And good evening.
You've got More Than Money.
You've got Gene Dickison, your host, your personal financial advisor.
For the next half an hour, I am at your service and honored to be so.
It is a exciting time.
It's always exciting when things are seemingly moving in a more positive direction.
Hopefully you're finding that in your life, whether it's perhaps you're... Well, hopefully your finances for sure, but perhaps your health - maybe you've made some resolutions and you're making some changes, making some positive changes in your life.
Maybe it's a professional issue, an advancement.
Maybe you're still in school and you're making some real progress in getting that degree.
Whatever progress you're making, it always feels pretty darn good.
So when you have the opportunity to make progress and it's a pretty easy thing to do, you should take advantage, which is one of the reasons why we invite you back week after week right here on More Than Money, because we bring more and more opportunities for you to get that perhaps one idea, that one strategy, that one tactic, that one financial direction that might change your life so very positively.
Which is why, not so humbly, we make claim to being the most relevant financial show on television today, bar none.
Take the big ones and you'll find we're more relevant because we focus on you.
We don't focus on a topic.
We don't focus on a item or a service we want to sell you.
We focus on you.
You are the heart of our show.
You do that by sending us your e-mails.
It works very, very well.
We answer every single e-mail back to you and then we select from those.
And although our time is limited, we answer as many on air as we possibly can.
It makes us the most relevant financial show on TV today - because of you.
And we thank you for that.
We also thank our financial correspondent, Megan, who brings your questions to us, puts me on the hot seat, grills me for the information that hopefully I've got for you.
So let's get started right away with Megan.
What's our first question this evening?
- Sounds like a lot of pressure, but I promise it's not that scary.
Our first question says, My kids are just starting their careers and all have good jobs, earning good money.
I've asked them if they have budgets and they've all said, kind of.
My best friend's daughter just bought her first house and really seems to have a handle on her money.
She told her mom she's been using cash stuffing to manage her money.
I've never heard of such a thing.
What is it?
And can I use it to help my kids?
- Well, this caught Gene off guard as well.
I had to do a little bit of research, but found out cash stuffing... Not at all what it sounds like.
Cash stuffing, if you and I were of a slightly different generation, my mom's generation, for sure, they refer to this as envelope budgeting, envelope budgeting.
And what they would do is, because every dollar counted, they would cash paycheck, they would stack the money up on the kitchen table, they would pull out their envelopes, one for the mortgage payment, one for food, one for utilities.
You get the idea.
And they would divide up the cash in each envelope.
So they knew exactly that they had... All their mandatory bills were paid first, of course.
And if they got to the end of the cash and there was nothing left, they broke even, maybe a sigh of relief, or maybe there were a few dollars left over and that went into the cookie jar and their savings started to grow.
Sounds like your friend's daughter has used a form of that envelope budgeting.
And what it's called now, just to make it a little more interesting, perhaps a little more intriguing - cash stuffing.
Same idea.
Yeah, to be blunt, in my mom's day, a few years back, paying things for things in cash, pretty typical.
And today, not so much.
So the idea that you would take your paycheck, perhaps a very substantial sum of money, cash it, drag it home... Yeah, there's a lot of logistical challenges to that.
But you should be aware that there are apps that are available for free where you can outline your budget and start laying those dollars in.
You might be able to get some assistance from your bank.
You certainly, if you have even basic spreadsheet skills, can set up a spreadsheet and do exactly the same thing.
Have your check direct deposited to your bank account, know exactly to the dollar what it is, and start laying it out on your Excel spreadsheet.
You can certainly do that.
Any of these is far superior to the typical 90% plus of, not just young people, all people, who have no budget, no idea what they are required to spend, no idea what they will have left over at the end of the month, if anything.
And if something comes up, no real idea whether it fits their budget, because they don't have a budget.
The idea that you have a budget.... For example, if you, hey, in five years, we're going to need a refrigerator.// if we save $10 a month, we're going to have a really good start towards paying for that refrigerator without breaking the budget.
These are great ideas.
So cash stuffing - new term, same old idea.
It works really, really well.
And your friend's daughter bought her first house already.
Our congratulations to her.
A fantastic achievement.
And my guess, if she's comfortable with budgeting, cash stuffing, buying her first house, her financial future is very, very bright.
So we wish her the very, very best.
Megan, excellent start.
Where do we go next?
- Our next e-mail says, I am impressed by the depth of knowledge you display on your show.
Can you give me advice on how to find good tax advice and preparation?
I have tried it recommendations from friends, but I'm disappointed with the results.
I also tried the Better Business Bureau with disappointing results as well.
Where else can I look?
=Thank you for your help.
- Well, I had to take note that Megan found that chuckle worthy, that she was impressed with the depths of my knowledge.
All right.
Yeah.
I can't keep a straight face either.
Bless you.
Thank you.
Kind words always deeply appreciated.
I wish I had kind words back for you.
This might be awkward.
I'll apologize in advance.
I will start by giving you some possibilities.
If you have an attorney that you've used that you trust, check with your attorney.
He or she may have a good referral for a tax prep professional for you.
Tax professionals come in lots of flavors.
CPAs, of course, enrolled agents, of course, all registered with the IRS, all perfectly capable of doing your tax return.
You could check with your financial advisor if you have one, and ask for the same types of referrals.
And if you are part of any organizations - the church comes to mind - you may have good friends at church that you recognize... ..recognize as being astute and trustworthy.
They may have a referral for you as well.
And take those two or three referrals, do your interviews, and, hopefully, hopefully find yourself a tax professional that meets your needs.
Now, I said this could be awkward.
You've had referrals from friends and you've been disappointed.
You checked with the Better Business Bureau and you've been disappointed.
There are people who are simply disappointed.
There are folks who just sadly find themselves rather consistently... ..disappointed.
And that doesn't make you a bad person.
It just makes you disappointed.
So I'm not overly optimistic that any of my suggestions are going to work out any better than the suggestions that you've already tried.
But I'm hopeful.
I'm a glass half full kind of guy, prayerful, so, with any luck, one of those will work.
And then you'll give me credit, and you'll be even more impressed with my depth of knowledge.
Now, you can't hear it.
It's in my earpiece.
Megan's laughing right out loud as we speak.
So let's see if we can catch her mid laugh and let's go back to Megan.
What's our next question, Meg?
- I wasn't laughing.
Our next question says, I was told that the Secure 2.0 Act passed this January changed the rules for IRA RMDs.
Could you explain this?
I was born in 1951.
And I'm wondering, are there new life expectancy tables as well?
Thank you for your help.
- I'm cheating.
I confess I'm cheating.
Yes.
Several weeks ago.
Secure 2.0...
Secure Act 2.0 was passed.
It included billions and billions, literally billions and billions.
I'm not using that as a lot of...
I mean, billions and billions.
Absolutely stuffed with every favor, political favor that could be found on both sides of the aisle.
It's an embarrassment.
However...
Contained within that act was the Secure Act 2.0.
And it does make some substantial changes to IRAs', 401ks' contribution limits and RMDs - Required Minimum Distributions.
It is now to the point where...
I am cheating.
I must have a chart in front of me.
..to determine when you will take your RMD.
For the longest time, it was really, really easy.
70 and a half.
Next.
That was easy.
Then it became... 70 and a half went to 72.
Now 73.
But different for all ages.
So this gentleman was born in 1951.
He will attain his age 72 after the year 2022.
And that means he will begin his RMDs the year he turns 73.
So at least the Congress has gone away from the half year increments.
They've gone to the full year increments.
And again, cheating...
There are different ages or different years of starting RMD.
For those who were born in 1949 and earlier, between July 1st of '49 and 1950, '51 to '59.
And now, after January 1st 1959, the required minimum distributions will start at age 75.
So it will jump.
It says it's going up over ten years.
It really isn't.
It's staying the same.
73.
Age 73 for... ..nine and a half years and then it jumps to 75.
For a lot of folks, they are concerned about when they start.
They're also concerned about how much they will need to take out.
And the original calculation was something under 4%.
Even though they have pushed off the age at which you start, they have not changed the chart, the life expectancy chart.
It's not really a life expectancy chart, but the calculation chart that they have used forever.
They haven't changed that.
So pushing it off a year, you're actually taking out now a little more than 4% in your first year, a little more, but that's a good guidance.
Use 4% as a good guideline, as a good guesstimate.
So if you're sitting with an IRA with $300,000 in it and you're approaching age 73, you would be taking out roughly $12,000 as your first required distribution.
And with any luck at all, your investments will earn more than the 4% that you're actually withdrawing, and your IRA will not decline, at least initially.
Now, of course, last year being what it was in the markets, you would take out your RMD and your investments declined.
But hopefully, more often than not, your investments will go up.
And if you can get an average annual rate of return above what your distribution requires, 4%, 4.5%, 5%, your IRA will actually grow with any luck at all for quite some time, for quite a number of years, before that RMD percentage gets so large that it will be very, very difficult, if not impossible, to exceed it.
So hopefully that helps a little bit for you specifically.
I know it gives you the precise answer that you are looking for, and for everyone else out there if you're kind of scratching your head, this is giving you just a little bit of a headache, I get it.
I'm with you.
I'll just make a copy of the chart.
If you need that reference, send me an e-mail.
Gene@askMTV.com.
And we'll get that out to you, of course.
Goodness.
Congress... Yay!
Megan, where do we go from here?
- Our next question is about taxes.
It says, I have about $100,000 in CDs and about $40,000 in a bank account.
I have my stepdaughter's name on these accounts as POD.
I have about $100,000 in an IRA retirement account with her listed as beneficiary.
I'm wondering, will my stepdaughter have to pay any inheritance taxes and will she have to pay income tax?
I also have a will with her listed as a beneficiary.
Thank you for your help.
- Well, you've certainly set the situation up very, very well.
You've done some excellent planning here.
Part of the response I'm going to give you is not as pleasing as you would wish.
But again, you're doing a lot of really, really good things here.
Payable on Death - POD - sometimes referred to as TOD - Transfer on Death - and State of Pennsylvania... Often you will find banks in particular using ITF - In Trust For.
It all means exactly the same thing.
It takes an account, in this case a bank account or a CD, but it could be a brokerage account, it could be a savings account.
It could be any number of things.
And it attaches to that account an instruction.
It's one piece of paper.
Costs you nothing.
You sign it, and the financial institution will then at some point, hopefully many years from now, execute it at your passing.
It has the effect, the legal effect of a beneficiary designation.
This young lady mentioned that she has an IRA and has named this young lady as her beneficiary, her daughter-in-law, I believe, Megan, you said.
So... Daughter-in-law is the beneficiary.
She is the recipient of this payable on death designation for these accounts.
So all three of these accounts, 240,000 or so, will pass to her daughter-in-law without going through probate.
So she has her named in her will as her beneficiary.
But it will depend on if there's any other assets whether or not that will have any real impact.
If she owns a home, it definitely will have an impact.
That real estate, that residence will pass according to the instructions in the will.
But if these are her assets, she has already set this up so that her daughter-in-law will receive all these funds in the most direct, simple, expeditious..
There's a word for you!
Check that one out.
..the most expeditious, indeed, quickest, easiest, hassle free way that she can.
This trio of accounts will likely be in the beneficiary's hands in days or weeks, not weeks, months or years.
It's set up beautifully.
So good for you.
Well done.
Now, taxes... Estate taxes.
If you are in the State of Pennsylvania, there is an inheritance tax depending on your relationship.
Blood relationship, direct descendant, it's 4.5% So on a quarter of $1,000,000, it's going to be in the ballpark of 10,000.
Can it be avoided?
No, not that I'm aware of.
Certainly not without some significant risk to you financially.
Transfers, gifts... That might end up with you being out of money when you need it.
So not in any way that I would be excited about.
Income taxes are going to be different for each of these accounts.
See these, for example.
The CDs themselves, there will be no income tax on.
So $100,000 will go to your beneficiary.
No income tax.
There will be income tax on any interest that the CDs have earned, do or will earn after your passing.
So a relatively small number.
Same way with your checking and savings, etc..
The base amount is not taxable.
Whatever small amounts of interest in a week or two or three between your passing and her receipt of these dollars, they will be income taxable.
So very minor issue on the first two.
The IRA is a different issue completely.
The IRA is completely taxable, and when she receives the IRA as an inherited IRA, she will have to follow some pretty straightforward rules about getting that money out over a period of time - currently, ten years.
All of it, all of it will be income taxable, as it has not had tax paid on it by you or anyone else prior.
The IRS says now it's time to pay the piper, and she will pay that over time.
So some things, not pleasant, but unavoidable, but making it as tolerable as you can, making it as expeditious as you can for your beneficiary.
You've done a great job.
Good for you.
God bless.
And hopefully, hopefully she doesn't see a dime for years, decades, maybe!
That could be great fun.
Stick around.
It's a really good estate plan.
Spend your last dollar and then say goodbye.
That's a good estate plan.
You got that from me.
Write that one down.
You're going to want to commit that to memory.
Megan, that was very, very interesting.
Obviously, the young woman is a planner.
Do we have a question that I might be able to assist somebody else in planning?
- I'm sure you can.
This one says, We learned about donating from our IRAs too late last year and want to make sure to take advantage of it this year.
My wife and I are both 76.
We both have IRAs and we take our RMDs.
Last year my RMD was about $17,000 and hers was about $11,000.
A couple of questions here.
It says, Can we give all this to a charity?
What are the limits, if there are any?
How do we go about getting this done?
And how is it reported on our taxes?
Thank you for your excellent show.
- Well, you're very kind.
A lot of ground to cover here.
So let's see if we can do this in an organized fashion.
For those of you who are not yet familiar with the terms IRA and QCD... IRA - I'm sure you are.
QCD - Qualified Charitable Distribution.
Qualified - coming from an IRA or some other type of retirement plan...
But Qualified means that it qualifies by IRS code for a charitable distribution - you are meeting the requirements of the code.
Excellent.
It allows folks who have attained the age of 70 and a half or older... ..to take money out of their IRAs - forget the word RMD here for a moment - take money out of their IRAs up to about $100,000 per person per year... ..and send it directly to a charity.
It could be a church.
It could be...
It could be a charity.
Multiple charities.
He can select his.
She can select hers.
They can be the same.
Mix and match.
As long as they're approved charities, no problem whatsoever.
The money goes directly from the custodian to the charities.
Now, some folks like to hand the church or whatever charity the check.
So, most custodians mechanically are very comfortable issuing the checks to the charities, but sending them to the IRA holder for their delivery.
For their delivery.
it adds a little bit of perhaps enjoyment to the whole process, but it also adds a bit of responsibility.
If those checks don't get from point A to point B and are not cashed in a timely fashion, you could mess up - mess up being a technical term - mess up your QCD, and you would end up with tax that you do not want to pay.
Monies that are sent to charities through QCDs are not taxable.
They are not reported, so to speak, on your tax return.
In essence, they are, but they're not taxable on your 1040.
As a result, they don't affect your income tax.
They are above and beyond your standard deduction.
A fabulous thing, very unusual in today's tax code world.
And they will not affect your Medicare premiums.
So, as many of you have found out, not so happily, Medicare premiums can go up.
They are baseline, not a dreadful number, I think 160 or so a month, but that can be as high as $400 a month, higher than that.
So you need to have at least an awareness that you need to be cautious and careful about how you add income.
QCDs do not add income.
So the mechanics are very simple.
Hello, custodian.
Here's who I want those checks to go to.
His is 17,000 a year.
Hers is 11.
Can they do all of their RMDs and not have to pay any taxes?
The answer is yes.
Can they do more than their IRA RMDs?
And the answer is yes as well.
And for some of you are saying, Why would they do more?
There are circumstances, situations, very fortunate, where folks have accumulated funds in their IRAs that they never expect to use.
They may have pensions, they may have very generous Social Security benefits.
All things taken together, they may be in a position where they don't expect to ever use their IRAs, and they are very unhappy that they're forced to take money out and pay income taxes.
Very unhappy about being forced - that's the right word - to not only take money out, but pay the taxes, and would like to find a better use.
Well, whether it's maybe a building campaign, maybe there's a charity raising funds to...
They're looking for pledges that may be over a four or five year period.
Somebody might want to give 25,000 a year or 30,000 a year for a number of years and move, in essence, their IRAs completely out and over to charities.
You have that option.
You have that flexibility that you can do that.
I've covered a lot of ground for these folks.
They are of the correct age.
They're of the correct instinct.
I think that that gives a lot of you maybe some food for thought, maybe the opportunity to say, Hey, I would like to do this.
There is a drawback potentially.
What if in the interest of being charitable, philanthropic, you kind of feel bad that maybe you're leaving your family, your loved ones kind of behind, so to speak.
You don't necessarily have to give up one for the other.
There are investment platforms that allow you to pull out all your investment dollars as long as you keep $1 in the account at your passing.
That one, the entire original amount - let's use 300,000 as an example.
You start with the 300,000, you pull it out, pull it out, pull it out.
If you have even a little bit left, you can pass it to your family.
But maybe a more intriguing idea would be old-fashioned life insurance.
Life insurance works pretty well, so if you carve out enough dollars that it's going to pay your premiums, carve out the rest of those dollars to go to charities, you could, in essence, give away all the money.
And at your passing, all of it would reappear for your family and friends, your loved ones.
So something for you to think about.
I hope I've given you a lot of things to think about.
We've covered an awful lot of ground for this evening.
I want to thank Megan for bringing us the very, very interesting questions.
Challenging indeed.
I had to cheat on one, for goodness' sakes.
If you have questions for us - investments, income taxes, estate planning, business - your questions are far more interesting than anything we come up with.
Help us stay the most relevant financial show on television today.
Send us your e-mails.
And be assured we answer every single question right back to you, even the hard ones, even the ones we have to cheat on.
Thanks for being part of this show.
Thanks for spending half an hour with us this week.
Hopefully you were encouraged enough that you're going to want to return next week, as we do, right to this spot in this studio to bring you another edition of More Than Money.
Goodnight.