Explaining Our Finances to My Wife

This week I took my final 2021 RMD (required minimum distribution) withdrawal from my IRA and wanted to show my wife how it works. I handle all the “big” things in our affairs – investing our portfolio and making sure we are financially secure for the rest of our lives. My wife handles our “small” things such as paying our household bills, renewing our insurance, paying the real estate tax bills, planning an interesting and scrumptious dinner menu daily, including shopping for the best fresh produce, meats and poultry, and making sure we do not miss any of our grandsons’ major events or sports activities. Actually, she could live fine without knowing what I do, but I probably wouldn’t be able to function too well without her.

What she does would be impossible for me to manage even close to how she does it. What I do is easy. I told her to call Peter and he would be able to pick up where I left off. You see, our financial affairs have clearly defined road maps. Our tax returns for the last three years, the folders on my computer with the data I used to prepare the returns and my brokerage accounts all have paths to our investments. All I need to do is to prepare a list of which folders the info is in and the passwords. In some instances, I have receipts and paper back up, and I keep that in a box with the year and the date it could be shredded, which is three years after the due date for that year’s tax return. For instance, the box with my 2019 info could be shredded after April 15, 2023. That follows the IRS financial record retention guidancefor available information should there be a tax audit.

Getting back to my “big time” financial affairs, I realized some instructions would be needed. I do not pay estimated taxes quarterly but pay them once a year as withholding from my IRA RMD. I am pretty good at projecting my taxes and then accumulating the amount needed for tax payments, which I pay at the beginning of December. This way I have the cash available rather than being forced to sell some stocks, and I hold on to the cash for as long as I can. I could easily sell stocks when it is time to pay my taxes, but if there is a down market at that time, I would have to sell more than I might have wanted to, so I do it periodically, starting around July. I also withdraw what I must prior to this, so not much action in this regard occurs in December. I have monthly checks transferred into my checking account and use that for my normal spending and I give to charity from this account. The balance of my RMD is withdrawn at odd times during the year when I sell some ETF shares and immediately buy them back in my individual account. When the funds become available, I have those amounts transferred to my individual account. My individual account is a margin account, so I do not need to wait for the funds to clear to repurchase the ETFs. When the funds are transferred from the IRA, the margin balance is then paid off costing pennies in margin interest, which I consider a convenience fee – this is becoming more and more common with restaurants adding a convenience fee to their charges.

To complete my road map, I maintain an Excel worksheet that goes back dozens of years with a summary of our annual tax returns and a projection for the current year. I also have a section for my withholding and estimated tax payments, a listing of my IRA and 401(k) accounts, the balances from the end of last year and my RMD calculation. I also maintain sections for other taxable activities I do not want to lose track of. My clients all get a copy of a similar Excel summary of their tax returns. Imagine receiving a 682-page tax return and trying to figure out where to start reviewing it. It literally is impossible for a client to get a handle on that. The two-page (yes, it is only two pages, plus supporting pages for multiple K-1s, rental property or business income) take an overwhelming chore and make it into a thoughtful review. We also use that Excel sheet to review the return with our clients, calculate projected income and taxes and provide an overview for investment and financial planning consultations. We also have an added section with their personal financial statement for clients who desire it. What we ask the client to do, and what I am now definitely going to do for my wife, is to provide contact people for each account and for my various hobby collections (which ain’t worth much, but will be a big bother to dispose of). It might be easier to just have them packed and sent to the societies I belong to as a contribution for them to retain or dispose of as they wish.

Another important activity is my charitable contributions. I have a donor-advised fund (“DAV”), which I primarily use to make anonymous contributions to organizations I want to support. I do this because I want to stop the flow of mail and the very frequent and annoying phone calls. This causes me to miss out on the newsletter updates or the address labels and notepaper, but nothing is perfect. I also will be leaving added funds to charity upon my death. What I did for this was transfer some stocks to a new rollover IRA account and named by DAV as the beneficiary. After my death, my DAV designees will decide on the charitable distributions. My motive for this is to “force” my children to get involved in some charitable organizations and then give generously to them. I can’t control what they do and do not believe in legislating from the grave, so what they do is up to them and I just hope they do the right thing. All I am providing is the opportunity and means. They need to provide the effort and commitment. I already included my children as designees on the DAV account.

My original intention with this blog was to provide a sketch of what could be done. But it ended up being a pretty good instruction or guide letter to give to my wife. A suggestion is for readers to consider such a letter for themselves.

Enjoy the Holidays and have a Happy New Year.