Transcription of above video follows below. You can find more videos on the Good Financial Cents YouTube Channel.
Today I will answer a common question I get from a lot of people. Do you have a situation, you are working somewhere, you change jobs, either decided to go somewhere else, you were laid off or you were fired. Whatever the reason, if you’ve been there for awhile you most likely participated in the 401(k) plan. Now that you have left that job and you have started your new job, you have to make a very, very important decision on what to do with that 401(k). The common question I get is this:
“Jeff, I’ve got an old 401(k). Does it make sense to roll over into an IRA.”
Depending on your situation, most likely I will say yes, but there are some instances where it could make sense to roll it into your existing 401(k), which I will address in another video. Today I want to make the case why you should at least consider rolling over the 401(k) into an IRA.
1. More Investment Options
First and foremost, you want more investment choices. Most commonly what I see in most 401(k) plans you are going to have approximately 12-15 investment choices to choose from. I have seen some bigger plans that are going to have 40, 50 or maybe even 60 investment choices, but generally that is what I see. If you take that money and roll it over into an IRA, instead of just having those 12-15 investment choices, now your just opened up to the world of all the different investment options that you have. If you want to invest into individual stock, you can do so in the IRA. Most likely, you weren’t allowed to do that in your 401(k). That also applies to other investments that you will be able to invest in too.
2. Simplify Your Life
What about the simplification of your life by the consolidation of paper and account statements. I can remember one particular case, where I had a client. We sat down and he had seven different 401(k) plans. Imagine getting seven different quarterly statements and trying to sort through it. Not only that, but also trying to keep track of the investment strategy of what is going on with those seven different 401(k) accounts. By rolling over to an IRA, and now you’re being able to consolidate into this one account and if you change jobs several times, why not consider consolidating and simplifying your life. I’m all about less paperwork. Less paperwork equals more efficiency and easier to keep track of what is going on in your financial life.
3. Control Your Income
Another aspect you want to consider rolling over into an IRA, especially if you are approaching on your retirement is being able to control your retirement income. Typically, when you take a distribution from a 401(k) plan, they are going to withhold the standard 20% tax withholdings. Once you roll over to an IRA, you have some discretion, as far as how much taxes you want to be withheld from your distributions. When it comes to retirement planning and income planning, the less that you have to pay upfront to Uncle Sam, the better.
Now, in the first year retirement, it is a little bit harder to determine what the exact tax may be, but typically after I have been working with a client for a year or so, we can kind of gauge how much taxes we need to withhold from our distributions to make sure that we have taken enough out for the end of the year.
4. RMD’s
Another consideration regarding distributions from IRAs and why you should roll over from your 401(k) is if you are approaching 70-1/2. Once you hit age 70-1/2, you have to start what’s called required minimum distributions. Within the IRA, now you have discretion, as far as what investments you want to liquidate or remove from the IRA. Maybe there is something that is not performing as far and you would like to take that or liquidate it out of the IRA. With the 401(k) and those limited investment choices, you are not going to have as much say on what gets liquidated.
Those are quickly just four reasons why I think you should consider rolling over your 401(k) into an IRA. Once again, going back to point number one, having more investment choices to me that is it. Have more choices. I compare it to going out to eat and I can go to a restaurant that has five things versus going to a 65 item buffet. Anytime I have more choices, generally I am going to be happier because depending on what mood I’m in or what is going on, I will have more options to choose from.
Helping people prepare for for a successful retirement is what I do every day. A bulk of the retirees typically will have some sort of pension or retirement account that represents the majority of their investable assets.
Deciding the proper strategy to do with that money is the most common thing we do and more times than not, it makes sense to roll that retirement account into a traditional IRA. When we’re deciding on an income plan with the IRA it never fails that I get the question, “How much interest does an IRA make?”. I always crack a smile when I hear this because it’s such a common question that hear, that I thought it would be best to explain how you actually make interest on an IRA.
Why an IRA is a Good Choice for Retirement Funds
While everyone is different, and you shouldn’t roll your money into an IRA without carefully considering your choices, there are some very valid reasons to do so in retirement.
Flexibility: The biggest reason to use an IRA for your retirement portfolio is the flexibility that comes with an IRA. With most IRAs, you have the ability to choose your own investments. You can choose funds that work well for you, and that might not be available in your current 401(k). It’s easier to make changes to your IRA than it is to make changes in a less flexible retirement plan sponsored by your former employer.
Access: Because you can choose your own IRA custodian, it can make access a little easier. As a retiree, you need access to your account. Choosing your own custodian might allow you easier account access, plus there is a good chance that your new IRA custodian offers an array of tools that can make your in-retirement income planning a little easier. A 401(k) or 403(b) at your former employer means that you have to stick with the custodian the company chooses.
Lower cost: While consumer pressure has resulted in lower fees for many employer-sponsored plans, the reality is that you can often find even lower fees with an IRA. Combine the lower administrative costs of an IRA with the fact that you have the flexibility to choose lower-cost funds and ETFs for your IRA, and your money will be more cost-efficient since your real returns won’t be eaten away by the high fees you were paying previously.
The right IRA is easier to manage, less expensive, and provides you with more choices. Consult with a knowledgeable financial planner to help you find the right place to keep your IRA, and to help you figure out how to allocate your assets within an IRA so that you are more likely to accomplish your goals.
The Best Rates On Your IRA
I wrote a post about the best rates on a Roth IRA, which is a great guide for those who are still in the the accumulation stage of investing. If you are already retired, though, your needs are different. The best rates on your IRA mean something different if you rely on your nest egg for the income you need to support your retirement lifestyle.
Getting the best rates on your IRA is about understanding what you can keep in your IRA, as well as knowing how to use asset allocation to your advantage during your retirement years. Unfortunately, there isn’t a lot of education out there for retirees on this subject, so there is a measure of confusion about how to use an IRA to your best advantage.
Why is There So Much Confusion?
Many investors associate IRAs with the IRA CD you see advertised at your local bank. A CD is a product that offers a fixed rate of return. Your CD will pay according to a stated interest rate. Unless the financial institution has a relationship with a brokerage firm, then CDs or savings accounts are the only investment option that the IRA can have. That means that your yield is going to be relatively low.
An IRA CD is often offered with a 10-year term, and the rate is higher than most of the other CD offerings from the bank. However, most of these rates are nothing to write home about. As a result, retirees get the idea that IRAs offer yields that are too low for their needs.
The reality is that an IRA is an extremely flexible tax-advantaged retirement account that allows you to keep a variety of assets. The most common assets are stocks and bonds, in the form of funds. However, in some cases, it’s possible to use IRAs to invest in real estate, businesses, and even precious metals. (You will need to find a custodian willing to work with you for more exotic IRA holdings, and your administrative costs will be higher.)
Most retirees, though, are better off sticking to stock and bond funds in their IRAs. These assets usually offer better returns than IRA CDs while still allowing you to maintain an acceptable level of risk.
IRA Interest Rate = Total Return
They say a picture is worth a thousand words. Let’s see if this sketch helps paint a clearer picture on how you are able to make money on an IRA:
Total Return for Interest Rate on an IRA
*Dividends are not guaranteed. Interest and bond payments are subject to the claims paying ability of the issuer and may be subject to certain terms or restrictions. Investing is subject to risk. Appreciation is not guaranteed.
Let’s keep it simple: almost every retiree’s portfolio consists of a portion of stocks and bonds. Stocks and bonds are called asset classes because they are two different types of investments. The mix of stocks and bonds, called asset allocation, depends on a number of risk profiles, including your own risk tolerance and when you expect to need the money. When you have a portfolio that consists of these two asset classes, you have two main components that will you give the total return (or interest rate, as most of us think of it):
Income (from stock dividends, bond interest payments, and distributions)
Appreciation (or depreciation).
You need to understand how these operate inside your IRA in order to get a sense of your true interest rate, as well as if you want to make better decisions about what to do with your money.
Income From a Portfolio
Typically, when you hear “income” regarding an investment portfolio, the most common thing that comes to mind is bonds. Bonds pay what is called a “coupon payment,” which is based on the stated interest rate on the bond. These coupon payments can be paid monthly, quarterly, or semi-annually- all depending on the issuer of the bond. When your bond matures, you receive the principal back, and you can reinvest in another bond if you wish.
The other income component from a portfolio is dividends from stocks or preferred stocks. If you own a percentage of stock in your portfolio then there’s a good chance that some of the stock you own pay dividends. Here’s a tidbit on stock dividends from Investorguide.com:
Dividends are determined by the company who issued the stock and they may fluctuate greatly. Dividends are cash payments that the company pays to stock holders based upon profits and are paid out on a per share basis. In other words, a business may determine that the dividend payout to stockholders for the first quarter is $.25 per share. So, a person who owns 1000 shares would receive a dividend payment of $250 for the first quarter.
The income portion of the portfolio is the closest you’ll get to a fixed interest rate on your portfolio. I want to stress that even the income portion of a portfolio can change pretty quickly based on many factors. Increasing or decreasing interest rates will have the largest effect just as they would on CDs at your bank.
Additionally, it’s possible that a company will cut its dividend, reducing how much you receive. Many retirees choose to invest in stocks known as dividend aristocrats, or invest in funds composed of dividend aristocrats. These are companies that have increased their dividends at least once a year for the last 25 years. While there is always the possibility that these companies will cut their dividends, there is a lower chance of that because of the long history, and the fact that many of these companies have to be pretty sound to keep raising dividends.
Appreciation on a Portfolio
The second factor that will contribute the return on your IRA portfolio is appreciation (or depreciation). Simply put: making money. With stocks, that is pretty simple. You buy stock XYZ and $5.00 and sell it at $10.00, you have appreciation. That is pretty straight forward. What most investors don’t realize is that appreciation potential does not just apply to stocks. You can make it on your bonds, too. Say what?
When people think of investing in bonds, they just think that you buy a bond and collect the interest. Just like a CD. While this is true, most investors don’t realize that you can trade bonds in the secondary market and the value can go up or down.
Many bonds are issued at par (or face value) which is $1,000. The value of the bond has a “teeter totter” relationship with the movement of interest rates. After the bond is issued, if interest rates go up, the value of that bond will go down. Reverse the interest rate movement, and the value will go up. Your bank CDs actually do this, too; it’s just not as obvious.
Another factor to consider in the value of the bond is the strength of the issuer. Remember when Lehman Brothers was on the verge of bankruptcy? Their bonds went from $1,000 to less than a $100 before they eventually went bankrupt.
They way you can make appreciation on a bond is by buying in the secondary market if it’s now selling below the $1,000 issue value. You can wait until the bond is worth more than the issue value, and then sell it for a profit later.
Example: You buy a bond at $950 that will mature in 3 years at $1000. Not only do you get the appreciation, but you also get the interest payment, too.
For Best Results: Avoid Active Trading in Your IRA
As always, you are most likely to achieve your best results when you avoid actively trading in your IRA. While IRAs offer flexibility, and a way to buy and sell assets on a tax-advantaged basis, the reality is that frequent buying and selling can result in lower returns.
Not only is there a better chance that you will trade at the wrong time (the worst is panicking and selling low), but you might also choose the wrong individual securities for the long term.
Many retirees have better luck by investing in low-cost funds and ETFs in an asset allocation that helps them meet their needs. These funds can help even out income from the portfolio, and they offer diversity and a certain degree of protection. Plus, it’s a lot less work on your part.
Count Your Interest Blessings
The interest you earn on your IRA has many variables. That’s why it’s important to meet with a CERTIFIED FINANCIAL PLANNER™ to help make sense of your income needs and to help you position your accounts to potentially make the highest rates on your IRA.
More Disclosures:
Certificates of Deposit at FDIC insured and offer a fixed rate of return. Certificates of Deposit that are sold prior to maturity in the secondary market are subject to market fluctuation, so that upon sale an investor may receive more or less than their original investment.
Stock investing involves risk including loss of principal.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise and are subject to availability and change in price.
Price, yields and availability of securities are subject to change. Certain call or special redemption features may exist which could impact yield.
Hypothetical examples are for illustrative purposes only. Results will vary.
Inside: Learn how to invest $100 and make $1000 a day using these proven strategies. Find out the best ways to invest 100 dollars. Many from the comfort of your own home.
One of the biggest mistakes that people make with money is not investing.
You see, if you invest $100 and earn 10% interest a year, in just 12 months your investment would be worth $120!
It takes money to make money.
We all have heard that before.
Many people want to make some extra money, and that is why they are turning their attention to investments. There are a lot of ways to invest your money safely, but most importantly it should be done with a goal and for the long term.
The article will help you to invest $100 now to start making $1000 a day. Will this happen overnight? Nope. That would be some get-rich-quick scheme.
You must be willing to invest the time, resources, and money to start making $1000 a day.
If you are looking to invest $100, this guide will help provide you with the knowledge and strategies to generate a constant stream of income of $1000 a day.
Is Investing $100 To Make $1,000 A Day Possible?
There is no one-size-fits-all answer to this question, as the success of any investment depends on a number of factors. But, yes, many people have found ways to invest $100 to make $1000 a day.
There are a few strategies that investors can use to increase their chances of reaching $1,000/day. That is the part that takes commitment.
Best Ways to Invest 100 Dollars
There are a lot of different things you can invest your $100 in. You could put it into stocks, bonds, or even real estate. Those are the most effective strategies with the least amount of time commitment.
However, there are other options as well, which we will go into detail shortly.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What should I invest $100 in right now?
Whatever route you decide to take, remember that investing is a good way to learn and make money.
Not only will you likely see an increase in your overall wealth by investing your money, but you’ll also be happier because of the positive impact it has on your life!
How to Invest $100
You can take your $100 and invest it into the stock market or a savings account. Something that immediately starts paying you to make a return.
The other way is you could use that money to buy books and courses on how to make money with any of the ideas below.
Another option would be to invest in a service that others might not have thought of. This could be something like a start-up business or an online course that teaches you how to make money through investments.
There are plenty of ideas on how to invest $100 it just depends on your short-term and long-term goals.
In fact, learning how to make money online for beginners is a hot topic!
The step-by-step guide to making money with this simple trick
If you’re looking for a step-by-step guide on how to make money with this simple trick, look no further! In this ultimate guide, we’ll cover everything you need to know about the process.
The first step is to invest $100 per month in order to get started. By doing this, you’ll be setting yourself up for a lifetime of financial security.
In order to make money with this simple trick, you’ll need to follow these simple steps:
Decide How You Plan to Make $1000 a day
Invest in Learning How to Do It
Invest your $100
Stay Persistent
Start making profits!
Will everything work out as simply as that? No, but you have to commit to a plan in order for it to happen!
Once you’ve invested in your future, it’s time to learn how to be successful and start making some serious profits!
Invest $100 Make $1000 A Day – Strategies for Success
People have different strategies for success, and the best way to succeed is by figuring out what works for you.
A strategy that might work well for one person may not be suitable or acceptable in another’s situation.
In this article, we’ll explore a few different strategies for success and how they can help you make money from home or on the job. In fact, many of them I implement to make money.
Idea #1: Savings Account
The best way to start investing is to open a savings account. For every $100 you deposit in a savings account, you will earn about a small amount of interest. This may not seem like a lot, but it can add up over time.
In reality, investing $100 into a savings account is a habit that will continue to lead to saving higher amounts of money. While you may not be able to make $1000 a day off your first 100 dollars, your efforts will multiply as your saving percentage increases.
In addition, many banks offer special promotions for new customers, such as a $500 bonus for signing up.
To get the most out of your savings account, be sure to shop around and compare rates at different banks. CIT Bank offers some of the highest interest rates available, so be sure to check them out!
Idea #2: Retirement Accounts (401k or Roth IRA)
Investing in your 401(k) is a great way to secure your financial future. Not only do you get matched contributions from your employer, but the tax benefits make it easy for employees to invest. Contributions are tax-free until retirement, so it’s a good place to put money while you’re working a side hustle or contract gig.
A solo 401(k) is a great way to take advantage of these benefits if you don’t have an employer.
In addition, investing in a Roth IRA is a smart idea as well.
Idea #3: Invest in Cryptocurrency
Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and control the creation of new units. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009.
Cryptocurrencies have experienced a wild ride over the past year! In the past five years, bitcoin prices have swung from a high of $68,000 in November 2021 to the lowest dip of $3236 in December 2018 (source). Many experts believe that crypto will be adopted widely in the future, and some predict that one Bitcoin will be worth $200,000 or more.
Investors can purchase a range of cryptocurrencies through reputable platforms such as Coinbase and Bitstamp. The most common crypto are Bitcoin, Ethereum, Litecoin, and USDC (a stablecoin pegged 1:1 with USD).
Idea #4: Invest In The Stock Exchange
Like an active trader – either as a day trader or swing trader.
When you invest in the stock market, this is a way to make money on your investments.
In fact, you can make money fast in stocks. But, you need to have a solid trading plan first.
My favorite course is Trade and Travel with Teri Ijeoma. In fact, check out my Trade and travel review and begin your journey to making $1000 a day.
Idea #5: Peer-to-Peer Lending
If you’re looking for a solid investment opportunity, peer-to-peer lending may be a good option for you.
Peer-to-peer (P2P) lending service that connects borrowers and investors. Because it’s a peer-to-peer platform, it can be more profitable for the investor.
Both Lending Club and Prosper are examples of investment platforms in this space.
Idea #6: Become an Entrepreneur
There are many options for entrepreneurs to make money. You can start a restaurant, retail store, or offer your services for a fee.
Another great way to make money is by investing in something you’re passionate about. For example, if you love cars, you could open a car detailing business. This requires some planning and dedication but can be very rewarding.
As an entrepreneur, your goal is to invest in ways that have the potential to turn over $1000 per day.
Idea # 7: Invest in Yourself
When you think about it, the best investment you can make is in yourself.
If you have 100 to invest, find what you are missing and fill it with new knowledge. Learning never stops – it’s a continuous process that will help you grow as an individual and stay ahead of the competition.
This is one area where you have the possibility to make well beyond just $1000 a day.
In fact, many of the best millionaire quotes focus on investing in yourself.
Idea #8: Invest Money in Index Funds
Outside of retirement accounts, many people overlook investing in the stock market as an individual.
Index funds have been a popular choice for investment managers for many years. They are a type of mutual fund that tracks the movements of an index, such as the S&P 500 Index. Because these types of funds follow an index, they provide diversification and typically come with lower fees than actively managed funds.
For these reasons, investors may want to consider using index funds when building their taxable investment portfolio.
Idea #9: Enroll in a Course or Certification
There are many different courses and certifications you can take to improve your skills.
This “new skill” could help you transition into a different career. A “certification” might help you get promoted in your current position, or it might allow you to begin working in a new field.
Either way, you are investing $100 or more today to make 10x your money in the future. Consider what skill can be useful in your professional or personal life and invest in a course.
Idea #10: Clear Your Debt
Paying off debt is a guaranteed return on investment.
This may seem a little backward but hear me out…
If you add an additional $100 to paying off your debt consistently, that means you are that much closer to freeing up a huge amount of debt payments to go somewhere else.
In this case, your overall debt payment can be invested in other ways and you will quickly improve your rate of return.
Idea #11: Work As A Sales Person
Commission payments are a large part of income for salespeople. In fact, US News reports that the average sales professionals earn an average salary of $73,500 in 2020.
This is a competitive field, but it can be very rewarding for those who are driven to succeed.
You probably will have to invest in a business degree to make this career field worth it.
Idea #12: Write A Book
Books are a great way to make money. They are one of the few investments that can be made with the intent to generate passive income. In other words, you put in some work at the beginning and then receive payments over an extended period of time without having to do anything else.
Writing a good book is an easy way to make money in 2023. As an independent self-publisher, if your book sells 100 copies per day at $10 each, you will make $1000 on every copy sold.
Publishing companies can help pay an advance for your work and handhold you throughout the process. You might need skills beyond writing if you want your book published at one of the larger publishing companies.
If you are serious about becoming an author, it is best to go through a publishing company and have them edit your work for you. This will ensure that your book is high quality and likely to sell more copies.
Remember: publishing a book is not cheap! It takes a lot of hard work and dedication, but if done correctly it can be an excellent way to make 1000 dollars a day or more.
Idea #13: Become a Book Nerd to Build Skills
Investing in books is a way to improve your knowledge and increase productivity. It’s impossible to become an expert in every field, but it’s possible to become one by reading about them. Books can change the way you view life and give you fresh perspectives on how to handle finances, as well as other aspects of life.
An investment of $100 in 2023 would yield $1000 or more depending on the non-fiction niche books you choose.
So, what are you waiting for? Start reading!
Idea #14: Online Flipper
So you want to flip 100 bucks to 1000? Well, it’s not as hard as you might think. In fact, with a little bit of effort and some basic knowledge, you can turn that hundred into a thousand in no time at all! Here are a few tips to help get you started:
Find something to flip. This could be anything from furniture to clothes to electronics. Keep an eye out for items at local retailers that are on sale and look like they could be resold for more online.
Know your market. What is the average price for the item you’re looking to sell? Knowing this information ahead of time will help make sure that you don’t sell your product for too little (or worse, too much).
Have the proper tools ready before starting your flipping business. This includes having a good camera or phone with which to take pictures of your products, a computer or laptop with which to list them online, and PayPal or another payment processing system set up and ready to go.
Be prepared for some work! Flipping isn’t always easy–you may have to spend time researching what items are selling for how much online, traveling long distances to find good deals or dealing with frustrating customers.
A great way to get started is to learn more from the Flea Market Flippers! They are very successful and teach others how to flip items
If you’re willing to put in the effort, flipping can be a great way to make some extra money on the side.
Idea #15: Invest in Real Estate
There are a number of great reasons to invest in real estate in 2023. In fact, real estate is one of the best investments for making money.
To start investing today, set aside a few hundred dollars each month and invest in real estate over time. This will help you build your wealth slowly and steadily.
Ways to Invest in Real Estate:
Rental Properties: Investing in rental properties can prove profitable with monthly renters and appreciation from rental income or capital gains as a property is worth increasing over time. However, rental properties require more upfront money and more work to maintain than other types of real estate investments.
Flip Houses: Another option is buying properties at low prices, fixing them, and selling them for a quicker profit.
REITs: Real estate investment trusts are a great way to access real estate much like mutual funds. These are highly regulated. However, learn about the best paying jobs in REITs.
Crowdfunded Options: Crowdfunded real estate can be accessed by anyone with a little bit of money – you don’t need to be a millionaire to get started! The returns tend to be more significant than the stock market so it’s a good choice for beginners. Plus, EquityMultiple lets you invest in real estate without worrying about managing a property yourself. It’s possible to make $1000 per day through EquityMultiple, depending on the time frame and market conditions.
Between crowdfunded real estate, rental properties, and REITs – there are plenty of options to choose from when it comes to investment vehicles. Each has its own unique advantages and disadvantages, so it’s important to do your research before settling on an option.
Overall, though, investing in real estate is a great way to grow your wealth and secure your financial future!
Idea #16: Get a New High Paying Job
There are many high paying jobs in the world, but the skill necessary to get one of those jobs is managing people. People who manage other people are able to get paid more because their skills are rare and in high demand.
Management positions are typically the highest paying, but there are also many other responsibilities as well. other lucrative options to consider.
This will help you find more money to invest on a regular basis and start making more money each day.
Idea #17: Affiliate Marketing / Influencer
Affiliate marketing is a great way to make money online. In fact, many affiliate marketers earn six figures or more per year. So what is it?
Affiliate marketing is the practice of advertising a company in exchange for payment. Affiliate marketers work with blogs to post about products and services, which makes them eligible for receiving payment when someone clicks on the link and purchases something from the company they’re advertising for.
It’s not likely that you’ll make this kind of money right away, but as your influence grows, you can certainly make some good cash through affiliate marketing programs.
The costs associated with getting started are relatively low–you can probably get started for less than $100–and it takes about the same amount of time to build up your blog’s audience and reader base from scratch. So if you’re looking for a solid way to generate some extra income online, give affiliate marketing a try!
Idea #18: Start Your Own Blog
With just $100, you can start your own blog and make money.
Blogging is a great way to make money and requires little in the way of cash or startup costs. In fact, many bloggers start their sites for free and then upgrade to more expensive hosting plans as their blogs grow in popularity. The cost of starting a blog is minimal and you’ll need to find your topic to write about first, but it’s possible over the course of years.
There are many different types of blogs that can be started with their own benefits – from personal finance advice to cooking tips – so finding the right one for you is essential.
To monetize your blog, consider offering services or digital products to consumers interested in what you have to say on the topic of your blog’s content. For example, if you’re a great cook, you could start a cooking blog and sell recipes through an online store; or if you’re an expert on personal finance, you could create e-courses teaching people how to save money and invest for their future.
Blogging is a long game; SEO traffic requires patience, but the payoff will be worth it in time. It can take anywhere from 6 months to over 18 months for bloggers to start seeing results. However, those who stick with it and reinvest their profits back into their sites can make $1,000/day from their blogs.
So what are you waiting for? Start blogging today!
Idea #19: Charity
Philanthropy is an excellent investment, so donating to charity is a wise choice.
Not only do you help others in need, but you may also be rewarded with tax breaks or other benefits.
Additionally, many charity works are good investments because of the promise of reward. For example, building a well in a developing country can provide access to clean water for years to come.
Look for ways to give where your donation can be matched.
Idea #20: Save For College
You can invest $100 and make $1000 a day by saving it.
One way to save for college is to invest in a 529 plan. A 529 plan allows you to save money for college tax-free. In addition, many states offer tax deductions or credits for contributions made to a 529 plan. Another benefit of a 529 plan is that the money invested grows tax-deferred. This means that you don’t pay taxes on the earnings from your investments until you withdraw them from the account.
Many parents find it difficult to save for college because they face high tuition costs and other expenses associated with sending their children to school. However, if they start early and contribute small amounts on a regular basis, they can accumulate enough savings overtime to cover most or all of their child’s education costs.
Idea #21: Use Gig Economy Apps to Earn Money Fast
Now, it’s easier than ever to find work. There are a number of apps and websites that can help you find short-term or long-term work. These include apps like:
These apps provide a new way for people to make money when they’re not working traditional jobs.
How can I invest $100 and make money everyday?
There are a variety of different ways that you can invest your money in order to make a profit.
The most hands off approach for many is investing in index funds. As a buy and hold strategy, you are likely to earn 6-8% plus on your investment.
As you hold onto the index fund for the long term, you are able to participate in any upside should the stock prices go up.
Invest $100 to Make $1000 a day is possible!
It’s true–you can make a lot of money by investing just a small amount at first. For example, if you invest $100, you could earn up to $1000 in profits! This is possible by following the strategies outlined in this article.
When you need to know how to make 2000 fast, this is how you do it!
Of course, it’s important to remember that investing isn’t limited to those who have a lot of money. In fact, anyone can benefit from this type of activity financially and make more money in the process.
So don’t be discouraged if you don’t have much saved up already. You can start by investing $100 into the stock market and then reinvesting your profits as soon as possible, in order to grow that initial investment. And who knows? With a little bit of hard work and patience, you could be making thousands of dollars per day before you know it!
This is how you can double $10k quickly.
Don’t delay in investing. You have to start at one point to start making money.
Then your next goal will be how to turn 10k into 100k.
Know someone else that needs this, too? Then, please share!!
Most mortgages carry a 30-year term, even if they’re adjustable for some period of those three long decades.
But in some cities, it’s reasonably possible to pay off your mortgage a lot earlier thanks to low home prices and decent wages.
Now, this isn’t to say you should pay your mortgage down aggressively…it’s just that you could, if you were so inclined.
Unsurprisingly, most of the cities in the top 10 list can be found in the central states, like Ohio, Michigan, and Missouri. But there are also spots in Pennsylvania and New York where home buyers can get free and clear in no time at all.
The Fast List
The data nerds over at Realtor came up with the list above by calculating median home prices in the top 50 markets in the U.S. and lining them up with the recommended 28% housing DTI ratio.
The result is a short 5.4 years to pay off a median priced home of $128,000 in Cleveland, Ohio. Sure, your football team won’t be very good, but at least you’ll have a football team.
And if you focus on tackling the mortgage, you’ll only have to pay taxes and insurance on your digs in little more than half a decade.
That’s certainly pretty cool if you’re not one to carry lots of debt. And you might get a decent water view on the “North Coast,” a term I’ve never heard until today.
You can pull off the same magic in cities like Rochester, NY, Pittsburgh, PA, and Buffalo, NY.
There are plenty of other major metros on the list as well, including the likes of St. Louis, Indianapolis, Cincinnati (hard to spell, but decent football), and Kansas City (great baseball).
In Indy, some 71% of the homes are affordable to prospective home buyers, and St. Louis was deemed a top 10 up-and-comer by Realtor.com thanks to strong projected home sales and future home price appreciation.
So if you don’t want to worry about the mortgage for more than a handful of years, as opposed to into your old age, check out those cities. You may even be able to take out a 15-year or 10-year fixed mortgage at the outset to save a ton in interest and grab a lower mortgage interest rate.
Conversely, if you want to keep your mortgage forever, look at these 10 superstars.
The Slow List
In Los Angeles, it will actually take you nearly the full 30-year term to pay off your mortgage. The annual income of around $100,000 in the 90210 requires a lengthy 29.4-year amortization period.
So no 15-year fixed for you unless you’re making big bucks. You’ll need a 30-year mortgage.
The same goes for much of the Bay Area, including San Jose and San Francisco, and in sunny San Diego. That explains why lenders are increasingly offering zero down mortgage options like the POPPYLOAN.
Hot cities such as Denver are starting to get a hair expensive too seeing that it’ll take the average buyer 21.3 years to pay off the mortgage without breaking the bank or raiding the retirement nest egg.
It’s a little bit better in places like Miami and Portland, but these cities are clearly getting more expensive as homeowners from nearby states (and countries) flock to affordability.
However, there are still some relative bargains to be had in places like Sacramento, California and Austin, Texas where it can take less than 15 years to get mortgage-free while still saving for retirement and living comfortably.
How are you doing on your New Year’s resolutions and goals? Are you still on track? Many take no action and expect different results. Why do we keep doing the same things over and over and “hope” things will mysteriously “change”? Hope and change are more than words. They can win elections, but the proof is in the results. Are you getting the financial results you desire?
As finances affect almost every area of our lives, stewardship should be one of the areas that capture our greatest attention in the New Year. Yet as a portfolio manager and financial advisor for the past 16 years, I am finding this is the area most people neglect. They get “too busy” or “uninterested” or even “unsure” how to plan ahead.
With the troubled economy, many financial problems that were covered over during the prosperous times have now been exposed. It’s not difficult to survive when jobs are plentiful and credit is easy! However in today’s economy smart money moves are a hot commodity!
Now as important as it is to make wise decisions with your money, it is just as important to avoid the bad money mistakes. These money mistakes are what cause people to go deeper in debt, not save enough for retirement, and lose money in the stock market to name a few.
In 2011, this is your year to make things right! Out with the old and in with the new. If you’ve already started saving for your future, this is the year to supercharge your savings. If you haven’t started, well this is the year to start! In order to plan ahead, we have to make sure we have a plan to combat the four deadly forces that wreak havoc in our finances.
To Win The Battle, We Need A Game Plan!
To win at the money game, you will need to be aware of the dangers that lie ahead. You can never be bullet proof, but having plans in place can soften the blows that are sure to come. Let’s look at four problem areas that have the potential to blow up a financial plan.
Problem Area # 1: Ignoring Inflation
Inflation erodes your future purchasing power over time. $100,000 in 2011 will not buy less products and services in 2012, never mind twenty years from now Are equities the best investment choice during inflationary periods of the market? Quite often, the answer is “no.”
What about bonds? Think again! These usually do not do well either. So what’s the magic answer? When inflation appears, the assets that tend to perform the best are alternative investments such as private equity funds, real estate investment trusts and commodities. These may not only help you diversify your portfolio, but also help you fight the effects of inflation on your invested assets.
Interest rates are starting to rise and I believe hyper-inflation (high inflation) is right around the corner. As you invest, you’ve got to recognize the impact that inflation can have on your investments and plan accordingly.
We Are Planning Ahead Right Now!
At FaithBasedInvestor.com, we are loading up on investments that do well during inflationary periods:
• Precious metals: We will continue to hold investments that have inflation protection. Gold and silver should continue to be hot commodities. • Agriculture: We will continue holding companies and investments that have exposure to the food industries. • Energy: We will continue to hold and look for opportunities in the energy sector: coal, oil, and alternative energy solutions. • Foreign Currencies: We will diversify our domestic exposure (US Dollars) by using foreign currencies like the Yen, Swiss Franc, and Aussie Dollar. • Dividend Stocks: We will look to hold and seek out companies paying dividends. This will help us with cash flow and outpacing inflation. • Inflation-Protected Bonds: We will continue to hold U.S. and foreign bonds that have inflation protection.
Problem Area # 2: Ignoring Investment Fees
Investment fees represent the second wealth killer. These fees can add up to thousands or even millions of dollars over decades of compounding. 401(k) management and administration fees, mutual fund fees, and annuity expenses wipe out investor’s wealth each and every year. The Department of Labor recently showed that even a 1% increase in your fees can wipe out as much as 28% of the value of your 401(k) over time. Also look at your mutual funds. The average cost of most funds is north of 3% annually! (1.6% average expense ratio and 1.4% SAI Fees) For more on fees check out this article on 4 reasons why mutual funds are lousy investments.
Problem Area #3: Ignoring Taxes
The big appeal of 401(k)’s and IRAs is the ability to defer taxes, right? However, with the United States’ $14 trillion worth of debt, which likely direction do you anticipate future tax rates will go? 401(k)s, IRAs, and annuities are ticking tax bombs! The biggest problem with deferring taxes is this:
Let’s say you are successful managing your investments and grow a HUGE nest egg. Congratulations, right? Yes, it’s great to have more money! However, at retirement age when you pull this money out, all that growth and your tax deferred contributions now become fully taxable ordinary income when withdrawn. Say you save $5,000 and it grows to $100,000. The entire $100,000 is fully taxable. At a 40% tax rate, that’s $40,000 in taxes! The government allowed you the initial tax deduction of $5,000 for $40,000 or more in the future. Not a bad deal FOR THEM!
Now don’t hear we wrong. I’m not saving you shouldn’t have any tax-deferred investments. I just wouldn’t put all your savings here. I would have a combination of tax-deferred, tax-free, and taxable savings. It’s simply hedging your tax exposure.
Problem Area #4: Taking Far Too Much Risk For Too Little Of A Return
Many people tell you to buy an index fund and hold it forever… Or take a look at mutual funds with good five and ten year track records and you will do great! Good in theory, bad in practice for most investors. If you put $100,000 into an S&P 500 index back in 2000, that would be worth about $114,000 – a gain of nearly 14% in the S&P 500 fund from January, 2000 to January of 2011. Wow! 14% for 11 years worth of a roller coaster! Was this little return worth all of those sleepless nights?
Instead choose investments that are in line with your faith and values and you know inside and out. Most investors hand off their money to “someone else”, be it a mutual fund, advisor, broker, or money manager, without understanding what they are investing in, how much risk they are taking, what values they are supporting, and how liquid or illiquid the investment is.
Make This The Year To Get Educated
Don’t just take my word for it. Do the research, do your homework! Make this the year you will read up on finance and start making wiser decisions. What are your thoughts?
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Many people hit a period of financial hardship at some point in their lives. Maybe there’s a medical emergency and big bills, a job layoff, or a family member in serious need: These and other scenarios can put your money management in a precarious position.
Approximately 70% of Americans report feeling stressed about money, according to a CNBC/Momentive survey. This can be centered on anything from living paycheck to paycheck to worrying about saving for one’s (and one’s family’s) future.
Here, you’ll learn more about what happens when financial hardship hits and how to take steps to improve the situation, from applying for assistance to negotiating with lenders to discovering new sources of income.
What is Financial Hardship?
Everyone probably has their own definition of “economic hardship” that’s based on their own needs and wants. And the federal government has its own criteria for what counts as a “hardship” when it comes to taking an IRA distribution, looking for tax relief, or requesting a student loan deferment.
But generally, a financial hardship is when an individual or family finds they can no longer keep up with their bills or pay for the basic things they need to get by, such as food, shelter, clothing and medical care.
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Warning Signs
Sometimes financial difficulties can sneak up on a person, and catch them completely off guard. And sometimes, the warning signs have been there for a while, but were missed or ignored.
Identifying the root cause of financial distress can help give you a head start on working through your money issues. Here are some red flags that might signal a person is headed for financial distress:
Having Credit Card Balances At or Above the Credit Limit
While using credit cards may seem like a good way to get around a short-term lack of funds, the practice could lead to extra fees and a lower credit score. The percentage of available credit someone is using — known as a credit utilization ratio — can indicate to lenders how heavily they’re depending on credit cards to get by. And because it’s one of the major factors in determining a person’s overall FICO score (a credit score lenders use to determine whether to extend credit to a borrower), financial advisors typically recommend keeping card balances at or below 30% of the limit.
Juggling Which Bills Get Paid Each Month
It may be tempting to skip a payment from time to time, hoping to catch up eventually — but there can be short- and long-term consequences for juggling bills. Insurance coverage may be lost. There may be a late fee, or a bill could be turned over to a collection agency.
Utilities can also be shut off, and a deposit might be required to restart the account. Making late payments on a credit card could lead to a higher interest rate on the account. And late payments and defaults can hurt credit scores.
Only Making Minimum Payments on Their Credit Cards
It may be necessary to make minimum payments if times are especially tight, and there likely won’t be any short-term harm. But even if the cardholder stops making purchases, just the interest charged will keep the account balance growing, possibly extending the amount of time it takes to pay down that debt by months or years.
Often Paying Late Fees or Overdraft Fees
A one-time mistake may serve as an annoying reminder to be more cautious with money management, but if late fees, overdraft and non-sufficient funds fees, and overdraft protection transfers become a regular thing, they can add another layer of worry to a person’s financial burden. (Using alerts, automatic payments, and apps from your financial institution may offer a more effective method to track bills as well as deposits and withdrawals.)
Having a High Debt-to-Income Ratio
Lenders often use a person’s debt-to-income ratio — a personal finance measure that compares the amount of debt you have to your income—to determine if a borrower might have trouble making payments. If a person’s debt-to-income ratio is high, it could make it more difficult to borrow money, or to get a good interest rate on a loan.
Tapping Retirement Savings to Pay Monthly Bills
In certain cases, the IRS will allow an account holder to withdraw funds from a 401(k) or IRA to cover an immediate and heavy financial need (such as medical expenses, payment to avoid eviction or repair home damage) without paying the 10% early withdrawal penalty. But taxes will still have to be paid on those distributions. And taking that money now, instead of letting it grow through the power of compound interest, could have serious repercussions for the future.
Dealing with Financial Hardship
For those who’ve been struggling for a while, or who’ve had a sudden but substantial financial loss, it might feel as though they’ll never recover. But there are several options those who are experiencing financial trouble might consider taking to get back on track. Some they can do for themselves, while others might require getting financial hardship help from others. And while some might be temporary, others take a longer view. Here are a few:
Reducing Monthly Spending
Creating a monthly budget can help individuals and families prioritize and guide their spending decisions. This may involve prioritizing your monthly expenses, starting with the essentials and going down to the “nice to haves.” Once you’ve established which expenses are the most important, you may then be able to look for places to cut back or cut out of your budget altogether. Cutkacks may not feel fun, but they can help jump-start your recovery.
For example, could you cut costs if you cooked meals yourself more often? Are you trying too hard to keep up with what friends and family are spending on clothes, vacations, and cars? Are there monthly bills that could be reduced (could you save money on streaming services, internet, and phone services; manicures and other beauty treatments; or even rent, insurance, or car payments)? It may help to start by tracking expenses for a month or so to get an idea of where money is going, and then sit down and map out a more realistic path for the future.
Creating a Debt Reduction Plan
Along with a budget, it also may be useful to come up with a plan for paying down credit card balances, student loans and other long-term debt. It’s important to always make the minimum payment on all these bills, if possible, but a personal debt reduction plan could help with prioritizing which bill any leftover money might go toward after all the household expenses are paid each month — or the money might come from a tax refund, bonus check from work, or a gift. Knocking down debts that include high amounts of interest can eventually free up more cash to put toward short- or long-term savings goals.
Looking for Ways to Earn Extra Income
Is there a way to turn a hobby, skill, or interest into some extra funds? Maybe a favorite local business could use some part-time help. Or, if a second job is out of the question, perhaps a side hustle with flexible hours is a possibility. Writers, artists, and designers, for example, may be able to turn their talents into a side business. Babysitting the neighbor’s kids or running errands for an older person are also options. And, of course, on-demand services like Uber and DoorDash are employing drivers, delivery persons, and other workers.
Considering a Loan to Consolidate Bills
Getting a personal loan for debt consolidation won’t make money problems go away completely—but it might make managing payments a little simpler. With just one monthly payment (instead of separate bills for every credit card or loan) it can be easier to keep tabs on how much is owed and when it’s due.
Because interest rates for personal loans are typically lower than the interest rates credit card companies offer (especially if a rate went up because of late payments), the payoff process for that debt could go faster and end up costing less. (Generally, lenders offer a lower interest rate to those who have a higher credit score, borrowers who are already behind on their bills may pay a higher interest rate or have more trouble getting a loan.)
Student loan borrowers also may want to look into consolidating and refinancing with a private lender to get one manageable payment and, possibly, save money on interest with a shorter term or a lower interest rate.
Refinancing may be a solution for working graduates who have high-interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans.
Federal loans carry some special benefits that private loans don’t offer, including public service forgiveness and economic hardship programs, so it’s important for borrowers to be clear on what they’re getting and what they might lose if they refinance.
Notifying and Negotiating
Ignoring credit card payments and other debts won’t make them disappear. Borrowers who can clearly see they’re headed for financial trouble may wish to notify their credit card company or lender and try to work out a more manageable payment arrangement. (There are debt settlement companies that will do the negotiating, but they charge a fee for their services.)
A credit card issuer may agree to a reduced, lump-sum payment or a repayment plan based on the borrower’s current income, or it may offer a hardship program with a lower interest rate, lower minimum payments, and/or reduced penalties and fees. The options available could depend on why a customer fell behind, or if they’ve had problems before.
Financial hardship assistance is sometimes offered by mortgage lenders. Because these lenders generally don’t want their borrowers to foreclose on their homes, it’s in their best interest to work with borrowers when they get in trouble. The lender may be willing to help the borrower get caught up by forgiving late payments, or they may change the interest rate of the loan or lower the payment.
If you have federal student loans and are experiencing financial hardship, you might qualify for a special repayment plan, such as pay-as-you-earn, or an income-based repayment plan.
It can also be helpful to reach out to service providers (such as water, electricity, internet) and let them know you are experiencing financial difficulties. Providers may be willing to work with you and you may be able to come to an agreement well before any shut-off actions go into effect. This can also save you from late fees, or going into collections.
Getting Financial Help
There are also a number of government programs designed specifically to help people overcome sudden financial hardships. Those who’ve lost a job may be entitled to unemployment benefits. If that job provided health insurance, you may want to look into COBRA to see if you can maintain affordable health insurance. Those who were injured at work may be entitled to workers’ compensation.
Also, some people facing financial hardship may qualify for state or federal benefits like Medicaid or Social Security Disability.
Though not free, a financial professional who specializes in planning, saving, and investing may be a worthwhile investment. He or she may be able to offer a fresh perspective and help create a path to financial freedom. There may also be free or low-cost debt counselors available via non-profit organizations.
Preparing for Current and Future Challenges
Once you’ve developed your personal plan for overcoming financial hardship, you can begin working on your goals of becoming more financially independent. If the cause of your hardship is temporary (you were out of work but quickly found a new job, for example), it may take just a few months to get back on your feet. If the problems are more difficult to overcome (you’ve lost income through a divorce, or you or a loved one has an ongoing medical condition that requires expensive treatment), the timeline could be much longer. Once you’ve put your plan in place, you may want to review it on a regular basis, and perhaps do some fine-tuning.
The Takeaway
Many people go through periods of financial hardship, and often for reasons that are beyond their control. But that doesn’t mean they are out of options. There are many simple and effective steps people can take. Cutting monthly expenses, consolidating debt, and getting outside assistance are moves that can help them get back on the right financial track.
Ready to get your finances organized? You also may find it easier to track expenses and stay on budget by separating your money into virtual buckets or “vaults.” SoFi Checking and Savings is an online account that features Vaults to allow members to set aside money for different financial goals, track their progress, as well as set up recurring monthly deposits. What’s more, a SoFi Checking and Savings account offers a competitive annual percentage yield (APY) and charges no account fees, plus you can spend and save in one convenient place.
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The discussion yesterday about how to earn money when you’ve lost your job got me thinking about ways to earn extra income outside regular employment. None of these are quick fixes, but they’re ways to generate cash in your spare time.
Get a Second Job
A second job can be an excellent way to earn extra money if you have the time and energy. Why have a second job?
To pay off your debt
To build up your savings
To get more experience
To ease into a career transition
Real-life example: In 2000, I took a second job programming computers. For several months, I was working sixty hours a week. I’ve never been so flush with money in all my life. Too bad I was a spendthrift back then — it was all wasted on computer games, comic books, and Magic cards.
Become a Consultant
Earlier this year, Andréa wrote a guest entry about becoming a consultant to defeat debt quickly:
“Consulting” may sound intimidating. It’s really just a fancy word for someone who trades their knowledge and expertise for pay. Every time you make a suggestion, recommend a process, draw up a plan or manage a process, you’re using consulting skills. To get into consulting, you just need to find someone who can use your expertise.
Read more advice about how to become a consultant at Andréa’s site.
Real-life example: After I decided that computer programming was not for me, I set up a small computer consulting business. I designed web pages, maintained networks, and repaired computers. Though I didn’t have much work (I never pursued the business as much as I could have), my hourly pay was the highest it’s ever been in my life.
Earn Money From Your Hobbies
If you’re like most people, your hobbies cost money. They may cost lots of money. For example, I used to spend hundreds of dollars for new camera lenses just so I could take better photos of my cats. Is there a way to turn your hobby into a money-making proposition? Even if you make just a little cash, you can help offset your costs. Here are some more ways that you can use your hobbies to bring you wealth.
Real-life example: After spending a fortune on lenses and camera equipment, I’ve actually been able to make a little money on my hobby. The $750 I’ve generated from prizes and sales is peanuts compared to what I’ve spend on the hobby, but it’s a start.
Make Money Online
Wait. Didn’t I just write that blogging is no way to get rich quick? Absolutely. But blogging can be a way to supplement your income. If you have subject that you’re passionate about, and if you like to write, a blog can let you earn extra money from your expertise.
But blogs aren’t the only way to make money online. You could open an online store. You could sell things on eBay. Here’s a list of 10 ways to make money online from Web Worker Daily.
Real-life example: This blog.
Sell Stuff
A final way to earn some extra cash fast is to sell things. Look in your closets. Check your bookshelves. Walk out to the garage. See all that junk? How much of it do you actually use? Couldn’t you borrow books from the library when you need them? When was the last time you played Mario Kart 64? Wouldn’t you feel better if your house were less cluttered?
As long as you don’t try to sell it all at once, it doesn’t take much time and effort to sell your used stuff to generate some extra cash.
Sell your most valuable items on eBay. (My eBay tips.)
Consider selling certain specialty items to specific stores: sell your used CDs to a music store, your used Nintendo stuff to a game store, etc.
Use Craigslist to sell bulky items, or to get rid of stuff that just won’t sell. (My Craigslist tips.)
Hold a garage sale to purge everything else. (Our annual garage sale is just a month away — I can’t wait.)
Real-life example: Once or twice a year, I sell extra stuff I’ve accumulated. Each year at our garage sale, I make about $300. Every couple years, I sell more valuable items on eBay. Last year I made $1500 for a few hours of work.
Use Your Extra Money Wisely!
What should you do with the extra money you earn using these techniques? Put it in a high yield savings account, establish an emergency fund, pay off debt, and then save for retirement!
By Jeff RoseLeave a Comment – 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 March 2, 2013.
The Roth IRA conversion is still in effect. If you have been by my blog, you have probably seen that I have written numerous articles talking about the Roth IRA conversion. For 2010 there was a lot of hoopla about it, so I wanted to make sure that my readers and my clients had a good understanding to see if it actually made sense for them. The big questions going forward are, “Can you still do it? What is the tax treatment?” and “Does it make sense?” This post will answer these questions and explain the Roth IRA conversion rules of 2011.
Can You Still Do A Roth IRA Conversion?
Yes, you sure can. Prior to 2010, there was $100,000 adjusted gross income limit as far as those who could actually do the conversion.That means if you made more than $100,000 per year, you were on the outside looking in and couldn’t partake. In 2010, they lifted those limits to where anyone and their brother can now do the Roth IRA conversion. What also made 2010 a bit more special is the IRS allowed a special tax treatment to where you could defer the tax payment over a three-year period. Going forward that is no longer the case. [embedded content] Please keep that in mind. In 2011, you can still do the conversion, but any tax that is owed is due in that year specifically, so you cannot defer for a two-or-three-year stretch. What does that mean exactly? That means whenever you convert, come April 15 of the following year when you actually file your taxes, that is when you pay the tax on the conversion amount. The “conversion amount” is the value of the account the day that you actually convert.
How Do You Pay The Taxes?
Another question I get is, “What is the tax I pay?” or “How does that work exactly?” or “What is my basis from the conversion because I have been investing in my IRA for 15 years? How do I know?” The tax calculation is actually pretty simple. Your new basis becomes the amount that you actually convert. It doesn’t matter how much you invested 15 years ago. What matters is what is the value today of the IRA when you convert.
Let’s say you invested $10,000 inside that IRA. It’s now worth $45,000. The day that you convert, if it is worth $45,000, that is how much you would add as income for the year you convert. That will then determine what tax bracket you fall under and how much the appropriate tax will be. Pretty simple, but I would strongly suggest meeting with a tax professional or sitting down with your financial advisor just to make sure that you’re clear on what the tax consequence is for you and also see if it makes sense.
What If You Have Multiple Accounts?
Another common question I get is, “I have all of these IRAs and 401Ks. If I only want to convert some, how does that work?” Remember, if you have an IRA at a brokerage firm, if you have an IRA at a bank, if you have IRAs spread out everywhere, the IRS looks at all your IRAs as one. So, if you’re only trying to convert a small portion of that, that is okay, but the big factor that comes into play is if you have a nondeductible IRA. Meaning that, if you contributed to traditional IRAs after taxes so you didn’t get that tax deduction, the IRS is not going to just let you convert the nondeductible IRAs. You are going to have to pay some type of prorated tax on that amount. That, I confess, does get a little bit confusing. If you go my post that discusses the Roth IRA conversion tax rules, it outlines a couple different scenarios that can walk you through to see how much you’d have to pay with those taxes.
One last point on the IRS and how they view IRAs all as one; keep in mind the other option of converting it is not just IRAs but old 401Ks or any type of old retirement account. As far as the aggregate total, the IRS does not look at the 401K as part of that sum. So if you have some IRAs that maybe you don’t want converted and you don’t want that to be used into the conversion calculation, if you have the ability to roll those IRAs back into an old 401K or into your current 401K you can do so. Just another neat little trick that some people may or may not know, so hopefully that is helpful.
Does A Roth IRA Conversion Make Sense?
Lastly, the big question that I always get, and I’ve got this probably at least a thousand times this past year, “Does the Roth IRA make sense for me?” Here’s the thing; it depends. Call that the cop-out answer, but honestly it truly, truly depends. I have analyzed and analyzed several different clients who were interested in doing the Roth IRA conversion. It didn’t make much sense for them mostly because they couldn’t allow the growth tax fee with the Roth to really be a benefit to them or they didn’t have the cash to pay for the tax out of pocket. Those are my two requirements if you are actually going to do the conversion. You want to be able to pay the tax out of pocket. You don’t want to pay for it out of the account. That basically defeats the whole purpose of doing the Roth IRA conversion. Those are a couple things to consider.
I hope that answers your questions regarding doing a Roth IRA conversion. As you can see it, it’s not as straightforward as one would think. Be sure to seek the counsel of a professional before you pull the trigger. But even if you do pull the trigger, rest assured that you can also do a “take back” and undo a Roth IRA conversion by doing what’s called IRA recharacerization. Just remember that if you choose to reverse it, you have to do so before a certain deadline.
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Till Death Do Us Part. When a couple join in holy matrimony, there are many new discoveries awaiting them. When it comes to their finances, there are potential to be some added benefits: joint checking accounts for consolidated record keeping, joint tax filing status, and lastly; the ability to contribute for a non-working spouse to contribute to their IRA. Ahhhh….isn’t marriage bliss? There are special rules and restrictions that apply to spousal contributions to IRAs that should also be considered when selecting an IRA for your family. Here we look at some of those rules to help you make an informed decision regarding your IRA account.
Disclaimer: While as tempting as it sounds, I would not suggest that a young couple elope just to be able to have access to a spousal IRA 🙂
Rules for spousal contributions.
There are a few basic rules to consider if you will be making contributions to your spouse’s IRA. For the year that you are making contributions, you must meet the following criteria:
Married to your spouse at the end of the tax year.
Spouse earned taxable income for the tax year.
File a joint federal income tax return.
Your taxable income must be less than that of the owner of the IRA.
It is also important to remember that the contribution limits are subject to change therefore it is important to remain up to date with IRS tax limits regarding maximum contributions that both you and your spouse can make to an IRA each year.
Spousal IRA Contributions
In order to contribute to an IRA you must have taxable income. This includes wages, commissions, bonuses and self employment income. This would generally rule out contributions made to an IRA from a non-working spouse, however that is not the case. Spousal contributions can be made to an established IRA from a spouse using the compensation income of the working spouse. This can be beneficial for stay-at-home parents or non working spouses who wish to contribute to retirement savings. In 2010 the contribution limits for the non-working spouse under the age of 50 was $5,000 for the tax year. This is in addition to the $5,000 their working spouse could contribute, equaling a total of $10,000 in possible savings. If you are 50 years of age or older, you can contribute an additional $1,000 per year in “catch up” contributions.
Taxation of Spousal IRA Contributions
Spousal contributions are taxed just as owner contributions. This will depend on the type of IRA account to which you are contributing. With a traditional IRA, all or most of your contributions can be considered a tax-deduction if you meet certain income requirements. While this is a great tax benefit at the time of contribution, it is important to remember that distributions from the traditional IRA will be subject to taxation. Contributions made to a Roth IRA are not considered tax deductible and will be subject to income taxes when you file your federal income tax return. While the tax benefits are not immediately realized, you will not have to pay further taxes when you take qualified distributions.
As you can see there are several factors to consider before deciding which type of IRA is right for you and your family. Once the decision is made, rest assured that you and your spouse are taking the necessary action to ensure a financially secure retirement. And if you haven’t told your significant other that you love them in a while, here’s your chance 🙂
This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
A year may seem like a short period of time, but you can accomplish a lot, including developing a one-year savings plan that can help you hit some significant financial goals. A plan that lasts 365 days can give you, as an earner, the opportunity to save and feel a sense of accomplishment.
In other words, a year from today, you could be richer than you are now, or potentially have a better emergency fund. Or, if you are diligent, you may be on your way to funding a European vacation or finally redoing that dated bathroom.
Of course, creating a plan that will work for your unique situation does require a bit of upfront effort. That’s exactly what you’ll learn when you read on.
Decide What are You Saving For
Before you even glance at your budget, it’s important to get clear about exactly what you’re saving for. Creating a specific objective can give you the information you need to create a solid plan to make it happen — it might also help motivate you to stick to that plan once you’ve made it.
cost of living to settle on something that will likely be achievable in just a year. For instance, maybe this year you want to stash cash for one of the following:
• A vacation you’ve been dreaming of for years (pending pandemic complications, of course).
• A down payment for a new car.
• A down payment (or significant portion thereof) for a new home.
• Long-awaited home improvements.
• Putting extra money away for retirement.
You may be familiar with the idea of SMART goals — that objectives are most easily met when they’re Specific, Measurable, Achievable, Relevant and Time-bound.
In the world of one-year savings plans, that means coming up with a specific dollar figure for your goal and making sure it’s relevant enough to your life to keep you motivated.
You probably also want to consult your earnings and expenses to ensure that it’s a realistic goal; it’s going to be a lot harder to save up $5,000 if you’re making $30,000 than it is if you’re making $60,000. (You’ll learn more about budgeting and cuts in just a second.) Divide your total goal by 12 to see how much it would require you to set aside each month, which will give you better insight as to how achievable it really is.
Once you’ve got your goal worked out, write it down and post it in a prominent place in your home, like on your refrigerator. Studies have shown that you’re more likely to reach your financial goals if you take this simple action, so it’s worth picking up your pen!
How To Create a One-Year Saving Plan You’ll Stick To
Now that you’ve got a goal in mind, you still need to figure out how to turn it into a reality. Here are some ideas on how you could do it..
Start with Your Existing Budget
You can’t make any big changes to your finances if you don’t know what they look like in the first place. And that means the first step toward revamping your budget is to take a closer look at how it looks right now.
If you don’t have a budget yet, take a month to track exactly where all your money is going. Be sure to include both regular, fixed expenses, like rent and insurance, as well as more flexible, discretionary spending like food and transportation. Be brutally honest. Tacking every cent of fixed vs. variable expenses will give you the best chance at figuring out how to spend less.
Which leads us to our next step…
Get Creative with Budget Cuts
There are really only two ways to save money: make more of it, or spend less of it. And while asking for a raise or starting a side-hustle might be smart moves, you only have so much leeway with your boss and time in your day. In other words, you likely have more control of how much you spend than how much you earn.
Since this is an elevated, short-term savings goal, you might be able to make more substantial cuts than you would if you were planning on implementing this savings strategy for the rest of your life. There are simple ways to cut down monthly expenses and save money daily. For instance, could living without streaming services be possible? Or could you quit dining out for one month and then vow not to buy any new clothes the next? A challenge like that can engage some people’s competitive spirit.
Even without these measures, how can you dial down your own living expenses? You might quit buying overpriced, pre-packaged convenience foods or find ways to get creative with ramen. Maybe you can start doing your own oil changes rather than taking the car in for service. Think of this as an opportunity to learn some new life skills while also stashing some extra cash!
Recommended: How to Save Money on Gas
Regardless of how you get there, your goal is to be able to set aside the monthly amount you’ll need to meet the one-year savings goal you wrote down and pinned to your bulletin board. So get out your calculator, and don’t be afraid to get creative.
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Make a Plan for Your Investments
No matter how much money you save, it won’t go as far as it could if you just stash it under your mattress. Figuring out where to put your savings is an important step in your planning.
Different kinds of savings accounts are used to help individuals save for different goals.
• For example, a long-term goal like retirement may be best suited for an investment vehicle like a Roth IRA, which offers some tax advantages.
• For shorter term goals like starting an emergency fund, an account that offers more flexibility and has less restrictions, like a high yield savings account, may be a better option.
Keep it Simple
Having a plan is one thing. Sticking to it is another. But if you keep a simple savings plan, you’ll stand a much better chance of actually making it work.
automating your finances by setting up recurring transfers can direct a portion of each paycheck into your savings account. This makes saving seamless — and ensures you don’t get stuck in that all-too-familiar situation at the end of the month where you accidentally spent what you intended to set aside.
And building in systemic cuts that you don’t have to think about (like ditching that monthly subscription box, for example) is a lot easier than poring over the coupon book every Sunday.
Recommended: Money Management and Setting Financial Goals
The Takeaway
Like any money goal, your one-year savings plan is going to take some grit to get to. But having the right tools at your disposal does make the process a whole lot less painful. Whether that means choosing one of the many budgets out there to find one that suits your style or using an app your financial institution provides, there are ways to enhance your money management.
A SoFi Checking and Savings Account offers you an easy birds’-eye view of your finances, and its Vaults feature allows you to set aside savings for specific goals and purposes.
Best of all, there are no account fees, you’ll benefit from a competitive annual percentage yield (APY), which can help your money grow faster.
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SoFi members with direct deposit can earn up to 4.20% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 4/25/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. SOBK0523010U