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Kimberly Lankford answers your money questions.

I heard about a settlement worth $10 billion with the credit bureau TransUnion that is supposed to give millions of people access to free credit-monitoring services. That sounds too good to be true. How can I find out if I am eligible? If so, should I sign up? Sometimes these class-action settlements are more trouble than they're worth.

L.S.S. Washington, D.C.

You're almost certainly eligible to get the services, and they're worth signing up for. Trans-Union agreed to offer free credit monitoring to more than 160 million people as part of a preliminary lawsuit settlement. The suit claims that Trans-Union violated the Fair Credit Reporting Act by selling lists with consumers' personal and financial information for marketing purposes. TransUnion discontinued that business several years ago.

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The settlement applies to everyone who had an open credit account or open line of credit from any lender from January 1, 1987, to May 28, 2008. Anyone with a credit card, car loan, mortgage, student loan or any other loan qualifies -- which means essentially most adults do.

To sign up, go to from now until September 24. You have two options. If you sign up for six months of free credit monitoring, you may also receive a cash payment if there is a cash distribution. And you could still file an individual lawsuit against TransUnion. If you sign up for nine months of "enhanced" services, you won't receive any cash payment and you can't file a lawsuit against the company (see the "Summary Notice" at or call 866-416-3470). A court hearing is scheduled for September 10, and it's expected that you'd get your benefits soon after that.

The credit-monitoring services being offered by TransUnion can be very valuable, especially when you don't have to pay. With the six-month option, you get unlimited daily access to your TransUnion credit report and your TransUnion credit score (which is different from the more widely used FICO score), as well as 24-hour e-mail notification of any "critical" changes in your credit report. The serv-ice retails for $59.75.

The nine-month service, which retails for $115.50, also includes a suite of scores calculated by insurance companies, plus a mortgage simulator to show how lenders would rate you. Trans-Union won't collect credit-card numbers upfront and can't continue charging for the service after the initial period ends, unless you request it.

Steven Katz, TransUnion's director of consumer education, says the company's offer "is consistent with TransUnion's commitment to providing consumers with tools to help them be active managers of their credit health."

Help for Grad School

My 24-year-old daughter is about to start a graduate program, which she is expected to complete in 15 months. We have $13,000 we want to give her, which is about what her program will cost. Should we give her the money now? Or should we let her take out Stafford loans to borrow the money she needs, then give her the $13,000 at the completion of her schooling?

Bill Segur Wilmington, N.C.

Don't give your daughter the money yet. Because she's an independent student, her parents' income and assets don't affect her financial-aid eligibility. But giving her the money could make a big difference in her aid award. If you give her the money now, as a gift, it will be considered untaxed income, and 50% would be deemed available for college costs according to the federal financial-aid formula, says Gary Carpenter, of College LOAN Evaluator, in Syracuse, N.Y. Any assets in her account would also be assessed at 20% when determining aid eligibility.

Carpenter recommends waiting to give your daughter the money until after she files her last Free Application for Federal Student Aid before graduating. At that point, the money won't have an impact on her financial-aid eligibility.

Carpenter says your daughter is likely to qualify for $12,000 in unsubsidized Stafford loans and probably $8,500 in subsidized loans. Interest won't start accruing on the subsidized loans until she graduates, when you can give her the $13,000 to help pay off the loans.

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A Big Tax Hit

We withdrew money from my husband's 401(k) plan to come up with a down payment on a home. Now we're getting hit with the taxes on that money. Are there any tax exclusions when the money is used for the purchase of a primary residence?

Susie Ulmer, Rescue, Cal.

Sorry, but no. Even though you may be allowed to take a hardship withdrawal from a 401(k) to make a down payment on your principal residence, it isn't a good idea -- as you've discovered. You still have to pay taxes on the money in your top income-tax bracket, plus a 10% early-withdrawal penalty if you're younger than age 59. Plus, you can withdraw only your contributions -- no earnings or employer match -- and you generally have to prove that you don't have another source of cash.

You could have avoided the taxes and penalties, at least for a while, by borrowing the money from your 401(k) instead of withdrawing it. Specific rules vary by plan, but you may be able to borrow up to 50% of your vested account balance, with a maximum of $50,000. You'll generally pay interest at the prime rate plus one or two percentage points, all of which goes back into your retirement account.

But there's a big downside: If you lose or leave your job before age 55, you usually must pay back the loan immediately or get stuck with the same taxes and penalties that you'd owe for withdrawals.

Medicare strategies

I have heard that Medicare Advantage plans will be phased out. If that's the case, is it prudent to switch from the Medicare-supplement Plan J that I now have to a Medicare Advantage plan?

M.H., via e-mail

Actually, the discussion has not been about phasing out Medicare Advantage. Congress has been talking about lowering the subsidies the government pays to private insurers that provide Medicare Advantage plans, but so far nothing has changed.

No matter what happens to Medicare Advantage, it's a good idea to switch out of your particular medigap plan. When the Medicare prescription-drug benefit was introduced in 2006, Medicare-supplement companies stopped selling new policies that provided coverage for prescription drugs (plans H, I and J). People who already had these plans could keep them, but the premiums are higher than for government-subsidized Medicare Part D or Medicare Advantage, and the coverage isn't as good.

You can switch into another medigap policy and get your drug insurance through Part D, or you can get all of your medical and drug coverage through a private Medicare Advantage plan. To make the switch, you probably need to wait until open-enrollment season, from November 15 to December 31.

Dependent Care

My older son has been attending a private preschool, which this year has changed to a pre-kindergarten. My husband and I both work, and I am enrolled in a dependent-care spending account. Can I use the money for pre-kindergarten tuition?

Michelle VarneyPapillion, Neb.

You're in luck. Even though you generally can't use the dependent-care money for education, the IRS draws the line at kindergarten. So anything below that -- whether it's called nursery school, preschool or pre-kindergarten -- can be paid with money from a dependent-care account, says Mark Luscombe, principal analyst with CCH Tax and Accounting.

You can also use the dependent-care money for summer camp for children younger than 13, as long as it's a day camp and not overnight camp. Summer school and tutoring, however, don't qualify.

Find More Advice at Ask Kim

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.