
Social Security Administration Tells Beneficiaries To Make The Switch Now From Paper Checks
The federal government must stop issuing paper checks by September 30 in favor of direct deposit, prepaid cards, or other digital payment options—that's according to an Executive Order signed by President Donald Trump in March of this year. Now, the Social Security Administration has provided additional guidance for Social Security beneficiaries.
According to the agency, the transition primarily affects a small group of beneficiaries who have not yet switched over to electronic payments. The Social Security Administration said in its most recent communication that less than one percent of beneficiaries currently receive paper checks.
Last year, 512,690 Americans—about 0.8% of the more than 68 million total recipients—drew Social Security benefits checks. Approximately 67,826,776 Americans receive benefits by Direct Deposit.
(The number of paper checks issued by the IRS is less robust. The most recent filing data from the tax agency indicates that most tax refunds for individual federal income tax returns are issued by direct deposit. To date in 2025, 86,937,000 of the 93,569,000 taxpayer refunds were issued by direct deposit—just under 93%.)
According to the order, using paper checks and money orders results in costs, delays, risks of fraud, lost payments, theft, and inefficiencies. It highlights that, historically, Department of the Treasury checks are 16 times more likely to be reported lost or stolen, returned undeliverable, or altered compared to an electronic funds transfer (EFT).
(Earlier this year, the federal government alleged that four postal workers in Philadelphia stole thousands of envelopes containing U.S. Treasury checks from mail sorting machines to sell on the internet. A few months before that, a former U.S. Postal Service employee was found guilty of stealing nearly 100 checks, including tax refund checks, totaling over $1.6 million.)
Waste is also a concern: The order says that maintaining the physical infrastructure and specialized technology for digitizing paper records costs the American taxpayer over $657 million in Fiscal Year 2024 alone.
When it comes to Social Security benefits, the agency says that Electronic Funds Transfers (EFTs) are processed more quickly than paper checks, helping beneficiaries receive their payments on time without delays. It's also cheaper: According to the U.S. Department of the Treasury, issuing a paper check costs about 50 cents, whereas an EFT costs less than 15 cents. How Can Beneficiaries Switch Over?
The Social Security Administration is currently sending notices to people who still receive paper checks to explain the upcoming change and highlight the benefits of switching to electronic payments. All benefit checks will also include an insert detailing the steps beneficiaries can take to switch to electronic payments, with Social Security Administration staff ready to assist. Payment Options
Beneficiaries who currently receive paper checks can opt to receive their Social Security payments electronically via Direct Deposit or a Direct Express Card.
With Direct Deposit, payments can be deposited directly into a checking or savings account. Beneficiaries can enroll with their banks or financial institutions. If you already receive Social Security or SSI benefits and you have a bank account, you can also sign up for direct deposit by starting or changing direct deposit online or calling Social Security (1.800.772.1213 or TTY 1.800.325.0778), or visiting your local Social Security Field Office.
The Direct Express Card is a prepaid debit card designed specifically for federal benefit payments—this is an option for those who do not have a bank account (the unbanked). To get Direct Express, call the U.S. Treasury Electronic Payment Solution Center at 1.877.874.6347 to enroll! You will need your Social Security number, information from your most recent federal benefit check or claim number, and your date of birth. Unbanked Individuals
Who qualifies as unbanked? According to the Federal Deposit Insurance Corporation (FDIC), a household is considered unbanked if no one in the household has a checking or savings account at a bank or credit union. In 2023, 4.2% of U.S. households—about 5.6 million households— were unbanked.
Unbanked rates are higher for certain populations, including those who are likely to receive benefits, such as lower-income households. Rates are also higher for minority populations, including Black, Hispanic, and American Indian or Alaska Native households, and working-age households with a disability. For working-age households with a disability, the unbanked rate in 2023 was 11.2%—that's three times higher than the unbanked rate among working-age households without a disability. For single-parent households, the unbanked rate was 12.3%—more than five times higher than the unbanked rate among married-couple households with one or more children. And while mobile banking is on the rise, meeting with a real person—bank tellers—remains the most prevalent primary method of account access for households aged 65 or older.
Seniors and disabled persons likely make up the lion's share of the nearly half a million Americans still receiving paper Social Security checks. Before the order, the Social Security Administration had already been trying to move beneficiaries to electronic services, noting that they would receive their payments much faster. Exceptions Apply
Some exceptions apply, including for individuals who do not have access to banking services or electronic payment systems, as well as certain emergency payments where electronic disbursement would cause undue hardship. For more information or to request a waiver, call Treasury at 855.290.1545. You may also print and complete a waiver form, then return it to the address indicated on the form. Payments Need To Be Electronic, Too
The order doesn't just apply to disbursements. It also applies to receipts—meaning payments that Americans make to the federal government, such as tax payments. Agencies, including the Treasury, Health and Human Services, the Department of Education, and Veterans Affairs, have been directed to 'expedite requirements' to receive the payment of federal receipts, including fees, fines, loans, and taxes. The IRS Is Switching Over, Too
The IRS has also been encouraging taxpayers to use direct deposit. The agency claims it is the quickest and most efficient way to receive your tax refund. If you don't have a bank account but possess a prepaid debit card, you might be able to have your refund deposited onto that card. Additionally, some payment apps like CashApp allow for the direct deposit of refund checks. Be sure to check with your platform or financial institution to determine if this option is available, and also to determine the routing number and account number, which may be different from the card number.
Despite the push, one group of taxpayers may be out of luck: American taxpayers living abroad. If you live outside the country, your federal income tax refund can only be deposited directly into a U.S. bank account or an affiliated account.
SSA has similar—though a bit more generous—rules for beneficiaries living abroad. You can only direct deposit Social Security payments into a U.S. financial institution or a financial institution in a country with an international direct deposit agreement (a list of these countries can be found here). Forbes Former Postal Worker Stole More Than $1.6 Million In Checks, Including Tax Refunds By Kelly Phillips Erb Forbes Four Charged In Scheme To Steal Tens Of Millions Of Dollars In Treasury Checks From The Post Office By Kelly Phillips Erb Forbes Social Security Benefits Will Increase 2.5% In 2025 By Kelly Phillips Erb
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Parametric Portfolio Associates was a pioneer in this business, originally offering the tax dodge to wealthy clients paying for custom portfolio management. Its direct-indexing skills (and the large footprint of Morgan Stanley, which picked up the company when it acquired Eaton Vance) explain Parametric's $400 billion of assets under management. The prevalence of fractional shares and the automation of financial advice mean that little people can now get in on the action, with as little $5,000. What kind of capital losses do you get? That will depend on the direction and the volatility of the market. Over a decade, Wealthfront reports, capital losses have averaged 2.6% to 3.3% per year for its clients, but there is a great deal of year-to-year variation. People who put money in at the beginning of 2022 got a gusher of losses in the ensuing crash, but then they would have been better off waiting for a year and doing without the tax goodie. Remember that your aim with loss harvesting is not to have losses. It's to have gains but report losses. Suppose you have a plump capital loss to put onto your tax return. How much good does that do you? This is a function of your tax bracket and your other investing activity. Capital losses can absorb any amount of capital gains and, beyond that, can be written off against up to $3,000 a year of ordinary income like salaries. Unused losses can be carried forward indefinitely but expire with the taxpayer's death. It is reasonable to expect that the tax benefits will, in the early years of a direct indexing account, more than pay for the fees, which are usually in the range of 0.1% to 0.4% a year. But at some point, perhaps after five years of a mostly bullish market, or later if stocks go sideways, you will have nothing but gain positions. Note that someone who bought in 2015 would not have derived much tax benefit from the crash of 2022 because even at its low point that year the market was twice as high as in 2015. This matter of loss exhaustion brings me to the first caveat about fancified indexing. What are you planning to do when it's time to move on? To illustrate, I will cite the case of a Forbes reader that I will identify as Mr. X. X signed up for a separately managed account with a financial advisor who was using direct-indexing software. Recently, with most of the potential losses captured, he quit the advisor and deposited the stock at a discount broker. He asked me: Now what should I do? X is sitting on an interesting pile of shares. He owns Nvidia at a $12 entry point, and should let that position ride. So, too, with gains in Taiwan Semiconductor, Broadcom and Microsoft. But he's got 140 positions that are now underwater or showing small gains. It would be nice to declutter. Some of these clunkers will be easy to dispose of. Pepsico, Nike, Pfizer—no problem. But what about PT Bank Raykat or Airports of Thailand? These American Depositary Receipts trade over the counter, which is to say, not on Nasdaq or the New York Stock Exchange. On Yahoo Finance I recently saw the airport ADR with an average daily trading volume of 993 shares and a frightful bid/ask spread of $9.52 to $12. X could sell all the cats and dogs, but would probably get hosed on the OTC shares. Apart from their sometimes larcenous bid/ask spreads, unlisted shares may not qualify for commission-free trading. Another problem: Odd lots (less than 100 shares), of which X has more than 400, are sometimes hard to trade. This junkpile cries out for all-or-none orders (you don't want a trade to turn an odd lot into an odder one). But combining that restriction with a price limit increases the chance that an order simply won't be executed. X did walk away with a fat loss carryforward, which may come in handy some day, but is likely to spend many hours cleaning up. Here's someone commenting anonymously online on direct indexing: 'I made a big mistake doing it in a Wealthfront account and when I wanted to consolidate holdings with another firm, I had to manually sell 195 securities. Stick to broad index ETFs!' I don't entirely agree with that sentiment. Direct indexing makes sense if you have plans for the end game and if you stick to large U.S. companies. I'll go this far with the Wealthfront critic: You should get your small-stock and foreign exposures via ETFs. Now let's look at the second caveat, which is to understand the value of a capital loss. Wealthfront says that, over the past decade, it has captured $3.5 billion of losses for its customers, 91% of them short-term. (These figures include earlier versions of tax-wise automated investing as well as the more recent direct indexing product.) The losses, it declares, have saved people an estimated $1 billion in taxes. Fine print: The estimate assumes that all of the short-term losses went to use, immediately, against short-term gains. This is unrealistic. Someone with a $100,000 account generating $3,000 of capital losses, and with no capital gains to report, can indeed use the $3,000 against ordinary (that is, high-taxed) income. But someone with a $1 million account generating $30,000 of capital losses is unlikely to be using all that against high-bracket income. It would require having at least $27,000 of short-term capital gains. People do not have short-term capital gains unless they engage in foolish behavior, such as investing in a hedge fund. Rational investors do, however, have long-term gains to report. They get them from employer stock, sales of homes, all-cash takeovers and unwanted capital gain distributions from mutual funds. Realistic assumptions for big-ticket investors: You will be using most of your capital losses, whether short or long, to absorb long-term gains. You may find yourself using a loss long after you harvested it. The top rate on long gains is 23.8% plus whatever your state grabs. Conclusion: Losses are valuable but not as valuable as advertised. Now here are some product reviews. Wealthfront This one is my favorite. It offers a direct-indexed S&P 500 account at a bargain-basement 0.09% annual fee, with a $5,000 minimum. Frec In a price war with Wealthfront, this outfit has the same 0.09% fee for the S&P 500 direct deal, with a $20,000 minimum. It gets a runner-up status because it's newer and smaller. It oversees $350 million to Wealthfront's $80 billion. Frec has some interesting variations on the theme, including a Sharia-compliant index portfolio at 0.35%. Fidelity Its direct-indexing product uses 250 or so stocks to mimic the Fidelity Large-Cap Index (similar but not identical to the S&P 500). The annual fee is 0.4%, with a $5,000 minimum. When the harvesting wears out you can transfer the collection of stocks to a no-fee brokerage account. Forty basis points is a lot. But using this service could make sense if you have other money at Fidelity, which oversees (in custody or management) $15 trillion. It has a powerful brokerage platform and the oldest and biggest broker-affiliated donor-advised charity fund. Exit plan: Offload your long-term winners onto the charity, which will take them, fractional shares included, with a few mouse clicks. Schwab Charles Schwab has a 0.4% direct indexing product (minimum, $100,000) and a charity fund similar to Fidelity's. Vanguard This firm invented retail-level indexing and is known for its low costs. Four years ago it spent an undisclosed sum of money (your money, if you are a Vanguard customer; it's a mutual corporation) to acquire direct indexer Just Invest Systems. So, what's on offer? I can't find an answer on the Vanguard website, which has only a vague description of direct indexing aimed at financial advisors. The company did not respond to a press inquiry. A few weeks ago former shareholders of Just Invest sued Vanguard, claiming they were double-crossed on a performance payout. Could be a while before we see a competitive offering from the indexing king. More from Forbes Forbes Is Your Broker Gouging You? Use This Guide To The Best Buys In Money Markets By William Baldwin Forbes How To Boost Your Cash Yield At Fidelity, Vanguard, Chase And Schwab By William Baldwin Forbes How To Use Gold And Other Hard Assets To Hedge Against Inflation By William Baldwin Forbes Inside Private Equity's $29 Trillion Retirement Savings Grab By Hank Tucker