Personal Finance Q&A: Mature savings bonds should be redeemed

Dear Liz: I have savings bonds that have achieved full face value. What should I do? Keep them indefinitely or cash them in to fund my Roth account or what? Am I correct that once they have matured, there’s no more money to be made off them?

Answer: You are correct. Once savings bonds have matured and stopped earning interest, they should be redeemed and the money put to work elsewhere. EE, H and I bonds mature in 30 years, while HH bonds mature in 20 years. You can find more information at TreasureDirect.gov.

Funding a Roth is a great idea for deploying these funds. Other good uses are paying off high-rate debt or building an emergency fund.

Social Security survivor’s benefits

Dear Liz: I am 64 and have been divorced over 22 years. My former husband passed away two years ago at the age of 62. Our marriage lasted more than 10 years and neither of us remarried. I went to the local Social Security office after he passed away, but the official there said I was not entitled to any claim for benefits on my ex’s work record. From what I have been reading, that may not be true. Are you able to clarify this for me? I am not able to get any firm answers, even from my financial advisor. My ex worked for a private employer his whole career, so he would have paid into Social Security. I recently lost my job, so the money would be helpful.

Answer: You qualified for benefits — but what the official may have meant was that you wouldn’t receive anything.

If you were still working at the time you inquired, any Social Security check would have been reduced by $1 for every $2 you earned over a certain amount ($15,120 in 2013). In other words, your benefit could have been wiped out had you earned enough. The earnings test ends at full retirement age (currently 66).

Survivor’s benefits are based on the amount that the deceased worker had been receiving if he’d started benefits or, if he hadn’t, what he would have received at full retirement age. The amount is reduced if survivors start benefits before their own full retirement age.

These benefits are available to both current and divorced spouses starting at age 60, or 50 if they’re disabled, or at any age if they’re caring for a child under 16 who is getting benefits based on the former spouse’s work record. To qualify for divorced survivor’s benefits, the marriage must have lasted 10 years. Your ex’s remarriage would not have affected this benefit. Neither would your own, since you were over 60 when he died.

Survivor’s benefits have more flexibility than spousal benefits or divorced spousal benefits, which are typically about half what the worker receives. You can switch from survivor’s benefits to your own retirement check, or vice versa, even if you start early. With spousal benefits, an early start typically locks you into a permanently reduced check.

You can start survivor’s benefits now or you can start your own benefit and switch to the survivor’s benefit at 66, if that would be larger, said economist Laurence Kotlikoff, who runs the claiming strategy site MaximizeMySocialSecurity.com.

You also need a new financial advisor — one who can be bothered to answer your questions. People who are retirement age should find advisors who are willing to put clients’ needs first and to educate themselves about Social Security claiming strategies.

Figuring the value of inherited assets

Dear Liz: With my father’s recent passing, I received a substantial inheritance, much of it in the form of stocks and mutual funds. If I sell these assets, do I calculate the capital gains and losses based on the date I took possession of the assets? Or do I use their value on the date of his death?

Answer: Typically you’d use the date of his death. If your father’s estate was very large and owed estate taxes, however, the executor may have chosen an alternative valuation date six months from the date of death. This option is available if the value of the estate would have been lower on the later date.

There is a circumstance in which your basis would be the value on the date the assets were turned over to you, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting U.S. If the executor elected the alternate valuation date, but the assets were actually distributed to you before that date, then the basis is the fair market value on the date of distribution, Luscombe said.

Inherited assets usually get a “step up” in basis when someone dies, so there’s no tax owed on any of the growth in those assets that occurred while the person was alive. Inheritors have to pay taxes only on the growth that occurs between the date of death (or the alternate evaluation or distribution date) and when the assets are sold.

The assets would get long-term capital gains treatment regardless of how long you’d owned them, which is another helpful tax break.

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.