Dear Liz: Are the card companies required to use a certain exchange rate for foreign transactions? I’ve used two different cards for purchases abroad, and the one that charges a fee used a better exchange rate so the total cost to me, including the fee, was less. How can I find out what exchange rates are used?
Answer: Credit card issuers can choose the exchange rates they use, although many employ the rates selected by their payment networks, such as Visa or MasterCard. These rates are typically close to the wholesale interbank rate.
Issuers can also choose when to make the exchange. The issuer may use the rate in effect when the transaction is processed, for example, which may be different from the time of purchase. So even if you used the two cards the same day, you might not get comparable exchange rates.
You can find more information about how your cards process foreign transactions in the cardmember agreement you received when you got the card. If you no longer have that document, you can request the issuer mail it to you or check the Consumer Financial Protection Bureau’s credit card agreement database.
Since most issuers use near-wholesale exchange rates, travel experts typically recommend using credit cards without foreign transaction fees to save money. You should also be wary of “dynamic conversion” — the offer you often get at the point of sale to have the transaction processed in your home currency rather than the local currency. Dynamic conversion rates are typically terrible with big markups, so always choose the local currency.
Dear Liz: I’m aware that assets held in tax-advantaged accounts, such as an IRA or 401(k), avoid capital gains taxes on the sale of an asset. However, will those capital gains taxes have to be paid later when it is time to withdraw money from those accounts? If yes, can I offset it with any capital losses?
Answer: Traditional retirement accounts such as IRAs or 401(k)s change how investment gains are taxed. You don’t pay tax when investments within the accounts are sold, but withdrawals from the account are typically taxed as ordinary income, not as capital gains. So you won’t have an opportunity to directly offset capital gains with losses as you would with nonretirement accounts.
However, if your losses exceed your gains in your nonretirement accounts, you can use up to $3,000 of capital losses to offset ordinary income each year. Any remaining losses can be carried forward to the next year where it’s rinse and repeat: capital losses offset capital gains, with up to $3,000 of any remaining loss used to offset ordinary income. This goes on until the losses are finally used up.
Dear Liz: My ex-husband and I were married for 10 years. I married again, but am now a widow. I was told I could collect benefits on my prior marriage when my ex-husband passes. But, now that I’m a widow, I am wondering if I’m eligible to collect on my ex-husband’s record, though he is living. I’m currently getting my late husband’s benefit.
Answer: You could be entitled to a divorced spousal benefit based on your ex’s earning’s record. The divorced spousal benefit could be up to half of your ex’s benefit at his full retirement age. You would only collect that amount if it was greater than what you are currently receiving, however. You can call Social Security to check if you’re entitled to a larger benefit.
To recap: Survivor benefits are up to 100% of what the primary worker received at their death, while spousal benefits are up to half of what the (still living) primary worker would receive at full retirement age. Someone who is divorced can be entitled to benefits based on their ex’s’ work records if the marriage lasted at least 10 years.
Liz Weston, Certified Financial Planner, is a personal finance columnist. 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.
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