Throughout my military career I’ve constantly been surrounded by acronyms. The Army is notorious for them: APFT, MOPP, PMCS, AWOL. These are just a handful of the thousands of them that exist. Some I know. Most I don’t. I was constantly having to research what the heck most of them stood for.
While acronyms were expected in the military, I didn’t imagine how prevalent they would be in the financial services industry. One of the acronyms that I came across that I felt like I was in the military again was QDRO. What makes it even more confusing is that I’ve heard it pronounced both “Quid-dro” and “Quad-dro”. What’s the correct pronunciation? The jury stills out on that one.
What is a QDRO?
And exactly what does it have to do with your 401K or pension plan? A QDRO is a Qualified Domestic Relations Order from the court which indicates the beneficiaries of your retirement account, other than you. These beneficiaries are also called “alternate payees” and this comes into play should you and your spouse get a divorce.
Usually, the beneficiaries of your retirement account(s) might be your spouse, child or other dependent, or a former spouse, and the QDRO will define how each of these people receive distributions from the retirement account through child support or alimony payments and/or property ownership.
It’s necessary that the information in the QDRO is followed exactly in order to minimize your potential to paying penalties on money you don’t even receive from your 401k plan.
The Importance of a Qualified Domestic Relations Order
If you should go through a divorce, the QDRO becomes extremely important. Following the QDRO is the key to avoiding 10% early withdrawal penalties imposed by 401k plans, because if you don’t follow the QDRO you can be taxed on money taken from your 401k even if it landed in the hands of your beneficiaries! Make sure to enlist professional help (either through your 401k plan administrator or a tax professional) to minimize your own tax implications of having to distribute your 401k to alternate payees due to divorce.
Take Steps to Verify Information in the Qualified Domestic Relations Order
If your 401k plan is subject to a QDRO during a divorce (typically if you have been married at least 5 years before getting divorced), you want to give the administrator of your 401k a copy of your QDRO. This allows them to carry out the order. They’ll review the QDRO to ensure it’s valid within 18 months and determine whether or not any payments must be made to beneficiaries. You’ll receive notification of any alternate payee (beneficiary) receiving funds from the 401k, and provided the QDRO was followed correctly, you will not have to pay a 10% early withdrawal fee from the withdrawal of the funds distributed to your beneficiaries.
The few QDRO’s that I’ve dealt with had been drafted directly by the attorney. All I had to was open the appropriate account (in my cases they were IRA’s) and the money was transferred directly in. I like simplicity 🙂
Who Receives Money From Your 401k After Divorce?
Where you live will determine how your 401k funds are distributed after a divorce. Most states have equitable distribution rules, which means your 401k is divided 50/50 between you and your ex-spouse – but it depends on how long you were married and how much was contributed, as well.
Some ex-spouses win 50% of a 401k plan even in states without equitable distribution rules, during the divorce proceedings. If you live in any of the following states, you can count on paying out half of your retirement to your ex-spouse: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. These are “common property” states.
For the QDRO cases I’ve worked in, all have been in the state of Illinois. Although, not a “common property” state, each spouse did receive 50% of the retirement account balance.
What About QDRO’s and Pensions?
QDRO’s are most commonly associated to 401k’s, but while I was doing my research I learned that they can also apply to pensions. According to the PBGC.gov website here are three items that QDRO’s must do:
Identity of the plan participant, each alternate payee, and each pension plan. A QDRO must specify the name and last known mailing address of the plan participant and each alternate payee covered by the order. A QDRO also must identify the name of each plan to which the order applies—this should be the plan’s formal name.
Amount to be paid and when payments start. A QDRO must state how much of the plan participant’s benefit is to be paid to the alternate payee, such as a dollar amount or percentage of the benefit, or make clear the manner in which the amount is to be determined. A QDRO also must specify or allow the alternate payee to choose when payments to the alternate payee will start.
What happens on the death of the plan participant and the alternate payee. A QDRO should specify whether the alternate payee will be treated as the participant’s spouse for purposes of any survivor benefits. A QDRO also should specify what happens to benefits when the alternate payee dies.
What a QDRO Must Not Require
There is sometimes a misconception on what a QDRO must and must not do. The PBGC.gov site offers what a QDRO must not require the PBGC to do:
pay any benefits not permitted under ERISA or the Code;
provide any type or form of benefit, or any option, not otherwise provided by PBGC;
pay benefits with a value in excess of the value of benefits that would otherwise be payable by PBGC;
pay benefits to an alternate payee when those benefits are required to be paid to another alternate payee under an order previously determined to be a QDRO;
pay benefits to the alternate payee for any period before PBGC receives the order;
pay benefits as a separate interest to the alternate payee if the participant is already receiving benefit payments; or
change the benefit form if the participant is already receiving benefit payments.
2021 VA Home Loan Limit: $0 down payment up to $5,000,000* (subject to lender limits) /2 open VA loans at one time $548,250 (Call 877-432-5626 for details).
How to Apply for a VA Home Loan?
This is a quick look at how to apply for a VA home loan in Merced county. For a more detailed overview of the VA home loan process, check out our complete guide on how to apply for a VA mortgage loan. Here, we’ll go over the general steps to getting a VA home loan and point out some things to pay attention to in Merced County. If you have any questions, you can call us at VA HLC and we’ll help you get started.
Get your Certificate of Eligibility (COE)
Give us a call at (877) 432-5626 and we’ll get your COE for you.
Are you applying for a refinance loan? Check out our complete guide to VA Refinancing.
Get pre-approved, to get pre-approved for a loan, you’ll need:
Previous two years of W2s
Most recent 30 days paystubs or LES (active duty)
Most recent 60 days bank statements
Landlord and HR/Payroll Department contact info
Find a home
We can help you check whether the home is in one of the Merced County flood zones
Get the necessary inspections
Termite inspection: required
Well or septic inspections needed, if applicable
Get the home appraised
We can help you find a VA-Certified appraiser in Merced County and schedule the process
Construction loan note: Construction permit/appraisal info
Building permit
Elevation certificate
Lock in your interest rates
Pro tip: Wait until the appraisal lock in your loan rates. If it turns out you need to make repairs, it can push your closing back. Then you can get stuck paying rate extension fees.
Close the deal and get packing!
You’re ready to go.
What is the Median Home Price?
As of March 31, 2021, the median home value for Merced County is $326,192. In addition, the median household income for residents of the county is $53,672.
How much are the VA Appraisal Fees?
Single-Family: $600.
Individual Condo: $600.
Manufactured Homes: $600.
2-4 Unit Multi-Family: $850.
Appraisal Turnaround Times: 7 days.
Do I need Flood Insurance?
The VA requires properties are required to have flood insurance if they are in a Special Flood Hazard Area.
In Merced County, there are many flood plains, especially in the low-lying areas. Your agent can help you to check whether a property will require flood insurance.
How do I learn about Property Taxes?
For questions about property tax, you can get in touch with Merced County Assessor Barbara Levey. Her office is located at 2222 M. St. Merced, CA 95340 or by calling (209) 385-7434.
Veterans, owner-occupiers, and senior citizens may be eligible for property tax relief. You can find out whether you qualify through the county assessor. In addition, the Assessor’s Office can do re-appraisals to determine property values and flood risks.
What is the Population?
The county’s population of 277,680 is, 61% Hispanic, 26% White, and 7% Asian.
Most county residents are between 18 and 65 years old, with 29% under 18 years old and 11% older than 65.
In total, the county has about 79,606 households, with an average of three people per household.
What are the major cities?
There is a total of six cities in the county including the city of Merced which also served as the county seat. In addition, the five other cities in the county are Atwater, Dos Palos, Gustine, Livingston, and Los Banos.
About Merced County
Merced County, California is located right in the heart of California’s San Joaquin Valley. This region is known as the breadbasket of the US because of its agricultural production. In addition, while Merced is away from the bustle of California’s biggest cities, the I-5 runs through the county and connects it to the rest of the state.
The City of Merced is the county’s cultural and economic hub. In addition to its connection to California’s primary highway system, it is also home to a major train station. The downtown area has plenty of exciting restaurants, shops, and nightlife.
The county is also home to plenty of green space. There are two national wildlife preserves along the river, where you can hike or bike along miles of trails. Plus, the City of Plenada, on the county’s eastern edge, contains one of the entrances to Yosemite National Park. Residents don’t just enjoy the park’s natural beauty but the droves of tourists it brings to the region each year.
Veteran Information
The county is currently home to 9,662 veterans.
Merced County is home to four VFW post:
Post 4327 Robert M Kelley – 939 W. Main St. Merced, CA 95340.
Post 8327 Livingston – 1605 7th Street, Livingston, CA 95334.
Post-2487 Lieut. Laurence F. Muth – 615 E Street, Los Banos, CA 93635.
Post 7635 Joseph G. Rose – 145 5th Street, Gustine, CA 95322.
VA Medical Centers in the county:
Merced VA Clinic – 340 East Yosemite Avenue, Suite D, Merced, CA 95340.
County Veteran Assistance Information
Merced County Veteran Services – 3376 N State Hwy 59, Merced, CA 95348.
VA Home Loan Information
For more information about VA Home Loans and how to apply, click here.
If you meet the VA’s eligibility requirements, you will be able to enjoy some of the best government-guaranteed home loans available.
VA loans can finance the construction of a property. However, the property must be owned and prepared for construction as the VA cannot ensure vacant land loans.
VA Approved Condos
Name (ID): VILLA DEL SOL (C01070) Address: NONE MERCED CA 95348-0000 MERCED Status: Accepted Without Conditions Request Received Date: 11/16/1986 Review Completion Date: 11/16/1986
A short while ago I wrote reviews of two services that recently launched, both of which intrigued me. One is a free online savings account called Digit, and the other is a free automated investing adviser called Axos Invest.
Both companies are different from anything else out there.
Digit’s claim to fame is that they will automatically save money for you after analyzing your spending and account balance trends. Once Digit figures out how much it can save without you noticing, or overdrawing your account, it just does it. It saves small amounts to your Digit savings account throughout the month. At the end of the month, you’ve got a nice lump sum saved in your account. (Digit review here)
Axos Invest is gaining traction because of its unique business model as well. They’re a robo-adviser, an automated investment advisory along the lines of Betterment or Wealthfront, but they’re different in that they don’t charge any management fees as most other companies do. They invest your money in ETF index funds with no trading fees and no management fees whatsoever. They plan to make their money off of premium add-on products like tax-loss harvesting in the future. (Axos Invest review here)
I liked the ideas behind these services and signed up for both of them to give them a trial run. While I was at it I decided to turn this into a bit of an experiment. I plan to see just how much money I can automatically save and then invest with them through the end of the year. I thought it would be interesting to show just how much you can automatically save and invest (at no cost), without even thinking about it. Saving and investing doesn’t have to be hard, or expensive!
Digit Savings Account
According to Ethan Bloch, the founder of Digit, the company was started to help people, “maximize their money, while at the same time driving the amount of time and effort it takes to do so as close to 0 minutes per year as possible”
So how does Digit work? You sign up for an account, and link your checking account. Digit will then analyze your income and expenses, find patterns and then find small amounts that it can set aside for you – without any pain for you.
So once you sign up and turn on auto-savings, every 2 or 3 days Digit will transfer some money from your checking to your savings, usually somewhere between $5-$50. Digit won’t overdraft your account, and they have a “no overdraft guarantee that states they’ll pay any overdraft fees if they accidentally overdraft your account.
Open Your Digit Savings Account
Axos Invest Investing Account
Axos Invest launched with the goal of being the world’s first completely free financial advisor. Their founders had a mission “to ensure everyone can achieve their financial goals, which starts with investing as early as possible. This is why there is no minimum to start and we do not charge fees.”
Axos Invest’s founders understood that one of the drags on the typical person’s portfolios is the fees that they’re paying to invest, as well as the friction point of having to invest thousands of dollars to start. They changed that with no minimums to invest, and no fees charged for investing. Axos Invest will be releasing some premium add-on products for their users, which they will charge for, but a basic investing account will not cost anything beyond the mutual fund expense ratios associated with your investments.
What do you invest in with Axos Invest? Axos Invest will invest your funds based on Modern Portfolio Theory (MPT). Your investments will be diversified, low cost, and recognize the value of long term passive investing by investing in ETF index funds.
Open Your Axos Invest Investing Account
The Digit + Axos Invest Experiment (D+AI Experiment)
For the experiment I plan on using the two accounts I have just opened with Digit and Axos Invest in order to show just how easy it is to invest.
From now until the end of the year I plan on allowing Digit to automatically save money from my checking account and put it into my Digit savings.
When the amount in the account gets to around $75 or more, I’ll transfer it back to the checking and transfer the same amount over to my Axos Invest Roth IRA to invest in their automated investing service. I figure by doing it this way, I’ll engage in a bit of dollar-cost averaging, instead of waiting until the balance is higher and investing once or twice. Since Axos Invest has no minimums and you can buy fractional shares, why not?
When the end of the year rolls around I’ll do a review and look at how much money I’ve been able to save and invest using these two sites.
The Experiment In Progress
Once I had setup my Digit and Axos Invest accounts I started putting the experiment into action in early February. I turned on the automated saving feature of the Digit savings account, and waited for the small savings amounts to start showing up. After about 3-4 days, my first few deposits into Digit appeared. There were deposits for $5, $6.50, $8.45, $2.35 all within the first 7 days. I have also referred friends to Digit, and $5 referral bonuses started showing up as well.
Day after day the referrals and savings deposits started piling up and before I knew it, I had $186 in the account. At this point I decided to withdraw and make my first investment over at Axos Invest.
Amounts Withdrawn And Invested So Far
I’m only about a month into my little experiment, and so far I’ve withdrawn my Digit savings balance and invested it in my Axos Invest Roth IRA twice. The amounts were:
$186.00
$74.72
Here’s a screenshot from my Digit account showing my latest withdrawal for the purpose of investing.
After withdrawing the money I then transfer it from my checking account over to Axos Invest. Here’s a screenshot of my latest deposit with Axos Invest.
Once this deposit goes through I’ll have a little less than $260.72 invested at Axos Invest since the market has gone down slightly since I started. You can see the $184.84 total invested for my first $186 deposit below.
Here’s the portfolio’s asset allocation in my Axos Invest account currently. Probably a tad more aggressive than in my other retirement accounts, but that’s OK.
The funds that Axos Invest uses and their expenses are shown below (and are subject to change)
Vanguard Total Stock Market ETF (VTI): 0.05%
Vanguard FTSE Developed Markets ETF (VEA): 0.09%
Vanguard FTSE Emerging Markets ETF (VWO): 0.15%
Vanguard Intmdte Tm Govt Bd ETF (VGIT): 0.12%
Vanguard Short-Term Government Bond Index ETF (VGSH): 0.12%
iShares Investment Grade Corporate Bond ETF (LQD): 0.15%
State Street Global Advisors Barclays Short Term High Yield Bond Index ETF (SJNK): 0.40%
iShares Barclays TIPS Bond Fund (ETF) (TIP): 0.20%
Vanguard REIT Index Fund (VNQ): 0.10%
Depending on how the market does, we’ll see what kind of returns my account sees. No matter how it goes, I’m already ahead of the game as I don’t have to pay any account management or trading fees. Can’t beat that.
Join In The Digit & Axos Invest Experiment
If you’re intrigued by Digit and Axos Invest like I was, and want to join in the “D+WB Experiment”, I invite you to join in.
Open an account with both services (both accounts are free), set Digit to start automatically saving and get started. Let’s see how much we can save and invest this year – without lifting a finger!
The report below was prepared by my firm and is part of ongoing effort to provide investors important information on auto sector bonds. My firm LPL Financial does not cover individual bonds but hope the following may help with your investment decision making.
On March 30, President Obama and the Auto Task Force declared that viability plans submitted by both Chrysler and GM did “not establish a credible path to viability”. GM is being provided 60 days of working capital to develop a more aggressive restructuring and credible plan while Chrysler has 30 days to work an agreement with Fiat or face bankruptcy proceedings. The news raises the risk of GM filing for bankruptcy in mid- to late-May and bankruptcy risk increased today (April 1) following a NY Times story indicating President Obama believes a quick, negotiated bankruptcy is perhaps the best path.
GM Bonds
For bondholders, GM’s viability plan had included a reduction of debt to two-thirds but the rejection means that bondholders will have to endure deeper cuts. GM bonds dropped several points on the news since the rejection introduces new uncertainty as to how to how much bondholders would receive either via bankruptcy or a debt exchange as both Ford and GMAC have already done. GM senior bondholders had been striving for 50 cents on the dollar while GM was targeting a price in the low 30s (roughly the two-thirds reduction). Prior to the Obama Administration’s announcement GM intermediate and long-term debt traded between 20 and 30 cents on the dollar. So the two-thirds reduction was roughly already priced in but bonds dropped several points given the new uncertainty that bondholders could receive less. GM intermediate and long-term debt is currently trading in the 10 to 17 range.
For bondholders the decision boils down to sell now or wait for more favorable pricing as a result of either bankruptcy or a government led restructuring. Even a government led restructuring may not be as quick and easy as government rhetoric indicates. A March 31, Wall Street Journal points out that prior “pre-packaged” bankruptcies still average seven months in duration, a fair amount of time to go without receiving interest payments.
And this time is likely no different as bondholders will argue their claim versus other parties particularly the UAW. In 2003 GM issued bonds to help make up for a pension shortfall. At the time, the $13 billion deal was the largest bond issue in history. Bondholders essentially helped GM help the UAW and this point will not go without debate.
While its unlikely bondholders get wiped out, they should expect to receive no more than 10 to 30 cents on the dollar absent a prolonged battle in bankruptcy court that turns out favorably. And income-seeking investors should be aware that bondholders will likely receive the bulk of compensation in the form of stock, not bonds, in a newly restructured GM.
Ford Bonds
Ford Motor Corp bonds benefited from the news as the elimination of one or more of the big three was viewed positively for what looks to be one of the survivors. Long-term Ford bonds still remain deeply depressed at 28 to 30 cents on the dollar, reflecting still high levels of risk to Ford, but are up roughly 10 points over the past month according Trace reporting. Ford Motor Credit Corp (FMCC) bonds were unchanged to only slightly higher. FMCC bonds are viewed as having as higher recovery values in the event of bankruptcy. Ford’s recently completed debt exchange increased its liquidity but should car sales remain at such depressed levels, bankruptcy still remains a longer-term risk. For now, bondholders are focusing on increasing sales as a result of a Chrysler or GM bankruptcy. Longer-term a leaner and more efficient GM may have a competitive advantage to Ford. So Ford still faces substantial risks in addition to those posed by a weak economy.
GMAC Bonds
GMAC is a separate legal entity from GM and should GM file bankruptcy, or be subject of a government-led restructuring outside of bankruptcy court, it does not entail an automatic bankruptcy filing for GMAC. On the surface, a bankruptcy or restructuring would be a negative for GMAC but it depends on which path GM takes. Should GM file chapter 11 bankruptcy it would need to line up private investors for Debtor-in-Possession (DIP) financing. DIP financing is interim financing that provides needed cash while a company is in the process of restructuring. Given the still credit constrained environment such financing would likely be difficult if not impossible to obtain. In such an environment consumers are unlikely to purchase GM cars, justifiably concerned over future viability. A government supervised restructuring, where the Treasury would provide financing while GM restructures, would likely lessen or eliminate that effect as consumers continue to purchase GM autos knowing the entity would still exist in some form. Given GMAC’s reliance on GM auto sales, anything to promote sales would be beneficial.
On that note, the US government announced it would guarantee the warranties of GM vehicles during the restructuring period. This news coupled with President Obama’s statement that, “We will not let our auto industry simply vanish” suggests that some form of GM will exist in the future. Both are positives for continued auto sales during a restructuring. Furthermore, it appears that GMAC, and its role in assisting consumer financing, remains a key tool for the government in efforts to turn around the economy. In late 2008 and early 2009, GMAC reached important milestones by 1) receiving Federal Reserve approval to become a bank holding company and 2) shortly after, receiving a $6 billion capital injection from the US Treasury. Unlike many banks, GMAC prepared to boost lending by lowering minimum FICO scores for loan qualification to 621 from 700. It appears that GMAC has become an important vehicle for Treasury to foster consumer lending. Concurrent with the events above GMAC concluded a debt exchange that reduced its debt load (a requirement for bank holding company status), extended bond liabilities, and subordinated other bond claims. The debt exchange enabled GMAC to post a profit for the fourth quarter but removing the extraordinary item GMAC lost $1.3 billion for the quarter.
Bonds have come under pressure again following the GM/Chrysler news but remain above the lows for the quarter. Still, current bond prices, particularly those maturing beyond one-year, reflect a significant probability of default. In the cash market, GMAC’s benchmark 6.75% due 12/14 closed March 30 at a 45 price, according to Trace, suggesting a 40% probability of default if one assumes a 30 cent on the dollar recovery (Moody’s forecast for high yield bonds). Credit Default Swap (CDS) spreads are bit more bearish and require a 31% upfront payment, an increase from
Despite all the bankruptcy news, a couple of potential positive developments could benefit GMAC. To our knowledge, GMAC has yet to borrow from the Fed. As a bank holding company it could gain access to the Fed’s discount window and even pledge auto loans as collateral. GMAC could also have access to the FDIC’s Temporary Liquidity Guarantee Program (TGLP) and issue bonds at very low government guarantee rates. These liquidity sources could amount to $10 to $80 billion in additional liquidity but remain untapped as of yet.
Lastly, the newly launched Term Asset Lending Facility (TALF) included auto loans as one of the lending areas it directly seeks to improve. The TALF should be a source of liquidity for both GMAC and FMCC.
GMAC Smartnotes
GMAC Smartnote pricing has been particularly depressed due to market illiquidity. While Smartnotes contain an estate feature, they were issued in small denominations on a weekly basis. Their small size makes them elatively illiquid, particularly in the current environment where bond dealers are reluctant to hold bond inventory let alone illiquid bonds. As a result, GMAC Smartnotes trade, in some cases much lower in price than similar non Smartnote GMAC bonds.
For example, the GMAC Smartnotes 6.75% due 6/2014, a very similar bond to the benchmark issue (same coupon rate but 6-months shorter in maturity) listed earlier has recently traded between 26 and 29 according to Trace reporting, a dramatic difference. GMAC bonds remain a high-risk play due to its dependence on GM and the potential path of any restructuring. The potential path of any GM restructuring (Ch. 11 vs. government led), whether GMAC receives additional capital injections from the Treasury, and the severity of the economic downturn will play a role in GMAC bond pricing. These many moving parts, including a politically influenced government role, make handicapping future bond performance difficult at best.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
Investors should consider the investment objectives, risks, charges and expenses of the investment company carefully before investing. The prospectus contains this and other information about the investment company. You can obtain a prospectus from your financial representative. Read carefully before investing.
Government bonds and Treasury Bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Municipal Bonds are subject to availability and change in price; subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise and are subject to availability and change in price.High yield/junk bonds are not investment grade securities, involve substantial risks and generally should be part of the diversified portfolio of sophisticated investors.Stock investing involves risk including loss of principal.
A wash sale occurs when an investor sells a security at a loss, and buys a very similar security within a 30-day window of the sale (30 days before or after). The wash-sale rule is an Internal Revenue Service (IRS) regulation that states an investor can’t receive tax deduction benefits if they sell an investment for a loss, then purchase the same or a “substantially identical” asset within 30 days before or after the sale.
While investors may find themselves in a position in which it may be beneficial to sell securities to harvest losses, it’s important to know the wash-sale rule in and out to avoid triggering penalties.
Which Investments are Subject to the Wash-Sale Rule?
The wash-sale rule applies to most common investments, including:
• Stocks
• Bonds
• Mutual funds
• Options
• Exchange-traded funds (ETFs)
• Stock futures contracts
Transactions in an individual retirement account (IRA) can also fall under the wash-sale rule. The wash-sale rule does not apply to commodity futures or foreign currency trades. The rule also applies if an investor sells a security that has increased in value and within 30 days buys an identical security. They will need to pay capital gains taxes on the proceeds.
What Happens When You Trigger a Wash Sale?
Investors commonly choose to sell assets at a loss as part of their tax or day trading strategy, or they may regret selling an asset while the market was down, and decide to buy back in.
The intent of the wash-sale rule is to prevent investors from abusing the tax benefits of selling at a loss, and claiming artificial losses.
In the event that an investor does trigger a wash sale, they will not be allowed to write off the loss when they do their tax reporting to the IRS. This means the investor won’t receive any tax benefit for selling at a loss. The rule still applies if an investor sells an investment in a taxable account and buys it back in a tax-advantaged account, or if one spouse sells an asset and then the other spouse purchases it that also counts as a wash sale.
It’s important for investors to understand the wash-sale rule so that they account for it in their investment and tax strategy. If investors have specific questions, they might want to ask their tax advisor for help.
Recommended: Investing 101 for Beginners
Avoiding a Wash Sale
Unfortunately, the guidelines regarding what a “substantially identical” security is are not very specific. The easiest way to avoid wash sales is to create a long-term investing strategy involving few asset sales and not trying to time the market. Creating a diversified portfolio is generally a good strategy for investors.
Another important thing to keep in mind is the wash-sale rule applies across an investor’s accounts. As such, investors need to keep track of their sales and purchases across their entire portfolio to try and make sure that the wash-sale rule doesn’t affect any investment choices.
What to Do After Selling an Asset at a Loss
The safest option is to wait more than 30 days to purchase an asset after selling a similar one at a loss. An investor can also invest funds into a different asset–a different enough asset, that is–for 30 days or more and then move the funds back into the original security after the wash sale window has passed.
There are benefits to selling an asset at either a profit or a loss. If an investor sells at a profit, they make money. If they sell at a loss, they can declare it on their taxes to help offset their capital gains or income. If an investor has significant capital gains to report, they may decide to sell an asset that has decreased in value to help lower their tax bill. However, if they hoped to reinvest in an asset later, a wash sale can ruin those plans.
In some cases, simply selling a stock from one corporation and purchasing one from another, different corporation is fine. Even selling a stock and buying a bond from the same company may not trigger a wash sale.
Investing in ETFs or Mutual Funds Instead
If an investor wants to reinvest funds in a similar industry while avoiding a wash sale, one option would be to switch to an ETF or mutual fund. There are ETFs and mutual funds made up of investments in particular industries, but they are often diversified enough that they wouldn’t be considered to be too similar to an individual stock or bond. It’s possible that an investor could sell an individual stock and reinvest the money into a mutual fund or ETF within a similar market segment without violating the wash-sale rule.
However, if an investor wants to sell an ETF and buy another ETF, or switch to a mutual fund, this can be more challenging. It may be difficult to figure out which ETF or mutual fund swaps will count as wash sales, and which won’t.
Wash-Sale Penalties and Benefits
If the IRS decides that a transaction counts as a wash sale, the investor can’t use the loss to reduce their taxable income or offset capital gains on their taxes for that year.
However, there can be an upside to wash sales. Investors can end up with a higher cost basis for their new investment, because the loss from the sale is added to the cost basis of the new purchase. In addition, the holding period of the sold investment is added to the holding period of the new investment.
The benefit of having a higher cost basis is that an investor can choose to sell the new investment at a loss and have a greater loss for tax reporting than they would have. Conversely, if the investment increases in value and the investor sells, they will have a smaller capital gain to report. Having a longer holding period means an investor may be able to pay long-term capital gains taxes on a sale rather than short-term gains, which have a higher rate.
The Takeaway
The wash-sale rule is triggered when an investor sells a security at a loss, but then turns around and buys a similar security within 30 days–either before, or after. It’s a bit of an opaque rule, but there can be consequences for triggering wash sales. That’s why understanding regulations like the wash-sale rule is an important part of being an informed investor.
Part of making solid investing decisions is planning for taxes and understanding what the benefits and downsides may be for any particular transaction. This is just one aspect of tax-efficient investing that investors might want to consider.
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With the never-ending changes and challenges affecting the U.S. financial landscape, multiple community development entities are helping to counter some of their adverse effects by fostering community development initiatives.
Some examples include Community Development Financial Institutions (CDFIs) and Community Development (CD) Banks. These play a significant role in promoting economic growth and inclusion for underserved communities.
This article thoroughly explores CDFIs and the institutions that support CDFIs, outlining their significance, objectives, and how they meet capacity building initiative requirements. We also highlight the federal government’s involvement, explaining its role evolution and the numerous related economic development activities available to those who need them.
What is a Community Development Financial Institution (CDFI)?
Community Development Financial Institutions (CDFIs) are a type of financial institution that provides products and services to financially disadvantaged communities for economic development purposes.
They are essential and critical in promoting inclusion and economic growth to marginalized communities in urban and rural communities countrywide. Legislations like the Community Reinvestment Act help encourage these programs. However, the Community Reinvestment Act is not the only reason for their existence.
CDFI Certification
To become a CDFI, a financial institution must apply for a CDFI certification. This certification ensures that the institution can receive the right federal assistance resources and allows people to benefit from the CDFI fund’s programs.
How did the concept of CDFIs start?
The roots of Community Development Financial Institutions (CDFIs) extend to the 1880s, when minority-owned banks began serving economically disadvantaged communities. These organizations provided essential financial services to areas that mainstream financial institutions neglected or could not reach.
As the years progressed, new types of mission-driven financial institutions emerged. For example, the development of credit unions in the 1930s and 1940s offered alternatives to the traditional community bank that had limited services.
Moreover, new community development corporations emerged in the 1960s and 1970s, providing additional resources and support for underserved areas. These institutions gradually paved the way for the rise of nonprofit loan funds in the 1980s, establishing the groundwork for today’s modern CDFI model.
The Riegle Community Development and Regulatory Improvement Act of 1994 recognized the need to support the growing community development finance sector. With that in mind, it established the Community Development Financial Institutions Fund (CDFI Fund). This fund aimed to promote economic revitalization and community development in low-income areas by investing in and providing assistance to CDFIs.
Since its inception, the CDFI Fund played a substantial role in the growth and impact of CDFIs, enabling them to serve the financial needs of economically disadvantaged communities and contribute to their overall development and prosperity.
Types of CDFIs
Currently, multiple types of Community Development Financial Institutions (CDFIs) exist, each catering to the unique needs and challenges economically disadvantaged communities face. We explore their types and roles below.
Community Development Banks
Community Development Banks are for-profit, federal government supported and regulated financial institutions. These institutions have a board of directors that includes community representatives. CD banks provide affordable banking services, loans, and other financial products to economically distressed and underserved communities.
Operating in these communities creates jobs, improves infrastructure, and promotes economic growth. They also help increase access to capital for small businesses, including affordable housing projects and community service facilities.
Community Development Credit Unions
Community Development Credit Unions (CDCUs) are nonprofit financial cooperatives owned and controlled by their members. As is the case with traditional credit unions, they provide financial services such as savings accounts, checking accounts, and loans.
CDCUs only cater to low-income and underserved communities, offering affordable rates and financial education programs to promote inclusion and help people build credit and assets. The National Credit Union Administration (NCUA), an independent federal agency, regulates these credit unions.
Community Development Loan Funds
Community Development Loan Funds, or CDLFs, are nonprofit entities that finance community development projects by offering loans and technical assistance to marginalized communities. They facilitate access to affordable housing, promote small businesses, and help establish community service facilities to sustain growth. They also serve as an alternative source of capital for those who cannot access traditional bank financing services by offering flexible terms and underwriting criteria.
Community Development Venture Capital Funds
Community Development Venture Capital Funds offer equity and debt-with-equity investments to small and medium-sized businesses in economically distressed areas. They can be for-profit corporations or nonprofit entities.
By offering long-term capital, they help businesses grow, create jobs, and foster innovation. They also provide technical assistance, mentoring, and business development support to maintain the long-term success of their portfolio companies.
Microenterprise Development Loan Funds
Microenterprise Development Loan Funds are loan funds that provide small-scale loans, or microloans, to entrepreneurs and small businesses that might not qualify for traditional financing. They offer small capital amounts that range from hundreds to a few thousand. These loan funds help low-income people, women, and minority entrepreneurs who need smaller loan amounts and more flexible terms.
Community Development Financial Institution (CDFI) Consortia
CDFI Consortia are collaborative networks of CDFIs that pool resources, experience, and capital to increase their impact on community development services. They can access larger funding opportunities and share best practices to serve their target communities by working together. They can also provide joint technical assistance and support services, helping to strengthen individual CDFIs that are part of the network.
Understanding Community Development Financial Institutions
The main goal of CDFI fund programs is to provide affordable loans, community development banking services, financial help, and technical assistance to low-income communities. They foster economic development and empower small business owners, minorities, and marginalized communities by offering access to investment capital and other resources with fewer demands than traditional finance institutions.
CDFIs differ from traditional financial institutions because they focus on community development and serving minority communities. They also collaborate with religious institutions, community service organizations, and rely on federal funding and agencies to address the needs of their target populations.
What’s the federal government’s role in CDFIs?
The Federal Reserve Bank supports CDFIs through various initiatives, tax credits, and programs. One such program is the CDFI Fund, which the U.S. Department of the Treasury administers. The CDFI Fund provides financial, technical, and other resources to CDFIs, casting a wider net to help low income people and communities access their services.
In addition to the CDFI Fund, the Federal Reserve Bank supports CDFIs through programs and training initiatives such as:
Bank Enterprise Award Program
Capital Magnet Fund
CDFI Bond Guarantee Program
CDFI Equitable Recovery Program
CDFI Program
Rapid Response Program
Native Initiatives
New Markets Tax Credit Program
Small Dollar Loan Program
These initiatives by the Federal Reserve Bank provide financial incentives and resources for CDFIs and community development entities to invest in eligible community projects, promote economic growth, and create jobs.
How has that federal role changed over time?
The federal government’s role in supporting the CDFI industry changes over time to respond to the changing needs of disadvantaged communities and the growing recognition of the importance of financial inclusion.
Early efforts, for example, provided seed capital and technical assistance to establish and grow CDFIs. With the maturation and evolution of the industry, the government started focusing on building capacity, collaboration, and supporting innovative endeavors.
Recent changes emphasize leveraging private sector investments, regulatory relief, and encouraging partnerships between the CDFI industry and other financial institutions. Examples include minority depository institutions (MDIs) and mainstream banks.
CDFIs’ Role in Financial Inclusion
Financial inclusion is an essential part of CDFI initiatives. Access to affordable financial products and services helps bridge the gap between poor communities and mainstream financial institutions. CDFIs also promote financial knowledge, support small businesses, finance affordable housing activities, and facilitate economic development initiatives.
CDFIs also ensure that economically distressed communities can access essential community services facilities like healthcare centers, schools, and childcare. Their work helps contribute to these communities’ overall well-being and stability. It creates a solid foundation for long-term economic growth.
Business Model
CDFI business models are unique in combining traditional financial services with a strong emphasis on developing and positively impacting the communities they cater to.
They generate revenue by collecting interest and fees on loans, investments, and other financial products. However, they also rely on grants, donations, and especially government funding like the CDFI fund to support their operations.
CDFIs collaborate with organizations like government agencies, nonprofits, and private sector partners to attain their goals. Additionally, they leverage tax credits, guarantees, and other financial tools to attract more investment capital and support their lending activities.
CDFIs Provide Opportunity for All
CDFIs provide real opportunities by addressing the financial needs of underserved communities to help them succeed and promote their economic growth. To do this, they offer access to affordable financial products and services to communities that experienced systematic lockouts from these programs.
By emphasizing their needs and giving them more accessible and affordable ways to prosper, low-income individuals and businesses have access to essential financial tools. These tools were traditionally out of reach for mainstream financial institutions.
Moreover, CDFIs support small businesses owned by women, minorities, and individuals in economically distressed communities. By offering tailored financing solutions, technical assistance, and business planning resources, CDFIs help these entrepreneurs overcome barriers to entry, create jobs, and contribute to local economies.
Another significant aspect of CDFIs’ work is their focus on affordable housing and community development projects. They finance the construction and rehabilitation of affordable housing units and invest in community facilities like schools, healthcare facilities, and childcare. These are essential to the well-being and stability of low-income communities and help them worry less about factors beyond their control or that are too expensive to access otherwise.
CDFIs also promote financial education and empowerment by providing resources and training to help people develop financial literacy skills, manage their finances, and build assets. These initiatives contribute to breaking the cycle of poverty and promoting economic self-sufficiency.
By partnering with various stakeholders, such as government agencies, nonprofit organizations, and private sector partners, CDFIs leverage resources and expertise to maximize their impact. This creates a ripple effect that extends beyond the immediate recipients, fostering inclusive and resilient communities.
Types of CDFIs
Many community development financial institutions focus on addressing the needs of economically disadvantaged communities. These include community development banks, credit unions, loan funds, and venture capital funds.
Federal agencies like the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) regulate community development banks and credit unions. They offer various banking services, from deposit accounts to loans, catering to low-income communities.
Loan funds make affordable housing possible, support small businesses, and help community facilities. On the other hand, venture capital funds offer equity investments that support small businesses and startups in underserved communities.
“Newer” CDFI Resources
As community development financial institutions evolve, multiple resources and programs are emerging to support their growth and impact. Examples include:
CDFIs as Capital Plus Institutions
Sometimes, community development financial institutions are called “Capital Plus” institutions. This is because they provide investment capital, development services, technical assistance, and financial education to support the long-term success of their clients.
This approach allows community development financial institutions to significantly impact low-income and economically distressed communities, promoting economic opportunity and inclusion.
Emergency Capital Investment Program (ECIP)
The Emergency Capital Investment Program (ECIP) is a federal initiative that provides capital to CDFIs and MDIs to support their lending activities after the economic challenges caused by COVID-19. This program helps ensure that these institutions have the resources to continue providing essential financial services to underserved communities, small businesses, and minority-owned businesses during times of crisis.
Paycheck Protection Program Liquidity Facility (PPPLF)
The Paycheck Protection Program Liquidity Facility (PPPLF) is another federal initiative that supports the lending activities of CDFIs and other financial institutions participating in the Small Business Administration (SBA) Paycheck Protection Program (PPP). By providing liquidity to these institutions, the PPPLF enables them to continue offering loans to small businesses needing financial assistance during challenging economic times.
CDFI Rapid Response Program
The Rapid Response Program from the CDFI Fund provides immediate financial assistance during crises or natural disasters. CDFIs can quickly access funds for disaster recovery, emergency relief efforts, and other needs, serving as “financial first responders” for the communities they support.
These newer resources and programs demonstrate how the federal government, private sector, and other stakeholders support the work of CDFIs and promote financial inclusion and economic opportunity. By leveraging these resources, CDFIs can better address the needs of low-income communities nationwide and foster economic development in urban and rural communities.
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The idea of paying your dues, saving up, investing smart and retiring at some point before the “traditional” retirement age of 65 has a strong pull.
For many, early retirement is something that might even happen in their 40s.
If you are considering how you can retire early, here are 3 ideas that can help you reach an early retirement goal:
1. Disciplined Saving and Investing
One way you can build up a sizable nest egg is to practice disciplined investing. Consider how much you will need in your investment portfolio to create an income stream that you can live off of.
You will have to consider your age, how long you are likely to live, and the asset allocation you will need to provide reasonable growth, but not leave you over-exposed to the vagaries of the market. A long-term approach can help you.
If you are 30, and plan to retire by age 50 or 55, you might be able to amass $522,063.08 if you start with $10,000 and invest $1,000 a month for 20 years, assuming a 6.5% return — compounded quarterly — on your portfolio. (Note, though, that returns will vary according to market conditions, and there is always the risk of loss.) You can end up with more than $1 million if you double that to $2,000.
When you start living off your retirement portfolio, though, you will need to make sure you are not withdrawing so much that your nest egg can’t support you. You can maximize your efforts by investing in tax advantaged accounts and making use of your employer’s company match program. But you need a plan, and you need to be disciplined enough to stick with it if you go this route.
2. Cultivate Multiple Income Streams
Another idea for early retirement planning is to begin cultivating multiple income streams, rather than relying solely on your ability to build up a massive nest egg to get you to retirement. Instead, make a plan to pay down your debt (including your mortgage) by your early retirement target date.
Try to rid yourself of as many obligations as possible, so that you will have fewer expenses during retirement. Make a plan to pay down this debt while preparing for the future. Figure out how much money you will need each month to support your retirement lifestyle and then begin cultivating different income streams to create that income.
While there are rules that allow you to begin withdrawing from an IRA early, you likely won’t have access to Social Security benefits during an early retirement. You can consider your early withdrawal from an IRA if you must, but consider other sources of revenue. You can establish a web site that helps you earn residual income, write a book that results in royalties, start a business that can provide an income stream, or even engage in income investing.
It is, of course, possible to cultivate a number of income streams at once, diversifying your income sources. Start now to develop these streams so that they are established and mostly automatic by the time you are ready for early retirement.
3. Take Mini-Retirements
Tim Ferriss, author of The 4-Hour Workweek, made the idea of a mini-retirement somewhat popular. If you want to enjoy life now, and aren’t concerned about having a huge chunk of time to try and kill when you are older, you can plan to take mini-retirements, living in a different place for one to six months. You do have to be willing to quit a job — and try to find a new one — in some cases.
An alternative that appeals to me is having a job you can do from anywhere. I work from home as a freelance writer and I could actually whittle my workload down to a couple hours a day for a few months, and take my job on the road. I’d be living in a state of almost retirement, and it would work as long as I had access to the Internet. Consultants and other freelancers, as well as online entrepreneurs, could make this work. After all, if you can manage to work on reduced hours, and have time to do what you want, you won’t need the same size of large nest egg.
Bottom line: There are even more paths to early retirement, and it might be that you combine different efforts to come up with a method that works well for you. The important thing is to decide what you want to do, and then make a realistic plan to accomplish it.
When it comes to different types of retirement plans there are far more options out there than you might be aware of: 401k’s, 403b’s, Keogh Plans, DB(k)’s. Is your head spinning yet?
One lesser know retirement plan is the 457 Plan, which is often referred to as a Deferred Compensation plan or Deferred Comp. It’s a lesser known retirement plan because it is only offered to certain types of employees.
What is a 457 Plan?
Table of Contents
A 457 plan is a type of tax-advantaged retirement savings plan offered by governmental employers in the United States. It is named after Section 457 of the U.S. Internal Revenue Code and allows employees to set aside a portion of their salary into an account that is exempt from federal income taxes until it is withdrawn at retirement.
The accounts are regulated by the IRS, and employers can choose to offer them as part of their benefits package.
State and local public employees and sometimes nonprofit organization employees are often offered the 457 retirement plan. Only employers who are exempt from paying federal income taxes and non-church organizations can offer 457 plans, including:
State and local governments
Hospitals
Educational Organizations
Charitable Organizations or Foundations
Trade Associations
The 457 is similar to the more widely known 401(k) plan, where you can choose to contribute to the 457 plan through automatic deductions from your paycheck before the taxes are taken out. Also, like the 401(k), money grows tax-deferred in a 457 retirement account until the time you withdraw the money.
Contribution limits and early withdrawals are treated differently for 457 plan holders, however. which we’ll take a look at here.
457 Contribution Limits
If your employer offers only a 457 plan as your retirement account option, you can contribute a maximum of $22,500 in 2023 if you’re under the age of 50, and up to $30,000 if you’re over the age of 50.
If your employer also offers either a 401(k) or a 403(b), you have the option of contributing to both the 457 plan and one of the other available retirement accounts. I have several clients who are employed by the local university and they have the option of contributing to both the 457 plan and a 403(b). You can invest up to the maximum limit for each account!
This means you could contribute $22,500 in the year 2023 to your 457 plan, and another $22,500 into the 401(k) or 403(b) plan if you’re under the age of 50. This probably goes without saying it, but you do have to have enough income to be able to contribute this amount.
This is a great option for people who are starting their retirement savings later than planned, or who just want to take advantage of tax breaks or employee matching as much as possible.
For 2023 and future years, the maximum contribution for these plans will increase by $500 increments, and indexed for inflation.
Catch Up Contribution Limits for 457 Plans
If you’re over the age of 50 before the end of the calendar year, you’re eligible for a “catch-up contribution” in 2023. You can contribute an additional $7,500 if you have a governmental 457 plan.
Year
403(b) Maximum
Catch-Up Contribution
Maximum Allocation
2023
$22,500
$7,500
$66,000
2022
$20,500
$6,500
$61,000
2021
$19,500
$6,500
$58,000
Early Withdrawals from a 457 Plan
Money saved in a 457 plan is designed for retirement, but unlike 401(k) and 403(b) plans, you can take a withdrawal from the 457 without penalty before you are 59 and a half years old. This is a very important rule that often times goes overlooked with the 457 plan.
I had one encounter with an individual that had retired early and had rolled their 457 plan into an IRA based on a recommendation from their former advisor. (Notice I said “former”). By rolling into the IRA, you lose the ability to cash out early to avoid the penalty in case you need access to your funds.
There is no penalty for an early withdrawal, but be prepared to pay income tax on any money you withdraw from a 457 plan (at any age).
Just like other retirement plans, you do need to start taking distributions from your 457 plan by the age of 70 and a half years old.
How to Invest in a 457(b) Plan
If you’re looking for investment options, you can’t go wrong with a 457 plan. A 457 plan offers an array of different investments, including stocks, bonds, mutual funds and even annuities. By diversifying your portfolio within the 457 plan, you can make the most of your money by balancing both short-term and long-term gains.
And if that sounds too tricky, some plans even offer the option to use a professional financial advisor to manage your portfolio – so let them navigate the turbulent investing waters while you kick back and relax.
Can You Roll a 457 Plan Into an IRA?
As I mentioned above, you do have that option if you are a government employee. The process is very similar to rolling over a 401k into an IRA. As a reminder, you just need to be cautious if you retire early for the reasons noted above.
If you don’t need the money immediately it’s in your best interest to leave the money in the account to compound until you are ready for retirement, but it’s nice to know that you won’t pay a 10% penalty on early withdrawals should there be no other option.
If you do decide to roll your 457 plan into an IRA, I recommend a platform like M1 Finance.
Can You Roll Your 457 Plan Into a 403b or 401k?
Yes, you can roll your 457 plan into a 403b or 401k. However, it is important to note that the rules for doing so vary depending on the plan and provider.
If you are considering rolling over your 457 plan into a 403b or 401k, you should contact your plan administrator for more information about whether this option is available to you and how it works.
The Bottom Line – 457 Retirement Account Rules
The bottom line of the 457 Retirement Account Rules is that it offers a variety of tax benefits for those who take advantage of them. Contributions to a 457 plan are not subject to Social Security or Medicare taxes, making them a great way to save for retirement.
Withdrawals from the account are federally income tax-free after age 59 1/2 as long as certain criteria have been met. Employers may offer matching contributions, adding even more to your retirement savings.
Participants should be aware that if they withdraw money before age 59 1/2, they will likely incur an early withdrawal penalty and any earnings on that amount will be subject to federal income tax as well as state penalties.
457 Plan
Description
Type of plan
A type of retirement plan available to employees of state and local governments, as well as certain tax-exempt organizations.
Contributions
Employees can contribute up to the IRS annual limit ($22,500 in 2023) through pre-tax or after-tax (Roth) contributions.
Catch-up contributions
Employees age 50 or older can make additional catch-up contributions up to $7,500 in 2023.
Withdrawals
Withdrawals can begin at age 59 1/2 without penalty, and must begin by age 72 (or retirement, if later). Withdrawals are subject to income tax.
Loans
Some 457 plans allow for loans, with repayment typically required within five years.
Rollovers
Funds can be rolled over from another 457 plan or a qualified retirement plan, such as a 401(k) or 403(b).
Employer contributions
Some employers may offer matching contributions or non-elective contributions to employee accounts.
Advantages
Offers tax-deferred growth potential, flexibility in contributions and withdrawals, and may offer lower fees and expenses compared to other retirement plans.
Disadvantages
Limited to employees of state and local governments and certain tax-exempt organizations, may have limited investment options, and may be subject to certain withdrawal restrictions.
FAQs on 457 Retirement Account Rules
Who is eligible for a 457 plan?
Eligibility for a 457 plan depends on the employer’s plan and the type of employer. Government employers, tax-exempt organizations, and some non-profit organizations may offer 457 plans.
How does a 457 plan differ from other retirement plans
457 plans are similar to 401(k) plans in terms of tax benefits and investment options, but there are some differences such as eligibility, contribution limits, and early withdrawal rules.
Are there any penalties for early withdrawal from a 457 plan?
Distributions from a 457 plan before age 59 1/2 may incur a 10% early withdrawal penalty in addition to regular income tax.
What investment options are available in a 457 plan?
Investment options in a 457 plan vary, but they usually include mutual funds, exchange-traded funds (ETFs), and individual stocks. The options available depend on the specific plan.
Can you roll a 457 plan into a Roth IRA?
Yes, you can roll a 457 plan into a Roth IRA. This means that you will withdraw money from the 457 account and then contribute it to a Roth IRA. However, keep in mind that there may be tax implications when rolling over a 457 plan into a Roth IRA. The tax implications are very similar to rolling a 401k into a Roth IRA.
This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Save more, spend smarter, and make your money go further
Pretty much everyone upped their spending on take-out food in 2020 – and for good reason. With restaurants closed for indoor dining and grocery stores experiencing unpredictable staffing and inventory issues, many consumers chose to order out for the majority of their meals.
Now that things are returning to normal, you may be wondering how to adjust your budget accordingly. We’ll walk you through how to determine the right amount to budget for take-out and dining, and give you some strategies to save money when ordering from your favorite restaurants.
How Much Should You Spend on Dining and Take-Out?
It’s hard to give an exact prescription for how much you should spend on take-out because it largely depends on the specifics of your budget and financial situation. In general, your food budget, including groceries and eating out, should make up between 10 and 15% of your income. Families with multiple children may spend more than that, so don’t worry if your percentage exceeds the recommendation.
If you’re not sure how much you spend on food, go through your transactions for the past few months and calculate the percentage.
John Bovard, CFP of Incline Wealth Advisors said consumers who have no credit card debt and invest 20% or more of their income in a retirement account can spend 10% of their post-tax income on take-out.
Ways to Save on Takeout
Want to keep your takeout tradition but still feel like you’re spending too much? Here are some tips to save money when ordering out from your favorite restaurants:
Pick up in person
Everyone knows that delivery fees add a huge surcharge to your total bill, but you might not realize how big the difference actually is. A New York Times article found that the same sandwich at Subway costs between 25% and 91% more when delivered, depending on the specific delivery app.
A $20 order could cost between $5 and $18.20 more if you get it delivered. The cost is generally higher during weekends and holidays.
Look for specials
Plan your take-out around restaurant specials. Follow restaurants on social media to see when they’re running discounts, like half-price oysters on Sundays or happy hour specials. When you’re picking up the food, ask someone behind the counter when the best deals are.
Restaurants often print coupon codes or discounts on their receipts, so don’t forget to check there.
Use discounted gift cards
Many restaurants and fast food places sell gift cards and often run special sales, like selling a $50 gift card for $45. This is especially popular during the holiday season.
Wholesale clubs like Costco and Sam’s Club regularly sell discounted gift cards to popular chains. For example, you can buy $100 worth of gift cards to California Pizza Kitchen for only $80 at Costco, or $75 worth of Domino’s gift cards for only $65.
You can also buy restaurant gift cards online through GiftCardGranny or CardCash, which sell gift cards for up to 10% off.
Skip dinner
Dinner is the most expensive meal of the day, so opt for breakfast or lunch if you’re eating out. If you get take-out a couple times a week, use one for dinner and the other for brunch or lunch.
Cash in rewards
Some restaurants have loyalty programs you can join with an email address or phone number, while others have an old-fashioned punch card system. Keep track of these rewards so you cash them out before they expire.
Order catering
If you’re eating with a group of people, see if the restaurant offers catering, which may be less expensive than ordering individual entrees. Everyone will have to eat the same thing, but it’s a great way to save money.
Sign up for restaurant emails
Both local and national restaurants often have email newsletters you can join to get extra discounts. For example, my favorite Mexican restaurant is constantly sending me emails for 10 or 15% off take-out.
Create a separate label for these emails so you can sort through them before ordering take-out. You can also add reminders on your phone to use the discounts before they expire.
Use a rewards credit card
Many credit cards offer points or cashback when you dine out, and some let you cash in points for restaurant gift cards. Look up the rewards policies for your current credit cards to see which one you should use for restaurants.
Consider opening a new card if you don’t have a dining rewards card. The Chase Sapphire Preferred offers 2% cashback for dining and also comes with a year of DashPass, the DoorDash subscription service with $0 delivery fees.
Chase Sapphire Reserve cardholders earn 3% cashback on dining, get a free year’s worth of DashPass and also have $60 of DoorDash credit for the first year.
Most dining rewards cards have an annual fee, usually around $95, so don’t open one unless the cashback rewards will exceed the fee. Some card companies will waive the fee for the first year, allowing you to see if you’ll earn enough rewards to offset the fee. Some rewards credit cards also let you cash in points for restaurant gift cards.
Buy a food delivery subscription
If you don’t have easy access to transportation, then ordering delivery may be your best option. In this case, consider signing up for a food delivery membership. DoorDash, Grubhub, Postmates, and Uber Eats all offer a monthly subscription for around $10. Each subscription comes with free delivery and other specials.
Before you sign up, calculate how often you order out and see if a monthly membership makes sense. If you have a neighbor or roommate, consider splitting a subscription with them to save even more money.
Many of these services have a free trial period, allowing you to gauge how much you’ll actually use them. Choose the app with the largest number of restaurants you like.
Use a browser extension
Browser extensions like Rakuten provide cashback when you order from delivery sites like Grubhub and Seamless. Just click on the Rakuten button on the top right of your browser when you visit either of those sites. You’ll earn up to 11% cashback with eligible orders.
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Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Conscious Coins. More from Zina Kumok
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