If you want to start a business, one thought may go through your mind (particularly if you’re funding your business out of pocket): “If I didn’t have to repay my student loans, I’d have more money to put toward my business.”
No doubt about it, student debt can be steep. The current average federal student loan debt per borrower is $37,338 and $54,921 per private loan borrower. Student loan borrowers who feel stymied by their debt may wonder how to get their business idea off the ground.
If student loans gobble up a chunk of your cash every month, refinancing might free up funds to put your fledgling business on the right track. Read on to learn how refinancing student loans can benefit the launch of your new business.
What Is Student Loan Refinancing?
Before diving into the definition of student loan refinancing, let’s discuss the components that make up a student loan: principal, interest rate, and loan term.
• Principal: The principal is the original amount that you borrowed, which you will repay with interest over time.
• Interest rate: The interest rate is a percentage of the loan principal that you pay monthly — on top of a portion of the principal. This is charged by the lender and is how they earn money while lending you cash.
• Loan term: The loan term is the amount of time in which you will repay your loan.
Student loan refinancing means replacing your existing student loan with a new student loan. You can refinance either federal or private loans with funds from a private lender. There are two important points to keep in mind if you are considering refinancing. These factors can help you determine if refinancing is a good fit for you.
• When you refinance federal loans with a private loan, you forfeit federal protections and benefits, such as deferment and forbearance.
• If you refinance for an extended term, you may end up paying more in interest over the life of the loan, even if your monthly payment is lower.
💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.
Benefits of Student Loan Refinancing
Some of the key reasons to refinance your student loans include the following:
• Potentially lowering your interest rate: Reducing your interest rate on your student loans can save you a lot of money over time because you won’t pay as much in interest per monthly payment. Check with various lenders to ensure you’re getting the lowest interest rate possible. You can usually get the best rates by having a strong credit score and a steady source of income. Your credit score is the three-digit number that reflects how well you’ve paid back debts in the past.
• Reducing your monthly payment: When you work with a lender to extend your loan term, you may reduce your student loan payments per month. For example, you may extend your loan term from 10 years to 15 years, though the specific options will depend on your lender. Note, however, as mentioned above, that extending your term often means you’re likely paying more interest over the life of your loan.
• Obtaining a single monthly payment: Instead of making multiple monthly payments, you can refinance and make one monthly payment. Sticking to one monthly payment can help you stay organized and make your payments on time. You don’t have to refinance all of your student loans, however. For example, if you have five student loans and you have a low interest rate on one and a high interest rate on the rest, you could refinance just those four. Use a student loan refinance calculator to determine how different refinance scenarios might work to your advantage.
• Choosing between variable- and fixed-rate loans: Refinancing may allow you to choose between a fixed- or variable-rate loan. A fixed-rate means your interest rate stays the same throughout the life of the loan, while a variable rate changes — and could increase or fall over time.
Note that you can also consolidate student loans, which involves combining several federal student loans into one loan, through the Direct Loan Program. 💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.
How Refinancing Student Loans Can Benefit a New Business
So, how exactly does refinancing student loans benefit a new business? Here’s a closer look.
1. Lower Your Loan Payments
As mentioned earlier, refinancing can help lower your loan payments by possibly offering a lower interest rate and/or by stretching out your loan term. Lowering your monthly payments can allow you to devote more financial resources toward your new business. You can also use the extra money to pay for household expenses or financial goals, like the down payment on a house or your retirement nest egg.
2. More Money to Get Business Loan
First, to clarify: Using student loans to start a business is a no-go. Student loan money should go toward education costs, living expenses, and housing. When you refinance, you can lower your monthly repayment amount. That can help your overall financial outlook. Then, if you apply for a business loan, you may have a more creditworthy profile.
A bank or credit union will review your financial information to evaluate your qualifications for a business loan. If you refinance your student loans and lower your monthly payment, that could help improve your debt-to-income ratio (DTI), an important indicator when you apply for a loan. Your DTI is calculated by all your monthly debt payments divided by your gross monthly income. If you lower a component of your monthly debt (say, your student loan), you can lower your overall DTI, which is a positive.
3. Use Business Income to Pay Student Loans
Are you wondering, “Can my business pay my student loans?” The answer to that is “no,” if you mean pay directly through your enterprise. However, if you launch a business and earn income, of course you can use your pay to eliminate your debt, whether from a student loan or another source.
Keep in mind that as a business owner, you could get tax breaks that other taxpayers can’t claim, but you can’t deduct the principal payments you make on student loans.
Recommended: How to Get Out of Student Loan Debt
Refinancing Student Loans With SoFi
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Can you start a business if you have student loans?
Yes, you can start a business if you have student loans, but it may be harder to access business credit and save cash to put toward your business. No matter what, you must keep up with your student loan payments. Not making your payments can hurt your credit score later, which in turn can hurt your application for a small business loan.
How do I start a student loan?
You can apply for federal student loans by filing the Free Application for Federal Student Aid (FAFSA), which helps determine the amount of federal student aid you can receive. You can apply for private student loans on lender websites.
Can I get an SBA loan with defaulted student loans?
Through the Small Business Administration, SBA loans require potential borrowers to keep up to date on student loan payments. Unfortunately, you could become ineligible with defaulted student loans.
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SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Student Loan Refinance If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Inside: Are you confused about the differences in types of income? This guide will help you understand earned income, passive income, and investment income, and their importance in achieving financial stability. Learn about the different tax implications for each type of income.
Understanding the differences in income types is a vital component of your financial literacy.
Earned, passive, and investment income all play a distinct role in your financial portfolio and tax liabilities.
These types of income are important to grow your wealth.
We will quickly answer the difference, provide examples, and understand the tax implications.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What Is Earned Income?
Earned income is the money you actively work for. You trade your time for money.
This comes in the form of salaries and wages, where you receive a fixed amount of compensation for your role or job. It can also occur as hourly wages in part-time or contractual jobs.
Other forms include tips received in the service industry, bonuses for achieving specific goals, and self-employment income for freelancers, consultants, and small business owners. Any income that directly results from your personal efforts and active participation falls under earned income.
Typically, this is the most common form of income for most people.
Real Life Examples of Earned Income
A supermarket cashier receives an hourly wage.
A financial analyst is being paid for salary.
A freelance graphic designer receiving payment for a recently completed project.
A waitress at a restaurant receives a tip from a satisfied customer.
A real estate agent receives a commission on the sale of a house.
A sales manager at a car dealership receives a bonus for meeting sales targets.
A renowned author receiving an honorarium for delivering a keynote speech at a literature festival.
A hairstylist at a salon receives income from the haircuts and styling services provided.
A fitness coach generating income through personal training sessions.
Any side hustle income is typically earned income.
How Is Active Income Taxed?
Active income, also known as earned income, is subject to income tax at various rates as determined by the IRS’s current tax brackets. Seven tax brackets, ranging from 10% to 37%, are set for individual taxpayers. 1
The tax treatment is wholly dependent on where an individual’s income falls within these brackets. Your employer typically deducts this tax directly from your paycheck, reducing net take-home pay. It’s advisable to understand the tax implications of your earnings to avoid any surprises at tax time.
Use this tax calculator to know your taxes due.
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Role of Passive Income
Passive income refers to money earned that is not directly linked to active efforts or time spent, often described as income one can earn while sleeping, vacationing, or indulging in hobbies.
This kind of income usually demands some sort of initial investment, which could be financial, a substantial time commitment, ingenuity, or a mixture of all. For many, they invested 10k to get started. Examples include writing a book, creating a course, investing in real estate, or running an affiliate marketing program.
Despite the upfront work often required, passive income potentially provides a steady additional revenue stream and financial independence, making it an attractive prospect for many.
Common Forms of Passive Income
Dividends and interest income: Profits made from investments in stocks or bonds often involve receiving dividends or interest.
Rental income: This is earned from renting out property you own, like houses or apartments as a real estate rental.
Royalties: Income from allowing others to use your intellectual or creative properties, such as copyrighted books, music compositions, or patented inventions.
Capital gains: Profits from buying assets like stocks or property for a certain amount and selling them at a higher value.
Product or Course Sales: A small business owner receiving income from a product or sales that they created once and can resell.
Remember, there is still a level of effort involved in managing these streams, even though they are considered passive.
How Is Passive Income Taxed?
The tax liability of passive income can vary based on how the income is generated. 2
In general, how passive income is taxed depends on how the income is earned. The key note is you are not trading your time for money.
Some forms of passive income are subject to self-employment taxes, while others may be taxed at your regular income tax rate. For instance, net rental income, a form of passive income, may attract unique taxation rules.
However, the applicable tax rules can be complex. Therefore, it’s highly recommended to seek advice from a licensed tax professional when managing taxes for passive income.
Insights into Investment Income
Investment income is a distinct financial category mainly composed of profits resulting from various investments. This pathway consists of the strategic acquisition of assets with a prime focus on their long-term appreciation or regular income, potentially in the form of dividends or interest.
Unlike earned income which often demands a substantial time investment, and unlike passive income which may need initial setup, investment income principally necessitates strategic decision-making and periodic performance reviews.
The common form is learning how to invest in the stock market or real estate.
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Examples of Investment Income And Strategies
Dividends: Income received from owning shares of a company. A long-term investment strategy generally works best here.
Bond Interest: Income paid from bonds for lending money to entities. Risk-averse investors often lean towards bonds for steady income.
Capital Gains: Profits from selling investments at a higher price than their purchase. This needs a strategic understanding of market patterns.
Real Estate Investment Trusts (REITs): Income from investing in property-related assets. This strategy may provide steady cash flow with potential growth.
P2P Lending: Returns from lending money through online platforms. The ability to scale and diversify this investment depends on your risk tolerance.
Interest on savings accounts – Money earned on the balance held in your savings account.
All require a strategic approach, balancing risk and rewards, to drive income growth effectively.
Please note, that the successful generation of investment income often requires careful financial decision-making and strategic asset allocation.
Impact of Tax on Investment Income
Taxes on investment income include interest, dividends, and capital gains. However, the rate is usually lower than that for earned income.
Investment income is often taxed at a lower rate than earned income, however, the exact tax rates can depend on an individual’s tax bracket and the holding period of the investment.
In certain circumstances, Investment income can be subject to capital gains taxes, which apply if you sell a stock or other investment at a profit.
For some high-income individuals, Investment income may be subjected to the Net Investment Income Tax (NIIT). The NIIT is an additional 3.8% tax on certain investment income, such as interest, dividends, and capital gains.
Capital gains from the sale of assets (like real estate or a business) are often taxed at a lower rate compared to ordinary income.
Therefore, it’s important to consider these tax implications when shaping your investment strategies. Proper tax planning can help mitigate the impact of taxes on your investment income.
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Major Differences Between Active (Earned) and Passive Income
The primary differences between active (earned) income and passive income revolve around how they are earned and managed.
Active (earned) income requires active, day-to-day involvement in work. For example, a full-time job where you’re on the clock. It’s often less scalable due to time and energy constraints. Earned income is also more prone to risks like job loss or health issues that prevent work. Furthermore, in most regions, earned income tends to fall in higher tax brackets.
Conversely, passive income demands initial setup and some regular review but not daily oversight. Examples include earning royalties from a book you wrote or income from renting properties. This is more scalable because you aren’t exchanging time for money in the same way.
Advantages of Diversifying Your Income Sources
#1 – Achieving Financial Goals with Flexibility
Diversifying your income source adds flexibility to your personal finance strategy, helping you achieve your financial goals effectively. An income diversified across active, passive, and investment income can cushion against financial downturns whilst providing multiple avenues for wealth generation.
An unexpected job loss, for example, maybe less devastating when you have additional income streams to bank on, such as rental income or dividends, providing you with the flexibility to navigate financial bumps. It also allows you to explore unique investment opportunities without undue stress.
Consequently, a multi-faceted income model can be a stepping stone towards financial freedom.
#2 – Stable Financial Standing with Multiple Income Streams
Having multiple income streams provides a buffer that can significantly enhance your financial stability. “You’ll catch more fish with multiple lines in the water,” says Greg McBride, chief financial analyst at Bankrate. 4
If one income source dwindles or disappears, other income streams continue to provide essential financial flow. This duplication shields you from the full brunt of economic or occupational changes, ensuring you maintain your standard of living while working towards your financial goals. Thus, a diverse income portfolio lays a foundation of financial resilience and prosperity.
#3 – Tax Benefits and Deductions: Navigating the Complexities
Income diversification presents an opportunity to mitigate taxes through various benefits and deductions. Depending on your jurisdiction, you may be eligible for specific tax breaks or deductions on passive or investment income. For instance, certain expenses related to generating rental income may be deductible, or long-term capital gains might be taxed at a lower rate.
It’s also noteworthy that certain types of income like qualified dividends or long-term capital gains can offer potential tax advantages over regular income. While tax laws can be complex, a basic understanding of these concepts could be beneficial to reduce your tax obligations.
That said, always consider seeking the help of a tax professional to navigate these intricacies, especially with an S corporation or with a schedule C.
FAQ About Different Types of Income
Earned income and passive income are two distinctly sourced income channels. Earned income is money received as a direct result of work performed or services provided. This includes wages, salaries, tips, and self-employment income.
Passive income, on the other hand, is money earned without active, daily participation. Although it may require initial efforts to set up, its subsequent generation entails minimal direct input. The key difference between the two lies in the level and timing of involvement required to generate them. Passive income gives you more time freedom.
Portfolio income and passive income are often misunderstood as the same. However, the Internal Revenue Service (IRS) distinctly categorizes them. 3
While passive income generally refers to earnings gained without active involvement, portfolio income specifically relates to income derived from investments such as interest, dividends, or capital gains. Although both involve some lack of active participation, their origins, and tax implications are different.
No, investment income and earned income are not the same. The key difference lies in the source: one is actively earned by working, while the other is accrued through investing or letting money work for you.
The variance also manifests in their respective tax treatment by the IRS.
Earned income refers to wages, salaries, bonuses, and other income earned by providing a service or actively participating in a job or business.
On the other hand, investment income is generated from things like dividends, interest, and capital gains from the sale of financial assets such as stocks or bonds.
Diversification is the Key to Types of Income
Choosing the right income channel—earned, passive, or investment income—depends heavily on your financial goals, resources, risk tolerance, and time commitment.
Earned income may provide stable, regular income, but requires active participation.
Passive income, while enticing with its offer of money while you sleep, requires initial effort and savvy management.
Investment income may promise attractive returns, yet it can involve significant risk and demand financial acumen.
Diversifying your income streams could provide economic stability, flexibility, and potential tax benefits.
One wise woman, Teri Ijeoma, once stated, “It is better to make more money than you know what to do with rather than worry about how the taxes work.”
Remember, there’s no one-size-fits-all answer to financial prosperity, but understanding the nuances of various income types is a step in the right direction toward financial literacy and independence.
Now, let’s move to how to become financially independent.
Source
Internal Revenue Service. “IRS provides tax inflation adjustments for tax year 2024.” https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024. Accessed November 20, 2023.
Internal Revenue Service. “Passive Activity and At-Risk Rules.” https://www.irs.gov/pub/irs-pdf/p925.pdf. Accessed November 20, 2023.
Internal Revenue Service. “Publication 550 (2022), Investment Income and Expenses.” https://www.irs.gov/publications/p550. Accessed November 20, 2023.
Bankrate. “23 passive income ideas to help you make money in 2023.” https://www.bankrate.com/investing/passive-income-ideas/. Accessed November 20, 2023.
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“Two is better than one” is an old adage that translates to finances, too. Two incomes can go much further than one, especially between married couples.
People who say “I do” also have access to various tax breaks that can give them a financial edge when it comes to building wealth. For instance, married couples filing their taxes jointly get a standard deduction of $27,700 in 2023, while single filers get a $13,850 deduction.
How can married couples act on the many tax breaks they have access to and use them to build wealth? Two certified public accountants share a few strategies for couples to consider.
Strategy 1: Investing
When married couples get a tax deduction or tax credit, there’s an opportunity to invest that extra money. There are a string of ways to invest the money, but couples could benefit from investing in themselves, says Sheneya Wilson, a CPA and founder of Fola Financial in the Bronx in New York City. Couples may choose to use their tax savings to invest in courses that improve their skills, market value and salaries, she says.
Retirement accounts like 401(k)s, IRAs or regular brokerage accounts are also an option for couples. Investing those extra dollars from tax breaks means couples have more money that can potentially grow and enjoy the benefits of compound interest.
Wilson adds that married folks can also consider alternative investments, such as commodities, gold, silver, royalties or music catalogs.
Ultimately, couples can choose investments that align with their goals and legacy.
“The best investments are going to be in line with how that person wants to leave an influence on the world,” Wilson says.
Strategy 2: Real estate
Married couples who own a property may be able to sell it and exclude some of the real estate capital gains tax from their income. For married couples filing jointly, that means they can keep up to $500,000 of the profit tax-free. Single filers, on the other hand, are capped at $250,000.
“Now think about what you can do with around $500,000 of tax-free income,” says Williams. That extra money could go toward investing in another property, she adds.
Note that couples have to own the house, use it as their main home, live there for at least two of the five years before selling and meet other rules in order to qualify for the exclusion.
Strategy 3: 529 plans
529 plans — investing plans for education that allow tax-free growth and withdrawals — are another way couples can use tax breaks to build wealth, says Jasmine Young, a CPA and founder of Southern Heritage Financial Group in Atlanta.
“It could be your niece, your nephew, your cousin, it could be you, whoever’s gonna use the money for educational expenses,” Young says. ”That’s one way for you to reduce your tax liability and put the money somewhere that’s going to give you a resource to build generational wealth.”
Some states offer deductions or credits for 529 plan contributions. A perk for married couples is that in many states, joint filers can deduct double the amount than single filers, lowering their taxable income. The amount joint filers can deduct varies from state to state.
Another way married people can benefit from 529 plan tax benefits is with the federal gift tax exclusion. While 529 plans don’t have an annual contribution limit, contributions are considered “gifts” by the IRS, which means gifting over a certain amount could lead to extra paperwork at tax time. In 2023, those married filing jointly could gift $34,000 without needing to file a gift tax return versus $17,000 for single people.
Married couples who take advantage of this larger limit can save more annually for their kids or loved one’s kids and potentially help them grow wealth faster.
Another wealth-building strategy couples can potentially use beginning in 2024 is rolling unused funds in a 529 account into a Roth IRA account for the beneficiary. By rolling unused funds into a Roth IRA, the beneficiary — be it a child or family member — can get a head start on saving for retirement. There are several conditions account owners must meet to do this, so consult a financial advisor beforehand.
Strategy 4: Entrepreneurship
If one spouse is an entrepreneur, or a couple runs a joint venture, there’s an opportunity to write off business losses during tax season, Wilson says.
“If you are married, filing jointly and your spouse is investing in starting a business, there may be a net loss from that business venture on the joint tax return because that spouse was investing in maybe educational courses [to] start their business,” she says.
In 2023, married couples with their own business can take a loss of up to $524,000, compared with $262,000 for single filers. The dollars that may have gone to paying taxes can be funneled into growing an existing business, starting a new one, or paying down debt.
Couples curious about exploring more strategies they can implement may want to speak with a finance professional like a tax advisor or financial planner.
This article was written by NerdWallet and was originally published by The Associated Press.
A jumbo loan is a type of mortgage that surpasses the Federal Housing Finance Agency (FHFA) limitations and is used to finance expensive properties.
If you’re looking to purchase a property or a home in a more expensive area, it’s important to understand how jumbo loans work. Many individuals use jumbo loans to finance properties that exceed conventional loan limits. So, what is a jumbo loan, and who requires one?
In this article, we’ll go over what jumbo loans are, how to qualify, and other considerations.
What Is a Jumbo Loan?
A jumbo loan is a type of mortgage that surpasses the limitations the Federal Housing Finance Agency (FHFA) set for Freddie Mac and Fannie Mae. These two companies secure the majority of mortgages in the United States. Since Freddie Mac and Fannie Mae cannot guarantee these loans, there’s a higher risk for the lender and therefore, stricter requirements to qualify.
What Is Considered a Jumbo Loan?
The limit for a jumbo loan differs from state to state and even county to county. In most parts of the United States, the jumbo loan limit is $726,200. However, more expensive areas have higher thresholds for a jumbo loan. For example, Orange County, California has a jumbo loan threshold of $1,089,300.
How Do Jumbo Loans Work?
Jumbo loans work like traditional mortgage loans with set terms and a repayment schedule. Both fixed-rate and adjustable-rate jumbo loans are also available. Since jumbo loans can be risky for the lender, the requirements to qualify are stricter.
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How To Qualify for a Jumbo Loan
Below are factors you’ll need to qualify for a jumbo mortgage loan.
Good Credit Score
While there’s no hard and fast rule, most lenders will require a credit score of 700 or above to qualify for a jumbo loan. The average credit score in the United States is 714, which is doable for most Americans.
If you don’t have a good credit score but are looking to qualify for a jumbo loan, there are steps you can take to improve your credit score.
Large Down Payment
While the minimum down payment requirement for a jumbo loan is just over 10%, a lower down payment often comes with higher monthly payments and interest rates. Most lenders require a 20 to 35% down payment.
The exact down payment the lender requires may also differ depending on the loan size, your credit score and other factors.
Low Debt-to-Income Ratio
Another factor that lenders will look at is your debt-to-income ratio, which is the monthly debt you owe divided by your gross monthly income. Most lenders require a debt-to-income ratio below 43% to receive a jumbo loan.
Enough Cash Reserves
You will need to show proof that you have enough cash reserves, or liquid assets, to cover about 6-18 months of mortgage payments.
Extensive Documentation
Last but not least, lenders often require you to provide extensive documentation such as bank statements, pay stubs, and tax returns. These documents show the lender that you have steady income that is unlikely to change.
Jumbo Loan Pros and Cons
There are a variety of pros jumbo loans can provide to future home buyers including:
The ability to purchase a luxury property. Jumbo loans provide you with the funds you need to purchase your dream home in your desired location.
Competitive interest rates. Jumbo loan rates are similar and sometimes even slightly lower than traditional loan rates.
A single loan. Without jumbo loans, homebuyers would need to take out multiple mortgages.
The finances to make renovations. You can take out a jumbo renovation loan to cover the cost of the home plus any renovations you do.
On the contrary, jumbo loans have the following cons that you should be aware of:
High costs. With a larger loan comes higher payments. Plus, you’ll likely have to pay higher closing costs and insurance.
Strict qualifications. Jumbo loans have stricter qualifications that you might not be able to meet.
Large down payments. Jumbo loans typically require you to put a high percentage down.
Limited tax breaks. The Internal Revenue Service (IRS) only allows you to deduct interest on mortgages up to $750,000. As a result, interest on a portion of your jumbo loan likely won’t be tax deductible.
Jumbo vs. Conforming Loan Rates: Is There a Difference?
In the past, jumbo loans had higher interest rates than conforming loans. However, in 2022, jumbo mortgage rates fell below conforming loan rates. While these rates have since even outed, jumbo loan rates have remained competitive with conforming loan rates, as seen in the graph below.
Jumbo Loan FAQ
Below, we’ve answered some common questions about jumbo loans.
What Are Jumbo Loan Limits?
While jumbo loan baseline limits vary from place to place, they range from $726,200 to $1,089,300 in more expensive areas.
Are Jumbo Loans More Expensive?
While they have comparable interest rates to traditional loans, they may be more expensive since they have higher payments and closing costs.
What Is the Down Payment on a Jumbo Loan?
The minimum down payment for a jumbo loan is 10.1%. However, most lenders require a down payment of 20 to 25%.
Should You Apply for a Jumbo Loan?
If the home you’re interested in purchasing exceeds the conforming loan limits in your area, a jumbo loan could be your best financing option. However, this option is only available to those with the financial resources to meet the strict qualifications, so it’s important to evaluate your financial situation to determine if it’s right for you.
Start by checking your credit score for free to see if you meet the minimum requirement for a jumbo mortgage.
Are you looking to learn how to find a free car? Cars are expensive. There’s no doubt about that. Is it possible to get free cars? Getting a free car may sound too good to be true, but it’s possible for people who meet certain requirements, which we will talk about below. In this article,…
Are you looking to learn how to find a free car?
Cars are expensive.
There’s no doubt about that.
Is it possible to get free cars?
Getting a free car may sound too good to be true, but it’s possible for people who meet certain requirements, which we will talk about below. In this article, I’ll show you how to get a free car through different ways, from charity donations to assistance programs, and more.
I understand that there are so many people who would benefit from a more affordable transportation option. After all, a car can be essential to landing a job, getting to work, helping you pick up and drop off your children at childcare (so that you can work!), getting groceries, and so much more.
Low-income families, single parents, individuals with disabilities, veterans and their families, and so many others may particularly benefit from getting free vehicles to improve their quality of life.
Whether it’s making it easier to get to work, taking the kids to school and childcare, or simply attending important appointments, acquiring a free car can have a significant impact on your daily life.
Related content:
Why do free cars exist?
Free cars exist to help people who need transportation.
There are many organizations whose sole purpose is to help you get a free car because they know how much it can change a person’s life.
Below are some organizations that may help you find a free car:
Nonprofit Organizations— Some nonprofit organizations give away cars for free to those who need one. They work with local partners and households and accept donations of old cars and used cars, which are then fixed up and given to those who need them. These organizations usually target specific groups of people, such as low-income families, working families, single parents, military families, or disabled individuals, who may find it hard to afford a car on their own.
Churches and Private Charities— Churches and private charities may offer car help in your community as well. They usually work on a smaller scale, providing help to local residents experiencing hardships and may just give out a free car here and there. These organizations often rely on donations from members of the community and local businesses, and they require applicants to demonstrate a genuine need for a vehicle. You may need to contact local churches and charities directly to learn more about how to get a car for free.
People donate their used cars all the time. Their reasons may be either because they have no use for the car, they want to avoid the hassle of selling a car, for tax breaks, or they want to help others.
Who can benefit from free cars?
There are many people who can benefit from a free car, such as:
Low-income families— If your family is struggling with money and you are finding it hard to afford your bills, you might be eligible to receive a free car if you can show your need to an organization.
Single mothers and single parents — Single moms and parents need transportation so that they can get to work and also be able to bring their children to childcare. Not having a car can make this much more difficult.
Domestic violence victims — Having reliable transportation can be important for the safety and well-being of domestic violence victims. Some organizations have experience providing a free car in this situation and understand the need for privacy.
Disabled individuals — If you have a disability, you might be eligible to receive a free car to help you get around and be more independent.
Veterans and military families — Veterans and military families can also benefit from free car programs. There are organizations dedicated to providing assistance to those with a military background, to repay them for their service and sacrifices.
Victims of natural disasters — If you have experienced loss from a natural disaster, then you may benefit from many charitable free car organizations.
Of course, there are many more people who could benefit from finding affordable transportation as well. This is not a full list of those who might need a free vehicle.
Now, you do want to be cautious with getting a free car. If you are receiving government assistance, such as housing assistance, welfare, or food stamps, then accepting a free car may be considered income and it can affect your benefits. This is something that you will definitely want to think about as you do not want to lose these benefits.
How To Get A Free Car
There are organizations that help you get a car when you need a free vehicle. And there are other ways to find a free car as well. Below are some of the options that you may want to look into:
1. 1-800-Charity Cars
1-800-Charity Cars (also known as Free Charity Cars) is a nonprofit organization that provides free vehicles to eligible people, including domestic violence victims, the medically needy, victims of natural disasters, veterans and military families, and families transitioning from public assistance to work. It was the first charity of its kind in the nation.
This is the original free charity cars organization and they have given away over $70,000,000 in cars (over 9,000 cars) nationwide since they started the organization in 1996.
To apply, you will need to meet their eligibility criteria and submit an application on their website. Some of their eligibility requirements include being over the age of 18, being a resident of the U.S., having a valid driver’s license, being at or below 200% of the Federal Poverty Level, and having a genuine need for a vehicle.
This is a good place to start if you need a free car and you’re wondering where can I get a donated car for free.
2. Vehicles for Change
Vehicles for Change was started in 1999 and has given out over 7,500 cars to low-income families for little to no cost.
This organization helps residents in the states of Maryland and Northern Virginia. Cars are repaired and restored by people seeking workforce training as auto mechanics.
Donated vehicles are provided to families in need who meet their eligibility requirements. Eligible applicants must have a verifiable job offer or be working at least 30 hours per week, have no DUIs, and have a valid driver’s license to begin the application process.
3. Good News Garage
Good News Garage is a car donation program to look into if you’re trying to find a free car. They provide refurbished free cars for low-income families that meet their eligibility requirements. They give out around 200 cars to families in need each year and have provided around 5,500 cars since starting in 1996.
This organization is available for those in need who live in the New England area of Massachusetts, Vermont, and New Hampshire.
Good News Garage also has a transportation program. If you need to get to a job or get your children to childcare, then their program Ready To Go may be able to help you with this as well.
4. Online Car Donation
OnlineCarDonation.org is another platform that donates refurbished vehicles to needy individuals and families.
Online Car Donation gives free cars to people such as those with physical challenges, families living in homeless shelters, military families, and more.
You can apply by filling out their application form on their website and providing the required documents to prove your eligibility.
After you submit your application for a free car, if you are chosen, you will be contacted within 30 days. If you do not hear back within that time frame, their website says you can apply again as applications are only valid for 30 days.
5. With Causes Charitable Network
The WithCauses.org Network helps individuals and families in need by providing resources and assistance, which includes help getting a free car. The eligibility requirements may vary, so visit their website to find out if you qualify and how to apply.
6. Salvation Army free car program
The Salvation Army offers a free car program for eligible candidates.
They mainly focus on helping domestic violence victims, families in dire financial situations, and the homeless. Visit your local Salvation Army branch to inquire about their car donation program and how to apply.
7. Cars 4 Heroes
Cars4Heroes donates free cars to first responders, military veterans, and their families who are in need of transportation.
Cars 4 Heroes was started in 1996, and the organization currently gives away over 300 cars a year in the Kansas City, Kansas, metro area.
You can fill out their application form on their website and provide the required documentation to be considered for a free car.
8. Local church
Your local churches or other religious institutions may have programs that provide free vehicles to families that need help getting a car.
You may want to contact your nearby churches to find out if they have any car donation programs and how to apply or if they have eligibility requirements. They may know someone that they can connect you with to help you get a free car.
9. Check Facebook Marketplace and Craigslist
Many people often give away their cars or sell them at low prices on platforms like Facebook Marketplace and Craigslist.
If I was wondering about free cars near me, then I’d browse through these websites regularly to find out if anything is available. The search can be customized by entering your budget and location to see if anything suitable turns up.
10. Find a job that gives you a free car
There are jobs that may give you a free car as well, in case none of the above options works for you.
Some job positions that may come with a company car include sales representatives, district managers, or regional directors who spend a lot of time traveling between different offices.
To start your search for jobs that give you a car to take home, you can look for job postings with phrases like “company car provided” or “full-time vehicle provided.” Job websites such as Indeed, LinkedIn, and Glassdoor make it simpler to find such job listings by using specific keywords, so you may try searching for those. I did a quick search and was able to pull up jobs easily by typing those phrases into the keyword search bar.
Some employers might offer a car allowance instead of providing a free car. In this case, you would receive a monthly stipend to use toward your vehicle expenses. This would offset some of your car expenses, such as monthly payments or maintenance.
Also, if you know someone who currently has a company car, you can try asking them for tips and advice. They might even refer you to open positions at their workplace, and this can help you get a job with a free car as well.
11. Look for a free dealer donation
Dealer donations are a little more difficult of an option, as car dealers are in the business of making money, not giving away all of their cars that make them that money.
But, it doesn’t hurt to try if you have the time to write a letter and reach out to a car dealership.
To obtain a car dealer donation of a free used car, you’ll want to start by seeing what local dealerships are in your area. You can research their involvement in charitable activities to see if they even give out free cars (maybe do a simple search of the dealership’s name plus the term “free car” or something like that), as this will show you that they are open to the idea of donating a vehicle to those in need of a free car.
Once you have a list of local dealers to reach out to, there are ways to get a free car from a dealership. You can write a letter talking about your situation and reasons for requesting a donated car. You should talk about your struggles and the positive impact the donation will have on your life (such as, what a donated car will help you do).
When writing your letter for a free dealer donation, here are some things to think about:
Write the letter to the dealership’s owner or general manager, as they will likely have the authority to approve a car donation or be able to talk to someone who does have that authority.
Explain your situation fully and provide the specific reasons why you need a car.
Talk about how a car donation would improve your life and allow you to overcome challenges or achieve goals.
Provide information on any relevant programs or resources, such as a community organization or nonprofit, that may support your request for a free car.
After you have written your letter, submit it to the dealership. You may do this by sending it to the physical mailing address of the person, their email address, or perhaps even handing your letter to them in person.
Here are answers to common questions you may have about finding a free car:
What are other transportation options if I can’t find a free car?
There may be a long waiting period if you are applying for a donated car. If you are not able to find a free vehicle, then you may need to look into other options to get around town. Here are some ideas on how to get around if you don’t have a car of your own:
Public Transportation— If you live in a place with public transportation, then this option is something to look into. One great thing about public transportation is that you won’t have to pay to maintain a vehicle or repair anything. Of course, public transportation sometimes takes longer and may not be widely available to you (unfortunately, there are many towns in the U.S. that do not have great public transportation options), and that is something to think about. Also, more and more cities offer public transportation at no charge. You may have to apply for a special card to get this free service, or it may be available to everyone. It’s worth asking around about because it can save you hundreds of dollars a month.
Carpooling — Carpooling is an option to think about if you are unable to find a free car, especially for people who live in areas with limited public transportation. Car owners may be looking for riders so that the expense of ownership is offset a bit. You’ll need to share the cost of expenses, such as gas, tolls, parking, and wear and tear. You may be able to share rides with coworkers, friends, or neighbors. To save money, you could offer to trade babysitting, gardening, or home repairs for the ride. Also, check out carpooling apps that apply to your local area.
Rideshare Services — Now, rideshare most likely won’t be the most affordable option, but sometimes you don’t have a choice. Rideshare services, such as Uber and Lyft, may be able to get you to where you need to go if you don’t have any other options. To save money, use an app that compares rideshare companies and finds you the cheapest price. And, as far as your work commute, it’s good to know that some companies offer rideshare services as a benefit to their employees and will pay for the full cost or part of it.
How can I find free cars given away near me?
Yes, you can find free cars given away near you. There are many local organizations that may be able to help you out. You can research the various charity programs in your area and see if you meet their eligibility requirements for a free car.
Many charities, such as Charity Cars, provide free vehicles to people in need. These organizations often target specific groups of people, like veterans or victims of domestic violence.
Next, reach out to local branches of organizations like the Salvation Army or Goodwill Industries. These organizations may also auction off donated cars at affordable prices. Reach out to your nearest branch to learn more about available vehicles and to find out if they hold any auctions.
Another option is Online Car Donation, which aims to provide free cars to as many people in need as possible. Fill out their application to see if a reliable used car is available for you. They also offer trucks, vans, and sometimes even modified vehicles for individuals with disabilities.
Remember to be patient but also to keep trying, as it can sometimes take time to find the right opportunity for a free car. And, many times your application is only good for 30 days, so keep in mind that you may have to submit it over and over again.
Is Free Charity Cars legit?
Yes, Free Charity Cars is a legitimate organization that connects eligible people with free vehicles. They have high ratings and many endorsements.
How to get a car if you can’t get a free one?
If you’re not able to get a free car, you do have some other options, such as learning how to get a cheap car and learning the best way to get a car loan with a low interest rate.
Here are my tips for finding a cheap car:
Shop around for cars that are affordable to you: Many organizations offering a free car may also give you the option of purchasing a refurbished vehicle from them at a much lower cost than elsewhere. Otherwise, check out your local dealerships, online car-selling platforms, and even Craigslist to find the best deals on reliable cars in your area. Don’t limit yourself to just one site; shop around and be patient until you find a car that fits your budget.
Buy a used car: Buying a used car rather than a brand new one can save you money. Pre-owned vehicles tend to be more affordable and can still offer reliable transportation.
Negotiate for the best price: Don’t be afraid to negotiate the price of the car with the car seller or dealership. They may be able to lower the price, especially if you can show them that similar cars are around for cheaper prices elsewhere.
Check your credit score: Before applying for a car loan, make sure that you know your credit score. A better credit score increases your chances of getting a lower interest rate on your car loan. If you can, I recommend you take the steps to improve your credit score (even while searching for a free car) in case you need to apply for a car loan.
You can learn more about building up your credit score at Everything You Need To Know About How To Build Credit.
Shop around for car loans: Just as you should shop around for the best car deal, you should do the same for car loans. Different lenders may offer different interest rates and loan terms.
Choose a shorter loan term: While a shorter car loan term means higher monthly payments, you’ll pay less in interest overall, making the car less expensive over the years.
There are plenty of options for finding cars that may not be entirely free but are still affordable to you.
Related content: Save Money With These Top Tips For Buying A Car
How To Get A Free Car — Summary
I hope you enjoyed today’s article on how to get a free car.
If you need a car but cannot afford one, there are several ways to possibly get a free car. Many programs and organizations exist to help people get a free car, especially if you belong to certain categories, such as low-income families, veterans, domestic violence victims, or those transitioning from public assistance.
Remember, you do want to be cautious with getting a free car as well. If you are receiving government assistance, such as housing assistance, welfare, or food stamps, then accepting a free car may be considered income, and it can affect your benefits.
To find free cars near you, it’s important to explore local nonprofit organizations, as well as community centers, churches, or social services agencies that may have information about free car programs or resources in your area. Some jobs come with a company car that you can take home.
Here are some potential resources to assist you in getting a free car:
Local nonprofit organizations
Online car donation websites
Community centers and churches
Social services agencies
Remember that just because you meet the eligibility requirements for a free car and apply for one, it does not mean that you will succeed. There are many people who would like to receive a free vehicle as well. However, you can increase your chances of getting a free car if you can show that you have a need and you have a story to share (since people personally review the applications to see who needs the car the most).
As expected, the Senate passed the mortgage bailout bill by a comfortable margin of 74 to 25 Wednesday evening.
Both presidential hopefuls, Republican John McCain and Democrat Barack Obama, appeared on the Senate floor to cast “aye” votes.
The bill, now a staggering 451 pages (up from just three), will move to a Friday vote in the House, where it was recently shot down, causing panic on Wall Street.
Of course it’s not the same bill anymore, with a number of add-ons now tacked on, including a boost to the federal deposit insurance limit and tax breaks that should save individuals and corporations roughly $110 billion over the next ten years.
The FDIC will also be permitted to borrow unlimited funds from the Treasury Department through the end of next year to cover insurance costs, and the SEC will ease mark-to-market accounting rules to take pressure off banks.
There are also a flurry of other measures, including a bill that would demand insurance companies treat mental health illnesses and physical ailments on a level playing field.
And of course, there’s the whole government buying the bad mortgages from ailing banks and financial institutions thing.
The hope now is that the Senate’s overwhelming approval of the bill and the possibility of an all-out stock market crash will be reason enough for the House to change their minds and give it the green light.
The question remains, however, whether the bailout will work, but it should do enough to keep investor sentiment positive in the near term, and perhaps save a few banks in the process.
Unsurprisingly, the Dow was down about 250 points Thursday, as it was widely expected the Senate would pass the bill Wednesday.
Of all the details that come across your plate when you’re buying a home, one of the questions you might be asking is, “How does buying a house affect taxes?” The short answer? Buying a home could reduce your overall tax liability if you itemize deductions and pay a large amount of mortgage interest.
There are other conditions that need to be met, and it is possible that the amount of taxes you owe will stay the same. Of course, it’s always best to consult with a tax advisor for your individual situation.
To give you a general idea about how buying a home in 2023 affects taxes, we’ve compiled everything you need to know about how tax breaks work, what you can deduct, what you can’t deduct and whether or not it will make sense to itemize deductions.
Does Buying a House Help With Taxes?
It’s possible that buying a house can help with taxes — but only for tax filers who itemize their deductions. In 2020, the most recent year with data available, more than 87% of Americans took the standard deduction rather than itemizing. This signals that it may be unlikely you’ll have enough deductions for itemizing to make sense. Of course, if it can reduce your taxes, it’s worth looking into.
You might also be wondering, “How does buying a house in cash affect taxes?” If you don’t have a mortgage, you’re not paying interest, so you’re not able to take the home mortgage interest deduction. But you’re still able to deduct property taxes if you itemize. Remember to consider this even if your property taxes are part of your mortgage payments.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
How Do Homeowner Tax Breaks Work?
Tax breaks start as programs passed into law and funded by the U.S. Congress. However, it is up to individual homeowners to find and file the correct paperwork to take advantage of these tax breaks.
Tax breaks come to homeowners as either tax credits or tax deductions.
Recommended: First-Time Homebuyer Programs
The Difference Between Tax Deductions and Tax Credits
The difference between a tax deduction and a tax credit is where it lies on IRS form 1040 and how much it reduces your final tax bill or refund. This will make more sense after we explain each.
Deductions On IRS Form 1040, deductions are compiled before being subtracted from your income. This is done before tax is calculated, so having deductions can reduce the overall amount of tax you owe. But because a deduction comes before tax is calculated, the reduction in tax liability is generally less than if the amount of tax owed was directly reduced by a credit (though this depends on the amount of each).
Credits Credits are subtracted from the amount of tax you owe. If you don’t owe tax but are instead receiving a tax refund, credits can increase the amount of money coming your way from the IRS. Generally speaking, credits put more money back in your pocket. You may have heard about a first-time homebuyer tax credit. A bill was introduced in 2021 that would have provided for this benefit, but as of June 2023 it had not passed into law.
Deductions are more common; however, with the revamp of the tax code in 2017 with the Tax Cuts and Jobs Act, the standard deduction was increased substantially and fewer people find the need to itemize. Nevertheless, it’s probably a good idea to add “keep track of possible tax deductions” to your list of New Year’s financial resolutions.
What Are the Standard Deduction Amounts for 2023?
It’s important to know the standard deduction amounts so you know if taking the home mortgage loan interest deduction will make financial sense for you.
• For single filers: $13,850
• For head of household: $20,800
• For married people filing jointly: $27,700
If the amount of mortgage interest you pay is far below the threshold for choosing the standard deduction, you may not be able to find enough deductions for itemizing to make sense. The increased standard deduction in 2017 made this especially true, but there are certain scenarios where you should still itemize deductions.
Recommended: What Is a Gift Tax Return and When Is It Due?
Who Should Itemize Deductions
You should itemize deductions if the amount of your deductions is more than the standard deduction. If you have any of the following situations, you may have enough qualified deductions for itemizing to make sense.
• If you have large medical or dental expenses that are not paid for by an insurance company
• If you paid a large amount of interest on your mortgage
• If you donated large sums to charity
• If you can claim a disaster or theft loss
• If you cannot take the standard deduction
• If you can qualify for large amounts of the “other itemized deductions” found on the IRS forms
It’s hard to say if your individual situation will make sense for itemizing deductions. It may be worth it to consult with a tax professional.
Which Home Expenses Are Tax Deductible?
When you’re looking for home expenses that are tax-deductible, the IRS defines it very narrowly. The costs that are deductible include:
• State and local real estate property taxes up to $10,000
• Home equity loan interest if you used the funds from a home equity loan on your property
• Mortgage interest deduction up to defined limits:
◦ For loans taken out after December 15, 2017: You can deduct home mortgage interest on the first $750,000 of debt (for married couples filing jointly) or the first $375,000 of debt for a married person filing separately.
◦ For loans taken out prior to December 15, 2017: You can deduct home mortgage interest on the first $1,000,000 of debt (for married couples filing jointly) or the first $500,000 for separate filers.
Which Home Expenses Are Not Tax Deductible?
Most home expenses, unfortunately, are not tax deductible. These include things to budget for after buying a home. The IRS specifically outlines these living expenses that cannot be claimed as a deduction:
• Utility expenses, like gas, water, electricity, garbage, sewer, internet, etc.
• Home repairs
• Insurance
• Homeowners association or condo fees
• Cost of domestic help
• Down payment and earnest money
• Closing costs
• Depreciation
Potential tax deductions are one thing to factor into your financial considerations as you think about whether you are ready to buy a home, but they certainly aren’t what should be driving your decision to make a purchase.
The Takeaway
It is possible for the amount of tax you owe to be lower after you become a homeowner — but only with certain conditions met. You’ll want to do the math and compare what your taxes will look like when you itemize deductions vs. when you take the standard deduction. That will be the best way to tell how buying a house will affect your taxes.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
What is the tax break for buying a house in 2023?
If you itemize deductions on your federal return, you can claim a deduction for your mortgage interest paid on a home bought in 2023, along with state and local taxes paid in 2023.
Will my tax return be higher if I bought a house?
While there are a lot of factors that go into a tax return, generally speaking, if the deductions that come from homeownership reduce your tax liability compared to previous years while all other factors remain the same, then you should owe less (or even get money back).
What are the major tax changes for 2023?
For tax years 2022 and beyond, you can no longer claim mortgage insurance premiums as a deduction. Beyond the tax deductions that come with homeownership, major changes to taxes for 2023 include reduced amounts to the child tax credit, earned income tax credit, and the child and dependent care credit.
Photo credit: iStock/marchmeena29
*SoFi requires PMI for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Minimum down payment varies by loan type.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
IRAs have long been a popular retirement savings tool. And as of the first quarter of 2023, the average IRA balance was $109,000, according to Fidelity.
There are many benefits to funding an IRA. For one thing, traditional IRA contributions go in tax-free, so they shield a portion of your income from the IRS. Plus, investment gains in an IRA are tax-deferred, so you don’t have to deal with taxes until you’re ready to take withdrawals.
There are benefits to keeping all of your investments in an IRA. But here’s why you might also want to open a regular brokerage account, too.
Bonus offer: unlock best-in-class perks with this brokerage account
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When you want more options with your money
A big advantage of keeping all of your investments in an IRA is getting to enjoy tax-advantaged growth. But more so than that, having that money earmarked for retirement could make it less likely that you’ll take a withdrawal prematurely.
After all, you know that an IRA stands for “individual retirement account.” And that fact alone might help you stick to your long-term plan and avoid cashing out investments along the way.
But keeping all of your investments in an IRA also has some drawbacks. Because IRAs give you tax breaks, you’re required to leave your money alone until age 59 1/2. If you withdraw funds before that age, you risk a 10% penalty.
Now, there are a few exceptions to this rule. You’re allowed to take a penalty-free IRA withdrawal prior to age 59 1/2 to buy a first-time home. And you can also withdraw funds penalty-free to pay for college.
But otherwise, that money needs to stay in your IRA until 59 1/2 if you don’t want to face a penalty. And while that may not be problematic if you’re aiming to retire in your 60s, you may decide that you want to retire earlier.
In fact, what if you do a great job of saving and investing so that by age 55, you have $2 million? You may decide that’s enough money to live on and wrap up your career ahead of schedule. Only if all of your investments are in an IRA, you won’t be able to touch that money without a penalty for another four years and change.
It also might be the case that you don’t want to retire early, but rather, are forced to. Your industry might suffer a setback that makes it impossible for you to find work at age 57. At that point, do you really want to force yourself to work any job you can get for two years or more simply because you can’t access your retirement savings yet?
That’s why it could pay to keep some investments in a taxable brokerage account on top of an IRA. Doing so gives you more leeway with that portion of your assets.
Don’t back yourself into a corner with your retirement assets
Keeping all of your investments in an IRA could mean running into issues when you need access to money sooner than what these accounts allow for. So while it certainly pays to max out an IRA every year if you can, it’s also smart to put at least a small sum of money into a regular brokerage account.
It could be as little as $300 or $400 a year. But that way, you’ll have some assets you can cash out at any point without having to worry about penalties.
President Donald Trump’s administration is teasing real estate investors with the possibility of significant tax breaks when they buy properties in “distressed economic areas” that have since been labeled as “opportunity zones” by the U.S. Treasure Department.
Steve Mnuchin, the Treasury’s Secretary, said the newly designated zones could attract as much as $100 billion in investment.
The idea for the tax breaks is to tempt investors to inject new capital into areas of the U.S. that have fallen behind the rest of the country since the Great Recession. The plan is that capital gains in a certified opportunity zone can avoid taxation through the end of 2026, or until the investment is sold, whichever comes first. Any gains would be permanently shielded from being taxed if the investors holds the asset for at least 10 years. In addition, after a seven year period, the initial investment will be discounted by up to 15 percent for taxation purposes.
The Treasury Department also says that “large scale” projects could possibly qualify for tax breaks. For example, those who invest capital for startup business in opportunity zones could be exempt. Also include are individuals, corporations, businesses, REITs and estates and trusts. More guidance will be issued at the end of the year, the Treasury Department said.
The Treasury Department has published a full list of “Opportunity Zones”, available here.
“The creation of opportunity zones is one of the most significant provisions of the Tax Cut and Jobs Act,” Mnuchin said earlier this year. “Incentivizing private investment into these low-income communities can be transformational, stimulating economic growth and job creation across the country. This administration will work diligently with states and the private sector to encourage investment and development in opportunity zones and other distressed communities so that they may enjoy the benefits of robust economic growth.”
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
President Donald Trump’s administration is teasing real estate investors with the possibility of significant tax breaks when they buy properties in “distressed economic areas” that have since been labeled as “opportunity zones” by the U.S. Treasure Department.
Steve Mnuchin, the Treasury’s Secretary, said the newly designated zones could attract as much as $100 billion in investment.
The idea for the tax breaks is to tempt investors to inject new capital into areas of the U.S. that have fallen behind the rest of the country since the Great Recession. The plan is that capital gains in a certified opportunity zone can avoid taxation through the end of 2026, or until the investment is sold, whichever comes first. Any gains would be permanently shielded from being taxed if the investors holds the asset for at least 10 years. In addition, after a seven year period, the initial investment will be discounted by up to 15 percent for taxation purposes.
The Treasury Department also says that “large scale” projects could possibly qualify for tax breaks. For example, those who invest capital for startup business in opportunity zones could be exempt. Also include are individuals, corporations, businesses, REITs and estates and trusts. More guidance will be issued at the end of the year, the Treasury Department said.
The Treasury Department has published a full list of “Opportunity Zones”, available here.
“The creation of opportunity zones is one of the most significant provisions of the Tax Cut and Jobs Act,” Mnuchin said earlier this year. “Incentivizing private investment into these low-income communities can be transformational, stimulating economic growth and job creation across the country. This administration will work diligently with states and the private sector to encourage investment and development in opportunity zones and other distressed communities so that they may enjoy the benefits of robust economic growth.”
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].