IRS Form 5498 is used to report IRA contributions to the IRS. The financial institution (often referred to as the trustee or custodian) that manages your IRA should send a 5498 tax form to the IRS on your behalf each year that you make contributions. They’ll send a copy of the form to you as well.
This form is designed to be informational for taxpayers and you don’t need to file a copy of it with your tax return. However, it’s helpful to know how to read IRS Form 5498 if you’re using it to keep track of your annual IRA contributions.
Key Points
• IRS Form 5498 reports IRA contributions, rollovers, conversions, and recharacterizations to the IRS.
• IRA custodians or trustees must file Form 5498 with the IRS by May 31 following the contribution year.
• For taxpayers, the form is informational only, and does not need to be filed with their tax returns.
• Taxpayers should receive a copy of Form 5498 from their IRA custodian and keep it for their records.
• IRS contribution amounts listed on the 5498 form should be compared with the contribution amounts the taxpayer reported on their tax return, and if there are any mistakes, a corrected form should be requested.
What Is IRS Form 5498?
IRS Form 5498, IRA Contribution Information is an official tax form that’s used to report individual retirement account contributions to the IRS. This form is issued by your IRA trustee or custodian and is sent directly to the IRS each year that you make contributions to your account.
You’ll also receive a copy of your Form 5498 in the mail, but the form is purely informational. You won’t need to file it with your federal or state tax returns. However, it’s a good idea to keep a copy of it with your tax records for the year.
What Does Form 5498 Cover?
A 5498 tax form is used to report information about the annual contributions you make to your IRAs, including traditional IRAs, Roth IRAs, SIMPLE IRAs, and SEP IRAs. You should get one form from each IRA custodian that you have accounts with. You may also be issued a Form 5498 for certain other transactions that are IRA-related, such as rollovers and required minimum distributions (RMDs).
Your IRA custodian or trustee must file Form 5498 with the IRS by May 31 following the year in which the contributions were made.
IRA Contributions
The 5498 tax form is used to report IRA contributions. The information is recorded in different boxes on the form, depending on the type of contribution it is.
• Box 1: IRA contributions
• Box 8: SEP IRA contributions
• Box 9: SIMPLE IRA contributions
• Box 10: Roth IRA contributions
When you receive your 5498 tax form, it’s a good idea to compare the contribution amounts listed there to the amounts you reported on your tax return. If you spot any errors, you can reach out to your IRA custodian to request a corrected form.
Form 5498 records both deductible and non-deductible IRA contributions. If you’re using a Roth IRA to save for retirement, for example, tax deduction rules don’t allow you to write off those contributions. But you’ll still get a 5498 tax form showing what you contributed for the year.
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Type of IRA
As mentioned, Form 5498 reports contributions to different types of IRAs. So, you may receive this form if you make contributions to any of the following:
• Traditional IRA
• Roth IRA
• SEP IRA (Simplified Employee Pension)
• SIMPLE IRA
Box 7 of Form 5498 will identify the plan type that contributions are being reported for. You won’t see any contributions to other types of retirement plans, such as a 401(k) or 403(b), listed here.
Contributions to taxable accounts are not reported on Form 5498 either.
Conversions, Rollovers, and Recharacterizations
If you convert traditional IRA assets to a Roth account, roll over funds from one account to another, or recharacterize IRA contributions — which is the transfer of contributions plus any earnings from one IRA to another — you can expect to receive a Form 5498 reporting those transactions.
Here’s where those amounts will be listed on your form:
• Box 2: Rollover contributions
• Box 3: Roth IRA conversion amount
• Box 4: Recharacterized contributions
You’ll also see information about the fair market value (FMV) of the account listed in Box 5. If applicable, Box 6 notes any life insurance cost included in Box 1.
In terms of the difference between a rollover IRA vs. traditional IRA, a rollover is simply the movement of money from one retirement account to another. For instance, you might roll money from a 401(k) into a traditional IRA if you change jobs. Or you could roll assets from one traditional IRA to another if you switch to a new IRA custodian.
Withdrawal/Distribution Info
Form 5498 is primarily used for reporting contributions to IRAs, but it is also used for listing RMDs. If you have a traditional IRA, you must begin taking RMDs at age 73 (assuming you turn 72 after December 31, 2022). The amount you’re required to withdraw is determined by your age, life expectancy, and account value.
RMD information is included on in these boxes on Form 5498:
• Box 11: Only checked if an RMD is required
• Box 12a: RMD date
• Box 12b: RMD amount
Even if taking RMDs on an IRA is years away for you, it’s important to know what’s required. If you fail to take required minimum distributions on time each year, you may incur a tax penalty equivalent to 25% of the amount that you were supposed to withdraw. (The penalty might be reduced to 10% if you make a timely correction.)
Distributions from other types of retirement accounts such as pension plans are reported on Form 1099-R. Similar to the Form 5498, the IRS gets a copy so it’s important to make sure the withdrawals you’re reporting on your taxes match up.
Who Needs to File a 5498 Tax Form?
Your IRA custodian or trustee is required to submit a Form 5498 to the IRS on your behalf if you have a qualifying IRA transaction for the year. Again, that includes IRA contributions, IRA rollovers, recharacterizations, conversions, and required minimum distributions.
You don’t need to file this form with your tax return. However, you will need to report the appropriate information relating to IRA contributions you made, rollovers, RMDs, conversions, or recharacterizations on your tax return.
Different Kinds of 5498 Tax Forms
There’s more than one version of Form 5498 that you might receive, depending on what kind of accounts you’re funding during the year. In addition to the 5498 tax form for IRA contributions, you may also be issued either of the following:
• Form 5498-ESA: This form is issued if you make contributions to a Coverdell Education Savings Account (ESA) on behalf of an eligible student. Distributions from a Coverdell ESA are reported on Form 1099-Q.
• Form 5498-SA: This form 5498-SA is used to report contributions to Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs), and Medicare Advantage MSAs.
Form 5498 Due Date
The Form 5498 due date is generally May 31 of each year. So, for IRA contributions made in 2023, for instance, IRA trustees or custodians had until May 31, 2024 to send 5498 tax forms to the IRS.
You should also get a copy of the form, but if you don’t and you believe you should have, contact your IRA custodian or trustee to ask where it is. Remember, if you didn’t make any IRA contributions for the year or complete any other qualifying transactions, such as a recharacterization or rollover, you won’t get a Form 5498.
Entering a 5498 on a Tax Return
You don’t need to enter information from Form 5498 on your tax return. In fact, because of the timing when these forms are sent out, you should have already filed your return by the time you receive the 5498.
You will, however, need to enter your IRA contributions on your tax return. If you contributed to a traditional IRA, some or all of those contributions may be tax-deductible. Contributions to both traditional and Roth IRAs may qualify you for the Retirement Saver’s Credit, assuming that you’re within the accepted income threshold for your filing status.
You’ll also need to report contributions to SIMPLE IRAs and SEP IRAs on your tax return.
The Takeaway
Saving in an IRA can help you build wealth for retirement and potentially enjoy some tax breaks. A traditional IRA allows for tax-deductible contributions, while a Roth IRA allows you to take tax-free distributions in retirement. If you contribute to either type of IRA, or if you contribute to a SEP IRA or a SIMPLE IRA, you should get a Form 5498 each year. The form is informational only, and you are not required to file it with your taxes. Your IRA custodian will send a copy of the form to the IRS.
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FAQ
Do I have to report Form 5498 on my tax return?
No, you do not have to include or report Form 5498 on your tax return. The 5498 tax form you receive from your IRA trustee or custodian is informational only. The IRA custodian is required to send the form to the IRS.
What is the purpose of Form 5498?
Form 5498 is used to report IRA contributions to the IRS. IRA custodians are required to send this information to the IRS on behalf of each account owner who makes IRA contributions. The form is purely informational for taxpayers.
Who must file Form 5498?
IRA custodians, not individual taxpayers, are required to file a 5498 tax form with the IRS. If you get a Form 5498 in the mail, that means a copy of the form has also been sent to the IRS on your behalf.
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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Learn the pros, cons, and methods of rolling over retirement accounts to simplify your finances so you can avoid costly mistakes.
How can you budget smarter for the holidays? Does it make sense to combine retirement accounts from previous jobs into one? What are the benefits and drawbacks of different rollover options? Hosts Elizabeth Ayoola and Sara Rathner begin the episode with a discussion of holiday budgeting, offering tips and tricks on avoiding impulsive spending, setting clear financial priorities, and the importance of delayed gratification.
Then, hosts Sean Pyles and Sara Rathner discuss retirement account rollovers and key considerations to help you streamline your retirement savings and avoid penalties. They begin with a discussion of rollover basics, with tips on direct vs. indirect rollovers, how to avoid unexpected costs, and how to choose between an IRA and a Roth IRA. Credit Card Nerd Jae Bratton joins Sean and Sara to discuss her own experiences with retirement rollovers. They discuss the pros of consolidating accounts, the financial security it can offer, and how to choose the right investment options to suit your retirement goals.
Check out this episode on your favorite podcast platform, including:
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Episode transcript
This transcript was generated from podcast audio by an AI tool.
Elizabeth Ayoola:
Who hit fast forward on 2024? How are we in November already? Sara, am I alone in feeling like this year was on turbo speed?
Sara Rathner:
You’re not. I still think 1975 was 20 years ago.
Elizabeth Ayoola:
I like the end of the year for two reasons. Now one, I’m a self-reflective journaling chick, and I enjoy doing my year-in-review exercises. And for two, I’m a December baby. Shout out to all my Sagittariuses. But anyway, we’re going to be delving more into the former today. Welcome to NerdWallet Smart Money Podcast. I’m Elizabeth Ayoola.
Sara Rathner:
And I’m Sara Rathner, and for the record, I do not journal.
Elizabeth Ayoola:
We’ve got to talk about that more later.
Sara Rathner:
Elizabeth Ayoola:
Alright. This episode, we answer a listener’s question about combining retirement accounts from different jobs. But first, Sara and I are going to talk about the worst budgeting or financial mistake that we have made this year. Now, if we want to add a splash of festivity to the topic, we can focus on holiday spending mistakes. It’s your call, Sara. And yes, that means you’re going first.
Sara Rathner:
Yeah, no pressure. Well, we could apply this to holiday spending, but we could also apply it to spending year-round, and for me, it’s so easy—way too easy—to try to solve problems by buying stuff online. I can’t count the number of times I thought I had a problem to solve and threw money at some small thing, and I thought it would be the solution to my problem. Then the package arrived a few days later, and I’m like, “Why did I buy this?” It’s like death by a thousand Amazon purchases.
Elizabeth Ayoola:
I’m certain that so many people feel seen right now, Sara, because you shared that. And you know what? I hate to say that I can relate, but I must say that I’m proud of a new habit that I’ve developed. I have started returning things to Amazon that I do not need. Yes, before, I was too lazy to return them, so they would just sit around my house. Now, I think the option to drop items at Whole Foods—shout out to Amazon for that—has been a source of motivation. Nothing beats saving money by returning things I don’t need and picking up a few healthy food items in the process.
Sara Rathner:
And if you want to think about your overall environmental impact, it’s always better not to buy the item in the first place than to buy it and return it. But none of us are perfect, and returning it is also a great idea if it’s something you do not actually need. So, Elizabeth, I’ve shared my own personal shame, one of many shames, but we’re only picking one today, so we don’t have to list all of them. What has been your big budgeting fail of the year?
Elizabeth Ayoola:
Oh my gosh. Listeners, please just stick with me, okay? I am going to have a little vent now. I’m going to go with my general biggest budgeting mistake this year because it’s going to affect my holiday spending too. As some listeners may be aware, because I spoke about it earlier this year, I have moved to a different state, and it’s my first time moving states since I moved back to the U.S. from London. Now, while I did budget a lump sum that I needed to move, which included rent, damn that first security deposit, new furniture because my old furniture sucked, a $2,000 U-Haul, first-quarter private school fees for my son, and so much more. But anyways, what was the mistake? I should have set a harder limit for how much I would spend and prioritized in terms of what could wait. But in the spirit of wanting my house to feel like a home, I purchased things that honestly could have waited even until next year.
What I don’t regret is buying quality furniture this time around, and I’m hoping that it’s going to last for years to come. And yes, that includes the white sofa that I bought with a six-year-old boy in the house. I know, you guys are screaming. Overextending my budget means I’m now on a tight budget for the rest of the year, and most people will be getting hugs for Christmas. I’m currently avoiding large purchases, and I’m just focusing on what I need versus what I want. But I do have one highlight, though. All of that spending got me lots of air miles on my travel credit card.
Sara Rathner:
Well, maybe next holiday season you could go somewhere for free.
Elizabeth Ayoola:
Sara Rathner:
And I will say, as somebody with three pets and a toddler, I’m amazed anyone buys white sofas.
Elizabeth Ayoola:
I know, I know. But honestly, I am not an interior decor girl, but it really went with my walls because my walls are gray. And anyway, I’m enjoying living on the edge. So, for anyone planning on making a big move in 2025, please be as specific as you can about your budget. Moving can be extremely expensive, and settling into a new city or environment can be hard enough as it is, so you don’t want to add financial stress to the mix. And also, a lesson in delayed gratification here. Some things honestly can wait, and it can be worth the wait when you have financial peace as a result.
Sara Rathner:
Yeah, I think it’s really common to underestimate how much it costs to move. You’ve got the packing materials and the professional movers, and once you’re in your new space, you want to make it feel like home. And yes, I said professional movers, because when you’re 22, you could pay your friends and pizza to move your stuff. When you’re 32 and you have real furniture and your friends are busy, they don’t want to help you move your stuff for the cost of pizza. So, just hire some professionals and save your friendships.
Elizabeth Ayoola:
Say it again. And I did exactly that actually, Sara, I did exactly that.
Sara Rathner:
You hired professional movers…
Elizabeth Ayoola:
Sara Rathner:
…Or you paid your friends with pizza?
Elizabeth Ayoola:
No. What friends? Nobody was helping me move all that stuff out that you haul. I paid a professional, okay?
Sara Rathner:
Listen, if you have white couch money, you can hire a professional. That’s it. That’s my financial rule.
Elizabeth Ayoola:
Oh my gosh. And I have a little confession. My son has finally put a little stain on the white couch, so here goes the cost, right? Because now I’m going to pay for a professional cleaner to clean the sofa, and I was just thinking I didn’t think of the ongoing maintenance costs. But anyway. With that said, let’s give listeners a couple of budgeting tips for the last two months of the year. Now, I know it can be easy to ignore your budget because you’re busy having fun, spending time with loved ones, and also unwinding from what has been a long, chaotic year. All those happy hormones can also trick you into living in the moment and blowing up your budget. So, what’s one tip that you have for listeners, Sara, to hopefully avoid doing this?
Sara Rathner:
Well, this is the time of year where everyone’s going out and spending a lot of money in the spirit of festivity, but talk to your loved ones and suggest alternate plans if the plans they are recommending cost a lot of money and are going to blow your budget. Let’s say your friends want to go out for an expensive dinner or your family insists on buying everybody a mountain of presents. It’s okay to say, “Listen, that’s just not in my budget right now.” Like you mentioned, giving people hugs for the holidays is their gift because you just spent so much money on moving. Don’t just complain. Offer up an alternative. Maybe you skip the dinner with your friends, but you meet up with them later on for a cheaper outing. Or maybe you talk with your family about doing a gift exchange where everybody draws up one name out of a hat and you only buy one gift and you set a hard budget for that gift. Your loved ones aren’t going to know that you’re struggling unless you speak up, and honestly, oftentimes once you speak up, you realize that you’re not the only one in your circle who’s struggling. So, other people want an excuse to take a break too.
Elizabeth Ayoola:
I love that so much, and I think it takes a lot of vulnerability to be open and tell people that you just ain’t got it. And I do know that some people feel embarrassed to say that, but I think feeling embarrassed might be a little bit better than not having enough money, especially going into the new year.
Sara Rathner:
Yes, your embarrassment is not worth not being able to make your rent payment in January. Think of it that way. It could be that serious for you.
Elizabeth Ayoola:
Sara Rathner:
I would rather tell somebody who cares about me about what’s going on with me than have to talk with my landlord about the fact that I have to pay a late payment because I can’t afford rent on time.
Elizabeth Ayoola:
Absolutely. And this is a little bit off-topic, but I’ve been seeing things going around social media, like if you don’t show up to your friend’s birthday dinner… I’m sure there are a lot of December babies having some birthday things that you might have to pay for. Are you a bad friend? And putting that out there. If anybody gets upset with you because you can’t attend because it’s not in your budget, then you might want to reassess that relationship as well.
Sara Rathner:
Okay. Elizabeth, you’ve got more tips for us.
Elizabeth Ayoola:
My more formal tip now is to start thinking about what you want your finances to look like in 2025. Now, doing this can help you stay focused and it can also give you the discipline that you need to ensure you start 2025 off strong financially. For example, with interest rates trickling down, you may be hoping to finally buy a home next year. Housing market is another story, but it’s going to be hard to do that if you blow your savings or hurt your credit score by maxing out your credit cards during the holidays.
Sara Rathner:
I like that. I think it’s helpful to list a few things that you want to accomplish over the next few months so you’re not just thinking about the holidays now, but rather how the holidays might affect what you want to do next year.
Elizabeth Ayoola:
Exactly. And as someone who sometimes can fall prey to impulse spending, I know this task especially helps me. One of my goals for 2025 is to finally start my traveling on points journey or rather take it to the next level by getting more travel credit cards, and that requires me maintaining good credit and not overspending.
Sara Rathner:
Well, luckily you’re surrounded by coworkers who can help you with that. Including yours, truly.
Elizabeth Ayoola:
Oh, shout out to my coworkers. Love that.
Sara Rathner:
All right, listeners, we want to hear from you. What are your strategies for getting through the holiday season financially unscathed, and I don’t know, still speaking terms with your relatives? So, text us or leave a voicemail on the Nerd Hotline… I’m serious. At 901-730-6373. That’s 901-730-N-E-R-D. Or email us at [email protected].
Elizabeth Ayoola:
Oh my gosh. Just a sidebar. I think some people might end up in a group chat about how cheap they’re being this holiday because they say, “No,” but we don’t care. We’re saving money.
Sara Rathner:
I’m here for all of your group chats where you talk about how cheap you have to be. You can invite me to that group chat and I’ll just silently sit there and applaud you.
Elizabeth Ayoola:
Exactly. All right, now let’s turn to this episode’s money question segment, where we get deep into retirement benefits. That’s coming up in a moment. Stay with us.
Sean Pyles:
We’re back and answering your real-world money questions to help you make smarter financial decisions.
This episode’s question comes from a listener’s text message. They wrote, “Does it make sense to amalgamate all of my retirement accounts from different jobs into one place or does it not matter?”
Sara Rathner:
First of all, bonus points to this listener for typing the word amalgamate into a text message.
Sean Pyles:
Sara Rathner:
I don’t know what your bonus points are worth in real life, but you should know that you have them.
To answer this question on this episode of the podcast, we are joined by NerdWallet credit card writer Jae Bratton.
Welcome to Smart Money, Jae.
Jae Bratton:
Thanks for having me.
Sara Rathner:
Now, Jae typically writes about credit cards but has experience managing retirement account rollovers, so we’re going to talk with her about that. But, let’s start by talking about what our listener describes as “amalgamating” their retirement accounts, which is known conversationally as rolling retirement accounts over. Before we dive in, we just want to reiterate that we are not investment advisors. Sean, do you want to give us a quick explanation of what a retirement account rollover looks like?
Sean Pyles:
Sure. Rolling over a retirement account is when you take the retirement account from maybe an old employer and, you guessed it, roll it into the retirement account of your new employer or another retirement account you have, like an IRA.
There are two main ways that you can do a rollover. One is a direct rollover where your former retirement account administrator connects to your new administrator and transfers the funds from your old account to your new account. Or in the case of an IRA, the institution that manages your account transfers it to another IRA or retirement plan, like a 401k.
The second way to do a rollover is called an indirect rollover or a 60-day rollover, where you get a check with the entire balance of your retirement account, and then you move it into the new account yourself. This second option can give you a little more flexibility with how you manage the rollover, but it does have some drawbacks, too.
Sara Rathner:
Yeah, let’s talk about those drawbacks. A big one is the cost. When you do an indirect rollover, the IRS automatically withholds 10% or 20% of your account balance depending on the type of account you have. And here’s the thing: you have to contribute the entire amount of your original cash balance to the new account or you face penalties, and that could put people in a pretty serious cash crunch.
Sean Pyles:
And also, you are given a check with your retirement account balance, again, which can be a little scary to see and hold in your hand.
Sara Rathner:
Yeah, it’s your life savings.
Sean Pyles:
I want to give a quick example of what an indirect rollover looks like and this cash withholding from the IRS, because it can get a little confusing. For example, say I want to roll over a 401k balance of $10,000. The IRS withholds 20% or $2,000, so I only get a check for $8,000.
Then, I need to come up with an additional $2,000 so I can deposit that original balance of $10,000 to the new retirement account, and if I don’t do that, if I can’t find that $2,000, I will face penalties from the IRS, which is not ideal.
And we should say that you will get that withheld money back from the IRS, but not in time to replace it within the 60-day period.
Sara Rathner:
So, that sucks. No… There’s no other way I could say that. That’s really rough, and you’re taking something that is already really administratively complicated and then making it expensive, which is no fun. Jae, that being said, let’s get to your story. What was your rollover adventure like?
Jae Bratton:
The year was 2022. I had just been hired by NerdWallet, and I decided that it was time to get all of my retirement accounts from my former employers into one. I had two old ones from, like I said, two previous employers, and I wanted to move them into one financial institution, the one that was already holding my husband’s and my Roth IRAs. I used a service which facilitates the rollover process for free, and even though I didn’t need this particular feature, it also helps you find old 401ks that you may have forgotten about.
Sean Pyles:
That’s handy. So you were doing an indirect rollover, but you had a company helping you out as sort of an intermediary.
Jae Bratton:
Sean Pyles:
And you did two rollovers, so walk us through the first one.
Jae Bratton:
The first rollover I would say was a little bit more straightforward. I moved about $21,000 from a Roth 401k from a former employer into that Roth IRA that I said I had already had at that particular financial institution. I was able to roll that $21,000 in my old Roth 401k into my current Roth IRA because both investment accounts are after-tax, and that means I had already paid tax on the contributions, and the big benefit of that is I get to make withdrawals in retirement tax-free. Now, when you do rollovers, it is possible to roll over a traditional 401k into a Roth IRA, but you will have to pay taxes. Accounts have to be tax-compatible if you want to avoid paying penalties.
Sara Rathner:
One thing that’s nice about rolling into a Roth IRA like you did is that you could ignore the contribution limits on these types of accounts. For the 2024 tax year, Roth IRA contributions are limited to $7,000 a year, or $8,000 a year for those who are 50 or older, but rollovers don’t count toward those contribution limits. And Jae, that’s why you were able to roll $21,000 from that Roth 401k into the Roth IRA in one go. Right?
Jae Bratton:
Exactly. I was able to grow the balance in my Roth IRA while still playing by the rules that govern annual contribution limits, and the contribution limit for Roth IRAs is pretty low comparatively, especially when you compare it to a 401k. That was just a nice perk.
Sean Pyles:
That’s pretty handy. Let’s talk about your second rollover. What was the deal with that one?
Jae Bratton:
For the second rollover, again from another former employer, this time I was moving about $25,000 from a 403(b) into a traditional IRA.
Sean Pyles:
And for those wondering, a 403(b) is generally what employees of public schools and nonprofits get instead of a 401k, but they’re pretty similar. Jae, was rolling the 403(b) into your IRA as easy as rolling over the 401k?
Jae Bratton:
Yeah, actually. The process was just as simple. Again, that service that I used facilitated the rolling over process and made it pretty seamless. The only difference is that in this particular rollover, my 403(b) was traditional, not a Roth, meaning I hadn’t paid tax on those contributions yet. So, I rolled over the money from the 403(b) into a traditional IRA, not a Roth IRA, and whenever I go to withdraw those funds in retirement, I will have to pay taxes on that money then.
Sean Pyles:
Was the second rollover direct or indirect?
Jae Bratton:
It was direct, and that means that I did not have to pay any financial penalty on this particular rollover.
Sean Pyles:
Did you find that to be easier than the indirect or not?
Jae Bratton:
I don’t have experience doing an indirect rollover, so I can’t really compare, but I would just say overall the experience was fairly easy just because I had the assistance of this particular service to walk me through it.
Sean Pyles:
Why was it important to you to do these rollovers? To get to our listener’s question, why did it make financial or personal sense to you?
Jae Bratton:
As I mentioned earlier, I initiated this rollover process in 2022 right when I had been hired at NerdWallet. I knew that I was going to have a retirement account with NerdWallet, a 401k, and I knew I had these two other retirement accounts hanging out in the ether. I didn’t want three retirement accounts in separate financial institutions, so in 2022, I decided now is the time to streamline everything. Come our retirement, I didn’t want to be hunting down retirement accounts at X number of financial institutions. I want that time to be for leisure.
There is a financial component behind the motivation to roll over. I wanted to move that money from those old accounts and invest them into mutual funds of my choice.
Sean Pyles:
Sara, I know that you have done rollovers, or at least one in the past. Was your motivation similar?
Sara Rathner:
Yeah, I’ve done two rollovers in the past from former employers. I had traditional 401ks with both, and I rolled them into one traditional IRA at the same financial institution where I also have a Roth IRA and I also have a taxable brokerage account. So, really for me, it was about simplifying my finances and having more of my finances in one place. Even if there are several different accounts, they are still under one roof, too, and that to me is administratively easier. The more complicated your life gets financially, the more you want to simplify some stuff and have it be a little bit more under your control.
Sean Pyles:
And Sara, was your rollover process as easy as it seems Jae’s was?
Sara Rathner:
To be honest, I blacked out a lot of it because it was so annoying. Really—
Sean Pyles:
So that’s a no.
Sara Rathner:
Yeah. I think I started by calling customer service from both the financial institution that had my old account and then the financial institution I was going to transfer it into. I will say all of the banks and institutions I dealt with had incredible customer service, so if you have any questions, start by just calling them. They will walk you through the process. That was probably the best part, was just talking to people on the phone, which is usually not the best part. Usually, that’s the worst part, but really they were incredibly helpful. And then they directed me to forms I had to fill out and I had to get them notarized, send them in. It was a series of tasks that were just annoying. It wasn’t just fill out an online form and hit submit and then you get your money transferred. It’s not that simple.
Sean Pyles:
How long did the process take you, if you remember?
Sara Rathner:
It depends. I didn’t really realize this at the time, but I think one of the transfers was indirect, and so one day my doorbell rang and it was FedEx with an overnight envelope that contained a six-figure check from an employer I had been at for almost a decade. So you can imagine how much money I had set aside over the years, and they were just like, “There you go.”
Sean Pyles:
Sara Rathner:
Then I had to mail it to the next institution, so you’re terrified because your money is just floating out there into the ether at the behest of various shipping companies and yeah, I didn’t love that.
Sean Pyles:
Yeah, that’s scary. There’s got to be a better way.
Sara Rathner:
Yeah, one process was all electronic. I never saw a check with the money. The other one, for whatever reason, was not. You just don’t know what you’re going to get.
Sean Pyles:
Sara Rathner:
That’s what I don’t like about it.
Sean Pyles:
Let’s talk a little bit more broadly about some of the pros and cons of rollovers.
Our listener got to one pro with their question, and it seems like this relates to Jae and Sara, your experiences too. Having all your retirement funds in just one or two places makes it easier to manage.
Jae, can you speak to any other upsides that made this process appealing to you, even if it isn’t maybe the most straightforward sometimes?
Jae Bratton:
Definitely. But before I do that, I want to go back to something that Sara was saying. Sara was talking about how her process of rolling over some of her old retirement accounts was not as easy as maybe my experience, and I want to say that mine was maybe a little bit easier than hers and maybe other people listening, because I only was rolling over two accounts. I’ve mentioned this before, but I used a service to help walk me through that process. And also, like Sara, I had a baseline knowledge of retirement accounts.
So, I say all that to say, I don’t want to put out this impression that rolling over retirement accounts is easy. It’s not. It is a complicated process made easier by some services, so I don’t want the listeners to think this is something that I can do in 15 minutes, and it’s not. The task of rolling over retirement accounts… We don’t have to do it, but there are benefits which I will talk about. This is just another example of how the onus is on us to make sure that we are making all the right decisions to safeguard our future in retirement.
Sean Pyles:
It might sound counterintuitive, but weirdly, I’m okay with a retirement account rollover not being the easiest thing to do. It maybe shouldn’t be a 15-minute exchange to put all of your retirement savings from one account to the next. It’s a pretty significant amount of money oftentimes, and it’s a very serious allocation of funds for a very important goal, funding your retirement.
Sara Rathner:
Yeah, but that being said, I could move tens of thousands of dollars into a brokerage account in two business days.
Sean Pyles:
Maybe that also isn’t great. I don’t know.
Sara Rathner:
Yeah, but at the same time, you have to think about how democratized personal finance has become because of this technology, and you no longer have to be 100% knowledgeable, 100% connected, have… You have a guy behind a mahogany desk who can put in a phone call and he does stuff for you. You don’t have to live that life. You can be your average person who switched jobs a couple of times and just wants to keep their finances as organized as possible.
On the one hand, putting a little friction into some financial processes definitely prevents people from making mistakes or from spending money unnecessarily. At the same time, some processes… We could utilize technology to make things less onerous than they used to be.
Sean Pyles:
Totally agree. I think the certified mail route that you described having to go through is pretty outdated.
Sara Rathner:
Yeah, what if I wasn’t home to answer the door? Were you just going to leave that check in my mailbox?
Sean Pyles:
It’s scary, but we want to make sure that people understand the gravity of what they’re dealing with at the same time.
Jae, I want to go back to any other upsides around rollovers that did make this intimidating process appealing.
Jae Bratton:
The first one I’ve already mentioned before, but it’s worth repeating again because this is probably the main motivation for many people doing rollovers, and that is just simply simplicity. For people who have held multiple jobs like myself, that’s reason enough. Many of us are going to have many jobs in our lifetime before we get to retirement, and without rolling over those accounts, you’ll have to pull money in retirement from multiple pots, and I wanted mine in one big one.
The second draw for rolling over retirement accounts is financial security. Many of us have had multiple jobs, and the more jobs we have, we’re increasing the likelihood that we’ll forget about that 401k that we’ve had with an employer we had 20 years ago and definitely don’t want to forget about that money. And lastly, I would say that your 401k with an employer usually has limited investment options that are preselected by that employer. If you’re not satisfied with those investment options or the fees attached to those funds, one way to get around that is to roll over your retirement funds into an IRA where you have much more freedom to select the investments that you want.
Sara Rathner:
We should also note that funds in a 401k sometimes have lower expense ratios, which basically means they cost less to invest in, and if you like the funds you’re invested in but you’re considering consolidating your various retirement accounts, you may want to compare the expense ratios of the funds you’re invested in with your current retirement account and the funds you’d invest in through the IRA.
Sean Pyles:
I want to turn now to a couple cons. Sara and Jae, I think you described some just through your experiences, but really one that stands out to me is that doing a rollover requires you to take action and be really on top of your finances. If you are in your prime working years, you’re maybe a little bit lazy, but decently organized, and you don’t want to have to wrangle your old accounts. Jae, going through what you described or Sara, what you described, might not be appealing, and I think that’s totally fair.
As long as people are making sure that the money in these accounts is actually invested, maybe check on it a few times a year, then it can be fine to leave old accounts where they are. Again, just do not forget about them. Though, as we’ve been talking about, people might want to think about consolidating accounts as they get closer to retirement so they have fewer accounts to manage, because in general, as we get older, it can be a good idea to consolidate accounts, so your finances are just easier to account for.
Sara Rathner:
Yeah, and I’ll also say if you’re in your prime working years and you’re decently organized, it might not even be laziness. You’re just busy. You’re busy…
Sean Pyles:
Sara Rathner:
You’re tired, you’ve got so much other stuff to deal with, this is just another thing.
Sean Pyles:
That’s fair.
Sara Rathner:
It’s always something. All right, listeners, if you are interested in rolling over your own funds, we’ve got a handy resource for you. I recommend you check out NerdWallet’s roundups of the best IRA accounts and best Roth IRA accounts. Our investing writers broke down the best IRA accounts for hands-on or hands-off investors, and the best Roth IRA accounts categorized by online brokers or robo-advisors. And we’ll link to those roundups in today’s show notes. You can also just search for NerdWallet best IRA or Roth IRA accounts.
Sean Pyles:
Jae, any final thoughts about rollovers for our listeners who might be looking to amalgamate their accounts?
Jae Bratton:
I would just say if you’re considering a rollover, speak with your particular retirement plan custodian and ask them to help you roll over the money in a way that won’t incur any financial penalties.
Sean Pyles:
Yeah. Find some way to make this easier for you, whether you work with your custodian or you find a service like you used previously, Jae.
Jae Bratton:
That’s right.
Sean Pyles:
Well, Jae, thank you so much for coming on and sharing your story with us.
Jae Bratton:
Thank you for having me.
Sean Pyles:
And that’s all we have for this episode. Remember, listener, to send us your money questions. You can call or text us at 901-730-6373. That’s 901-730-N-E-R-D. You can also email us your questions or leave us a voice memo at [email protected].
Sara Rathner:
Also, visit nerdwallet.com/podcast for more info on this episode and remember to follow, rate, and review us wherever you’re getting this podcast. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.
Sean Pyles:
Here’s our brief disclaimer: We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sara Rathner:
And with that said, until next time, turn to the Nerds.
Consider this your election cheat sheet to find out what Vice President Kamala Harris and former President Donald Trump are promising to do as they vie for the nation’s highest office. Here’s where the candidates stand on top economic and personal finance issues.
Both presidential candidates want to lower prices and slow inflation, but whether a president can directly do so is less certain. Inflation, as measured by the consumer price index, has already slowed to 2.4%, well off its pandemic-fueled peak.
Trump:
Place tariffs on imports. Trump wants to place a 10% to 20% tariff on all foreign imports; up to 60% tariff on imports from China; and 100% to 200% imports on automobiles produced in Mexico. He says his tariffs would support U.S. manufacturing and raise revenue. But experts from all over the political spectrum say that his tariff plan is more likely to increase prices in the U.S.
Lower gas prices. Trump has pledged to increase oil and gas production on federal lands. The president’s ability to lower gas prices is limited as the price at the pump is more directly influenced by global market forces.
Weaken the power of the Federal Reserve. Trump says he wants to bring the Federal Reserve under the power of the president; experts say it could weaken the central bank’s credibility in making interest rate decisions.
Cap credit card interest rates at around 10%. The average credit card interest rate is 21.51%, according to Federal Reserve data from May 2024. It would require Congress to enact and would likely face legal pushback.
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Harris:
Ban price gouging. Harris wants to create rules that would prevent corporate grocers from raising prices arbitrarily. The ban would require approval by Congress. Critics say her plan is mainly an election promise rather than a sound economic policy.
Lower prescription drug costs. Harris plans to extend to all Americans a $35 cap on insulin and $2,000 cap on out-of-pocket expenses for seniors. She also wants to make it quicker and easier for Medicare and other federal programs to negotiate prescription drug prices. Experts say her plans could be effective in bringing down costs, but will face pushback from Big Pharma lobbyists.
Increase the minimum wage. Harris says she would push to raise the federal minimum wage to at least $15 per hour, up from the current minimum wage of $7.25. The federal minimum wage hasn’t been touched since 2009 and raising it would require approval in Congress.
The campaign proposals that would most directly impact consumers are tax cuts and credits.
Trump:
Extend tax cuts in his 2017 Tax Cuts and Jobs Act that are expiring at the end of next year. The TCJA includes estate tax cuts and individual income tax cuts.
Replace personal income taxeswith tariffs. His new plan would place a 10% across-the-board tariff on foreign imports with much more for China. More on that above.
Lower the corporate tax rate by one percentage point. Trump wants to cut the corporate tax rate from 21% to 20%.
Implement R&D tax credits for businesses. The tax credits would allow businesses to write off 100% of expenses in its first year, including machinery and equipment. It’s a reversal of his 2017 tax cuts that phased out write-offs for R&D expenses in a business’ first year.
Harris:
Increase taxes for the wealthy. Harris wants to raise the net investment income tax up to 5% on those with incomes above $400,000. She also wants to increase the highest tax rate on long-term capital gains to 28% on taxable income above $1 million.
Increase taxes for corporations.
Expand Child Tax Credit: Harris wants to increase the credit to $6,000 for children under the age of 1; $3,600 for children ages 2-5; and $3,000 for older children.
Permanently extend the expanded premium tax credits for those who purchase health insurance through the health insurance marketplace.
Increase tax incentives for small businesses. An increase in federal tax incentives from $5,000 to $50,000. The deduction would be available to new businesses until they turn a profit. The incentive feeds into her goal of creating 25 million new small businesses in the next four years.
No tax on tips: The candidates’ aims are vastly different, but there’s one proposal they both support: exempting workers from paying taxes on their tips. But experts say it’s just bad policy that doesn’t get to the fundamental needs of tipped workers.
Health care
When it comes to health care, the candidates have been light on the details, although both candidates promise to protect Medicare. Here’s where they differ.
Trump:
Revisit the Affordable Care Act. Trump tried to repeal and replace the Affordable Care Act in his first term, but was unsuccessful. During the presidential debate on Sept. 10, he was asked if he would try again. In response, Trump said he had only “concepts” of a new plan.
Push for vitro fertilization (IVF) coverage. Trump has said the government or insurance companies should cover IVF, though many in the GOP oppose the idea.
Leave abortion laws up to the states. He says he would veto any federal ban on abortion.
Harris:
Expand Medicare coverage to include long-term care including at-home care for seniors and those with disabilities. She also promises to provide vision and hearing benefits for seniors under Medicare.
Work with states to eliminate medical debt.
Lower prescription drug costs. See above.
Protect access to IVF.
Restore federal protections for abortion access under Roe v. Wade. Harris also promises to ensure there will never be a federal ban on abortion.
Harris wants to increase housing and make it more affordable while Trump has emphasized market-driven solutions. There are two areas that both candidates agree:
Open up federal lands for new housing developments. Neither has specified which lands that would include, but experts say much of the federally held land would not be ideal for creating new housing. There is precedence for using federal land to build housing; most available land is in the West.
Cut red tape. Reducing regulatory burden has bipartisan support, but most housing reform would need to be done at the local level to have an impact.
Harris:
Build 3 million new homes over four years. Experts say her proposals would likely spur additional new housing creation, but building 3 million new homes in that short of a period of time is unlikely.
Add tax incentives for home builders. Harris proposed a new Neighborhood Homes Tax Credit to create 400,000 new owner-occupied homes in lower income communities and a tax break for builders that construct affordable starter homes.
Create a$40 billion innovation fund to incentivize stakeholders — state and local governments, as well as private developers and homebuilders — to find new strategies to expand the housing supply.
Introduce$25,000 in down payment assistance for first-time home buyers. It would be even greater for first-generation home buyers, but has not elaborated how much. It’s unclear how it would be implemented and experts say that without a bigger housing stock, her plan won’t work.
Lower rent and prevent price-fixing among corporate landlords. Experts are skeptical that her plans would lower rent. However, if a significant stock of new housing is created, it could alleviate some price pressures on the rental market.
Trump:
Beyond deregulation and opening up federal lands for home building, Trump’s plans have been sparse when it comes to housing. However, experts say that his plans to deport millions of unauthorized immigrants could drive up housing prices since the construction industry is reliant on immigrant labor.
Student loans
As president, Harris would likely champion student loan relief and free community college. Trump would likely restrict or dismantle loan forgiveness and promote access to non-traditional degrees.
Trump:
Curb debt cancellation. Trump would likely not support broad student loan cancellation or strengthening other forgiveness plans that the Biden-Harris administration has championed. Trump has also said that access to existing loan forgiveness should be restricted, including the Public Service Loan Forgiveness (PSLF) program.
Dissolve SAVE. Trump is likely to strike down SAVE, an income-driven repayment program that is currently caught up in legal challenges.
Support vocational training. Trump’s platform says it would support creating “drastically more affordable alternatives to a traditional four-year college degree.”
Harris:
Support“Plan B” student loan forgiveness. Harris would likely support Biden’s “Plan B” that would reduce or eliminate accrued interest for 23 million borrowers who owe more than they originally borrowed. The plan is currently wrapped up in state legal battles.
SupportSAVE and other income-driven repayment plans. Harris would likely support the SAVE repayment plan through legal battles. She would also support the continuation of other income-driven repayment plans, including PSLF, as well as the borrower defense to repayment program that protects borrowers who are defrauded or misled by their colleges.
Champion free community college and trade school education. She also says she wants to subsidize tuition at Minority Serving Institutions, including Historically Black Colleges and Universities (HBCUs).
Expand the Pell Grant. She plans to expand grants to 7 million students and double the maximum award by 2029. Pell Grants are given to undergraduates from low-income backgrounds and are currently up to $7,395 per year.
Mass deportations
Trump’s plan to deport unauthorized immigrants, en masse, would have unintended, but significant economic consequences including:
Increasing costs economy-wide. Reduced labor supply that would increase costs for businesses and, ultimately, be passed down to the consumer. It would especially impact the hospitality and service industries that rely on immigrant workers.
Driving up food prices. Immigrants make up a large portion of the agricultural workforce. Without that labor, the food supply in the U.S. could tighten, which would drive up prices.
Slowing housing construction since immigrants play a huge part in the creation of housing in the U.S. This could further worsen the nation’s affordable housing shortage.
Listen: Smart Money’s 2024 Presidential Election Series
Hosts Sean Pyles and Anna Helhoski discuss the grand economic promises made by presidential candidates and the intricate realities of presidential influence on the economy to help you understand the real effects on your daily finances.
Photo of former President Donald Trump by Anna Moneymaker/Getty Images News via Getty Images.
Photo of Vice President Kamala Harris by Brandon Bell/Getty Images News via Getty Images.
Becoming disabled can potentially lead to a reduced income, along with an increase in costs. In fact, research from the National Disability Institute has found that households that include an adult with a disability require 28% more income to maintain the same standard of living as those that don’t.
Naturally, this can feel overwhelming, especially when you’re navigating the complex emotions and sometimes complicated logistics of a new disability. But becoming disabled doesn’t have to be a permanent barrier to financial empowerment.
“A lot of times, people see disability as the end of the financial road, and it doesn’t need to be,” says Thomas Foley, Executive Director of the National Disability Institute. “It can just be a pause before you move on with your career and your financial journey.”
This checklist can guide you through some of the most important monetary considerations—from benefits to tax breaks—so you can get your financial situation in order one step at a time.
Step 1: Check your disability insurance policy
No one thinks they’re going to become disabled, especially to the point where they’re unable to work. But when the unexpected happens, long-term disability insurance may help fill gaps in your income.
This kind of disability insurance goes into effect if you can’t work for an extended time due to an injury or a disability. These plans give the policyholder a portion of their lost income—typically 60% to 80% of their monthly salary.
You may be able to purchase insurance through your employer, or you can buy a policy on your own. To make a claim, however, you’ll have to acquire a policy before a disability happens and make all premium payments to keep it in force.
Step 2: Apply for disability benefits
Beyond private disability insurance, some federal and state resources are available to help supplement the income of those affected by a disability. These include Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), and Veterans’ benefits.
Social Security Disability Insurance
One of the most common types of financial help for disabled adults is SSDI. This benefit compensates individuals for lost income due to a disability that has greatly reduced their ability to work—or has required them to stop working entirely.
In 2024, eligible persons may receive up to $3,822 per month—although the exact amount is based on work history. You might be eligible for SSDI if:
You have a disability (including blindness).
You have worked for at least five of the last 10 years.
While these are the general guidelines, there are some exceptions. For example, people under the age of 24 might not have to meet the work history requirement. Learn more about SSDI eligibility requirements, including what you may be able to expect in your specific situation.
Supplemental Security Income
Another common financial resource for people with disabilities is SSI. This federal program provides monthly income for people with disabilities and older adults with little to no income or resources.
Currently, individuals can receive up to $943 a month and couples can receive up to $1,415 from SSI. The monthly amount a person receives is determined by factors such as other income, living situation, assets, and more.
Some states offer additional payments for residents with disabilities that won’t impact their SSI eligibility. These state supplements are meant to cover the necessities of daily living, like food and shelter. Check if your state offers SSI supplements.
Veterans’ benefits
IIf you’re a Veteran, you might be eligible for Veterans Affairs (VA) disability compensation. This is a monthly, tax-free payment for Veterans who suffer service-related illnesses or injuries—affecting either their physical or mental health. In some cases, preexisting conditions are also covered if the Veteran’s service made the condition worse.
Households that include an adult with a disability require, on average, 28% more income to maintain the same standard of living as those that don’t.
What to know when applying for disability benefits
You can apply for disability benefits like SSDI and SSI as soon as you become disabled. Note that you can apply for both programs at the same time—eligibility for one won’t affect eligibility for the other—but only about 10% of beneficiaries qualify to receive both.
However, you’ll have to wait six months to receive SSDI benefits, and this waiting period starts the first full month after your disability began, as determined by the Social Security Administration. For SSI benefits, you’ll begin receiving payments the first full month after you apply or after your eligibility is approved, whichever is later.
To apply for either or both programs, you’ll need to complete an application for disability benefits and an Adult Disability Report. You can submit both forms online or during an interview with a Social Security Administration representative. Your interview may take place either in person at your local Social Security office or by phone.
Make sure your application isn’t delayed by thoroughly reviewing this checklist of necessary information. This optional medical and job worksheet can also help you organize information for your application.
Learn more: How to handle financial challenges when supporting loved ones with disabilities.
Step 3: Get additional financial support if needed
Ultimately, if you are unable to work or need to reduce your hours because of a disability, you may need to reassess your budget and spending. And if you’re coming up short, some programs can help fill in the gaps, like:
Temporary Assistance for Needy Families (TANF): This federal, time-limited program provides financial support for families. Each state manages its own arm of the program and determines the specific benefits and eligibility requirements.
Supplemental Nutrition Assistance Program (SNAP): This federal nutrition assistance program provides benefits for families, enabling them to make eligible food purchases in authorized stores.
While making less money can be discouraging, having a disability doesn’t mean you need to resign yourself to living with a low income or no income forever.
“People with disabilities have the same talent and ambitions as everyone else,” Foley says. “A disability doesn’t mean you can’t retrain for a new or even better job and build whatever financial future you want to have.”
Step 4: Navigate insurance coverage
It’s crucial to have health insurance, especially when you’re dealing with a disability. But if you can’t continue working, or continue working enough to keep your current coverage, you’ll need to find an alternative to employer-provided insurance.
If you’re eligible for SSDI payments, you’ll also gain access to health insurance coverage under Medicare. However, there is a two-year waiting period before this coverage kicks in.
One solution: You may be able to get Medicaid coverage while you wait. The purpose of Medicaid is to offer health insurance coverage to low-income Americans—a group that currently includes more than 10 million adults and children with disabilities.
Medicaid benefits
Medicaid is a joint federal and state program, which means each state runs its own Medicaid program. States determine the type, amount, and duration of Medicaid benefits that eligible residents can receive.
However, there are certain mandatory benefits that all states must provide, such as:
Inpatient and outpatient hospital services
Physician services
Laboratory and X-ray services
Home health services
Learn more: See the full list of mandatory and optional Medicaid benefits.
Medicaid qualifications
You may be eligible for Medicaid based on your household income, disability, and other factors. Specific eligibility requirements vary per state—see if you’re eligible for Medicaid in your state and find out how to apply.
It’s also important to know about Medicaid waivers, which allow states to make exceptions to the typical Medicaid qualifications. Often, these waivers are geared toward providing services that help people with disabilities or medical needs stay in their homes. Check your state’s waiver list for more information.
Finally, if you’re turned down for Medicaid, you may be able to enroll in a private health plan on HealthCare.gov while waiting for your Medicare coverage to start.
“A disability doesn’t mean you can’t retrain for a new or even better job and build whatever financial future you want to have”
Step 5: Assess home modification needs
If you’ve recently become disabled, you might need to consider physical modifications to make your home safer and more functional. This is typically the case when your disability impacts your mobility or requires you to use a wheelchair or other mobility device.
Common home alterations include:
Installing ramps and lifts
Widening doorways
Adding accessible showers and toilets
Lowering counters and sinks
If you need assistance financing these renovations, some federal and local programs may be available, including those that provide grants or low-interest loans for rural homeowners and grants for Veterans. Check with your state to see what local programs exist and if you qualify.
Learn more: Budgeting for accessibility: How to finance a home modification.
Step 6: Ask for work accommodations
No matter your disability, you have the right to the same employment opportunities and to be free from employment discrimination. These rights are protected by the Americans with Disabilities Act (ADA), which can help people with disabilities maintain financial wellness by protecting their source of income.
Under the ADA, employers are required to make reasonable accommodations to ensure people with disabilities have equal opportunity during the application process, can perform the essential functions of their job, and enjoy equal benefits of employment.
Step 7: Learn about available tax breaks
Taxpayers can claim many income exclusions, deductions, and credits, but some are particularly helpful for people with disabilities and their families.
Income exclusions
Income exclusions are what they sound like—money that’s not included in the IRS calculation of your taxable income. Below are two disability income exclusions to familiarize yourself with.
Social Security benefits: If SSDI payments were the only income you received during the year, your benefits are generally not taxable. If you received other income, part of your benefits may be taxable. SSI payments, however, are exempt.
Military and government disability pensions: Certain military and government disability pensions or disability benefits you receive from the Department of Veterans Affairs are not taxable.
Tax deductions
Tax deductions decrease your taxable income, lowering your overall tax liability. If you’ve been affected by a disability, you may be allowed to deduct expenses like these (within some limits):
Impairment-related outlays to help make your work environment more accessible
The cost of home improvements designed to enhance your home’s accessibility
Medical and dental expenses you pay for yourself, your spouse, and your dependents
People who are legally blind also qualify for an extra standard deduction on their taxes ($1,850 for the 2023 tax year). And people who are legally blind and over age 65 qualify for a deduction that’s double that amount.
Tax credits
A tax credit is a dollar-for-dollar reduction in the amount of tax you owe. Below are some common examples.
Credit for the elderly or disabled: You can claim this credit if you are 65 or older during a given tax year or if you have a permanent or total disability.
Earned income credit: You may qualify for this credit if you have earned income (some disability payments qualify as earned income), and it falls within certain limits.
Saver’s credit: You may be able to claim this credit if you make eligible contributions to an ABLE account (see below).
Learn more: Information about a government benefits program that provides tax help for people with disabilities.
Step 8: Consider an Achieving a Better Life Experience (ABLE) Account
ABLE accounts are another helpful financial resource. These tax-favored savings accounts are available to people diagnosed with significant disabilities before age 26. Thanks to the recent ABLE Age Adjustment Act, that threshold will increase to age 46 in 2026.
While the account owner is the designated beneficiary, anyone can contribute to the account. There are some limits on annual contributions, but any interest earned grows tax-free if you use the money for qualified expenses. What’s more, funds in an ABLE account won’t affect eligibility for needs-based assistance programs like SSI and Medicaid.
“They’re a wonderful savings opportunity,” Foley says. “It’s a great way to make sure that someone with a disability has a savings tool that doesn’t affect their public benefits eligibility.”
Learn more: Getting and using an ABLE account, including eligibility details and other common questions.
Banking with a disability
Like many other aspects of life, banking can be affected by a disability, but it doesn’t have to be. Make sure that your bank is inclusive of all abilities—with an accessible website, app, and other user interfaces.
Discover® is committed to creating a seamless experience for everyone, such as by offering Braille credit cards.
A disability doesn’t disqualify you from a bright financial future
If you’ve recently faced a disability or are likely to do so soon, the financial challenges involved may seem daunting. But it’s important to remember that a disability doesn’t need to stand in the way of your financial stability.
“Disability is a normal part of the human experience,” Foley says. “And just because you have a disability doesn’t mean you can’t build a bigger, better, brighter future for yourself and your family.”
If you or a loved one are facing a new or existing disability, it may seem overwhelming. Fortunately, there are resources available that may help you address financial and emotional challenges as they arise.
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This article is for informational purposes only and is not intended as a substitute for professional advice. For specific advice about your unique circumstances, you may wish to consult a qualified professional, at your expense.
When your mortgage payment comes due every month, it may look like a single bill. But in reality, you’re likely paying four separate things: principal, interest, taxes, and insurance. PITI is an acronym that bundles these four elements together. But in order to better understand where, exactly, your monthly mortgage money is going, we’re going to take PITI apart and explain each element for you.
Understanding PITI
As discussed above, PITI is the acronym for the four basic components of a monthly mortgage payment. PITI includes:
• Mortgage principal (the amount you borrowed from the bank)
• Mortgage interest (the amount the bank charges you for the loan)
•Property taxes (levied by the local government)
• Homeowners insurance (which covers the cost of repairing or replacing your home under certain covered circumstances)
Importance in Mortgage Payments
Together, these amounts add up to your total monthly mortgage payment — though that amount is not the same as your total monthly home expenses, which also include things like utilities and maintenance. (More on that below.)
Breaking down your PITI and calculating each separate component helps you better understand where your money is going each month. During the home-buying process, it helps you narrow your home search to those that are actually affordable on your budget. And later, knowing what does PITI stand for and what numbers comprise the components of your PITI will help you if you need to request a mortgage interest deduction on your taxes.
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Breaking Down PITI Components
Principal and interest are paid to your mortgage lender, and include both the money you borrowed and the money the bank is charging you for the service of offering the loan. Keep in mind that the amount of principal versus interest will change over the lifetime of the loan in a process known as amortization. To get a full picture of how that works, try out a mortgage calculator that includes an amortization chart.
Meanwhile, your property taxes and homeowners insurance will likely flow into an escrow account, where funds will be used to pay those bills as they come due. Property taxes are almost always included in your mortgage payment, and if you owe money on your home, you will be required to carry homeowners insurance. (Even if you don’t, buying a policy is a good idea. After all, if you’re like many Americans, your home is likely the single most valuable asset in your portfolio.)
Finally, there are also other components that may be part of your monthly mortgage payment — though not part of your PITI. These include extras like PMI (private mortgage insurance) or HOA fees. Not every home purchase will come with these payments, but if you make a down payment of less than 20%, some sort of mortgage insurance is usually inevitable.
Recommended: Property Tax and Your Mortgage: Everything You Need to Know
How PITI Affects Home Affordability
PITI in real estate affects home affordability in a pretty straightforward way: Knowing your PITI ahead of time helps you ensure you’re making an offer on a house that’s truly within your budget. Knowing the cost of a home is one thing, but knowing how much the mortgage will actually take out of your account each month is another. One important rule of thumb: Most lenders prefer that your PITI is less than or equal to 28% of your gross (pre-tax) monthly income.
Fortunately, there are some things you can do to lower your interest rate — which lowers your overall PITI. By keeping your debt-to-income ratio (DTI) low and maintaining a good credit score, you can help ensure you get the lowest interest rates possible, which may expand your home-buying power by qualifying you for a lower rate, no matter the purchase price.
Calculating Your PITI
These days, the easiest way to calculate your PITI is by using an online mortgage calculator with taxes. You’ll need to estimate the home’s annual property taxes based on records kept by your county, and add the insurance premium quoted to you into the mix.
Keep in mind, however, that PITI can (and likely will) change over time as both tax rates and your insurance premiums change each year. Although a fixed-rate mortgage keeps your “PI” static, the “T” and “I” may change your overall monthly mortgage payment over the course of its term. To ensure long-term affordability, consider how increases in each of these categories might work with your budget.
PITI vs. Non-PITI Expenses
As discussed above, PITI doesn’t cover the whole range of homeownership expenses. Along with additional extras like homeowners association (HOA) fees and mortgage insurance, owning a home also means paying monthly utilities as well as any regular repair and maintenance costs.
Those costs can add up, especially if you’re not expecting them. One common rule of thumb is to set aside 1% of your home’s value for repairs each year, with exact figures depending on where you live. (In other words, in some expensive states, like Hawaii, California, and New York, repair costs may be even higher.)
Strategies to Manage and Reduce PITI
Keeping your PITI low keeps your housing expenses low, and while some parts of your mortgage may seem set in stone, others are more negotiable.
For example, did you know that you can challenge property tax assessments (that determine the amount of “T” in your PITI)? Once your home is valuated, if you disagree with the findings, you may reach out to your county or local governance to challenge them. Doing so may lower your taxable property value. (Be warned, however, that if the current valuation does not include recent renovations or, say, a new outbuilding, the taxable value could actually rise.)
Additionally, shopping around for insurance can go a long way toward lowering the second “I” in your PITI. Different insurance companies have different proprietary algorithms and therefore different rates for similar coverage. Additionally, you can play with how much coverage you buy — but use caution before skimping on protecting your home.
Finally, if you already have a home mortgage loan but your creditworthiness profile has substantially improved (and market interest rates are lower than they were when you took out the loan in the first place), refinancing may serve to substantially lower the “P” and initial “I” in your PITI. Remember, though, that you’ll pay closing costs again, so factor in that expense before deciding this is the right financial move for your situation.
Recommended: What Is a Home Inspection
The Takeaway
The acronym PITI describes the four most basic elements of a monthly mortgage payment — but they’re far from the only costs associated with homeownership. Still, understanding PITI can help you find a home that’s within a reasonable purchase price range in the short term — and taking strategic steps to reduce your PITI can help you keep your costs low for years to come.
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FAQ
How does PITI change over the life of the loan?
If you have a fixed-rate mortgage, your principal and interest payments will always amount to the same total — though the ratio of how much of those funds go toward interest versus principal will shift over the lifetime of the loan in a process known as amortization. Your property tax rate and insurance rate may change over time based on the valuation of your home, changes in the local tax code, and insurance premium changes (or a change in insurers). Thus, your monthly housing cost could shift, and even increase, over time, even if the loan is fixed-rate.
Can I pay property taxes and insurance separately from my mortgage?
In most cases, property taxes and homeowners insurance are paid together with the mortgage, and the funds go into an escrow account where they pay their respective bills as they come due. However, it is possible to secure an escrow waiver from your home lender, which would allow you to pay these expenses separately.
How does PITI affect my ability to qualify for a mortgage?
Lenders calculate your PITI before approving your mortgage application — and if your PITI is too high, you might not get approved. Generally speaking, lenders like to see your PITI equal to or less than 28% of your gross monthly income, though some lenders may approve you if your PITI is slightly higher.
What happens if I can’t afford the full PITI payment?
If your financial circumstances change and you can no longer afford to pay your mortgage, your first move should be to contact your lender. They may be able to negotiate or offer a mortgage assistance service. Talking to a U.S. Department of Housing and Urban Development foreclosure avoidance counselor could also help — but simply allowing your loan to fall into default could lead to home foreclosure.
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Moving expenses aren’t tax-deductible on your federal tax return unless you’re in the military and are moving due to a permanent change of station
. However, some people (even non-military) might be able to deduct moving expenses on their state income taxes, depending on where they live.
What qualifies as a moving expense?
Moving company bills.
Trailer rental fees.
Packing and unpacking services.
Crating fees.
Moving insurance.
Storing and insuring your stuff for 30 consecutive days between when you move out of your old place and move into your new place.
Travel expenses (hotel, but not meals) from your old home to your new home (including car expenses and airfare).
Your out-of-pocket expenses for gas and oil, if you keep an accurate record of each expense. The standard IRS mileage reimbursement rate to drive from the old place to the new place.
Parking fees and tolls.
These things typically don’t count as moving expenses:
Expenses for employees, such as a maid, nanny or nurse.
The price of your new home.
Fees for new license plates or car registrations.
Fees for a new driver’s license.
Closing costs, mortgage fees and points associated with buying or selling a house.
Fees to sign or break a lease.
Home improvements you make to help sell your home.
Losses associated with disposing of club memberships.
Mortgage penalties.
Repairs, maintenance, insurance or depreciation for your car.
Real estate taxes.
Changing carpet or window treatments.
Return trips to your former home.
Security deposits.
Storage charges except those incurred in transit and for foreign moves
.
Who qualifies for the IRS moving expense deduction?
Only people in the military who are moving due to permanent change of station can deduct moving expenses on their federal tax returns. However, a few states allow everyone to deduct moving expenses on their state tax returns. Some states only allow active duty military members to take the deduction on their state tax returns. A few don’t let anyone take a state-level deduction for moving expenses.
A permanent change of station includes:
A move from the soldier’s home to the soldier’s first post of active duty.
A move from one permanent post of duty to another permanent post of duty.
A move from the soldier’s last post of duty to the soldier’s home or to a nearer point in the United States. That move has to happen within a year of leaving the military or within the period allowed under the Joint Travel Regulations.
How to deduct moving expenses
If you qualify for the moving expense deduction, you can file IRS Form 3903, which you then use to reduce your taxable income on IRS Form 1040 at tax time. There are special rules for storage fees if you were out of the country during the tax year
At the end of the year, when holiday celebrations and expressions of gratitude are in full swing, many people think about making a charitable donation. If you donate to a qualifying organization, not only can your funds do good, they may also be deductible when you pay your taxes.
Maybe it’s the animal shelter around the corner from your home, or perhaps it’s a scholarship fund at your alma mater that does amazing work. Whatever pulls at your heart and makes you feel like you’re doing the right thing can be a good cause for donations. The organization you give your money to benefits. Read on to learn if your contribution could also lower your tax bill.
What Qualifies as Charitable Giving?
In the eyes of the Internal Revenue Service (IRS), a charitable donation is a gift of money, property, or other asset that you give to a qualifying organization, known as a 501(c)(3).
To find out if an organization you’d like to support is eligible to receive tax-deductible contributions, you can search for it on the IRS’s database .
You may want to keep in mind that money or assets given to political campaigns or political parties do not qualify as tax-deductible donations. In fact, no organization that qualifies as a 501(c)(3) can participate in political campaigns or activities.
Organizations that engage in political activities without bias, however, can still sometimes qualify. So, a group can educate about the electoral process and remain within guidelines. They just have to go about it in a nonpartisan way.
Can I Deduct My Year-End Charitable Donation?
Currently, charitable donations could only be deducted by tax filers who itemized their deductions. That means that rather than take the standard deduction on their income tax return, they chose the more complicated path of listing all of their eligible expenses.
Recommended: 26 Tax Deductions for College Students and Other Young Adults
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How Much of a Charitable Donation Is Tax-Deductible?
The IRS sets limits on how much of a charitable contribution you can deduct from your taxes, and these are frequently updated. The amount is typically expressed in terms of the percentage of your adjusted gross income (AGI) that you may claim.
In 2024, this limit for cash contributions (say, money debited from your checking account) is 60% of a person’s AGI. The top figure is 20%-50% of AGI if you make a non-cash contribution, such as stock shares or a vehicle. The exact figure will vary with both the type of organization to which you are making the donation as well as the kind of item you are donating.
Of course, you are welcome to donate as much as you like. Just keep in mind that any charitable giving above those figures is not eligible for a deduction at tax time.
Recommended: How to Reduce Taxable Income for High Earners
Tips for Making End-of-Year Donations
To ramp up both the impact and benefit of a charitable donation, here are some strategies you may want to keep in mind:
Making a Timely Donation
Don’t lose track of your timing: The deadline for charitable donations is December 31. If you’re looking to deduct the donation in the current tax year, you will want to make sure your charity has ownership of whatever asset you are donating by the close of business on the 31.
You may also want to make sure that your preferred payment method is accepted by the charity so it doesn’t get kicked back and cause delays. Putting a reminder in your calendar for, say, mid-December can be a good way to make sure you don’t run late with your giving. (Of course, you also want to make sure you don’t miss the tax-filing deadline come April, either.)
Taking Advantage of Company Matching Programs
Your place of employment might have a matching program for charitable giving. They might, for example, match your donation amount dollar for dollar up to a certain amount. If so, it could significantly bump up the amount you could otherwise afford to give.
If you’re unsure about whether your company has a program, it can be worth reaching out to your HR department for further information.
Giving Rewards on Your Credit Card
If you are making a contribution on a budget, you might consider donating credit card rewards you earn, such as hotel points or airline miles. This can be a great way to use points or other rewards that would otherwise just expire. Many credit card companies, hotels, and airlines will make it easy to give your rewards to nonprofit organizations.
Donating Assets from Your Brokerage Account
If you’re looking to lower your taxes, you may want to consider donating assets from your brokerage account to a nonprofit. This may take some time and planning, but the benefits of donating an over-allocated position that’s outperforming can be worth it.
You may be able to receive tax advantages and rebalance your portfolio, while also helping an organization increase its assets.
Recommended: What Tax Bracket Am I In?
Setting up a Recurring Donation
You can get a headstart on next year by creating a recurring contribution now. Many organizations allow you to donate monthly through their websites using a credit card, so you might be able to earn rewards at the same time. By establishing your donation plans now, you won’t have to even think about end-of-the-year giving next year.
Keeping Good Records
If you want to deduct your donation on your taxes, you’ll want to make sure you have the right receipts to back up the transaction.
You’ll want to keep records of your donations. For cash donations under $250, you’ll either need a bank record (like a canceled check or bank statement) or a written acknowledgment from the charity which includes the date and amount of your contribution. (The exception is goods dropped off at, say, a clothing donation bin.)
For cash donations over $250, a bank record isn’t insufficient. Instead, you’ll need something in writing from the charity which includes the date and amount of your donation.
If you are making noncash donations valued at $500 or more, you’ll need to fill out one or more of the IRS Form 8283 . If the donation exceeds $5,000 in value (say, if you gift a car you no longer need to a favorite local organization), you’ll also need to get a written appraisal from a qualified appraiser. In addition, know that donations of $250 or more will also require what is known as a “contemporaneous written acknowledgment.” This is a document that describes the property, states whether the organization provided the donor with goods or services as a result of the contribution,and share an estimate of the value of any such goods or services provided.
Speaking with a Professional
Working with a personal accountant can help answer any questions you may have about how tax laws will impact your tax contribution, as well as help you make the most strategic and efficient charitable donation.
Recommended: Are 401(k) Contributions Tax Deductible? Limits Explained
The Takeaway
Giving can be a good idea for a number of reasons. In addition to helping a nonprofit organization meet its operating costs for the year, you can feel good about what you are doing with your money, and you may also benefit from tax deductions.
Giving can also help you get the new year started on the right foot. If you’re looking for other ways to get your financial life in order, consider a new bank account.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
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FAQ
Should donations be deductible?
Charitable contributions are usually tax-deductible, but there can be limitations as well as exceptions, so it can be wise to inquire in advance. Contributions can often take the form of cash, artwork, cars, and other items of value.
Are charitable contributions no longer tax-deductible?
Charitable contributions can be tax-deductible. However, they must be claimed as itemized deductions; you would do so on Schedule A of IRS Form 1040. Keep in mind that there’s a limit on charitable cash contributions: For 2024, it’s 60% of the taxpayer’s adjusted gross income.
Can you deduct $300 in charitable contributions without itemizing?
The short answer is no. Currently, you must itemize charitable contributions in order to claim them as deductions.
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You’ve heard a lot of campaign promises this election cycle, but the ones most directly impact your finances are tax cuts and credits.
Expand the Child Tax Credit.
Tax the wealthiest Americans and corporations.
Expand the tax deduction for new small businesses.
Expand the earned income tax credit.
Expand and make permanent the tax credit enhancements for Affordable Care Act plans.
Tax cuts that incentivize home builders to build affordable homes.
Extend the soon-to-expire 2017 Tax Cuts and Jobs Act.
End taxes on overtime and Social Security.
Applying across-the-board tariffs on all foreign imports; 60% on China; and 100% tariffs on cars made in Mexico.
Lower the corporate tax rate by one point to 20%. In his first term, he cut corporate tax rates from 35% to 21%.
Implement R&D tax credits for businesses in their first year — a reversal of his policy in the 2017 tax cuts.
Replace income taxes with his new import tariffs.
The undercurrent during the election is the looming expiration of 2017 tax cuts at the end of 2025. Garrett Watson, senior policy analyst with the Tax Foundation (a nonpartisan think tank), says the uncertainty of the future of those cuts is a big problem for both candidates.
“It would be a win to get some stability and certainty back into the tax code there, to get the permanence, even if it’s not necessarily what everyone wants, that would be a win,” says Watson. “The fact that we are seeing interest on the Hill for both candidates to do that would be a win. But I mean, that does really require more detail on how that might work.”
As far as how the candidates are tackling all aspects of tax code, Amy Hanauer, executive director of the left-leaning think tank Institute on Taxation and Economic Policy, says, “The big picture is the Harris approach raises more revenue; it raises it primarily from the wealthiest and corporations. The Trump approach puts us deeper in debt and gives a lot more away to wealthy people and corporations. Both of them, I think, have some proposals that would help middle class families on the tax side. But the Harris approach gives us more revenue to pay for things that middle class families might want.”
Most, if not all, of the candidates’ proposals would have to go through Congress before being enacted. The executive branch technically has the “power to tax,” but presidents rarely exercise that authority. Typically, the president will ask Congress to create and pass tax policies. With a divided Congress, it’s unclear what might have bipartisan appeal.
How would Trump and Harris’ tax plans affect the economy?
It’s highly unlikely that every tax proposal a candidate makes on the campaign trail will see the light of day. Nevertheless, available projections show what the anticipated outcome would be if all of the candidates’ proposals were adopted.
An analysis of both candidates’ tax plans by the University of Pennsylvania Wharton School projects that Harris’ tax proposals would increase primary budget deficits by more than $1.2 trillion on net from 2025 to 2034. Trump’s tax proposals would increase deficits by $5.8 trillion over the same 10-year period.
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On the whole, an analysis by the Tax Foundation says Harris’ plans would raise nearly $1.7 trillion in revenue over 10 years. During that time period GDP is projected to decline by 2%; wages would decline by 1.2%; and the equivalent of 786,000 full-time jobs would be lost.
The Tax Foundation says that Trump’s tax plans would lose revenue by $1.325 trillion over 10 years; GDP would decline by 0.2%; wages would increase 0.6%; and the equivalent of 387,000 full-time jobs would be lost.
Watson says it’s still unclear how Harris raises enough revenue to offset her tax cut plans, especially if she extends the 2017 tax cuts (her stance is not yet known). “Something that is easy to say is, ‘We’ll just cut all this money from high earners. Most Americans don’t pay a dime and we’ll get this all covered.’ That might be true on some margin, depending on how that works out.”
He adds, “It would be good to know what those offsets might look like so that we can figure out what their total fiscal costs would be, and what the actual tradeoffs are for Americans.”
As for Trump, Hanauer says, “He’s kind of looking to just intensify his previous approach, which is expensive tax cuts that definitely add to the deficit and the debt. And then tax cuts that go primarily to wealthy people and corporations,” she says. “He’s floated some other things and his vice presidential candidate has floated some other things. But in terms of concrete things, on paper, it’s a little bit more of the same.”
Tax plans: Harris vs. Trump
Here are some of the major tax changes that the candidates promise to deliver.
Individual income taxes and credits
Harris has pledged several taxes that would fall on the wealthiest Americans including increasing the net investment income tax up to 5% on those with incomes above $400,000 and increasing the highest tax rate on long-term capital gains to 28% on taxable income above $1 million. The Committee for a Responsible Budget, a nonpartisan think tank, estimates that the revenue from Harris’ taxes on the wealthy would be $900 billion over the period between fiscal year 2026 to fiscal year 2035.
For families, she also promises to expand the child tax credit: $6,000 for children under the age of 1; $3,600 for children ages 2-5; and $3,000 for older children. Hanuer says child tax credits are a big win for all families, especially for children being raised in poverty. “We know that that’s just a crucial time of life when kids will be better off for the rest of their lives if they’re raised in lower poverty,” she adds.
Additional policies include:
Permanently extend expanded premium tax credits.
No tax on tips.
Make expiring individual income tax cuts permanent.
Restore the cap on the State and Local Tax (SALT) deduction that allows taxpayers to reduce their federally taxable income by itemizing certain local and state taxes. It would be a reversal of Trump’s past position, since he was responsible for capping the deduction at $10,000.
No tax on overtime work. The Tax Foundation says the proposal is missing key details, but would reduce revenue. It would also likely change decisions that both employers and employees make about overtime.
No tax on tips.
Consider replacing the personal income tax with increased tariffs. Trump has proposed 10% to 20% tariffs applied across-the-board and 60% for China. See more on the potential impacts of his tariffs below.
Trump’s vice presidential pick JD Vance said he supports increasing the child tax credit to $5,000. On the campaign trail, Trump said parents of newborns would be able to deduct “major” expenses, but did not elaborate on what that entailed.
How Harris and Trump want to battle inflation and lower prices
Both presidential candidates are promising to give people what they want: to pay less money for most everything.
But whether Trump or Harris are capable of lowering prices is debatable. Experts say presidents aren’t usually the primary drivers of inflation in the economy; monetary policy has a much greater impact, as do fluctuations in the supply chain and good old-fashioned consumer demand. Read more about the candidates’ plans to lower prices.
Medicare and Social Security taxes
Harris has said she supports a Biden-proposed measure that would increase the Medicare tax from 3.8% to 5% on those with incomes above $400,000. This additional Medicare tax is only paid by high-income earners. Revenue is used to fund Medicare. The Tax Foundation estimates it would lead to a slight reduction in GDP, wages and full-time jobs. Watson says that adopting the 5% surtax for Medicare would help the Medicare trust fund’s solvency, at least “a bit,” but doesn’t address the Social Security side.
Trump, meanwhile, has floated eliminating the income tax on Social Security benefits altogether. Hanauer says Trump’s proposal would lower taxes by $550 on average, per household, but at the expense of the Social Security fund.
Social Security is taxed differently than other income. Currently, those who withdraw Social Security benefits must pay taxes on 50%-80% of their benefits, depending on income. Any income tax revenue from taxed income above a threshold amount ($25,000 for an individual or $32,000 for a married couple filing jointly) goes into the Social Security trust fund, which keeps the program running. But the Tax Foundation says that if Social Security is no longer taxed, it would reduce revenue going to Medicare and Social Security trust funds, which could speed up the funds’ insolvency.
The Social Security Administration projects that the combined trust funds are expected to run out as of 2035. Watson says, “Trump trying to exempt security income from tax puts us in exactly the wrong direction.” He adds that Harris’ lack of a detailed plan for Social Security presents a challenge as the U.S. inches closer to the trust funds being exhausted.
Tax Cuts and Jobs Act
The 2017 Tax Cuts and Jobs Act, a major revamp of the individual income and estate tax codes made under the Trump administration, is set to expire after 2025. The deadline means that whoever is elected will need to make a decision on what to do with the existing provisions. Trump has endorsed extending expiring provisions, while Harris has not been clear about what she would do.
During the campaign, Trump has said he would:
Make expiring individual income tax cuts permanent.
Consider replacing personal income taxes with tariffs.
The expiring Tax Cuts and Jobs Act delivered large tax cuts to those in the top 1% of earners — those earning above $800,000 a year. Hanauer says making the cuts permanent would “cut into revenue that could otherwise maybe be providing those larger child tax credits for middle income Americans and poor Americans, or that could be being used to reduce the national debt or to fund something new like child care or health care or infrastructure.”
The Tax Policy Center, a joint project of the think tanks Urban Institute and Brookings Institution, projected in 2017 that Trump tax cuts would most benefit the most wealthy. The Tax Policy Center’s models in 2017 showed that households with income in the top 1% are projected to receive a more than $60,000 tax cut in 2025 while households in the bottom 60% are expected to receive less than $500.
The Center on Budget and Policy Priorities (CBPP) said in a June 13 analysis, that the Tax Cuts and Jobs Act did not deliver the economic benefits that Trump promised. Among those promises was a claim that the corporate tax rate cut would boost household income by $4,000. The CBPP points to research showing that workers who earned less than $114,000 on average in 2016 didn’t see changes to their earnings, while high salaried workers saw increases.
Business taxes
Increase the corporate income tax rate from the current rate of 21% to 28%. The 21% rate was put in place by the 2017 Tax Cuts and Jobs Act. Higher corporate income taxes would mean a decline in economic growth, according to the Tax Foundation. It also means higher revenue for tax-funded programs. The Tax Foundation says corporate taxes lead to more GDP loss than gain in revenue. Wharton’s analysis projects that Harris’ corporate tax rate would bring in $1.1 trillion in new revenue, which would offset just under half of her tax cut proposals.
Increase the stock buyback tax from 1% to 4%.
Create a minimum tax of 25% on both realized and unrealized income — also known as capital gains — for those earning above $100 million. Capital gains would also be taxed at death.
Hanauer says increasing taxes on wealthy people and corporations is something most Americans want. “We have a lot of needs in this country,” she says. “A lot of corporations just pay far, far too little in taxes. There are corporations out there, large, profitable corporations that pay a tax rate of zero because of the deductions and things that they’re able to get away with and then support very wealthy individuals, too.”
For small businesses, Harris would increase the deduction for business startup costs from $5,000 to $50,000. Hanauer says it’s unlikely to be as effective as it sounds because many new businesses don’t earn enough to pay taxes so it would take time for businesses to become profitable before they can even claim the deduction. “We just don’t think that that makes as much sense as some other approaches,” she says.
Lower the corporate income tax rate from 21% to 20%.
Lower the corporate income tax rate to 15% for companies that manufacture products in the U.S.
Tax large private university endowments.
Hanauer says the corporate income tax proposals aren’t well-targeted; would increase income and racial inequality; and would send a “massive windfall” of $0.40 of every dollar to foreign investors because those investors own 40% of corporate stocks.
“It would really cost us a lot in revenue, which could reduce the ability of either party to execute on their spending priorities,” she says.
Trump and Harris embrace no-tax-on-tips, experts say it’s bad policy
Both presidential candidates are embracing the promise to exempt workers from paying taxes on their tips. But the problem with no-tax-on-tips proposals, experts say, is that they’re clearly a bid for votes rather than a substantive solution to address the fundamental needs of tipped workers.
Housing-related taxes
Harris plans to expand housing tax credits including a low-income housing tax credit; a credit for the construction of new homes; and a 25,000 credit for first-time homebuyers plus an even bigger amount for first-generation homebuyers. Trump hasn’t spoken to housing taxes.
Harris has pledged to cut red tape to increase construction of new housing, but it’s unclear how that would work from a federal level when most housing red tape is at the local level. Hanauer says new housing is going to be key to her tax credits being an effective policy. “If you just give a tax credit to new homebuyers, it could end up driving up the cost of housing,” she says.
A Wharton’s analysis of Harris’ tax proposals projects that 1.4 million homebuyers annually would benefit from down payment assistance. It would cost the U.S. $140 billion over 10 years.
Tariffs
One of Trump’s most controversial economic proposals is his plan to enact 10% or 20% across-the-board tariffs on foreign imports with a 60% tariff on China. Harris has not taken a position on tariffs, but the Biden-Harris administration did maintain the tariffs instituted by the Trump administration.
The Tax Foundation estimates that Trump’s tariff proposals could fail to offset tax revenue losses from his tax cuts. The foundation also says the tariffs could offset the potential economic benefits of those proposals resulting in a reduction in GDP growth. The tariffs could also lead to a rise in the deficit over time and, as a result, a reduction in American income. The foundation also says the tariffs could potentially spark or deepen foreign trade wars.
Hanauer says the Center for Tax Policy finds that Trump’s tariffs would cost the typical household $2,600 per year in price increases. “So it’s a substantial hit to families and it manifests itself much in the way that inflation does,” she says. “Basically every product that every household buys would end up costing more, with the net result at the end of the year being that families would end up paying about $2,600 more in household goods.”
Photos by Spencer Platt and Win McNamee/Getty Images News via Getty Images.
Editor’s Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.
If you’re a new dentist, you have plenty of reasons to smile about your profession. You can start practicing soon after completing dental school, and you stand to earn a healthy salary right off the bat. The average entry-level dentist in the U.S. earns $189,979 a year, according to ZipRecruiter.
At the same time, you also need to figure out how to pay off your student loans. According to the American Dental Association (ADA), the average dental school graduate leaves school with nearly $300,000 in education debt. By comparison, medical school graduates owe an average of $243,483 in total educational debt, according to the Education Data Initiative. That’s where budgeting for dentists comes into the equation.
Key Points
• Consider disability insurance to protect income.
• Establish saving and investing strategies early, leveraging a pay-yourself-first mentality.
• A good budgeting rule of thumb: Set aside 30% of income for savings, with 25% for retirement and 5% for other savings.
• Think about diversifying your investments and including HSAs, IRAs, and after-tax brokerage accounts.
• When tackling student loans, consider aggressive repayment strategies, as well as refinancing.
How Budgeting Helps
Starting a career with a six-figure loan debt may feel overwhelming, but budgeting for dentists can help. In fact, now is an ideal time to establish your saving and investing strategies, says Brian Walsh, CFP®, Head of Advice and Planning for SoFi. “When you’re right out of school and your lifestyle is already lean, you can more easily build a pay-yourself-first mentality without making any drastic adjustments,” he explains. “It’s significantly easier to do it at this point instead of when you have a house, a car, and a family and then need to start making cuts.”
Here are some strategies to help you create your budget and plan for the future.
Protect Your Income
With its repetitive motions and constrained work area, dentistry can be physically taxing work, especially on the back and joints. According to the ADA, dentists have a one in four chance of becoming disabled. To mitigate your risk, you may want to consider disability insurance, which covers a percentage of your income if you become unable to work due to an illness or injury.
If you purchased a policy during dental school, you have the option to increase your coverage now that you’re making more. If you don’t have a policy, you can buy one as part of a group plan or as an individual. Find out if your employer offers it as part of your benefits package; some do. Monthly premium amounts vary, but in general, the younger and healthier you are, the cheaper the policy.
Recommended: Budgeting as a New Doctor
Don’t Overspend
Dropping a bundle on meals out? Clicking “add to cart” more frequently? Enjoy your hard-earned income, but don’t go overboard on splurges.
To help you focus on where you put your money, consider prioritizing your financial goals — saving for a home, for example, or paying off your debt. This is an important strategy in budgeting for dentists. Walsh also recommends that early-career professionals use cash or debit cards for purchases to build up good spending habits, and automate their finances whenever possible. For example, pre-schedule your bill payments and set up automatic contributions to your retirement account.
Kick-Start a Savings Plan
Tackling student loans is likely a top priority for you right now, but just as important is creating a savings plan.
Walsh recommends early-career dentists set aside 30% of their income for savings. Of that, 25% should be for retirement and 5% for other savings, like building an emergency fund that can tide you over for three to six months. The remaining 70% of your income should go toward expenses, including monthly dental school loan payments.
The sooner you start saving and investing, the sooner you can enjoy compound growth, which is when your money grows faster over time. That’s because the interest you earn on what you save or invest increases your principal, which earns you even more interest.
You may even want to consider buying a dental practice at some point, so that’s another reason budgeting for dentists makes sense.
Explore Different Ways to Invest
As a high earner, you may need to do more with your money than max out your 401(k) or 403(b), though you should do that, too. Walsh suggests new dentists leverage a combination of different investments. This strategy, called diversification, can help shield you from risk. Here are some types of investments to consider:
• A health savings account (HSA), which provides a triple tax benefit. Contributions reduce taxable income, earnings are tax-free, and money used for qualified medical expenses is also tax-free.
• An individual retirement account (IRA), like a traditional IRA or Roth IRA, can offer tax advantages. Contributions made to a traditional IRA are tax deductible, and no taxes are due until you withdraw the money. Contributions to a Roth IRA are made with after-tax dollars; your money grows tax-free and you don’t pay taxes when you withdraw the funds, provided certain requirements are met. However, there are limits on how much you can contribute to an IRA each year.
• A Simplified Employee Pension IRA (SEP IRA) can be a good option if you’re a solo practitioner. “Total contributions can be just like those with an employer-sponsored plan, but you control how much to contribute, up to a limit,” Walsh says. Contributions are tax-deductible, and you don’t pay taxes on growth until you withdraw the money when you retire.
• After-tax brokerage accounts offer no tax benefits but give you the flexibility to withdraw money at any time without being taxed or penalized.
Two investments to consider bypassing are variable annuities and whole life insurance. Neither is a suitable way to build wealth, Walsh says.
Whatever your strategy, keep in mind that there may be fees associated with investing in certain funds. Those can add up over time, Walsh points out.
Determine a Student Loan Repayment Strategy
Since new dentists tend to start earning money more quickly than other health care professionals, they are often better positioned to tackle loan repayments more aggressively.
But your repayment strategy will depend on a number of factors. To start, consider the types of student loans you have. Federal loans have safety nets you can explore, like loan forgiveness and income-driven repayment (IDR) plans, which can lower monthly payments for eligible borrowers based on their income and household size.
Once you’ve assessed the programs and plans you’re eligible for, figure out your goals for your loans. Do you need to keep monthly payments low, even if that means paying more in interest over time? Or are you able to make higher monthly payments now so that you pay less in the long run?
If you have multiple loans and/or other debts, there are two approaches you might consider for paying them down. With the avalanche approach, you prioritize debt repayment based on interest rate, from highest to lowest. With the snowball method approach, you pay off the smallest balance first and work your way up to the highest balance.
While both have their benefits, Walsh often sees greater success with the snowball approach. “Most people should start with paying off the smallest balance first because then they’ll see progress, and progress leads to persistence,” he says. But as he points out, the right approach is the one you’ll stick with.
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Consider Your Refinancing Options
Paying down debt has long-term benefits, like lowering your debt-to-income ratio and building your credit. In order to help do this, you may want to include refinancing your student loans in your student loan repayment strategy.
When you refinance, a private lender pays off your existing loans and issues you a new loan. This can give you a chance to lock in a lower interest rate than you’re currently paying and combine all of your loans into a single monthly bill, which can be easier to manage. Some lenders, including SoFi, also provide benefits for new dentists.
The refinancing process is straightforward, yet some common misconceptions persist, Walsh says. “People overestimate the amount of work it takes to refinance and underestimate the benefits,” he says. A quarter of a percentage point difference in an interest rate may seem inconsequential, for instance, but if you have a big loan balance, it could save you thousands of dollars.
That said, refinancing may not be right for everyone. If you refinance federal student loans with a private lender, for instance, you lose access to federal benefits and protections, such as forgiveness programs and forbearance. Consider all your options and decide what makes sense for you and your financial goals.
The Takeaway
Dentistry can be a rewarding career with the potential to earn a healthy salary right from the start. However, you’re likely to have a significant loan debt when you graduate from dental school. Fortunately, balancing your goals with some smart saving, investing, and loan repayment strategies can help you get your finances on firm footing.
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.
Photo credit: iStock/5second
SoFi Student Loan Refinance SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.
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When dealing with debt collectors, you should verify the debt is yours, know your rights and negotiate with the debt collector.
Being in debt can be stressful, and persistent calls from collection agencies can definitely add to that pressure. If you fail to make payments on your debt over a period of time — often three months or more — your debt will likely go to a collection agency which will contact you for payments. Avoiding a collection agency can negatively impact your credit, but knowing your rights and how to deal with debt collectors can help you control the situation.
Nonetheless, there are a few simple yet important steps to take whenever you’re contacted by a debt collector. Read on to learn more about the collection process, your rights and effective ways to deal with debt collectors.
Step 1: Know (and enforce) your rights
Debt collection agencies are bound by the Fair Debt Collection Practices Act (FDCPA), which protects consumers from many behaviors that were once common in the debt collection industry.
For example, the FDCPA prevents debt collectors from harassing or threatening you. It ensures that debt collectors disclose why they are calling you and that they offer validation for the debt when requested. Additionally, this law protects your privacy when collectors call other people about your debt, and gives you the right to request that debt collectors stop contacting you.
Here are a few other ways that debt collection laws regulate debt collectors:
Communication restrictions
Legally, debt collectors can only call you between the hours of 8 a.m. and 9 p.m. They also cannot call you at work if you ask them to stop. According to the FDCPA, debt collectors must provide you with a written notice within five days prior to contacting you.
Disclosures
In the written notice, debt collectors must inform you of the original creditor, the exact amount owed and your right to challenge the debt in writing within 30 days. They also are not allowed to disclose information about these debts to your family members or employers.
Behavior
Debt collectors cannot (and should not) use profane language, threaten you, make false claims about the consequences of nonpayment or lie about what you owe. They are not allowed to harass you in any manner.
If a debt collector violates any of these rules — or you believe that the debt is fraudulent — you can file a complaint. The Federal Trade Commission (FTC) accepts reports of fraud, and the Consumer Financial Protection Bureau (CFPB) enables you to submit a complaint about unlawful behavior by collection agencies. In 2019, the CFPB handled 75,200 complaints on debt collection, and 99 percent were handled by the end of the year.
Once you know your rights as a consumer, you’ll have the communication tools you need to verify the debt.
Step 2: Verify the debt is yours
When a debt collector contacts you, the first step is to verify that the debt is yours. This process, called debt validation, forces the collection agency to provide documentation that shows the debt belongs to you. In general, a collection agency must send you a validation letter when requested.
There are a few important reasons why you should always verify the debt:
Avoid scams. By verifying that the debt is yours and that the collection agency is authorized to accept payment, you can avoid paying scammers for illegitimate debt.
Avoid making an uninformed decision. Instead of responding immediately to the debt collector over the phone, you can look at the validation letter and consider your options with more time.
Avoid paying twice. After receiving a validation letter, you may realize that you have already paid the debt in question. In this case, you can challenge the debt or initiate a credit dispute.
Additionally, it’s important to note that debt is subject to a statute of limitations, which means that debt is only valid for a certain time. The statute of limitations will vary based on the type of debt and the state that you are in, so you may want to consult a credit repair professional to determine if the debt is still valid.
If the debt is legitimate, you’ll need to make a plan to work with the collection agency to pay the debt off. Before doing so, make sure that you know your rights, which are protected by federal law.
Step 3: Communicate wisely and effectively
While you should always remain professional when speaking with debt collectors, you’ll also want to be strategic in your responses. Here are a few do’s and don’ts to keep in mind:
Do: Request communication in writing if you prefer emails and letters over phone calls.
Don’t: Admit the debt is yours unless you’re absolutely certain. You can kindly let them
Do: Ask them to validate the debt in writing. This gives you a paper trail and allows time to investigate the debt’s legitimacy.
Don’t: Yell or be rude. Instead, try your best to remain polite and professional even if the collector displays the opposite behavior.
Simply informing them of your preferred form of communication should suffice. Remember, you can ask debt collectors to stop contacting you at your workplace. Understanding your rights is key to taking control of the situation and avoiding feeling pressured.
Step 4: Negotiate with the debt collector
While it is your responsibility to pay legitimate debts, you’ll want to find a way to work with the debt collector to find an approach that works for your financial situation. Debt can be a burden, but it’s important not to ignore debt collectors, as they may be able to take you to court for failing to pay.
Here are a few things to keep in mind when negotiating with a debt collector:
You may be able to set up a payment plan. In general, debt collectors want to start collecting something from you, so many are open to setting up a payment plan that works with your budget.
You can sometimes settle a debt for less than you owe, but there are drawbacks. You’ll likely need to make a lump-sum payment, and your credit score may drop. Also, know that the amount of debt forgiven may be treated as taxable income.
You should get everything in writing. Oral agreements are generally not enforceable, so make sure to get any agreement for a payment plan or debt settlement in writing before making any payments.
Once you negotiate your debt, you’ll want to begin making payments to get your finances back on track. There are many different strategies for paying off debt, like the snowball method, the avalanche method and the equality method.
Step 5: Seek help when you need it
Unfortunately, even after paying off your collection account, negative items may remain on your credit report for up to seven years, which can continue to impact your credit score over time. If you’re feeling overwhelmed with debt or contacts from debt collectors, there’s help available.
Many people who have collections on their credit report can benefit from working with credit repair consultants, who can assist with short- and long-term strategies for rebuilding your score. Credit repair companies specialize in finding and challenging errors on your credit report, helping remove inaccurate information.
Credit repair assistance
While you’ll likely need to pay back legitimate debt, you should verify the origin and amount before paying a debt collector. Additionally, you can hold debt collectors accountable under federal laws and even negotiate with them. Just be sure to get any agreement in writing.
If you’re concerned about inaccurate or unfairly reported amounts in collections on your credit report, you may need credit repair assistance. With the help of a reputable credit repair company, you’ll have experienced professionals in your corner to challenge inaccuracies and negative marks on your credit report.
With nearly 20 years of experience in credit repair, Lexington Law Firm has represented over 10.8 million people since 2004. Sign up for a free credit assessment today to see if credit repair is right for you.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.