The maximum monthly Social Security benefits a person can get in 2023 is $4,555 if they wait until age 70 to claim their benefits. The maximum amount of benefits a married couple can receive would be $9,110 if both of them are separately able to claim the maximum amount of $4,555. But there are a lot of caveats and other things to understand about maximizing your Social Security benefits—let’s take a deeper dive. If you’d like personalized assistance preparing for retirement, consider working with financial advisor.
What Are Social Security Benefits?
The Social Security Administration provides retirement income to most American workers as well as benefits to qualifying disabled people. Qualifying retirees can begin their Social Security benefits between the ages of 62 and 70. The longer you wait, the higher your monthly payments will be.
For instance, a single person born in 1970 that made $70,000 in annual income would get $27,588 in annual Social Security benefits if they started taking their benefits when they turned 62. If that same person waited until the age of 70 to claim Social Security, their annual benefits would be $48,993. You can get an estimate of what your annual Social Security benefits will be at different ages and different average incomes with SmartAsset’s free calculator.
How Do Benefits Differ for Single People and Married Couples?
First, it’s helpful to know how Social Security benefits are calculated. There are two main elements to figuring out how much money you’ll get each year from Social Security.
Averaged indexed monthly earnings: The Social Security Administration will take a look at the amount you earned each month over up to 35 years of employment. They’ll identify the years where you earned the highest amounts, then average your monthly earnings.
The age at which you retire: As discussed above, the longer you wait to receive your Social Security benefits, the larger your payments will be. You can receive your benefits as early as 62, but by waiting a few years you will see larger amounts.
In many cases, married couples will collect two separate Social Security checks based on their own earnings record and the age at which they decided to claim their benefits. Rather than having a maximum married benefit limit, the maximum amount they would receive would be double the maximum benefits for a single person.
This is different in the case of a spouse that didn’t work or didn’t work long enough to qualify for Social Security benefits. These people will often qualify for spousal benefits instead, which max out at half of the working spouse’s Social Security benefit amount. Again, the maximum amount of the benefit will be determined by when you choose to begin claiming benefits and, in this case, your spouse’s average earnings over their lifetime.
What’s the Maximum Social Security Benefit Married Couples Can Receive?
In 2023, if you retire at your full retirement age, the maximum monthly Social Security retirement benefit would be $3,627. For a married couple who are both receiving the maximum amount and both retired at full retirement age, that amount would be $7,254. That amount would be less for a person who retires at age 62 ($2,572) and more for a person who retires at 70 ($4,555).
So for example, if a married couple both qualified for the maximum amount and both held off on claiming their Social Security benefits until age 70, they could receive $9,110 in monthly benefits in 2023. A married couple in which one spouse didn’t work and instead qualified for spousal payments would max out at $6,832.50—the maximum benefit for the working spouse and half that for the spouse that didn’t work.
How Can I Get the Maximum Social Security Benefit?
To ensure that you qualify for the maximum benefit of $4,555 a month, you’ll need to work for 35 years earning a salary that is equal to or greater than the wage cap for that entire time. In 2023, the wage cap is $160,200.
However, only a very small percentage of workers will qualify for the maximum amount. In 2021, the Congressional Research Service reported that only about 6% of workers earned more than the wage cap amount, a percentage that has remained “relatively stable” over time.
To earn the highest benefit possible as a married couple, both partners should try to earn as much as possible during their working years and put off claiming their benefits until as close to age 70 as possible.
The Bottom Line
The maximum monthly Social Security benefit of $4,555 is only available to high earners who wait to claim their benefits until the age of 70. The maximum benefit a married couple could collect would be twice that—$9,110—and require both of them to earn $160,200 or more over 35 years of work. Stay-at-home spouses who haven’t worked enough to qualify for their Social Security benefits can claim spousal benefits of up to half of their spouse’s monthly benefits.
Retirement Planning Tips
A financial advisor can offer advice on any of your Social Security, Medicare or retirement savings needs. 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.
If you’re not sure you’ve saved enough for retirement, our retirement calculator can help. Use it to determine your estimated Social Security benefits, how much money you need to retire and how much annual income you’ll need in retirement.
By Jason Price4 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited April 18, 2014.
If you’ve read about mutual fund investing, or perhaps discussed it with someone knowledgeable on the subject, the topic of fees and expenses most likely came up in the conversation. For someone who isn’t a financial advisor or broker, mutual fund fees and expenses can be quite a confusing subject. How do you know when you’re paying them and how can you (or should you) avoid them?
Obviously, the more you can minimize fees and expenses when investing in mutual funds, the more you can maximize your returns. That seems like a good thing, right? So, let’s explore what these fees and expense are and how they can sneak up on you if you don’t have some knowledge of the subject.
Mutual Fund Operating Costs
These expenses are required to operate or manage the mutual fund. The management of a mutual fund requires certain costs such as brokerage fees, marketing, legal, accounting, etc. They are typically paid out of fund assets, so investors indirectly pay them.
Within the operating expenses you may find 12b-1 fees. These fees are used for advertising and selling the funds. According to the Sound Mind Investing handbook, more than two-thirds of all stock funds charge some marketing related expenses to shareholders.
Sales Charges or Loads
There are funds with loads and without loads. No-load funds don’t charge you any fees when you buy or sell the fund. You typically buy the funds yourself versus working with someone who sells them to you. A load fund includes a sales charge when you work with a financial planner, insurance agent or with a stock broker. The load is a sales commission for their services to help you find a fund.
There are different types of loads, so you have to be knowledgeable to understand what you may be charged.
Class A Funds
Class A funds are the easiest to understand. The front-end sales commissions are charged up front when you purchase the fund. They tend to have lower 12b-1 and operating expenses.
Class B Funds
A back end load, or class B fund is handled differently and can be the trickiest to understand. Back-end commissions are charged on your earnings when you sell a fund within the first years of owning it. It’s usually 5% the first year and decreases a 1% per year for 4 or 5 years. Brokers are paid through 12-b1 marketing fees included as a line item in the operating expenses of the fund. These expenses are usually the highest, so keep in mind you’re still paying even thought there isn’t any front-end sales charge.
Class C Funds
Finally, a class C fund doesn’t charge any front end or back end sales load. The fund charges the 12-b1 marketing fees for every year you own the fund. Brokers are usually paid on a quarterly basis from these fees.
Don’t Think You’re Not Paying
I started working with a financial advisor a few years ago who was referred to me by my employer. It was one of those situations were the financial institution was asked to help employees with retirement planning. I decided to roll – over a previous 401(k) into an IRA and also asked for some retirement planning advice.
I was foolish to think the services were free. I said I wanted to avoid funds with sales loads, but I really didn’t know what I was talking about. The mutual funds which I was advised to purchase were Class C funds. I suppose this is fine given I didn’t want to take the time to pick funds myself, but I do know now I’m paying for the services I requested.
As I become more informed, I’ll transfer my IRA to a discount brokerage account to manage myself, or consider fee based financial planning where I pay the broker a fee for his services versus by the commissions or 12-b1 marketing fees from my investments.
I suppose loads or the marketing fees are fine if you want someone else to make the investing for you. But, studies say these funds don’t produce any better results than no load funds.
Final Thoughts
To wrap up, I’d like to remind you (and me) that we are financial stewards. Not only is it our responsibility to plan a budget each month and spend responsibly; we are to manage investments wisely and know the conditions of our flocks.
Be sure you know the condition of your flocks, give careful attention to your herds; for riches do not endure forever, and a crown is not secure for all generations (Proverbs 27:23-24).
I don’t think I knew the conditions of my flocks very well by not considering the costs associated with my investments. To increase your knowledge I recommend The Sound Mind Investing Handbook by Austin Pryor. The book is a step-by-step guide to managing money and investments from a Biblical perspective. It has helped me get a better understanding of investing in general and the expenses and fees associated with some mutual funds.
Another good resource to consider using is a handy mutual fund cost calculator from the US Securities and Exchange Commission website. The SEC Cost Calculator estimates the cost of investing in any mutual fund. You just need to have the mutual fund prospectus and your investment information to get the inputs.
What about you? I’m interested in getting your thoughts on paying mutual fund loads. Good or bad? Or, is it okay for someone to own load funds and rely on someone else to help pick your investments for you as long as you know the condition of your flocks?
Taxes are unavoidable but that doesn’t mean you have to pay more than you owe. What happens to your tax liability with proper financial planning? The simple answer is that it can allow you to minimize what you owe while preserving more of your income to fund your financial goals. Talking to a financial advisor is a good first step in creating a strategy for effectively managing tax liability.
Understanding Tax Liability
Tax liability refers to the money that an individual, business or organization owes to a federal, state or local tax authority. A simpler way to think of your tax liability is the difference between your taxable income and the tax deductions you’re able to claim.
As a general rule of thumb, earning a higher income can result in a higher tax liability. The U.S. uses a graduated tax system, which means that income and tax rates move together. As income increases, so does your tax rate.
The amount you pay in taxes is determined by your income, but capital gains can also affect your tax liability. That’s important to know if you’re focused on investing and building wealth, as higher net-worth individuals may face a steeper tax liability if they’re reaping capital gains from investments.
What Happens to Your Tax Liability With Proper Financial Planning?
Managing your tax liability is important as it can directly influence how much of your income or investment earnings you get to keep. The more income and assets you have to work with, the easier it becomes to build wealth.
Proper financial planning can help you implement strategies that are designed to minimize taxes while maximizing income and assets. Having a solid financial plan in place can generate significant tax savings year by year. You can then use those savings to generate additional income through investments, grow your retirement accounts and increase your net worth.
Does financial planning require you to work with a financial advisor? Not necessarily. You could always go it alone. But there are some distinct advantages to having a financial advisor help you formulate a plan for managing tax liability.
Financial advisors have extensive knowledge about how tax planning can affect your financial plan. A good advisor is also familiar with the tax code and the latest tax rules. Even if you think you have a relatively straightforward tax situation, a financial advisor may be able to pinpoint areas where you can improve tax efficiency that you might have missed.
Financial Planning Strategies for Minimizing Tax Liability
There are different ways to approach tax planning in order to reduce your tax bill, depending on the specifics of your situation. If you’re working with a financial advisor to create a tax plan, then it may include any or all of the following.
Retirement Planning
Retirement planning is a focal point of a solid financial plan, particularly with regard to taxes. Aside from ensuring that you have enough money to retire, it’s also important to consider how much of your savings you’ll be able to keep once you start making withdrawals.
In terms of how you plan for retirement, your financial advisor may suggest any of the following:
Maxing out annual contributions to a traditional 401(k) or to a Roth 401(k) if you have that option.
Contributing money to a traditional or Roth IRA each year.
Funding a Health Savings Account (HSA) if you have that option with a high deductible health plan.
If you’re self-employed or own a business, you might open a solo 401(k), SEP IRA or SIMPLE IRA to save for retirement instead. It’s important to understand the tax treatment of different retirement savings options.
For example, traditional 401(k) plans and traditional IRAs allow for tax-deductible contributions. Qualified distributions are taxed as ordinary income in retirement. Roth accounts don’t offer a tax deduction, but you can make withdrawals tax-free when you retire.
A Health Savings Account is not a retirement account, per se. It’s meant to be used to save money for medical expenses, but it can double as a source of retirement income since you can withdraw funds for any purpose after age 65 without a tax penalty. You’ll just owe regular income tax on withdrawals.
Investment Planning
Investment planning is related to retirement planning, but it can include different aspects of managing tax liability. For instance, say that you’re investing through a taxable brokerage account, which is subject to capital gains tax. Your financial advisor can offer different strategies for managing tax liability, which may include:
Holding investments longer than one year to take advantage of the more favorable long-term capital gains tax rate.
Choosing tax-efficient investments, such as exchange-traded funds (ETFs), which can trigger fewer turnover events than traditional mutual funds.
Harvesting tax losses to offset some or all of your capital gains for the year.
Your advisor may also be able to guide you on how to deduct expenses related to investment properties if you own one or more rental homes. They could also help with executing a 1031 exchange if you’re interested in swapping out one property for another to minimize capital gains tax.
Tax Deductions and Credits
Tax deductions reduce your taxable income, which can help to push you into a lower tax bracket for the year. There are numerous expenses you might be able to deduct, including:
Mortgage interest
State and local taxes
Charitable donations
Business expenses
Self-employment expenses
Medical expenses
Student loan interest
Tax credits, meanwhile, reduce what you owe in taxes on a dollar-for-dollar basis. For instance, if you owe $1,000 in taxes and qualify for a $1,000 tax credit, the credit can wipe out what you owe. Some credits are refundable which can increase the size of your tax refund for the year. A financial advisor can walk you through the various deductions and credits you might be eligible to take in order to reduce your tax liability.
Withdrawal Planning
As you approach retirement, it’s important to consider how you’ll withdraw the money that you’ve saved. Your advisor can discuss different strategies for withdrawing money from a 401(k), IRA or taxable brokerage account so that you’re not overpaying taxes or draining your retirement reserves too quickly.
Your advisor may also discuss ways to tax-friendly ways to create supplemental income in retirement, such as purchasing an annuity or taking out a reverse mortgage. An advisor can also help you figure out when to take Social Security benefits to maximize your payment amount and how to coordinate those benefits with other sources of income in retirement.
The Bottom Line
Knowing what happens to your tax liability with proper financial planning is important for creating a long-term strategy for growing wealth. Handing over more money than you need to in taxes doesn’t offer any tangible benefit and it can be problematic if it leaves you with less money to save and invest. Having a trusted financial advisor to work with can ensure that you’re meeting your tax obligations without shortchanging your goals.
Financial Planning Tips
Tax planning can seem complicated if you’re not well-versed in the Internal Revenue Code. 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.
Robo advisors can offer a more affordable way to manage financial planning, as the fees may be lower than what traditional advisors charge. However, it’s important to know what you’re getting for the money. For example, some robo-advisors offer tax loss harvesting but not all of them do. Additionally, robo-advisors aren’t really equipped to offer one on one advice about tax planning or investing. Those are good reasons to consider working with a human advisor instead, even if it means paying a slightly higher fee.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Getting life insurance is an important part of most any good – and complete – financial plan. By having this important coverage, you can help to ensure that your loved ones won’t need to face financial hardship in the event of the unexpected.
These proceeds may be used for a variety of situations, including the payment of funeral and final expenses, the payment of large debt obligations such as a mortgage balance, and / or for paying ongoing living expenses. This can be especially beneficial if your loved ones count on you for some or all of their financial support.
When applying for a life insurance policy, it is essential to understand what type of coverage you are purchasing. The amount of life insurance protection is also paramount so that you can ensure that loved ones will have enough to provide for their needs. However, another key factor to be aware of is the insurance carrier that you are obtaining the policy through.
In this case, you will want to know that the insurance carrier is strong and stable financially, as well as that it has a positive reputation for paying out its claims to its policyholders. One company that ranks highly in this area is Allianz.
The History of Allianz Life Insurance Company
Allianz Life Insurance Company is a leading provider of life insurance, as well as income-producing products and overall retirement solutions. This company has been in the business of offering products to its customers for more than 115 years.
This company has held strong through both bull and bear markets – and it consistently has received high ratings from the insurer rating agencies. Because of this, customers who own insurance and financial products from Allianz can be more assured that the company will be there if or when the time comes for filing a claim.
Allianz has a conservative investment philosophy that is diversified across a variety of different asset classes. The company, when investing for its portfolio, seeks long-term financial results.
A Review of Allianz Life Insurance Company
Today, Allianz Life Insurance Company has more than 85 million customers around the world. The company is considered to be the 31st largest company worldwide, and it is the world’s third-largest money manager. It is also the second largest company in the diversified insurance industry, based on both market value, as well as on assets. In 2015, Alliance Life collected more than $11 billion in life insurance premiums.
It is the company’s overall cash reserves that allow it to back its insurance guarantees. As of year-end 2015, Allianz held more than $7.5 billion in equity. Therefore, the company can help to ensure that the funds and the policies that are entrusted with it will be there when the money is needed the most.
Allianz Life Insurance Company’s Ratings and BBB Grade
Due to its strong financial backing, Allianz has been given high marks in terms of its overall financial strength ratings. These include the following:
A+ (Superior) from A.M. Best
A2 (Good) from Moody’s
AA (Very Strong) from Standard and Poor’s
Allianz is not presently an accredited company of the Better Business Bureau (BBB). However, the BBB has provided Allianz Life Insurance Company of North America with a grade of A+. This is on an overall grade scale of A+ through F. The company, over the past three years, has closed no complaints via the Better Business Bureau. And, there are no customer reviews for Allianz that are posted on the BBB’s website.
Life Insurance Products Offered By Allianz
Allianz Life Insurance Company offers a wide variety of life insurance products. Because of that, its customers are able to find the type of coverage that can best fit their need – and policyholders can also revise their coverage should their ongoing needs change.
There are numerous benefits to owning life insurance coverage. The funds that are received by the policy’s beneficiary are income tax-free. This means that, instead of having to pay a large portion of the proceeds to Uncle Sam, 100 percent of these funds can be put to work by your loved ones for paying off debt, paying ongoing living expenses, or any other potential need that they may have.
With permanent life insurance coverage, there is both death benefit protection, as well as the ability to build up a nice amount of savings through the cash-value component of the policy. Here, funds are allowed to grow on a tax-deferred basis. This means that there will be no taxes due unless or until the money is withdrawn. Money may be either borrowed or withdrawn from the cash component of a life insurance policy for any reason – including the supplementing of retirement income, the payoff of debt, and / or for taking a nice vacation.
One of the primary forms of life insurance coverage that is offered via Allianz Life Insurance Company of North America is fixed index universal life. This type of coverage offers a flexible death benefit option, as well as the ability to earn interest in the cash component that is based on a variety of crediting methods and index allocation options. These policies also offer additional riders that may be added. Doing so may help to provide more customized life insurance protection to policyholders. The life insurance plans that are offered by Allianz include the following:
Allianz Life Pro+ Fixed Indexed Universal Life Insurance Policy
This policy begins with an income tax-free death benefit. It also provides the opportunity to accumulate cash value based on positive changes in the underlying market index of the policy. Riders are available to help policyholders with meeting specific needs.
Those who are age 80 and younger are eligible to apply for this policy. Although there are several different risk classes. These include:
Juvenile – For age 0 to 17
Tobacco – For ages 18 to 75
Non-tobacco – For ages 18 to 80
The minimum amount of death benefit on this policy is $100,000, and proceeds may be applied for up to $65 million. There are also several different ways in which the death benefit on this policy is structured. For example:
Level – With the level death benefit option, the amount of coverage will remain the same throughout the life of the policy.
Increasing – With the increased death benefit option, the death benefit amount will be equal to a specified amount, plus the accumulation value.
Return of Premium Option – There is also a return of premium option available. With this option, the death benefit will be equal to a specified amount, plus the amount that the policy holder paid into the policy.
If the insured lives to age 120, the death benefit amount will equal the amount of the policy’s accumulation value. At this time, no additional premiums will be accepted by Allianz, unless they are deemed as necessary for keeping the policy in force.
There are some indexes that may be selected with this policy. These include the Barclay’s U.S. Dynamic Balance Index ll, the S&P 500 Index, or a blended index that includes the Dow Jones Industrial Average (DJIA), the Barclay’s Capital U.S. Aggregate Bond Index, the Russell 2000 Index, and the EURO STOXX 50 Index.
There are also several additional riders that may be placed on this policy to help with customizing the plan to best fit a policy holder’s specific needs. These are:
Waiver of Specified Premium Rider
Convertible Term Rider
Enhanced Liquidity Rider
Loan Protection Rider
Child Term Rider
Additional Term Rider
Other Insured Term Rider
Allianz Life Pro+ Survivor Fixed Index Universal Life Insurance Policy
The Allianz Life Pro+ Survivor Fixed Index Universal Life Insurance policy is a good and cost effective way to insure two individuals at the same time. The proceeds of this policy will be paid out upon the death of the second insured. This type of plan can be more cost effective than the purchase of two individual life insurance policies. Also, in the event that an insured is diagnosed with a terminal or a chronic illness, a portion of the policy’s benefits may then be accessed.
Those who are between the age of 30 and 80 are eligible to apply for this particular plan. The death benefit amount starts at $100,000 and can go to $65 million, within certain guidelines. There are different options for how the death benefit will be structured, which include level, increasing, or a return of premium option. There are also optional riders available, including:
Chronic Illness Accelerated Benefit Rider
Terminal Illness Accelerated Benefit
Other Products Offered
In addition to just life insurance coverage, Allianz also provide other types of financial and income tools. These include:
Annuities
Allianz provides retirement annuities to its customers, as these products can help to ensure that they can receive ongoing income – regardless of how long they may live. The company offers several different types of annuities so that clients may choose the one that will be best for their goals. The types of annuities that are offered are:
Fixed Index Annuities – A fixed index annuity offers returns that are based on an underlying market index. If for example, the index performs well during a given period, then the value of the account will rise, up to a stated cap or percentage. If, however, the underlying index performs poorly in a given period, then the value of the account will not endure a loss, but rather will typically be credited with a 0% for that period. These annuities also allow for tax-deferred growth inside of the account, meaning that there is no tax due each year on the gain until the funds are withdrawn. When the annuity is converted over to income, annuity holders will have several options for how – and how long – they wish to receive the payout. One of these is the lifetime option, which will pay out an income for the remainder of the individual’s life, regardless of how long that may be. In many cases, another individual such as a spouse or partner may also be able to receive lifetime income from the annuity as well.
Variable Annuities – A variable annuity has its funds invested in sub-accounts, which can typically include equity options such as mutual funds. Here, the opportunity to earn a nice return is available. However, due to potential market volatility, there is also more risk with this type of annuity.
Index Variable Annuities – An index variable annuity will also allow its holder to participate in potential market gains, yet with a level of protection against market downturns.
Allianz also offers a myriad of retirement planning tools. These include materials that can help individuals and couples to plan for the future, as well as financial calculators to help determine if you are on track.
How to Get the Best Life Insurance Premium Quotes
When shopping for a life insurance policy quote, it is typically best to work with either a company or an agency that has access to more than just one single life insurance carrier. This way, you will be able to more directly compare the benefits, the companies, and the premium prices that are available to you.
If you are ready to move forward, we can help. We work with many of the best life insurance companies in the marketplace today, and we can provide you with the details that you need. All you have to do in order to get started fill out the form on the side of this page.
We understand that purchasing life insurance can seem a bit confusing. But we can help you to ensure that you are going in the right direction with the type of plan that you choose, and the premium that is charged. So, contact us today – we’re here to help.
One of the biggest wealth transfers in history is about to unfold.
That is, it’s estimated that more than $68 trillion in wealth – involving 45 million households across the U.S. – will be transferred through inheritance in the next 25 years.
Will you be one of them?
If you’re a Millennial or a Gen Zer, chances are you may be in the group of Americans most likely to benefit from this massive transfer.
If so, you’ll need to know how to plan for an anticipated inheritance, even if you’re not sure of the details.
What’s Ahead:
1. Have a rough idea of the amount that you are set to inherit
Source: shurkin_son/Shutterstock.com
Though this seems like a simple step, it often isn’t.
Not all parents or grandparents are open about their personal net worth (it’s a generational thing). And asking how much you can expect to inherit – or, if you’ll be inheriting anything at all – can seem presumptuous at best, and greedy at worst.
Some parents and grandparents will be open to this question. Some may even provide the information without you asking. But if that’s not your situation, you’ll need to proceed carefully and delicately.
How do I find out how much I will inherit?
You probably already have an idea of your parents’ approximate net worth, but if you don’t, don’t beat yourself up. After all, it isn’t always that obvious on the surface.
The best way to find out?
Just ask.
If your parents aren’t forthcoming about their finances, you’ll need to step back. That doesn’t mean giving up, however. You can let some time pass, then approach the subject later. Just be sure to frame it in such a way that you’re interested in protecting all they’ve worked so hard to accumulate.
2. Learn what makes up the inheritance
Some estates are very simple, while others can be incredibly complicated. The best scenario is a parent who rents his or her home (no house to sell) and has nearly all wealth sitting in financial assets, like bank and brokerage accounts.
Things get way more complicated when a large share of the estate is held in real estate, and especially investment real estate. More complicated still is business equity.
Collectibles, like jewelry and artwork, can also be problematic. You’ll first need to get a ballpark estimate of the value. But before they can be sold, they may need to be formally appraised.
Just as important, your parents may prefer to pass real estate, business interests, or collectibles to specific individuals. That may or may not include you, which is something you need to know before you plan to inherit them.
3. Know if there are other beneficiaries
Source: Motortion Films/Shutterstock.com
This is as delicate an issue as requesting the value of your parents’ estate. If you are the sole beneficiary, it’s a non-problem. But if there are siblings, or others your parents may want to distribute assets to, the waters can get a bit muddy.
In a perfect world, your parents will set up an equal distribution for you and your siblings. But real life isn’t always so simple.
For reasons known or unknown to you, your parents may choose unequal distributions. This can be due to family politics, like one sibling being favored over the others, or one sibling being closer to your parents than others. In some situations, parents may choose to give a larger share to a child who provides for their direct care in their later years.
There may still be other situations where your parents want to make special provisions for one of your siblings or even a grandchild.
Yes, it can get worse!
But those aren’t even the most complicated beneficiary situations.
Given that divorce is common, and often involves a second set of children, there may be issues and limitations.
In some extreme situations, parents may disown one or more children, and exclude them from the inheritance. If that might be you, you’ll need to know.
Finally, complicated family situations can result in probate. That’s where the estate has to go before a judge prior to distribution. This can happen because of the nature of the family situation, or because one or more potential beneficiaries (or even an excluded party) challenge the distribution of the estate proceeds.
If that situation seems likely, it’s one that should be discussed with your parents. They may need to set up a trust to ensure each beneficiary gets the intended distribution so the estate can avoid probate.
4. Understand the intended distribution process
This primarily has to do with the timing of inheritance distributions. While the conventional distribution method is to distribute all beneficiary shares on a common date when the estate is settled, that’s not always the case.
Parents sometimes arrange to have estate assets distributed gradually.
For example: if one or more beneficiaries is considered to be irresponsible with money, the parents may set up a staggered distribution over a period of several years.
A staggered distribution is often accomplished through a trust. If your parents have set up a trust, either for part or all of the estate, you’ll need to know of its existence, as well as the intended distribution.
Some trusts are even more specific
For example, they may include provisions that will distribute funds based on certain milestones. Common examples include holding distributions until the beneficiary turns 30 (or some other age), or gets married (or divorced, if the marriage is shaky).
Trusts can be amazingly specific, which is why people set them up. That’s also why you’ll need to know any distribution method that will be used.
Some estates may also have provisions to make staggered distributions based on asset types.
For example: cash-type assets may be distributed early in the estate process. But real estate and business interests may not be distributed until they have been liquidated.
5. Estimate your personal finances at the anticipated time the inheritance happen
Source: Prostock-studio/Shutterstock.com
A big part of how you handle an inheritance will be determined by your own financial situation.
If you already have a sizable personal estate, you may be able to simply fold the inheritance into your existing plan. But if your finances are limited, you may need to be more intentional and figure out what you’re going to do with the inheritance when it arrives (ya know, so you don’t blow it all on a bright red Mustang).
The point is, only when you have a clear picture of your own finances can you make the best use of an inheritance. And to get the greatest benefit, it can help to improve your finances before you receive the money. The better positioned you will be when the inheritance comes in, the more flexibility you’ll have in choosing where to allocate the money.
If you’ve not been investing up to this point, you may want to begin before the inheritance comes in. It’s best to get investment experience with a small amount of money, so you don’t risk losing your windfall through poor investment choices.
Read more: Best Investment Accounts For Young Investors
6. Design a plan (aka what to do with the inheritance)
If you already have your own personal financial plan, planning for an inheritance will be much easier. But even if you do, you should have at least a loose plan for what to do with the new money. The worst choice is holding off until the inheritance is received. Without a solid plan, you may quickly draw down the new money, financing a series of wants.
Having a plan for the inheritance will ensure the money will provide for a better future. To learn how to set up a financial plan, check out our article: What Is A Financial Plan And Why Do You Need One?
Decide what your priorities are
The main purpose of a plan is to set up a series of priorities.
For example: if your retirement planning isn’t where you want to be, you can make it a priority to fix that with the inheritance. You can either use the new money to enable you to make larger retirement plan contributions or plan to set up an annuity specifically for retirement.
Take advantage of annuities
One of the advantages ofannuitiesis that they can be used to shore up an adequate retirement plan.
Read more: What Is An Annuity And Should You Consider One?
The investment earnings on annuities accumulate on a tax-deferred basis, like retirement plans. But the major advantage is that there are no limits to your contributions. You can make a single, large lump sum contribution to an annuity and let it grow tax-free until retirement. You can set a date that distributions will begin, which can even cover the rest of your life.
In addition, Dr. Guy Baker, CFP and founder of Wealth Teams Alliance, also points out:
“Annuities are a fixed-income alternative. The opportunity to get a market return with no downside risk can be dramatically better than the income from an investment-grade bond of comparable risk. The amount to put into an annuity should coordinate with the age of the beneficiary and the investment objectives. In general, an indexed annuity can provide significant benefits for no additional risk.”
However, since annuities are complicated instruments themselves, you’ll need time to do research and evaluate the best one to take. That’s best done in advance of receiving an inheritance.
Consider starting your own business
In a different direction, maybe you’ve been dreaming of starting your own business. If you lack the capital to do that up to this point, the inheritance can make it happen.
In the meantime, you can make preliminary plans for the business, andeven get it up and running as a side hustle. When the inheritance arrives, you’ll have an established business to grow, rather than starting a new one from the ground up.
Starting a business is always risky, though, so make sure you carefully consider such a big move if/when you do receive an inheritance.
Read more: How To Start Your Own Business – A Complete Step-By-Step Guide
7. Find out if there will be tax consequences
Source: Southworks/Shutterstock.com
You’ve undoubtedly heard the saying,
“the only things certain in life are death and taxes.”
Well, guess what? Sometimes the two happen at the same time.
Officially, they’re called inheritance taxes. Because estates can contain a lot of money, governments view them as rich revenue sources. Just like they tax your income, your home, your utility bills, and even your purchases, there are taxes designed to snatch a part of an inheritance before you receive it.
There’s good news and bad news here.
Let’s start with the good news…
There is a federal inheritance tax, but the good news is that it only applies to very large estates.
Under current IRS regulations, estates that transfer from one spouse to another are generally tax exempt. But even when they pass to other beneficiaries, like children and grandchildren, there’s a federal estate tax exemption of $11.7 million, for 2021.
That means if the total value of the estate (before distribution) doesn’t exceed $11.7 million, there’ll be no federal tax on the inheritance.
Now for the bad news…
18 states impose some type of state-level inheritance tax. And while some of those states match the federal estate exemption, there are no fewer than 13 with lower exemptions.
On the low-end, Massachusetts and Oregon can tax estates as low as $1 million. Rhode Island sets the threshold at $1,595,156.
Not many Americans have a net worth of over $11.7 million. But there are many millions with estates of $1 million or more. Even if you’re not affected by the federal estate tax, you may be subject to it at the state level.
If any of the estate tax thresholds may apply in your situation, whether at the state or federal level, you’ll need to be prepared for this outcome.
So make sure you estimate for a lower inheritance
The best strategy is to estimate a lower inheritance, based on applicable estate tax rates. Fortunately, the estate will pay the inheritance tax before the money is distributed. But you still need to be prepared for a lower distribution amount.
If your parents are open about your inheritance, you may even be able to discuss the tax consequences with them. That way they’ll be in a position to take action to minimize them before the fact.
8. Decide if you’ll need a financial planner
If you believe your net worth is too small to justify a financial planner right now, you may change your mind when you receive a large inheritance. But you don’t have to wait until the inheritance arrives to at least consult a financial planner.
If you know the approximate size of your inheritance, paying for a meeting with a financial planner may be money well spent. The financial planner can help you to make decisions to both set up your current finances in anticipation of the inheritance, as well as to make intelligent decisions when it actually comes.
The financial planner may also provide ideas you may want to convey to your parents. They’re often unaware of strategies that will minimize inheritance taxes, or create a strategic plan for a more successful distribution of the estate.
In addition, if there may be questions surrounding the estate, perhaps involving the children of a previous or subsequent marriage, the financial planner may recommend consulting with an estate attorney.
The more you can do in advance, the less likely it is you’ll be blindsided when the inheritance arrives and the stakes are higher.
Read more: Are Certified Financial Planners Worth The Money?
9. Decide if you’ll need a trust
Source: Alla Aramyan/Shutterstock.com
If you don’t have one now, receiving a large inheritance might make a trust advisable. It may even be completely necessary if the inheritance is particularly large, or if you yourself have children from a previous marriage.
A trust is a way to protect your assets, and to ensure the money is distributed as you wish upon your death.
Shawn Plummer, CEO of The Annuity Expert, explains further:
“You may need a trust if you want to specify how your assets will be distributed without a probate court getting involved. While a will can achieve a similar purpose, wills have to be authenticated by a probate court and can require more time and money.”
Just as important, a trust has the potential to protect your assets from seizure by creditors, or from litigation. With the larger personal estate the inheritance will create, you may need just that kind of protection.
And don’t worry, you won’t need to pay an arm and a leg to get these documents drawn up. Trust & Will offers estate planning help with plans starting at just $39. This can help you avoid racking up a high bill with an estate planner.
Summary
You’ve probably known of situations where someone came into a large windfall, only to be broke a few short years later. Unfortunately, it’s not an uncommon outcome.
The sudden arrival of a large amount of money can cause an unprepared recipient to blow what could be a life-changing opportunity. It could have the potential to dramatically improve your finances and your life.
You’ll need a plan to make that happen, and it’s never too early to start drawing one up.
Thanks to thriving metropolises like Louisville and Lexington, Kentucky continues to grow, but the city is made up of charming small towns, too. The best banks in Kentucky offer a variety of amenities, while also putting the community first.
From college towns like Bowling Green to Bourbon Trail towns like Bardstown, you’ll find plenty of banks, making it easy to find the bank that’s right for you.
12 Best Banks in Kentucky
Kentucky has a wide range of banks, from large, corporate banks to small community banks. This list of the best banks in Kentucky takes a look at the various types to help you find the best option for your banking needs.
1. Fifth Third Bank
Headquartered in nearby Cincinnati, Fifth Third Bank has branches in Kentucky, Ohio, Florida, Georgia, Illinois, Indiana, Michigan, North Carolina, South Carolina, Tennessee, and West Virginia.
The best deal comes with the Fifth Third Bank Momentum Checking account, which is a free checking account with no minimum balance requirements or opening deposit. You’ll get fee-free cash access at Fifth Third Bank ATMs, as well as at more than 40,000 partner ATMs nationwide.
Fees:
No monthly service fee
$37 overdraft fee
Balance requirements:
No opening deposit
No minimum daily balance required
ATMs:
Fee-free at more than 40,000 Fifth Third Bank and partner ATMs nationwide
$3 charge per transaction at out-of-network ATMs
Interest on balance:
0.01% APY on savings
0.01% APY on money market accounts
Up to 4.55% APY on CDs
Additional perks:
2. Chime
If you don’t need a local Kentucky bank branch, an online banking option like Chime may be the best deal. You’ll get all the mobile banking features you’d find with a national bank without the fees. The checking account comes with no monthly maintenance fees or balance requirements.
As long as you have at least $200 directly deposited into your account each month, you’ll qualify for up to $200 in overdraft protection. The automatic savings feature rounds up debit card purchases and puts the money into your savings account, which earns 2.00% APY.
Fees:
No monthly service fee
No overdraft fee (with qualifying direct deposit)
Balance requirements:
No minimum opening deposit
No minimum daily balance required
ATMs:
Fee-free at more than 60,000 ATMs nationwide
$2.50 for each out-of-network ATM transaction
Interest on balance:
2.00% APY on savings accounts
Additional perks:
SpotMe covers up to $200 in overdrafts
Each purchase on your Visa debit card can be rounded up for automatic savings
3. First State Bank
First State Bank is a Kentucky bank with branches throughout Breckinridge County. If you prefer a community bank, First State is one of the best banks in Kentucky, whether you’re looking for personal or business checking accounts. But where this local bank falls short is in its ATM presence.
Branches and ATMs don’t cross the Kentucky line, although you’ll find ATMs throughout the state. They do make up for it, though, by having a low out-of-network usage fee. You’ll pay only $.75 per transaction on the First State side. Keep in mind, though, that this is in addition to any fees charged by third-party ATM owners, which First State doesn’t refund.
Fees:
No monthly service fee
$20 overdraft fee
Balance requirements:
$25 minimum opening deposit
No minimum daily balance required
ATMs:
Fee-free at First State Bank ATMs (limited to Breckinridge County)
$0.75 charge per transaction at out-of-network ATMs
Interest on balance:
Rates aren’t disclosed
Additional perks:
Business checking accounts with personalized support
Heavy branch presence for Breckinridge County-area residents
4. Chase
If you like the amenities of a national bank, Chase has multiple locations throughout Kentucky. You’ll get fee-free access to more than 16,000 Chase ATMs nationwide, as well as solid mobile banking options. Chase is currently offering a $200 bonus for new Total Checking accounts as long as you maintain a $1,500 balance or have at least $500 in direct deposits each month. If you’re looking for wealth management services, Chase offers that through its parent company, JPMorgan.
Fees:
$12 monthly service fee (waived with qualifications)
$34 overdraft fee
Balance requirements:
No minimum opening deposit
$1,500 minimum balance required to waive service charge (or $500 in direct deposits)
ATMs:
Fee-free at more than 16,000 Chase ATMs nationwide
$3 charge per transaction at out-of-network ATMs
Interest on balance:
0.01% APY on savings accounts
Up to 4.00% APY on CDs
Additional perks:
Account options for children and college students
Overdraft Assist lets you remedy overdrafts before fees kick in
5. GO2bank
Another online banking option is GO2bank, which offers a free checking account and a variety of mobile banking services. But the best feature of GO2bank is its 4.50% APY savings account, which is above what many competitors offer. You can also withdraw cash at more than 55,000 AllPoint locations and deposit cash at nearly 90,000 retail locations nationwide.
Fees:
No monthly service fee
$15 overdraft fee
Balance requirements:
No minimum opening deposit
No minimum daily balance required
ATMs:
Fee-free at more than 55,000 AllPoint ATMs nationwide
$3 for each out-of-network ATM transaction
Interest on balance:
4.50% APY on savings accounts
Additional perks:
Deposit cash at nearly 90,000 retail partners nationwide
Up to $200 in overdraft coverage
6. Republic Bank & Trust Company
Headquartered in Louisville, Republic Bank & Trust Company is a local account with a variety of checking accounts. Republic Bank has an entry-level account, Simple Access, that has no overdraft fees, but you will have to either have one monthly direct deposit, one debit card transaction, or one online bill pay transaction monthly. Republic Bank has higher-than-average interest rates on CDs and savings accounts, as well as competitive rates on personal loans.
Fees:
$4.95 monthly service fee (minimum activity required)
No overdraft fee
Balance requirements:
$10 minimum opening deposit
No minimum balance
ATMs:
Fee-free at more than 90,000 locations nationwide
Interest on balance:
0.35% APY on savings accounts
Up to 4.15% APY on CDs
Additional perks:
Specialized loans like aircraft financing
Award-winning customer service
7. Whitaker Bank
Another local bank with plenty of physical branches is Whitaker Bank, a community bank with 34 locations across Kentucky. Whitaker has multiple checking accounts, but the least expensive is Whitaker FREE Checking, which has no fees or minimum balance requirements.
Like many local banks in Kentucky, though, the availability of ATMs could be a problem if you travel. Whitaker charges no fees for its own ATMs or out-of-network ATMs, but you will have to pay third-party fees.
Fees:
No monthly service fee
$34 overdraft fee
Balance requirements:
$100 minimum opening deposit
No minimum daily balance required
ATMs:
Fee-free at Whitaker Bank locations across Kentucky
No fees for out-of-network ATM transactions
Interest on balance:
.01% APY on savings accounts
Up to .05% APY on money markets
Up to .50% APY on CDs
Additional perks:
Multiple ways to bank, including by text
Free fraud alerts
8. American Bank & Trust
Southern Kentucky is a bustling area of Kentucky, thanks to Western Kentucky University. If you live in the Bowling Green area, American Bank & Trust is one of the best banks in the area.
American Bank & Trust offers a free checking account with no minimum balance required and overdraft fees of only $5 per occurrence. In addition to fee-free access to American Bank & Trust ATMs, the bank also refunds up to $16 in third-party ATM fees.
Fees:
No monthly service fee
$5 overdraft fee
Balance requirements:
$50 minimum opening deposit
No minimum daily balance required
ATMs:
Fee-free at AMBank ATMs, as well as hundreds of ATMs nationwide
Up to $16 in third-party ATM fees refunded monthly
Interest on balance:
.50% APY on savings accounts
Up to 2.75% APY on money markets
Up to 4.50% APY on CDs
Additional perks:
Competitive rates on personal loans
Bank My Change feature helps you set money aside
9. South Central Bank
With branches across Kentucky, South Central Bank is one of the best banks in Kentucky for friendly service and a variety of banking services. South Central offers multiple checking accounts, including several with no monthly maintenance fee.
With some checking account options, you’ll need to sign up for e-statements and have at least 15 monthly debit card transactions for the $6 fee to be waived. South Central also offers wealth management services, including investing and retirement planning.
Fees:
No monthly service fee
$30 overdraft fee
Balance requirements:
$100 minimum opening deposit
No minimum daily balance required
ATMs:
Fee-free at South Central Bank ATMs in Kentucky and Tennessee
Interest on balance:
Up to 4.50% APY on CDs
Additional perks:
$25 for each new account holder you refer
Small business checking and savings account options
10. Independence Bank
Headquartered in Owensboro, Independence Bank makes the list of best banks in Kentucky due to its competitive rates on CDs and variety of free checking accounts. There are perk-packed checking account options for active-duty military and veterans, as well as branches across the state.
You can also interact with live tellers through select ATMs, which Independence Bank labels “ITMs,” or interactive teller machines.
Fees:
No monthly service fee
$34 overdraft fee
Balance requirements:
$50 minimum opening deposit (waived with direct deposit)
No minimum daily balance required
ATMs:
Fee-free at more than 55,000 AllPoint locations nationwide
Interest on balance:
Up to .01% APY on savings accounts
Up to 4.80% APY on CDs
Additional perks:
Interactive ATMs offer enhanced services, including live personal assistance
Active-duty military and veteran account options
11. Community Trust Bank
Although Community Trust Bank is spread throughout Kentucky, it’s actually one of the many regional banks, with branches and ATMs in Kentucky, Tennessee, and West Virginia. You’ll find multiple checking accounts, including an option with no monthly maintenance fee. If you travel outside the CTB service area, though, you’ll be on the hook for ATM fees.
Fees:
No monthly service fee
Balance requirements:
$100 minimum opening deposit
ATMs:
Fee-free at Community Trust Bank ATMs in Kentucky, Tennessee, and West Virginia
$2.50 per transaction at out-of-network ATMs
Interest on balance:
Interest rates not disclosed
Additional perks:
Prepaid cards available
Competitive rates on personal loans
12. Hometown Bank
Corbin, Kentucky residents looking for a small Kentucky bank should consider Hometown Bank, a community bank with locations in Corbin, London, Barbourville, and Williamsburg. Hometown has multiple checking and savings account options, including a free option with no monthly maintenance fees or balance requirements.
Fee-free ATM use is limited to the few ATMs within its service area, though, so if you frequently travel, this might not be the best Kentucky bank for you.
Fees:
No monthly service fee
$34.50 overdraft fee
Balance requirements:
$50 minimum opening deposit
No minimum daily balance
ATMs:
Fee-free at Hometown Bank ATMs
Interest on balance:
Interest rates not disclosed
Additional perks:
Round Up Savings moves funds from debit card purchases to savings account
Children’s accounts available
With so many banks in Kentucky, there’s a little something for everyone. Whether you prefer national or regional banks or you like the feel of a small community bank, it’s important to find one that has the features that work best for you.
How to Choose the Best Bank in Kentucky
If you’re in the market for a new bank account, it’s essential to first identify the features that are most important to you. Here are a few things to consider as you choose your banking provider.
Online Banking Offerings
Even if you prefer a bank you can visit in person, online banking is worth considering. Chances are, you’ll occasionally want to check your balance online.
The best checking accounts offer mobile baking features like remote deposit capture and funds transfers. Mobile apps have become essential for most financial institutions, so make sure you check out a preview of a bank’s app before signing up.
Checking Account Fees and Requirements
Even small fees can add up over the course of a month. If you can find a fee-free checking account, it could save money.
Some of the best banks in Kentucky offer free bill pay and no monthly fees. If you need paper checks, make sure you add that to your criteria for the best checking account, as well.
Locations
Both local and national banks often excel in providing brick-and-mortar banks that offer that in-person customer service you prefer. But it’s important to make sure the locations are convenient for you.
If you prioritize local branches, make sure you check ATM availability. It’s great to have free ATM withdrawals near your house. However, when you’re traveling, if you need cash and can’t access it, you may end up paying more in fees than if you’d had a checking account with no fees.
You might be asking yourself what the Jackson Five has to do with the Roth IRA five year rule for qualified withdrawals? I’m sad to say, “Absolutely nothing”. Other than then number “five”, of course. I just thought it was fitting with all the recent tributes to the King of Pop to have my own. Now that I have your attention…..
The basics of the Roth IRA include the phrase “Tax Free Money”. That phrase makes the Roth IRA the most attractive retirement planning tool of our time. When it comes to the intricacies of the Roth IRA, in regards to how it works, some confusion can set in. One provision of the Roth IRA that can leave many scratching their heads is the Roth IRA Distributions Rules For Withdrawals: 5 year rule.
The Five Year Rule pertains to when you can take qualified distributions from your Roth IRA tax and penalty free. Nobody wants to pay tax and penalties, right? That’s why it’s important to know how the Roth IRA withdraw rule works. Just to add more fun to the mix, you need to first know that there are two sets of Five Year rules. One pertains to Roth IRA contributions and the other pertains to Roth IRA conversions. We’ll begin with Roth IRA contributions.
Withdrawal Rules on Roth IRA Contributions
In order for you to take money from the Roth IRA tax and penalty free, it has to be considered a “qualified distribution”. We’ll get to what the rules on qualified distribution are in one moment. First thing I need to remind you is that all contributions can be taken at any time, tax and penalty free. That means what you put into the Roth IRA (contribution) can be taken out the following day without consequence (not factoring sales charges and market risk).Let me illustrate:
Example 1
You open a Roth IRA at your bank and decide to put $5000 into a money market account inside the Roth. A month goes by and something happens where you need to withdraw your money. You can withdraw the original $5000 tax and penalty free. What has to stay is the earnings or, in this case, the interest that you made off the $5000 (which should be minimal considering you didn’t have it that long). Now keep in mind, the bank may charge you some cancellation fee of some kind, so read the fine print. But as far as the IRS is concerned, you are in the clear.
Example 2
Just to illustrate another side of the first example, let’s say this time you decide to invest at a brokerage firm and choose an investment more tied to the stock market. After a month goes by, your original $5000 investment now plummets to $3000. (I think a lot of people can relate to that). All you are allowed to withdraw is the $3000. That’s it! Sometimes that gets overlooked. Also, if you paid a sales charge or commission on that investment, that’s not being refunded to you either.
What is the Rule For Qualified Distributions on a Roth IRA?
What’s so important about a qualified distribution? If it’s deemed qualified, you then avoid taxes and the 10% early withdraw penalty. Taken directly from IRS pub 590 this defines what qualified distribution is:
A qualified distribution is any payment or distribution from your Roth IRA that meets the following rules. It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and the payment or distribution is:
Made on or after the date you reach age 59½
Made because you are disabled
Made to a beneficiary or to your estate after your death, or
One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).
Remember that you have until April 15 of the following calendar year to make a Roth IRA contribution for any tax year. But the five year window begins January 1st of the actual tax year. Also, the five year window is based on when you made your first deposit. Meaning that a new five year window does not begin with each additional deposit. Is your head spinning? Let’s look at another example:
Example 3
You open a Roth IRA but don’t actually make your first contribution until April 10th, 2006. Your five year window would then begin on January 1st, 2005. If you didn’t make another deposit until 2008, your five year window is still based on the January 1st, 2005 date. Don’t forget that it’s Five Year rule plus one of the other factors (most likely 59 1/2) to get the money tax and penalty free.
Roth IRA Conversions
The Five Year Rule works a bit differently when it pertains to Roth IRA Conversions. The major difference is starting of a new five year window with each new conversion. Once you reach the age of 59 1/2 this isn’t much of an issue, but you still need to aware of this. Especially, if you haven’t had a Roth IRA open for at least five years. If so, the conversion amount will come out tax free, but the earnings are still subject to a five year holding period. Let’s look at another example:
Example 4
If you started a Roth IRA at age 50 with a contribution and then decide to convert at ages of 58, 59, and 60 respectively, you are immediately eligible to take all funds out tax and penalty free (even earnings) since you satisfied age and “any or “a” five year holding period in a Roth.
The above example is one what I wrestled with trying to find the answer and as it stands right now, that is the best interpretation of the rule that I’ve found.
Similar to Roth IRA contributions, the five year clock begins on January 1st of the year that you convert. The key difference is that the you must convert in the calendar year and not the tax year: before December 31st.
Converting has been difficult to qualify for a conversion since your adjusted gross income has to be less than $100,000. But as I’ve written about on more than one occasion, Roth conversion rules change slightly and the income limit is removed in 2010. Expect many to take advantage of this next year.
Keep it in Order: Rules For Taking out of Roth IRA
You have made it thus far- congratulations! We’re almost there. The last step that we have to address is the ordering rules for taking out withdrawals from your Roth IRA. This is important because of, once again, the taxes and penalties that might occur. According to the IRS, the order of a distribution from a Roth IRA is:
Regular Contributions – by considering the first money withdrawn from the account “regular contributions,” and not earnings, the IRS allows account holders to remove a portion of their accounts before the five-year rule applies.
Conversions – this is on a first-in, first-out basis. So the money placed into an account because of a conversion that occurred in 2008 would be removed before a conversion that occurred in 2009.
Taxable – the taxable portion of the conversion is removed first. This is the amount claimed as income because of the conversion.
Non-Taxable – this is the portion of the conversion not included in gross income.
Earnings – finally, the last money to be removed from an account are the earnings on the assets placed in the account.
Logically, it makes sense. The monies that you have paid taxes on will come out first tax and penalty free. After the contributions are taken out, just work down the list to see what you can or cannot take. Still confused? This is where a CPA or a Certified Financial Planner can assist you computing the numbers for you.
Required Minimum Distributions and Roth IRA
One last note when doing conversions and you are over the age of 70 1/2. Since you are the IRS magic age to begin required minimum distributions, those distributions can’t be converted to a Roth IRA. In the year you wish to convert, you must first withdraw your required distribution, and then you can convert any or all remaining funds to a Roth. This is only if you do a full conversion. If you are looking to do a Roth IRA conversion at the beginning of the year, but postpone your RMD; then you’ll want to do a partial conversion and leave at least the amount of the RMD in the IRA. Be sure to double check with your IRA custodian to see what their policy is on the matter of RMD’s and converting. Keep in mind that in 2009 RMD’s are suspended, so that would not apply. It will continue as scheduled in 2010.
By Mike Piper8 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited January 10, 2014.
People often ask me to point them to a decent online retirement planning calculator. I never do.
You see, I don’t trust such calculators.
It’s not that their math is wrong. (At least, not usually.) The problem is that their calculations are often based on shoddy assumptions and unknowable variables.
You Know What They Say about Assuming…
For example, what rate of return does the calculator assume for your portfolio? Is it reasonable? Or, perhaps, was the calculator programmed to assume that future returns will equal past returns (thereby ignoring the possibility that the U.S. economy won’t have the same explosive growth over the next century that it did over the last)?
And what assumptions does the calculator make about future tax rates? From what I’ve seen, most calculators assume that either:
All income will be taxed at a flat rate (usually 25% or 28%), or
Tax brackets will continue to look the same as the 2013 tax brackets all the way into the future.
While I certainly don’t know what tax rates will look like three decades from now, I doubt that either of one of those assumptions will turn out to be correct.
And does the calculator account for sequence of returns risk? A portfolio averaging a 5% annual return is very different from earning a 5% return every year. If the calculator doesn’t account for that fact, it’s going to significantly underestimate the amount of money you’ll need to retire safely.
What’s Better than an Online Calculator?
If you’ve taken the time to educate yourself about investing, then you probably don’t need an online calculator. A simple excel spreadsheet will function at least as well. (And you get to choose your own assumptions!)
Alternatively, if you haven’t taken the time to learn about investing, there’s no way for you to judge whether the assumptions that went into the calculator’s projections are reasonable.
In other words, there are two routes you can take:
If you want to be a do-it-yourself investor, super. But rather than rely on online calculators, you’ll need a deeper level of understanding if you want to be successful.
If you don’t want to go it alone, that’s fine too. But in that case, an online calculator isn’t what you need. What you need is a qualified financial advisor.
In my opinion, such calculators are only useful for young investors who are so far away from retirement that none of the relevant variables are known yet. In other words, a completely blind guess from a calculator is almost as good as one from an advisor.
About the Author: Mike Piper writes at Oblivious Investor, where he provides plain-English explanations of topics like Roth IRA rules and 401k rollovers.
Compared to banks, credit unions offer more individualized service. Plus, many of them also provide lower fees and higher rates on certain accounts. However, you must become a member of a credit union to utilize its services. In most cases, credit union membership is reserved for people who live, work, and worship in a certain area.
Some credit unions are also geared toward those in specific professions, like education or law or anyone who makes a donation or joins an organization. You’ll be pleased to learn that most credit unions have made their membership criteria more lenient and opened up their offerings to more types of people. In fact, many of them are quite easy to join.
14 Best Nationwide Credit Unions
While many credit unions are small and can only be found in select local areas, there are quite a few that are nationwide. If you travel frequently for work or pleasure, you might be in the market for nationwide credit unions.
Fortunately, most credit unions that have a nationwide presence are easy to join and offer a variety of benefits. To make your search for the best federal credit unions a bit easier, we’ve compiled this handy list.
1. Connexus Credit Union
Headquartered in Wisconsin, Connexus Credit Union is known as one of the largest credit unions in the U.S. It has over 400,000 credit union members across all 50 states. This is no surprise as it partners with well-known companies, such as Liberty Mutual Insurance, Kraft, Honeywell, and BMW.
To join, you’ll need to qualify through your employer that’s one of the credit union’s partner companies or donate at least $5 and open an account. As a credit union member, you can enjoy high APYs on checking accounts and other deposit accounts as well as low rates on mortgages, personal loans, and car loans.
The Xtraordinary Checking Account offers an APY of up to 1.75% on certain balances so you can make the most out of your hard earned money. White you don’t have to pay any fees, Connexus does require that you spend a certain amount on your debit card and sign up for eStatements to take advantage of the interest.
Furthermore, if you don’t use your checking account for more than 90 days and have a balance of $100 or less, you may have to pay an inactivity fee. Connexus has more than 5,600 shared branches and over 67,000 fee-free ATMs. Plus, the credit union offers higher rates and exclusive discounts throughout the year.
2. Navy Federal Credit Union
If you’re part of the military community, Navy Federal Credit Union should be on your radar. You can become a member if you have an active duty or reservist military member, worked for the Department of Defense, or are the immediate family member of someone eligible for membership. You’ll also be required to open a Navy Federal savings account and make a minimum deposit of $5.
The credit union has about 350 physical branches worldwide and many of them are near military bases in Maryland, Virginia, and California. There are also more than 30,000 fee-free ATMs. If you like to do your banking on your mobile device, you’ll be pleased to know that there is a highly rated app.
If you join Navy Federal Credit Union, you can enjoy no monthly fees or minimal fees on basic savings or youth savings accounts. NFCU also offers several checking accounts as well as competitive rates for share certificates, which are basically certificates of deposits (CDs).
3. Consumers Credit Union
Based in Illinois, Consumers Credit Union has 11 branches in the Chicago suburbs but opens its membership to anyone in the country. All members get access to more than 5,000 shared credit union branches and over 30,000 ATMs.
To join, simply pay $5 and fill out a short application form. Consumers offers some of the highest annual percentage yields or APYs on its rewards checking accounts. However, it requires that you make at least 12 debit card purchases per month, enroll in eDocuments, and have a monthly minimum of $500 in ACH deposits, direct deposits, and mobile check deposits.
If you prefer, you can choose from a no-frills checking account that doesn’t earn any interest. Other product offerings include four savings accounts, IRA certificates, and money market accounts.
4. Pentagon Federal Credit Union
Founded in 1935, PenFed Credit Union is known as one of the largest credit unions in the country. It serves more than 2.8 million members and has over $36.6 billion in assets. While this best credit union was originally only available to military members and their families, it eventually opened the doors to anyone. You can join as long as you deposit $5 into a savings account.
As a PenFed member, you can reap numerous benefits, including great rates on checking accounts, savings accounts, and money market certificates. In addition, you can sign up for early direct deposit and access more than 85,000 fee – free ATMs across the nation.
Even though PenFed is not part of a shared branch network, like other credit unions, it pays high rates, and has about 40 of its own branches throughout the U.S. There’s also a solid mobile app and customer phone support with evening and weekend hours.
5. SkyOne Federal Credit Union
SkyOne Federal Credit Union is one of the best credit unions and has a mission to help families become financially stable. It serves more than 40,000 members with $600 million in assets. Since its inception in 1949, SkyOne has offered a robust lineup of financial products, like interest-bearing checking accounts, money market accounts, credit cards, mortgages, and car loans.
Its share certificates come with exceptional rates that you might not find at other credit unions. SkyOne also has a free mobile banking app, a plethora of free educational tools, and a network of thousands of credit union branches for easy access.
The main downfall of this credit union is that it’s geared toward those who work in the air transportation industry so you might have a difficult time qualifying. Fortunately, membership has recently become a bit more lenient to accommodate more people.
6. Alliant Credit Union
Illinois-based Alliant Credit Union has more than 700,000 members across the country. Unlike other credit unions on this list, Alliant operates strictly online. If you like the idea of online and mobile banking, this credit union should definitely be on your radar. Its online accounts pay highly competitive interest rates that can be as much as 22X the national average.
Plus, you don’t have to worry about overdraft or ATM fees. You can also score up to $200 per month in ATM rebates. While its checking and savings accounts are the most popular products, Alliant also provides mortgages, auto loans, personal loans, and credit cards. At this time, Alliant does not offer any no-penalty or specialty CDs.
Customer service is available 24/7 and there’s also an online contact form you can use for less pressing questions or concerns. To become a member, join Foster Care to Success (FC2S). Once you do, Alliant will pay the $5 membership fee to the organization for you.
7. First Tech Federal Credit Union
First Tech Federal Credit Union made its debut in 1952 when it was first founded by employees of Hewlett-Packard and Tektronix. Today, the credit union partners with large companies, like Hewlett-Packard, Amazon, Microsoft, and Nike. You can join as long as you work at one of its partner firms or become a member of the Computer History Museum or Financial Fitness Association.
There are 33 branches, mainly in California, Washington and Oregon, but with several locations across Colorado, Georgia, Idaho, Massachusetts and Texas. As a member, you can enjoy in-person service at more than 5,600 Co-op Shared Branch locations in the U.S.and access your money at over 30,000 free ATMs.
It offers a long list of financial products, like checking accounts, savings accounts, credit cards, loans and investment accounts. Most of these offerings come with low minimum opening balance requirements and no monthly maintenance fees. First Tech Federal Credit Union is unique in that there are many business banking services that are rarely seen at other credit unions.
9. Bethpage Credit Union
While it is located in New York, Bethpage Credit Union opens its membership to anyone who makes a $5 payment, regardless of where they live. The credit union partners with hundreds of other credit unions to offer access to more than 5,000 branches and over 30,000 fee free ATMs. Virtual visits by phone and video appointment are also available.
Bethpage’s product lineup includes three checking accounts, four savings accounts, share certificates, and money market accounts. Believe it or not, even the free checking accounts pay interest. In addition to deposit accounts, the credit union provides mortgages, home equity lines of credit (HELOCs), car loans, auto refinancing, personal loans, retirement planning, health savings accounts, IRAs, and insurance.
You can access your accounts on the go with the handy mobile app, which includes convenient features, such as budgeting tools, online bill pay, and budgeting tools. Bethpage also offers access to a digital wallet and Zelle money transfers.
10. Latino Community Credit Union
Headquartered in North Carolina, Latino Community Credit Union has 15 branches in the state as well as 1,300 free ATMs through the CashPoints network. While it was originally built for the Latino community, you don’t have to be Hispanic or live in North Carolina to join. All you have to do is submit an application and pay a $10 membership fee.
Latino Community Credit Union is federally insured by the National Credit Union Administration (NCUA) and offers 24/7 customer service via phone. Compared to brick-and-mortar banks, it provides competitive interest rates and accounts with low minimum opening balance requirements.
If you’re part of the Hispanic community, you may also benefit from services in both Spanish and English as well as a financial literacy education program that’s focused on low-income Latino families and immigrants.
11. Boeing Employees’ Credit Union
If you’re a Boeing employee or live or work in Washington, Boeing Employees’ Credit Union can be a good fit. Just keep in mind that you’ll be required to open the Member Advantage Savings account, Member Share Savings account or Early Saver account.
You can enjoy nationwide access to more than 30,000 free ATMs, discounts on local events, such as sporting games and fairs and impressive rates on CDs, money markets and IRAs. Plus, there are no monthly service fees or minimum balance requirements.
Other noteworthy perks include free credit score monitoring, Zelle payments, online bill pay, and budgeting tools. You can find more than 50 physical branches in Washington as well as one location in North Charleston, South Carolina, for in-person banking.
12. Blue Federal Credit Union
Blue Federal Credit Union began as Warren Federal Credit Union and has been in business for more than 70 years. It offers more products than most credit unions, including checking accounts, savings accounts, credit cards, home loans, personal loans, and investment banking. This is great news if you’d like the diverse offerings that are widely seen at banks at lower price points.
In addition to a vast selection of financial products, Blue Federal Credit Union provides rates as high as 2x to 5x higher than the national average and access to thousands of partner credit unions across the nation. Thanks to the tiered membership rewards program, you can earn great rewards.
To join, donate to the Blue Foundation and open a Blue FCU Membership Share Savings account. Once you’re a member, you can bank online, visit branches in Colorado or Wyoming, or go to shared branches across the U.S.
13. Wings Financial Credit Union
Wings Financial Credit Union is worth exploring, even if you don’t work in the aviation industry. It has more than 26 branches in Minnesota, Michigan, Florida, Georgia, and Washington. Not only is it NCUA insured, it’s part of the Allpoint, CO-Op, and MoneyPass ATM networks that offer access to more than 80,000 free ATMs.
To become a member, you should live in work in an eligible location, work in the aviation industry, or make a $5 donation to Wings Financial Foundation, a non-profit organization that offers financial education programs and college scholarships.
The credit union pays high interest rates on many of its accounts and doesn’t charge monthly service fees. Depending on your goals, you can open the Wings Financial High-Yield Savings Account, Wings Financial Credit Union High-Yield Checking Account, Wings Financial Investment Money Market Account.
14. NASA Federal Credit Union
NASA Federal Credit Union dates back to 1949 when it first launched to serve NASA employees. Over time, the credit union has expanded and has more than 140,000 members to date. You can join even if you’re not affiliated with NASA as long as you become a member of the National Space Society.
Popular product offerings at NASA Federal Credit Union include the Premier Checking, Premier eChecking, Premier Preferred Checking, Shared and Special Savings account or Education Savings Account.
We can’t forget the Star Trek credit cards which offer 2x points for gas station purchases, and 3x points for purchases at StarTrek.com. Furthermore, if you spend $3,000 in the first 90 days, you get a bonus of 30,000 points. You may redeem your points for merchandise, gift cards, and more.
Credit Unions vs. Banks
If you’re used to banks or unfamiliar with credit unions, you might wonder how credit unions and banks compare. The truth is both types of financial institutions offers similar products, but there are several differences between them, including:
Financial Products
In general, banks offer more financial products and services than credit unions, especially large banks with a national presence. Credit unions primarily focus on checking accounts, savings accounts, and credit accounts. While loans and investment products are less common, they can still be found at some credit unions.
Rates and Fees
Banks tend to charge higher rates and fees than credit unions. However, online banks are usually more affordable and comparable to credit unions as they have lower overhead costs. It’s a good idea to shop around so you can compare rates and fees at a variety of financial institutions and hone in on the best option.
Technology
Credit unions typically are less technologically advanced than banks. The good news is more and more credit unions, especially those with a nationwide presence, are improving their technical offerings. Many of them offer mobile apps, online bill pay, and other advanced banking tools that were unheard of in the past.
Bottom Line
With this list of the best credit unions nationwide, you’re sure to find a credit union or two that checks all your boxes. Whether you’re new to credit unions or have used them for a while, these types of financial institutions can help you meet (or even exceed) your personal finance goals.
Credit Union FAQs
What is the difference between a bank and a credit union?
While a credit union is a member-owned, non-profit institution, a bank is a for-profit financial institution that is owned by shareholders or individuals. Credit unions are known for more personal service and flexibility. Whether you use a bank or credit union depends on your unique goals and priorities.
Do I have to join a credit union?
All credit unions may have certain membership requirements. Fortunately, many are lenient and let you join if you make a donation or pay a fee. Some credit unions will pay for you once you make a deposit into an account. Of course, some credit unions limit membership to people in certain geographical locations or professions.
Do credit unions have ATMs?
Yes! In many cases, credit unions partner with a large network of ATMs. This makes it easy for you to access your money regardless of where you are.
Are credit unions insured?
Reputable credit unions are insured by the National Credit Union Administration or NCUA, which is similar to the Federal Deposit Insurance Corporation or Federal Deposit Insurance Corp of traditional banks. This means if the credit union fails because of bankruptcy, for example, you’ll get your money back.
Are credit unions online?
While credit unions have a reputation for in-person branches with individualized service, online credit unions do exist. Several examples include Alliant Credit Union, Connexus Credit Union, and Quorum Federal Credit Union. If you like the idea of online banking, an online credit union might make sense.
What is the best nationwide credit union?
Not all nationwide credit unions are created equal. In fact, there are many options available with various pros and cons. To pinpoint the ideal online or local credit union for you, explore the institutions on this list and consider your priorities. Remember, you can join multiple credit unions if you’d like.
According to a new survey from NerdWallet, 84% of Americans with a monthly budget say they’ve sometimes exceeded their budget. The survey, conducted online by The Harris Poll on March 31-April 4, 2023, among more than 2,000 U.S. adults ages 18 and older, found that around three-quarters (74%) of Americans have a monthly budget.
Key findings
Most Americans overspend, and many use credit cards to cover it. The survey found that 83% of Americans say they overspend, and a similar proportion who have a monthly budget (84%) say they exceed it. Of those who’ve ever gone over their monthly budget, 44% say they usually use a credit card to pay for the additional purchases they make when going over budget.
Youngest U.S. adults are more likely to say their generation has it worse. Nearly 1 in 5 Americans (18%) think their generation is bad at managing money and nearly 3 in 5 Americans (57%) think their generation has had a harder time making ends meet than any other generation, the survey finds. Younger Americans are more likely to make each of these assertions.
Emergency savings is a financial priority for many. Close to half of Americans (48%) say they want to prioritize emergency savings, according to the survey. Other popular financial priorities for Americans are investments (36%) and retirement planning (35%).
“Savings accounts offer a buffer against life’s unexpected twists, from job loss to unplanned expenses,” says Kimberly Palmer, a personal finance expert at NerdWallet. “Funding one can make the difference between relative financial stability or being unable to pay for everyday essentials.”
An emergency fund is a top priority for nearly half of Americans
Most Americans (92%) have one or more financial areas they want to prioritize. The most common of these priorities is emergency savings (48%), followed by investments (36%) and retirement planning (35%).
Millennials (ages 27-42) and Generation Xers (ages 43-58) are the most likely to say they want to prioritize emergency savings, with 56% and 52%, respectively, saying it is a desired area of focus. That’s compared with 38% of Generation Zers (ages 18-26) and 44% of baby boomers (ages 59-77).
Many Americans have very little emergency savings socked away. According to 2022 Consumer Financial Protection Bureau data, 24% of Americans have no emergency savings, and an additional 39% have less than one month’s income saved.
After emergency savings, investments (36%), retirement planning (35%), budgeting (34%) and travel savings (34%) rounded out the top five financial priorities. Americans with an annual household income of $100,000 or more want to prioritize investments (48%) and retirement planning (47%) at a much higher rate.
For parents of children under 18, priorities vary, perhaps to account for their children. For instance, holiday savings is a focus for 37% of those parents, compared with 18% of those without children under 18. Similar differences appeared for saving for a home (38% versus 17%) and saving for education expenses (29% versus 8%).
Many common educational savings plans can help savers by giving them some tax advantage. Parents and grandparents can make their educational dollars go further by taking advantage of these plans.
Millennials (36%) and Gen Xers (37%) are more likely to say they want to prioritize paying off credit card debt. Just 29% of boomers and 22% of Gen Zers want to prioritize credit card payments.
What you can do: Set a financial goal or priority if you haven’t yet
If you’re in the 8% of Americans who don’t have a financial area they want to prioritize, now is the time to set your financial goals. Think of it as a spring cleaning for your finances and a way to get yourself set up not just for the rest of the year, but also for the rest of your life.
“Setting clear financial goals makes it easier to determine the small action steps we need to take in order to make them a reality. That could include opening up a new savings account or contributing more to retirement,” Palmer says.
Overspending is common, despite monthly budgeting
Nearly three-quarters of Americans (74%) have a monthly budget. Millennials are most likely to say this — 83%, versus 76% of Gen Zers, 74% of Gen Xers and 67% of baby boomers.
Some Americans are willing to go without a budget. Just 23% of Americans say they feel like they need a budget to get by every month. Boomers are the least likely to need that support. Only 13% feel they need a budget to get by compared with 32% of Gen Zers, 29% of millennials, and 26% of Gen Xers.
A budget isn’t necessarily the solution to overspending. While close to a third of Americans (32%) say they review their budget and spending on a regular basis, 16% say they often spend more than they budget for each month. And when the money isn’t in the budget, it still has to come from somewhere.
Going over budget is nearly universal
According to the survey, of Americans who have a monthly budget, 84% say they’ve gone over budget at some point. More than 2 in 5 of those who have gone over budget (44%) say they usually pay for additional purchases they make with a credit card.
A majority of Americans (83%) say they overspend, at least sometimes. Food is a major reason for overspending — nearly half of Americans (47%) say groceries are among the spending categories they find themselves overspending on most often each month, while 34% say the same about dining out.
Inflation is likely a contributing factor. Over the past year, the cost of food at home has increased by 8.4% and food away from home has increased by 8.8%, as of March 2023, according to the U.S. Bureau of Labor Statistics.
Holding on to the budgetary reins
About 1 in 6 Americans (17%) say they don’t overspend on any products or services each month. Baby boomers are most likely to make this assertion — 31%, versus 14% of Gen Xers and 7% each of millennials and Gen Zers. Interestingly, baby boomers (67%) are least likely to have a monthly budget, and millennials (83%), who are in their peak earning years, are the most likely to have a budget (compared with 76% of Gen Zers and 74% of Gen Xers).
There’s also a subset of Americans who plan to overspend and set savings aside for it. One in 5 Americans (20%) who have gone over their monthly budget say they’ve dipped into savings specifically earmarked for overspending to pay for additional expenses.
What you can do: Take steps to avoid overspending
There are expenses where many could find themselves with no choice but to overspend, such as for medical costs, food when prices jump, or any number of necessities when a breadwinner gets laid off or switches jobs.
That just means it’s even more important to plan for the things you can control. Almost 1 in 4 Americans (24%) say they’ve often overspent on entertainment streaming services. There are plenty of ways to resist the urge to overspend on those products and services, which will hopefully leave more in the bank for unavoidable events.
Generational beliefs about finances differ
Every generation has its challenges, but not every generation agrees on what those challenges are. Just over half of Americans (57%) say their generation has had a harder time making ends meet compared with any other. Millennials (72%) and Gen Zers (68%) are more likely to agree with that sentiment compared with Gen Xers (56%) and boomers (39%).
About a third of Gen Zers (36%) also say their generation is bad at managing money (compared with 25% of millennials, 14% of Gen Xers and 10% of boomers). Education may play a role in that outlook. Roughly 1 in 5 Gen Zers (21%) think they learned all they needed to know about budgeting when they were a kid. (Millennials, at 18%, feel similarly.)
Baby boomers keep income details to themselves
Overall, 69% of Americans say it’s rude for a person to talk about how much money they make. Baby boomers are the most likely to agree with that sentiment. About 8 in 10 (81%) are put off by the idea of talking about income. Just about half of Gen Zers (47%) think talking about income is rude, and 65% of millennials and 71% of Gen Xers feel the same.
Boomers are also less likely to say they feel societal pressure to spend money. Just about 1 in 5 boomers (18%) say they often spend more than they budget for because of societal pressure from, for example, family, friends or social media. Conversely, 57% of Gen Zers and half of millennials (50%) say the same thing. Gen Xers fall between the poles at 35%.
Thoughts on tipping and fees
About a third of Americans (32%) say sellers’ fees have gone up in the past year. These are the fees companies or individuals add to a purchase that often aren’t reflected in the base price. Fuel surcharges at the airport, airport fees for a ride-sharing app and order processing fees from ticketing companies are examples.
When it comes to tipping, the generations are in agreement. Overall, about a third of Americans (34%) say tipping, when the option is present, is mandatory (35% of Gen Z, 35% of millennials, 31% of Gen X and 35% of baby boomers). About the same proportion of Americans (29%) feel like the pressure to tip more has increased for them over the past year.
Boomers are most likely to want the option to tip as opposed to facing increased fixed costs. About 2 in 5 boomers (41%) say, when dining out, they would prefer to tip versus seeing restaurants increase menu prices so tipping isn’t required (compared with 25% of Gen Zers, 31% of millennials, and 29% of Gen Xers).
Baby boomers (4%) are also the least likely to say they judge their friends based on how much they tip. Gen Zers (11%), millennials (15%) and Gen Xers (7%) are all more likely to be judgmental of friends when it comes to tipping.
Baby boomers feeling pinched
Boomers may be more likely to feel the pinch of inflation. Just 5% of baby boomers say their dollar goes farther now than it did a year ago. About 1 in 5 Gen Zers (19%) say the same thing, followed by 16% of millennials and 10% of Gen Xers.
Baby boomers and Gen Xers are also more likely to say portions at restaurants are getting smaller (42% and 39%, respectively) compared with Gen Zers (29%) and millennials (33%).
Part of that may be boomers having a better understanding of the realities of inflation. When we asked Americans if the annual U.S. inflation rate was above 10% (at the time it was 5%), 44% of boomers correctly identified that it wasn’t. Just about 1 in 5 Gen Zers (19%) and millennials (18%), and roughly 1 in 4 Gen Xers (24%), got it right.
What you can do: Find ways to save, even when times are tight
Managing your money is much more difficult when you don’t have a buffer. Finding a way to save, no matter what generation you belong to, can help you cope when prices increase or attitudes toward costs shift.
“Cutting back on recurring costs such as subscriptions, shopping around when insurance and phone contracts come up for renewal, and timing necessary big-ticket purchases to sales can all help free up money for additional savings,” Palmer says.
You can also take a look at your tipping to better understand what you can and should control. Tipping often feels mandatory because some people rely on tips for a living wage. Knowing what you’re providing and what it means to opt out can help you make better-informed decisions, and can have a positive impact on your spending.
Methodology
This survey was conducted online within the U.S. by The Harris Poll on behalf of NerdWallet from March 31-April 4, 2023, among 2,070 U.S. adults ages 18 and older. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this survey, the sample data is accurate to within +/- 2.8 percentage points using a 95% confidence level. For complete survey methodology, including weighting variables and subgroup sample sizes, contact Sarah Borland at [email protected]
Disclaimer
NerdWallet disclaims, expressly and impliedly, all warranties of any kind, including those of merchantability and fitness for a particular purpose or whether the article’s information is accurate, reliable or free of errors. Use or reliance on this information is at your own risk, and its completeness and accuracy are not guaranteed. The contents in this article should not be relied upon or associated with the future performance of NerdWallet or any of its affiliates or subsidiaries. Statements that are not historical facts are forward-looking statements that involve risks and uncertainties as indicated by words such as “believes,” “expects,” “estimates,” “may,” “will,” “should” or “anticipates” or similar expressions. These forward-looking statements may materially differ from NerdWallet’s presentation of information to analysts and its actual operational and financial results.