Finance

How to cancel credit cards for a parent with dementia

Dear Liz: My mother has two credit cards that have not worked for a year and a half due to being in an assisted living facility. She lives with dementia and is no longer able to make any decisions (personal or financial) on her own. Should I or can I cancel these cards at all or do I have to wait until it passes and send the death certificate to the bank?

The answer: In theory, you could close the accounts for her if you have a legal document known as a financial power of attorney. These documents are designed to help you take over the finances of someone who is incapacitated. Unfortunately, banks and credit card issuers sometimes refuse to honor powers of attorney despite legal requirements to do so. You may need to hire a lawyer to get them to accept your power of attorney. You can get referrals for experienced attorneys from the National Academy of Elder Lawyers and the American Bar Assn.

If you don’t have this document and your mother is no longer healthy, you would probably have to go to court to become her conservator to make financial decisions for her. It can be an expensive process.

But there may be a simple solution. Some credit cards have a kill switch that prevents anyone from charging your account. If the card has this feature and you can access the account online, you may be able to effectively disable the account even if you cannot formally close it.

Home sale tax offset

Dear Liz: We recently sold a house and have to pay income tax. I wonder if we can take some of the income and put it in 401(k) accounts and pay taxes on it later?

The answer: You can’t do this directly, since 401(k) contributions are made through payroll deductions. However, if you haven’t already maxed out your superannuation contributions, you can increase your contribution rate to offset some of the taxable income you made when you sold your house. Some employers allow you to contribute 100% of your salary, up to IRS contribution limits. In 2022, the limit is $20,500 for those under 50 and $27,000 for those over 50.

You can also contribute $6,000 to an IRA (or $7,000 if you’re 50 and older), but your ability to deduct the contribution depends on your income if you’re covered by a workplace plan like a 401(k). If you’re married filing jointly and have a workplace plan, your ability to deduct the IRA contribution phases out with a modified adjusted gross income of $109,000 to $129,000.

Note that you can exempt up to $250,000 of gain on the sale of a home (or $500,000 for a couple) if you have owned and lived in the property as your primary residence for at least two of the last five years. You may also be able to reduce your taxable income if you keep good records of qualifying home improvements. For more information, see IRS Publication 523, Selling Your Home.

Don’t forget the “Where’s My Refund?”

Dear Liz: My CPA left some income when I filed electronically in late March. The CPA filed a corrected return a few days later. They owe me $10,895 and I still haven’t received a refund. What happened to the 21 day refund period for e-filing? I can’t get through to the Tax Office on the phone. The state returned my money in just eight days.

The answer: The IRS tries to process refunds within three weeks when taxpayers file electronically and use direct deposit. But that timeline goes out the window if there are any problems, especially in recent years.

The tax administration is still dealing with a huge backlog caused by the pandemic. The agency was already struggling with outdated computer systems and a reduced workforce due to years of underfunding. Then its processing centers closed for a shutdown, followed by orders from Congress to distribute hundreds of millions in payments (three economic aid payments, followed by six months of child tax credit payments in advance).

You can use the “Where’s My Refund?” tool on the IRS website to track the status of your refund, but unfortunately there’s not much you can do to speed things up.

Liz Weston, a certified financial planner, is a personal finance columnist for NerdWallet. Questions can be directed to her at 3940 Laurel Canyon, ext. 238, Studio City, CA 91604, or by using the “Contact” form at asklizveston.com.

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