Front Street Wealth Management

Fee Only, Proactive Wealth Managment

Tech: A Rant and a Dream

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Technology is a blessing and a curse. We’re living in a moment where these cross currents are increasingly obvious. It’s probably not a coincidence that AI is exploding at the precise moment online threats are peaking.

Long gone are the days of using paper and getting mail. Today, everything has moved online. And, accessing information online requires layers of security. The ongoing battle to keep us safe online has left many seniors in the dust. I cannot overstate how difficult technology is making things for our aging population.

Here are some examples many seniors face daily.

You get an email alerting you to a possible suspicious charge on your credit card. Did you just accidentally call a scammer, instead? You search Google to find the login page to review your money. Did you just log into a fake website and expose your login credentials? A warning about a software update just popped up on your screen. Did pushing that help button just give a criminal access to my computer? How exactly do you access that six-digit text code when you’re still talking on the phone? Why is my Face-ID not working anymore? Didn’t I use my fingerprint to login into that app before?

The worry and hassle trickles down the family tree. I’m certain I’m not the only one who moonlights as a tech support and cybersecurity consultant. Sadly, not all seniors have access to local or distant family members willing or able to help. Don’t get me started on just how difficult it is to deliver tech support on a phone.

A better solution is screaming to be created. Admittedly, it’s a pipe-dream. Nonetheless, the thought of it gives me a feeling of hope!

What’s desperately needed by seniors is a trusted team of “tech-navigators” designed to ensure online safety and minimize frustration. It’s not deep tech-support, it’s simply tech-navigation. Even so, this trusted team needs to be highly-vetted (deep background checked, not Best Buy) and endorsed by already established and trusted entities, such as local senior centers or municipalities.

Now, it certainly wouldn’t be cheap to deliver a high-quality and trusted tech-navigator service. But I sense the peace-of-mind would feel almost priceless to all concerned. I suspect family members, if needed, would help subsidize the cost. But, let’s be totally honest, the cost to protect our seniors against technology’s advances should be borne by the very businesses that benefit most from it.

At the top of this list sits big-tech, and the banks, credit card companies and brokerage firms. While they will balk, they deeply understand the phrase, “It’s just a cost of doing business!” Technology is both a blessing and a curse, yes. But, it’s also inflicting a heavy cost.

I-Bonds, RMDs and Extensions

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Q: We had some unexpected things happen in the last month. I don’t think we’ll be able to get all our tax information to our tax preparer on time. How does filing an extension actually work and what are the financial consequences?

A: Filing an extension of time to file your tax return really is a breeze. In fact, Form 4868 is officially called “Application for Automatic Extension of Time to File.” Note the word, automatic.

Remember, this is just an extension of the time to file your taxes. It is not an extension of the time to pay your taxes. So, it’s important to estimate the amount of taxes you should have paid in 2023 and send in a check to cover your full tax obligations to both the US Treasury and the State of Michigan.

Q I bought a couple of Series I savings bonds back in April of 2022 when they were promising incredible yields. But, I think the interest rate has come down a lot. What should I do now with my savings bonds?

A: Yes, a couple years ago Series I savings bonds were all the rage. With inflation spiking after the pandemic, these inflation-protected savings bonds were paying interest well above the yield you could earn in a money market fund or in a CD at your bank. We’re talking rates of about 8%.

But, things have changed. Today, money market funds pay above 5% and those Series I savings bonds that you purchased back in April 2022 are only paying about 3.4%. So, you might want to consider cashing them out. Keep in mind, though, you’ll owe federal tax on all of the interest you earned, but you won’t have to pay any state income tax.

Q: I have three IRA accounts with a number of different brokerage firms and mutual fund companies. This year, I’ve finally reached age 73 and have to start taking required minimum distributions. Do I have to take a distribution from each account?

A: To satisfy your required minimum distribution (RMD), technically you don’t have to take money out of each and every IRA in your life. You are allowed to add up each of your RMDs and then actually take the distribution from one of your IRAs. But, I don’t love this method.

Why? It requires you to keep really good records. It’s much easier to take your RMD amount for each IRA separately. Better yet, you should consider rolling over your various IRAs into one single IRA account. That way, you will have everything in one spot and only one RMD to contend with. This will make it easier for you to remember and it’ll be easier at tax time with fewer tax forms to process.

Safety and Simplification

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Q: I’m struggling with handling my finances online. My growing password list is frustrating. I know cybersecurity is important, but what can I do to make this both safe and easier for me?

A: You are not alone in your struggle. While my column a couple of weeks ago addressed scams related to fake financial websites, your question gives me a chance to reiterate and reinforce some additional safety steps.

My first suggestion is to choose a trusted person that you will always turn to for tech help. If anyone asks you to do anything online that raises even an ounce of concern, disconnect online (or hang up the phone) and immediately contact your go-to trusted person.

Next, strongly consider reducing the number of financial accounts you have. Really try to get down to one bank, one credit card and one brokerage firm. 

Finally, you should review all your online financial accounts to make sure you set up “two-factor authentication” on each of them. With this in place, when you log in, you will get a text message or an email with a unique code to get online. 

Q: Both my husband and I turn 73 this year. We have our investments spread across multiple brokerage firms. How do we best handle the required minimum distributions from all of these IRAs?

A: Now that you’ve reached age 73, and every year from this point forward, you’ll have to deal with required minimum distributions (RMDs.) Unfortunately, it’s now time for the government to finally get their tax revenue.

Your RMDs amount will change each year based on your age and the market value of your IRAs on the last day of the prior year. Don’t worry about having to do the calculation each year. Your brokerage firms will inform you of the new RMD amount each year. It’s usually published on the back pages of your IRA statements. 

While most people tend to take each RMD amount from each of their individual IRA accounts, you are allowed to add up all of your RMDs and take out that amount from just one of your IRAs. Regardless of how you end up handling it, the key thing is to not forget an account!

But, my default advice is to consider consolidating your IRAs. It will save you effort and will reduce the chances that you overlook your RMD. It also creates less work for you and fewer tax forms to gather and process next year.

Of course, while you are both alive, your IRAs and your husband’s IRAs will always remain separated. After one of you dies, you can then consolidate them.

Phishing Scams and Amended Returns

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Q: I read your recent column about Michigan’s new retirement income tax law. With the new law officially going into effect after the start of the 2023 tax season, should I file my taxes later this year?

A: You are right. Due to some esoteric legislative procedures, the new tax law didn’t officially become law until February 13, 2024, even though it was passed way back in March 2023 and applies to the 2023 tax season.

Given this, along with some very slow tax software updates, it may affect those who filed their state tax return before February 13th. Specifically, it impacts those born in 1953, 1954, 1955 and 1956.

Fortunately, the State of Michigan has said tax returns filed under the old law will be reviewed using the new law. You won’t need to file an amended return to get the new law’s benefits. If all goes according to plan, they will just send you a tax refund, if needed.

Q: We’re concerned with my mother’s ability to safely handle her online access to her financial accounts. We are worried about her falling for “phishing scams” that might allow a scammer to gain access to her accounts. What can we do to make things safer for her?

A: For uninitiated readers, a phishing scam is when you are tricked into giving out your login credentials or other personally-identifiable information. This could be a fake email asking for you to update your online profile or even doing a simple Google search that takes you to a fake website.

My general advice falls under the headings of training and prevention.

On the training front, I’d suggest you set up bookmarks on your mom’s browser that links her to the official websites for her financial accounts. Also, try to have her only use her iPad or iPhone’s official apps to get into her accounts.

One scam I recently heard about describes credible-looking, but fake, websites that trick account holders to sign in. When their login fails, it warns them that their account has been compromised and directs them to call for “help.” How would the account holder find such a fake website? By searching directly on Google for their bank or brokerage firm or by clicking a link in a fake email. Using the official app or by clicking on their browser’s bookmark can help.

On the prevention front, you might consider attaching your cell phone number as her two-factor authentication device. If she falls for a phishing scam, at least you’ll be there to block the attempt.

Finally, if she works with an advisor, see if they can set things up to prevent online money movements or trading activity. It’s possible to make her online account basically for viewing purposes only. When she needs to do something with her money, she’d just call her advisor.

Michigan’s Retirement Income Tax

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For the 2023 tax season, Michigan has a new tax law for retirement income. It’s being “phased in” over four years. Let’s try to break it down.

Like the old law, the new law is based on birth years.

Group A: For those born on or before 1945, there is no change. These retirees get to deduct their retirement income up to about $60,000 (single) / $120,000 (married) for 2023. Think, pension benefits and IRA distributions.

This is where things start to get just a little more complicated.

Group B: For retirees born in 1946 through 1952, you get to deduct $20,000 (single) / $40,000 (married.) For tax season 2023, effectively there is no change, either.

Things still feel simple enough, so far.

Group C: For retirees born after 1952 and 1956 (to be included in this group, you must reach age 67 by the end of the tax year), you also get to deduct $20,000 (single) / $40,000 (married). But, there’s a catch! The deduction is reduced by the taxable portion of their Social Security benefits as well as their personal exemptions.

The “catch” adds a wrinkle of complexity.

Group D: For those born in 1957 and 1958, the old law provided zero deduction. For the 2023 tax season, they’ll benefit under the new law as shown below. Please note, younger groups will have to wait for the 2024, 2025 and 2026 tax years to see the benefits.

Up until now, I have been describing the old law. The reason for that review is the new law requires us to basically “overlay” it on top of the old law to figure out which is better. How’s that for complexity!

For the 2023 tax season, under the new law Group B and Group C will be entitled to 25% of the deduction amounts that’s been afforded to Group A all along. If the new law works out to be better than the old law, they can choose the new law’s “25% phased-in” deduction. That works out to be about $15,000 (single) / $30,000 (married.)

For Group B, the old laws’s deductions of $20,000 (single) / $40,000 (married) are clearly better than the new law’s 2023 phase-in deductions. 

For Group C, the old law had that “catch” (see above to review.) As a result, the new law might work out better for them. It all depends on the level of their Social Security benefits and retirement income received.

For Group D, the old law gave them no deduction at all. In this case, the new law’s deduction is clearly better.

Fortunately, next year we get to do this all over again! Except, at that time, we’ll have a “50% phase-in” to overlay on top of the old and we’ll introduce Group E into the mix. Thankfully, we can save that added complexity for another day!

Jason P. Tank, CFA, CFP® is the owner of Front Street Wealth Management, a purely fee-only advisory firm in Traverse City. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com