they are not required to—may decide to get out of the business now that all workers have the alternative of buying coverage on an exchange.

Are workers right to worry about getting dumped? As long as you work for a large firm, you shouldn’t lose sleep over the issue, at least not yet, says Beth Umland, director of research for health and benefits at consultant Mercer. Earlier this year—well after the exchanges went live—an overwhelming 94% of big firms reported that they will keep offering health coverage for the next five years, Umland says. That percentage has remained consistent since Mercer first asked the question in 2008.

Separate research from the National Business Group on Health, which represents large employers, also found about 95% of those firms plan to stick with the status quo, says CEO Brian Marcotte.

A wait-and-see approach

Big business remains committed for lots of reasons, experts say. For one, good benefits are crucial to attracting talent. More than 90% of workers say health-care benefits are as important as pay, according to Mercer. In the Morning Consult poll, more than half of respondents say they would consider looking for a new job if they had to shop for coverage.

Company leaders are also uncertain about how premiums and plan features on the individual market will evolve after last year’s shaky launch. Until the exchange offerings become more predictable, executives are unlikely to send their employees there, with or without a subsidy to buy coverage, says Tracy Watts, who leads the health care reform group at Mercer.

Even then, large firms may not go that route. “The math doesn’t work for most firms,” says Watts. Today your boss pays its share of your health premium with pre-tax dollars. If the firm decides to offer you a subsidy to buy your own plan instead, the loss of that tax benefit means it would likely have to dole out more for you to get the same plan—or risk facing worker backlash.

Smaller firm, bigger risks

You’re more likely to be moved to an exchange if you’re at a firm with fewer than 50 workers. About one-third of small businesses that offer coverage today say they are considering getting out of the game, up from only 23% a year ago, says Mercer’s Umland.

You also face a higher likelihood if you work at a firm with a large low-wage or part-time workforce, such as a store or hotel, says Marcotte. Many firms in those industries do not offer health insurance to all their workers today. Rather than add them to the plan, companies may decide workers are better off on the exchanges, where they can qualify for government subsidies only if their boss fails to offer an affordable plan.

Keep in mind that while most firms say they’ll remain in the game for the foreseeable future, they’re not nearly as confident over the long haul. “Health care is changing pretty rapidly right now,” says Marcotte. “So they’ve got to look at it every year.” By then, though, you too should have a better sense of how you’d fare on your own too.

MONEY Ask the Expert

How to Ask Your Parents for a Bigger Share in Their Will

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Robert A. Di Ieso, Jr.

Q: I have two siblings. My parents help out my sister a lot. My brother and I are doing ok financially. My parents plan to leave money equally to all three of us. I don’t think that’s fair. How can I say something without looking greedy? – John, Portland, Maine

A: If your parents are already giving your sister significant financial help, receiving equal amounts of money in their will may seem unfair. But that’s how most people do it, says lawyer Ann-Margaret Carrozza of MyElderLawAttorney.com.

The odds are small that the kids in any family will end up with identical financial outcomes, and those differences may not be easy to address in a will, which is a final document of your parents’ wishes for their family. “Most parents have a strong desire to treat their children equally,” says Carrozza.

Still, it makes sense ask your parents about their intentions. How do they view the financial help they’ve provided your sister? If they think of the money as a gift, then that’s the end of the conversation. If your parents consider it a loan that will be paid back, suggest that they formalize the arrangement with a promissory note and keep that document with their estate papers. Either way, find out what your parents’ goals are for their legacy, and get it in writing so there’s no confusion.

By having the conversation with your parents now, you can head off possible conflicts down the road. “When there’s an unequal distribution of assets in the will, the chances that the heirs not treated favorably will contest the will go up dramatically,” says Carrozza. That’s something to be avoided, given the high emotional and financial cost of a legal battle.

Consider yourself fortunate if you do get something from parents. Only half of American retirees are planning to give an inheritance to their children, according to a recent HSBC survey. (Those that did leave a bequest gave an average $177,000.) And a US Trust survey found that two out of three of affluent parents viewed spending on travel or personal experiences as more important than leaving a financial inheritance to their family.

“At the end of the day, what parents do with their money is up to them,” says Carrozza.

MONEY Ask the Expert

Do I Owe Taxes on a Windfall from a Retirement Plan?

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Robert A. Di Ieso, Jr.

Q: I am the beneficiary of a $15,800 death benefit from my dad’s pension plan. I was under the assumption that I would not be taxed on it, but is that the case? I want to make sure I deduct any taxes before I distribute the money to my siblings. —Tanya, White Plains, N.Y.

A: The answer depends on the source of the death benefit. If the payout is in the form of a life insurance policy—what your case sounds like—you won’t owe any taxes on the $15,800.

But the tax consequences would be different if you had inherited a tax-deferred retirement plan, such as a 401(k), says Charlotte, N.C. financial planner Cheryl J. Sherrard. The money in that kind of plan is taxed only when the owner makes a withdrawal. As an heir, you would owe income taxes on any distributions.

When you inherit a retirement account, you have few payout options. You can take the full amount in a lump sum, which could push you into a higher tax bracket if the windfall is significant. If you do that, you can request federal and state tax withholding when you fill out the distribution paperwork. Or you can ask for the full amount and pay the taxes later.

To spread the distributions over several years, you can open what’s called an inherited IRA and then move the retirement plan assets into this new account (assuming the qualified retirement plan allows you to). You generally have to start taking annual distributions no later than Dec. 31 following the year of the original account holder’s death. Since the rules are tricky, talk to a tax professional, advises Sherrard.

In this case you would either be gifting a small amount to your siblings yearly, or the full amount all at once. But keep in mind that as a sole beneficiary you are not required to give any money to them.

And no matter what, don’t rush to share your inheritance until you have the full picture of what your father left behind.

“You may want to wait until any other assets of your father’s have been split among all siblings, and then if you desire to equalize with them, you can do so via that net retirement money,” says Sherrard. “This is a common gotcha when one child inherits a taxable asset and then needs to take taxes into consideration before splitting it up.”

Have a question about your finances? Send it to asktheexpert@moneymail.com.

 

MONEY Ask the Expert

Can I Diversify My Portfolio With One ETF Rather than Four?

Q: Does investing in a “total stock market index fund” give you diversified exposure to large-, medium-, and small-sized companies? Or do I need to invest in separate mutual funds for my large- and small-company stocks? — Toby, Davis Junction, IL

A: No, you don’t need separate funds. The Vanguard Total Stock Market ETF VANGUARD INDEX FDS TOTAL STOCK MARKET ETF VTI 0.0885% is designed to give you exposure to a broad cross-section of different types of domestic equities in a single exchange-traded fund.

Its portfolio breaks down like this: around 72% is invested in large companies, a little less than 20% is in medium-sized businesses, about 6% is in small-company shares, and 3% is in so-called micro-cap stocks.

Now, you can achieve similar diversification by allocating your dollars into a collection of more narrowly constructed funds that focus on industry-leading large companies or quick-growing but volatile small companies.

For instance, you could pick up Money 50 funds Schwab S&P 500 Index SCHWAB CAPITAL TST S&P 500IDX SEL SWPPX 0.0643% , with iShares Core S&P Mid-Cap ISHARES TRUST REG. SHS S&P MIDCAP 400 IDX ON IJH -0.1629% and iShares Core S&P Small Cap ISHARES TRUST CORE S&P SMALL-CAP ETF IJR -0.3369% . (Although, if you’re not careful, you might end up with more exposure to smaller companies than you want. About 30% of IJR’s portfolio is in micro-cap stocks.)

All things being equal, says BKD Wealth Advisors’ portfolio manager Nick Withrow, you’re better off going with the one fund than three or four.

For one thing, each fund comes with its own expenses. If VTI dovetails with your risk tolerance, then you’ve taken care of your domestic stock portfolio at a measly cost of 0.05% of assets annually. That’s marginally cheaper, by about 0.06 percentage points, than buying a host of exchange-traded funds that collectively approximate VTI’s portfolio, says Withrow.

But there’s another reason — you.

Basically, you don’t want to get into the business of buying and selling ETFs to try and time the market. And you’re much less likely to get into that expensive habit if you buy-and-hold one fund, rather than picking three or four.

“The more choices an investor has, the more apt he or she is to feel that they have to do something,” says Withrow. “The idea of simplicity, especially with a buy-and-hold attitude, goes a long way.”

Of course, one total market exchange-traded fund doesn’t mean your portfolio is complete. Don’t forget about foreign equities or, you know, bonds. But when it comes to U.S. stocks, one cheap total market ETF (like VTI) is particularly useful.

MONEY Ask the Expert

How Do I Find the Best Place to Retire?

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Robert A. Di Ieso, Jr.

Q: I live in New Jersey. Which state would be financially better to retire to: Pennsylvania or North Carolina? – Kevin, Bridgewater, NJ

A: Your cost of living in retirement can make or break your quality of life, so it’s smart to take financial factors into account as you decide where to live. Moving from New Jersey where taxes are steep and home prices are high to a more affordable area will allow your savings to stretch further. Housing and property taxes are the biggest expenses for older Americans, according to the Employee Benefit Research Institute.

By those measures, North Carolina and Pennsylvania both stack up fairly well. Neither state taxes Social Security benefits or has an estate tax, though Pennsylvania has an inheritance tax and North Carolina will begin taxing pension income for the 2014 tax year. When it comes to cost of living, Pennsylvania has a slight edge. The median price of homes in Pennsylvania is $179,000 vs. $199,000 for North Carolina, according to Zillow. Income tax is a flat 3.07% in Pennsylvania while North Carolina has a 5.8% income tax rate. You can find more details on taxes in each state at the Tax Foundation and CCH. But both states have cities—Raleigh and Pittsburgh—that landed at the top of MONEY’s most recent Best Places to Retire list.

Of course, you need to look beyond taxes and home prices when choosing a place to live in retirement, says Miami financial planner Ellen Siegel. Does your dream locale have high quality, accessible healthcare or will you have to travel far to find good doctors? Will you be near a transportation hub or will you live in a rural area that’s expensive to fly out of when you want to visit family and friends?

There are lifestyle considerations, too. If you like to spend time outside, will the climate allow you enjoy those outdoor activities most of the year? If you favor rich cultural offerings and good restaurants nearby, what will you find? Small towns tend to be less expensive but may not offer a vibrant arts scene or many dining options.

To determine whether a place is really a good fit for your retirement, you need to spend more than a few vacation days there. So practice retirement by visiting at different times of the year for longer periods. Stay in a neighborhood area where you want to live and get to know area residents. “Having a strong social network is important as you get older and if you move to a new area, you want to make sure you can make meaningful connections and find fulfilling activities,” says Siegel. By test driving your retirement locations before you move, you”ll have a better shot at getting it right.

Have a question about your finances? Send it to asktheexpert@moneymail.com.

MONEY Ask the Expert

Should I Pay Off Loans or Save for a Down Payment?

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Robert A. Di Ieso, Jr.

Q: Should I use savings to pay off car loans or make a down payment? — Carmella F., Pittsburgh

A: The first line of business is to make sure you have enough savings for an emergency fund, a minimum of four months if both spouses are working, six months if one isn’t, says Pittsburgh financial planner Diane Pearson.

Paying off the $30,000 in two car loans you told us you have would deplete your savings. Not only does that leave you vulnerable to unforeseen expenses, plowing money into assets that only lose value as they age doesn’t make sense, says Pearson. When applying for a mortgage, banks would prefer to see $30,000 in savings plus car loans over no savings and vehicles owned free and clear.

MONEY Ask the Expert

What’s the Tax Impact of Gifting Money from a 401(k)?

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Robert A. Di Ieso, Jr.

Q: My sister has cashed out her 401(k) and wants to give it to me as a gift. How will this affect us tax-wise? The amount is about $14,000. —Beverly, Benton, Ark.

A: Lucky for you, there will be no tax ramifications to you for accepting the gift. But your sister will have to square up with the IRS.

Because your sister cashed out her 401(k), she will owe income taxes on the total amount withdrawn, says St. Petersburg, Fla. financial planner Helen Huntley. If she was younger than 59½ when she pulled the money out, she will also be hit with an additional 10% early withdrawal penalty.

Keep in mind that while your sister probably won’t owe gift tax—$5.34 million in property can be transferred tax-free over one’s lifetime—she may need to inform the IRS. Each year, you’re allowed to give up to the annual gift tax exclusion limit (this year $14,000 per person, though a married couple can double that) without reporting the transfer of funds to the IRS. Above that, the gift giver will need to file a form 709, and the gift will be subtracted from their total lifetime gift and estate tax exclusion.

MONEY Ask the Expert

How does a quitclaim deed work?

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Robert A. Di Ieso, Jr.

Q: What are the tax implications of using a quitclaim deed to transfer my home? – Danny Chang, Los Angeles

A: A quitclaim deed reflects a transfer of property, and is often used when transferring property between family members (when parents give property to a child, or when homeowners divorce).

About those taxes: Let’s say parents use a quitclaim to give the home they bought for $200,000 to a child. The transfer is a gift, not a taxable sale. So it does not trigger a tax-deductible loss (even if the child paid $1 for the property) because losses on transfers to “related parties” are not tax-deductible, says accountant and attorney G. Scott Haislet of Lafayette, Calif.

Mom and Dad don’t report the gift on their income tax return; neither does the child (gifts from parents are income tax-free).

The parents would have to file a gift tax return (IRS form 709), including an appraisal documenting the value of the home at the time of the gift. The transfer will likely not trigger a gift tax, Haislet says, but may affect the parents’ estate tax at death. Caveat: If the home is mortgaged, and the recipient of the property takes over the mortgage, that may be considered income to you. In that case, the transaction would be considered “part sale, part gift,” Haislet says. Consult your own CPA.

Money 101: Will I pay income taxes on the sale of my home?

MONEY Ask the Expert

Should I Be More Hands On With My 401(k)?

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Robert A. Di Ieso, Jr.

Q: I am in my mid-30s and I am hands off with my 401(k). Should I be more active with the funds my 401(k) is plugged into? – William E. Collier

A: When it comes to 401(k) plans, inertia tends to rule—many people never revisit their initial investment choices after enrolling. It’s important to keep tabs on your plan and to make a few tweaks occasionally. But whether you should be a lot more active depends on how comfortable you are managing your own investments.

Most 401(k)s offer low-cost core stock and bond funds, including index options. If you are familiar with the basic rules of asset allocation, you can easily build a diversified, inexpensive portfolio on your own. But recent research makes a good case that getting some professional help with your portfolio can boost returns.

Pros may not outsmart the market, but they can often save your from your own worst instincts—taking too much or too little risk, or changing your investments too frequently. As a recent study by consultants AonHewitt and advice provider Financial Engines found, investors who followed their plan’s financial guidance earned median annual returns that were 3.3 percentage points higher than do-it-yourselfers, net of fees. The study analyzed the returns between 2006 and 2012 for 723,000 plan participants, including investors in target-date funds and managed accounts, those using the plan’s online tools, as well as do-it-yourselfers.

A three percentage point gap is substantial. A do-it-yourselfer who invested $10,000 at age 45 would have $32,800 by age 65; by contrast, the average 401(k) saver using professional advice would have $58,700 at age 65, or 79% more, the study found.

Another analysis by investment firm Vanguard found a smaller difference in returns for those who got help vs. those who didn’t. Target-date investors earned median annual returns of 15.3% vs. 14% for those managing on their own. The do-it-youselfers also had a wide range of outcomes, with the 25% earning median annual returns of less than 9%.

These days more plans are providing guidance in the form of online tools and target date funds: 72% of 401(k) plans offer target-date funds, up from 57% in 2006, according to the Investment Company Institute. The Plan Sponsor Council of America found that 41.4% offered some kind of investment advice in 2013, up from 35.2% the previous year.

Taking advantage of this help can be a smart move. But if you opt for a target-date fund, be sure that you use it correctly—as your only investment. Adding other funds will throw off what’s designed to be an ideal, all-in-one asset mix. Unfortunately, nearly two-thirds of target-date fund users put only some of their money in one, while spreading the rest among other investments. That move may lower your median annual returns by 2.62 percentage points, the study found, compared with investors who put all their money in a single target-date fund.

If you decide to go it alone, make sure to build your own ideal portfolio mix—try Bankrate’s asset allocation tool. To minimize risk, rebalance once a year to prevent any one allocation from getting too far out of whack. As you near retirement, remember to ratchet down the risk level in your portfolio by shifting to more conservative investments, such as bonds and cash.

Make these few moves, and you won’t get left behind by being hands on.

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