The growth rate forproperty tax payments across the country increased by more than four times annually at the end of the first quarter, according to new analysis by the National Association of Home Builders.
The year-long increase comes after a prolonged period of home-price growth thanks to a hot sales market, which drove property values up at a record pace in 2021 and early 2022. Properties are taxed based on the assessed value of the home, but changes frequently lag price movements of the housing market by two to three years, depending on the frequency at which jurisdictions make adjustments.
Although the rate of appreciation appeared to be slowing at the start of this year, with values of homes in some markets even down from a year ago, the elevated levels added $173.6 billion in revenue to the coffers of state and local governments around the country between January and March. In the four quarters prior, homeowners paid approximately $713.5 billion in property taxes nationwide.
The first-quarter numbers, though, came in approximately 40% lower than the $290.3 billion collected in the last three months of 2022 but were up 4.8% from $165.6 billion a year ago.
The cumulative four-quarter running total remained near the same level as at the end of 2022. But the rate of growth of tax payments, based on trailing four-quarter numbers, was at 6.9%, quadrupling since early 2022. The rate is also more than double the 15-year average of 3.3%, NAHB said.
Property taxes made up 35.4% of state and local tax revenue in the year-long period ending March 31, edging up slightly from 34.7% in the fourth quarter. By comparison, individual income taxes accounted for 29.1%. Sales and individual corporate taxes had a share of 28.3% and 7.3%, respectively.
On a single-quarter basis, the share of property taxes relative to total revenue also increased to 36.7%, up from 33.6% in the same period last year. But as it has for the last five quarters, it remains below the 37% average that characterized the market before the recent housing boom began, according to NAHB’s analysis of U.S. Census Bureau data.
While the percentage share may differ, incoming property tax collection numbers have not been affected as much by some of the economic headwinds other revenue sources may face, the association said.
Nonproperty tax receipts are more sensitive to fluctuations in economic sentiment and the business cycle, with accompanying changes in consumer spending, according to David Logan, senior economist and director of tax and trade analysis, in a research post.
On the other hand, “property tax collections have proven relatively stable, reflecting the long-run stability of tangible property values as well as the effects of lagging assessments and annual adjustments,” he said.
NAHB’s analysis comes as housing researchers continue to find affordability decreasing for new home buyers over the past few months. Monthly payments, inclusive of fees and taxes, were up by over 14% annually according to the Mortgage Bankers Association.
Property values so far this year are trending upward again as well, despite the rise in mortgage rates over the past year. That’s due in large part to homeowner reluctance to sell. New for-sale listings are 27% below its level of a year ago for the four-week period ending June 25, Redfin said last week. The annual decline was the largest since the beginning of the COVID-19.
The total number of homes for sale dropped by 11% year over year, the online real estate brokerage also said. The lack of supply pushed the average home price back up close to $382,628, just off the all-time high set a year ago, based on Redfin data.
Also, after a period when price cuts figured into many cost negotiations, Redfin reported that the typical home for sale in the U.S. was now selling at its initial asking price for only the second time since last August.
The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
Raiding your retirement accounts can be expensive. Withdrawing money before age 59½ typically triggers income taxes, a 10% federal penalty and — worst of all — the loss of future tax-deferred compounded returns. A 30-year-old who withdraws $1,000 from an individual retirement account or 401(k) could lose more than $11,000 in future retirement money, assuming 7% average annual returns.
In the past, there were a few ways you could avoid the penalty. Congress recently added several more, and some of those exceptions allow you to repay the money within three years. That would allow you to get a refund of the taxes you paid and — best of all — allow the money to start growing again, tax deferred, for your future.
You’re still better off leaving retirement funds alone for retirement, says Erin Itkoe, director of financial planning at Tarbox Family Office, a wealth management firm in Scottsdale, Arizona. If you can’t, though, you could at least limit the damage from taking the money out early, she says.
What you need to know about SECURE 2.0
The new penalty exceptions are part of Secure 2.0, a package of retirement plan changes that Congress passed late last year. Some exceptions are available for your IRA right now, while others take effect in coming years, says David Certner, legislative counsel for AARP. The exceptions also can apply to workplace plans, such as 401(k)s or 403(b)s, but it may require your employer to opt in, so check with your human resources department, Certner says.
However, the repayment option still isn’t available for most penalty exceptions. For example, you can avoid the penalty if you withdraw $10,000 from an IRA for a first-time home purchase or to pay higher education expenses, but you won’t be able to repay the money later and get the taxes refunded.
Disasters, terminal illness and family expansion
One new penalty exception that allows for repayment is for disasters. People who live in a federally declared disaster area and suffer an economic loss can withdraw up to $22,000 penalty-free. Income taxes still have to be paid on the withdrawal but the income can be spread over three years to reduce the potential tax impact. This exemption was made retroactive to Jan. 26, 2021.
Another potentially large exemption with the repayment option is one for terminal illness. Effective this year, the 10% penalty is waived for people whose doctor certifies that they are expected to die within seven years, says Itkoe, who’s also a certified public accountant serving on the American Institute of CPAs’ personal financial planning executive committee. There’s no limit on how much can be withdrawn.
A three-year repayment period also now applies to the penalty exception when you have or adopt a child. This exception allows each parent a $5,000 withdrawal within the 12 months after a child is born or adopted.
Exceptions for domestic abuse and financial emergencies to come
Next year, the 10% penalty is waived for victims of domestic abuse. The penalty-free withdrawal is limited to the lesser of $10,000 or 50% of the account’s value and can be repaid over three years.
Also effective next year is a penalty-free distribution of up to $1,000 for some emergency expenses. People can take one such withdrawal per year if the money is repaid. Otherwise, only one distribution is allowed every three years.
Note that both of these exceptions are “self-certified.” That means you provide a written statement asserting that you meet the requirements without having to supply other documents or proof, says Itkoe.
Other SECURE 2.0 penalty exceptions
A penalty exception to pay for long-term care insurance kicks in for 2026, but it only applies to workplace plans, not IRAs. Note that the withdrawal — which is limited to the lesser of $2,500 or 10% of the account balance — can only be used to pay insurance premiums, not to pay for the actual care, Certner notes.
Secure 2.0 also expanded the “public safety employee” exception for early withdrawals from workplace plans.
In the past, the 10% penalty didn’t apply for withdrawals from workplace plans if the worker left a job in the year they turn 55 or older, or age 50 for public safety employees. Now, private-sector firefighters and state and local corrections officers also can qualify for the public safety exception after they turn 50. In addition, public safety employees with at least 25 years of service with the employer sponsoring the plan can now avoid the penalty regardless of their age.
This is just a summary of the new penalty exceptions. The rules are complex enough that people should consult a tax professional before taking a withdrawal, Itkoe says. The pro also can help file an amended tax return if the withdrawal is repaid.
But no one should assume that the exceptions make retirement plan withdrawals a good idea since most people won’t pay the money back even if they have the option to do so, she says.
“Drawing from a retirement account should always be a last resort,” she says.
We hear a lot about the doubts over the future of Social Security. Here are a few I’ve come across:
“Three-fourths of those 18 to 34 don’t expect to get a Social Security check when they retire.” — USA Today
“My husband and I are both 28, and we laugh every time we hear [‘yes, you’ll receive Social Security’]. No, we won’t receive Social Security, even though we’ve both been paying into it since we were teenagers…I can’t think of one of my peers who expects Social Security to still be around when we’re retirement age. Call us bitter.” — A comment to my last column (“When Will You Be Able to Retire?”)
“Six in 10 Americans who have not yet retired believe they will get no Social Security benefits when they retire, more pessimistic than at any time since Gallup began asking this question in 1989.” — Gallup
“According to one survey, 100% of people married to Robert Brokamp wish he would shave his head rather than try to pull off a comb-over.” — My wife
If you’re among the doubters (of Social Security, not my hairdo), then listen up: The following paragraph is the most important group of words you’ll ever hear regarding Social Security. It’s key to understanding how the program works, and whether you’ll get anything. Here it is:
Social Security is predominantly a pay-as-you-go program. Most of the payroll taxes that are collected from today’s workers go into the checks of today’s beneficiaries. Thus, as long as there are people working and paying payroll taxes, there will be money to pay Social Security benefits.
According to the most recent Social Security Trustees report, from 2037 to 2084 payroll taxes will be enough to cover 75% of projected benefits. That’s not great, but that’s not nothing, either.
People who think that they won’t receive any Social Security benefits must believe one or all of the following three things:
In the future, people won’t work.
In the future, the government won’t collect payroll — a.k.a. FICA (Federal Insurance Contribution Act) — taxes. Currently, workers “contribute” 6.2% of their paychecks to the Social Security system, and their employers match with another 6.2%; the self-employed pay the whole 12.4%. Another 2.9% goes toward Medicare. As you know if you’ve looked at your paycheck, it’s a separate withholding from income taxes. In fact, the majority of Americans pay more in FICA taxes than they do in income taxes.
In the future, Social Security will be means-tested to such a degree that the “wealthy” (an arbitrary designation, to be sure) won’t receive any benefits. Those who don’t think they’ll receive Social Security assume they’ll be among these “wealthy.”
I don’t think Nos. 1 and 2 are likely. No. 3 is possible. The program is already means-tested to a degree, since the percentage of income that is replaced by Social Security decreases as lifetime earnings increase. However, I think that if changes to the means-testing formula result in a group losing their benefits completely, it will be a small group — certainly not 60% to 75%, as the aforementioned surveys suggest. I find it very unlikely that a future Congress — elected by future citizens — will change the program in a way that the majority of people who pay FICA taxes won’t get at least some benefits.
Those Crazy Trust Funds
For many years, the payroll taxes collected were more than needed to pay current benefits. The surplus went into the Social Security trust fund, which invested the money in special-issue U.S. Treasury bonds. However, this year — thanks to the stinky economy — benefits will exceed revenues. That’s projected to temporarily reverse, but at some point in the middle of the next decade, the retirement of the baby boomers will cause benefits to exceed taxes. This is where the trust funds come in. They’ll be sold to cover the shortfall.
In my opinion, this is the essence of questions about the future of Social Security: What, exactly, are we to make of these trust funds? Are they truly assets? Here are the two arguments:
Those who think that the Social Security system is essentially sound will point out that of course the trust funds are real assets. They’re full of U.S. Treasuries, which are considered the safest investments in the world.
Those who think otherwise point out that since Treasuries are federal government debt, the trust funds contain just worthless pieces of paper with a note written on them that says, “Dear Uncle Sam: I owe you lots of money. Love, Uncle Sam.”
I have to admit, I haven’t quite decided to which camp I belong. I’m inclined to go with the latter. After all, when, say, 2020 rolls around, and the Social Security Administration needs some money from the trust fund, it will take one of these special-issue Treasuries to Uncle Sam and want to exchange it for cash to be sent to retirees. Where will that cash come from? I almost think I need to see a spreadsheet or detailed flowchart or something to fully understand how all that will work. If you have suggestions for how to accurately think about the trust funds, I’m all ears.
For Now, Plan on Getting Less
That’s enough talk about Social Security for now (assuming you’re still reading). From a financial-planning perspective, I’ll reiterate my advice from my last post. If you are in or near retirement, plan on getting your benefit. If you’re younger, play it safe and plan on getting 25% to 75% of your projected benefit. But plan on getting something.
I’m sure you have your own thoughts and opinions about Social Security, and I encourage you to share them below. However, let me say this: Often, discussions following articles about Social Security turn into political brawls that degenerate into name-calling and general silliness. So please, all you right-wing nutjobs and left-wing commies, let’s keep it civil. Stick to the topic of Social Security and the facts. And maybe advice for creating a sweet comb-over.
Catch-up contributions are about to change. Starting in 2024, some workers who make catch-up contributions to employer-sponsored retirement plans, like a 401(k), will have to put this money in a Roth account. This means that they cannot deduct these contributions from their income taxes, but will be able to withdraw the account’s gains later in life tax free. This change will apply to anyone who earns $145,000 or more. Here’s what’s going on.
Consider working with a financial advisor as you evaluate your options for building a nest egg.
What Are Catch-Up Contributions?
Every tax-advantaged retirement account has a maximum contribution limit. This is the cap on how much money you can put into the account each year without paying taxes. For example, in 2023, an individual can only contribute up to $22,500 to his or her 401(k) account. For IRA account, you can contribute up to $6,500.
In order to incentivize retirement savings, the IRS allows “catch-up contributions” for those who are age 50 or older. So if you’re over the age of 50, you can contribute an extra $7,500 to a 401(k) or an additional $1,000 to an IRA in 2023. This is on top of the aforementioned contribution cap.
Historically, the rules around catch-up contributions have been based on the underlying account. If you make catch-up contributions to a 401(k), for example, you receive the standard tax deduction of that account. If you put catch-up contributions in a Roth IRA, you pay taxes up front and pay no taxes on withdrawals.
For higher-earning households, however, that’s about to change.
Section 603 Changes How Catch-Up Contributions Work
In 2022, Congress passed the law known as SECURE 2.0, a sweeping collection of changes to retirement in the United States. Although it had a few signature elements, most notably the transition of 401(k) programs from opt-in to opt-out, most of the law makes detailed changes to a very large number of programs.
But detailed changes aren’t the same as small ones, a fact that has become quite clear with the now-infamous Section 603.
In Section 603 of the SECURE 2.0 Act, Congress changed how catch-up contributions work for higher-earning households. Specifically, with employer-sponsored plans such as a 401(k), if you earned more than $145,000 in the previous tax year you must make all catch-up contributions on a Roth basis. This means that you cannot deduct the income they use for catch-up contributions, but will not have to pay taxes on the money or its earnings when you withdraw it later in life.
This rule does not affect IRA plans.
Contribution limits will not change, since individuals will still contribute this money to an employer-sponsored plan. Instead, employers who allow catch-up contributions will need to begin offering Roth plans in addition to their standard pretax retirement plans. This has led to some pushback, with retirement industry groups citing the time and costs involved with establishing new Roth plans.
These changes are set to take effect beginning Jan. 1, 2024.
What Does This Mean for Taxes?
The first thing to note is that Section 603 does not phase in. Individuals who earn $144,999 or less are exempt. They may fully deduct the income that they contribute to an employer-sponsored retirement account, including any catch-up contributions.
This section fully applies to individuals who earn $145,000 or more. They may fully deduct the income that they contribute to a 401(k) account up to the standard annual limit. They cannot deduct any income that they use for catch-up contributions and must pay taxes on that money. They must put this money into a Roth account, which will return its growth untaxed.
Specific tax impact will depend entirely on an individual’s income. Take, for example, someone who earns $150,000 and makes the maximum catch-up contributions. Without addressing other deductions or other tax implications, the impact on their income tax would look like this:
Currently they would be able to deduct this contribution, allowing them the following deduction:
Income – $150,000
Top Tax Bracket: 24% for income between $89,076 – $150,000
Tax Deduction – $7,500
Remaining Taxable Income – $142,500
Tax Deduction – 24% x $7,500 = $1,800
Final Income Taxes – $24,928
Income tax deductions always come from the highest income bracket first. In this case, the individual’s top tax bracket is 24%. They can deduct $7,500 from the money currently taxed at 24%, giving them a deduction worth $1,800 in total tax savings.
Starting in 2024, this same person will not be able to deduct catch-up contributions. Assuming the same catch-up contribution limit (which will increase each year), this person’s new taxes will look like this:
Income – $150,000
Tax Deduction – $0
Remaining Taxable Income – $150,000
Final Income Taxes – $26,728
The individual has functionally $1,800 less with which to invest. However, while it will make retirement saving more expensive up front, it will also incentivize employers to establish more Roth options in their retirement plans. These plans have much larger tax advantages in the long run, since ultimately the investor pays no taxes on the larger amount withdrawn in retirement, rather than the smaller amount invested up front.
For individuals looking to avoid this tax issue, a good option would be to open an IRA. These are pretax accounts, and you can have both a 401(k) (or equivalent) and an IRA at the same time. While IRAs have much lower maximum contribution limits, you can generally invest almost as much in an IRA as you could invest through catch-up contributions, making this a good equivalent investment strategy.
This Issue Has Been Mistaken for a Mistake
The new tax cap is not a mistake. The original text of SECURE 2.0 contained a drafting error related to catch-up contributions. In brief, among its changes, Section 603 deleted a small paragraph in the Internal Revenue Code. The deleted section of the Internal Revenue Code (IRS) establishes that, if the IRS allows a plan participant to make catch-up contributions to a 401(k) or other employer-sponsored plan, those contributions qualify for pretax status.
The idea was to prevent contradictory language in the tax code. But in deleting this section, instead of specifying that it only applies to some taxpayers, Congress potentially made pretax catch-up contributions illegal for everyone. Members of Congress have since stated that this was a drafting error and they intend to correct it, although at time of writing it has not been fixed.
Some reporting has conflated this error with the new tax cap, suggesting that Congress might roll back the $145,000 cutoff. This is inaccurate. The new catch-up contributions cap was intentional.
Bottom Line
If you earn more than $145,000 per year, starting in 2024 you will not be able to deduct catch-up contributions that you make to an employer-sponsored plan. Instead, all such contributions will have to go into a Roth plan, on which you will pay taxes up front but not when you withdraw the gains.
Retirement Planning Tips
A financial advisor can help you build a comprehensive retirement plan, including how to handle catch-up contribution opportunities. Finding a 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 have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Catch-up contributions can be a great way to add extra liquidity to your retirement account, particularly given that most people will work and save for almost 20 more years. So it’s worth making the absolute most of them.
Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
For many of us, the idea of making $60,000 a year is nothing short of a dream. But what does that really mean? How much is that an hour before taxes? And after taxes? What kind of lifestyle could you afford with this income?
These are all questions we’ll explore in this article as we take a look at the average hourly wage and how it affects your annual income and after-tax income. We’ll also make necessary calculations to figure out how much you can expect to make after taxes each year, along with strategies for budgeting and saving to make the most out of your money. So if you’re curious about how far $60,000 can stretch in today’s economy, keep reading.
Table of Contents
$60000 a Year Is How Much an Hour?
Assuming you’re working a standard 40-hour week, you’d be raking in a cool $28.80 per hour.
When working 40 hours per week for 52 weeks a year, you’ll clock in 2,080 hours of work.
Divide that $60,000 salary by the 2,080 hours, and there’s your savvy $28.80 per hour rate.
That’s quite the step up from the federal minimum wage, isn’t it? Of course, your exact hourly rate could vary based on your work hours, but one thing’s for sure, you’ll be making a pretty penny.
But what if you work more or less than the standard work week?
Well, the lowest you could go while still making $60,000 a year is $6.8 per hour—albeit by working every waking (and non-waking) hour of the year, which is, let’s face it, impossible.
On the flip side, working less could bump your hourly wage up to a whopping $57.6. To earn this average wage, you would need to work 20 hours a week, which adds up to a total of 1,040 hours. However, this depends on your work schedule and other factors, such as other obligations you may have.
Earnings Disclaimer
It’s important to note that your earnings will remain constant even if you work fewer hours. Therefore, it’s essential to maximize your productivity during your designated work hours.
How Does 60K a Year Compare?
Let’s get down to the nitty-gritty of your $60,000 salary and see how it measures up. In 2023, the United States national median income is $80,893 – a sweet 3.4% jump from 2022. So, with your $60,000 paycheck, you’re actually earning 25% less than the average Joe. Fear not, though! Remember that median household income represents families, not solo earners.
If your household has more than one income earner and rakes in a collective $80,000, congrats! Your clan is pretty close to the median income party in the good ol’ US of A.
Is $28.80 a Good Hourly Rate?
Now, let’s shift gears and approach this with a more analytical lens. Earning $28.80 per hour results in an after-tax income of approximately $46,000 annually, placing an individual or a small family above the 2023 federal poverty threshold.
However, it is crucial to acknowledge that one’s location and the cost of living therein play a significant role in defining a viable salary. For urban dwellers, particularly in places like New York City, the cost of living tends to be higher than the national average.
Consequently, researching the regional costs and evaluating whether a $60,000 salary truly qualifies as a “livable wage” becomes a necessary and prudent step to take.
Is $60K a Year Worth Your Time?
While it might not make you a millionaire in NYC, this annual income can comfortably provide for a solid life in cities like Sioux Falls. All it takes is a knack for smart budgeting and cost-effective living arrangements to thrive on a 60K salary truly.
For singles enjoying solo living, $60,000 can be quite a generous budget.
However, if you have a family to provide for, you might place a higher importance on your time since you have to make sure your family’s needs are met. In the end, it is your decision whether earning $60,000 annually is worth the time you put in.
The key to thriving on this income is a spoonful of discipline in handling finances, carefully saving for retirement, and investing in experiences that enrich your life.
Remember: time is a finite resource – every hour spent on the job is an hour you won’t get back.
So find joy in what you do and make each moment count. Whether you’re a wide-eyed student trading monetary gains for the experience or a devoted family person, always remember that the optimal balance involves valuing both time and money.
How to Make More While Working Less?
Who wouldn’t want to make more money while cutting down on working hours? Guess what – it’s entirely achievable! To unlock this seemingly elusive treasure, you need to utilize your time efficiently and tap into your skills to their maximum potential. Ready to work smarter, not harder? Let’s dive in.
Obtain a High-Paying Position
As there is always room for growth, consider seeking a position offering an increased annual salary. The key to locating these jobs lies in networking within your industry and researching online job postings. An alternative approach is to employ the services of a career coach in discovering opportunities that provide better rewards for your efforts.
All of this can be improved if you focus on achieving high income skills . This includes mastering a particular trade, obtaining a higher degree of education, or investing in yourself so that your salary is more than what you currently make.
Boost Your Earnings with Passive Income
One clever way to maximize your earnings is by reinvesting a part of your salary (from that median wage of $60,000 a year) into opportunities that create passive income. This way, you can watch your bank account grow as you snooze or enjoy that long-awaited vacation without the nagging worry of federal tax.
Excited yet? Take a look at these passive income generators:
Rental properties for a steady income stream
Peer-to-peer lending, becoming the bank and collecting interest
Dividend stocks, reaping the rewards of business growth
Climb Corporate Ladder
Efficient and diligent work within your current job may open the doors for a promotion, increasing your annual earnings beyond median pay and widening your professional responsibilities.
Before taking any major steps, consult with your supervisor to gain insight into the available growth options within the company that may ultimately enhance your yearly salary.
Make Bank with Freelancing
Want more control over your schedule and your finances? Try freelancing! This side hustle lets you make some extra moolah while flexing your skills and giving you the freedom to manage your own hours. Trust us; your work-life balance will thank you.
Intrigued? Check out these freelancing side hustle gigs:
Editing, polishing ideas to perfection
Web design, making the virtual world your oyster
Graphic design, letting your creativity rake in the bucks
Bookkeeping, because everyone needs a numbers wizard
Writing, because the content is king
Remember, nearly anything you do at your 9-to-5 can also be turned into a lucrative freelance service. So go ahead, give it a shot, and earn more on your own terms.
How Does a $60,000 Annual Salary Break Down?
Biweekly Pay Breakdown
Crunching the numbers for a $ 60,000-a-year salary reveals some exciting insights about your earnings every two weeks. Picture yourself working a full-time job, clocking in 40 hours each week with no overtime. Divide that annual salary of $60,000 by the 26 bi-weekly pay periods, and you’re looking at a cool $2,307.7 in your paycheck.
But hold your horses.
Remember the saying, “Nothing’s certain but death and taxes?”
Well, your take-home pay usually ends up lesser than your biweekly paycheck, all thanks to taxes and other deductions such as income taxes, pre-tax deductions (retirement accounts, health savings bank accounts, etc.), FICA (Social Security and Medicare) taxes, state and local taxes, other miscellaneous deductions required by your employer, and health insurance premiums.
Monthly Pay
Now, what if you’re paid monthly? The anticipation of receiving your paycheck might be a tad longer, but imagine the thrill of seeing higher numbers! On a $60,000 annual salary, you’ll bag a monthly paycheck of a whopping $5,000 before taxes and deductions.
You may get paid time off and federal government holidays, depending on your company. For the average person, this means you’re effectively making more money per hour than your hourly rate implies.
How Much is $28.80 an Hour Annually?
Picture this: you make $28.80 an hour, which translates to roughly $59,904 annually. Not only are you ahead of the curve, but you’ll also be earning more than the national average of $58,563 per year, or $28.16 hourly, according to ZipRecruiter.
However, this number can fluctuate based on the total number of hours you work weekly. For instance, working 50 hours a week would increase your annual earnings to $74,880, while a 60-hour workweek would result in an impressive $89,856.
On the other hand, if you work less than 40 hours a week, your salary tapers off accordingly. A 30-hour workweek corresponds to $44,928 a year, while 20 hours of weekly commitment amounts to $29,952 per annum. Thus, it’s crucial to understand the expected work hours when considering a job that pays $28.8 an hour.
At the end of the day, it’s up to you to make the most out of your earnings and work smarter to increase your salary. Whether it’s freelancing, negotiating a higher wage, or taking on more responsibilities, there are numerous ways to increase your annual salary and take charge.
How Does Vacation Impact My Annual Salary?
Vacation offers necessary respite and rejuvenation, but it may come at the cost of impacting one’s annual salary. It is crucial to examine the effects of taking time off on one’s finances.
Paid vacation days are part of most employment contracts and would not result in a salary reduction. Conversely, for employees who must take unpaid vacation days, their annual salary may be affected.
For instance, an individual earning $60,000 annually would receive $2,307.60 bi-weekly. Should they opt for two weeks of unpaid vacation, it would reduce their annual earnings by the same amount. Furthermore, being absent from work may result in missed opportunities for raises or promotions.
Therefore, the importance of considering how vacation impacts one’s annual salary cannot be understated. A balance between taking time off and focusing on career growth should be achieved to ensure financial stability.
Notice
Please note that the salary examples provided are only meant to give you a general idea. Your actual salary will depend on your additional skills, experience, qualifications, and the number of hours you plan to work.
How Much Is $60 000 a Year After Taxes?
Tax implications on a $60,000 salary should be considered thoughtfully, and the actual take-home pay depends on various factors, including your residence. Here, we provide general calculations for residents of tax-free states (for, e.g., Florida) and states with taxes (for, e.g., New York).
For an individual living in Florida, the tax breakdown is as follows:
Annual pre-tax income:
$60,000
Deductions:
$5,968 federal income tax $3,300 FICA taxes
After-tax take-home income:
$50,732
On the other hand, a New York resident’s tax obligations would be:
Annual pre-tax income:
$60,000
Deductions:
$5,968 federal income tax, $3,300 FICA taxes $2,864 New York state tax
After-tax take-home income:
$47,868
Notice the significant difference in after-tax income due to state taxes. It’s essential to bear this in mind when calculating the final earnings from your annual salary.
State By State $60,000 a Year Salary After Taxes in 2023
Just like the federal government, each state and territory has its own tax brackets that are calculated in a similar way.
However, since each state or territory can establish its own marginal tax rates and laws regarding taxable items, the amount of taxes you pay on a $60,000 salary may differ depending on where you live. The following table shows your after-tax salary for the 2023 tax year on a $60,000 salary:
State
Average Income
Alabama
$46,607.00
Alaska
$49,442.00
Arizona
$48,061.71
Arkansas
$46,263.80
California
$47,483.87
Colorado
$47,301.23
Connecticut
$46,592.00
Delaware
$46,678.88
District of Columbia
$46,783.75
Florida
$50,732.00
Georgia
$46,429.00
Hawaii
$45,419.90
Idaho
$46,841.29
Illinois
$46,472.00
Indiana
$47,504.00
Iowa
$46,378.56
Kansas
$46,679.00
Kentucky
$46,580.50
Louisiana
$47,473.25
Maine
$46,484.63
Maryland
$46,756.13
Massachusetts
$46,442.00
Michigan
$46,892.00
Minnesota
$46,646.36
Mississippi
$46,857.00
Missouri
$47,090.06
Montana
$46,289.03
Nebraska
$46,792.90
Nevada
$49,442.00
New Hampshire
$49,442.00
New Jersey
$47,619.50
New Mexico
$47,416.05
New York
$47,868.09
North Carolina
$47,084.23
North Dakota
$48,863.12
Ohio
$48,401.64
Oklahoma
$47,082.13
Oregon
$44,660.75
Pennsylvania
$47,600.00
Rhode Island
$47,540.75
South Carolina
$46,693.40
South Dakota
$49,442.00
Tennessee
$49,442.00
Texas
$49,442.00
Utah
$46,510.46
Vermont
$47,231.98
Virginia
$46,508.25
Washington
$49,442.00
West Virginia
$46,667.00
Wisconsin
$47,194.39
Wyoming
$49,442.00
Source: Worlds Salaries
What Types of Jobs Pay $60,000 Per Year?
There are a variety of jobs that pay $60,000 per Year. Here are some examples:
Cargo pilot
Makeup artist
Real estate agent
Dental hygienist
Instrument technician
Insurance agent
Power plant operator
HVAC supervisor
Yoga Instructor
Nuclear medicine technologist
Railroad conductor
Web developer
Sales representative
Claims adjuster
Electrical foreman
Truck driver
Boilermaker
Occupational therapy assistant
MRI technician
Solar installer
Aircraft Mechanic
Physical therapist assistant
Radiation therapist
Nuclear technician
Owner-operator driver
There are numerous job opportunities available that offer an annual salary of $60,000, as shown in the provided list. You have several options to choose from if you desire a salary of this amount. However, note that the list is not exhaustive but gives a fair indication of the job positions that provide this salary.
How To Budget $60,000 a Year?
Cut Unnecessary Monthly Expenses
Regardless of an individual’s yearly income, living within one’s means should be a priority. Analyzing and adjusting budgets is an effective way to achieve this goal. Identifying and eliminating non-essential expenses can help allocate funds toward debt reduction or savings.
Potential areas for adjustments include:
Gym memberships
Entertainment expenses
Subscription services (magazines, music, etc.)
Frequency of dining out
Cable TV subscriptions
Clothing purchases
Travel expenditures
There could be more that can be reduced or eliminated to ensure proper budgeting of $60,000 a year.
Save for Retirement Early
The earliest you start saving for retirement, the better. Consider starting an IRA or contributing to a 401(k), especially while your income is still relatively high and you can benefit from the employer match. If your employer offers a 401(k) plan, setting aside just 10% of your annual salary (or $6,000 if you make $60,000 a year) can go a long way toward reaching retirement goals.
Avoid High Car Payments
Owning a set of wheels doesn’t have to equate to draining your wallet. Did you know the average monthly loan payment for a new car in the U.S. is almost $600, which represents more than 10% of a $60,000 annual income?
Keep in mind this figure doesn’t even include insurance, fuel, or maintenance costs. Try out these savvy strategies to stay car payment-free:
Opt for a pre-owned vehicle
Select a smaller, more economical car
Purchase a used car with cash
Avoid Credit Card Debt
Using credit cards to fund your lifestyle is a common mistake that can easily lead to debt. A way to avoid credit card debt is by limiting your credit card usage to expenses that you can pay off fully every month. If you can’t afford to pay your credit card bill each month fully, it’s crucial to reassess your spending habits.
Sample Budget For Individuals Earning $60,000 Per Year
If you want to understand better living on a $60,000 salary, consider comparing it to your monthly expenses. As an example, here’s a budget for someone earning $60k per year, which may be helpful.
Category
Monthly Amount
House Rent
$2,200
Utilities (electricity, water, etc.)
$200
Internet/Cable
$100
Transportation
$300
Insurance (car, health, etc.)
$400
Groceries
$400
Dining Out
$200
Entertainment
$100
Clothing
$200
Personal Care
$200
Emergency Fund
$200
Retirement Savings
$500
Total
$5,000
Note: This budget prioritizes basic expenses and avoids debt.
Final Thoughts on a 60K a Year Salary
Yearly salaries can be quite the conversation starter. They’re different everywhere you go, and they’re unique to each individual and profession. A 60K salary might be considered modest in certain corners of the world, while in other places, it’s a pretty sweet deal.
Just imagine living in the bustling metropolis of New York City – you’d need almost twice that amount to make ends meet! But set foot in rural Mississippi, and you’ll find that life on a 60K income can be quite lavish. To live your best life on a $60,000 salary, you only need a bit of financial savvy:
Live beneath your means.
Keep an eye on your expenditures.
Always invest in yourself and your future.
So, what do you think – could you make it on 60K a year? Share your thoughts in the comments below.
Social Security Disability Insurance (SSDI) benefits may be taxable if half of SSDI income plus any additional income exceeds $25,000 for single filers and $32,000 for joint filers
. The amount you pay depends on your total income and tax bracket. You may also owe state taxes.
How to calculate whether your SSDI benefits are taxable
To find out whether your SSDI is taxable, add the following two figures:
If the total exceeds the limits listed below, your benefits could be taxable.
If your tax status is:
Then your benefits may be taxable if half your benefits plus your other income exceeds:
Single, head of household, or a qualifying surviving spouse
Married filing jointly
Married filing separately and you lived apart from your spouse for the entire year
Married filing separately and you lived with your spouse at any time during the tax year
What is the tax on SSDI benefits?
Generally, as your total income increases, the percentage of your Social Security income that’s subject to federal taxes will increase as well
. The maximum percentage of Social Security income that’s subject to tax is 85%.
The amount of tax you’ll owe on that portion of your Social Security income depends on your tax bracket. Your income from all taxable sources and any tax deductions you qualify for determine which tax bracket you’re in.
Depending on where you live, you might also owe state taxes on your benefits. Tax rates and potential exclusions or deductions for Social Security income vary from state to state. Some states don’t have income taxes.
Taxes on SSDI back payments
The Social Security Administration (SSA) takes months to process SSDI applications
. The minimum waiting period is generally five months. If the SSA denies your application, you may appeal; an eventual approval can stretch your waiting period to more than a year.
In all of these instances, the SSA may send you a payment that covers the time it was processing your application. That lump sum amount is taxable.
A large payment could trigger an unexpectedly large tax bill. You pay taxes on the back payment for the tax year in which you receive it, even if a portion of the payment was for a previous tax year
.
Although you can’t amend a prior year’s tax return for this, the Internal Revenue Service gives you the option to calculate what you would have owed if the back payments occurred in the prior tax year. If that results in a lower tax bill, you can pay that lower amount instead.
Inside: Are you confused about how gross pay and net pay are calculated? This guide will clear everything up. Learn about the different deductions that are taken from your paycheck, as well as the tax rates that apply to your gross pay.
This is one of the most confusing questions for many people.
So, if you are wondering what the difference between gross pay and net pay, you are in the right place.
In order to become financially stable, you need to have a tiny amount of financial literacy.
If you’re like most people, you probably think of your “gross pay” as the amount of money you make before taxes are taken out. But in reality, gross pay is your total compensation from your employer before any deductions are made.
So what is “net pay,” then? Net pay is the amount of money that actually goes into your bank account or paycheck after all of those deductions are made.
Now you want to which one is more important between gross pay and net pay.
The answer is: it depends! If you’re trying to save money or make a budget, then net pay is probably more important to you. But if you’re trying to figure out how much taxes you’ll owe at the
We will dive into all of the details, you will not ever be confused again.
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What is gross pay?
Gross pay is the total amount of money earned by an employee before any taxes or deductions are taken out. It’s important to know your gross pay as it determines your overall income and can impact your taxes and benefits.
This is the total amount paid by your employer.
Knowing your gross pay is crucial for financial planning and paying taxes.
How can I calculate my gross pay?
To calculate gross pay, you need to know your hourly wage or salary, any overtime pay, bonuses, and additional reimbursements for work-related expenses.
For hourly workers, multiply the hourly wage by the number of regular hours worked within a pay period and include the overtime pay rate for any extra hours.
For salaried workers, multiply the gross monthly income by 12 to find the annual gross salary.
To calculate a paycheck, start with the annual salary amount and divide it by the number of pay periods in the year.
Find out 5000 a month is how much a year.
What deductions are taken out of gross pay?
Gross pay refers to the total amount of money an employee earns before any deductions are taken out.
As such, there are no deductions.
Learn what is annual income.
How are taxes calculated on gross pay?
Gross pay is the amount an employee earns before taxes and deductions are taken out by their employer.
Understanding taxes on gross pay is essential, as it affects an employee’s take-home pay and tax liability.
Taxes that are deducted from gross pay include FICA payroll taxes, federal and state income tax withholding, along with any state-mandated programs like this Colorado Paid Sick Leave.
To calculate taxes on gross pay, an employer uses a formula that subtracts all taxes and deductions from the gross pay amount. Learn how much you should withhold on your taxes.
Common issues that may arise during tax calculation include incorrect tax withholding and not considering voluntary pre-tax deductions. Understand why do I owe taxes this year.
Wealth Building and Tax Reduction Secrets from an IRS Insider
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It offers proven methods for taking advantage of the tax system to get a yearly subsidy of $5,000 or more back from the IRS―and bulletproof your records forever.
How to Build Massive Wealth by Permanently Lowering Your Taxes
For U.S. taxpayers, you will find helpful tips in this new edition to help you apply the new tax incentives to your situation.
Tax breaks are not only for the rich. It is for everybody! You just have to take time and learn it.
What is net pay?
Net pay refers to the amount of money an employee takes home after all deductions and taxes have been taken out of their gross pay.
This is the money left over that you can spend, save, and invest.
Thus, you will be able to budget by paycheck like a pro!
How to calculate net pay?
Calculating net pay is crucial for accurate and compliant payroll management.
Here is a step-by-step guide on how to calculate net pay:
Determine the gross pay based on hours worked or salary divided by the number of pay periods in the year.
Subtract mandatory deductions, including health insurance premiums, federal, state, and local income taxes, payroll taxes, and court-ordered wage attachments.
Subtract voluntary deductions, such as employee contributions to a 401(k) or other retirement plan as well as any flexible spending account.
The resulting amount is the employee’s net pay.
Learn about annual net income.
What deductions are taken out of net pay?
Net pay refers to the amount of money an individual receives after taxes and other necessary deductions have been subtracted from their gross pay.
It is a crucial factor in determining an individual’s income, as it represents the actual amount of money they take home.
There are various deductions that are commonly taken out of net pay, including mandatory and voluntary deductions.
Mandatory deductions are made in accordance with the law, while voluntary deductions are ones that employees have the freedom to opt out of.
The mandatory deductions include:
Federal, state, and local income taxes
Social security taxes
Medicare taxes
Local state or municipal taxes
Other common voluntary deductions from gross pay include:
Health insurance premiums (if signed up on a company plan)
Retirement contributions
Health savings account contributions
Flexible spending account contributions
Dependent Care FSA
Is gross before or after taxes?
Gross pay is BEFORE taxes.
Gross pay is the amount earned before taxes and other deductions are taken out. Taxes are then calculated based on the gross pay amount and deducted to arrive at the net pay. This means that gross pay is always before taxes.
Understanding the difference between gross pay and net pay is important to effectively manage finances.
Gross pay may seem like a large amount, but it is important to consider the impact of taxes and other deductions on the final amount received.
What is the difference between gross pay and net pay?
Gross pay and net pay are two important terms that employers and employees should understand.
Gross pay refers to an employee’s total earnings before any deductions are taken out, while net pay is the amount an employee takes home after deductions such as taxes, benefits, and garnishments have been subtracted.
Here are some key differences between gross pay and net pay:
Gross pay includes all earnings, such as wages, salary, reimbursements, commissions, and bonuses, while net pay is the actual amount of the paycheck after deductions.
Employers are responsible for deducting necessary expenses from an employee’s paycheck and making payments to the appropriate accounts before issuing the check or depositing the net pay into the employee’s bank account.
Gross income determines an individual’s federal income tax bracket and borrowing capacity, while net pay presents disposable income.
When budgeting for the year, starting with gross wages requires subtracting the total of taxes and other deductions to compute the actual amount left to spend from each paycheck.
Understanding the difference between gross pay and net pay is crucial for effective budgeting and financial planning.
Employers must ensure proper employee taxes are collected and paid to the government, while employees need to know their take-home pay to manage their expenses.
How do gross pay and net pay work?
Gross pay and net pay are two important terms in the payroll world that employees should understand to manage their finances effectively.
Gross pay is the total amount of pay while net pay is the amount of money you have to spend each month.
Understanding the difference between gross and net pay can help employees and employers avoid confusion and manage their finances better.
What is better gross pay or net pay?
One term is not “better” than the other as they each have different meanings.
When you increase your gross pay, your net pay will rise as well.
Here is how to use gross pay to your advantage:
Provides a clear understanding of the employee’s total compensation
Helps employees plan for future expenses
Can be used as a basis for negotiating salary increases
Figure out the amount of taxes you are required to pay.
Here is how to use net pay to your advantage:
Reflects the employee’s actual take-home pay
Helps employees budget for their expenses
Provides a clear understanding of the impact of deductions on their pay
Can be difficult to compare with other job offers that list gross pay
Overall, net pay is better for employees as it reflects their actual take-home pay and helps them budget for their expenses.
However, it’s important for employees to understand both gross pay and net pay to make informed decisions about their compensation.
Why do you receive more gross pay than net pay in your paycheck?
Employees receive more gross pay than net pay in their paychecks because gross pay is the total amount of money an employee earns before any deductions are taken out.
This includes an employee’s salary, wages, commissions, and bonuses.
On the other hand, net pay is the actual amount of money an employee takes home after taxes, benefits, and other mandatory deductions have been subtracted from their gross pay. These deductions can include federal and state taxes, Social Security contributions, health insurance premiums, and retirement plan contributions.
Therefore, employees receive more gross pay than net pay.
Learn is social security disability income taxable.
FAQs
Overtime wages are included in gross pay when an employee works more than their regular hours and earns additional compensation for the extra hours worked.
This is the case for nonexempt employees who are entitled to overtime pay under federal or state law.
Net income is the take-home pay or the money that you earn on payday, which is why it may be best to focus on that number when creating a budget.
This number helps you determine how much you have to spend, save, or invest.
By tracking your expenses and using budgeting techniques like budgeting with percentages or the 50/30/20 rule, you can manage your finances effectively and make the most out of your net income.
Remember, creating a budget is about being realistic and disciplined with your spending habits, so make sure to adjust your budget accordingly as your income or expenses change.
The tax rates for gross pay depend on the specific taxes being withheld, such as federal income tax, Social Security tax, and Medicare tax.
Federal income tax rates vary depending on the employee’s income level and filing status, with higher earners generally paying a higher percentage of their gross pay in taxes. Click here for the latest federal income tax brackets.
Social Security tax is a flat rate of 6.2% for the employee on the first $$160,200 of gross pay earned. Your employer must match the same contribution. (source)
Medicare tax is a flat rate of 1.45% on all gross pay with the employer matching the same percentage, with an additional 0.9% tax for high earners. (source)
Employees need to understand their tax liability based on their gross pay to accurately calculate their net pay and avoid any surprises come tax time.
Now, you Know the Difference between Gross and Net Pay
Understanding deductions and their impact on net pay is crucial for employees to accurately budget and plan their finances.
Since you know the difference between gross and net pay, you can make sure that you are getting the right amount of money in your paycheck.
Be sure to check your pay stubs carefully to make sure that all of the deductions are correct. If you have any questions, be sure to ask your human resources department.
Know someone else that needs this, too? Then, please share!!
It’s never fun to consider declaring bankruptcy. But, believe it or not, bankruptcy can be a smart financial decision in certain situations. Bankruptcy’s designed to give people a fresh start when they need one. And if you file for bankruptcy, you’re taking a big step towards getting your finances under control. That’s always a responsible goal.
But it’s a serious decision with consequences. Your credit rating takes a big drop (as you may know already) and your spending habits may need to change. How do you know when the pros of bankruptcy outweigh the cons?
First, know the basics of what bankruptcy does. Bankruptcy usually does not eliminate all your debt. The courts treat different kinds of debts differently.
Here are the debts bankruptcy will NOT erase:
Student loans, whether public or private. You can get relief from student loan payments, but that’s a separate process
Income taxes you owe. There are payment options for back taxes. Just like student loans, though, income tax payments have a process all their own
Child support and alimony
Court fines or other legal penalties (such as traffic tickets)
Debts to government agencies
Debts for personal injury or death caused by drunk driving
Any debts you forget to list in bankruptcy papers
Here are the debts bankruptcy CAN erase or make easier to pay over time:
But debt itself doesn’t automatically make bankruptcy the best option. If any or all of the following circumstances apply to you, it might be time to file:
Creditors are suing you for unpaid debts
If creditors have already passed your debt to a collection agency, they may take the next step—a lawsuit. Debt collection lawsuits usually aren’t worth fighting in court. You’ll end up with court costs to worry about.
Bankruptcy will place an automatic “stay” on your account. This is a court order requiring creditors to cease all collection activity, including lawsuits.
Credit card debt is “unsecured” debt. This means creditors can’t repossess any items if you don’t pay it. Bankruptcy usually erases credit card and other unsecured debts.
If your utilities are about to be disconnected, bankruptcy can keep them from being cut off as well.
What’s Ahead:
You’re facing home foreclosure and/or car repossession
Bankruptcy can issue a stay on any repossession or foreclosure activity, just like it can for credit card collections. But this stay’s a little more complicated.
Money you owe on homes and cars may be a “secured” debt, or a debt where a creditor can repossess the property. This is the case if a creditor has a lien on your home or car. A lien is basically a claim on your property saying the creditor can take it back if you don’t make payments. You may have to read the fine print or consult a professional if you’re not sure whether creditors have a lien on your home. Bankruptcy can erase what you owe—but it can’t keep creditors with liens from repossessing property.
Don’t panic! In many cases you can keep your home even after you file. One type of personal bankruptcy, Chapter 13 bankruptcy, gives you time to catch up on mortgage payments. The property you get to keep also depends on your state’s bankruptcy “exemption” laws—each state has different rules about which properties are exempt from creditor claims.
Your wages are being garnished
Wage garnishment, or creditors taking a certain percentage of your paycheck, may be the result of a lawsuit or court order. Bankruptcy’s automatic stay will stop the garnishment.
You pay for everything on credit cards
If you’re paying off debt by digging yourself deeper into debt, bankruptcy can help you break the cycle. Chapter 7 bankruptcy, the most common type of individual bankruptcy, usually erases credit card debt.
You’re dipping into a retirement account to pay bills
Thought it may be tempting, think twice before you turn to retirement funds. Most states protect your pensions, life insurance, and retirement accounts like IRAs and 401(k)s in bankruptcy. You can file, get the rest of your bills under control, and keep the retirement funds. Check the specific legislation in your state to find out what’s protected.
Paying off your debts will take five years or more
To get a full financial picture, calculate how much you owe, to whom, and when you think you can repay—or how long you can manage modest regular payments without going underwater. Focus on the debts bankruptcy can possibly discharge, like credit card debt.
If you don’t see yourself making a dent within five years, much less paying everything back, bankruptcy may give you much-needed relief.
Your revolving debt exceeds your annual income
Revolving debt is any debt with an open-ended term or no end date. Credit cards, personal lines of credit, and home equity lines of credit are all sources of revolving debt. The debt “revolves” from month to month, though you pay a percentage each month.
You’ve tried everything else
Maybe you’ve already negotiated with creditors for a better payment plan. You’ve refinanced loans. You’ve done your best to budget and search for more income sources. And you’ve explored debt consolidation, management, and settlement.
Been there, done all of the above? Keep reading.
Since declaring bankruptcy takes time and affects your credit, it’s often considered a last resort. But the resort is there for a reason. Life happens. Overwhelming medical debt, for example, is a frequent cause of bankruptcy. If medical bills are stressing you out, though, you may have more options than you realize.
You’re eligible to file
We’ll discuss the two types of individual bankruptcy—Chapter 7 and Chapter 13—in detail below. But first, find out if you qualify.
For either type of bankruptcy you should be 90 days overdue on all the debts you need to discharge.
Chapter 7 bankruptcy requires filers’ monthly income to be below the median monthly income for their state (and a household of their size). To figure out your median income, add your gross income from the past six months and divide by six. Then deduct “reasonable and allowable expenses”. This includes what you spend each month on essentials like groceries, housing, and transportation. The number remaining is the income you have available to repay debts.
Here’s a 2016 estimate of the median annual household incomes per state—divide this number by 12 to see if you’re below the average.
If your income’s over the limit, you might still qualify for Chapter 13 bankruptcy.
So how are the two types different? And which one should you choose?
Chapter 7 bankruptcy
Otherwise known as “liquidation bankruptcy,” Chapter 7 is designed for individuals with no way to pay their bills otherwise. This type of bankruptcy pays off as much of your unsecured debt as possible, including credit card debt and medical bills. The court “liquidates” your assets by converting them into cash to pay off your creditors.
The process takes anywhere from three to six months. It’s usually much quicker than Chapter 13 bankruptcy. You can keep any assets your state marks as “exempt.” Your house or car, for instance, may or may not be exempt depending on the state you live in. If they’re not exempt, they can be collected. You’re more likely to lose assets if their equity—the value of the property minus the amount still owed—is high.
What if you have little to no income and few (if any) assets? Chapter 7 bankruptcy may be the best choice for you. Be aware, though, Chapter 7 doesn’t erase the obligations of any co-signers you may have on a loan.
Chapter 13 bankruptcy
Also known as “reorganization bankruptcy” or “wage earner’s bankruptcy,” Chapter 13 is designed for people who have a consistent income and who want to keep their property. Chapter 13 bankruptcy gives filers a “grace period” of between three to five years to make payments on their debts. Any debts that remain at the end of the grace period are discharged.
The Chapter 13 plan is similar to debt consolidation. Unlike Chapter 7, this plan lets you keep your assets. It can erase the same debts Chapter 7 can erase, along with any debts from a divorce (except for alimony and child support). The court will determine the value of your equity in assets, look at your income and expenses, and figure out a repayment amount and schedule.
If you have money coming in but you need to buy some time—and you want to ensure you keep your house—Chapter 13 bankruptcy may be the best choice for you. Chapter 13 also protects any co-signers, as long as you make payments on time.
What to know before you file
This is not a decision to be taken lightly (obviously), so consider the following before filing.
Your credit will be affected
A Chapter 7 bankruptcy stays on your credit report for 10 years. A Chapter 13 bankruptcy stays on your credit report for seven years. Scores can drop anywhere from 50 to 200 points (higher scores will drop more steeply). You may have trouble getting certain loans or will pay higher interest rates. But people have successfully obtained credit and even purchased homes after declaring bankruptcy. Good money management practices, from here on out, go a long way.
You’ll have a meeting or two in court
For Chapter 7 bankruptcy you only have to go once, to a hearing called a “Meeting of Creditors.” The trustee will ask you questions about the paperwork you filed, including your assets and debts. Creditors may or may not attend—they usually don’t. For Chapter 13 bankruptcy you go to court twice, for the Meeting of Creditors and an additional confirmation hearing.
You need a lawyer
Technically you can represent yourself, but experts don’t recommend doing this. Filing becomes complicated and takes time and research to get all the facts right. Especially with a Chapter 13 bankruptcy, the more complex kind, there are details of bankruptcy law only an attorney can navigate. Fees range between $2,000 and $4,000. The fee may seem steep, but you’ll save on the penalties you might pay otherwise. The American Bar has a directory of bankruptcy lawyers. Some lawyers offer free first consultations, and you may even be eligible for pro bono representation. The American Bankruptcy Institute keeps a list of pro bono bankruptcy attorneys in each state.
Bankruptcy becomes part of a public record
Potential lenders will know you’ve filed for bankruptcy in the past. Your employer, however, can’t fire you for declaring bankruptcy.
There’s a fee of around $300 to file
If your household income is less than 150% of the poverty line, the fee can be waived.
You’ll have mandatory financial counseling
The process of filing for bankruptcy includes mandatory lessons on financial literacy. You take one class before you file and one class before your bankruptcy is discharged.
Your spouse won’t be affected
Your spouse does not have to file for bankruptcy, and your filing won’t affect their credit. The exception is if you need relief from debts you acquired together. In that case you can jointly file for bankruptcy.
You’ll need to simultaneously stop bill payments
Once you file you’ll probably be required to stop all bill payments at once. This may feel strange, but any payment can show you favor one creditor over another, which creditors don’t like.
Filing bankruptcy, first steps
If you think you may be a candidate for bankruptcy, start gathering as much information as you can as early as possible. Although you can learn a lot online about the pros and cons of bankruptcy—and what to expect if you file—you’ll want a lawyer that specializes in bankruptcy to actually go through with filing.
Bankruptcy filing fees and your lawyer’s fees are apt to cost anywhere from $1,000 to several thousand dollars, which is another reason why the decision to file bankruptcy should be made extremely carefully.
If, however, creditors are already pursuing you in court, and bankruptcy will help keep the roof over your head and food on the table, those costs—and the other downfalls to bankruptcy—may just be worth it.
Summary
Filing for bankruptcy is a last resort and can be frustrating. But the end result should give you a little breathing room and a chance to rebuild your finances. Take advantage of this chance if you need to.
This page contains calculators to help reveal the benefits, drawbacks and differences of investing in U.S. savings bonds — I or EE — versus Treasury bills, bonds or notes.
Issuing debt in the form of bonds is one way the U.S. government raises money to fund its operations. U.S. debt securities are guaranteed by the government, and offer the benefit of being “risk-free” if held to maturity. They’re also state and local tax-free. (You still owe federal income taxes on interest earned.) The following calculators include:
Savings bond calculator
Savings bonds are long-term investments with maturities of up to 30 years. They can be bought for as little as $25, and differ from other government investments in that they can be gifted. (You can name someone as the co-owner and beneficiary.) If you received a paper savings bond as a gift and don’t know what to do with it, head to TreasuryDirect to see the value of your paper savings bond and learn how to cash out your investment.
Savings bonds are known as a “zero-coupon bond,” meaning instead of receiving ongoing interest payments, you receive a lump sum upon cashing out. They’re a type of investment bought at a discount, and upon maturity, you’re repaid the face value of the bond. The difference between the discount price and face value is your profit or “interest” earned.
Savings bonds come in one of two types: EE and I. EE bonds guarantee to double your money if held for 20 years, and their maturity may be extended to 30 years. They can be bought in penny increments from $25 to $10,000 per year per Social Security number.
I bonds are the other main type of savings bond and can be purchased in amounts from $25 up to $10,000 in electronic bonds and $5,000 in paper bonds per year. I bonds differ from EE bonds in that they earn an interest rate that adjusts for inflation.
Both types of savings bonds may be sold 12 months after purchase, but if sold before year five, investors will lose three months’ worth of interest. Unlike other types of government securities, savings bonds cannot be resold or traded.
I bonds calculator
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Savings bonds require a Social Security number to purchase, while Treasury securities require a taxpayer identification number. To invest in U.S. government bonds without these forms of documentation, learn more about government exchange-traded funds (ETFs).
Treasury bond and note calculator
U.S. Treasurys are types of government debt securities that vary in their interest rates, duration, risks and yields. Treasury bonds are another long-term debt security, maturing in 20 or 30 years. Treasury notes mature in two, three, five, seven or 10 years, and the 10-year Treasury note is one “risk-free” benchmark against which other investments are compared.
Treasury bills calculator
Treasury bills (T-bills) are the shortest-term U.S. debt security. The 3-month bill is often used as the short-term benchmark for what is considered “risk-free.”
Maturing in less than one year, T-bills differ from other Treasurys in terms of their interest rate structure. Treasury bills are a zero-coupon bond like savings bonds. Use the calculator below to explore how this works.
Pretax money is invested before any taxes have been deducted, while after-tax money is invested after taxes have been deducted. Investments in tax-deferred retirement accounts such as IRAs and 401(k)s are made pretax, which means there is a larger sum of money to invest. While applying taxes reduces the amount of money available to invest, sometimes after-tax investment vehicles such as Roth IRAs can produce better overall returns because, unlike pretax accounts, withdrawals from these after-tax accounts can be made without owing taxes. A financial advisor can help you evaluate after-tax and pretax investment options.
Pretax vs. After-Tax Basics
The terms “pretax” and “after-tax” when applied to income, expenses or contributions tell you whether taxes have been applied to the amount. Wages, for example, are normally after-tax, because the employer withholds taxes before handing out paychecks. Contributions to Roth-type retirement accounts and regular brokerage and bank accounts are also made after tax.
Many people save for retirement pretax by contributing money to IRAs and similar tax-advantaged accounts. These funds can be placed in a retirement account before any income taxes are levied. When you are preparing your tax return, any money you put into an IRA, for instance, is deducted from your total taxable earnings, which generally reduces your total tax liability.
Comparing Pretax and After-Tax
Investing money before taxes have been levied means you’ll be investing more than you would if you did it after paying taxes. And, all else equal, investing a larger sum means earning more from your investment. This simple rule of thumb underlies much of the popularity of saving for retirement pretax using IRAs and similar tax-advantaged accounts. If people could only save after-tax dollars in ordinary bank or brokerage accounts, there would be less incentive to sock away money in these accounts.
However, pretax is not always the best. Sums invested pretax in IRAs and similar retirement don’t completely evade taxation. Taxes on contributions as well as any earnings from investments in the account are only deferred. Savers will owe taxes later, at their then-current rate of taxation, when they withdraw funds from the account.
If the individual’s tax rate is lower in retirement, pretax investing can be advantageous. However, if you earn a lot of income over your career and have a large retirement nest egg, your required minimum distributions and other sources of income could mean your income and tax bracket are higher after you’ve retired than when you put money away pretax.
If an individual’s tax rate will be higher in retirement than it is at the time the investment was made, it can be better to invest after-tax in a Roth-type retirement account. This can work well for younger people just starting their careers before their earnings increase enough to put them in higher income-tax brackets. After paying taxes a relatively low rate when contributing, funds in these accounts grow tax-free and can be withdrawn later without owing any taxes.
Choosing Pretax or After-Tax
Deciding whether to invest pretax or after-tax requires considering your individual situation. Examine the following factors:
Account for investment returns: Start by looking at the expected rate of return on your investments.
Understand how taxes are applied: Capital gains on stocks held more than a year generally are taxed at a lower rate than ordinary income such as interest on bonds. Considering tax treatment of different types of income can help you decide on an after-tax or pretax investment.
Calculate returns after all taxes are applied: Roth IRA or Roth 401(k) withdrawals won’t incur taxes as long as the investor is age 59.5 or older and has had the account for at least five years. For pretax investments, it’s necessary to apply taxes to any sums withdrawn from the accounts before you can estimate the actual return. For instance, if you withdraw $10,000 from a pretax investment and are in a 25% tax rate in retirement, the amount left after taxes would be 75% of $10,000 or $7,500. Money invested in a regular brokerage account with no tax advantages has to pay any taxes due on the money before it’s invested as well as on earnings but as they are earned. However, withdrawing money from a regular account doesn’t usually trigger any additional taxes.
Compare post-tax and after-tax: For example, if you want to invest $10,000 in an after-tax account and you are in a 25% tax bracket, you’ll have to earn approximately $13,333 and pay $3,333 in taxes in order to have $10,000 available to invest. If that $10,000 earns 5% annually for 10 years, it will be worth $16,289. You can withdraw all of it without owing taxes after age 59.5 if the account is at least five years old.
Say instead you invest $13,333 in a pretax account, also 5%. After 10 years, you’ll have $21,718. If you withdraw the full amount and your rate is still 25%, you’ll owe $5,429 in taxes and be left with the same $16,289 as you got with the after-tax investment.
If, however, during the interim you have retired and your tax rate has dropped to 15%, you’ll only owe about $3,258 on emptying the pretax account. This will leave about $18,641. In this case, the pretax investment produces a larger return net of taxes.
If you are in the 15% bracket when you fund an after-tax investment and are in the 25% percent bracket when you retire, the situation is reversed. In that case, you’d need about $11,765 to have $10,000 to invest after tax. Again, you’d wind up with $16,289, which you can withdraw tax-free.
Investing $11,765 pretax at 5% gives you $19,164 after 10 years. a sizable increase. If you withdraw that amount when you are in the 25% bracket, however, your nominal tax liability will be $4,791, leaving you just $14,373. In this case, the after-tax investment generates a better overall result by about $1,916, which is the difference between $14,373 from the pretax method and $16,289 using an after-tax approach.
The Bottom Line
You can invest pretax before taxes are levied or after-tax after taxes have been applied. Pretax investing and after-tax investing both have advantages and drawbacks. Whether it is advisable to invest pretax or after-tax depends on individual circumstances, including whether you expect to be in a higher or lower tax bracket when you withdraw funds.
Investment Tips
Deciding whether to invest pretax or after-tax requires you to understand your tax situation and financial goals. A financial advisor is well-equipped to help you do just that. Finding a 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 have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
SmartAsset’s Investment & Return Calculator can make it much simpler to compare the relative advantages of after-tax and pretax investing.
Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.