Pay Dirt is Slate’s money advice column. Have a question? Send it to Athena and Elizabeth here. (It’s anonymous!)
Dear Pay Dirt,
About four years ago, my aunt died unexpectedly. My parents adopted her then-11-year-old son. He received Social Security benefits, life insurance, and memorial contributions that are intended for his education. My mother put this money into a separate account to use for these purposes.
She recently told us that she has no intention of telling him how much is in the account, and has set it up in such a way that she retains control of the money even after he turns 18. She said the only way he would have full access is if she were to die.
I believe this is coming from a place of love and concern. She understandably doesn’t want an 18-year-old to squander all of his money away. But this doesn’t feel right to me. It is his money. Shouldn’t he be allowed to manage it himself? Should I say something to her? To him?
I’m not especially close to my cousin/brother, and I don’t think my mother would take the money for herself. But I also know she can be manipulative and controlling and worry that she’s not acting in his best interest.
Additional details: They are in Illinois, the money is significant but not transformative (five figures), and I don’t think it’s in a trust or anything. She said she had the account set up with her as primary and him as secondary account holder so he would have to “ask her” to access it.
—Isn’t That His?
Dear Isn’t That His,
Thank you for caring enough to inquire about this. My mom passed away when I was 15, leaving me with her brother and sister, who misused my Social Security survivor benefits, which led me to be homeless in high school. This experience has led me to be an advocate for other teenagers who may be in a similar situation.
Survivor benefits are payments received by the next of kin of a deceased Social Security beneficiary. So instead of the person who passed away receiving Social Security when it was their time to collect, it goes to their next of kin who may be in need of aid. This could be a widow or, in your cousin/brother’s case, a child. The Social Security Administration is very adamant about how survivor benefits are to be used. The agency requires that daily needs be met for food and shelter and medical and dental care. After that, the order of importance goes to recreation, and any money that is then left over should be placed into an interest-bearing savings account. The SSA requires that the adult managing the benefits report on their use.
While it sounds like your mom is following the order of importance, it is a bit unethical that she has this account and is not telling your cousin. It is his money and he should know that it is there. Your next step could be calling the Social Security office where he is located, and asking to speak to a representative. They can better advise you on how to handle the situation, if you choose to get involved. If you do follow this course of action, have a plan to be prepared for a potential blowout. Good luck.
Dear Pay Dirt,
I am going through a divorce. We’re planning to sell our home, and I will move into an apartment nearby to keep our ninth grader in their current high school.
I’ll have about $125K from the home sale, but with home prices being as high as they are currently, and my own uncertainty regarding my long-term plans, I don’t think I’ll be buying anytime soon. I anticipate being in the rented apartment until my child graduates in another 3.5 years.
At that point, I may be ready to move out of the area and purchase a new home. There’s the remote chance I could find something ideal to buy nearby sooner than that, so while that’s not a likely scenario, I’d like to keep the money accessible should that opportunity arise.
What should I do with this money for the time being? I have a checking account and a small savings account, but am basically clueless about money.
—That’s a Lot to Save
Dear That’s a Lot to Save,
There are a lot of different options as to how you can save the $125,000 for your future home. I personally would spread the money around and not throw it all into one investment vehicle or fund, but at the end of the day, it depends on how risk-averse you are as a person. If you’re coming from divorce, but already have a plan for the next three years, you’re ahead of the game.
First, if you don’t have this already saved, I would put aside six months of living expenses into a high-yield saving account, better known as a HYSA. A HYSA is like a normal savings account, but it pays on average anywhere from 20 to 25 times more interest than a regular savings account. And an emergency fund is crucial to anyone’s well-being, especially a single parent’s.
Next, I would put aside $18,000 so I could max out contributions to a Roth IRA for the next three years. A Roth IRA is an investment retirement account that allows you to contribute up to $6,000 per year of post-taxed income. Since this money is invested post-tax, you do not have to worry about being hit with a penalty to take out the money you invested. And as for the money you gain in interest? You can withdraw up to $10,000 without a penalty for a down payment on a house.
Then, with the remaining funds, I might put the rest in a brokerage account like Fidelity. A brokerage account is an investment account that you do not have to wait until retirement to access, and can invest in now. Through a brokerage account, you can purchase stocks, index funds, and much more. You can also pay to have a professional help manage your account until you get the hang out of it, or longer, if you just want to make sure you have more experienced eyes watching your investments. Have fun—this could be the opportunity of a lifetime.
Dear Pay Dirt,
A dear friend of mine is a massage therapist in a California medical clinic who was misclassified as a contractor and 1099’d for many years, despite failing almost every point of the ABC and Borello tests. She did not file or pay income taxes due to diagnosed medical conditions (including ADD). The IRS and California have imposed huge tax bills (I’m guessing close to six figures) and are severely garnishing her wages.
I’ve begged her to take a free initial consultation with an employment lawyer to learn about her options, but she says the process would be too expensive and she’s lost the paperwork they’d want, anyway. I volunteered to do some of the legwork (requesting docs from the IRS, filing with the state), but she seems to believe it isn’t worth pursuing, especially since she doesn’t feel capable of focusing on it.
Is she right? How much would a lawyer actually need from her? And how do I let this go if she won’t let me help her fix it?
—This Isn’t Fair
Dear This Isn’t Fair,
You’re right, this whole situation is shitty for your friend. And after consulting a CPA friend of mine, I can report that your friend could take a few routes to resolve the situation. If she wants to take legal action, she could have a case. “Since this individual’s former employer misclassified her as an independent contractor when she should have been classified as an employee—a violation of state law—she could sue her former employer for damages and penalties,” says Logan Allec, CPA and founder of Choice Tax Relief.
This isn’t just about the taxes—these damages and penalties could be significant, since California tends to be favorable to the worker in these instances. It’s also possible an employment attorney would represent her on a contingency basis. “I wouldn’t be too concerned about the ‘lost paperwork.’ Her former employer should have retained any of her paperwork, and if the employer did not, that’s a huge strike against them,” Allec said.
Legal action aside, Allec outlined the game plan he might employ with this individual based on the limited information he knows about her situation. The first thing is to get compliant. “The first step would be for the individual to file her overdue tax returns for these years as soon as possible since many of her returns will likely have to be paper-filed (taxpayers can only e-file the current and prior two years of tax returns) and will take a very long time to process,” Allec said.
“Now, she has to stop the bleeding—the wage levy,” Allec said. “The first way to do this—which is typically best for the taxpayer, though it’s difficult to obtain—is to show the IRS and California’s Franchise Tax Board that the wage garnishment is creating an undue hardship on her, resulting in her not being able to meet her basic living expenses.” She should call the IRS and the FTB and complete a collection information statement describing her financial situation, which will help them figure out whether she fits that picture.
Then, she should request a worker classification determination from the IRS, using Form SS-8. “She will be required to describe the degree of control that her former employer had over her work and other fact patterns that are indicative of an employer-employee relationship,” Allec said. “Once the IRS receives the Form SS-8, it will send a blank copy to her former employer for them to complete.”
Finally, she could ask the IRS about other tax relief options, like an “offer in compromise,” which could allow her to pay a smaller settlement amount, based on her financial situation. “An offer in compromise is by no means a guarantee, but it might be worth a shot, depending on her financial situation,” said Allec. “Also, the IRS generally has a bit of a ‘heart’ for health conditions, so the fact that she was diagnosed with medical conditions could be a fact pattern in her favor to get an offer in compromise approved.”
At the end of the day, tax professionals want to help you get these types of issues resolved. Ask for a referral to see if someone can recommend one by word of mouth, and make an appointment to go with your friend ASAP to help her start this journey. I hope when she hears how many options she has to resolve this situation in her favor, she may be inspired to give it a try.
Dear Pay Dirt,
My husband and I made the tough choice in May 2019 that I would leave the workplace and stay home with our medically sensitive toddler. We recently moved to a higher-cost-of-living (and super-high-rent) area because my husband took a good permanent job offer.
We’re desperate to buy a home because rent is bleeding us dry and we’re sick of living in cramped, moldy, uncomfortable apartments with two children. We’re in good shape to get preapproval for a mortgage, but we’re hesitant to go for it because we also have another large impending purchase.
We really need a new car, and we know this may seriously influence the preapproval process. To help make ends meet on one income, we sold my car, since I wasn’t working and my husband was working from home. Now in order for us to get a better mortgage, I need a job, and in order to work at a job I need a car. We do not live in an area where public transit or walking/biking is realistic. Sticking with one car and sharing it is also not really feasible as I will not be strictly 9-to-5, nor will I necessarily be close to my husband’s job—plus, kids have to be transported to day care.
We can’t afford rent plus a car payment without dipping significantly into savings. We have about three months’ living expenses in the bank, a family offer of a down payment, no debt besides student loans, and good credit.
—A Chicken and an Egg
Dear Chicken and an Egg,
It sounds like, in this situation, you’re damned if you do, damned if you don’t.
I hate discouraging others from buying a home, but I always like to remind people that there is more to owning a home than a mortgage. My best friend had to randomly buy a new front door the other day. Another friend had a water heater go out, and then spent a week figuring out a permit situation, buying a water heater, and then how to install it. None of these things is cheap, and this is what you sign up for with homeownership.
Now that I’ve climbed off my soapbox, I would say that you should focus on finding a car that’s gently used, won’t require you to commit to a huge car payment, and that has everything you need for your babies to transport them around. After you’ve found your new-to-you car, you can then find a new job that works with your child care situation. Once you’ve started the job, continue to stack your savings for all the costs of buying a house that aren’t the down payment. Then, after your 90 days’ probation period at that new job, you can start the home hunt again. Don’t forget to take a deep breath and remember, you’ve got this, mama.
—Athena
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I am a 32-year-old mother to a beautiful, inquisitive, and whip-smart 4-year-old daughter. Her father and I both come from “traditional” households where children were to be seen and not heard, expected to accept whatever our parents told us to do or believe without question, and were punished swiftly for any insubordinate behavior. However, that is not how we want our child (and any future children) to be raised. During a recent visit to our home, my mother was horrified to see me prepare an alternate meal for my kid after she told me she didn’t like what I’d made for dinner. I absolutely know that we can be indulgent at times, and that the way we speak to our daughter—with respect and honesty—is not really the norm for most parents, but I feel like we are doing pretty well with our approach. We also refuse to engage in physical discipline, which my mom finds insane. The only real criticism my mom can offer about what we are doing is that it is different than her own style of child-rearing. How do I get her on board with our take on parenting without making her feel like I’m a bad mom—or, worse, that she was a bad mom?