Tax Advantages
How to Start Investing in Peer-to-Peer Loans
Back in the day, if you needed a personal loan to start a business or finance a wedding you had to go through a bank. But in recent years, a new option has appeared and transformed the lending industry. Peer-to-peer lending … Continue reading →
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5 Ways to Be Financially Secure
For many, the dream of being financially secure is nothing more than a mirage. This is mainly because a common misconception equates financial security with having a million dollars in the bank. While having a hefty bank balance does not hurt, it is only part of the story.
Many top earners are learning this the hard way recently, as the economic uncertainty has left them on the hook for expenses they can no longer afford to pay. However, this does not have to happen to you: here are five ways to be financially secure.
When considering how to become financially secure, your priority must be to ensure that you have enough income to cover your expenses. If you cannot pass this hurdle, then you should reconsider your lifestyle. Granted, this might be harder for some people, but even if you can put away $10 per week, this will help you to have the emergency funds you need to weather times of uncertainty, such as the COVID pandemic.
Step 1: Develop good habits
Managing your finances requires discipline, which means that you need to have good habits, as this is the only way that you can keep yourself from falling into traps. One way to do this is to keep your credits cards at home when you leave the house, as this will keep you from splurging on impulse buys. You might also want to think about getting a separate bank account for your daily spending needs, because this will limit the funds available to you at any given time.
Having good spending habits means that you need to be disciplined. However, if there is a large expense that makes sense and you have planned for it, then you should consider making it.
Another healthy financial habit is to always do your due diligence. For example, according to reverse mortgage expert Michael G. Branson, you can leverage the existing value of a property you own as a senior citizen with a reverse mortgage—but that doesn’t mean you shouldn’t research the pros and cons. Anytime you take out a loan (whether it’s a mortgage loan, personal loan, or a payday loan), open a new credit card, or finance a new car, always look at the fine print. Pay particular attention to interest rates, penalties, annual fees, and APR.
Step 2: Leave your car at home
Or better yet, sell your car. This is especially true if you are living in a city or a town where all your daily needs can be filled from shops within walking or cycling distance. Not using your car means that you can save money on gas and maintenance, and getting rid of your vehicle altogether will eliminate monthly payments for your auto loan and insurance.
If you need a car for just a day or two, then you should consider renting or using a ride-sharing app. You could also consider purchasing a “new to you” vehicle as they will usually cost less than a new car.
Exceptions to this might be if you need to use your car for work. In this case, you are using your vehicle to make money, and as such, it might be considered an investment. However, if you are using your car to make money, then you want to make sure you are accurately tracking your expenses. Not only will this help you to get any tax advantages, but it will give you the basis to determine if the money you are spending on your car is yielding the return you expected.
Step 3: Make as many pre-tax deductions as possible
While the rules might vary depending on where you live, you want to make sure that you take full advantage of any pre-tax contributions you can make. While doing so means that you will be taking home less money, it also means that you will be paying less in tax while putting money away for your future. As such, this approach is a big win for you and your financial future.
Step 4: Be insured
Having the right life insurance policy can help to protect you and your family when the time comes. As such, you want to make sure that you have enough life insurance to look after your family and to cover funeral expenses. Also, some policies can be used as collateral for loans.
While going into debt is usually not recommended when trying to become financially secure, using it to buy revenue-generating property or business might be an excellent way to get closer to your goal. As such, having insurance could help you down the road.
Step 5: Regularly review your financial health
Just like you go to your doctor for an annual checkup, you should regularly review your financial health. Doing so will give you an idea of where you stand and what additional steps you need to take to reach your goals. If you want to become financially secure, then you want to make sure that you check your financial health (e.g., budget, savings, etc.) at least once a month.
How to Start Investing in Peer-to-Peer Loans – SmartAsset
Home Equity Loan: What Is It and How Does It Work?
A home equity loan can allow you to access large sums of money without selling your home. Using your home as collateral, you can get a loan to finance anything you want or need â…
The post Home Equity Loan: What Is It and How Does It Work? appeared first on Crediful.
How To Invest In REIT – Are REITs good investments?
How to Start Investing in the Stock Market
Although investing in the stock market can feel intimidating at first, it could be the key to achieving your financial goals. Short of hitting the lottery or building a thriving business that you can sell, buying securities that increase in value over time is usually the easiest path to wealth. After all, the average savings […]
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This is How CDs Workâand How You Can Use Them to Grow Your Savings
If youâre looking for predictable returns at rates that tend to exceed those of savings accounts, then itâs time to find out what CDs are.
The post This is How CDs Workâand How You Can Use Them to Grow Your Savings appeared first on Discover Bank – Banking Topics Blog.
With Rates at Record Lows, Affordability Grows for House Hunters
Have you been keeping a close eye on todayâs housing market? If the answer is âyes,â then youâre well aware that interest rates are at historic lows. But if youâve been holding off for just the right moment until home prices and financing options meet miraculously in your favor, thereâs really no reason to wait any longer. Low Mortgage Rates Making History â For Now Driven by concerns brought on by the coronavirus pandemic, the Federal Reserve has been maintaining the benchmark interest rate at the historically low range of 0.00% to 0.25% â matching their lowest levels from over a decade ago, when the Fed cut them to nearly zero during the 2008 housing crisis.* According to Freddie Mac, mortgage rates remained at their lowest levels in history for the first week of January, 2021, with 30-year fixed-rate loans averaging 2.65% as of January 7, 2021. Today, the typical mortgage is still hovering around a percentage point cheaper than a year ago when the average rate was 3.73%.** While it remains uncertain as to when rates may begin to head back up, once that does occur, one of the housing marketâs first casualties will be a homebuyerâs opportunity to get the extreme value weâre seeing available today on a home loan with lower rates. And even if you donât have 20% saved up for a down payment, buying with less down can be easily accomplished in many cases. In fact, depending on your situation, you can buy with as little as 3% down. There are also programs that allow for tremendous flexibility in regards to your down payment source. A PennyMac loan specialist would be able to guide you through the options that most conveniently match your needs. As long as you have sound credit and a qualifying debt-to-income (DTI) ratio, buying in todayâs hot market can prove remarkably beneficial while rates are this low. Your Buying Power With Low Interest Rates There are several factors that determine homebuying affordability and your purchasing power, but mortgage interest rates are playing the largest part in todayâs market. In the simplest terms, a mortgage interest rate is the percentage of a principal home loan amount that a lender charges a borrower. With a higher rate, youâll pay more in interest over the life of your loan, while a lower interest rate will reduce the cost of borrowing and the total amount of interest that youâll pay for your home. A lower interest rate can mean the difference of potentially hundreds every month, thousands every year, and many thousands of dollars saved over the entire life of your loan. It can also bring forth the possibility of buying a new home for some, or perhaps bring a more expensive home within reach that a higher rate environment would not so generously allow. For instance, letâs say you have a monthly budget of $2,000 to spend toward principal and interest on your mortgage payment. With a lower rate, that $2,000 per month can go further toward the amount of house you can afford. To illustrate, consider youâre looking at a 30-year fixed mortgage at a 3% interest rate. You could buy a house priced up to $475,000 while still maintaining your monthly budget of $2,000 principal and interest. If your rate were just 1% higher, however, youâd be limited to a purchase price of no more than $420,000 to keep within your budget.*** The difference between 3% and 4% means a $55,000 reduction from your maximum purchase price and an 11.58% loss in purchasing power. Just a 1% rate reduction could make the difference between getting into a home or not, or settling for less than what you were hoping for in a house. Getting More for Your Money Is your current home too small to contain your growing family? Are you an empty nester, ready to downsize? Maybe you want to be closer to extended family or friends. Or, you want to move closer to better schools and live in a community with more services, restaurants, and other amenities that better suit your needs. Record-low mortgage rates can empower you to really get what you really need, and want, in your next house. Covid-19 has changed the way homebuyers view square footage, especially in terms of privacy and workspace. The pandemic has also demonstrated that the need to live near a brick-and-mortar employer may be less of a necessity, as working remotely makes commuting a thing of the past. For those considering buying property as an investment, todayâs mortgage rates could be your key to entering the short-term rental market. Rental property has the potential to provide consistent cash flow as well as possible significant tax benefits. Also, even when rental property appreciates, the IRS allows you to deduct depreciation (Consult your tax adviser for further information regarding potential tax advantages with rental properties). **** Whatever your reason, whether it be the desire to live in a âsmart homeâ or have a bigger kitchen to suit your new passion for sourdough breadmaking, this could very well be your best opportunity to jump in with both oven mitts. Timing is Everything — Make Your Move Today Although low mortgage rates have placed more buying power in the hands of aspiring homeowners, itâs also resulted in an increasingly competitive sellerâs market. So, for house hunters watching from the sidelines, time is of the essence. To take advantage of todayâs great rates — as well as a market thatâs still in your favor — be ready to act when your dream home hits the market. A smart first step to take in your preparation is to get pre-approved before you start shopping. Your Buyer Advantage Pre-Approval from PennyMac will allow you to know your exact borrowing budget, as well as give your offer credibility to a seller once your dream home does appear. Get started now online, or contact a PennyMac Loan Officer to learn more. *Source: https://www.federalreserve.gov/newsevents/pressreleases/monetary20201216a1.htm**Source: http://www.freddiemac.com/pmms/#***Source: https://www.mortgagecalculator.net****Source: https://investorjunkie.com/real-estate/rental-property-investment/ ;https://learn.roofstock.com/blog/rental-property-depreciation
5 Options for Your Retirement Account When Leaving a Job
One of the most common retirement questions I receive is what to do with a retirement account when leaving a job. Knowing your options for managing a retirement plan with an old employer is essential because most people change jobs many times throughout their careers. And millions of Americans remain out of work during the pandemic.
When you have a workplace retirement plan such as a 401(k) or 403(b), you can take your vested balance with you when you leave.
Fortunately, when you have a workplace retirement plan such as a 401(k) or 403(b), you can take your vested balance with you when you leave. It doesn't matter if you quit, get fired, or get laid off, the same rules apply.
This post will cover five options for managing your retirement account when your employment ends. You'll learn the rules for handling a retirement plan at an old job and the best move to create a secure financial future.
Why should you use a retirement account?
Investing money using one or more retirement accounts is wise because they come with terrific tax advantages. They defer or eliminate the tax on your contributions and investment earnings, which may allow you to accumulate a bigger balance than with a taxable brokerage account.
Investing money using one or more retirement accounts is wise. If you have a retirement plan at work but aren't participating in it, now's the time to enroll!
So, if you have a retirement plan at work but aren't participating in it, now's the time to enroll! Contribute as much as you can, even if it's just a small amount. Make a goal to increase your contribution rate each year until you're putting away at least 10% to 15% of your pre-tax income.
FREE RESOURCE: Retirement Account Comparison Chart (PDF)—a handy one-page download to see the retirement account rules at a glance.
What is a retirement account rollover?
Don't make the mistake of thinking that once you leave a job with a 401(k) or a 403(b) you can't continue getting tax breaks. Doing a rollover allows you to withdraw funds from a retirement plan with an old employer and transfer them to another eligible retirement account.
When you roll over a workplace retirement account, you don't lose your contributions or investment earnings. And if you're vested, you don't lose any money that your employer may have put into your account as matching funds.
The main rule you must follow when doing a retirement rollover is that you must complete it within 60 days once you begin the process.
The main rule you must follow when doing a retirement rollover is that you must complete it within 60 days once you begin the process. If you miss this deadline and are younger than age 59½, the transaction becomes an early withdrawal. That means it is subject to income tax, plus an additional 10% early withdrawal penalty.
If you're a regular Money Girl podcast listener or reader, you know that I don't recommend taking early withdrawals from retirement accounts. Paying income tax and a penalty is expensive and reduces your nest egg.
If you complete a traditional rollover within the allowable 60-day window, you maintain all the funds' tax-deferred status until you make withdrawals in the future. And with a Roth rollover, you retain the tax-free status of your funds.
What are your retirement account options when leaving a job?
Once you're no longer employed by a company that sponsors your retirement plan, there are four options for managing the account.
1. Cash out your account
Cashing out a retirement plan when you leave a job is the easiest option, but it's also the worst option. As I mentioned, taking an early withdrawal means you must pay income tax and a 10% penalty.
Cashing out a retirement plan when you leave a job is the easiest option, but it's also the worst option.
Let's say you have a $100,000 account balance that you cash out. If your average rate for federal and state income taxes is 30%, and you have an additional 10% penalty, you lose 40%. Cracking open your $100,000 nest egg could mean only having $60,000 left, depending on how much you earn.
Note that if your retirement plan has a low balance, such as $1,000 or less, the custodian may automatically cash you out. If so, they're required to withhold 20% for taxes (although you may owe more), file Form 1099-R to document the distribution, and pay you the balance.
2. Maintain your existing account
Most retirement plans allow you to keep money in the account after you're no longer employed if you maintain a minimum balance, such as more than $5,000. If you don't have the minimum, but you have more than the cash-out threshold, the custodian typically has the authority to deposit your money into an IRA in your name.
The downside to leaving money in an old retirement account is that you can't make additional contributions because you're not an employee. However, your funds can continue to grow there. You can manage them any way you like by selling or buying investments from a set menu of options.
The downside to leaving money in an old retirement account is that you can't make additional contributions.
Leaving money in an old retirement plan is certainly better than cashing out and paying taxes and a penalty, but it doesn't give you as much flexibility as you you would get with the next two options I'm going to talk about.
I only recommend leaving money in an old employer's retirement plan if you're happy with the investment choices and the fund and account fees are low. Just make sure that the plan doesn't charge you higher fees once you're no longer an active employee.
Another reason you might want to leave retirement money in an old employer's plan is if you're unemployed or have a job that doesn't offer a retirement account. I'll cover some special legal protections you'll get in just a moment.
3. Rollover to an Individual Retirement Arrangement (IRA)
Another option for your old workplace retirement plan is to roll it into an existing or new traditional IRA. If you have a Roth 401(k) or 403(b), you can roll it over into a Roth IRA. The deadline to complete an IRA rollover is 60 days.
Your earnings in a traditional IRA would continue to grow tax-deferred, just like in your old workplace plan. And earnings grow tax-free in a Roth IRA, like a Roth account at work.
Here are a couple of advantages to moving a workplace plan to an IRA:
- Getting more control. You choose the financial institution and the investments for your IRA.
- Having more flexibility. With an IRA, there are more ways to tap your funds before age 59½ and avoid an early withdrawal penalty than with a workplace account. That rule applies to several exceptions, including using withdrawals for medical bills, college expenses, and buying or building your first home.
Here are some downsides to rolling over a workplace plan to an IRA:
- Having fewer legal protections. Depending on your home state, assets in an IRA may not be protected from creditors.
- Being ineligible for a Roth IRA. When you're a high earner, you may not be allowed to contribute to a Roth IRA. However, you can still manage the account and have tax-free investment earnings.
If you want more control over your investment choices, think you'll need to make withdrawals before retirement, are self-employed, or don't have a job with a retirement plan to roll your account into, having an IRA is a great option.
4. Rollover to a new workplace plan
If you land a new job with a retirement plan, it may allow a rollover from your old plan once you're eligible to participate. While the IRS allows rollovers into most retirement accounts, employer plans aren't required to accept incoming rollovers. So be sure to check with your new plan administrator about what's possible.
Once you initiate a transfer from one workplace plan to another, you must complete it within 60 days to avoid taxes and a penalty.
Here are some advantages of doing a workplace-to-workplace rollover:
- More convenience. Having all your retirement savings in one place may make it easier to manage and track.
- Taking early withdrawals. Retirees can begin taking penalty-free withdrawals from workplace plans as early as age 55.
- Avoiding Roth income limits. Unlike a Roth IRA, there are no income restrictions for participating in a Roth workplace retirement account.
- Getting more legal protections. Workplace retirement plans are covered by the Employee Retirement Income Security Act of 1974 (ERISA), a federal regulation. It doesn't allow creditors (except the federal government) to touch your account balance.
Some downsides to transferring money from one workplace plan to another include:
- Having less flexibility. You can't take money out of a 401(k) or a 403(b) until you leave the company or qualify for an allowable hardship. It doesn't come with as many withdrawal exceptions compared to an IRA.
- Getting less control. You may have fewer investment choices or higher fees than an IRA, depending on the brokerage firm.
5. Rollover to an account for the self-employed
If you left a job to become self-employed, having an IRA is a great option. However, there are other types of retirement accounts that you might consider, such as a solo 401(k) or a SEP-IRA, based on whether you have employees and on your business income.
Read 4 Ways to Start a Retirement Account as a Self-Employed Freelancer or 5 Retirement Options When You're Self-Employed for more information.
When is a Roth rollover allowed?
For a rollover to be tax-free, you must use a like account. For example, if you have a traditional 403(b), you must rollover to another traditional retirement account at work or to a traditional IRA.
If you move traditional, pre-tax funds into a post-tax, Roth account, you must pay income tax on any amount that wasn't previously taxed. That could leave you with a massive tax liability. If you want a Roth, a better move would be to open a Roth account at your new job or to start a Roth IRA (if your income doesn't make you ineligible to contribute).
Where should you move an old retirement account?
The best place for your old retirement account depends on the flexibility and legal protections you want. Other considerations include the quality of your old plan, your income, and whether you have a new job with a retirement plan that accepts rollovers.
The best place for your old retirement account depends on the flexibility and legal protections you want.
The goal is to position your retirement money where you can keep it safe and allow it to grow using low-cost, diversified investment options. If you have questions about doing a rollover, get advice from your retirement plan custodian. They can walk you through the process to make sure you choose the best investments and don't break the rollover rules.