Q: This election has me worried about the stock market. Is it rational for me to take my required minimum distribution (RMD) from my IRA now rather than wait until the end of the year? Having some cash on the sidelines seems wise to me. 

A: First, it’s almost impossible to know what the stock market will do after the election. If I had to guess, its short-term move will likely depend on which party controls which branches of government. Even then, the margin of victory in the Senate and House will also matter. One thing feels likely; no party will have much control.

But, really, the election is irrelevant to your question. Nothing is stopping you from selling investments to raise cash for your RMD. Whether you actually take your RMD now or wait until later in December doesn’t need to be part of the decision to raise cash. After you raise some cash in your IRA, the timing of the actual distribution from your IRA doesn’t really matter from a portfolio management perspective. 

Now, if you haven’t yet completed your IRA donations for the year, I’d say waiting to process your RMD is a wise move. Get those donation checks out the door first. It’ll lower your tax bill. 

Q: My Social Security number has apparently been leaked and floating around somewhere on the “dark web.” Of course, this makes me uncomfortable. What should I do now? 

A: This is an irritating reality in today’s world. Besides closely monitoring your banking and credit card transactions, there are a few other things you can do to mitigate the possible impact. 

First, I suggest you freeze your credit files with Transunion, Experian and Equifax. It’s a bit of a pain to do, but it prevents a bad actor from opening a new credit card or applying for a loan in your name. If you can’t do this yourself, ask someone to help you.

Next, consider visiting or calling your local Social Security office and ask them to block any online access using your Social Security number. This move will prevent someone from going online to change your current direct deposit information. If you ever need to change your banking information with Social Security, you’ll just need to visit the local office to make the change. 

Finally, to prevent a crook from fraudulently filing a fake tax return using your Social Security number, you can also get an Identity Protection PIN from the IRS. Your PIN will then be required to e-file your tax return. It might be a little cumbersome to manage as a new PIN is issued to you each year. And, your new PIN is accessible online. It’s only mailed to you if you are a confirmed victim of tax-related identity theft. 

Q: I want to help my grandkids by setting aside some money for their college educations. Currently, I’ve just opened an investment account in their names. Is there a better way to do this?

A: There is a better way. My suggestion is to open a 529 college savings plan directly with the State of Michigan (go to www.misaves.com).

To start, the money you contribute to a 529 plan might enjoy a state income tax break. The maximum tax benefit is ~$200 for a single person or $400 for a married couple. It’s not huge, but it’s something.

Next, a 529 plan’s investments enjoy some major tax benefits. The income earned in the account is never taxed if the money is used for qualified education expenses. The list of approved is very encompassing. IRS Publication 970 spells them out.

Plus, you won’t lose control of the money in the plan. Most importantly, your grandchildren won’t automatically get the money at age 18. This is in direct contrast to your current setup.

Now, if it turns out that one of your grandchildren isn’t college-bound, you can always change the beneficiary designation to another family member. Of course, you can even take the money back, but know that the earnings portion is subject to tax and there is a 10% penalty on those earnings, too.

Finally, if there is money left over in the 529 plan, and it’s been open for at least 15 years, new rules allow for the money to roll into a Roth IRA for your grandkids. There are many rules around this, but it’s a very interesting feature to keep in mind.

Q: I’m growing tired of sending in my quarterly estimated tax payments. It seems there must be an easier way to get the government their money. Any suggestions?

A: Quarterly estimated tax payments can be a bit of a pain. After all, who likes deadlines? Fortunately, there are some alternatives that might make this easier.

One option is to make your estimated federal tax payments through four automatic, scheduled draws directly from your checking account. This can be set up right on your previous year’s tax filing. Ask your tax preparer about it. However, Michigan tax payments will still need to be made the traditional way.

There is another option for those who are drawing from their retirement accounts, receiving a pension payment or even collecting Social Security. If this describes you, you can have the correct amount of federal and state income taxes withheld directly from these income sources. It takes a little math and a good tax projection, but it’ll eliminate the need for quarterly estimated tax payments.

Q: I’m working on my estate plan. I want to leave money to charity after I pass, but I’m worried about how the money might be spent by them in the future. How can I make sure my donations will be put to good use, even after I’m gone?

A: Given your concerns, you might consider the use of a “testamentary” donor-advised fund (DAF). The word, testamentary, simply means that the DAF is created upon your death, not before.

A donor-advised fund is a tool for your charitable giving where you get to “advise” on where the money should  go in the future. While you no longer have true, legal control over the money you’ve donated, a DAF effectively allows you to choose the charities to support and the timing and amounts of the donations.

Upon your death, you can name other people (let’s say, your kids) to assume your role in advising on future donations. Having them oversee future donations might alleviate your concerns about the future use of the money. The key thing is to explain your wishes and then hope they listened!

Q: We are considering selling one of our homes. We’ve heard there’s a capital gains exclusion, but we’re not exactly sure how it works. How do we qualify for this tax break, and what should we do now to make sure we can use it?

A: To start, the capital gain exclusion is only for your primary residence. Legitimately establishing your primary residence does take some specific steps that might be a bit cumbersome. Frankly, given the size of the tax benefit, it’s purposely designed to be somewhat difficult to use, especially if you are just trying to work the system.

When you sell your primary residence, you are entitled to a capital gains exclusion of up to $250,000 each. As a married couple, this works out to a $500,000 capital gain exclusion. However, there are specific tests that you must pass to use this gain exclusion.

In short, your property must have been your primary residence for two of the past five years. To help you prove it was your primary residence, there are some tell-tale signs that can help support your claim.

Among them, the property’s address should be used on your tax returns, voter registration, financial accounts, utility bills and your car registrations. Also, it would make sense for this property to be taxed as your primary residence, not as a second home, obviously. Finally, consider having some proof that you are actually a part of the community, such as participation with local organizations.

Bottom line, the overall facts and circumstances of your life, routine and general habits should align with the claim that you are, in fact, selling your primary residence.

Q: We have decided to sell our home, but we haven’t done this for a long time. With the National Association of Realtors (NAR) new commission changes, will this change our strategy for setting our listing price?

A: With this spring’s lawsuit settlement, the NAR’s new real estate commission policy just took effect. Understanding its impact is wise, but it honestly might not result in much of a practical change. 

The NAR’s new policy results in two changes in how buyers and sellers deal with their agents. The end result is greater transparency through clearer disclosure.

Under the old system, through the MLS listing system, the buyer’s agent (and, often, not the buyer) would see how much of the commission the seller’s agent was willing to share with them. This behind-the-scenes practice is no longer allowed.

Under the new system, the buyer’s agent now needs to present a written agreement to their client that spells out their commission and must be signed before showing any property to them. Buyers will know what their agent will be doing for them and what they will be paying them for their services.

These are good changes, but beyond greater transparency through clearer disclosure, it might not make much of a difference with the true economics.

Let’s say you list your home for $600,000. Under the old system, you might have paid a 5% commission to your agent. You would receive proceeds of $570,000, after the commission expense. And, your agent would have then turned around and shared part of their $30,000 commission with the buyer’s agent. That was the behind-the-scenes part.

Now, unless an agreement is struck openly between the two agents on commission sharing, the seller and the buyer will each have to pay a commission to their own agent. As the seller, let’s say that commission is 3%. And, let’s say the buyer agent’s commission is 2%. Yes, it’s the same 5% in total, but the buyer and seller are each paying their own part.

So, how will this new commission arrangement affect a deal? Well, obviously the buyer won’t just blindly pay more than $600,000 for your home, with their 2% commission cost added on top. To offset their commission expense, they’ll actually want to negotiate a lower price of $588,235, to be exact. And, if you agree to sell your home for $588,235, then your own agent’s 3% commission will reduce your net sales proceeds to $570,588. As you can see, that net amount is awfully close to the same $570,000 you’d get under the old, less-transparent 5% commission-sharing setup.  

While this new policy change might feel like much ado about nothing, in all practicality, I think the real estate industry will be commensurately more transparent. In my book, that’s always a win.