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The latest weekly survey data from Freddie Mac shows the 30-year fixed-rate mortgage jumped 40 basis points to an average of 6.70% this week, the highest level since 2007. 

The survey also indicates a large dispersion in rates, meaning that homebuyers can save hundreds of dollars by shopping around with different lenders.

A year ago at this time, rates averaged 3.01%. “The uncertainty and volatility in financial markets is heavily impacting mortgage rates,” said Sam Khater, Freddie Mac’s chief economist. The index compiles only purchase mortgage rates reported by lenders during the past three days.   

Inflation rose more than expected in August as rising shelter and food costs offset a drop in gas prices. Consequently, the Federal Reserve increased the federal funds rate by 75 basis points at its Federal Open Market Committee (FOMC) meeting in September. 

Another 125 basis points in hikes are still to come in 2022, with a federal funds rate topping out well above 4%.

Treasury yields show higher rates in the short term, signaling a recession on the horizon. The 2-year note, most closely tied to the Fed’s interest rate moves, increased five bps to 4.07% on Wednesday from the prior week. The 10-year note went from 3.51% to 3.72% in the same period.

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On HousingWire’s Mortgage Rates Center, Black Knight’s Optimal Blue OBMMI pricing engine measured the 30-year conforming mortgage rate at 6.643% on Wednesday, up from 6.124% the previous week. Meanwhile, the 30-year fixed-rate jumbo was at 6.294% Wednesday, up from 5.821% the week prior. 

An LO in the Miami, Florida area told HousingWire that on a $400,000 home purchase, with 5% down, a 700 FICO score, his clients are being quoted 7% for conventional loans and 6.125% on FHA and VA mortgages.

“This will be a time of changes,” he said. “Many LOs will leave the industry (especially the ones that only do refis and only sell interest rates), others will move probably from retail to wholesale. Lenders will close and some others will need to merge because of the new liquidity regulations that are coming in 2023.”

Pressure on demand

Pressure on rates has sharply reduced demand for mortgage loans, according to the Mortgage Bankers Association (MBA). 

The market composite index, a measure of mortgage loan application volume, declined 3.7% for the week ending Sep. 23. The refinance index had a 11% decline from the previous week, and the purchase index was marginally down 0.4%.

According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 6.52%, up from last week’s 6.25%. Jumbo mortgage loans (greater than $647,200) increased to 6.01% from 5.79% in the same period.

“Our survey indicates that the range of weekly rate quotes for the 30-year fixed-rate mortgage has more than doubled over the last year,” Khater said. “This means that for the typical mortgage amount, a borrower who locked-in at the higher end of the range would pay several hundred dollars more than a borrower who locked-in at the lower end of the range.”  

To convince borrowers to take out a mortgage loan, some loan officers and lenders are highlighting how home prices are more affordable now than last year – and the ability of a borrower to refinance the loan when rates decline again. 

“There is more inventory relative to demand, and deals can be found. It’s transitioning to a buyers’ market, as 20% of sellers had a price reduction in August 2022, compared with 11% a year ago,” said Rich Weidel, CEO at Princeton Mortgage. “It’s now possible to buy a home for $400,000 that would have sold for $500,000 in 2021.” 

According to Weidel, if a prospective borrower bought that house in 2021 for $500,000 and put 20% down, the principal and interest, with rates at 3%, would be $1,686. Today, if the house could be bought at $400,000 and the interest rate was 7%, the payment would be $2,129. 

The homebuyer will pay more $5,316 per year due to the difference in rates, but would save $100,000 buying the house today compared to last year.

“Eventually, rates will come back down, and you can refinance the rate,” Weidell said. “If rates stay at 7%, it would take 18 years for the higher payment of $5,316 per year to chew up the $100,000 you saved buying the house.”

Still, home prices aren’t falling so dramatically in most markets. Not yet anyway. 

“Some buyers are giving low ball offers in the hope of having their offers accepted,” one mortgage broker/owner in Southern California told HousingWire. “Still the seller’s motivation is the key factor for whether to drop the price or not. The other issue is that many Realtors are still dreaming about having buyers fight over the properties and use that as a point of sale – but whether they succeed or not, that’s another question.”

James Kleimann contributed to this report.

Source: housingwire.com

Apache is functioning normally

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Mortgage rates, now around 6.5%, are cooling down the housing market and triggering mass layoffs in the mortgage and real estate industries.

Mortgage rates have nearly doubled to around 6.5% from the beginning of this year, but they may have not peaked, putting pressure on affordability for most prospective buyers as the Federal Reserve vows to tame inflation. 

Following the Fed’s decision to raise interest rates by an additional 75 basis points on Wednesday, the central bank said it will hike rates as high as 4.6% in 2023. Goldman Sachs predicts a 75 bps hike at the November meeting followed by a 50 bps raise in December and a 25 bps increase in January 2023. 

Interest rates can move higher as the economy stays firm, Logan Mohtashami, Lead Analyst at HousingWire said. “However, this is all about a tug of war between how long the economy can still be expanding.”

The Fed’s short-term rate does not directly impact long-term mortgage rates but it does steer market activity to create higher rates and reduce demand. Time will tell whether the mortgage market had already priced in expectation of the Fed’s rate hike on Wednesday, but in the months ahead, many industry watchers forecast mortgage rates to continue their climb until the central bank changes its monetary policy. 

“Before the Federal Reserve raised the federal funds rate by 0.75 percentage point this week, mortgage rates had already risen by a similar amount,” said Holden Lewis, home and mortgage expert at NerdWallet. “Now the Fed has signaled that it will hike rates several more times this year and next year, so mortgage rates have plenty of room to go up even more.”

We do not see new construction returning in a meaningful way any time soon. Our macro-outlook is that demand for housing will remain out of balance with supply for the mid to long term.

Kurt Carlton, President of New Western

“The trickle-down effect of rising borrowing costs means that homebuyers will continue to feel higher monthly payments,” added George Ratiu, manager of economics research at Realtor.com.

With the rate for a 30-year mortgage 300 basis points higher than in 2021, the buyer of a median-priced home this week is facing a monthly payment that is 66% higher than the same week in 2021, Ratiu noted. 

Marty Green, principal with mortgage law firm Polunsky Beitel Green, described increasing affordability pressures in the housing market as “throwing cold water on what was a frenzied residential real estate market.”

“Where ‘inventory’ was the big concern in 2021 and early 2022, the concern today is ‘affordability,’ with the combination of substantial price increases and rising rates simply pricing more and more Americans out of the market,” Green said. 

The number of existing home sales reflects how the housing sector has been impacted by the Fed’s interest rate policies. Existing home sales declined for seven consecutive months in August, declining 0.4% to a seasonally adjusted annual rate of 4.8 million units last month from July, according to the National Association of Realtors (NAR). Existing home sales are down 19.9% year-over-year. 

They (buyers with less financial stability) are having to go to surrounding towns instead of where everybody wants to be because they can no longer afford the more desirable locations.

Will Savage, an LO at PMC Mortgage

Although home price growth slowed and demand has weakened, tight supply is keeping prices elevated. The median existing house price increased 7.7% from a year earlier to $389,500 in August. While housing prices typically slow in July and August, they surged to an all-time-high of $413,800 in June.

With the mortgage industry accepting the current rate environment as a “necessary period of adjustment,” lenders are expected to roll out “creative mortgage products” to entice more borrowers, said Kurt Carlton, co-founder and president of real estate investment firm New Western. 

“We do not see new construction returning in a meaningful way any time soon. Our macro-outlook is that demand for housing will remain out of balance with supply for the mid to long term,” Carlton said.

According to the NAR, there were 1.28 million existing homes on the market in August and would take 3.2 months to exhaust the current inventory of existing homes at last month’s sales pace. A five-to-seven-month supply is viewed as a healthy balance between supply and demand. 

Loan officers get an up-close look at how much shoppers and capital-strapped buyers are getting priced out in the rate-rising environment.

Will Savage, a loan originator at PMC Mortgage, sees many pre-approved clients having to get reapproved for a mortgage based on the rate increases. 

With higher monthly mortgage payments, buyers who had money are getting spooked and some those with less financial stability are getting priced out, Savage explained. 

“They (buyers with less financial stability) are having to go to surrounding towns instead of where everybody wants to be because they can no longer afford the more desirable locations.” 

And for those shoppers who choose to buy, “they may be more likely to select an adjustable-rate mortgage (ARM) because their initial payments will be lower than those they would find with a fixed rate mortgage,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion. 

Buyers are going to have more choices than they’ve had in the last couple of years.

Matt Topping, an LO at Movement Mortgage

The way ARMs work is lenders offer lower mortgage rates for the initial term, generally three, five, or seven years. After that initial period ends, rates adjust periodically based on a benchmark or index, such as the Secured Overnight Financing Rate (SOFR), based on actual transactions in the Treasury repurchase market. 

About 9.1% of total mortgage applications were for ARMs for the week ending Sep. 16, according to the Mortgage Bankers Association (MBA). The volume is slightly lower than in May when it hit a 14-year high of nearly 11% of the overall residential mortgage applications.

While some housing market watchers, including Ratiu, expect that household finances will get squeezed by rising costs and a shortage of homes for sale, some hopeful loan officers see opportunities for buyers as they may be seeing price cuts. 

“We are already starting to have sellers realize we had a great run for a couple years and we’re getting more inventory,” said Matt Topping, a senior loan officer at Movement Mortgage.

“Buyers are going to have more choices than they’ve had in the last couple of years. They’re also going to have less competition and I think they’re going to be sellers who are more amenable to things they may have not even considered six months ago, a year ago.”

Source: housingwire.com

Apache is functioning normally

These days, my monthly budget is on the boring side. Aside from our regular spending, I’ve got a mortgage payment to fork over, groceries to buy, and utility bills to pay. Throw in some payments to my kids’ 529 plans and my SEP-IRA and I’m basically done for the month. After all of the bills are paid, the key for us is making sure that the rest gets transferred into savings so that it doesn’t accidentally get spent.

But it wasn’t always this way, and I was reminded of that fact the other day when I was flipping through one of my old notebooks. That’s when I found our monthly zero-sum budget for August of 2010, and that’s when our old lifestyle smacked me right in the face. Want to know how many bills I paid in that month? Twenty-four.

Car payments, credit card bills, and personal loans, oh my. It’s no wonder we weren’t saving anything. Fortunately, it was easy to look at that old monthly budget and pinpoint the exact cause of our unfortunate situation. The problem: We financed everything and never, ever paid cash.

Low Monthly Payments for Life

Fact: You can have nearly anything you want.

I can too. We all can. Cars. Clothes. Diamonds. Trips to Hawaii. Almost any earthly possession you’ve ever laid your eyes on can be yours.

Well, kind of.

If you’re willing to make monthly payments for as long as it takes, whether it’s five years, ten, or twenty, then it can be yours. Does that sound tempting? Probably not.

But that’s exactly what we do. In the fourth quarter of 2013, U.S household debt swelled to a monstrous $11.52 trillion. Of course, some of the money was borrowed to purchase homes, pay for college, or start a business. A certain percentage can also be blamed on things like medical bills, unemployment, and emergencies. But the rest? My guess is boats, iPads, and designer shoes. Oh, and let’s not forget furniture, date nights, and family dinners at the Olive Garden. The rest is anyone’s guess.

Stop the Cycle

We all know how easy it is to trade your car in for another. You walk into the dealership, they look your trade over, and you pick out another, nicer car. Your new car payment could even be the same as it was before. Hell, it might even go down. But are you really doing yourself a favor by trading up without the cash in hand? The answer is probably no.

I’ve been there. My husband and I traded cars around more times than I could count, mostly just because we would. Looking back, I think we were just bored. And sadly, we weren’t able to see that there were real costs associated with constantly trading up. We only focused on the monthly payment, and never had the goal of actually paying them off.

Fortunately, we finally made the decision to change our lifestyle sometime around the time that that budget was made. And once we stopped the madness, we made one huge change that put an end to the cycle once and for all. We began paying cash for anything and everything, and we refused to add to the pile by financing things we couldn’t afford.

Turning an Awkward Moment Into a Learning Experience

In the meantime, we got serious about getting out of debt. Fortunately, it didn’t take long to knock out everything but the two biggest sums we owed — the loan for my minivan and my husband’s student loans. I still remember the day we paid both of them off once and for all. The total was well over $10,000 and it literally pained me to hit the keys that would initiate the automatic bank transfer. I mean, it hurt. That money was mine and was earned with my own blood, sweat, and tears. And if you subscribe to the theories espoused in books like Your Money or Your Life, that money was literally my life force, and it was getting sucked away by a stupid van that I overpaid for in the first place.

I still have that van. Want to know why? Because it’s paid off, as is everything else I own. And now I’m literally gonna drive that van until the wheels fall off, or until the engine finally gives up or explodes out of sheer exhaustion at maybe 500,000 miles. (A girl can dream, right?)

I learned something from our adventures in debt and from that final $10,000 payment — most notably that I never, ever want to go down that road again. Parting with that much money at once was painful. It burned. It made me uncomfortable. And now, years later, I’m convinced that that’s exactly how it should feel.

Pay Cash and Feel the Burn

Since then, we’ve paid for everything with cash including a car for my husband, furniture, home remodeling projects, and more. And even though it has sometimes been painful, our refusal to finance anything has been a game-changer for our financial future. Here’s why:

  • Paying in cash forces you to consider the real purchase price – No matter what you’re buying, the fact that you’re paying in cash turns it into an entirely different experience. That’s because you have no choice but to consider how much money you’re paying overall, and not just what you’ll have to pay on a monthly or yearly basis.
  • Paying in cash might help you spend less – When you force yourself to pay in cash, big ticket items start to lose their appeal. Try walking into a dealership with the intention of paying $15,000 or $20,000 for a newer car. All of a sudden, the prospect of keeping your old paid-off junker becomes an incredibly attractive option. Am I wrong?
  • Paying in cash keeps you out of debt – The best thing about refusing to finance things is that it keeps you out of debt in the first place. We all know what a slippery slope that can be. There are so many benefits to being debt-free, including the option to save more of your income, less stress, and of course, the feeling of not really being beholden to anyone. It’s a freeing feeling, and it’s one that I will never, ever surrender without a fight.

If you’re in debt and are ready to make a change, start by creating a debt snowball. Conquer each one of your debts one by one by one, and refuse to give up until you’re finally debt-free. Adopt the mindset that if you can’t afford to pay cash for something, then you can’t afford it. Period. Only then will you free yourself from the chains that bind you. Only then will experience the feeling of owing nothing to anyone and the unexplainable sense of freedom that comes with it.

Once you’ve done what you set out to do, force yourself onto a cash-only diet. Cut up your credit cards if you have to — and learn to pay for everything with the cash you’ve stashed away in your own accounts, not with other people’s money. Know that it may make you feel uncomfortable, and rest assured that it’s supposed to. Paying cash hurts, and it should hurt.

That burn you feel? It’s simply the price you pay for your freedom, and it’s totally worth it.
How do you feel about paying cash? Is it painful? Do you think it should be?

Source: getrichslowly.org

Apache is functioning normally

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Sustainable fabrics that are taking over home décor   – Luxebook


Sustainable fabrics that are taking over home décor   – Luxebook


Home Lifestyle Sustainable fabrics that are taking over home décor  

By Arushi Sakhuja  
With sustainability being the need of the hour, many luxury brands are continuously trying to show new and innovative ways to reduce their carbon footprint. With the coming up of thrift stores, new fabrics (such as organic cotton and vegan leather), producing zero waste, cruelty-free manufacturing processes and reduced water technology, and renewable energy sources, as well as adopting a transparent supply chain; brands are working hard to adopt more eco-friendly modes of production. According to Saachi Bahl’s, Founder Saahra and #ConsciousEffort Design Show and Conclave, one must acknowledge that there is no unilateral, linear, or perfect formula to be ‘sustainable’. She says….. “It is a complex process, and many times strategies are dependent upon the context of the business, its production and utility. Therefore, we must be receptive to more people in the industry approaching the subject and give them the scope to continually improve their efforts as there is no one size fits all.” 
It is worth bearing in mind that practices like repairing old weaves, recycling or upscaling can go a long way in giving back to the planet. And sustainable fabrics have come a long way, one must acknowledge that sustainable products do not lack lustre and finesse anymore. Rather, there is a rise in the innovation of new fabrics increasingly used by luxury brands such as Gucci, Stella McCartney, Tommy Hilfiger and Bottega Veneta. Décor brands like Kar Conscious Living focusses on the importance of Indian textiles through raw fabrics and subtle designs, showcasing the essence of their weaves.  More and more home décor brands are using materials like organic bio-washed cotton and handwoven wool. 
Selecting the right fabric 
Saachi Bahl
It’s always good to check what goes into the making of our home décor pieces. We’re still a long way from reducing our consumption to optimum levels, so the least we can do is make eco-friendly shopping decisions. That includes digging into the environmental practices of the brands you love and finding out how ethical they truly are in their production and manufacturing processes. “Decor and fashion have always been sectors that other industries look to for ‘what’s next’. Fashion designers have an incredible opportunity to not only reach but consciously influence consumers and other industries by choosing to create with the end in mind, choosing a material like ECONYL® nylon that can help brands close the loop,” said Giulio Bonazzi Chairman and CEO at Aquafil Group.   
Trend-related shopping cycles take a toll on the environment. Home furnishing-related individual buying decisions can also play a crucial role in our carbon footprint. Globally, the furniture market is worth approximately $ 575 billion. Manufacturers deploy vast amounts of resources to meet high demands, including trees, plastic, cotton, fibre and toxic chemicals, and hence the rise of fast furniture further complicates the sustainability dilemma. Contrary to what is believed, creating a home with the planet in mind does not require sacrificing comfort, style or budget. We can curate spaces by choosing earth-friendly materials and optimising sunlight, airflow and ventilation to reduce our daily impact. 
How are materials sustainable?  
You most likely would have encountered a few new terms like  Econyl, Cupro and Lyocell. You know they’re good for the environment because that is the information we are given. But what exactly are these so-called sustainable fabrics that are taking over our world? Luxury labels are shifting their focus to vegan leather and recycled materials. And the fabrics you grew up with simply don’t cut it anymore. “There is a plethora of new materials that designers and textile manufacturers are working with to make fashion more sustainable. Bamboo and banana fibre, leathers made from plant-based materials, and even sustainable silk are being devised. Along with all these innovations, it is vital to remember to buy from accountable and transparent brands, buy less and buy better, and re-wear, repeat and repair your clothes,” believes fashion designer Nachiket Barve. Saachi Bahl’s Saahra Sustain offers womenswear classics handcrafted in GOTS-certified cotton or peace silk, shoes from plant-based bio-leather called Pinatex, collections made from Econyl and even bags made from cork.  On the design side of things, brands are using reclaimed and waste materials that have led to the creation of unique products and the design world is excited to further explore this avenue. Redefining this space, sustainable home decor brands and designers show us the beauty of old is gold.  
ECONYL
Econyl   
Econyl is making its presence strongly felt in the market. The fabric was pioneered by the Italian company Aquafil in 2011 and is a recycled nylon fibre that is regenerated from plastic trash in the ocean, such as fishing nets, discarded bottles and industrial waste. Aquafil cleans and shreds this waste through a chemical purification process to extract pure nylon. That means that the resulting fibre, Econyl, is no different from virgin nylon. Giulio Bonazzi Chairman and CEO at Aquafil Group gets his passion for sustainability from his native place, a beautiful area in the middle of the mountains of Italy (Dolomites and Alps) near Garda Lake. The place taught him to love, value and respect the beauty that surrounds you. We spoke exclusively to Maestro himself to know more about the material. “ECONYL® is regenerated nylon 100% with a different story. It comes from nylon waste such as fishing nets, fabric scraps from mills and carpets destined for landfills. It is used for apparel, carpets, and other interior design products. And it has exactly the same performance as fossil-based nylon.” 
Aquafil econyl
The pace at which brands are adapting to the material is impressive and currently, Aquafil, with ECONYL®, collaborates with more than 2500 brands in the world. “As consumers continue to stay aware of material ingredients, it’s important that brands choose supply chain transparency. This will not only empower the consumer, but will also invite designers to tap into a new level of innovation and creativity. And this is why brands are choosing sustainable ingredients like ECONYL® nylon for their collection,” shared Bonazzi. ECONYL is mostly known by customers due to pieces offered by Adidas in its 2017 collaboration with Parley, Prada’s line of bags made with the fabric in 2019 — Re-Nylon and Gucci and Burberry have also used Econyl in their outerwear pieces and accessories, including the latter’s iconic trench coat. “Brands are using Econyl across different product categories like swim/resort to luxury. It is coming with the functionality of a virgin material making it good for fashion and the planet,” said Saachi Bahl.   
ECONYL is also used for home décor by brands such as Noho, a New Zealand-based eco-chic brand that creates durable and dynamic chairs made with materials from discarded waste. Alcarol in nature creates functional home décor pieces while preserving the natural materials as they would appear in their respective habitats. From the dining room and coffee tables to consoles and shelving, each creation replicates a distinctive landscape, bringing depth, perspective and beauty into your living spaces. Finally, Rols, a Spanish carpet manufacturing brand since 1917, integrates ecological materials such as wool or jute, and ECONYL® regenerated nylon into their designs, believing that ‘quality goes hand-in-hand with treating the earth with respect’. 
Rols
Cupro 
Another sustainable fabric that is fast gaining popularity is cuprammonium rayon, also known as Cupro. This is a plant-based fabric made from cotton linter, which is a waste product of cotton that’s often discarded. It can also be derived from recycled cotton garments, especially T-shirts. Cupro as a fabric is fine, sheer, smooth, soft to the touch, hypoallergenic, stretch-resistant, durable and dries quickly. Some even call this fabric Vegan Silk. Amouve procures organic cotton directly from Indian farmers and this practice has also led to less usage of water as compared to regular cotton. The brand offers a range of products comprising organic cotton bedsheets, towels, pillows, organic kapok mattresses and waffle blankets among others. 
Kar Conscious Living
Amouve
Lyocell 
Ethical bedding
Lyocell (also known as Tencel) is a plant-based fibre that was introduced 30 years ago and is mostly derived from eucalyptus wood, and sometimes oak and birch wood. To create the material, the wood is ground into a pulp and chemically purified to extract raw cellulose. The liquid is then pumped through spinnerets into Lyocell fibres, which are spun into yarn and woven into fabric. Lyocell fabric is soft, breathable, hypoallergenic, and more absorbent than cotton. Eucalyptus trees grow quickly without the use of pesticides, fertilisers or irrigation, making Lyocell much more eco-friendly and completely biodegradable. The material is a great alternative to viscose and makes it great for athleisure, activewear, and everyday basics. Ethical Bedding, a UK-based brand turns organic eucalyptus and bamboo into timeless silky bedding. 
How to make home décor sustainable 
Rug Republic Hestia
Nand Kishore Chaudhary, Chairman and Managing Director, Jaipur Rugs Group throws light on how the carpet industry uses sustainability in its design. “We believe sustainability in the design isn’t just a trend; it’s our responsibility.”. Chaudhary goes on to explain the process followed at Jaipur Rugs. “We prioritize sustainability in every aspect of our carpet design process, from materials to production. To achieve this, we utilize leftover hand-spun yarn to create unique and creative designs, reducing textile waste. Additionally, we use low-impact dyes that are obtained from GOTS-certified and eco-friendly raw materials, making our rugs long-lasting and beautiful while minimizing the environmental impact of the production process. By using sustainable materials and working with ethical partners, we create high-quality handmade rugs that not only enhance the beauty of any space but also promote a healthier planet for future generations.”   
Another brand that champions sustainability is Rug Republic. Their new collection of Floral Rugs is created with recycled materials, colours, designs and textures.  “The demand for sustainable and ethically made products has led to an increase in the appreciation for handmade rugs as well, as people like to spend on products that align with their thought process and values. Having said that, the timeless beauty and craftsmanship of floral rugs have further contributed to their enduring popularity, making them a valuable addition to any home,” says Raghav Gupta, Director of E-commerce at The Rug Republic. 
With climate change knocking on our front door there are three key methods to make a home more sustainable. Firstly, making the switch to regenerated nylon with the use of artisan rugs and furniture made from recycled materials, such as old carpets, abandoned fishing nets and industrial scraps can minimize waste that would otherwise pollute the earth. For example, for every 10,000 tons of ECONYL® raw material, we can save 70,000 barrels of crude oil and avoid 65,100 tonnes of CO2 equivalent emissions from being released into the air. From Jaipur Rugs and other trendy pieces like these Zanotta pouffes pick your products.  
Secondly, shift to Bamboo furniture. It is a sustainable alternative to wood, and is highly versatile for furniture, flooring and light fittings, giving your humble abode a modern and eco-conscious twist. Pick a rattan table from Fleck or Orange Tree’s rattan hanging lamp.  
Orange Tree Canna Hanging Lamp Double
Lastly, switch to bio-glass meaning home décor made from discarded bottles and jars, this material requires less energy and raw materials to manufacture. Bio-glass can transform kitchen countertops, bathroom sinks, walls, and windows into beautiful and unique pieces, adding charm and sophistication to your home. Renjini Thampi from Kerela upcycles glass bottles to make a variety of home decor items and Nicobar’s recycled glass section makes a strong case as well.  
Nicobar recycled glass collection
“India is certainly the country that will have the most spectacular development in the coming decades. And it seems very clear not only to me that the Indian culture as well as the Indian Government and Indian consumers have a strong interest and great attention towards the conservation of the planet and in doing and thinking step by step to find the best solution. Therefore, aiming for India, I think is one of the most strategic and correct actions to take,” believes Bonazzi. To conclude Bahl believes, “the innovative material industry is evolving at such a fast pace, that it’s just fascinating the type of recyclability and plant-based materials that are available in the market.” 
To conclude, daily habits such as composting food waste, cleaning with natural products, and installing solar panels, underfloor heating or double-glazed windows all contribute towards greener living.
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Source: luxebook.in

Apache is functioning normally

The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

This week’s episode starts with a discussion about Social Security.

Then we pivot to this week’s money question from Amy, who wrote, “Hi, Nerds. I love your podcast and I wanted to get your take on a question I have. I am in my late 30s and I am just starting to think about investing for retirement. I have a decent amount of money in a savings account that I can use to invest. I’ve done a fair amount of research into investing, and index funds come up a lot as a smart option. My question is, aren’t ETFs an even better choice given that they’re more tax efficient? I plan to buy and hold and don’t expect to do much with my investments until I retire. Please help me figure out if ETFs end up costing investors less than index funds do when the time comes to sell them.”

Check out this episode on either of these platforms:

Our take on estimating Social Security benefits

Figuring out how much money we will need to live comfortably in retirement is a notoriously imprecise exercise. To make planning for our future selves a little easier, a team of Nerds created a Social Security benefit calculator, which generates an estimate of your Social Security benefit as a monthly and yearly figure. This number can help you figure out how much money you’ll need to have in other retirement savings accounts like IRAs to reach your retirement goals.

This number, while a useful data point, is still just an estimate. Your actual Social Security amount could be different depending on your income history and the age at which you retire. For example, today, you may plan to retire at age 62, the current earliest age of eligibility for Social Security. In reality, you may end up working until the full retirement age of 70. Delaying Social Security withdrawals for those eight years will significantly increase your retirement benefit.

Our take on tax-efficient retirement investing

Saving for retirement can feel like a never-ending chore, especially when you won’t see the fruit of your (literal) labors for several years. To entice us to save, the government offers tax breaks on certain types of retirement accounts, namely 401(k)s and IRAs. With traditional 401(k)s and IRAs, you get your tax break up front so that retirement contributions reduce your taxable income. Roth 401(k)s and IRAs, on the other hand, delay the tax benefit until retirement when you can make withdrawals tax-free.

Contained within those retirement accounts are the actual investments: stocks, bonds, mutual funds, index funds, ETFs or options. ETFs and index funds are popular options because of their relative low cost and promise of high returns. Generally speaking, ETFs have less tax liability than index funds. It’s possible to owe capital gains taxes on your profits on index funds without even selling a single share.

Our tips

  1. Understand how accounts are taxed. Roth IRAs, 401(k)s, and other retirement accounts are taxed more favorably than brokerage accounts.

  2. Consider different investment options. Once you have your retirement account, you have a number of choices like target-date funds or mutual funds.

  3. Investments have their tax differences, too. ETFs are more tax efficient than index funds, but the difference is fairly small and it’s not typically a major factor in retirement accounts.

More about tax-efficient investing on NerdWallet:

Episode transcript

Sean Pyles: Choosing the right investments for your retirement accounts can be a head-spinning endeavor. Do you continually tweak your investment mix or just let things ride?

Liz Weston: And how do you choose between retirement accounts like 401(k)s and Roth IRAs?

Sean Pyles: Well, this episode we will help a listener sort out their retirement investment decisions.

Welcome to the NerdWallet Smart Money podcast, where you send us your money questions and we answer them with the help of our genius Nerds. I’m Sean Pyles.

Liz Weston: And I’m Liz Weston.

Sean Pyles: OK. We’ll get to the part where we ask our listeners to send us their money questions in a bit. But first, Liz, welcome back.

Liz Weston: Hey, it’s great to be back. Thank you.

Sean Pyles: So Liz, you had a little eat, pray, love journey through Europe, spent a lot of time in France. Do you have any profound money lessons for us now that you’re back?

Liz Weston: Well, this is the biggest one, don’t wait until retirement to travel and do the stuff that you want to do. I’ve been taking paid and unpaid leaves multiple times in my career and they are so worth doing if you can swing it.

Sean Pyles: That sounds lovely. Well, I am glad that you’re back. And listeners, just so you know what’s up on our end too, my other co-host, Sara Rathner is about to head off on her own spiritual journey called maternity leave. So Liz will be back in the hosting seat with me over the next few months. All right. And now we are at the part where we ask our listeners for their money questions. So to keep it short and sweet, listeners, we know that you have burning money questions and it is our job to answer them. So send your money questions our way.

Liz Weston: Maybe you want some advice about how to make the expensive summer travel season more budget friendly, or you’re wondering about how to pay for a bathroom remodel or maybe your question is even less specific. Whatever you’re wondering about, please send us your questions. Leave us a voicemail or text us on the Nerd hotline at 901-730-6373, or you can email us at [email protected].

Sean Pyles: This episode, my other co-host, Sara and I answer a listener’s question about how to choose the most tax efficient investments for their retirement account. But first, to kick off this episode, Liz and I are talking about another big part of retirement planning, Social Security benefits, specifically understanding how much you might get.

Liz Weston: It’s easy to underestimate how important Social Security is going to be to your retirement planning, but it is huge. Every thousand dollars in monthly income that you get from Social Security is $300,000 that you don’t have to save.

Sean Pyles: Wow.

Liz Weston: Yeah, and not only is that income guaranteed for life, but it’s inflation adjusted, so your buying power isn’t eroded over time and you don’t have to make a bunch of decisions about how to invest the money, it just comes to you. So one of our Nerds, Tina Orem, has created a calculator to help you estimate your benefit. Welcome to the podcast, Tina.

Tina Orem: It’s great to be back. Hi.

Liz Weston: Tina, right about now, a lot of our audience is thinking, “Huh, I’ll never see a dime from Social Security.”

Sean Pyles: Yeah. Well, we’ve been hearing for years that Social Security is going broke.

Tina Orem: Yeah. So in March, the Social Security Administration actually released a statistical analysis and it basically said that that part of Social Security, the so-called trust fund, is going to run out of money in 2034. And at that point, the estimate is that the taxes you and I pay on our earnings, basically a part of it, will still be enough to pay something like 80% of promised benefits. So, I mean, 80% isn’t nothing.

Liz Weston: Yes, and Social Security is the most popular federal program ever. I can’t imagine any politician who wants to get reelected allowing people who are getting benefits to have those benefits cut. So the program may change, but it is highly doubtful that it’ll go away.

Sean Pyles: Yeah. And also just to beat back the cynicism among my fellow millennials and my Gen Z brethren, I think the whole “Social Security is going to run out of money, so why should we even try” defeatism could be a self-fulfilling prophecy. So if folks in my generation really want this benefit, make your voice heard and ensure that it’s there for you. The battle is not over, folks. So anyway, Tina, let’s hear about this calculator that you devised.

Tina Orem: Sure, yeah. We put this calculator together because we know a lot of people wonder what they’re going to get from Social Security and when they’re going to get it. And I think that’s a reasonable thing to wonder, especially when you’re thinking about your retirement savings and those bigger questions of, how much money will I need every month and where’s that money going to come from? So this calculator is intended to help consumers with that. And I want to be sure to give a shout-out to our engineering team, the product team, our editors, we all helped produce this calculator. And I’m saying that not just to be sure to acknowledge and credit the people who worked on this, but I also want to tell people that this calculator is made by a team of people, and we vetted it and tested it and we put a lot of thought into how to make it useful and easy for consumers.

Liz Weston: Awesome. So what do people need to know about using the calculator?

Tina Orem: Okay, a few things. So the first thing I want to say is that the calculator is easy to use. You just enter your date of birth, you enter the age of which you want to start taking Social Security retirement benefits, your annual income this year, and then an estimate of your annual salary increases going forward. So that’s it. The second thing I’ll say is that this is an estimate, we don’t have access to the last 35 years of your personal income and earnings history. So that’s what the Social Security Administration uses to calculate your exact, to-the-penny benefit. So we make an estimate of your previous earnings based on what you tell us you earned this year. So the catch is, if you were out of the workforce for several years, or maybe you had income and it fluctuated a ton, or you were in a line of work where they may not have withheld Social Security taxes from your paychecks, your benefits are much harder to estimate with this tool.

But if you had a fairly steady paycheck and Social Security tax has been coming out of those checks, this tool should give you what we think is a pretty good estimate of the size of your monthly Social Security retirement benefit check at various points in time. And I say various points because there are three in particular that are of particular interest when it comes to Social Security: There’s the age at which you want to retire, there is what Social Security Administration calls your full retirement age, which I’ll get to in a second, and then age 70.

Sean Pyles: OK. So this might be a good time to remind folks of how Social Security benefits are actually calculated. Tina, can you give us a super quick, simple explanation of this very complicated matter?

Tina Orem: Yes, because it turns out the formula for calculating Social Security benefits is actually pretty complex. But simply put, how much Social Security tax you pay into the system over time influences the size of your eventual retirement checks. That’s the first thing to know. The second thing is that when you decide to start taking Social Security retirement benefits has a really big effect on the size of your check. And there’s one key age to that I want to point out, and that is what I said, the full retirement age. So that’s the age at which you’re entitled to 100% of your Social Security retirement benefit. And the Social Security Administration decides what your exact full retirement age is, and that’s based on when you were born. So for most people, it’s sometime between age 66 and 67.

Liz Weston: I’m guessing for most of our listeners who are born in 1960 and after it’s going to be age 67. You can start Social Security as early as 62, but you’re essentially settling for a permanently reduced check, and why would you do that?

Sean Pyles: This was one of the most interesting parts of the calculator as I was playing around with it is seeing just how much you can get monthly or annually by delaying your retirement even a year or seven years or something like that. You can get thousands of dollars more per year just by holding off the age at which you received these benefits.

Liz Weston: Oh yeah, it’s huge. And there’s been a lot of research done over the past few decades showing that most people are better off waiting. And that’s sometimes a hard message to get through: Like people want to grab the money when they’ve got it, but you really do get more than sufficient payoff if you wait.

Sean Pyles: And another cool thing with this calculator is that you see the Social Security break even age, which is the point at which the amount of benefits you receive having waited a few to start getting your benefits begins to outpace the amount you would’ve gotten if you’ve started getting them at an earlier age.

Liz Weston: Yeah.

Sean Pyles: All right. Well, Tina, what should folks do with the information they get from this calculator?

Tina Orem: Well, I think one good use of this information is to get an idea of what’s really going to be available to you when you want to retire. So for example, if you’ve used our retirement calculator and you have an idea of how much money you’ll need per month during retirement to live the life that you want to live, then knowing what portion of that is going to come from Social Security can help you get a tighter handle on how much you need to save for retirement.

Another thing the calculator I think will get you thinking about is when you want to retire. So if you know that you’re going to get a bigger monthly check by waiting to start taking benefits, would waiting work for you? How long is too long? When will it be no longer worth it or affordable to wait? So that information can help you get on the same page with your partner and with yourself frankly about when you’re really going to retire.

Sean Pyles: And where can people get more information around Social Security benefits?

Tina Orem: Yes. Well, NerdWallet does have a ton of helpful content about Social Security on the site, everything from how it works and different types of benefits that come from the Social Security Administration and what happens to your retirement benefits in certain situations and ways to maximize your benefits. And of course, you can always take a look at the Social Security Administration’s website or visit a local Social Security office.

Liz Weston: And we should mention that if you do have a more complicated situation, you can see your actual Social Security estimated benefits on its website by creating a my Social Security account. Probably a good thing to do anyway just to secure that and make sure that nobody else can get your information, but it’s a way to see what Social Security’s estimates are based on your actual earnings history.

Sean Pyles: All right. Well, Tina, thank you so much for talking with us and for building this super cool calculator.

Tina Orem: Yeah, my pleasure. I hope it helps people.

Sean Pyles: And with that, let’s get onto my money question conversation with Sara.

This episode’s money question comes from Amy. Here it is, as read by Smart Money producer, Rosalie Murphy.

Rosalie Murphy: Hi, Nerds. I love your podcast and I wanted to get your take on a question I have. I am in my late 30s and I am just starting to think about investing for retirement. I have a decent amount of money in a savings account that I can use to invest. I’ve done a fair amount of research into investing and index funds come up a lot as a smart option. My question is, aren’t ETFs an even better choice given that they’re more tax efficient? I plan to buy and hold and don’t expect to do much with my investments until I retire. Please help me figure out if ETFs end up costing investors less than index funds do when the time comes to sell them. Thank you, Amy L.

Sara Rathner: To help us answer Amy’s question on this episode of the podcast, we’re joined by investing nerd, Alana Benson. Welcome back to Smart Money, Alana.

Alana Benson: Thanks for having me.

Sean Pyles: Alana, it’s always so good to have you on because we have so many investing questions and our listeners do, too. But before we get into them, a quick disclaimer that we are not about to give any investment advice, we are not ever going to give you investment advice or tell you what to do with your money. This is for general educational and entertainment purposes. Okay, let’s talk about some different investment vehicles that people can use to invest or save for retirement. 401(k)s and Roth IRAs are pretty common, but what about straight-up brokerage accounts or robo-advisor accounts?

Alana Benson: So I just want to start off by clarifying some language for our listeners. First of all, saving does not equal investing. Saving can mean putting money into a savings account. It can mean stashing your money under your mattress. We do not necessarily say that that’s a good idea, or it can mean putting it into a high yield saving account. But investing means putting your money into a specific investment account, which is different than a bank account, and then purchasing investments from there. So a lot of people use that language interchangeably, just like to clarify, maybe we say saving for retirement, but really we mean investing for retirement.

Sean Pyles: Yeah. And one key important difference is that when you do have an investment account like a 401(k), you have to make sure that the money you’re putting into there is being invested because some people will make this really tragic mistake where they’ll put money into these accounts for many years and it will not have been invested, and then they’re not actually growing their money through investments and compound interest and all of that good stuff.

Alana Benson: Absolutely. That is a devastating mistake.

Sara Rathner: Yeah, the money defaults to essentially being held in cash in a money market account, same thing almost. So you should just be aware that what the money sits in when you put it in first before you tell it where to go is essentially cash. Once you tell the money where to go in terms of picking investments and you set up that automatic transfer of money from your paycheck into those investments, that’s when you can sit back and hope that the market works your way over the next 30 plus years, which it may or may not do, as we know.

Alana Benson: Yeah, and I think it’s really important as well to talk about where you invest, which means your account type, so a 401(k) or a Roth IRA. The actual account type is just as important as what you actually invest in from that account, which is stocks or bonds or mutual funds. So understanding the difference between an account, which is not actually an investment. So if someone says they’re investing in a Roth IRA, the Roth IRA is not the investment that’s going to make the money, it’s just the account type where those investments live. So they might be investing in stocks or mutual funds from their Roth IRA.

Sean Pyles: One thing we should probably clarify, as well, is that we talk a lot about Roth IRAs and 401(k)s because those are tax-advantaged accounts and we’ll get into what that means more in a little bit, but using a brokerage account or a robo-advisor account for retirement savings is not very common. People typically don’t use that as their primary investment vehicle, correct?

Alana Benson: That depends. I think if it’s someone who has a 401(k) available to them, then that’s going to be something that if you have an employer that offers that, that’s great. And 401(k)s tend to have much higher contribution limits, so you can actually put more money in. But if you don’t have an employer that offers that, or if you are self-employed, then you may be looking for other options.

Sara Rathner: So Sean mentioned 401(k)s and Roth IRAs, which are two different kinds of investment accounts that are often used for retirement savings. Is there a general order of account types for investing that financial advisors recommend?

Alana Benson: So typically the idea is to start with a 401(k) if you have one. 401(k)s are great, we talk about them a lot on this podcast. You often get an employer match through them, which equates to free money. So the idea is that you start with a 401(k). You contribute enough to get your employer match and then you consider pausing on that or put as much in that as you want if you don’t want to make this complicated. But if you’re OK with a couple complications, once you get your match, then consider IRAs. Traditional IRAs, Roth IRAs, they both have different tax advantages, but the reason that you would move from a 401(k) to an IRA is because the tax advantage for IRAs is really strong.

So you get your match with a 401(k), then move to an IRA once you can max that out, then move back to a 401(k) and you could max out that 401(k). I like to think of it almost like a waterfall with buckets. So if water is pouring into the first bucket, you fill up that first bucket and then once it starts overflowing, it can start filling up the next bucket. So don’t feel stressed out if you can’t necessarily do all those things right away, but the first bucket is getting that match. If you can contribute enough to get your match, that’s awesome, then the overflow goes into an IRA once you can max that out, then into maxing out your 401(k).

Sean Pyles: And what about folks who maybe don’t have access to a 401(k) through an employer? Can you talk about how solo 401(k)s and SEP IRAs might fit in?

Alana Benson: Yeah. So solo 401(k)s are great, they’re designed for business owners with no employees. SEP IRAs are another option. Folks who are self-employed are really going to need to look at their specific circumstance, whether they have employees or if they don’t and figure out what retirement accounts are going to work best for them. That may be a conversation to have with a financial advisor just because those things can get a little complicated. But a really important thing is that once you figure out where, again, that type of account that you want to invest in, maybe the order in which you want to have your money flow through those investment accounts, then you can figure out how you want to invest. So we have the where, which is the account type, the what, which is the actual investments, and then the how, which is, “do you want to choose your investments by yourself and manage them by yourself or do you want to not worry about that?”

So, if you don’t want to worry about it, you don’t want to think about it or stress about it, you can have a robo-advisor do it for you, which is a pretty low-cost way. These are online algorithms that basically take your risk tolerance, your age, other personal factors into account, and then they build and manage a portfolio for you for a fairly modest fee, which is great. That makes it super easy. You can automate it, have money taken out of your bank account, and then you don’t have to worry about it. You could also work with a traditional financial advisor, but that will cost more. And then if you want to do it yourself, you know, there’s all kinds of research. You can do stock investing, you can use mutual funds or index funds. There’s lots of options and we have lots of information on how to do that on nerdwallet.com, but that’s really how of how you do this.

Sean Pyles: I want to go back to a term that we’ve mentioned a couple of times so far, and that’s tax-advantaged. Alana, can you explain how that pertains to 401(k)s, Roths and the like, and why it’s such a big deal?

Alana Benson: So tax-advantaged is just a fancy word for, “you get a nice tax benefit,” which is a good thing, you should be excited about any kind of tax benefit because most likely it will equate to more money in your pocket. So traditional 401(k)s and IRAs, you can say, “Hey, I contributed this amount of money,” and so you’ll get a nice tax break up front. But Roth accounts, so either a Roth 401(k) or a Roth IRA, they don’t offer an upfront tax deduction, but you get to take your money out tax-free in retirement. So you put it in after you’ve already paid taxes on it, and then that money grows tax-free for many, many years. So a lot of people find Roth accounts more attractive for that delayed benefit, but it will depend on you and your individual tax circumstance. But again, this is why you might move from a 401(k) if it’s a traditional one to an Roth IRA, it’s because of that really healthy tax benefit.

Sara Rathner: OK. So in contrast to tax-advantaged investment accounts like certain kinds of retirement accounts, there are also taxable brokerage accounts too, and those are either offered by traditional brokerages or banks or robo-advisors and they don’t have this special tax treatment, right? How are they taxed?

Alana Benson: Again, we just want to clarify some terms and I’m really, really glad you asked this question because these things can often get conflated, which is why I’m so adamant about what, the where and the how. Robo-advisors may be able to be tax-advantaged if you use them in the right account. So again, robo-advisors, that’s how your investments are going to be managed. Many robo-advisors offer retirement accounts like IRAs, but not 401(k)s since those are offered through your employer. But if you open a taxable account through a robo-advisor, yes, it won’t have those tax benefits, but if you open a Roth IRA and you’re having it managed by a robo-advisor, then you will be able to get the tax benefits.

Sara Rathner: So again, it’s not about who is furnishing the account, but it’s about the type of account that you have.

Alana Benson: Exactly, and that’s why it’s so important to pay attention to your account. A lot of people, they might start up with a robo-advisor, don’t have the background information and the robo-advisor maybe would put them into a taxable brokerage account, but maybe they’d prefer to be in a retirement account. So it’s important to have that background even heading into something like investing with a robo-advisor so you know exactly what you’re getting yourself into.

Sara Rathner: Right. So all that being said, let’s go back to how these accounts are taxed. If you’re looking at a taxable brokerage account for investing purposes, what sorts of taxes do you need to just be aware of when you’re making investment decisions?

Alana Benson: Yes, this is the joy of long-term versus short-term capital gains taxes, which are taxes, so we aren’t huge fans of them. But if you are investing and you are making money, there will come a day where you need to pay taxes on the profits that you make from selling your investment. So you hold an investment for a long time, hopefully you make a bunch of money off of it, that money you might need to pay some form of capital gains tax. If you’ve held onto an investment for more than a year, you’re going to pay what’s called long-term capital gains tax, and that tax rate can be 0%, 15% or 20% depending on a couple factors like your taxable income and your filing status.

In contrast to that, if you hold onto an investment for one year or less, you’ll have to pay short-term capital gains, which are taxed at your ordinary income tax rate or your tax bracket. And the end takeaway of all of this is that long-term capital gains are likely more advantageous for you. And so, if you can hold onto investments for longer than a year, you’ll be taxed at a better rate.

Sara Rathner: Good thing to keep in mind for anybody who is thinking about the taxation of their investments, and Amy and their question mentioned a concern about the tax efficiency of their retirement investments. So it sounds like in their case, the 401(k) and Roth strategy combined could be an option for them. But let’s turn to different investment options within all of these different kinds of investment accounts that we’ve talked about so far. How feasible or common is investing in an ETF or exchange-traded fund or an index fund through your 401(k)? And maybe we should also start by defining those terms for our listeners who might be unfamiliar with them.

Alana Benson: I think that’s a great idea. ETFs are funds, so funds are basically baskets of investments. It’s a whole bunch of stocks all stuffed into one investment that you buy all at once versus buying a single individual stock. Exchange-traded funds are a type of funds as are index funds or index mutual funds. And a couple different things are important here. So whether or not you’re actually able to pick your own investments as specifically as exchange-traded funds or index funds is going to depend on your specific 401(k) plan, so that’s something that you’ll need to ask your 401(k) provider about.

But a lot of 401(k)s will actually set you up with what’s called a target-date fund. Target-date funds are really interesting because they automatically adjust your allocation over time. So if you start investing when you’re 20, your target-date fund will likely have a riskier group of investments held within it. And as you get closer to your target date of retirement, which is why they’re called that, your allocation will shift to be more conservative over time, and that’ll just happen in the background. That’s what most 401(k)s are made up of. So going in and changing what you’re investing in a 401(k) is pretty rare. You’ll likely just be in the investment in a target-date fund that is selected for you by your 401(k) provider.

Sean Pyles: Well, just to get to the core of our listener’s question and ask it straight out, are exchange-traded funds or ETFs a better “choice” for retirement investing versus index funds since ETFs are more tax efficient?

Alana Benson: Yes. So ETFs technically are more tax efficient than index funds just because of how they’re structured. When you sell an ETF, you’re typically selling it to another investor who’s buying it and the cash is coming directly from them and then you have to pay capital gains taxes. But it’s a little bit different with an index fund. And the long story short is that you could potentially owe capital gains taxes without actually selling a share because of how they’re structured. That being said, this happens a lot less frequently with index funds and ETFs than it does with other types of mutual funds. And from a tax perspective, ETFs generally have the upper hand over index fund, that’s true, but it’s a pretty minute difference and you probably will not have a huge tax bill just because you invested in an index fund versus an ETF. So if you have the option, maybe go with an ETF. If you don’t, I really don’t think you should be too stressed out about it.

Sean Pyles: OK. But in general, if you are investing for retirement through a retirement account like a Roth IRA or 401(k), the ETF versus index fund question probably isn’t that big of a concern since you most likely are not actively buying and selling stocks within these accounts, right?

Alana Benson: I’d say that’s true. And I think also to get to the listener’s question is that she’s talking about potentially doing this through a 401(k). Again, I’d stress like it’s fairly unlikely that you can actually do that unless your 401(k) provider allows you to do that. So the time that you’d run into this question is if you were investing, like you said, through a Roth IRA where you have to pick your investments yourself. Again, unless you are using a robo-advisor, in which the robo-advisor would pick investments for you. And most of the time robo-advisors invest you in a handful of ETFs and index funds as well. So you’ll be in the same investments no matter what.

Sara Rathner: So it sounds like what’s worth losing sleep over isn’t necessarily these decisions that don’t have massive differences between them, but more so just getting started on investing for retirement in the first place whenever you’re able to and consistently setting money aside for retirement over time and just letting those investments hopefully grow.

Alana Benson: Exactly.

Sara Rathner: So everybody save for retirement if you can. Anyway, Alana, is there anything else folks should keep in mind when deciding where and how to invest for retirement?

Alana Benson: I think you really said it. Keep in mind that the importance of account types should not be understated. So don’t just open a standard brokerage account if you think you could benefit from the tax advantages of something like a Roth IRA. Really make sure you know what type of account you want to get into and then start worrying about what types of investments you want to get into.

Sean Pyles: Well, Alana, thank you for joining us.

Alana Benson: Thank you for having me.

Sean Pyles: And now let’s get on to our takeaway tips. Sara, will you please kick us off?

Sara Rathner: Of course. First, understand how accounts are taxed. Roth IRAs, 401(k)s and other retirement accounts are taxed more favorably than brokerage accounts.

Sean Pyles: Next up, consider different investment options. Once you have your retirement account, you have a number of choices like target-date funds or a mutual funds.

Sara Rathner: And finally, investments have their tax differences too. ETFs are more tax efficient than index funds, but the difference is fairly small and it’s not typically a major factor in retirement accounts.

Sean Pyles: And that is all we have for this episode. Do you have a money question of your own? Turn to the nerds and call or text us your questions at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected] Visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate and review us wherever you’re getting this podcast.

Sara Rathner: And here’s our brief disclaimer. We are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Sean Pyles: This episode was produced by myself with help from Liz Weston. We had fact-checking help from Pamela de la Fuente, Kaely Monahan mixed our audio, Jae Bratton wrote our show notes and a big thank you to the folks on the NerdWallet copy desk for all their help. And with that said, until next time, turn to the Nerds.

Source: nerdwallet.com

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Typically, most people automatically assume they should roll over their old 401(k) into a traditional IRA. However, a lot of people have been asking about another option lately – and that’s whether you can roll your 401(k) over into a Roth IRA instead.

Fortunately, the definitive answer is “yes.” You can roll your existing 401(k) into a Roth IRA instead of a traditional IRA. Choosing to do so just adds a few additional steps to the process.

Whenever you leave your job, you have a decision to make with your 401k plan. Most people don’t want to let an old 401(k) sit idle with an old employer, and could benefit immensely by moving those funds somewhere that could benefit them more in the long run. Let’s see if I can help you make “cents” of the situation.

But first, let’s look at the rules behind the strategy of rolling over your 401k into a Roth IRA.

Table of Contents

Need to open a Roth IRA?

My favorite online broker is Ally Invest but you can check out our recap on the best places to open a Roth IRA and the best online stock broker sign-up bonuses. There are many good options out there, but I have had the best overall experience with Ally Invest. No matter which option you choose the most important thing with any investment is to get started.

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Roth IRA Rollover Rules From 401k

As a reminder, you must generally be separated from your employer to roll your 401k into a Roth IRA. However, some employers do permit an in-service rollover, where you can do the rollover while still employed. It’s permitted by the IRS, but not all employers participate.

Before January 1, 2008, you weren’t able to roll your 401(k) into a Roth IRA directly at all.  If you wanted to do so you had to complete a two-step process.  (Keep in mind that this would also apply to old Simple IRA’s, SEP IRA’s and 403b’s, 457, and qualified pensions, too)

  1. Open a Traditional IRA.

  2. Convert the Traditional IRA to a Roth IRA.

However, the law changed shortly after and this option became available. Still, just because the law has made this option available doesn’t mean you can definitely roll your old 401(k) into a Roth IRA no matter what.  Unfortunately, it all depends on your plan administrator.

For example, recently I had two clients who intended to roll their old retirement plans into a Roth IRA.

One client had an old military retirement plan- Thrift Savings Plan (TSP) – and the other had an old state retirement plan.  After helping each of them complete the required paperwork, I came across an interesting discovery.

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The TSP rollover paperwork had a box you could mark if you wanted to roll over the plan into a Roth IRA (the instructions had been added to make sure you had a Roth IRA already established).  However, the state retirement plan did not give that option.

The only option was to open a traditional IRA to accept the rollover and then immediately convert it to a Roth IRA.  That certainly seemed like a hassle at the time, and it definitely was.

However, this man’s state retirement plan is not the only one I’ve encountered with these extra “rules.”  Many 401(k)’s and 403(b)’s come with the same “No-Roth IRA Rollover” option.  This option was supposed to be mandatory in 2010, but some still do it on a voluntary basis.

At the end of the day, this means you should explore this option thoroughly before automatically assuming it would work in your case. Ask questions, consult your financial advisor, and read through all of your rollover paperwork carefully before you begin moving in this direction.

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Recap on Roth IRA Conversion Rule

These days, nearly anyone can take all of their traditional IRAs and old retirement plans and convert them to a Roth IRA.  The amount you convert will be taxed, but it still can be an attractive move for those that feel that taxes are going nowhere but up.

How Do I Rollover if I Receive the Check?

If you receive a distribution check from your 401(k) rollover to a Roth IRA, then chances are good they will hold around 20% for taxes. If you want a direct 401(k) rollover to a Roth IRA, you may want to send that check back to your employer 401(k) provider and ask to be sent all of your eligible retirement distribution directly to your new Rollover IRA account (not as a check, or they will just give you 80% again).

You have 60 days upon receiving the check to get the money into the Roth IRA- no exceptions!  So don’t procrastinate on this one.

What About the Roth 401k?

If your employer offers a Roth 401k and you were savvy enough to take part, the path to a rollover will be much easier.  When you’re converting one Roth product to another, there is simply no need for conversion.  You would simply roll the Roth 401(k) directly into the Roth IRA with the help of your plan provider.

Roll Your 401(k) by Following These Steps

  1. You have to have a Roth IRA open/established before you can do any of this.
  2. Ask your plan provider about the paperwork required to roll your plan over, then complete the paperwork in a timely manner.
  3. Enjoy the tax-free growth of your Roth IRA!

4 Signs It Makes Sense to Roll Your 401(k) into a Roth IRA

If you’re thinking of rolling your 401(k) into a Roth IRA instead of a traditional IRA, you have plenty of reasons to do so. Not only do Roth IRAs let you invest your dollars in the same investments as traditional IRAs, but they offer additional perks that can help you save money down the line. Here are four signs that a Roth IRA might actually be your best bet.

1. You expect to pay higher taxes in the future.

Since Roth IRAs use after-tax dollars, you’ll have to pay taxes upfront on any funds you roll over. However, you won’t have to pay taxes on your distributions, which could be extremely beneficial if you’re taxed at a higher rate when you reach retirement. You’ll pay taxes either way – now or later. But with a Roth IRA, you can rest assured your withdrawals will be tax-free.

2. You want to take withdrawals when you’re ready, and not a minute before.

While traditional IRAs force you to begin taking withdrawals at age 70 ½, Roth IRAs do not have this stipulation. Because of this, you can squirrel your Roth IRA funds away until you’re ready to use them.

3. You expect to earn more money in the future.

If you plan to earn lots of money in the future – or earn a high income now – you should consider rolling your funds into a Roth IRA instead of a traditional IRA. For single filers in 2023, the maximum income allowable for contributions to a Roth IRA starts at $138,000 and ends at $153,000. Learn more about Roth IRA rules and contribution limits here.

For married filers, on the other hand, the ability to contribute to a Roth IRA begins phasing out at $218,000 and halts completely at $228,000 for 2023. The more you earn in the future, the harder it will become to contribute to a Roth IRA and secure the benefits that come with it.

4. You want to increase your tax diversification.

Contributions to traditional IRAs are tax-advantaged, meaning you won’t pay taxes on your invested funds until you begin taking withdrawals at retirement. Roth IRAs, on the other hand, are taxed up front but offer tax-free withdrawals after age 59 ½.

If you’re unsure how your tax and income situation might pan out in the future, having both types of accounts – a traditional IRA and a Roth IRA – is a smart move in terms of diversifying your future tax exposure.

401k to Roth IRA Rollover Rules Details
Eligibility You can roll over a 401k to a Roth IRA if you have left the employer sponsoring the 401k and are no longer contributing to the plan. Some plans also allow in-service rollovers, but it’s best to check with your plan administrator for details.
Taxes When you roll over a 401k to a Roth IRA, you will owe income taxes on the amount you convert. This is because contributions to a 401k are made with pre-tax dollars, while contributions to a Roth IRA are made with after-tax dollars.
Conversion Limitations There is no limit on the amount you can convert from a 401k to a Roth IRA. However, the amount you convert will be added to your taxable income for the year in which you make the conversion, which could have tax implications.
Timing You can convert a 401k to a Roth IRA at any time, but it’s important to consider the timing of the conversion carefully. If you convert when your income is higher, you will owe more in taxes.
Penalty-Free If you are 59 ½ or older, you can convert a 401k to a Roth IRA penalty-free. If you are younger than 59 ½, you may be subject to a 10% early withdrawal penalty on the amount you convert.

The Bottom Line – Rolling Over 401k into a Roth IRA

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Rolling your 401(k) into a Roth IRA is a smart decision for many investors, but it may not be right for everyone.

Some financial advisors may suggest rolling over your 401k into a Roth IRA to take advantage of the tax-free growth the account offers. While this can be a great option for some, it’s important to consider if you’ll be able to afford to pay the taxes on your contributions and earnings when you eventually withdraw them.

Before you pull the trigger, make sure to investigate all of your options and consider speaking with a tax professional. When it comes to complex investment vehicles and taxes, what you don’t know can hurt you

FAQs on Rollover 401k to Roth IRA

Can you roll over 401k to Roth IRA without penalty?

Yes, you can roll over funds from a 401(k) to a Roth IRA without incurring any penalties, but there are some important rules and restrictions to be aware of.

First, you’ll need to meet the eligibility requirements for a Roth IRA, which include having earned income and not exceeding certain income limits. If you’re eligible, you can roll over funds from your 401(k) to a Roth IRA by asking your 401(k) plan administrator to transfer the funds directly to your Roth IRA account. This is known as a “direct rollover” and it allows you to avoid paying any taxes or penalties on the funds.

However, there are limits on how much you can contribute to a Roth IRA each year, and there may be tax consequences if you exceed those limits. It’s important to consult with a financial advisor or tax professional before making any decisions about rolling over funds from a 401(k) to a Roth IRA. They can help you understand the rules and restrictions and determine if a rollover is the right move for your financial situation.

What are the disadvantages of rolling over a 401k to a Roth IRA?

There are a few potential disadvantages to rolling over funds from a 401(k) to a Roth IRA. These include:

1. Tax implications: When you roll over funds from a 401(k) to a Roth IRA, you’ll have to pay taxes on the amount you roll over. This can be a disadvantage if you’re in a high tax bracket and don’t have other funds available to pay the taxes.

2. Loss of employer matching: If your employer offers matching contributions to your 401(k), you’ll lose out on those contributions if you roll over your funds to a Roth IRA.

3. Loss of certain benefits: 401(k) plans may offer certain benefits, such as loan provisions and hardship withdrawals, that are not available with a Roth IRA. If you roll over your funds to a Roth IRA, you’ll lose access to these benefits.

Overall, rolling over funds from a 401(k) to a Roth IRA can be a good move for some people, but it’s important to carefully consider the potential disadvantages and consult with a financial advisor before making any decisions.

What is the tax penalty for rolling 401k to Roth IRA?

If you roll over funds from a 401(k) to a Roth IRA, you’ll have to pay taxes on the amount you roll over. This is because funds in a 401(k) are pre-tax, meaning you don’t have to pay taxes on them until you withdraw the funds. When you roll over the funds to a Roth IRA, you’re essentially withdrawing the funds and then depositing them into the Roth IRA, so you’ll have to claim that amount of reportable income.

Since you’re “rolling over” and not taking a distribution you won’t have to pay the 10% early withdrawal penalty if you’re under the age 59 1/2. If you do choose to this be prepared to pay the taxes on the rollover out of pocket. Otherwise if you use your 401k money to pay the taxes you will be penalized on that amount.

What is the Roth five year rule?

The Roth 5 year rule is a requirement for certain tax-free withdrawals from a Roth IRA. In order for a withdrawal from a Roth IRA to be tax-free, the account must have been open for at least 5 years and the withdrawal must be made after the age of 59 1/2. If these conditions are not met, the withdrawal may be subject to taxes and penalties.

The Roth 5 year rule applies to both contributions and earnings in a Roth IRA. For example, if you make a contribution to a Roth IRA and then withdraw it within 5 years, the withdrawal will be subject to taxes and penalties unless it meets one of the exceptions to the rule. The same is true for earnings on your contributions – if you withdraw earnings from a Roth IRA within 5 years, they will be subject to taxes and penalties unless an exception applies.

There are a few exceptions to the Roth 5 year rule, including:

-Withdrawals made to pay for qualified higher education expenses
-Withdrawals made to pay for qualified first-time homebuyer expenses
-Withdrawals made due to the account holder’s disability
-Withdrawals made by a beneficiary of the account after the account holder’s death

It’s important to understand the Roth 5 year rule and the exceptions to it before making any withdrawals from a Roth IRA. If you’re not sure whether a withdrawal will be subject to taxes and penalties, it’s a good idea to consult with a tax professional.

Source: goodfinancialcents.com

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Last Updated on February 24, 2022 by Mark Ferguson

Rental properties can be a great investment if they bring in cash flow and are bought below market value. I bought 16 rental properties from the end of 2010 to the middle of 2015. I stopped buying rentals in my market because prices increased so much that it became very tough to cash flow. I bought my properties well below market value, and prices in my area (Colorado) increased tremendously. I put a lot of thought into whether I should sell the properties, keep them, or refinance them. So when does it make sense to sell your rental?

I decided to sell a couple of properties, refinance a few more, and keep the rest as they were. The reason I decided to sell some of my properties was I had $100,000 of equity in some of them but was only making $500 per month. That means I was making about 6% cash-on-cash returns on my equity (I was making much more on my initial investment since it took around $30,000 to buy each house). Even though I was making close to 20% on the money I had initially invested, I could make much more by taking my equity out and buying more houses.

Should you sell your rental properties if they are not making you any money?

My readers and podcast listeners constantly ask me when or if they should sell their properties. Many people are not making very much money on their rentals but have a lot of equity. Here is an example:

  • The house is worth $200,000
  • The house rents for $1,500 per month
  • The investor has a loan of $125,000 against the house
  • The payments are $1,100 per month

On the surface, it looks like this rental is making $400 per month, which is great. However, the investor has not accounted for any maintenance or vacancy expenses. Those expenses usually add up to 10 to 20% of the rents every month, which would equal another $150 to $300 in expenses. The investor is only making a couple of hundred dollars per month on this rental but has $75,000 of equity in the property. That is only a 3% return on your money. There are other advantages to rental properties, like depreciating the property, equity pay down, and increasing rents. However, which opportunities are the investor missing by keeping the property and all that money tied up? I think the investor should sell the property and invest the money in more houses or apartments.

If you sold this property, you would not be able to keep all the equity. There would be selling costs and taxes you have to pay unless you do a 1031 exchange. The selling costs could end up being 6 to 10% of the cost of the house. If the house sells for $200,000, that would be $12,000 to $20,000. Taxes on the sale of a rental property would most likely be 15 or 20% depending on which tax bracket you are in. You only pay the taxes on the profit you made on the property and any recaptured depreciation. We will assume the investor bought the property for $150,000 a few years ago, which means they would pay around $6,000 in taxes. That leaves the investor with about $50,000 in cash to play with if they do not do a 1031 exchange, which could reduce the taxes to nothing.

How much more money could an investor make?

Rental properties can be expensive, which is one of their downfalls. With $50,000, you could buy a better-performing rental property that generates more money. Not only could you buy a rental that generates more money, but you could also buy the property below market value, which will make up for all that money you lost selling the other property. Here is an example:

  • Buy a property for $100,000 that needs $10,000 in work
  • Put $20,000 down on the property, with a house payment around $600
  • Repair the property and rent it out for $1,200 per month
  • If you bought the property correctly, it should be worth at least $140,000

You now have a house with $60,000 in equity (almost as much as you had before). You are making more money every month. You even have $15,000 in cash leftover ($20,000 down payment, $10,000 in repairs, $5,000 for miscellaneous costs).

Some of you may not think this is an awesome deal, but you have more cash in your pocket that can be used to buy additional rentals in the future. You also have a property that generates much better income every month. If you have some extra money to buy a second property right away, the equity and cash flow would double, and the investor would be much better off. If you have a property with more equity than my example, you would buy more rentals right off the bat without using any extra cash and be way better off as well. If you are trying to decide whether you should keep or sell some of your rental properties, analyze how much cash you could get from them and how much you could make with that money.

What did I do with my rental properties?

I got really good deals on all of my rentals, and our market took off in Colorado. I had properties that I bought for $100,000, put $20,000 of work into, rented out for $1,3000 a month, and are now worth $220,000. I had properties with $120,000 in equity but were only generating $7,000 per year. I was making 6% on my money, which is good for some investors but not what I am used to from investing in real estate. I always wanted to make at least 15% cash-on-cash return on my rentals. I knew I wanted to make more money, but I was not sure how. I ended up refinancing some properties, selling a couple and keeping others as they were.

I refinanced properties because I could take cash out of them and still make money. In the example I first used for the investor with a $200,000 house, he could have refinanced as well. You can usually refinance a house at 75% of what it is worth. The investor could have taken a loan out for $150,000 on the $200,000 house and had payments around $1,100 per month after taxes and insurance. If you are wondering why that payment is the same as the payment I used for the $125,000 loan balance above, I assumed the investor had the loan for a while and the original balance was $150,000 at a higher interest rate than we have now. When you refinance a house, you have to pay closing costs again, which can add up to 3% of the loan amount, or $4,500 in this example. By refinancing, the investor would get $20,000 back in cash with a similar payment as he had before. That is not a bad deal, but I do not know if $20,000 is enough to buy another rental. If so, the investor may be better off refinancing than selling.

I had more equity in my properties than in the example we used. I was able to take out anywhere from $25,000 to $50,000 in cash from many of my rentals and still make decent cash flow. By refinancing my properties and selling a couple of other ones, I was able to get all the money back out that I had used to buy my 16 properties, and I was still making $7,000 per month from them. I sold the properties that were the least desirable to me and kept the ones I liked.

How do you buy new rental properties if there are no good rentals in your area?

The problem I ran into when I wanted to sell my properties and buy more rentals was I could not find good rentals in my market. Prices had increased, but rents had not increased nearly as much. I had to use much more cash to buy houses because prices were high, but I made less money on that cash. I decided to stop buying properties in my area and look in other markets. I went to Florida and found good rentals, but I ended up not buying any properties there. Instead, I started to flip more houses, and that is where I invested my money. I have historically flipped from 5 to 10 houses per year, but in the last three years, I flipped 12 and 18, and this year I will come close to flipping 30 houses. I want to buy more rentals. In fact, I have a goal to buy 100 properties. I am not going to buy bad investments to reach that goal, so I have switched directions with my investing. If I find the ideal place to buy rentals or my market changes, I will be set up to invest a lot of money into rentals thanks to the flipping business. You can watch the video below to hear more about investing in expensive markets.

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I have not bought any residential rental properties since 2015, but I bought two commercial properties this year and have two more under contract to buy. Commercial properties are completely different from residential ones but can be great investments as well. I bought a small shop for my flipping supplies earlier this year, and I just bought a 7,500-square-foot commercial property that I will write about later this week. Not only can you buy different types of rentals when prices are too high in your area, but you can also buy out-of-state rentals or even turn-key rentals.

Should you sell your rental property if you are not making any money on it?

Many people buy rental properties without any cash flow, hoping to make money through appreciation. Some people end up being accidental landlords when they turn a property into a rental because they could not sell it. I think, in both instances, owning a rental that does not generate any money is very risky. Betting on appreciation is tough because of all the selling costs we talked about, and if you are not making any money, it makes it tough to get a new loan on properties. I would suggest getting rid of rentals that don’t make any money and focusing on investments that do. This advice assumes you are not ultra rich and have so much money that you do not care if a property makes money or not.

Conclusion

Many investors have seen their properties go up in value over the last few years. It is tough to know what to do with all that equity. Should you leave it and let it earn a small return? Should you refinance? Should you sell? I chose to do all three, and it has worked out well. I do not want to max out the loans on every property I own because it would hurt cash flow and be risky. I also do not want to leave unused equity in my properties. I sold some properties to take advantage of the hot market and clean out some of my poorly performing assets. If you are thinking of selling some rentals, run the numbers to see how much money you would get, see what properties or other investments you could put that money in, and maybe selling will make sense. If you would like me to look over the numbers of your rental property for you, you can post them on the InvestFourMore Insider.

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Source: investfourmore.com