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4 Financial Worries to Cross Off Your List

Some worries belong in the ‘unlikely to happen/deal with it when it actually does’ bin.

An illustrative image of Christine Benz, director of personal finance and retirement planning for Morningstar, and illustrative representations of the Morningstar Medalist Rating and Morningstar Star Rating.

Editor’s Note: A version of this article previously appeared on Aug. 3, 2023.

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SPDR® Gold Shares

One of my close friends is so wise and such a good listener that she could be a therapist in her next life. I always come away from our get-togethers with a sense of well-being and balance, and I like to think I’ve given her a teensy bit of the same over the years.

Over breakfast one day after my parents’ passing, I was sharing some of my worries with her, one by one—mainly related to family dynamics. When I mentioned one particularly remote scenario that had been on my mind, she stopped me and said, “OK, yeah, let’s take that one off the list.” She went on to point out that the possibility I had been mulling over was unlikely to come to pass, and if it did, it wouldn’t be a world-ender.

Now, I know myself too well to think that I could ever be one of those people who banishes all worries. Bad stuff does happen, and thinking through the most likely bad turns of events helps me troubleshoot them. Purchasing insurance, holding extra cash in case of job loss, or giving myself an extra 15 minutes to get to an important appointment on time are all forms of risk management for my life. Knowing that I’ve got them covered gives me the mental bandwidth to do other things.

On the other hand, my friend is right—some worries do belong in the “unlikely to happen/deal with it when it actually does” bin, including some financial worries. Herewith (and fully recognizing that some of you may disagree), I’ll share some of the financial worries that I believe belong on the list.

1. That You’ll Owe Estate Tax

This isn’t to suggest that you’ll never owe estate tax. Laws can change, and many of us still have trusts left over from when the estate-tax threshold was $1 million or even less. (Raises hand.) Yet Congress of the past few decades has had little appetite to tax estates; we’ve seen the estate-tax exclusion jump from $675,000 in 2001 to nearly $14 million today. In other words, you’d need to die with nearly $14 million for your estate to be subject to estate tax, and double that amount—nearly $28 million—if you’re part of a married couple. Because of that lofty exclusion amount, less than 0.1% of people who died in 2020 left estates that owed gift tax, according to the Tax Policy Center.

Barring congressional action, the currently lofty estate tax exemption amounts are set to “sunset”—or revert to their levels before the Tax Cuts and Jobs Act went into effect in 2018—at the end of 2025. Even if that happens, however, the estate-tax exemption will remain pretty high, at roughly $7 million per individual and $14 million for married couples. If you find yourself in the lucky position of having more assets than you’ll ever spend in your lifetime, do get some help from an estate-planning attorney. (And seek guidance from an estate-planning attorney even if you don’t, as estate plans are about much more than just asset transfers and tax minimization.) A good estate plan should be able to address changing estate-tax policies, and in any case, you’ll want to ensure that your assets pass to your loved ones or charity in accordance with your wishes and with the least amount of taxes owed. Moreover, estate-tax exemptions are lower in many states; in other words, your estate could avoid federal tax but still be subject to taxes at the state level.

2. … or Gift Tax

Relatedly, I’ve often heard people voice concern over paying gift tax. And their confusion isn’t unfounded. If you give a gift of more than $18,000 to one person in a single year, you’ll need to file a form documenting the gifted amounts in excess of that limit. Those amounts aren’t taxable in the year you make them; rather, they count toward your lifetime estate- and gift-tax exclusion amount. But here again, we’re talking rarefied numbers: The gift tax exemption is clumped together with the estate tax exemption at $13.61 million per person. In other words, the combination of what you died with or gave away during your lifetime (in excess of the $18,000 annual per person amount) must exceed $13.61 million for it to be taxable. So, unless you’re really rich, gift away without concern for gift tax, though you will still have to file that form if your gifts to any one individual exceed $18,000 in a single year. And remember, none of the gift-tax rules apply to charity, so you can be comfy being especially generous there.

3. That You’ll Need Hard Assets to Buy Things

OK, I realize I’m venturing into more-controversial territory here, but bear with me. If you’ve caught some of the late-night infomercials, you know that gold is often touted as potentially lifesaving in an Armageddon scenario. Your dollars could be worthless, but brandishing the yellow metal might still help you buy gas or barter with your neighbors for food. (Cryptocurrency enthusiasts sometimes make a similar case for their asset of choice.)

However, I put this one in the “devastating but unlikely” category, right up there with fretting that my plane could crash or that my otherwise healthy husband could get diagnosed with a dreaded disease. Here’s how I think about it: If the world around us is in such a state that our dollars might not be worth anything, what on earth else might be going on? Nuclear disaster? Global pandemic or warfare? The collapse of laws as we know them? A worthless dollar may not even rate on the list of troubles, sorry to say. Hard assets are also expensive to store and insure, though gold-bullion exchange-traded funds like SPDR Gold Shares GLD solve that issue.

That’s not to say it’s unreasonable to steer a small allocation of your portfolio to hard assets (though I’m increasingly coming around to investment advisor Rick Ferri’s assertion that you shouldn’t own anything that can’t produce a cash flow). Such an allocation can potentially deliver a positive return in a period when stocks and bonds founder and improve your portfolio’s risk/reward profile. But it’s probably healthier to think of any gold holdings as a piece of your portfolio, not Armageddon insurance.

4. That the Government Will Begin Taxing Roth IRAs

People love the tax-free withdrawal aspect of Roth accounts, and they also love the fact that their Roth IRA balances won’t be subject to required minimum distributions, in contrast with traditional tax-deferred assets.

But a question inevitably arises in relation to Roth accounts: Could Congress change its mind and make withdrawals taxable? Here again, anything’s possible, but I put this one on my “not gonna worry today” list for a few reasons. First and foremost is that for most of the Roth IRA’s 20-year history, income limits on contributions and conversions applied, meaning that most people funding the account type were not high rollers; they were middle- to upper-middle-class savers. And if I know one thing about members of Congress, it’s that they don’t have a strong appetite to make middle-class people mad. Oh wait, I know another thing—Congress likes to see revenues, and Roth contributions and conversions, because they involve paying taxes in the year of the transaction, bring money in the door. If Congress rescinded tax-free Roth withdrawals, new contributions and conversions, along with their associated tax revenues, would dry up in a hurry. Finally, in a worst-case scenario in which tax-free Roth withdrawals are rolled back, it seems most likely that only investment earnings would be taxable upon withdrawal; after all, the contributions have already been taxed.

That said, changes to Roth IRAs as we know them aren’t out of the question. Previous budget proposals have called for imposing required minimum distributions on Roth IRA accounts, for example. It’s also possible that the laws could be tightened to disallow or otherwise discourage the so-called backdoor Roth IRA or mega-backdoor Roth IRA maneuvers. For now, though, I’m happily doing both.

In closing, it’s completely understandable to have some financial worries, but perhaps more important to keep them in perspective.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Christine Benz

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Christine Benz is director of personal finance and retirement planning for Morningstar, Inc. She is also the author of a new book, How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement (Sept. 2024, Harriman House). She co-hosts a podcast for Morningstar, The Long View, which features in-depth interviews with thought leaders in investing and personal finance.

Benz joined Morningstar in 1993. Before assuming her current role she served as a mutual fund analyst and headed up Morningstar’s team of fund researchers in the U.S. She also served as editor of Morningstar Mutual Funds and Morningstar FundInvestor.

She is a frequent public speaker and is widely quoted in the media, including The New York Times, The Wall Street Journal, Barron’s, CNBC, and PBS. In 2020, Barron’s named her to its inaugural list of the 100 most influential women in finance; she appeared on the 2021 list as well. In 2021, Barron’s named her as one of the 10 most influential women in wealth management.

She holds a bachelor’s degree in political science and Russian language from the University of Illinois at Urbana-Champaign.

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