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Retirement

Q&A: Yes, you can donate IRA money with a check–but should you?

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Dear Liz: Please have another go with respect to answering a recent question about making qualified charitable distributions from an IRA using a debit card, which is something we have also wondered about. Several of the large mutual fund companies tell their customers that checks from their IRA account going to qualifying charities will qualify as QCDs, whether the checks are written by the company to the charity or by the individual to the charity. Hence, it would seem to be functionally equivalent whether one writes a check or uses a debit card. But your answer to the reader’s question seems to suggest something else.

Answer: You’re right that my answer fell short in explaining the problem.

The original letter writer wanted to be able to use a debit card to make qualified charitable distributions from her IRA to small art organizations that accept online donations, but apparently not paper checks. Qualified charitable distributions allow people to donate money from their IRAs to charity without the money being taxed.

Since IRA custodians typically don’t issue debit cards, the letter writer would have to first have the donation amount sent to her bank account or another account that offers such a card. But this transfer would make the distribution taxable, since qualified charitable distributions must be made directly to the charity without the money passing through the IRA account holder’s hands.

Checks drawn from an IRA account and made out to the charity, either by the account holder or the IRA custodian, are considered qualified charitable distributions as long as other rules are met. For example, the donation must be from a traditional IRA, the account holder must be at least 70-½ and the annual donation limit is $108,000 in 2025.

That said, sending checks through the mail is a risky way to transfer funds. Mail theft and related check fraud are soaring. Electronic payments are a far more secure way to send money, whether you’re paying bills or charities.

If you must send checks, use gel-based pens since their ink is harder to alter and go to your local post office, rather than leaving checks in an unsecured mailbox. Monitor every check you send and report any missing checks promptly to your bank or IRA custodian so they can stop payment.

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

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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: Why Social Security imposes an earnings test

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Dear Liz: I am under full retirement age, collecting Social Security and working part-time. I just received a letter from Social Security telling me I earned over the $22,320 limit and now have to pay back some of my Social Security. I was aware of the limit, so the letter was not unexpected. What I’m curious about though is what is the rationale behind the earnings limit? Once you’re eligible for Social Security, why do they care how much you earn? Are they trying to discourage applying before full retirement age? Also, and more importantly, I think I read that somewhere down the line, I will get back what I had to pay back. Can you clarify that for me?

Answer: Social Security was designed as insurance for those who could no longer work, and a retirement earnings test has been a part of the system from its creation in 1935. Back then, the test was all-or-nothing: Any earned income would preclude your getting a benefit.

Over time, the test was modified so that people could earn some income without losing all their benefits. The age at which the earnings test no longer applies has changed as well. In the 1950s, it was set at 75. In the 1960s, the age was lowered to 65. In the 1980s, it was adjusted so that the current “full retirement age,” when the test no longer applies, is 67.

The current test withholds $1 for every $2 earned over a certain limit, which in 2025 is $23,400. Once you reach full retirement age, the withheld amounts will be added back into your benefit.

What you won’t get back, however, is the larger benefit you could have earned by delaying your initial application. Most people are better off waiting at least until full retirement age to collect Social Security, if they possibly can.

Q&A: When is the right time to start simplifying your finances?

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Dear Liz: You recently answered a question about closing credit cards and mentioned the “mental load” of managing too many cards. That got me thinking about when is the right time to start simplifying my finances. I have lots of rewards credit cards and have opened several bank accounts to get bonuses, but I wonder at what age I should start consolidating so everything’s easier to track.

Answer: Simplifying our finances can allow us to better monitor our accounts, helping to avoid mistakes and fraud. Reducing the number of accounts we have also makes it easier for our trusted people to take over for us, should we become incapacitated.

But consolidating gets particularly important as we age and start to face cognitive deficits. Our financial decision-making abilities peak in our 50s, after all, and can really drop off in our 70s and 80s.

You can get ahead of this curve by consolidating accounts as you go along. When you leave a job, for example, consider rolling your old retirement account into your next employer’s plan or an IRA so that you don’t lose track of the money. If you’re thinking of opening a new bank account, consider whether there’s an old one you can close. Shuttering credit card accounts can affect your credit scores, so open new accounts sparingly and think about closing any that you’re not using, particularly if they’re newer or lower-limit cards.

Your 60s may be a good time to get serious about winnowing the number of accounts and institutions you’re juggling. Many people find it’s much easier to have one bank, one brokerage and a few credit cards than to have accounts scattered across the financial landscape.

Q&A: Don’t need your RMD? Consider a QCD

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Dear Liz: When you’re writing about required minimum distributions from retirement accounts, please make sure people know about qualified charitable distributions. Those of us lucky enough not to need the money can donate it directly from an IRA to the nonprofits of our choice. That way, we don’t even have it in our income column, and there are no taxes. I am looking forward to making many qualified charitable distributions to my favorite nonprofits when I turn 73.

Answer: You don’t have to wait. Qualified charitable distributions from IRAs can start as early as age 70½. The distribution limit for 2025 is $108,000 per individual. If you’re considering this option, please familiarize with the IRS rules for such distributions and consider consulting a tax pro.