Q: We heard on the news that this might be the largest tax refund season in a long time. Why is this happening and why would anyone want a big tax refund?

A: Yes, it is likely this tax season will kick out one of the biggest piles of tax refunds in recent memory. The reason has to do with a big tax bill passed back in July of last year. While the bill was signed this past July, it was made retroactive back to the start of 2025. It created a number of new tax breaks.

Basically, there were three big ones. First, it introduced no federal tax on tips, up to certain limits. It also added a tax break for overtime pay. Again, up to a limit. Finally, it provided an additional “senior” deduction for those 65 and up.

But here’s the real reason for the large expected tax refunds when people file their returns. The IRS purposely didn’t provide updated information to payroll processors that would have allowed them to adjust workers’ tax withholding. In other words, too much was taken out of paychecks all along the way last year. This was presumably done on purpose to create large refunds in an election year.

While a big tax refund might feel a bit like a bonus, it’s really a sign the US Treasury held your money without paying you interest. Ideally, people should want their tax withholding set so they won’t owe much money or get much back at tax time.

Q: I’m a very young retiree, turning 59 this year, and I heard that I might now get a deduction in Michigan for my IRA withdrawals. I thought only older retirees got that break. Is this really true?

A: It is true. Starting this year, retirees born in 1967 or later will now benefit from Michigan’s retirement income deduction. This is the final year of a multi-year transition back to the old rules that used to exempt most retirement income from Michigan income tax.

Way back in 2011, Governor Snyder controversially signed a law that gradually began taxing pension and IRA distributions for younger retirees born after 1945. Then, starting in 2023, Governor Whitmer set the whole process in reverse. A new law was passed to basically bring back the old retirement income deduction. The reversal was done in phases. We’ve now reached the final year of that four year transition. It now applies to everyone.  

This year, for people born in 1967 or after, you can now fully deduct your retirement income from your Michigan tax return. It is subject to certain limits, of course. If you are married, the maximum deduction is around $135,000. If you are single, it’s about $67,000.  

By reaching age 59 this year, you’ve now crossed the threshold. You now join the ranks of most Michigan retirees who pay very little – or nothing at all – in state income tax!

Q: It looks like President Trump has directed the Justice Department to criminally investigate Fed Chair Jerome Powell over a building renovation project. Could it work to force Powell out?

A: Actually, this latest drama might have the opposite effect. Trump’s actions could keep Powell in place as Fed Chair beyond the scheduled end of his term.

By law, a Fed governor can continue to serve on the board until their successor is appointed by the President and confirmed by the Senate. Without a successor in place, there’s no automatic expiration and vacancy to fill. Trump can’t just get rid of him, unless he fires him for “cause.” In my view, the Supreme Court would strike down any attempt by Trump to fire him.

Here’s how this might play out.

The Senate Banking Committee is the first to act on any Fed nominee before it can reach the Senate floor for a full confirmation vote. And, one Republican committee member, Senator Thom Tillis of North Carolina, isn’t happy with this investigation. That’s an understatement.

Senator Tillis announced that he won’t vote in favor of any replacement for Powell until all of this investigation talk disappears. His no vote would deadlock the committee. Without his support, there is no confirmation and no successor to Powell.

Now, there is a special motion by the full Senate that could bypass the committee step, but that’d take 60 votes. That’s not going to happen. So, if the investigation continues, it looks like Powell could stay on as Fed Chair, by default, longer than planned. Either Trump faces this unintended consequence, or he backs down.

Q: I’ve heard that naming my trust as the beneficiary of my IRA can create problems. I don’t exactly know why that’s the case. Can you explain?

A: Naming a trust as your IRA beneficiary can work, but it’s something that has to be done carefully. It all comes down to language in your trust and whether or not it qualifies as a “see-through” trust.

What is a see-through trust? It’s a trust where all beneficiaries are clearly identifiable people. That means you aren’t also naming charities among your list of trust beneficiaries. If you add them to the mix, it can disqualify it as a “see through” trust.

If your trust qualifies as a see-through trust, things can go pretty smoothly. If it’s deemed a non-qualified trust, the IRA distribution rules can get more complex. 

If you died before your required minimum distributions (RMDs) started, the entire IRA has to be emptied within five years. Naturally, this shorter distribution period can increase the tax burden for some of your beneficiaries. The normal length is ten years.

If you died after your RMDs started, your beneficiaries’ IRA distributions can be stretched out over your remaining life expectancy (treating you very much like a zombie.)

This slower, longer distribution period might actually seem like a pretty nice deal. But, it also comes with an unintended consequence. Your successor trustee might have a longer-than-desired job ahead of them.

There is still a little bit of time to cross a few things off your list. No, I’m not talking about your Christmas list.

To start, if you’re going to be spending time with aging family members, think about doing a cybersecurity audit. It’s not very festive, I know. But the holidays are sometimes the only moment we get to handle things face-to-face.

My number one recommendation is to help them set up and learn to use Apple’s new Passwords app. It works across all their Apple devices and it uses Face ID or Touch ID to help them easily access their new strong passwords. Besides retiring the use of a bunch of repeated and possibly compromised passwords, the very best feature of this new app is that it makes password sharing super easy.

Of course, try to tackle the login credentials that matter most – their banks, credit cards, investment accounts and also their email account. Beyond setting up some unique and strong passwords, be sure to check that each of these key accounts have two-factor authentication enabled. While this whole process isn’t a simple one – for those of you who know – trying to fix a problem remotely is way harder.

Switching gears to the upcoming tax season. For those wise enough to donate to charities directly from their IRA – and not their regular checkbook – remember that your Form 1099-R won’t actually report those donations any differently than normal distributions. In other words, it doesn’t split out your charitable activities. So, if you forget to tell your tax preparer about your IRA donations, you’ll end up paying taxes you don’t owe.

Thankfully, starting with the 2026 tax season, brokerage firms will be required to actually split out your IRA donations on your Form 1099-R. I’ve been asking for that for years and I couldn’t be happier. But, for 2025, we’re not yet there. So, remind yourself to tally them up and report them to your tax person.

Finally, the new tax law offered up a change for those over age 65. Unless you make too much money, you are getting a new “senior deduction” that adds $6,000 on top of your large standard deduction. You can double that to $12,000, if you’re married. This change opens up more room in the lower tax brackets and it means you should review a few tax moves before New Year’s Eve.

At the very least, you should take a look at taking some extra IRA distributions at low tax rates. Better yet, you might even upsize your Roth conversion strategy. Best of all, it’s possible you can realize some long-term capital gains – effectively resetting your cost basis – and owe zero federal tax. Be careful, though, each of these moves might take some number crunching to get things just right. The tax code is not as easy as it should be and, unfortunately, it’s gotten more complicated.

This time of year, I meet with my clients to review everything that’s going on in their lives related to their money. In those conversations, I notice common topics and concerns. Today, a central theme has been artificial intelligence. How could it not be? It’s been the primary driver of this year’s surprisingly strong market. And, unsurprisingly, it’s also driving a lot of talk of a bubble-in-the-making.

In my view, the focus on – and the optimism about – AI is deserved. We can all see how it’s being adopted by businesses and changing the way people do their work. Good or bad, nobody is going to put this genie back in the bottle. But, when I think about AI, I envision a number of “circles” and, frankly, none of them are easy to square.

After years of watching the tech giants stockpile enormous amounts of cash, we’re now seeing them pour their profits into AI investments. They are building out huge data centers and buying every Nvidia chip they can get their hands on. And, in turn, Nvidia is now turning around and investing in the very AI companies that rely on their chips. The story is getting quite complex, and it’s highly circular.

It’s becoming clearer that the next phase of the AI investment cycle – the big money that’ll be needed to build these sprawling data centers we all see in the news – will require more than just the tech companies’ current cash flow. The use of debt, especially off balance sheet debt, might weaken things to the breaking point if the AI-revolution pauses for one moment too long.

This brings me to my next circle. I think AI is already replacing workers. We might not see it explicitly, but it’s no doubt happening in both large and small businesses. If this picks up pace – and the tech companies are doing their very best on that front – it begs a fundamental question. Who exactly is going to buy the products and services these efficient businesses produce? Even Henry Ford understood this basic economic formula a century ago.

At some point, policymakers will need to confront this economic math. If profits increasingly flow to a shrinking set of massive tech companies and even small business owners who need fewer human workers, society will need to get creative. The concept of basic universal income won’t be just about fairness. It’ll be about economic sustainability. Unless I’ve missed it, I just don’t see any prominent politicians talking about how to square this particular circle at all.

Now, back to my recent client meetings – where these big picture concerns actually matter – I’m increasingly focused on just how much AI is impacting their money. For example, are you aware that just 10 gigantic companies now make up nearly 40% of the entire value of the S&P 500? Owning that one index fund simply doesn’t diversify things like it once did. Bottom-line, while there is no way around AI, we certainly can and must deal with it.