Do you earn too much to make a Roth IRA contribution?
Under IRS rules, you’re prohibited from making a Roth IRA contribution if your modified adjustable gross income is more than:
$183,000 if you’re married filing jointly, or
$125,000 if you’re filing as a single person or head of household
If you fall into this category, you can’t make a Roth IRA contribution, right? Wrong.
While you can’t make a direct contribution to your Roth IRA, that doesn’t mean you should write off the idea of funding your Roth IRA this year.
You can still make an indirect contribution to your Roth IRA regardless of how much money you earn, and whether it’s a direct or indirect contribution, what’s most important is getting that money into your Roth IRA where it can grow tax-free and where you can withdraw it tax-free in your retirement years.
So how do you make an indirect Roth IRA contribution? It all starts with a 2010 congressional rule change.
Note: Check here for the latest Roth IRA Rules and Contribution Limits for 2012.
Roth IRA Conversion Limit Rule Change
The key to making an indirect Roth IRA contribution is a 2010 rule change in which Congress eliminated the income limit for performing a Roth IRA conversion.
Prior to 2010, if you had adjustable gross income in excess of $100,000, the IRS prohibited you from converting a Traditional IRA or an old 401k to a Roth IRA.
But now that the income limit has been lifted, anyone (regardless of income) can perform a Roth IRA conversion.
At this point, you’re probably asking yourself, “So what? The income limits on contributions are still in effect, and I earn too much!”
That’s a good question, and the answer is that the elimination of the income limit on Roth IRA conversions paves the way for you to make a Roth IRA contribution – regardless of income.
Fund Your Roth IRA Regardless of Income
How? Because anyone (regardless of income) can make non-deductible contributions to a Traditional IRA. For most people, the advantage in making a Traditional IRA contribution is that it’s tax deductible, but odds are that you can only make non-deductible contributions due to your high income. And that’s good, because those are exactly the type of contributions you want to make.
Once you fund your Traditional IRA with non-deductible contributions, you can then convert your Traditional IRA to a Roth IRA and… Presto! You just funded your Roth IRA.
Done right, you should avoid income taxes on the conversion since you haven’t had time to generate any investment earnings, and you don’t owe conversion taxes on contributions which were originally non-deductible.
For example, let’s say you’re married, 40 years-old, and earn $300,000 per year. Under IRS rules, you’re prohibited from making a direct contribution to your Roth IRA since your $300,000 income exceeds the $183,000 income limit for married couples.
However, you can still contibute $5,000 in after-tax non-deductible contributions to a Traditional IRA, and then convert that Traditional IRA into a Roth IRA tax-free.
Is it really that simple? Yes, and… no.
Potential Pitfalls
Such a conversion isn’t always a tax-free event. It is if you don’t already have a Traditional IRA. But if you already have one, it can get complicated.
Why? As previously stated, most people make Traditional IRA contributions in order to take advantage of the tax break. So if you already have a Traditional IRA, in all likelihood, it’s funded with tax deductible contributions.
You can still make your non-deductible Traditional IRA contribution, but the IRS won’t let you convert only your non-deductible contributions. Any Roth IRA conversion you perform will trigger income taxes on those portions of the conversion amount which represent original tax deductible contributions and earnings, and the IRS requires you to treat your cost basis as a percentage of tax deductible and non-tax deductible contributions.
For example (and this is a simplistic example), let’s say you’re married, 40 years old, and earn $300,000 per year. You decide to make an indirect Roth IRA contribution by following the steps outlined above, but you also already have a Traditional IRA worth $30,000 – of which $10,000 represents earnings, while the remaining $20,000 represents your original tax deductible contributions.
If you make a $5,000 non-deductible contribution to your Traditional IRA, then attempt to convert $5,000 of your Traditional IRA to a Roth IRA, you will owe the IRS income taxes.
Why? Because the IRS determines the cost basis of your conversion by looking at your total contributions – in this case, $20,000 in deductible contributions and $5,000 in non-deductible contributions.
In percentage terms, this means that 80% of your contributions are tax deductible, while the remaining 20% are not. As such, if you attempt to convert a portion of your Traditional IRA, 80% of your conversion is taxable, while the other 20% is not. In addition, if you convert any of existing funds which are the result of past investment earnings, those are subject to income taxes as well.
In the above example, we now have $45,000 in your Roth IRA – $20,000 in deductible contributions, $5,000 in non-deductible contributions, and $10,000 in earnings.
Assuming an effective tax rate of 35%, converting your entire Traditional IRA to a Roth IRA will trigger a $10,500 income tax bill. Why? Because your deductible contributions are taxable ($20,000 x 35% = $7,000) and your earnings are taxable ($10,000 x 35% = $3,500).
So if you decide to go this route, make sure you seek the advice and guidance of a certified financial professional. Also, make sure you have plenty of cash on hand to pay your conversion taxes if you still wish to move forward with a conversion.
Act Before the Conversion Limit Comes Back!
A Roth IRA can be a great place to grow your retirement savings, so don’t give up if you earn too much to make a direct Roth IRA contribution.
You can always make non-deductible Traditional IRA contributions and then convert to a Roth IRA. However, take advantage of this “backdoor” contribution method while you can. Don’t simply assume that it will always be available. Congress can always legislate a new income limit for Roth IRA conversions, and then you’ll be shut out again.
So don’t take your current opportunity for granted.
This is a guest post by Britt who writes for Your-Roth-IRA.com, a website which looks to educate people concerning Roth IRA regulations.
Save more, spend smarter, and make your money go further
If there’s one type of borrower in this credit market whose profile has been scrutinized the most, it’s the sole proprietor.
Self-employed individuals/sole proprietors used to be able to get stated-income loans that would allow them to provide supporting income documentation.
But the paradigm has shifted, and these borrowers now have a more challenging time qualifying for a mortgage than ever before.
Financial professionals often advise the self-employed to write off as much of their expenses as possible in order to show less income on their taxes.
While this is quite favorable from an accounting standpoint, taking expenses reduces the taxable income needed to offset liabilities, such as a mortgage payment.
The common self-employed borrower traps most sole proprietors will encounter when getting a mortgage include:
Not showing enough income on your Schedule C form
Showing little income on your Schedule C reduces the amount of income you’ll have to offset your liability (new mortgage), and showing a loss (negative income) makes things even tougher.
To determine the income that will be used to offset a mortgage payment (including taxes, insurance and private mortgage insurance, depending on loan program), take your combined annual income (your annual profit) for the past two years then divide by 24.
The income will need to be at least 55 percent greater than the mortgage payment, assuming no other liabilities.
Not being self-employed for 2 years
This is not to say your loan will be denied if you have less than two years of self-employment history.
However, you’ll need to show a net profit, with a current year-to-date profit and loss statement as well as your most recent year’s self-employed income tax returns.
Not being able to document large cash deposits
Any deposits going into your bank account have to be part of your regular income and will need to be documented as such.
Not having a third-party business validation
This means either a business license — such as a real estate license if you’re a real estate agent, for example — or a CPA letter showing that you have filed self-employed income tax returns for the past 24 months.
Another option is showing your business profile online.
Using business funds in a mortgage transaction
If the funds for the transaction are coming from a business account, the mortgage lender will assess your ability to use those funds as part of your regular cash flow and business model.
In other words, if your regular cash flow, income and business are such that those funds would be plausible for your use, you’ll be OK. This will be determined by the mortgage underwriter.
However, if the business funds do not support a way of how those funds were originally generated, you’ll need to provide a CPA letter showing that the use of those funds does not impact the cash flow of your sole proprietorship business.
Business liabilities
Debt obligations that the business pays will show up on your credit report, so be prepared to provide supporting documentation.
If these are business debts, but are paid for personally, these debts cannot be omitted, and they will count against your borrowing power.
“Self-Employed? Beware of These Common Borrower Traps” was provided by Zillow.com.
Save more, spend smarter, and make your money go further
Previous Post
401(k)s for the Self-Employed
Next Post
How Freelancers Can Protect Their Identity
Check out the best cities for remote work to ensure all of your lifestyle needs are met when living and working remotely.
Since 2020, work-from-home (WFH) has become the new normal in the workplace. While some companies are pushing for a return to office, others are embracing remote work indefinitely. When the world is your oyster, where should you go to live and work remotely?
Well, the team at Rent. did our research to put together a list of the best cities for remote work. So, if you’re ready to explore the country while working remotely, consider any one of these top best cities for remote work.
The 10 best cities for remote work
As a remote worker, your physical location hardly matters. As long as you have a productive workspace and a strong internet connection, you can pretty much work wherever your heart desires. Do you enjoy sitting on a patio while you take your Zoom calls? Well, as long as your connection is strong you’re good to go!
We looked at a few things to make our recommendations:
Median rent and rent change year-over-year
Access to the internet and average internet speeds
WFH population and number of coworking spaces
If you’re a digital nomad who wants to fully embrace WFH, consider these top 10 locations across the country that have been named the best cities for remote work.
Median rent: $2,075
Average Mbps: 83.46
Number of coworking spaces: 68
% of population WFH: 19 percent
Orlando is the number one best city for remote work based on our ranking methodology. With a population of 309,154 people, it’s a perfect mid-sized city in the sunny state of Florida.
You’ve got well-known amusement parks. You’ve got crystal blue beaches and sunny skies. And, you’ve got a solid environment for remote work. Retirees and young professionals alike are flocking to Orlando and it’s easy to figure out why. Consider this city if you want to be a remote worker.
Median rent: $1,528
Average Mbps: 117.89
Number of coworking spaces: 78
% of population WFH: 38 percent
Austin is the second-best city for remote workers. It’s a hopping metro with a young millennial crowd. The rent is reasonably priced and there is no state income tax, which is a bonus for remote workers and residents alike. Austin is particularly appealing to the IT sector and is commonly called “Silicon Hills.”
So, if you’re a remote IT worker, this city is even better for you! But if IT isn’t your field of work, don’t fret: You can still live in Austin and enjoy the benefits of remote work in your chosen industry.
Median rent: $1,339
Average Mbps: 80.71
Number of coworking spaces: 11
% of population WFH: 13.2 percent
Ranking third on our list is the city of North Charleston in South Carolina. With a smaller population just shy of 120,000 people, this city is the perfect place to settle down to get a mix of big-city life with small-town charm.
People rave about the dining scene, so you can work remotely from a coffee shop or restaurant! This city is full of history and has a diverse cultural scene and stunning scenery. If you’re looking for a place that seemingly has it all, check out North Charleston.
Median rent: $1,338
Average Mbps: 76.26
Number of coworking spaces: 23
% of population WFH: 15.7 percent
Grand Rapids is a great city for outdoor recreation and beer scene. If you’re a digital nomad who wants to flex the Midwestern value of “work hard, play hard,” this is the city for you.
The city alone has over 40 breweries. You’ll be able to go on a nice trail walk and cool down with a beer. Additionally, it’s one of the largest office furniture-making cities in the U.S. So, you can definitely find yourself a sweet office set up for your remote work office here.
Median rent: $977
Average Mbps: 129.12
Number of coworking spaces: 7
% of population WFH: 12 percent
Columbus, GA, is the fifth city on our list of best cities for remote work. If you’re looking for a family-friendly place to live, consider Columbus. This city is rising in popularity as it’s an easy-going town with friendly people.
There are lots of parks, restaurants and bars so you’ll have a good mix of outdoor and indoor activities when you’re not working. One thing to note is that you may experience severe weather in this pocket of the country.
Median rent: $2,220
Average Mbps: 92.68
Number of coworking spaces: 92
% of population WFH: 38 percent
Because it’s a large metro, Atlanta is a great place to live and work remotely — or to look for an in-office job if you tire of the WFH life. You also have several large corporations headquartered here, such as Delta and Coca-Cola, so job options are plentiful and rent reasonable compared to similar-sized metros.
Median rent: $1,183
Average Mbps: 55.53
Number of coworking spaces: 15
% of population WFH: 12 percent
You don’t have to be a Packers fan to live in Green Bay (although it wouldn’t hurt!) People love this family-friendly city and rave about the small-town community traditions and vibe you experience living here.
Ranking seventh on our list of best places for remote workers, Green Bay has affordable living and is recently experiencing an influx of people moving here. Enjoy football games or farmer’s markets when you’re not working from home.
Median rent: $1,444
Average Mbps: 94.95
Number of coworking spaces: 128
% of population WFH: 15.6 percent
Houston is another Texas city that made our list of the best places for remote workers. It’s a larger city, compared to Austin, so if you’re looking for a big metro area in Texas, consider the nation’s fourth-largest city.
This metro is known for its diverse food and entertainment scene. Since it’s a huge city, you pretty much have a good mix of everything to do. Plus, rent is fairly inexpensive, making the cost of living affordable.
Median rent: $1,613
Average Mbps: 119.41
Number of coworking spaces: 26
% of population WFH: 33.1 percent
Another southern city makes our list of the top 10 best places to work remotely. Raleigh has great weather, so if you’re looking for a beautiful and mild place to live, this is for you.
Additionally, it’s known to be a great city for small businesses and entrepreneurs, which is good news for remote workers hoping to branch out on their own and network. It’s also been ranked as the most climate-resilient city, the best for work/life balance and one of the best places for college students to live.
Median rent: $1,041
Average Mbps: 82.95
Number of coworking spaces: 9
% of population WFH: 16.7 percent
Last but not least is Appleton, WI. With a population just shy of 75,000 people, Appleton is the smallest town on our top 10 list. So, if you’re looking for a quiet, small city to live and work remotely, this is the place for you.
Residents like the mix of outdoor activities and in-town activities. It’s also been named one of the best places to raise children. Check out Appleton if you’re wanting a great city to be a remote worker and raise a family.
Other cities to consider when working remotely
We’ve listed the cities that rank in the top 10 best places for remote work, but there are several other places across the U.S. that made our list, as well. Check out the top 100 cities in the nation that remote workers can call home.
Daytona Beach, FL
Savannah, GA
Rapid City, SD
Greenville, SC
San Fransisco
Chicago
Pittsburgh
South Bend, IN
Dallas
Waukesha, WI
Fort Lauderdale, FL
Chattanooga, TN
Greensboro, NC
San Antonio
Shreveport, LA
Interesting findings from the top 25 best cities for remote work
While looking at the data, we found some interesting highlights that are worth calling out.
24 of the 25 best cities for remote work are in the South or Midwestern United States.
Only one of the top 25 best cities for remote work is on the West Coast. San Francisco is the only West Coast city to make our list.
Florida, Georgia and South Carolina all rank well for remote workers with three cities in each state making the top 25 best cities for remote work.
The majority of the best cities for remote work have populations under 250,000 residents. While there are a few outliers, the best cities to WFH are generally smaller cities compared to large metro areas.
What to consider when working remotely
Regardless of where you choose to live to work remotely, there are a few common things you must consider to be a successful WFH employee. Here are a few considerations and questions to ask yourself when choosing a city for remote work.
How much internet speed do you need? Depending on your location — rural, suburban, or urban — your internet needs will vary. Having a strong internet connection and the right internet speed is crucial for success as a remote worker.
Do you have the right office set up? Relaxing poolside while responding to emails is appealing, but there are times when you’ll need a physical office or desk set up. Make sure you have the right desk, chair and computer equipment
How long do you plan to stay in your location? Some people choose to settle down in one place and others move frequently. Your choice will determine the length of your lease. You’ll want to consider if a fixed lease or month-to-month is better for your lifestyle.
Is your job remote-first indefinitely? Before you pack up and hit the road, ensure that your job is going to be WFH long-term. You don’t want to make a cross-country move only for your company to demand a return-to-office six months later.
Find the right city for you
With so many WFH options available, you really can go anywhere in the U.S. or the world, for that matter. We hope our data and insights on the best cities for remote work help you as you decide where to move and pursue a WFH lifestyle.
Remember, these are the best cities for remote work according to our methodology; however, there are several places in the country that may work for you. Do your research before moving and you are bound to find an apartment and place to live that fits all of your lifestyle needs.
Methodology
Cities were ranked and scored based on the following:
Rents: 30 points
Median Rent: 20 points
Rent Change YoY: 10 points
Internet Speed and Access: 40 points
Num. Int, Providers, 100mbps: 10 points
Avg. Mbps.: 20 points
Lowest Cost Int. Plan: 10 points
WFH Population and Coworking Spaces: 30 points
% Population WFH: 10 points
Coworking per 1,000 WFH: 20 points
Our rent prices and changes are from Rent.com’s Rent Report. Internet speed and access numbers are from Broadband Now.
The number of coworking spaces is from FourSquare. Population numbers and proportion of people working from home is from the Census’ American Community Survey (ACS).
Cities with insufficient data were excluded.
The rent information in this article is used for illustrative purposes only. The data contained herein do not constitute financial advice or a pricing guarantee for any apartment.
Tap on the profile icon to edit your financial details.
Most people’s income comes as the direct result of work — you get a job, show up, hopefully perform decently well and then money shows up in your bank account. Some people, though, look to set up streams of passive income — money that flows into your account regularly that doesn’t require any direct work. As with any income, though, there are tax implications for potential passive income streams. Here’s how it works.
If you would like professional help developing a comprehensive investment plan, consider working with a financial advisor.
What Is Passive Income?
Passive income is also often called unearned income, which differentiates from earned income — money you get from working for a company or yourself. Common forms of passive income are earnings from rental properties, returns on investments and interest on savings accounts.
Passive income is named as such because it doesn’t require any regular action on your part; once you have the stream established, it can mostly be set and forgotten.
Passive Income and Taxation
Generally speaking, passive income is taxed the same as active income. However, the exact tax treatment will depend on the exact source of your passive income and your financial situation as a whole. Let’s take a look at three examples.
Rental properties: Rental income is taxed the same way as regular income. All rent payments, security deposits, pet fees and any other payments you get for the use or occupation of your property count as rental income. That said, you can deduct many expenses related to a rental property, including mortgage interest, property tax, operating expenses, depreciation and repairs.
Stock dividends: Dividends — money distributed to shareholders from a company’s earnings — are taxed depending on whether they’re classified as ordinary or qualified. Ordinary dividends are taxed the same way as ordinary income, while qualified dividends are taxed as capital gains.
Savings account interest: You will owe taxes on most interest from an account that you can withdraw from in the year you receive that interest. This interest is taxed the same as earned income.
Passive vs. Active Income Tax
We’ve seen that in the vast majority of situations, passive income is taxed in much the same way as active income, but there can be some differences. After all, the taxes you owe will be determined not just by whether your income is passive or active, but your overall financial picture. You may find that working with a financial advisor can help you reduce your tax burden and maximize your passive income.
To get a sense of what your total income tax bill will be for the year, use SmartAsset’s free income tax calculator.
Passive Income Streams
It may be prudent to create multiple passive income streams rather than focusing on one. The principle of diversification applies here just as it would in building a stock portfolio: you can lower your risk and potentially increase your returns by spreading your investments among multiple areas.
As you start thinking about passive income and ways to earn it, try to create a varied portfolio with different asset classes, regions and sectors. Say you decide to purchase and rent out ten homes in Miami. You may be sitting pretty, doing minimal work and collecting thousands in rent each month. But if a hurricane comes through and levels all those homes, it’s going to take a lot of time and effort to get back to that position. That’s why it’s important to diversify.
Ways to Earn Passive Income
There’s no denying that passive income is a highly desirable way to build your net worth. Here are some great ways to develop a passive income stream yourself:
Rental properties: Buying a home, condo or apartment complex and renting it out is one way to generate passive income. Of all the passive income options, this one might require the most work as landlords often need to take on multiple responsibilities to ensure their property remains in good condition and their tenants remain happy.
REITs: If you want to get into real estate without doing the actual work of being a landlord, a real estate investment trust (REIT) is an excellent option. REITs own or manage real estate and allow you to invest in the business — and they’re known for their high-yield dividends.
Dividend stocks: Dividend stocks distribute a portion of the company’s earnings to the shareholders on a regular basis and can be an excellent source of passive income.
Bond ladders: A bond ladder is a portfolio where each bond comes to maturity at a different time at a steady pace. This is a low-risk way to generate steady income.
High-yield CDs: In the current high-interest-rate environment, high-yield CDs are a particularly appealing option. With this option, you hand over your money for a set amount of time — often 12 months or more — and are paid a set interest rate over the life of the CD.
High-yield savings accounts: These also benefit from the current rising rate environment and are an excellent option for passive income, though you will usually need to maintain a high balance to earn the top interest rate.
How to Grow Passive Income & Pay Little-to-No Tax Forever
Here are some tips for generating passive income while keeping taxes low:
Focus on investments that will be taxed as long-term capital gains. Capital gains are the profits you make selling an investment. Say you bought a stock for $5 and two years later sold it for $10—the $5 in profit is known as capital gains. If you sold the stock within a year of buying it, it would be taxed as regular income. If you held it for more than a year, though, it is considered a long-term capital gain and is taxed at either 0%, 15% or 20% depending on your taxable income.
Municipal bonds are not taxed by the federal government and those issued within your state may not be taxed by the state or municipality as well. These bonds are a safe bet and a great way to earn interest, save on taxes and help your government fund public projects and services.
A Roth IRA isn’t the sexiest investment option, but they grow tax-free and you won’t owe taxes on withdrawals as long as you’re 59 ½ or older and have had the account for at least five years. This is a good way to establish passive income when you’re retired.
The Bottom Line
While earning money without working for it may sound like a pipe dream, it’s more accessible than you think. If you have savings, put them to work generating passive income for you—just understand the tax implications before you do so.
Investment Tips
A financial advisor can help you build a robust stream of passive income. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Whether you’re considering getting started with investing or you’re already a seasoned investor, an investment calculator can help you figure out how to meet your goals. To see how much your investments will grow over time with a fixed rate of return, use our investment return and growth calculator.
California is home to hundreds of top-notch universities and colleges, including the California Institute of Technology, Santa Clara University, Stanford University and the University of California, Los Angeles or UCLA.
With so many higher education options, it’s no surprise that 3 million students attend college in California. While the cost of education in California can be expensive, the state operates various financial aid programs that can make higher education more affordable. From grants and scholarships to free college financing workshops, there are many resources California residents can use to pay for school.
The cost of education in California
California’s higher education system comprises three public segments: the University of California, California State University and California Community Colleges. Students can also choose from 150 private nonprofit schools and 160 for-profit schools.
If you are planning to attend a post-secondary school in California, here is how much you should expect your education to cost, according to data from the National Center for Education Statistics:
Public four-year school: The average cost of attending a public four-year school as an in-state student in California for the 2020-2021 school year was $24,015, including tuition, fees, room and board — nearly 13% higher than the national average.
Private non-profit school: Private schools are much more expensive than public institutions. The average cost in California is $53,680 — nearly 16% higher than the national average.
Public two-year school: The average cost of public two-year schools for in-state students was $1,285, less than half the cost of the national average.
Although those prices may be intimidating, keep in mind that you may not have to cover the entirety out of your pocket. You may be eligible for financial aid programs that reduce the cost.
Financial aid options in California
Regarding state-based financial aid, California stands out for its robust programs. From grants and scholarships to student loan repayment programs, students can qualify for a significant amount of assistance.
You must be a state resident to qualify for California’s financial aid programs. The residency criteria depend on your age and marital status.
If you are under 18, you must meet one of the following requirements:
Your parents must have been legal California residents for one year before the year in which you are applying for financial aid.
You have a parent in the U.S. Armed Forces, stationed in California and on active duty when you enroll.
If you lived with another California resident who is not your parent, you must have lived with them for at least two years.
If you are married or over 18: Married persons, regardless of age, and unmarried persons 18 or older must establish their own residency. You must live in California for at least a full year before applying for financial aid and show proof that you intend to make California your permanent home. Potential proof includes:
California driver’s license.
Mortgage statement for a residential property in California.
Active California bank account.
Voter registration card.
California car registration and insurance.
State income tax return.
California utility bills.
Under the California Dream Act, undocumented students and Deferred Action for Childhood Arrivals, or DACA, recipients can qualify for state financial aid, including in-state tuition rates. To qualify, students must meet the following requirements:
Three or more years of full-time attendance at a California high school, adult school or community college.
Three or more years of full-time high school coursework and attended a combination of elementary, middle and high school for three or more years.
As a California resident, you may qualify for one or more of the following financial aid options:
529 plans.
In-state tuition.
Scholarships.
Student loan repayment assistance.
California 529 Plans
Unlike some states, California does not have a prepaid tuition plan. However, it does have a 529 college savings plan called ScholarShare 529. Under this program, parents and family members can invest money on behalf of a child. The money can grow and deliver compound earnings over time, and withdrawals for qualifying education expenses are tax-free. You can open an account with any dollar amount; the maximum balance is $529,000.
Contributions to ScholarShare529 are not tax-deductible on federal or California income taxes. But California does offer one unique benefit: the CalKIDS program. Through this program, children born on or after July 1, 2022, or who attend an eligible low-income public school within the state will receive a seed deposit to pay for their future education.
Qualifying newborns will receive up to $100 in seed deposits, and low-income students will receive up to $1,500.
California In-State Tuition
Public universities are generally much less expensive than private schools, but only if you attend a school within your state. However, California participates in programs that may allow California residents to attend select colleges in other states and pay a lower rate than out-of-state tuition cost.
Western Undergraduate Exchange: Through the WUE, eligible California residents will pay no more than 150% of the college’s in-state tuition rate. On average, savings total $10,895 per student.
Western Regional Graduate Program: WRGP allows graduate students to pursue master’s or doctoral degrees at partner universities and pay no more than 150% of the in-state tuition rate.
Professional Student Exchange Program: The PSEP program is for students pursuing careers in specific healthcare fields. It allows them to attend school at partner schools at a lower rate. Eligible students can save between $34,100 and $133,600 throughout their programs.
California Grants
California has six major grant programs available to college students:
Cal Grant Program
The Cal Grant program is for qualifying residents attending the Universities of California, California State Universities, California Community Colleges or eligible independent colleges or technical schools.
There are several awards within the Cal Grant program, but students don’t have to apply for each individually. Instead, the state determines your eligibility for each based on your responses on the Free Application for Federal Student Aid, or FAFSA, or the CA Dream Act Application, household income, the schools you list on your application and whether you’re a recent high school graduate.
Cal Grant Community College Entitlement: Low- to middle-income students can receive assistance with tuition and fees at a California community college. Low-income students also may qualify for an additional award for living expenses.
Cal Grant High School Entitlement: This award is for low- to middle-income high school seniors and recent high school graduates. Students can use the grant to pay for their enrollment at two- or four-year schools. In addition, low-income students can qualify for an additional award for living expenses.
Cal Grant Transfer Entitlement: Students who intend to transfer from a California community college to a four-year school may qualify for this award. Low-income students may be eligible for an additional award for living expenses.
Cal Grant Competitive Awards: This award is only for students who do not receive an entitlement grant. It is a competitive award based on the student’s GPA, parent’s education level, family income and household size. Only 13,000 awards are issued per academic year.
Cal Grant Foster Youth: Current or former foster youth can qualify for this grant until their 26th birthday. It can help pay for up to eight years of undergraduate education.
Cal Grant C Award: Students who intend to attend technical or vocational schools can receive up to $2,462 for tuition and fees and up to $547 for tools, books and supplies.
California Chafee Grant for Foster Youth
Current or former foster youth can qualify for up to $5,000 through the California Chafee Grant for Foster Youth program. The money can be used toward your expenses at a qualifying California college, university, career or technical school.
California College Promise Grant
According to the Public Policy Institute of California, approximately 40% of California’s high school graduates enroll in community colleges — the fourth-highest percentage in the nation.
One of the reasons for the popularity of community colleges in the state is the California College Promise Grant. This grant waives student enrollment fees at eligible schools, and students can use other financial aid programs to cover the cost of textbooks or living expenses.
California Dream Act Service Incentive
The California Dream Act is for undocumented and DACA students attending school in California. Under the California Dream Act Service Incentive, students can get up to $4,500 per academic year in grants. To qualify for this award, students must complete at least 150 hours of community service or volunteer work for an eligible organization per semester.
The California Military Department GI Bill Award Program
This GI Bill program pays up to 100% of the tuition and fees at the Universities of California, California State Universities or a California community college for qualifying members of the California Army or National Guard, California State Guard or the California Naval Militia.
Golden State Education and Training Grant
The Golden State Education and Training Grant is a one-time award of $2,500 for Californians who lost their jobs due to the COVID-19 pandemic. It can be used to learn new skills or get additional training to reenter the workforce.
Law Enforcement Personnel Dependents Grant
The Law Enforcement Personnel Dependents Grant is for the spouses and dependent children of employees who lost their lives in the line of duty or were totally and permanently disabled due to an accident or injury caused by violence or force while on duty. Eligible employees include:
Department of Corrections and Rehabilitation.
Department of Corrections and Rehabilitation, Division of Juvenile Justice.
Firefighters.
Law enforcement.
Tribal firefighters
As of the 2022-2023 academic year, qualifying students can receive up to $9,358 per semester.
California Scholarships
In California, some students may qualify for the Middle Class Scholarship. Under this program, students pursuing a teaching credential with less than $201,000 in family income and assets may be eligible for this award. Scholarship amounts vary by school and student.
California Incentive Programs
California instituted education incentive programs to encourage residents to live and work in the state — particularly in areas with shortages of health care professionals or educators. Students can receive money for their education in exchange for committing to working in high-need areas for a specific period.
If the student fulfills their obligation, the award is treated as a grant and does not need to be repaid. However, if the student doesn’t complete their service term, the award is converted into a loan and must be repaid.
California has the following incentive programs:
Golden State Teacher Program
The Golden State Teacher Grant Program awards up to $20,000 to students currently enrolled in a professional preparation program approved by the Commission on Teacher Credentialing and working toward their preliminary teaching credential. In exchange, participants must commit to working at a priority California school for four years within eight years of completing their program.
California Department of Health Care Access and Information Incentives
Through the HCAI, students and graduates pursuing careers in health care — including dentists, mental health counselors, nurses, pharmacists, physicians and social workers — can qualify for up to $25,000 for their education if they make a 12-month service commitment to work in a qualifying facility in an underserved area.
Other California Programs
Besides its scholarships, grants and incentive programs, California also offers Cash for College Workshops. Families can attend and get one-on-one assistance with completing the FAFSA or the California Dream Act Application.
Student loan repayment programs in California
If you’re a California resident and have outstanding student loans, you may be eligible for repayment assistance through the state. To address worker shortages, the state will repay a portion of your loans. In return, you must commit to working in high-need areas for a specific period.
The following student loan repayment assistance programs, or SLRAP, are available in California:
Health care professionals
Health care providers can qualify for a substantial amount of money to repay their loans through the following HCAI programs:
Allied Healthcare
Eligible health care providers who commit to 12-month service obligations in approved counties and sites can get up to $16,000 in loan repayment assistance. Federal and private student loans are eligible for repayment.
Bachelor of Science Nursing Loan
Registered nurses with BSN degrees can get up to $15,000 in loan repayment benefits in exchange for a 12-month service commitment in a medically underserved area. Federal and private student loans are eligible for repayment assistance.
California State Loan Repayment
Through the California State Loan Repayment Program, eligible health care professionals can receive up to $50,000 for an initial one-year service obligation in a federally designated health care professional shortage area. Practitioners can qualify for up to $50,000 in additional assistance by committing to another three years. Both federal and private student loans are eligible for repayment assistance.
County Medical Services
Primary health care professionals at approved county medical services sites can receive up to $50,000 for an initial one-year term. An additional $50,000 is available for working for another three years. In addition, both federal and private student loans can qualify for repayment assistance through the County Medical Services program.
Licensed Mental Health
Licensed mental health providers can qualify for up to $30,000 in loan repayment benefits. In exchange, they must complete a 24-month service obligation. The funds can be used to repay federal or private student loans.
Licensed Vocational Nurse
Licensed vocational nurses in good standing with the California Board of Vocational Nursing and Psychiatric Technicians can qualify for up to $8,000. They must commit to working for at least 12 months providing direct patient care in an approved facility. Federal and private students are eligible for repayment assistance.
Steven F. Thompson Physician Corps
Physicians and surgeons can receive up to $105,000 in loan repayment benefits if they work for at least three years in a qualifying facility providing direct patient care. Through the Steven F. Thompson Physician Corps, you can use repayment assistance to pay off federal and private student loans.
Veterinarians
Like many states, California has a shortage of licensed veterinarians, leading to long waits for pet and livestock owners. As a result, the state has a loan repayment program to encourage veterinarians to practice within California.
California Veterinarian Shortage
Qualified veterinarians in California can get up to $25,000 per year (up to a maximum of three years) for student loan repayment by committing to working in high-priority veterinary shortage areas. Under the California Veterinarian Shortage program, veterinarians must care for food or large animals, practice in rural areas or work in public service. This program can be used to repay federal or private student loans.
How to apply for financial aid in California
To apply for California-specific financial aid, follow these steps:
Make a note of deadlines: The federal FAFSA deadline is June 30, but California’s deadlines are much earlier. The FAFSA or California Dream Act Application — and grant verifications — must be submitted by March 2.
Complete a GPA Verification: Work with your school counselor to complete the GPA Verification Form. Email the completed form as a PDF to [email protected].
Create a Web4Grants Account: After processing your FAFSA or California Dream Act Application, you will get an email telling you to create a Web4Grants account. You’ll use this account to upload additional information and view your grants.
Check for other instructions: Some California-specific financial aid opportunities, such as the California Chafee Grant for Foster Youth and the Golden State Teacher Grant, have their own applications and requirements. Review the program’s website through the California Student Aid Commission to see what steps to take for these awards.
Frequently asked questions
Who qualifies for free community college in California?
In California, students can qualify for a waiver of community college enrollment fees if they meet the following requirements:
They are California residents or qualifying undocumented or DACA recipients.
They are full-time students.
They are first-time college students.
Are undocumented or DACA students eligible for financial aid in California?
Under the California Dream Act, undocumented students and DACA recipients are eligible for state financial aid, including state grants and community college waivers. They also qualify for in-state tuition rates at California public universities.
Is the FAFSA required to qualify for California financial aid?
To qualify for California financial aid, you must complete the FAFSA or, if you don’t have a valid Social Security number, the California Dream Act Application.
What is the FAFSA deadline for California?
Although the federal FAFSA deadline for the 2023-2024 academic year is June 30, 2024, California has separate deadlines to keep in mind. Most state financial aid programs had a deadline of March 2, 2023.
President Bush has signed the economic stimulus package into law. This plan provides tax breaks to businesses that invest in capital equipment, temporarily allows larger mortgages through the Federal Housing Administration (and related entities), and provides a personal income tax cut for 2008. Instead of passing this on when we file taxes next year, the IRS will mail a tax rebate check to most Americans this summer. This is an advance on the reduced taxes for 2008.
How much will you get back? Flexo at Consumerism Commentary recently shared a handy little tax rebate calculator, which I’ve reproduced below:
The tax rebate will have no effect on your 2007 tax return, which you’re probably working on right now. These changes are for the current year. According to the IRS web site:
The vast majority of Americans who qualify for the payment will not have to do anything other than file their 2007 individual income tax return to receive their payment this year.
The IRS will use information on the tax return to determine eligibility and calculate the amount of the stimulus payments.
Taxpayers should be aware that there are identity theft scams involving the proposed advance payment checks (known informally as rebates to many Americans).
Checks will be sent out beginning in May. For more information, read facts about the 2008 stimulus payments from the IRS. Finally, Kathleen Pender at the San Francisco Chronicle was the best source I found on how tax rebates work in the economic stimulus package.
As always, the information in this post is correct to the best of my knowledge. If you spot an error, please let me know so that I can correct this article.
A cash-out refinance is one of the best tools an investor can use to take money out of their rental properties. A refinance is when you replace the current loan on your home with a new loan, and when you complete a cash-out refinance, you get cash back after getting the loan. One of the biggest roadblocks an investor runs into is finding the cash for down payments on new rental properties. A cash-out refinance is a great way to get cash to buy more properties. When I purchased my first long-term rental, I was able to buy the property from proceeds that came from a cash-out refinance on my personal residence. I was able to take out $40,000 in equity from my personal house, only one year after I bought the home. I have also refinanced multiple rental properties, which has allowed to buy more rentals and I now have 16 rental properties total.
How can you take a cash-out refinance?
Most people get loans on their homes when they buy them. At some point, you may want to consider refinancing that loan for a number of reasons:
Interest rates
If interest rates are much lower now than when you got the loan it may make sense to refinance your current loan into a mortgage with a lower interest rate.
Cash-out
There are many cases where you can get cashback after refinancing. A house could go up in value, you could get a different type of loan, you could make repairs, or make an improvement to a house to increase its value.
The video below goes over a refinance I did on one of my rentals.
[embedded content]
How much does a refinance cost?
The downside to refinancing your home is it costs money. You are getting a brand new loan that will cost about as much as the first loan you got on the home. That can be from 2% to 3% of the loan amount. You have to pay for an appraisal, origination fee, processing fees, flood certificate, and some other fees as well. The good news is that you will most likely skip a mortgage payment after the refinance, but don’t think you are getting an amazing deal because of that as the interest is still charged to you, just upfront in those loan costs.
How can houses increase in value?
Values are going up across the country, and that has created an opportunity for homeowners to do a cash-out refinance. Most banks are using stricter guidelines for qualifications and lower loan to value ratios than before the crash. However, if you bought your home at a great price or have owned it for a while, you still may be able to get cash out.
I do not like to depend on prices to go up. I buy all my properties below market value. I try to buy all my properties at least 20% below what they are currently worth. If they need work, I buy them for much less than 20% below market value. The BRRRR method is a great way to refinance properties and get cash back out by getting great deals and repairing them.
How much money can you take out?
Many banks will require an 80% or lower loan to value ratio when refinancing a rental property and they will use an appraisal to determine that value. It is imperative that you have a lot of equity in your property if you want to complete a cash-out refinance with an investment property. If you are refinancing an owner-occupied home, you may be able to refinance up to 95 percent or more of the value of the home. You must live in the house for a year after refinancing in most cases to get an owner-occupied loan.
What are the risks?
A cash-out refinance will increase the amount of the loan you have on your rental property. For some people who are averse to risk, paying off their home is a great option and they may not want more debt. However, I am not averse to risk and I want to maximize my returns. Debt can be a very bad thing if it is used for the wrong things, but if you use debt to buy cash producing investments it can be a great thing!
In my market, I can get a cash on cash return of 15 percent or higher on rental properties, while interest rates are below 5 percent. It makes more sense to me to refinance for 5 percent and use that money to buy properties that will give me over a 15 percent cash on cash return! That 15 percent return does not even include possible appreciation, tax benefits or mortgage pay down.
Yes, it is possible that values could go down and a cash-out refinance would reduce the equity in your home. If you don’t need to sell your home, then it will not matter how much equity you have in your home. However, if you are pushing how much you can afford with a monthly payment it may not be wise to refinance if it increases your payment. If you have a lot of cash flow and are comfortable with a higher payment, use that money to make more money.
If you increase your debt with a refinance, then you may be decreasing the amount you can qualify for on future homes. If you max out the amount of money a lender will loan to you with a refinance, then you won’t be able to get a loan on a new rental property. Before you refinance, make sure you know how much you will be able to qualify for.
How does a refi work on a rental property?
I recently did a cash-out refinance on one of my rental properties and I was able to pull out about $26,000 with my payment only increasing $136 a month. The terms are usually more restrictive and it can be difficult to refinance if you have more than four mortgaged properties. I was able to do a cash-out refinance with more than four mortgages because I used a portfolio lender. They are a local bank and are much more flexible than big banks.
When I did a cash out refinance on my investment property, the max they would lend was 75 percent of the value of the home. I also could only do a 5 or 7 year ARM or a 15 year fixed loan. I chose the 7 year ARM because I plan to pay off my homes quicker than the 7 year fixed term and the rates and payments are lower than the 15-year loan.
On the property, I paid $92,000 and put about $18,000 into it for repairs. I was able to turn it into a 5 bed, 2 bath and rented it for $1,100 (low because it is rented to my brother-in-law). I had to wait a year to do a cash-out refinance and the current value was determined by an appraisal. The appraisal came in at $140,000 which I thought was low, but I had to go with it. After all the lender fees, interest and miscellaneous costs of the cash out refinance, I was able to cash out over $26,000. My payment went up, but I am still able to cash flow every month and I took out more than enough money for a down payment on another rental property.
What about seasoning periods?
One restriction to completing a cash-out refinance is the seasoning period. Most banks, will not complete a cash-out refi right after you buy the home. They will complete a refinance but loan the lower of the appraised value or what you paid for the home in the last year or 6 months. If you bought the home for $100,000 three months ago, and it appraised for $150,000 last week, the bank will still only lend on the $100,000 purchase price if they have a seasoning period longer than three months.
If they will lend 75% of the value, that means they will only lend $75,00 on the home. Some banks have 6 month seasoning periods, some a year, and some will have none. Make sure you know what your bank will do before you make plans.
Is a HELOC better?
A HELOC (home equity line of credit) is much different from a refinance, because you may not have to pay off your current loan. If you have a $100,000 loan on your house, but your home is worth $200,000 you may be able to get an $80,000 line of credit and keep the $100,000 loan in place. When you take out a line of credit you do not have to use the money right away or ever. You can use as much of the money as you want and pay it back when you like. You can borrow the money again after you pay back the line. A refinance is a mortgage where once you pay off the loan or pay extra money into it, you cannot borrow it again.
A HELOC will have closing costs like a cash-out refinance, but many times they will be less. Depending on if you are getting a line on an investment property or a personal residence the terms and fees will differ. The term of the HELOC could be two years, five years or longer, but not 30 years like a refinance could be. The rates on a HELOC are also usually higher and can go up or down as interest rates go up or down.
It may be tough to get a line of credit on a rental as most banks only want to give lines of credit on primary residences.
Do you pay taxes?
One of the best things about a refinance is you do not pay taxes on it. You can buy a house for $100,000, and refinance it for $150,000 a few months later and the money you take out is almost always tax-free. You are not making any money, you are borrowing it so there is no income tax.
Conclusion
The more properties you can buy, the more cash flow builds up and the more wealth you can create. A cash-out refinance can help you purchase more properties and increase your wealth. Make sure the houses you purchase are bought below market value, and it will make a future cash-out refinance much easier. Make sure your payments are not so much that you are no longer seeing positive cash flow every month.
Opening a certificate of deposit (CD) account is one way to save for short- or long-term financial goals. You can deposit money, then earn interest for a set term until the CD maturity date rolls around.
At that point, you’ll have to decide whether to continue saving or withdraw the money. Your bank may renew the CD automatically if you don’t specify what you’d like to do with the account.
Understanding CD maturity options (and there are several) can help you decide what to do with your savings once the term ends. Here, learn more about:
• What happens when a CD matures
• What you can do with your CD when it matures
• What to do if you miss the grace period to withdraw funds
• What are the tax implications when a CD matures
What Can I Do When My CD Matures?
A certificate of deposit is a time deposit account. That means you make an initial deposit which earns interest over a set maturity term. You’re typically not able to make additional deposits to your CD, though some banks offer what are known as add-on CDs that allow you to do so.
You are not supposed to withdraw any or all of the funds until the CD matures; you’ve committed to keeping your cash there. That’s why CDs may pay a higher annual percentage yield (APY) than a conventional savings account.
Early withdrawal can trigger penalties, though there are some penalty-free CDs available, typically at a lower interest rate.
So what happens when a CD matures? It largely depends on your preferences, but there are four main possibilities for handling a CD once it reaches maturity.
Deposit It Into a Different Bank Account
If your financial goals have changed or you’d just like more liquidity when it comes to your savings, you could deposit CD funds into a bank account. For example, savings accounts and money market accounts are two types of deposit accounts that can earn interest.
You might deposit funds at the same bank or at a different bank if you’re able to find a higher rate for savings accounts elsewhere. Or you may choose to put your CD savings into checking if you were saving for a specific purchase and the time has come to spend that money.
Quick Money Tip: If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.
Deposit It Into a New CD
Another option is to continue saving with a new CD. You might prefer a certificate of deposit vs. savings account if you know that you won’t need the money prior to the CD maturity date.
Otherwise, you could end up paying a CD withdrawal penalty, as noted above, if you need to break into the new CD before it matures. The penalty for withdrawing money from a CD early can vary from bank to bank but it could cause you to forfeit a significant portion of the interest earned.
Automatically Renew the CD
Banks can renew CDs automatically if the account owner doesn’t specify that they’d like to make a withdrawal at maturity. In that case, your initial deposit and the interest you’ve earned would be moved into a new CD that would begin a new maturity term of similar length. The interest rate might be different, however, if rates have increased or decreased since you initially opened the account.
Continuing to save in CDs (or a savings account) can keep your money safe. When accounts are held at a FDIC-member bank, they’re protected up to $250,000 per depositor, per account ownership type, per financial institution by the Federal Deposit Insurance Corporation. If you choose to have a CD at an insured credit union, NCUA (the National Credit Union Administration) will provide similar insurance. So if you’re wondering, “Can CDs lose money?” fear not. You can rest assured knowing your savings are covered.
A point worth noting: When you invest in CDs, their security can make them a good way to balance out your holdings. They can be a wise move if you have some funds in the stock market or other more volatile uninsured investments.
Withdraw CD Savings In Cash
A fourth option is to withdraw your CD savings in cash. That might make sense if you need the money to pay for a large purchase. For example, if you were using a CD to save money so you could buy a car, you might use the proceeds to cover the cost.
How Long Do I Have to Withdraw My CD?
Banks typically offer a grace period for CDs which allows you time to decide what you’d like to do with the money at maturity. The CD grace period is usually around 10 days (say, one to two weeks), and the clock starts ticking on the day the CD matures.
Your bank should notify you in advance that your CD maturity date is approaching so you have time to weigh your options. You may also be able to find your CD maturity date by logging in to your account or reviewing your account agreement.
It’s important to keep track of CD maturity dates, especially if you have multiple CDs with varying terms. For example, you might build a CD ladder that features five CDs with maturity terms spaced three, six, nine, 12 and 18 months apart. Being aware of the dates and grace periods can help you plan in advance which of the maturity options mentioned earlier you’d like to choose.
What Happens If I Miss the Grace Period to Withdraw?
Once the CD grace period window closes, you’ll generally have to wait until maturity to make a withdrawal. As mentioned, banks can impose an early withdrawal penalty if you take money from a CD ahead of schedule.
The penalty may be a flat fee, but it’s more common for the fee to be assessed as a certain number of days of interest. The longer the maturity term, the steeper the penalty usually ends up being. For example, you might have to pay three months’ worth of interest for withdrawing money early from a 6-month CD but that might get bumped up to a year’s worth for a 5-year CD.
There is one way to get around that. If your bank offers a no-penalty CD, you’d be able to withdraw money at any time during the maturity term without paying an early withdrawal fee. There is something of a trade-off, however, since no-penalty CDs typically offer lower interest rates than regular CDs.
Ready for a Better Banking Experience?
Open a SoFi Checking and Savings Account and start earning up to 4.20% APY on your cash!
Things to Think About When Your CD Matures
If you have one or more CDs that are approaching maturity, it’s important to have a game plan when deciding what to do with them. Otherwise, you could end up locked in to a new CD which may not be what you want or need.
Here are a few things to consider when weighing your CD maturity options:
• Do I need the money right now?
• Could I get a better rate by moving the money to a new CD or savings account elsewhere?
• If I let the CD renew automatically, how much of a penalty would I pay if I decide to withdraw the money early later on?
• Would it make more sense to keep the money in a savings account so that it’s more accessible if I end up needing it?
• If I have multiple CDs in a CD ladder, does it make sense to roll the money into a new CD “rung” or use the funds for something else?
Thinking about your financial goals and your current needs can help you figure out which option might work best for your situation.
What Are the Tax Implications Once a CD Matures?
Here’s one more question you might have about CD maturity: Are CDs taxable? The short answer is yes. Interest earned from CDs is considered taxable interest income by the IRS if the amount exceeds $10. That rule applies whether the bank renews the CD, you deposit the money into a new CD or savings account yourself, or withdraw the money in cash. If you have a CD and it accrues more than $10 in interest, those earnings are taxable.
Your bank should send you a Form 1099-INT in January showing all the interest income earned from CDs (or other deposit accounts) for the previous year. You’ll need to hang onto this form since you’ll need it to file taxes. And if you’re tempted to just “forget” about reporting CD interest, remember that the bank sends a copy of your 1099-INT to the IRS, too.
The Takeaway
CDs can help you grow your money until you need to spend it. Assuming your goals line up with your CD maturity dates, that shouldn’t be an issue.
On the other hand, you might prefer to keep some of your money in a savings account so you have flexible access. When you open an account with SoFi, you can get Checking and Savings (and the ability to spend and stash your cash) in one convenient place. You’ll earn a competitive APY on balances, and you won’t pay any of the usual account fees. Those are two features that can really help your money grow and work harder for you!
Better banking is here with up to 4.20% APY on SoFi Checking and Savings.
FAQ
Which should you do when your CD matures?
When a CD matures, you can roll it into a new CD, deposit the funds into a savings account, allow the CD to renew, or withdraw the money in cash. The option that makes the most sense for you can depend on your financial goals and whether you have an immediate need for the money.
Do you have to pay taxes when your CD matures?
Interest earned on CDs is taxable. Your bank will issue you a Form 1099-INT in January showing the interest earned for the previous year. You’ll need to keep that form so you can report the interest earnings when you file your annual income tax return.
Are there penalties if you withdraw a CD early?
Banks can charge an early withdrawal penalty for taking money out of a CD before maturity. You may pay a flat fee or forfeit some of the interest earned. The amount of the penalty can vary by bank and by CD maturity term. Generally, the longer the maturity term, the higher the penalty ends up being.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit can earn up to 4.20% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 4/25/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice. SOBK0123019
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
We are going to under the cover and discover $14 an hour is how much per year.
For most Americans, this is hovering near minimum wage.
Let’s get this straight… This is not a livable wage.
If you are in high school or college and have support from your parents, then this is great spending money for you.
However, if you are making it on your own, $14 per hour will not make ends meet each month.
For most people, being at minimum wage is common and the goal is to make your way up the payscale and quickly!
In this post, we’re going to detail exactly what $14 an hour is how much a year. Also, we will break it down to know how much is made per month, bi-weekly, per week, and daily.
That will help you immensely with how you spend your money. Because too many times the hard-earned cash is brought home, but there is no actual plan for how to spend that money.
When living close to minimum wage, you must know how to manage money wisely.
More than likely, you are living paycheck to paycheck and struggling to survive until the next paycheck. Take a deep breath and make this minimum wage just a season.
The ultimate goal is to make the most of your hourly wage with inspirations to make more money.
If that is something you want to do, then keep reading. You are in the right place.
$14 an Hour is How Much a Year?
When we ran all of our numbers to figure out how much is $14 per hour is an annual salary, we used the average working day of 40 hours a week.
40 hours x 52 weeks x $14 = $29,120
$29120 is the gross annual salary with a $14 per hour wage.
Breakdown of 14 Dollars an hour is how much a year
Typically, the average workweek is 40 hours and you can work 52 weeks a year. Take 40 hours times 52 weeks and that equals 2,080 working hours. Then, multiply the hourly salary of $14 times 2,080 working hours, and the result is $29,120.
That number is the gross income before taxes, insurance, 401K, or anything else is taken out. Net income is how much you deposit into your bank account.
Work Part Time?
But you may think, oh wait, I’m only working part time. So if you’re working part time, the assumption is working 20 hours a week at $14 an hour.
Only 20 hours per week. Then, take 20 hours times 52 weeks and that equals 1,040 working hours. Then, multiply the hourly salary of $14 times 1,040 working hours, and the result is $14,560.
How Much is $14 Per Month?
On average, the monthly amount would average $2,426.
Annual Amount of $20120 ÷ 12 months = $2426 per month
Since some months have more days and fewer days like February, you can expect months with more days to have a bigger paycheck. Also, this can be heavily influenced by how often you are paid and on which days you get paid.
Work Part Time?
Only 20 hours per week. Then, the monthly amount would average $1213.
How Much is $14 per Hour Per Week
This is a great number to know! How much do I make each week? When I roll out of bed and do my job, what can I expect to make at the end of the week?
Once again, the assumption is 40 hours worked.
40 hours x $14 = $560 per week.
Work Part Time?
Only 20 hours per week. Then, the weekly amount would be $280.
How Much is $14 per Hour Bi-Weekly
For this calculation, take the average weekly pay of $560 and double it.
$560 per week x 2 = $1120
Also, the other way to calculate this is:
40 hours x 2 weeks x $14 an hour = $1120
Work Part Time?
Only 20 hours per week. Then, the bi-weekly amount would be $560.
How Much is $14 Per Hour Per Day
This depends on how many hours you work in a day. For this example, we are going to use an eight-hour workday.
8 hours x $14 per hour = $112 per day.
If you work 10 hours a day for four days, then you would make $140 per day. (10 hours x $14 per hour)
Work Part Time?
Only 4 hours per day. Then, the daily amount would be $56.
$14 Per Hour is…
$14 per Hour – Full Time
Total Income
Yearly Salary (52 weeks)
$29,120
Yearly Wage (50 weeks)
$28,000
Monthly Wage (173 hours)
$2.426
Weekly Wage (40 Hours)
$560
Bi-Weekly Wage (80 Hours)
$1120
Daily Wage (8 Hours)
$112
Net Estimated Monthly Income
$1,853
**These are assumptions based on simple scenarios.
Paid Time Off Earning 14 Dollars an Hour
Does your employer offer paid time off?
As an hourly, close to minimum wage employee, more than likely you will not get paid time off.
So, here are the scenarios for both cases.
For general purposes, we are going to assume you work 40 hours per week over the course of the year.
Case # 1 – With Paid Time Off
Most hourly employees, get two weeks of paid time off which is equivalent to 2 weeks of paid time off.
In this case, you would make $29120 per year.
This is the same as the example above for an annual salary making $14 per hour.
Case #2 – No Paid Time Off
Unfortunately, not all employers offer paid time off to their hourly employees. While that is unfortunate, it is best to plan for less income.
Life happens. There will be times you need to take time off for numerous reasons – sick time, handling an emergency, or even vacation.
So, let’s assume you take 2 weeks off without paid time off.
That means you would only work 50 weeks of the year instead of all 52 weeks. Take 40 hours times 50 weeks and that equals 2,000 working hours. Then, multiply the hourly salary of $14 times 2,000 working hours, and the result is $28,000.
40 hours x 50 weeks x $14 = $28000
You would average $112 per working day and nothing when you don’t work.
$14 an Hour is How Much a year After Taxes
Let’s be honest… Taxes can take up a big chunk of your paycheck. Thus, you need to know how taxes can affect your hourly wage.
This is why you always wondering why your take-home pay is so much less.
Also, every single person’s tax situation is different.
On the basic level, let’s assume a 12% federal tax rate and a 4% state rate. Plus a percentage is taken out for Social Security and Medicare (FICA) of 7.65%.
Gross Annual Salary: $29,120
Federal Taxes of 12%: $3,494
State Taxes of 4%: $1,165
Social Security and Medicare of 7.65%: $2,228
$14 an Hour per Year after Taxes: $22,233
This would be your net annual salary after taxes.
To turn that back into an hourly wage, the assumption is working 2,080 hours.
$22233 ÷ 2080 hours = $10.69 per hour
After estimated taxes and FICA, you are netting $10.69 an hour. That is $3.31 an hour less than what you planned.
This is a very highlighted example and can vary greatly depending on your personal situation. Therefore, here is a great tool to help you figure out how much your net paycheck would be.
$14 an Hour Budget – Example
You are probably wondering can I live on my own making 14 dollars an hour? How much rent can you afford at 14 an hour?
Using our Cents Plan Formula, this is the best case scenario on how to budget your $14 per hour paycheck.
When using these percentages, it is best to use net income because taxes must be paid.
In this example, above we calculated that $14 an hour was $10.69 after taxes. That would average $1853 per month.
According to the Cents Plan Formula, here is the high level view of a $14 per hour budget:
Basic Expenses of 50% = $926
Save Money of 20% = $371
Give Money of 10% = $185
Fun Spending of 20% = $371
Debt of 0% = $0
Obviously, that is not doable when living so close to minimum wage. So, you have to be strategic on ways to decrease your basic expenses and debt. Then, it will allow you more money to save and fun spending.
To further break down an example budget of $14 per hour, then using the ideal household percentages is extremely helpful.
recommended budget percentages based on $14 per hour wage:
Category
Ideal Percentages
Sample Monthly Budget
Giving
10%
$73
Savings
15-25%
$194
Housing
20-30%
$728
Utilities
4-7%
$121
Groceries
5-12%
$231
Clothing
1-4%
$24
Transportation
4-10%
$109
Medical
5-12%
$243
Life Insurance
1%
$21
Education
1-4%
$12
Personal
2-7%
$36
Recreation / Entertainment
3-8%
$61
Debts
0% – Goal
$0
Government Tax (including Income Tatumx, Social Security & Medicare)
15-25%
$574
Total Gross Income
$2427
**In this budget, prioritization was given to basic expenses. Thus, some categories like giving and saving were less.
$14 An Hour Salary Calculator
Now, you get to figure out how much you make based on your hours worked or if you make a wage between $14.01-14.99.
This is super helpful if you make $14.25, $14.50, or $14.75.
Living on $14 Per Hour
Living close to minimum wage can be a very difficult situation.
Is it doable? Probably not for long.
You just have to be wiser (or frugal) with your money and how you spend the hard-earned cash you have been blessed with.
A lot of times when people are making under near the minimum wage mark, they feel like they are in this constant cycle that they can never keep up with (which completely makes sense it is hard!).
When your thoughts are constantly focused on how you are struggling to keep up with bills and expenses, that is all you focus on.
You need to do is change your money mindset.
This is what you say to yourself… Okay, I am making near minimum wage for now. I have aspirations and goals to increase how much I make. For now, I am going to make sure that I am able to live on my 14 dollars per hour. I’m going to try and avoid debt and payday loans at all costs.
Other Tips to Help You:
Check your minimum wage for your state and city. You might find a higher minimum wage in a nearby city.
Look to living in a lower cost of living area to stretch your money.
Find ways to minizine your basic expenses.
Thrive with a frugal green minimalist lifestyle.
Decide if a roommate or moving back with your parents would help.
Bike or walk to work.
In the next section, we will dig into ways to increase your income, but for now, you must focus on living on $14 an hour.
5 Ways to Increase Your Hourly Wage
This right here is the most important section of this post.
You need to figure out ways to increase your hourly income because I’m going to tell you…you deserve more. You do a good job and your value is higher than what your employers pay you.
Even an increase of 50 cents to $14.50 will add up over the year. Even better $15 an hour!
1. Ask for a Raise
The first thing to do is ask for a raise. Walk right in and ask for a raise because you never know what the answer will be until you ask.
If you want the best tips on how specifically to ask for a raise and what the average wage is for somebody doing your job, then check out this book. In this book, the author gives you the exact way to increase your income. The purchase is worth it or go down to the library and check that book out.
2. Look for A New Job
Another way to increase your hourly wage is to look for a new job. Maybe a completely new industry.
It might be a total change for you, but many times, if you want to change your financial situation, then that starts with a career change. Maybe you’re stressed out at work. Making $14 an hour is too much for you and you’re not able to enjoy life, maybe changing jobs and finding another job may increase your pay, but it will also increase your quality of life.
3. Find a New Career
Because of student loans, too many employees feel like they are stuck in the career field they chose. They feel sucked into the job that they don’t like or have the potential they thought it would.
For many years, I was in the same situation until I decided to do a complete career change. I am glad I did. I have the flexibility that I needed in my life to do what I wanted when I needed to do it. Plus I am able to enjoy my entrepreneurial spirit.
4. Find Alternative Ways to Make Money
In today’s society, you need to find ways to make more money. Period.
There is no way to get around it. You need to find additional income outside a traditional nine to five position or typical 40 hour a week job. You will reach a point where you are maxed on what you can make in your current position or title. There may be some advancement to move forward, but in many cases, there just is not much room for growth.
So, you need to find a side hustle – another way to make money.
Do something that you enjoy, turn your hobby into a way to make money, turn something that you naturally do, and help others into a service business. In today’s society, the sky is the limit on how you can earn a freelancing income.
5. Earn Passive Income
The last way to increase your hourly wage is to start earning passive income.
This can be from a variety of ways including the stock market, real estate, online courses, book sales, etc. This is where the differentiation between struggling financially and being financially sound happens.
By earning money passively, you are able to do the things that you enjoy doing and not be loaded down, with having a job that you need to work, and a place that you have to go to. And you still make money doing nothing.
Here is an example:
You can start a brokerage account and start trading stocks for $50. You need to learn and take the one and only investing class I recommend. Learn how the market works, watch videos, and practice in a simulator before you start using your own money.
One gentleman started with $5,000 in his trading account and now has well over $36,000 in a year. Just from practice and being consistent, he has learned that passive income is the way for him to increase his income and also not be a slave to his job.
Tips to Live on $14 an Hour
In this last section, grasp these tips on how to live on $14 an hour. On our site, you can find lots of money saving tips to help stretch your income further.
Here are the most important tips to live on $14 an hour. Highlight these!
1. Spend Less Than you Make
First, you must learn to spend less than you make.
If not you will be caught in the debt cycle and that is not where you want to be. You will be consistently living paycheck to paycheck.
In order to break that dreadful cycle, it means your expenses must be less than your income.
And when I say income, it’s not the $14 an hour. As we talked about earlier in the post, there are taxes. The amount of taxes taken out of your paycheck is called your net income which is your home $14 an hour minus all the taxes, FICA, social security, and medicare are taken out. That is your net income.
So, your net income has to be less than your net income.
2. Living Below Your Means
You need to be happy. And living on less can actually make you happier. Studies prove that less is better.
Finding contentment in life is one thing that is a struggle for most.
We are driven to want the new shiny toy, the thing next door, the stuff your friend or family member got. Our society has trained you that you need these things as well.
Have you ever taken a step back and looked at what you really need?
Once you are able to find contentment with life, then you are going to be set for the long term with your finances.
Here is our story on owning less stuff. We have been happier since.
3. Make Saving Money Fun
You need to make saving money fun. Period.
It could be participating in a no spend challenge for the month.
Check out the 200 envelope challenge (which is doable on your income)
It could be challenging friends not to go to Target for a week.
Maybe changing your habits and not picking up takeout and planning meals.
Whatever it is challenge yourself.
Find new ways of saving money and have fun with it.
Even better, get your family and kids involved in the challenge to save money. Tell them the reason why you are saving money and this is what you are doing.
Here are 101 things to do with no money. Free activities without costing you a dime. That is an amazing resource for you and you will never be bored.
And you will learn a lot of things in life you can do for free. Personally, some of the best ones are getting outside and enjoying some fresh air.
4. Make More Money
If you want if you do not settle for less, then find ways to make more money. If you want more out of life, then increase your income.
You need to be an advocate for yourself.
Find ways to make more money.
It could be a side hustle, a second job, asking for a raise, going to school to change careers, or picking up extra hours.
Whatever path you take, that’s fine. Just find ways to make more money. Period.
5. No State Taxes
Paying taxes is one option to increase what you take home in each paycheck.
These are the states that don’t pay state income taxes on wages:
Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming
It is very interesting if you take into account the amount of state taxes paid compared to a state with income taxes.
Also, if you live in one of the higher taxed states, then you may want to reconsider moving to a lower cost of living area. The higher taxes income tax states include California, Hawaii, New Jersey, Oregon, Minnesota, the District of Columbia, New York, Vermont, Iowa, and Wisconsin. These states tax income somewhere between 7.65% – 13.3%.
6. Stick to a Budget
You need to learn how to start a budget. We have tons budgeting resources for you.
While creating a budget is great, you need to learn how to use one.
You do not have to budget down to every last penny.
You need to make sure your expenses are less than your income and that you are creating sinking funds for those irregular expenses.
Budget Help:
7. Pay Off Debt Quickly
The amount that you pay interest on debt is absolutely absurd.
Unfortunately, that is how many of these companies make their money from the interest you pay on debt.
If you are paying 5% to even 20-21% or higher, you need to find ways to lower that debt quickly.
Here’s a debt calculator to help you. Figure out your debt free date.
Make that paying off debt fast is your target and main focus. I can tell you from personal experience, that it was not until week paid off our debt that we finally rounded the corner financially. Once our debt was paid off, we could finally be able to save money. Set money aside in separate bank accounts and pay for cash for things.
It took us working hard to pay off debt. We needed persistence and patience while we had setbacks in our debt free journey.
Jobs that Pay $14 an Hour
You can always find jobs that pay $14 per hour. Polish up that smile, fill out the application, and be prepared with your interview skills.
Job Search Hint: Always send a written follow-up thank you note for your interview. That will help you get noticed and remembered.
First, look at the cities that require a minimum wage in their cities. That is the best place to start to find jobs that are going to pay higher than the federal minimum wage rate. Many of the cities are moving towards this model so, target and look for jobs in those areas.
Possible Ideas:
Cashiers
Back of the house restaurant staff
Landscape Laborer
Retail jobs
Paraeducators at schools
Janitors
Farm help
Warehouse workers
Fast Food Restaurants workers
$14 Per Hour Annual Salary
In this post, we detailed 14 an hour is how much a year. Plus all of the variables can impact your net income. This is something that you can live off.
How much is 14 dollars an hour annually…
$29120
This is under $30000 per year and you need to make at least $43k a year.
In this post, we highlighted ways to increase your income as well as tips for living off your wage.
Use the sample budget as a starting point with your expenses.
You will have to be savvy and wise with your hard-earned income. But, with a plan, anything is possible!
Learn exactly how much do I make per year…
Know someone else that needs this, too? Then, please share!!
Budgets are a vital part of balancing your spending and making progress towards your goals. We all know they are important — but that doesn’t mean making them is a breeze. Now that we’re nearing the close of 2020, it’s time to start your budget for next year.
If we’re being honest, your 2020 goals were likely derailed by the pandemic. You likely made some adjustments and might have taken on some extra debt in the process. But the fact is, you can’t create an effective budget without first identifying your roadblocks. Use these steps to create your 2021 budget.
1. Calculate your income
To start things off, you need to know your total income (gross income from all your sources). If you freelance or have a variable income, admittedly, this might not be easy. In this case, you can use an average. But, you might want to create a tighter budget to account for this gray area. If you have additional forms of income from a side hustle or source like child support, make sure you include it here. It’s worth emphasizing that your gross income will typically be a larger number, compared to your net income — which accounts for funds left after deductions or withholdings.
2. Look at your bills and balances
After calculating exactly how much money you make, you’ll need to lay out all of your bills and balances. We know this is probably the last thing you want to do, especially after 2020. Unfortunately, it’s probably the most important part of creating your budget. Collect your bank statements and bills to evaluate your balances and due dates. It doesn’t matter if you use the latest budgeting software, an excel sheet or a pad and paper, whatever it takes.
[ Read: The Best Savings Accounts in 2021 ]
When making a list of your monthly expenses, it might help to break them down by fixed or variable expenses.
Fixed: These expenses are the same amount each time, like your mortgage, rent or student loan payments.
Variable: This is where it gets tricky — variable expenses can change from month to month — entertainment, food and travel expenses.
3. Find opportunities to cut spending
Now that you’ve laid it all out and you know what percentage of your income is promised to bills, you’ll be able to find the spots you can pull back. You’ll need to be both realistic and a little harsh at this stage. Planning an inflated budget won’t help you manage your spending or achieve the goals you set for yourself.
[ From Trent: How to Create and Customize Your 2021 Financial Goals ]
For example, take-out is easy and sometimes a better option than going to the grocery store during the pandemic. But it’s not good for your wallet. The amount of money people spend on food has increased since 2019, so consider cheap-and-easy meals that save you time if you have a bloated budget.
Another pitfall many see in their spending is their subscriptions. Did you sign up for any free trials and forget to cancel last year? Evaluate your monthly subscriptions and see which ones you aren’t using. Charges like this can sneak by, sometimes without you even noticing –– but it adds up pretty quickly. After eliminating frivolous spending, you can redirect that money directly into your savings.
4. Don’t forget your emergency fund
So you have the bare bones of your budget laid out. You have found the areas you can cut back on and know how much extra money you’ll have each month. Now you need to decide what to do with it.
If 2020 has taught us anything, it is the necessity of building an emergency fund. This is not an area you want to overlook. If you’ve taken a detailed look at your expenses and what you spend, you’ll have an easier time finding the money to put in your emergency fund each month. You never know what could come up over the next year. It’s better to prepare now rather than scramble later. A little planning now will help you avoid predatory options like payday loans or cash advances.
In this article
5. Plan for your taxes
Taxes will be a little more complicated this year, especially for the millions of Americans who received unemployment benefits. Unless you opted into having taxes being withheld from your payments, you’ll see a larger tax bill for 2020. Not all states will tax these benefits, though federal taxes will be due.
[ Read: Income Tax Guide for 2020 ]
You’ll also need to look at your 401(k) or IRA contributions for the year. Contributing to these accounts will lower your taxable income. Any charitable donations you have made will also need to be accounted for, as they often mean additional deductions on your taxes. A little math now and a quick could help you maximize your write-offs.
Too long, didn’t read?
As you think about budget adjustments to welcome 2021, remember that there’s no wrong way to maintain a budget as long as you’re tackling your spending and keeping track of where your dollars go. It sounds like a simple idea, but it might seem difficult to pull off when you start. Use this list to organize your priorities when working on your budget. Hint: To ease step number one, write down every single monthly expense you can find. Here’s a quick and easy budget model to get you started and a detailed list of budgeting strategies. From there, our list will be easier to follow. Good luck, and let us know if you have any other methods that work for you.
We welcome your feedback on this article. Contact us at [email protected] with comments or questions.