The difference between what you know and what you don't -- how big is that divide when it comes to financing retirement?

Do you have a good understanding of where you are when it comes to retirement preparedness? Thirty-eight percent of households are in good shape, according to a recent Center for Retirement Research at Boston College (CRR) brief titled "How Well Do People Perceive Their Retirement Preparedness?" (tinyurl.com/4xj4z5j5). Another 19% of households are in trouble, and they know it.

Then there are the 43% of households that fall into one of two categories -- "not worried enough" or "too worried." Either can be a concern, but "not worried enough" is likely the bigger one.

The CRR brief's results are based on calculations involving the National Retirement Risk Index (NRRI), which the CRR uses to measure "the share of working-age households that is 'at-risk' of being unable to maintain their pre-retirement standard of living in retirement" (tinyurl.com/4xb5yumn), and the Federal Reserve's 2019 Survey of Consumer Finances (tinyurl.com/har77pms).

The Fed survey asked households to self-assess their financial preparedness for retirement, and roughly a third self-reported being at risk. In contrast, the NRRI projected that nearly 50% were at risk of not having enough for retirement.

When the NRRI results were compared with the individual household assessments, it was determined that 28% of households thought they were not at risk, while the NRRI predicted that they were (this group was tagged "not worried enough"), and 15% thought they would fall short of retirement goals, while the NRRI projected they will have enough (the group was "too worried"). When broken down by income, high-income households were most likely to be "not worried enough," while low-income households were more likely to be "too worried."

What is behind the incorrect perceptions of retirement preparedness? The CRR brief offered some possible explanations.

Of the two groups, I'll focus on "not worried enough." For them, the trouble spots included:

-- Housing debt-to-asset ratio. According to the CRR brief, "As the housing market improved, households may have been comforted by the rising value of their asset, without considering how much they still owed." This factor was especially strong for high-income households, as they generally owned more expensive homes.

-- A defined contribution retirement plan (like a 401(k) account) that was below the median. The CRR brief calls this a "wealth illusion," using the example that "$100,000 looks like a lot of money to many people even though it provides only about $617 per month in retirement income." According to the CRR, this issue is a higher probability for low- and middle-income households.

-- Two earners but one saver. "Many dual-earner households may not realize they will have to replace both spouses' earnings to maintain their standard of living in retirement," according to the CRR brief. "So, not surprisingly, dual-earner households where only one spouse has a retirement plan are more likely to be 'not worried enough.'" Another point: The problem increases with income level because Social Security "replaces a smaller share of pre-retirement income for high earners."

The key danger for this group? Their lack of worry means that they won't take action, and their overconfidence could lead them to underestimate possible risks.

All this points toward making sure you understand what you have saved for retirement. Do an audit of where you stand now.

Your 401(k) reports should include an estimate of what you can expect to receive in monthly income if your account balance is used to buy an annuity.

The Social Security Administration website (ssa.gov) can provide an estimate of what you will be receiving once you begin taking Social Security benefits.

If you have an IRA, you can use a calculator like the savings distribution tool at 360 Degrees of Financial Literacy (tinyurl.com/mr373fvy) to get an estimate of how long your account will remain liquid based on withdrawals.

I would rather be in the "too worried" group and continuing (and possibly increasing) my efforts to save for retirement than be in the "not worried enough" group and find myself caught short financially once retirement has arrived.

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In case you're wondering how to do some "good" over this July Fourth weekend, I'll give you 1.5 million possibilities worth an estimated $1.5 billion. The 1.5 million figure is the number of people who need to file their 2019 tax returns before July 17, 2023, in order to get their share of $1.5 billion in 2019 tax refunds -- and in some cases, eligibility for that refund may come as a surprise (tinyurl.com/yc5u4nx6).

Why a surprise? You may not have filed a tax return because your earnings were below the tax filing threshold. You may still be eligible for a refund, according to the IRS (tinyurl.com/kmym4psd), based on:

-- Having excess federal income tax withheld.

-- Making estimated tax payments (or having money withheld from your retirement fund and Social Security disbursements).

-- Qualifying for refundable tax credits.

Among the refundable tax credits is the Earned Income Tax Credit (EITC), which "helps low- to moderate-income workers and families get a tax break," according to the IRS website (tinyurl.com/2jvcevxu).

You would potentially be eligible for an EITC for 2019 if you had an income below $50,162 ($55,952 if married filing jointly) and had three or more qualifying children. There are different income levels for two qualifying children, one qualifying child or no qualifying children -- see the 2019 listing at tinyurl.com/3wxs4upe for more details.

In case you're wondering about the July 17 filing date, a taxpayer has three years to file his tax return and claim a refund.

Why wasn't the deadline April 15? For the 2019 tax-year returns (which were filed in 2020), the Tax Day deadline was moved from April 15 to July 15 due to the COVID-19 pandemic emergency. This year, July 15 falls on a Saturday. Therefore, a 2019 tax return will be "considered timely" if it is mailed on Monday, July 17, according to Notice 2023-21 (tinyurl.com/7sham5rn).

There are two states that each have more than 100,000 people who are entitled to refunds for 2019 -- California (144,700) and Texas (135,300), according to IRS estimates. The potential refund (excluding credits) for the two states is a combined $284 million. My home state of Connecticut has 15,400 people who are entitled to 2019 refunds, totaling more than $16 million.

If you need the 2019 tax forms, they are available at the IRS website on the Prior Year Forms and Instructions page (tinyurl.com/ymuzrpuz). You can also call 800-829-3676 to request the forms.

What if you are missing important papers related to filing your 2019 taxes? You can request key documents such as Form W-2 or Form 1099 from your current or former employer. You also can use the Get Transcript Online tool at IRS.gov (tinyurl.com/3xsj43u8). You will need a photo ID if you are a new user, as you will have to verify your identity. Among the wage and transcript information available are Forms W-2, 1098, 1099 and 5498.

Note that the transcript file is limited to roughly 85 income documents, and if there are more documents than that, "the transcript will not generate," according to the IRS, and you will need to submit Form 4506-T, Request for Transcript of Tax Return (tinyurl.com/2z45j25t). But be aware that it can take five to 10 calendar days for delivery, and the deadline for 2019 refunds is July 17. So, act fast.

By the way, keep in mind that your refund check may be held if you "have not filed tax returns for 2020 and 2021. In addition, the refund will be applied to any amounts still owed to the IRS or a state tax agency and may be used to offset unpaid child support or past due federal debts, such as student loans," according to the IRS (tinyurl.com/3ca5jwzf).

Again, if you haven't filed your tax return for 2019, but you believe you are owed a refund, it's worth the time -- and possibly the money -- to check it out.

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The subject of QCDs is on readers' minds. As a reminder, a qualified charitable distribution is a way to donate to charity that is available only to IRA owners who are age 70 1/2 (repeat, age 70 1/2) or older. When QCD rules are followed (see my blog at tinyurl.com/mw42ppcf), the withdrawal does not count as income at tax time. That's a huge benefit to the charitably inclined, especially if they are older and taking RMDs (required minimum distributions).

This is how I think of the decision-making process when considering doing a QCD:

1. Do you want to give to charity?

2. How much?

3. Are your living expenses covered even if you make the gift?

4. What assets could you use to make the gift? That is, what are the possibilities, such as cash, stock, etc., or perhaps an IRA?

5. Do you normally take the standard deduction or itemize?

6. If you normally use the standard deduction, will the size of the gift be sufficient to consider itemizing?

7. Do you have an IRA?

8. Are you over 70 1/2?

9. Are you taking RMDs from your IRA?

10. Do you have a 401(k) or 403(b) or other tax-deferred retirement plan?

11. Do you have an accountant who does your taxes, or do you do them yourself?

With the answers to these questions, you can start to assess charitable gifting possibilities.

Let's consider "Mort's" situation. Age 75 and single, Mort wants to give $50,000 to his local hospital's foundation, and the amount is well within his budget. His potential sources are a bank account; appreciated stock; a tax-free Roth IRA; and a large 401(k). Notice that he does not have a traditional IRA.

Before making any decisions, Mort consults with his accountant to address tax savings.

Of Mort's choices, the 401(k) is the least tax-efficient way to make a gift to charity. The 401(k) will not qualify for a QCD nor for a tax deduction.

The Roth IRA would qualify for a QCD, but Mort would be wasting the Roth's outstanding tax advantages.

Mort's best option is making the gift with cash or securities and to itemize the deduction on Schedule A to Form 1040 (tinyurl.com/7k86jj5s).

Whether Mort can itemize the full $50,000 will depend on his other itemized deductions, such as medical expenses and real estate taxes, and a limit based on Mort's AGI (adjusted gross income). See IRS Publication 526 (tinyurl.com/yc3n92ny): "The amount you can deduct for charitable contributions is generally limited to no more than 60% of your AGI. Your deduction may be further limited to 50%, 30%, or 20% of your AGI, depending on the type of property you give and the type of organization you give it to."

If Mort's income is $100,000 and he writes a $50,000 check to charity, he will get the benefit of a tax deduction if he itemizes. His federal tax bill will be about $6,600, calculated using TaxAct's income tax calculator (tinyurl.com/2b4hm9nu).

Let's compare Mort's situation to "Joan's," who is age 80 and has an IRA. Her RMD is $50,000, which is one-half of her income of $100,000. She normally claims the standard deduction, meaning she does not itemize. The standard deduction for single filers is about $13,000.

Even though Joan does not itemize, she will receive a tax benefit by doing the QCD of $50,000. While the gift to charity is identical to Mort's, she will pay about $2,000 less in taxes.

In Joan's case, a QCD is optimal. Her $50,000 QCD happens to equal her RMD. Normally, her income would include the $50,000 RMD. But, due to the QCD, the IRA withdrawal gets a pass -- it doesn't count as income at tax time, but it still counts as an RMD for tax purposes.

As you can see, whether to write a check to charity or do a QCD will depend on your personal situation. Talk to your accountant to work through your best options. And, if you are in Mort's situation, consider rolling over your 401(k) to an IRA if you want the benefit of a QCD.

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