Q&A

Q&A: Follow the rules for IRA donations

August 11, 2025 By Liz Weston 4 Comments

Dear Liz: Hello. I’d like to use my IRA for charitable donations when I’m required to make minimum distributions. The problem I’ve encountered is that I want to use a debit card for donations. I prefer to donate to small art organizations, which are set up for online donations and definitely not paper checks. I found one brokerage that offers an IRA with a debit card but when I spoke with them, they said it can’t be used for charitable donations. I’m at a loss. Do you know of any way to make charitable donations from my IRA with a debit card? It’s 2025! Surely someone has figured this out.

Answer: You’ve missed a key component of how this particular tax break works.

Qualified charitable distributions allow people 70½ and older to donate money from their IRAs directly to charity, without the money being taxed. The donations can count toward the required minimum distributions that must otherwise begin at age 73 (or 75 for those born in 1960 and later).

Note the word “directly.” The transfers must go straight from the IRA to the charity, without passing through your hands. The IRA custodian will be the one to send the money, either through electronic transfer or check.

Q&A: Friends don’t ask friends for condos

August 11, 2025 By Liz Weston Leave a Comment

Dear Liz: I have a younger friend who has asked me to leave them a condo I own. I would prefer the condo remain in my daughter’s name, and designate that the income from the condo go to my friend after my death. Is there a way to do this?

Answer: Your friend just handed you a massive red flag. Please heed this warning that they may not be trustworthy.

Generally speaking, people shouldn’t be asking for bequests for themselves. That’s especially true when the request is unsolicited — in other words, if you didn’t open the door by requesting what they might want from your estate.

Someone who feels comfortable enough to ask for a handout after your death may have no compunction about helping themselves to your money while you’re still alive. Financial elder abuse is a huge problem, and the perpetrators are often people the victim knows such as friends, family and caregivers.

Please tell your daughter about this request, and consider going together to an estate planning attorney. The attorney can make sure your estate plan is in order and discuss ways you can protect yourself from schemers and fraudsters.

Q&A: “Simple” ways to avoid probate often create complications

August 5, 2025 By Liz Weston 1 Comment

Dear Liz: I was perplexed by your column in which you pooh-poohed pay-on-death and transfer-on-death accounts in favor of trusts. But you gave no specific explanation. Rather, you said trusts “generally allow a smoother, more organized settlement of the estate than other probate-avoidance options.” Would you please explain what is smoother and more organized than POD and TOD transfers? (Beneficiary deeds fall into the same category as POD and TOD, to my way of thinking.) These transfers simply involve a copy of the death certificate and some minimal paperwork. What could be simpler?

Answer: The fact that you asked this question suggests you may not be familiar with the many ways these transfers can cause unintended problems. An estate planning attorney could fill you in.

One issue covered previously in this column is the fact that the person settling the estate typically needs money to pay final bills. If all the funds in the estate have been transferred to beneficiaries, the executor would have to beg for money to be returned (with no guarantee beneficiaries will cooperate) or pay the expenses out of their own pocket.

Another obvious issue is unequal distribution if you have more than one heir. Account values can change over time, leading to sometimes dramatic differences in what the beneficiaries receive.

Speaking of change, it’s the one constant in life. A living trust allows you to easily update your estate plan in one centralized place as circumstances change. Altering beneficiary designations can take a lot more work, and it’s easy to miss an account if you have several.

Beneficiary designations offer limited contingency planning. If the beneficiaries die before you or otherwise can’t inherit, the account could come back into your estate and be subject to probate. Also, many people forget to update their beneficiaries after major life changes, which can mean the wrong people inherit. More than one ex-spouse has received retirement funds or life insurance proceeds because the beneficiary form wasn’t updated.

Another unfortunately common occurrence is an inheritance that disqualifies a disabled beneficiary from receiving government benefits. You also can’t control how money is spent with a beneficiary designation, which can be a problem if the beneficiary is a minor, an addict or a spendthrift.

Plus, people get sued. Beneficiary designations offer no protection against creditors, while a properly written trust can help protect your assets and your heirs’ inheritance.

This is by no means an exhaustive list of the potential issues with beneficiary designations. They can be a solution for people with limited funds who can’t afford to pay an estate planning attorney, or when they’re part of a coordinated estate plan. Many people set up a trust for real estate and financial accounts, for example, and use beneficiaries for retirement accounts, notes Jennifer Sawday, an estate planning attorney in Long Beach.

The more money you have and the more complex your situation, the more you — and your heirs — would benefit from expert, individualized advice.

Q&A: What can retirees do to deduct medical expenses?

August 5, 2025 By Liz Weston Leave a Comment

Dear Liz: My wife and I, both in our early 90s, are fortunate to have good health insurance. However, we have significant expenses that are not covered. As you might expect, we are retired and receive income from Social Security, pensions, annuities and investments. Are we eligible to use flexible health accounts funded with pretax dollars? If so, what’s the best way to set that up and how would we pay those uncovered health bills?

Answer: Unfortunately, you don’t have access to pretax accounts that could help you pay medical bills.

Flexible spending accounts are offered by employers, and contributions are limited annually (in 2025, the limit is $3,300). Health savings accounts have higher limits but require you to have a qualifying high-deductible health insurance plan. Once you’re on Medicare, as you two presumably are, you are no longer allowed to contribute to an HSA.

You might be able to deduct medical expenses that exceed 7.5% of your adjusted gross income. To claim the deduction, you would need to have enough itemized expenses to exceed the standard deduction, which in 2025 is $34,700 for a married couple filing jointly who are 65 and older. (The standard deduction for a married couple filing jointly is $31,500, while people 65 and older get an additional deduction of $1,600 each.)

There’s also a new, temporary $6,000 deduction for people 65 and older that is available whether you itemize or take the standard deduction. This bonus deduction begins to phase out for adjusted gross income above $150,000 for married couples filing jointly and disappears at AGIs above $250,000. This deduction is set to expire after the 2028 tax year.

Q&A: Should I cash out my pension to pay off my home?

July 28, 2025 By Liz Weston

Dear Liz: I was recently and unexpectedly laid off. Money will be tight on Social Security alone. If I take the lump sum of my pension, the amount would be almost enough to pay off my home. Should I do that?

Answer: Pension payments typically continue for life and you can’t lose the money to fraud, bad investments or stock market downturns. If you had plenty of other assets and the pension was small, you might be fine cashing it out. Under the circumstances, though, consider hanging on to this valuable asset.

In general, you should be extremely wary about tying up a large sum in any one investment. That includes paying off a mortgage. You won’t have monthly loan payments anymore but you may have trouble accessing that cash again in an emergency.

Also be cautious about taking Social Security too early. Your benefits will be permanently reduced, which can have a huge effect on your future quality of life. While finding another full-time job can be extremely tough late in life, even a part-time job might be enough to help you delay filing.

You could benefit enormously from individualized financial advice. Consider reaching out to free or low-cost services, such as Advisers Give Back.

Q&A: How to finance a remodeling project

July 28, 2025 By Liz Weston

Dear Liz: I am doing a small remodeling job to my home that will cost $80,000. I have enough in my investments to withdraw the $80,000. Is it better, tax wise, to get a home equity loan to pay for it?

Answer: Like so many tax questions, the answer depends on your circumstances. How your investments would be taxed depends in part on what account they’re in. Withdrawals from most retirement accounts are taxed as income, and can incur penalties if you take the money out too early.

Withdrawals from regular brokerage accounts also can be taxed as income if you’ve held the investments less than one year. If the investments have been held for more than one year, you can qualify for more beneficial capital gains tax rates. The amount of tax you would pay depends on how much the investments appreciated in value since you bought them as well as your income tax bracket. Most people pay a federal capital gains rate of 15%, although lower income taxpayers can qualify for a 0% rate while higher earners pay 20%.

You may have the opportunity to engage in what’s known as “tax loss harvesting.” That means selling investments that have lost value since you bought them, and using that loss to offset the gains on other investments you’ve sold.

Interest on home equity borrowing, meanwhile, may be deductible if the proceeds are used to improve your home and the combined total of your mortgage debt doesn’t exceed $750,000 for a married couple filing jointly or $375,000 for singles.

To deduct the interest, though, you must itemize your deductions. The vast majority of taxpayers now take the standard deduction of $31,500 for married couples or $15,750 for singles. People 65 and older can take an additional $1,600 per qualifying spouse or $2,000 if single. In addition, people 65 and over can take an additional $6,000 bonus deduction if their income is under certain limits. The bonus begins to phase out for single filers with modified adjusted gross income over $75,000, and for joint filers over $150,000.

That’s the long answer. The shorter answer is that the taxes you’ll pay cashing in your investments are likely to be less, and perhaps significantly less, than the interest you’d pay on the loan. But you’ll need to do your own math, or ask a tax pro for help.