Personal finance Q&A: What to do when your father steals your identity
Dear Liz: I have been dating my boyfriend for about eight months and he recently told me that his dad took out a credit card in his name when he was a baby. He has about $150,000 in debt because of this! This is a very serious, life-changing crime but my boyfriend is reluctant to take his dad to court. I’m worried about our future together and don’t know where to go from here.
Answer: Parental identity theft is unfortunately not uncommon — and the parents typically get away with it. Victims are reluctant to file the police reports necessary to clear their names because doing so could trigger criminal prosecutions of their family members.
If your boyfriend is not willing to file a police report, the debt is considered his and he probably will need to pay it, settle it or declare bankruptcy to move on with his financial life.
If he’s ready to hold his father responsible, the Identity Theft Resource Center at www.idtheftcenter.org has more information about filing police reports and starting the long process of cleaning up his credit.
New card’s effect on credit score
Dear Liz: I recently refinanced my home and one of the perks was a 0% interest credit card. The problem is that I have two credit cards and I am happy with them, but I am afraid that having a third will adversely affect my credit score. I have no plans to borrow money in the near future but I can’t shake the feeling that it is a detriment to have the card. I haven’t activated the new card and I never carry a balance on either of the older cards I use. What do you advise?
Answer: The new card affects your credit reports and scores whether or not you activate it. Chances are good, though, that the overall effect will be positive.
Yes, your scores may have been dinged a few points when the new card was issued, but over time responsibly handling multiple credit cards will help, not hurt, your numbers.
Failing to use the card, on the other hand, could cause the issuer to close it, and that could negatively affect your scores.
Just do what you do with your other cards: Charge lightly (no more than about 30% of the card’s limit) and pay the bill on time and in full. There’s no credit score advantage to carrying debt.
How to invest retirement savings
Dear Liz: I am a federal government retiree with a very small retirement account in the Thrift Savings Plan. Where can I invest my small savings so it can safely grow? The balance has not changed for over six months now. If I keep it in the Thrift Savings Plan, what fund is the safest?
Answer: “Safe growth” is an oxymoron. If your balance isn’t changing, then you’re probably in the safest option — which means you won’t see much if any growth in the future, either.
You probably chose TSP’s G Fund, which invests in Treasury securities. You won’t lose money, but you probably won’t earn enough to offset inflation. If you want your money to grow, you need to have at least some of your retirement account in stocks.
Fortunately, the plan offers several “L” or lifestyle funds geared to when you expect to begin withdrawals. L funds offer professional management and a mix of investments that grow more conservative as that date approaches. Retirees who are tapping their accounts typically invest in the L Income fund, which has about 20% of its balance in stocks. If you are five years or more away from using the funds, the next most conservative lifestyle option is L 2020, which has half of its total invested in stocks.
State tax breaks for 529 plans
Dear Liz: You recently answered a question from grandparents who were contributing $20,000 to their grandson’s college education. You correctly told them they did not qualify for federal education tax credits or deductions because he was not a dependent. You might let grandparents know, however, that they may get a state tax break for contributing to a 529 college savings plan.
Answer: Most states that have state income taxes offer some sort of a tax break for 529 college savings plan contributions. (The exceptions are California, Delaware, Hawaii, Kentucky, Massachusetts, Minnesota, New Jersey and North Carolina, according to SavingForCollege.com. Tennessee has a tax on interest and dividends but no 529 tax break.) In some states, even short-term contributions qualify for a deduction, so grandparents could contribute money that’s quickly withdrawn to pay qualified higher education expenses and still get the break. SavingForCollege has details on each state’s tax benefits.
Questions may be sent to Liz Weston, 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com. Distributed by No More Red Inc.
