With the holidays over, it’s time to get back to basics — like dealing with your finances. Here are some reader questions:
Question: I received a $50 Visa gift card for Christmas, but when I used it at a local restaurant, I learned that 20 percent of the value went to cover fees, and I had only $40 to spend. How is this possible?
Answer: Gift cards that bear the Visa and MasterCard logos, called “network branded cards” are issued by banks and other third parties, not the parent corporations. Just like credit cards, the fees that are associated with them can vary widely, although experts agreed that $10 in fees on a $50 card was extremely high. Among the most common fees charged are for the initial purchase or activation, for checking balances and monthly “maintenance” fees if the card is not used within a specified period after purchase.
About 30 states have passed laws that limit fees or when they may be imposed — for instance in some, maintenance fees can’t be imposed for the first 12 months. But cards that are issued by national banks are not subject to limits put in place by states.
The only way to know what fees will be applied to a specific card is to read the fine print on the packaging before purchase. The cost for purchase and any other fees imposed should be spelled out.
Gift card purchasers are more likely to see lower fees on American Express-branded cards, which are issued by American Express itself and are charged only a purchase fee and maintenance fee after one year, or with store-branded cards. Cards sold at banks also tend to have lower fees than those found on multicard kiosks at grocery or chain drug stores.
— Eileen AJ Connelly
Question: I’ve heard a new law was signed in December that suspended the required minimum distribution rules for retirees turning 70 ½. Can you explain the law and how it affects retirees?
Answer: The required minimum distribution rule is designed to give the government its share of the taxes on retirement account money, which has been accumulating tax-free.
Retirees at 70 ½ must begin taking a specified amount of money out of their retirement accounts to pay taxes on their untaxed holdings in an IRA, 401(k) and other similar accounts. Failure to take out the money normally results in a 50 percent penalty on the amount you should have taken out.
President Bush signed the Worker, Retiree and Employer Recovery Act of 2008 on Dec. 23. The bill temporarily waives the penalty imposed by the IRS for failure to take the annual minimum required distribution from retirement accounts in 2009.
Suspending the mandatory withdrawal allows people to keep the money in the account and possibly recover some of their losses when the market recovers.
Advocates for retirees had hoped the government would provide similar relief for 2008, but it did not.
Because of the way IRS rules are written, the required withdrawal for 2008 was based on account balances as of Dec. 31, 2007. Since many people lost significant amounts in the stock market in late 2008, they had to take withdrawals based on significantly higher balances than they had in their accounts, said David Certner, legislative policy director for the AARP.
— David Pitt
Your Money is a financial column prepared by the Associated Press.
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