Humble Reader

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• We started doing QCD contributions this year even though my first RMD will not be until next year. I enabled check writing from my Rollover IRA. This is now our only pre-tax account that will have an RMD. We call the checks for this account our “QCD checks” since we only use them for that purpose. I created a list of the organizations we give to and verified their 501c3 status and tax ID numbers and downloaded their 990 reports.   There are no 990’s for churches and state universities. As the cashed checks show up in the IRA account records I save PDF images of these. As the charitable donation receipts arrive I scan and save these. Our intention is that 100% of the donations be tax deductible so the amount withdrawn from the IRA for the QCDs will not increase the amount of tax we owe. Most of the organizations correctly interpret how to handle when part of the donation is also a “membership” which provides certain benefits such as discounted entry to a museum or receiving the organizations magazine. These incidental benefits are tax deductible. But one of the museums we donate to insists that $10 of our donation is not tax deductible while the other museum, which provides more generous membership discounts, says that all of the donation is tax deductible. We will let our accountant figure it out. The only other issue I have is that my spouse and I differ in how we calculate our generosity. I use the total dollar amount we give. My spouse counts the number of checks written. We will work on this.

  Post: Our annual give it away meeting 🤑

  Link to comment from October 5, 2024

• I keep this list of "on average" expected market declines posted above my computer: -5% 3 times per year -10% every year -15% every 4 years -20% every 6 years -30% every 18 years And when making decisions always ask myself: "Am I invested in such a manner that I will be financially and emotionally OK during these events?"

  Post: Staying the Course by Jonathan Clements

  Link to comment from August 8, 2024

• Looks like all the HumbleDollar introverts have come out. I came to terms with my introversion in 2012 after reading Susan Cain's "Quiet". I also recommend "Introvert Advantage" by Marti Olsen Laney and "Introvert Power" by Laurie Helgoe.

  Post: A Quiet Life

  Link to comment from March 23, 2024

• One more follow up note about QCD receipt documentation. This year as we receive receipts for our donations we will carefully check them for each of the required items, especially the "No goods or services were provided in exchange for your contribution" or similar wording needed to assure that, if audited, the donation will remain deductable. If necessary we will request an updated receipt that meets all of the IRS requirements. My spouse is on the board of a local historical society that operates a museum in an 1860's Victorian. They are a 501(c)(3). I found that the thank you for your donation letter they were sending did not include the "no goods or services" phrase. I helped my spouse edit the receipt letter so that it now includes all of the necessary information. I am sure many small 501(c)(3)s are not aware of what must be on the receipt. It is too bad the IRS does not provide a standard receipt format that could be included on the thank you letters. I also think it odd that the charities tax ID number is not required. Will your donation pass being audited if the charity name on the letter does not exactly match the name used on the charities Form 990?

  Post: QCDs and Me

  Link to comment from March 10, 2024

• Just when we thought we had everything ready to begin using QCDs. The Ed Slott article only mentions the "Intangible Religious Benefits Exception" but IRS Pub 1771 lists two more: "Token Exception" and "Membership Benefits Exception". After reviewing the IRS information multiple times I interpret it to mean that as long as the "goods and services" that may have been provided by the charity to the donor fits into one these three exceptions, the donation receipt (CWA) can state that "No goods or services were provided in exchange for your contribution." This is for normal monetary donations. There is a clause that applies when the donor is claiming the donation of "services and unreimbursed expenses". In this case only the "Intangible Religious Benefits Exception" applies. Any lawyers or bureaucrats out there disagree?

  Post: QCDs and Me

  Link to comment from March 6, 2024

• We just went through the process of preparing for doing QCDs in 2024. Technically we could have also used QCDs in the last few months of 2023 since I was 70.5 by then but did not think about it until we were reviewing our 2023 tax returns. Our IRA custodian (Schwab) has an IRA check writing feature that we enabled for the pre-tax IRA that will be used for the QCDs. We received a pad of "IRA" checks shortly after signing up for this feature. The checks can be used for any kind of distribution from the IRA but we will only use for QCDs and so we call them our QCD checks. We also changed a high-dividend fund in the IRA, removing its automatic reinvestment, so that its dividends will provide the cash in the IRA for the QCDs without any need to sell anything. We were concerned about how we could assure that each of our charitable contributions met the QCD requirements, the amount that would be deductable, and what kind of records we needed to keep. The first thing we did was go through the list of charities and organizations we support and verify their legal status for tax-deductable contributions. The key document is the Form 990 that "Exempt From Income Tax" organizations must file with the IRS. These are public information and can usually be downloaded from the organization's web site but can also be found at web sites that monitor the finances of charities. The item to verify that the 501(c)(3) box is checked for tax-exempt status. A few of our supported charities do not have 990's because they are either associated with public universities or a church. Fortunately the web sites for these had information about using QCDs for donations.  Some organizations have both tax-deductable activities and non tax-deductable activities and it is important that the donation be correctly identified. Usually a separate 501(c)(3) is incorporated and identified by adding "foundation" to the organization name. We had concern that some of the organizations referred to our donations as "memberships" and even listed some monetary benefits of membership, such as free entry or discounts for events or gift shop items, as well as a subscription to their magazine. We wanted to make sure that the QCDs would be 100% deductable and not result in any taxable income from the IRA distribution. We downloaded and reviewed publications 526, 1771, and 590 from the IRS web site. These are all about how to handle charitable contributions and IRA distributions. In publication 1771 the "Token Exception" and "Membership Benefits Exception paragraphs eliminated our concerns about the deductable status of our "memberships". The most important record to keep is the written receipt from the charitable organization. This is typically a mailed document on the organizations letterhead, with the tax-deductable amount, and the date the charity received the donation. The date determines the tax-year the donation applies to. Sometimes both the donation amount and a tax-deductable amount will be shown. We scan these to PDF files. We also keep files of the check images but it is the receipts that would be audited. Next year when we have our 2024 taxes done, which is all handled online now, we will upload to our accountant a file with the list of QCD donations and total tax-deductable amount, the check images, and the scanned receipts, as well as the 1099-R. This will make it easy for our accountant to put the correct values into lines 4a and 4b of the 1040.

  Post: QCDs and Me

  Link to comment from March 5, 2024

• The number we use to determine financial readiness for retirement is disposable income replacement. We calculate disposable income by subtracting taxes (federal, state, Social Security, Medicare, and property) from our gross income; and then subtract our annual retirement savings (401(k), IRAs, I-bonds, taxable brokerage account, and high-yield savings) from that. When our estimated disposable income in retirement (with no earned income) was at least as much as our disposable income while working, we considered ourselves to be financially ready for retirement. We became "super savers" a few years ago and in 2023 our gross income was distributed in these percentages: 22% taxes, 33% savings, and 45% disposable. We feel quite comfortable with that amount of disposable income at our current spending level and did not deny ourselves anything due to not having enough money. Since I am making my when-to-retire decision on a year-by-year basis I have a spreadsheet where I run the numbers for the next year with these scenarios: 1) full retirement with no earned income; 2) work part time at 50%; 3) work full time for about 9 months until 401(k) is at maximum (and my mid-year annual bonus has been paid); 4) work full time for the entire year. I use an online tax calculator to determine the taxes paid for each scenario and I adjust the savings amounts and distribution from IRA amount so that the disposable income is the same for each scenario and the same as it has been for the past several years. When I started doing this spreadsheet I was quite surprised about how little tax we would pay once we have no earned income (scenario #1). Thanks to the much lower taxes, no additional retirement savings, and my wait-to-70 social security benefit, the IRA distribution needed to keep the same amount of disposable income is only about 2% of our retirement savings. If the numbers hold up when I start my RMD in two years, about half of the RMD will be used for spending and about half returned to brokerage investments; and of course we will likely increase our charitable giving via QCD's. At the other extreme (scenario #4) we use the spreadsheet numbers to determine how much of our 401(k) contributions need to be made pre-tax to keep our MAGI below the estimated and dreaded IRMAA threshold. About QCDs: We recently enabled IRA check writing on my rollover IRA account now that I am age-qualified for QCDs. I am thinking that the QCDs are a kind of on-ramp or gateway to the de-accumulation phase. When we start writing checks for QCDs will be the first time even a penny will escape from our retirement accounts. For the next two years the QCDs will be tax-advantaged giving without increasing our taxable income and will help reduce my first RMD. And we will effectively have more spendable income since the giving money is not coming from our cash.

  Post: Money Matters

  Link to comment from February 23, 2024

• I will reply to my own comment. Perhaps there are two net worth's. A net worth for retirement purposes, which is a measure of funds available to pay for continuing to live during retirement; and a net worth at death (estate), which is how much will be distributed when retirement ends.

  Post: Measuring My Money

  Link to comment from February 21, 2024

• Am I missing something? What is the point of including in net worth stuff you own but could not sell without then buying a replacement? Stuff like your home or car or household furnishings? I suppose if you could sell something and then replace it with something of less value (downsizing) you could include the difference in value. But even selling a house and moving to rented space is only exchanging the imputed rent of the house for a real rent payment.

  Post: Measuring My Money

  Link to comment from February 21, 2024

• I have no problem with paying higher premiums for higher current income but Roth conversion “income” should be excluded from the IRMAA MAGI calculation since the conversion is on past, perhaps long in the past, income. Yes, pay income tax on the conversion. No, it should not affect your IRMAA MAGI.

  Post: Our Freshman Year

  Link to comment from February 12, 2024