Q: I’ve saved a lot in my HSA, but now I’m a little worried. What if I can’t use it all for medical expenses in retirement? And what happens to it after I die, especially if my kids inherit it?

A: First off, good job. Building up a large HSA takes a long time given the low contribution limits. Your worry about accumulating too big of an HSA is legitimate, though. The good thing is HSAs offer some flexibility that might help.

To start, HSAs are a powerful “triple threat” from a tax planning standpoint. HSAs are tax-deductible on the way in, grow tax-free, and remain tax-free when used for “qualified” medical expenses. It wouldn’t hurt to refresh yourself on which expenses are considered qualified and which aren’t.

Now, if you do happen to use the money for non-qualified purposes, you might need to watch out for penalties. If you are under age 65, you’ll owe tax on the distribution plus a hefty 20% penalty. But after age 65, that penalty disappears and you’ll just face normal taxes on any non-qualified distributions.

If you’re worried about leaving behind too big of an HSA, you can always retroactively reimburse yourself – many years after the fact – for old medical expenses. You just have to keep good records. This might help you knock down your HSA balance.

Finally, if you (and your spouse) die and leave an HSA to your kids, the wonderful tax benefits end. The entire HSA balance becomes taxable to them right away, unlike the 10-year distribution rule for inherited IRAs. HSAs are not a great inheritance vehicle.

Q: I noticed something strange when doing my year-end investment review. Some mutual funds I’ve owned for a long time made some bigger-than-normal capital gains distributions. But, I didn’t sell anything this year. I don’t get it.

A: This can be a bit confusing. A lot of people assume that if they don’t sell anything, they won’t face any capital gains. The story is a little more complex with certain types of mutual funds.

You probably own some “actively-managed” mutual funds, rather than index funds. Your mutual fund’s manager has been buying and selling investments inside the fund this year. And when their trading creates realized gains, the IRS wants someone to pay the tax. That “someone” ends up being you, the shareholder.

This year, actively-managed funds are distributing some big gains to shareholders. After a multi-year stretch of market gains, fund managers have been selling more and triggering these gains. Unfortunately, the capital gain distributions often show up in December.

So what happens now? Check to see if you’re still in the 12% federal tax bracket. If you are, your capital gains distribution won’t be taxed at all on your federal return anyway. If the gains just pushed you into the 22% federal tax bracket, at tax time you might consider making a deductible IRA contribution (if you earned income) or even an HSA contribution (if you qualify) to bring those capital gains back down into the 0% federal tax range. You’ve still got a little bit of time to plan.

Our second-longest government shutdown in history grinds on. I suspect most people really don’t fully understand the details of the current fight. If it lasts much longer, millions of people will soon get a quick education.

At the heart of the fight sits the Affordable Care Act’s (ACA) health insurance premium subsidy. This subsidy is officially known as the Advance Premium Tax Credit.  It doesn’t exactly roll off your tongue, does it? Just think of it as a mechanism that provides help to make health insurance more affordable for about 1 in 10 households in the US.

Almost five years ago, the Biden administration sweetened the ACA’s health insurance premium subsidies. In two months, those sweeteners are set to expire. Republicans chose not to extend the “enhanced” premium subsidies when they pushed through their new tax bill in July. Democrats are now demanding an extension. Naturally, this government shutdown is their only political leverage.

It’s worth explaining how the premium subsidy actually works to get the sense of urgency. Under the ACA, you can buy health insurance through a public marketplace. If you qualify, you can also receive a government subsidy to reduce the cost. A sliding scale is applied to determine what percentage of your income you can actually “afford” to pay for your insurance coverage. The lower your income, the lower your share of the true cost. The ACA’s premium subsidy then covers the rest of the cost of a “benchmark” Silver plan. If you’re generally healthy, you might even opt for a Bronze plan to make things that much more affordable.

Before Biden’s changes, there was a hard income cutoff to getting any help. If your income exceeded 400% of the poverty line – that’s only about $60,000 for a single person or about $120,000 for a family of four – you were completely ineligible. Even if your premiums would eat up as much as your mortgage payment, you were simply left on your own.

Biden’s enhancements eliminated that cliff and it enabled nearly two million “higher-income” people to get some help. Beyond abolishing the cliff, the enhancements also lowered the definition of what’s really affordable.

If we go back to the old rules, it means higher premiums for millions of households who might still qualify for help. It also means massive premium hikes for those who make even $1 over the cliff of 400% of the poverty line. It’s a really big deal.

Now, here’s the political kicker. Next year’s ACA insurance renewal season starts next week. Today, insurance companies are about to publish their rates and their agents are currently in the dark. The sticker shock will soon be crystal clear.

While the expiration of the ACA’s enhanced premium subsidies might seem irrelevant for the fortunate majority with employer health insurance or Medicare coverage, for the nearly 15 million households who really need affordable health insurance, this shutdown fight is about to hit home. Expect a deal soon.

Technology runs almost everything now. With a few taps on the screen, we all use it to manage our lives and connect with each other. For many seniors, it’s basically a true lifeline. But, it comes with a downside with scammers looking to exploit any moment of uncertainty.

Recently, I discovered that one of my clients started receiving alarming text messages warning her that her iPhone storage was almost full. Without any family nearby to turn to – and given her general lack of tech skills – she innocently clicked on the links in the texts. One tap led to another and another, and she was soon subscribed to dozens of nefarious apps. Each of these apps promised to “clean” her phone or “protect” her treasured photos and contacts. Sickeningly, each app came with a big weekly-recurring charge.

Appallingly, these apps were available on Apple’s App Store with the weekly financial transactions facilitated by Apple itself. This scam turned into a quiet siphon, draining her bank account week after week and month after month. The work to help her recover her money is ongoing, but not guaranteed.

It’s becoming nearly impossible for me not to blame both Apple and the bank for refusing to build some safeguards for situations like this. A flurry of new, recurring charges from the same device should trigger a warning and an offer of support, if not a freeze on the charges. I understand it’s hard for them to manage, but I’m quite confident they’ve got the financial resources and the tech prowess to better protect their most vulnerable customers. As we all know, technology is becoming incredibly difficult for our seniors to navigate on their own.

My earlier advice from past columns on cybersecurity still stands. You simply must create a layer of defense. The most basic layers are to use unique and hard-to-guess passwords, set up two-factor authentication for all of your financial accounts, freeze your credit files and identify a trusted contact to call whenever things get confusing. I cannot recommend strongly enough that you need someone to call when you have even an ounce of concern.

I am now adding another layer to the mix. Make it a habit to review your iPhone or iPad’s app subscriptions. Yes, that means you’ll need to dig into your phone’s settings. And, yes, you also need to closely review your bank and credit card statements for odd-looking, recurring charges.

The reality is clear. The scams are evolving fast. The coming wave of AI-enabled fraud will make today’s tricks look downright quaint. Without any help from Congress to mandate accountability from our tech companies and banks – in fact, the exact opposite is happening – more sad stories are on the horizon. I encourage you to at least take the most basic steps to not become one of them.

Q: Over the last few years, I’ve gotten used to using my IRA checkbook for my donations. My advisor told me these IRA donations helped lower my taxable income. Now, with the new tax law, I heard I can just use my regular checkbook again and still get a tax break? Is that true?

A: Congress has, in fact, brought back the idea of a small deduction for charitable donations, even if you don’t itemize. Beginning next year, non-itemizing taxpayers can deduct cash donations of up to $1,000 (single) or $2,000 (married.)

If you remember, during COVID we had a similar special add-on charitable deduction in the tax law. But that feature expired after just a couple years. This new one is “permanent”, unless Congress changes its mind, of course.

The new deduction limit is pretty small, though. So, I’d say donating from your IRA directly is still the better approach. Your IRA donations don’t show up on your tax return at all and they help to satisfy your required minimum distribution (RMD.) Using your IRA is still the cleanest, most efficient way to donate money.

In my view, the best part about this new feature is, starting next year, you’ll at least enjoy a tax break even when you accidentally grab the wrong checkbook to make that donation. From my experience, this mistake happens all the time!

Q: I’m a business owner and have been using Michigan’s Flow-Through Entity Tax (FTET) to get around the $10,000 federal SALT deduction cap. With the SALT cap now set at $40,000, does it impact business owners like me who use the FTET?

A: As you know, back in 2018 when Congress set a $10,000 cap on the deduction of state and local taxes (SALT), a lot of states scrambled to find “workarounds.” They came up with the Flow-Through Entity Tax (FTET.) 

The FTET move allowed business owners of pass-through entities (LLCs and S-Corps) to pay a portion of their personal state income taxes through their business. This turned those taxes into a business expense and it effectively lowered their federal tax bill. For high-earning business owners, this move allowed them to bypass the low $10,000 SALT cap.

Under the new tax law, Congress boosted the SALT cap to $40,000. As a result, some worried that the FTET workaround would disappear. Surprisingly, the new tax bill left this workaround untouched. So, your move to route your state income tax liability through your business is still a sound strategy.

For those who have not been using the FTET workaround, the higher $40,000 SALT cap might help some. But, maybe not as much as you’d think. Why is that? Remember, the standard deduction is pretty big already. For example, for married filers, the standard deduction in 2025 is already set at $31,500. 

Every piece of legislation is about making choices. This one did, in spades. The One Big Beautiful Bill Act spans almost as many pages as War and Peace and it covered way more than taxes. Viewed from 30,000 feet, it really represents a large set of choices that ultimately result in big cost shifts for all of us.

On the tax front, it almost goes without saying that higher-income households and small business owners made out the best. The special deduction given to pass-through business owners was made even more generous and is now permanent. And, the cap on the deduction of state taxes and property taxes was also raised significantly. These two changes, among others tax items, exclusively help high earners.

For moderate-income households, the tax picture also improved for some. New deductions were added for tips and overtime pay. And, seniors also got an added deduction that’s designed to offset taxes paid on Social Security benefits. Those were Trump’s campaign promises, after all, so they weren’t a big surprise to see.

Now, for lower-income households this bill was disappointing. For example, the child tax credit was increased by $200 per child. But, for the millions of households with little or no federal tax bill – due to the fact that they don’t earn enough money – they won’t see any of that extra $200. Given the tax cuts others will receive, that policy choice is hard to understand.

Added to that small insult for the poor is some real injury. The bill imposes some impactful changes to both Medicaid and the SNAP food program. There are added work requirements for some people and some new administrative hurdles to leap just to stay eligible. For some, they will even face added out-of-pocket costs.

These changes are expected to affect millions of households over the next decade. Importantly, states will now be responsible for covering a portion of the costs of both programs – expenses they don’t currently have budgeted. Almost certainly, states will trim both Medicaid and SNAP benefits to close the gaps. Ironically, this will likely hurt “red” states the most, even though the bill was passed exclusively by Republicans.

Climate policy took a hit, too. The bill eliminated a lot of energy efficiency incentives that were introduced only a few years ago. The tax credits provided for installing energy-efficient upgrades to homes will be gone by the end of the year and the tax credit provided for buying an electric vehicle will be gone by October.

Overall, it’s safe to say that this bill widens the gap between households with means and those without. It’s also fair to say that when budget discipline was imposed, support for low-income families was the first item on the chopping block.

Let’s not fool ourselves, however. There is no free lunch. The true cost of losing federal support for the poor will increasingly land at our feet in our local community. Unsolved problems don’t just magically disappear, they simply shift to others to solve.

Q: I recently inherited a regular IRA and a Roth IRA from my mother. I’ve heard something about a 10-year rule for my future distributions. But, I’m confused about how it all works from a tax standpoint for these two inherited accounts. Can you explain it?

A: The fact that your mom had already started taking her RMDs makes the rules a bit more complex. But, overall, it’s not too bad.

For your Inherited IRA, you will have to take annual distributions based on your age, not your mom’s age. In addition, you also have to fully distribute the entire account by the end of the 10th year, starting with the year following your mom’s passing. And, remember, your Inherited IRA distribution will be taxable income.

Things are treated a little differently with your Inherited Roth IRA. First, there’s no requirement to do annual distributions. But, the 10-year rule still exists. You just have to empty out your Inherited Roth by the end of that 10th year. Finally, assuming your mom’s Roth IRA was started at least five years ago, your Inherited Roth distributions will be tax-free.

The difference in tax treatment between these two inherited accounts is important to understand. Your Inherited IRA distributions will increase your taxable income. Your Inherited Roth IRA distributions won’t.

Depending on the size of your inheritance, you might want to spread out your Inherited IRA distributions to manage your tax picture. Of course, for your Inherited Roth IRA, you should let that account grow tax-free for the full 10 years.

Q: I’ve always made cash donations, but a friend of mine recently told me I could donate some of my appreciated stocks instead. Why is that a better way?

A: Donating appreciated securities, like individual stocks or even mutual fund shares, has a couple of advantages over just donating cash.

To start, when you donate appreciated shares, you still get to deduct the current value of those gifted shares. If you donate $10,000 worth of stock, you can deduct that $10,000, just like you do with your cash gifts (assuming you itemize your deductions, that is.)

But, here’s the added tax benefit. When you give away appreciated shares, you get to avoid paying tax on any of those built-up capital gains. Let’s say you originally paid $3,000 for a stock that’s now worth $10,000. If you sold that stock and donated cash, you’d owe tax on that realized gain of $7,000. Donating those shares “in-kind” directly to the charity and letting them sell it as a non-profit results in no tax at all. It’s a win-win.

Before moving forward, be sure to call the charity to make sure they are able to accept donated shares. Most can. It’s a pretty easy process.

If you’ve worked up the guts to glance at your portfolio lately, you might be pleasantly surprised. It might even look like very little has happened this year. Of course, it has felt like a malfunctioning roller-coaster ride. In fact, 2025 resembles Lemony Snicket’s “A Series of Unfortunate Events.” It’s been one thing after another.

It all started when the new administration took office. The onslaught of executive orders, slash-and-burn DOGE tactics and abrupt policy reversals immediately shook investors and retirees, alike. To be honest, I’ve lost count of how many people have expressed worry over the future of Social Security. That part is particularly unfortunate.

Then came the tariffs. As we all know by now, in early April President Trump unveiled a tariff policy that was seemingly devised by a procrastinating, high-school student relying on ChatGPT. To put it nicely, it made no sense. In response, the stock market plunged nearly 15% in a matter of days. Succumbing to Wall Street’s pressure, President Trump tweeted out a 90-day “pause.” The market then spiked 10% in the span of just an hour.

Since cooler heads appear to have prevailed, the stock market has clawed its way to within spitting distance of its all-time high set in mid-February. But, we aren’t out of the woods. The new tariffs and their inflationary and economic pressure remain a focus. The Fed’s path is very murky, to put it mildly. In classic economist-speak, on one hand the economy is slowing. But, on the other hand, tariffs are inflationary. I’m pretty sure derogatory jabs by President Trump are not making things any easier for the Fed.

The promised avalanche of big trade deals to come has yet to materialize. The fact that the April tariffs might soon be ruled as illegal could explain the slow progress. Why negotiate with a policy that might vanish on its own? Instead, we’ve only seen a few vague announcements of “frameworks.” Nevertheless, the markets seem to believe level-headed adults have taken things over. It’s not hard to imagine this as wishful thinking.

Adding to the mix of uncertainty, extending the 2018 tax cuts is now in jeopardy. If the massive tax and spending bill fails under its own weight, taxes could rise for almost every household. Some insist on sweeping spending cuts. Others refuse to budge on more tax breaks. It’s a game of legislative whack-a-mole. We shall see.

If you’ve found yourself mirroring the wild market moves with similar emotional swings, this recent recovery might offer a rare shot at a review and reset of your portfolio’s risk. This might mean raising some cash and trimming your stock market exposure. 

This is not a prediction of doom-and-gloom ahead. As I’ve learned over the years, everything should be done with a deep sense of humility. After all, nobody can predict markets with much consistency. All things in moderation is a sound guiding principle, especially in an environment seemingly devoid of it.

Markets may feel a bit steadier, but don’t mistake this moment for stability. After the recent chaos, investors are breathing a little easier. But, I wouldn’t say we’re out of the woods. More likely, we’re experiencing a temporary reprieve.

President Trump’s recent 90-day pause of his so-called “reciprocal tariff” plan was his first sign of retreat. Stories are now floating around that he might just lower tariffs on China – from ridiculous levels to merely too high. And, he has also signaled a willingness to talk to Chinese President Xi, but only if he calls him first. Adding to the sense of calm, Trump has also suddenly decided to tone down his antagonism toward Federal Reserve head, Jerome Powell. This was just days after calling him a “major loser” on social media.

Of course, none of these reversals were rolled out as a formal shift in policy. Instead, they’ve come in the form of hints, rumors, offhand remarks and social media posts – leaving everyone to decipher the White House’s true intentions in real time. These childish guessing games have tangible, economic consequences.

The markets’ sense of relief started when Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick reportedly found a way to literally sneak into the Oval Office. Their goal was to get President Trump to at least pause his new tariff “policy.” The sneaking around was apparently necessary to get Trump’s influential trade adviser, Peter Navarro, out of earshot. Their clandestine effort smacks as a desperate maneuver. Moments later, Bessent and Lutnick waited in the room while President Trump walked back his tariff plan via a social media post. The mere image of this intervention is unsettling.

The policy in question – vaguely defined “reciprocal” tariffs – was never truly about reciprocity. Instead, it relied on a crude formula that no serious economist could defend. This entire episode highlights a governance style that appears impulsive, unthoughtful and reactive. Business leaders are left to guess what policy will look like a week from now. It has layered on a level of uncertainty that risks a recession.

Markets can handle policy changes. They can even handle reasonable unpredictability. But, when rules shift with little notice and policies lurch between extremes, the trust that underpins our markets erodes. The notion that Bessent and Lutnick are holding back the erosion of terrible decision making is concerning, to say the least.

While the “adults in the room” appear to have taken charge – for now – it’s unclear how long it will last. For this reason, now might be a good time to review your portfolio. If the past month has prompted feelings of regret for not paying closer attention to your investments, this period of calm might be a second chance. Because, in this environment – and with the current occupant of the Oval Office – it’s rarely about if the tone will change, but when.

As everyone knows by now, markets are experiencing extreme volatility. Over the past ten days, stocks have dropped considerably. The selling has been a global affair. Perhaps most notably, US government bonds have failed to offer their usual safe harbor. Investors have sent a clear sign of a loss of confidence.

The proximate cause was President Trump’s decision on April 2nd to impose blanket tariffs on virtually every other country on the planet. While we all knew some tariffs were in the offing, the specifics of his policy were a huge surprise. His process, methods and decisions were widely viewed as shockingly uninformed. The policy simply ignored the deep complexity and inherent interconnectedness of global trade. Once the details were fully analyzed and absorbed, it became clear President Trump’s tariffs lacked a foundation in sound economic thinking and risked a recession.

Big money players quickly voiced concerns. Piles of CEOs and investors questioned whether the Trump administration even understood what it was doing. Naturally, White House officials made the rounds in the media, defending his tariffs in ways that further strained credibility. Over time, their arguments appeared increasingly disconnected from the reality unfolding in the markets.

Thankfully, the backlash was intense. Under mounting pressure, President Trump finally reversed course and announced a 90-day pause in the tariffs. The White House called it “his plan all along.” They now claim he was just trying to bring other countries to the negotiating table. Of course, if the tariffs were just his tactic to gain leverage, pausing them at the drop of the hat and declaring victory is almost laughable. Are we really to believe that he relinquished his leverage just because an undisclosed number of countries have supposedly reached out to talk? There were many, less damaging ways to start a conversation. Thoughtful people know President Trump buckled to immense pressure and was offered an “off ramp” to save face.

Now, the timeline of his announcement of his tariff “pause” raises some serious questions. Media sources reported last Monday morning that such a pause was in the works. Stocks vaulted within minutes. The White House quickly declared those reports to be “fake news.” Promptly, stocks resumed their slide. Then, only two days later on Wednesday morning – hours before making his public announcement – President Trump posted on social media that it was “a great time to buy.” He later admitted his decision to pause tariffs was made that very morning. Piecing this timeline together, it’s quite clear that President Trump publicly encouraged people to buy stocks – and, it is important to remember for every buyer, there is a seller – while he sat on market-moving information that he alone controlled. This is a disturbing breach of the public’s trust.

Sadly, this entire episode – and continued escalations with China – is yet another stark reminder of the need for Congress to reassert its constitutional authority. If our lawmakers don’t step up and do their jobs – soon – they share responsibility for what happens next. Have they not yet seen enough?

Q: I’m pretty close to retirement and hearing about a possible recession due to tariffs, and government cuts has me feeling nervous. Should I just move everything to cash?

A: It’s a natural instinct to act when things feel this uncertain. Doing something can feel better than just sitting still. But, it often backfires when you act on fear.

It’s important to remember that markets are forward-looking. Today’s stock prices already “price in” a wide set of possible future outcomes. This includes many of the things currently making headlines. Moving to cash is a tough decision on many levels. There is a high probability that you are the batter swinging at a pitch after the umpire has already called a third strike.

Your portfolio should be built around a longer-term financial plan. It’s smart to remove the emotion. Your plan should be built around some key pillars. I’m referring to things like solid diversification, a proper balance between stocks and bonds, and a clear understanding of your own appetite for risk.

Diversification means not having too much exposure to industries vulnerable to tariffs. A balanced portfolio means you hold some riskier assets, like stocks, and you also have more stable ones, like bonds. In the end, your financial plan should already account for some volatility. It shouldn’t require adjustment every time the market gets rattled. The bottom line is, when markets are shaky, it’s smart to revisit your plan, not abandon it.

Q: With the IRS being gutted, my husband thinks it’s safe to say there will be fewer audits. He’s thinking we could just skip filing our taxes this year. We are both pretty sickened by what we’re seeing coming out of the White House. But, what are the real risks here?

A: With everything that’s going on today, finding a way to protest is your absolute right. But, I wouldn’t do it this way. This is not the type of “good trouble” you want to find yourself in!

The IRS gets mountains of data on you. They know a lot about your tax picture, with or without your tax return. Employers, brokerage firms and banks file tax forms, among other sources. Their computer systems fully ingest all of this tax data on you.  If you don’t file your taxes at all, that missing return waves a massive red flag. When their computers spot an inconsistency, they’ll almost certainly send you a notice – sometimes a couple years later – demanding a tax payment along with interest and penalties.

The penalties can be harsh. If they determine you owed them money, and you never filed, the IRS hits you with failure-to-file penalties, failure-to-pay penalties, plus interest on both. And, that’s before mentioning possible accuracy-related penalties if you understate your income by too much. All of this can pile up quickly. Tax evasion is just an unwise form of political resistance. It’ll likely cost you more than you think.

There is a time to speak up.

Democracy and capitalism rely on strong institutions, a true balance of power and clear policies. Elon Musk’s inflammatory actions and President Trump’s chaotic approach have created needless uncertainty. Some might view their tactics as bold. In my view, they are absurdly dangerous. Disruption without public discourse weakens our institutions and our economy.

Our institutions must be defended before they erode further. Musk’s DOGE, an unaccountable entity, has gained access to our nation’s payment systems and the personnel files of millions of government employees. It raises legitimate questions of their true intent. I can assure you, this has created concern for many retirees.

Meanwhile, policy shifts by President Trump are creating mayhem. His wildly confusing tariffs policies, his and Musk’s attempts to gut the federal workforce, his threats to annex and abandon other nations and his slew of orders designed to deepen public divisions are prime examples. While certainly not my only concern, these actions lower confidence and ripple through financial markets.

Trade tensions will disrupt global supply chains and damage our international relationships. Tariffs will raise consumer prices and invite retaliation. In the background are looming threats to hamstring the Federal Reserve’s independence. This all fuels uncertainty, increases volatility, and weakens our economy. But, as we should all know by now, life is about more than money.

Our courts and the free press – key pillars of our democracy – are in the crosshairs. They act as safeguards against tyranny. President Trump’s ongoing attacks on reputable news outlets, his questioning of the legitimacy of judges, and his granting of access to fringe news sources both limit transparency and erode public confidence. Without trust in these institutions, our society is weakened.

Congress plays a critical role. So far, lawmakers appear unwilling to check President Trump’s and Elon Musk’s actions. Among other jobs, our elected officials are supposed to slow things down and ensure that policy changes are seriously considered. When they meekly sit on their hands – fearing their positions more than the lives (and livelihoods) of the people they were elected to serve – the door is open for lasting harm.

Beyond just voting, we also play a critical role. We all share the responsibility to engage in thoughtful discussion, demand transparency, and hold leaders accountable. But, without strong institutions, far too much damage can be inflicted between election cycles. Remaining silent and hoping others will say or do something is a natural instinct. However, history shows that silence is the lifeblood of authoritarians.

This is not about politics. My point is much broader. We should all be able to agree on the importance of stability, respect, fairness, and protecting our institutions. What we are all witnessing should get our attention. It’s time to speak up.

Q: My husband didn’t work last year, but we’d like to contribute to an IRA for him to lower our taxes. We’re in a higher-than-usual tax situation this year. Is this allowed? Also, I participate in a retirement plan at work. Does that change things?

A: Yes, you can contribute to his IRA even though he didn’t work. It’s called a spousal IRA. His contribution limit for tax year 2024 is $7,000, plus an additional $1,000 “catch-up” contribution if he’s over 50. You have until tax time to make his contribution.

Whether his contribution is actually tax-deductible will depend on your family’s overall income. Since you are in a retirement plan at work, it affects the deductibility of his IRA contribution. For 2024, for married couples the deduction is fully phased out at $240,000 of adjusted gross income.

If you exceed this income limit, you can still make a contribution for him, but it would be non-deductible. To better plan for this year, you might double check to see if you are actually maxing out your own retirement plan contributions.

Q: We had a big income year in 2024, but 2025 will be much lower. We don’t think we need to make estimated tax payments this year based on last year’s income. How do we make sure we pay the right amount and avoid any penalties this year?

A: The IRS’ estimated tax rules offer flexibility, but getting it right takes some work.

To avoid penalties, you need to meet a “safe harbor” rule. One option is to pay 100% of last year’s tax liability (or 110% if your adjusted gross income was over $150,000). Since your 2024 income was high, this could cause you to pay way too much tax along the way. With interest rates on savings still pretty attractive, letting the government have that money ahead of time isn’t the smartest move.

A second option is to pay at least 90% of your actual 2025 tax liability. This avoids overpaying but it does mean you’ll have to do some tax planning throughout the year. If your estimated tax payments end up being too low, you could get hit with a penalty.

If you’re retired, it might make sense to adjust your tax withholding on your IRA withdrawals or even your Social Security or pensions payments instead of making estimated payments. The IRS treats this type of tax withholding as if it were paid evenly throughout the year. This way, you can wait until later in the year to do your tax projections, rather than make those large tax payments during the year.

While it can be a pain, checking your numbers throughout the year and making adjustments will help. It’s far less of a pain than paying those underpayment penalties!

As Bob Dylan declared, the times they are a-changin’. The tax picture for Michigan retirees remains in flux. The 2024 tax season now brings us the “50% phase in” of Michigan’s new retirement income tax law.

As a refresher, the new law acts as an “overlay” on top of the old law and retirees get to choose the law that treats them best. Year after year, the new law is slowly winning the battle. Here’s how it works.  

Group A: For those born on or before 1945, there is no change. These retirees get to deduct their retirement income up to about $64,000 (single) / $128,000 (married) for 2024. Retirement income includes things like pension benefits and IRA distributions.

Group B: For retirees born in 1946 through 1952, they either get to deduct $20,000 (single) / $40,000 (married) against all types of income or they can use 50% of the new law’s deductions specifically against their retirement income. They can deduct their retirement income up to about $32,000 (single) / $64,000 (married.) Note, this is 50% of what Group A gets to deduct as shown above. They can choose the deduction level that’s best for them.

Group C: For retirees born in 1953 through 1957, they also either get to deduct up to $20,000 (single) / $40,000 (married) against all types of income – with an added catch – or they, too, can use 50% of the new law’s deductions specifically against their retirement income. 

The catch is the old law’s deduction amount is weakened because it is reduced by the taxable portion of their Social Security benefits and their personal exemptions. With each passing year, the new law crushes the old law.

Note, once people reach age 67, they enter into this group. Thankfully, in the years to come, it’ll completely eliminate the next group of younger retirees.

Group D: For retirees born in 1958 through 1962, the old law provides no deduction. The new law wins, by default. For the 2024 tax year, they also get 50% of the new law’s deductions against their retirement income just like the previous two groups.

Group E: For those born in 1963 through 1966, they will have to wait for the 2025 tax year to see the benefits of the third “phase in” of the new law. They get no deduction in 2024.

Group F: For those born after 1966, they will have to wait for the fourth and final “phase in” during the 2026 tax year. They get no deduction in 2024 or 2025.

To recap history, the 2023 tax year phased in 25% of the full deduction and the 2024 tax year is now phasing in 50%. Looking forward, 2025 will bring us a 75% phase in and 2026 will allow everyone to enjoy 100% of the retirement income deduction. I’m looking forward to 2026!

In a surprising move, Congress just repealed two controversial provisions of Social Security that impact millions of retirees who receive “non-covered” pensions that were earned while opting out of the Social Security system. With Biden’s pending signature, the Windfall Elimination Provision and Government Pension Offset will soon be relics of the past and a great set of trivia questions for finance nerds.

The Windfall Elimination Provision (WEP) started way back in 1983 and is all about retirees with non-covered pensions who also happened to earn some Social Security benefits elsewhere at some point in their careers. WEP’s goal was to prevent retirees with sizable non-covered pensions from appearing to be low-income workers in the eyes of the Social Security system.

By design, Social Security replaces more of a low-income worker’s earnings than it does for a higher-income worker. However, appearing to be a low-income worker – while also receiving a healthy non-covered pension – is not the same as actually being a low-income worker. To account for this fact, WEP worked to reduce a “pseudo” low-income pensioner’s Social Security benefit by about $500 per month. This WEP reduction is now gone.

The Government Pension Offset (GPO) is equally long-standing and is all about Social Security spousal benefits and survivor benefits. It was put in place to reduce or eliminate Social Security spousal or survivor benefits for people who also receive substantial non-covered pensions.

As a spousal benefit, you are entitled to the greater of your own Social Security benefit based on your work history or half of your spouse’s benefit. And, as a survivor benefit, you are entitled to the greater of your own Social Security benefit or your deceased spouse’s Social Security benefit. However, for people with non-covered pensions, they might not have earned much, or any, Social Security benefit on their own during their careers. 

Without an adjustment under GPO, these pension-receiving spouses would effectively be viewed as a “stay-at-home” spouse and would automatically be entitled to a benefit based on their spouse’s work record. But, of course, they would receive their own non-covered pension benefit, too.

To account for this appearance of “double dipping”, GPO basically plugs in a person’s non-covered pension “as if” it is their own Social Security benefit. Given the size of some non-covered pensions, GPO worked to reduce or eliminate any spousal and survivor benefits for many pensioners. This GPO reduction is now gone, too.

With GPO and WEP’s repeal, about 3 million affected retirees will begin to receive about $20 billion more in Social Security benefits. On top of that, they are also slated to receive a year’s worth of retroactive benefits. The details on how these retroactive benefits will actually find their way to retirees’ bank accounts is still being worked out. It’s a massive undertaking.

Recent headlines have left me scratching my head so often that it’s starting to leave a mark. Here are a few things that are definitely making me go hmmmm.

As a quick follow up on my most recent column, a few days ago a judge in Texas put a hold on FinCen’s new beneficial ownership (BOI) filing requirement for millions of US businesses. This new government filing was intended to combat tax fraud and money laundering. Nonetheless, it’s been derailed with this new legal ruling that invoked the tone of “Don’t tread on me!” My advice to business owners who haven’t yet done their BOI filing is to remain prepared. If the government wins its appeal, you might have to disrupt your Christmas holiday to get it done in time.

Now, here’s a parting thought for the skeptics out there. Sometimes transparency isn’t just burdensome red tape. Don’t you think it’s sound public policy to do what we can to combat tax cheats and criminal activity?

Speaking of transparency, or complete lack thereof, we’re now just learning that Elon Musk reportedly spent $250 million of his own money during this past election cycle. Amazingly, that estimate is likely on the low side, when all things are considered.

We’ve likely just lived through the nightmare scenario many pundits warned us of when the Supreme Court legalized the injection of an unlimited amount of corporate and private money into our politics. To learn weeks after an election that the richest man on Earth invested this much of his own money in exchange for an unknown level of power and influence is nothing less than alarming.

For members of Congress and for his business competitors, Musk’s growing influence inside government circles feels like an existential concern. They are scrambling to stay in Musk’s favor to benefit from his unelected circle of influence. His appointment as the head of the new Department of Government Efficiency (DOGE) arms him with additional massive, unaccountable power. Musk’s growing influence over major industries and government policies is becoming very clear. When private ambitions start steering public policy so blatantly, it’s hard not to worry about the negative effects of outright crony capitalism. It’s simply not a good economic system.

You might be asking, what does my head-scratching have to do with your money? Well, I suppose it’s to say that we should all prepare for some turbulence ahead and you might want to proactively adjust your investment portfolio. Of course, since the future is always unknown, everything in moderation remains sage advice. But, with the stock market hitting record highs again and again, it’s probably also sage advice to remind you that an ounce of prudence might save you a pound of regret.

If you’re a business owner, you should know by now that there’s a new law that requires you to disclose your ownership details to the government. While this might feel like just another bureaucratic hassle, ignore it at our own peril. With big penalties and fines, this particular hassle deserves your attention! 

The Corporate Transparency Act (CTA) was passed way back in 2021 as part of an effort to combat money laundering, tax evasion, and other financial crimes. It requires that all incorporated businesses report their Beneficial Ownership Information (BOI) to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). That means most LLCs, S-Corps and C-Corps have to comply. For most, the deadline is right around the corner, by January 1, 2025. But if your business was new this year, you were required to file the report within 30 days of your start.

What’s driving all of this? Historically, shell companies have been used to hide illicit activities. In response, the U.S. is catching up to global standards, requiring transparency about who actually owns and controls businesses. While this does feel intrusive, the goal feels justified.

Fortunately, filing your BOI report is easy enough. FinCEN has an online portal (boiefiling.fincen.gov) and the process only takes about 15 minutes. Before you start, you’ll need some essential information: names, addresses and birthdates of all beneficial owners of your business, your EIN, and copies of IDs for everyone.

Not every business is required to file the report. If your company has over 20 employees, generates more than $5 million in annual revenue, the government already knows all about you. Similarly, nonprofits and truly dormant entities with no assets or activity can skip it. But, don’t just assume you are exempted. Check with your advisors.

Unless you are a true do-it-yourselfer, you’ve probably received a lot of mailings about this new filing requirement from your CPA and attorney. For many legal and capacity reasons, many CPAs are not handling these filings for their clients. Many are just referring their clients to attorneys. With the end-of-year deadline fast approaching, be aware that your CPA and attorney could be quite slammed. For most readers, you can certainly do the filing yourself, but if you’re in doubt, you should contact your advisors for some help. 

If you are rolling your eyes after reading all of this, let’s talk more about the penalties. The government isn’t messing around. Stubborn resistance could cost you $500 per day, up to $10,000, and could even lead to criminal charges. Clearly, it’s not worth the gamble for only 15 minutes of minor, emotional pain! Don’t let this slip through the cracks.  

This election has occupied my mind more than it deserved. My experience tells me to ignore the rhetoric and focus only on policy proposals. Yet, I’m equally aware that there is no truly reliable way to predict their impact on the economy and markets. I think most would agree, it’s an exhausting process that feels both wasteful and beneath us. Supposedly, it’ll be over very soon, right? One can only hope.

A few legitimate things have caught my eye, though. Namely, proposals that might impact inflation and future tax policy.

Voters seem confused about inflation. The post-pandemic fever broke and inflation has come down a lot. The global supply of goods and services simply caught up with the surge in pent-up demand after Covid. Inflation is now approaching the Fed’s official 2% target. The fight isn’t over yet, but it’s quite close.

Yet, many voters believe inflation remains sky-high. There’s clearly a fundamental misunderstanding. Declining inflation doesn’t mean prices are in outright decline. That would be called deflation. And believe me, deflation is not a desirable goal, especially for those who owe money. Lenders hoping to be paid back someday don’t want to see deflation, either. Low and steady inflation is the goal for a good reason.

Speaking of debt and inflation, Donald Trump’s campaign is filled with proposed tax cuts. He’s called for zero tax on tip income, zero tax on overtime, the elimination of taxes on Social Security benefits, interest deduction for car loans and large tax cuts for corporations. Recently, he even floated the idea of eliminating all income taxes. All these proposals are expected to be funded by higher tariffs on imports from China and others and faster economic growth. However, trained economists are clear that tariffs are ultimately inflationary and act just like a tax hike.

Kamala Harris has proposed some tax cuts and targeted tax credits, as well. Her proposals are standard fare for a Democratic candidate. These include higher tax credits for those with children, tax credits for business start-ups and first-time homebuyers. Not to be beaten in Las Vegas, however, she also called for the elimination of tax on tips. Her proposals are balanced by higher taxes on corporations and high-income households and, also, faster expected economic growth.

Naturally, neither campaign has informed the public about the cost of their tax proposals’ impact on future federal deficits and our debt burden. It’s about getting the votes, first. Yet, with the 2017 tax cuts expiring in a little over a year, I do think voters deserved a much deeper discussion about tax policy. But, alas, this isn’t the world we live in today.

Despite all the noise, tension and fury, I’ll now add to the unbelievable cacophony of calls, texts, and mailers that we’ve all been receiving: Go vote. It does matter.

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.  

Over the first few trading days of August, investors have again been reminded that markets don’t just rise. From Thursday, August 1 through Monday, August 5, stocks have declined about 6%. While this level of decline feels  somewhat “pedestrian”, it has certainly attracted attention.

It’s important to note that the media is always looking for reasons to explain the movements of financial markets. When stocks rise, it’s caused by some recent optimistic factor. When stocks declined, it’s attributed to some downbeat headlines. As humans, we seek explanations for everything.

This time, general recession fears have been pegged as the proximate cause for the market’s recent decline. In part, these fears have been driven by a few items.

The July jobs report was a bit weaker than expected. This report was joined by another negative reading of a closely-watched index of manufacturing activity. And, finally, investors are growing impatient with the Federal Reserve. There is a growing concern that the Fed is already “behind the curve” and has waited too long to cut interest rates to avoid a recession.

Recession worries have been constant since the Fed quickly raised interest rates in the spring of 2022 after their very slow response to the post-Covid rise in inflation. They steadily raised interest for about 18 months. Since August 2023, however, they’ve paused and have vowed to watch how things unfold.

The economy has continued to grow through it all. Yes, the latest job report showed a decline to only about 115,000 new jobs in July. But, the statistical margin of error of the jobs report is wide. Monthly reports should be viewed with some perspective. Over the past year, the US economy has added about 200,000 new jobs per month. Over the past six months, the monthly average is about 190,000. And, over the past three months, the monthly average was about 170,000. Yes, the jobs picture is slowing. But, things certainly don’t appear to be falling off the proverbial cliff.

Now, with inflation readings having steadily and significantly fallen since hitting their peak in late 2021, the Fed is expected to begin cutting rates at their September meeting. And, with the unemployment rate now finally rising after staying stubbornly low in face of substantial interest rate hikes, there is sufficient reason for the Fed to cut rates to help support the economy.

Without sounding like a Pollyanna, my current take on the recent stock market decline is investors are behaving like a person who shoots first and asks questions later. The fact is, as hard as we may try to explain the inexplicable, nobody really knows what causes markets to suddenly rise or decline.

The list of services of a wealth manager is always expanding. The job now goes well beyond the basics of investment management, tax planning, and estate planning. Notably, I’ve now committed to conducting online financial security audits, starting with my most vulnerable clients.

These audits cover four key elements: (1) Managing Passwords, (2) Identifying Scams, (3) Protecting Your Credit, and (4) Tapping Trusted Contacts. While nothing is fail-safe, the layering of these four elements works to lower the risks of falling victim to online fraud.

Password Management: There are many different ways to manage your passwords, ranging from using a simple notebook to using a password management software. Regardless of your chosen method, there are three principles that need to be followed. First, you should use different passwords for your key finance-related logins. Second, you should change your passwords regularly. Third, you should always use two-factor authentication for all your financial accounts and your primary shopping websites.

Scam Identification: Criminals are always looking for new ways to separate you from your money. Their primary goal is to get you to divulge your sensitive personally-identifiable financial information, such as your Social Security number, your credit card and bank account information, or your login credentials. In the end, your awareness and constant vigilance are the only realistic methods to avoid falling for a suspicious email, text, call or mailing. Given this, repeated reminders of the types of scams out there are the only defense. As silly and as simple as it may seem, you should consider having a list of common scams near any device you use to access your most sensitive, online accounts.

Protecting Your Credit: As I wrote about in a recent column, one way to limit the damage after you inadvertently divulge some of your sensitive personally-identifiable information is to freeze your credit reports. This process is a little bit time-consuming, but it can be accomplished in less than an hour with help. Freezing your credit file can help stop any attempts to open new loans in your name.

Trusted Contacts: Perhaps most important, you should identify key people in your life willing to act as a second set of eyes for you. Whenever you are in doubt, just pick up the phone and ask for their take on what to do (or not do!) Your trusted contacts should be included on your list posted next to your computer or devices. Reaching out to your trust contact just might provide you with enough pause to save you a lot of pain and worry.

Jason P. Tank, CFA, CFP®, EA 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

Q: I’m nearing retirement, but I’m worried about Social Security’s financial health. How likely is it that I won’t receive my full benefits? What should I be doing now to protect myself from potential benefit cuts?

A: Your concern is all-too-common, especially as the health of the Social Security system is increasingly viewed through a political lens. That really is a shame.

In May, the trustees of the Social Security system published their 2024 annual report. Each year, their report only shows subtle changes in the financial picture. Given the inherent, long-range set of assumptions used in their analysis, it’s a system that isn’t designed for abrupt changes over time.

Now, it’s true the Social Security “trust fund” is projected to be “depleted” in 2033. That’s the headline that gets the most attention each year. However, the term “depleted” is too strong. This simply means that, with no changes, the excess revenue that the Social Security system has accumulated over past decades will officially be used up. If there are no changes made to the level of benefits paid or the payroll taxes collected, in 2033 Social Security payroll taxes will only be sufficient to pay about 80% of the promised benefits.

On the surface, an immediate 20% in benefits is not a comforting thought. But, of course, the supposition that absolutely no changes will be made is wildly unrealistic. It’s just not going to happen. Too much is at stake and the solutions are too obvious.

Changes to Social Security will undoubtedly be made to both the long-term funding model and the benefit side of the equation. Fortunately, the changes that will be made will only need to be relatively minor. “Fixing” Social Security is akin to navigating a ship across the ocean. Small course corrections can lead to a vastly different destination. Long-range financial projections for Social Security are highly impacted by very small tweaks.

According to the most recent report, if the only dial to turn was Social Security’s funding model, all it would take to reset its course is to boost the dedicated payroll tax rate from the current 12.4% of wages (combined employer and employee contributions) to a level closer to 15.7% of wages.

Naturally, there is another dial to turn besides raising payroll taxes. Small changes to the benefit formula could take multiple forms. For example, making a change in how the annual cost-of-living adjustments are calculated is a particularly gentle way to alter the system’s long-run trajectory.

If I had to guess, I expect our elected officials to form a non-partisan “blue-ribbon commission.” That seems just like the kind of politically easy route they love to take when decisions simply must be made. But, don’t hold your breath quite yet. We still have a few election cycles ahead of us! 

Q: I’ve been having trouble managing every password in my life. Is there a service you can recommend that will help me keep track of them all and also keep me safe online?  

A: There are multiple ways people deal with the nuisance of passwords, ranging from unsafe to cumbersome. I believe the best solution is to use an online password manager like LastPass. The worst solution is to use the same password for every website or service. 

An online password manager can be used across all your devices and it will allow you to easily create complex passwords to ensure enhanced security. With one master password to remember, along with a second layer of added security known as two-factor authentication, it effectively lifts the burden of password management. 

Q: Unfortunately, I fell for an online “phishing” scam. I’m now worried that someone could open a credit card or take out a loan in my name. What should I do to limit the damage?

A: You should create accounts with each of the three credit bureaus and place a credit freeze on each of them. This will block all future credit inquiries, effectively making it impossible for fraudsters to open a card or borrow money in your name. 

Transunion, Equifax and Experian have now made this process much easier to set up and free. The old process was too complex and carried a cost. Today, it’s free. If you haven’t frozen your credit files, you should do it now.

Q: My father died last year at 70 and I inherited his IRA. I’ve read some confusing advice on how much I need to distribute from my Inherited IRA each year. Can you clear it up for me and explain the tax implications of my inheritance?

A: In 2020, Inherited IRA required minimum distribution rules changed. Essentially, there are now two sets of rules: one for non-spousal beneficiaries who inherited an IRA from someone already required to take minimum distributions (RMDs) and another for those who inherited from someone too young to start their RMDs.

Since you inherited an IRA from your father, and he was under the starting RMD age of 73, you don’t have to distribute money from your Inherited IRA until the end of the 10th calendar year following the year of his death. By the end of the 10th year, you must fully distribute the entire account balance and pay any tax due. 

Timing those distributions for the lowest tax obligation is the ultimate goal. You should seek expert tax advice on how to best manage the tax implications of your Inherited IRA distributions. Waiting until that final 10th year is likely a bad plan as it may cause much higher taxes. 

Most memories of the Great Financial Crisis have faded. Except the lingering effects of zero interest rates. For 13 years, savers received no interest on their cash savings. Then, in a blink, we experienced a surge in post-Covid inflation and the Fed raised rates. Suddenly, cash feels really good. Does it feel too good?

Today, it’s easy to get over 5% interest on your cash savings. Checking accounts pay far less. That portion won’t earn much. After all, banks have to make money, too. For your excess cash, most banks have finally stepped up to the plate to keep your money.

If you have excess cash sitting around that is earmarked for some relatively near-term purchase, the advice to follow is not for this money. But this part is definitely for you. For your near-term money, take a quick look at what you’re earning on your excess cash in your bank accounts. If you aren’t earning close to 5% interest on it, you’re essentially donating money to your bank. That’s never a good plan.

For your cash without a near-term purpose, it may be time to develop a plan to invest it for the longer-term. Why? Because the days of earning over 5% in cash are probably approaching an end. The Fed is expected to lower rates as their fight with inflation is reaching the endgame.

To start 2024, when inflation was falling quickly, investors had thought we’d have already seen some rate cuts in the late-winter, early-spring. But, the Fed hit the pause button as the decline in inflation hit a temporary speed bump. Now, the current expectation for the first interest rate cut is at the Fed’s September meeting. A second and possible third rate cut is expected in November and December. Fast forward to summer 2025, investors are now betting that rates will be about 1% lower than today.

While this might not seem like much of a cut in rates, these expectations aren’t really factoring in the possibility of a recession. In that event, the Fed will very likely speed things up. With that, today’s comfy 5% cash savings rates will be in the rear view mirror and the question of what to do with excess cash will become more urgent.

Naturally, the time for the sense of urgency is before interest rates get cut or a possible recession is underway. Shifting some cash into medium-term, high-quality bonds might help you to “lock in” today’s interest rates. Certainly, this transition isn’t easy to consider while making 5% without any real risk. That sense of uneasiness is, perhaps, a subtle sign to begin moving outside of your comfort zone.

You collected all those confusing tax forms. You dumped your pile of papers on your tax preparer’s lap. You even signed your tax returns. You’re done, right? Not quite yet.

Now that the chaotic rush has come and gone, it’s time for you to make sure you didn’t inadvertently leave Uncle Sam a tip he didn’t deserve. Here are three things to review that might result in some money back.

Qualified Charitable Donations (QCD): Using your IRA as a charitable donation tool is a tax-smart strategy. After you reach age 70 ½, you can donate to charity directly from your IRA without owing any taxes on the distribution. Remember, your IRA balance has not yet been taxed and Uncle Sam is waiting in the wings to get a piece of the action. However, when you donate some of your IRA to a qualified charity, it’s tax-free!

Unfortunately, it’s common for IRA donations to end up being taxed anyway. How is this possible? Because the tax form that summarizes your IRA distributions – Form 1099-R – doesn’t automatically subtract out your donations. You have to manually subtract them. If you donated some of your IRA last year, review Box 4a and Box 4b on your federal Form 1040 to see if you actually got credit for making those IRA donations.

Homestead Property Tax Credit: Some homeowners qualify for a special Michigan income tax credit that effectively rebates back some of their property taxes. If your home’s taxable value is less than $154,400 and your total household income was below $67,300, you are eligible for the Michigan Homestead Property Tax Credit of up to $1,700. Your very first step is to check your property tax bill to see if the “taxable value” of your home is below the threshold. If it is, you can then move onto step two to see if your household income is low enough to receive this tax credit.

Tax Loss Carryovers: If you switched your tax preparation software or even hired a new tax preparer last year, be sure to check that your unused tax losses were successfully carried over to your 2023 tax return. Missing your tax loss “carryovers” is especially easy to do.

To ease your mind, review your 2022 federal tax return and check for a negative figure on Line 16 on the top of the second page of your Schedule D. If you showed a loss that’s larger than $3,000, you should pull out your 2023 federal tax return. See if that negative figure was carried over onto either Line 6 and/or Line 14 on this year’s Schedule D. If your tax loss carryovers are missing, an amended federal and state tax return just might be in your future!

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.

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.

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

Q: Unfortunately, we just realized we totally forgot to pay our estimated quarterly tax payments last year. We’re afraid to ask, but how do the penalties and interest charges work? 

A: Things happen. Here is a quick rundown using rough figures for tax season 2023. 

The federal government is much more lenient than Michigan. The IRS’ combined penalties plus interest rate works out to about 8% on your unpaid tax that is due. Thankfully, your unpaid tax debt isn’t subjected to that rate for the whole year. You are only expected to pay your total tax due in quarterly installments, thus the name “quarterly estimated tax payments.”

Now, Michigan is downright mean if you fail to send in your estimated payments. The interest rate charged is also about 8% in 2023. But, if you didn’t send any of your estimates, they slap you with a huge add-on 25% penalty on each estimated amount that’s due. They will lower that penalty to “only” 10% if you paid even one tiny estimated tax payment during the year. 

Q: I’ve been holding a large amount of cash in my investment portfolio for some time now. Recently, I’ve been advised to shift some of that money into bonds. It makes me really nervous. Your thoughts?

A: Your bonds vs. cash conundrum is widespread. Your advisor is thinking soundly, in my view. Yes, today you can get over 5% on your cash with little-to-no risk. But, it’s logical to assume this won’t last. If you wait until interest rates start dropping, you might kick yourself for not locking in current yields.

If the economy slows with the continued slowdown in inflation, we should expect the Fed to cut rates. Many expect that to start as soon as their meeting in late March. And, markets are expecting that you’ll see rates about 1% lower by September. So, your advisor is channeling Wayne Gretzky by skating to where the puck is going to be, not where it is now. 

Q: We’ve done Roth conversions in recent years. Our motivation was to take advantage of today’s low tax rates. With the election looming and deficits booming, it seems like we’re headed for higher taxes. Is that a valid enough reason to keep doing Roth conversions or is there more to it? 

A: Roth conversion analyses require both financial know-how and a pretty good crystal ball. If your current tax burden is temporarily lower than it will be in the future, converting some of your pre-tax IRA balance to a Roth is a no-brainer. But, if you are purely focused on making a good guess about future tax hikes, things get more challenging. 

If forced to answer in a blanket manner, I’d err toward considering Roth conversions; when done methodically and in moderation. Our tax code is often quite complex and sometimes Roth conversions have unintended consequences. especially if not done carefully. This is fresh fodder for a future column.

Q: I’m turning 73 later this year and understand that I’m now required to take money out of my IRA. Should I do it right away or wait until later in the year?

A: Honestly, your timing for your required minimum distribution (RMD) is quite personal. The deadline for taking your RMD is technically December 31, but you can certainly do it anytime during the year.

If you need the cash for living expenses, I’d say just go ahead and take the money out of your IRA when you need it. If you tend to get really busy, near the end of the year, it might be wise to get it done earlier. But, if you don’t urgently need the money and usually donate to charity late in the year, consider satisfying your RMD in December after you’ve completed your direct-from-IRA donations.  

Q: We’re still not earning very much on our cash sitting in the bank. We’ve finally noticed some decent savings rates on CDs. Should we invest in them now?

A: The short answer is, yes, you should absolutely be earning interest on your cash savings. Luckily, you now have some choices.

Besides purchasing CDs at your bank, which can be convenient, you might think about transferring your surplus savings into a brokerage account. Money market rates currently sit at about 5.25%. With an electronic link established, you easily zap money back and forth between your brokerage account and bank account.

Ultimately, if you’re earning less than 5% on your cash, it’s time to act.

Q: Last year, I donated money directly to charities right out of my IRA for the first time. I’m unsure of how to get the tax benefits. Will my donations be included on my usual tax reports from my brokerage firm, or do I have to keep track of it all?

A: It’s fantastic that you’ve used the smart tax planning tool of giving directly to charity out of your IRA. With the standard deductions today, most people aren’t able to deduct charitable donations funded from their regular checkbook. Using your IRA is a great way to support your chosen charities and still enjoy a tax break.

Whenever you take money out of your IRA, your brokerage firm will provide you with a Form 1099-R showing you all the dollars withdrawn in the prior year. That’s true whether you donated every penny to qualified charities or happened to spend it all on a family vacation. If it came out, it’s shown on your Form 1099-R.

So, to get the tax break, it’s absolutely up to you to inform your tax preparer about your total direct-from-IRA donations. If you fail to communicate, or they don’t ask you, you could end up paying taxes that you don’t owe. And, that’s never good!

I’m in full Santa-mode. Believe it or not, I’m still making a list and checking it twice. Thankfully, I’m not talking about my last minute shopping. Instead, I’m reviewing my year-end financial tasks for my clients. Here’s some of what’s on my mind. It might prompt you to review your own list.

Tax Loss Harvesting: If you have realized capital gains this year and want to offset them, scour your portfolio for some losing investments to sell. For those who own mutual funds, look for December capital gain distributions that might have gone unnoticed. If you have an advisor, just ask them if some tax loss harvesting is right for you.

Roth Conversions: As a refresher, a Roth conversion is when you shift money out of your regular, tax-deferred IRA and put it into a forever, tax-free Roth IRA. You’ll want to consider a Roth conversion when you determine the resulting tax bill now will be lower than future projections. Obviously, figuring this out takes some analysis, but there’s still a little time before the end of the year.

College Savings: In Michigan, you get a state income tax deduction for the contributions you contribute to a college savings plan (known as 529 Plans.) If you don’t pay state income taxes (and many retirees don’t), you might consider gifting the money to your kids to help them save for their own children. Naturally, December 31st is the deadline for this tax year.

Property Taxes: This is not a real December 31st deadline, for most readers. If you don’t itemize your deductions, your property taxes aren’t going to show up on your tax return anyway. But, if you do happen to itemize or if you own a rental property, you should talk to your advisors to see if prepaying your property tax bill is a good tax planning move.

Contributions to IRAs or HSAs: Here’s some relief, you don’t have to worry about December 31st when it comes to making your IRA contributions or funding your health savings account. April 15th is your true deadline for these types of contributions.

Required Minimum Distributions: This is a very real December 31st deadline! Remember, required minimum distributions (RMDs) apply for anyone with an IRA who has reached age 73 or has inherited an IRA from someone else. Of course, the RMD rules for inherited IRA is more complex and is worthy of some tax planning.

IRA Charitable Donations: This one is really, really important. Charitable donations made directly from your IRA need to be completed by the end of the year. These charitable donations will count toward your required minimum distributions (RMD) from your IRA. But, not if a donation check is just sitting uncashed, it won’t count.  

Q: My husband and I are interested in giving our children some money for the holidays. We figure it’s better to do it now while they need it. But, we’ve heard there is a limit to how much we can give and we don’t understand the tax implications of our gift to our kids or to us.

A: A gift of cash is tax-free to your kids. Keep in mind, if you give appreciated stock, any unrealized capital gain is shifted to them and they’d owe capital gains tax upon the sale of the shares.

In 2023, you can give up to $17,000 (increasing to $18,000 in 2024) to any person without having to report it on your tax return. Now, if you give more than $17,000 to anyone, you will need to file Form 709 to report the amount over the annual gift limit. And, the amount over the limit will count against your current tax-free lifetime gift “allowance” of about $13 million. You can multiply that by two as a married couple.

As you can see, most people don’t have to worry about taxes on gifts; giving or receiving. The only thing is whether or not you need to file a Form 709 to keep track of amounts over the annual gift limit.

Q: We have rental property that loses money each year from a tax perspective. But, when I look at my past tax returns, our rental loss doesn’t seem to show up. If I remember correctly, our tax preparer said it’s because we make too much money. If that’s the case, will we ever benefit from those tax losses?

A: It sounds like you are running into the limit on passive activity losses due to your income level. The tax code loves complexity, but I hope this explanation will simplify it a bit for you.

If your modified adjusted gross income or MAGI is below $100,000, you are allowed to deduct up to $25,000 of your rental losses. But, if your MAGI is above $100,000, $1 of your rental losses get “held in suspense” for every $2 of income above the limit. As you’ll see, by the time your MAGI reaches $150,000, the entire $25,000 passive loss deduction is disallowed and is effectively held in “suspense” for later use.

So, when will you ever get to use those suspended rental losses? When your MAGI dips below $150,000, you’ll get to use some of them. And, regardless of your income, if and when you decide to sell the rental, your suspended losses will be unlocked. So, they are not “lost” losses, they are just suspended deep in your tax return on Form 8582.

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

Another year will soon enter the history books. If I had to pick one word to best describe the stock and bond markets in 2023, I’d choose the word, vicissitudes. Fittingly, this word was often used by Warren Buffett’s mentor, Benjamin Graham, in his seminal book, The Intelligent Investor. Vicissitudes; a change or variation in the course of something. 

About a year ago at this time, the stock market was 25% to 30% off its peak. To make matters far worse,  bonds were also experiencing one of their deepest bear markets ever, down around 15%. Together, it resulted in one of the single worst periods for balanced portfolios. In all practicality, there was almost no place to hide. Doom and gloom had descended upon the scene.

With such negativity already baked into the cake, it left open the possibility that things might actually turn out better than feared. As we all know now, inflation basically peaked at this darkest moment, declining from around 8% to just about 4%. By the end of July, the stock market breathed a heavy sigh of relief by rising a whopping 30% off its low and the bond market returned almost 5%, too. 

At this point in time, the worries of a looming recession this year began to fade. Inflation was in steady decline, as they had hoped it would be, and the economy was seemingly cruising along relatively unharmed by so many rate hikes. This was the case even in the face of a mini-crisis in banking that was uncomfortably reminiscent of the ’08 financial crisis. Goldilocks had confidently entered the scene. 

Then, as if right on cue, the progress on inflation stalled out with the economy inconveniently picking up steam. In response, the Fed shifted its tone to one of cautious vigilance and signaled the possible need for still more rate hikes to avoid the mistakes of the ‘70s. Almost overnight, longer-term rates jumped higher and stocks fell over 10% and bonds dropped 5%. The lights dimmed and Goldilocks exited stage left.

Naturally, the show never really ends. Over just the past few weeks, Fed officials are seeing signs of the long-awaited economic slowdown and the most recent inflation report showed some renewed progress. They have calmed investors’ nerves by publicly signaling they might actually still be in pause-mode. In truly knee-jerk fashion, just like that both stocks and bonds have almost fully rebounded from their post-summer swoon.

Now, if anything is true, 2023 certainly shows how impossible it is to forecast markets. Nonetheless, if I were forced to make a forecast, I’d say it’s wise to count on the continued vicissitudes of markets to darken the stage a few more times. After all, we all know that Goldilocks is a fairy tale. 

Q: We are thinking about tax planning before the end of the year. For the past couple of years, our tax preparer mentioned making “Qualified Charitable Donations” from our IRA, but we feel too uninformed. Please explain.

A: Your tax preparer is giving you good advice. Making qualified charitable donations (QCDs, for short) directly out of your IRA will both lower your tax bill and help your favorite charities. It’s a win-win for everyone but Uncle Sam. Actually, I suppose that makes it a win-win-win!

To explain why donations from your IRA are smart, we have to go back to the Trump-era tax cuts. Starting in 2018, the standard deduction essentially doubled in size. Suddenly about 9 out of 10 taxpayers no longer itemize their tax deductions. Given this, the vast majority of people also no longer enjoy a tax break when making charitable donations.

The doubling of the standard deduction really left only one other avenue to enjoy a tax deduction for your charitable giving. For some, I should say. For those over the oddball age of 70.5, you are allowed to donate directly from your IRA and it won’t be counted as taxable income as it normally would be coming out of a (never been taxed) IRA.

Better yet, once you reach the age of 73, your IRA donations will count as part of your required minimum distribution (RMD.) Theoretically, you could give away all of your RMD to charity (up to a current annual limit of $100,000) and not have to pay a dime of taxes on any of it.  

Q: I am hearing mixed signals about bonds. On one hand, bonds have been a drag in my portfolio over the last two years. On the other hand, now their current yield is looking really nice. Which side of the coin should I focus on?

A: Bonds keep coming back up, no pun intended. Normally, bonds should be one of the most boring things in your portfolio. Lately, bonds have been anything but boring.

As I wrote a couple months ago, bonds that were originally issued during the super low interest rate environment are now selling at depressed prices. For long-term bonds, I’d say they are selling at highly-depressed levels. Naturally, those old bonds are less desirable since they only pay paltry levels of interest until they mature. So, price is the great equalizer that puts those old bonds on a level playing field with newly issued bonds that come with much higher rates.

My advice is to fight against your tendency to look backward. With the 10-year US Treasury selling at yields near 5%, a level not seen in about 16 years or so, bonds appear quite attractive and should be a healthy segment of any balanced portfolio.  

Q: Our son and his wife are looking to buy a home in Traverse City. Our advice to them is difficult to give and certainly for them to receive. Perhaps that’s due to our long memories of the reasonable home prices of yesteryear! Any advice you can give them and us would be appreciated.

A:  Giving advice to others is often hard, especially when it’s unsolicited! But, as a parent, I know it’s nearly impossible to remain silent. Hopefully, your son and daughter-in-law will take any advice you offer as heartfelt. Acknowledging that you may have some preconceived notions of what you see as value will demonstrate your sincerity.

Younger adults face a totally different environment than the generations of homeowners before them. With 30-year, fixed rate mortgage rates skyrocketing from a bit above 3% to now over 8% in just two years time, buying an identically priced home results in a 70% higher monthly payment. Adding insult to injury, since just before Covid hit, home prices have jumped over 40% nationally.

Taking these two facts in combination – higher rates along with higher prices – homebuyers today face more than a doubling of their housing costs compared to just a few years ago. This indirectly feeds into higher rental rates for those who are unable to even consider buying a home. There really is no way to escape the situation as everyone, in the end, needs a roof over their head. And, honestly, there is no way for society to ignore the situation, either. But, solutions are hard to come by.

I’m afraid my advice will feel awfully basic.

Before buying a home, your son and daughter-in-law need to be confident that their income is very secure. Their higher mortgage obligation will no doubt place a strain on the rest of their budget. The greater share of their income dedicated to their housing cost will impact their ability to spend on other things like travel, entertainment and eating out, let alone funding their other necessities.

While living close to both work and play is really attractive, considering a home outside of town might afford them the money to actually enjoy the amenities of our area. This is a real trade-off.  But, you should know that this advice might smack of hypocrisy coming from someone who was lucky enough to buy a home in town years ago before the surge in prices.

Our area is wonderful in so many ways, but it’s obvious that the access to this wonder is not spread evenly among us. While I imagine you have full perspective, it’s always important to recognize that your son’s challenge in deciding where and when to buy a home in our area is a truly fortunate problem to have. It might be a lot tougher for many others.