Dear Liz: A good friend is leaving me money from her IRA after she dies. I have asked that the gift be designated as “sole and separate property” to me. As I am married and file joint state and federal taxes, can this money be kept separate for my use only? I prefer that my spouse not be made aware of this as they have different ideas about how to use our money.
Answer: Inheritances can be kept as separate property even in community property states where other assets acquired during marriage are considered jointly owned. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
An inherited IRA, however, would be tough to keep secret if you file taxes jointly with your spouse. You’ll be required to take yearly minimum distributions to empty the account within 10 years, and those withdrawals will be taxed as income.
Few couples are entirely on the same page about money, but keeping financial secrets from each other generally isn’t the best way to cope with these differences. Instead, many people find it helpful to have some “no questions asked” money that they can spend as they please without consulting their partner.
Dear Liz: I am a retired police officer who worked for an organization that did not pay into Social Security or Medicare.
During my career I worked side jobs and paid my own self-employment taxes to get my 40 quarters to qualify for Medicare once I reach age 65. I did have Social Security earnings for about eight years prior to my law enforcement career.
My understanding is any Social Security I would otherwise be entitled to will be wiped out by the windfall elimination provision. The WEP calculator on Social Security’s website isn’t user friendly so I can’t tell if I will lose all or a portion of my Social Security to WEP.
Answer: Your own Social Security benefit won’t be wiped out. The windfall elimination provision can reduce your Social Security retirement benefit by up to half when you get a pension from a job that didn’t pay into Social Security.
By contrast, another provision called the government pension offset (GPO) can and often does eliminate Social Security benefits, but only those based on someone else’s work record, such as spousal or survivor benefits.
Also, you misunderstood how Medicare works. You need to work 40 quarters to qualify for a Social Security retirement benefit, but you can qualify for Medicare at age 65 as a U.S. citizen regardless of your work history.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
