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dda544e4500d5add998a6045236da4cc | https://www.investopedia.com/articles/personal-finance/061915/story-behind-teslas-success.asp | The Story Behind Tesla's Success (TSLA) | The Story Behind Tesla's Success (TSLA)
The U.S. electric car market includes the established automakers such as Ford (F) and Chevrolet (GM). But one company stands out from the car maker mix, and that is Tesla Motors (TSLA). Tesla entered the media spotlight in 2013 along with its CEO Elon Musk when it unleashed its flagship car the Model S.
Tesla’s release has been a hit with not only car buyers, but also catapulted the company into the spotlight as one of the few successful independent automakers along with being a pioneer when it comes to the electric car market.
The Model S, a sleek luxury sedan that starts at $69,000, has received top ratings from the trade industry and the press. Car & Driver has given the car five stars, and when the Model S first came out in 2013 Tesla made headlines when trade press gave it laurels. The electric plug-in car received a near perfect score of 99 out of 100 from Consumer Reports, which also named it as “the best car ever tested.” (For more, see: The Economics Of Owning A Tesla Car.)
By September 2014 the car hit all-time sales records in the U.S. with 2,500 sold, and in Q1 2015 sales reached a new high at 10,030. It is now considered a staple within the electric car stratosphere. The company’s market capitalization, as of May 24, 2015 was $31.3 billion.
Contrary to popular belief, Tesla is not an overnight success, and it is no longer a start-up so much as it is a pioneer in the electric car market. The company was founded in 2003 by two Silicon Valley engineers Martin Eberhard and Marc Tarpenning, who, according to the company website, “wanted to prove that electric cars could be better than gasoline-powered cars.”
The seeds of the company go back to 1990 when Tarpenning met Eberhard, then an engineer at Wyse Technology, and they became good friends. The two had much in common including a passion for starting companies, and they soon launched companies including NuvoMedia, which released the Rocket eBook in 1998. A passion for autos started soon after Eberhard went through a divorce and decided to buy a sports car. He invested in a company and boutique electric auto maker called AC Propulsion, and wondered if this was a market he could get into.
In 2001 Eberhard and Tarpenning met Musk when they heard him speak at a Mars Society talk at Stanford University and introduced themselves. Musk came with a successful history of starting up companies. He along with Peter Thiel and Max Levchin were co-founders of PayPal. After making a fortune from his shares in PayPal after the company was sold to eBay in 2002, he launched another company Space X, which designs, manufactures and launches advanced rockets and spacecraft (For more, see: The Making Of Tesla: Invention, Betrayal, And The Birth Of The Roadster.)
A few years later their paths would cross again when Eberhard and Tarpenning asked to meet Musk to share their idea of the electric car with him. The three met to discuss the idea with Musk on board.
Tesla was officially incorporated in 2003 with the goal of inventing an electric car that was powerful and beautiful with zero emissions. Other co-founders were JB Straubel who is still the CTO at Tesla and Ian Wright who left Tesla in 2004 and founded another company Wrightspeed.
In 2004 the company’s co-founders went through initial rounds of investing with venture capital firms. Musk, a co-founder of PayPal, came into the picture a year later when he led the initial round of funding for the company, and joined as the head of the board of directors.
Who Is Elon Musk?
Elon Musk has become the face of Tesla and is at times mistaken as the company’s founder or co-founder. Musk is a South African-born Canadian-American who was trained as an engineer. He earned a dual bachelor of science in Physics and Economics from the University of Pennsylvania.
That said, he is an entrepreneur and inventor at heart. In 1995 Musk enrolled in Stanford's Applied Physics Ph D program but dropped out soon thereafter to focus on his business efforts in the renewable energy and outer space arena.
Soon after he launched a number of small but successful companies including online publishing company Zip2. From that sale Musk started X.com an online bank that was acquired by Confinity, which had launched the online payment company PayPal.
PayPal became an incredible success and was purchased by eBay in 2002. Musk made $165 million in stocks from that sale.
With his early fortune from PayPal, Musk founded his third company SpaceX, an outer-space exploration company. After a meeting and pitch with Eberhard and Tarpenning, Musk came on board Tesla as the chair of the company’s board of directors, and played a key role in helping the company raise money. The company’s investors included friends and family, and a litany of VC firms including Valor Equity Partners.
In the years between 2004 and 2008, Tesla continued to grow and develop its first automobile The Roadster. The company opened its manufacturing plant in Fremont, CA, a 5.5 million square feet factory that used to be owned by Toyota and General Motors. The factory is known as Nummi which includes two paint facilities, a 1.5 miles of assembly lines.
Musk became the company’s CEO in 2008 and product architect, positions he still holds. That same year Tesla launched its first car and sports car the Roadster. "It is not just a car, but one of the strongest automotive statements on the road,” Car and Driver wrote. The Executive Summary for The Roadster reveals that the company has always been focused on the mechanics of the car as much as the design. “High performance” as defined in the executive summary included going from 0-60mph in less than 3.9 seconds, and zero maintenance for up to 100,000 miles other than tires.
Tesla, as part of its secret to success, continues to focus on creating electric cars and making EV powertrain systems and components. The company has a network of 80 stores and galleries across North America, Europe and Asia and over 100 charging stations in the US.
One of the company’s trademarks in success is focusing on one product at a time. And while Tesla continues to focus on making the Model S, it is rolling out new models to expand its customer base. New models in the pipeline include the Model X SUV, which started production in early 2015.
In order to move with the changing times, Tesla has tried to launch new product that aim to target a wider range of consumers. In the pipeline is also the Model E a cheaper version of the Model S, which will come in at under $40,000.
In order to stay competitive in the niche market, Tesla Motors has expanded its manufacturing footprint in The Netherlands and Lathrop, California. To keep costs down on lithium ion battery packs, Tesla and key strategic partners including Panasonic started building a gigafactory in Nevada that will facilitate the production of a mass-market affordable vehicle, Model 3, according to the company’s website.
The electric car market is growing with luxury auto makers such as Mercedes Benz and BMW jumping into the space too. Analysts forecast that the total global sales of electric vehicles was 320,000 units in 2014, which is on pace to easily exceed 500,000 in 2015. That said, Tesla’s long term success is anyone’s guess. Tesla is aiming to selling 500,000 cars by 2020 but in December 2014, Morgan Stanley’s auto analyst Adam Jonas predicted that the company would fall short by 40%. Jonas has reportedly said that the goal is unrealistic and unachievable.
As with anything in life and business there are no guarantees. The reality is that 12 years since incorporating Tesla Motors has morphed from start-up to an established industry player. What doesn’t change is its extraordinary story and its place as a pioneer in a frontier of electronic cars.
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8d66ef553c1f5926c740fd7c7172a5b2 | https://www.investopedia.com/articles/personal-finance/062015/why-it-easier-find-job-while-employed.asp | Why Is It Easier to Find a Job While Employed? | Why Is It Easier to Find a Job While Employed?
There's an old piece of conventional wisdom that says it's easier to get a new job if you already have one. Unfortunately, it's true.
"Employers tend to prefer to hire people who are already employed," says Alison Green, author of How to Get a Job: Secrets of a Hiring Manager.
It’s not that human resources departments are prejudiced against people without jobs, though that might be true sometimes. Even during economic downturns, when many good people are unemployed, those who are employed have an edge if they're seeking new positions.
Key Takeaways If you're looking for work, it's often easier to find a job if you already have a job. Being unemployed, especially for prolonged periods of time, sends a negative signal about your work ethic and hirability. If you do find yourself out of work, try to minimize gaps in your resume and stay connected to your professional network.
What Joblessness Implies About You
One reason it might be easier to find a job when you’re already employed is that you’re not too eager to get a new position. Eagerness is a dead giveaway when job-hunting, says Job-Hunt.org. And it may be a turnoff to some employers, as harsh as that seems.
"Rightly or wrongly, employers tend to assume that people don’t quit jobs without another lined up unless (a) they were about to be fired, (b) they actually were fired and are just saying that they quit, or (c) they’re potentially someone who walks when things are frustrating, which is worrisome because of course every job will have frustrations at one point or another," said Green.
Having a job gives you more leverage, too. You’re in a better negotiating position if you don’t actually need the job you’re being offered. And employers know that all too well.
A Job Is Also a Network
In fact, when you have a job, you have some special things going for you, whether or not you're looking for a new one.
One important thing is your professional network. Forbes.com cites Andy Teach, a corporate veteran and author of From Graduation to Corporation: The Practical Guide to Climbing the Corporate Ladder One Rung at a Time, who points out that “when you’re working, you’re constantly interacting with your industry contacts … ”
When you’re not employed, you lose that advantage. "It puts you in a defensive position," Teach says.
The Gaping Hole Issue
Not having a job while you're looking for one raises the same problem as a gaping hole in your work history. "The issue of gaps in employment history is a thorny one," says Bronwen Hann, a Toronto-based recruiter. They can give "the wrong impression about your abilities and ambitions, imply that you're not capable ... or that you were 'dishonorably discharged' from your previous job and didn't know how to get back into a position. Worst of all," Hann says, "it can imply that you're lazy, or that you don't care about your career."
Keeping It Confidential
Looking for a job when you already have one carries its own risks. Your current employer might hear about your job search and look upon it as disloyal, or even a firing offense.
It can be a good idea to talk over your dissatisfactions with your current boss before starting to look elsewhere. There could be options like a transfer or a change in departments within your company. If those options don’t exist, it really is time to look further.
What to Do About References
It's best not to let your boss know you are looking. "Your manager may view your desire to depart as a betrayal," says Marie G. McIntyre of YourOfficeCoach.com.
That raises the prickly problem of references. When you interview for a new job, you should always be asked whether your present employer can be contacted. Assuming the answer is an emphatic "no," you will still need references.
Ask for references from previous employers and colleagues, or a supervisor who has recently left your company. If you must, choose someone you trust within your own company.
Searching for a new job takes time and energy. You must be careful not to slack off on your current job. Also never tell a prospective employer that you’re looking for a new position because you hate your boss. Candor, in this case, is not advised.
The Bottom Line
It is easier to get a job offer when you already have a job. But it can take some careful maneuvering and a lot of extra time to pull it off.
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600fb07b4f466cd5ac05f6b80ca769f0 | https://www.investopedia.com/articles/personal-finance/062315/how-smartphones-are-changing-advertising-marketing.asp | Smartphones Are Changing Advertising & Marketing | Smartphones Are Changing Advertising & Marketing
The advertising and marketing industry has been going through some rapid changes over the last 20 years. The rise of the Internet era has led to a divergence of consumer attention away from traditional forms of media towards more digital forms. While being connected to the Internet via personal computers was a significant shift in and of itself, the increased connectivity that smartphones have enabled is creating an even more dramatic shift as the speed and relevance of smartphone advertising and marketing campaigns have become increasingly important.
Today, people are connected to the Internet at any time and from anywhere on their smartphones.
The Growing Importance of the Smartphone
Back in the summer of 2004, The Economist magazine published an article describing the changing nature of the advertising and marketing industry, calling the current period “one of the most disorienting periods in its history.” Traditional forms of advertising and marketing are no longer delivering due to the increasing diversity of media and the emergence of new technology, most notably the Internet.
As people spend more of their time going online to shop, be entertained, and seek out a variety of digital information platforms like computers, tablets, and mobile phones, the traditional forms of advertising and marketing such as television and print forms have been displaced. Today, people are connected to the Internet at any time and from anywhere, and it is primarily the smartphone that is responsible for this ubiquitous connectivity.
According to Pew Research, 81% of Americans own smartphones, up from just 35% in 2011. Especially among younger adults, today "roughly one-in-five American adults are smartphone-only internet users."
The Smartphone Effect
This shift towards increasing smartphone usage means that advertisers and marketers will have to shift their strategies and campaigns to accommodate for mobile. For instance, companies without a mobile-friendly website risk losing valuable exposure on Google Inc.'s (GOOG) web search queries because Google changed its algorithm so that more mobile-friendly websites have priority placement for search queries made on mobile devices.
Another important point for marketers and advertisers is the fact that smartphones are not only receivers but also transmitters of information. Smartphones have become huge repositories of information on individual tastes and preferences. This means advertisers and marketers have the ability to be much more specific in their ad and marketing campaigns, and able to offer more relevant messages to different types of groups or individuals.
While this means that consumers are now expecting this increased relevance from brand advertising, it also means that consumers expect relevance when and where it is needed. Consumers are increasingly consulting their smartphones to help them make everyday decisions. For example, 69% of smartphone users look for travel ideas while waiting in a line or for the subway, and 82% of users turn to their phones when deciding whether or not to buy a specific product while standing in the store. In these moments, the speed and relevance of advertisements are of utmost importance for brands to make an impression that will influence the decision-making process of potential consumers.
The Bottom Line
Smartphone usage will continue to grow and understanding how and when consumers are using them is crucial for companies’ advertising and marketing campaigns. As smartphone data collection and analysis technology become more sophisticated, the speed and relevance of ad and marketing campaigns will be significantly more important. If the competing brand can reach consumers with a relevant message at the precise moment when it is needed then they will have made that crucial first impression, and other brands will continually try to play catch up.
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85d116129df309cfb50bf26464a675bc | https://www.investopedia.com/articles/personal-finance/062315/unemployment-rates-country.asp | Unemployment Rates: The Highest and Lowest in the World | Unemployment Rates: The Highest and Lowest in the World
The highest and lowest unemployment rates in the world vary dramatically, even among the world's largest economies.
Unemployment in the U.S., the largest economy, was at 3.5% at the end of February in 2020—the lowest rate in half a century—but quickly rose to 14.7% in April in the wake of the coronavirus pandemic and its economic impact. The Congressional Budget Office expects the unemployment rate to peak at 14% in the third quarter of 2020, but to quickly improve after that. By way of comparison, historical research shows the average U.S. annual unemployment rate from 1949 through 2019 was 5.8%.
Here's a look at the countries with the highest and lowest employments rates, and the unemployment rates of the world's largest economies, according to the most recent data available. As 2020 unfolds, these rates will be a moving target as the unprecedented economic fallout from COVID-19 unfolds and impacts countries around the world.
Highest Unemployment Rates
The world's highest unemployment rates at the end of 2019 were in Sub-Saharan Africa and occupied Palestine.
Lesotho: 28.2%Eswatini: 26.5%Occupied Palestinian Territories: 26.4%Mozambique: 24.8%
Lesotho, encircled by South Africa, had one of the highest unemployment rates in the world in 2019. It's also one of the poorest countries. The World Bank estimated its gross domestic product (GDP) per capita only $1,158 in 2019. Lesotho is a small and mountainous country, previously a protectorate of Britain (it declared its independence in 1966). The unemployment rate has remained high above 20%, along with extreme income inequality and poverty.
Eswatini and Mozambique both suffer from extreme poverty and the world’s highest HIV/AIDS prevalence rate, according to the CIA. Productivity declines greatly due to HIV/AIDS as households lose manpower.
Part-time workers are counted as employed, and the figures don't count people who give up looking for work for an extended period of time.
Lowest Unemployment Rates
Below are unemployment rates taken from various government sources. They have been updated with the most recent data, which are from the end of 2019.
Qatar: 0.1%Cambodia: 0.3%Niger: 0.4%Belarus: 0.5%Lao People's Democratic Republic: 0.7%Myanmar: 0.8%Bahrain: 1.2%Tonga: 1.2%Thailand: 1.4%Kuwait: 2.0%
Although covering a diverse area, the above countries have stunning unemployment rates—from 0.1% to 2.0%—and all bested the U.S. by a considerable margin at the end of 2019.
Unemployment Rates for the World's Largest Economies
The unemployment rates for the world's largest economies were predictably low at the end of 2019, with some outliers like France, Brazil, and Italy.
Japan: 2.4%India: 3.5%Germany: 3.6%United Kingdom: 3.9%United States: 4.1%China: 4.8%Canada: 5.9%France: 8.6%Italy: 10.4%Brazil: 11.6%
The figures above will look considerably different in the coming months, as countries take measures to limit the mobility of their citizens to stem the spread of COVID-19. The impact on unemployment rates will vary based on how many people are ultimately affected, how severely it hits, and which societal interventions are necessary to contain its spread.
As mentioned earlier, the U.S. is expected to hit a 14% unemployment rate by the end of the second quarter in 2020. The Congressional Budget Office predicts it will decline to 7.6% at the end of 2021.
10 million The number of people in the U.S. who lost their jobs within a two-week period at the end of March in 2020, according to the Department of Labor.
Unemployment Rates and Economic Strength
Having a low unemployment rate does not mean a country's economy is particularly strong. For instance, Myanmar had only 0.8% unemployment in 2019, but its GDP per capita was $1,408, according to the World Bank.
Niger had 0.4% unemployment in 2019, but GDP per capita of $555, making it the poorest country on the list. Cambodia employed 99.7% of its workforce in 2019. Its GDP per capita was $1,643 in 2019, about $4.50 a day.
These countries have low unemployment figures in large part because their economies rely heavily on subsistence farming, which is labor-intensive but seasonal. Remember that the underemployed are still counted in employment figures. Even Thailand, with a relatively healthy GDP per capita of $7,808 employs over 30% of its workforce in agriculture.
Unemployment Parallel With a Rich Economy
Of course, it's possible to have low unemployment and a rich economy. This combination is seen in Qatar. According to the World Bank, GDP per capita in Qatar was $64,782 in 2019. That wealth helps their standing in the chart, as a country's unemployment rate only factors in those actively looking for work. If you're the 23-year-old child of wealthy parents, you may be more inclined to spend money than earn it.
Qatar's economy is driven by oil and natural gas, but it's been making a sustained push to diversify into financial services, manufacturing, construction, and news media.
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438c78cb87464c3cbed3955f591b8e94 | https://www.investopedia.com/articles/personal-finance/062515/college-tuition-vs-investing-it-worth-it.asp | College Tuition vs. Investing: Is It Worth It? | College Tuition vs. Investing: Is It Worth It?
With the cost of college rising each year and questionable career prospects awaiting college graduates, some people are wondering if a college education is still worth it. If you took all of the money you would spend on a college degree and invested it, would you come out ahead? Are college loans worth it?
One of the ways to figure out if a degree is worth the money is to calculate the return on investment (ROI) of a college education. The ROI is a metric that measures the effectiveness of the return on an investment but also compares it to other investments during a similar time period.
ROI is calculated by dividing the benefit or return by the cost of the investment. The result is expressed as a percent or a ratio. In this article, we look at the return on investment for college degrees based on a few different factors and compare them to other investments.
Key Takeaways Quantifying the value of a college education is difficult, but the return on investment can be calculated using key data.Factors such as annual percent return, 20-year net ROI, and specific majors can help determine which colleges rank higher.Other investments may not offer a better ROI, but it's important to look at them individually.Keep in mind that you cannot factor in important things like networking, raises, and other opportunities when you calculate your ROI.
The Best Schools for Return on Investment
The value of a college degree can be hard to quantify. In addition to the tangible value of your future income, there are many intangible benefits, including learning, independence, improved social skills, and general skills such as working with teams and developing good working habits. Because intangible skills can't be quantified into a dollar amount, we must examine the numbers that can be quantified to determine the ROI of an education.
According to the most recent study by popular career website Payscale, not all degrees and colleges are created equally. The study, reported in 2020, looked at more than 1,900 schools across the country. All calculations noted from the study for the purpose of this article assume the option of on-campus housing and no financial aid.
Colleges with the Highest ROI Percentages
If we look at specific universities, the ROI for a college degree is a compelling investment. The United States Merchant Marine Academy's Service Academy ranked at the top for with the best ROI at 19%, with the total cost of a four-year degree coming in at $34,900.
Both SUNY Maritime College's in-state program and Brigham Young University-Idaho rounded out the top three with an ROI of 13%. However, the four-year cost of tuition for SUNY Maritime College was $95,300 versus $48,200 for Brigham Young University-Idaho.
Colleges with the Highest Income Earned
If we look at the total income earned by graduates minus the cost of education, the results are a bit different. Harvey Mudd College came in at $1.140 million while the Massachusetts Institute of Technology (MIT) ranked number two with $1.123 million. The U.S. Merchant Marine Academy still ranked high, claiming the third spot with a 20-year net return of $1.111 million.
The U.S. Military Academy came in second with a $1.074 million return. SUNY Maritime College ranked #6 with $1.009 million while Brigham Young University-Idaho ended up in the 123rd place with only $534,000 for a 20-year net return on investment.
Remember, these are the best-case scenarios. Other schools, including Ivy League heavyweights Harvard and Yale, do not reach the top spots thanks to a high cost of attendance. The median annualized ROI for all schools comes in around 6% for public schools and 4% for private schools.
The high cost of attending Ivy League schools like Harvard and Yale keep them out of the top spots.
The Best Majors for Return on Investment
Of course, looking at the ROI of a college degree by school has some flaws. An art major has very different career prospects from an engineering major. Let's take a look at how various majors factor into the ROI.
For a humanities major, the best option is Brigham Young University-Provo, with a 10% ROI. A business major at the same school can expect a 14% ROI, a full 4% better. An engineering major at BYU averages a 14% ROI while a science major has a 12% ROI.
Please keep in mind that the comparison by major consisted of only one school with a very targeted student population and one that is consistently at the top of the list. The average for other schools can be quite a bit lower.
Benchmark Investments
Now that we know the 20-year ROI of top degrees from some top schools, let’s take a look at how those same dollars invested in a college degree compared to financial investments.
The safest investment in general for most retail investors is a U.S. Treasury bond. Because these investments are so safe, the return paid by the U.S. government is very low. Over the last 20 years, this would have resulted in a 2.1% ROI as of Oct. 25, 2019. Compared to the average college degree, an education would fare much better, yielding about double.
Some stellar investments beat a college degree investment several times over. For example, an investment in Apple (AAPL) stock in 1999 returned 105.2% over the last 20 years, while Microsoft (MSFT) returned 3.7%.
The benchmark for the market return is the S&P 500 index. Over the same period, the S&P 500 returned 4.3%—higher than the average degree, but far from matching the ROI from the top degrees at the best schools.
Understand Your Personal ROI on a College Degree
No college experience or career is exactly the same, so your best bet is to estimate your own ROI based on the school and degree of your choice.
I earned a business degree from the University of Colorado at Boulder. The typical ROI for that specific degree is approximately 8%, better than the S&P 500, and a safe investment. However, that number does not tell my whole story.
After earning a bachelor’s degree at CU, I went on to earn an MBA from the University of Denver. That private school's MBA cost about 33% more than my in-state cost of attendance at CU. While some people might argue that I had a better use for $90,000, I was debt-free two years later, and my income has had several large jumps, which I attribute to my MBA.
Right after I graduated from my MBA program, I found a new job that would never have happened without the networking I did at school. It brought me a modest $5,000 raise, but over 20 years that covers my entire cost of attendance plus an extra $10,000. Any raise over that increases my ROI. Three years later, I received a 40% raise when I accepted a job—one that I would not have been qualified for without the MBA. If I stay at the same salary as today and never get another raise, that is an 889% ROI on my MBA.
Of course, my results are better than some and worse than some. Your results will vary.
The Bottom Line
While we all want to be like Warren Buffet and beat the S&P for nearly our entire career, Buffett is not the average investor. You can safely invest in the S&P 500 and bring in a steady return, but your growth potential is fairly limited.
If you are like most people, your career is going to be your primary income source for most of your life. A college degree does increase income and lower the chances of unemployment—both valuable factors to consider when weighing a college degree against a market investment.
If you’ve made it this far, you know that all degrees are not created equally. If you go to a quality school and earn a business, engineering, or computer science degree, you will beat the market. And, if you work hard and do well, your income will continue to increase. A college degree may not beat the market on its own, but coupled with hard work, your return on investment has unlimited potential.
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5e327492a4268d543fb3da6e686ca108 | https://www.investopedia.com/articles/personal-finance/062515/mlps-how-they-are-taxed.asp | The Tax Advantages of MLPs | The Tax Advantages of MLPs
An MLP is a master limited partnership, but the title isn’t as interesting as what it can accomplish from an investing standpoint.
MLPs are publicly traded partnerships that are listed on major exchanges such as the NYSE or Nasdaq. To qualify as MLP, it must earn 90% of its income from minerals and natural resources; namely from exploration, development, mining or production, processing, refining, transportation, and marketing. It may also earn certain passive income from interest, dividends, and property rent.
What’s most intriguing about MLPs is the unique business structure and tax advantages the partnership offers. MLPs are set up by their partnership agreements to distribute the majority of their cash flow to shareholders, officially called unitholders. This cash flow is what makes MLPs attractive to investors. Most partnerships forecast what they expect to distribute in cash over the next 12 months, which offers some level of predictability for unitholders.
One consequence of the MLP's unique structure is the partnership doesn’t pay taxes at the company level. There are tax benefits for unitholders as well. Because the MLP is able to claim a variety of deductions, the partnership's taxable income is often lower than the paid-out cash flows. This means cash flow received by the unitholder is treated as a return on capital and therefore is tax-deferred (though not tax-free).
Tax Implications of MLPs
As a unitholder of an MLP, you’re providing capital to the venture and being rewarded with cash distributions from ongoing operations. This makes MLPs a good option to consider for retirees or anyone else looking for a consistent income stream.
Since distributions are a return on capital, they are mostly tax-deferred. But when you sell, you will pay taxes based on the difference between the sales price and your adjusted basis.
For example, you purchase $100,000 worth of MLP units, you receive $4,000 in distributions and there is $3,000 in unit depreciation. You only have to pay taxes on the difference: $1,000. This is on the federal and state level.
While the distributions are nice, the return of capital has the effect of lowering your cost basis. If you hold for long enough, your basis could eventually reach zero. Once that happens, any future distributions are treated as capital gains in the year in which they are received.
The sale of an MLP could result in both a capital gain and ordinary income for the investor. Because the cash distributions are due to depreciation and other deductions that the MLP takes, those deductions are recaptured upon the sale of the units and are taxed as ordinary income. Any appreciation of the value of the units is taxed as a capital gain. Investors will need to keep track of their K-1 schedules to figure out how much is capital gain and how much is ordinary income.
Fortunately, there’s a loophole. If you use your MLP for estate planning, then you will receive a mostly tax-deferred income stream while also avoiding a big tax hit on a sale of your MLP units.
Here’s how it works. As long as you don't cash out of the MLP, but bequeath it to a spouse or the next generation (via a will, living trust, or just transfer on death account), you won’t have to pay taxes on a very low-cost basis (which will stem from the MLP being held for a long period of time). Better yet, your heir will inherit the MLP at a higher cost basis, which gets readjusted to the market price on the date of the transfer. This is known as a step-up in basis. And if your heir wants to sell the MLP right away, there will be no capital gains tax.
All good news so far, but as you already know, there’s no such thing as a perfect investment. MLPs, like anything else, have their drawbacks.
Drawbacks of MLPs
Ordinary dividends require to be filed on Form 1099-DIV, but distributions from an MLP must be filed via Form K-1. This is much more complicated. That being the case, your accountant will charge you more for the work they have to do. This may just be a few hundred dollars, but depending on the size of your investment in an MLP, this can add up, since it must be done on an annual basis.
Another negative here is that many MLPs operate in more than one state. This means you will have to file in several different states. Fortunately, the state where you will find a lot of MLP opportunities does not have a state income tax: Texas. This is also true of Alaska, Wyoming, Nevada, Tennessee, and South Dakota, where many MLPs operate. Florida, Washington, and New Hampshire also lack a state income tax.
This isn’t the only disadvantage of investing in an MLP. You might be thinking that a net loss from the MLP units can offset your other income, but no. Any losses must be carried forward and used against future income from the same MLP. If the losses continue, then you can’t deduct those losses against other income until you sell your units in the MLP.
Popular MLP Investments
Overall, the positives outweigh the negatives for an MLP. This doesn’t guarantee success by any means, but thanks to tax advantages, it’s an investment vehicle to consider. For starters, here are two popular MLP investments on Wall Street:
Enterprise Products Partners (EPD) Plains All American Pipeline (PAA)
If you would prefer to keep things simple while being diversified, consider an MLP exchange traded fund (ETF), such as Alerian MLP ETF (AMLP). The ETF has exposure to MLP companies.
The Bottom Line
MLPs offer a cost advantage over regular company stocks since they’re not hit with a double tax on dividends. In fact, their cash distributions are not taxed at all when unitholders receive them, which is very appealing.
However, the longer an MLP is held, the more likely the cost basis will decrease, which increases the tax obligation after units are sold. One solution is to bequeath the MLP to your survivors as part of your estate. But even if you don’t take that route, the cash distributions of an MLP usually outweigh taxable income, anyway.
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38373e2aba19ffd3f6dfe1cb93fe5bdc | https://www.investopedia.com/articles/personal-finance/062615/it-worth-it-insure-my-wedding-ring.asp | Should You Insure Your Wedding Ring? | Should You Insure Your Wedding Ring?
Should you insure your wedding ring? It certainly doesn't sound as fun as planning the honeymoon. But when it comes to wedding jewelry—engagement rings and wedding bands—securing sufficient protection can prove as essential as any other wedding-related task.
The average sum spent on engagement rings varies—anywhere from $5,900 and up, depending on the survey—but safe to say, it's in the healthy four figures. Add in the cost of wedding bands for both the bride and groom and it’s clear that the average $1,500 of jewelry coverage offered by standard renter’s and homeowners insurance isn't going to cut it for your carats.
Key Takeaways You need special insurance; couples spend thousands of dollars on engagement and wedding rings, but the limited coverage of renter’s or homeowners insurance often offers just a fraction of an item's worth. Options for insuring expensive wedding jewelry include adding a rider itemizing the pieces to a current homeowners policy and buying a separate insurance policy. Those who elect to acquire added coverage should know the finer points of the new policy, including what is and isn’t covered, the form reimbursement will take, and how the value of a ring will be determined.
Are Wedding Rings Covered by Homeowners Insurance?
The short answer is yes, jewelry is included in the renters and homeowners insurance policies that cover the value of items in your home. However, coverage for jewelry only goes up to a certain dollar limit, and there may be group limits on it, i.e., a limit for the collective value of all items. Circumstances such as loss and damage may not be included. And, in most cases, it'll be subject to a deductible before you receive any reimbursement.
Engagement and wedding rings can be covered more comprehensively with the purchase of a rider or floater, or an extension to your current policy—also called “scheduling property.” Scheduled personal property goes over and above the typical renters or homeowners policy so that the full value of the designated, high-priced item is covered in the event of a claim. Generally, you do not pay a deductible on a scheduled item.
The simplest step would be to add a floater itemizing your jewelry to your existing insurance policy. However, if you don’t have a renter’s or homeowners policy—or the coverage offered through your existing provider doesn't meet your needs—you can purchase a separate policy specifically for your rings. Your jeweler might recommend a certain insurer. If not, shop around to find an insurance company; you might consider looking for a specialist in jewelry coverage.
Wedding Ring Insurance: What to Look for
When it comes to choosing a provider and policy for your ring insurance, the fine print matters. Here’s what to consider:
Coverage
A good policy should cover all contingencies, from theft to damage to an accidental drop down the garbage disposal. Make special note of any circumstance that isn’t covered.
Replacement
How will the insurance company replace your rings? Will it try to find a replacement for you? Would you have to obtain it at a certain jeweler? Can you just opt to receive a check as compensation? Will repairs or partial loss be covered? Evaluate the replacement policy against both your financial and sentimental concerns.
Assessment of value
This is key. How will the insurance provider assess the value of your ring for reimbursement? Will it use the current appraisal value or will it only consider the original purchase price?
Documentation requirements
Note all of the required paperwork for your policy so that should you need to file a claim, everything is readily available. These documents typically include receipts, photos, and up-to-date appraisals.
Speaking of which…
Get an Appraisal
An appraisal of your ring is often required when purchasing supplemental insurance coverage. The store that sold it might provide one, but if a lot of time has gone by since the purchase, you'll need to get an independent appraisal (some insurers prefer that anyway).
A professional jewelry appraisal can help to verify facts about the ring while also assessing its value for insurance purposes. You can ask the jeweler for recommendations. The American Gem Society has a directory of qualified professionals that can be searched by zip code. Appraisal rates range from $50 to $150 an hour.
Consider Coverage Options
It’s important to compare not just the cost of one insurance provider to another, but also the relative cost to the relative coverage, as both vary greatly from provider to provider and even from policy to policy.
The general rule for insuring wedding and engagement rings is $1 to $2 for every $100 of value, paid annually. A $5,855 ring, for example, would cost around $59 to $118 per year to insure. If you live in a city where the risk of theft is higher, you can expect to pay a bit more for your coverage. However, insurance companies may lower premiums for those willing to install a home security system, purchase a safe, or rent a safe deposit box in which to store rings when they aren't being worn.
In addition, some policies have deductibles; others don’t. Those without deductibles tend to have higher premiums, but they'll reimburse more fully and with less fuss. In the case of a deductible policy, look to see which types of repairs can affect your coverage costs.
After you’ve combed through the policy fine print, assessed the value of your rings, and compared relative costs, you should have enough information to choose an insurance policy that meets your needs. Don’t wait too long to secure coverage, though. You’ll want to make sure you’re protected in the event that anything happens in the days after your purchase or receipt of the ring.
$7,829 Price of the average engagement ring in 2018, according to Brides' American Wedding Study.
Once You’re Insured
Keep all insurance-related documents in a safe, secure, and dry place. By this point, you should be familiar enough with the details of your policy to know exactly what documentation you need to keep on file—a written appraisal, ring receipts, photos, gem certificates, etc. Also, make sure that any policy details you’ve discussed with your insurance agent are included in the paperwork. All promises need written documentation.
Values of precious metals and fine jewels change frequently. Consider having an appraisal done every two to three years—even if your insurance policy doesn't require regular appraisals—to ensure that your insurance coverage is still adequate. Keeping an evaluation up-to-date is particularly important for vintage, antique, and/or collectible rings. Bring a copy of your original or most recent appraisal so that your appraiser can work from that rather than starting from scratch, helping to save time and your costs.
The Bottom Line
Given the high average cost of wedding rings, acquiring insurance is a prudent move. If your jewelry is adequately covered under the modest personal property allowance of your current renter's or homeowners insurance, that's fine. But if not, how and where you decide to insure your wedding rings will depend largely on your specific needs and assessments of value. By doing your due diligence in combing through the fine print of potential policies and comparing true costs and coverage, you can ensure you’ve properly protected jewelry that has both monetary and emotional value.
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e1965f1fd556c4ad3f5834108616e92f | https://www.investopedia.com/articles/personal-finance/062915/5-signs-you-need-postnup.asp | 5 Signs You Need a Postnup | 5 Signs You Need a Postnup
A postnuptial or "postnup" agreement is similar to a prenuptial agreement, but this legal contract is written and signed after the couple is legally wed.
A postnup contract outlines how assets will be divided. It also may contain numerous other provisions dictating marital conduct—from the division of household chores to monogamy expectations to the allowable number of mother-in-law visits.
Key Takeaways A postnup agreement is written after a couple is legally married.There are various reasons for a post-up contract, but one common reason is to ensure financial security in the case of a divorce. A postnup agreement usually has to do with financial assets, but it can contain anything—from how often in-laws can visit or how the couple will share household chores. You may need or want a postnup contract if you have children from previous marriages or own a business. Not all states recognize a postnup contract, so it is wise to consult with an attorney regarding martial contracts and divorce laws.
You Need a Postnup When…
Postnuptial agreements have become common in recent years, and they are honored and enforceable in most U.S. states. Most postnups are mostly about money and protecting assets in the case of a divorce, and postnups may be written when a couple is in crisis or concerned about the state of their union. If you wonder whether or not you and your spouse need a postnuptial agreement, you may want to consider the following areas of potential concern.
1. One (or Both) of You Are Wealthy
Divorce attorneys agree that postnups are must-haves for spouses who either enter the marriage with significant pre-marital assets or expect to inherit significant future assets. In these situations, a postnuptial agreement can help ensure that each spouse exits the union "whole," with the holdings they brought in in the event of a divorce.
2. You have Children From a Previous Marriage
In cases of co-mingled families, postnups can pre-determine the share of assets your spouse will receive in the event of a divorce or your death, thus ensuring your offspring will receive the inheritance you want them to pocket. In most cases, without a signed postnuptial agreement spelling out these details, states automatically give the current spouses a share of your estate upon your death.
Some state laws dictate the division of joint property in cases of divorce, as well. Before you sign a postnup, ask your lawyer about the laws in the state you live in, or if you are relocating, your future home state.
3. You or Your Spouse Owns a Business
A postnup can also protect the income or assets you earn during the marriage. This is crucial for spouses who own their own companies. Without a postnup, an ex-spouse may be entitled to collect a percentage of the business or its earnings.
4. You Hated the Idea of a Prenup But Now You Want One
Some people believe that negotiating prenuptial agreements is a pointless and stress-inducing exercise, where the very act of contemplating divorce can doom a marriage from the start. Many couples opt for postnups simply because they don’t want awkward discussions about the division of assets before their big happy day. Therefore, these negotiations might proceed more smoothly once the newlyweds have settled down into their marital routine.
5. You Recently Received a Large Inheritance
If one of you unexpectedly receives a sizable bequest or a gift from a family member, you may want to consider a postnup. Under normal circumstances, new assets become joint assets; therefore, a postnup can help keep said assets earmarked just for you in case of a marital split.
The Bottom Line
In certain marital situations, a postnup is strongly recommended for spouses who didn't sign a prenup. Postnups are particularly beneficial when one or both partners have significant pre-marital assets or children from previous marriages. With failed marriages, postnups can eliminate expensive and acrimonious divorce battles. If a marriage succeeds until death, a postnup can prevent inheritance disputes between a person’s surviving spouse and their heirs.
With contractually delineated terms in place, you and your spouse know who gets what, with little wiggle room for argument. Working together with a trusted lawyer can allow the process of creating a postnup contract (relatively) pain-free.
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47dc99a50a3a99d30d176fa3bdaec693 | https://www.investopedia.com/articles/personal-finance/062915/guide-kidnap-ransom-insurance-coverage.asp | A Guide to Kidnap and Ransom Insurance Coverage | A Guide to Kidnap and Ransom Insurance Coverage
Kidnapping for ransom incidents are chronic problems around the world because they can be an incredibly lucrative business for the perpetrators of these crimes. Kidnap and ransom (K&R) insurance is supposed to save people from having to give up their fortunes to protect their family members. However, it is clearly not appropriate for everyone. Before you decide to buy kidnapping insurance, you need to consider several important factors. You must understand how it works, know what it covers, and learn what it typically costs.
Key Takeaways Americans traveling to certain foreign countries, high-net-worth individuals, and famous people are most likely to need K&R insurance. Kidnap and ransom insurance provides negotiators and eventual reimbursement, but the victims must pay the ransom with their own money before it can be refunded. A basic K&R policy typically covers ransom payment, loss of income, interest on bank loans, and medical care. Some basic policies cost only $500 a year, but the price rises as coverage expands.
Who Needs Coverage
When most Americans think of kidnapping, they usually think of foreign countries. The U.S. State Department even added an indicator for kidnap risk to its travel advisories in 2019. If you frequently travel to any country on the list, you might want to consider getting K&R coverage. The prime targets are wealthy businesspeople and their families, professionals traveling abroad, tourists, journalists, and aid workers.
Kidnap and ransom coverage is often provided as part of a corporate insurance portfolio. Companies often use it when they have employees who frequently travel to areas where kidnapping is a problem. K&R insurance can include coverage for spouses, relatives, guests, nannies, housekeepers, or just a single individual.
Individuals can also purchase K&R insurance as a stand-alone policy. However, most individuals who buy it are affluent or high-profile because of the cost of these policies. Celebrities, famous musicians, sports stars, and politicians are more likely to have kidnap and ransom insurance.
Additionally, nongovernmental organizations (NGOs), universities with international programs, and other institutions often purchase these policies. Such organizations could face lawsuits if their workers, volunteers, or students were harmed.
How Kidnap and Ransom Insurance Works
In most kidnapping scenarios, the perpetrators demand that the victims avoid notifying other parties. That can be quite challenging, leading to complications when the employer or family needs to contact the insurance company. For this reason, many K&R policies include a specific notification provision. It says that the policyholder, employer, or family should notify the insurer and the police about a kidnapping only when it is safe to do so.
Once contacted, the insurer immediately swings into action, deploying specialists to assist in the release of the kidnapped individual. This assistance includes negotiations with the kidnappers, delivery of a ransom, evacuation, and appropriate care.
However, a ransom is not paid out directly by the insurer. Instead, the employer or family has to pay it out of pocket or take out a loan. Note that most K&R policies cover the interest on money borrowed for this purpose. Once the crisis is over, the insurer will reimburse the policyholder for the ransom and related expenses. If total costs go beyond a specific limit, the policyholder is responsible for covering the extra costs.
What Is Covered
K&R insurance protects corporations and individuals against financial losses that result from kidnapping, extortion, and ransom demands. It is designed to insure those who frequently travel, not for brief trips. A basic policy typically covers ransom payment, loss of income, interest on bank loans, and medical care. Many policies also cover the costs of business interruption, consultants for crisis management, support services, and even public relations expenses for companies. In addition, a policy purchased by an employer covers lawsuits against the company by the employee who was kidnapped.
Some K&R policies also pick up the tab for losses due to injuries, related cosmetic surgery expenses, time off work after release, travel expenses, and reward money paid to informants. Damages due to extortion, terrorism, and wrongful detention can be covered too. In a worst-case scenario, funeral expenses may also be covered by kidnap and ransom insurance.
What Is Not Covered
As a general rule, Americans should avoid traveling to countries that appear in red on the U.S. State Department's travel advisory map. The State Department has advised Americans to avoid going to those countries, so your K&R insurance might not cover you there. Many policies provide access to security experts who can advise you on where you can travel and how to stay safe when visiting certain parts of the world.
Usually, you must stay quiet about the existence of your kidnap and ransom insurance. You should never discuss it with anyone, not even family members covered by the policy. Talking about your K&R insurance may lead to the cancellation of the policy. For the same reason, employees may be unaware of kidnap and ransom policies covering them that are purchased by their employers. Insurance companies naturally want to protect themselves against fraudulent kidnap and ransom claims. Announcing that you have a K&R policy is equivalent to wearing a shirt that says, "Kidnap Me!"
Never tell anyone that you have kidnap and ransom (K&R) insurance. Publicizing your K&R insurance dramatically raises your risk of being kidnapped and may void your policy.
The Cost of Coverage
Some policies cost as little as $500 a year, but the price rises quickly. It depends on the type of coverage, benefit amounts, destination countries, and the number of people covered. The cost might be roughly $2,000 for a $5 million policy that covers a year of nonhazardous travel. If the insured is traveling to hot spots, then the price tag goes up. However, K&R insurance could be worth the expense in the case of an actual kidnapping. A kidnap and ransom claim can quickly run into the hundreds of thousands or even millions of dollars.
The Bottom Line
K&R insurance protects corporations and individuals against financial losses that result from kidnapping, extortion, and ransom demands. Although these policies are often complicated and sometimes expensive, they are an absolute necessity for employees or high-net-worth individuals traveling to areas where the kidnapping risk is high.
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d2364c3d360d1f5373adcd7bf9e88611 | https://www.investopedia.com/articles/personal-finance/062915/mlps-vs-limited-partnerships.asp | Master Limited Partnerships vs. Limited Partnerships | Master Limited Partnerships vs. Limited Partnerships
Generally, a partnership is a business that is owned by two or more individuals. In all forms of partnerships, each partner is required to contribute resources such as property, money, skill or labor in exchange for sharing in the profits and losses of the business.
For limited partnerships and master limited partnerships, the simplest way to explain the difference between the two business structures is that the latter is publicly traded while offering the tax benefits of a limited partnership.
What Is a Limited Partnership?
A limited partnership features at least one general partner and at least one limited partner. The general partner acts as the owner and is responsible for day-to-day operations. They are also personally liable for the business’s debts. In other words, if the business becomes over-leveraged and can’t meet its debt obligations, then the general partner might be forced to sell personal assets.
Meanwhile, a limited partner only invests money in the business. They have no say in day-to-day operations, and are not personally liable for the business’s debts. A limited partner is also not susceptible to litigation. The only potential loss relates to the investment in the partnership. However, if a limited partner begins to take an active role in the business, that partner can become personally liable to both debt and litigation.
Since a limited partner is not active in the day-to-day operations of the business, that partner does not have to pay a self-employment tax. It is not considered earned income. In a limited partnership, the limited partners are essentially trading their role in day-to-day operations for not having to worry about being liable for the business’s debts or litigation.
What Is a Master Limited Partnership?
A master limited partnership (MLP) is a type of business venture that exists in the form of a publicly-traded limited partnership. With a master limited partnership, limited partners still get the tax advantage and they are not liable, but these advantages are now combined with liquidity since MLPs are traded like equities.
An MLP must generate 90 percent of its revenue from natural resources. This can pertain to energy pipelines, energy storage, commodities, or real estate. The quarterly distributions to limited partners stem from cash flow. This is a positive because cash flow is seen as steady.
For example, most MLPs have locked into long-term contracts and have hedged prices. Historically, this has led to lower volatility than their peers. Additionally, since income is passed on to unit holders (limited partners), an MLP avoids double taxation. This saves capital, which can then be applied to day-to-day operations and future projects.
The word "master" in MLPs pertains to the general partner, who will usually own two percent of the MLP. The master partner can increase their share by purchasing additional units as a limited partner. The master partner is also responsible for day-to-day operations. The general partner has a performance incentive because if quarterly cash distributions rise, then the general partner will receive a greater share. Those quarterly cash distributions, by the way, are 80-90 percent tax deferred thanks to depreciation.
MLPs usually yield between five and seven percent. When you combine this factor with low volatility and a tax advantage, MLPs look appealing. Furthermore, when a limited partner eventually sells all of their shares, it will be treated as capital gains, not ordinary income.
One negative aspect is that most MLP investors are investing in pipelines, and many pipelines stretch across more than one state. This means you will have to pay taxes in multiple states. Check with your tax advisor because certain states offer exemptions.
The Bottom Line
While there are advantages to investing in a limited partnership, investing in a MLP adds liquidity. Therefore, if you ever need to free up capital for an emergency or an unexpected project, you will be able to do so with ease trading an MLP.
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7403aa952383d8e830e9682adcf332e1 | https://www.investopedia.com/articles/personal-finance/063014/6-signs-youre-ready-retire-early.asp | 6 Signs You Are Ready to Retire Early | 6 Signs You Are Ready to Retire Early
Ready to Retire?
If you're considering retiring early, you'll forego not only the headaches of working but also the additional earnings that could have made your retirement even more comfortable. Make sure you're truly ready before you leave.
Key Takeaways Start debt-free, with a healthy retirement account that will support your extra years not working. Make sure you can withdraw some money from your retirement accounts without penalty. Plan to pay for your own healthcare coverage until Medicare kicks in.
Here are six signs you may be able to retire early instead of continuing to work.
2:00 6 Signs You’re Ready To Retire Early
1. Your Debts Are Paid Off
If your mortgage is paid off and you don't have any loans, credit lines, large credit card balances, or other debt, you won't have to worry about making large payments during retirement. This leaves your savings and retirement income available to enjoy life and free to use in the event of an emergency.
2. You Have Ample Savings
You planned and set a goal for retirement savings. Now your investments meet or exceed the amount you were hoping to save. This is another good sign you could take early retirement.
If you didn't plan for early retirement, you will need to recalculate how long your savings will last. Also, depending on your age, you may not yet be eligible for Social Security or Medicare. Your savings will need to cover your expenses until you reach the eligible age.
Keep in mind that if you do leave work several years before you planned to, your savings must be enough to cover these additional retirement years.
"Think 'Rule 25.' Prepare to have 25 times the value of your annual expenses," says Max Osbon, partner at Osbon Capital Management, in Boston. "Why 25? It's the inverse of 4%. At that point, you only need to achieve a 4% return per year to cover your annual expenses in perpetuity."
3. You Can Get At Your Savings
No one likes to pay unnecessary penalties.
If your 59th birthday was at least six months ago, you're eligible to take penalty-free withdrawals from any of your 401(k) plans. These policies generally apply to other qualified retirement plans, but there are exceptions.
For instance, the 457 plan doesn't have an early withdrawal penalty. But remember that you'll still pay income tax on your withdrawals.
There's also good news for wannabe early retirees with 401(k)s. If you continue working for your employer until the year that you turn 55 (or after), the IRS allows you to withdraw from only that employer's 401(k) without penalty when you retire or leave, as long as you leave it at that company and don't roll it into an IRA.
"There is a caution, however: If an employee retires before age 55 [except as noted above], the early retirement provision is lost and the 10% penalty will be incurred for withdrawals before age 59½," says James B. Twining, CFP, founder and CEO of Financial Plan Inc., in Bellingham, Washington.
The third option for penalty-free retirement plan withdrawals is to set up a series of substantially equal withdrawals over at least five years, or until you turn 59½, whichever is longer. Like withdrawals from a 457 plan, you'll still have to pay income taxes on your withdrawals.
If your retirement plans include any of the above penalty-free withdrawal options, it's another point in favor of leaving work early.
4. Your Healthcare Is Covered
Healthcare can be incredibly costly, and early retirees should have a plan in place to cover the costs before becoming eligible for Medicare at age 65. If you have coverage through your spouse's plan or if you can continue to get coverage through your former employer, this is another sign that early retirement could be a possibility for you.
Keep in mind that COBRA may extend your healthcare coverage for a period of time after leaving your job, although your costs with COBRA may be higher than other options.
Another option for early retirees is to purchase private health insurance. If you have a Health Savings Account (HSA), you can use tax-free distributions to pay for your out-of-pocket qualified medical expenses no matter what age you are.
5. You Can Live on Your Budget
Retirees living on fixed incomes, including pensions or retirement plan withdrawals, usually have lower monthly incomes than they did when they were working.
Try practicing sticking to your reduced retirement budget for at least a few months before you actually retire. You'll get a sense of just how easy or difficult it would be to make that lower budget permanent.
"Humans do not like change, and it is hard to break old habits once we have become accustomed to them. By 'road-testing' your retirement budget, you are essentially teaching yourself to develop daily habits around what you can afford in retirement," says Mark Hebner, founder and president of Index Fund Advisors Inc., in Irvine, California, and author of Index Funds: The 12-Step Recovery Program for Active Investors.
6. You Have a New Plan
Leaving work early to spend long days with nothing to do will lead to an unhappy early retirement. Having a defined plan—or even the outline of a daily routine—can help you prepare.
Perhaps you'll replace sales meetings with a weekly golf outing or a volunteer gig, in addition to adding daily walks or trips to the gym. Plan a long-overdue trip or take classes to learn something new.
If you can easily think of realistic, non-work-related ways to enjoyably pass your days, early retirement could be for you. In the same way you test-drive your retirement budget, try taking a week or more off work to spend your days as you would in retirement. If you become bored with long walks, daytime TV, and hobbies within a week, you'll certainly get antsy in retirement.
The Bottom Line
These are questions nearly all young and middle-aged workers have asked themselves: Should I leave my job and retire early? What would I need? How do I know I'm ready?
When it comes to deciding if you should retire early, there are several signs to watch for. The signposts also point to a number of plans you can make now to increase the chances that you could fulfill this dream if you end up wanting (or needing) to do so.
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a50d8f987c4787fc7d945aab57780c93 | https://www.investopedia.com/articles/personal-finance/063015/economics-private-jet-charters.asp | The Economics of Private Jet Charters | The Economics of Private Jet Charters
When you think about private jets, you probably fall into one of two categories: Either you don’t know how expensive it is to own and operate a jet or you do know and don’t understand how anybody, even the rich, could afford to own a private jet.
If you’re the former, here are some fun facts:
The cost of a new jet will range from $3 million to $90 million or more.The world’s most expensive private jet belongs to Saudi Prince Al-Waleed bin Talal. This $500 million aircraft includes a two-car garage, a stable for horses and camels, and a prayer room that rotates so it always faces Mecca. But the cost to purchase a jet isn’t the real money drain. Operating it will set you back $700,000 to $4 million per year.
Although most jet owners purchase used models, the cost puts private ownership out of the price range of everybody but the smallest fraction of the world’s richest people and some large corporations. According to Greg Raiff, founder and CEO of New Hampshire-based Private Jet Services, owning an aircraft isn’t a good financial decision for anybody.
“Much like cars, planes start depreciating the minute they’re purchased. From the initial cost to ongoing maintenance, planes are not a wise investment for individuals. You’re always losing money. When you own the aircraft you are always paying for it, even when it's not in use. Not only is it depreciating, but you're paying for hangar fees to store it, you're paying insurance, and you're paying to keep your crew around and at the ready.”
If you want to fly private but owning your own private jet is out of the monetary question, then chartering a plane is an option. It saves the hassles that come with owning and operating your own private jet and saves a considerable amount of money. Like renting a car, you only pay when you use it.
Key Takeaways The cost of buying your own private jet can range from between $3 million and $90 million. Annual operating costs can run anywhere from $700,000 to $4 million per year.Besides the very rich, private air travel is most often done by business executives, who believe that the benefits outweigh the costs when having to conduct important business.A more affordable option to owning and operating a personal jet is to charter a private one when needed.Depending on the size of the jet, chartering one can range from $4,000 per hour to $20,000 an hour.
Why Fly Private Anyway?
Nobody is going to deny that a large part of the reason the rich fly privately is, “because they can,” but before you criticize them for not wanting to set foot on the same plane as ordinary people, industry experts point out the many advantages of flying privately.
For CEOs and other higher-up executives, private jets are a risk mitigator of sorts. According to Raiff, “Clients choose private travel to ensure they arrive at a destination on time, and in the best possible physical and mental shape. Busy executives cannot afford to show up late for an important meeting or to feel sluggish because of the rigors of commercial travel. They know that the cost of failure far exceeds the cost of private jet travel.”
Proximity to airports and flexibility are big advantages too. Adam Twidell, CEO of private jet booking platform PrivateFly says, “…your itinerary is completely flexible based on your needs. Since many private-jet customers tend to be business travelers, this is a huge advantage, especially when important meetings run longer than expected, the aircraft will still be at the airport waiting for you, rather than needing to book a new flight as you would with a commercial airline. Additionally, private jets can land at many more airports compared to commercial aircraft, allowing customers to land closer to where they need to be.”
And since some jets are equipped with office amenities, executives can work while en route in a safe, secure environment.
How Much Does It Cost to Charter?
If you’ve decided that purchasing a plane is a little out of your price range, you’re going to do what most of the world’s wealthy do: charter a plane. How much does that cost? Depending on the type of aircraft, costs could be $100 for a one hour flight on a business commuter jet or $40,000 to fly across the United States. According to the U.S. Air Charter Service, a light jet will cost you between $4,000 and $5,500 per hour, a medium jet will cost between $5,500 and $9,500 per hour, and a large jet will cost between $11,000 and $20,000 an hour.
Unlike commercial aviation, however, you’re not paying for a seat, you're paying for the plane. That means no matter how many people you take with you, the price is the same. Therefore, the more people on the plane, the more cost-effective it becomes.
But let’s not kid ourselves: If you want to travel in style, a private jet is the ultimate extravagance. Want to impress a potential client or that special someone in your life? It's not just the aircraft; it's the concierge service too.
According to Raiff, “Anything our clients want or need for the flight is provided to them, including specialty foods and accommodations for pets. Our employees have decorated a plane for an in-flight Pirates of the Caribbean-themed party. An employee has traveled out of state to stock the plane with special half-moon cookies because a client once mentioned that it was their favorite. Sometimes clients will ask us to meet them on the runway with gifts or flowers for their spouses. We will arrange to have planes deep cleaned if someone on board has a peanut allergy. The list goes on and on. It’s not uncommon for our employees to stay up all night to prepare or fly along to make sure the experience is flawless.”
Saving Money on Private Jet Flights
Not all clients are looking for luxury jets stocked with their favorite type of caviar. That’s where companies like Hopscotch Air enter the market. Instead of jets, the company offers chartered services using turboprop aircraft; translation: aircraft with propellers.
They aren’t going to decorate your plane or cater to your expensive tastes and you won’t find any tables made of rare wood from some faraway land. But according to Capt. Chris Dupin, of the air-taxi service, Hopscotch Air, “The biggest amenity is the aircraft itself. In larger private jets, the customer is not allowed on the flight deck. In our aircraft, the client sits in the right front seat next to the captain. Many of our clients spend the entire flight asking questions about the airplane and how the air-traffic system works.”
The U.S. accounts for over 70% of the global private jet market share.
Prices are generally done via membership or per trip. An annual membership costs $3,250, or $350 a month. Add multiple people to the trip and you could wind up paying less per person than business-class pricing on a commercial aircraft. Options like this only work for more regional trips. For people not looking to throw down $5,000 for a quick flight to a neighboring city, these no-frills options offer value while still giving the advantages of private air travel.
There are also empty-leg flights that are priced as much as 75% off the normal cost of a trip. When a jet is booked for a one-way trip, it has to return home empty. For the company, that’s a lot of money without any return on its investment. Putting people on board at any price is better than nothing so firms offer empty-leg flights at a deep discount.
The Bottom Line
Ever wonder why you probably can't set foot on a commercial aircraft without paying a couple of hundred dollars? Because air travel is expensive. Putting a jet in the air costs a lot of money after paying for the crew, maintenance, airport fees, and more. Although there are now more affordable prices for private travel, it’s still mostly reserved for the richest of the rich who can afford the often multi-thousand-dollar hourly price tag.
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2d252f6d12cf611c4454cbe7ad5383c3 | https://www.investopedia.com/articles/personal-finance/063015/routing-number-vs-account-number-how-they-differ.asp | Routing Number vs. Account Number: What's the Difference? | Routing Number vs. Account Number: What's the Difference?
Routing Number vs. Account Number: An Overview
Every bank-related financial transaction requires two key pieces of information to identify customers: the routing number and the account number, both of which are assigned when you open an account. Whether you need to set up a direct deposit, such as your paycheck, or order checks online, you will need both your bank’s routing number and your personal account number for those transactions.
Account numbers are a lot like a customer ID, or fingerprint, that is specific to each account holder. Similarly, routing numbers identify each banking institution with a unique numerical ID. Routing and account numbers are assigned to indicate exactly where funds in a transaction are coming from and going to. Any time you make an electronic funds transfer, for instance, both the routing and account numbers must be provided to the relevant financial institutions.
Key Takeaways Account and routing numbers work together to identify your account and ensure that your money ends up in the right place. Both numbers are required to complete many basic banking transaction. The routing number indicates what bank your account is held. The account number is your unique identifier at that bank.
Routing Number
The routing number (sometimes referred to as an ABA routing number, in regard to the American Bankers Association) is a sequence of nine digits used by banks to identify specific financial institutions within the United States. This number proves that the bank is a federal- or state-chartered institution and that it maintains an account with the Federal Reserve.
Small banks generally possess just one routing number, while large multinational banks can have several different ones, usually based on the state in which you hold the account. Routing numbers are most commonly required when reordering checks, for payment of consumer bills, to establish a direct deposit (such as a paycheck), or for tax payments. The routing numbers used for domestic and international wire transfers are not the same as those listed on your checks. However, they can easily be obtained online or by contacting your bank.
Account Number
The account number works in conjunction with the routing number. While the routing number identifies the name of the financial institution, the account number—usually between eight and 12 digits—identifies your individual account. If you hold two accounts at the same bank, the routing numbers will, in most cases, be the same, but your account numbers will be different.
Your account number is required for every conceivable banking transaction, whether within the bank where the account is held or between banking institutions.
Anyone can locate a bank's routing number, but your account number is unique to you, so it is important to guard it, just as you would your Social Security number or PIN code.
Routing Number vs. Account Number Example
You should be able to find both your routing number and account number by logging into your online banking account. You can also find them on your checks. At the bottom of each check, you will see three groups of numbers: routing numbers (again, typically nine digits) appear as the first group, the account number generally comes second, and the third is the actual check number. Sometimes, however, such as on official bank checks, those numbers can appear in a different sequence.
Image by Sabrina Jiang © Investopedia 2020
This series of numbers is embedded with magnetic ink, known as your check’s MICR (Magnetic Ink Character Recognition) line. Pronounced "micker," the magnetic ink enables each bank’s processing equipment to read and process the account information.
If you are ever unsure about which number is which, you can contact your banking institution and always remember to double-check both numbers whenever you provide them to another party. This will ensure a seamless transaction that avoids delays or any associated bank charges stemming from the funds ending up in an incorrect account.
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87f2a3b4456edc3634b2b80e44cdadc7 | https://www.investopedia.com/articles/personal-finance/070215/how-buying-amazoncom-works.asp | How Buying on Amazon.com Works | How Buying on Amazon.com Works
Amazon.com Inc (AMZN) is an astonishing success story and the leader in online commerce. It started out selling books but quickly expanded into other products. As of 2020, it has a presence in nearly every consumer-oriented market, becoming a disruptive force in the retail space.
There are a number of reasons customers have increased their spending on Amazon, including excellent customer service, competitive prices, fast shipping, wide selection, and effective digital marketing.
Key Takeaways After creating an account on Amazon.com, purchasing a product is as simple as adding it to your shopping cart, entering your shipping and billing info, and clicking a confirmation button.Most orders go through Amazon's warehouses or fulfillment centers, where packing it and placing it on a delivery truck make take mere minutes.Amazon goes to great lengths to keep customers' info secure—and to track their buying habits.
How to Make an Amazon Purchase
The first step of the buying process is to go to Amazon's website and log into your account (if you don't have one, create one for free). The website then changes based on your previous searches on Amazon and products purchased. Thus, nearly everyone's Amazon experience is unique, with a personalized layout.
Once you find a product you want to purchase, click Add to Shopping Cart. From there, once you check out, you are taken to a page where you must enter your shipping and billing information. Once you enter this information and select your desired shipping option, click the final confirmation button to complete the order.
How Amazon Fulfills Your Order
Once a customer submits their order, Amazon's impressive backend system starts working. Orders from third-party sellers are routed to Amazon, which takes a cut of those sales. However, most orders go through Amazon's warehouses, which are spread out across the world. These are stocked based on algorithms that predict the types and number of products being ordered in that region.
These algorithms and fulfillment centers are one of the differentiators between Amazon and other online retailers. They make up the secret sauce that allows the company to consistently deliver faster and offer cheaper prices to customers.
The Amazon backend routes the order to the nearest fulfillment center, where a picker finds it. The product is packed and then placed in a waiting delivery truck, depending on the shipping option. The entire process may only take minutes from when the customer gives a final order confirmation before it is placed in the delivery truck.
How Amazon Keeps Info Secure
Customers should not worry about any significant security threat from sharing payment information on Amazon. The company has never had a significant breach of security, as it understands that buyers trusting the company is integral to its future success. Many buyers keep uploaded payment information on Amazon to activate one-click ordering or even automatic recurring orders. Many get points back on their purchases by using the Amazon Visa credit card.
It is understandable that many people may have concerns about Amazon, as it is an aggressive user of cookies that track users' activities on different websites. Amazon uses this information to send emails, deliver ads, and customize its offerings based on the online behavior of its customers. However, in terms of payment, Amazon uses Secure Sockets Layer, or SSL, which offers protection of payment information from third-party sources.
Another concern about buying online is that many people are accustomed to touching and feeling a product before buying. This may not be necessary for books but it is certainly so for clothes or shoes. However, Amazon has a burgeoning business in these products because it has a hassle-free return policy for customers, particularly Amazon Prime members. If customers are in any way unsatisfied with their purchase, they receive a full refund with no questions asked.
$87.437 billion Amazon revenue for the quarter ending December 31, 2019, a 20.8% increase year-over-year.
The Bottom Line
Despite all the benefits Amazon offers, there are some ways in which customers find Amazon lacking. Many of these grievances stem from the company's ruthlessness in dominating online retail. In its zeal for lower prices and market share, it tends to underpay workers in its fulfillment centers and squeeze sellers on its website.
Further, Amazon has squeezed out many smaller retailers that are unable to compete with it—and with them, the jobs for young or unskilled workers that retail has traditionally provided. Yes, Amazon offers employment opportunities too, but it's increasingly replacing workers with automated technology (another way it is able to offer lower costs).
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d209a6b3207ea47163d653935c93f8fe | https://www.investopedia.com/articles/personal-finance/070513/causes-and-costs-absenteeism.asp | The Causes and Costs of Absenteeism | The Causes and Costs of Absenteeism
There are a number of factors that can make or break a company. One of them is its workforce. Having a great workforce can spell the difference between success and failure. The happier and healthier employees are, the more likely it will be that the company will be successful. But that isn't always a guarantee. That's because there are a number of employee-related issues many businesses face that can chisel away at their success. One of those is absenteeism—when employees miss work beyond the scope of what's expected. Keep reading to find out more about absenteeism, the root causes of this phenomenon in the workforce, and how it affects employers.
Key Takeaways Absenteeism refers to an employee's habitual absence from work—usually intentional and without any good reason.Some of the main reasons for absenteeism include workplace harassment, family-related issues, illness, and job hunting.Absenteeism can result in higher costs for employers.Other employees often have to pick up the slack, which may result in a drop in morale.
What Is Absenteeism?
Absenteeism refers to an employee's habitual absence from work—usually intentional and without any good reason. It goes beyond any absences related to things like occasional sickness, vacations, and other personal time. While a few absences here and there don't normally pose a problem, absenteeism can, especially when an employee doesn't show up to work unexpectedly for extended periods of time.
While employers generally expect workers to miss a certain number of workdays each year, excessive absences can equate to decreased productivity and can have a major effect on company finances, morale, and other factors.
Causes of Absenteeism
People miss work for a variety of reasons, many of which are legitimate. Others generally are not. Some of the common causes of absenteeism include, but are not limited to:
Bullying and harassment: Employees who are bullied or harassed by coworkers and/or bosses are more likely to call in sick to avoid the situation.Burnout, stress, and low morale: Heavy workloads, stressful meetings and/or presentations, and feelings of being unappreciated can cause employees to avoid going into work. Personal stressors from outside the workplace can also lead to absenteeism.Childcare and eldercare: Employees may be forced to miss work in order to stay home and take care of a child or elder relative when normal arrangements have fallen through (for example, a sick caregiver or a snow day at school) or if the dependent is ill or hurt.Depression: According to the National Institute of Mental Health, the leading cause of absenteeism in the United States is depression. Depression can lead to substance abuse if people turn to drugs or alcohol to self-medicate their pain or anxiety.Disengagement: Employees who are not committed to their jobs, coworkers, and/or the company are more likely to miss work simply because they have no motivation to go into the office.Illness: Injuries, illness, and medical appointments are the most commonly reported reasons for missing work—though not always the actual reason. Not surprisingly, each year during the cold and flu season, there is a dramatic spike in absenteeism rates for both full- and part-time employees.Injuries: Accidents can occur on the job or outside of work, resulting in absences. In addition to acute injuries, chronic injuries such as back and neck problems are a common cause of absenteeism.Job hunting: Employees may call in sick to attend a job interview, to visit with a headhunter, or to work on their resumes.Partial shifts: Arriving late, leaving early, and taking longer breaks than allowed are considered forms of absenteeism and can affect productivity and workplace morale.
Costs of Lost Productivity
The Gallup-Sharecare Well-Being Index surveyed 94,000 workers across 14 major occupations in the U.S. Of the 77% of workers who fit the survey's definition of having a chronic health condition (asthma, cancer, depression, diabetes, heart attack, high blood pressure, high cholesterol or obesity), the total annual costs related to lost productivity totaled $84 billion.
According to the survey, the annual costs associated with absenteeism vary by industry, with the greatest loss occurring in professional occupations (excluding nurses, physicians, and teachers)—the 14 occupations and corresponding costs of lost productivity are shown below.
Annual cost of lost productivity by major U.S. occupations
Occupation Annual cost of lost productivity due to absenteeism (in billions) Professional (excluding nurses, physicians and teachers) $24.2 Managers/executives $15.7 Service workers $8.5 Clerical/office $8.1 Sales $6.8 School teachers (K-12) $5.6 Nurses $3.6 Transportation $3.5 Manufacturing/production $2.8 Business owners $2.0 Installation/repair $1.5 Construction/mining $1.3 Physicians $0.25 Farmers/foresters/fishers $0.16
According to Absenteeism: The Bottom-Line Killer, a publication of the workforce solution company Circadian, unscheduled absenteeism costs roughly $3,600 per year for each hourly worker and $2,660 each year for salaried employees. The costs can be attributed to many factors including:
Wages paid to absent employeesHigh-cost replacement workers (overtime pay for other employees and/or temporary workers)Administrative costs of managing absenteeism
Other indirect costs and effects of absenteeism include:
Poor quality of goods/services resulting from overtime fatigue or understaffingReduced productivityExcess manager time (dealing with discipline and finding suitable employee replacements)Safety issues (inadequately trained employees filling in for others, rushing to catch up after arriving as a replacement, etc.)Poor morale among employees who have to fill in or do extra work to cover absent coworkers
Debate Over Mandatory Sick Days
To address problems like this, some companies, cities, and states have moved toward a mandatory paid sick-leave policy, where each employee receives a specified number of days each year to use due to illness or injury.
Opponents of mandatory sick leave argue that it will ultimately cost businesses more money and lead to increased layoffs. In addition, opponents have concerns that employees will use all their sick days whether or not they need them. Advocates of such a move, however, argue that paid sick leave makes economic sense because it will help stop the spread of communicable diseases in the workplace, resulting in fewer instances of absenteeism in the long run, and that sick employees will be able to recover sooner.
The Centers for Disease Control, for example, states that paid sick leave could have an especially significant impact in the foodservice industry, where it estimates that sick food handlers are responsible for 53% of norovirus outbreaks. One sick food handler could theoretically infect dozens or even hundreds of people, resulting in a large number of absences that could be avoided if that employee simply stayed home.
Unfortunately, workers often either need the money or are worried about being terminated for calling in sick—even if they aren't compensated for the missed hours—so they go to work even if they know they are contagious.
Many employees still go to work even when they're ill because they fear they may be terminated or need the money.
What Employers Can Do
Absenteeism is an especially difficult problem to tackle because there are both legitimate and poor excuses for missing work. It can be very challenging for employers to effectively monitor, control, and reduce absenteeism. Unless a company requires a written excuse from a doctor, for example, it can be difficult to determine if an employee is actually sick when missing work.
At the same time, it's important for employers to consider the added costs associated with a sick employee who spreads an illness that gets the whole division or a lot of customers sick.
In an effort to reduce absenteeism, some companies offer incentives for going to work, such as earned time off or lotteries for workers who do not have any unexcused absences within a certain period. Other firms might try a more proactive approach, putting policies in place to focus on responses to employee health concerns, including:
Physical healthPsychological healthWork-home balanceEnvironmental healthEconomic health
The logic with this approach is that happier, healthier employees will be more able and motivated to go to work each day, resulting in increased productivity and higher morale for the individual workers as well as the entire team. Although these employee wellness strategies may be expensive to implement and maintain, they can have a net positive effect on a company's bottom line—and that's good for business.
The Bottom Line
Absenteeism costs U.S. companies billions of dollars each year in lost productivity, wages, poor quality of goods/services, and excess management time. In addition, the employees who do show up to work are often burdened with extra duties and responsibilities to fill in for absent employees, which can lead to feelings of frustration and a decline in morale.
Occasional absences from work are inevitable—people get sick or injured, have to take care of others, or need time during business hours to handle personal affairs. It is the habitual absences that are most challenging to employers, and that can have the greatest negative effect on coworkers. Because missed workdays have a profound financial effect on a company's bottom line, it is beneficial for most businesses to implement strategies to equitably monitor, reduce, and respond to absenteeism.
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24e1bd1f07d536109dd3db5da9770f8b | https://www.investopedia.com/articles/personal-finance/070715/home-depot-vs-lowes-home-improvement-battle.asp | Home Depot vs. Lowe's: What's the Difference? | Home Depot vs. Lowe's: What's the Difference?
Home Depot, Inc. (HD) and Lowe's Companies Inc. (LOW) have been the giants of the home improvement retailer industry in the U.S. for decades, each operating approximately 2,200 stores, each with more than 100,000 square feet of retail space. Both retailers go after the same market, but their branding and supply-chain strategies are different. As of 2020, the average Home Depot store has about 105,000 square feet of enclosed space and about 24,000 square feet of outdoor space for garden products. Lowe’s stores are even larger, with an average enclosed space of about 112,000 square feet and about 32,000 square feet of garden space.
In 2019, Home Depot operated 18 mechanized distribution centers in the U.S. and one in Canada. By comparison, Lowe’s operates 15 mechanized regional distribution centers in the U.S. and 7 in Canada. When Home Depot launched its modernization program in 2007, almost all of Lowe’s mechanized distribution centers were already in place, giving credence to the perception that Lowe’s had enjoyed a logistical advantage over its rival for many years.
Key Takeaways As the world’s first and second-largest home improvement retailers, Home Depot and Lowe’s share many similarities.They compete for a shared customer base across the U.S. and Canada.Both companies are committed to allowing customers to move seamlessly between online and offline channels.Home Depot is looking to improve profitability by building more distribution centers, while Lowe's has closed underperforming stores to boost its bottom line.
Home Depot
Despite being larger by market capitalization, The Home Depot, Inc. is the newer market entrant. Lowe's was founded in 1946 and Home Depot in 1978. As of March. 2020, Home Depot has 2,287 stores in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, Canada, and Mexico. The company has 1,981 retail stores in the U.S., 182 in Canada, and 124 in Mexico. Following an unsuccessful expansion attempt, Home Depot closed its last seven remaining big-box stores in China in 2012.
One of the priorities for Home Depot’s management is the continued modernization of its supply chain. For most of its history, Home Depot has had the reputation of lagging behind its main rival in terms of supply-chain efficiency, relying primarily on a decentralized supply chain in which suppliers shipped products directly to Home Depot stores. Although this decentralized approach did offer some advantages, it also had significant drawbacks, such as having to use large trucks to ship relatively small amounts of cargo. However, in 2007 Home Depot began a modernization program, including a transition to a centralized network of distribution centers.
In Jan. 2020, Home Depot announced an ambitious $1.2 billion investment to improve its distribution management by building massive distribution centers across the U.S. The company hopes this new type of distribution center, called a Flatbed Distribution Center (FDC), will speed up delivery of construction and building materials directly to the customer. Home Depot anticipates they'll be able to reach 90% of U.S. customers with same-day and next-day delivery. In 2020, the company opened an 800,000-square-foot FDC in Dallas and expects to open 40 more FDCs in its 40 largest markets in the coming years.
Lowe's
While Lowe’s has also enjoyed a spectacular history of growth, the company has faced challenges keeping pace with Home Depot, resulting in the company closing down underperforming stores. As of Feb. 1, 2020, Lowe’s operated 2,002 stores in the U.S. and Canada. That's down from the 2,155 stores it operated in 2018. In 2016, the company announced it would no longer continue its joint venture with Woolworths Limited to operate home improvement stores in Australia.
In November 2018, Lowe's reported the company would close 51 stores in the U.S. and Canada. This followed the company's announcement earlier in the year that it would shut down its 99 Orchard Supply Hardware stores and distribution center. In 2019, Lowe's shuttered all 13 stores it operated in Mexico, just ten years after it entered the Mexican marketplace.
Management cited missteps in inventory control resulting in low same-store sales as the reason for the need to close stores and restructure its business model. Looking to improve profitability, the company announced a new leadership team focused on sales growth in its U.S. brick-and-mortar stores along with enhanced online shopping opportunities.
Home Depot vs. Lowe's: Key Differences
Inside their stores, Home Depot and Lowe’s appear to have less in common. Home Depot’s stores feature an orange and black color scheme with tall shelves, the highest only accessible by forklifts. This industrial aesthetic gives the impression that the store is geared toward home improvement professionals. Lowe’s stores have a markedly different appearance. Employing a blue-and-white color scheme, they often feature more elaborate floor displays or themed products such as patio sets or holiday decor items.
Lowe’s has the reputation of being less intimidating for first-time home improvement customers.
Despite their distinctive brands, Home Depot and Lowe’s regard themselves as competing for the same customers. In referring to these customers, management from both companies distinguishes between two broad categories: retail and professional.
Special Considerations
Retail customers consist of two distinct types. So-called “do-it-for-me” (DIFM) retail customers are less likely to undertake projects on their own and more likely to pay extra for installation services. In contrast, the “do-it-yourself” (DIY) retail customers prefer to buy raw materials and complete their projects independently.
Professional customers run the gamut from individual contractors to construction managers. Their needs require more complex services, such as the ability to have orders delivered directly to construction sites.
In pursuing this shared customer-base, Home Depot and Lowe’s have adopted similar but non-identical strategic priorities. One major objective that both companies do share is the desire to cater to a customer base that is increasingly active online. Both Home Depot and Lowe’s are committed to allowing customers to move seamlessly between online and offline channels. For example, a customer might identify the desired product on the company’s website and arrange to have it delivered to their nearest store. Or, in the case of a professional customer, they may identify a product in-store and arrange to have it shipped to their worksite.
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8b0431f71bae8629c80de2027cfd6870 | https://www.investopedia.com/articles/personal-finance/070715/quick-guide-highnetworth-estate-planning.asp | A Quick Guide to High-Net-Worth Estate Planning | A Quick Guide to High-Net-Worth Estate Planning
Estate planning can be tough and very challenging, especially if you're a high-net-worth individual. Not only are the nuances of estate planning fairly complicated, but things in the industry are also constantly changing, which often makes it difficult to keep up.
From tax laws to tax liabilities to other issues that affect the family, there are so many things you have to consider. Some of the goals of high-net-worth individuals include protecting inheritances for heirs, minimizing estate taxes, avoiding the probate process, and appointing the right trustee. But how do you navigate this complex process? This article serves as a quick guide to planning your estate.
Key Takeaways Make sure you hire someone to take care of your best interests when you're ready to plan your estate. Be sure to minimize your estate taxes by knowing your gift, estate, and generation-skipping transfer tax limits—the gift and estate tax exemption is $11.7 million per individual for 2021 ($11.58 million for 2020). Make sure you make provisions like a power of attorney, a living will, or revocable trust if you become incapacitated. Check with your estate planner on the best way to avoid probate.
Choose the Right Trustee
First things first. Make sure you hire someone to take care of your estate planning needs. Unfortunately, there are some professionals out there who don't act in the best interest of their clients. They will sometimes opt for a route that provides them with the most income opportunity, not what will reduce costs and guarantee that assets end up in the right hands. But how do you know whether you can trust your trustee?
Do your research and find someone who will work for and with your needs. Be sure to ask questions, seek out and read reviews, and discuss all your estate planning goals with the person you choose to represent you. The information below should be seen as a starting point for choosing the right estate planning attorney or trustee.
Minimizing Estate Taxes
One of the many goals working people have is to save up for retirement and to build wealth to leave their loved ones after they die. But doing so often comes at a price. There are taxes to consider, which—if you don't make the right choices—can deplete the amount in your estate.
While planning your estate, you should consider every kind of tax scenario. This includes income taxes, gift taxes, estate taxes, and generation-skipping taxes. When you exclude income taxes, the remaining three are referred to as wealth transfer taxes. For each type of tax within that group, federal taxes are 40% of the value of whatever is being measured.
Keep in mind, it is possible that your state also imposes taxes, so you should check with your state to find out.
Gift and Estate Taxes
The passing of the Tax Cuts and Jobs Act (TCJA) in 2017 increased the exemption for the gifts and estate taxes—together, called a unified credit. For the 2021 tax year, that exemption is $11.7 million per individual ($11.58 million for 2020) or $23.4 million for married couples ($23.16 million for 2020). Anything above that amount is taxed at 40% of the gift’s value.
The gift and estate tax exemption is $11.7 million per individual or $23.4 million for married couples for the 2021 tax year.
You are allowed to give a gift of $15,000 per year per person, and there is no limit to how the number of recipients you have. But if you give someone $30,000 in one year, the first $15,000 is exempt—referred to as an annual exclusion gift—while the remaining is subject to a gift tax.
The same rules apply to estate taxes, but the $11.7 million estate tax exemption for 2021 is reduced by the value of the gifts you give throughout your lifetime. So if you gave $3 million worth of gifts using the lifetime gift tax exemption, then your estate tax exemption will now be $8.7 million.
Generation-Skipping Transfer Taxes
Generation-skipping transfer taxes are paid any time you give property to a grandchild or great-grandchild. Once again, tax paid is based on 40% of the value of the gift(s), and there is a tax exemption up to $11.7 million. In case you’re wondering, this tax exists so grantors (creators of a trust) don’t bypass the next generation in order to avoid tax obligations.
Incapacitation Planning
If you worked your entire life to save for retirement and to pass on an inheritance, you'd be furious if that inheritance dwindled or was wiped out. Let’s avoid that situation. In case you become incapacitated whether because of an accident, an illness, or from aging during your lifetime, you want to make sure you:
Provide care for dependents Appoint a trustee Guarantee the orderly management of your property Specify your end-of-life treatment if in a permanent vegetative state
To accomplish these goals, you will need to make sure certain steps are taken.
First, appoint a durable power of attorney. This kind of POA allows the agent to take charge of financial and legal matters, along with those involving any property after you become incapacitated. By doing so, you can ensure your agent can:
Manage your bank accounts Buy and sell property Manage other assets Open your mail
Next, consider a healthcare power of attorney (HCPA). This document and allows your agent to:
Determine medical treatment including doctor and hospital selection Determine long-term care Determine specific courses of treatment
Appoint a Health Insurance Portability and Accountability Act (HIPAA) release agent to:
Access your protected medical information
Complete a living will—also referred to as an advance directive. It:
Indicates if you would want a feeding tube removed Stops treatment to allow for a natural death
Create a revocable trust, which is designed to:
Appoint successor trustee
Finally, draw up a guardianship declaration to:
Determine who will take care of any children who are minors
Avoiding Probate
As hinted at above, many estate planning attorneys will try to lead you toward a traditional will. Why? Because they will benefit more from it than they would if you had a living trust. Be wary of estate planning attorneys who try to sell you on the idea that a living trust is more expensive and not a better option than a will. A living trust is more expensive upfront, but not over the long haul. If you want to avoid unnecessary financial and time costs, you need to avoid the probate process.
In order to accomplish this goal, you simply need to opt for a living trust instead. Since it’s a trust, not everything will be in your name, which means you can bypass probate. Despite not everything remaining in your name, you still have control of your assets while you're alive. Remember, you can appoint a successor if you become incapacitated.
A living trust offers other advantages as well. If it’s a revocable trust, then it can be amended, modified, or revoked at any time. A revocable trust also qualifies as a grantor trust, which allows you to move assets in and out of the trust without paying taxes.
If you’re concerned with how a potential beneficiary will behave with his or her inheritance, you can set limitations. For example, you can set a limitation that the beneficiary will only be able to use the inheritance for health or education purposes. You can also appoint an independent trustee who will have to approve all distributions.
To guarantee your assets end up in the right hands, be sure to create a specially designed trust where the shares of the trust will remain in the trust's name and transfer to each heir when you die. This will disallow a spouse from transferring assets to his or her children from a previous marriage. It will also disallow that spouse from transferring assets to a new spouse. Additionally, this kind of trust will protect your heirs from creditors and bankruptcy.
The Bottom Line
Now you know the basics about how to minimize estate taxes, plan for the event of incapacitation, avoid the probate process and protect your intended beneficiaries from immoral intentions. This information should be helpful when hiring an estate planning attorney.
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c2c6da4065e35dc061762f1bfcaabfbe | https://www.investopedia.com/articles/personal-finance/070815/10-questions-ask-your-estate-planning-attorney.asp | Questions to Ask Your Estate-Planning Attorney | Questions to Ask Your Estate-Planning Attorney
Estate planning can be difficult to think about. Overall, it forces individuals to contemplate fiscal matters that will occur while they are living and after their own deaths. It's thus extremely important to make sure assets are managed prudently and that next generational family members will receive inheritances, without incident.
Although any lawyer can draw up a simple will for straightforward situations, such as naming the beneficiary of one's 401(k), seasoned trust-and-estate lawyers can help navigate more complicated situations involving several trusts and multiple heirs.
1:21 Estate Planning Tips
When building an estate plan, you may have a variety of concerns, including the following:
Maintaining an orderly administration of assets while you are livingManaging estate assets flexibly while you are livingReviewing estates involving tenants in common or community propertyConsidering assets in multiple statesExamining small business assetsNaming your children’s legal guardianEnsuring that your heirs and loved ones receive your assetsHelping to reduce or avoid conflicts and confusionMinimizing legal expenses and taxesAssessing wealth preservation
These topics areas and the questions below are a good place to start when searching for the best attorney for your needs.
Key Takeaways It's important to have a solid estate plan in place to ensure that your loved ones receive your assets without a hassle or undue delay after your death.There are many questions you should ask prospective estate-planning attorneys before hiring one to craft your estate plan.Above all, make sure you hire an attorney who demonstrates a high-touch level of service, and with whom you feel comfortable discussing personal matters.
Questions for Your Potential Estate-Planning Lawyer
The following questions will help you to learn about estate planning and to determine if a prospective estate-planning attorney is right for you.
Is your primary focus on estate planning?
Proceed with a candidate only if they answer "yes" to this question. An estate specialist will be current with all changes to legal statutes and have the necessary strategic know-how to carefully word your documents in the most effective way possible.
How long have you been practicing?
Obviously, you should strive to find the most experienced attorney possible—one who has seen his prepared documents take effect after a client's death. Such attorneys will have faced challenges from courts or the Internal Revenue Service (IRS) and will know how to overcome any hurdles.
Do you actually execute the plan?
Some lawyers merely draw up estate-planning documents, while others also execute the associated trusts. It's generally more efficient to retain a lawyer in the latter category, who can ensure that the correct assets are transferred into the trust.
Do you conduct periodic reviews?
For a small fee, some estate-planning attorneys will semi-annually or annually review your affairs. This can be important, as adjustments to your plan may be necessary if you experience a life change or a change in your finances. New legislative amendments also could potentially change aspects of your estate planning.
What is your estate tax experience? How can I best manage estate taxes?
Case in point: The Tax Cuts and Jobs Act of 2017 raised the estate tax and generation-skipping tax exemptions until 2025.
Can you help me create a comprehensive estate plan that includes wills, trusts, and life insurance?
You may have multiple types of wills, trusts, and life insurance plans and comprehensive estate plans can include all of these. So it's important that your estate attorney is knowledgeable in these areas. You might want your estate attorney to help you understand the nuances of each estate-planning tool and discern the ones that might be right for you.
How do you charge?
Many estate-planning attorneys charge flat fees, instead of billing by the hour. Some do both, where they charge a fixed rate for standard services like establishing a trust, then charge an hourly rate for special research tasks. In any case, it's wise to inquire about compensation models ahead of time to avoid surprises.
How do you feel about a revocable living trust?
Putting assets into a revocable living trust can avoid the costly and onerous probate process (filing a will with the court). But this may not be the best move for everyone, because revocable living trusts don't avoid inheritance, estate, or income taxes. Unfortunately, some lawyers recommend these structures simply so they can charge more money.
What other issues do you address?
As life expectancy increases, so does the probability of long-term physical and mental health issues. Estate attorneys should help clients fiscally prepare for the possibility of disability or dementia by drawing up powers of attorney, healthcare directives, and living wills.
How long will it take you to complete my estate-planning project?
While there is generally no extreme rush, bear in mind that you may wish to discuss aspects of your estate plan with other professionals, such as accountants, retirement planners, or money managers. While an estate attorney's expertise may overlap with these fields, he or she may not be a general tax expert or investment advisor. Give yourself enough time to gain a broader, big-picture perspective on your estate plan and the logistical practicalities of implementing it.
Will you send estate-planning documentation for me to review?
Even if you’re working with an experienced estate-planning attorney, it's essential to review all documents and forms to avoid any miscommunication. Be clear about what can be changed later, and what is irrevocable.
Will anyone else in your office be able to discuss my issues in your absence?
While most estate-planning attorneys strive to make themselves available to their clients at any time, it's important to know that an associate or paralegal will be available to answer questions in an emergency if your lawyer is not available.
Some Questions for You
Here are several questions you should ask yourself:
When meeting with a potential estate planning lawyer, how comfortable do you feel with him or her?Does he communicate well and clearly?Do you agree with her general values? How does his or her bedside manner make you feel?Do you have a good rapport with her?Can you envision speaking with this individual about very personal matters?
Trust your instinct to determine if a particular estate-planning attorney is right for you. Estate planning can be complex, both emotionally and legally, so it's imperative to choose an attorney who can deftly handle all of its elements.
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fff225026bfaeaa06dd1f97a58e24730 | https://www.investopedia.com/articles/personal-finance/070815/using-your-529-savings-study-abroad.asp | Using Your 529 Savings to Study Abroad | Using Your 529 Savings to Study Abroad
As the cost of attending college increases both in the U.S. and across the globe, how to pay for it remains a big concern. Many students and their families who planned to use 529 plans to fund their education here are discovering this same plan can also be used to study abroad.
Understanding the 529 Plan
A 529 plan is a tax-advantaged college savings account. Permitted withdrawals are strictly limited to specified education expenditures. When you invest in a 529 account, your money grows at a rate that’s often several times higher than the average savings account. Interest rates vary significantly by the fund, so do your research before making your choice.
While different states offer different funds—as well as varying tax credits and deductions—don’t assume you have to buy into a plan offered by the state where you reside. The majority of 529 savings plans don’t have state-residency requirements, leaving you free to choose from a vast number of plans.
Key Takeaways 529 savings plans can be used to pay for study abroad programs but don't cover day-to-day expenses or travel costs. Your host school must be approved under Title IV and its federal student aid programs to use 529 funds to pay for it. Most 529 savings plans allow students to use them for schools outside of their home state.
How to Use 529 Savings to Study Abroad
Before putting down a deposit on an expensive study-abroad program, familiarize yourself with the rules regarding 529 plans and educational trips. The good news? The bulk of study-abroad expenses consists of tuition, fees, and approved room-and-board expenses, which are eligible to be funded with a 529 plan college-savings account, just like they are in the United States. Required textbooks—which can be a significant expenditure—are also covered.
In addition, under the Setting Every Community Up for Retirement Enhancement Act, or SECURE Act, 529 funds can be used to pay back student loans (up to $10,000) and for eligible apprenticeships, both of which could be useful for those studying abroad.
If you decide to live off-campus because it is less expensive than housing provided by the school, especially during the summer months, be sure to take into account that your rent will not be covered because it will no longer be a qualified expense.
If you can afford to pay for it yourself and think you want to save your 529 funds for other expenses, do the math and decide if the savings truly outweighs having your housing covered.
Which Expenses Are Not Eligible?
Unfortunately, there are study-abroad costs that are not covered because they are not considered qualified expenses by the IRS. These include:
The cost of traveling to and from the school, including airline tickets, train tickets, cab fares, etc.International health insurance or medical costs not covered by U.S. health insuranceBasic living expenses, which may be cheaper or more expensive than in the U.S.Any costs associated with an international cell phoneSports or other activities that are not part of the college curriculum Foreign transaction fees
You can't use 529 funds for travel, so budget accordingly for plane tickets to get to your destination and home again.
Read the Fine Print
If you’re enrolled in a semester-long Italian class at your local university and hope to join the Italian department’s study-abroad summer in Perugia, withdrawing money from a 529 plan might sound like the perfect way to fund the program. Here’s where the fine print comes in.
For such expenses to qualify, you’ll probably have to increase your course load because the IRS requires you to be at least a half-time student. Also, make sure the program you’re attending is offered by an IRS-approved educational institution. Most accredited universities fall into this category, but it pays to double-check.
The Bottom Line
The fantasy of studying abroad in some of the world’s most fascinating cities is often accompanied by sticker shock as tuition and room-and-board fees for these programs continue to rise. Fortunately, 529 plans offer those willing to plan ahead a smart way to save money on qualified expenses for educational travel. Just make sure to read the fine print.
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d61f9a57f702454e856594d6c469d98c | https://www.investopedia.com/articles/personal-finance/071015/reits-vs-real-estate-crowdfunding-how-they-differ.asp | REITs vs. Real Estate Crowdfunding | REITs vs. Real Estate Crowdfunding
Most people will benefit from having some of their portfolios in real estate. But most investors aren't suited to own rental properties. This concept has opened a whole world of investments where someone else manages the properties, but individuals can invest in them and reap some of the rewards. There are a few different ways to go about investing in real estate, the two biggest are through REITs and a newcomer to the game: Real estate crowdfunding.
Key Takeaways REITs purchase commercial properties and distribute the rental income to shareholders as dividends. Crowdfunding allows entrepreneurs to raise capital for projects from a large group of individuals. Investors can purchase shares of REITs through mutual funds or ETFs. If you don't want to buy property, you can invest in a crowdfunding company that specializes in real estate.
REITs
What Is a REIT?
Real estate investment trusts, commonly known as REITs, have been around since the 1960s, and allow investors to make investments in real estate without having to actually buy any property. How do they do this? It's fairly simple. A REIT purchases different properties—condominium complexes, large apartment buildings, hotels, office buildings, storage centers, retail outlets, and other similar properties—and leases or rents them out to tenants. Investors buy shares in the REIT. The rent collected by the REIT is distributed to investors in the form of dividends.
How REITs Work
REITs are actually tax breaks for corporations. That's good news for you, the investor. In order to qualify, REITs must distribute at least 90% of their profits back to their shareholders as dividends. This helps the corporation qualify for some lower taxation, while helping the investor to reap a larger portion of the profits than he or she otherwise may have been able to.
Investing in REITs
REIT investors are generally institutional investors. That's because they are complicated investment tools that may be hard for the average, individual investor to understand. If this kind of investment really piques your interest, there are alternatives. You can invest in REITs through mutual funds. This strategy helps gather the gains that can be made from investing in real estate, without all of the risk. You may also want to consider looking into REIT exchange-traded funds (ETFs), which you can purchase through a broker.
REITs trade like stocks, while crowdfunding can be conducted through a website or social media platform.
Crowdfunding
What Is Crowdfunding?
Crowdfunding is nothing new. But it has reached new heights with the rise of social media. The term refers to the raising of capital from a large pool of individuals in order to finance an entrepreneur's project, idea, business, non-profit, or invention. This allows people to reach a new group of potential investors beyond the usual suspects like family, friends, and venture capitalists.
How Does Real Estate Crowdfunding Work?
Crowdfunding has opened up new avenues for people who want to start their own business or project, but don't have the money to do so. They may not necessarily have the best credit score either, which automatically disqualifies them from getting a loan through traditional avenues. There are many different sites out there that a person can use to help raise funds. These crowdfunding sites are a great way for someone to get the investors that they need, without the hassle of going to banks or venture capitalists.
Real estate crowdfunding works in a similar manner. If someone wants to invest in real estate, but doesn't want to own or maintain a building, they can become a shareholder through a crowdfunding company. Any profits directed to the real estate venture—profits that come from rental income or flipping of the property—are passed on to the investor.
Which Investment Strategy Is for You?
The idea behind both REITs and crowdfunding is that you get a piece of the pie without all of the risk. But there are pros and cons to each.
REITs: Pros and Cons
Because they pay out dividends, REITs provide investors with guaranteed income, and they trade relatively easily, just like stocks. They help diversify a portfolio, providing investors with exposure to real estate without the hassle of having to deal with the headaches that comes with owning properties.
The biggest drawback that many people have with REITs is that they generally include higher expenses. These are portfolios that are generally difficult to manage, as real estate can come with some hefty maintenance costs. There are profits to be reaped by those who run the companies, which sometimes means a lower rate of return for the investor.
Crowdfunding: Pros and Cons
One of the biggest advantages of investing in crowdfunding for real estate is that you can commit a lower amount of capital for your investment. You can find a number of different projects that may only require as little as $500 or $1,000. Another benefit of going through this route is that there are generally no investment fees, unlike the additional costs you would be expected to pay with traditional real estate investments such as closing costs or realtor commissions.
The downside to investing with crowdfunding is that for most of these projects, you have to be an accredited investor. That means you have to meet some specifications that are set forth by the Securities and Exchange Commission (SEC), and many people do not meet those guidelines.
The Bottom Line
Real estate can be a great investment, but most people don’t want to worry about owning the actual property. Managing rentals can end up being a full-time job. The stress of renters can be a nightmare and the rates of return can be negative if done incorrectly. REITs and real estate crowdfunding take away a lot of those nightmares and open up real estate investment to anyone. Both investment options are attractive. It all depends on how much risk you wish to take. Remember, higher risk generally translates into higher reward.
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6e95cf9c65b2d00bacdded8bc8aa82bf | https://www.investopedia.com/articles/personal-finance/071114/should-you-pay-all-cash-your-next-home.asp | Should You Pay All Cash for Your Next Home? | Should You Pay All Cash for Your Next Home?
Should You Pay All Cash for Your Next Home?
"Cash is king," goes the old adage. However, does that philosophy ring true when buying a home?
Being ready to pay cash can not only give you an edge with motivated sellers eager to close the deal, but it can also help with sellers in real-estate markets where inventory is tight and bidders may be competing for their property.
Paying all cash for a home can make sense for some people and in some real-estate markets, but make sure you consider the downsides as well.
Understanding Paying All Cash For Your Next Home
Advantages of Paying All Cash for a Home
1. You’re a more attractive buyer. A seller who knows you don’t plan to apply for a mortgage is likely to take you more seriously. The mortgage process can be time-consuming, and there’s always the possibility that an applicant will be turned down, the deal will fall through, and the seller will have to start all over again, notes Mari Adam, a certified financial planner in Boca Raton, Florida.
Key Takeaways Cash offers can give buyers an edge with motivated sellers eager to close the deal, or with sellers in tight markets where many bidders are competing for properties.Paying all cash for a home can make sense for some people and in some markets, but make sure you consider the downsides, such as tying up too much investment capital in one asset class, losing the leverage found in a mortgage, and sacrificing liquidity.
2. You could find a better deal. Just as cash makes you a more appealing buyer, it also puts you in a better position to bargain. Even sellers who have never heard the phrase “time value of money” will understand intuitively that the sooner they receive their money, the sooner they can invest or make other use of it.
3. You don’t have to endure the hassle of securing a mortgage. Since the housing bubble and ensuing financial crisis of 2007 to 2008, mortgage underwriters have tightened their standards for deciding who’s worthy of a loan. As a result, they are likely to request more documentation even from buyers with solid incomes and impeccable credit records.
While that might be a prudent step on the part of the lending industry, it can mean more time and aggravation for mortgage applicants. Other buyers have little choice but to pay cash.
“We’ve had buyers who couldn’t get a new mortgage because they already have an existing mortgage on another house up for sale,” Adam says. “Since they can’t get a new mortgage, they buy the new property with all cash. Once the old property sells, they may place a mortgage on the new property or perhaps decide to forgo the mortgage altogether to save on interest.”
4. You’ll never lose a night’s sleep over mortgage payments. Mortgages represent the largest single bill most people have to pay each month, as well as the biggest burden if income falls off due to job loss or some other misfortune.
Years ago, homeowners would sometimes celebrate their final payments with mortgage-burning parties. Today, however, the average homeowner is unlikely to stay in the same place long enough to pay off a typical 30-year mortgage or even a 15-year one. In addition, homeowners often refinance their mortgages when interest rates fall, which can extend their loan obligations further into the future.
If peace of mind is important to you, paying off your mortgage early or paying cash for your home in the first place can be a smart move. That’s especially true as you approach retirement. Though considerably more Americans of retirement age carry housing debt than they did 20 years ago, according to Federal Reserve data. Many financial planners see at least a psychological benefit in retiring debt-free.
“If someone is downsizing to a less-expensive house in retirement,” says Michael J. Garry, a certified financial planner in Newtown, Pa., “I generally advise them to use the equity in their current home and not get a mortgage on the new house.”
Disadvantages of Paying All Cash for Your Home
1. You’ll be tying up a lot of money in one asset class. If the cash required to buy a home outright represents most of your savings, you’ll be bucking one of the hallowed rules of personal finance: diversification.
What’s more, in terms of return on investment, residential real estate has historically lagged behind stocks, according to many studies. That’s why most financial planners tell you to think of your home as a place to live rather than an investment.
2. You’ll lose the financial leverage a mortgage provides. When you buy an asset with borrowed money, your potential return is higher—assuming the asset increases in value.
For example, suppose you bought a $300,000 home that has since risen in value by $100,000 and is now worth $400,000. If you had paid cash for the home, your return would be 33% (a $100,000 gain on your $300,000). However, if you had put 20% down and borrowed the remaining 80%, your return would be 166% (a $100,000 gain on your $60,000 down payment). This oversimplified example ignores mortgage payments, tax deductions, and other factors, but that’s a general principle.
It’s worth noting that leverage works in the other direction, too. If your home declines in value, you can lose more, on a percentage basis, if you have a mortgage than if you had paid cash. That may not matter if you intend to stay in the home, but if you need to move, you could find yourself owing your lender more money than you can collect from the sale.
3. You’ll sacrifice liquidity. Liquidity refers to how quickly you can take your cash out of an investment if you ever need to. Most types of bank accounts are totally liquid, meaning that you can obtain cash almost instantly. Mutual funds and brokerage accounts can take a little longer, but not much. A home, however, can easily require months to sell.
You can, of course, borrow against the equity in your home, through a home equity loan, a home equity line of credit, or a reverse mortgage. As Garry points out, however, all of these options have drawbacks, including fees and borrowing limits, so they aren’t to be entered into casually.
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c6dc6869830ede9cfebdec067c8e0b81 | https://www.investopedia.com/articles/personal-finance/071415/how-cut-financial-advisor-expenses.asp | How to Cut Financial Advisor Expenses | How to Cut Financial Advisor Expenses
In an ideal relationship, your financial advisor should be happy with what you're paying. But what if you feel you're paying too much? Financial advisors don't want to charge so much that they drive away business, but they don't want to charge so little that their services don't appear valuable.
Key Takeaways The average fee for a financial advisor's services is 1.02% of assets under management (AUM) annually for an account of $1 million. An actively-managed portfolio usually involves a team of investment professionals buying and selling holdings–leading to higher fees. Financial advisors that offer passively-managed portfolios tend to have lower fees. Hiring a fee-based advisor, not a commission-based one, can also help lower the costs of a financial advisor.
How Financial Advisor Expenses Work
The average fee for a financial advisor's services is 1.02% of assets under management (AUM) annually for an account of $1 million. The industry average fee is 0.96% and decreases depending on the size of your account.
However, high-net-worth individuals may pay less since the fee structure works on a sliding scale. "A reasonable fee would be 1% at $1 million down to 0.50% at $10 million and 0.10% thereafter," says Ryan T. O'Donnell, CFP, wealth manager and founding partner of the O'Donnell Group in Chico, California.
In other words, clients should expect to pay a maximum of $50,000 on a $10 million account. Online advisors have shown that a reasonable fee for money management only is about 0.25% to 0.30% of assets, so if you don't want advice on anything else, that's a reasonable fee, O'Donnell says.
Value Added
An advisor should be able to explain how they're adding value for any amount charged above those rates. Is the advisor acting as your personal CFO, for example, and helping with tax planning or estate planning? Is he or she evaluating where you are vulnerable from an asset protection standpoint? Or is the advisor helping you ensure your charitable gifts have a bigger impact? Input at that level goes beyond money management to the burgeoning realm of wealth management.
Actively Managed
A portfolio that's actively managed usually involves a team of investment professionals, headed up by a portfolio manager, that are actively engaged in monitoring the portfolio's performance and holdings. The process would involve buy, sell, and hold recommendations and trades designed to outperform the market, which is typically measured by a benchmark index, such as the S&P 500.
"Expect to pay more for actively managed portfolios," says David P. Sims, a certified public accountant and registered investment advisor with Virginia-based RidgeHaven Capital LLC. "If the investment advisor puts more effort into beating the market, then clients should expect to pay a higher fee for assets under management."
However, just because you can pay extra for active management doesn't mean you should. According to a Vanguard study, "active fund managers as a group have underperformed their stated benchmarks across most of the fund categories and time periods considered." Plenty of other recent studies have similar findings. Nonetheless, the Vanguard report acknowledges that "a very talented active manager with a proven philosophy, discipline and process, and at competitive costs, can provide an opportunity for outperformance."
If you're going to hire a financial advisor with an actively-managed strategy, be sure to know what types of securities that the advisor will be investing in and whether those holdings align with your long-term financial goals and risk tolerance level.
Avoid Up-Front Loads
Other things to avoid are "big upfront loads and other silly fees that often accompany products being sold by select brokers," says Jacob Lumby, a graduate associate instructor of personal financial planning at Texas Tech University.
"Upfront loads are sales and commission charges that investment managers or funds charge investors at the onset of investing money with them. In today's low-cost investment world, there is no place for loaded mutual funds or related products. Fees are one of the leading indicators of investment results. Low fees result in more money in your investment account and a bigger legacy to pass on."
Value for Your Money
For the traditional 1% fee, clients can expect asset management services and a full financial plan that is updated at least annually, Lumby says. Some firms provide tax-planning services at no additional cost, but many partners with accounting firms for all tax-related services, which will cost you extra. The same is true of legal services, he adds.
"For high-net-worth clients with advanced planning needs, these fees can be worthwhile," Lumby says. "They need high-touch, custom plans with many different professionals involved." High-net-worth clients are very sophisticated, and they're also very busy, O'Donnell says. They aren't going to pay fees for the value they aren’t getting, but peace of mind and less stress can make a financial advisor’s fee worthwhile.
Pay Less for Quality Financial Advice
Although the goal is to reduce fees and expenses by as much as possible, it's important to consider the level of service and performance offered by the financial advisor being considered. Below are some effective tactics at cutting financial advisor expenses.
Fee-Based Financial Advisors
You've probably heard this before, but the best way to make sure you're getting unbiased financial advice that's in your best interest is to hire a fee-based advisor, not a commission-based one. Fee-based advisors have a greater incentive to grow their clients' assets, according to Sims. "In the long run, this is a win-win solution for the client and the advisor," he says.
Passively-Managed Funds
"If a client wants to reduce fees to razor-thin levels, some advisors will manage ETF-based portfolios that track different sectors of the market," Sims says. Exchange traded funds usually contain a basket of equities or bonds that mirror an underlying index, such as the S&P 500 or an index of U.S. Treasury bonds. This passive investment style requires less work from the investment advisor and usually results in lower fees for the investor.
Vanguard and Betterment
Alternatively, if you want to work with a professional advisor, but you don't need highly personalized service, Lumby suggests looking at Vanguard's Personal Advisor Services, which allows full access to an accredited financial advisor, a unique financial plan, and ongoing wealth management for a fee of 0.3% of assets managed annually (with an account minimum of $50,000). And if you need only portfolio management, not financial planning or advising, consider wealth management services like Betterment, where the fee is just 0.25%–0.40% of assets.
Negotiate for Lower Fees
Another way to pay less is to negotiate a financial advisor’s fee. Be prepared to explain why you feel it is too high and why it makes sense for the advisor to take you on as a client for less than what the firm normally charges. If you like the advisor but want fewer services than they typically provide for a client, they may be able to justify charging you less. The same is true if you’re bringing them more assets than they typically manage.
Try a Newer Financial Advisor
You could also take a chance on a newer advisor. "Often, they know they can't demand top dollar, and are hungry, need the business and are willing to dicker," says Gary Silverman, CFP, founder of Personal Money Planning in Wichita Falls, Tex., where he serves as its investment advisor and as a financial planner.
While you might get what you pay for, you’ll probably get more attention, says Silverman, "and folks that are new usually know they are a bit ignorant, so they'll study hard before handing you a recommendation." He adds, "Just because someone has been doing this for three years doesn't mean they do a poorer job than someone who's been at it for three decades."
The Bottom Line
When looking for a new financial advisor or deciding whether to stay with your existing one, remember that you're looking for the advisor who provides the best value, which will not necessarily be the one who comes at the lowest price. Think about what services you really need and how much they're worth to you, then find a financial advisor who fits your criteria.
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4931b2d26294f9b0e4525381e8f84c0a | https://www.investopedia.com/articles/personal-finance/072116/us-healthcare-costs-compared-other-countries.asp | How U.S. Healthcare Costs Compare to Other Countries | How U.S. Healthcare Costs Compare to Other Countries
How Do U.S. Healthcare Costs Compare to Other Countries?
The International Federation of Health Plans Comparative Price Report details healthcare products and services around the world. Its most recent survey, from 2015, looked at seven countries: the United States, the United Kingdom, Switzerland, Australia, New Zealand, South Africa, and Spain.
Results showed that not only were U.S. healthcare costs higher compared to the other countries in the survey, but there was also a significant difference in what people pay in the U.S. for the same drug or medical procedure.
In the study, the Federation wanted to prove that the issue is unit costs, not about utilization like many people think. Prices in the U.S. are on a like-for-like basis higher than their counterparts in other countries.
Tom Sackville, chief executive of the IFHP, said many people believe, incorrectly, that Americans spend more time in a hospital and more time visiting the doctor or having procedures, which is what drives up prices. "That's not the case. It appears it's quite an efficient system—they don't overuse it," Sackville said. "But each time they have an item, an episode of care, it costs two or three or five times more than it should, by international standards."
Key Takeaways Healthcare costs in the U.S. are among the highest in the world in all categories. Studies show that the relatively high cost of living is not the primary culprit in high U.S. healthcare costs. Costs may be far higher for the same medication or procedure in the U.S. than in comparable countries. Some factors that may lead to the high U.S. healthcare costs are hospital consolidation, lack of a national healthcare system, and inadequate industry regulation.
The data for the U.S. were extracted from more than 370 million medical claims and more than 170 million pharmacy claims, which the Federation says reflect prices negotiated and paid to health care providers. When comparing procedures across the seven countries, the Federation ensured that the entire process was "like-for-like, across international boundaries," Sackville said. For example, when comparing the price for a standard MRI scan, the data came from procedures where identical types of machines were used with equal staffing resources per procedure.
Understanding U.S. Healthcare Costs Compared to Other Countries
Price Differences
Not only did the Federation conclude that the average price in the U.S. is far higher than anywhere else, but it also found a wide disparity in the prices paid within the U.S. Sackville called the considerable variation in cost "completely unwarranted for any clinical reason."
For example, the average cost in the U.S. for an MRI scan was $1,119, compared to $811 in New Zealand, $215 in Australia and $181 in Spain. However, data showed that the 95th percentile in the price of this procedure in the U.S. was $3,031, meaning some people are paying nearly $3,000 more for a standard MRI scan in the U.S. than the average person in Australia and Spain.
Or take a standard hip replacement procedure. The average cost in the U.S. is $29,067, which is $10,000 more than the next highest-cost country, Australia. However, the data show that the 95th percentile cost in the U.S. reaches $57,225, $50,000 more than the average price in South Africa and $42,000 more than in New Zealand. The results for knee replacements are much the same. Sackville added that the study suggests that the more expensive procedures are no better than the average or cheap ones.
Source: The International Federation of Health Plans
The researchers also observed the trend in prescription drugs. Avastin, prescribed as a treatment for certain types of cancer, has an average price of $3,930 in the U.S. Switzerland is the second most expensive at $1,752. However, the data found that the 95th percentile in the U.S. paid up to $8,831. Avastin costs $470 in the U.K.
Similar trends were observed in Truvada (a treatment for HIV/AIDS), Harvoni (hepatitis C), Humira (rheumatoid arthritis) and Xarelto (blood clot prevention). One outlier was OxyContin, a general painkiller that is the most expensive in the U.K. at $590 per prescription, with the U.S. finishing second in cost at an average of $265. (Note: the prices are based on a 4-week to one-month supply)
Source: The International Federation of Health Plans
Why the U.S. Costs More
So why are medical costs considerably more expensive in the U.S.?
According to the researchers, the idea that the U.S. has a higher cost of living that drives up healthcare costs is a common fallacy. Numbeo is a crowd-sourced global database that bi-annually ranks countries by their cost of living. Its 2018 mid-year ranking has the United States at 21st, two places ahead of the U.K. Switzerland is first, New Zealand 17th, Australia 15th, Spain 34th, and South Africa at 70th. So, the overall cost of living seems an unlikely candidate for why healthcare in the U.S. is so expensive.
A lack of competition appears to be closer to the root of the problem, and hospital mergers are one development that has stifled competition. In March 2016, Kellogg School of Management at Northwestern University wrote a paper titled "The Price Effects of Cross-Market Hospital Mergers" in which researchers explored the cost of health care after the consolidation of hospitals in the same geographic market.
The report concluded that merged hospitals in similar geographic regions are likely to have had similar customers and insurers, which reduces competition. "The results suggest that cross-market, within-state hospital mergers appear to increase hospital systems’ leverage when bargaining with insurers," the report said.
"We find that hospitals gaining system members in-state (but not in the same geographic market) experience price increases of 6% to 10% relative to control hospitals, while hospitals gaining system members out-of-state show no statistically significant changes in price."
This is a sentiment shared by Tom Sackville, who says, "When there's anti-competitive behavior going on like consolidation of whole hospitals, which ends up driving prices up. No one does anything about it." Sackville added, "this may be not unconnected to the fact that all these people have a lot of lobbyists working in Washington and they are making themselves very amenable to local politicians."
In addition to the consolidation in hospitals, the mergers of health insurance companies has facilitated anti-competitive pricing behavior. In mid-July 2016, the U.S. antitrust officials sought to block two major acquisitions in the health insurance sector for fear it would reduce competition and drive up prices.
Whether it is the consolidation of hospitals and other health services or anti-competitive pricing behavior, healthcare costs in the U.S. are rising at a rate that far surpasses wage inflation.
Health Affairs has projected that spending on health care will grow at 5.8% per year until 2025. By 2025, it will make up 20.1% of U.S. GDP.
“There is no reason why identical procedures and products should vary in price so much across countries: it illustrates the damaging effects of an inadequately regulated healthcare market," Sackville said.
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d2d2ad7194b40b8222be46757927117b | https://www.investopedia.com/articles/personal-finance/072215/quick-guide-medicaid-and-nursing-home-rules.asp | Medicaid and Nursing Homes: A Quick Guide to the Rules | Medicaid and Nursing Homes: A Quick Guide to the Rules
Medicaid was created in 1965 as a social healthcare program to help people with low incomes receive medical attention. Many seniors rely on Medicaid to pay for long-term nursing home care.
“Most people pay out of their own pockets for long-term care until they become eligible for Medicaid. While Medicare is an entitlement program, Medicaid is a form of welfare—or at least that’s how it began. So to be eligible, you must become ‘impoverished’ under the program’s guidelines,” says Laura M. Krohn, a Rhode Island-based elder law attorney.
Let's look at how the economics work, and how Medicaid can be used to pay for a nursing home.
Key Takeaways Medicaid is for individuals and families living on a limited income; many seniors use it to pay for long-term care in nursing homes. In order to be eligible for Medicaid, you must meet specific income and asset requirements.To become eligible, seniors may choose to "pay down" or transfer their assets in order to meet Medicaid guidelines in their state. The transfer of assets must have occurred at least five years before applying to Medicaid in order to avoid the program's look-back period.
Medicare vs. Medicaid Roles in Nursing Home Care
Medicare does cover nursing home care—up to a point. If you are sent to a skilled nursing facility for care after a three-day in-patient hospital stay, Medicare will pay the full cost for the first 20 days. For the next 100 days, Medicare covers most of the charges, but patients must pay $176.00 per day (in 2020) unless they have a supplemental insurance policy.
These rules apply to traditional Medicare. People on Medicare Advantage plans likely have different benefits
Some nursing homes won’t accept Medicaid patients outright, but the law forbids them from throwing you out if you become dependent on Medicaid once you are in their care.
Qualifying for Medicaid
In all states, Medicaid is available to low-income individuals and families, pregnant women, people with disabilities, and the elderly. Medicaid programs vary from state to state, and the Affordable Care Act (ACA) allows states to provide Medicaid to adults (under the age of 65) without minor children or a disability.
Income standards are usually based on the Federal Poverty Level. Each state has its own guidelines and eligibility requirements. For example In New York state, there is an income limit of $15,750 (in 2020) for individuals, but in Mississippi, the limit is much lower—$4,000.
Because these rules vary by state, it may be best to speak directly to a regional office to obtain the correct set of guidelines for your home state. You can find a link to connect you via the Medicaid website.
How Your Assets Impact Eligibility
Besides income, your assets will be counted towards meeting eligibility requirements. Countable assets include checking and savings account balances, CDs, stocks, and bonds.
In most states, you can retain up to $2,000 as an individual and $3,000 for a married couple outside of your countable assets. However, these amounts may vary depending on the state you reside in.
Your home, your car, personal belongings, or your savings for funeral expenses remain outside of countable assets. If you can prove other assets are not accessible (because they are in an irrevocable trust, for example), they too are exempt. A house must be a principal residence and does not count as long as the nursing home resident or their spouse lives there or intends to return there.
Upon becoming eligible for Medicaid, all of the applicant's income must be used to pay for the nursing home, where the applicant resides. However, you may be allowed to keep a monthly "allowance" and a deduction for medical needs, such as private health insurance. The amount of allowance varies depending on your living arrangements, type of nursing facility, and state rules. If you are married, an allowance may be made for the spouse still living in the home.
Eligibility and Asset Transfer Rules
In the past, to avoid exceeding Medicaid's income limits, some families would transfer a patient's assets into the name of other relatives, such as the children. The Deficit Reduction Act of 2005 made such maneuvers much harder to do. Now, when you apply for Medicaid, there is a five-year “look-back” at all asset transfers. If Medicaid finds money transferred within the last five years, a penalty period is imposed, delaying the onset of Medicaid coverage.
Medicaid calculates the penalty by dividing the amount transferred by what Medicaid determines is the average price of nursing home care in your state.
For example, suppose Medicaid determines your state's average nursing home costs $6,000 per month, and you had transferred assets worth $120,000. You will not be eligible for Medicaid assistance until you pay the cost of the nursing home for 20 months ($120,000 ÷ $6,000 = 20). There is no limit to the number of months for which someone can be declared ineligible. The penalty period begins on the day the patient enters a nursing home.
Not all transfers are counted in the look-back period. Arrangements that are allowed include transfers to:
Spouse of the applicantA child under the age of 21A child who is permanently disabled or blindAn adult child who has been living in the home and provided care to the patient for at least two years prior to the application for MedicaidA sibling with an equity interest in the house who also has been living there for at least one year before the patient applied for Medicaid
Medicaid programs are paid for out of both federal and state funds.
When a State Can Recoup Benefits
After the Medicaid recipient dies, the state can try to recoup whatever benefits it has paid out. The home is usually the only major claimable asset. Currently, the state can only put a lien on it (or any other asset) if it is part of the deceased's probate estate. If the asset is jointly owned with a spouse or in a life estate or trust, then it can escape recovery.
In most states, the government can place a lien on the home after the death of both spouses, unless a dependent child resides on the property.
The Bottom Line
Depending on Medicaid as your long-term care insurance can be risky if you have a sizeable estate. And even if you don't, it may not meet all your needs. But if you anticipate wanting to qualify, review your financial situation as soon as possible, and have an elder- or senior-care attorney set up your affairs in a way that will give you the money you need for now, while rendering your assets ineligible to count against you in the future.
Don't forget that asset transfers must be in place at least five years prior to your application to avoid Medicaid's look-back period. Even so, plan to have enough assets to pay a facility privately or through private long-term care insurance, at least for the initial six months to a year.
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0a680d1ba5bb84b4cde293cb0b4a9c91 | https://www.investopedia.com/articles/personal-finance/072316/how-installment-loans-work.asp | How Installment Loans Work | How Installment Loans Work
An "installment loan" is a broad, general term that refers to the overwhelming majority of both personal and commercial loans extended to borrowers. Installment loans include any loan that is repaid with regularly scheduled payments or installments.
If you are thinking about applying for an installment loan there are pros and cons to consider first. Here's what you need to know before taking one out.
Key Takeaways Installment loans are personal or commercial loans that borrowers must repay with regularly scheduled payments or installments.For each installment payment, the borrower repays a portion of the principal borrowed and also pays interest on the loan.Examples of installment loans include auto loans, mortgage loans, personal loans, and student loans.The advantages of installment loans include flexible terms and lower interest rates.The disadvantages of installment loans include the risk of default and loss of collateral.
What Is an Installment Loan?
An installment loan provides a borrower with a fixed amount of money that must be repaid with regularly scheduled payments. Each payment on an installment debt includes repayment of a portion of the principal amount borrowed and also the payment of interest on the debt.
The main variables that determine the amount of each regularly scheduled loan payment include the amount of the loan, the interest rate charged to the borrower, and the length or term of the loan. The regular payment amount, typically due monthly, stays the same throughout the loan term, making it easy for the borrower to budget in advance to make the required payments.
Borrowers generally have to pay other fees in addition to interest charges, such as application processing fees, loan origination fees, and potential extra charges such as late payment fees.
Types of Installment Loans
Common types of installment loans are auto loans, mortgage loans, personal loans, and student loans. Other than mortgage loans, which are sometimes variable-rate loans where the interest rate changes during the term of the loan, nearly all installment loans are fixed-rate loans, meaning the interest rate charged over the term of the loan is fixed at the time of borrowing.
Secured vs. Unsecured Installment Loans
Installment loans may be either secured (collateralized) or unsecured (non-collateralized). Mortgage loans are collateralized with the house the loan is being used to purchase, and the collateral for an auto loan is the vehicle being purchased with the loan.
Some installment loans (often referred to as personal loans) are extended without collateral being required. Loans extended without the requirement of collateral are made based on the borrower's creditworthiness, usually demonstrated through a credit score, and the ability to repay as shown by the borrower's income and assets.
The interest rate charged on a non-secured loan is usually higher than the rate that would be charged on a comparable secured loan, reflecting the higher risk of non-repayment that the creditor accepts.
If you're considering taking out an installment loan, you may want to first check out a personal loan calculator to determine what kind interest rate you'll be able to afford.
Applying for an Installment Loan
A borrower applies for an installment loan by filling out an application with a lender, usually specifying the purpose of the loan, such as the purchase of a car. The lender discusses with the borrower various options regarding issues such as down payment, the term of the loan, the payment schedule, and the payment amounts.
If an individual wants to borrow $10,000 to finance the purchase of a car, for example, the lender informs the borrower that making a higher down payment could get the borrower a lower interest rate, or that the borrower could obtain lower monthly payments by taking out a loan for a longer term. The lender also reviews the borrower's creditworthiness to determine what amount of credit and what loan terms the lender is willing to offer.
The borrower ordinarily retires the loan by making the required payments. Borrowers can usually save interest charges by paying off the loan before the end of the term set in the loan agreement.
Some loans impose prepayment penalties if a borrower pays off their loan early.
Advantages and Disadvantages
Installment loans are flexible and can easily be tailored to the borrower's specific needs in terms of the loan amount and the length of time that best matches the borrower's ability to repay it. These loans let the borrower obtain financing at a substantially lower interest rate than what is usually available with revolving credit financing, such as credit cards. This way, the borrower can keep more cash on hand to use for other purposes, rather than making a large cash outlay.
Pros Ability to finance big purchases Payment amount typically stays the same throughout loan term Usually possible to save interest charges by paying off loan early Cons Loan fees can be high Credit can be damaged due to late or missed payments Potential to borrow more than needed
For longer-term loans, a disadvantage is that the borrower might be making payments on a fixed-interest loan at a higher interest rate than the prevailing market rate. The borrower may be able to refinance the loan at the prevailing lower interest rate.
The other main disadvantage of an installment loan stems from the borrower being locked into a long-term financial obligation. At some point, circumstances may render the borrower incapable of meeting the scheduled payments, risking default, and possible forfeiture of any collateral used to secure the loan.
Installment Loans and Credit Scores
Paying off an installment loan on time is an excellent way to build your credit. Payment history is the most important factor that contributes to your credit score and a long track record of responsible credit use is good for your credit rating.
As mentioned earlier, your credit score can take a hit if you don't make timely payments or you default on the loan—which is also a red flag in the eyes of lenders.
The Bottom Line
An installment loan can help you finance a major purchase, such as a car or home. Like any loan, there are pros and cons to consider. Advantages include flexible terms and lower interest rates, while a major disadvantage is the risk of default.
If you decide to take out an installment loan, be sure to shop around and compare rates and terms offered by lenders before signing on the dotted line.
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dcf49c0f98a84585ba253ef3baf6adff | https://www.investopedia.com/articles/personal-finance/072514/what-lenders-look-your-credit-report.asp | What Lenders Look at on Your Credit Report | What Lenders Look at on Your Credit Report
What do lenders consider when they look at your credit report? It's a simple question with a complicated answer, as there are no universal standards by which every lender judges potential borrowers.
Of course, there are some items that will decrease your odds of approval just about everywhere. Looking at what makes up your FICO score (which most people think of as "my credit rating") is a good place to start. FICO scores range between 300 and 850, with anything 650 or above considered a good credit score. If your score is below 620, you will probably find it difficult to borrow money at favorable interest rates.
Key Takeaways Payment history accounts for 35% of a borrower’s FICO score and is the most important factor for lenders. Large amounts of outstanding debt are another significant concern to lenders.A long track record of responsible credit use is good for your credit rating.Lenders want to see that their clients have experience using multiple sources of credit—from credit cards to car loans—in reliable ways.
Payment History
More than anything else, lenders want to get paid. Accordingly, a potential borrower’s track record of making on-time payments is of particular importance. In fact, in calculating a potential borrower’s FICO score, payment history is the most important factor. It accounts for 35% of the score. Nobody is excited about loaning money to someone who has demonstrated a less-than-stellar commitment to repaying their debts.
Late payments, missed payments, mortgage default, and bankruptcy are all red flags to lenders, as is having an account referred to a collection agency for lack of payment. While a few blemishes on your payment history may not stop lenders from giving you money, you are likely to get approved for a smaller amount of money than you might have otherwise qualified for, and you are likely to be charged a higher rate of interest.
Outstanding Debt
Large amounts of outstanding debt are another significant concern to lenders. It’s a bit of a paradox, but the less debt you have, the greater your chances of getting credit. The principle here is similar to that involving payment history. If you have a large amount of existing debt, the odds that you will be able to pay it back decrease.
Large amount varies from individual to individual and is defined based on metrics such as total annual income of the individual and the debt utilization rate, which is amount of debt divided by the limit amount of debt allowed in each account. Outstanding debt accounts for 30% of your FICO score calculation.
Length of Credit History
A long track record of responsible credit use is good for your credit rating. The frequency with which you use your cards also plays a role. The length of your credit history makes up 15% of your FICO score.
1:27 What Lenders Look At On Your Credit Report
New Accounts
Having an established credit history is good for your credit rating. Opening a bunch of new credit cards in a short amount of time is not. When you suddenly open multiple credit cards, potential lenders can’t help but wonder why you need so much credit. They will also have questions about your ability to repay the debt should you suddenly choose to max out all those cards. New credit accounts for 10% of your FICO score.
If you need a good credit score, take a pass on opening a new credit card account just to get that free travel mug or umbrella, and even that tempting 10% discount on your purchase at the time of opening a store account. Cashiers are paid to open new store credit cards and it is part of their duty to convince you to open store credit card accounts. It is your duty to resist it and decline respectfully to preserve your credit rating at a decent level.
Alternatively, if you already have opened multiple credit cards and need to improve your credit score, consider reaching out to one of the best credit repair agencies for assistance.
Signing up for several new credit cards within a short period of time may hurt your credit score.
Types of Credit Used
From credit cards to car loans and mortgages, there are a variety of ways consumers use credit. From a lender’s perspective, variety is good. Lenders want to see that their clients have experience using multiple sources of credit in reliable ways. FICO score calculations give a 10% weight to types of credit used.
Beyond FICO: What Else Lenders Consider
Your FICO score and its components provide a good set of general guidelines for the type of items lenders consider when reviewing applications for credit, but there’s more to the topic than just your score. Creditors may have their own proprietary scoring methodologies that use similar, but not identical, factors when determining an applicant’s eligibility for credit.
It’s also worth keeping in mind that while your credit rating plays an important role in helping you qualify for credit, it is not the only element that lenders consider. Factors such as the amount of income you earn, how much money you have in the bank, and the length of time you have been employed are also reviewed. Also, keep in mind that anytime you cosign a loan for another borrower, the track record of payments on that loan becomes your track record too.
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ac6d6e0a84f3280649f9d750f4ac4ddc | https://www.investopedia.com/articles/personal-finance/072913/basics-lines-credit.asp | Lines of Credit: The Basics | Lines of Credit: The Basics
When individuals need money, seeking a line of credit is often the last thing that occurs to them. What comes to mind first is generally going to a bank for a traditional fixed- or variable-rate loan, using credit cards, borrowing from friends or family, or turning to specialized peer-to-peer or social lending or donation sites on the web. In the direst of circumstances, there are pawnshops or payday lenders.
Businesses have been using credit lines for years to meet working capital needs and/or take advantage of strategic investment opportunities, but they’ve never quite caught on as much with individuals. Some of this may be due to the fact that banks often don’t advertise lines of credit, and potential borrowers don’t think to ask. The only credit line borrowing that might come up is a home equity line of credit or HELOC. But that is a loan secured by the borrower's home, with its own issues and risks.
Here, then, are some of the basics about lines of credit.
Key Takeaways A line of credit is a flexible loan from a financial institution that consists of a defined amount of money that you can access as needed and repay either immediately or over time. Interest is charged on a line of credit as soon as money is borrowed. Lines of credit are most often used to cover the gaps in irregular monthly income or finance a project whose cost cannot be predicted up front.
What Is a Line of Credit?
A line of credit is a flexible loan from a bank or financial institution. Similar to a credit card that offers you a limited amount of funds—funds that you can use when, if, and how you wish—a line of credit is a defined amount of money that you can access as needed and then repay immediately or over a prespecified period of time. As with a loan, a line of credit will charge interest as soon as money is borrowed, and borrowers must be approved by the bank, with such approval a byproduct of the borrower’s credit rating and/or relationship with the bank. Note that the interest rate is generally variable, which makes it difficult to predict what the money you borrow will actually end up costing you.
Lines of credit tend to be lower-risk revenue sources relative to credit card loans, but they do complicate a bank’s earning asset management somewhat, as the outstanding balances can’t really be controlled once the line of credit has been approved. They address the fact that banks are not terribly interested in underwriting one-time personal loans, particularly unsecured loans, for most customers. Likewise, it is not economical for a borrower to take out a loan every month or two, repay it, and then borrow again. Lines of credit answer both of these issues by making a specified amount of money available if and when the borrower needs it.
1:58 How Line of Credit Works
When a Line of Credit Is Useful
By and large, lines of credit are not intended to be used to fund one-time purchases such as houses or cars—which is what mortgages and auto loans are for, respectively—though lines of credit can be used to acquire items for which a bank might not normally underwrite a loan. Most commonly, individual lines of credit are intended for the same basic purpose as business lines of credit: to smooth out the vagaries of variable monthly income and expenses or to finance projects where it may be difficult to ascertain the exact funds needed in advance.
Consider a self-employed person whose monthly income is irregular or who experiences a significant, often unpredictable delay between performing the work and collecting the pay. While said person might usually rely on credit cards to deal with the cash-flow crunches, a line of credit can be a cheaper option (it typically offers lower interest rates) and offer more-flexible repayment schedules. Lines of credit can also help fund estimated quarterly tax payments, particularly when there is a discrepancy between the timing of the “accounting profit” and the actual receipt of cash.
In short, lines of credit can be useful in situations where there will be repeated cash outlays, but the amounts may not be known upfront and/or the vendors may not accept credit cards, and in situations that require large cash deposits—weddings being one good example. Likewise, lines of credit were often quite popular during the housing boom to fund home improvement or refurbishment projects. People would frequently get a mortgage to buy the dwelling and simultaneously obtain a line of credit to help fund whatever renovations or repairs were needed.
Personal lines of credit have also appeared as part of bank-offered overdraft protection plans. While not all banks are particularly eager to explain overdraft protection as a loan product (“It’s a service, not a loan!”), and not all overdraft protection plans are underpinned by personal lines of credit, many are. Here again, though, is an example of the use of a line of credit as a source of emergency funds on a quick, as-needed basis.
There is always a credit evaluation process when you apply to a bank for a line of credit.
The Problems with Lines of Credit
Like any loan product, lines of credit are potentially both useful and dangerous. If investors do tap a line of credit, that money has to be paid back (and the terms for such paybacks are spelled out at the time when the line of credit is initially granted). Accordingly, there is a credit evaluation process, and would-be borrowers with poor credit will have a much harder time being approved.
Likewise, it’s not free money. Unsecured lines of credit—that is, lines of credit not tied to the equity in your home or some other valuable property—are certainly cheaper than loans from pawnshops or payday lenders and usually cheaper than credit cards, but they’re more expensive than traditional secured loans, such as mortgages or auto loans. In most cases the interest on a line of credit is not tax deductible.
Some banks will charge a maintenance fee (either monthly or annually) if you do not use the line of credit, and interest starts accumulating as soon as money is borrowed. Because lines of credit can be drawn on and repaid on an unscheduled basis, some borrowers may find the interest calculations for lines of credit more complicated and be surprised at what they end up paying in interest.
Comparing Lines of Credit to Other Types of Borrowing
As suggested above, there are many similarities between lines of credit and other financing methods, but there are also important differences that borrowers need to understand.
Credit Cards
Like credit cards, lines of credit effectively have preset limits—you are approved to borrow a certain amount of money and no more. Also, like credit cards, policies for going over that limit vary with the lender, though banks tend to be less willing than credit cards to immediately approve overages (instead, they often look to renegotiate the line of credit and increase the borrowing limit). Again, as with plastic, the loan is essentially preapproved, and the money can be accessed whenever the borrower wants, for whatever use. Lastly, while credit cards and lines of credit may have annual fees, neither charge interest until there is an outstanding balance.
Unlike credit cards, lines of credit can be secured with real property. Prior to the housing crash, home equity lines of credit (HELOCs) were very popular with both lending officers and borrowers. While HELOCs are harder to get now, they are still available and tend to carry lower interest rates. Credit cards will always have minimum monthly payments, and companies will significantly increase the interest rate if those payments are not met. Lines of credit may or may not have similar immediate monthly repayment requirements.
Loans
Like a traditional loan, a line of credit requires acceptable credit and repayment of the funds and charges interest on any funds borrowed. Also like a loan, taking out, using, and repaying a line of credit can improve a borrower’s credit score.
Unlike a loan, which generally is for a fixed amount for a fixed time with a prearranged repayment schedule, a line of credit has both more flexibility and, generally, a variable rate of interest. When interest rates rise, your line of credit will cost more, not the case with a loan at fixed interest. There are also typically fewer restrictions on the use of funds borrowed under a line of credit. A mortgage must go toward the purchase of the listed property, and an auto loan must go toward the specified car, but a line of credit can be used at the discretion of the borrower.
Payday and Pawn Loans
There are some superficial similarities between lines of credit and payday and pawn loans, but that is really only due to the fact that many payday or pawn loan borrowers are “frequent flyers” who repeatedly borrow, repay, or extend their loans (paying very high fees and interest along the way). Likewise, a pawnbroker or payday lender does not care what a borrower uses the funds for, so long as the loan is repaid and all its fees are remitted.
The differences, however, are considerable. For anyone who can qualify for a line of credit, the cost of funds will be dramatically lower than for a payday or pawn loan. By the same token, the credit evaluation process is much simpler and less demanding for a payday or pawn loan (there may be no credit check at all), and you get your funds much, much more quickly. It is also the case that payday lenders and pawnbrokers seldom offer the amounts of money often approved in lines of credit. And on their side, banks seldom bother with lines of credit as small as the average payday or pawn loan.
The Bottom Line
Lines of credit are like any financial product—neither inherently good nor bad. It’s all in how people use them. On one hand, excessive borrowing against a line of credit can get somebody into financial trouble just as surely as spending with credit cards. On the other hand, lines of credit can be cost-effective solutions to month-to-month financial vagaries or executing a complicated transaction such as a wedding or home remodeling. As is the case with any loan, borrowers should pay careful attention to the terms (particularly the fees, interest rate, and repayment schedule), shop around, and not be afraid to ask plenty of questions before signing.
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725289ed41f63c5bceb2bdcffe54412c | https://www.investopedia.com/articles/personal-finance/072915/how-express-scripts-makes-money.asp | How Express Scripts Makes Money | How Express Scripts Makes Money
When Congress passed the Affordable Health Care Act in 2010, patients, healthcare providers, and health insurance companies alike all worried about the changing landscape of prescription drug costs. A class of companies called pharmacy benefit managers, or PBMs, has flourished in the difficult-to-navigate environment of the modern healthcare system. The largest of the PBMs, Express Scripts (formerly traded under ESRX), works with clients to make the process of purchasing prescription medication easier and less costly. Express Scripts generates the large majority of its revenues from the sale of prescription drugs, with a minute portion of revenues coming from additional services and fees.
Express Scripts was founded in 1986 in the greater St. Louis, Missouri area. It became a subsidiary of New York Life Insurance Company a few years later and was made a publicly traded company in 1992. Over nearly three decades after this shift, Express Scripts grew at a rapid pace, acquiring other PBMs and related ventures like ValueRx, NextRx, and Medco Health Solutions in the process.
Insurance giant Cigna (CI) announced in early March of 2018 that it would be acquiring Express Scripts in a deal worth around $67 billion. The deal was approved by federal antitrust officials in Sep. 2018 and completed on Dec. 20, 2018. Cigna suggested in a press release that the acquisition will "dramatically accelerate the number and breadth of value-based relationships" for the healthcare company.
According to the 2017 annual report, which is Express Script's most recent publicly available one, the company generated just over $100 billion in revenue for 2017. Adjusted EBITDA for that year was $7.4 billion. At the time of its acquisition by Cigna, Express Scripts was the largest PBM in the United States.
Fast Fact Cigna completed its acquisition of Express Scripts in Dec. 2018.
Express Scripts' Business Model
Express Scripts has three main stakeholders—its clients, the client’s members, and itself. The company serves a wide variety of clients, including health insurers, managed care providers, employers, union benefit plans, workers' compensation plans, and the state and federal government (through Medicaid on the state level and Medicare and Affordable Care Act plans at the federal level). The clients' members are the patients (or prescription drug consumers). Express Scripts offers prescription drug utilization plans to these clients, aiming for a balance between cost parameters and member needs. Express Scripts divides its operations into two categories: PBM and Other Business Operations. PBM services consist of clinical programs, specialized pharmacy care and services, home delivery pharmacy services, drug utilization review, benefit design consultation, and more. Other Business Operations services include provider and pharmaceutical services, as well as medical benefit management services.
Express Scripts focuses on three key areas to lower costs and generate profit:
Formulary Management: Express Scripts establishes formularies, which are lists of designated drugs that benefit plan managers are willing to pay for on behalf of the patient/customer. These formularies are typically tiered such that the first tier contains drugs that are covered and have the lowest co-pay through the top tier, which has the highest co-pay. Formularies benefit the three stakeholders, the client benefits through lower drug costs, and the patient/customer benefits through a lower co-pay. Like all pharmacy benefit management companies, Express Scripts also negotiates with drug manufacturers for volume discounts (rebates) on drugs in the formularies, passing a portion of these savings along to its clients and retaining the remainder as profit.Dispensing Location: There are two ways customers can acquire their prescription drugs: at a retail location or through the mail. PBMs typically have a wide retail pharmacy network. The Express Scripts network consists of over 83 million members, 28,000 employees, and 1.4 billion annual prescriptions as of March 8, 2018. The company uses its size and scale to negotiate drug prices with the retail network and receive discounts, some of which are passed along to the client and some of which it retains as profit. Mail order delivery is another drug delivery method. Doctors submit the prescription to the Express Scripts system directly and the patient receives the drug in the mail. This is typically used for drugs that are taken on an ongoing basis rather than one-off prescriptions. When using mail order, patients are less likely to run out of drugs and the cost of drugs is generally much cheaper as well. Express Scripts benefits because they don’t have to pay the intermediary (the retail pharmacy) and they own and control the distribution center, resulting in lower costs and higher profit margins for Express Scripts.Pushing Generic Drugs: Express Scripts encourage generic drugs over branded. They are able to improve generic dispensing rates through the use of e-prescribing, which guides physicians to automatically select a generic, and through the mail order dispensing process. Encouraging the use of generic drugs, like pushing patients to use mail order dispensaries, generates higher profit margins for the company.
According to the company’s 2017 full year results, Express Scripts had full year income of $4,517.4 million in the 12 months during 2017. The company also had 2017 revenues of $100,064.6 million, down from the previous year's revenue of $100,278.5 million.
Key Takeaways At the time of its acquisition by Cigna, Express Scripts was the largest pharmacy benefit management (PBM) company in the U.S.Express Scripts makes most of its revenue through the delivery of prescription drugs, with some additional revenue coming from other services and fees.Express Scripts' clients include employers, managed care providers, health insurers, and more.
Express Script's Prescription Drug Business
Express Scripts derives the majority of its revenues from the delivery of prescription drugs through either the retail network or mail order dispensing. Revenues from the delivery of prescription drugs represented 98.2% of revenues in 2017.
Fast Fact Express Scripts' annual Drug Trend Report is a key analysis of prescription drug costs and utilization.
Future Plans
Prior to its acquisition by Cigna, Express Scripts made a major effort to upgrade its technological profile, according to Forbes. This is likely part of an attempt at making the company more streamlined and efficient, as well as more profitable. At the same time, technological upgrades can allow clients to better serve their members as well.
If it Isn't Broken, Don't Fix It
Since the acquisition was completed in late 2018, not a great deal about Express Scripts has changed, at least to the outside observer. Part of Cigna's interest in acquiring the company was because of their already-obvious mutually beneficial qualities. With that in mind, it may not have been necessary to completely revamp the Express Scripts business model in order to integrate it into the Cigna model.
Key Challenges
Express Scripts competes with other PBMs that are either independent or owned by managed care organizations or retail pharmacies as well as other benefit model competitors like brokers. While there are low barriers to entry, there are many factors that can impede the competitiveness of a PBM, such as the ability to contract with retail pharmacies, the ability to negotiate discounts on prescription drugs with drug manufacturers, the ability to navigate the complexities of governmental reimbursement, and the ability to the manage cost and quality of specialty drugs. Going forward, Express Scripts must adapt to changes in the pharmaceuticals industry, changing regulations at the federal and state levels, and new customer and client needs in order to remain as highly profitable as it is today.
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872c1b25ab481d35bc093fe70058a543 | https://www.investopedia.com/articles/personal-finance/073015/free-credit-score-it-really-free.asp | Free Credit Score: Is It Really Free? | Free Credit Score: Is It Really Free?
In today’s banking environment, the decision to offer you a mortgage or grant you a credit card sometimes comes down to one simple thing: your credit score. Based on information in your credit report, this numerical rating provides an easy way to assess your risk of defaulting on a loan. No wonder, then, that consumers are eager to find out their score, and, if possible, as part of a free credit check.
Avoid Getting Trapped
There is a multitude of websites claiming to offer credit scores at no cost. However there’s a big problem with many of them: They’re not actually free.
When visitors sign up, they’re often enrolled, unwittingly, in a credit monitoring service that charges a monthly fee. In 2010 the Federal Trade Commission (FTC) attempted to clamp down on this practice. It required “free” sites to provide a warning that, under federal law, the only authorized source for no-cost credit reports (though not for free credit scores) is AnnualCreditReport.com.
Credit tracking companies deftly maneuvered around these notifications. Freecreditreport.com, perhaps the most well-known of these sites, began offering credit scores for $1 (which it donated to charity) in order to avoid the FTC rule. As reported by the New York Times, consumers who requested their score then received a trial subscription to a monthly credit monitoring service. If they didn’t cancel it within seven days, they were charged $14.95 a month. However, as of December 2020, Freecreditreport.com is now overtly marketed as “a part of Experian,” the well-known credit bureau, and claims to offer free credit monitoring with “no credit card required.”
The $1 gambit, however, simply seems to have migrated. CreditCheckTotal.com currently offers three credit reports and a FICO score for $1 for a seven-day trial membership in something called “Experian CreditCheck Total.” After seven days, during which you can cancel your membership at any time, you will automatically start being billed $29.99 per month for the service (pretty much double the tariff charged in 2010), and though you may cancel at any time, the fine print says that “you will not be eligible for a pro-rated refund of your current month’s paid membership fee.” Vigilance is clearly still required.
Top Sites for Free Credit Reports
While some websites use the term “free” liberally, there are actually more places than ever to get a truly no-cost credit report. These include:
CreditSesame.com (which, at the time of writing, happens to be one of the best credit monitoring services currently available) CreditKarma.com BankRate.com (formerly Quizzle.com) Credit.com LendingTree.com Mint.Intuit.com WalletHub.com
Rather than making money directly from consumers, these firms either collect advertising revenue or charge their lending partners a fee when they get a new customer through the site.
If you’re waiting for a catch, here it is: The numerical rating that these sites provide isn’t the FICO score that most banks rely on to make lending decisions. Rather, they give you a VantageScore, created in collaboration by the top three credit bureaus: Experian, Equifax, and TransUnion. It uses the same basic information from your credit reports, but employs a somewhat different mathematical formula to compute the score. That’s not to say VantageScores aren’t valuable. They’re still useful for tracking overall trends in your credit and generally offer an approximation of what lenders use.
Top Sites for Free Credit Scores
If you’re interested in seeing your actual FICO score, you might want to check with your bank or credit card company. A growing number of credit card issuers now offer truly free credit scores as a way to entice new customers. They include:
American Express Bank of America Barclaycard Chase Citibank Discover Wells Fargo
Anyone else may have to pay if they want their actual FICO score by visiting myFICO.com. The site offers single-time and monthly packages. The recurring ones are $19.95 (basic), $29.95 (advanced), or $39.95 (premier) per month, with the advanced and premier plans including identity theft monitoring. The two single-time packages are $19.95 for a report from just one credit bureau and $59.85 for a report from all three. Of course, the more you pay, the more features you receive.
As noted above, if you just want to read your credit report without seeing your score, you can do that once a year, completely free, at AnnualCreditReport.com. The nice thing about this government-sanctioned site is that you can request reports from all three bureaus. Because some banks use only one or two of the reports to make lending decisions, it’s always a good idea to make sure that all three contain accurate information about your borrowing history.
The Bottom Line
While the FTC has tried to increase transparency, some websites offering “free” credit scores have found a way around those rules. If a website asks for your credit card before providing a score, expect to find a fee on your bill before too long. Of course, as there are resources to see this data for free, that’s probably where you should start your search.
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3b1b5354332e54dc645c80cb11e12aa1 | https://www.investopedia.com/articles/personal-finance/073114/pros-and-mostly-cons-early-retirement.asp | Early Retirement: The Pros and (Mostly) Cons | Early Retirement: The Pros and (Mostly) Cons
Even though Americans' net worth still hasn't fully recovered from the Great Recession of 2007–2009, many of us continue to dream of retiring early. A 2019 survey by the reverse mortgage company American Advisors Group found that 52% of Americans plan to exit full-time employment before age 65.
Not everyone will have a choice in the matter, of course. Job loss, health problems, or family responsibilities can disrupt the best-laid retirement plans, forcing people out of the workforce sooner than expected.
But if you're lucky enough to have control over when you retire, it's worth thinking through the pros and cons before you make any decisions. Even if you can afford to retire early, you might not want to.
Key Takeaways Many Americans plan to retire early, before the proverbial age of 65. Pros of retiring early include health benefits, opportunities to travel, or starting a new career or business venture. Cons of retiring early include the strain on savings, due to increased expenses and smaller Social Security benefits, and a depressing effect on mental health. There may be ways to chart a middle course—cutting back on work without fully retiring.
Some Pros of Retiring Early
1. It could be good for your health
Sleeping later, getting out in the fresh air and sunshine, no more gulping meals at your desk—we can all easily imagine how leaving behind the office grind leads to healthier habits.
This isn't just supposition. A 2002 study of British civil servants, for example, found that retiring at age 60 had no adverse effect on the subjects' physical health overall. In fact, those with higher-level jobs saw an improvement in mental health, possibly because they were no longer subject to work-related stress (and had better pensions than lower-ranked workers).
Other studies, however, have suggested that retirement can be hazardous to your health, as we'll get to in the next section.
2. You'll enjoy more time to travel
Oh, the places you'll go! Or could go, once you're no longer limited to the proverbial two weeks a year vacation. Plus, the earlier you retire, the more years you'll have before health issues begin to limit your mobility.
3. It's an opportunity to start a new career
If you dream of switching fields or starting your own business, sooner may be better than later. You'll be a more desirable job candidate to many employers the more years you have ahead of you.
If you want to be your own boss, you'll have more time to get your new venture off the ground. A business you launch at age 60, for example, could easily keep you intellectually challenged and out of mischief for another 20 years or more.
Pros of Retiring Early Potentially good for your health More time for travel Opportunity to start a new career Cons of Retiring Early Possible declines in mental health, difficult lifestyle transition Smaller Social Security benefits Retirement savings have to last longer Need to find health insurance
Some Cons of Retiring Early
1. It could be bad for your health
A 2008 analysis from the National Bureau of Economic Research reported that retirement leads to declines in mental health and mobility and increases in other poor health outcomes, such as heart disease and stroke.
While that's one argument for delaying retirement, those problems aren't inevitable. The report also concluded that retirees who remained physically active and socially connected were less likely to suffer any ill effects.
2. Your Social Security benefits will be smaller
The sooner you start to take Social Security, the lower your benefits will be. If you were born in 1960 or later, for example, and you start taking benefits at age 62, the earliest age at which you're eligible, your monthly benefits will be 30% less than if you wait until age 67, which Social Security refers to as your "full retirement age."
For each year you postpone from age 67 to 70, you'll receive an additional 8% in your monthly benefit. After age 70, there's no further bonus for delaying.
3. Your retirement savings will have to last longer
If you retire at age 62 and live to 90, let's say, your individual retirement accounts (IRAs) and other savings will have to cover you for 28 years. If you retire at 70 and live for the same length of time, however, your savings will only have to last for 20 years. Working longer also means you'll have more years to contribute to a 401(k) or another retirement plan, and the money in your plan will have more time to compound.
"An easy rule of thumb to estimate your retire-ability is to multiply your expected draw on investment portfolios that will supplement Social Security and other sources by 25," says Stephen J. Taddie, co-founder and managing partner of Stellar Capital Management LLC, Phoenix, Ariz. "If you have that amount of money in your combined accounts, you're ready to put a pencil to it. If you're 'close,' think twice."
And don't assume that living will be less expensive, either. "One common myth is that your expenses decline in retirement," says Jennifer E. Myers, CFP®, president of SageVest Wealth Management, McLean, Va.
Myers adds the following:
We seldom find that to be the case for three primary reasons. First, you simply have more time on your hands to enjoy, partake, and spend. Second, as individuals grow older, they tend to outsource more, layering on new expenses. Third, your healthcare expenses logically tend to increase as you age. It's important to make sure your assets can sustain potential, and perhaps inevitable, growth in spending over your lifetime.
4. You'll need to find health insurance
Unless your ex-employer provides it, you'll have to pay for health insurance on your own until you're eligible for Medicare at age 65. If you do, be ready for sticker shock: Insurance premiums can easily be double or triple what you're used to paying on your workplace plan—there's no company picking up most of the tab anymore.
At the same time, unfortunately, health insurance rates climb as you get older, skyrocketing into four figures monthly after age 55.
5. You might get bored and miss working
Many retires have a tough time making the transition from the daily routines of a full-time job to the unstructured life of retirement. They may also miss their former colleagues (sometimes even the boss) and yearn to return. Unfortunately, it isn't easy to get back into the workforce once you've left it, voluntarily or otherwise.
A 2012 report by the U.S. Government Accountability Office noted that people over age 55 generally need more time to find new jobs than their younger counterparts do.
A Middle Ground
If you don't want to retire early for fear you'll regret the decision but also don't want to wait so long that you miss out on the pleasures of retirement, there are ways to have the best of both worlds.
One example: You might try to negotiate a reduced work schedule with your employer and enjoy the life of a retiree on your days off, an arrangement that's often referred to as "phased retirement." Or, if circumstances allow, see if you can work from home part of the week—that'll give you a sense of how isolation, a more fluid schedule, and not getting out of the house/apartment suits you.
Finally, take some of those vacation days all at once, and do some of the major traveling to faraway lands you've always dreamed of.
The Bottom Line
Deciding when to retire is a complex decision that isn't just a question of dollars and cents. Your health, family obligations, and individual temperament all figure into it, or at least they should. Perhaps most important is whether you've thought through what you plan to do with your retirement years, however many of them lie ahead. As the wise old saying goes, it's important not just to retire from something but to something.
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c45ba99295ba3df9245d59259db2b1e3 | https://www.investopedia.com/articles/personal-finance/073115/5-reasons-convert-your-roth-traditional-ira.asp | Reasons to Convert a Roth IRA to a Traditional IRA | Reasons to Convert a Roth IRA to a Traditional IRA
One reason Roth IRAs are so popular is the tax benefits: Money in the account grows tax-free and qualified withdrawals in retirement are tax-free, as well. Still, there are times when it might make financial sense to convert your Roth IRA to a traditional IRA. Here are five compelling reasons.
Note that recharacterizing from a Roth back to a traditional IRA has mostly been banned due to the Tax Cuts and Jobs Act of 2017 (TCJA).
Key Takeaways Roth IRAs offer tax-free withdrawals during retirement, but sometimes it makes financial sense to get a traditional IRA's upfront tax break. If you convert to a Roth IRA and end up in a higher tax bracket, you can reverse the conversion. If you make too much money, you can't contribute to a Roth. Traditional IRAs don't have income restrictions for contributions. The process of recharacterization was eliminated in most cases in 2017 under the Tax Cuts and Jobs Act.
Traditional IRAs Have Upfront Tax Breaks
The simplest, if not the bleakest, reason to convert your Roth IRA to a traditional IRA is that you're cash poor, at least right now. That means you might not be able to comfortably pay the income tax due on the money you contribute to a Roth IRA.
Contributing to a traditional IRA is less of a financial stretch because that money is taken from gross pay, not take-home pay. In other words, you get an upfront tax break on your contributions. When you withdraw the money during retirement, you'll owe income taxes on your contributions and investment returns.
"In a situation where someone is tight for cash, a traditional IRA contribution will provide more deductions, and therefore, more cash in hand after tax filing," notes David S. Hunter, CFP®, president of Horizons Wealth Management, Inc., in Asheville, N.C.
Your Roth Account Underperformed
If your Roth IRA account has suddenly lost value due to market forces, Uncle Sam won't cut you a break. You'll still be taxed on the money you put into the account that year.
You might save on your tax bill by converting your Roth IRA to a traditional IRA. With the switch, you at least defer the reckoning until after you retire. Even then, you are taxed only on what you take out—not on the entire balance.
You Made Too Much to Contribute to a Roth
You must meet specific modified adjusted gross income (MAGI) levels to contribute to a Roth IRA. For 2021, your income must be less than $125,000 as a single filer ($124,000 for 2020) to make the full contribution, which is:
$6,000 if you're less than age 50 $7,000 if you're age 50 or older
The limit for married couples filing jointly is less than $198,000 for 2021 ($196,000 for 2020). There are reduced contribution levels if your MAGI is a few thousand dollars above those cutoff levels.
You can convert a Roth to a traditional IRA anytime. You report it on the same year's tax return.
If your MAGI exceeds the maximum level—or is hovering near it—you might want to convert your Roth IRA to a traditional IRA. That way you can still contribute to an IRA: There are no income limits for contributing to a traditional IRA.
Still, if you make too much money you might not be able to take the full upfront tax deduction—so do some number crunching before you make any decisions.
You Expect Your Income to Drop
Say you crunch the numbers on your projected annual income after you retire and realize you're likely to be in a significantly lower tax bracket. That's not necessarily a disaster if you have determined that your living costs will be lower too.
However, it means you won't benefit as much from the tax-free distributions that are the key feature of a Roth IRA. If you convert to a traditional IRA now, you'll get the immediate tax benefit of pre-tax contributions. That can give you more money to invest elsewhere, or provide extra cash that you need now.
"If you are expecting to be in a lower tax bracket in retirement, which is common, then it makes more sense to utilize a traditional IRA," says Mark Hebner, founder and president of Index Fund Advisors in Irvine, Calif.
"You forgo paying taxes on contributions at your current higher tax rate and then pay taxes in retirement at a lower tax rate on distributions."
Just keep in mind that required minimum distributions (RMDs) begin at age 72 for a traditional IRA. Roth IRAs have no RMDs during the original account owner's lifetime.
A Roth Conversion Bumped You Up a Tax Bracket
If you turn a traditional IRA into a Roth IRA, you'll pay income taxes on the amount you convert—and it could be substantial.
If you convert a traditional IRA worth, say, $100,000 into a Roth IRA, your taxable income increases by $94,000. That's the balance of the account minus the $6,000 you're allowed as an annual contribution to the Roth for 2020 and 2021. You can contribute another $1,000 if you're aged 50 or over.
That could bump you into a higher bracket. Within the world of retirement accounts, this scenario is a true paradox, but it might make sense to reverse the conversion (called a recharacterization). You have until Oct. 15 of the year after you make a Roth IRA conversion to reverse back to a traditional IRA.
The Bottom Line
There is one final benefit to the conversion: You're likely to get a refund of the income taxes you’ve already paid for the Roth account.
Whatever your reason for converting an account, keep in mind the calendar deadlines that the IRS imposes. Conversions must be completed by the final date allowed to file or amend your previous year’s taxes. The standard date is October 15th.
Roth IRAs get you an investment account that is totally tax-free at retirement. But your personal circumstances may dictate that it makes sense to convert your Roth to a traditional IRA.
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3ceb9290a5c6187e6b5fa9e8d00c6c86 | https://www.investopedia.com/articles/personal-finance/080114/10-banks-will-pay-you-cash-open-account.asp | 8 Bank Promotions That Pay You to Open an Account | 8 Bank Promotions That Pay You to Open an Account
Investopedia is committed to providing our readers with unbiased product recommendations. We may receive compensation when you click on links to products but this doesn't affect how we rate, review and rank them.
Like any industry working to pick itself up after the economic downturn, large and small banks have struggled to keep business coming through the door. Among the impacts of the Great Recession was the Federal Reserve's move to keep the interest rates artificially low, a maneuver that made it increasingly difficult for savers to earn yields on their deposit products and harder for banks to entice new account holders.
According to the 2018 World Retail Banking Report, only half of the surveyed bank customers reported satisfaction with their retail banking services. That's because banks have been slow to move from traditional brick-and-mortar locations to digital channels. This doesn't mean financial institutions don't want new business. In fact, it's the opposite. This is why it's so important for banks to remain competitive, and find ways to attract more customers. But just how are they doing it? Easy: Signup rewards, or cash for opening a new account. Read on to find out more about how this incentive works, and which banks are offering some of the biggest rewards for opening new accounts.
Key Takeaways Banks remain competitive by offering new customers signup bonuses.Make sure the account you choose is right for you by reading the offer details as well as all the fine print.In order to qualify for bonuses, some banks may require you to open accounts online.You may need to make an initial deposit or arrange for direct deposits into your new account to qualify.
Rewards for Opening New Accounts
Competition between banks is still high, and cash back rewards are proving both scalable for banks and a much-needed windfall for customers. So, looking for an inventive way to grow business, banks and credit unions began offering cash rewards to new clientele for opening a checking account with them.
As an example of the type of rewards being offered, if a depositor put $100 into a new checking account and receives a $200 bonus in return, that creates a 300% return on investment (ROI). This return sounds like a wonderful idea, but as with anything that sounds too-good-to-be-true, this practice requires more examination.
The Costs Behind the Rewards
Banks and other financial institutions earn money from many sources. One such source is the revenue they receive from—on-average—over 30 potential fees on checking accounts, according to The Wall Street Journal. These fees include monthly maintenance, non-sufficient funds (NSF) charges, overdraft fees, paper statement charges, and dormant account fees among others. However, a cash back promotion can be a win-win for banks and consumers alike, as long as the latter remain aware of the pitfalls that could threaten their deposits.
But before you go and open up that account, remember to do your research. Make sure the account you open is the right one for you. You need to ensure you meet all the minimum requirements, so be sure to read all the details as well as the fine print before you accept the offer.
Calling All Heads of Households
Banks want to attract heads of households with these promotions. This type of customer is more likely to require a mortgage, credit cards, or other loans in the future, and will likely open new accounts where they hold their main checking accounts. They may also be more willing to move existing accounts and loans to the new institution. To encourage this, banks offer multiple product discounts to further sweeten the pot.
But consumers should be aware of the costs associated with closing and moving accounts. They must weigh the difference between the advertised cash incentive to open a new account and any fees to close or move their financial holdings.
Available New Account Bonuses
Bankrate conducted a study of cash back promotions available on the market by surveying some of the biggest banks by deposits in the United States, based on Federal Deposit Insurance Corporation (FDIC) data. The following banks currently offer new customers cash incentives for opening a deposit account. Even though some of the these banks may be physically based in certain parts of the country, offers may be nationwide, as most require online applications. These offers are current as of February 2020, and are listed in no particular order.
Most banks require new customers to maintain a balance, direct deposits and/or keep their accounts open for a specific period of time to qualify for a signup bonus.
Fifth Third Bank
Customers who open a Fifth Third Bank Essential checking account until April 30, 2020 receive a $250 bonus. But it doesn't come without a cost. In order to qualify, customers must reach a balance of $500 within 45 days of opening account and maintain that balance for 60 days thereafter. This offer is only available to brand new customers, and cannot be redeemed by existing Fifth Third clients. The bank deposits the bonus into the account within 10 business days of meeting the qualifications.
Fifth Third Bank has more than 1,110 branches across the United States in 10 states including Florida, Illinois, North Carolina, Michigan, and Ohio.
Wells Fargo
Customers who open a Wells Fargo Everyday Checking account on or before July 31, 2020 may qualify for a $400 bonus. In order to receive the signup bonus, the account must be open online. Customers must not have had a Wells Fargo checking account within the last 12 months.
Customers must have direct deposits going into the account totaling $4,000 or more during the first 90 days the account is open. These can include payroll deposits, or Social Security or other government benefit payments. The best part of this account is the low minimum deposit requirement—Wells Fargo only asks customers to deposit $25 to open the account.
TD Bank
TD Bank offers two different bonuses for new checking account customers. The first is a $300 bonus for a brand new TD Beyond Checking account. New clients qualify for the bonus after making $2,500 in direct deposits within the first 60 days of opening the account. There is no minimum deposit to open the account, but it comes with a hefty $25 monthly fee. This fee is waived if the customer maintains a $2,500 minimum daily balance. The account pays interest, and there are no charges for non-TD automated teller machine (ATM) transactions. The other ATM company may charge a fee, though.
If this isn't the account for you, you can earn $150 by opening a Convenience Checking account. Like the Beyond Checking account, there is no minimum deposit requirement. There is a monthly $15 fee, which is waived if the customer maintains at least $100 throughout the month. In order to get the signup bonus, customers must have a minimum of $500 in direct deposits within 60 days.
Chase Bank
New customers who open a Chase Total Checking account and set up direct deposit to receive a bonus of $300 from the bank. This deal is not available to current Chase checking customers, those who have closed their accounts within 90 days, closed with a negative balance, or have fiduciary accounts.
This checking account comes with a $12 monthly service fee that can be avoided if an account holder either makes a direct deposit of $500 or more to the account, keeps a minimum daily balance of $1,500 or more in the account, or maintains an average daily balance of $5,000 or more within any combination of Chase checking, savings, and other qualified balances.
The bank also offers a $200 bonus for customers who open a new savings account with a deposit of $15,000 or more within 20 business days. Customers must maintain that balance for at least 90 days. A $5 per month fee applies unless customers maintain at least $300 per day in the account.
The bonus increases to $600 total for anyone who opens both the checking and savings accounts.
PNC Bank
Those who open a new account with PNC Bank could earn up to $300 for opening a new PNC Virtual Wallet.
Opening a new, standard Virtual Wallet earns depositors $50. By opening a Virtual Wallet with Performance Spend, depositors get $200. Those who open a Virtual Wallet with Performance Select get $300 deposited into their accounts.
Direct deposits must be $500, $2,000 and $5,000 for the Virtual Wallet, Performance Spend, and Performance Select, respectively, to qualify for the reward. Customers must establish a qualifying direct deposit to the account and make at least five debit card purchases.
Santander Bank
Santander Bank is offering a $225 bonus to customers who open a Simply Right Checking account. With a minimum opening deposit of $25, and direct deposits totaling $1,000 or more within the first 90 days, customers can earn $225 paid within 30 days. There is no minimum balance requirement to earn the bonus.
Huntington National Bank
Until April 7, 2020, new Huntington Bank customers can qualify for one of two different bonuses after opening up a new checking account. Those who open the Asterisk-Free Checking account may receive a $150 cash bonus. There is no minimum balance requirement and this account comes with no monthly maintenance fees. For the $200 cash bonus, customers must open the Huntington 5 Interest Checking account. This account has a $5 fee which is waived with a minimum $5,000 monthly balance.
In order to qualify for either bonus, customers must make cumulative deposits of $1,000 within the first 60 days and accounts must remain open for at least 90 days. Once all the requirements are met, the bank deposits the bonus into the account.
HSBC
Brand new HSBC customers can choose from two different checking account offers. The first promises $475 with the opening of an HSBC Premier Checking account. In order to quality, customers must make direct deposits of at least $5,000 into the account each month for three full months from the second month that the account is open. The second offer is for up to $350 with the Advance Checking account. This bonus is earned over 12 months and requires setting up direct deposit. You'll earn 2% cash back on the amount of your direct deposit each month, up to $30 per month. This offer is good for the first 12 months of account opening and is capped at $350 for the year.
Both offers end on March 29, 2020, and applications for the accounts must be completed online.
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d0bc35ac4bccf1c0a0ba2a13af3722e2 | https://www.investopedia.com/articles/personal-finance/080114/help-my-unemployment-benefits-are-running-out.asp | Help, My Unemployment Benefits Are Running Out | Help, My Unemployment Benefits Are Running Out
Unemployment compensation was designed to provide income to people who lose their jobs. The problem is that benefits run out rather quickly. Your claim lasts one year (your benefit year), but most states only pay benefits for 13 to 26 weeks (a little more than six months) during the year.
During periods of high unemployment, you may become eligible for extended benefits. Individuals states or the federal government can extend the benefit period—as Maryland and Kansas did due to the 2020 COVID-19 outbreak—and the Department of Labor granted states greater flexibility around the awarding of benefits.
Key Takeaways The federal government and many states offer unemployment benefits to eligible former employees looking for new work. These benefits, however, typically run out after 13 to 26 weeks, after which time individuals can no longer receive unemployment. Specialized programs do exist to extend unemployment for eligible individuals, or you may want to seek alternative employment. In the worst case, if you become eligible you can enroll in state and federal welfare programs for assistance.
The CARES Act
The CARES Act, signed on March 17, 2020, goes even further to help those affected by the coronavirus, including part-time and self-employed workers, who usually don't qualify for unemployment. It adds 13 weeks of coverage on top of whatever each state provides, so if you're about to run out you'll get at least another 13 weeks. This period was extended from 13 to 24 weeks with the Continued Assistance for Unemployed Workers Act.
The legislation also provides an extra $600 of federal money per week, on top of the state benefit (covering unemployment through July 25, 2020, or July 26, 2020), for people affected by the coronavirus and another $300 per week between Jan. 2, 2021, and March 14, 2021. In fact, it provided three different types of unemployment insurance. But at some point, benefits will stop.
If your unemployment insurance benefits are about to end, what happens next? Your options are limited. But if you prepare early, you can lessen the impact when benefits run out. Here are some routes to explore.
Self-Employment Assistance Program (SEAP)
If unemployment is making you think it might make sense to start your own business, check whether your state has a Self-Employment Assistance Program or SEAP. This program allows people receiving unemployment benefits to get training in launching a business.
Most states don’t require people enrolled in a SEAP program to actively look for work. That's because starting their own business is considered their full-time job, with many states requiring a full-time schedule devoted to training. SEAP members participate in entrepreneurial training programs, work with mentors, and develop a business plan.
But SEAP isn’t an extension of unemployment benefits. In fact, you must be early enough in your benefit period to complete the training. You have to be receiving unemployment to be in SEAP, and some states don’t allow enrollment if you don't have 13 more weeks of benefits left at the time you are accepted into the program.
Because SEAP is paid for by grants, not everybody qualifies. If you do meet the qualifications for the program, your state unemployment office will send you information. Given the time limitations, don't wait to be contacted. If you’re interested in the program, call your state unemployment office for more detailed information and eligibility requirements.
The SEAP program does not supply funding for the launch of your business, but any income you earn from your new enterprise will not be deducted from your unemployment check.
Nontraditional Employment
If you can’t find a traditional nine-to-five job, consider something different. Perhaps you have a skill that would allow you to earn money as a freelancer. Another strategy is to contact a temp agency in your area and take a temporary job. Seasonal employment—sales jobs during the holidays, for example—are a third option. Babysitting, tutoring, or websites such as TaskRabbit might provide work.
If you applied or are planning on applying for unemployment insurance under the Pandemic Unemployment Assistance (PUA) program, be sure to check with your individual state to determine when your last PUA payment will be issued.
You can also try to train in new areas related to your previous career or start a business of your own, even if you can't get into a SEAP program. Some businesses, including consulting, cost very little to launch.
The CARES Act provides another 13 weeks of unemployment benefits to anyone who is currently receiving benefits—even if their reasons for being on unemployment are unrelated to the coronavirus. The Continued Assistance for Unemployed Workers Act extends that period from 13 to 24 weeks.
Food Stamps and Cash Assistance
If your funds run low enough, you may be eligible for food or cash assistance. Eligibility varies, but both options are worth checking out to help you get through a difficult period in your life.
Food Assistance
The term "food stamps" is no longer used. The program is now the Supplemental Nutrition Assistance Program (SNAP). SNAP is a federal program that provides assistance to low-income individuals and families.
In December 2019, the U.S. Department of Agriculture instituted a 20-hour-a-week work (or work training) requirement for nonpregnant adults, ages 18 to 49, without dependents to receive SNAP payments. The rules change was scheduled to go into effect on April 1, 2020. It was temporarily halted on March 13 by a Washington, D.C., federal judge in response to a lawsuit brought by 19 states, plus New York City, the District of Columbia, and some private groups.
Check with your state for any other hunger-assistance programs in addition to SNAP, especially if you have young children.
Cash Assistance
These programs, which provide cash payments and other services, are administered at the state level. Massachusetts, for example, has the Transitional Aid to Families with Dependent Children (TAFDC) program.
The Bottom Line
There’s no shame in taking a job outside of your career path, especially if your unemployment benefits are running out. Do your best to plan for the termination of benefits long before that day arrives.
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06f51ade1dceb9ac578736f5aa4f00de | https://www.investopedia.com/articles/personal-finance/080315/how-higher-interest-rates-impact-your-401k.asp | How Higher Interest Rates Impact Your 401(k) | How Higher Interest Rates Impact Your 401(k)
Interest rates have a significant impact on both the economy at large and the stock and bond markets in particular. The Federal Reserve Bank sets interest rates based on its view of what is best for the economy and holds regular meetings to discuss— and announce—any potential changes in interest rate policy.
Interest rates can also affect your 401(k) plan in many different ways, depending upon the investment choices that you hold inside it. Knowing how this critical economic factor can impact the performance of your retirement plan can help you bolster your investment returns, and avoid potential losses that may be triggered by changes on the interest rate front.
The Cash Factor
Of course, one of the most obvious ways that a change in interest rates impacts your 401(k) is the amount of interest you earn from any investment choice that pays either a guaranteed or a floating rate of interest. When rates rise or fall, so will the interest rate of the money market funds in these plans, as well as the rates that are offered in guaranteed accounts of any kind.
Key Takeaways Changes in interest rates can affect the economy and move financial markets.Knowing how rates affect stocks and bonds can help you better manage your 401(k) retirement plan.While bond prices can see losses in periods of higher rates, stocks often perform well when rates move lower.When interest rates begin to move higher, the time might be right to move some money to short-term bond funds or cash.Adding to equities can make sense when rates are expected to fall, remain low, and bolster the economy.
While money market funds will offer higher rates when interest rates increase, the key rule to remember when it comes to bonds and other fixed-income instruments is that when rates rise, bond prices in the secondary market will fall, and vice versa. This is due to the fact that a bond buyer in the secondary market is not going to pay full price—or the par value of a bond when it was issued—for a bond that is paying a lower rate when new bonds that are issued are paying higher rates. Buyers will thus demand a discount from the par value before they will buy the older bond in order to make up for this difference.
So if you own mutual funds that invest in bonds inside your plan, then a rise in interest rates will probably cause the share price of your funds to drop slightly, while the interest or dividends that they pay out may rise as new holdings that pay higher rates are added to their portfolios.
Stocks and Stock Funds
Interest rates have a different kind of impact on the stock and equity markets. When the Fed lowers rates, this makes it cheaper to borrow money, which can spur businesses to take out expansion loans and thus grow the economy. The markets react favorably to this change and will usually rise on any day when the Fed announces that it will either lower rates or leave them unchanged.
In addition, stocks can continue to perform better during periods of low rates, although there is no guarantee or protection against corrections or recessions.
When rates are high, stocks can sometimes fall out of favor because of the more attractive options that are available from issuers of bonds and CDs.
Interest Rates vs. Inflation
There is a close relationship between interest rates and inflation—the two are unable to diverge from one another materially. Although one may rise or fall a bit faster than the other, they generally move in tandem over longer time periods.
While rising interest rates may increase the yield that you receive from your bond and cash holdings, your purchasing power will also likely erode at some point because inflation will push prices up. And if you elect an irrevocable pension payout from your 401(k) plan, then the purchasing power of your monthly payments will also erode as inflation rises.
What You Can Do
There are several things you can do in your 401(k) plan to protect yourself against changes in interest rates. If it looks like rates are going to rise, then a short-term bond fund may be a good idea because it is less likely to invest in long-term obligations that will consequently drop in price. You may also consider moving some of your appreciated equity positions into short-term bonds or cash for a time because the stock market will often pull back when rates start to rise.
If interest rates start to fall, then beefing up your equity holdings might be wise. It may also be a good time to look at locking in a current rate on some longer-term fixed-income offerings. If you are looking at taking a lifetime annuity payout from your plan, then most financial planners would encourage you to choose an option that has a built-in cost of living rider.
The Bottom Line
Interest rates impact all facets of our economy, including your retirement portfolio. But these changes don’t have to mean losses for you if you understand how they work and what you can do to position yourself to profit from them.
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f293ebdf6fb83ab292ad7bd3ba3c1c65 | https://www.investopedia.com/articles/personal-finance/080315/quick-guide-buying-home-your-child.asp | A Quick Guide to Helping Your Adult Child Buy a Home | A Quick Guide to Helping Your Adult Child Buy a Home
In today's market, young first-time homebuyers may find themselves tangled in a web of student debt, rising home prices, and stringent mortgage requirements. As a result, some assistance from parents has become more common. More than a quarter of homebuyers between the ages of 22 and 29 reported that cash gifts from family and friends was the source of their downpayments, according to the National Association of Realtors, while others provided loans.
Having the means to help your grown children buy a house or an apartment is a blessing and a luxury. But before you sign on the dotted line, consider how best to do so.
Common Ways to Assist Your Children
There are many ways to help a child purchase a home, and one of the most common is simply buying it outright in your name and renting or giving it to your child. Real estate is an investment opportunity and there are millennials from coast-to-coast living in apartments that are legally their parents' pied-à-terres.
There are other possibilities:
Provide the down payment for the child's home.Co-own the house with your child. Your contribution would get you equity in the home. When it is sold, you get your money back.Buy a multi-unit property or a place big enough for roommates to offset the cost.Finance your child's home purchase and make it official by making it a real mortgage. A mortgage servicer can help properly structure the loan and its payment terms, and even generate monthly statements and tax forms.
Tax Implications of Cash Gifts
For tax reasons, parents often opt to gift offspring with the money they need rather than pay the costs directly. The 2020 gift tax exclusion is $15,000 for each recipient and for each taxpayer per year.
For example, you and your spouse could give your child and your child's spouse a total of $60,000 ($15,000 x 2 parents x 2 recipients). That's a decent down payment in many American cities.
Key Takeaways There are many ways to help your child buy their first home. You might consider being a co-owner, providing the mortgage, or gifting cash for the down payment.If you help with cash, the gift tax exclusion will help you both.Avoid raiding your retirement funds or going into debt.
You can follow the first gift with another $60,000 ($15,000 x 2 gifting parents x 2 recipients) gift on January 1st of next year, assuming the IRS doesn't change the amount.
The $120,000 total will not count as income or be subject to federal income tax on your child’s tax return.
Keep in mind that the money needs to be sourced, tracked, and documented. To safeguard the transaction, use a mortgage professional who has experience with this.
Before You Sign a Mortgage
Some lenders require all parties on the title to be on the mortgage contract. Even if the intent is for the child to handle the monthly mortgage payments, the parents are also financially responsible for the debt.
Yet, if the parents are not on the mortgage, they cannot take advantage of the mortgage interest tax deduction. Even an interest-free loan from a parent to a child might incur tax liability for the parent. The IRS assumes you earn interest even if you don’t, and that’s taxable income.
Parental loans add to the child’s debt burden and could hurt the child’s chance of qualifying for financing in their own right. On the positive side, a properly recorded loan allows the child to maximize deductions at tax time.
If you cosign for a mortgage, and the child defaults, you are equally responsible.
Even if the parents provide a down payment, the child will still have to qualify for the mortgage, and that includes having cash reserves on hand, a steady job, and a stable income.
Lenders Allow Cash Gifts
That said, mortgage lenders typically allow the down payment on a primary home to be made up completely or partly with cash gifts so long as other requirements are met.
Freddie Mac's Home Possible Advantage mortgage, for example, allows the entire 3% down payment to come from gifts.
Potential Tax Savings For Parents
Parents who buy a home and allow their child to live in it might be able to take significant tax deductions. Property taxes, mortgage interest, repairs, maintenance, and structural improvements are generally deductible on a second home.
However, while a landlord can deduct up to $25,000 in losses each year, parents face different rules when renting to family members. If the child pays no rent, it is considered personal use of the property and rental-related deductions are not allowed.
Tax Complications
However, if the child has roommates who pay rent, the parent may be able to take the rental-related deductions while allowing the child to live there rent-free.
Note that the mortgage interest deduction may only be taken by a person who pays the mortgage and owns (or partly owns) the home. If the parent holds the property title but the child makes the mortgage payment each month, neither can take the interest deduction. If the child owns any percentage of the home, they can deduct that share of the interest.
Building Equity and Long-Term Investing
Helping with mortgage payments might make more financial sense than giving a child a monthly housing allowance or paying the monthly rent. Paying off a mortgage builds equity in the home, and homes turn into assets—usually appreciating assets.
Just bear in mind that residential real estate is best considered a long-term investment. As a rule, most buyers must keep a home for three to five years just to break even.
If parents opt to make a low-interest loan to the child, becoming in effect the mortgage lender, they will enjoy a bit of income from the monthly payments. Even a low-interest loan can beat the return of many conservative investments.
The High Costs of Second Homes
Houses purchased by parents as second homes or as investments often require bigger down payments, since they don't qualify for the generous, geared-toward-first-timers mortgages such as Federal Housing Administration (FHA)-backed loans.
"The difference between a primary [home] mortgage and an investment-home mortgage is significant," notes Linda Robinson, a realtor and loan officer with Cabrillo Mortgage in San Diego. "You have to put down at least 20% to 30% on investment property, and the [interest] rates are a little higher, too. If the kids are creditworthy at all, the parents may be better off being cosigners and gift-givers than being the ones on the loan."
Hazards of Cosigning
If a parent cosigns for a mortgage and the child falls behind on payments, the parent’s credit rating is hurt just as much as the child’s.
Furthermore, as a cosigner, the parent is ultimately responsible for the debt.
Finally, a parent who cosigns for—or gives money to—a married child who then divorces could get entangled in a messy division of assets, and lose some or all of the investment to the ex-spouse.
Navigating the Emotional Cost
Financial entanglement in families can cause stress and conflict. Siblings outside the exchange may feel jealous or resentful. Gift givers can find themselves frustrated by what they perceive as misuse of the gift but powerless to do anything about it.
Gift receivers may feel frustrated by the strings attached to a gift in the form of expectations and rules.
Some parents cannot bring themselves to enforce consequences when the child fails to hold up their end of the bargain.
Financial arrangements between family members often can lead to messy misunderstandings and be difficult or impossible to enforce.
The Rewards of Helping Out
The advantages of buying a home for a child or providing financial assistance to acquire it are many. It can give the child the tax benefits of homeownership and help him or her build a good credit history.
The purchase may be a smart move financially if the parents' assets are considerable enough to trigger estate taxes or inheritance taxes. Diminishing the estate now could diminish the tax burden in the future.
Also, the property is an investment that might ultimately help the parent break even or turn a profit, with the expenses along the way being tax-deductible.
Don't Go Out on a Limb
Parents should never buy a child a house if it means compromising their ability to pay their own bills, meet their own mortgage payments, or maintain their standard of living in retirement.
It's generally a bad idea to borrow against retirement funds or a primary residence or to completely decimate a savings account.
Emotional consequences are harder to measure than financial ones. No matter how you decide to approach it—gift, loan, co-ownership—put it in writing. This may be an act of love, but it should be treated as a business arrangement.
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0954284239e54f9696f9e908a49c2b3b | https://www.investopedia.com/articles/personal-finance/080315/top-reasons-not-roll-over-your-401k-ira.asp | Top Reasons Not to Roll Over Your 401(k) to an IRA | Top Reasons Not to Roll Over Your 401(k) to an IRA
Don't Roll Over Your 401(k) to an IRA Just Yet
You've left your job. What should you do with the 401(k) plan you've faithfully contributed to for years? Conventional wisdom says to roll it over into an individual retirement account (IRA), and in many cases, that is the best course of action. But there are times when a rollover is not your best option.
Let's take a look at five of those situations and the rationale for keeping your 401(k)—or, if you're a public or nonprofit employee, your 403(b) or 457 plan—in place at your now-former employer's plan.
Key Takeaways Leaving your 401(k) account with your employer can save you fees since the company can buy funds at institutional pricing rates.If you own appreciated company stock in your 401(k), transferring the stock to a brokerage account instead of an IRA can save on taxes.Not rolling over your 401(k) can help with legal protection in bankruptcy and provide access to your money at an earlier age.Company 401(k) plans have access to stable value funds, which are similar to money market funds, but offer better interest rates.
1. Greater Buying Power
Company 401(k)s can purchase funds at institutional pricing rates, which is not usually true for IRAs.
Think of it as a kind of corporate discount: Because they're investing for hundreds of thousands, "most 401(k), 403(b), and 457 plans have significant buying power—much more than the individual [retirement account]," says Wayne Bogosian, president of the PFE Group and co-author of The Complete Idiot's Guide to 401(k) Plans. That can save you significant money on fees, leaving more to appreciate in your account.
2. Tax Savings
If your 401(k) plan includes company stock that has greatly appreciated, you could save a lot on taxes if you transfer that stock to a regular brokerage account. You will have to pay taxes on the shares taken out of your 401(k) at your current bracket's rate. However, the tax is based on your original purchase price—you won't pay for any gain on that stock until you actually sell it (and then you'll pay at the capital gains tax rate, which is lower than the income tax rate). This is known as net unrealized appreciation (NUA).
"NUAs is a tremendous opportunity for individuals with appreciated company stock in their 401(k)," says investment advisor representative Jonathan Swanburg of Tri-Star Advisors in Houston, Texas.
Let's suppose, for example, the company stock was bought for $10,000 and is currently worth $50,000 on the market. Your tax bill for transferring the stock to the brokerage firm will be based on the $10,000 purchase price. You won't be taxed on any of the gains until you sell it. In contrast, if you rolled over that stock into an IRA, it would eventually be taxed at your ordinary-income tax rate (when you have to sell the stock to start taking your mandatory IRA distributions).
There are, however, reasons to be cautious. Below are two:
Make sure the holdings in your 401(k) are actual stock shares; some 401(k)s set up a fund that mimics the corporate stock's performance.Make sure the transfer of these holdings doesn't put such a sizable bump in your income that you get pushed into a higher tax bracket—and end up owing the Internal Revenue Service much more than you otherwise would come next April.
"If, on the other hand, a plan participant holds depreciated company stock that she plans to hold until the price goes higher, she should consider selling her shares and repurchasing them shortly thereafter," Swanburg adds. "Inside a 401(k), the wash-sale rule doesn't apply, and this resets the cost basis, increasing the potential for taking advantage of the NUA down the road."
Check with your company before deciding what to do with your 401(k) since you may not have the same access, fund-allocation privileges, or fees once you leave your job.
3. Legal Protection
Money held in a 401(k) is protected by federal law from pretty much all types of creditor judgments (other than IRS tax liens and, possibly, spousal or child support orders), including bankruptcy. IRAs are only protected by state law, whose shielding power varies.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 does protect up to $1 million (inflation-adjusted to $1,333,272 as of Nov. 2020) in traditional or Roth IRA assets against bankruptcy. But protection against other types of judgments varies by state and may even be different depending on whether your IRA is a Roth or the traditional form.
If you are concerned about potential judgments, creditors, or collections, keeping your 401(k) funds in place might afford the most safety.
4. Early Retirement Benefits
"One of the most important reasons not to roll over your 401(k) to an IRA is to have access to your funds before age 59½," says Marguerita Cheng, CFP®, chief executive officer of Blue Ocean Global Wealth in Louisville, Ky. "They can be accessed as early as age 55, versus having to pay a 10% early withdrawal penalty in an IRA."
In fact, after you leave, you may be able to withdraw money from your 401(k) multiple times each year (the employer sets the rules about how many times people in this age group can withdraw funds). You lose this privilege once you roll the 401(k) into an IRA, and you'll have to wait until age 59½ to access your money without penalty.
SEPP Program
However, there's an important exception to the early distribution penalty as part of IRS rule 72(t), which allows you to make withdrawals under the substantially equal periodic payment (SEPP) program.
If you're still working for your employer, SEPP withdrawals are not permitted from the qualified retirement plan. However, if you're separated from the company's service, you can qualify for this exception. The funds can also come from an IRA under SEPP at any time. The distributions are formulated as a series of substantially equal periodic payments over your life expectancy using IRS tables.
However, once you start SEPP payments, you must continue for a minimum of five years or until you reach the age of 59½, whichever comes later. If you fail to meet the requirement, the 10% early penalty will be levied, and you may owe penalties from prior tax years if you had taken distributions.
5. Stable Value Funds
Company 401(k) plans have access to a special type of fund called a stable value fund. Not available in the individual market, these funds are similar to money market funds, but they typically offer better interest rates. If you'd like to take advantage of these risk-averse vehicles, and your 401(k) offers them as an option, definitely stick to your current plan.
The Bottom Line
When you and your job part ways, deciding what to do with your retirement savings is a big decision. Rolling over a 401(k) may be the best option for you in most cases, but there are reasons why leaving the money in the company fund could work better.
Do check your company's rules, though: Most employers require your 401(k) to maintain a certain minimum sum if you want to leave the account in place after your employment ends, and there may also be differences in your access, fund-allocation privileges, and fees.
One other option to investigate if you want to keep your money in a 401(k) and you're leaving your old job for a new one: rolling over the money in your previous job's plan into the 401(k) at your new company, if that's permitted. This is an excellent option for older employees who want to protect that money from being subject to required minimum distributions (RMDs).
You don't have to take RMDs from your 401(k) at the company where you currently work. Just make sure that the new plan's fees aren't worse and that the investment options are comparable.
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cbceb5ca5684fcec43c11cd40e0a8337 | https://www.investopedia.com/articles/personal-finance/080615/6-reasons-healthcare-so-expensive-us.asp | 6 Reasons Healthcare Is So Expensive in the U.S. | 6 Reasons Healthcare Is So Expensive in the U.S.
The pressure on our sprawling healthcare system in the U.S. has never been greater. There’s an urgent need to expand testing and treatment for COVID-19 to all residents who need it, regardless of health insurance status. Massive federal cash influxes have sought to shore up hospitals sagging under the weight of the coronavirus burden and the related cessation of elective surgery and regular medical care.
Long before this crisis, the U.S. led other industrialized nations in high spending on healthcare and getting a low bang for the buck in terms of health outcomes and the percentage of the population served. Life expectancy in the U.S., for example, is 78.8 years, while it ranges from 80.7 to 83.9 in 10 other high-income countries, according to an influential study in the Journal of the American Medical Association (JAMA). And only 90% of the population in the U.S. has health insurance, compared to 99% to 100% of the population in the other industrialized countries examined.
Key Takeaways COVID-19 has increased pressure on our highly complex and expensive healthcare system, making it more urgent to lower costs.One reason for high costs is administrative waste. Providers face a huge array of usage and billing requirements from multiple payers, which makes it necessary to hire costly administrative help for billing and reimbursements.Americans pay almost four times as much for pharmaceutical drugs as citizens of other developed countries.Hospitals, doctors, and nurses all charge more in the U.S. than in other countries, with hospital costs increasing much faster than professional salaries.In other countries, prices for drugs and healthcare are at least partially controlled by the government. In the U.S. prices depend on market forces.
Costly Healthcare Hurts Everyone
The high cost of healthcare affects everyone, sick or well. It has depressed individual spending power for the past few decades. Salaries for American workers have risen, but net pay has stayed the same because of increasing charges for health insurance. Today, tightening up on overspending is urgent to help stretch medical and hospital resources to control COVID-19.
Here are six underlying reasons for the high cost of healthcare in the U.S.
1. Multiple Systems Create Waste
“Administrative” costs are frequently cited as a cause for excess medical spending. The U.S. spends about 8% of its healthcare dollar on administrative costs, compared to 1% to 3% in the 10 other countries the JAMA study looked at.
The U.S. healthcare system is extremely complex, with separate rules, funding, enrollment dates, and out-of-pocket costs for employer-based insurance, private insurance from healthcare.gov, Medicaid, and Medicare, in all its many pieces. In each of these sectors consumers must choose among several tiers of coverage, high deductible plans, managed care plans (HMOs and PPOs) and fee-for-service systems. These plans may or may not include pharmaceutical drug insurance which has its own tiers of coverage, deductibles, and copays or coinsurance.
For providers, this means dealing with myriad regulations about usage, coding, and billing. And, in fact, these activities make up the largest share of administrative costs.
2. Drug Costs Are Rising
On average, Americans shell out almost four times as much for pharmaceutical drugs as citizens of other industrialized countries pay. High drug prices are the single biggest area of overspending in the U.S. compared to Europe, where drug prices are government regulated, often based on the clinical benefit of the medication.
With little regulation of drug prices, the U.S. spends an average of $1,443 per person, compared to $749, on average, spent by the other prosperous countries studied. In the U.S. private insurers can negotiate drug prices with manufacturers, often through the services of pharmacy benefit managers. However, Medicare, which pays for a hefty percentage of the national drug costs, is not permitted to negotiate prices with manufacturers.
3. Doctors (and Nurses) Are Paid More
The average U.S. family doctor earns $218,173 a year, and specialists make $316,000—way above the the average in other industrialized countries. American nurses make considerably more than elsewhere, too. The average salary for a U.S. nurse is about $74,250, compared to $58,041 in Switzerland and $60,253 in the Netherlands.
U.S. managed care plans (HMOs and PPOs) may succeed in lowering healthcare costs by requiring prior authorization for seeing a high-priced specialist. Use of a nurse practitioner instead of a family doctor can also save money.
$11,170 The cost of a hospital birth in the U.S., which is over $7,000 more than the cost in the Netherlands.
4. Hospitals Are Profit Centers
Hospital care accounts for 33% of the nation’s healthcare costs. Between 2007 and 2014, prices for inpatient and outpatient hospital care rose much faster than physician prices, according to a 2019 study in Health Affairs. U.S. prices for surgical procedures in hospitals greatly exceed those of other countries. A typical angioplasty to open a blocked blood vessel, for example, costs $6,390 in the Netherlands, $7,370 in Switzerland, and $32,230 in the United States. Similarly, a heart bypass operation in the U.S. costs $78,100 compared to $32,010 in Switzerland.
Today, many hospitals are on the brink financially. What's more, the cessation of elective surgery and severely declining provider visits because of the coronavirus lockdown account for a big part of the decline in the overall economy.
5. U.S. Healthcare Practices Defensive Medicine
Both physicians and hospitals have an interest in preventing lawsuits, so “just in case” tests and scans may be ordered. And these tests can be costly! While a CT scan costs just $97 in Canada and $500 in Australia, the average cost is $896 in the U.S. A typical MRI scan costs $1,420 in the United States, but around $450 in Britain. Researchers have concluded that it’s not the sheer number of tests and procedures but their high price that explains why it’s so expensive to be sick in the U.S.
6. U.S. Prices Vary Wildly
Because of the complexity of the system and the lack of any set prices for medical services, providers are free to charge what the market will bear. The amount paid for the same healthcare service can vary significantly depending on the payer (i.e. private insurance or government programs, such as Medicare or Medicaid) and geographical area. For COVID-19, for example, the cost of an urgent care visit and lab tests averages $1,696, but can range from a low of $241 to a high of $4,510 depending on the provider.
The Bottom Line
Most other developed countries control costs, in part, by having the government play a stronger role in negotiating prices for healthcare. Their healthcare systems don’t require the high administrative costs that drive up pricing in the U.S. As the global overseers of their country's systems, these governments have the ability to negotiate lower drug, medical equipment, and hospital costs. They can influence the treatments used and patients’ ability to go to specialists or seek more expensive treatments. Consumers may have fewer choices, but costs are controlled.
In the U.S., a lack of political support has prevented the government from taking a larger role in controlling healthcare costs. The Affordable Care Act focused on ensuring access to healthcare but maintained the status quo to encourage competition among insurers and healthcare providers.
Now that the costs related to COVID-19 threaten to swamp both the healthcare system and government budgets, the time for change may be at hand.
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d22fb66033355e15c55c68339896aa74 | https://www.investopedia.com/articles/personal-finance/080615/highest-credit-score-it-possible-get-it.asp | Highest Credit Score: Is It Possible to Get It? | Highest Credit Score: Is It Possible to Get It?
Yeah, yeah, everybody’s a winner…we know. But seriously, what good is knowing your FICO score if you don’t understand what the number means on the overall reporting scale? Maybe you have a 740 FICO score. If the maximum score is 750, you’re pretty much a credit genius. If the max is over 1,000, you’re sporting a C average—not really all that impressive.
So what is the highest credit score possible, and how do you achieve it?
Key Takeaways Your FICO score is drawn from information found in your credit reports from the three main reporting agencies. The score is used by roughly 90% of financial institutions when considering giving you a loan or line of credit. FICO scores range from 350 to 850; under 580 is considered poor credit and 740 or higher is considered very good or exceptional credit. To get perfect credit, or close to it, a consumer must pay all bills on time, have a mix of loans—such as auto, mortgage, and credit cards—have paid off most of these loans, excluding a mortgage, and use no more than 4.1% of available credit.
How Does It Work?
Although there are many different credit scores, your main FICO (Fair Isaac Corp.) score is the gold standard that financial institutions use in deciding whether to lend money or issue a credit card to consumers. Your FICO score isn’t actually a single score. You have one from each of the three credit reporting agencies—Experian, TransUnion, and Equifax. Each FICO score is based exclusively on the report from that credit bureau.
The score that FICO reports to lenders could be from any one of its 50 different scoring models, but your main score is the middle score from the three credit bureaus, which may have slightly different data. If you have scores of 720, 750 and 770, you have a FICO score of 750. (And you need to take a hard look at your credit reports, because those three numbers are considered wildly different.)
A perfect score of 850 will give you bragging rights, but any score of 800 or up is considered exceptional and will give you access to the best rates on credit cards, auto loans, and any other loans.
What’s the Range?
That’s really what you want to know, right? The best-known range of FICO scores is 300 to 850. Anything above 700 is generally considered to be good. FICO also offers industry-specific FICO scores, such as for credit cards or auto loans, which can range from 250 to 900. There are many FICO versions; FICO 10 is the newest. Mortgage lenders tend to use older FICO score versions.
Here are FICO’s basic credit score ranges:
Exceptional Credit: 800 to 850 Very Good Credit: 740 to 799 Good Credit: 670 to 739 Fair Credit: 580 to 669 Poor Credit: Under 580
According to FICO, the higher the score, the lower the risk you pose to a lender. Still, no score says whether a specific individual will be a “good” or “bad” customer.
FICO doesn’t judge somebody’s credit risk. It only reports a score and can provide guidance based on statistical data. A person isn’t a high credit risk per se if they have a 500 FICO score. FICO just reports, based on its statistics, that people with a lower score have defaulted on loans more than those with a higher score.
1% The rough percentage of people who have a perfect FICO score of 850
How Do I Get the Highest Credit Score?
Put away your perfectionist ways when it comes to your credit score. While it is theoretically possible to achieve a perfect 850 score, statistically it probably won’t happen. In fact, about 1% of all consumers will ever see an 850, and if they do, they probably won’t see it for long, as FICO scores are constantly recalculated by the credit bureaus.
And it’s not like you can know with absolute certainty what is affecting your credit score. FICO says 35% of your score derives from your payment history and 30% from the amount you owe (credit utilization). Length of credit history counts for 15%, and mix of accounts and new credit inquiries are factored in at 10% each. Of course, in actually calculating the score, each of these categories is broken down even further, and FICO doesn’t disclose how that works.
The credit bureaus that create credit scores may also change how they make their calculations—sometimes for your benefit. Changes were made in 2014 and 2017, for example, to reduce the weight of medical bills, tax liens, and civil judgments. However, changes made in January 2020 for FICO 10 involving trending data, credit card debt, personal loans, and delinquencies may make getting a higher score more difficult.
No need to obsess about hitting that 850 level, but if you want to try to reach it, here is what you have to do: Pay all your bills on time, eliminate nearly all of your debt (excluding a mortgage), and keep your credit utilization rate to 4.1%. And be careful with balance transfers, closing a credit card, or having too many of them. Additionally, if you have some negative marks on your credit report that are holding you back from the 850 level, one of the best credit repair companies might be able to help, so long as you are willing to pay a fee.
The Bottom Line
Although it’s nice to have a perfect or near-perfect score, it means very little, other than having a badge of honor that about 1% of the population could achieve. Once your score gets to and remains at 780 or higher, lenders see you as a low credit risk. You’ll get the best interest rates, good product offers, and are pretty much guaranteed a “yes” to any loan you apply for that appropriately fits your income level. And if you’re curious, here are the best places to get your credit score or report for free.
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131b43baba0e39f1585c284ba1e3f929 | https://www.investopedia.com/articles/personal-finance/080616/what-adverse-selection-insurance-industry.asp | What Is Adverse Selection in the Insurance Industry? | What Is Adverse Selection in the Insurance Industry?
One of the reasons that most state governments in the United States mandate that all drivers purchase automobile insurance is to avoid the problem of "adverse selection," or the process by which the most risky insurance customers force out the least risky. If prices cannot adjust based on individual risk, the most expensive insurance customers drive up the average premiums and make it uneconomical for the least risky to buy. Adverse selection is also why American adults were, through the 2018 tax year, mandated to purchase health insurance through Obamacare. There are economic arguments for these compelled purchases, but real-life examples show that theory and practice often differ.
How Private Insurance Companies Protect Against Adverse Selection
Adverse selection is a problem of knowledge, probabilities and risk. In most situations, it is fairly easily overcome with differential pricing mechanisms. Suppose two different individuals apply for car insurance through Allstate Corporation (NYSE: ALL). The first applicant is a 22-year-old male, drives to and from work every day, has a history of speeding and has previous accidents on record. The second applicant is a 40-year-old mother who often takes public transit to work and has not had a ticket or accident in over a decade.
From the insurer's perspective, the first applicant is far riskier and far more likely to cost it money. The second applicant is a mild risk. To identify which is riskier, Allstate asks probing questions during the application process and also consults its actuarial tables; it turns out that 20-something men are the most expensive to insure. Thus, Allstate can compensate for the extra risk by charging a higher premium to the first applicant.
Adverse Selection and Other Solutions
Individuals vary in their need for risk protection and in their knowledge of risks and risk tolerance. Insurance companies might have even less knowledge of individual circumstances. If insurance companies fail to distinguish between high-risk and low-risk customers, meaning they are unable to perform effective actuarial processes, then the average premium charged to a consumer might be so high that the low-risk customers drop out of the market.
If the economic model of differential pricing is not allowed or impractical, the other solution to adverse selection is to prevent low-risk customers from dropping out of the market. This means forcing all individuals to purchase insurance, thus preventing insurance companies from collapsing under the cost of high-risk payouts. In effect, the low risk must subsidize the high risk.
Example: Adverse Selection and the Affordable Care Act
The controversial Affordable Care Act of 2010, commonly known as the ACA or Obamacare, requires nonexempt adults in the United States to purchase health insurance. This is known as the "individual mandate." It was specifically designed to stop adverse selection from taking over the health insurance market after the ACA went into effect.
Two aspects of the ACA make actuarial work more difficult, putting insurance providers and low-risk customers at an economic disadvantage. First, insurance companies must provide the same level of minimum coverage, called "essential health benefits," to all insurance applicants. Second, insurance premiums use community-rating systems that make it illegal to screen based on many individual health considerations, such as past medical history or gender. Instead, premiums are mostly set on geography and age.
The ACA tackled these problems by compelling all companies with more than 50 employees to buy insurance, and imposing the individual mandate. Since it is very possible but no longer legal to screen individuals based on risk, insurance companies receive subsidies for high-risk consumers. The adverse selection problem is created by the required essential health benefits and theoretically addressed by the individual mandate, though most of the exchanges have struggled as of July 2016. The individual mandate was abolished by the 2017 GOP tax bill, starting in 2019.
Example: Adverse Selection and Auto Insurance
On the surface, auto insurance works the same way as health insurance. When insurance companies cannot screen effectively, high-risk drivers may force up premiums for everyone. This may even result in low-risk drivers deciding not to drive, hurting insurers' profitability even further. That is the theory, but the practical reality is actually the opposite.
Mandated auto insurance does not usually target low-risk drivers who might otherwise drop out. Rather, it targets high-risk drivers and forces them to buy insurance. Modern actuaries and insurance screeners do not struggle identifying risky vs. safe drivers, and many do not want to cover high-risk drivers at a loss. For this reason, 43 state governments and the District of Columbia offer their own sponsored "residual market" car insurance policies to subsidize high-risk drivers. The most progressive states include North Carolina and New York.
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6b1841bf63ec8794d976c2460c184f4e | https://www.investopedia.com/articles/personal-finance/080816/section-125-plan-cafeteria-plan-how-does-it-work.asp | About the Section 125 Plan (Cafeteria Plan) | About the Section 125 Plan (Cafeteria Plan)
Across the United States, numerous employees set up and use various types of employee benefits plans allowed by the Internal Revenue Service (IRS). One of these plans, called a section 125 cafeteria plan, has been in existence since 1978 and offers some interesting advantages. What Is a Section 125 Cafeteria Plan?
A section 125 plan is part of the IRS code that enables and allows employees to take taxable benefits, such as a cash salary, and convert them into nontaxable benefits. These benefits may be deducted from an employee's paycheck before taxes are paid. Cafeteria plans are particularly good for participants who have regular expenses related to medical issues and child care.
Employees enrolled in a section 125 plan can set aside insurance premiums and other funds pretax, which can then be used on certain qualified medical and child care expenses. On average, employees can save 30% in combined federal, state and local taxes on a variety of items that they typically already purchase with out-of-pocket post-tax funds.
Who Can Open a Section 125 Plan?
Section 125 cafeteria plans must be created by an employer. Once a plan is created, the benefits are available to employees, their spouses and dependents. Depending on the circumstances and details of the plan, section 125 benefits may also extend to former employees, but the plan cannot exist primarily for them.
Benefits to Employer and Employee
On the employer side, section 125 plans offer lots of tax-saving benefits. For each participant in the plan, employers save on the Federal Insurance Contributions Act (FICA) tax, the Federal Unemployment Tax Act (FUTA) tax, the State Unemployment Tax Act (SUTA) tax and workers' compensation insurance premiums. Employers on average save $115 per participant on FICA alone. Combined with the other tax savings, the section 125 plan usually funds itself, as the cost to open the plan is low.
As an added advantage, employees receive an effective raise without any additional cost to the employer. Since more participants in the plan equate to more tax savings for the employer, it is often suggested that the employer contributes to each employee's plan to promote increased participation by those not yet in the section 125 plan.
As for employees, the primary benefit is also tax-related. Typically, a participant can expect to save 20% to 40% on total taxes for all dollars put into the plan. The amount that the employee decides to put into the plan must be chosen each year. The "election" amount is deducted from the employee's paycheck automatically for each payroll period.
For example, if an employee elects to have $600 per year deducted from his or her pay and placed into the plan and the company has 24 pay periods, then $25 per pay period is automatically deducted tax-free. The money gets sent to the plan's third-party administrator to be held. It can then be distributed for reimbursement upon request for qualified expenses.
What Expenses Can a Section 125 Plan Cover?
A wide variety of medical and child care expenses is eligible for reimbursement under a section 125 cafeteria plan. As for medical items and treatments, there are dozens of eligible expenses that can be reimbursed. The following are eligible expenses: acupuncture, alcoholism treatment, ambulance services, birth control, chiropractic services, dental and doctors' fees, eye exams, fertility treatment, hearing aids, long-term care services, nursing homes, operations, prescription drugs, psychiatric services, sterilization, wigs and wheelchairs. But this is not an all-inclusive list.
There are also a large variety of eligible over-the-counter items. Allergy medicines, cold medicines, contact lens solutions, first aid kits, pain relievers, pregnancy tests, sleeping aids and throat lozenges are among the dozens of eligible items. Many dual-purpose items are eligible, such as dietary supplements, orthopedic shoes, prenatal vitamins and sunscreen.
Use It or Lose It
There is a rule in place that states you must use any remaining funds in the account by the end of the year or the money is forfeited to your employer. Although this may be true, it may still result in a net benefit to the employee.
Here is an example. Assume that you placed $1,000 in your section 125 plan. At the end of the year, you notice that you have $100 remaining in the account. If you are in the 28% marginal tax bracket, you have already saved $280 on taxes, or ($1,000 x 28%). Forfeiting the $100 means that you still have a net benefit of $180. While this simple example shows the possible scenario, in reality, there is a new carryover provision that was implemented in 2013. With the provision, plan participants can carry over $500 of unused funds from one year to the next.
In light of the COVID-19 pandemic, Congress passed the Consolidated Appropriations Act, 2021 that offers more discretion for FSA and dependent care assistance programs. The Act allows for more flexibility when it comes to carrying over unused balances from plan years 2020 and 2021, as well as extending permissible grace periods for these plan years.
Setting Up a Section 125 Cafeteria Plan
Setting up a section 125 cafeteria plan is straightforward and easy. An employer needs to set up the plan with proper documentation, notify employees and perform nondiscrimination testing. Section 125 plans must pass three nondiscrimination tests designed to determine if the plan discriminates in favor of highly compensated or key employees of the business: eligibility to participate, benefits and contributions, and concentration tests.
Cafeteria plans have different levels of benefits. A premium-only plan (POP) allows employees to pay their portion of insurance on a pretax basis. The flexible spending account (FSA) version allows for out-of-pocket qualified expenses to be paid pretax, which is the style of plan described above.
The full-blown plan is called a consumer-driven health care (CDHC) plan and involves a credit system the employee can use on a discretionary basis for qualified expenses. Employees can then supplement the CDHC with their own money and use it to buy additional benefits or coverage.
Employers must hire and partner with a qualified section 125 third-party administrator, who can provide the most up-to-date documentation for plan setup and update the employer on the latest requirements necessary for compliance. Typical third-party administrators provide employers with an up-to-date plan document, summary plan descriptions, corporate resolution, any customized forms, legal review, attorney opinion letters, discrimination testing, signatory-ready Form 5500, if required, and employee education.
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109018d8a432278d226621ffd1a5c2db | https://www.investopedia.com/articles/personal-finance/080916/how-victorias-secret-credit-card-works-benefits-and-rewards-lb.asp | How the Victoria's Secret Credit Card Works: Benefits and Rewards | How the Victoria's Secret Credit Card Works: Benefits and Rewards
Victoria's Secret, a subsidiary of L Brands Inc. (LB), has its own branded credit card named the Victoria card. Here is a discussion of the card's benefits, drawbacks, and the type of consumer for whom the credit card is best suited. Its chief competitors are cards from Gap and Lane Bryant.
Where Can the Victoria Card Be Used?
Issued by Comenity Bank, the Victoria’s Secret credit card can be used for purchases online at VictoriasSecret.com or in person at a Victoria's Secret or PINK store. It's also accepted at Bath & Body Works, another chain owned by L Brands, although purchases there don't earn any reward points.
Key Takeaways Victoria Secret's card works at the brand's stores and website, and also at sister companies PINK and Bath & Body Works.Victoria Secret's card has three tiers, depending on how much a cardholder spends each year, which carry different rewards and perks.All cardholders earn one point for every dollar spent.As with most proprietary store cards, Victoria's Secret's card mainly works best for those who regularly purchase the brand's products.
How the Victoria Card Works
Victoria's Secret issues the Victoria card in partnership with Comenity Bank. Comenity Bank, based out of Draper, UT, provides Victoria's Secret shoppers with a revolving line of credit. Victoria’s Secret cardholders earn rewards according to the value of their purchases, both online and in-store.
Proprietary store credit cards like the Victoria are officially known as closed-loop or single-purpose cards.
Rewards and Benefits
There are three different reward tiers: basic, silver, and gold, which reflect the amount of money spent on a rolling 12-month period. All cardholders earn one point for each $1 of net new purchases on their Victoria's Secret credit card. Once a cardholder earns a certain number of points they are upgraded to the next level.
The first tier is the basic Victoria card. All cardholders earn triple points on all bra purchases, free shipping for qualified purchases (above $50), and one triple-point day of their choice. In addition, cardholders get $10 on their birthday each year the card is active and a $10 reward to use on future purchases.
The second tier is the Victoria silver card. Cardholders qualify for this tier by earning 250 points on their Victoria's Secret card in a rolling 12-month period. Silver cardholders accrue points at the same level and rate as a basic Victoria cardholder, and receive the same annual $10 reward and birthday treat, but they accrue additional benefits: a half-birthday treat of $10 and a 15% discount on the anniversary of their sign-up.
The top tier is the Victoria gold card. To qualify, the cardholder must earn 500 points on their Victoria's Secret credit card within a rolling 12-month period. Additional perks of being a gold cardholder include $15 birthday and half-birthday treats and a 20% anniversary discount.
Other little perks and special events may occur each month. To maintain the tier, a cardholder has to keep spending the same amount each year; otherwise, the card reverts to a lower tier.
Where Can Someone Get the Victoria Card?
You can apply for the Victoria Credit Card at www.TheVictoriaCreditCard.com and complete an application form online or apply in person at any Victoria's Secret or PINK store. You'll need to create or sign in to your VictoriasSecret.com account to begin your application for the Victoria's Secret credit card program.
What Kind of Credit Is Required for the Victoria Card?
Applicants must be at least 18 years of age, have a valid government-issued photo ID and U.S. Social Security Number, and must be a resident of the United States with a valid mailing address. Comenity Bank verifies personal information and obtains a copy of a consumer's credit report when making its decision to extend credit to a potential cardholder.
The credit limit on the card depends on the applicant's personal credit history and finances. That being said, store credit cards often seem easier to qualify for than general-use cards. Since the Victoria card doesn't cost anything to own, obtaining and using one responsibly can be a way for someone with a limited credit history to build up a good record.
Terms and Conditions of the Victoria Card
Like most store-branded credit cards, the Victoria card charges a hefty amount of interest: as of February 2021, the advertised annual percentage rate (APR) is 24.99%. It's a variable rate, which fluctuates with the prime interest rate. No interest is paid if a cardholder pays off their entire balance by the due date each month, and the payment due date is at least 25 days after the close of each billing cycle.
Again, like most store cards, the Victoria card has no annual fee, but there are charges for late and returned payments. If a cardholder is late paying their bill, they should expect a fee of up to $40. Fees on returned payments can go as high as $25. Of course, as with any credit card, late payments can damage the cardholder's credit score. Cardholders should thoroughly read their cardholder agreements for full details.
Variable APR: 24.99%Late Fee: $40Returned Payment Fee: $25Grace Period: 25 days
Who Should Consider the Victoria Card?
Getting a store credit card makes sense for consumers who regularly shop at that retailer. If you have a high degree of brand loyalty to Victoria's Secret or PINK and are looking for special discounts, applying for a Victoria card could be a smart choice.
The Bottom Line
As is the case with proprietary credit cards, the Victoria card only works with one merchant—Victoria's Secret (and its corporate sister retailers). While it carries various little perks and privileges that make cardholders feel like part of the Victoria's Secret family, its primary benefit is that it accrues points that translate into money for or discounts on future purchases.
Often, you have a limited amount of time to use these rewards. So overall, this card is best suited for consumers who already spend money early and often at Victoria's Secret. Those who aren't big fans of the brand will find the Victoria card has a pretty limited wingspan.
Frequently Asked Questions
Where Can the Victoria Card Be Used?
The Victoria's Secret Credit Card can be used at VictoriasSecret.com and at all Victoria's Secret, PINK, and Bath & Body Works stores.
How Can I Pay My Victoria's Secret Credit Card?
You can pay your Victoria's Secret Credit Card in stores or online at www.TheVictoriaCreditCard.com or www.ThePINKCreditCard.com. You can also make a payment by phone by calling (800) 695-9478 or TDD/TTY (800) 695-1788 Monday to Saturday, 8:00 am to 9:00 pm EST.
How Can I Find Out How Many Total Points I've Earned?
You can view the points needed for your next reward online at www.TheVictoriaCreditCard.com or www.ThePINKCreditCard.com. To learn the total points you've earned on your account, please call (800) 695-9478 or TDD/TTY (800) 695-1788 Monday to Saturday, 8:00 am to 9:00 pm EST.
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ed5ba6fd491350bdf689f983f4c81f8c | https://www.investopedia.com/articles/personal-finance/081115/my-credit-score-good-enough-mortgage.asp | Is My Credit Score Good Enough for a Mortgage? | Is My Credit Score Good Enough for a Mortgage?
Your credit score, the number that lenders use to estimate the risk of extending you credit or lending you money, is a key factor in determining whether you will be approved for a mortgage. The score isn’t a fixed number but fluctuates periodically in response to changes in your credit activity (for example, if you open a new credit card account). What number is good enough, and how do scores influence the interest rate you are offered? Read on to find out.
Key Takeaways In general, a credit score above 670 will allow potential mortgage borrowers access to prime or favorable interest rates on their loan. Scores below 620 are considered to be subprime, and come with higher interest rates and more restrictions due to their greater risk to lenders. To qualify for a low down payment FHA-backed loan, you'll need at least a 580 FICO credit score. Those with worse credit may still be obtain to obtain a mortgage from specialty lenders but will pay even higher rates, require larger downpayments, may require a guarantor or co-borrower, and be subject to income verification.
FICO Scores
The most common credit score is the FICO score, which was created by Fair Isaac Corporation. It is calculated using the following different bits of data from your credit report:
Your payment history (which represents 35% of the score) Amounts you owe (30%) Length of your credit history (15%) Types of credit you use (10%) New credit (10%)
Minimum Credit Scores
There is no “official” minimum credit score since lenders can (and do) take other factors into consideration when determining if you qualify for a mortgage. You can be approved for a mortgage with a lower credit score if, for example, you have a solid down payment or your debt load is otherwise low. Since many lenders view your credit score as just one piece of the puzzle, a low score won’t necessarily prevent you from getting a mortgage.
What Lenders Like to See
Since there are various credit scores (each based on a different scoring system) available to lenders, make sure you know which score your lender is using so you can compare apples to apples. A score of 850 is the highest FICO score you could get. Each lender also has its own strategy, so while one lender may approve your mortgage, another may not—even when both are using the same credit score.
While there are no industry-wide standards for credit scores, the following scale from personal finance education website www.credit.org serves as a starting point for FICO scores and what each range means for getting a mortgage:
• 740–850: Excellent credit – Borrowers get easy credit approvals and the best interest rates.
• 670–740: Good credit – Borrowers are typically approved and offered good interest rates.
• 620–670: Acceptable credit – Borrowers are typically approved at higher interest rates.
• 580–620: Subprime credit – It's possible for borrowers to get a mortgage, but not guaranteed. Terms will probably be unfavorable.
• 300–580: Poor credit – There is little to no chance of getting a mortgage. Borrowers will have to take steps to improve credit score before being approved.
FHA Loans
The Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development, offers loans that are backed by the government. In general, the credit requirements for FHA loans tend to be more relaxed than those for conventional loans. To qualify for a low down payment mortgage (currently 3.5%), you’ll need a minimum FICO score of 580. If your credit score falls below that, you can still get a mortgage, but you’ll have to put down at least 10%.
Interest Rates and Your Credit Score
While there’s no specific formula, your credit score affects the interest rate you pay on your mortgage. In general, the higher your credit score, the lower your interest rate, and vice versa. This can have a huge impact on both your monthly payment and the amount of interest you pay over the life of the loan. Here’s an example: Let's say you get a 30-year fixed-rate mortgage for $200,000. If you have a high FICO credit score—for example, 760—you might get an interest rate of 3.612%. At that rate, your monthly payment would be $910.64, and you’d end up paying $127,830 in interest over the 30 years.
Take the same loan, but now you have a lower credit score—say, 635. Your interest rate jumps to 5.201%, which might not sound like a big difference—until you crunch the numbers. Now, your monthly payment is $1,098.35 ($187.71 more each month), and your total interest for the loan is $195,406, or $67,576 more than the loan with the higher credit score.
It’s always a good idea to improve your credit score before applying for a mortgage, so you get the best terms possible. Of course, it doesn’t always work out that way, but if you have the time to do things like check your credit report (and fix any mistakes) and pay down debt before applying for a mortgage, it will likely pay off in the long run. For more insight, you might want to investigate the best ways to rebuild your credit score quickly, or simply the best ways to repair a poor credit score. Alternatively, if you don't have the time to fix your credit score, it might be worth looking into one of the best credit repair companies to do it for you.
The Bottom Line
Even though there is no “official” minimum credit score, it will be easier to obtain a mortgage if your score is higher—and the terms will likely be better, too. Because most people have a score from each of the big three credit agencies—Equifax, Experian, and TransUnion—lenders often pull a “tri-merge” credit report that contains scores from all three agencies. If all three credit scores are usable, the middle score is what’s called the “representative” score, or the one that’s used. If only two scores are usable, the lower one is used.
You can get preliminary information on where you stand for free. Each year, you are entitled to one free credit report from each of the big three credit agencies. Getting a free credit score is more difficult, but you can get your credit score from a bank, some of which are increasingly making them available, or from websites that offer truly free credit scores.
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31cb954d73c11b960cf6689211eb9666 | https://www.investopedia.com/articles/personal-finance/081116/insurance-excess-insurance-and-reinsurance-whats-difference-all.asp | Understanding Insurance vs. Excess Insurance vs. Reinsurance | Understanding Insurance vs. Excess Insurance vs. Reinsurance
Insurance, Excess Insurance, Reinsurance: An Overview
There are many types of insurance policies, and each has its own rules and requirements. A typical insurance policy is usually a primary insurance policy, which covers the financial cost of an insurance claim up to a certain limit. Excess insurance covers specific amounts beyond the limits in the primary policy. Reinsurance is when insurers pass a portion of their policies onto other insurers to reduce the financial cost in the event a claim is paid out.
Key Takeaways Primary insurance is the policy that covers a financial liability for the policyholder as a result of a triggering event.Primary insurance kicks in first with its coverage even if there are other insurance policies.Excess insurance covers a claim after the primary insurance limit has been exhausted or used up.Reinsurance is a way of an insurer passing policies to another insurance company to reduce the risk of claims being paid out.
Insurance
An insurance policy is a contract in which the policyholder receives financial reparations or protection from an adverse event that's covered under the policy. In return for this protection, the policyholder pays the insurance company in the form of premiums. There are various types of insurance policies that protect policyholders or those named in the policy from financial harm or liability, which is the risk of being sued.
Most insurance policies that individuals or companies buy are called primary insurance. Primary insurance is the policy that covers a financial liability for the policyholder as a result of a triggering event. Primary insurance kicks in first with its coverage even if there are other insurance policies. Only when the predetermined coverage limit has been exceeded would any other policies issue a payout. Primary insurance is the policy that covers the claim first before any other policies that are in place.
For example, the primary coverage of a fire insurance policy on a home or business would kick in if the insured property had suffered fire damage and a claim had been filed by the policyholder.
Primary Insurance Requirements
There may be some stipulations about timing and circumstance, such as promptness to report the claim, but generally, the insurer's obligations follow a similar pattern in each case. Each primary policy has a limit imposed on the amount of coverage available and normally sets deductible limits for the customer. Primary policies pay out against claims regardless of whether there are additional outstanding policies covering the same risk.
Primary Insurance and Medicare
Primary insurance in medicine typically refers to the first payer of a claim, up to a certain limit of coverage, beyond which a secondary payer is obligated to cover additional amounts.
For example, those with private insurance policies, who also have coverage under Medicare as a secondary policy, would have their primary insurance pay for claims up to the limit. Beyond that limit, Medicare would kick in and cover claims (assuming it was the secondary policy). In other words, Medicare would only cover costs if there were costs that the primary insurer didn't cover.
Excess Insurance
Excess insurance covers a claim after the primary insurance limit has been exhausted or used up. For example, if the primary insurance coverage limit was $50,000 and the excess policy covered another $25,000, a claim of $60,000 would result in a $50,000 payout from the primary insurance and $10,000 from the excess policy.
Excess policies, also called secondary policies, extend the limit of insurance coverage of the primary policy or the underlying liability policy. In other words, the underlying policy is responsible for paying any portion of a claim first before the excess policy is used. However, the underlying policy might not be a primary insurance policy but instead, could be another excess policy. Regardless of the type of insurance policy, the underlying policy pays before the excess policy.
Umbrella Policy
Umbrella insurance policies are written to cover several different primary liability policies. For example, a family might purchase a personal umbrella insurance policy from an insurance company to extend excess coverage over both their automobile and homeowners policy. An umbrella policy is not limited to providing coverage to only the policyholder. For example, an umbrella policy can also cover family members and those living in a household.
Umbrella policies are considered excess policies since they're considered extra coverage for claims that exceed the payouts and coverage limits of the primary or underlying policy. Although umbrella policies are excess policies, not all excess policies are umbrella policies. If an excess policy only applies to a single underlying policy, it is not considered to be an umbrella insurance policy.
Umbrella Policy Benefits
Umbrella policies can be less expensive, meaning lower premiums for the insured, versus buying a few primary insurance policies. If the umbrella policy is purchased through the existing insurer that covers the primary policies, the overall cost is usually lower and the insured gets comprehensive coverage. Umbrella policies can also provide additional coverage not offered in the primary policy, such as protection against slander and libel.
Reinsurance
Insurance companies are always at risk for claims being filed due to an event. If the event is widespread and there are many claims filed all at once, the premiums received from those policies might not be enough to cover the total amount of the claims. Insurance companies are only profitable if the premiums received for policies are more than enough to cover claims over the lifetime of those policies.
As a result, insurance companies can find themselves in financial hardship if they don't manage the risks of claims being filed based on the types of insurance coverages they have in their portfolio. Reinsurance is a way of an insurer passing or selling policies to other insurance companies to reduce the exposure or risk of claims being paid out. The insurance company taking the policies is called the reinsurance company while the insurer passing the policy is called the ceding insurance company since they're ceding the risk of claims being filed on the ceded policies.
In return, the reinsurer receives the premiums from the policies ceded to them minus a fee (called a ceding commission), which is paid to the initial insurer (the ceding insurer). In other words, reinsurance is insurance for insurance companies to help insurers remain profitable and stay in business. Unless you own or work for an insurance company, you are unlikely to encounter reinsurance on the market.
Claims with Reinsurance
The fundamental operating characteristics of reinsurance are similar to primary insurance. The ceding insurance company pays the premium to the reinsurer and creates a potential claim against undesirable future risks. Were it not for the added protection of reinsurance companies, most primary insurers would either exit riskier markets or charge higher premiums on their policies.
However, sometimes the reinsurer defaults on a ceded policy, meaning they can't cover the claim due to financial distress. As a result, the ceding company may still have a liability and may need to pay for the claims, despite ceding the policy to the reinsurer.
Catastrophe Reinsurance
One common example of reinsurance is known as a "cat policy," short for catastrophic excess reinsurance policy. This policy covers a specific limit of loss due to catastrophic circumstances, such as a hurricane, that would force the primary insurer to pay out significant sums of claims simultaneously. Unless there are other specific cash-call provisions, which require cash payments from the reinsurer, the reinsurer is not obligated to pay until after the original insurer pays claims on its own policies.
Although catastrophes are rare, the amount of money paid out by an insurer could be enough to bankrupt the company. For example, Hurricane Andrew in 1992 cost $15.5 billion in damages to the state of Florida, which forced several insurance companies into financial insolvency according to the Insurance Information Institute. Catastrophe reinsurance helps spread out the risk and some of the costs of a catastrophic event.
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8c8db9fe2da21aa5d2c54fc21cc7c661 | https://www.investopedia.com/articles/personal-finance/081214/filling-out-your-w4-form.asp | How to Fill Out Form W-4 in 2021 | How to Fill Out Form W-4 in 2021
What's the right way to fill out a W-4 Form? That's the tax form called a W-4 Employee's Withholding Certificate that your employer hands you when you start a new job. If tax forms fill you with dread—you don't understand them, you’re afraid of what will happen if you make a mistake—just keep reading. The W-4 form had a complete makeover in 2020 and now has five instead of seven sections to fill out; this article will explain what a W-4 is and walk you through how to fill out the new form line by line.
Key Takeaways The way you fill out IRS Form W-4, Employee's Withholding Allowance Certificate, determines how much tax your employer will withhold from your paycheck. You want to complete the form accurately so the correct amount of income tax is withheld from your paychecks; otherwise, you might end up owing the IRS when you file your taxes. The W-4 form had a complete makeover in 2020 and now has five instead of seven sections to fill out; the reason for the makeover was to improve clarity for taxpayers completing the form.
What Is Form W-4 Used for?
You complete a W-4 form so that your employer will withhold the correct amount of income tax from your paychecks. If you have an accountant or another tax preparer, confirm your decisions with them before you turn in the form.
The way you fill out Form W-4, Employee's Withholding Certificate, determines how much tax your employer will withhold from your paycheck. Your employer sends the money it withholds from your paycheck to the Internal Revenue Service (IRS), along with your name and Social Security number (SSN). Your withholding counts toward paying the annual income tax bill you calculate when you file your tax return in April. That’s why a W-4 form asks for identifying information, such as your name, address, and Social Security number.
You can claim an exemption from withholding any money if you did not owe tax during the previous year and expect to have zero tax liability in the next year.
2020 Changes to Form W-4
The IRS rolled out a new version of Form W-4 in 2020. It was the first major revamp of the form since the Tax Cuts and Jobs Act (TCJA) was signed in December 2017; TCJA made major changes to withholding for employees.
In fact, the W-4 revamp and the tax changes since the TCJA may be a reason to look again at the W-4 you filed back when you first came to your employer and see if you need to make changes. Another reason to relook at your W-4: What you learn when you file your current income tax forms, especially if you discover that you didn't have enough withheld from your paycheck and you now owe money to the IRS. It is also beneficial to update your W-4 any time you have a big life change. For example, the addition of a child, a marriage or divorce, or if you begin a freelance job on the side.
The 2020 version of the W-4 form eliminates the ability to claim personal allowances. Previously, a W-4 came with a Personal Allowances Worksheet to help you figure out how many allowances to claim. The more allowances you claimed, the less an employer would withhold from your paycheck and the fewer you claimed, the more your employer would withhold. Allowances were previously loosely tied to personal and dependent exemptions claimed on your tax form. Although the standard deduction was doubled as a result of the TCJA, personal and dependent exemptions were eliminated.
The new form aims to make the process easier for both employees filling out the form and employers withholding taxes. It has five sections to fill out versus the seven sections from the pre-2020 version.
How to Read and Fill Out Form W-4: A Step-By-Step Guide
All pages of Form W-4 are available on the IRS website.
If you are single or married to a spouse who doesn't work, don't have any dependents, only have income from one job, and aren’t claiming tax credits or deductions (other than the standard deduction) filling out a W-4 is very straightforward. As of 2020, all you have to do is provide your name, address, Social Security number, filing status, and sign and date the form.
If your tax situation is more complex, you will need to provide information on dependents, your spouse's earnings, additional income, and any tax credits and deductions you plan to claim.
Here's how completing the form works.
Step 1: Provide Your Information
Provide your name, address, filing status, and Social Security number. Easy. Your employer needs your Social Security number so that when it sends the money it withheld from your paycheck to the IRS, the payment is appropriately applied toward your annual income tax bill. After completing this step, single filers with a simple tax situation, as described above, only need to sign and date the form and they are done.
Everyone else will have to take a few more steps.
If you don’t submit Form W-4 at all, the IRS requires your employer to withhold at the highest rate.
Step 2: Add Multiple Jobs or a Working Spouse
Proceed to step two if you have more than one job or your filing status is married filing jointly and your spouse works. If this applies to you, you have three options from which you can choose one:
Option A
Use the IRS' online Tax Withholding Estimator and include the estimate in step four (explained below) when applicable.
Option B
Fill out the Multiple Jobs Worksheet, which is provided on page three of Form W-4, and enter the result in step 4(c), which is explained below. It is provided on page three of Form W-4, which your employer should have given to you, or you can download it from the IRS. The IRS advises that the worksheet should only be completed on one W-4, and the result should be entered for the highest paying job only, to end up with the most accurate withholding.
W-4 Multiple Jobs Worksheet.
When filling out the Multiple Jobs Worksheet, the first thing you will need to differentiate is whether you have two jobs (including both you and your spouse) or three or more. If you and your spouse both have one job, you'll complete line 1 on the form. Similarly, if you have two jobs and your spouse does not work, you will also complete line 1.
In order to accurately fill in line 1, you'll need to use the graphs provided on page four of Form W-4. These graphs are separated out by filing status, so you'll need to select the correct graph based on how you file your taxes. The left column lists dollar amounts for the higher-earning spouse, and the top row lists dollar amounts for the lower-earning spouse.
For example, let's look at a person who is married filing jointly. Assuming Spouse A makes $80,000 per year and Spouse B makes $50,000 per year, Spouse A would need to select $8,420 (the intersection of the $80,000 - $99,999 row from the left-hand column and the $50,000 - $59,999 column from the top row) to fill in line 1 on the Multiple Jobs Worksheet.
Married Filing Jointly - Multiple Jobs Worksheet from Form W-4 Page 4.
If you have three or more jobs combined, between yourself and your spouse, you will need to fill out the second part of the Multiple Jobs Worksheet. First, select your highest paying job and second highest paying job. Use the graphs on page 4 to figure the amount to add to line 2a on page 3. This step is the same as the example above, except you're using the second-highest paying job as the "lower-paying job."
Next, you'll need to add the wages from your two highest jobs together. Use that figure for the "higher paying job" on the graph from page 4, while using the wages from the third job as the "lower-paying job." Enter the amount from the graph to line 2b on page 3, and add lines 2a and 2b together to complete 2c.
For example, let's assume Spouse A has two jobs making $50,000 and $15,000 while Spouse B has a job making $40,000. Spouse A would enter $3,570 on line 2a (the intersection of the $50,000 - $59,999 row from the left hand column and the $40,000 - $49,999 column from the top row). Adding $50,000 and $40,000 together for a total $90,000, Spouse A would enter $3,260 on line 2c (the intersection of the $80,000 - $99,999 row from the left hand column and the $10,000 - $19,999 column from the top row). Adding these two amounts together results in $6,830 for line 2c.
You'll need to enter the number of pay periods in a year at the highest paying job on line 3 of the Multiple Jobs Worksheet. For example, 12 for monthly, 26 for biweekly, or 52 for weekly. Divide the annual amount on line 1 (for two jobs) or line 2c (for three or more jobs) by the number of pay periods. Enter this figure on line 4 of the Multiple Jobs Worksheet as well as line 4c of the Form W-4.
Option C
Check the box in option C if there are only two jobs total and do the same on the W-4 for the other job too. Choosing this option makes sense if both jobs have similar pay, otherwise more tax may be withheld than necessary.
Step 3: Add Dependents
If you have dependents, fill out step three to determine your eligibility for the Child Tax Credit and credit for other dependents. Single taxpayers who make less than $200,000 or those married filing jointly who make less than $400,000 are eligible for the Child Tax Credit.
Technically, the IRS definition of a dependent is pretty complicated (see IRS Publication 501 for details), but the short answer is that it’s a qualifying child or qualifying relative who lives with you and whom you support financially.
Multiply the number of qualifying children under age 17 by $2,000 and the number of other dependents by $500. Add the dollar sum of the two to line three.
Step 4: Add Other Adjustments
In this section, the IRS wants to know if you want an additional amount withheld from your paycheck. “Of course not. You’re taking enough of my money already,” you think. But, the information you've provided in the previous sections might result in your employer withholding too little tax over the course of the year. If they withhold too little, you will end up with a big tax bill and possibly underpayment penalties and interest in April. In that case, tell your employer to withhold extra money from each paycheck so that it doesn’t happen.
How do you know if this might happen? One likely cause is if you receive significant income reported on Form 1099, which is used for interest, dividends, or self-employment income—no income tax is withheld from these sources of income. You may also need to use this section if you're still working, but receive pension benefits from a previous job or Social Security retirement benefits.
Step four of a W-4 allows you to have additional amounts withheld by filling out one or more of the following three sections:
4(a)
If you expect to earn "non-job" income not subject to withholding, such as from dividends or retirement accounts, enter the amount in this section.
4(b)
Fill out this section if you expect to claim deductions (such as itemized deductions) other than the standard deduction and want to reduce your withholding. To estimate your 2020 deductions use the Deductions Worksheet provided on page three of the W-4 form.
W-4 Deductions Worksheet.
4(c)
This section allows you to have any additional tax you want withheld from your pay each pay period, including any amounts from the Multiple Jobs Worksheet, above, if this applies to you.
Step 5: Sign and Date W-4 Form
While signing and dating a W-4 is the easiest step, it is no less important than any other. The form says, “Under penalties of perjury, I declare that I have examined this certificate and, to the best of my knowledge and belief, it is true, correct, and complete.” You have to sign your name below that statement, where it says, “Employee’s signature.” Then enter the date to the right. It's not valid until you do.
When You Need a New W-4 Form
In general, your employer will not send form W-4 to the IRS. After using it to determine your withholding, the company will file it. You only have to fill out the new W-4 form if you start a new job in 2021 or if you want to make changes to how much is withheld from your pay.
You can change your withholding at any time by submitting a new W-4 to your employer.
Some situations when you might need to change your W-4 include: getting married or divorced, adding a child to your family, or picking up a second job. You may also want to submit a new W-4 if you discover that you withheld too much or too little the previous year when you're preparing your annual tax return, and you expect your circumstances to be similar for the current tax year. Your W-4 changes will take effect within the next one to three pay periods—after your company has updated your information in the payroll system.
Special Considerations When Filing Form W-4
If you start a job in the middle of the year and were not employed earlier that year, here's a tax wrinkle that can save you money: If you will be employed no more than 245 days for the year, request in writing that your employer use the part-year method to compute your withholding. The basic withholding formula assumes full-year employment, so without using the part-year method, you’ll have too much withheld, and you’ll have to wait until tax time to get the money back.
The Bottom Line
It’s important to fill out a W-4 form correctly because the IRS requires people to pay taxes on their income gradually throughout the year. If you have too little tax withheld, you could owe a surprisingly large sum to the IRS in April, plus interest and penalties for underpaying your taxes during the year.
At the same time, if you have too much tax withheld, your monthly budget will be tighter than it needs to be. Also, you’ll be giving the government an interest-free loan when you could be saving or investing that extra money and earning a return—and you won’t get your overpaid taxes back until the following year when you file your tax return and get a refund. At that point, the money may feel like a windfall, and you might use it less wisely than you would have if it had come in gradually with each paycheck.
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50f8cd840640c741bc2dc9267b9d8054 | https://www.investopedia.com/articles/personal-finance/081215/know-accounts-receivable-inventory-turnover.asp | Know Accounts Receivable and Inventory Turnover | Know Accounts Receivable and Inventory Turnover
Many ratios help analysts measure how efficiently a firm is paying its bills, collecting cash from customers, and turning inventory into sales. Two of the most important are accounts receivable and inventory turnover; two ratios in the current assets category.
Accounts Receivable Turnover
Accounts receivable turnover, or A/R turnover, is calculated by dividing a firm’s sales by its accounts receivable. It is a measure of how efficiently a company is able to collect on the credit it extends to customers. A firm that is very good at collecting on its credit will have a higher accounts receivable turnover ratio. It is also important to compare a firm's ratio with that of its peers in the industry to gauge whether its ratio is on par with its industry.
Inventory Turnover
Inventory turnover is a measure of how efficiently a company turns its inventory into sales. It is calculated by taking the cost of goods sold (COGS) and dividing it by average inventory. Sometimes sales are used instead of COGS. Again, a higher number is better as it indicates that a company is quite efficient at selling off its inventory more often rather than having to store it for longer periods of time because its products are not selling.
Key Industries for Accounts Receivable Turnover and Inventory Turnover
The basic fact is that any industry that extends credit or has physical inventory will benefit from an analysis of its accounts receivable turnover and inventory turnover ratios.
Accounts receivable is primarily important when credit is extended to clients for a purchase. There are very few industries that operate only on cash; most companies have to deal with credit as well. However, certain industries may heavily favor cash. Smaller restaurants or retailers may operate under these terms. Large retailers that sell consumables, such as Walmart (WMT), Dollar General (DG), or CVS (CVS) have lower levels of receivables because many customers either pay in cash or by credit card.
Accounts receivable turnover becomes particularly important for industries where credit is extended for a long period of time. Accounts receivable turnover becomes a problem when collecting on outstanding credit is difficult or starts to take longer than expected.
One industry in which accounts receivable turnover is extremely important is in financial services. For instance, CIT Group Inc. (CIT) helps extend credit to businesses and operates a unit that specializes in factoring, which is helping other companies collect their outstanding accounts receivables. A firm can either sell its accounts receivables to CIT Group outright (CIT Group could then keep whatever debts it manages to collect), just pay CIT Group a fee for help in collections, or some combination of the two.
The client company benefits by freeing up capital, for example, if CIT pays the client company upfront cash in exchange for the accounts receivable. Selling accounts receivables, which are, after all, a current asset, can be considered a way to receive short-term financing. In some cases, it can help keep a struggling company in business.
On the inventory turnover front, a firm that doesn’t hold physical inventory is clearly going to benefit little from analyzing it. An example of a company with little to no inventory is the Internet travel firm Priceline. Priceline sells flights, hotels, and related travel services without holding any physical inventory itself. Instead, it simply collects a commission for placing these inventories on its collection of websites.
Inventory turnover measures how quickly a firm has sold and replaced its inventory over a specific period of time. Analyzing inventory turnover helps a company to make better decisions on how it prices its products, its marketing strategy and budget, its manufacturing process, and its acquisition of new inventory.
Supply Chain Management
Supply chain management consists of analyzing and improving the flow of inventory throughout a firm’s working capital system. This supply chain can be analyzed by looking at inventory in different forms, including raw materials, work in progress, and inventory that is ready for sale.
Understanding inventory and how quickly it is turned into sales is especially important in the manufacturing industry. In one survey, firms that make defense and aerospace components ranked highest in terms of having the highest inventory turnover ratios. General Dynamics (GD) has a reputation as one of the best-run firms in the industry and has reported an inventory turnover ratio in the single digits for over a decade. Auto component, automobile, and building product firms also ranked within the top 10. Machinery and metals firms also ranked highly for inventory turnover.
Putting It All Together
A measure that combines accounts receivable turnover and inventory turnover is the cash conversion cycle, which utilizes accounts payable turnover.
Taking 365 days and dividing each of these turnover ratios will convert them into a measure that can be analyzed by day in the cash conversion cycle context. It essentially measures how efficiently a company collects money from its customers and pays its suppliers for the inventory it needs to generate sales in the first place. You may note the circularity of the process, which nicely summarizes some of the key components to managing net working capital.
The Bottom Line
Accounts receivable turnover and inventory turnover are two widely used measures for analyzing how efficiently a firm is managing its current assets. Analyzing current liabilities, such as accounts payable turnover, will help capture a better picture of working capital. Generally, any firm that has receivables and inventory will benefit from a turnover analysis.
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3d4838cc07886d7f5f5959ce270694e9 | https://www.investopedia.com/articles/personal-finance/081216/zero-interest-loans-why-you-should-beware.asp | Zero Interest Loans: Why You Should Beware | Zero Interest Loans: Why You Should Beware
Companies that offer zero-interest loans tout these vehicles as no-lose opportunities for borrowers. A major purchase that might otherwise require a lump-sum payment can be spread out over 12 months to several years, with 0% interest, thereby creating a more palatable cash flow situation. But such loans present pitfalls, including the temptation to make impulse purchases, the tendency to overspend, and exposure to exorbitant penalties for violating a loan's terms.
Key Takeaways Zero-interest loans, where only the principal balance must be repaid, often lure buyers into impulsively buying cars, appliances, and other luxury goods. These loans saddle borrowers with rigid monthly payment schedules and lock them into hard deadlines by which the entire balance must be repaid. Borrows who fail to honor the loan terms are subject to stiff penalties. These loans are typically only available to prospective buyers with FICO scores of 720 or higher.
Zero-Interest Loan Basics
As its name suggests, a zero-interest loan is one where only the principal balance must be repaid, provided that the borrower honors the rigid deadline by which the entire balance must be satisfied. Failure to comply with the deadline carries hefty penalties. Most notably, the lender may rescind the zero-percent clause and apply backdated interest to the loan.
A staple at car dealerships and electronics retailers, zero-interest loans are facilitated through third-party lenders, any not by the stores themselves. To qualify for these loans, borrowers generally must exhibit FICO scores of at least 720. In most cases, the zero-interest option is restricted to shorter-term loans of up to 24 months for retailers, or up to 36 months for car dealerships.
Zero-Interest Loans and Impulse Buying
Car dealerships routinely inundate the local radio airwaves with ads touting zero-interest loan promotions. Prospective buyers should only take the bait if they desperately need a new car, and they are financially positioned to purchase one. Unfortunately, such ads often tempt buyers into making impulsive buys, when it is impractical for them to do so.
It is not surprising that salespeople exploit zero-interest loan promotions to push customers toward more expensive purchases, in a concerted effort to boost their commission income. Some dealers use zero-interest deals as leverage during price negotiations. With such great financing offers, salespeople are often disinclined to come down on purchase price. Buyers should avoid overpaying just because of low-interest deals.
Zero-interest loans promotions may attract buyers who fail to qualify for such programs. In many cases, opportunistic salesmen steer such individuals towards loans that do, in fact, carry interest. After espying a shiny new car or a slick flat-screen TV, many customers agree to such loans, even if the terms are unfavorable.
Zero-Interest Loans and Overspending
Zero-interest loans entice buyers to overspend their hard-earned dollars on fancy new cars and other luxury items. Rather than buying a sensibly-priced used car for $20,000, a buyer may recklessly choose a new vehicle, with a $30,000 price-tag, reasoning that he would be paying $10,000 in interest anyway, were he not receiving such excellent loan terms.
Zero-Interest Loan Penalties and Fees
Although they may seem like a dream, zero-interest loans can become nightmares for borrowers who don't fully grasp the loan terms. Lenders are quick to cancel zero-interest provisions for customers who fall delinquent on just a single payment. This holds true for revolving debt, such as 0% annual percentage rate (APR) credit cards and installment debt, such as a car loan. Borrowers who opt for such deals should be mindful of the penalties for paying late or for exceeding the loan's stated terms.
Consumers may elevate their FICO scores by paying their utility and cell phone bills on time, and by keeping their credit card balances low.
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5677373c18c869e29a28553c15ba65c2 | https://www.investopedia.com/articles/personal-finance/081315/3-reasons-your-401k-not-enough-retirement.asp | 3 Reasons Your 401(k) Is Not Enough for Retirement | 3 Reasons Your 401(k) Is Not Enough for Retirement
A 401(k) plan has many benefits for employees who are saving for retirement. It allows them to make salary-reduction contributions on a pretax basis (and also on a post-tax basis in some cases).
Employers that offer a 401(k) can make non-elective or matching contributions to the plan, which means more money for employees, and they also have the option to add a profit-sharing feature to the plan. What's more, all earnings to the 401(k) plan accrue on a tax-deferred basis.
Key Takeaways Although 401(k) plans are an excellent way to save, it may not be possible to set aside enough for a comfortable retirement, in part because of IRS limits. Inflation, plus taxes on 401(k) distributions, erode the value of your savings. Plan fees and mutual fund fees can reduce the positive impact of compound interest on 401(k) accounts. One solution is to invest in low-cost index funds. If you have to dip into your 401(k) early, you generally will have to pay a penalty—as well as taxes—on the amount you withdraw.
Limitations and Restrictions on 401(k)s
On the downside, caps are placed on 401(k) contributions. IRS regulations limit the allowed percentage of salary contributions. In 2020 and 2021, the maximum contribution to a 401(k) is $19,500. For someone who makes more than $150,000 per year, contributing the maximum will give them a savings rate of only 12.67%. And the more someone makes above $150,000, the smaller their contribution percentage will be.
The problem is that a savings rate of 12% is probably too low to reach a comfortable retirement. "A savings rate below 10% is definitely too low," says Andrew Marshall of Andrew Marshall Financial, LLC, in Carlsbad, Calif. If you're 50 or over, you can add a $6,500 catch-up contribution to that amount, for a total of $26,000 in 2020 and 2021, but your money won't have as long to grow.
Employers can make elective contributions, regardless of how much an employee contributes, but there are limits on these too. In 2021, the limit on total contributions to a 401(k) from any source is $58,000, rising from $57,000 in 2020. All 401(k) contributions must be made no later than Dec. 31.
There are also restrictions on the ways in which employees are able to withdraw these assets and when they are allowed to do so without incurring a tax penalty.
Given these basics of 401(k)s, even if you save the maximum, your 401(k) is probably not enough for retirement. Here's why.
1. Inflation and Taxes
The cost of living increases constantly. Most of us underestimate the effects of inflation over long periods of time. Many retirees believe that they have plenty of money for retirement in their 401(k) accounts and that they are financially sound, only to find that they must downgrade their lifestyle and may still struggle financially to make ends meet.
Taxes are also an issue. Granted, 401(k)s are tax-deferred, and they grow without accruing taxes. But once you retire and start making withdrawals from your 401(k), the distributions are added to your yearly income and they will be taxed at your current income tax rate. Like inflation, that rate may be higher than you anticipated 20 years ago. Or perhaps the nest egg that you have been building in your 401(k) for 20 or 30 years may not be as grand as you might have expected.
Marguerita Cheng, CFP®, RICP®, chief executive officer of Blue Ocean Global Wealth in Gaithersburg, Md., puts it this way:
All dollars are tax-deferred, which means that for every $1 you save today, you will only have about 63 to 88 cents based on your tax bracket. For our higher-income earners, this is an even more serious issue as they are in the higher tax brackets. A $1 million balance isn't really $1 million for you to spend in retirement.
David S. Hunter, CFP®, president of Horizons Wealth Management, Inc., in Asheville, N.C., adds: "We tell our clients to plan on 30% of their 401(k) going away. It's going to end up in Uncle Sam's hands, so don’t get attached to 100% of that value being yours."
1:43 Nashville: How Do I Invest for Retirement?
2. Fees and Compounding Costs
The effect of administrative fees on 401(k)s and associated mutual funds can be severe. These costs can swallow more than half of an individual's savings. A 401(k) typically has more than a dozen fees that are undisclosed, such as trustee fees, bookkeeping fees, finder's fees, and legal fees. It's easy to feel overwhelmed when you're trying to figure out whether you are being treated fairly or being fleeced.
This is in addition to any fund fees. Mutual funds within a 401(k) often take a 2% fee right off the top. If a fund is up 7% for the year but takes a 2% fee, you're left with 5%. It sounds like you're getting the greater amount, but the magic of the fund business makes part of your profits vanish because 7% compounding would return hundreds of thousands more than a 5% compounding return. The 2% fee taken off the top cuts the return exponentially. By the time you retire, a mutual fund may have taken up to two-thirds of your gains.
Better options might be to invest in low-cost index funds. Also, look at easy-to-use target-date funds, which are finding their way into more and more 401(k) plans, but check fees with those as well.
3. Lack of Liquidity
The money that goes into a 401(k) is essentially locked in a safe that can only be opened when you reach a certain age or when you have a qualified exception, such as medical expenses or permanent disability. Otherwise, you will suffer the penalties and taxes of an early withdrawal. In short, 401(k) funds lack liquidity.
"This is not your emergency fund, or the account you plan to use if you are making a major purchase. If you access the money, it is a very expensive withdrawal," says Therese R. Nicklas, CFP, CMC, of Wealth Coach for Women, Inc., in Rockland, Mass. "If you withdraw funds prior to age 59-1/2, you potentially will incur a 10% penalty on the amount of the withdrawal. All withdrawals from tax-deferred retirement accounts are taxable events at your current tax bracket. Depending on the amount of the withdrawal, you could bump yourself to a higher tax bracket, adding to the cost."
The IRS discourages you from taking money out of your 401(k) by charging a 10% penalty on withdrawals you take prior to age 59½—unless you qualify for an exemption.
This means you can't invest or spend money to cushion your life without a significant amount of difficult negotiation and a large financial hit. The single exception to this is an allowance to borrow a limited amount from your 401(k) under certain circumstances, with the obligation to pay it back within a certain period of time.
If you lose your job or income, the deal changes for the worse, as you have to fully repay the balance of the loan by the next federal tax-filing date, including extensions.
The Bottom Line
Since a 401(k) may not be sufficient for your retirement, it is important to build in other provisions, such as making separate, regular contributions to a traditional or Roth IRA.
Carol Berger, CFP®, of Berger Wealth Management in Peachtree City, Ga., explains:
It's always a good idea to have more options when you reach the "distribution" phase of your life. If everything is tied up in your pre-tax 401(k), you won't have any flexibility when it comes to withdrawals. I always recommend, if possible, having a taxable account, Roth IRA, and IRA (or 401k). This can really help with tax planning.
"The reality is that many retirees will need to earn a bit of money during retirement to take the pressure off their retirement accounts," adds Craig Israelsen, Ph.D., creator of the 7Twelve Portfolio, in Springville, Utah. "Having a part-time job will also help a person 'ease' out of the workforce rather than simply ending their working career cold turkey."
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217d5a56bb5635c4ecda7850ad718d1c | https://www.investopedia.com/articles/personal-finance/081316/should-you-really-pay-erase-your-name-internet.asp | Can You Erase Your Mug Shot from the Internet? | Can You Erase Your Mug Shot from the Internet?
If you have been arrested, no matter what for, one of the first things that happens during the booking process is the mug shot. States have different laws governing the public availability of criminal records, but many make mug shots publicly available almost instantly, and yours could be online in less than 24 hours. Once it's posted, is there any way to get it taken down?
On the surface, posting mug shots might seem like a valuable community service, but an arrest doesn’t equal a conviction. You could end up never being charged with a crime, or your case could be dropped. Nevertheless, your published mug shot could be enough to cost you your job or reputation, for your name to be wrongly besmirched. In such a case, should you pay to have your mug shot removed from the Internet?
Key Takeaways Publishing mug shots online is a big business, which many call shady.More than a dozen states have enacted laws prohibiting publishing mug shots online and charging to take the photos down.In states that don't have such laws once a mug shot becomes public record, any number of for-profit websites can publish them.Instead of contacting the sites directly, you can pay one company to remove the photos for you.
The Business of Mug Shots
In recent years, more than a dozen states have enacted laws to limit posting mug shots online. Measures include prohibiting publishing mug shots online altogether, prohibiting charging to take the photos down, and limiting access of mug shots in the private sector. But in states that don't have such laws, once a mug shot becomes public record, any number of for-profit websites can grab the photos and post them for public view. Even local newspapers generate traffic by publishing photos on their websites.
A simple Google search of someone’s name may return links to these mug shot sites along with the image appearing at the top of the results. Even if the person wasn’t charged with a crime, was found not guilty, or had their records sealed, the images still appear.
The problem is much larger than a single website. Because mug shot images are uploaded to a searchable database, there’s no limit on how many websites could publish the photos. This problem gave birth to a complementary business that some critics say might be as shady as the sites that publish the mug shots.
Contacting all of the websites directly may be daunting, but you can simply pay one company to remove the images for you. Costs range from a few hundred dollars to thousands, depending on how many websites publish the mugshot. One removal site is Erasemugshots.com. It claims that its service is 100% guaranteed and mug shots will be removed in as little as 72 hours.
In most cases paying a fee will result in removal of the image, but that doesn’t guarantee that it is gone from the internet forever.
Should You Pay to Erase Your Mug Shot from the Internet?
Given that it's possible to get your mug shot removed, the next question is whether or not you should pay to have it done. As it turns out, that depends on whom you ask and which sites you use for removal. Some will do what they advertise; others won’t. “For the most part the third-party sites are a waste," says criminal defense attorney Jordan Ostroff. "They will send letters to the other sites and maybe follow up here or there, but it’s really [up to] the main sites that post the pictures to do something about it or not.”
Ostroff believes the most reliable way to get your mug shot removed is paying a fee to the actual site rather than using a third-party service. “The way for that [mug shot website] to make money is to take the payment and take the photo down, whereas the third-party companies just have to [make] a good [try] for you,” he notes.
Cleveland attorney Aaron Minc, who calls the industry “legal web extortion,” disagrees, saying that using a mug shot removal service to get rid of records from multiple websites works. Minc has used them on behalf of clients and found that they’ve done what they advertised. “They just want their money, and then they’ll go away," he says. "In the past, if you paid one site, the mug shot might pop up on other sites, but that’s not often the case anymore.” As with everyone we asked, he cautioned that there is a history in the industry of scam sites.
In fact, there’s evidence to suggest that some of the removal websites work with the posting websites or, in some cases, may actually be the same company. In May 2018 Califonia's attorney general charged four owners of Mugshots.com, which was partnered with Unpublisharrest.com, with alleged extortion, money laundering, and identity theft. At the time Mugshots.com would not remove criminal record information unless a fee was paid, usually $399, through Unpublisharrest.com, which has since been taken down.
States that don't allow mug shots to be posted online and/or companies to charge to take them down include: California, Colorado, Connecticut, Florida, Georgia, Missouri, New Jersey, New York, Oregon, South Carolina, Texas, Utah, and Virginia.
What If the Case Was Sealed?
If the case was sealed or expunged, you might be able to have the image removed free of charge. New York criminal lawyer Todd Spodek says, “[In New York] if you have a court order sealing the file, including mug shots, and present it to the actual website, they will have to take it down or face legal repercussions.… With the case sealed or expunged, it’s tough for anyone to follow up and confirm the arrest.”
The Bottom Line
Most experts use terms like “extortion” to describe these sites, but the practice isn’t illegal in many states. Anything posted to the internet is available somewhere. It becomes a matter of personal choice whether you want to pay a fee to have a mug shot removed from the internet. But paying to remove what is plainly visible will likely work.
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6b6d2a2495c0a00ad62a1249317e6b5b | https://www.investopedia.com/articles/personal-finance/081514/how-inflation-affects-your-cost-living.asp | How Inflation Affects Your Cost of Living | How Inflation Affects Your Cost of Living
Inflation has not been talked about much lately, and for good reason. In late 2019, the overall annual rate of inflation was running at about 1.8%. The U.S. Department of Agriculture reported that retail food prices were 1.8% higher in February 2020 than they had been the year before.
Keep in mind, these numbers are historically low, and 2020 will be the fifth consecutive year of lower than average or even deflationary prices for food.
We've been through worse times. Still, there's always talk about inflation and cost of living increases, but what do these terms really mean? And most important, how do they affect your daily life?
The Difference Between Inflation and Cost of Living
People often use the phrases inflation and cost of living as if they were synonymous. They are not the same, although they're closely related.
Inflation is the big picture. As the cost of goods and services rises, the buying power of the dollar falls. The inflation rate is often measured by the change in the Consumer Price Index (CPI), a monthly measure by the Bureau of Labor Statistics that averages the cost of a basket of goods and services from areas around the country. It reports the result as a percentage rise or drop in CPI. Cost of living has a different focus. This number represents the average cost of an accepted standard of living including food, housing, transportation, taxes, and healthcare. Cost of living is frequently used to compare minimum income needs in various locations. If life in New York City costs $100,000 a year, life in Chapel Hill, North Carolina costs $42,000, or 58% less, according to PayScale's calculator.
Cost of living is a far more difficult number to pin down, and it varies widely among different demographic groups as well as different regions. In 2020, the Social Security Administration raised benefits by 1.6% as a cost of living adjustment. Whether your own cost of living went up or down in 2020 depends on how you live and where you live.
When the Going Gets Expensive
Most people feel the effects of cost-of-living increases in their daily lives. But rising prices hit the middle-class hard, and the lower-paid harder.
1.8% The overall annual U.S. inflation rate as of November 2019.
Higher food, gasoline, and utility costs mean less money for savings or discretionary spending. To compensate, consumers buy less, switch to cheaper substitutes, or look harder for bargains.
The Paycheck Factor
It’s especially difficult to keep up with the rising cost of living when your paycheck isn’t growing at a similar rate. And this is where the good news comes in.
Key Takeaways Inflation measures the increase in the price of goods and services. Or, the decrease in the buying power of the dollar. Cost-of-living measures the change, up or down, of the basic necessities of life, like food, housing, and healthcare. Housing prices are affected by many factors but one of the biggest of them is the cost of borrowing.
According to the Bureau of Labor Statistics, the median weekly earnings for full-time wage earners was $936 in the fourth quarter of 2019. That's a gain of 4% from a year earlier.
It also more than offsets that overall inflation rate of 1.8%.
How Inflation Affects the Housing Market
You would assume that higher inflation means higher prices for real estate, and that is often the case, at least at the start of a significant spike in inflation. But then things can get complicated
To keep inflation rates under control, the Federal Open Market Committee (FOMC) often steps in and raises the federal funds rate, which is the interest rate charged to other financial institutions using the Federal Reserve Bank.
As the cost of home loans goes up, many consumers are squeezed out of the market, leading to a slowdown in home sales. With homes on the market for longer periods, sellers tend to drop their asking price to attract buyers.
Lower interest rates helped the U.S. housing market make its recovery after the gut-punch of the 2008-2009 financial crisis.
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0013e2aa4bbb6bd21810a691ae7aa0f4 | https://www.investopedia.com/articles/personal-finance/081615/purpose-irs-form-1065.asp | The Purpose of IRS Form 1065 | The Purpose of IRS Form 1065
Partnerships do not pay taxes on their profits, their partners do. Partnerships are pass-through entities that report their income, deductions, credits and other items to partners so that partners can then enter their share of this information on their personal tax returns.
The partnership, as well as an entity treated as a partnership for federal income tax purposes, uses Form 1065, U.S. Return of Partnership Income, to list this information. An allocation of the items is made to each partner on a Schedule K-1, Partner’s Share of Income, Deductions, Credits, Etc., based on their ownership interests.
What the Form Reports
Form 1065 is five pages.
Page One: Basic information about the partnership (name, address, employer identification number, business activity, date that the business started) is shown at the top of the form. Then the partnership indicates whether the return is special (e.g., amended, final, reflecting change of name or address), the method of accounting and the number of Schedule K-1s that are attached.
The income section lists various income items from the partnership’s trade or business, such as gross receipts from sales and net gain or loss from the sale of business assets (a figure that is taken from Form 4797). Some items require special treatment on shareholders' (partners') own returns; these are referred to as separately stated items and do not appear on page one of Form 1040. For example, because of special rules for rental real estate income and deductions, you won’t see an entry of these rents in the income section of the Form 1065 return.
Similarly, while some of a partnership’s trade or business deductions are listed on page one of Form 1065, some are reported elsewhere (e.g., charitable contributions, Sec. 179 deduction) so that partners can apply their own limitations for these write-offs. Deductions on page one of Form 1065 include salaries and wages to employees (but partners are not employees so payments to them are not listed here); any guaranteed payments to partners are listed.
The difference between the partnership’s total income and its total deductions is ordinary business income profit or loss. This net amount, along with other items, is allocated to partners.
The bottom of page one is used for signing and dating the form if the return is filed on paper (electronic signatures are used for e-filed returns) and noting information about a paid preparer, if any.
Pages Two and Three: Schedule B, Other Information, is a series of yes-no questions about the partnership. For example, check the box for question one regarding the type of partnership or other entity filing the return, such as a limited liability company (LLC) with two or more partners and a limited liability partnership (LLP). Schedule B is also used to provide information about the Tax Matters Partner: someone designated by the partnership to sign the return and interface with the IRS on matters concerning the return. (If there are more than 10 partners, any audits must be conducted at the partnership level to save the IRS the trouble of auditing each individual partner about the treatment of a partnership item.)
Page Four: Schedule K lists the partners’ distributive share of items. It is from this schedule that allocations are made to individual partners of each of these items; the allocated amounts are reported on Schedule K-1, which has sections for:
income (loss)deductionsself-employmentcreditsforeign transactionsalternative minimum tax itemsother information
Page Five: This page is made up of a number of different schedules:
Schedule K’s analysis of net income (loss) is a breakdown of the income or loss according to the nature of the partnership (corporate, individual (active), individual (passive), etc.). It further segregates the income and loss among general partners and limited partners.
Schedule L is the balance sheet. Its entries for assets and liabilities are populated according to the books of the partnership. As with any balance sheet, the difference between the assets and liabilities effectively reflects the partner’s capital accounts (i.e., equity in the partnership).
Schedule M-1 is a reconciliation of income or loss per the books, with income or loss per return. Because tax rules don’t necessarily follow the economic reality of partnership activities, this reconciliation is necessary. For example, while a partnership may deduct the full cost of meal and entertainment on its books, for tax purposes only 50% of these costs are deductible; the reconciliation is made on Schedule M-1.
Schedule M-2 is an analysis of the partners’ capital accounts. This equity interest adjusts each year to reflect contributions made by partners, the partnership’s profit or loss, distributions from the partnership to partners and other activities.
Note: Schedule M-3, which is a statement required only for large partnerships ($50 million or more in total assets), is not part of the five pages of Form 1065. If a partnership is required to attach this schedule to the return it is noted on line J on page one of the return.
Schedule K-1
As explained earlier, this form allocates partnership items as well as separately stated items to shareholders so they can report them on their personal returns. Page two of this schedule directs partners who are individuals filing Form 1040 where to report the items. For example, a partner’s share of profit or loss (the ordinary income or loss from page one of Form 1065) is reported on Schedule E of an individual’s Form 1040. A partner’s share of net long-term capital gains is reported on Schedule D of Form 1040 (and may have to be entered on Form 8949 as well).
Filing the Return
Form 1065 has a due date on the 15th day of the third month after the end of the entity's tax year. March 15 for a calendar year entity. A partnership currently can obtain an automatic six-month filing extension to September 15. Partnerships that fail to file their returns on time are subject to a penalty of $195 per partner for each month they delay.
(For further reading on partnerships, see: How Are Business Decisions Made in a Partnership? and Silent Partner vs. General Partner: What's the Difference?)
Special Considerations
Provisions were made in the Coronavirus Aid, Relief, and Economic Security (CARES) Act to allow registered partnerships to claim certain benefits retroactively for the 2018 and 2019 tax years using Form 1065. The change applies to partnerships that are subject to audit regimes under the Bipartisan Budget Act of 2015.
Partnerships using the form are able to deduct additional interest expense and full depreciation on improvements made to a building's interior, as long as it's made to non-residential property. Those using the form to claim these retroactive benefits must indicate that they're filing an amended return by checking off the appropriate box.
The Bottom Line
Even though no tax is due on a partnership return, it is a vital piece of information for the IRS to use in checking that partners pay their taxes on partnership items. Completion of the form can be confusing and complex, so it is advisable to work with a knowledgeable tax professional.
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4696bae8e7b71ea26dbe9f1125f27566 | https://www.investopedia.com/articles/personal-finance/081715/purpose-irs-form-941.asp | Form 941: Employer's Quarterly Federal Tax Return Definition | Form 941: Employer's Quarterly Federal Tax Return Definition
What Is IRS Form 941: Employer's Quarterly Federal Tax Return?
In general, an employer must electronically transfer to the Internal Revenue Service (IRS) withheld employment taxes on a monthly or semiweekly basis. This includes withheld federal income tax, and the employer and employee share of Social Security and Medicare taxes. Then, once a quarter, the employer reports these payments on Form 941, Employer’s Quarterly Federal Tax Return.
How to File Form 941: Employer's Quarterly Federal Tax Return
Form 941 is six pages consisting of five parts. At the top of page 1, the employer provides a name (including a trade name if one is used), address, and employer identification number (EIN). Also, the employer indicates the filing period:
First quarter (January, February, March)Second quarter (April, May, June)Third quarter (July, August, September)Fourth quarter (October, November, December)
Part One
Part One is where the employer reports the number of the staff employed, their compensation, and the taxes owed. This part also shows whether the employer owes taxes (balance due) or has overpaid employment taxes. Any overpayment can be applied toward the next quarter or received as a refund. The choice is indicated by checking the appropriate box on Line 15.
Part Two
Part Two, which begins midway on the second page, explains the tax deposit schedule for employment taxes. The deposit schedule for most employers is either monthly or semiweekly. If depositing monthly, a breakdown of tax liability by month is entered here. Employers depositing taxes semiweekly explain their tax liability for their deposits on Schedule B. There is a next-day deposit requirement for taxes exceeding $100,000. Taxes of less than $2,500 can be paid with the form and need not be deposited.
Part Three
In Part Three, the employer must answer two questions: did the business close or stop paying wages (and the date this happened), and is the business a seasonal employer (and thus filing a return every quarter is not required).
Parts Four and Five
In Part Four, the employer is asked whether they will authorize an employee, paid tax preparer, or another third party such as a Certified Public Accountant (CPA) to speak with the IRS regarding the return. If yes, the employer must provide the designee's name, phone number, and a self-selected five-digit personal identification number so the IRS can confirm the person's identity.
In Part Five, the employer signs, dates and provides a daytime phone number.
If the employer used a paid preparer to complete the form, the preparer must enter their information in Part Five. This includes name, Preparer Tax Identification Number (PTIN), firm name, EIN of the preparer or the firm, address, and phone number.
Should the employer owe employment taxes for the quarter, payment can accompany the filing of Form 941. Using the Form 941-V: Payment Voucher will help the IRS process the payment correctly.
Form 941 is available on the IRS website.
Taxes Reported on Form 941: Employer's Quarterly Federal Tax Return
As mentioned earlier, Part One is where the employer reports the amount of taxes paid on wages, tips, and other compensation. There are four types of taxes:
Federal taxes withheld from employee wages (Line 3).Social Security taxes (Lines 5a and 5b). The tax rate is 12.4%, covering both the employee and employer share.Medicare taxes (Line 5c). The rate is 2.9 percent, covering both employer and employee share.Additional Medicare taxes on compensation over $200,000 (Line 5d). The tax rate is 0.9% and is paid solely by the employee.
Special Considerations When Filing Form 941
For Small Employers
An employer that owes employment taxes of $1,000 or less for the year can file Form 944, Employer’s Annual Federal Tax Return if given IRS permission to do so. Call 800-829-4933 or send a written request, as you must receive permission before filing this form instead of Form 941.
Amended Forms
If you need to correct Form 941, use Form 941-X, Adjusted Employer Quarterly Tax Return or Claim for Refund. For example, if wages were understated or Social Security tax on tips was overstated, and you discover the error, this form is used to correct it.
The Bottom Line
Employment taxes are a big responsibility. Learn more about what payments to employees are taxable and how to figure employment taxes in IRS Publications 15 (Circular E) and 15-B.
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c3eb29be6018d5f17849aff996ca107d | https://www.investopedia.com/articles/personal-finance/081715/sending-money-moneygram-vs-western-union.asp | MoneyGram vs. Western Union: What's the Difference? | MoneyGram vs. Western Union: What's the Difference?
MoneyGram vs. Western Union: An Overview
In this world of ubiquitous ATMs, tap-to-pay checkout, and automated bank deposits, there are still times when it is necessary to hand over or collect actual cash. That is why money-transfer services like MoneyGram and Western Union have tens of thousands of agents in cities and towns around the world.
Money-sending services can be a lifesaver. You may feel it is unlikely you will ever be broke and stranded in a bus station in Bengaluru, needing your spouse to send cash, but stranger things have happened—and not just when you are traveling abroad. How about when your child who is studying at a Canadian university needs you to send the rent deposit—pronto? More routinely, money-transfer companies provide banking services like money transfers, money orders, and bill payments to people who do not have bank accounts. In the United States and Canada, many customers are new immigrants who send money regularly to family members in their home countries. Outside the United States, it is even easier to find a nearby agent for MoneyGram (MGI) or Western Union (WU) or both. Cash is still king in many countries, and, in developing nations, many people do not have bank accounts.
Key Takeaways Moneygram and Western Union are both popular services for wiring money around the globe. The many pricing variables make it impossible to state whether Western Union or MoneyGram is the best, or even cheapest, service available. Check fee calculators available on both company's websites to determine the exact cost based on where you are sending the money to and from, using what medium, and if exchange rate fees apply.
Western Union
Western Union is the larger of the two companies and has instant name recognition around the world, thanks to its one-time monopoly of the telegraph business. Sending telegrams was officially discontinued only in 2006, but by then Western Union had moved on to new ventures. It has about 500,000 locations in over 200 countries around the world. Customers can send money by phone, through the Western Union website, or in person.
Fees can be steep or cheap, depending on a long list of factors, including the form of payment used, how fast the money is delivered, whether it is paid in cash or wired to a bank, where it is sent from, and where it is delivered. For international transfers, the exchange rate adds another element of uncertainty to the cost.
For domestic transfers, if you pay cash at a Western Union agent and the recipient picks it up in cash, the cost is typically around $10.00. If you have the funds withdrawn from your online bank account, it costs $11.00 to send cash in March 2020. Bank-to-bank transfers are only $0.99. Using a credit card or debit card to send cash costs more and depends upon the amount being sent.
Western Union's international transfer fees can vary widely. For example, you are in the United States and want to deliver $500 to someone in Mexico in March 2020. If you have the funds withdrawn from your online bank account, and the recipient picks it up in cash, it costs $5.00. (It costs $9.00 for a cash-to-cash transfer.) If using a debit, the same transaction costs $7.00. Credit card fees are higher. The same transaction is free for a bank-to-bank transfer or $2.99 for using a debit card or $17.49 for using a credit card to pay money into a bank account. However, charges for this same transaction to Ireland range from $5.00 to $21.50, and, to China, charges range from $7.00 to $102.00.
MoneyGram
MoneyGram is Western Union’s biggest rival, and its domestic transfer fees closely match its competitors. It charges around $5.99 in March 2020 if paying from an online bank account and $14.99 if paying with a debit or credit card for transferring $50 to $900 within the United States. Rates climb for amounts over $900.
MoneyGram built its reputation on international money transfers. It has more than 25,000 payment locations in Africa alone.
Special Considerations
One drawback of sending cash through these services is that they open or close with the stores’ business hours. You may have to stick it out at the bus station until the next morning before your family can send you that emergency cash.
The biggest drawback of any money-transfer service is the vulnerability of its customers to fraud.
A request from a stranger for payment via cash transfer is usually a fraud. Since the recipient is untraceable, it is the modern equivalent of stuffing a wad of unmarked bills into an envelope and leaving it in a public place on instructions from a stranger.
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435e9015996dfedc83492a7b2fa2b82b | https://www.investopedia.com/articles/personal-finance/081715/yes-you-can-manage-your-own-retirement.asp | Yes, You Can Manage Your Own Retirement! | Yes, You Can Manage Your Own Retirement!
Many financial professionals will, for a fee, help you navigate your way to and through retirement. But using a financial advisor isn't mandatory. If you can't afford, don't trust, or otherwise would prefer not to use an advisor, managing your own retirement is always an option. You have to map out a sensible plan and be willing to follow it. Here are some of the basics of a do-it-yourself strategy.
Key Takeaways You don't necessarily need a financial pro to help you plan for retirement.If you don't already have a basic understanding of investing, take some time to learn about stocks, mutual funds, and other places to put your retirement savings.As you get closer to retirement, you'll want to read up on withdrawal strategies that can help you maximize your income and minimize your taxes.
Start Well Before Retirement
If you are serious about taking retirement into your own hands, start as early as possible by adopting one simple habit: Pay yourself first. Figure out a weekly or monthly amount of money that you can set aside for the future. Retirement plans like 401(k)s, which take money automatically out of your paycheck, make that almost effortless. Also, it's important to maximize your employer's 401(k) match, avoid excessive fees and commissions when you invest.
If you don't have a 401(k), you can sign up for regular automatic withdrawals that will come out of your bank account and go into an individual retirement account (IRA). A traditional IRA provides a tax deduction in the years that you make contributions, meaning the contribution amount reduces your taxable income to an IRA. However, in retirement, the withdrawals or distributions are taxable at your income tax rate in the year of the distribution.
A Roth IRA is an IRA that allows certain distributions to be made on a tax-free basis assuming specific conditions have been met. However, Roth IRAs do not provide a tax deduction in the years they're funded, meaning they're funded with after-tax dollars. For both Roth and traditional IRAs, your distributions can't begin age 59½‚ although there are exceptions. If you withdraw IRA funds before age 59½, you'll pay a 10% penalty tax in addition to paying federal income taxes on the distribution amount—and possible state taxes as well.
IRA Contribution Limits
The Internal Revenue Services (IRS) limits how much you are allowed to contribute each year to an IRA and a workplace retirement plan. The annual contribution limits for both traditional and Roth IRAs is $6,000 for 2020 and 2021. For individuals aged 50 and over, they can deposit a catch-up contribution in the amount of $1,000.
For 2020 and 2021, you can contribute up to $19,500 into a 401(k) or Roth 401(k). Those who are aged 50 and over can make an additional $6,500 catch-up contribution for a total of $26,000 each year.
There's a penalty for over-contributing—called excess contributions by the IRS—which are taxed at 6% per year for each year the excess amounts remain in the IRA.
IRA Income Limits
It's important to keep in mind that some IRAs, such as Roth IRAs have income limitations established by the IRS. You could be prohibited from contributing, or your contributions could be phased out, depending on your tax filing status and income.
For the 2020 tax year, if your tax filing status is single, you can't contribute to a Roth if you earn more than $139,000. The income phase-out range is $124,000 to $139,000. For 2021, the income phase-out range for singles has been increased to $125,000 to $140,000.
For married couples who file a joint tax return, the Roth income phase-out range for 2020 is $196,000 to $206,000, and for 2021, it's $198,000 to $208,000. In other words, you can't contribute to a Roth if you make more than $206,000 in 2020 and $208,000 in 2021 as a married couple filing jointly.
Choose Appropriate Investments
Because your retirement could be years—even decades—in the future, you need to put money into investments that will generate interest, pay dividends (or cash payments), and grow in value so they can be sold later for a profit. You have to be able to beat or keep up with inflation—the pace of rising prices—since inflation is not going to stop when you retire.
If you aren't already familiar with the basics of investing, take some time to learn them. Stocks are relatively risky but historically can generate high returns. Mutual funds have many advantages and should probably be the centerpiece of most retirement portfolios. You can buy mutual funds that invest in stocks, bonds, a combination of the two, or many other types of assets.
“Having an appropriate asset allocation that is represented by a broad base of index mutual funds can help reduce the emotions associated with the more frequent rise and declines of individual stock prices,” says Kevin Michels, CFP®, a financial planner with Medicus Wealth Planning in Draper, Utah. Index funds also have the advantage of relatively low fees and costs—another important thing to keep an eye on as you invest.
It's crucial to control investment expenses in retirement as high fees can erode returns.
While buy and hold is a time-honored investing strategy, you will also want to review your asset allocation over time. Investments that are appropriate for a 24-year-old may not be for a 64- or 74-year-old.
“When you get older, it is much more important that you find safe investments,” says Kirk Chisholm, wealth manager at Innovative Advisory Group in Lexington, Mass. “When you are close to retirement, you cannot afford to lose a large percentage of your savings. You can lower your risk by finding bonds with a short maturity date, CDs, fixed annuities (not equity-indexed or variable), safe dividend stocks, physical real estate, or other assets that you would consider yourself an expert in.”
What to Do as Retirement Draws Closer
Before you retire, try to make a reasonable estimate of how much money you and your family will need to live comfortably during retirement. Then add up all your likely income sources and compare the two. If your income won't be adequate to cover your expenses, you'll need to make some adjustments.
“Most important,” says Cullen Breen, president of Dutch Asset Corporation, in Albany, N.Y., “is the Golden Rule: Keep your expenses as low as possible. This cannot be overstated and is the single most important thing that you can control.”
You will probably have multiple sources of retirement income, starting with Social Security. You can get an estimate of your future Social Security benefits at the website SSA.gov. If you have earned at least 40 credits (roughly ten years of work), you can obtain a personalized estimate using the SSA's Retirement Estimator. Or, you can plug your current income and planned retirement date into the Social Security Quick Calculator for a ballpark figure.
If you're married, bear in mind that even if your spouse isn't eligible for Social Security based on their own work record, they may be entitled to spousal benefits based on yours. You may also be able to increase your Social Security income substantially by taking benefits later, rather than when you're first eligible.
Your other sources of retirement income might include one or more defined-contribution plans, such as a 401(k) or 403(b), a traditional defined-benefit pension, and any IRAs you've established over the years.
Outside of retirement accounts, you will probably have other assets, such as individual stocks and bonds, mutual funds, exchange-traded funds (ETFs), annuities, and CDs.
When the time comes (or earlier, if at all possible), you will also want to read up on withdrawal strategies that can help you maximize your retirement income, minimize your tax bill, and—especially important—not deplete your savings prematurely.
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2bb7bd226cb985f7b6e58ae8f362c39f | https://www.investopedia.com/articles/personal-finance/081816/how-kohls-credit-card-works-benefits-and-rewards-kss.asp | How Does the Kohl's Credit Card Work: Benefits and Rewards | How Does the Kohl's Credit Card Work: Benefits and Rewards
Kohl’s Department Stores, a subsidiary of Kohl’s Corp. (NYSE: KSS), is the second-largest retail chain in terms of sales, behind Macy’s Inc. (NYSE: M). Kohl's is known largely as a family-friendly store that offers quality clothing products at a low cost. It has cultivated a loyal following of shoppers through its frequent discount promotions, offering coupons for as much as 35% off of store items. Like most major retail chains, Kohl’s offers its own branded retail store card that can be used only at Kohl’s stores and at Kohls.com.
Key Takeaways The Kohl's Card can be used to make purchases online or in stores at Kohl's locations. Kohl's Card members can earn rewards on purchases through the Kohl's Cash program. New cardmembers can take advantage of a discount off their first purchase. Kohl's Card, as well as other retail store cards, can charge a higher APR compared to regular rewards cards.
How the Kohl’s Credit Card Works
The Kohl's Card is a retail charge card, which means it can only be used for purchases of Kohl’s merchandise. That includes purchases made in Kohl's stores and online. That's different from a traditional credit card that bears a Visa, Mastercard, American Express, or Discover logo.
As with most retail cards, the Kohl's Card comes with a store credit limit that is typically lower than credit limits issued on regular credit cards. The amount of credit issued depends on the credit standing of the cardholder and can range from $300 to $3,000, though it tends to be under $1,000 for most people.
Since the Kohl's credit card is a charge card, the balance is expected to be paid in full each month, but cardholders can carry a balance if they are willing to pay the variable annual percentage rate (APR), which was 24.99%, as of February 2021. The card does not charge an annual fee though you may pay a late fee or returned payment fee.
Tip You can apply for a Kohl's Card online or at a Kohl's location. Applications do require a hard credit check prior to approval, which can affect your credit score.
Kohl's Card Benefits and Perks
The Kohl's Card isn't a rewards credit card. However, you can still earn rewards on purchases if you're a member of the Kohl’s Cash rewards programs. Kohl’s Cash allows shoppers to earn credit toward purchases. For example, you can earn $5 of Kohl’s Cash when you spend $50 on merchandise. Additionally, Kohls has offered promotions for new cardmembers, such as a 35% discount off your first purchase using your new Kohl's card.
Kohl’s Cash promotions are offered periodically and are sometimes available only to Kohl’s cardholders. Kohl’s allows for discounts and promotions to be stacked on top of each other, which can result in tremendous savings. For example, a customer may combine a 30% discount offer with Kohl’s cash on any purchase. Kohl’s often offers cash-off coupons, such as $10 off purchases of $30 or more. These may be combined with other discounts, as well as Kohl’s rewards programs.
Kohl’s cardholders participate in all of these discounts and rewards programs the same as all shoppers. However, cardholders receive additional offers for store discounts of 10 to 30% each year. In addition, Kohl’s gives new cardholders 35% off their first purchase, which can be combined with any other store discounts. If you become a Most Valuable Customer by spending more than $600 during the year, you receive six additional discount offers, including an annual birthday gift and free shipping promotions.
Tip Kohl's Card users also enjoy other perks, such as mobile payment options, hassle-free returns and online and mobile bill payment.
Who Uses the Kohl’s Card?
Kohl’s has cultivated a loyal following of shoppers through its discount offerings and shopper rewards programs, which, when combined, can result in big savings. The offer of 35% off the first purchase, on top of all other discounts, using a new Kohl’s credit card is enticing for many shoppers.
A retail store card like the Kohl's Card could be a good option for someone who's new to building credit or is trying to reestablish positive credit history. Retail store cards are typically easier to qualify for versus traditional credit cards.
Important Just like with a traditional credit card, paying your Kohl's Card bill late could result in negative credit reporting and cost you credit score points.
Kohl's Card Pros and Cons
In terms of the pros, the most attractive feature of the Kohl's Card is the initial discount that's available to new members when making their first purchase. If you plan to purchase a pricier item from Kohl's, the discount could add up to some substantial savings.
After that, there is no real benefit of having a Kohl’s card other than the special discount offers throughout the year. For Kohl’s shoppers who thrive on the ability to stack discounts, that may be enough of a reason to have it. For people who do not shop at Kohl’s frequently, a regular cashback rewards credit card might serve them better.
In terms of the downsides, it's important to keep in mind that the Kohl’s charge card is a retail store card. Retail store cards have several drawbacks, including the fact that they are generally issued as subprime credit, meaning that you pay a high APR if you carry a balance.
Additionally, retail store cards are often issued with low credit limits, which is not necessarily a bad thing since it can keep you from overspending. However, if you are used to receiving $5,000 credit lines from a credit card issuer, you might be disappointed in the credit line you receive from Kohl’s.
Finally, because it doesn’t offer a rewards program outside of the one available to all shoppers, the Kohl's card may not be of much benefit to you if you don't shop there often. You might consider using a rewards card that allows you to earn cash back on all your department store purchases instead.
Tip When comparing cashback or other traditional rewards cards options, pay attention to how rewards are earned as well as the annual fee to ensure the card matches your spending habits and style.
The Bottom Line
The Kohl's Card is similar to other retail store cards when it comes to features, benefits, and costs. Adding a retail store card to your wallet could help you build credit, though a secured credit card could be a better option if you can come up with the cash for an initial deposit. Before applying for the Kohl's charge card or any other retail store card, consider how often you plan to use it and how likely you are to pay your balance in full to avoid steep interest charges.
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84d34e636bebb502ac8c62e193426f43 | https://www.investopedia.com/articles/personal-finance/081816/how-lane-bryant-credit-card-works-benefits-rewards-ansa.asp | How the Lane Bryant Credit Card Works: Benefits and Rewards | How the Lane Bryant Credit Card Works: Benefits and Rewards
How the Lane Bryant Card Works
Like many retailers, women's plus-size retail chain Lane Bryant offers a retail reward credit card to its customers. The card is actually offered by Comenity, a financial services company that provides credit card services to hundreds of retailers across the country. While the card offers a number of attractive perks, there are some restrictions and downsides that customers should be aware of before filling out the application.
The Lane Bryant credit card is store-only and not affiliated with Visa, Mastercard, or any other card networks. The card can only be used at stores and websites in the Lane Bryant family including Lane Bryant, Cacique, the related outlet stores, and the company's websites.
Cardholders can choose to pay off the balance in full each month or carry a balance with smaller payments over time. The card comes with a 25-day grace period, so those who pay off the card in full each month avoid interest payments altogether.
Key Takeaways The Lane Bryant Card is an in-store card that can be used online or in-store at Lane Bryant and Cacique locations and outlets.The card offers cardholders rewards, including points that can be applied to future purchases, free shipping, and exclusive events.You should have at least fair credit before applying for the Lane Bryant Card.As of February 2021, the annual percentage rate for the Lane Bryant Card was 26.99%.
Rewards and Benefits
The Lane Bryant in-store credit card offers loyal shoppers a number of different perks.
Cardholders can accumulate points that be used toward future purchases. Purchases made with the card online or at participating stores accrue one point per dollar spent when the account is linked with a Lane Rewards Membership. Cardholders can redeem 3,000 points for a $10 reward.
First-time cardholders receive a $20 discount off their first purchase when they open and use their account on the same day.
The card also offers customers:
Free standard shipping on qualifying purchases of $75 or moreExtended returns (as long as you have a rewards membership)Exclusive eventsSpecial birthday offer
Cardholders who are part of the rewards program are divided into different tiers as follows:
Silver (spend up to $349): earn 15 points for every $1 you spend and extended returns for 60 daysGold (spend between $350 and $799): earn 20 points for every $1 you spend and extended returns for 60 daysPlatinum (spend more than $800): earn 25 points for every $1 you spend and extended returns for 60 days
Where Can Someone Get the Lane Bryant Card
You have to fill out an application in order to get the Lane Bryant Card. You can do this at any store right at the cash register or you can apply online. Approval and credit limit are based on the same factors as any other credit product such as credit score, income, and other debt.
What Kind of Credit Is Required for the Lane Bryant Card
Neither Lane Bryant nor Comenity indicates the minimum credit score required in order to be approved for this credit card. But it's fair to say that you probably need at least fair credit in order to qualify. That's a minimum of 580, according to Experian. This is, of course, not a hard-and-fast rule. It's always a good idea to check your credit score before you apply for this or any other credit card.
Where Can the Lane Bryant Card Be Used?
As noted above, cardholders can only use the Lane Bryant Card at participating stores. This includes Lane Bryant or Cacique stores as well as any affiliated outlet stores. Alternatively, you can use the card online for purchases on the company's website. Because this is a store credit card, you can't use it at other retailers for everyday purchases.
Alternatives to the Lane Bryant Card
Like the Lane Bryant card, the Victoria's Secret Angel Credit Card is store-only, and can only be used at the Victoria's Secret family of stores. Purchases earn one point per dollar spent, with $10 vouchers awarded for every 250 points accumulated. This is increased to $15 per 250 points once a cardholder earns more than 1,000 points. New cardholders are rewarded with $15 off the first purchase made on the credit card. This card has an annual interest rate of 24.99%.
The Gap's credit card comes in two versions: Store-only or with added Visa affiliation. This allows Gap cardholders with Visa to accrue bonus points anywhere Visa is accepted. New Gap cardholders receive a sign-up discount of 20%, followed by a point system. Purchases made at the Gap family of stores (Gap, Banana Republic, Old Navy, and the outlets) receive five points per dollar spent, while purchases made elsewhere receive one point per dollar (Visa-enabled cards only).
For standard customers, $5 reward vouchers are given for every 500 points accumulated. Frequent customers who reach Silver status also get an extra 20% bonus points per quarter. The interest rate for both cards is is 25.99%.
Terms and Conditions of the Lane Bryant Card
You should review the terms and conditions of the Lane Bryant Card before applying. The terms and conditions include the APR, late payment fees, penalties, and other useful information.
The following is updated information for the Lane Bryant Card as of February 2021:
Annual percentage rate (APR): 26.99%Grace period: 25 daysLate payment fee: up to $40Returned payment fee: up to $40Annual fee: $0
Be sure you review the terms and conditions of the Lane Bryant card before you apply just as you would with any other credit card.
Who Should Consider the Lane Bryant Card
Frequent shoppers at the Lane Bryant family of stores will benefit the most from this card. It works especially well for those who are part of the Lane Rewards program. The more you spend with this card, the closer you'll get to the Platinum level, which means greater rewards.
The Bottom Line
If you shop exclusively or regularly at Lane Bryant or any of its affiliated stores, the Lane Bryant Card may be the one for you. You'll get points every time you use the card that you can put toward future purchases, free shipping on certain purchases, and special birthday offers. And if you link it to your Lane Rewards membership, you'll qualify for even better rewards. But keep in mind that, unlike other cards, this one comes with a hefty APR of 26.99%—much higher than its competitors. And like other in-store cards, you can't use this for everyday purchases like a Visa or Mastercard.
Frequently Asked Questions
How do I get a Lane Bryant Card?
You can apply for the Lane Bryant Card in-store right at the register or you can apply online. The entire process just takes a few minutes and you'll find out whether you're approved. If you are, your account is automatically opened for you to use right away.
At what other stores can I use my Lane Bryant Card?
You can use the Lane Bryant Card at any Lane Bryant, Cacique, or outlet stores. You can also use the card online at any of their websites. Since this is an in-store credit card, you can't use this at any other retailer.
What are the perks of the Lane Bryant Card?
Individuals who have a Lane Bryant Card can use it to accumulate points that can be used toward future purchases. You can also link it with your Lane Rewards membership to accumulate even more rewards like free shipping, more points, and exclusive cardholder events.
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42e185f66cf6545ea0c69c45837dd714 | https://www.investopedia.com/articles/personal-finance/081816/selfdirected-ira-rules-and-regulations.asp | Self-Directed IRA: Rules and Regulations | Self-Directed IRA: Rules and Regulations
Saving for retirement in a tax-efficient manner is an important goal of any retirement planning strategy. In the U.S., individual retirement accounts (IRAs) are an established tool for pursuing this goal. These arrangements may be structured as traditional plans, where the account is funded with pre-tax dollars and taxed upon distribution, or as Roth plans, where funding comes from after-tax dollars and distributions are tax-free.
U.S. tax codes require an IRA to be a trust or a custodial account created or organized in the United States for the exclusive benefit of an individual or the individual’s beneficiaries.
The account must be governed by written instructions and satisfy certain requirements related to contributions, distributions, holdings, and the identity of the trustee or custodian. These requirements and restrictions related to the custodian and an account’s permitted holdings give rise to a special type of IRA—a self-directed IRA (SDIRA).
Key Takeaways A self-directed IRA is an alternative retirement account overseen by a financial institution, in which the account owner can choose to put money into alternative investments and to self-direct those investments. Investments in a self-directed IRA can include a variety of options, such as real estate, precious metals, mortgages, or private equity—provided the investments don't run afoul of tax regulations. This type of IRA differs from a standard IRA, in which the custodian determines which types of investments a participant can own, and typically opts for highly liquid, easily-valued products such as stocks, bonds, mutual funds, and ETFs.
Individual Retirement Arrangements: Self-Managed vs. Self-Directed
In all IRAs, account owners can choose from investment options allowed by the IRA trust agreement and can buy and sell those investments at the account owner's discretion, so long as the sale proceeds remain in the account. The constraint to investor choice arises because IRA custodians are allowed to determine the types of assets they will handle within the boundaries established by tax regulations. Most IRA custodians only allow investments in highly liquid, easily-valued products such as approved stocks, bonds, mutual funds, ETFs, and CDs.
However, certain custodians are willing to administer accounts holding alternate investments and to provide the account owner with significant control to determine or "self-direct" those investments, subject to prohibitions established by tax regulations. The list of alternative investments is expansive, limited only by a handful of IRS prohibitions against illiquid or illegal activities and the willingness of a custodian to administer the holding.
The most frequently cited example of an SDIRA alternative investment is direct ownership of real estate, which might involve rental property or a redevelopment situation.
Direct real-estate ownership contrasts publicly traded REIT investments, as the latter is usually available through more traditional IRA accounts. Other common examples include small-business stock, LLC interests, precious metals, mortgages, partnerships, private equity, and tax liens.
SDIRA's carry a higher risk for the investor than a standard IRA and are best suited to those who have specific knowledge of a particular area of the market and are therefore able to outperform the market.
Advantages and Disadvantages of a Self-Directed IRA
The advantages associated with an SDIRA relate to an account owner’s ability to use alternative investments to achieve alpha in a tax-advantaged manner. Disadvantages include the higher risk levels associated with alternative investments, as well as the compliance costs and compliance risks specific to an SDIRA. Success in an SDIRA ultimately depends on the account owner having unique knowledge or expertise designed to capture returns that, after adjusting for risk, exceed market returns.
Regulatory Requirements and Pitfalls
An overarching theme in SDIRA regulation is that self-dealing, where the IRA owner or other designated individuals use the account for personal benefit or in a way that circumvents the intent of the tax law, is prohibited. Key elements of SDIRA regulation and compliance are the identification of disqualified people and the types of transactions these people may not initiate with the account. The consequences of violating prohibited transaction rules can be severe, including having the IRS declare the entire IRA as taxable at its market as of the beginning of the year in which the prohibited transaction occurred, exposing the taxpayer to paying previously deferred taxes and a 10% early withdrawal penalty.
In addition to the IRA owner, the IRS identifies a "disqualified person" as anyone controlling the assets, receipts, disbursements, and investments, or those who can influence investment decisions. This list includes IRA account fiduciaries, the IRA owner’s spouse, lineal descendants, and spouses of lineal descendants.
Specific examples of prohibited transactions are too numerous to list, but there are certain general principles. Among these principles, the IRA cannot be used to buy stock or other assets from a disqualified person, lease assets from or to a disqualified person, buy stock in a corporation in which a disqualified person has a controlling interest, or lend to or borrow from a disqualified person.
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f28cf214cb382bb36c7c294d60ff5720 | https://www.investopedia.com/articles/personal-finance/082015/10-must-watch-movies-finance-professionals.asp | The 10 Must-Watch Movies for Finance Professionals | The 10 Must-Watch Movies for Finance Professionals
The financial world, in all its incarnations, makes for great cinema. Tragedy, comedy, ingenuity, catastrophe, and redemption are all present in the many finance films that Hollywood has produced over the years. While most of the movies portray financial professionals in a less than flattering light, the unbelievable stories of excess, risk-taking, and of course, greed all make for compelling cinema and are required viewing for anyone thinking of or already working in the business.
Key Takeaways It's always good advice to stay knowledgeable about the world of finance in order to make sensible investment decisions and understand the economic landscape that can influence your investments. While many of us are too busy to sit down and read a book on the topic of finance, several movies and films have been made that are both entertaining and educational. Here, we list ten movies dealing with finance or markets that every investor should watch at some point.
10. The Big Short (2015)
Based on the nonfiction book The Big Short: Inside the Doomsday Machine by Michael Lewis, this movie follows a few savvy traders as they become aware—before anyone else—of the housing bubble that triggered the financial crisis in 2007-2008.
The movie is known for its clever way to break down sophisticated financial instruments by, for example, having Selena Gomez explain what synthetic CDOs are at a poker table, or having Margot Robbie explain mortgage-backed bonds in a tub with champagne.
9. Barbarians at the Gates (1993)
A largely forgotten 1993 TV movie centered on the leveraged buyout (LBO) of RJR Nabisco. While the movie does take some creative liberties in portraying this real-life event, audiences will be shocked and amused at the incompetence and greed of Nabisco’s CEO F. Ross Johnson and the behind-the-scenes negotiations and skullduggery around this famous LBO.
8. American Psycho (2000)
A violent and thought-provoking thriller set in the backdrop of finance, Christian Bale plays a wealthy investment banker with a dark secret in the film adaption of the Bret Easton Ellis novel. While there is very little actual finance in this movie, American Psycho does shed light on the surreal world inhabited by finance’s elite class, and the utter disconnect they have among themselves and with reality.
7. Glengarry Glen Ross (1992)
An acclaimed big-screen adaptation of a David Mamet play, this infinitely quotable movie focuses on a team of downtrodden real estate salesmen whose morals have been utterly eroded after years of working for their unscrupulous company. This movie showcases the greed and underhanded tactics that sales positions may be exposed to, as well as the pressure exerted on salespeople by their superiors.
While the entire cast is top-notch, Alec Baldwin’s “motivational speech” steals the whole movie, and brings to light the absolute best and worst faces of working under enormous pressure.
6. Rogue Trader (1999)
This movie tells the story of Nick Leeson, a trader who single-handedly caused the insolvency of Barings Bank, the world’s second-oldest merchant bank. A rising star on the Singapore trading floor, Leeson blew up as quickly as he rose, hiding enormous losses from his superiors in carefully hidden accounts, eventually leading to the mother of all failed trades on a short straddle position on the Nikkei, which ends up experiencing a large sigma move.
While the movie itself is decently entertaining, Leeson’s story makes for a great lesson in risk management and financial oversight.
5. Trading Places (1983)
This modern-day take on The Prince and Pauper features Eddie Murphy as a streetwise con artist who gets tricked into becoming the manager of a commodities trading firm, while unwittingly replacing his successor, a blue-blooded executive played by Dan Aykroyd.
Although actual trading takes a backseat to the characters transitioning into their new circumstances, the final 15 minutes of the movie has a very accurate depiction of a frenzied trading session in the orange juice futures pits. Without revealing the details, this scene alone is worth the price of admission, but the supporting cast, the 80s nostalgia, and great acting from the leads make this a must-watch.
4. The Wolf of Wall Street (2013)
If you haven’t seen this Scorsese-helmed biopic chronicling the rise and fall of a famous stock scammer, Jordan Belfort, then you are missing out on some of the best performances of Leonardo DiCaprio and Jonah Hill’s careers.
Just like Barbarians' pump and dump, The Wolf of Wall Street is based on real-life events (though again with a large parsing of dramatics), around the infamous Stratton Oakmont, an over-the-counter brokerage firm, and a pump-and-dump scheme that helped IPO several large public companies during the late 80s and 90s.
3. Boiler Room (2000)
While Barbarians at the Gates takes place in the glitz and glamor of a corporate boardroom, Boiler Room is set in the absolute lowest rung of the financial ladder: the pump and dump scheme. While Boiler Room is a work of fiction, pump-and-dump firms are very real, as are the pain and suffering they inflict upon their victims.
Boiler Room serves as a warning for those starting to invest in the stock market, to stick to transparent, solid companies based on sound fundamentals, and to always follow the adage: “If it sounds too good to be true, it probably is.”
2. Margin Call (2011)
Perhaps the most financially accurate movie on the list, Margin Call takes place over the span of 24 hours in the life of a Wall Street firm on the brink of disaster (modeled closely after some of the large bulge brackets).
Margin Call does little to hide its contempt for the reckless risk-taking by some of the largest banks in the run-up to the 2008 financial crisis, such as trading complex derivative instruments they themselves barely understood. An incredibly poignant scene in the movie features two main characters talking among themselves about the impending catastrophe that will soon be unleashed upon their bank and the unsuspecting financial landscape, while a janitor stands between them, completely oblivious to what is going on.
1. Wall Street (1987)
Surprise, surprise: the number one finance movie every professional must see is the Oliver Stone classic that got thousands of college graduates to utter the immortal phrase “Blue Horseshoe loves Anacott Steel” as they rushed to their Series 7 exams. Originally crafted to show the excess and hedonism associated with finance, Wall Street still wields incredible power as a recruiting tool for traders, brokers, analysts, and bankers nearly 30 years after it was made.
Although the movie serves to warn us about the dangers of insider trading, let’s face it, who wouldn’t want to be Bud Fox or even Gordon Gekko (legitimately, of course) and indulge a bit in our greedy side; after all, as Gekko would say, “Greed is good.”
The Bottom Line
These movies are a must-watch for any prospective financial pro, but even if you aren’t thinking of a career in the field, these films can provide a bit of insight into the wild and sometimes absurd world of finance. However, as the saying goes, “truth is stranger than fiction,” and as events like the 2008 recession, the fall of Enron and the Madoff scandal have shown, real life can be far more unbelievable than any tale Hollywood can craft.
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cdd579a646938f6a894ed5f2fb0686c8 | https://www.investopedia.com/articles/personal-finance/082114/best-places-exchange-currency.asp | Best Places to Exchange Currency and Save on Fees | Best Places to Exchange Currency and Save on Fees
There's nothing like coming home from a great trip abroad thinking that you were savvy about sticking to your budget only to be hit with unexpected currency-exchange fees on your bank statement and credit card bill.
For that reason, travelers should look to trade convert their currency before embarking on a trip. It helps if you have an idea of what a fair exchange rate is, so check key business websites first. The following are some of the best and least expensive places to convert currency:
Local banks and credit unions usually offer the best rates.Major banks, such as Chase or Bank of America, offer the added benefit of having ATMs overseas.Online bureaus or currency converters, such as Travelex, provide convenient foreign exchange services.
Ordering cash online will likely include delivery charges and the exchange rate won’t be as good as with your bank; however, this is still a better option when compared to the must-avoid options below.
Key Takeaways Because of high currency-exchange fees, travelers should consider converting their currency before traveling.Banks, credit unions, online bureaus, and currency converters provide convenient and often inexpensive converting currency services.Once on foreign soil, the best means to convert currency is to use a foreign ATM or identify if your bank has ATMs or banking affiliates nearby.Many credit and debit card issuers allow users to purchase with no foreign transaction fees.
Exchanging Currency Overseas
Almost every overseas traveler needs to exchange currency at some point during their trip. If you don’t know the tricks, it can be extremely expensive. Trading currency at the hotel or even a currency kiosk in the country can be costly, which includes poor exchange rates and high fees.
The best option for exchanging currency and saving fees is to use a foreign ATM.
Piggybacking on the above suggestion, if you don’t have time or don’t want to carry a lot of cash, check to see if your bank has ATMs in the destination country. They may even have banking affiliates there. A key tip is to use an ATM within the airport as soon as you arrive.
When you’re back in the States, head to your bank or credit union to transfer any leftover foreign currency to U.S. dollars. It's important to note that some banks will not take foreign currency. As a last resort, if you have foreign currency leftover before you depart, look to convert it at an airport kiosk or a store before leaving the country.
Using Credit Versus Cash for Foreign Transactions
The world has become so digital that most people no longer walk around foreign countries with traveler's checks and money belts. That’s why you should take both a no-foreign-fee debit card and a no-foreign-transaction-fee credit card with you. The likes of Chase, Bank of American, Capital One, and other major credit card issuers offer specific no foreign transaction fee cards.
Also, it is best to primarily use a no-transaction-fee credit card as it will likely offer fraud protection; use currency only as a backup. You can replace lost or stolen credit cards, but lost cash can never be replaced. However, don’t use your credit card for a cash advance to receive foreign currency. Doing so means you’ll get hit with a cash advance fee and a high-interest rate that starts accruing immediately.
The widespread use and enhancement of technology have helped make using credit and debit cards possible in most parts of the world, although there are exceptions, so it is worth investigating whether or not your destination takes debit or specific cards before you go on a trip.
Other Travel Tips
One thing to do before traveling abroad is to let your bank and credit card companies know of your travel plans. That way, if you use your credit or debit card abroad, these companies won’t cut off access to your account due to concerns of fraud.
Also, avoid paying in U.S. dollars when possible, even if a merchant offers to convert them for you. This includes paying with a credit or debit card. The merchant would likely convert at a rate that’s disadvantageous to you and charge fees. The same goes for paying with U.S. dollars in the form of cash.
Worst Places to Exchange Currency
Some places that you should avoid for exchanging currency are:
Airport kiosks and stores when heading to a country (not to be confused with airport ATMs): Plan ahead as airport kiosks generally charge some of the highest fees and have the worst exchange rates. When returning to the US, this might be the only option.Traveler’s checks and prepaid debit cards: These are not efficient and often carry various transaction fees. As well, they add little benefit, in terms of security, when compared to cash. As well, prepaid debit cards come with card fees, foreign transaction costs, and ATM-use charges.
The Bottom Line
If you do a little homework before leaving for your trip by checking exchange rates, you’ll save a pretty penny.
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a61a45ebcc6acd8bf324d113f9f56c2d | https://www.investopedia.com/articles/personal-finance/082114/how-cash-value-builds-life-insurance-policy.asp | How Cash Value Builds in a Life Insurance Policy | How Cash Value Builds in a Life Insurance Policy
Cash-value life insurance, also known as permanent life insurance, includes a death benefit in addition to cash value accumulation. While variable life, whole life, and universal life insurance all have built-in cash value, term life does not.
Once you've begun accumulating cash value in a life insurance policy, you can use these funds to:
Pay your policy premium Take out a loan at a lower rate than banks offer Create an investment portfolio that maintains and accumulates wealth Supplement retirement income
So, how exactly does cash value accumulate in your permanent life insurance policy? The details vary depending on the type of policy you have and each individual life insurance company. Here's a closer look at how this process typically works.
Key Takeaways Cash value builds up in your permanent life insurance policy when your premiums are split up into three pools: one portion for the death benefit, one portion for the insurer's costs and profits, and one for the cash value. Cash-value life insurance usually has a level premium, in which money doled out to cash decreases over time, and money paid to insurance increases, in tune with the higher cost of insuring you as you age. With whole life policies, cash accounts are guaranteed to grow based on insurance company calculations; with universal life policies, cash grows in tune with current interest rates. Variable life policies invest in mutual fund-like subaccounts; the growth or decline of the cash value is based on the performance of these subaccounts.
Premium Payments are Divvied Up
When you make premium payments on a cash-value life insurance policy, one portion of the payment is allotted to the policy’s death benefit (based on your age, health, and other underwriting factors). Another portion covers the insurance company’s operating costs and profits. The rest of the premium payment will go toward your policy’s cash value.
The life insurance company generally invests this money in a conservative-yield investment. As you continue to pay premiums on the policy and earn more interest, the cash value grows over the years.
Note The rate of return you earn within a cash value policy can depend on how premium payments are invested.
Accumulation Slows Over Time
When you have cash-value life insurance, you generally pay a level premium. In the early years of the policy, a higher percentage of your premium goes toward the cash value. Over time, the amount allotted to cash value decreases. It’s similar to how a home mortgage works: In the early years, you pay mostly interest while in the later years most of your mortgage payment goes toward principal.
Each year as you grow older, the cost of insuring your life gets more expensive for the life insurance company. This is why the older you are, the more it costs to purchase a term life policy. When it comes to cash-value insurance, the insurance company factors in these increasing costs.
In the early years of your policy, a larger portion of your premium is invested and allocated to the cash value account. Generally, this cash value can grow quickly in the early years of the policy. Then in later years, the cash value accumulation slows as you grow older and more of the premium is applied to the cost of insurance.
Tip Consult your insurance advisor to determine how to calculate potential cash value accumulation of your permanent life insurance policy.
Different Policies Accumulate Cash Value in Different Ways
Cash value accumulation isn't uniform; instead, it varies depending on the type of policy you have.
Whole life policies provide “guaranteed” cash value accounts that grow according to a formula the insurance company determines. Universal life policies accumulate cash value based on current interest rates. Variable life policies invest funds in subaccounts, which operate like mutual funds. The cash value grows or falls based on how well these subaccounts perform.
Each type of policy carries a different level of risk. With whole life policies, you're generally taking the least risk since your cash value accumulation is guaranteed. Variable life policies, on the other hand, can correspond more closely to the level of risk you might assume when investing in the stock market. It's important to understand how cash value accumulation and risk correlate so you can choose a policy that fits your risk tolerance.
Step-By-Step: How Cash Value Grows
Let’s say you purchase a whole life policy with a $1 million death benefit when you’re 25 years old. You consistently pay your monthly premium, and every month a percentage of that payment goes toward the cash value of your policy.
Thirty years after you purchase the policy, you’re 55 years old, and your cash value account has grown to $500,000. Because the policy offers a $1 million death benefit and you already have a cash value of $500,000, the insurance costs must cover the remaining $500,000.
Ten years later, your policy’s cash value has grown to $750,000. As you are 65 years old now, the cost of insuring your life is much higher. However, when you factor in your significant cash value, the policy is really only insuring $250,000. The rest of the death benefit the policy will pay will come from the cash value.
This is a greatly simplified example: The numbers will vary significantly depending on the life insurance company, the type of policy you purchase and, in some cases, current interest rates. For this reason, it's important to research which of the best life insurance companies for you will offer the most cash value for your investment.
Whole Life Insurance Cash Value Chart
It can be helpful to have a more detailed illustration of how cash value accumulates over time. This chart provides a closer look at how cash value accumulation can work within a whole life policy, assuming all premiums are paid out of pocket.
Whole Life Cash Value Accumulation for a $100,000 Policy Policy Year Age Annual Premiums Cash Value Death Benefit 5 40 $1,178 $3,738 $100,370 10 45 $1,178 $11,569 $101,513 20 55 $1,178 $33,838 $114,625 30 65 $1,178 $72,398 $144,881 35 70 $1,178 $99,839 $166,343 50 85 $1,178 $228,317 $271,184 55 90 $1,178 $289,301 $323,334 Cash value accumulation for a whole life policy with premiums paid out of pocket starting at age 35 for a non-smoking male
Important Don't let cash value that has built up in your policy go to waste; cash value in your policy at your death goes back to the insurance company, not your heirs.
Source:
https://www.insure.com/life-insurance/cash-value.html
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42a28f6bd674d1eef9942461776e46b0 | https://www.investopedia.com/articles/personal-finance/082115/10-tips-managing-your-student-loan-debt.asp | 10 Tips for Managing Your Student Loan Debt | 10 Tips for Managing Your Student Loan Debt
Does the debt from your college days seem overwhelming? You're not alone: According to the Federal Reserve, student loans total more than $1.3 trillion in the U.S. That's second only to the size of the nation's mortgage debt.
Ironically, the burden of student loans is making it harder for college graduates to buy a home. Politicians are debating what to do about the problem, but in the meantime, individual Americans can't wait around for them to work it out.
Developing a plan to manage your student loans is critical to your long-term financial health. We explore 10 steps to help you get control.
1. Calculate Your Total Debt
As with any type of debt situation, you need first of all to understand how much you owe overall. Students usually graduate with numerous loans, both federally sponsored and private, having arranged for new financing each year they were in school. So buckle down and do the math: Only by knowing your total debt can you develop a plan to pay it down, consolidate it or possibly explore forgiveness (see Who is eligible for student loan forgiveness?).
2. Know the Terms
As you sum up the size of your debt, also itemize the terms of every loan. Each one could have different interest rates and different repayment rules. You'll need this info to develop a payback plan that avoids extra interest, fees and penalties.
The Department of Education also has an online website to help students find their best repayment plans.
3. Review the Grace Periods
As you pull together the specifics, you will notice that each loan has a grace period (the amount of time you have after graduation to start paying your loans back). These too can differ. For example, Stafford loans have a six-month grace period, while Perkins loans give you nine months before you have to start making payments.
4. Consider Consolidation
Once you have the details, you may want to look at the option of consolidating all your loans. The big plus of consolidation is that, often, it lowers the weight of your monthly payments burden. It also frequently lengthens your payoff period, which is a mixed blessing: more time to pay the debt, but more interest payments, too.
What's more, the interest rate on the consolidated loan may be higher than those on some of your current loans. Be sure to compare loan terms before you sign up for consolidation.
Also, if you consolidate, you will lose your right to the deferment options and income-based repayment plans (see below) that are attached to some federal loans. For more on the subject, see Student Loan Debt: Is Consolidation The Answer?
5. Hit Higher Loans First
As with any debt-payoff strategy, it is always best to pay off the loans with the highest interest rates first. One common scheme is to budget a certain amount above the total monthly required payments, then allocate the overage to the debt with the biggest interest bite.
Once that is paid off, apply the total monthly amount on that loan (the regular payment, plus the overage plus the regular amount) to repaying the debt with the second highest interest rate. And so on. This is a version of the technique known as a debt avalanche.
For example, suppose you owe $300 per month in student loans. Of that, a $100 payment is due to a loan with a 4% rate, $100 is due to a loan with a 5% rate and $100 is due to a loan with a 6% rate. One would plan the budget with $350 toward student loan payoff every month, applying the extra $50 to the 6% loan.
When that the 6% loan is paid off, the $150 used to pay the 6% debt each month would then be added to the $100 being used to pay the 5%, thus paying $250 each month for the loan with a 5% rate and speeding up that payoff. Once that is paid off, then the final loan at 4% would be paid at the rate of $350 per month until all student debt is paid in full.
6. Pay Down Principal
Another common debt payoff strategy is to pay extra principal whenever you can. The faster you reduce the principal, the less interest you will pay over the life of the loan. Since interest is calculated based on the principal each month, less principal translates to a lower interest payment. For more techniques, see Earn Credit Rewards Paying for Student Loans.
7. Pay Automatically
Some student-loan lenders offer a discount on the interest rate if you agree to set up your payments to be automatically withdrawn from your checking account each month. Participants in the Federal Direct Student Loan Program get this sort of break (only .25%, but hey, it adds up), for example, and private lenders may offer discounts as well.
8. Explore Alternative Plans
If you have a federal student loan, you may be able to call your loan servicer and work out an alternative repayment plan. Options include:
Graduated repayment – increases your monthly payments every two years over the ten-year life of the loan. This plan allows for low payments early on, accommodating entry-level salaries and assuming you will get raises, or move on to better-paying jobs, as the decade progresses. Extended repayment – allows you to stretch out your loan over a longer period of time, such as 25 years rather than ten years, which will result in a lower monthly payment. Income contingent repayment – calculates payments based on your adjusted gross income (AGI) at no more than 20% of your income for up to 25 years. At the end of 25 years, any balance on your debt will be forgiven. Pay as you earn – caps monthly payments at 10% of your monthly income for up to 20 years, if you can prove financial hardship. The criteria can be tough, but once you’ve qualified, you may continue to make payments under the plan even if you no longer have the hardship.
While these plans may well lower your monthly payments (click here to review the complete list of repayment options), bear in mind that they may mean you'll be paying interest for a longer period, too.They also aren't applicable to any private student loans you took out.
9. Defer Payments
If you not yet employed, you can ask your student loan lender to defer payments. If you have a federal student loan and you qualify for deferment, the federal government may pay your interest during the approved deferment period. If you don’t qualify for deferment, you may be able to ask your lender for forbearance, which allows you to temporarily stop paying the loan for a certain period of time. With forbearance, any interest due during the forbearance period will be added to the principal of the loan.
10. Explore Loan Forgiveness
In some extreme circumstances, you may be able to apply for forgiveness, cancelation or discharge of your student loan. You could be eligible if your school closed before you finished your degree, you become totally and permanently disabled or paying the debt will lead to bankruptcy (which is rare).
Less drastic, but more specific: You have been working as as a teacher or in another public service profession. See Debt Forgiveness: How to Get Out of Paying Your Student Loans.
The Bottom Line
Not all these tips may bear fruit for you. But there's really only only bad option if you are having difficulty paying your student loans: to do nothing and hope for the best. Your debt problem won't go away, but your creditworthiness will.
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c2c0fe9b5ffb06c2b132488feb7af98d | https://www.investopedia.com/articles/personal-finance/082115/simple-interest-loans-do-they-exist.asp | Simple Interest Loans: Do They Exist? | Simple Interest Loans: Do They Exist?
When you borrow money, you have to pay back the amount of the loan (called the principal), plus pay interest on the loan. Interest essentially amounts to the cost of borrowing the money—what you pay the lender for providing the loan—and it’s typically expressed as a percentage of the loan amount. You might be paying 3% interest on your car loan, for example, or 4% on your mortgage.
There are actually two different kinds of interest and it pays to know the difference. Depending on the loan, you will pay either compound or simple interest. Compound interest is calculated on the principal amount plus the accumulated interest of the previous periods, which means you effectively pay interest on the interest.
In contrast, simple interest is calculated on the principal only, so you don’t pay interest on the interest. Because you’re paying interest on a smaller amount of money (just the principal), simple interest can be advantageous when you borrow money. But do simple interest loans exist?
Short-Term Loans
You'll find simple interest loans offered by a variety of loan products, including car loans. With most car loans, interest is calculated on the principal loan balance on a daily basis, and payments are first applied to any interest due, and then towards the principal balance. The daily interest amount is equal to the annual rate (3%, for example) divided by the number of days in the year (365, except 366 during a leap year). So the daily interest on a loan balance of $10,000 at 3% interest would be $0.82 ($10,000 x 0.03 ÷ 365), assuming it’s not a leap year.
Like many loans, simple interest loans are typically paid back in equal, monthly installments that are established when you receive the loan. These loans are amortizing, meaning a portion of each payment goes to pay down interest, and the rest is applied to the loan balance. At the beginning of the loan, more of your monthly payment goes towards the interest since the interest is always calculated off the remaining balance, which is highest at the onset of the loan. As the loan term progresses, less of your payment goes towards interest and more applies to the principal.
If you have a $10,000 loan at 3% for three years, for example, your monthly payment would be $290.81. Twenty-five dollars of your first payment would go towards interest and the remaining $265.81 to the balance. The next month, $24.34 would go towards interest ($9,734.19 x 0.03 ÷ 12), and $266.48 to the balance, and so on until the loan and interest are paid in full.
If you make all your payments on time each month, you should expect to pay back just the amount that is stated on your loan agreement. If you make a late payment, however, more of that payment will be used to pay the interest you owe because you’ll be paying more days of interest, and less will go towards reducing your principal balance. This adds interest to your loan, plus you may have to pay late fees.
Other Loans
Most student loans use what’s called the Simplified Daily Interest Formula, which is essentially a simple interest loan since interest is only calculated on the balance (and not on the previously accrued interest).
Most mortgages are also simple interest loans, although they can certainly feel like compound interest. In fact, all mortgages are simple interest except those that allow negative amortization. An important thing to pay attention to is how the interest accrues on the mortgage: either daily or monthly. If a mortgage accrues interest daily, it is always a simple interest loan; if it accrues monthly, it is simple interest unless it’s a negative amortization loan.
It’s important for borrowers to know how interest accrues on their mortgage since simple interest loans need to be managed differently than monthly accrual mortgages. One thing to watch out for: Late payments on a daily accrual loan can cost you dearly. If your payment is due on the first of the month, for example, and your payment is a week late, you’ll end up paying an extra seven days’ worth of interest. The grace period just allows you to avoid paying a late fee—not more interest. Since more of the payment goes towards interest, the late payment can actually make the loan balance go up instead of down.
Compound Interest
If you keep a balance on your credit card, you probably pay compound interest, and any interest charges are added to the principal, making your debt grow exponentially over time. Adding insult to injury is the fact that most cards compound interest on a daily, not monthly, basis, which can cost you even more over time.
Compound interest can sometimes work in your favor, just not when you borrow money. Here's when: Simple and compound interest also applies to interest you earn when you invest money. But while simple interest can work to your advantage when you borrow money, it will end up costing you when you invest.
Say you invest $10,000 at 5% interest paid once a year for 20 years. If your investment earns simple interest, you will have $20,000—your original $10,000 + ($10,000 x 0.05 x 20) —after 20 years. If the investment earns compound interest, on the other hand, you will have $26,533, your $10,000 + ($10,000 x (1 + 0.05/1)^20), assuming interest is compounded once per year. If it’s compounded 12 times a year, you’ll end up with even more: $27,126 in this case.
The Bottom Line
Simple interest loans calculate interest on the principal balance only, so you don’t end up paying interest on interest as you would with a compound interest loan.
Dollar-wise, you’re typically better off with simple interest any time you borrow, as long as you make payments on time and in full every month, and compound interest any time you invest.
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b965f9f20312fbaa2789a9503f7723d4 | https://www.investopedia.com/articles/personal-finance/082115/what-are-cosigners-liable-responsible.asp | What Are Cosigners Liable and Responsible For? | What Are Cosigners Liable and Responsible For?
If you’re fortunate enough to have good credit, there’s a good chance that someday a loved one will call asking for you to cosign a new loan or a credit card. Maybe it’s an adult son or daughter without much of a borrowing history or one who’s taken a few hits in recent years and needs a cosigner to buy a car. If you’re like most people, your impulse is to lend a helping hand by adding your signature to the loan. But before signing on the dotted line, make sure you know what you’re getting into.
Cosigners can face significant repercussions if the primary borrower can’t make good on his or her payments. Were this not the case, having a cosigner on the loan—regardless of how high their credit score—wouldn’t matter much to the bank. But because the lender knows it can go after cosigners for overdue payments, that second signature can make a world of difference in the loan approval process.
Key Takeaways Borrowers may ask a family member or friend to cosign a loan due to low credit scores, lack of credit history, or because their loan is offered with a very high interest rate. A cosigner on a loan is legally responsible for the debt if the primary borrower defaults. Cosigning a loan will show up on your credit report and can impact your credit score if the primary borrower pays late or defaults. Cosigners may sign for student loans, personal loans, credit cards, and even mortgages.
The Potential Fallout
What’s the upshot for the cosigner if the primary borrower can’t make the loan payments on time? The creditor may start contacting you seeking the overdue amount, using the same tactics that they use on lapsed borrowers. That means they could sue you and, if they win, garnish your wages.
Of course, by the time a collection agency starts calling, there’s a good chance the overdue payments have already found their way onto your credit report. So despite the fact that you’re not even borrowing the money in any real sense, your credit could start to take a hit. All of a sudden, obtaining loans—or at least getting preferred interest rates—can become a big challenge.
The important thing to keep in mind is that, legally, cosigners are every bit as responsible for the debt as the person they’re helping out.
Keep in mind, too, that you could remain on the hook even if the person you’re helping out files for bankruptcy. If the note you cosigned was part of the court filing, the creditor can still come after you in hopes of collecting on it.
Even if you acted as a guarantor on the loan rather than a cosigner, you’re in pretty much the same boat. There are some slight differences between the two. For example, with a guarantor, the lender has to pursue the primary borrower before contacting you. But you’re ultimately responsible for any late payments, just as you would be if you had cosigned.
Before You Sign
To avoid any unnecessary headaches later on, it’s important to think through your decision before putting your name on someone else’s loan. Here are three tips that can help keep you out of trouble:
Understand the Consequences
If you’re a cosigner, the creditor has just as much right to collect from you as from the actual borrower.
Stay in the Loop
The only thing worse than having a collection agency breathing down your neck is not knowing ahead of time that the loan wasn’t being paid. Before cosigning a note, the Federal Trade Commission (FTC) recommends asking the creditor to notify you if the borrower falls behind on their debt. For peace of mind, make sure to get this agreement in writing.
Be Careful About Collateral
If you put up assets to help someone secure a loan—whether it be your car or an expensive piece of jewelry—know that the bank can sell them to help pay off unpaid debts. Make sure you’re ready to handle that reality in a worst-case scenario.
The Bottom Line
It’s easy for those with good credit to follow their heart and instinctively cosign for loved ones who need a loan. But to avoid trouble down the road, it’s always a good idea to take emotion out of the equation and think through the consequences.
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6591e39fa280b047f568544c025e6156 | https://www.investopedia.com/articles/personal-finance/082214/get-best-savings-interest-rates-you.asp | CDs vs. MMAs vs. Savings Accounts | CDs vs. MMAs vs. Savings Accounts
Choosing the right type of savings account can be confusing. Are you better off with a certificate of deposit (CD)? A traditional savings account? A money market account (MMA)? In some ways, these three types of savings accounts are similar. They're all taxable accounts you can open at a bank or credit union, and are protected by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). Each account has pros and cons, and the right choice will be different depending on how much money you have and your personal needs.
MMAs and CDs both offer higher interest rates than traditional savings accounts. MMAs typically have higher initial deposit and monthly balance requirements than savings accounts. CDs require that you leave your money untouched for a fixed amount of time. The right choice for you depends on how frequently you need to access your savings, as well as how much you have to save.
Traditional Savings Accounts
These simple accounts are one of the most basic ways to bank your money. A savings account is a good choice for a young person’s first bank account, or for anyone who needs easy access to their cash. Most banks don’t require a large deposit to open a savings account. Often $25 is sufficient. You may need to keep a minimum balance in the account to avoid a monthly fee, which can range from $25 to $1,000, depending on the bank and the account.
If your savings and checking accounts are with the same bank, you'll likely be able to easily transfer money between the accounts or use your savings account for overdraft protection. A linked savings account makes it especially easy to move money from your savings to your checking account. You won’t be penalized for withdrawals from your savings account, but you won’t earn that much in interest either. One exception is a high-yield savings account, which offers significantly higher interest rates. These are typically at online-only banks and offer some of the best savings account rates.
Who Savings Accounts Are Good For
Students and children beginning their relationship with a bank Anyone who wants unfettered access to their cash, without penalty
Pros Small initial deposit required to open an account Often no fees are charged when a minimum balance is maintained Easy to transfer money to a linked checking account No penalties or limitations for withdrawals FDIC or NCUA protected Cons Very low interest rates (often below the inflation rate)
Money Market Accounts (MMAs)
Another type of savings account, money market accounts (MMAs) are similar to traditional savings accounts but often require that you have more money to save. Typically, you’ll need a larger deposit to open the account—$1,000 is common—and will need to maintain a higher balance to avoid fees (this can be as high as $5,000). However, you’ll be rewarded with a higher interest rate. Unlike traditional savings accounts, which pay a flat annual interest rate, many MMAs have a tiered interest rate, with higher rates for larger balances. This makes them desirable for those who are able to maintain a high daily balance in the account. Another perk offered by many MMAs is the ability to write checks from the account, though this is limited to six times each month.
Money market accounts are not the same as money market mutual funds, which are a type of investment vehicle.
Who MMAs Are Good For
Individuals with large amounts of cash to deposit, who don't need daily or weekly access to their money
Pros Higher interest rates than a traditional savings account Often have the ability to write checks Withdrawals without penalty FDIC or NCUA protected Cons Higher balance needed to avoid monthly fees Limitation on the number of monthly withdrawals Lower interest rates if balance drops out of higher tiers
Certificates of Deposit (CDs)
When you purchase a certificate of deposit (CD) from a bank, you are allowing the bank to use your money for a fixed period of time, which means you will face a steep fine for early withdrawals. However, the interest rates are higher for CDs than for traditional savings accounts or MMAs, making them desirable for those who can make large deposits without needing access to the money during the CD’s term. Terms can be as short as a month, or as long as ten years. You can find CDs with no minimum, but typically the required initial deposit is larger, often $1,000 or more.
Like with MMAs, higher balances on CDs tend to offer higher rates. CDs generally have fixed interest rates, but some banks offer variable-rate CDs as well. It's important to keep in mind that the particular bank you select and the length of your term can have a large impact on your interest rate. Shop around to find the top CD rates as they change frequently.
Who CDs Are Good For
Individuals who do not need access to their money for several months to several years at a time Larger (or jumbo) CDs often get higher interest rates, so individuals with a larger deposit amount will see a better return
Pros Higher interest rates than traditional savings accounts FDIC or NCUA protected Easy to open, with plenty of online options Cons Steep penalties for early withdrawals in some cases
The Bottom Line
When deciding if a traditional savings account, MMA or CD is best for you, you’ll need to consider how much you can deposit initially, how frequently you will need access to your savings, and how much you’d like to earn in interest. If you might need your money for bills or emergencies, a traditional savings account or MMA is the best choice. If you can afford to leave a larger sum of money untouched for a long stretch of time, a CD may be the better option.
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a1616f50b8b7463e5cf9077fded3a393 | https://www.investopedia.com/articles/personal-finance/082214/using-social-security-website-get-answers.asp | Using the Social Security Website to Get Answers | Using the Social Security Website to Get Answers
Similar to any government website, ssa.gov, the official site of the Social Security Administration, is full of helpful information. Finding what you need in the long list of publications, forms, and other web resources, however, is not always easy. Here is a guide to help you navigate the site based on some of the most common questions people have.
The links included in each answer will take you to the applicable pages and forms on the Social Security website.
Key Takeaways If you’ve never had a Social Security card, you must apply for one in person at your Social Security office. You may apply online for a replacement card under certain circumstances. You need 40 credits to be eligible for full retirement benefits, and you can earn no more than four credits per year, with one credit earned for each $1,360 you make in a year as of 2019.
How Do I Apply?
A Social Security number (SSN) is a nine-digit number that the U.S. government issues to all U.S. citizens and eligible U.S. residents who apply for one. The number allows the government to keep track of your lifetime earnings and the number of years worked. You must apply for a number and a card in person because the Social Security office has to verify certain documents. You can, however, go online to complete and print the application to take to your local office.
If you need a replacement card, you may be able to apply online if you are 18 or older, have a driver’s license or state-issued identification card, are not requesting any change in your Social Security card, have a U.S. mailing address, and have created an online “my Social Security account.”
U.S. territories and the following 8 states do not yet participate in the online renewal program:
Alabama Minnesota Nevada New Hampshire Ohio Oklahoma Oregon West Virginia
Where Is My Nearest Social Security Office?
Before you visit an office, check the website to see if you can complete all or some of the paperwork online. You are also likely to need supporting documents when you arrive, such as a birth certificate or passport for identification.
Retirement Benefits
How Do I Apply for Retirement Benefits?
First, determine if you’re eligible for Social Security (not everyone is). If you are, you can apply for Social Security and Medicare.
Can I Work and Receive Benefits at the Same Time?
Yes, but your Social Security benefits may be reduced. This page provides an overview of working and receiving benefits, including benefit calculations and changes that might take place once you reach full retirement age.
How Can I Calculate my Monthly Benefits?
The average monthly benefit for retired workers as of January 2020 was $1,505.50, but the benefit you will receive is based on various factors. You can use the retirement estimator to calculate your benefits, but read the information before you begin. For example, to use the calculator, you need to have earned 40 credits.
$1,505.50 The average monthly Social Security benefit for retired workers as of January 2020.
What Is a Credit?
As of 2021, you receive one credit for each $1,470 you earn in a year. You need 40 credits to qualify for full retirement benefits. You can receive a maximum of four credits per year.
If I Get a Pension, Will That Affect my Benefits?
Whether your benefits are affected by a pension depends on where the pension is from. Pensions from government jobs in which you did not pay Social Security taxes can be affected. Also, read about the windfall elimination provision. This provision may apply to you as well.
Are My Spouse and Kids Eligible to Receive my Benefits?
Probably, but the rules are complicated. Read about spousal benefits and check out the survivor planning information. Your children can receive benefits too. Read about the eligibility requirements. Social Security has numerous FAQs about benefits for spouses, children, and others who might be eligible to receive payments.
Spouses who do not qualify for Social Security benefits may nevertheless receive spousal benefits of their own if their husbands or wives qualify for Social Security.
Disability Benefits
Where Can I Learn More About Disability Benefits?
Social Security provides disability benefits for people of all ages, with rules enumerated in a 15-page document. You can apply for disability benefits online. Before completing the application, you should read this five-page publication that includes instructions and frequently asked questions.
Can I Go Back to Work and Still Collect Disability Benefits?
Yes, you can. Social Security may allow you a nine-month trial period to see if you’re able to work.
If I Reach Retirement Age, Will I Receive Disability and Retirement Benefits?
No. Once you reach full retirement age, you will lose disability benefits and gain retirement benefits. Assistance for children includes children whose parents are receiving disability benefits and children who are themselves disabled.
What Is a Compassionate Allowance?
Some people’s disabilities clearly meet Social Security’s definition of disabled. Those people may be eligible to receive benefits more rapidly. The website has an extensive section on the compassionate allowance.
General Questions
What Is SSI?
These initials stand for supplemental security income, which provides cash assistance to the aged, the blind, and the disabled to meet basic living needs. It is not paid for by Social Security taxes. First, verify that you are eligible. Then, learn about the application procedure.
How Do I Change My Direct Deposit Information?
You can do this online. Log in to your online account or contact your bank. You can also complete a direct deposit form, print it, and take it to your local Social Security office.
Can Social Security Garnish My Wages?
If you owe child support, alimony, taxes, or restitution, Social Security may garnish your wages to meet those obligations.
Do I Have to Pay Taxes on My Social Security Wages?
Some people have to pay taxes on their wages but never on more than 85% of their benefits. You can find basic information along with information about voluntarily withholding.
The Bottom Line
The links above answer the most common questions, but you can find more answers by first going to the frequently asked questions page. If you do not find the answer there, search the publications section. If you still have questions, call your local Social Security office.
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033e3fb4da787308c208a60c6300add4 | https://www.investopedia.com/articles/personal-finance/082216/what-difference-between-helicopter-money-and-qe.asp | What Is the Difference Between Helicopter Money and QE? | What Is the Difference Between Helicopter Money and QE?
Central banks across the globe were struggling to spur economic growth at times following the 2008-09 financial crisis and Great Recession. They had used nearly all their tools to attempt to spark economic growth, including negative interest rates and stimulus programs that buy bonds every month.
The Bank of Japan (BOJ) and the European Central Bank (ECB) cut their interest rates into negative territory, attempting to stop banks from hoarding money and encouraging lending to consumers to support growth. The International Monetary Fund (IMF) warned of fragile global macroeconomic growth, which could lead to turbulence in the global financial markets. Consequently, central banks ended up looking for new ways to spark economic growth, such as "helicopter money," which provided an alternative to the quantitative easing (QE) they were already undertaking.
So just what is the difference between helicopter money and QE? Let's take a look.
Key Takeaways When central banks run out of conventional monetary policy tools, they still have some alternatives to spur economic growth.Quantitative easing (QE) allows a central bank to purchase longer-term or nonm-government securities from the open market in order to increase the money supply and encourage lending and investment. Helicopter money refers to quickly increasing the money supply, including through fiscal measures such as increased spending or a tax cuts, as a means of jump-starting a weak economy.
Differences Between Helicopter Money and QE
Helicopter money, or a "helicopter drop", is a theoretical and unorthodox policy tool that central banks or governments can theoretically use to stimulate economies. Economist Milton Friedman introduced the framework for helicopter money in 1969, but former Federal Reserve Chairman Ben Bernanke popularized it in 2002. This policy should theoretically be used in a low-interest-rate environment when an economy's growth remains weak. Helicopter money involves the central bank or central government supplying large amounts of money to the public, as if the money was being distributed or scattered from a helicopter. This can be enacted as monetary policy by a bank, or as fiscal policy by a government through massive tax cuts or spending programs, including relief programs like the stimulus checks paid to American households during the COVID19 pandemic.
In contrast to the concept of using helicopter money, central banks can also use quantitative easing to increase the money supply and lower interest rates by purchasing government or other financial securities from the market to spark economic growth. Unlike with helicopter money, which involves the distribution of printed money to the public, central banks use quantitative easing to create money and then purchase assets using the printed money. QE does not have a direct impact on the public, while helicopter money is made directly available to consumers to increase consumer spending.
Differences in Economic Consequences
One of the main benefits of helicopter money is that the policy theoretically generates immediate consumer demand, which comes from the ability to increase spending without the worry of how the money would be funded or used. Although households would be able to place the money into their savings accounts rather than spend the money if the policy were only implemented for a short period, consumer consumption theoretically increases as the policy remains in place over a long period of time. The effect of helicopter money is theoretically permanent and irreversible because money is given out to consumers, and central banks cannot retract the money if consumers decide to place the money into a savings account.
One of the primary risks associated with helicopter money is that the policy may lead to a significant currency devaluation in the international foreign exchange markets. The currency devaluation would be primarily attributed to the creation of more money.
Conversely, QE provides capital to financial institutions, which theoretically promotes increased liquidity and lending to the public, since the cost of borrowing is reduced because there is more money available. The use of the newly printed money to purchase securities theoretically increases the size of the bank reserves by the quantity of assets that were purchased. QE aims to encourage banks to give out more loans to consumers at a lower rate, which is supposed to stimulate the economy and increase consumer spending. Unlike helicopter money, the effects of QE could be reversed by the sale of securities.
Helicopter Money in Practice
Although helicopter money is an unorthodox tool to spur economic growth, there are less extreme forms of the policy if other economic tools have not worked. The government or central bank could implement a version of helicopter money by spending money on tax cuts, and thereafter, the central bank would deposit money in a Treasury account.
Additionally, the government could issue new bonds that the central bank would purchase and hold, but the central bank would return the interest back to the government to distribute to the public. Therefore, these forms of helicopter money would provide consumers with money and theoretically spark consumer spending.
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40f697037e4c797c517f2e58b7bfd4ed | https://www.investopedia.com/articles/personal-finance/082415/least-expensive-states-retire.asp | Least Expensive States to Retire In | Least Expensive States to Retire In
Study after study supports what many Americans already know: Many of us are financially unprepared for retirement. One study from Bankrate.com shows that 26% of U.S. residents between the age of 50 and 64 had nothing saved for retirement.
According to the Transamerica Center for Retirement Studies, 36% of baby boomers plan to rely solely on Social Security as their primary source of income. That's worrisome, considering that Social Security benefits are intended to replace only about 40% of the average worker’s salary.
Obviously, many Americans of retirement age or close to it are looking for ways to make their dollars stretch farther. One option is to retire abroad, where it’s possible to find a lower cost of living and affordable health care, often in a nicer climate.
But if that isn’t how you see your future, you might consider settling down in a less expensive corner of the United States, where lower costs of living and gentler local taxes mean you can retire on less.
Key Takeaways Five states combine lower costs of living and a lower tax burden: Alabama, Mississippi, Oklahoma, Tennessee, and Texas.Some even have special tax breaks for older residents.None have inheritance or estate taxes.
To find these money-saving states, we analyzed 2019 data from Bankrate.com’s Best and Worst States to Retire data. We looked at the least expensive states in two categories – affordability and taxes (both income and sales taxes) – and found five states that ranked among the cheapest in both categories. The combination makes them good candidates for today’s least expensive states for retirement.
Alabama
Affordability Rank: 10Tax Rate Rank: 39
Alabama ranked 10th lowest in cost of living and 39th for taxes. Its 2019 property tax burden, based on data from the Tax Foundation, an independent tax policy research organization, was 15th lowest in the country.
Out-of-state government pensions are tax exempt as long as they are defined-benefit plans. Homeowners aged 65+ don’t pay any state property taxes. Cities and counties can still apply levies to their residents, but homeowners age 65+ with a taxable income of $12,000 or less qualify for an exemption.
Mississippi
Affordability: 6Tax Rate Rank: 31
Mississippi earned one of the top spots for the lowest cost of living in the nation, and homeowners aged 65+ are tax-exempt from the first $75,000 of their property's value. Social Security benefits, Railroad Retirement benefits, and qualified retirement plan income (including income from IRAs, 401(k)s, 403(b)s, Keoghs, and qualified public and private pension plans) are tax exempt.
Oklahoma
Cost-of-Living Rank: 41Tax Rate Rank: 26
Oklahoma ranked 41st lowest in cost of living, and property tax rates ranked 19th. Social Security and Civil Service Retirement System benefits are not taxed, and residents can exclude up to $10,000 per person (or $20,000 per couple) of other types of retirement income.
Seniors who meet income requirements are eligible for both tax refunds and valuation freezes that keep their property taxes the same even if their home (or the neighborhood) appreciates in value.
Tennessee
Cost-of-Living Rank: 12Tax Rate Rank: 16
Tennessee residents enjoyed the 12th lowest cost of living in the United States. The state’s tax burden ranks 16th lowest out of all 50 states, and property tax rates ranked 29th lowest.
There's no state income tax, but dividends and some interest are taxed at 5%. Taxpayers 65 years old and up who have a total annual income of $37,000 or less ($68,000 for joint filers) are exempt from the tax on dividends and interest.
Texas
Cost-of-Living Rank: 24Tax Rate Rank: 15
Texas ranked 24th in the nation in cost of living and 15th in taxes. There is no state income tax, so Social Security benefits and other retirement income are not taxed at the state level.
Individual tax rates ranked 6th in the nation. However, homeowners who are 65 or older benefit from two homestead exemptions that keep up to $25,000 of the home’s assessed value from taxes.
Other Considerations
Of course, retirement destination decisions shouldn't be totally dictated by finances. It’s important to consider factors such as your recreational interests, hobbies, comfort, health care needs, and proximity to family and friends.
Still, retiring in a state that has a low cost of living and favorable taxes can be a good move if you’re trying to stretch your retirement dollars.
It can also be a smart move if you have wealth that you are trying to safeguard for yourself or future generations. Some states have pushed for tax changes intended to entice retirees willing to relocate.
None of the states listed above impose estate or inheritance taxes. Only a handful of states impose estate taxes, and some of them have exemptions up to a certain amount.
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3e9d7b099f5f060c44f07415858b4b72 | https://www.investopedia.com/articles/personal-finance/082415/pros-and-cons-capitalist-vs-socialist-economies.asp | Capitalist vs. Socialist Economies: What's The Difference? | Capitalist vs. Socialist Economies: What's The Difference?
Capitalist vs. Socialist Economies: An Overview
Capitalism and socialism are economic systems that countries use to manage their economic resources and regulate their means of production.
In the United States, capitalism has always been the prevailing system. It is defined as an economic system where private individuals or businesses, rather than the government, own and control the factors of production: entrepreneurship, capital goods, natural resources and labor. Capitalism's success is dependent on a free market economy, driven by supply and demand.
With socialism, all legal production and distribution decisions are made by the government, with individuals dependent on the state for food, employment, healthcare and everything else. The government, rather than the free market, determines the amount of output, or supply and the pricing levels of these goods and services.
Communist countries, like China, North Korea, and Cuba, tend toward socialism, while Western European countries favor capitalist economies and try to chart a middle course. But, even at their extremes, both systems have their pros and cons.
Key Takeaways Capitalism and socialism are economic systems that countries use to manage their economic resources and regulate their means of production. Capitalism is based on individual initiative and favors market mechanisms over government intervention, while socialism is based on government planning and limitations on private control of resources. Left to themselves, economies tend to combine elements of both systems: capitalism has developed its safety nets, while countries like China and Vietnam may be edging toward full-fledged market economies.
Capitalism
In capitalist economies, governments play a minimal role in deciding what to produce, how much to produce, and when to produce it, leaving the cost of goods and services to market forces. When entrepreneurs spot openings in the marketplace, they rush in to fill the vacuum.
Capitalism is based around a free market economy, meaning an economy that distributes goods and services according to the laws of supply and demand. The law of demand says that increased demand for a product means an increase in prices for that product. Signs of higher demand typically lead to increased production. The greater supply helps level prices out to the point that only the strongest competitors remain. Competitors try to earn the most profit by selling their goods for as much as they can while keeping costs low.
Also part of capitalism is the free operation of the capital markets. Supply and demand determine the fair prices for stocks, bonds, derivatives, currencies and commodities.
In his seminal work, An Inquiry into the Nature and Causes of the Wealth of Nations, economist Adam Smith described the ways in which people are motivated to act in their own self-interest. This tendency serves as the basis for capitalism, with the invisible hand of the market serving as the balance between competing tendencies. Because markets distribute the factors of production in accord with supply and demand, the government can limit itself to enacting and enforcing rules of fair play.
1:43 What is Socialism?
Socialism and Centralized Planning
In socialist economies, important economic decisions are not left to the markets or decided by self-interested individuals. Instead, the government—which owns or controls much of the economy's resources—decides the whats, whens, and hows of production. This approach is also called "centralized planning."
Advocates of socialism argue that the shared ownership of resources and the impact of social planning allow for a more equal distribution of goods and services and a more fair society.
Both communism and socialism refer to left-wing schools of economic thought that oppose capitalism. However, socialism was around several decades before the release of the "Communist Manifesto," an influential 1848 pamphlet by Karl Marx and Friedrich Engels. Socialism is more permissive than pure Communism, which makes no allowances for private property.
Key Differences
In capitalist economies, people have strong incentives to work hard, increase efficiency, and produce superior products. By rewarding ingenuity and innovation, the market maximizes economic growth and individual prosperity while providing a variety of goods for consumers. By encouraging the production of desirable goods and discouraging the production of unwanted or unnecessary ones, the marketplace self-regulates, leaving less room for government interference and mismanagement.
But under capitalism, because market mechanisms are mechanical, rather than normative, and agnostic in regard to social effects, there are no guarantees that each person's basic needs will be met. Markets also create cycles of boom and bust and, in an imperfect world, allow for "crony capitalism," monopolies and other means of cheating or manipulating the system.
In socialist societies, basic needs are met; a socialist system's primary benefit is that the people living under it are given a social safety net.
In theory, economic inequity is reduced, along with economic insecurity. Basic necessities are provided for. The government itself can produce the goods people require to meet their needs, even if the production of those goods does not result in a profit. Under socialism, there’s more room for value judgments, with less attention paid to calculations involving profit and nothing but profit.
Socialist economies can also be also more efficient, in the sense that there’s less of a need to sell goods to consumers who might not need them, resulting in less money spent on product promotion and marketing efforts.
Special Considerations
Socialism sounds more compassionate, but it does have its shortcomings. One disadvantage is that people have less to strive for and feel less connected to the fruits of their efforts. With their basic needs already provided for, they have fewer incentives to innovate and increase efficiency. As a result, the engines of economic growth are weaker.
Another strike against socialism? Government planners and planning mechanisms are not infallible, or incorruptible. In some socialist economies, there are shortfalls of even the most essential goods. Because there's no free market to ease adjustments, the system may not regulate itself as quickly, or as well.
Equality is another concern. In theory, everyone is equal under socialism. In practice, hierarchies do emerge and party officials and well-connected individuals find themselves in better positions to receive favored goods.
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2c22ae2d3f94c243ba4505f1b248d78c | https://www.investopedia.com/articles/personal-finance/082415/schedule-loan-repayments-excel-formulas.asp | Schedule Loan Repayments With Excel Formulas | Schedule Loan Repayments With Excel Formulas
Loan repayment is the act of paying back money previously borrowed from a lender, typically through a series of periodic payments that include principal plus interest. Did you know you can use the software program Excel to calculate your loan repayments?
This article is a step-by-step guide to setting up loan calculations.
Key Takeaways: Use Excel to get a handle on your mortgage by determining your monthly payment, your interest rate, and your loan schedule. You can take a more in-depth look at the breakdown of a loan with excel and create a repayment schedule that works for you. There are calculations available for each step that you can tweak to meet your specific needs. Breaking down and examining your loan step-by-step can make the repayment process feel less overwhelming and more manageable.
Understanding Your Mortgage
Using Excel, you can get a better understanding of your mortgage in three simple steps. The first step determines the monthly payment. The second step calculates the interest rate, and the third step determines the loan schedule.
You can build a table in Excel that will tell you the interest rate, the loan calculation for the duration of the loan, the decomposition of the loan, the amortization, and the monthly payment.
Calculate the Monthly Payment
First, here's how to calculate the monthly payment for a mortgage. Using the annual interest rate, the principal, and the duration, we can determine the amount to be repaid monthly.
The formula, as shown in the screenshot above, is written as follows:
=-PMT(rate;length;present_value;[future_value];[type])
The minus sign in front of PMT is necessary as the formula returns a negative number. The first three arguments are the rate of the loan, the length of the loan (number of periods), and the principal borrowed. The last two arguments are optional, the residual value defaults to zero; payable in advance (for one) or at the end (for zero) is also optional.
The Excel formula used to calculate the monthly payment of the loan is:
= PMT((1+B2)^(1/12)-1;B4*12;B3)=PMT((1+3,10%)^(1/12)-1;10*12;120000)
Explanation: For the rate, we use the monthly rate (period of rate), then we calculate the number of periods (120 for 10 years multiplied by 12 months) and, finally, we indicate the principal borrowed. Our monthly payment will be $1,161.88 over 10 years.
Calculate the Annual Interest Rate
We have seen how to set up the calculation of a monthly payment for a mortgage. But we may want to set a maximum monthly payment that we can afford that also displays the number of years over which we would have to repay the loan. For that reason, we would like to know the corresponding annual interest rate.
As shown in the screenshot above, we first calculate the period rate (monthly, in our case), and then the annual rate. The formula used will be RATE, as shown in the screenshot above. It is written as follows:
=RATE(Nper;pmt;present_value;[future_value];[type])
The first three arguments are the length of the loan (number of periods), the monthly payment to repay the loan, and the principal borrowed. The last three arguments are optional, and the residual value defaults to zero; the term argument for managing the maturity in advance (for one) or at the end (for zero) is also optional. Finally, the estimate argument is optional but can give an initial estimate of the rate.
The Excel formula used to calculate the lending rate is:
=RATE(12*B4;-B2;B3) = RATE(12*13;-960;120000)
Note: the corresponding data in the monthly payment must be given a negative sign. This is why there's a minus sign before the formula. The rate period is 0.294%.
We use the formula = (1 + B5) is 12-1 ^ = (1 + 0.294 %) ^ 12-1 to obtain the annual rate of our loan, which is 3.58%. In other words, to borrow $120,000 over 13 years to pay $960 monthly, we should negotiate a loan at an annual 3.58% maximum rate.
Using Excel is a great way of keeping track of what you owe and coming up with a schedule for repayment that minimizes any fees that you might end up owing.
Determining the Length of a Loan
We will now see how to determine the length of a loan when you know the annual rate, the principal borrowed, and the monthly payment that is to be repaid. In other words, how long will we need to repay a $120,000 mortgage with a rate of 3.10% and a monthly payment of $1,100?
The formula we will use is NPER, as shown in the screenshot above, and it is written as follows:
=NPER(rate;pmt;present_value;[future_value];[type])
The first three arguments are the annual rate of the loan, the monthly payment needed to repay the loan, and the principal borrowed. The last two arguments are optional, the residual value defaults to zero. The term argument payable in advance (for one) or at the end (for zero) is also optional.
=NPER((1+B2)^(1/12)-1;-B4;B3) = NPER((1+3,10%)^(1/12)-1;-1100;120000)
Minus Sign Before the Formula The corresponding data in the monthly payment must be given a negative sign. This is why we have a minus sign before the formula. The reimbursement length is 127.97 periods (months in our case).
We will use the formula = B5 / 12 = 127.97 / 12 for the number of years to complete the loan repayment. In other words, to borrow $120,000, with an annual rate of 3.10% and to pay $1,100 monthly, we should repay maturities for 128 months or 10 years and eight months.
Decomposing the Loan
A loan payment is composed of principal and interest. The interest is calculated for each period—for example, the monthly repayments over 10 years will give us 120 periods.
The table above shows the breakdown of a loan (a total period equal to 120) using the PPMT and IPMT formulas. The arguments of the two formulas are the same and are broken down as follows:
=-PPMT(rate;num_period;length;principal;[residual];[term])
The arguments are the same as for the PMT formula already seen, except for "num_period," which is added to show the period over which to break down the loan given the principal and interest. Here's an example:
=-PPMT((1+B2)^(1/12)-1;1;B4*12;B3) = PPMT((1+3,10%)^(1/12)-1;1;10*12;120000)
The result is shown in the screenshot above "Loan Decomposition" over the period analyzed, which is "one;" that is, the first period or the first month. We pay $1,161.88 broken down into $856.20 principal and $305.68 interest.
Loan Computation in Excel
It is also possible to calculate the principal and interest repayment for several periods, such as the first 12 months or the first 15 months.
=-CUMPRINC(rate;length;principal;start_date;end_date;type)
We find the arguments, rate, length, principal, and term (which are mandatory) that we already saw in the first part with the formula PMT. But here, we need the "start_date" and "end_date" arguments also. The "start_date" indicates the beginning of the period to be analyzed, and the "end_date" indicates the end of the period to be analyzed.
Here's an example:
=-CUMPRINC((1+B2)^(1/12)-1;B4*12;B3;1;12;0)
The result is shown in the screenshot "Cumul 1st year," so the analyzed periods range from one to 12 of the first period (first month) to the twelfth (12th month). Over a year, we would pay $10,419.55 in principal and $ 3,522.99 in interest.
Amortization of the Loan
The prior formulas allow us to create our schedule period by period, to know how much we will pay monthly in principal and interest, and to know how much is left to pay.
Creating a Loan Schedule
To create a loan schedule, we will use the different formulas discussed above and expand them over the number of periods.
In the first period column, enter "1" as the first period and then drag the cell down. In our case, we need 120 periods since a 10-year loan payment multiplied by 12 months equals 120.
The second column is the monthly amount we need to pay each month—which is constant over the entire loan schedule. To calculate the amount, insert the following formula in the cell of our first period:
=-PMT(TP;B4*12;B3) =-PMT((1+3,10%)^(1/12)-1;10*12;120000)
The third column is the principal that will be repaid monthly. For example, for the 40th period, we will repay $945.51 in principal on our monthly total amount of $1,161.88.
To calculate the principal amount redeemed, we use the following formula:
=-PPMT(TP;A18;$B$4*12;$B$3) =-PPMT((1+3,10%)^(1/12);1;10*12;120000)
The fourth column is the interest, for which we use the formula to calculate the principal repaid on our monthly amount to discover how much interest is to be paid:
=-INTPER(TP;A18;$B$4*12;$B$3) =-INTPER((1+3,10%)^(1/12);1;10*12;120000)
The fifth column contains the amount left to pay. For example, after the 40th payment, we will have to pay $83,994.69 on $120,000.
The formula is as follows:
=$B$3+CUMPRINC(TP;$B$4*12;$B$3;1;A18;0)
The formula uses a combination of principal under a period ahead of the cell containing the principal borrowed. This period begins to change when we copy and drag the cell down. The table below shows that at the end of 120 periods, our loan is repaid.
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54db62d73ac08e758c63b338c045d569 | https://www.investopedia.com/articles/personal-finance/082415/whats-wrong-american-tax-system.asp | What's Wrong With the American Tax System | What's Wrong With the American Tax System
What's wrong with the American tax system? Depending on their perspectives, taxpayers complain about a wide range of features. However, recent studies reveal that a majority express a concern that the system is unfair. They believe that it often requires low- and middle-income individuals to pay the IRS a greater share of their income than is required from individuals with higher incomes.
Why that's important: Voluntary taxpayer compliance is essential to the functioning of the U.S. tax system and depends on its acceptance by taxpayers. And so far, most taxpayers comply—despite regular news stories highlighting flagrant examples of tax avoidance, legal and otherwise. An IRS survey published in March 2020 reports that 95% of Americans believe it's "every American's civic duty to pay their fair share of taxes." While people may complain about their taxes, researchers report that Americans are more likely to pay them than residents of most other countries.
All the same, Americans’ opinion of the fairness and effectiveness of the US tax system has declined markedly over recent years. Some of the change corresponds to party lines. Republicans’ and Democrats’ views have diverged, with Democrats increasingly skeptical and Republicans more positive, especially since the 2017 individual and corporate tax cuts.
Although most taxpayers recognize that some form and level of taxation is necessary to fund the government, differing views about the appropriate size of government and its funding level, the optimal structure of a tax system, the system’s effective rates, and its impact on different groups and interests contribute to an expansive debate that would require a tome to appraise. Accordingly, this article focuses primarily on the current U.S. income tax regime and emphasizes features and effects that raise issues for taxpayers and policymakers alike. (It does not discuss excise taxes, which apply more narrowly to specific products and activities.)
Once the rules are in place, individuals and corporations will, not surprisingly, do their best to use them to their advantage. What's important is to look at the disparate impact of those rules, as well as who benefits and who doesn't.
Key Takeaways Special tax rules often allow higher income individuals to pay lower effective rates than middle- and lower income taxpayers.Flat-rate tax credits, particularly refundable ones, provide the same level of benefit to all taxpayers regardless of income. Many corporations pay little or no tax.Alternative minimum taxes, never wholly effective, were weakened for individuals (and eliminated for corporations) by the 2017 law.Lower tax rates apply to capital gains and dividends than to wages, salaries, and self-employment income.Sophisticated tax planning enables many wealthy individuals to minimize—or even entirely escape—estate and gift taxes.
Unfair Distribution of the Tax Burden
Most U.S. taxpayers consider an income tax system that applies graduated, higher rates on higher levels of income—commonly characterized as “progressive”—to be fair. But, currently, many are concerned that the national tax burden is not sufficiently graduated according to income level among individuals and between individuals and businesses, particularly corporate businesses. News reports about major corporations paying no income taxes—and alleging that President Trump paid no more than minimal income taxes for decades—have undercut taxpayers’ confidence in the system.
Many object to a system that often imposes on middle- and lower-income individuals higher effective income tax rates than apply to many with higher incomes and that allows some higher-income taxpayers to avoid taxation entirely. Judged from this relative perspective, a large percentage of U.S. taxpayers considers the US tax system unfair.
Some tax breaks are broadly recognized as appropriate, even necessary. Generally approved allowances include the deduction of “ordinary and necessary” business expenses in order to arrive at an economically accurate calculation of income. Similarly, the standard deduction; itemized deductions for medical expenses, charitable contributions, mortgage interest and certain losses; and refundable tax credits for individuals, have broad support.
The tax code provision that imposes no income tax on individuals with very low incomes (for 2020, taxable income below $9,876 for single individuals and $19,751 for married couples ) is considered both realistic and fair. In addition, it saves administrative expense by eliminating the cost of processing many tax returns that are unlikely to produce revenue.
The Internal Revenue Code includes individual and corporate income taxes, payroll taxes, excise taxes, estate and gift tax, and generation-skipping transfer tax. However, criticism generally has focused on the broad-based individual and corporate income taxes. Understandably there is little enthusiasm for paying taxes; but, it is fairness and not the actual dollar amount of tax liabilities that currently generates most complaints, perhaps a tacit acknowledgement of the tax law’s current rates, which are relatively moderate compared to far higher rates in the past.
As budget deficits increased beginning in 2018 when major tax cuts reduced tax revenues—a trend intensified since the pandemic impaired the economy—concern grew not only about the fairness, but also the effectiveness and adequacy of the tax law and its administration.
Let's look at some of these issues in more detail.
Higher Benefits for Higher Tax Brackets
Although the US tax code increases marginal tax rates on taxable income as taxable income brackets rise—the structure of a progressive tax system—graduated rates and brackets aren't the only driving force. Progressivity is countered by:
Exemptions and exclusions for certain types of income—for example, tax-exempt interest paid on state and local government bondsSpecial, lower rates for some income categories, such as capital gains and dividendsDeductions for a wide range of expenditures, including some business expenses.
Such adjustments—for simplicity, referred to collectively as "deductions" in the following discussion—can result in lower effective tax rates on the incomes of some very high-income individuals than apply to far lower incomes. These deductions sometimes enable taxpayers with extremely high levels of earnings and investment returns to avoid any tax liability.
Deductions vs. credits
Deductions that produce lower taxable incomes benefit taxpayers in a regressive, rather than progressive manner. The tax benefit for such items generally equals the amount of the reduction multiplied by the taxpayer’s marginal tax rate. Thus, if an individual taxpayer’s income falls into the top 37% tax bracket, each reduction of $100 from income that otherwise would be taxed at this rate will save the taxpayer $37. If the applicable rate is 24%, the savings for a $100 reduction in income would be only $24.
This allowance of greater tax savings for higher incomes contrasts with the savings from a tax credit. A 20% tax credit generally will save all taxpayers $20 in tax liability for each $100 expended, regardless of income level and tax bracket. However, if the amount of the credit exceeds the taxpayer’s tax liability, the taxpayer will not enjoy the full $20 savings unless the credit is refundable. Many tax credits are non-refundable.
Corporate tax avoidance
Currently the tax law generally applies a corporate income tax of 21%. However, many US corporations pay far lower effective rates or no tax at all because of substantial business write-offs, carrybacks and carryforwards of losses, aggressive tax planning and, if audited, tenacious and lengthy negotiating. Even as some challenge the existence of any corporate tax regime, others debate the appropriateness and level of corporate tax benefits, particularly those enjoyed by politically influential industries.
Alternative minimum tax limitations
Corporate and individual alternative minimum (AMT) rules were enacted to ensure that taxpayers with high income but substantial possible deductions and other tax breaks pay at least some taxes. To date, these rules have never fully accomplished that purpose, in large part because they have relied on tax law concepts and definitions rather than on economic or financial standards.
Then, the 2017 Tax Cuts and Jobs Act repealed the AMT for all C corporations. It also increased the exemption amount and exemption phaseout under the individual AMT, with the result that under present law fewer individual taxpayers are subject to the AMT than were covered by it prior to 2018
Preferential Rules for Investment Returns and Business Losses
Lower rates for investment returns and certain tax write-offs for businesses also are subjects of controversy.
Capital gains and dividends
Special low rates applicable to capital gains and dividends can enable taxpayers with significant investment returns to pay effective rates far below those applicable to ordinary income, such as salaries, wages or interest. Investor Warren Buffett, whose income is comprised largely of investment returns, famously acknowledged that the tax law should not allow him to pay a lower tax rate than his secretary.
Because these lower rates make the system less progressive and undercut perceptions of fairness, they provoke debate. Critics question the need for the rules and the size of the benefits. Proponents of these benefits, on the other hand, believe that they encourage desirable economic investment.
Certain business losses
Individuals who materially participate in a trade or business operated directly or in a pass-through entity—or who participate in a real estate business as a real estate professional—can use losses from such activities to offset earnings or investment income from other activities. The rules permitting current, carryback, and carryforward deductions for such losses by an active participant (or real estate professional, as applicable) permit eligible taxpayers to claim substantial write-offs that reduce or even eliminate their overall net taxable income.
Questions About Non-Income Taxes
In addition to income tax, the tax code imposes payroll and estate and gift taxes. Although generally less discussed than income taxes, some of these taxes present issues similar to those arising under the income tax.
Payroll taxes
Payroll taxes to fund Social Security benefits are imposed at the rate of 6.2% with respect to wages on each of the employer and employee—and 12.4% on net earnings of the self-employed—on up to $137,700 of such compensation for 2020 ($142,800 for 2021). In addition a Medicare tax of 1.45% applies to covered wages, with no wage cap. Because these taxes are imposed at flat rates regardless of income level, they are “regressive.” All wages are subject to these taxes; there is no exclusion or zero-rate level. Thus, for individuals with low incomes, these taxes are a substantial burden.
Some policymakers advocate imposing the Social Security tax at higher income levels, the way the Medicare tax already applies—or advocate extending it to unearned income. However, policy discussions tend to weigh the need to support trust funds against the risk that higher taxes on employers might adversely impact employment levels.
Estate and gift taxes
Estate and gift taxes apply to a small portion of the population and thus do not generate the breadth of interest or concern raised by income taxation. The doubling of the estate tax exemption to $11.58 million by the Tax Cuts and Jobs Act of 2017 significantly reduced its coverage.
Because many wealthy individuals and families engage in substantial tax-planning, the impact of the estate tax, currently 40% on assets in excess of the exemption amount, has been limited.
In addition to the current estate tax, the tax code imposes a generation-skipping transfer tax. This is a tax on transfers of assets valued in excess of the exemption level to beneficiaries more than one generation below the transferor.
The code also imposes a gift tax, but provides a $15,000 annual exemption for gifts made to a single recipient. Generally, there is no actual gift tax due until the total amount of a transferor’s gifts in excess of the annual exemption level together exceed the lifetime exemption, which is currently $11.58 million.
The amount of the excess over the annual exemption level reduces both the lifetime gift tax exemption and the estate tax exemption on a dollar-for-dollar basis. Because of these high exemption levels, the applicability of the gift tax to average taxpayers is limited.
Are Tax Laws Enforced Fairly?
A basic question about any law asks: Are the law and its application fair and effective? Reports released by the Internal Revenue Service and analyses published by independent experts indicate that, for over a decade, the federal tax system has increasingly failed to meet these requirements
Taxpayers’ satisfaction and compliance with the tax system depend on their perception that the tax code imposes—and authorities collect—a level of tax revenue adequate to support the current government budget and investments for the future and that all taxpayers are paying their fair share.
For years, budgetary limitations on the IRS’ ability to address noncompliance have resulted in substantial shortfalls in tax revenue. Because of the IRS budget reductions and the resulting declines in headcount and enforcement, the difference between the tax revenue owed the government and the amount actually collected is mounting. Based on the IRS’ own calculation that it failed to collect $380 billion due in all tax categories between 2011 and 2013, it has been estimated that the IRS will fail to collect more than $630 billion, i.e., 15% of taxes due, for 2020, and that between 2020 and 2029 the tax gap will rise to $7.6 trillion.
Unpaid individual income taxes represent the largest portion of the tax gap, approximately 70%. These reflect a noncompliance rate of almost 20%, with higher-income individuals responsible for the highest noncompliance levels.
Taxpayers who comply with tax laws are surely disquieted by reports that IRS budgets and enforcement activities have declined markedly since 2010. As its workforce has become smaller, the IRS' own statistics—as well as expert analyses and general media reports—have revealed that it is conducting fewer audits, with the most significant reductions occurring in audits of wealthy individuals, large corporations, and pass-through businesses and their owners.
Tax-System Alternatives
Would some other tax system work better and be fairer? From time to time U.S, policymakers have evaluated alternative tax regimes as substitutes for or supplements to the US income tax.
A flat, single rate of tax on all income has had some adherents, who emphasize its simplicity and argue that it would be fairer to charge all taxpayers the same rate. However, to raise the level of revenue required for government operations, it would be necessary to adopt a rate so high that the burden on lower-income taxpayers has been judged economically and politically unrealistic.
Similarly, when a value-added tax (VAT) or consumption taxes on goods and services have been examined, the exemptions required to avoid overly burdening low-income taxpayers entail significant complexity. The need to devise rules to cover groups enjoying special benefits under the income tax system—not only specific industries but also the very significant charitable sector—would also be problematic.
Recently, a flat rate annual tax on wealth has been proposed by advocates generally motivated by growing economic inequality and greater concentration of wealth in a smaller percentage of the population, as well as the goal of increasing revenue. Although many, including economists and political scientists, have expressed concern about the concentration of wealth, the wealth tax proposal has not gained widespread support. This type of tax would entail significant complexity, particularly the difficult and burdensome task of valuing assets, such as works of art or private businesses, lacking a readily available, objective market value.
Even if such alternatives to the present system were deemed feasible, the transition from the present income tax laws to an alternative regime presents challenges so far judged prohibitive. The enactment of some supplementary tax regime—or the revision and expansion of the current excise tax and tariff rules to supplement the income tax—would avoid some complexities but nonetheless would increase administrative burdens for taxpayers and officials.
The Bottom Line
With the US budget deficit growing as a result of substantial tax cuts and the impact of the pandemic on the economy, two major needs are clear.
First, the effective rates of tax might be more progressive and taxpayers' perception of the law’s fairness enhanced if tax deductions were re-evaluated and any unnecessary, inappropriate, and excessive tax benefits—particularly special interest write-offs—were reduced or eliminated. Changes might include restoration of an improved corporate AMT and broader application of rules to prevent business losses from offsetting income from unrelated sources.
Also needed: better tax enforcement through restored and increased funding of the IRS. An expert review of data released by the Congressional Budget Office and the Treasury Department indicates that every $1 of additional investment in the IRS would yield $11 in increased tax collections and between 2020 and 2029 would raise $1.1 trillion in additional revenue over and above current projections.
Studies indicate that more and better auditing of high-income individual and large-corporation tax returns would substantially reduce the tax gap. With increased funding, for example, IRS auditors would be able to devote the time required to evaluate complex facts and circumstances to determine if business expense deductions were necessary and reasonable in amount. An 11-to-1 return on investment in more thorough and better targeted auditing and enforcement clearly justifies increasing the IRS budget.
Improvements in both these areas should pay the additional dividend of building taxpayer confidence in the tax system.
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a073e978d876448ef440e8aa5d26d387 | https://www.investopedia.com/articles/personal-finance/082416/going-law-school-worth-it-anymore.asp | Is Law School Worth It Anymore? | Is Law School Worth It Anymore?
Is Law School Worth It?
According to a Gallup poll of over 4,000 adults who obtained a law degree between 2000 and 2015, only 23% said obtaining a law degree was worth the cost. With the average law school debt coming in around $145,500, according to the most recent data from the National Center for Education Statistics.
With many law school graduates somewhat regretting their decision to attend, it makes sense to examine whether going to law school is still worth it. Keeping in mind the high tuition costs, interest rates, and potential salaries, another good metric to consider would be its return on investment (ROI), calculated as its salary-to-debt ratio in a study by online lender SoFi.
Key Takeaways The majority of law school graduates (over three quarters) feel that their degree was not worth the cost. The average law school graduate debt is $145,500, while their starting salary comes in much less. According to a SoFi survey, the school with the best salary-to-debt ratio is Brigham Young University, which comes in at 1.7x.
Average Law School Debt and Costs
Going to law school full-time requires a three-year commitment, and the average tuition and fees for just one of those years at an American Bar Association-accredited institution are already high. The average tuition at private law school was $49,312 in 2019, compared to an average of $28,186 at a public school. This cost does not include rent, food, transportation, and other living expenses.
As the law school workload does not permit most students to hold jobs, student loans represent the most common method of paying these costs. Consequently, the average law school graduate has over $145,500 in student debt.
For many students, student loan debt accumulates on top of debt they already carry from undergraduate school. While most lenders allow the deferment of undergraduate loan payments while attending law school, any unsubsidized portion of such debt continues to accrue interest. All told, it is not uncommon for a law school graduate to enter the working world with a sizable negative net worth.
$28,186 The average cost of law school per year at a public institution.
Expected Salary After Law School
Taking on such debt might be a smart investment if a law degree provided reasonable assurance of a high-paying job. Ideally, recent graduates should earn yearly salaries equal to or greater than their total student debt. This level of pay usually allows for paying off student loans within 10 years without materially affecting a person's lifestyle.
Stories abound, however, of law school graduates struggling to find any sort of legal job, much less one that enables the repayment of student debt in a timely manner.
The New York Times revealed in 2015 that more than 20% of graduates from the class of 2010 held jobs that did not require law degrees. Only 40% worked in law firms, compared to 60% from the class of 2000. The remainder operated solo practices, with varying degrees of success, or performed contract work.
The SoFi study, the latest which incorporates data from student-loan refinancing applications between 2014 and 2016, shows that some schools do better than others when it comes to both job placements and salaries. Looking at students three years out of law school, Cornell University, Columbia University, and New York University take the top three spots in the SoFi study with average salary paid in excess of $177,000. Consider that the Bureau of Labor Statistics in 2019 had a median income of $122,960.
For the class of 2019, Columbia University saw 98.8% of its graduates find full-time jobs, 10 months after graduation. At New York University, 96.9% of the class of 2019 is employed 10 months after graduation. In some cases, of course, students may choose to put off those high-money jobs for prestigious public service spots: In 2019, 62 of 203 Yale Law School graduates were employed in clerkships.
Graduates of second-tier programs often settle for work outside of top law firms, where the pay is much lower. The 2018 median pay for law school graduates across the board was only $70,000. Idealistic young attorneys who choose public service fare even worse financially. Entry-level prosecuting attorneys earn a median pay of $56,200; public defenders do slightly better at $58,300.
Schools with the Best Salary-to-Debt Ratio
Even new lawyers who land good jobs rarely receive paychecks commensurate with their debt levels. The SoFi analysis also ranks law schools based on which offer the best value defined by their salary-to-debt ratio. That figure is an indication of how much more your potential salary could exceed your potential debt and help make a more informed decision about whether law school is worth it.
Brigham Young University takes the number-one spot. With students expecting an average salary of $108,000 and holding an average debt just below $65,000, the school has an impressive 1.7x salary-to-debt ratio, making it a good value-for-money bet.
Tied for second are the University of Texas at Austin, Yale University, and the University of Houston. The University of Texas at Austin comes with the ratio at 1.4x on the back of lower debt burden thanks to its relatively cheaper tuition. Yale Law School also ranks second with graduates' higher salaries of $177,771 compared to BYU at $64,873 and $147,44 at UT, but also because of its generosity with financial aid.
Opting for schools that fare poorly on this metric could cost you. Take, for example, Florida Coastal School of Law, which ranked lowest on the SoFi ROI list, with a salary-to-debt ratio of 0.5x. Let's break down the numbers: The school's tuition, $43,000, is on par with some of the top schools in the country. Students graduate with $158,427 in debt—considerably higher than the $123,793 Yale grads have—but the average annual salary for graduates is only $84,664.
Other Considerations
The numbers do not consider the financial risk of being a law school dropout. The first-year law school attrition rate nationwide is nearly 7%. Enrolling in law school but failing to finish offers no greater marketability than a bachelor's degree. It does, however, substantially add to a person's debt load.
All told, the decision to attend law school is one that should be approached with great consideration. Indeed, most attorneys have successful, high-paying careers. Supply and demand dynamics, however, have changed considerably since the 1980s, with fewer high-paying, entry-level jobs, and many more law school graduates chasing those jobs. Pile on tuition costs—which, for decades, have risen at nearly three times the inflation rate—and going to law school is not the financial no-brainer that it once was.
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009456d15e954319a8dc00e7dc17ed6b | https://www.investopedia.com/articles/personal-finance/082514/how-irs-became-so-essential-and-so-loathed.asp | How The IRS Works: Functions & Audits | How The IRS Works: Functions & Audits
Even the most enlightened citizen curses taxes at least once a year—possibly while simultaneously acknowledging that they're the price of a civilized, developed society. Even knowing the value of that bargain, loathing the taxman is as inevitable as taxation itself. In the U.S., at the federal level, that unenviable duty falls on the Internal Revenue Service (IRS). As America's tax collector—and as close to a four-letter word as any three-letter acronym could ever come—the IRS has a well-defined mission:
“Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.”
First, A Little History
After winning independence from Great Britain, the framers of the Constitution gave Congress the power to levy and collect taxes and duties. Most of the country's revenue came from tariffs on trade and excise taxes.
The onset of the Civil War changed everything—or more precisely, the need to pay for that conflict. Congress and President Lincoln enacted the nation’s first income tax with the Revenue Act of 1862, which created the office of the Commissioner of Internal Revenue. The law was temporary, but gave the office the right to levy excise taxes on commonly consumed and traded goods, as well as the means to collect those taxes. It also marked the first progressive tax in U.S. history.
On incomes of between $600 and $10,000, a 3% tax was levied, while a 5% tax was levied on incomes of more than $10,000. The need to have an agency in place for enforcing and collecting these taxes gave birth to the Bureau of Internal Revenue, the predecessor to the IRS.
Following the Civil War, political opposition to the Revenue Act mounted while collections from the income tax fell. The act was allowed to expire in 1872. Thereafter, the government relied primarily on tariffs on imported goods. Between the Civil War and the World War I, as much as 60% of federal receipts came from custom duties, which generated significant annual budget surpluses for the government.
However, a reduction in sugar tariffs under the McKinley Tariff Act of 1890 led to a decline in revenue. The Department of the Treasury forecast a budget deficit of $70 million for 1894, the first in 30 years. This led to renewed support for an income tax. The end result was the adoption of the Wilson-Gorman Tariff Act of 1894, which imposed an income tax on primarily the wealthy—estimates suggest 1-2% of the population were subject to the income tax.
The income tax was challenged on constitutional grounds. In March of 1895, the Supreme Court in Pollock v. The Farmers' Loan and Trust Company ruled the income tax conflicted with Article I, Section 9, Clause 4 of the Constitution, which prohibits Congress for collecting income taxes without apportioning them among the states on the basis of population. In 1909, Congress adopted a resolution calling for a Constitutional amendment, which the states ratified in 1913.
In October of 1913, President Woodrow Wilson signed into law the Revenue Act of 1913, which imposed a 1% tax on incomes above an exemption of $3,000 for single taxpayers and $4,000 for married couples. An additional 1% was applied to income above $20,000 and 6% on incomes above $500,000. The first Form 1040 appeared in 1913. Less than 2% of households would have been required to fill one out.
Income tax rates rose sharply during World War I, peaking at 77% in 1918 for those making $1 million per year, when it was just 15% two years earlier. By 1925 the top rate had fallen to 25%, which applied to incomes of $100,000 or more. Then the Great Depression came, and with it the return of high rates. In 1932, incomes greater than $1 million were taxed at 63%.
The “tax collecting agency” was revamped in 1950s, first by President Truman as a part of his reorganization plans. The patronage system of the agency was replaced with a career civil service system. The move was endorsed by President Eisenhower, who in 1953 rechristened the Bureau of Internal Revenue the Internal Revenue Service.
One of the Largest Government Employers
The IRS, one of the world’s most effective tax administrators, is a bureau of the U.S. Department of the Treasury. It's one of the largest organizations of the federal government with an employee base of around 73,500 people. The IRS Restructuring and Reform Act of 1998, commonly referred to as RRA 98, revamped the structure, governance and powers of IRS to its present form. In effect, the IRS was reorganized on the lines of private sector models for greater efficiency and effectiveness.
The IRS is headed by a commissioner who has a five-year term of office and is appointed by the president with the advice and consent of the Senate. Charles Rettig is the current (49th) IRS commissioner. The other position appointed by the President is the chief counsel, who is the chief legal advisor to the IRS commissioner on matters relating to interpretation, enforcement and administration of the laws.
The organization is headquartered in Washington, D.C., with regional campuses located around the country in select cities. The IRS has four primary divisions: Wage and Investment, Large Business and International, Small Business/Self-Employed and Tax-Exempt and Government Entities.
Who Audits The Auditors?
The IRS Oversight Board is a nine-member independent body which was created by the IRS Restructuring and Reform Act of 1998 to “oversee the Internal Revenue Service in its administration, management, conduct, direction, and supervision of the execution and application of the internal revenue laws or related statutes and tax conventions to which the United States is a party.”
The board does not have any enforcement authority and has no role in developing policy. One important responsibility entrusted to the IRS Oversight Board had been to review and approve the annual IRS budget request submitted to the Department of the Treasury. However, the board does not have enough members confirmed by the Senate and has suspended operations. Its last budget recommendation report, for fiscal year 2015, was issued in May 2014.
The Taxman Cometh
The IRS collected almost $3.5 trillion in gross revenue in 2018, the latest year for which figures are available. That revenue is used to fund government operations. The service processed more than 250 million taxpayer returns and issued $464 billion in refunds. (For related reading, see: How Powerful Is The IRS?)
Collections & Refunds by Type of Tax (2017 and 2018)
Source 2017 Gross (Thousands of Dollars) 2018 Gross (Thousands of Dollars) Business Income Taxes 338,529,154 262,742,024 Individuals, Estates, Trusts 1,867,427,797 1,971,941,201 Employment Taxes 1,123,473,137 1,133,199,527 Estate & Gift Taxes 23,780,443 23,865,669 Excise Taxes 63,503,608 73,718,206
Source: IRS Data Book
The Dreaded Audit
An IRS audit is a scrutiny of an individual’s or organization’s tax records and financial information to make sure that the tax amount and information reported is accurate. The probability of getting audited by the IRS works as a good enough reason for people to stay honest and pay taxes on time. However, timely and correct tax payments do not guarantee that you may not be audited, nor does it mean that a return which is selected for audit is sure to have an error. According to IRS, there are different methods used to select which returns will be audited. The common ways are:
The computer makes a randomized selection of people to be audited based on a statistical formula. Mismatching documents and information. Say, the information reported in Form 1099 or W-2 doesn’t match. The tax records may be audited since they show transactions with other’s whose name was selected for audit.
However, there are few triggers which are likely to land you on the list. If your return is selected for audit, you will receive a notification by mail. The audit can conducted via mail or in person review (to learn more, see: How Do IRS Audits Work?). The IRS audited 1 million taxpayers in 2018, which was down from 1.1 million examinations it conducted the previous year. Both figures represent approximately 0.5% of all returns filed.
Bottom Line
Though the IRS is one of the most efficient tax administrators in the world, it's very nature attracts controversy. The complexity of the tax code and lack of understanding of tax laws by taxpayers also gives rise to confusion. And recent accusations of politically motivated audits mean that the IRS is low on the popularity list to more than a few taxpayers. To resolve such situations — and attempt to assuage taxpayers—there is the Office of Appeals, which helps to resolve disputes impartially and out of court.
In 2018, the Office of Appeals had received roughly 92,000 cases. In addition, the Taxpayer Advocate Service (TAS) provides free personalized help to taxpayers for IRS related problems.
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e536982f099719290af0276a532f7ecc | https://www.investopedia.com/articles/personal-finance/082516/why-too-many-credit-cards-can-hurt-your-credit-score.asp | Can Too Many Credit Cards Hurt Your Credit Score? | Can Too Many Credit Cards Hurt Your Credit Score?
Credit cards are great financial tools of convenience and security. They come in handy when you either don't have any cash on hand or don't want to carry cash when making purchases. They can also be quite useful when making large purchases such as a new TV or major appliance. They're especially convenient when you're traveling and can provide you with a number of travel-related protections such as zero liability fraud coverage, lost or stolen card replacement, and auto rental insurance—not to mention opportunities to earn rewards.
But can you have too many credit cards? Popular financial wisdom says having too much plastic under your name can hurt your credit score. This immediately begs the question: How many credit cards are "too many"?
Key Takeaways Having too many outstanding credit lines, even if not used, can hurt credit scores by making you look more potentially risky to lenders. Having multiple active accounts can make it more challenging to control spending and keep track of payment due dates. Credit utilization beyond 30% of cards' credit lines and late payments can significantly lower credit scores. Closing older accounts can lower your average age of credit and hurt your score. You can boost your score in some cases by opening new credit cards if the new credit lines lower your overall utilization ratio.
Factors to Consider
There are several different factors that can help you determine the number of credit cards that's right for you. Some people feel that a small number of cards—one to three—is quite sufficient, while others end up opening multiple cards over time by responding to new offer incentives that come their way in the mail or online. But in reality, the way you manage them and the circumstances under which you obtain them that matters more than how many credit cards you carry.
That said, it can make sense to keep a primary card to use for most spending and maybe one or two as a back up or for specialized purposes (like using for a particular spending category that is rewarded with bonus points or cash back with a certain card). It's also important to keep in mind that having too many open credit lines relative to your income, even if they aren't used, can make you look potentially risky to lenders and degrade your credit score.
How Your Credit Score Is Determined
Before we look at the basics of credit card ownership, it's important to understand how your credit score is calculated. This can help you determine whether you carry too many credit cards or the few that you have are enough. Here's a quick review of the key components of your credit score vis-à-vis the amount of plastic you carry.
Payment history: This is the biggest factor and counts for 35% of your credit score. Although this takes all your monthly payments from all your debt into account, your credit card payments are the biggest variable. Credit card companies are the least forgiving when payments are late and are quick to report to credit bureaus if they are tardy. Debt-to-credit ratio: Also referred to as credit utilization, this ratio measures the outstanding debt on your credit cards in relation to your available credit—basically, how close you are to the credit limits on all your cards. Your credit utilization factors into 30% of your credit score. The ratio hurts your score if it exceeds 30%. Length of credit history: This is where people with multiple credit cards can get into trouble. Building a responsible history of on-time payments improves your score over time. People with excellent credit scores have an average age of 11 years for all of their cards. This contributes to 15% of your overall score. New credit: Whenever you add a new credit account, it can cause your credit score to drop a few points—first when the creditor makes an inquiry on your credit report, then when the account is actually opened. New credit is 10% of your score. Credit mix: The type of credit you have counts for 10% of your score. Credit bureaus like to see how you manage debt across different types of credit accounts. Your credit portfolio ideally should consist of a mix of credit cards, retail accounts, installment loans, auto loans, or a mortgage.
Adding too many new cards when you have a short credit history reduces the average age of your credit accounts, which can drag down your credit score.
How Many Cards to Carry
The number of credit cards you have and how you use them can have a direct impact on your credit score. If you're a novice credit card user, focus on building a credit history with one or two cards and paying off your balance in full each month. Adding credit cards for specific purposes such as a good rewards program or for obtaining better travel-related benefits can also make sense, provided they are added gradually over time rather than all at once.
If you've used credit cards for several years, it may make sense to add a card if it has a significantly lower interest rate that could save you money if you plan on carrying new balances, assuming you feel you can qualify for better terms. You may also want to transfer a balance to a new card that offers a promotional 0% APR for new cardholders. However, you still need to focus on keeping your debt-to-credit ratio below 30%.
3.7 The average number of cards held by credit card owners, according to Gallup
Dealing With Too Many Cards
If you think you may have too many cards or have ones you no longer use, the worst thing you can do is start closing accounts without considering the impact on your credit score. Closing older credit cards can shorten your credit history, which can hurt your score.
Payment history on closed accounts eventually falls off your report, which can also hurt your score. Closing credit card accounts also reduces the amount of available credit, which can hurt your debt-to-credit ratio or credit utilization if you have outstanding balances.
It's better to leave your credit card accounts open and just put these cards on ice. If you get a warning about inactivity from the card issuer, use that card just a bit to prevent the account from being closed. You can also keep that credit card as a backup, especially if it comes with a higher interest rate or a higher credit limit. Keeping this one in the wings can help you keep costs down and, if it has a higher limit, can keep your spending in check.
Another option for an older, unused credit card you may have originally got when starting out, perhaps as a college student, is to call the issuer to trade to a better product rather than closing the account outright. That way you might up-cycle the card to one you find more useful while retaining your account history. You might have to forego any introductory bonus offers provided to new cardmembers but it's a better option than simply closing your old account and losing valuable credit history.
Getting Another Card
Credit card companies still solicit people to open accounts even though they've slowed down a bit. You know those mailings you often get that tell you you've been pre-approved for a card. Should you be tempted? Well, sometimes. The following are several potentially justifiable reasons to consider applying for an additional card:
Getting a low-interest rate Transferring a balance—especially if able to take advantage of a promotional 0% APR offer Compelling introductory bonus and ongoing rewards Adding available credit to lower your debt-to-credit ratio Getting access to a higher credit limit if promised in the offer
The Bottom Line
Having a lot of credit cards can hurt your credit score under any of the following conditions:
You are unable to service your current debt Your outstanding debt is more than 30% of your total available credit You have added too many cards in too short a time You lack diversity in your credit accounts (i.e., you don't have other types of credit in your name like a mortgage, auto loan, etc.)
But don’t simply start closing accounts just to reduce the number of cards you have. That can never help your credit score. Instead, pay off any outstanding balances and plan to at least hold on to the oldest card. Plan to keep it along with any other older unused cards in a safe place rather than in your wallet. Then just use it once a year or so to keep it active and investigate options for product-trading with your issuer.
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fb4e4de91229296b15934f8ec3ebc58c | https://www.investopedia.com/articles/personal-finance/082614/start-building-solid-credit-young-age.asp | How to Use a Credit Card to Build Credit | How to Use a Credit Card to Build Credit
Getting a credit card—and using it wisely—can be one of the best ways to build a solid credit history, especially at a young age. But that's not only true if you are just starting out, but also if you've had some financial difficulties in the past and need to rebuild your credit.
In today’s world, having good credit matters more than ever. A strong credit score can mean better rates when you want to take out a car loan or home mortgage. It can help in renting an apartment because the landlord may check it. And many employers look at credit scores when deciding whether to hire job candidates. Insurers may use them, too, in setting your premiums.
Key Takeaways A credit card is one of the easiest ways to build (or rebuild) your credit history. If you don't qualify for a regular credit card yet, there are other options, such as secured cards and store cards. Once you get a credit card, be sure to pay on time and try to keep your "credit utilization ratio" under 30%.
Bear in mind that debit cards, while convenient, are of no help in building your credit history. That's because they don't involve credit (you're just spending your own money), and banks typically don't report that activity to the major credit bureaus. Here are three simple ways to use a credit card to build credit.
Become an Authorized User
The most straightforward way to build your credit is by taking out a credit card in your own name and paying it down each month. But acquiring a card with reasonable interest rates can be tricky when you have no previous credit history. Some companies have special cards for college students, but these also have requirements many young people may have trouble meeting, such as demonstrating that they have a reliable source of income.
Additionally, the Credit Card Accountability, Responsibility and Disclosure Act of 2009—a.k.a. the CARD Act—made it more difficult for younger Americans to get their own plastic. An applicant younger than 21 years of age has to show that he or she has the financial means to handle their debt or get a parent (or spouse) to co-sign before becoming eligible for a card.
There is one easier way around this conundrum—ask to become an authorized user on your parent’s card. While that is a common first step into the world of credit, there are some potential hazards to consider. Your credit score will get a boost if mom or dad pays the bill consistently. But if they don’t, your FICO score—a number that's derived from your credit history—will get bruised, just like theirs.
Keep in mind that the primary account holder is responsible for the entire balance, regardless of who incurred the charges. So if you ask a parent to become an authorized user on their card, make sure you have a clear, mutual understanding of how much you can spend each month.
Using a credit card can help you build a credit history while using a debit card will not.
Start with a Secured Credit Card
A secured credit card is "secured" by the money you deposit into a special bank account. Typically, the credit limit on your card is based on the amount of that deposit. With some cards, the required deposit may be as low as $200 or $300.
Secured cards limit the lender's risks and also help consumers who might be tempted to go wild with a regular credit card stay within their means.
If your bank reports your payments to one or more of the three major credit bureaus, and your credit record is otherwise unblemished, you may have enough of a history to apply for a regular credit card after six months or so.
What's more, once you've demonstrated that you can be counted on to make your monthly payments on time, your secured card lender might be willing to "graduate" you to one of their unsecured cards if you ask. You may want to look for that provision if you're shopping for a secured card. Also, compare the annual fees and other charges on any cards you're considering.
Even with these kinds of cards, the CARD Act still applies. So if you’re between the ages of 18 and 21, you’ll probably need to demonstrate that you have a source of income and document your expenses.
Apply for a Store Card
If getting a standard credit card proves difficult, another option is applying for a store credit card, which many retailers offer for use in their own stores. These cards are generally easier to obtain for people with little or no credit history. They tend to have higher-than-average interest rates, but that won’t matter much if you carry a low balance or pay it in full with each billing cycle.
Other Important Considerations
Even if you find it relatively easy to get a credit card, don't get too many. Having more cards than you need won't help your credit score and may actually hurt it, according to Fair Isaac Corp., which computes FICO scores.
Also, whichever type of card (or cards) you sign up for, be sure to keep an eye on your credit utilization ratio. That's the percentage of your available credit that you're currently using. Generally speaking, a credit utilization ratio of 30% or less is considered ideal. So, for example, if you have a total credit limit of $10,000 on your cards, try not to owe more than $3,000 on them at any given time.
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38c2c7fb36444f2be8c59b75cb25ee42 | https://www.investopedia.com/articles/personal-finance/082615/careers-equity-research-vs-investment-banking.asp | Careers: Equity Research vs. Investment Banking | Careers: Equity Research vs. Investment Banking
Equity Research vs. Investment Banking
Investment banking may no longer be the undisputed first choice for the best and brightest. Instead of streaming into investment banking, many top graduates are now opting for careers in management consulting, technology, or launching their own startups. While the allure of investment banking may have dimmed, for many finance students, it still remains the top career choice with equity research coming a distant second.
Equity research is sometimes viewed as the unglamorous, lower-paid cousin of investment banking. The reality, though, differs from this widely held perception. In order to help you formulate your own opinion, here's a head-to-head comparison of equity research (sell-side research that is conducted by the research departments of broker-dealers) and investment banking in 10 key areas.
Key Takeaways A career in finance can take many paths, including investment banking and equity research. Investment bankers help on M&A deals and issue new securities to the market. Equity researchers conduct thorough analysis and research of companies and their share price to issue investment recommendations.
Equity Research
Equity researchers analyze stocks to help portfolio managers make better-informed investment decisions. Equity researchers employ problem-solving skills, data interpretation, and various other tools to understand and predict a given security’s behavioral outlook. This often involves quantitatively analyzing a stock’s statistical data in relation to recent market activity. Finally, equity researchers may be tasked with developing investment models and screening tools that identify trading strategies that help manage portfolio risk.
Equity researchers are responsible for identifying patterns with current market price changes and using this information to create algorithms that identify profitable stock investment opportunities. The equity researcher should be able to understand the idiosyncratic differences of various international markets in order to cross-compare domestic and foreign stocks.
The low end of the salary range is $47,000, while the high end sits at around $136,000. Private equity firms and other financial services companies are the chief employers of equity researchers. The majority of these jobs are based in New York City, although firms are increasingly offering positions in major metropolitan hubs like Chicago, Boston, and San Francisco.
Investment Banking
Investment banking is a specific division of banking related to the creation of capital for other companies, governments, and other entities. Investment banks underwrite new debt and equity securities for all types of corporations; aid in the sale of securities; and help to facilitate mergers and acquisitions, reorganizations, and broker trades for both institutions and private investors.
Investment banks also provide guidance to issuers regarding the issue and placement of stock. Investment banking positions include consultants, banking analysts, capital market analysts, research associates, trading specialists, and many others. Each requires its own education and skills background.
A degree in finance, economics, accounting, or mathematics is a good start for any banking career. In fact, this may be all you need for many entry-level commercial banking positions, such as a personal banker or teller.
Those interested in investment banking should strongly consider pursuing a Master of Business Administration (MBA) or other professional qualifications.
Great people skills are a huge positive in any banking position. Even dedicated research analysts spend a lot of time working as part of a team or consulting clients. Some positions require more of a sales touch than others, but comfort in a professional social environment is key. Other important skills include communication skills (explaining concepts to clients or other departments) and a high degree of initiative.
Key Differences
1. Work-Life Balance
Equity research is the clear winner here. Although 12-hour days are the norm for equity research associates and analysts, there are at least phases of relative calm. The busiest times include initiating coverage on a sector or specific stock, and earnings season when corporate earnings reports have to be analyzed rapidly.
The hours in investment banking are almost always brutal, with 90- to 100-hour workweeks quite common for investment banking analysts (the lowest on the totem pole).
There has been a growing backlash against the atrocious hours demanded by investment banking analysts. Although this has led to a number of Wall Street firms capping the number of hours worked by junior bankers, these restrictions may do little to change the "work hard, play hard" culture of investment banking. The most common complaint of those who have quit investment banking is that the total lack of work-life balance leads to burnout. That complaint is seldom heard from those employed in equity research.
Major financial jobs tend to be concentrated in major financial hubs such as New York, Chicago, London, and Hong Kong. This is no different for equity research analysts and especially investment bankers, many of whom are paid to relocate to their firm's home city.
2. Visibility
Equity research is the winner in this area as well. Associates and junior analysts often receive recognition for their work by being named on research reports that are distributed to a firm's sales force, clients, and media outlets. Since senior analysts are recognized experts on the companies they cover in a sector, they are sought after by the media for comments on these companies after they report earnings or announce a material development.
Investment bankers, on the other hand, toil in relative obscurity at the junior level. However, their visibility increases significantly as they climb the investment banking ladder, especially if they are part of a team that works on large, prestigious deals.
3. Advancement
Investment banking wins in this area. There is a clear path with defined time frames for career progression in investment banking. This begins with the analyst position (two to three years), then transitions to an associate position (three-plus years), after which one is in line to become a vice president and eventually director or managing director.
The career path in equity research is less clearly defined but generally goes as follows—associate, analyst, senior analyst, and, finally, vice president or director of research. Within the firm, however, investment bankers probably have better prospects for reaching the very top, since they are deal makers and manage relationships with the firm's biggest clients. Research analysts, on the other hand, might be viewed as number crunchers who do not have the same ability to bring in big business.
4. Job Functions
Investment banking probably wins here as well, albeit only over the longer term. Equity research associates start off by doing a lot of financial modeling and analysis under the supervision of the analyst who is responsible for the coverage of a specific sector or group of companies.
But associates also communicate to a limited extent with buy-side clients, top management of the companies under coverage, and the firm's traders and salespeople. Over time, their responsibilities evolve to less financial modeling and a greater degree of report writing and formulating investment opinions and theses. However, there isn't a great deal of variability in the job functions of associates and analysts. What varies is the relative time spent on these functions.
Investment bankers, on the other hand, spend the first few years of their careers immersed in financial modeling, comparative analysis, and preparing presentations and pitchbooks. But as they climb the ladder, they get the opportunity to work on exciting deals such as mergers and acquisitions or initial public offerings. Research analysts only get this opportunity occasionally, when they are brought "over the wall" (the "wall" refers to the mandatory separation between investment banking and research) to assist on a specific deal involving a company that they know inside out.
5. Education and Designations
A bachelor's degree is a must for any aspiring equity research analyst or investment banking associate. Common areas of study include economics, accounting, finance, mathematics, or even physics and biology, which are other analytical fields. However, it is very unlikely a bachelor's degree alone will be enough to get a job in these fields.
The difference between an investment banker and an equity researcher boils down to the Chartered Financial Analyst (CFA) designation or the Master of Business Administration (MBA) degree. The CFA, widely regarded as the gold standard for security analysis, has become almost mandatory for anyone wishing to pursue a career in equity research. But while the CFA can be completed at a fraction of the cost of an MBA program, it is an arduous program that needs a great deal of commitment over many years. Being a self-study program, the CFA does not provide an instant professional network as an MBA class does.
The MBA curriculum, on the other hand, by virtue of being more business-oriented and less investment-oriented than the CFA, makes it more suitable for the investment banking profession. However, the competition to get into the best business schools—which is where most Wall Street firms hire their associates—is intense. Many aspiring investment bankers enter into some other financial field, perhaps working as analysts or advisors, and work toward their MBA.
Investment bankers should have an impressive knowledge of financial markets, investments, and company organization. Many pursue their Series 7 or Series 63 FINRA licenses to demonstrate this knowledge. The most common career path for investment bankers involves graduating from a prestigious university before working for a major global bank, such as Goldman Sachs or Morgan Stanley. After a few years, the aspiring investment banker returns to complete an MBA or receives professional certifications and licenses. When all is said and done, it may take five to six years after receiving an undergraduate degree before being considered for an investment banking role.
6. Skill Sets
Both jobs require a great deal of analytical and mathematical/technical skills, but this especially applies to equity research analysts. These analysts need to be able to perform complex calculations, run predictive models, and prepare financial statements with quick turnarounds.
As noted earlier, financial modeling and in-depth analysis are common to both investment bankers and research analysts in the earlier stages of their careers. Later on, the skill sets diverge, with investment bankers required to be adept at closing deals, handling large transactions, and managing client relationships. Research analysts, on the other hand, need to be effective at both verbal and written communication and have the ability to make balanced decisions based on rigorous analysis and due diligence.
7. External Opportunities
Successful research analysts and investment bankers generally have no shortage of external opportunities because of their experience, knowledge, and skills. Research analysts are likely to gravitate toward the buy-side (i.e., money managers, hedge funds, and pension funds), while seasoned investment bankers usually join private equity or venture capital firms.
8. Barriers to Entry
Both investment banking and equity research are difficult areas to get into, but barriers to entry may be slightly lower for equity research. While it is not uncommon to see a professional with some years of experience in a specific sector or area join a sell-side firm as an equity analyst or senior analyst, this seldom happens in investment banking.
9. Conflicts of interest
Although investment bankers and research analysts both have to steer clear of conflicts of interest, this is a bigger issue in equity research than in investment banking. This was highlighted by the U.S. Securities and Exchange Commission's (SEC) enforcement actions against 10 leading Wall Street firms and two-star analysts in 2003, relating to analyst conflicts during the telecom/dot-com boom and bust of the late 1990s and early 2000s. Under the settlement, the firms paid disgorgement and civil penalties totaling $875 million, among the highest ever imposed in civil securities enforcement actions. The 10 firms also had to agree to undertake a host of structural reforms designed to completely separate their research and investment banking arms.
10. Compensation
Both investment banking and equity research are well-paid professions, but over time, investment banking is a much more lucrative career choice.
Investment bankers are famous for their high pay and large signing bonuses. According to the online finance community "Wall Street Oasis," summer interns earn the equivalent of around $70,000, plus a signing bonus of around $10,000. First-year analysts at major banks earned an average salary of $80,000, plus bonuses, according to PayScale.
The real moneymakers, however, are investment banking associates, who earn an average salary of $138,000 and $77,000 in bonuses, with first-year associates likely making less and third-year associates making more. And it is not unusual for total compensation for a vice president or managing director to exceed $400,000 annually.
The average equity research analyst earns about $79,000 in annual compensation, according to PayScale. Research analysts also indirectly generate revenues through sales and trading activities that are based on their recommendations. The reputation of a firm's research department may be a significant factor in swaying a company's decision when selecting an underwriter when it has to raise capital. But even though the investment firm may make a substantial amount through underwriting fees and commissions, research analysts are prohibited from being compensated directly or indirectly from investment banking revenues.
Special Considerations
Instead, research analysts are compensated over and above their salaries from a bonus pool. These periodic bonuses are determined by a number of factors including trading activity based on the analysts' recommendations, the success of such recommendations, the profitability of the firm, and its capital markets division and buy-side rankings.
Nonetheless, entry-level investment bankers may receive total compensation that may be anywhere between 20% and 50% higher than their research counterparts, and this gap may widen markedly over time.
The Bottom Line
Overall, if one has to make a choice between embarking on a career in equity research versus one in investment banking, factors such as work-life balance, visibility, and barriers to entry favor equity research. On the other hand, factors like prospects for advancement, job functions, and compensation tilt the scales in favor of investment banking. Ultimately, however, the choice comes down to your own skillset, personality, education, and ability to manage work pressures and conflicts of interest.
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ccf9bdd344d3d406f8ec89992a34a932 | https://www.investopedia.com/articles/personal-finance/082615/maxing-out-your-401k-profitable-heres-why.asp | Maxing Out Your 401(k) and What to Do Next | Maxing Out Your 401(k) and What to Do Next
A 401(k) is a powerful retirement savings tool. If you have access to such a program through work, it's shrewd to take advantage of any employer match. If you still have money left over, there are other ways to save for retirement.
Key Takeaways Try to max out your 401(k) each year and take advantage of any match your employer offers.Contributions are tax-deductible the year you make them. That tax break can leave you with more money to save or invest.Once you max out your 401(k), consider putting your leftover money into an IRA, HSA, annuity, or a taxable account.
Retirement planning ensures individuals will live out their golden years in comfort, so it's vitally important to understand the ins and outs of this practice.
401(k) Employer Match
Most financial planners encourage investors to max out their 401(k) savings. On average, individuals earn about $0.50 on the dollar, for a maximum of 6% of their salaries. That's the equivalent of an employer writing a $1,800 check to a worker who earns $60,000 per year. Furthermore, that $1,800 will steadily grow over time. It would be foolish to turn down what's essentially free money.
You Don't Have to Be an Investing Pro
Although 401(k)s offerings can be hard for non-professionals to understand, most 401(k) programs offer low-cost index funds, which are ideal for new investors. As individuals approach retirement age, it's prudent to shift most of their retirement assets to bond funds. Many adhere to the following age-based allocation model:
At age 30, they invest 30% of their retirement funds in bond funds.At age 45, they invest 45% of their retirement funds in bond funds.At age 60, they invest 60% of their retirement funds in bond funds.
Those opposing the age-based approach may instead elect to invest in target-date funds, which provide investment diversification without having to choose each individual investment.
"Target-date funds also trend towards being more conservative closer to the selected date. The combination of these benefits can make this a one-stop-shop for 401(k) participants," explains David S. Hunter, CFP® and president of Horizons Wealth Management Inc. in Asheville, N.C.
Investing After Maxing Out Your 401(k)
Those who have contributed the maximum dollars to their 401(k) plans can augment their retirement savings with the following vehicles:
Individual Retirement Accounts (IRAs)
For 2021, you can contribute up to $6,000 to an IRA, provided your earned income is at least that much. If you're aged 50 or over, you can add another $1,000, although some IRA options carry certain income restrictions.
If you make too much money, you can't contribute to a Roth IRA. If you make more than a certain amount and are covered by a workplace plan, you can't deduct contributions to a traditional IRA.
Traditional IRA Income Limits
Deducting a traditional IRA contribution is subject to income ceilings if you are covered by a retirement plan at work. For single taxpayers, the deduction phase-out starts at a modified adjusted gross income (MAGI) of $66,000 and goes away completely if your MAGI is $76,000 or higher, for 2021. For those who are married and filing jointly, whereby the spouse making the IRA contribution has a workplace retirement plan, the phase-out starts at $105,000 and goes away at $125,000.
If you don't qualify to deduct all or part of your traditional IRA contribution, you can still contribute up to the contribution limit. Your investment will still grow on a tax-deferred basis.
Roth IRA Income Limits
Contributing to a Roth IRA also involves income limitations and phase-outs. But unlike traditional IRAs, the limit determines your eligibility to contribute.
For single taxpayers in 2021, the income phase-out starts at a MAGI of $125,000 and goes away for incomes in excess of $140,000. For married taxpayers filing jointly, the phase-out begins at a MAGI of $198,000 and ends completely above a MAGI of $208,000.
HSA Accounts
Health savings accounts (HSAs) are available to those with high-deductible health insurance plans, whether they access them through their employers or purchase them independently. Contributions are made on a pre-tax basis. If used for qualified medical expenses, withdrawals from the account are tax-free. And since users are not compelled to withdraw the money at the end of each year, HSAs can function like another retirement plan, making them ideal vehicles for saving on healthcare expenses during retirement.
The contribution limits for 2021 are $3,600 for an individual and $7,200 for a family. The catch-up contribution for those who are 55 at any time during the year is an additional $1,000.
Taxable Investments
Taxable investments are a viable way to accumulate retirement savings. While dividends and capital gains are subject to taxes, long-term capital gains on investments held at least a year are taxed at preferential rates.
If you have maxed out your 401(k), be cognizant of asset location to ensure investments are held in taxable versus tax-deferred accounts.
Variable Annuities
Annuities often get a bad rap—sometimes deservedly. Still, a variable annuity can provide another vehicle that lets after-tax contributions grow on a tax-deferred basis.
Variable annuities generally have sub-accounts similar to mutual funds. Down the road, the contract holder can annuitize the contract or redeem it partially or fully, where the gains are taxed as ordinary income. But beware: Many contracts have onerous fees and substantial surrender charges, so if you are considering a variable annuity, conduct thorough due diligence beforehand.
The Bottom Line
When it comes to your future, investing money is always a good thing to do. Diligent savers who max out their 401(k) contributions have other retirement savings options at their disposal.
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7ea9b8b4e469fbef7465b41cb1d4aed6 | https://www.investopedia.com/articles/personal-finance/082714/filling-out-w9-form.asp | Filling Out Form W-9: Request for Taxpayer Identification Number (TIN) and Certification | Filling Out Form W-9: Request for Taxpayer Identification Number (TIN) and Certification
If you work as a freelancer or independent contractor, most of your clients should ask you to complete Form W-9, Request for Taxpayer Identification Number (TIN) and Certification. This form helps businesses receive key information from their vendors in order to prepare information returns for the IRS. Businesses have to file information returns using Form 1099-MISC whenever they pay a freelancer or independent contractor a total of $600 or more during the year.
Your clients will use the information on your W-9 to put your name, business name, address, and taxpayer identification number (TIN) on the 1099-MISC they file about you. They will send one copy of 1099-MISC to the IRS and another copy to you in late January, following the end of the tax year.
Other circumstances for which you might be asked to fill out a W-9 include:
Certain real estate transactions Mortgage interest paid Acquisition or abandonment of secured property Cancellation of debt Contributions to an individual retirement arrangement (IRA)
How to Complete Form W-9: Request for Taxpayer Identification Number (TIN) and Certification
Form W-9 is one of the easiest IRS forms to complete, but if tax forms make you nervous, don’t worry. We’ll walk you through the proper way to complete it.
Step 1: Enter your name as shown on your tax return.
Step 2: Enter your business name or "disregarded entity" name, if different from the name you entered for step 1. For example, you might be a sole proprietorship, but for marketing purposes, you don’t use your personal name as your business name; instead, you are “doing business as” some other name. You would enter that name here. As for the disregarded entity part, if you don’t know what it is, you probably aren’t one. The most common disregarded entity type is a single-member limited liability company.
Step 3: What type of business entity are you for federal tax classification: sole proprietorship, partnership, C corporation, S corporation, trust/estate, limited liability company, or “other”? Check the appropriate box. If you’re not sure, you’re probably a sole proprietorship, because you would have had to file a lot of paperwork to become one of the other entities.
Step 4: Exemptions. Chances are you’re going to leave these boxes blank. Here are a couple of exceptions:
1. Payees that are exempt from backup withholding, such as corporations (in most cases), might need to enter a code in the “Exempt payee code” box. The Form W-9 instructions list the exempt payees and their codes and the types of payments for which these codes should be used. Corporations filling out a W-9 for receipt of interest or dividend payments, for example, would enter code “5.”
2. Payees that are exempt from reporting under the Foreign Account Tax Compliance Act (FATCA) might need to enter a code in the “Exemption from FATCA reporting code” box. Neither of these boxes will apply to the typical independent contractor or freelancer.
Step 5: Provide your street address, city, state, and zip code. What if your home address is different from your business address? Which address should you provide on Form W-9? Use the address that you will use on your tax return. For example, if you’re a sole proprietor who rents office space, but you file your tax return using your home address, enter your home address on form W-9 so the IRS won’t have trouble matching your 1099s with your Form 1040.
Step 6: In this optional step, you can provide the requester’s name and address. You might want to fill out this box to keep a record of to whom you provided your tax identification number.
Step 7: The IRS calls this section Part I, which has to make you wonder what all those steps you just completed were. Here, you must provide your business’s tax identification number, which will either be your individual Social Security Number(SSN) if you’re a sole proprietorship, or your employer identification number (EIN) if you’re another type of business. Now, some sole proprietorships also have EINs, but the IRS prefers that sole proprietors use their SSNs on form W-9. Again, doing so will make it easier to match any 1099s you receive with your tax return, which you will file under your SSN.
What if your business is new and doesn’t have an EIN? You can still fill out form W-9. The IRS says you should apply for your number and write “applied for” in the space for the TIN. You’ll want to get this number as quickly as possible because, until you do, you’ll be subject to backup withholding. You can apply for an EIN at the IRS website. See the instructions below for Step 8, Part II, for more on backup withholding.
Step 8: In Part II, you must attest to the truthfulness of all of your information before you can sign form W-9. Intentionally lying on a tax form could mean you’ll have to pay a fine or go to jail; the IRS doesn’t mess around. Before signing form W-9, here are the statements you must certify are true, under penalty of perjury:
1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me).
If you were thinking about using a “borrowed,” stolen or made-up tax ID number, think twice before lying under oath.
2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
Most taxpayers are exempt from backup withholding. If you have no idea what the IRS is talking about here, you’re probably exempt. If you aren’t exempt, the IRS will have notified you, and the company paying you needs to know because it is required to withhold income tax from your pay at a flat rate of 24% and send it to the IRS. Incidentally, now you know another good reason not to cheat on your tax return: You might have to tell a future client about it, and that might make the company think twice about you. Item (c) basically says that if you were once subject to backup withholding but aren’t anymore, no one needs to know.
3. I am a U.S. citizen or other U.S. person.
If you’re a resident alien, you’re in the clear. The IRS also considers the following to be a “U.S. person”: a partnership, corporation, company, or association created or organized in the United States or under the laws of the United States; a domestic estate; and a domestic trust. If your business is a partnership that has a foreign partner, special rules apply; read about them in the instructions to form W-9. If you aren’t a U.S. citizen, you may need to fill out form W-8 or form 8233 instead.
4. The FATCA code(s) entered on this form (if any) indicating that I am exempt from FATCA reporting is correct.
You probably won’t need to worry about this one, which has to do with the Foreign Account Tax Compliance Act (FATCA).
Special Considerations When Filing Form W-9
Form W-9 tells you to cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because you have failed to report all interest and dividends on your tax return.
You may cross out item 2 if you’re filling out Form W-9 in connection with a real estate transaction. Item 2 doesn’t apply in this case, so it doesn’t matter if you’re subject to backup withholding.
Now, if you read the fine print in the W-9 instructions carefully, it seems to indicate that most people aren’t required to sign this form at all. You’re generally only required to sign it if the IRS has notified you that you previously provided an incorrect TIN. Technicalities aside, however, the person who asked you to fill out Form W-9 will probably consider it incomplete or invalid if you haven’t signed it, and good luck trying to convince them otherwise.
Returning Form W-9
Return your completed form W-9 to the business that asked you to fill it out. Ideally, you’ll deliver it in person to limit your exposure to identity theft, but this method often isn’t practical. Mail is considered relatively secure. If you must email the form, you should encrypt both the document and your email message and triple-check that you have the recipient’s correct email address before sending your message. Free services are available online to help you do this, but check their reputations before trusting your documents to them.
The Bottom Line
Providing accurate information on your Form W-9 will help ensure that payments you receive – or other transactions that require this form – are properly reported to the IRS. If you're unsure of some items, such as the proper classification of your business, check with your accountant or another financial adviser.
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68fcaeba3a5903241258413d87888232 | https://www.investopedia.com/articles/personal-finance/082714/purpose-w9-form.asp | The Purpose of the W-9 Form | The Purpose of the W-9 Form
Businesses use IRS Form W-9, Request for Taxpayer Identification Number and Certification, to get information from vendors they hire as independent contractors (also called freelancers). When a business pays a contractor $600 or more during a tax year, it has to report these payments to the Internal Revenue Service (IRS), using an information return called Form 1099-MISC. Businesses use the name, address, and Social Security number or tax identification number contractors provide on Form W-9 to complete that information return. Neither the sender nor the recipient should send a copy to the IRS.
Businesses that hire independent contractors do not withhold income tax or pay Medicare or Social Security taxes for their independent contractors, as they do for their employees. Instead, contractors are responsible for these obligations. However, the IRS still wants to know how much these contractors received to make sure they pay the taxes they owe, and it uses form 1099-MISC to gather this information. Businesses do not send Form W-9 to the IRS.
1:23 The Purpose Of The W-9 Form
Information Needed on Form W-9
Form W-9 asks for the independent contractor's name, business name (if different), business entity (sole proprietorship, partnership, C corporation, S corporation, trust/estate, limited liability company, or "other") and the business' tax identification number (or Social Security number, for sole proprietors who don't use a separate tax ID number).
Form W-9 also asks the person filling it out to certify that they are not subject to backup withholding. Most taxpayers are not, but if they are, the company hiring the independent contractor will need to withhold income tax from that contractor's pay at a flat rate of 24% (for tax years 2018–2025) and send it to the IRS.
As Form W-9 requires listing a tax ID or Social Security number, both the person filling it out and the company receiving the completed form must guard it carefully during transmission and after receipt to protect against identity theft.
When You Shouldn't Fill Out a W-9
An independent contractor who receives an unexpected W-9 should hesitate before filling it out and research whether the requester has a legitimate reason to ask for this form. Financial institutions sometimes use Form W-9 to request information from a customer when they need to report dividends or interest. Be careful here: The financial institution should probably already have your tax ID number from when you opened the account.
Another situation in which you should hesitate before filling out Form W-9 is if the company asking you to do so is your employer and you are supposed to be classified as an employee, not an independent contractor. The difference is substantial.
Employee or Independent Contractor?
If you're an employee, your employer will withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on your wages. If you're an independent contractor, it won't. That means you'll be responsible for the employer's share of Social Security and Medicare taxes, and that you won't be eligible for unemployment compensation if you are laid off.
An unscrupulous or financially struggling employer might try to classify an employee as an independent contractor to save money. If you're classified as an independent contractor, your employer's tax "savings" will come out of your pocket as self-employment tax. You'll also become responsible for calculating and paying your estimated taxes four times a year and filling out Schedule C when you file your annual tax return.
It isn't always clear whether a worker is an employee or independent contractor, but in general, the more control the business has over what workers do and how they do it, the more likely it is that they are employees. If your Spidey sense starts tingling when someone who hired you calls you an independent contractor, that's a good sign, and you should investigate the situation further. Start by reviewing the IRS discussion of the difference between the two. If you're an employee, you should fill out Form W-4, not Form W-9.
Here's an example of when an employer could legitimately change your status from employee to independent contractor. You're a computer programmer, and you're required to come into the office from 9 a.m. to 6 p.m., Monday through Friday. The company provides your desk and your computer.
Starting next month, you will be required to provide your computer. You will be able to work from home or whatever remote location you want, and you can complete the work during any hours you want, as long as your assignments are completed on schedule and you respond to work-related phone calls and emails on time.
W-9 FAQs
How do I know if I am subject to backup withholding?
Has the IRS sent you a letter telling you that you are subject to mandatory backup withholding? This might have happened if you didn't report all your interest and dividends on a previous tax return. If you haven't received this letter, and if you provide your tax identification number to the requester of Form W-9, then you are not subject to backup withholding. If you are subject to backup withholding, cross out item two in part two of Form W-9 before submitting it.
What's the most secure way to submit Form W-9?
If you can hand off the document in person, that's ideal. Otherwise, one option is to use a free online service to encrypt your completed Form W-9 and email it securely to the requester. You could also use an encrypted file-sharing service.
Another option is to send it through a service such as FedEx, UPS, or the postal service, though there is no guarantee your form will not be lost, stolen, or tampered with in transit.
There's also no guarantee that the recipient will store the form securely even if you send it securely, so you might want to ask about that in advance.
Is my business an exempt entity?
If you're a sole proprietor, it probably isn't. If it's a corporation, it could be, if it qualifies for IRS tax-exempt status.
I have both an employer identification number (EIN) and a Social Security number. Which number should I enter on the form?
If you are a sole proprietor, you can enter either one. If your business is an LLC classified as a corporation or partnership, use the entity's EIN. If your business is a single-member LLC that is a disregarded entity, enter your SSN or EIN (not the entity's EIN).
Can I refuse to fill out Form W-9?
Sure. If you refuse in response to a legitimate request, your client will withhold taxes from your pay at a rate of 24%. The accounting department might also find you a pain and tell your contact to refuse to do further business with you. Businesses have a heavy obligation from the IRS to obtain a completed Form W-9 from anyone they pay $600 or more to during the year. Failure to comply can result in fines.
If you think the person requesting the form has no business asking for it, though, refusal is probably a good idea. If you're concerned, ask a tax professional what you should do.
Besides a client, who might ask me to fill out Form W-9?
A bank, a brokerage firm, a lending institution that has canceled a debt you owe, or the issuer of a prize you have won all might ask. If you're a guest on "Ellen" during her "12 Days of Giveaways" promotion, and the talk show producers ask you to fill out a W-9 before you leave, it's safe to assume the request is legitimate. If you receive an email saying you won a prize for a contest you don't recall entering, you may not want to give that person a W-9.
Beware of W-9 phishing scams. If you receive an email request for a Form W-9 and you're not sure it's legitimate, contact the supposed sender by phone (and don't use any phone number in the suspicious email) to ask if the request is valid. Attackers are sophisticated and can make a message look like it came from your bank or even your client. And if you get an email from the IRS, it's definitely a phishing attempt, and you should forward the email to phishing@irs.gov. The IRS doesn't initiate contact with taxpayers via email.
The Bottom Line
W-9 forms are for independent contractors, also called freelancers. It's important to fill out the form correctly—but only if you're sure it's the right form to submit and the request is legit.
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cfde5da3c010a544dacf0f1abf4341fd | https://www.investopedia.com/articles/personal-finance/083115/purpose-irs-form-4868.asp | The Purpose of IRS Form 4868 | The Purpose of IRS Form 4868
If you are required to file a federal income tax return and for any reason want more time beyond the April filing deadline, you can get an extension just by asking for it. The request is made by filling out an Internal Revenue Service (IRS) extension form, known officially as Form 4868: Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.
Key Takeaways Form 4868 gives taxpayers a six-month extension, for any reason, to file federal income tax returns. In order to get an extension, you need to fill out the form no later than the original due date of the return. Filing the IRS extension form doesn’t give you more time to pay your taxes if you owe them. Once taxes are due, you’ll be on the hook for interest and penalties on unpaid taxes, which begin to accrue on the original—or extended—due date, even if you file for an extension.
Understanding Form 4868
Form 4868 gives you an automatic six-month extension to file your federal income tax return. The extension for 2020 federal income tax returns that are due on April 15, 2021, gives you until Oct. 15, 2021.
On February 22, 2021, the Internal Revenue Service (IRS) announced that victims of the 2021 winter storms in Texas will have until June 15, 2021, to file various individual and business tax returns and make tax payments. As a result, affected individuals and businesses will have until June 15, 2021, to file returns and pay any taxes that were originally due during this period. This includes 2020 individual and business returns normally due on April 15, as well as various 2020 business returns due on March 15.
You may want an extension if you have not yet received all the necessary information to prepare your return—for example, if you haven't received a Schedule K-1 from a trust in which you are a beneficiary.
If you are self-employed, there is an added benefit to obtaining a filing extension. It gives you until the extended due date to set up and fund a simplified employee pension (SEP) retirement plan.
By obtaining the extension, you avoid any late-filing penalties as long as you do file by the extended due date. If you don't, you face a late filing penalty of 5% of the amount due for each month or part of the month your return is late. If your return is more than 60 days late, the minimum penalty is $330 or the balance due, whichever is smaller.
It's important to keep in mind that filing an extension does not generally mean you are off the hook for paying taxes due by the April deadline. You'll owe interest and potential penalties if you pay late, even if you file an IRS extension form.
Depending on your state, filing the federal form may also give you an automatic extension for state income tax purposes.
Who Can File Form 4868?
Taxpayers who want more time for any reason to file federal income tax returns can use Form 4868. You can file the form when you need an extension for a variety of returns in the 1040 series including:
Form 1040: U.S. Individual Tax Return Form 1040-SR: U.S. Tax Return for Seniors Form 1040-NR: U.S. Nonresident Alien Income Tax Return Form 1040NR-EZ: U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents Form 1040-PR: Self-Employment Tax Return-Puerto Rico Form 1040-SS: U.S. Self-Employment Tax Return
How to File Form 4868
A 4868 form is relatively straightforward to fill out. It is half a page and does not require any date or signature. You don't have to give a reason for requesting an extension. All you have to provide is:
Information about you: This is done in Part I: Identification. Include your name, address, Social Security Number and, if applicable, your spouse's Social Security number. Information about your income taxes: This is done in Part II: Individual Income Tax. Provide a good faith estimate of what you think your final taxes will be. Subtract from this your total tax payments for the year from withholding and any estimated taxes. If your estimated tax liability for the year is greater than your total tax payments, you have a balance due.
All pages of Form 4868 are available on the IRS website.
If you show a balance due you can make a payment as described below. You aren't required to make a payment as a condition of obtaining a filing extension.
For the extension to be effective, you must make your request no later than the original due date of the return. No filing extension can be granted after the April deadline. An IRS extension form can be submitted on paper to the address in the instructions for the form or filed electronically.
All versions of Form 4868 are available on the IRS website.
If You Owe Taxes
Obtaining a filing extension does not give you more time to pay your taxes. Interest and penalties on unpaid taxes begin to accrue after 90 days, even if you obtain a filing extension until Oct. 15. Your payment is still due on the original due date, April 15.
If you submit a paper Form 4868 to the IRS, you can send in a payment of some or all of the balance due. The more you pay, the less your interest and penalties will be. Instructions on the form tell you where to send it, along with your payment.
If you file Form 4868 electronically but want to send a payment by mail, send a copy of the e-filed form along with your check. The form acts as your voucher in this case so your check will be credited properly to your tax account.
If you file your form electronically, you can also make an electronic payment via:
Direct Pay, which is a transfer from your bank account to the IRS with no fees. Electronic Federal Tax Payment System (EFTPS), which is another free payment system. It requires registration. Credit or debit card through an IRS-approved payment processor. This method entails a small convenience fee charged by the processor—a flat fee for debit card transactions or a percentage of the taxes for credit card transactions.
The IRS also offers the option to pay by phone through EFTPS by calling 800-555-3453.
The IRS will also allow you to skip filling out a 4868 form entirely if you pay all or part of your estimated income tax due online or by phone using Direct Pay, EFTPS, or a credit or debit card and indicate that the payment is for an extension. It will provide confirmation of the extension if you take this route.
Special Considerations for U.S. Taxpayers Abroad
A two-month filing extension is automatically given to a U.S. citizen or resident who lives outside of the U.S. or Puerto Rico, or whose main place of work is outside the U.S. or Puerto Rico, or who is in the military or naval service on duty outside the U.S. or Puerto Rico. For the 2020 tax year, a return is not due until June 15, 2021, for these taxpayers. They do not have to request the two-month extension.
However, if these individuals want even more time, they must complete Form 4868 and check the box on Line 8 indicating they are "out of the country." By doing this, there is an additional four months to file without any late-filing penalty.
The two-month automatic extension does not apply to someone on vacation outside the U.S. Anyone anticipating being away on the filing deadline and who needs more time to file should submit Form 4868 before going away, or have a tax preparer submit the form.
Nonresidents filing Form 1040-NR or 1040NR-EZ who cannot file by the due date should also file Form 4868 to obtain a filing extension. However, the same two-month automatic extension applies if the person did not receive any wages subject to U.S. income tax withholding. These individuals must check the box on Line 9 of Form 4868 to indicate that this scenario applies.
The Bottom Line
If you can't file your federal income tax return on time, simply ask for a filing extension. If you don't, you'll face a late filing penalty. You may be able to escape penalties by showing reasonable cause, but why go through the bother? Fill out an IRS extension form before the filing deadline. And don't forget that if you owe taxes, they are still due by the April deadline.
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bf351779a8d4af99dd79d61b89bbe0b9 | https://www.investopedia.com/articles/personal-finance/083115/renting-vs-owning-home-pros-and-cons.asp | Renting vs. Owning a Home: What's the Difference? | Renting vs. Owning a Home: What's the Difference?
Renting vs. Owning: An Overview
Choosing to rent or buy your home is a major decision that affects not only your lifestyle but also your financial health.
Real estate ownership is touted as an investment that is likely to build equity and a source of tax deductions. Renting also has its advantages, including little to no responsibility and flexibility. However, people often believe that buying a home, rather than renting, is the more financially sound decision.
In the United States, many people lean toward ownership. This is partly because we've been bombarded with the message that being a homeowner is the key to happiness and part of the American dream. Real estate is also big business for everyone, from mortgage lenders to real estate agents to home improvement stores. It is a part of our cultural mindset and economy. However, it's important to remember that owning a home isn’t always better than renting, and renting is not always as simple as it seems. Consider the pros and cons of each to figure out whether renting or owning is best for you.
Key Takeaways Renting offers flexibility, predictable monthly expenses, and someone to handle repairs. Homeownership brings intangible benefits. They include a sense of stability, belonging to a community, and pride of ownership, along with the tangible ones of tax deductions and equity. Contrary to popular belief, renting doesn't mean you’re "throwing away money" every month, and owning doesn't always build wealth "in the long run."
Renting
Renting means you can move without penalty each time your lease ends. However, it also means you could have to move suddenly if your landlord decides to sell the property or turn your apartment complex into condos. Less dramatically, they could just bump up the rent to more than you can afford.
The biggest myth about renting is that you're "throwing away money" every month. This is not true. You need a place to live, and that always costs money in one way or another. While it's true that you aren't building equity with monthly rent payments, not all of the costs of homeownership will go towards building equity.
When you rent, you know exactly how much you’re going to spend on housing each month. When you own, you might pay nothing more than your mortgage and regular bills in one month. Then, the next month, you might need to spend an additional $12,000 on a new roof (which your homeowners' insurance might not cover). While you might be temporarily inconvenienced by a leaking roof as a renter, it's unlikely you'll ever have to pay to replace your roof when you rent. Your monthly, home-related expenses, such as renter's insurance, tend to be more predictable and significantly cheaper.
As a renter, you face unpredictable rent increases each time your lease is up for renewal (unless your apartment is rent-controlled). If you live in a desirable part of town, rent increases can be steep. In contrast, if you get a fixed-rate mortgage, your monthly house payments will never increase (though property taxes and insurance premiums probably will).
While homeownership is often touted as a way to build wealth, your home can lose value. The acceptable neighborhood you moved in could decline. A major employer can leave the area, causing a significant population decline and a surplus of housing. Alternatively, there could be a residential construction boom, which could also keep prices down. You might buy a house for $200,000 tomorrow and in 30 years find that it's still worth $200,000, meaning you've lost money after inflation.
Another bit of misleading conventional wisdom: Get a mortgage to get the tax deduction. True, the home mortgage interest deduction reduces your out-of-pocket expenses for mortgage interest early in your loan term, as long as you're itemizing. If you don't have enough deductions to itemize and claim the standard deduction, there is no tax benefit to you as a homeowner. In the event you can itemize, for every $1 you spend in interest, you'll save pennies on the dollar—an amount that will only decrease over time as you pay down your mortgage.
Of course, renters get no mortgage tax deduction at all. But they can take the standard deduction that's available to all taxpayers.
Do you like having your evenings and weekends to use as you please? Do you work long hours or travel frequently? If so, then the time commitment that comes with homeownership might be more than you want to take on. There are always projects around a house that you will need or want to take care of, from finding a plumber to replacing a rusted-out pipe and repainting the bedroom to mowing the lawn.
If you live in a community with a homeowners association (HOA), the HOA might take some homeownership chores off your plate. That will usually cost a few hundred dollars a month. But beware of the headaches that association membership can entail.
If you rent, your landlord will take care of all the repairs and maintenance, though of course they may not be done as quickly or as well as you would like.
Although not as universal as homeowners' insurance, renters' insurance is often recommended for those leasing homes and is increasingly required by landlords.
Owning
Homeownership brings intangible benefits, such as a sense of stability, belonging to a community, and pride of ownership. However, it is not good for restless or nomadic types. Real estate is the original illiquid asset. You might not be able to sell when you want if the housing market is down. Even if it’s up, there are significant transaction costs when you sell. Changing your mind about where you want to live is far more expensive when you own.
The overall cost of homeownership tends to be higher than the overall cost of renting. That is true even if the monthly mortgage payment is similar to (or lower than) the monthly rent.
Here are some expenses you’ll be spending money on as a homeowner that you don’t have to pay as a renter:
Property taxes Trash pickup Water and sewer service Repairs and maintenance Pest control Tree trimming Homeowners insurance Pool cleaning (if you have one) Lender-required flood insurance, in some areas Earthquake insurance, in some areas
Perhaps the biggest throwaway expense is mortgage interest, which can make up nearly all of your monthly payments in the early years of a long-term mortgage. Take this typical scenario: You borrow $100,000 at 4% for 30 years. Your first monthly payment will be $477.42, of which $333.33 is your interest payment and $144.08 is principal. It will be about 13 years before more of your monthly payment goes toward principal than toward interest. In total, you'll spend $71,869.51 in interest (though, admittedly, you'll recoup some of that in tax deductions if you can itemize).
Even renovation projects don't often increase your home's value by more than what you spend on them. On average, you'll get back 66 cents for every dollar you shell out on a home improvement project, according to Remodeling magazine. The projects that recoup the most are not glamorous things you’ll be excited about doing. The best return (and the only one on Remodeling's list that comes close to recouping its entire cost) comes from replacing a garage door.
Once you add up all these costs, you might find that you’re better off financially by renting and investing the money you would have put into a home into a retirement account.
Special Considerations
Which option is best for you isn't just about money. It is also about comfort and your vision for your life. Ignore people who tell you that owning always makes more sense in the long run or that renting is throwing away money. Also, disregard those who say that it makes more sense to buy if your monthly mortgage payment would be the same or less than your monthly rent payment. Housing markets and life circumstances are too varied to make blanket statements like these.
More importantly, you should always ignore anyone who discourages you from buying a home because of race, religion, or marital status. Unfortunately, people were often prevented from owning land based on race or their beliefs in the past. Illegal practices like redlining still deter members of minority groups from seeking to own a home.
Many people are also under the false impression that they should be married before buying a home. The truth is that your ability to make payments is the only factor that mortgage lenders should be considering.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
All prospective homeowners also need to weigh the risks involved. Getting a mortgage often requires using a large amount of financial leverage. If housing prices go up, people with mortgages can make extraordinary gains.
On the other hand, they can also lose everything and more if prices fall too much. During the subprime mortgage meltdown, an unprecedented number of Americans ended up with underwater mortgages. The key to avoiding these disasters is paying attention to the overall level of housing prices by looking at the Case-Shiller Index. If prices seem too high, it can make sense to keep renting for a few years.
Still, despite the risk, added expense, and extra chores associated with owning a home, many people choose it over renting. It provides a more permanent place to raise children. It is also frequently the only way to have, or create, the sort of residence people want. Ultimately, the decision to rent or to own is not just financial. It is also emotional.
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544c9ddc437ad68882912cdeb50a37ed | https://www.investopedia.com/articles/personal-finance/090315/millennials-guide-how-read-lease.asp | Millennial Guide: How to Read a Lease | Millennial Guide: How to Read a Lease
Someday, between the time you move out of your childhood home and when buy your first residence, you’ll probably find yourself staring at a lease. A lease is a contract between someone who owns real estate (the landlord) and another person who occupies that piece of real estate (the tenant), covering the conditions under which the tenant may possess, occupy, and use the property.
Reading a lease can be befuddling, and often the first impulse is to just go ahead and sign the thing, rather than try to wade through and decipher all the legal language. However, it's important to understand that a lease is a legally enforceable agreement, and you could find yourself in a predicament later on if you fail to abide by the terms–the very ones you agreed to by signing on the dotted line. Before you sign, take the time to read the entire document.
Here’s what to look for in a lease to rent a dwelling, be it an apartment or a house.
Key Takeaways A lease is a contract between someone who owns real estate (the landlord) and another person who occupies that piece of real estate (the tenant). A lease details the conditions under which the tenant may possess, occupy, and use the property. Details about any deposits—such as an upfront security deposit or fees for parking or pets—should also be clearly stated in your lease, along with conditions for getting your money back. In some rental arrangements, the landlord is responsible for taking care of all repairs and maintenance—whether it’s a leaky faucet or a broken air conditioner. There are also agreements where the tenant is responsible for all the costs of repairs and maintenance. If you have a pet, read the lease to find out if animals are allowed, and if so, whether there are any size or breed-specific restrictions.
Include Property Details
The lease should include basic facts and data about the property, including the physical address and the landlord’s name and contact information. It should also state the date the lease was signed; the beginning and end dates of the rental period; and options for lease renewal, including policies for rent increases. If any appliances are in the unit (such as a range, refrigerator, or washing machine), or if the unit is furnished, that should be included, too.
Define Deposit, Rent, and Fee Amounts
People tend to pay close attention to how much rent will cost each month, but there may be other costs that should be noted as well, including various deposits and fees. Details about any deposits—such as an upfront security deposit or fees for parking or pets—should also be clearly stated, along with conditions for getting your money back.
The lease should state particulars about the rent:
Monthly amount due When it is due Methods of acceptable payment Any allowable grace period for late payment Amount of any late fees
Utility Inclusion
The lease should indicate policies regarding utility service and billing. Be sure to find out which, if any, utilities are included as part of your monthly rent, and whether you are expected to cover any of the costs.
Some landlords, for example, pay for electric, water, and sewer services, while the tenant pays for cable and Internet.
Repairs and Maintenance
This is something to pay close attention to since it can end up costing a lot of money, time, and headaches. In some rental arrangements, the landlord is responsible for taking care of all repairs and maintenance—whether it’s a leaky faucet or a broken air conditioner.
In other situations, the landlord might repair or replace only major appliances but leave the tenant responsible for everything else. And then there are agreements where the tenant is responsible for all the costs of repairs and maintenance. There may also be stipulations about the maintenance of the yard or outside areas.
As you can see, it’s imperative that you read the lease to determine your landlord’s responsibilities—as well as yours—when it comes to repairs and maintenance issues. Make sure you're clear on who pays for what, who arranges service calls, and the amount of time you and your landlord have to address any issues.
Pet Policy
If you have a pet, read the lease to find out if animals are allowed, and if so, whether there are any size or breed-specific restrictions (some rental properties allow most dogs, but not pit bulls, for example).
You might be required to pay a “pet deposit” that may or may not be returned once you move out (assuming no pet damage). Sometimes the “pet fee” is nonrefundable because it is used for treating the space for fleas and deodorizing and shampooing the unit’s flooring and upholstery after you move out.
In some cases, you might also pay “pet rent,” a monthly or yearly fee tacked on to your rent to cover normal wear and tear from pets.
If the lease contains a no-pets clause and you violate it by bringing a furry friend into your unit, the landlord generally has the legal right to evict you. A no-pets clause cannot be added to a lease once it’s signed, however, so your landlord can’t change the pet policy in the middle of your lease.
House Rules
The lease should describe the acceptable use of the property (e.g., “The premises shall be used exclusively as a private residential dwelling for the tenant and his immediate family only”), plus any policies for things like:
Maximum occupancy Quiet hours Overnight guests Parking and storage Smoking Landlord right of entry Granting access to maintenance workers Property alterations Long absences (on your part) Insurance requirements Eviction
Early Termination
The lease should explain what you need to do before moving out. How much advance notice is required? What type of cleaning are you responsible for? The lease should also state your options if you have to move out before the lease expires.
Can you sublet the property, for example? If so, are you required to find the sublet tenant, or is that the landlord’s responsibility? What are the penalties for breaking the lease if you can’t find someone to sublet?
The Bottom Line
To make sure you understand what you’re getting into, take the time to read your lease. If there’s something you don’t understand, ask the landlord for clarification, or consult a local specialist in real estate law. Bear in mind that while many of these policies are at the landlord's discretion, others (such as the landlord's right of entry and eviction) may be regulated by state or city ordinances.
Once you and your landlord have signed the lease, it’s a very good idea to save a copy. This document can become important if any disagreements arise regarding the property or anything related to your tenancy.
Also, plan on doing a thorough property examination before signing the lease. Check the general condition of the property and make sure items such as appliances, faucets, plumbing, windows, and window fixtures are in good working order. Note and document any existing damage in the lease or in a provided damage assessment form, and keep a copy of this with your contract—just in case.
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2c63c3acd511061c6f8d747b31e24c25 | https://www.investopedia.com/articles/personal-finance/090415/cost-raising-child-america.asp | The Cost of Raising a Child in the United States | The Cost of Raising a Child in the United States
Nobody wants to financially evaluate a child as they would the purchase of a car or home, but by the time a child reaches the age of 18, they will have cost their parents more than some houses. Be prepared to pay a lot of money for that cute little bundle. For example, parents who have a child today will spend, on average, $284,570 by the time the baby turns 18, according to Department of Agriculture (USDA) data.
The figure cited is for a middle-income married couple with two children and the USDA assumes that they had childcare and education expenses. Knowing these numbers will allow parents to better control their costs.
Key Takeaways On average, middle-income parents will spend $284,570 by the time a child turns 18.The largest expense is housing, followed by food.The cost of childcare varies widely and depends on where you live.The good news is that each additional child costs less, thanks to economies of scale.
The Top Cost: Housing
The largest expense, by far, is housing. Expenses include mortgage or rent payments, taxes, repairs, insurance, utilities, and all of the “stuff” parents buy for their home. These expenses accounted for 29% of a child’s price tag, according to the USDA study. But take heart. If you have more children, you don’t double or triple the expenses of one child because many of the resources are shared. You may have to add an extra bedroom but not a kitchen or living room.
Naturally, you have to divide the housing expenses by the number of people in the home and consider that the use of these resources isn’t equal among family members. A 30-year-old dad is probably using more water and electricity than his six-month-old daughter. Of course, the authors of the report have already made those adjustments.
There are even more variables that contribute to higher or lower home costs. For one, housing expenses vary widely by region. Expenses were highest in the urban Northeast and lowest in rural areas of the country, according to the USDA.
Single parents will spend an average of 7% less than two-parent families because they are more likely to be in a lower income bracket. But the percentage of a single parent's income that goes to their children is higher.
Food Costs
If you already have children, you know they eat a lot, so it may come as no surprise that this is the second largest cost of raising a child. If you had one dollar for every time your kid said, “I’m hungry,” you could probably offset most of your annual food expenditures. Food expenses came in around 18% of the total from birth through age 17.
The USDA breaks expenses down into four spending levels. For lower-income families or those who can stretch their budgets, there’s the low-cost “thrifty plan.” This is followed by the “low-cost plan,” the “moderate-cost plan” and, finally, the “liberal plan.”
For a one-year-old child, costs range from $96.40 per month to $177.70, with the moderate plan running $146.60 a month. By the time a child is nine-years-old, that moderate-cost plan has risen to $273.70. On the same plan, a male 18-year-old eats $311 worth of food every month, and a female, $248.50.
Childcare and Education
Childcare and education for parents who have this expense account for 16% of the cost of raising a child, according to the USDA. The cost of childcare in the U.S. ranges from $5,436 to $24,243 annually, according to the Economic Policy Institute (EPI). Needless to say, the cost of childcare depends on where you live.
Residents of Washington D.C. pay the most. Childcare for an infant costs $19,112 annually and $24,243 for a four-year-old. EPI data shows that in-state tuition for a four-year public college costs far less at $5,756.
Parents in Mississippi pay the least for childcare annually, which costs $5,436 for an infant and $4,784 for a four-year-old. This is less expensive than the $7,980 price tag for in-state tuition at a four-year public college.
If you have more than two children, a nanny may be more economical than daycare because nannies tend not to charge twice the price in the same way some daycare centers do. On the other hand, daycare centers may give a discount if you have more than one child enrolled.
The Grand Total
As for the rest of the expenses the breakdown is:
Transportation, 15%Healthcare, 9%Clothing, 6%All other expenses, 7%
In total, once a child reaches adulthood (age 18), parents will have spent an average of $284,570. This is up significantly from $233,610 for parents who had a child in 2015, based on USDA data adjusted for inflation.
The Good News: Economies of Scale
There is some good news when it comes to the cost of raising a child in America. Economies of scale also apply to the number of children you have. The USDA points out that each additional child costs less because siblings can share a bedroom and a family can buy food in larger, more cost-effective quantities. And while your offspring might not necessarily like it, clothing and toys can be handed down, and older siblings can often babysit younger ones.
The Bad News: Costs Don’t Include College
Also consider that the above numbers don't take into account the cost of a college education. The average annual cost of a public college (in state) for the 2019-2020 academic year comes in at $21,950; for a private college, it's $49,870, according to the College Board. That means saving early and utilizing a 529 plan or other investment vehicles to keep kids from graduating with a large amount of debt.
The Bottom Line
Nobody wants to think of their children as just an expense, but at an average annual cost of almost $17,000 (and the possibility that it could be higher, depending on where you live and childcare), the financial side of child-rearing can’t be ignored. But couples who know the numbers can strategize to lower the costs.
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2c1d7d6d63fdebec7db38c26a6e10886 | https://www.investopedia.com/articles/personal-finance/090415/salary-secrets-what-considered-big-raise.asp | Salary Secrets: What is Considered a Big Raise? | Salary Secrets: What is Considered a Big Raise?
Built up the courage to ask your boss for a raise? The quality of a workplace raise, it so often seems, is in the eye of the receiver. The same bump in pay can leave some with a big grin on their face, while causing others to wonder why they didn’t get more. This raises the question: What exactly is a “good” raise?
Key Takeaways Have you been working in the same job for a while and think it's time for a raise? A 3–5% pay increase seems to be the current average.The size of a raise will vary greatly by one's experience with the company as well as the company's geographic location and industry sector.Sometimes raises will include non-cash benefits and perks that are not figured into the percentage increase surveyed.
Average Pay Increases
To answer that, let's put things in perspective. The average pay raise in 2019 is expected to be about 3.1%, the highest since 2008, according to professional services firm Aon's annual survey on U.S. salary increases, which is based on responses from over 1,000 companies.
Yet the amount that companies spend in their budget for so-called "variable pay"—including incentives and bonuses—dropped by its biggest margin since 2010. As a result, total cash compensation is actually expected to decline slightly next year, from 15.5% of payroll to 15.2%.
However, businesses expect to pay their best employees more, with an average raise of 4.6%, according to a separate survey by the advisory firm Willis Towers Watson. By contrast, workers with an average performance rating can expect only a 2.7% bump in pay.
Salaries Vary by City
The average performance-based raises don’t change significantly across different sectors or job types, but they do vary slightly. Next year, employees in sectors like education and transportation can expect a lower-than-average increase of 2.6% and 2.8%, respectively, according to Aon. Workers in construction are expected to see a bigger pay increase of 3.4%.
The average expected salary bumps also vary from city to city across the U.S. While most workers are expected to see increases in line with the national average, employees in two of California’s biggest cities will enjoy a higher-than-normal salary hike. The average worker in San Francisco will see a 4% wage increase, while the average employee in Los Angeles can expect a 3.7% uptick, Aon projects.
The Consumer Price Index—a measure of overall cost increases—rose 2.2% over the 12 months leading up to Nov. 2018. So the average worker was only marginally better off than they were a year ago. And those who depend on bonuses as part of their compensation package may not keep pace with inflation.
The Effect of Job Switching
With few exceptions, maximizing your earnings over a long period of time usually means changing jobs rather than staying in place.
It used to be that jumping ship meant landing a salary 10% to 20% higher than your previous one. While increases of that size aren’t as widespread as they used to be, switching jobs is still the most common path to the best pay raise.
If you stay at the same organization, your annual increases may be restricted by your current base salary because companies have a narrow percentage range within which they can boost your pay.
But if you’re negotiating with a different firm, you’re not bound by those restrictions. The key is to prove that you’re worth the salary you’re asking for.
Other Forms of Compensation
When sizing up your wage, bear in mind that an uptick in base pay isn’t the only way that companies reward their employees. In some cases, you may actually fare better with a generous bonus instead of a big raise.
Take a person with an annual salary of $80,000 and a modest 1% salary increase. That means their base pay only inched up $800—not enough to keep up with inflation. But if that employee also took home a bonus of $4,000, their total compensation would jump 6% (1% base-pay increase plus 5% bonus). Based on nationwide figures, this reward would have been better than what most top-performing employees would receive.
Also of note, a significant number of companies are now emphasizing non-financial rewards such as career-development programs. While these opportunities may not increase your bank account in the short-run, they can be important ways to maximize earning potential in the long-run.
The Bottom Line
A 4% or 5% annual pay increase may not sound substantial, but in today’s environment, it's better than most. Remember, that over time relatively small raises will compound and may very well result in a very nice salary.
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3c3f173dfbe1d038a6f12258b6b9bf33 | https://www.investopedia.com/articles/personal-finance/090514/should-you-get-gas-credit-card.asp | Why Get a Gas Credit Card? | Why Get a Gas Credit Card?
Americans pump nearly 392 million gallons of gasoline on an average day—more than a gallon for every man, woman, and child in the country, according to the U.S. Energy Information Administration. As the price of gasoline fluctuates, so does the cost of filling the tank each week. As a result, oil and gas companies offer gas credit cards as a way to provide a discount on the price of gas. Consumers also can use a regular credit card that offers cash back or rewards for purchases. Although the various cards available are similar, they have distinct differences between them.
Key Takeaways Oil and gas companies offer gas credit cards as a way to provide a discount on the price of gas.Gas credit cards are issued in partnership with a bank, which might offer a discount in the price of gas by five or six cents off each gallon.Credit card companies also offer cards that pay consumers cash back for purchases, including gasoline, which can range from 2% to 3%.
Rewards Cards With Cash Back
Not surprisingly, credit card issuers are interested in a piece of all those consumer purchases at gas stations, which is why many offer incentives for you to use their card at the pump. For example, many of the rewards cards issued by major banks and bearing the familiar logos of Mastercard and Visa now provide cash back on gasoline.
Typically, you'll receive more cash back from your gasoline purchases, which can range from 2% to 3%, than on other purchases, which could be limited to 1%. One of the benefits of rewards cards is that you can get cash back on all kinds of purchases, not just gasoline. Also, you're not restricted to a particular brand of gas.
Oil-Company Cards
Gas credit cards are also issued by oil companies, often in partnership with a bank. Most, if not all, major oil companies offer them, and some have more cards to choose from than grades of gasoline. For example, Shell typically offers multiple cards, two for regular consumers, and three for businesses that own multiple vehicles.
The oil-company cards typically reward you with a certain number of cents, such as five or six cents, off each gallon of gas you buy at their stations. For example, Exxon offers six cents off each gallon of gas and has offered a 10-cent discount for the first two months for new cardholders.
Some also offer cash back on other travel expenses, such as car rentals, airlines, and hotels. They generally have no annual fees, but their interest rates can be high compared with other types of cards, often in excess of 20%. In some cases, the cards can only be used at the gas station.
Which Type Is Better?
It's important to remember that whether you apply for a traditional credit card or a gas credit card, they are both issued by a bank. The oil and gas companies are not actually issuing the card. Instead, they're partnering with a financial institution to offer their clients a credit card with various benefits in hopes that they can create loyal customers who will purchase their brand of gasoline.
Whether a traditional or gas credit card is the better option may depend on how much in purchases will be made in gasoline versus other goods. Also, gas cards tend to offer a sign-up bonus in which there's an additional discount or more rewards offered within the first few months or up to a specific purchase amount.
Gas Credit Cards
For example, Exxon Mobil offers six cents per gallon, which works out to a 3% savings based on a gas price of $2.00 per gallon. The card also offers an additional 24-cent bonus discount for new customers on gas purchases within the first two months. The bonus discount is paid as a statement credit after the qualifying purchases are made within two months of the accounting opening date. If you have a long commute, 30 cents in discounts for the first two months and six cents thereafter can add up over time.
Shell offers a fuel rewards card—meaning gas purchases only—and a gas credit card via Mastercard, which can be also used as a credit card for other purchases. Shell offers a 30 cent per gallon discount for the first five fill-ups and 10 cents per gallon discount thereafter. Both cards also offer 10% on the first $1,200 spent in the first year.
The Shell Mastercard offers an additional 2% rebate for the first $10,000 spent at Shell stations and a 1% rebate for other purchases thereafter at Shell locations. However, purchases made at locations that sell non-Shell gas are not considered qualifying purchases, meaning you won't earn any rebates on those purchases.
Credit Cards with Cash Back
Credit cards like Capital One offer 1.5% cash back on all purchases without any restrictions.For those with no credit history or bad credit, they can opt for the secured credit card from Bank of America, which is easier to get approved since it requires a security deposit of $300 (maximum of $4,900) to open the account.
The Bank of America card offers 3% cash back in one of the following categories of your choice: gas, dining, online shopping, drug stores, travel, or home improvement and furnishings. You can change that category via their mobile app. You'll get 2% cash back at grocery stores and wholesale clubs and 1% cash back on all other purchases.
Which Is Better?
Whether a traditional or gas credit card is better will probably depend on how much money is spent on gasoline each month. The gas credit cards typically offer a higher cash back rebate for gas purchases but a lower rebate for purchases in other places, such as supermarkets and restaurants. If you find you'll be making far more purchases at grocery stores and restaurants versus gasoline, you might opt for a traditional credit card with a consistent, cash back feature and no restrictions on the types of purchases. However, if you travel a lot or have a long commute, a gas credit card might be a good option.
If you have a spotty or poor credit history, gas credit cards might be easier to obtain than a bank credit card. However, most gas credit cards are offered by banks that use the same information from your credit report that the traditional banks use when making a credit decision. Although you might get approved for a gas credit card even with poor credit, the bank may offer a lower credit limit to help reduce the bank's risk of nonpayment or default. Another option for those with poor credit is a secured credit card with a cash back feature as long as you have a few hundred dollars that can be used as a security deposit.
Whichever type of gas card you choose, read the fine print. Some cards might limit your discount to a certain number of gallons, making them less attractive if you buy a lot of gas. Also, bear in mind that if you don’t pay off your balance each month, your interest charges could easily wipe out any money you’re saving on gas—and then some. Also, some cards charge an annual fee.
Finally, note that the best way to save on gas might be by not using a credit card at all. Some stations will give you an even bigger discount if you pay with cash instead.
Bottom Line
A general rewards card that offers cash back on gas is often a better deal—though could be harder to get, depending on your credit history—than an oil-company card. A general credit card will likely pay more rewards for non-gas purchases, but if you drive a lot, a gas credit card might be worth it. Also, paying cash could save you even more at some gas stations.
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e69d656f7009106731b063d8726bea16 | https://www.investopedia.com/articles/personal-finance/090815/quick-guide-how-fafsa-loans-work.asp | A Quick Guide to How FAFSA Works | A Quick Guide to How FAFSA Works
How Does FAFSA Work?
Every college-bound person and their parents need to know how the Free Application for Federal Student Aid (FAFSA) process works. Some may dismiss the idea of applying for financial aid for college because they think they make too much money to qualify. But regardless of their family earnings, they may be eligible for some form of financial assistance, including federal, state, and school-based aid and merit-based scholarships.
In fact, it makes sense for almost all families with a college-bound kid to fill out the FAFSA.
Key Takeaways Most families are eligible for some form of federal financial aid for college.Students with exceptional financial need may be eligible for federal grants and subsidized loans.Other students and parents may be eligible for non-need-based aid, such as unsubsidized federal loans.
How FAFSA Works
The FAFSA is the official form that students or their families use to apply for financial assistance for college from the federal government. States, individual colleges and universities, and private scholarship programs rely on the information provided in the application as well.
The primary purpose of the FAFSA is to determine how much financial aid a student qualifies for, including both need-based and non-need-based aid. It determines eligibility for federal need-based grants including the Pell Grant and Federal Supplemental Educational Opportunity Grants (FSEOG); subsidized federal student loans, which are based on need; unsubsidized federal student loans, which most students qualify for regardless of need; federal work-study; state-based financial aid, including grants, scholarships, and loans; school-based financial aid, including need-based grants and scholarships, and school-based merit aid (since many schools require the FAFSA to be on file before any aid awards are distributed).
To determine a family's financial need, the FAFSA asks a series of questions about the parents' and student's income and assets as well as other factors, such as how many children there are in the family. It then comes up with an Expected Family Contribution (EFC), which, by the federal government's reasoning, represents how much of the cost of college the family should be able to pay with its own resources.
In terms of assets, the FAFSA assumes that 20% of a student’s assets and 5.64% of the parents’ assets should be available for spending in any one college year. Those assets include bank accounts and investments but excludes the value of retirement accounts, life insurance policies, and annuities. Any equity in the family home is also excluded.
The confusingly-named Expected Family Contribution (EFC) will be renamed the Student Aid Index (SAI) in July 2023 to clarify its meaning. It does not indicate how much the student must pay the college. It is used by the school to calculate how much student aid the applicant is eligible to receive
The information you supply on the FAFSA determines whether you qualify for need-based aid, non-need-based aid, or some combination of the two.
If you aren't ready to fill out the FAFSA itself, you can get an estimate of your EFC and likelihood of receiving financial aid by using the office of Federal Student Aid's online FAFSA4caster.
Filling out the FAFSA will be easier starting July 2023 for the 2023-2024 academic year. The formhas been trimmed from 108 questions to about three dozen.
Here are some of the programs that require filling out the FAFSA.
Need-Based Financial Aid
Federal Pell Grants
Grants are the most attractive type of financial aid because they do not need to be repaid. Pell Grants, the main federal grants for college, are intended for students with "exceptional financial need." They are primarily awarded to undergraduates, but some teacher certification programs are also eligible. The maximum award in the 2020–2021 academic year is $6,345. A college or university's financial aid office determines how much money students qualify to receive, based on their family's EFC and the school's cost of attendance (COA).
Federal Supplemental Educational Opportunity Grants
These grants also do not need to be repaid, but they are only available at certain schools. The amounts range between $100 and $4,000 per year. As with Pell Grants, these supplemental grants are meant for students with few other financial resources.
Federal Direct Subsidized Loans
These loans are subsidized by the government, which means that will not be required to pay interest on them while you are in school and for a grace period of six months after you graduate. Loan amounts that can be subsidized range from $3,500 to $12,500 per year, depending on your year in school and whether you are considered a dependent or independent student as defined by the office of Federal Student Aid. These subsidized loans are not available for graduate study.
Federal Work-Study
The federal work-study program makes paid part-time jobs available through participating colleges and universities. Both undergraduate and graduate students may be eligible.
Federal loans, whether subsidized or unsubsidized, tend to be less costly than private loans and have more flexible repayment options.
Non-Need-Based Financial Aid
Direct Unsubsidized Loans
Unsubsidized loans are similar to their subsidized counterparts with one big exception: The government doesn’t pay the loan interest while the student is in school or during a six-month grace period afterward. If students or their parents don't pay the interest during this time period, it will be added to the principal of the loan.
Schools can offer these loans as part of a financial aid package regardless of a family's financial situation. Dependent students are eligible for a maximum of $31,000 in unsubsidized loans over their undergraduate years unless their parents are ineligible for federal PLUS loans, in which case the limit may be higher.
Federal PLUS Loans
These loans are intended for parents or graduate students. They aren't subsidized by the government, so the interest that accrues during the college years will be added to the principal if it isn’t paid while the student is in school.
Teacher Education Access for College and Higher Education (TEACH) Grants
Students who are training to become teachers can qualify for these grants—up to $4,000 per year (as of 2020–2021)—even if they don’t meet need-based criteria. To qualify, the student must take certain classes and, within eight years of graduation, have worked for at least four years in an elementary or secondary school or educational service agency that serves low-income families. These grants don't have to be repaid unless the student fails to fulfill the requirements, in which case the grant is converted into a direct unsubsidized loan.
How FAFSA Works FAQs
What Is the Point of a FAFSA?
The U.S. Department of Education uses the FAFSA application to determine a student's eligibility for need-based federal financial aid for college based upon their financial situation. Federal financial aid may include federal grants, scholarships, work-study, and/or loans.
Is the FAFSA a Loan or Free Money?
The FAFSA application is not a loan. It is simply an application that you fill out in order to determine your eligibility for receiving a federal loan. There are three main types of financial aid that a student may be deemed eligible for after completing a FAFSA application. Some of this money is free money, some must be earned through work, and some must be repaid.
When Should I Fill Out My FAFSA for 2020–2021?
To be considered for federal student aid for the 2020–2021 award year, you can complete a FAFSA form between Oct. 1, 2019, and 11:59 p.m. central time (CT) on June 30, 2021.
Who Qualifies for a FAFSA Loan?
The most general eligibility requirements to qualify for the various forms of federal student aid include that you have financial need, are a U.S. citizen or eligible noncitizen, and are enrolled in an eligible degree or certificate program at a college or career school. However, there are more eligibility requirements you must meet to qualify for federal student aid and these requirements are specific, based on the type of aid. The majority of students are eligible to receive some type of financial aid from the federal government to help pay for college or career school. The age of the student, race, and field of study are not taken into account when determining their eligibility.
The Bottom Line
Most families—regardless of how much they earn or have accumulated in assets—will find it useful to fill out FAFSA. If it turns out that they are ineligible for free money in the form of grants or scholarships, they are still likely to be eligible for non-need-based aid in the form of direct unsubsidized loans from the federal government. Federal student loans typically have more favorable terms than loans from private lenders and offer a variety of flexible repayment options.
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da32eeeba755981b10c286182a4601b6 | https://www.investopedia.com/articles/personal-finance/090915/how-much-money-do-you-need-live-las-vegas.asp | How Much Money Do You Need to Live in Las Vegas? | How Much Money Do You Need to Live in Las Vegas?
Living in Las Vegas is alluring, with its world-class nightlife, bountiful outdoor recreation and an average of 330 sunny days per year. The income you need to live in Las Vegas depends on factors that include the part of town you call home and whether you have dependents to support. Average costs for necessities such as rent, utilities, food and transportation provide an excellent place to start.
Key Takeaways Las Vegas may be known as 'Sin City', a tourist destination that features gambling, partying, and overall naughtiness. The city, however, is home to many full-time residents - some of whom work in the hospitality business, but also every other walk of life. The city's warm and dry climate is attractive and rents are reasonable compared to other medium-sized cities in the U.S.
Las Vegas Averages
The cost of rent, food and even things such as gas vary wildly in Las Vegas depending on the neighborhood. Not surprisingly, everything is more expensive around The Strip, where tourists, many of them wealthy, descend in droves with piles of money to spend on entertainment. Even on the outskirts of town, certain suburbs, such as Henderson, cost more to live in than others, such as North Las Vegas. The following figures are based on citywide averages and may end up being lower or higher depending on where you settle.
Las Vegas Average Rent
As of May 2019, the average apartment in Las Vegas rents for $1,115 per month. One-bedroom units rent, on average, for $980, while two-bedroom rentals average $1,250 per month.
Luxury apartments on or near the Strip frequently can rent for more than $3,000 per month. On the other end of the gamut, some of the least expensive apartments rent for under $750 per month. Many of these are in neighborhoods that have high crime rates or are blighted.
Las Vegas Average Utilities
Las Vegas is famous for blazing hot summers with daily highs well above 100 degrees. Many people are unaware, however, that the city can get very cold in the winter, sometimes even accumulating snow. Fall and spring, by contrast, are pleasant. As a utility customer, expect your monthly bill to vacillate significantly based on the time of year. The average utility bill for a 1,000-square-foot apartment in Las Vegas is $180 per month.
Las Vegas Average Food Costs
Food costs in Las Vegas hover around the national average. A gallon of milk costs $3.41, and you can get a dozen large eggs for $2.35. A loaf of bread costs $2.26, and $4 can buy you a pound of boneless, skinless chicken breasts. By grocery shopping in bulk and severely limiting meals eaten in restaurants, you can maintain a healthy, filling diet in Las Vegas for $400 per month or under.
Las Vegas Transportation
Driving in Las Vegas is very expensive compared to most cities. As a car owner in Las Vegas, your biggest costs, other than the vehicle itself, will be auto insurance and gas. Monthly insurance premiums run twice as much in Las Vegas compared to other cities in Nevada. Even for minimum coverage, it is not uncommon to pay $100 per month or more. Gas is similarly costly in Sin City. As of August 2019, the average Las Vegas gas price is $3.22 per gallon, which is 14% higher than the national average.
If you do not drive, a one-way bus ticket in Las Vegas costs $2, or you can purchase an unlimited monthly pass for $65.
Living in Las Vegas as a Student
Las Vegas is a big draw for college students. The nightlife is incomparable, and the weather is ideal for young, active people. With smart budgeting, living in Las Vegas as a student is possible on a shoestring budget. While rents are slightly elevated near the city's largest university, the University of Nevada at Las Vegas, you can find two-bedroom apartments for around $1,200. Apartments typically allow two residents per bedroom; sharing a two-bedroom apartment with three other students means your rent share is only $300 per month. Your utility bill is similarly divided: assuming it comes to $200, you pay $50. Add food costs of $400 per month and minimal transportation costs, since, ideally, your apartment will be close to campus, and you can cover basic necessities as a student in Las Vegas on $1,000 per month.
Living in Las Vegas as a Professional
Professionals can live in Las Vegas on a modest salary, though their living costs are almost always higher than that of students. Most professionals prefer not to have roommates and prefer to drive to their destinations.
As a Las Vegas professional, you should count on $1,100 to $1,200 for rent and around $200 per month for utilities. Your car insurance could also be as much as $200 per month. Depending on the length of your commute, monthly gas costs are anywhere from $100 to $200 or more. A professional can still keep a food budget of $400 per month, but even a few meals out on the Strip each month can blow that budget.
It is feasible to live in Las Vegas as a professional on $2,500 per month, or $30,000 per year, but it requires strict budgeting. A yearly income of $40,000 to $50,000 leaves more room for emergencies and extraneous costs, not to mention a little extra money to enjoy the city every once in a while.
Living in Las Vegas as an Unemployed Job-Seeker
Las Vegas is not an ideal city to live in when unemployed and looking for a job. The maximum weekly unemployment benefit in Nevada is $407. It is difficult enough to pay for rent, utilities and food on that amount. When you add car expenses – pretty much a necessity so you can get to job interviews – it becomes a mathematical impossibility.
As of January 2020, the Las Vegas metro area unemployment rate is 3.9%. That is significantly higher than the national rate of 3.5%, and the number does not even tell the whole story. Even if you land a job quickly, there's a decent chance that you will still end up struggling to pay the bills. Thousands of Las Vegas residents who are employed still cannot make a living because service jobs, many of which do not even pay a living wage, dominate the city.
The city's high unemployment rate and dearth of decent-paying jobs combined with Nevada's low unemployment benefit amount makes Las Vegas a poor relocation choice for an unemployed person seeking work.
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297eced7ccb320b15edbf67072cf8170 | https://www.investopedia.com/articles/personal-finance/090915/mortgage-broker-vs-direct-lenders-which-best.asp | Mortgage Broker vs. Direct Lender: What's the Difference? | Mortgage Broker vs. Direct Lender: What's the Difference?
Mortgage Broker vs. Direct Lender: An Overview
The mortgage industry is full of individuals and companies that help people get access to financing for one of the biggest investments in their lives. These entities include mortgage brokers and direct lenders. While they may provide services to people seeking mortgage loans, they are very different. A mortgage broker acts as an intermediary by helping consumers identify the best lender for their situation, while a direct lender is a bank or other financial institution that decides whether you qualify for the loan and, if you do, hands over the check.
Key Takeaways A mortgage broker brings borrowers and mortgage lenders together by acting as a middleman between the two. Direct lenders are financial institutions that approve and finance mortgage loans. Brokers can help if you want to want to shop around without the hassle of contacting multiple lenders on your own. A good place to start is a bank, especially if you have a good relationship with your financial institution.
Mortgage Broker
When a prospective homeowner is ready to shop around for a mortgage, they may decide to consult with a mortgage broker. This is a financial professional who brings borrowers and lenders together. They are not lenders and, as such, do not use their own funds to advance mortgage loans. Instead, they act as intermediaries, helping consumers comparison shop, bringing them a variety of quotes from different lenders at one time.
In order to do this, a mortgage broker sits down with their clients to assess their needs and financial situation. They gather important information and documents lenders require from the borrower including income, pay stubs, tax returns, details on assets and investments, as well as credit reports. This helps them evaluate how much a consumer can afford to borrow. Once amassed, they take this information to a bank or other lender for loan approval. Brokers are also responsible to communicate between borrowers and lenders during the application and approval process.
A good mortgage broker should be able to bring valuable information to the table, such as which lenders loan money in certain areas, which ones offer a specific type of mortgage, and which welcome or avoid applications on loans for certain types of homes such as co-ops, condos, or multi-family homes.
Mortgage brokers provide the convenience of being a one-stop-shop. This eliminates the need to visit multiple lenders to try to get the best rate and, ultimately, approval for a mortgage. And consumers won't have multiple hits to their credit reports since they only have to visit one person to secure the best loan possible.
Mortgage brokers don't advance loans but do provide a one-stop-shop with access to multiple lenders, while a direct lender is a single entity that cuts out the middleman.
Direct Lender
A direct lender is a financial institution or private entity that actually provides the loan for a mortgage. Direct lenders may be banks and other financial institutions. Some direct lenders are private companies that deal specifically with financing mortgage loans for the general public—many of which operate online. For instance, borrowers that use lenders like Qucken Loans and Loan Direct can complete and get their approvals online.
Many borrowers choose to go with a lender with whom they've already done business. Having a long-standing relationship may help secure a better—or bigger—loan amount, not to mention a better interest rate. The process of applying for a mortgage through a direct lender is the same as it is with a mortgage broker—providing documentation, filling out the application, and waiting for the approval.
Consumers cut out the middleman by going to a direct lender. Doing so may also make the loan process faster. Since the lender deals directly with the consumer, the two can communicate effectively with one another rather than having to rely on someone else to relay messages back and forth. So if a consumer has any questions during the application and/or approval process, they can go directly to the lender.
The goal is to find the direct lender with the best rate and have a backup if it doesn't come through. But there is a pitfall to choosing a direct lender. Skipping a mortgage broker may mean going through the application process with more than one direct lender. Shopping around like this can be tedious and time-consuming. It can also mean taking a hit to your credit score if you're applying with multiple lenders within a short period of time.
Key Differences
Compensation is one of the key differences between mortgage brokers and direct lenders. Mortgage brokers are paid on a fee-based schedule. In most cases, the loan origination fee charged by the bank is paid to the broker. This figure is based on the total amount of the loan, which can influence a broker's advice and research. Like some commission-based financial planners, some brokers work mainly with—or are partial to—certain lenders, which could inform the choices they offer you.
Direct lenders, on the other hand, are compensated through a variety of fees and charges. For instance, if a consumer goes directly to a lender, that entity collects the loan origination fee. The lender also makes money off the interest earned on the principal balance, late fees, and other related charges that are required during closing. Consumers can get a reasonable idea of how much they must pay the lender in the Good Faith Estimate (GFE) all lenders provide.
Special Considerations
Consumers aren't obligated in any way to choose between mortgage brokers and direct lenders. In fact, they can call both to compare their rates and judge which route they want to take.
A bank may be a good place to start, especially for those who have a good relationship with their own financial institutions. For people who don't want the hassle of contacting different banks, mortgage brokers are a better option. As mentioned above, some lenders work exclusively with mortgage brokers and some brokers work exclusively with specific lenders. This may provide borrowers access to loans which they would otherwise not even hear about. But it's always a good idea to ask what their rationale is for suggesting a specific lender.
Mortgage brokers once had a dicey reputation, so it's no surprise that many people are still hesitant to use them. They were loosely regulated and their compensation was based on the nature and size of the loan. Some persuaded borrowers to choose high-risk mortgages or to borrow more than they really needed. But increased regulation and consumer protection laws make them a good alternative for consumers who want to have someone else do all the shopping and talking for them.
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a648a09b5451a341de7481db9d48113c | https://www.investopedia.com/articles/personal-finance/090915/variable-annuities-good-retirement-investment.asp | Variable Annuities: A Good Retirement Investment? | Variable Annuities: A Good Retirement Investment?
One of the biggest worries for older investors is the prospect of outliving their assets. With many people in the developed world now living 20 or more years past retirement, those fears are often justified. That's why some individuals opt to purchase variable annuities in order to achieve a fixed stream of payments and tax-deferred growth.
All About Annuities
Annuities have long been a popular strategy for managing this so-called “longevity risk.” A standard fixed annuity is an insurance contract that allows an individual to pay premiums—either in a lump sum or by monthly installments—and obtain set income payments for life.
However, one drawback for some consumers was the modest rate of growth on contributions. Historically, the internal rate of return has been close to long-term Treasury bond yields, often in the low single digits. In other words, you’re lucky if the money you put in keeps pace with inflation.
So over the past couple of decades, the insurance industry has been more creative, coming up with an alternative product that offers greater growth potential: variable annuities. With a variable annuity, you select multiple sub-accounts, which are essentially mutual funds that invest in stocks, bonds, or other instruments. The value of your account—meaning the amount of your payments during the withdrawal phase—depends on the performance of these underlying investments.
Those who pay in for a long-enough period before making withdrawals—a time period called the accumulation phase—often do better than they would have with the fixed returns they’d otherwise receive. That’s particularly true if they select investments that suit their age and financial goals. However, if the markets take a dive, there’s also the possibility that your account could lose value.
Variable Annuities: Pros and Cons
Variable annuities share certain features with IRAs and 401(k) plans, including tax-deferred growth. As a result, you can hold off paying taxes on gains until you start receiving payouts. Like these other retirement plans, you normally can’t make withdrawals before the age of 59½ without incurring a steep 10% penalty.
Annuities may also provide benefits that other retirement vehicles don’t have, such as a death benefit for loved ones. Typically, the person you select as your beneficiary will receive either the balance of your account or a guaranteed minimum payment.
Unfortunately, annuities also have some less-appealing characteristics. Among them is less-favorable tax treatment once you hit the annuitization phase. Any growth in your annuity above and beyond your contributions is treated as ordinary income. If you’re in a higher tax bracket, that aspect alone can take a huge bite out of your earnings.
Further eroding your account are the notoriously high fees that insurance companies charge their annuity customers. You’ll really feel the squeeze if you take money out of the policy within the first few years and incur a surrender charge. The amount of this fee is usually based on the amount you withdraw, with the percentage gradually decreasing over a period of several years. For example, taking funds in year one may incur an 8% charge, while a withdrawal in year eight only takes a 1% hit.
Figure 1. Example of surrender charges associated with a variable annuity
Image by Sabrina Jiang © Investopedia 2020
Even if you don’t take money out during the surrender period—anywhere from six to 10 years after signing up, depending on the annuity—you still face pretty stiff annual fees. These can include:
Mortality and expense-risk charges: These offset the risk that the insurer’s customers will live longer than expected.Underlying fund expenses: These cover the cost of managing funds within the annuity.Administrative fees: These compensate the carrier for record-keeping and other expenses associated with servicing the contract.
According to the Financial Industry Regulatory Authority (FINRA), these yearly expenses can easily total 2% or more of the annuity’s value. And if you’re looking for additional features with your variable annuity, such as a guaranteed-minimum-income benefit or a stepped-up death benefit, you’ll probably confront even higher fees.
By contrast, many investment companies offer no-load or index funds with fees less than 0.50%. Even actively managed funds look comparatively cheaper, with average expense ratios of around 1.25%.
When Variable Annuities Can Make Sense
Because of the additional costs that annuities tend to incur, experts generally advise against putting these contracts inside an IRA or a 401(k). These plans already offer tax-deferred growth; there’s no point in doubling up on this benefit.
Where variable annuities may be worth a look is if you’ve maxed out your contributions to other tax-advantaged accounts. If that’s the case—and you want the peace of mind that lifetime payments provide—these insurance contracts merit some consideration. Your best bet is searching for one with relatively low costs from an established company with a strong financial rating from agencies such as A.M. Best and Moody’s.
The Bottom Line
On the surface, variable annuities look like an attractive way to plan for retirement, with tax-deferred growth, payouts for life, and even a death benefit for your family. However, because other retirement accounts, such as IRAs and 401(k)s, offer the same tax-deferred growth with lower fees, most people will probably want to start there.
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4eac4c8f6d0df93c01874de1148651a1 | https://www.investopedia.com/articles/personal-finance/091014/who-needs-life-insurance-who-doesnt.asp | Who Can Skip Buying Life Insurance? | Who Can Skip Buying Life Insurance?
Life insurance is tricky. There are scenarios in which it’s vital to your family, but there are also instances when it may no longer be needed. If you have term life insurance, there may be a time when having it no longer makes sense.
Cash-value policies, on the other hand, accumulate value and provide the coverage you won’t outlive, as long as you keep up the premiums. Whole life, variable life, and universal life are three of the flavors you can choose. Even cash value insurance shouldn't just sit there, however.
Not everyone needs life insurance. Those who’ve accumulated enough wealth and assets to care for their own and their loved one’s needs independently in the event of their death can forgo paying for life insurance, especially if it's a term policy. On the other hand, there are people whom experts say should never be without life insurance; these groups of people are listed below.
Key Takeaways Life insurance is not for everyone, but some individuals and circumstances make having life insurance a smart idea. If an individual has accumulated enough wealth to take care of their family upon their passing, then life insurance may not be necessary. Couples that have built a life together should have life insurance in case one of them passes away so that the other can maintain the same quality of life. Homeowners should take out life insurance so that the proceeds of the policy can go towards paying the mortgage. People with children are strongly recommended to have life insurance so that the needs of the child and remaining living spouse can be taken care of. Business owners and those who want to pass down a financial legacy are also advised to purchase life insurance.
Couples
Whether you’re just married, domestic partners, or celebrating your 20th anniversary, you and your significant other have planned a life based on a certain income level. Unless each of you is able to maintain that income level on your own, it’s important to have life insurance to prevent a drastic change of lifestyle when one of you dies.
This is true even when you're both still employed if both partners hold jobs. Some spouses or partners may want or need to take an extended break from work following the death of their loved one.
Life insurance affords that chance to grieve or readjust to new life circumstances, says Jason Tate, ChFC, CLU, CASL, owner of Jason Tate Financial Consulting in Murfreesboro, Tenn.
Mortgage Holders
A home mortgage is one of the largest assets and liabilities on a person's personal balance sheet. If a homeowner dies before the mortgage is paid off, beneficiaries and the lender can be protected by the proceeds of a life insurance policy, says Tate. “The lender wants to know that the mortgage payment can be covered and the beneficiaries need the ability to keep the house payment paid and prevent the second tragedy of being forced out of their home while grieving.”
New Parents and Parents of Minors
A new baby is a source of pride and excitement. It’s also a tiny person who, for the next 18 years or more is financially dependent on you.
“At the core of that is the responsibility for both parents to provide for a surviving spouse and child or children,” says Tate. “Life insurance provides tax-free money to surviving spouses or guardians and children for income replacement or debt payoff, which allows the family to maintain their current lifestyle.”
Life insurance planning should look beyond a child’s first 18 years, Tate emphasizes. Parents wanting to provide for their children’s college education in the event of their passing should consider that expense when determining the amount of life insurance to purchase.
Minor Children
The loss of a child could be very devastating for a family and have parents wanting, or needing to take time off of work. On top of that emotional toll, there are funeral and burial costs to deal with. “It’s uncomfortable for parents to imagine, but families should be protected with life insurance in the event of the tragic premature passing of a child,” says Tate.
Many times a minor child can be added to an adult's policy via a child rider endorsement at a low cost. “That rider can typically remain in effect until the child reaches age 18,” says Tate.
Other policy alternatives include purchasing a whole life policy that a child can have for the rest of their life. “That provides insurability guarantees regardless of health,” says Tate.
Parties to a Divorce
A trip down the aisle rarely includes plans to uncouple. But should it happen, don’t be surprised if the judge or mediator suggests both spouses purchase life insurance on themselves for the benefit of the other spouse if minor children or financial responsibilities exist post-divorce.
The majority of individuals who are single, financially independent, have no dependents, and do not own a business, do not need life insurance.
“The policy coverage might extend for a certain period, making term insurance an appropriate fit for the situation,” says Tate.
Business Owners and Partners
A new business comes with inventory, investment, and, many times, debt. “In order to provide solvency, business owners must protect their personal and business interests with life insurance in the case of a premature passing of an owner,” says Tate. Insurance on the owner could help the surviving spouse weather the transition until the business can be continued or sold.
If you have a business partner, that person is the equivalent of your professional spouse. Just like your domestic partner, business partners need to be protected with life insurance in the event of the other’s demise, Tate explains. Insurance should cover each partner and establish how a transition will occur if one of them dies.
“When a business partner passes away, money helps purchase the remaining stock or business interest from the deceased's estate or family. This assures business continuity for business customers, and creates an estate that immediately establishes value on the asset for the deceased's estate,” says Tate.
Those Wanting to Leave a Financial Legacy
Generous relatives who want to pass on money to their beneficiaries for legacy purposes should purchase life insurance. Whether grandparents want to provide for their grandchildren’s education or an individual wants to fund medical equipment for a local hospital, life insurance can provide money to beneficiaries, usually tax-free, according to Tate.
The Bottom Line
There are many good reasons to carry life insurance though it's not a must for everyone. It's important to take stock of your financial and life situation and determine what is in the best interest for you and your family.
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013fbcd7b113a73deb793b21f46be36f | https://www.investopedia.com/articles/personal-finance/091015/millennials-guide-picking-right-car-insurance.asp | Millennials Guide: Picking the Right Car Insurance | Millennials Guide: Picking the Right Car Insurance
“Car insurance? Nah, I don’t need that.” If you’ve ever spoken these words, there's a good chance you might be a Millennial. In fact, only 64% of Americans ages 18 to 29 have auto insurance, compared with an average of 84% for all older drivers, according to a survey commissioned by insuranceQuotes.com.
Of course, this doesn’t come as a surprise. The Millennials are generally an optimistic and sometimes overconfident group. “I’m an awesome driver! Nothing will ever happen to my car.” However, the odds are something will happen to your car – and when it does, you’re going to have to fork over some serious dough.
Traffic Accidents and Insurance
According to the National Highway Traffic Safety Administration, there were nearly 6 million police-reported traffic crashes in the U.S. in 2013 – not to mention an estimated 10 million unreported car accidents. To make matters worse, these crashes are costing drivers a lot of money. In 2013, the average collision claim was $3,144. Could you afford to pay that amount out of pocket?
Look, we get it. Car insurance isn’t the most exciting way to spend your money. Collision coverage doesn’t offer instant gratification like a brand-new iPhone and shelling out for liability insurance takes a bite out of your travel budget. But car insurance is not only smart; in most states, it’s a legal requirement.
(See also, Beginner's Guide To Auto Insurance).
Even with excellent driving skills, accidents happen. What if an oak tree falls on your parked truck? What if your hybrid is crunched in a highway pileup? Without auto insurance, an accident like this could catapult you into financial hardship. It's essential to think of car insurance as being worth your while, so keep reading to figure out what type of coverage you need.
(See also Top Tips For Cheaper, Better Car Insurance).
Uninsured/Underinsured Motorist Coverage
If your car is struck by a hit-and-run driver or someone who doesn’t have auto insurance, uninsured motorist coverage will pay for your vehicle repairs. It also covers any medical bills, pain-and-suffering costs and (worst-case scenario) funeral expenses for any passengers in your car. This type of coverage is mandatory in some states.
Collision Coverage
This is exactly what it sounds like: If you’re in a car collision, this coverage helps pay for your vehicle repairs. If the repairs add up to more than the value of your car, your insurance company will probably cut you a check for the total value of your vehicle instead of paying for repairs. If you have a brand-new – or relatively new – car, collision insurance is a must-have.
Bodily Injury Liability Coverage
If you’re in an accident that causes injury to others, this insurance covers medical treatment, rehabilitation costs, funeral expenses, legal fees, and pain-and-suffering costs. It covers your passengers, as well as drivers and passengers in other cars and injured pedestrians. This type of coverage is mandatory in most states, and minimum limits vary from state to state.
Property Damage Liability Coverage
If you cause a car accident, this not only covers the damage you cause to other cars – it also covers property damage. Let’s say you swerve to miss a dog or a deer and slam into someone’s fence. Property damage liability coverage will help pay for the fence repairs or replacement. However, this coverage rarely covers damage to your own car. To pay for those damages, you’ll need collision coverage.
Like bodily injury coverage, property damage liability is mandatory in most states and the minimum required coverage limits vary from state to state. For example, the minimum coverage in Florida is $10,000, but in Ohio, it’s $25,000. However, these required minimums generally aren’t enough coverage to fully protect you – especially when you consider the average cost of a new car is $33,560, according to Kelley Blue Book. Talk to your insurance provider to discuss how much property liability coverage you need.
Comprehensive Coverage
When you see the word “comprehensive,” you may assume this is all the coverage you’ll need since it obviously covers everything. But that’s actually not the case. (Yes, car insurance terms can be misleading.)
Comprehensive insurance pays for any damage to your car that isn’t caused by a collision. That includes theft, vandalism, riots, fire, natural disasters (think hurricanes, floods, and tornadoes), damage caused by animals (you hit a deer) and falling objects (think objects flying off the back of trucks on the highway or trees collapsing on your car.) This insurance also pays if your car and/or its contents are stolen. Many lenders require this type of coverage. If you still owe money on your vehicle or you’re leasing a car, check with the lender to see if comprehensive coverage is a requirement.
Rates of New vs. Old Cars
You may presume new cars are more expensive to insure since they are usually worth more. However, this isn’t always the case. Insurance for new cars is often affordable because these vehicles are designed with advanced safety features. Car insurance rates are determined partly by the expected damage to your car. When your car includes more modern safety features, it’s less likely that your car will be damaged in a crash, which is a factor in lower rates.
At the same time, if you own a much older vehicle that’s already paid off, you may not need a lot of insurance. While you’ll probably need to purchase liability coverage (especially if it’s mandatory in your state), collision and comprehensive coverage may not be worth the expense – especially if you could afford to repair or replace your car. If your car is worth $5,000 or less, the premiums you'll pay over time will probably exceed the payout, even if your car is totaled.
(See also, How Insurers Decide Your Auto Insurance Rate).
Car Insurance when Leasing
If you’re leasing a car, the dealer may require you to purchase gap insurance. In the event that you’re involved in an accident or your car is stolen, this coverage pays the difference between the value of the car and the amount you owe on the lease. Some leases include this coverage without additional fees, so read through your leasing contract carefully before you purchase this coverage on your own.
You may also be required to maintain collision and liability insurance on a leased car. After all, your vehicle belongs to the lease company – and it obviously wants to make sure its investment is covered if the car is damaged or stolen. Again, read through your contract and ask your leasing company about insurance requirements and minimum coverage limits.
(See also, Get Up To Speed On Car Gap Insurance).
The Bottom Line
If you own a car, lease a car or even drive someone else’s car, auto insurance is a must-have. Not only are certain types of coverage mandatory in most states, but the right type of auto insurance could protect you from financial disaster if your car is stolen, damaged or, even worse, if you cause a crash that injures you or others.
While you definitely need to buy car insurance, don’t overpay for coverage you won’t use. Look up your state’s coverage requirements and figure out what type and how much coverage you need based on the age of your car, your driving habits, and your current financial situation.
It's important to shop around to get the best deal. Request quotes from multiple auto insurance companies and finds the policy that works best for you and your budget. If you're under age 25, comparison shopping is especially important because you will likely pay more for insurance than your older friends or family members, especially if you're a male, as young men statistically have more accidents.
(For more tips on car insurance for younger drivers, see Cheap Car Insurance For College Students.)
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556ee1173d20e053d53200f7ad35e79f | https://www.investopedia.com/articles/personal-finance/091015/retirement-tips-how-choose-best-ira-custodian.asp | Retirement Tips: How to Choose the Best IRA Custodian | Retirement Tips: How to Choose the Best IRA Custodian
There are several types of individual retirement accounts (IRAs), but they all have one thing in common. By Internal Revenue Service (IRS) decree, they must have a custodian. Basically, an IRA custodian is a financial institution that holds your account's investments for safekeeping and sees to it that all IRS and government regulations are adhered to at all times.
Custodians aren't hard to find. But to choose the best one for you, you first have to decide which sort of IRA you need and the type of investments you wish to make with it.
Traditional IRAs vs. Roth IRAs
The two main types of IRA accounts set up by individual investors are the traditional IRA and the Roth IRA. Both allow the money within the accounts to grow free of income tax.
Key Takeaways To find the right custodian you need to first decide which sort of IRA you need and the type of investments you want to make.Self-directed IRAs require a different type of custodian than typical traditional and Roth IRAs, because they allow for investments beyond stock, bonds, and funds.Features good custodians offer should include a wide range of investment options, low fees, good customer service, and a user-friendly web site.
The basic difference is that a traditional IRA reduces your taxable income in the year you make them, deferring any tax payments until you starting withdrawing funds years later. In other words, this type of IRA is tax-deferred.
With a Roth, there is no tax break on the sums you invest but no taxes are owed when you take the money out at retirement. In addition, there are no taxes owed on earnings in most cases.
Self-Directed IRAs
With both traditional and Roth IRAs, you can opt to have the account managed (that is, the custodian makes most of the investment decisions) or self-directed. A self-directed IRA is an IRA in which you choose the funding methods and instruments and it allows for expanded investment options.
Because self-directed IRAs allow for a variety of investment options, they can provide greater diversification than standard IRAs.
Technically, any IRA in which you make all of the investment decisions is “self-directed.” In the financial services industry, however, a self-directed IRA typically means an IRA in which the custodian allows you to invest outside the more traditional world of stocks, bonds, mutual funds, and exchange-traded funds (ETFs).
For example, you can invest in real estate, either through a real estate investment trust (REIT) or in actual physical property. Other options include a closely held business, precious metals, and even private mortgages.
Types of Custodians for Standard IRAs
If you are going the non-self-directed IRA route, a number of different financial institutions are available to serve as custodians, once you've established your account with them.
Banks
A bank is an option if you want to enjoy the FDIC-insured security of CDs or money market funds within an IRA. In general, however, banks don’t get particularly high marks for IRAs because most do not offer many investment options outside of the aforementioned vehicles. Those that do offer broker-type services often charge higher fees than brokerages.
Insurance Companies
An insurance company often sells flexible premium annuities as its basic IRA. They can be either fixed or variable and offer account value protection, death benefit options, and automatic account management. However, IRAs are already tax-advantaged, so the tax advantages of annuities are not necessary within an IRA and you may pay hefty fees for having one.
Mutual Fund Companies
A mutual fund company allows you to invest in mutual funds or ETFs offered by the firm.
Brokerage Firms
A brokerage could be your IRA entity of choice, if you like the idea of investing in individual stocks or bonds, as well as mutual funds or ETFs.
Robo-Advisors
A relatively new entity, Robo-advisors are online investment platforms that provide automated, algorithm-based portfolio management advice. Because these platforms are automated—meaning no human interaction is involved—costs, fees and other expenses that can eat into the IRA's rate of return are lower.
Custodians for the Self-Directed
If you decide to go the self-directed route, things can get more complex. There are three types of providers for self-directed IRAs: custodians, administrators, and facilitators. Of the three, custodians alone are directly approved by the IRS and authorized to hold assets.
Administrators and facilitators act as intermediaries between you and a partner custodian that actually holds the assets. Therefore, if you intend to open a self-directed IRA, it’s best to stick with a true custodian.
When it comes to custodians for self-directed IRAs, all the aforementioned institutions theoretically could serve. But if you're intrigued by any of the non-traditional investments open to self-directed IRAs, you need to be especially careful in your choice of custodian. It’s far too easy to violate IRS rules and regulations, and the penalties for doing so can be severe.
You'll want a custodian that's aware of the types of holdings the IRS prohibits, even for self-directed IRAs, such as collectibles and alcoholic beverages. For more on prohibited types of IRA investments, and other triggers for penalties or additional taxes, see this section of IRS Publication 590.
Features of the Best Custodians
When its time to choose a custodian, these are the features to be aware of:
Wide Investment Selection
The greater the selection of investment options, the better. This applies to all types of investments, but especially to individual stocks and bonds as well as mutual funds and ETFs. If you are a self-directed IRA investor, look for non-traditional investment opportunities including real estate or privately-held companies.
Low Fees
Fees come in many shapes and sizes and include annual account maintenance fees, loads (for mutual funds), and commissions charged for making trades. Just because one custodian charges a specific type of fee does not mean all do. Maintenance fees, for example, are not a given. One important area, if you are considering mutual funds, is to look for a custodian that offers a variety of no-load mutual funds.
Good Customer Service
Unless you're comfortable with a robo-advisor, the availability of knowledgeable specialists to answer your questions—online or by telephone—is very important. Nothing is more frustrating (especially if you are managing a self-directed IRA) than receiving incomplete or confusing answers to your questions.
User-Friendly Website
Make sure the website is easy to use and that you can monitor your investments and make transactions efficiently. Even without committing to investments, you should be able to navigate the custodian’s online site extensively enough to determine if it is a comfortable fit for you.
Consolidation Savvy
If you already have multiple IRA accounts, some experts advise that you consolidate them into a single account and custodian if possible. This means seeking a custodian that is knowledgeable about the rules regarding consolidation and understands which types of IRAs cannot be combined.
Restricted Investment Options
Watch out for custodians that restrict your investment options because of the nature of their charter. It's important to note that IRA custodian restrictions are not the same as IRS restrictions on IRAs themselves or rules based in tax law.
The Bottom Line
When opening an IRA, it’s important to ask yourself several questions before choosing a custodian. Do you prefer a traditional or Roth account? Or both? Are you happy investing in CDs, mutual funds, stocks, and bonds or do you yearn for the more adventurous options available with a self-directed IRA?
Once you’ve made those decisions, it’s time to consider custodians and factors that distinguish one from another such as investment options, fees, and customer service.
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3eec3a9d67b7d622427ad447578c3c5f | https://www.investopedia.com/articles/personal-finance/091115/psychology-behind-why-people-buy-luxury-goods.asp | The Psychology Behind Why People Buy Luxury Goods | The Psychology Behind Why People Buy Luxury Goods
For many people, buying a luxury handbag is not an uncommon purchase: perhaps just as common as buying a blouse at Target Corporation (TGT). While the appeal of luxury goods is undeniable—the leather is soft, the logo is flashy—the price tag can be off-putting. Unless you’ve got a good job with a high salary, or have developed fantastic personal savings habits, buying luxury consumer goods can be cost-prohibitive (or create a credit card balance that isn't easy to pay off).
Key Takeaways Unless you’ve got a good job with a high salary, or have developed fantastic personal savings habits, buying luxury consumer goods can create an undue financial burden.Many consumers who buy luxury goods are not in a financial position to be able to afford luxury goods; one way to explain this is that many consumers do not act rationally, or in a way that is in their best financial interest.Because some people perceive non-luxury goods as inferior simply by virtue of them being non-luxury, they also come to the conclusion that higher priced goods are of better quality (contrary to any evidence about their actual level of quality or durability).For some consumers, a luxury good can go a long way in increasing self-esteem or providing a sense of belonging.A sense of accomplishment is another reason why some people buy luxury goods.
Some Consumers Do Not Act Rationally
Consumers don’t behave rationally all of the time. A perfectly rational person would always act in accordance with reason or logic; in other words, a perfectly rational person would always act in their own best interest (including in their own best financial interest).
However, numerous modern behavioral psychology studies have revealed that humans don't always act rationally. And many consumers who buy luxury goods are not in a financial position to be able to afford luxury goods. The proof of this may be in the high rates of consumer debt that many Americans have. Depending on how you look at it, this phenomenon may be evidence that many Americans don’t always act in their best financial interest.
While a high-quality, durable handbag can be purchased for around $100, some people opt instead to spend thousands of dollars on a luxury-brand handbag that performs the same function and is of the same relative quality.
Are Higher-Priced Goods Really of Higher Quality?
One possible explanation for this is the human tendency to overemphasize the positive elements of a product and ignore its disadvantages. For example, in the case of Apple Inc. (AAPL), consumers wait overnight for new releases of iPhones, iPads, and Mac computers. This despite the fact that Apple products are not technologically unique or superior.
In fact, Samsung makes phones with better features (compared to most models of the iPhone), and Microsoft Corporation (MSFT) and Xiaomi make phones that typically have a cheaper price point. Nevertheless, Apple experiences a high degree of brand loyalty and seems to break sales records year after year.
Because some people perceive non-luxury goods as inferior simply by virtue of them being non-luxury (and not on the basis of their characteristics or qualities), they also come to the irrational conclusion that higher priced goods are of better quality. Contrary to the evidence, they may believe that you get what you pay for, regardless of whether the goods are actually better than their more affordable counterparts.
Self-Esteem May Impact a Person's Purchases
In some cases, low self-esteem can be a factor that influences whether or not a consumer purchases luxury goods, especially if they can not easily afford the cost of luxury items. For some consumers, a luxury good can go a long way in increasing self-esteem or providing a sense of belonging.
With the rise of online shopping, a $500 scarf is just a click away. For some people, luxury goods are the ultimate retail therapy. Fortunately for luxury brands, the Internet has made them easily accessible for impulse shopping.
A sense of accomplishment is another reason why some people buy luxury goods. They want to reward themselves for their hard work by treating themselves to something they typically could not afford.
Authenticity Matters
There’s a reason why people may decide to pass up a fake Rolex in order to pay full-price for an authentic one (even if they look identical). Despite appearing the same, the owner will know that they don't have a real luxury good.
This doesn't appear like a rational choice: If we buy luxury goods to show off to others and to feel like we belong, why wouldn’t a facsimile do the trick?
Researchers at Yale have determined that this quest for authenticity develops early in childhood. A study that tried to convince children that a cloning machine had produced their favorite toy found that most children refused to accept the duplicate as identical. It turns out that the sentimentality of the item—the memory or feeling that comes from having purchased a genuine luxury good—is part of the reason that we seek authenticity.
In other words, for some people, treating yourself to a pair of fake Christian Louboutin brand boots would be the same thing as having not treated yourself at all.
The Bottom Line
People buy luxury goods for a variety of reasons; nearly all of these reasons are related to the strong emotions that we attach to the purchase of expensive material goods. Whether or not a consumer is in a financial position that allows them to be able to purchase a financial item, they may decide to purchase it anyways in order to achieve a certain feeling—for example, a feeling of accomplishment from hard work—or to gain acceptance from others.
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e8cad597ce4e463d43e1603ce71100f0 | https://www.investopedia.com/articles/personal-finance/091415/5-financial-prerequisites-buying-house.asp | 6 Financial Prerequisites for Buying a House | 6 Financial Prerequisites for Buying a House
Whether you’re in a buyer’s or a seller’s market, you'll want to buy a home as soon as you come across the right one. But it's not always that simple. There are many financial issues that will determine whether you'll be able to purchase the house, as well as the terms of your mortgage.
Understanding this information well in advance may help you make better decisions and will make your mortgage approval process to go smoothly and quickly.
Read on to find out more about how you'll need to be positioned financially before you sign your real estate contract.
Key Takeaways Make sure you have a sizeable down payment to put down on your new home.Shop around for an affordable interest rate.Ensure you have an acceptable credit score and a debt-to-income ratio below 43% before you apply for a mortgage loan.Pay your closing costs immediately.Ask the lender what documents you'll need to ensure there are no problems with your application.
A Sufficient Down Payment
Make sure you have enough liquid capital saved up to put down on your new home. Your dream of homeownership can quickly get dashed if you can’t provide an adequate amount of money for your down payment.
“Lenders have tightened the requirements since the economic crisis in 2008,” says Karen R. Jenkins, president and CEO of KRJ Consulting. “As a result, prospective borrowers seeking to purchase a home must have some ‘skin in the game’ to qualify for a home.” According to Jenkins, most loan programs, including an FHA mortgage, require a minimum down payment of 3.5% of the purchase price.
You may have known people who purchased homes in the past without a down payment or you may have even been one of those people. That's a much less likely scenario today, as banks are trying to limit the risk of borrowers defaulting.
For example, when real estate values go down, a borrower who puts their life savings into that property is more likely to hang on and ride out the storm, waiting for property values to rise again. “A borrower with skin in the game is less likely to default when the going gets tough,” according to Stacey Alcorn, owner and Chief Happiness Officer at LAER Realty Partners.
An Affordable Interest Rate
There's a very good chance that you'll pay tens of thousands of dollars in interest alone over the life of your mortgage. That's why it's so important to find a loan with a low-interest rate. This can save you thousands of dollars in the long-term.
Make sure you shop around. Don't sign with the first lender that gives you a quote. Start off by checking with your own financial institution. You may be able to get a competitive rate because you already do business with them. And don't rule out credit unions, small community banks, and even online lenders. The more lenders you check, the more likely it is that you'll get a really good rate.
A great tool for researching and comparing interest rates is a mortgage calculator. This tool gives you an idea of your potential costs before you even meet with a mortgage broker.
A Minimum Acceptable Credit Score
Your FICO score reflects your ability to repay your debts. Maxing out your credit cards and paying your bills late can be another financial stumbling block for potential homeowners who need a mortgage. If you have a bad credit score or, even worse, no credit history at all, there's no way you'll qualify for a mortgage.
FICO scores offer the bank insight into your ability to pay your monthly bills and how much overall debt that could potentially impact mortgage payments down the line. But what is considered an acceptable FICO score? It can often be difficult to assess because it varies based on which lender you ask.
Amy Tierce, a senior loan officer with Radius Financial Group, notes that although the Federal Housing Administration (FHA) offers financing options to borrowers with a credit score as low as 500, most lenders have their own requirements. So it will be a challenge to find a lender who'll work with a borrower with a credit score below 640.
However, maxed-out credit cards aren’t your only concern. “If you are consistently 30, 60, or 90 days late on your other bills, your credit scores will again be low, and banks don't want to lend money to someone they will have to beg for their money constantly,” Alcorn says.
Your Debt-to-Income Ratio
Homeowners who overextend themselves may end up eating ramen noodles every day in a house they may eventually lose. This is why it's important to be realistic about what you can afford. You can figure this out by adding up all your monthly debt payments and dividing that figure by your gross income each month.
You can calculate your debt-to-income ratio by dividing the total amount of your monthly debt payments by your gross monthly income.
"Banks use a debt-to-income ratio (DTI) to determine if a borrower can afford to purchase a home,” Alcorn says. “For example, let's say a borrower earns $5,000 per month. The bank doesn't want your total debt, including new mortgage payment, plus your car payments, credit card payments, and other monthly obligations, to exceed a certain percentage of that income.”
The Consumer Financial Protection Bureau has rules stating that the debt-to-income ratio cannot exceed 43%.
But Alcorn warns that just because the bank feels you can afford a particular mortgage payment doesn't mean you actually can. “For example, the bank doesn't know that you have a large family, or childcare costs, or aging parents that you’re caring for. It's important to have a candid conversation about your monthly payments with your mortgage team so that you don't get in over your head," says Alcorn.
Being Able to Pay Closing Costs
There are a number of fees associated with a home mortgage, and you could be in for a rude financial awakening if you don’t know what to expect in advance.
Although closing costs vary from lender to lender and from state to state, “borrowers pay for the appraisal, credit report, attorney/closing agent fees, recording fees, and processing/underwriting fees,” Alcorn says, adding that closing costs are usually 1% of the loan amount.
However, the fees could account for as much as 3%, and lenders must provide borrowers with a comprehensive good faith estimate of the fees you may incur on a specific type of loan.
The Required Financial Documentation
Making sure you have all your ducks in a row before you apply for your mortgage will help the process go much smoother. Insufficient documentation can delay or even stop the loan approval process altogether, so you need to find out what you have to bring to the table.
“Your lender should have a full and complete checklist of required documentation to support your loan application depending on your employment and income situation,” Tierce says. “If you are starting with a pre-approval, be sure that the lender asks for all documentation for the process since a pre-approval without thorough documentation review is useless. Something can be missed that could result in your loan being declined later if the pre-approval process is not extremely well documented.”
What is pre-approval? According to Jenkins, it's "preliminary approval based on what the borrower stated on the application—income, debt, assets, employment, etc. The actual approval process validates the income, assets, and debt using various methods such as pay stubs, tax returns, bank statements, W2s, and employment verifications.”
Tierce adds that “in competitive markets, sellers and realtors won’t even consider an offer without knowing that the buyer is pre-approved.” Additional documents could be requested at a later date or throughout the process. “The underwriting process is exhaustive, and some documents may bring up questions or concerns that require additional documentation. Just take a deep breath and give the lender everything they ask for, as quickly as possible, to get your approval completed.”
The Bottom Line
Before you can think about buying your dream home, you need to be sure that your finances are in order and that you've prepared wisely and thoroughly before the mortgage-approval process even begins.
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9b00eb72cac499e2d5564187637432e8 | https://www.investopedia.com/articles/personal-finance/091415/how-much-money-do-you-need-live-los-angeles.asp | How Much Money Do You Need to Live in Los Angeles? | How Much Money Do You Need to Live in Los Angeles?
As the second-largest city in the United States, Los Angeles attracts residents from across the country and around the globe. As the epicenter of the multibillion-dollar entertainment industry, the city is a magnet for aspiring actors, directors and screenwriters. With idyllic weather year-round, beautiful beaches and a diversity of scenery, it is possible, during some months, for an Angeleno to snow ski in the morning and surf in the afternoon.
The Economics of Los Angeles
Los Angeles is a perfect study in how the demand curve works. When the demand for something is high, prices rise. There is plenty of demand to live in Los Angeles. As a result, everything including rent, food, gas, and utilities is expensive. When considering a move to LA, the first order of business is understanding how much money it is going to take to pay the bills.
The following information is detailed in averages, but keep in mind Los Angeles is a huge, sprawling city. Prices vary wildly depending on where you plant roots. Rents in Santa Monica are not comparable to rents in South Central L.A. By understanding the average cost of rent, utilities, food and transportation in Los Angeles, and then making adjustments based on your unique circumstances, you can narrow down the range of how much money you need to live there.
Average Rent in Los Angeles
As of Sept. 2020, based on figures from Numbeo.com, the average cost for a one-bedroom apartment in the city center sits at approximately $2,230 per month. If you are looking to get roommates, a three-bedroom apartment averages over $4200. The good news is that while these averages may seem scary to a new resident, they are skewed upward by the presence of extravagant luxury rentals in the wealthy areas of town. You can find plenty of Los Angeles rentals for under $1,800 per month if you go outside of the city center, though it is advisable when you find something that seems cheap for the area to investigate the neighborhood and the apartment to ensure it is somewhere you are willing to live.
Average Home Cost in Los Angeles
If you can afford to buy in Los Angeles, prepare yourself for stiff competition and high prices. According to real estate website Zillow, the average cost of an LA home is hovering at $764,528. If you're considering buying in the LA area, it is beneficial to get pre-approved for a mortgage as this will assist you tremendously when closing a deal with the seller. You can research current mortgages available for a home in L.A. using a tool like a mortgage calculator.
Average Utilities in Los Angeles
Like many parts of California, the Los Angeles region does not have a monolithic climate. Several micro-climates comprise the area. For example, the San Fernando Valley regularly reaches the triple-digits during the summer and can be quite cold for Southern California during the winter. Malibu, by contrast, rarely exceeds 80 degrees and has only dipped into the 30s a handful of times. Your utility bill can vary greatly based on the specific climate in your neighborhood. Citywide, the average utility bill is nearly $200 per month for a 915 square foot apartment. This figure fluctuates throughout the year and will vary according to the size of your home, but you can use it as a benchmark.
Average Food Costs in Los Angeles
Food in Los Angeles is significantly more expensive than the national average. A gallon of milk costs $3.80, and a loaf of bread costs $3.34. A dozen large eggs is $3.45 and 16 oz. of cheese is $5.77. For a pound of boneless, skinless chicken breasts, the cost is $5.42. Even a frugal consumer, to be safe, should build $500 into his monthly budget for food costs in Los Angeles.
Average Transportation Costs in Los Angeles
Los Angeles is the epitome of a car-centric city. Driving is almost a necessity. City residents who attempt to live car-free find out very quickly that it is an exercise in extreme and constant frustration. Bus lines are erratic, and unlike Manhattan, most parts of L.A. are not conducive to standing on the sidewalk and hailing a taxi. While the Metrolink offers commuter rail service in Southern California, it is nowhere as expansive or sophisticated as public rail transportation in cities such as New York and San Francisco. The service is also expensive; local round-trip commutes often cost more than $20 for a single trip.
As a car owner in Los Angeles, your biggest expenses, apart from the vehicle itself, are auto insurance and gas. Insurance costs vary greatly based on your ZIP code, in particular, its crime rate and level of congestion. The average rate for the metro area is $1184 per year for liability only and $85 per and $541 per year for comprehensive and collision. For male drivers, particularly young ones, rates could be higher.
Gas prices are exorbitant in Los Angeles. As of 2020, a gallon of gas averages $3.74, which is greater than California's average and the national average. Moreover, the city's legendary traffic gridlock means drivers burn through a tank of gas more quickly than in most other cities.
Living in Los Angeles as a Student
Los Angeles is home to several prestigious universities and, as a result, attracts many students to the area. Rentals situated close to universities are pricey, once again due to supply and demand, but you can lower your costs significantly by sharing a place with several roommates. For example, splitting a three-bedroom unit could lower your rent costs down to $1,000 or less, depending on the cost of the unit. Roommates also enable you to split your utility bill four ways.
It is still advisable to expect $500 per month in food costs, even if you eat college-student cheap. On the bright side, living within walking distance of campus mitigates transportation costs significantly.
Living in Los Angeles as a Professional
Living in Los Angeles as a professional usually means eschewing the roommate lifestyle and having a car to commute to work. These two changes alone make the city far more expensive than it is for a student. As previously stated, the city's average rent is around $2,230 and utilities average $200. Limiting food costs to $500 per month allows for a healthy, filling diet but not for eating many meals at restaurants. For transportation, count on $160 per month for car insurance and at least that much for gas, given the city's sprawl and congestion. Unless you own your vehicle outright, building room in your budget for a car payment is necessary.
On a monthly income of $3,500, which is $42,000 per year, you can probably meet your basic necessities, but your budget is stretched to the limit, and an unexpected expense, such as a car breakdown or medical issue, puts you in the hole quickly. Therefore, a yearly income of $50,000 or greater is recommended to be financially secure as a professional in Los Angeles.
Living in Los Angeles as an Unemployed Job-Seeker
Because it is a huge city, Los Angeles features bountiful employment opportunities. For this reason, the area attracts job-seekers from all over. However, it is a tough city for an unemployed person to survive financially. The state of California caps weekly unemployment benefits at $450, an amount well under what is needed to sustain even a bare-bones lifestyle in Los Angeles. Furthermore, while the city has a lot of jobs, plenty of competition exists for those jobs. Put simply, a move to Los Angeles with no job is inadvisable unless you come with at least six months of living expenses, or about $20,000, in the bank.
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e74ccd0b991c3d192d66b57cb58b0297 | https://www.investopedia.com/articles/personal-finance/091415/leasing-yacht-stepbystep-guide.asp | Leasing a Yacht: A Step-by-Step Guide | Leasing a Yacht: A Step-by-Step Guide
As the saying goes: “A boat is a hole in the water into which you throw money.” Indeed, yachting can be an expensive hobby, where purchasing a vessel outright is not economically feasible for most people. However, chartering a boat may be an economical solution to enjoying the open seas, without the hefty upfront expenditures.
The three methods of chartering boats are “bareboat” agreements, “crewed charters” and “shared lease” memberships. All of these approaches are straightforward and offered in abundance by charter companies who have streamlined each process.
Bareboat Charter
A bareboat charter is a contractual agreement akin to leasing a vehicle, whereby the charterer (the person hiring the ship) is deemed the vessel’s temporary owner and consequently assumes the responsibilities that come with vessel ownership. The charterer is typically responsible for routine running expenses, including fuel, port fees, crew costs, maintenance, and insurance.
Key Takeaways Charters offer a solution to those wanting to explore the open seas, but without the hefty costs of owning a yacht. Charters come in three types: bareboat, crewed charter, and shared lease. A bareboat charter offers the bare necessities and the charterer is also the boat's captain. In a crewed charter, different types of vessels—sport boats, fishing boats, superyachts—are provided along with a full working crew. The shared lease is an arrangement where the lessee pays fees and can choose from a variety of different vessels.
The charterer in a bareboat agreement is also the boat’s captain, in charge of sailing, navigating, and anchoring the vessel. At the end of the charter term, the boat must be returned in pristine condition, or funds will be deducted from any bonds paid.
The terms of bareboat agreements can vary from company to company. As the name implies, some firms only supply “bare” necessities, like safety equipment and tools. Other chartering companies that cater to vacationers can provide extras, like food, linens, fishing equipment, and personal products.
Crewed Charter
In a crewed charter, the lessee acquires the boat for a particular voyage, where the chartering company pays for crew fees and other expenses, like fuel, port fees, and meals. Most importantly, an experienced crew manages any issues that can occur, which is extremely helpful in foreign ports.
There are numerous crewed chartering operations in the United States, offering a variety of boat types, including modest vessels, superyachts, sport fishing boats, motorboats, and classic America’s Cup-winning yachts.
Shared Leasing
Shared leases give members unlimited access to an entire boat fleet, letting them try out different vessels without committing to one in particular. Lease shares are commonly available for a season for an all-inclusive fee. The chartering club maintains, insures, and handles all headaches associated boat ownership, so you’re free to enjoy sailing with ease. However, the boat you desire may not always be available when you require it, which might thwart your plans to sail to your private island.
How To Do It
1. Think about the boat. What type of vessel will meet your needs? Will it accommodate your passengers and support the activities you have planned, such as fishing and events? Once you identify your needs, the charter service can facilitate the ideal boating option.
2. Consider your budget. If you’re considering a bareboat charter, make sure to have sufficient funds to pay the full rental fee and bond upfront, along with any mandatory insurance premiums. And if you’re not qualified to captain the vessel, be sure you can afford to hire a qualified captain and crew.
3. Review your qualifications. If you desire total freedom, explore the numerous requirements prescribed by different ports of call, especially if you plan to venture outside of United States waters. A range of certificates must be considered before you decide on your preferred route.
For instance, if you intend to bring pets on board, special clearances may be required for the animals to leave the boat. If you intend to dive, prepare to present proof of qualifications, along with visas, international proficiency certificates, and local cruising permits. The website Noonsite provides a comprehensive list of documents required both in the U.S. and abroad. The American Sailing Association website also offers a checklist of proof-of-competency certificates and documents.
4. Check your credit history. A solid credit report is generally required in order for you to be cleared to charter pricey yachts.
5. Research your chartering company’s record. If you’re planning a crewed charter, make sure the service levels will meet your expectations, especially if you’re trying to impress clients or friends. Cruising World offers a directory of worldwide fleets, reputable companies, brokers, services, and lists of sailing destinations. Other valuable charter sites include CharterWorld, YachtWorldCharters, Boatbookings, and The Moorings.
The Bottom Line
Bareboat agreements, crewed charters, and boat clubs can remove financial and management headaches from the boating equation. But cultivate a clear idea of your boating needs first. Fortunately, there are copious websites, chartering companies, and management services to aid you in your journey.
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95d9a8dff7986807bfc292eae50a85df | https://www.investopedia.com/articles/personal-finance/091514/expanding-your-small-business-sba-loan.asp | How SBA Loans Can Help Your Small Business | How SBA Loans Can Help Your Small Business
Information in this article reflects guidance from the Small Business Administation following passage of the Consolidated Appropriations Act (CAA), 2021, Dec. 27, 2020.
Whether you’re seeking financial help for your small business in response to the coronavirus (COVID-19) outbreak or simply wondering how to obtain financing to expand, a loan from the Small Business Administration (SBA) may be just the solution you need.
SBA low-interest long-term loans are a viable option for business owners suffering substantial disaster-related physical or economic damage or who want to grow their business and can’t obtain other nongovernment financing.
Key Takeaways Legislation enacted Dec. 27, 2020, provides new funding for the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs, along with funding for forgivable EIDL Targeted Advances and Shuttered Venue Operator (SVO) Grants.PPP loans are provided by private lenders while EIDL loans and SVO Grants are generated with funds provided by the government.SBA business expansion loans are guaranteed loans with funds coming from approved private lenders.Additional SBA programs include Express Bridge Loans, 7(a) Debt Relief Loans, Loan Deferrals, and several others.
The Consolidated Appropriations Act, 2021
The Consolidated Appropriations Act (CAA), 2021, signed into law Dec. 27, 2020, is not a government loan program per se. It is legislation that provides additional funding and rule changes for several government programs including the Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL) program, and EIDL advances. Also included is funding for a new Shuttered Venue Operator (SVO) Grant program.
Descriptions of the programs below reflect changes made by the CAA. Additional guidance from the Treasury Department and Small Business Administration may require further updates.
Paycheck Protection Program (PPP)
The Paycheck Protection Program, created by the CARES Act on March 27, 2020, provided forgivable SBA emergency 7(a) loans of up to $10 million to small businesses with 500 or fewer employees including sole proprietorships, independent contractors, and self-employed persons affected by COVID-19.
This program was amended by the PPP Flexibility Act of 2020, with new guidelines that allowed full or partial forgiveness if at least 60% (formerly 75%) of the amount forgiven was used for payroll and 40% (formerly 25%) of the amount forgiven was used for mortgage interest, rent, and utilities.
Instead of a 6-month payment deferral, your loan was deferred until the SBA remitted the forgiven amount to your lender. If you didn't seek forgiveness, your payments were deferred for 10 months from the end of the covered period.
As with the original PPP program, no collateral was required and the loan did not carry any fees. However, instead of a two-year term, you now had five years to pay off your loan at the same 1% fixed rate as before.
The PPP Flexibility Act of 2020 further stipulates that if you make a good-faith offer to rehire a furloughed employee (same hours, same wages) and documented it, you can exclude that employee from your count for purposes of forgiveness if they refuse your offer.
The PPP loan program, which stopped accepting loan applications Aug. 8, 2020 due to lack of funds, has received new funding via the Consolidated Appropriations Act, 2021.
Paycheck Protection Program (PPP) Loan Refresh
The Consolidated Appropriations Act, 2021, provides $284 billion in new PPP loan funding through March 31, 2021, including special set-asides for companies in depressed areas and those with 10 or fewer employees.
The legislation provides first-time forgivable PPP loans of up to $10 million for qualifying companies with 500 employees or less and second draw loans up to $2 million for previous borrowers with 300 or fewer employees.
If you returned all or part of your PPP loan, you may reapply for the maximum amount applicable provided you have not already received forgiveness. Further, if you would be eligible for a higher loan amount due to interim final rule changes, you can work with your lender to modify the amount of your loan, even after forgiveness.
The list of forgivable expenses has been expanded and now includes:
Personal protective equipment (PPE);Complying with federal or state health and safety guidelines;Software, cloud computing and other human resources and accounting needs; andProperty damage due to public disturbances that took place in 2020 and were not covered by insurance.
Also new, expenses you pay with PPP loan proceeds are now tax deductible even if the loan is forgiven. This applies to both first and second-draw loans.
You can now select a covered period between 8 and 24 weeks from when you receive your loan instead of needing to pick either 8 OR 24 weeks. Your covered period can extend through March 31, 2021.
New simplified applications for loans under $150,000 and for forgiveness of those loans are now available.
You no longer have to deduct your $10,000 Economic Injury Disaster Loan (EIDL) advance from the forgivable amount of your PPP loan and the new legislation directs the SBA to treat previous PPP loans and EIDL advances the same.
Feb. 24, 2021 Start of a two-week period when only businesses with fewer than 20 people can apply for a PPP loan.
Changes to the PPP Loan Program That Target Very Small Businesses
On Feb. 22, 2021 the Biden administration announced several changes to the PPP program designed to make PPP funds available to the smallest businesses including some excluded from previous relief efforts.
Beginning Wed., Feb. 24, 2021, businesses with fewer than 20 employees will have an exclusive two-week window to apply for PPP funding. During this period, larger businesses will not be allowed to apply.The formula used to calculate PPP loans has been revised to allow sole proprietors, independent contractors, and self-employed individuals receive more financial support.Eligibility rules have been changed to let small business owners with non-fraud related felonies receive PPP loans as long as the applicant is not incarcerated at the time of the application.Also newly eligible are those who are delinquent on federal student loans.Non-citizen small business owners who are lawful U.S. residents, including Green Card holders and those here on a visa, will also be eligible and allowed to use their Individual Taxpayer Identification Numbers (ITINs) to apply for PPP relief.
Where to apply for a SBA Paycheck Protection Program (PPP) Loan
Apply for this loan through any existing SBA 7(a) lender or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution. Start by consulting with your local lender to see if it is participating.
The U.S. Small Business Administration (SBA) and Treasury Department announced that the Paycheck Protection Program (PPP) would re-open the week of January 11, 2021, for new borrowers and existing PPP loan recipients.
Initially, only community financial institutions, including community development financial institutions (CDFIs), minority depository institutions (MDIs), certified development companies and microloan intermediaries were able to make first draw PPP loans beginning Monday January 11. Second draw PPP loans through the same lenders started Wednesday, January 13. First and second draw loans were available from small lenders with less than $1 billion in assets as of Friday, January 15 and all participating PPP lenders, were approved to make loans beginning Tuesday, January 19.
Do not use any other road to apply for a PPP loan; scammers will offer shortcuts to PPP loans just as they did with the original program. The Federal Trade Commission filed a case against one such company on April 17, 2020. Only apply by first going to the SBA website. And know that the SBA will never ask for Social Security numbers—or bank account or credit card numbers—up front, the FTC cautioned.
Economic Injury Disaster Loan (EIDL) Advance
Small business owners in all 50 states, Washington D.C., and U.S. territories were able to apply for an Economic Injury Disaster Loan (EIDL) Advance of up to $10,000 as part of the application process for an EIDL loan. The loan advance did not have to be repaid and you didn't actually have to be approved for an EIDL loan to receive the advance, however the amount of the loan advance was deducted from total loan eligibility.
The EIDL Advance program—which ended July 11, 2020 due to lack of funds—has been restarted with passage of the Consolidated Appropriations Act, 2021 (CAA).
Economic Injury Disaster Loan (EIDL) Targeted Advance Refresh
The Targeted EIDL Advance program, which is more restrictive than its predecessor, is authorized under the CAA and makes up to $10,000 available to applicants located in low-income communities who previously received an EIDL Advance for less than $10,000, or those who applied but received no funds due to lack of program funding.
If you previously received a partial EIDL Advance ($1,000 to $9,000) the SBA will reach out to you first by official (@sba.gov) email to determine your eligibility and provide instructions.
If you are in this group, you may qualify if you:
Are located in a low-income community, as defined in section 45D(e) of the Internal Revenue Code; andCan demonstrate you suffered a more than 30% reduction in revenue during an 8-week period beginning on March 2, 2020, or later. You will be asked to provide proof of the more than 30% revenue reduction.
If you previously applied for an EIDL Advance but did not receive one due to a lack of funds, you are next in line to be contacted by the SBA.
To qualify in this group you must meet the qualifications above plus:
Have no more than 300 employees.
If your business is otherwise eligible for the EIDL program—including if you are a sole proprietor, independent contractor, or private, nonprofit organizations—and you meet the qualifications above, you are eligible for consideration for the targeted advance. Agricultural enterprises are not eligible.
You may be asked to provide an IRS Form 4506-T giving the SBA permission to request your tax return information.
Do not submit a duplicate COVID-19 EIDL application. Only prior applicants will be considered for the Targeted EIDL Advance.
Economic Injury Disaster Loan (EIDL)
SBA Coronavirus Disaster assistance loans are designed to help businesses recover from the economic effects of COVID-19. Disaster assistance loans of up to $2 million with maximum terms of 30 years are available. Small business owners in all 50 states; Washington, D.C.; and U.S. territories are eligible to apply.
Loans can be used to pay fixed debts, payroll, accounts payable, and other bills that can’t be paid due to the impact of COVID-19. The interest rate for small businesses is 3.75%. Nonprofits pay just 2.75%.
Economic Injury Disaster Loan (EIDL) Refresh
The main change, aside from $20 billion in additional funding for the Economic Injury Disaster Loan (EIDL) program, is an extension of time to file for a loan from Dec. 31, 2020, to Dec. 31, 2021.
Shuttered Venue Operator (SVO) Grant program
The Shuttered Venue Operators (SVO) Grant program, authorized by the CAA on Dec. 27, 2020, includes $15 billion in grants to shuttered venues. Funds are administered by the SBA’s Office of Disaster Assistance.
Eligible applicants can qualify for SVO Grants equal to 45% of their gross earned revenue, with a maximum of $10 million. $2 billion is reserved for eligible applications with up to 50 full-time employees.
Eligible entities include:
Live venue operators or promotersTheatrical producersLive performing arts organization operatorsRelevant museum operators, zoos and aquariums who meet specific criteriaMotion picture theater operatorsTalent representatives, andAny business entity owned by an eligible entity that also meets eligibility requirements
SVO Grants are only available to venues that:
Have been in operation as of February 29, 2020Have not received a PPP loan on or after December 27, 2020
SVO Grand funds may be used for: Payroll, rent, utility, mortgage payments, debt, worker protection, payments to independent contractors, maintenance, administrative costs, state and local taxes, operating leases (in effect as of Feb. 15, 2020), insurance, advertising and other costs of production.
Grantees may not use funds to purchase real estate, make loan payments on loans originated after Feb. 15, 2020, make investments, make political contributions or payments.
Where to Apply for Coronavirus Disaster Assistance
Economic Injury Disaster Assistance Loans and Targeted Advances are funded by the Small Business Administration (SBA). Your application for an EIDL loan goes through the SBA website.
Recall that there is no application process for new EIDL $10,000 Targeted Advance. The SBA will contact you if you are eligible.
The SBA is in the process of setting up the SVO Grant program and is not yet accepting applications.
SBA Express Bridge Loan (EBL)
If you already have a business relationship with an SBA Express Lender a new Express Bridge Loan Pilot Program offers quick turnaround on up to $25,000 to help bridge the gap until your SBA Economic Injury Disaster Loan (EIDL) is approved. Bridge funds can be paid in full or in part with proceeds from your EIDL once it is approved.
Where to apply for an SBA Express Bridge Loan
Consult the Express Bridge Loan Pilot Program Guide or contact your local SBA district office for details.
SBA 7(a) Loan Debt Relief
The SBA Debt Relief program will pay principal, interest, and fees for six months on new 7(a), 504, and microloans made between Mar. 27 and Sept. 27, 2020. The program will also pay principal, interest, and fees for six months on existing 7(a), 504, and microloans beginning with the first payment due after Mar. 27, 2020.
Where to apply for 7(a) Loan Debt Relief
This relief is automatic and does not require an application. Check with your lender for more information or if you have questions.
SBA Deferral on Existing Home and Business Loans
If you currently have an SBA Serviced Disaster (Home and Business) Loan that was in "regular servicing" on Mar. 1, 2020, the SBA is providing automatic deferral on your loan through March 31, 2021. Note the following:
Interest will continue to accrue on your loan during the deferral period.1201 monthly notices will still be mailed, but will show no payment due.Pre Authorized Debit (PAD) payments will not automatically be canceled You must contact your servicer to do that.If you wish to continue making payments you may. No contact is necessary.After the deferral period you must resume payments and set up PAD if you canceled it earlier.
Where to apply for existing Disaster Loan deferral
Deferral is automatic. You do not need to apply. After the deferral period you do not need to contact SBA before resuming payments.
SBA Business Expansion Loans
The disaster-related loans referenced above are made with funds appropriated or guaranteed by Congress. SBA business expansion loans are commercial loans, structured according to SBA requirements with an SBA guarantee Small business owners and borrowers who have access to other financing with reasonable terms are not eligible for this type of SBA-guaranteed loan. Guaranteed loan programs from the SBA include the following:
7(a) Loan Program
This is the SBA’s most common loan program and provides financial help for businesses with special requirements, such as franchises, farms and agricultural businesses, and fishing vessels. There is no minimum loan amount, but the maximum is $5 million. Note that emergency SBA 7(a) loans available under PPP have different requirements from those used for business expansion.
There are nine types of 7(a) loans—each with its own maximum loan amount, SBA guarantee, negotiated interest rate, and other factors—all of which are spelled out on the 7(a) loan program webpage
Microloan Program
This program provides small, short-term loans up to $50,000 to small businesses and certain types of not-for-profit childcare centers. Loans can be used to buy new equipment, supplies, or furniture, or to provide working capital. Loans are provided by microlenders, with each having its own lending and credit requirements.
CDC/504 Program
This loan program provides financing for businesses to purchase real estate, major fixed assets, and equipment, or make improvements like landscaping. This program can also provide funding for renovation.
Where to apply for an Expansion Loan
As previously noted, the SBA doesn't lend money directly to help you grow your business as it does when providing disaster relief. Instead, it sets stipulations for loans made by its partners (lenders, community-development organizations, and microlending institutions). You can apply for an expansion loan at any SBA approved lender or use the SBA's Lender Match.
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28f8b0608f0f30b6731e81e901bd6b69 | https://www.investopedia.com/articles/personal-finance/091515/beginners-guide-student-loans.asp | How to Apply for Student Loans | How to Apply for Student Loans
Unless their parents have somehow saved enough money—or earn massive salaries—most students need to borrow to pay for college today. Working your way through college is largely a thing of the past, as well. Few students can make enough to pay for college while they're also taking classes. For that reason, student loans (and student loan debt) have become increasingly common. Here's what you need to know about applying for student loans.
Key Takeaways To apply for federal loans for college, students and parents need to fill out the Free Application for Federal Student Aid, or FAFSA. Federal student loans come in two basic types: subsidized and unsubsidized. Subsidized loans are more affordable, if you qualify. Other loan sources include federal PLUS loans for parents and private loans from banks and other lenders. Interest on student loans from federal agencies has been temporarily suspended during the coronavirus crisis by President Trump, as of March 13, 2020.
Step 1: Fill Out the FAFSA
The first step in applying for student loans is to fill out the government's Free Application for Federal Student Aid (FAFSA). The FAFSA asks a series of questions about the student's and parents' income and investments, as well as other relevant matters such as whether the family will have more than one child in college at the same time. Based on the information you supply, the FAFSA will calculate your Expected Family Contribution (EFC). That's the amount of money the government believes you should be able to pay for college for the coming school year out of your own financial resources.
You can complete the FAFSA online at the office of the Federal Student Aid website. To save time, round up all of your account information before you sit down to start work on it. You must not only complete the FAFSA when you first apply for aid but every year after that if you hope to continue receiving aid.
Step 2: Compare Your Financial Aid Offers
The financial aid offices at the colleges you apply to will use the information from your FAFSA to determine how much aid to make available to you. They compute your need by subtracting your EFC from their cost of attendance (COA). Cost of attendance includes tuition, mandatory fees, room and board, and some other expenses. It can be found on most colleges' websites.
In order to bridge the gap between your EFC and their COA, colleges will put together an aid package that may include federal Pell Grants and paid work-study, as well as loans. Grants, unlike loans, do not need to be paid back, except in rare instances. They are intended for students with what the government considers "exceptional financial need."
Award letters can differ from college to college, so it's important to compare them side by side. In terms of loans, you'll want to look at how much money each school offers and whether the loans are subsidized or unsubsidized.
Direct subsidized loans, like grants, are meant for students with exceptional financial need. The advantage of subsidized student loans is that the U.S. Department of Education will cover the interest while you're still at least a half-time student and for the first six months after you graduate.
Direct unsubsidized loans are available to families regardless of need, and the interest will start accruing immediately.
In both cases, note that interest on student loans from federal agencies has been temporarily suspended during the coronavirus crisis by President Trump, as of March 13, 2020.
If you qualify, a college might offer you both subsidized and unsubsidized loans.
Federal loans have a number of advantages over student loans from banks and other private lenders. They have relatively low, fixed interest rates (private loans often have variable rates) and offer a variety of flexible repayment plans.
The confusingly-named Expected Family Contribution (EFC) will be renamed the Student Aid Index (SAI) in July 2023 to clarify its meaning. It does not indicate how much the student must pay the college. It is used by the school to calculate how much student aid the applicant is eligible to receive.
However, the amount you can borrow is limited. For example, most first-year undergraduates can only borrow up to $5,500, of which no more than $3,500 can be in subsidized loans. There are also limits on how much you can borrow in total over the course of your college career.
If you need to borrow more than that, one option is a federal Direct PLUS Loan. PLUS loans are intended for the parents of undergraduates (as well as for professional and graduate students). PLUS loans have higher limits—up to the full cost of attendance minus any other aid the student is receiving—and are available regardless of need. However, the parent borrower must generally pass a credit check to prove their creditworthiness.
Private student loans lack the flexible repayment options available with federal loans.
Step 3: Consider Private Student Loans
Another option if you need to borrow more money than federal student loans can provide is to apply for a private loan from a bank, credit union, or other financial institution.
Private loans are available regardless of need, and you apply for them using the financial institution's own forms rather than the FAFSA. To obtain a private loan, you will need to have a good credit rating or get someone who does have one, such as a parent or other relative, to cosign on the loan.
Generally, private loans carry higher interest rates than federal loans, and their rate is variable rather than fixed, which adds some uncertainty to the question of how much you'll eventually owe. Private loans also lack the flexible repayment plans available with federal loans and are not eligible for loan consolidation under the Federal Direct Consolidation Loan program. However, you can refinance your private loans after you graduate, possibly at a lower interest rate.
Each college will notify you of how much aid it is offering around the same time that you receive your official acceptance. This is often referred to as an award letter. In addition to federal aid, colleges may make money available out of their own funds, such as merit or athletic scholarships.
Step 4: Choose Your School
How much you'll have to borrow to attend one college versus another may not be the most important factor in choosing a college. But it should definitely be high on the list. Graduating from college with an unmanageable amount of debt—or, worse still, taking on debt and not graduating—is not only a burden that might keep you up at night; it can limit—or even derail—your career and life choices for years to come. Also factor in the future careers you are considering when you choose to pay more for college. A career with a high entry-level salary will put you in a better position to repay your loans and justify taking on more debt.
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4d3e4de8bbdcd81f8a8ecf2a6e5fa14e | https://www.investopedia.com/articles/personal-finance/091614/benefits-simple-ira.asp | Benefits of a SIMPLE IRA | Benefits of a SIMPLE IRA
Although many employers allow workers to save for retirement using qualified retirement plans, such as a 401(k), 403(b), or 457, these plans have rules that can be cumbersome for both employers and employees.
Some small businesses instead choose SIMPLE (Savings Incentive Match for Employees of Small Employers) IRAs. These plans have fewer rules, are much less complicated to administer, and offer key benefits.
Key Takeaways SIMPLE IRAs do not require non-discrimination and top-heavy testing, vesting schedules, and tax reporting at the plan level.Matching employer contributions belong to the employee immediately and can go with them whenever they leave, regardless of tenure.Tax credits may be available for both employees and employers.
Understand the Benefits of SIMPLE IRAs
Here's how employees and employers benefit.
Tax-Deferred Savings
As with other types of individual retirement accounts (IRAs) and employer-sponsored retirement plans, SIMPLE IRAs allow employees to defer a portion of their salaries into these plans. The money grows tax-deferred until distributions are taken at retirement. This allows savings to compound more quickly.
Easier to Run
SIMPLE IRAs do not require most of the bureaucracy that comes with qualified plans, such as non-discrimination and top-heavy testing, vesting schedules, and tax reporting at the plan level. SIMPLE IRAs are relatively easy to set up and run, and employers don’t need to hire specially trained staff.
Mandatory, Instant Vesting
Matching employer contributions belong to the employee immediately and can go with them whenever they leave, regardless of tenure. Employer match contributions in qualified retirement plans, such as 401(k)s, usually come with either a cliff or graded vesting schedule that requires employees to stay with the company for a specified number of years before they own all matching contributions.
What's more, employers who set up SIMPLE IRAs are required by law to match employee contributions. This is not required for qualified plans; employers can choose to offer no match.
Fast Fact SIMPLE IRAs have fewer rules and are much less complicated to administer than some other kinds of retirement plans.
Contribution Limits
For 2020 and 2021, employees can defer up to $13,500 of income to a SIMPLE IRA with another $3,000 in catch-up contributions if they are 50 or older.
This is less than the $19,500 per year contribution limit for a 401(k) or another qualified plan for 2020 and 2021 as well as the $6,500 catch-up limit permitted. But it's more than the $6,000 contribution and $1,000 catch-up limit for an IRA for 2020 and 2021.
Tax Credit for Employers
President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act in late 2019. The act gives tax incentives to small businesses that set up automatic enrollment in retirement plans for their workers or allows them to join multiple employer plans (MEPs). With an MEP, employers can band together with other companies to offer retirement accounts to their employees. The bill also eliminates the maximum age cap for contributions to traditional individual retirement accounts.
Under the SECURE Act, small businesses can receive a tax credit to offset the costs of starting a 401(k) plan or SIMPLE IRA plan with auto-enrollment. This tax credit is in addition to the start-up credit they already receive, which is 50% of necessary eligible start-up costs, up to a maximum of $500 per year for the first three years of the plan.
Employers can qualify for the credit if they had 100 or fewer employees who received at least $5,000 in compensation for the preceding year and at least one plan participant who was not a highly compensated employee, and if the same employees weren't recently covered by similar plans.
Tax Credit for Employee Contributions
Employees whose adjusted gross income falls below a certain limit may be eligible to take a non-refundable savers credit for up to $2,000 of contributions each year. The saver’s credit offers eligible low-income and lower-middle-income individuals a tax credit of up to $1,000 ($2,000 if married filing jointly) if they contributed to an employer-sponsored retirement plan.
Single Tax Filers
Single taxpayers are ineligible if their adjusted gross income (AGI) exceeds $32,500 in 2020 and $33,000 in 2021. The income limit for married filing jointly taxpayers is $65,000 in 2020 and $66,000 in 2021.
However, you can get the 50% credit (the maximum credit) if you're a single tax filer and have an adjusted gross income of less than $19,500 in 2020 and $19,750 in 2021. If your income is higher but still below the maximum income limits of $32,500 in 2020 or $33,000 for 2021, you'll receive a reduced credit, based on your income for the year.
Married Tax Filers
For married couples filing jointly, you can get the 50% credit (the maximum credit) if your income is less than $39,000 in 2020 and $39,500 in 2021. Again, the credit phases out as your income increases above those levels until you reach the maximum income limits of $65,000 for 2020 and $66,000 for 2021.
Multiple Investment Choices
SIMPLE IRA contributions can be invested in "individual stocks, mutual funds, and similar types of investments," according to the IRS. Many plans offer growth, growth and income, income, and specialized funds such as sector funds or target-date funds.
Subject to Taxes
While salary deferral contributions to a SIMPLE IRA are not subject to income tax withholding, they are subject to tax under the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Railroad Retirement Act (RRTA). Employer matching and non-elective contributions are not subject to FICA, FUTA, or RRTA taxes.
The Bottom Line
SIMPLE IRAs provide a convenient alternative for small employers who don’t want the bureaucratic and fiduciary complexities that come with a qualified plan. Employees still get tax and savings benefits, plus instant vesting of employer contributions.
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752f454cc6458d90fb8abf6e70ac0625 | https://www.investopedia.com/articles/personal-finance/091615/10-tips-strategic-networking.asp | 10 Tips for Strategic Networking | 10 Tips for Strategic Networking
There's an old saying: it's who you know, not what you know. The idea is that education, skills and knowledge can only get you so far. But if you know the right people and have the right connections, these valuable resources can put you in the path of greater opportunities. A well-placed connection might hear of an open job opportunity before that knowledge is widely available. Relationships with professionals outside of your industry might expose you to opportunities and ideas you would have never otherwise considered.
That's why networking is so important. If you can get yourself onto peoples' short lists, you're not likely to be without work. Instead, your career will continue to grow (see Top Networking Tips for Advisors).
The rules haven't changed much over the years but technology has. Here's how you network like a pro these days.
1. Don't Take Your Friends to the Event
You've already made an impression on your business colleagues. It doesn't make much sense to take them to a networking event and stand together the whole time. Instead, head to the event alone and force yourself to mingle.
2. Wear Something That Stands Out
Nobody would advise looking goofy head to toe, but an interesting pair of shoes, a scarf, or tastefully eye-catching shirt is definitely a conversation starter. Just remember, there's a fine line between tasteful and inappropriate.
3. Don't Just Look for the Older People
If they look older, the must be wiser and wealthier, right? Maybe, but judging people by age is a bad idea. There are plenty of up-and-coming 20- and 30-somethings whom you want to know.
4. Strive to Give Rather Than Get
Giving is better than receiving. If you try to build a relationship on what somebody can give you, you're doomed from the start. Instead, show your value to them.
5. Create a Memory
Influencers meet a lot of people, and they forget about most of them. Because memories are mostly visual, creating a unique memory may keep you from becoming one of the forgotten. Ask a unique, thought-provoking question, for example.
6. Go Online
Everybody knows about LinkedIn (see How To Use LinkedIn To Get A Job), but how about sites such as HARO (Help A Reporter Out), a place where reporters go to find experts for their stories. Or how about job-search sites. Maybe you're not looking for a job but know somebody who would fit that person's needs? Remember, you're forming relationships by first giving to them.
7. The Gatekeeper Is Equally Important
Busy people have gatekeepers to screen their calls and emails and organize their schedule. You aren't likely to get any time with a busy person if you don't first befriend their gatekeeper.
8. Cut the Filler
Busy people don't have time to read a long email. If you're emailing an executive, stick with three to five sentences. Include a link or two if there are supporting facts you want that person to read.
9. Quality, Not Quantity
Think of networking as making a professional friend. A whole lot of superficial friendships isn't better than having one or two quality relationships that add value to each other. Don't try to stuff your contact list. If you go to an event and find one or two contacts, you've done well.
10. Practice!
Some people strike the perfect balance between talking and listening, fun versus obnoxious, interesting versus boastful. Then there is almost everybody else. Practice networking every day by striking up conversations with people around the office, at a restaurant or at your child's soccer game. Conversation is definitely an art, and art takes practice.
The Bottom Line
Computers didn't kill networking. It's still vital that you meet people in and out of your industry as you build your career and your business. You aren't going to succeed alone. It will take a network of people to help you get there.
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3f44aeca28feacf6373a66983897ca74 | https://www.investopedia.com/articles/personal-finance/091615/3-best-alternatives-quicken-software.asp | The 3 Best Alternatives to Quicken Software | The 3 Best Alternatives to Quicken Software
Quicken is one of three very well-known, widely used and highly successful financial software programs developed by Intuit, Inc. (INTU). Intuit subsequently sold its personal financial management tool to private equity firm H.I.G. Capital in 2016.
Quicken offers users services from basic checking and savings account management and budgeting, all the way to portfolio analysis and management features such as capital gains tracking. There are Windows-based versions of the program available as well as for Mac that's compatible with Apple's operating system.
Although manufactured for a number of global markets, Quicken remains focused largely on a North American customer base. While Quicken has dominated its niche market since its first release in 1983, there are a number of similar, alternative products available and which are increasingly challenging its dominance.
key takeaways While Quicken still dominates the financial software program universe, several alternatives exist. One rival is Mint, a read-only budget planner and spending tracker. Another rival, Personal Capital, offers investment management services. Banktivity, developed specifically for Apple products, serves as a personal or small business financial management program, allowing users to monitor accounts across several devices.
Mint.com
Intuit itself offers a simpler, more basic alternative to Quicken in Mint, which it acquired in 2009. Mint is cloud-based, rather than a standalone software program. It is a free service and only offers basic features such as creating and tracking budgets and financial goals and monitoring one's credit score.
Mint.com offers services similar to those contained in Quicken's most basic starter version. Basically a budget planner and spending tracker, it does not offer significant investment management services. The program is criticized for account synchronization problems and for the fact it does not allow monthly bank reconciliation because it automatically assumes all downloaded data is correct.
The fact that Mint.com is a read-only service is both a plus and a minus for the program. A read-only service offers greater Internet security, since even if someone were able to access a user's information, all they could do is see the accounts and not able to take any actions (such as transferring money out). Of course, the con of being a read-only service also limits what the user can do and, therefore, the capabilities and functionality of the service.
Like virtually all similar personal financial management programs, Mint is accessible through almost any Internet-connected device, including personal computers, tablets, and smartphones.
Personal Capital
Personal Capital represents an attractive and less expensive alternative to Quicken for individuals who prefer a cloud-based program—and one that (unlike Mint) offers extensive investment management tools. In fact, as of December 2019, it had $12.3 billion in assets under management (AUM).
The basic Personal Capital financial services package, which includes account tracking, budgeting, bill paying, and other basic services, is free. However, Personal Capital makes its money primarily from individuals, with a minimum of $100,000 in assets, who choose to upgrade to the personal wealth management services the company offers. Fees begin at 0.89% for the first $1 million of assets managed and range down to 0.49% (for accounts over $10 million) per year. Personal Capital's fees are significantly lower than average for full wealth management services.
With the paid wealth management service, clients are assigned a personal financial advisor and receive all the usual services a client expects from a wealth management company, including tax and estate planning, tax-loss harvesting, advice on insurance, educational funds for children and any other necessary services to provide full financial management for clients.
But even the free personal finance services offered are extensive and competitive with what is offered by Quicken. Included are services such as budgeting, a retirement planner, a 401(k) fee analyzer, and an investment allocation target checker. The budgeting component includes a cash flow tool that allows individuals to input income and spending, and then receive weekly, monthly, or annual analyses of their projected cash flows.
The retirement planner can be used to map out a retirement plan, and then to monitor how closely the user is adhering to the plan. This feature allows users to set spending and savings goals, track income events, and project the future value of their investment portfolios. Its asset allocation component determines a user's risk tolerance profile and then makes appropriate investment allocation recommendations. The comprehensive features and the flexibility of input variables offered in this module compare favorably to any comparable service, free or paid.
Personal Capital has received good reviews on a number of levels, one being that it offers better account synchronization than most programs of this type. It also receives high marks for customer service, a rare plus for a free financial services software program. Personal Capital offers much more in-depth investment analysis and planning than Quicken. It also offers enhanced security through its use of two-factor authentication.
Personal Capital services are accessible by computer, tablet, or cellphone.
Banktivity (iBank)
Debuting in 2004, iBank was designed by IGG Software specifically for Apple's operating systems—at first, macOS (for desk- and laptops), and later iOS (for iPhones and iPads). IGG re-christened it Banktivity in 2016.
Aiming to serve as a personal or small business financial management program, Banktivity offers a myriad of financial services, including bank, credit card, loan, and investment account management. Features not included in Quicken but that come standard with Banktivity include multicurrency functionality and variable loan amortization. Its platform for reviewing all of an individual's financial accounts can be found on one central dashboard: checking, savings, money market, equity and fixed-income investments, retirement accounts, loan accounts, and brokerage accounts.
With its continually updated charts, Banktivity stands out for the detailed income, expense, and investment performance analysis it offers, tracking buys and sells of stock shares, dividends, and stock options.
The program also allows for easy production and printing of custom financial reports, and it even allows a user to print new checks when needed.
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07b507b5c2d39c8b3e96191262b33957 | https://www.investopedia.com/articles/personal-finance/091615/best-places-exchange-currency-los-angeles.asp | Best Places To Exchange Currency In Los Angeles | Best Places To Exchange Currency In Los Angeles
If you're traveling to the U.S. and plan on arriving in Los Angeles (LA) at LAX airport, you'll likely need U.S. currency for cash purchases, such as a coffee or bottle of water. If you're traveling abroad from the U.S, you may want to have foreign currency on hand to pay for taxis and small purchases.
Whether you plan on exchanging currency at the airport, an ATM, or a local foreign currency provider, we've outlined several options located in Los Angeles.
Best Places To Exchange Currency In Los Angeles
Los Angeles hosted more than 50 million visitors during 2018. LA saw record numbers of visitors from China with 1.2 million and 1.8 million people from Mexico. International tourists represented more than 20% of total overnight visitors and generated over $6.5 billion in spending.
Whether you're traveling for business or pleasure, a credit card is usually the best option for many purchases–especially larger ones, such as your hotel. More and more banks are offering credit cards with no foreign transaction fees, so if you travel frequently, it’s a good idea to get one. However, some cards impose a 2% to 3% fee on international transactions, which can add to the overall cost of your trip. Please check the fee listings with your financial services provider or your credit card company.
The Airport
You won’t get the best exchange rates at LAX–or any other airport, for that matter. However, if you only need a small amount of cash in your pocket to get your trip started, the convenience may be worth it. If you want a larger amount, an ATM or one of the currency exchange stores located in town will likely give you a better deal. To find out the current exchange rate for your currency, use an online currency converter.
ICE Currency Exchange operates 13 locations within the LAX airport:
Terminal 2
Departures: Hours: Monday – Sunday, 5:00 a.m. to 11:45 p.m. Arrivals: Hours: Monday – Sunday, 11:15 a.m. to 8:45 p.m.
Terminal 3
Currently closed
Terminal 4
Departures: Hours: Monday – Sunday, 5:45 a.m. to 11:30 p.m.
Terminal 5
Departures: Hours: Monday – Sunday, 5:30 a.m. to 11:15 p.m.Arrivals: Hours: Monday – Sunday, 6:30 a.m. to 2:15 p.m.
Terminal 6
Departures: Hours: Monday – Sunday, 5:15 a.m. to 10:45 p.m.Arrivals: Hours: Monday – Sunday, 11:15 a.m. to 6:45 p.m.
Terminal 7
Departures: Hours: Monday – Sunday, 5:15 a.m. to 10:45 p.m.
Tom Bradley International
Departures, South Entrance: Hours: 6:00 a.m. to 12:15 a.m.Departures, North Entrance: Hours: 7:00 a.m. to 12:15 a.m.Departures, Hall: Hours: 7:45 a.m. to 11:15 p.m. Arrivals: Hours: 6:15 a.m. to 12:00 a.m.
For more information, call 310-646-0553.
ATMs
Using an ATM is one of the easiest and cheapest methods to get cash while traveling abroad. All international withdrawals via an ATM typically provide a better exchange rate than you would at a currency exchange store or airport kiosk. If your home bank has an agreement with a U.S. bank, you can avoid paying any extra fees (ask your bank for policy details). If you will be charged a per-transaction fee, it’s better to take one or two larger withdrawals, instead of several smaller ones.
Within LAX, Bank of America operates an ATM in the arrival level of Terminal 7. Other ATMs that are close to the airport include:
Citibank: 8800 South Sepulveda Blvd. (temporarily closed) Wells Fargo Bank: 8814 S Sepulveda Blvd.Chase Bank: 8813 South Sepulveda Blvd.Cardtronics: 8601 South Sepulveda Blvd.
As in any large city, you can find a wide variety of ATMs throughout the Los Angeles metropolitan area at banks, shopping centers, and near tourist attractions. If you need help finding an ATM, check with your bank to see if it offers an ATM locator app, or search your smart phone’s app store. You can also check your bank's website on your smartphone.
Currency Exchange Stores
In addition to the ICE Currency Exchange stores located inside the airport, you can find many other stores throughout Los Angeles, offering a range of services aimed at travelers entering the country and U.S. travelers headed overseas. While the exchange rate you’ll get at a bank is generally fixed, meaning it doesn’t fluctuate throughout the day, other currency exchange stores may change rates with the market. Call ahead to find out rates, but keep in mind the rate you are told over the phone and the rate you might receive could be different since rates are periodically updated.
Some of the currency exchange stores in Los Angeles include:
Bretton Woods
11659 San Vicente Blvd., (310) 447-6234
Currency Exchange International
Citadel Outlets, 100 Citadel Dr., (323) 721-2500Santa Monica Place, 395 Santa Monica Place, Level 2, (310) 393-7444
Foreign Currency Express
350 S Figueroa St. #134, (213) 624-3693
LA Currency
7095 Hollywood Blvd. #204, (323) 878-05556582 Van Nuys Blvd., (818) 785-0999340A North Camden Drive, Beverly Hills (310) 859-8888506 W Broadway, Glendale (818) 551-9555 406 W 6 Street Unit A, Los Angeles (213) 228-0000
Travelex
6600 Topanga Canyon Blvd (in Santa Monica), (818) 340-2500 (temporarily closed) 600 N Brand Blvd, (in Glendale), (818) 242-6884 (temporarily closed)
World Banknotes Exchange
520 S Grand Ave., (213) 446-3380
The Bottom Line
Any time you travel overseas–for business or pleasure–you’ll need a way to pay for goods and services in the local currency.
When you do need to exchange money, be sure to ask how much money you’ll get in exchange for the amount you’re handing over. Just because a place advertises no commissions or no fees, doesn’t mean you’ll get a good rate–and it doesn’t mean there won’t be “hidden” charges, either. Find out what you’re getting before you give the store your money.
A currency converting app can help you figure out how much you should be getting. Enter the type and amount of currency you want to exchange, and the app calculates how much of the “new” currency you can buy at today’s rates.
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