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2815142d26b9cf2bd1939160a5f86b36 | https://www.investopedia.com/articles/personal-finance/091615/how-use-your-hsa-retirement.asp | Retirement Uses for Your Health Savings Account (HSA) | Retirement Uses for Your Health Savings Account (HSA)
You know a health savings account (HSA) helps pay for out-of-pocket medical costs, but it may surprise you to learn that this tax-advantaged account could be a superior retirement savings vehicle, too. It has become ingrained in us that we should max out our 401(k) or other workplace defined contribution plan as the best way to save for retirement. This is certainly good advice. But should those health-cost savings plans also be maxed out in a similar fashion? Here is a look at what these accounts are, who can open one, and how to make the best use of an HSA for your retirement if you are fortunate enough to have one.
Key Takeaways The high-deductible health plan you need to qualify for a health savings account (HSA) may be more budget-friendly than it seems because premiums are so low. Unlike a flexible spending account, your HSA money is yours forever, and it's portable. You can contribute to an HSA until you enroll in Medicare, even when you're not working. Invest your HSA money; don't just leave it in a savings account. Keep receipts for unreimbursed medical expenses since you can use them to get tax-free funds from your HSA—even years after you incurred the expenses.
What Is a Health Savings Account (HSA)?
HSAs are tax-advantaged savings accounts designed to help people who have high-deductible health plans (HDHPs) pay for out-of-pocket medical expenses. While these accounts have been available since 2004, too few eligible Americans are taking advantage of them.
According to an Oct. 2018 report from the Employee Benefit Research Institute (EBRI), about 21.4 million to 33.7 million people had HSA-eligible health insurance plans in 2017, but only 22.2 million of that number had opened an HSA. An April 2018 survey by America's Health Insurance Plans (AHIP) of its member insurers reported 21.8 million HSA enrollees in 52 HDHP plans in 2017, up from 20.2 million the previous year. These types of health plans are offered by about 43% of employers right now.
Moreover, in a later report, the EBRI noted that people with HSAs had an average balance of just $3,221 in 2019—a pittance, considering that the allowable annual contribution in 2020 is $3,550 (rising to $3,600 in 2021) for those with individual health plans and $7,100 for those with family coverage (increasing to $7,200 in 2021).
In addition, only 6% of HSAs were in investment accounts. EBRI found that virtually no one contributes the maximum, and nearly everyone takes current distributions to pay for medical expenses.
All of this means that consumers who have HSAs—as well as consumers who are eligible for HSAs but haven’t opened one—are missing out on an incredible option for funding their later years. It’s time to start a new trend.
Why Use an HSA for Retirement?
An HSA's triple tax advantage, which is similar to that of a traditional 401(k) plan or IRA, makes it a top-notch way to save for retirement. HSAs are "the most tax-preferred account available," writes Michael Kitces, director of financial planning at Pinnacle Advisory Group Inc. in Columbia, Md. "Using one to save for retirement medical expenses is a better strategy than using retirement accounts."
Benefits of an HSA
Your contributions to an HSA can be made via payroll deductions, as well as from your own funds. If the latter, they are tax-deductible, even if you don't itemize. If they're made from your own funds, they're considered to be made on a pre-tax basis, meaning that they reduce your federal and state income tax liability—and they're not subject to FICA taxes, either.
Your account balance grows tax-free. Any interest, dividends, or capital gains you earn are nontaxable.
Any contributions your employer makes to your HSA do not have to be counted as part of your taxable income.
Withdrawals for qualified medical expenses are tax-free. This is a key way in which an HSA is superior to a traditional 401(k) or IRA as a retirement vehicle. Once you begin to withdraw funds from those plans, you pay income tax on that money, regardless of how the funds are being used.
Unlike a 401(k) or IRA, an HSA does not require the account-holder to begin withdrawing funds at a certain age. The account can remain untouched as long as you like, although you are no longer allowed to contribute once you enroll in Medicare. You become eligible for Medicare at age 65 and will be automatically enrolled in Parts A and B if you are already receiving Social Security.
What's more, the balance can be carried over from year to year; you are not legally obligated to "use it or lose it," as with a flexible spending account (FSA). An HSA can move with you to a new job, too. You own the account, not your employer, which means the account is fully portable and goes when and where you do.
Who Can Open an HSA?
To qualify for an HSA, you must have a high-deductible health plan and no other health insurance. You must not yet qualify for Medicare, and you cannot be claimed as a dependent on someone else's tax return.
A primary concern many consumers have about foregoing a preferred provider organization (PPO), health maintenance organization (HMO) plan, or other health insurance in favor of a high-deductible health plan is that they will not be able to afford their medical expenses.
In 2020, the deductible for an HDHP is at least $1,400 for self-only coverage and $2,800 for family coverage (they remain the same in 2021). Depending on your coverage, your annual out-of-pocket expenses in 2020 could run as high as $6,900 for individual coverage—or $13,800 for family coverage—under an HDHP (increasing to $7,000 and $14,000, respectively, in 2021). High expenses can be one reason these plans are more popular among affluent families who will benefit from the tax advantages and can afford the risk.
However, according to Fidelity, a lower-deductible plan such as a PPO could be costing you more than $2,000 a year in higher premiums because you’re paying the extra money regardless of the size of your medical expenses that year. With an HDHP, by contrast, you're spending more closely matches your actual healthcare needs.
Of course, if you know your healthcare costs are likely to be high—a woman who is pregnant, for instance, or someone with a chronic medical condition—a health plan with a high deductible may not be the best choice for you. But keep in mind that HDHPs completely cover some preventive care services before you meet your deductible.
All in all, an HDHP might be more budget-friendly than you think—especially when you consider its advantages for retirement. Let’s take a look at how you could be using the features of an HSA to more easily and more robustly fund your retirement.
Max Out Contributions by Age 65
As mentioned above, your HSA contributions are tax-deductible until you sign up for Medicare. The contribution limits of $3,550 (self-only coverage) and $7,100 (family coverage) include employer contributions. The contribution limits are adjusted annually for inflation.
If you have an HSA and you're 55 or older, you can make an extra "catch-up" contribution of $1,000 per year and a spouse who is 55 or older can do the same, provided each of you has your own HSA account.
You can contribute up to the maximum regardless of your income, and your entire contribution is tax-deductible. You can even contribute in years when you have no income. You can also contribute if you're self-employed.
$7,200 The contribution limit for a family health savings account in 2021. The contribution limit for a self-only HSA is $3,600.
"Maxing out contributions before age 65 allows you to save for general retirement expenses beyond medical expenses," says Mark Hebner, founder and president of Index Fund Advisors Inc. in Irvine, Calif., and author of "Index Funds: The 12-Step Recovery Program for Active Investors."
"Although you will not receive the tax exemption," Hebner adds, "it gives retirees more access to more resources to fund general living expenses."
Don't Spend Your Contributions
This may sound counterintuitive, but we're looking at an HSA primarily as an investment tool. Granted, the basic idea behind an HSA is to give people with a high-deductible health plan a tax break to make their out-of-pocket medical expenses more manageable.
But that triple tax advantage means that the best way to use an HSA is to treat it as an investment tool that will improve your financial picture in retirement. And the best way to do that is to never spend your HSA contributions during your working years and pay cash out of pocket for your medical bills.
In other words, think of your HSA contributions the same way you think of your contributions to any other retirement account: untouchable until you retire. Remember, the IRS does not require you to take distributions from your HSA in any year, before or during retirement.
If you absolutely must spend some of your contributions before retirement, be sure to spend them on qualified medical expenses. These distributions are not taxable. If you are forced to spend the money on anything else before you’re 65, you will pay a 20% penalty and you will also pay income tax on those funds.
Invest Your Contributions Wisely
The key to maximizing your unspent contributions, of course, is to invest them wisely. Your investment strategy should be similar to the one you’re using for your other retirement assets, such as a 401(k) plan or an IRA. When deciding how to invest your HSA assets, make sure to consider your portfolio as a whole so that your overall diversification strategy and risk profile are where you want them to be.
Your employer might make it easy for you to open an HSA with a particular administrator, but the choice of where to put your money is yours. An HSA is not as restrictive as a 401(k); it’s more like an IRA. Since some administrators only let you put your money in a savings account, where you’ll barely earn any interest, make sure to shop around for a plan with high-quality, low-cost investment options, such as Vanguard or Fidelity funds.
How Much Could You Receive?
Let's do some simple math to see how handsomely this HSA savings and investment strategy can pay off. We’ll use something close to a best-case scenario and say that you’re currently 21, you make the maximum allowable contribution every year to a self-only plan, and you contribute every year until you’re 65. We’ll assume that you invest all your contributions and automatically reinvest all your returns in the stock market, earning an average annual return of 8% and that your plan has no fees. By retirement, your HSA would have more than $1.2 million.
What about a more conservative estimate? Suppose you’re now 40 years old and you only put in $100 per month until you’re 65, earning an average annual return of 3%. You’d still end up with nearly $45,000 by retirement. Try out an online HSA calculator to play with the numbers for your own situation.
Maximize Your HSA Assets
Here are some options for using your accumulated HSA contributions and investment returns in retirement. Remember, distributions for qualified medical expenses are not taxable, so you want to use the money exclusively for those expenses if possible. There are no required minimum distributions, so you can keep the money invested until you need it.
If you do need to use the distributions for another purpose, they will be taxable. However, after age 65, you won’t owe the 20% penalty. Using HSA assets for purposes other than qualified medical expenses is generally less detrimental to your finances once you’ve reached retirement age because you may be in a lower tax bracket if you’ve stopped working, reduced your hours, or changed jobs.
In this way, an HSA is effectively the same as a 401(k) or any other retirement account, with one key difference: There is no requirement to begin withdrawing the money at age 72. So you don’t have to worry about saving too much in your HSA and not being able to use it all effectively.
Timing Is Everything
By waiting as long as possible to spend your HSA assets, you maximize your potential investment returns and give yourself as much money as possible to work with. You’ll also want to consider market fluctuations when taking distributions, the same way you would when taking distributions from an investment account. You obviously want to avoid selling investments at a loss to pay for medical expenses.
Choose a Beneficiary
When you open your HSA, you will be asked to designate a beneficiary to whom any funds still in the account should go upon your death. If you're married, the best person to choose is your spouse because they can inherit the balance tax-free. (As with any investment with a beneficiary, however, you should revisit your designations from time to time because death, divorce, or other life changes may alter your choices.)
Anyone else you leave your HSA to will be subject to tax on the plan’s fair market value when they inherit it. Your plan administrator will have a designation-of-beneficiary form you can fill out to formalize your choice.
Pay Health Expenses in Retirement
Fidelity Investments’ most recent Retirement Health Care Cost survey calculates that the cost of healthcare throughout retirement for a couple who both turn 65 in 2020 is $295,000, up from $285,000 in 2019. Funds captured in an HSA can help out with such skyrocketing costs.
Qualified payments for which tax-free HSA withdrawals can be made include:
Office-visit copayments Health insurance deductibles Dental expenses Vision care (eye exams and eyeglasses) Prescription drugs and insulin Medicare premiums A portion of the premiums for a tax-qualified long-term care insurance policy Hearing aids Hospital and physical therapy bills Wheelchairs and walkers X-rays
You can also use your HSA balance to pay for in-home nursing care, retirement community fees for lifetime care, long-term care services, nursing home fees, and meals and lodging that are necessary while obtaining medical care away from home. You can even use your HSA for modifications, such as ramps, grab bars, and handrails, that make your home easier to use as you age.
One strategy might be to bunch qualified medical costs into a single year and tap the HSA for tax-free funds to pay them, compared with withdrawing from other retirement accounts that would trigger taxable income.
“Using HSA money to pay for medical expenses and long-term care insurance in retirement is a great benefit for investors given the tax exemption on any withdrawals made to fund either," says Hebner. "In other words, it’s the most cost-effective way to fund those expenses because they provide investors the highest after-tax value."
Also, note that there are limitations on how much you can pay tax-free for long-term care insurance based on your age.
Reimburse Yourself for Expenses
With an HSA you are not required to take a distribution to reimburse yourself in the same year you incur a particular medical expense. The key limitation is that you can’t use an HSA balance to reimburse yourself for medical expenses you incurred before you established the account.
So keep your receipts for all healthcare expenses you pay out of pocket after you establish your HSA. If, in your later years, you find yourself with more money in your HSA than you know what to do with, you can use your HSA balance to reimburse yourself for those earlier expenses.
Warnings About HSA Retirement Use
The strategies described in this article are based on federal tax law. Most states follow federal tax law when it comes to HSAs, but yours may not. As of the 2019 tax year, California and New Jersey tax HSA contributions. Even if you live in a state that taxes HSAs, however, you’ll still get the federal tax benefits.
The taxation of these plans could change in the future at either the state or federal levels. The plans could even be eliminated altogether, but if that happens, we would likely see them grandfathered for existing account holders, as was the case with Archer MSAs.
The Bottom Line
A health savings account, available to consumers who choose a high-deductible health plan, has been largely overlooked as an investment tool, but with its triple tax advantage, it provides an excellent way to save, invest, and take distributions without paying taxes.
The next time you’re choosing a health insurance plan, take a closer look at whether a high-deductible health plan might work for you. If so, open an HSA and start contributing as soon as you’re eligible. By maximizing your contributions, investing them, and leaving the balance untouched until retirement, you’ll generate a significant addition to your other retirement options.
Of course, you can't let the savings tail wag the medical dog. Hoarding your HSA monies rather than attending to your health is not recommended. However, if you’re financially able to use post-tax dollars for your current healthcare costs while saving your pre-tax HSA dollars for later, you could build a nice nest egg for your use in retirement.
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e1ac6ad0a65f0292847d6a4bc533f273 | https://www.investopedia.com/articles/personal-finance/091615/special-insurance-designer-clothes.asp | Special Insurance for Designer Clothes (AIG) | Special Insurance for Designer Clothes (AIG)
Dolce and Gabbana. Oscar de la Renta. Hermès. Marc Jacobs. Chanel. If this kind of lavish designer clothing graces your walk-in closet, you’re probably a serious fashionista—and you also need to call your insurance agent, stat.
Why? Because if your house burns to the ground, gets swept away by a flood, or is raided by fashion-obsessed robbers, simple homeowners insurance will not protect your big-ticket garments and elegant accessories. If you want to cover your couture collection, you’re going to need specialized designer wardrobe insurance.
Key Takeaways Traditional homeowners insurance policies often exclude damage to high-value garments caused by various risks, including floods, earthquakes, mold, moths, and accidents. Additionally, the loss of an expensive pair of shoes, handbag, or designer gown might not be covered under a homeowners policy if the loss is not greater than the deductible. AIG Private Client Group offers "Couture Collection Insurance," which provides specialized insurance protection for owners of couture and designer clothing. AIG’s wearable collections insurance covers both made-to-measure and ready-to-wear garments, shoes, handbags, and other accessories.
Who Needs Clothing Insurance?
Unlike other collectible items such as art, jewelry, and antiques, insurance companies typically lump clothing, shoes, and handbags into the “household contents” category. These items are subject to high deductibles and a myriad of limits and exclusions, such as floods, moth damage, and mold.
Furs, of course, can be (and often are) itemized on a policy rider. But if you’re a designer-clothing aficionado, you are well aware that even a simple sundress can run you as much as a fun fur—several thousand dollars. And let’s not even talk about the haute couture ensemble you bought for last year’s charity gala (it would be gauche, after all, to point out that it cost you six figures).
In other words, if your closet is bursting at the seams with designer clothes, handbags, shoes, and furs, the “contents” of that walk-in could easily add up to more than a million dollars. Of course, that’s assuming you have only one designer-decked closet. Throw in the vacation home and the pied-à-terre, and you might be pushing $1.5 million.
So, how do you protect your expansive and expensive wardrobe? Fortunately, there’s an insurance product for that.
Avoid a Fashion Wipeout
In Sept. 2015, AIG Private Client Group (a division of American International Group, Inc. (AIG) that serves high-net-worth policyholders) released what they call “wearable collections coverage.” This specialized insurance solution is designed to protect couture and designer garb—which, as described above, is not included in most homeowners insurance policies.
“Much like collectors of fine art, vintage cars, or wine, customers who invest in their wardrobes can be quite passionate about their acquisitions,” said Ron Fiamma, vice president and global head of private collections for AIG Private Client Group, in a news release. “To help safeguard these items, our new couture solution closes the gaps in a traditional homeowners policy and enables us to proactively mitigate risks for these collections.”
Couture Collection Insurance
AIG worked with Garde Robe Online, LLC, an apparel storage and preservation service, to identify coverage features and develop a comprehensive insurance solution for designer wardrobe collectors. In fact, the product was the brainchild of Doug Greenberg, an owner of Garde Robe Online. When he noticed most of his Garde Robe’s clients declined the firm’s proffered insurance on clothes stored in its facilities, he approached insurance underwriters and suggested the product.
As AIG developed the policy, they sent underwriters to designers’ studios to learn about the materials and workmanship involved in fashion and interviewed Garde Robe’s clients. The end result was a unique insurance solution that recognizes the value placed on the skilled workmanship and fine detail of high-end designer fashions and accessories, many of which might be one-of-a-kind or custom-made.
What’s Covered?
AIG’s wearable collections insurance covers both couture (also known as made-to-measure) and ready-to-wear garments as well as vintage garments, shoes, handbags, and other accessories. The policy covers any designer apparel damage caused by floods; earthquakes; mold, moths, and other vermin; and accidents—risks that are often excluded from traditional homeowners policies. If a designer piece is damaged by a covered loss, the insurance also pays for dry cleaning and restoration costs by a high-end garment care specialist.
Additionally, the insurance includes coverage for custom, work-in-progress couture, and shoes. It also reimburses you for expenses if you decide to remove your designer wardrobe from your home in advance of an impending threat. Better yet, your clothing is covered across the globe, even when it’s in transit. That means you won’t have to sweat it when you check your couture-stuffed Louis Vuitton leather suitcase with a commercial airline.
AIG’s couture insurance will pay for the repair or replacement of garments, whenever possible. The policy includes a loss-in-value clause, which means if a client’s collection of vintage Chanel suits is damaged in an earthquake, they can be compensated for the reduced value as well as for any repairs.
To top it off, AIG Private Client Group’s in-house collection management specialists are available to customers year-round to help preserve the long-term value of collectible garments, shoes, and handbags. The insurance contract includes an array of services, including vulnerability assessments, emergency planning, and referrals to wardrobe-preservation specialists.
AIG's Couture Collection insurance also covers specialty clothing collections—including vintage, costume, historic, and celebrity clothing collections.
How Much Does It Cost?
If you have a designer wardrobe valued at $1 million, the total starting premium would be approximately $3,000 a year to insure your collection through AIG’s couture insurance (depending on the potential risks to the clothes). These premiums vary and could be higher based on the location of your clothing collection. For example, if your wardrobe is located in a flood zone, hurricane-prone area, or in a rarely used vacation home, coverage will probably cost you more.
The AIG policy offers incentives to clients who use professional storage services where garments are covered in breathable garment bags and held in climate-controlled spaces. AIG’s couture coverage is sold under the insurer’s private collections policy, which includes benefits like agreed-value coverage, no deductibles, and loss-in-value payments.
The Bottom Line
AIG estimates that high-net-worth individuals in the U.S. pay about $5 billion in annual insurance premiums, but only 20% of them are adequately insured. If you own an extensive collection of couture, it’s time to look into designer wardrobe insurance. Remember, your homeowners insurance most likely does not cover your high-value garments. Without the proper coverage, one burst pipe or hungry moth family could cost you thousands or even millions of dollars. Not to mention leaving you with absolutely nothing to wear.
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9779c51af93fa7237a3009a21ba241b7 | https://www.investopedia.com/articles/personal-finance/091714/top-websites-checking-your-credit-scores.asp | Top Sources for Free Credit Scores | Top Sources for Free Credit Scores
Lenders and other potential creditors use your credit score to decide whether they want to do business with you. So, knowing your score before applying for a loan, a credit card, an insurance policy, a job, or an apartment will give you an idea of whether you'll be approved.
Monitoring your credit score can also help you prevent, or deal with, bad credit—by quickly alerting you to possible problems and, at many of the services mentioned below, giving you tips on improving your score.
Key Takeaways Credit scores are used by lenders and others to evaluate the creditworthiness of an applicant.Equifax, Experian, and TransUnion offer annual free credit reports, but not credit scores.You can get your credit score for free from credit monitoring websites and some credit card companies.
The Importance of Knowing Your Score
By logging on to AnnualCreditReport.com, you can check your credit reports for free once every 12 months from each of the major credit bureaus—Equifax, Experian, and TransUnion. However, these reports will not give you a credit score. While you can pay one of the reporting companies for your credit score, you really don't have to anymore. There are a number of websites and credit card companies that will give you your credit score for free.
Here are four free services and five credit card companies that provide credit scores to consumers, along with what each of them offers and how they differ.
Signing Up for Free Credit Services
By signing up for these free services, you’ll get a broad view of what your credit score looks like with each of the major credit bureaus. And if you combine Credit Karma or WalletHub’s free TransUnion credit reports with the free credit reports you can get through AnnualCreditReport.com, you’ll be in a better position to catch identity theft or other problems in their early stages.
Credit Karma—Scores and Reports
Credit Karma provides free credit scores and reports from TransUnion and Equifax that are updated weekly, and you don't have to provide a credit card to register. The free TransUnion and Equifax credit scores you get through Credit Karma are based on the VantageScore 3.0 model. The VantageScore is a newer scoring model created by a collaboration among the three major credit bureaus to devise a score that is more consistent from one bureau to the next and more accurate compared with traditional FICO scores. (In addition to those two scores, there are other, more specialized credit scores, which are used by insurance companies, for example.)
You also get free credit monitoring for your TransUnion report, a credit factors analysis that summarizes key details from your credit report, and a free credit score simulator that shows you how various actions, like adding a new credit card or increasing your credit line, are likely to affect your credit score. Credit Karma also offers a free auto insurance score.
Credit Karma says it does not sell its customers’ information to advertisers, but it does recommend specific financial products based on your credit profile and makes money if you open an account with one of its advertising partners through the Credit Karma website.
Credit Sesame—Personalized Tips
Credit Sesame is another credit monitoring service but slightly different from Credit Karma. This one gives members access to their VantageScore from TransUnion. The site also provides personalized tips based on your credit profile and goals. And finally, it gathers all of your credit information and makes money-saving suggestions.
If you're overpaying in fees and interest, it will give you options you can use to lower those payments. The site also provides credit monitoring and alerts in case your profile or identity is compromised. Consumers can also get $50,000 in fraud resolution assistance for free through Credit Sesame. Like Credit Karma, this site doesn't ask for a credit card to join.
At the time of writing, Credit Sesame is one of the best credit monitoring services currently on the market.
Credit.com—Monthly Updates
You can get two free credit scores through Credit.com: an Experian score and your VantageScore 3.0, updated once a month. You’ll have to sign up for a free account, but you won't be required to put in a credit card number to register. The site also offers a free credit report card that shows how the information in your credit report affects your score and provides tips for improving your score. Credit.com says it does not sell your data to third parties but makes money if you apply for offers through promotional links on its website.
WalletHub—Credit Alerts
By providing your name, address, date of birth, and last four digits of your Social Security number, and then answering a few questions to verify your identity, you’ll gain access to WalletHub’s free credit report and score service. At the end of registration, the site also asks a few personal questions, such as your annual income, monthly expenses, savings, most important financial need, and credit card debt. The score you’ll get is your TransUnion VantageScore, and the credit report is also from TransUnion.
The dashboard shows all of your credit accounts and your balances, while the credit alert section gives you a report-card-style letter grade on the factors that influence your credit score. For example, it will tell you if your debt load is too high relative to the income you indicated when setting up your account, or if your credit utilization ratio is too high and hurting your score.
Drop-down menus provide additional details, such as your credit utilization ratio for each of your credit cards. An easy-to-read version of your credit report shows all of your current accounts and closed ones too, and any negative items, like accounts that have gone to collections. A menu bar across the top of the page provides information about financial products and services, such as checking accounts and car loans. WalletHub earns money from some of these companies, which advertise and pay for premium placements on the site.
If you just want a general idea of where you stand, the free credit score on your monthly credit card statement, if your card issuer provides one, could be good enough.
Credit Card Companies That Provide Free Credit Scores
In addition to the services listed above, many credit card companies offer their customers, and sometimes others, a free look at their credit scores. They include:
Discover Card
Discover Card customers receive their free TransUnion FICO credit score on each monthly statement. Customers who are still establishing their credit history may not see a score until they've made several months of payments. One factor to note: Only the primary cardholder will receive a free credit score, while authorized users of the card will not.
Barclaycard
Barclaycard customers get a free FICO score on their monthly statements. In addition, they can see up to two factors that affect their credit score. These might be things like “balances on a bank card or revolving accounts too high compared to credit limits” (in other words, a high credit utilization ratio) or “The total of all balances on your open accounts is too high.” This information can help you improve your credit score by changing the way you use credit. Barclaycard also provides a chart showing how your credit score has changed over time once you have three months of credit score history.
Capital One Card
Formerly known as Credit Tracker, Capital One's CreditWise service is available to anyone, whether or not you're a cardholder with the company. Through this service, you can get access to your VantageScore 3.0 every month and be alerted to any changes in it. One of the key features of this service is its simulator, which allows you to see which factors will affect your score and overall credit health—and by how much. For example, you can see the impact on your score of making a $1,500 purchase on a credit card or taking out a $10,000 loan.
First Bankcard
First National Bank offers its credit card users a free FICO Bankcard Score 9, which is a score tailored to credit card lending. It is not, in other words, the score a mortgage lender would use when deciding whether you can borrow money to buy a house, but it will still give you some idea of where you stand. Your score is updated once a month.
Walmart Credit Card
If you have a Walmart credit card, you’ll receive a free FICO score each month if you sign up for electronic monthly statements. You’ll also be able to see two "reason codes" affecting your score.
Disclosure: The information in this article comes from the author going through the sign-up process and creating an account. The author has no holdings in any of the companies mentioned in this article at the time of writing.
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78d81e00c977362a99ff7a468a35422c | https://www.investopedia.com/articles/personal-finance/092115/best-places-exchange-currency-houston.asp | Best Places to Exchange Currency in Houston | Best Places to Exchange Currency in Houston
While some cities in the United States struggle to attract international tourists, Houston has charged ahead, attracting more visitors from overseas. Roughly one-third of the 1.25 million annual visitors to NASA’s famous Space Center Houston are international tourists who come to have lunch with the astronauts and tour the historic Mission Control Center. Houston has another big draw—megamalls that bring in droves of shoppers from neighboring Mexico. In Texas, some sales taxes are refunded to international visitors, so shopping is tax-free in many cases.
Houston's George Bush Intercontinental Airport (IAH) services 185 destinations worldwide, offering more destinations in Mexico than any other airport in the United States. Regardless of where you travel from, you’ll probably need to exchange some of your home currency for U.S. dollars. Here are a few options of where you can go to get some Benjamins.
Key Takeaways You can find currency exchange kiosks at the airport—but remember, they don't offer the best rates. Currency exchange stores are located throughout the greater Houston area. One of the easiest ways to convert your cash is to use an ATM. Consider getting a currency exchange app on your phone.
At the Airport
Airport currency exchange kiosks typically don’t offer the best rates. But they are convenient, especially if you arrive in the country with no U.S. dollars and need to exchange your cash in a pinch. Unlike many airports that offer currency exchange services through only one company, Houston has only one primary currency exchange service provider—ICE or the International Currency Exchange. You can find ICE branches at the following locations in the airport:
Terminal C—Hours are 7:30 a.m. to 6:30 p.m., daily. Contact: 281-233-3873 Terminal D—Hours are 7:30 a.m. to 7:30 p.m., daily. Contact: 281-233-3585 Terminal E—Hours are 9:00 a.m. to 8:00 p.m., daily. Contact: 281-233-3869
There's also one location at William P. Hobby Airport, 11 hours from downtown Houston. The kiosk's hours are 9:00 a.m. to 5:00 p.m., Monday to Friday. Contact: 713-845-6780
Currency Exchange Stores
In addition to the ICE branches within the airport, there are a few other exchange stores located throughout the greater Houston area. Some options include the Texas Currency Exchange at 303 Memorial City Mall. The counter's hours of operation are 11:00 a.m. to 7:00 p.m., daily, and its contact number is 713-468-6800. You can also visit a number of Travelex exchange locations throughout the city including:
5085 Westheimer Road at the Houston Galleria Mall. Contact: 713-398-6130 10777 Westheimer Road at the One Westchase Center. Contact: 713-782-8092
ATMs
Automated teller machines (ATMs) are considered one of the easiest ways to get cash while traveling. Exchange rates are generally better than what you’ll get at a currency exchange store and, depending on your bank’s policies—along with any agreements it may have with U.S. banks—you could pay little to no fees when you make a withdrawal. To avoid any surprises, it’s a good idea to contact your bank before you leave home to find out what, if any, charges you will have to pay in order to get cash at the machine. If your bank charges a per-transaction fee (which many do), you can limit fees by making larger and less frequent withdrawals.
ATMs are located throughout the airport in every terminal. There are also two Cardtronics ATMs at the airport. Once you leave the airport, you can find a wide selection of ATMs throughout Houston at shopping centers, grocery stores, gas stations, banks, and places close to tourist attractions. Houston has all the major financial institutions including Bank of America, Citibank, Chase, Wells Fargo, along with some smaller banks that you can use.
A Few Considerations
It may be worthwhile to invest in a currency converting app before you travel. An app can help you figure out rates and how much money you should get while you're abroad. You enter the type and amount of currency you want to exchange, and the app calculates how much of the new currency you get at the current exchange rate. Keep in mind, though, that an app will not take any additional fees or charges that you may have to pay.
Using your debit card is one of the easiest ways to get cash. If you pay a per-transaction fee, plan your withdrawals to limit the number of transactions you have to make during your trip. You may also be able to use your card to get cash back when you make purchases at participating retailers. As for credit cards, many banks charge fees for overseas purchases. If you are a frequent traveler or plan to use your credit card a lot, it might be worth getting a no foreign transaction fee card—especially one of the cards that also has no annual fee.
Getting a credit card with no foreign transaction fees can save you money while you're traveling.
The Bottom Line
Many travelers find it practical to use a combination of currency exchange, ATM withdrawals, and credit-card purchases to fund their trips. If you need to exchange only a small amount of money, the convenience of airport kiosks can be worth the small hit you take on the rate. If you plan on exchanging more, it may be worthwhile to shop around for a better rate. Keep in mind that many stores advertise no fees or no commissions, but you still might end up with a poor exchange rate—sometimes due to hidden fees. No matter where you exchange money, always ask how many U.S. dollars you will get in return for your currency before you hand over any cash.
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d3e9b9dd189578d65e39ff762b38010a | https://www.investopedia.com/articles/personal-finance/092315/7-reasons-own-life-insurance-irrevocable-trust.asp | 7 Reasons for an Irrevocable Life Insurance Trust (ILIT) | 7 Reasons for an Irrevocable Life Insurance Trust (ILIT)
People buy life insurance for many reasons, and it offers some unique features that are not found in many other financial products. For example, leverage, especially in the early years of a policy, where you pay a small premium to lock in a large death benefit or the ability to time liquidity to an event (the death benefit).
What Is an Irrevocable Life Insurance Trust (ILIT)?
An irrevocable life insurance trust (ILIT) is created to own and control a term or permanent life insurance policy or policies while the insured is alive, as well as to manage and distribute the proceeds that are paid out upon the insured’s death. An ILIT can own both individual and second to die life insurance policies. Second to die policies insure two lives and pay a death benefit only upon the second death.
An ILIT has several parties: the grantor, trustees, and beneficiaries. The grantor typically creates and funds the ILIT. Gifts or transfers made to the ILIT are permanent, and the grantor is giving up control to the trustee. The trustee manages the ILIT, and the beneficiaries receive distributions.
It is important for the grantor to avoid any incident ownership in the life insurance policy, and any premium paid should come from a checking account owned by the ILIT.
If the grantor transfers an existing life insurance policy to the ILIT, there is a three year lookback period in which the death benefit could be included in the grantor's estate.
There can also be gifting problems if the policy being transferred has a large accumulated cash value. If there is a question about the grantor being able to obtain coverage and you want to verify insurability before paying the expense of having a trust drafted, have the grantor apply for coverage and list the owner as a trust to be named.
Once the life insurance company has made an offer for a new application, properly listing the trust as the owner can be submitted, replacing the initial application. The policy will then be issued to the trust.
Once established and funded, an ILIT can serve many purposes including the following:
Minimizing Estate Taxes
If you are the owner and insured, then the death benefit of a life insurance policy will be included in your gross estate. However, when life insurance is owned by an ILIT, the proceeds from the death benefit are not part of the insured's gross estate and thus not subject to state and federal estate taxation.
If properly drafted the ILIT can, however, provide liquidity to help pay estate taxes, as well as other debts and expenses, by purchasing assets from the grantor’s estate or through a loan. Also, lifetime gifts can help reduce your taxable estate by transferring assets into the ILIT.
Avoiding Gift Taxes
A properly drafted ILIT avoids gift tax consequences since contributions by the grantor are considered gifts to the beneficiaries. To avoid gift taxes it is crucial that the trustee, using a Crummey letter, notify the beneficiaries of the trust of their right to withdraw a share of the contributions for a 30-day period .
After 30 days, the trustee can then use the contributions to pay the insurance policy premium. The Crummey letter qualifies the transfer for the annual gift tax exclusion by making the gift a present rather than future interest, thus avoiding the need in most cases to file a gift tax return.
In 2020 and 2021, you can give $15,000 a year to as many people as you like. The $15,000 encompasses all gifts. A married couple can give an individual a combined $30,000 annually, gift-tax free. There is no limit to the total number of gifts a couple may make. You can also give someone more than $15,000 a year with the excess being applied toward your lifetime estate tax exemption of $11,580,000 for 2020 and $11,700,000 for 2021.
Government Benefits
Having the proceeds from a life insurance policy owned by an ILIT can help protect the benefits of a trust beneficiary who is receiving government aid, such as Social Security disability income or Medicaid. The Trustee can carefully control how distributions from the trust are used so as not to interfere with the beneficiary's eligibility to receive government benefits.
Asset Protection
Each state has different rules and limits regarding how much cash value or death benefit is protected from creditors. Any coverage above these limits held in an ILIT is generally protected from the creditors of the grantor and/or beneficiary. The creditors may, however, attach any distributions made from the ILIT.
Distributions
The trustee of an ILIT can have discretionary powers to make distributions and control when beneficiaries receive the proceeds of your policy. The insurance proceeds can be paid out immediately to one or all of your beneficiaries. Or you can specify how and when beneficiaries receive distributions.
The trustee can also have the discretion to provide distributions when beneficiaries attain certain milestones, such as graduating from college, buying a first home, or having a child. It’s really up to you. This can be useful in second marriages to ensure how assets are distributed or if the grantor of the trust has children who are minors or need financial protection.
Legacy Planning
The generation-skipping transfer tax (GSTT) imposes a tax of 40% on both outright gifts and transfers in the trust to or for the benefit of unrelated persons who are more than 37.5 years younger than the donor or to related persons more than one generation younger than the donor.
A common example is gifting to grandchildren instead of children. An ILIT helps leverage the grantor of the trust’s generation-skipping transfer (GST) tax exemption by using gifts to the trust to buy and fund a life insurance policy. Since the proceeds from the death benefit are excluded from the grantor’s estate, multiple generations of the family—children, grandchildren, and great-grandchildren—may benefit from the trust's assets free of estate and GST tax.
Tax Considerations
Irrevocable trusts have a separate tax identification number and a very aggressive income tax schedule. However, the cash value accumulating in a life insurance policy is free from taxation as is the death benefit. So there are no tax issues with having a policy owned in an ILIT.
If properly designed, an ILIT can allow the trustee access to the accumulated cash value, by taking loans and/or distributions on a cost basis, even while the insured is alive. However, once a death benefit has been paid, if the proceeds remain in the trust, any investment income earned and not distributed to the beneficiaries could be taxed.
The Bottom Line
ILITs are a powerful tool that should be considered in many wealth management plans to help ensure that your policy is used in the best possible way to benefit your family. And even with the federal estate and gift tax exemption at $11,580,000 ($11,700,000 in 2021), it is still possible to owe state estate taxes. Many states begin taxing your estate at $1 million or less.
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b385d22347ce9432a94bfbb62c20aa1c | https://www.investopedia.com/articles/personal-finance/092315/how-much-you-can-contribute-your-ira.asp | This Is How Much You Can Contribute to Your IRA | This Is How Much You Can Contribute to Your IRA
One of the surest ways to bolster your nest egg is to take advantage of special tax breaks offered by the IRS. That basic precept explains the popularity of individual retirement accounts (IRAs), one of the cornerstones of retirement planning in the U.S.
To make the most of an IRA, be it the traditional or the Roth variety, you'll need to understand how these accounts work in general and their annual contribution limits in particular.
Key Takeaways IRAs have annual contribution limits that collectively apply to all deposits made to either a traditional IRA, a Roth IRA, or both.IRA contribution limits are raised every few years to keep up with inflation.For 2020 and 2021, individuals can set aside up to $6,000 per year; those 50 and older can save an additional $1,000.Roth IRA contributions are also affected by an individual's overall income.Traditional IRA contributions are also affected by participation in an employer-sponsored retirement plan.You can contribute to IRAs on a variety of schedules; dollar-cost averaging can be an effective, economical way to invest funds.
How Traditional IRAs Work
Like employer-sponsored 401(k)s, traditional IRAs can dramatically reduce the amount of income you have to fork over to the federal government. Investors generally contribute pretax dollars, and the balance grows on a tax-deferred basis until retirement. Withdrawals after the age of 59½ are then subject to ordinary income taxes at the rates of your current tax bracket.
Be aware, though, that there are limits on how much you can contribute. It’s also worth bearing in mind that the two most common varieties of this savings vehicle—traditional IRAs and Roth IRAs—have different rules.
IRA Contribution Limits
For both 2020 and 2021, the standard contribution limit for both traditional and Roth IRAs is $6,000. If you’re 50 years of age or older, the IRS provides a “catch up” feature that allows you to contribute an extra $1,000 each year for a total of $7,000.
If you’re rolling over another retirement plan into an IRA, annual contribution caps don’t apply.
That may not sound like a lot of money, but it’s enough to have a big impact on your account performance over a long period of time. As an example, let’s take a 30-year-old who contributes the full $6,000 every year until retirement.
Assuming a 7% annual return, the account will have a balance of $887,481 when the investor reaches age 65, not including catch-up contributions. After taxes—assuming a 22% tax rate in retirement—it’s still worth $692,235. And remember, the contribution limit is also increased over time by the IRS to keep up with inflation.
The chart below shows how the tax advantages of an IRA can have a dramatic impact on savings over the course of several decades.
Let’s say that the retirement saver's effective tax rate right now, while they're earning a steady income, is 24%. Had they put the same portion of each paycheck in a taxable savings account, it would be worth far less. Why? Because the IRA's tax deduction gives retirement savers greater purchasing power.
Suppose, after paying taxes, that our 30-year-old could only afford to put $4,560 into a standard savings account. If the money was put into an IRA instead, it would reduce the tax bill, allowing the account holder to put in an additional 24%, or $1,440. Over time, that drastically increases the size of the nest egg.
How Employer-Sponsored Plans Affect IRAs
While anyone can contribute up to $6,000 (or $7,000 for individuals age 50 and older) to a traditional IRA, not everyone can deduct that full amount on their tax return. If you or your spouse (if you are married) participates in a retirement plan at work, you’re subject to certain income-based restrictions based on your modified adjusted gross income (MAGI).
If you’re single and make more than $66,000 and less than $75,000 a year for 2021 (up from $65,000 and $75,000 in 2020), for example, you’re only allowed a partial deduction on IRA contributions.
Common types of employer retirement plans include:
401(k) accountsProfit-sharing programsStock bonus programsSEP or SIMPLE IRAsPensions
Different Rules for Roth IRAs
Up to now, we've discussed traditional or standard IRAs. When setting up an IRA, most investors have two choices: the original version of these savings accounts, which date back to the 1970s, and the Roth variety, introduced in the 1990s. In some respects, the tax treatment of the Roth IRA is just the opposite of its older cousin. Instead of getting a tax deduction on contributions upfront, account holders kick in post-tax money that they can withdraw tax-free in retirement.
The Roth version of the IRA has the same contribution limits as a standard IRA. But unlike traditional accounts, the government places restrictions on who can contribute. To determine your eligibility, the IRS also uses MAGI as a metric. Basically, it’s your total income minus certain expenses.
Most taxpayers qualify for the full contribution allowance, although certain higher-earning individuals are only permitted a reduced amount. In 2020, single filers with a MAGI of more than $139,000 per year and joint filers who bring in more than $206,000 are disqualified from Roth IRA contributions altogether. The phase-out limits increase to $140,000 and $208,000 in 2021.
There’s another area in which Roth IRAs differ from traditional IRAs. With the latter, you have to start taking required minimum distributions (RMDs) from your account at age 72. The RMD age used to be 70½ but was raised to 72 following the passage of the Setting Every Community Up For Retirement Enhancement (SECURE) Act.
How to Contribute to IRAs
You can contribute to either type of IRA as early as Jan. 1 or as late as the tax year’s filing deadline in mid-April each year. It’s up to you whether you make one large contribution or make periodic contributions throughout the year. Those could be daily, bi-weekly, monthly, quarterly, or in a single lump sum each year.
If you have the money, it can make financial sense to make the full contribution at the beginning of the year. That gives your money the most time to grow. For many people, however, it’s difficult to come up with $6,000 all at once. In that case, it’s better to set up a contribution schedule.
It’s usually easy to set up automated payments that transfer money from your bank account into your IRA account on a regular schedule. That could be every two weeks (when you get your paychecks) or once a month. Setting up periodic contributions makes that $6,000 more manageable, and it has another benefit, too: dollar-cost averaging.
Dollar-Cost Averaging for IRAs
Dollar-cost averaging (or systematic investing) is the process of spreading out your investment over a specific time period (a year, for our purposes). It’s a disciplined approach that’s tailor-made for IRA contributions.
With dollar-cost averaging, you invest a certain amount of money into your IRA on a regular schedule. The key thing is you invest that money, generally into either a mutual fund or a stock, regardless of what the investment’s share price is. In some months, you’ll end up buying fewer shares per dollar investment when the share price rises. But in other months, you’ll get more shares for the same amount of money when prices fall. This tends to level out the cost of your investments. You end up investing in assets at their average price over the year—hence, the name dollar-cost averaging.
Spreading out when you invest is a good idea, especially if you’re risk-averse. It effectively reduces the average cost basis of your investment—and hence, your breakeven point, an approach known as averaging down.
Here’s an example. Let’s say you have $500 to invest in a mutual fund every month. In the first month, the price is $50 per share, so you end up with 10 shares. The next month, the fund’s price falls to $25 per share, so your $500 buys 20 shares. After two months, you would have bought 30 shares at an average cost of $33.33.
Using dollar-cost averaging, you only need to commit $500 per month in order to reach the annual limit, or $250 every two weeks, if you invest on a paycheck-to-paycheck basis.
How Much Should You Contribute to an IRA?
That's a good question. It's tempting to say you should fund it to the allowable max each year—or at least up to the deductible amount if you're going with the traditional type.
Lovely as it would be to furnish a hard-and-fast figure, though, a real-life answer is more complicated. Much depends on your income, needs, expenses, and obligations. Laudable as long-term saving is, most financial advisors recommend you clear your debts first, if possible—unless you're mainly holding "good" debt, like a mortgage that is building equity in your home. But if you have something like a bunch of outstanding credit card balances, make settling them your first priority.
$3,938 The average annual IRA contribution, according to the Employee Benefit Research Institute.
Much also depends on how much money you think you'll need/want in retirement, and how long you have before you get there. A variety of ways exist to figure out this golden sum, of course. But it might make more sense to come up with an ideal number, and then work backward to calculate how much you should contribute toward your accounts, figuring average rates of return, the investment time frame, and your capacity for risk—rather than just blindly committing a certain sum to an IRA.
Figure in what other sorts of retirement-savings vehicles are open to you, too—such as an employer-sponsored plan like a 401(k) or 403(b). Often, it's more advantageous to fund these first up to the allowed amount—a 401(k) has higher contribution limits than an IRA—especially if your company generously matches employee contributions.
After you've maximized the subsidy, you could then deposit additional sums into a Roth IRA or a traditional IRA (even though the contributions may be nondeductible).
However, if your workplace plan is unsatisfactory (little or no match, highly limited, or poor investment options), then make your IRA the primary nest for your retirement funds. It’s easy to open an account at a brokerage firm, mutual fund company, or bank, for instance.
In addition to mutual funds and exchange-traded funds (ETFs), many IRAs allow you to pick individual stocks, bonds, and other investments as well.
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28c226c86e1f68624da9886fd30fee6d | https://www.investopedia.com/articles/personal-finance/092315/it-safe-send-money-through-facebook.asp | Is It Safe to Send Money Through Facebook? | Is It Safe to Send Money Through Facebook?
Facebook employs several safeguards to protect your money and financial information when you send money through its Messenger app and the more recently launched Facebook Pay. Like anything online, however, there remains a chance that your safety may become compromised.
Cybercriminals and hackers can be ingenious, and that has led to numerous online security breaches at big companies. Facebook employs some of the brightest minds in cybersecurity to keep its users safe. However, a Facebook security breach in 2018 exposed the personal information of an estimated 87 million users and raised some doubts about Facebook's ability to protect its customers' data.
Here is what you need to know about using Facebook's Messenger app and Facebook Pay to send and receive money, what cybersecurity measures Facebook employs, and what you can do to protect your information and your money.
Key Takeaways Facebook allows users to send and receive money through the Messenger app and Facebook Pay, free of charge. Facebook's software plays the role of financial middleman between the sender and the receiver. The company's software is also set up to provide security and protection from hackers. Even with good security, users need to be proactive and employ cybersecurity best practices on all devices.
How Sending Money on Facebook Messenger Works
Facebook offers a feature that allows users to send and receive money through the site's popular Messenger app. Facebook's software facilitates the money transfer, acting as a conduit between the user's bank and the payee's bank. The software also gives the transaction extra layers of security to prevent hackers from compromising either party's financial information.
Facebook does not charge users to send or receive money in Messenger. Both the sender and the receiver must live in the United States, be at least 18 years old, and link a bank-issued debit card or PayPal account to Facebook or Messenger.
How to send money using Messenger
To send money through Facebook, open a Messenger conversation with a friend, click the plus icon, and then click the dollar sign icon. From there, enter your bank-issued debit card number or PayPal information, which may be stored in the app for future use. Lastly, input the amount you want to send and submit it.
You can send money to multiple friends through a group conversation. You can also use group conversations to request money from multiple friends.
How to receive money using Messenger
To receive money in Messenger, you must add a debit card to your account. First, open the Messenger conversation containing the money and select "Add Debit Card." Once you've added a debit card to your account, money sent to you will automatically deposit to that account.
You can only send and receive money with family and friends via Facebook Messenger—business payments can't be made.
How Facebook Pay Works
Facebook launched Facebook Pay in November 2019, making it possible to send and receive money across its platforms—Facebook, Messenger, Instagram, and WhatsApp—and to purchase things such as games, event tickets, and items for sale on Facebook Marketplace and Instagram.
Facebook Pay works much like Messenger and also does not charge fees. Users can link a bank-issued debit card or PayPal account, as well as major credit cards (a feature that Messenger does not offer). In the U.S. it is currently available on Facebook, Messenger, and Instagram and will eventually be offered on WhatsApp. Facebook Pay continues to roll out in other countries too.
Facebook's Security Measures
With sensitive services like Messenger and Facebook Pay, many users wonder what kind of security measures Facebook includes to protect its users. The connection is encrypted by Facebook. Encryption is the process of using an algorithm to turn critical information—such as credit card and bank account numbers—into an unreadable format. Moreover, Facebook uses an additional layer of encryption for financial information submitted through Messenger and Facebook Pay.
Additionally, when sending or receiving money, Facebook only shares your name, profile photo, and the dollar amount between you and your friend. The info the app asks to verify your identity is not shared. To confirm your identity and prevent fraud, Facebook may ask you to provide additional information, such as your legal name, date of birth, zip code, last four digits of your Social Security number, or answers to multiple-choice questions that only you would know. Because Facebook Pay also allows purchases, anti-fraud technology monitors purchases to detect unauthorized activity.
Users who seek even more security can require a personal identification number (PIN) to send money. This prevents fraudulent transactions if an unauthorized user gets their hands on your computer or mobile device.
Another security option specific to iPhone and iPad users is Touch or Face ID, by which the device analyzes your fingerprint or facial features to ensure you are authorized to send money.
More Tips to Keep Your Account Secure
There are additional measures you should take when sending and receiving money via Facebook to keep your account safe. You should only send and receive money from people you know and trust. Protect your Facebook account by activating two-factor authentication (2FA), which is a second layer of security.
Don't accept friend requests from people you don't know, even if the requests seem to come from people who are "friends of friends." Cybercriminals will hack into existing accounts of people you know and pose as friends in order to gain your trust. They might set up an elaborate fake online identity—a strategy known as cat fishing. They'll use Messenger to send messages requesting money. Facebook reports these fraudsters will use a variety of common money scams, including donation, lottery, romance, loan, and inheritance scams.
1.3 billion The number of people using Facebook's Messenger app monthly.
The Bottom Line
Because this concerns the internet, no information is ever 100% safe, regardless of the security measures in place. Several large-scale hacking incidents have made some consumers wary of making financial transactions using their phone's apps.
While such high-profile incidents understandably make internet users nervous, the fact remains that the biggest security threat to your information online comes from failing to secure your personal devices. Be sure to password-protect your computer and mobile devices to help prevent unauthorized users from accessing them and wreaking havoc. And install a robust antivirus or anti-malware program to help detect threats such as keystroke loggers, which record the keystrokes you make to a log file that gets sent to an unauthorized third party.
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0950050d1f748d1c62924b0ef7959b22 | https://www.investopedia.com/articles/personal-finance/092414/investing-luxury-real-estate.asp | Investing in Luxury Real Estate | Investing in Luxury Real Estate
Real estate has long been considered a safe investment, whether you own, flip, or rent. If you have the money, you may want to expand your portfolio into the luxury real estate market. Before you jump in, here are some of your options for investing in luxury real estate.
Key Takeaways Real estate isn't considered luxury just because it's expensive. It must also be unique, exclusive, and perceived as superior. High-end buyers want access to luxury activities like shopping, dining, and the arts, as well as proximity to other luxury homes. Luxury real estate investors can flip a mansion, invest internationally, buy a luxury condo, buy a high-end vacation property, or build from scratch.
Luxury real estate prices were hot and had been soaring. Case in point: The most expensive residential real estate sale of 2019 was a Manhattan penthouse that sold for $240 million, according to data from Miller Samuel Inc. That's almost $166 million more than the previous year's top New York City sale.
With the wealth of the world’s richest people growing, it had seemed that the potential market for luxury properties was larger than ever. Then the coronavirus pandemic hit, and prospects for real estate prices and real estate, in general, have become notably uncertain.
Bargains may be available for those with cash. However, the willingness of potential investors to step up and buy them is doubtful, to say the least.
Whether you're interested now or thinking about future investments, here are key principles for investing in luxury real estate based on market growth before the pandemic.
What Is Luxury Real Estate?
It's crucial to understand the features that characterize luxury property before you invest. A high price tag alone won't put a property in this category. "It has to be unique and exclusive—in a good way, in a desirable way," said Randy Char, senior VP of operations at One Queensridge Place, a luxury Las Vegas high-rise. "People who are wealthy will pay a premium for something that's perceived to be superior."
High-end buyers want locations with access to luxury activities such as high-end shopping, dining, and the arts, as well as proximity to other luxury homes. A trophy address, like Park Avenue in New York City, adds value. Having a storied history doesn’t hurt, either. Many luxury buyers seek the natural beauty of a waterfront location, or at least views of a river, ocean, or lake. Others want countryside or mountainside views.
High-end buyers desire many of the same features that all buyers want but on a grander scale. They want privacy and security, sometimes to the point of seclusion. They want beauty inside and out and can afford custom architecture, custom design, over-the-top attention to detail, and opulent finishes.
They also want amenities on top of amenities: a chef’s kitchen, luxury pool, expansive owner's suite, and outdoor living space, not to mention home automation, motion detectors, car lifts, and temperature-controlled wine cellars. Many also want space, but you certainly don't need a massive home to live in luxury.
When choosing a luxury home, it’s extremely important to think about the aspects of the property that can’t be changed, said Mark Fitzpatrick, CEO of RUHM Destination Marketing, a marketing service for luxury properties. “You can't change the path of the sun, the location of the ocean, or the fact that there is a flight path for large airplanes over your head. Ugly wallpaper in the bathroom is far less important than the weather,” he said.
How Much Does Luxury Real Estate Cost?
In markets where prices are generally lower, you could need as little as half a million to own a piece of luxury real estate. But you'll need at least $1 million to buy a luxury property in most major cities, and the entry price point goes up where the cost of living is high. According to Christie's, it's $3 million in San Francisco, $5 million in Los Angeles and New York, and $7 million in London.
Luxury buyers often pay cash, but a jumbo mortgage is another option. If you’re financing the purchase, you’ll need a large down payment, excellent credit, proof of income and assets, and large cash reserves.
How to Invest in Luxury Real Estate
If you want to invest in luxury real estate, there are several paths you can take. Whether you buy for yourself, rent, or flip, here are some options:
Flip a mansion Invest internationally Buy a luxury condo Buy a high-end vacation rental Complete a custom build
Here's a closer look at each option.
Flip a Mansion
Remodeling existing luxury properties is an option that may have potential for a higher return on investment. Still, you're limited to properties in the inventory that have just the right mix of architecture, condition, and style.
Luxury homes tend to be more well-maintained than non-luxury homes, which means there is potential for less rehabilitation costs. The downside to this is that competition may be higher among luxury home flippers, but the upside is that there is less competition in the luxury-home market overall. That's because there are fewer people with the know-how to secure financing, negotiate like a pro, and execute a luxury property rehab project at a high level
Invest Internationally
Investing in luxury real estate abroad can have benefits you won't find domestically. For example, in the Turks and Caicos Islands, a small British territory in the tropical Atlantic Ocean, there are no annual property taxes and no capital gains taxes on transferred property. Property ownership is protected by a land registry, and the U.S. dollar is the official currency. So exchange rates aren't a factor in completing the purchase or your property's future value.
It's unclear how the pandemic might change this, but these islands have been a good place to invest because land prices have increased steadily over the last ten years. They were expected to continue to do so thanks to rapidly growing tourism and development, according to Blair MacPherson, co-owner and broker of RE/MAX Real Estate Groups Turks and Caicos. However, that was before the coronavirus crisis stopped travel and so much else. You can earn additional income from your investment by renting it out while you're away and letting a management company handle the details, he added.
Investing abroad can also have unique hassles. “We have to remember that the rest of the world does not operate like we do in the States,” RUHM’s Fitzpatrick said. “You do not want to purchase a property in another country only to find out the government can take it back from you down the road.”
Use an international real estate attorney and other professionals to help with your due diligence, Fitzpatrick said.
Buy a Luxury Condo
Whether you buy a luxury condo for yourself or to rent out, “spending money on a home located in a great luxury building with amenity and transportation options nearby is the way to go,” said Lydia Sussek of Corcoran, a full-service real estate firm in Manhattan. As always, location matters. “Buying in a luxury-looking building with poor transportation options is a poor investment,” she said.
The services and features the building offers can also make or break your investment. “Don't have a full-time doorman? Fine, but what else does your home offer? Views, high ceilings, terraces, all of these features help distinguish your home from other cookie-cutter apartments and can lead to a higher selling rate when it's time to move out,” Sussek said.
Keep in mind that when you buy luxury real estate, you buy a lifestyle. Private roof decks, swimming pools, common spaces with fitness centers, and maid service or hotel-style services distinguish luxury real estate, she said. “Even if there are other new condos built around the home you buy, these types of properties hold value,” Sussek said.
Complete a Custom Build
When things go well, a custom built home offers the highest profit margins—although it often has a longer time frame. Still, a home where everything is new and has today’s most desired styles and amenities is crucial in getting top dollar.
If you aren't building the home for yourself, be careful about how you customize it. You'll want to select a layout, amenities, and finishes that will appeal to a broad segment of the luxury market to maximize your chances of selling quickly and for top dollar. Ensure the home is functional, welcoming, and has the security and privacy features that high-end buyers want. But there's a fine line between building that broad appeal and creating the uniqueness that luxury buyers crave.
“When something is not commoditized, and it is desirable, and there is demand, that’s when you see prices really jump,” Char said. “If you look at a bottle of ‘82 Lafitte Rothschild, the price appreciation grows exponentially over a vintage that is less superior because of supply and demand. It’s the same thing with luxury real estate. The more exclusive and harder to find, the more worthy of investment the home becomes.”
Choose a High-End Vacation Rental Property
“A luxury vacation rental can provide a wealth of benefits including asset appreciation, tax deductions, business networking opportunities, and most importantly, personal enjoyment,” Fitzpatrick says. Choosing a location with a typically strong market is key, such as a ski resort town, Hawaii, or a tropical island.
“They are great for seasonal income and perform well during good financial markets," Fitzpatrick adds. "However, they may suffer more during a recession than the homes near major cities.”
On the other hand, bear markets are the best time to buy if you have the cash.
Indeed, the luxury housing market experienced the strongest rebound from the 2008 housing crash in major cities, with resort areas following suit, stated a 2019 report from Christie’s International Real Estate. Of course, that report predates the pandemic, so just read it for guidance. It's unclear how the aftermath of the coronavirus will affect the market in resort areas—or anywhere else, for that matter.
In addition to choosing the right city, investors should consider buying a property that will be attractive to vacationing families, Fitzpatrick says. “It will increase your occupancy rate and your ROI,” he says.
Bruce Tobias, a 22-time top producing real estate agent with RE/MAX Sedona in Arizona, noted that high-profile tourist resort destinations are a sound choice, and investors should look for properties with the potential for long-term gains.
Jumbo Mortgages for Luxury Real Estate
While most luxury real estate buyers opt to buy property with cash, some use jumbo loans to snag luxury real estate. Jumbo loans (also called jumbo mortgages) are loans for amounts greater than the limit that the Federal Housing Finance Agency (FHA) sets.
Typically, that amount is in excess of $510,400. However, it is sometimes even greater, particularly in counties with more expensive real estate markets.
Tips for Investing in Luxury Real Estate
If investing in luxury real estate sounds like a good fit for you, there are a few things to keep in mind before you get started:
Identify your goals. The goal of investing in any real estate is to earn a return on your investment. When you choose luxury properties, consider the outcome you want. For example, if you plan to turn a quick profit, you might focus on flipping. If you want long-term income, you may consider a luxury apartment building. Figure out financing. Even if you have cash on hand, it's not always the best option. For example, a hard money loan might be appropriate to finance a flip that you plan to complete within a few months. Choose the right market. If you invest in a seven-figure property, make sure the market will support your decision. Look at the job market, cost of living, median household incomes, and the area's economic outlook. If it's going to be a rental, consider the year-round and peak-season traffic.
The Bottom Line
Investing in luxury real estate can be more exciting than investing in securities, thanks to its tangible nature. There are many ways to do it, from building a custom home to flipping a mansion to buying a vacation property. You can enjoy your luxury home as a resident, vacationer, or landlord, or you can build luxury homes for others to enjoy.
Before you invest, make sure you understand the features that create lasting value in this asset class to get the best return on your investment. And of course—unless you are buying to live there yourself—make sure there will be a market of buyers or renters for your properties.
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24837a69e4ed7b9e43690b4be3facd30 | https://www.investopedia.com/articles/personal-finance/092514/typical-retirement-expenses.asp | 4 Most Common Retirement Expenses | 4 Most Common Retirement Expenses
Once people reach retirement age, their spending habits often change. Housing, healthcare, and daily expenses like groceries will still take a significant part of the budget, of course. However, since retirement often means more free time, it may also provide opportunities to pursue activities and acquisitions that may not have been possible during the working years.
If you're retired or about to be, think about whether you want to budget for any of the following. If you're not there yet, read, dream—and start saving.
Key Takeaways If you saved up enough for your retirement, you may want to start planning what to do with the extra income that your assets might generate.If you want to focus on a retirement that is leisurely or adventurous, budget funds for travel, including perhaps splurging on an RV for cross country trips.Many retirees also take the opportunity to pick up new hobbies, or even purchase a second home.
Travel
The freedom to get in the car or take a bus or airplane to a faraway destination is one of the first things many retirees want to experience.
Still, others begin going on cruises or continue a life-long “cruise” habit with more intensity and seasonal flexibility this time around.
With the average cost of summer vacation coming in at approximately $1,979, it’s important to set aside funds for travel in the yearly budget. Off-season trips—one benefit of being retired—can cost less, while big-deal exotic vacations can cost way more.
You may have hefty retirement expenses such as medical expenses or retrofitting your house so you can 'age-in-place," but don't overlook planning for recreational expenditures that can improve your retirement experience, such as travel and picking up new hobbies.
Recreational Vehicle
For some, retirement means buying a full-sized or mini motor home and taking to the open road. How much you'll pay for a motorized RV depends on the type and age of the vehicle. According to the website CostHelper, prices for a brand-new Class A motor home start at $50,000 to $100,000; a customized model could cost between $500,000 and $800,000. Camper Vans, also known as Class B, cost between $40,000 and $80,000 new, and Class C, mini motor homes range from $50,000 to $80,000.
Buy any of these second-hand, and the cost drops 20% to 30% below the original price after just a few years, according to CostHelper.
Vacation Home
For those who have already traveled the world—or have no desire to do so—retirement often becomes a time to move to their favorite destination on a semi-permanent basis.
Owning a second home can cost about as much as owning a first home, unless it is in a less expensive community. Other variables include the type of dwelling, its location, and whether it is occupied all year long or just part of the year. According to the National Association of Realtors, the median price paid for a vacation home in 2018 (the most recent year available as of 2020) was $259,300.
A less costly option than a traditional house or condominium is a mobile or manufactured home in a mobile home park near a beach or other vacation-friendly location. According to Foremost Insurance, a single-wide (1,000 square feet) mobile home costs about $24,000. A double-wide (1,600 square feet) averages $43,000. These are factory-made and transported to the housing site. Be aware that when you buy a manufactured home that is already on a site, the homeowner may not own the property on which the house sits.
An even less expensive option—and much smaller—is a "park model" trailer. These are one-bedroom RVs with about 400 square feet of living space, designed for long-term or permanent placement at a campground or mobile-home park. Unless you own the land where it will be sited, remember to factor in rental costs and fees for the campground or mobile-home park when budgeting for a manufactured house or trailer home.
Hobbies
For many retirees, retirement means the chance to participate in previously part-time hobbies. Among popular hobbies for people over age 65 are boating, golf, fishing, antiquing, photography, model-building, gardening, volunteering, genealogy, and knitting. Some hobbies are less expensive than others depending on the tools and gear needed for the activity. For example, a new digital camera purchased online could cost you around $500, but a small fishing boat could be $25,000 or more.
The Bottom Line
The most important thing seniors need to do, especially when contemplating a large retirement purchase or investment, is to make sure it fits in their budget. For those who are not yet retired, planning for those big expenditures is can make sure they happen when the time comes.
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41afe39c811d551b2e233c3a4e97d20e | https://www.investopedia.com/articles/personal-finance/092815/insiders-guide-top-us-business-schools.asp | Insider's Guide to the Top U.S. Business Schools | Insider's Guide to the Top U.S. Business Schools
Graduating from one of the top business schools in the United States with a master of business administration (MBA) degree could pay big dividends in the long term. But which business school is right for you? The Massachusetts Institute of Technology (MIT) is known for technology and operations management, but may not be ideal if your interests lie in corporate social responsibility.
Similarly, Babson College's Olin Graduate School of Business is big with budding entrepreneurs, but may not be the best for banking-oriented individuals. Candidates should assess their skills and interests, applying to top business schools offering specialization which matches their career goals.
This article lists the top three U.S. business schools within 10 areas of study. The schools are sourced from various study portals and ranking guides. The schools are picked based on several factors, which include faculty size of the particular department of specialization, the number of specialized courses and electives offered, past record of placements in the particular specialization, awards and accolades won in the particular specialization, and the composition of the current class of students and their professional backgrounds.
Key Takeaways By focusing on your area of specialization, you can narrow down which of the top business schools in the U.S. would be the best fit for your interests and career aspirations.There are many areas of specialization for a master of business administration (MBA) degree, such as banking and finance, corporate social responsibility, information management, and operations management.Some of the top business schools in the U.S. are Harvard Business School, The Wharton School, Stanford Graduate School of Business, and Kellogg School of Management.
Banking and Finance
Booth School of Business (University of Chicago)Harvard Business SchoolStern School of Business (New York University)
The dream jobs of the majority of MBA aspirants lie in the banking and financial sector. High salaries and sky-rocketing bonuses based on deal values are lucrative enough to attract the best MBA talent. Opportunities exist in multiple segments—investment banking, hedge funds, private equity, corporate banking, retail banking, wealth management, and investment management.
Corporate Social Responsibility
Harvard Business SchoolStanford Graduate School of BusinessThe Wharton School (University of Pennsylvania)
Interested in bridging the divide between the capitalist business world and the realm of high ethics and standards? Then an MBA in corporate social responsibility is the right specialization for you. Amid increasing business challenges emerging from financial irregularities, unethical practices, dangerous working conditions, and the ill-effects of globalization, this discipline works toward a fair and justified business environment while implementing and following standardized practices.
Entrepreneurship and Innovation
Harvard Business SchoolStanford Graduate School of BusinessF.W. Olin Graduate School of Business (Babson College)
Entrepreneurs usually start solo due to their self-belief and the innovative nature of their work. However, the art of taking a venture from an innovative idea can benefit tremendously from formal schooling. Right from developing a product/service idea, to identifying the right market, to attracting angel investors, to securing funding, and all the way to finally establishing a successful business is covered under MBA entrepreneurship courses.
$73,440 The MBA tuition cost for the 2020-21 academic year at Harvard Business School.
Information Management
Sloan School of Management (Massachusetts Institute of Technology)Tepper School of Business (Carnegie Mellon University)Stanford Graduate School of Business
The past decade has seen a rapid advancement in the information technology sector, which has now become the backbone of markets all over the world. From high-end mechanical automation to social networking platforms, MBA graduates specializing in technology, information management, and information management technology are in high demand.
International Business Management
Harvard Business SchoolThe Wharton SchoolThunderbird School of Global Management
Once, an international outlook was the province of transportation and export-import businesses. But globalization has changed that. The world is shrinking at a rapid pace due to technological innovations and easy connectivity, making markets and economies increasingly interdependent across the oceans and continents. And so MBAs in international business management are now prized by all sectors and industries.
Leadership
Harvard Business SchoolThe Wharton SchoolStanford Graduate School of Business
With businesses failing at a large global scale during the worldwide recession of 2008-09, the age-old debate continues as to whether leadership can be taught. Business schools seized this opportunity to introduce innovative courses focused around leadership: studying and practicing theories centered around people and product development, vision and mission, network and collaboration, and evolution and crisis management.
Management Consultancy
Harvard Business SchoolThe Wharton SchoolKellogg School of Management (Northwestern University)
Management consultancy entails the selling of business expertise, knowledge, and advice to the C-suite suits by extremely bright, talented individuals. One of the highest-paid specializations among MBA courses, this specialty trains management consultants to convince top business executives to trust confidential business data, reports, and strategies to them, to analyze corporate cultures and operations, and to provide expert advice on courses which can make or break a business.
Marketing Management
Kellogg School of ManagementHarvard Business SchoolThe Wharton School
With a shift to online and digital marketing campaigns, marketing has evolved into an altogether new platform needing constant innovations. Fine arts, designing, human behavioral analysis, communication, quantitative skills, and predictive analysis—everything can now be encompassed under marketing management.
Operations Management
Harvard Business SchoolSloan School of ManagementKellogg School of Management
An MBA in operations management enables a candidate to handle challenges and introduce efficiencies in supply chain management, logistics, product assembly-lines, processes, implementation, and operational performance of an entire company or organization.
Strategic Management
Harvard Business SchoolStanford Graduate School of BusinessThe Wharton School
Strategic management is a critical business resource in today’s competitive world. It involves taking a holistic view of an organization and its different segments, performing internal analysis, implementing structural changes to management, product lines or services, and assessing outsourcing opportunities. It also involves assessing external factors like competitor analysis, market dynamics, market evolution, product placement, and target marketing.
The Bottom Line
Amid intense global competition, entry to a premier business school is very difficult, not to mention expensive. Aspirants often leave their well-paid jobs to attend the costly courses. So candidates should make sure they assess each business school and its course content to match with their fields of interest. It will not only improve their chances of admission but help them get the best out of a program once they're enrolled.
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24490394b11cce6328ef0d6e1feac0b4 | https://www.investopedia.com/articles/personal-finance/093015/5-best-retirement-communities-charleston-south-carolina.asp | The 5 Best Retirement Communities in Charleston, South Carolina | The 5 Best Retirement Communities in Charleston, South Carolina
Five of the best retirement communities in Charleston, South Carolina, are Del Webb at Cane Bay, Charleston, Cresswind Charleston and The Ponds, The Elms of Charleston, The Pines at Gahagan and Marrington at Cobblestone. The Charleston area is a popular retirement destination due to its warm climate, nearby beaches, many historical sites and year-round festivals.
Key Takeaways Even if you're not a native South Carolinian, retiring to Charleston has become popular due to its climate, beaches, and historical sites. There are many communities in Charleston that offer amenities that target retirees, such as in-house retailers, markets, post offices, pet spaces, fitness clubs, trails, community activities, and easy access to golf courses. These homes that can be bought or rented within these communities typically charge fees to cover the cost of grounds-keeping.
1) Del Webb at Cane Bay, Charleston
Del Webb at Cane Bay is a community for active seniors, ages 55 and up, containing approximately 1,000 homes that range in price from the mid $200,000s to the $400,000s. The community spans 360 regularly manicured acres of land, including a preserved wetland area.
The Resort at Cane Bay is a large clubhouse and recreation spot that serves as the center for all of the community’s activities. Within the clubhouse is a fitness center complete with modern exercise equipment, an indoor lap pool, an aerobics studio, studios for crafts and hobbies, a sundeck and a ballroom area. Just outside the clubhouse is a resort-style pool, a lake, a dog park and an area for tennis. Entertainment events and activities take place on the event lawn. There are also biking and walking trails throughout the community.
All of the homes within Del Webb at Cane Bay are designed for active adults and seniors, and the homes feature open floor plans. Most of the homes for sale are newly constructed, and a limited number are pre-owned. The cost of living in the Charleston metropolitan area is moderate.
2) Cresswind Charleston and The Ponds
Cresswind is a new, much-anticipated senior neighborhood located within the master-planned community of The Ponds. The minimum age requirement to live in this community is 55. There are about 600 homes in the community, ranging in price from the $270,000s to the high $300,000s.
Three-quarters of the construction is complete. The center of this community features a major clubhouse with available space for games, events and other activities. It will also house a fully functioning fitness center.
There will also be further outdoor amenities, including pickleball and tennis courts, and a large outdoor pool. An amphitheater and event lawn will provide outdoor areas for special events and performances.
Two complete collections of homes will be available upon completion. These homes include spacious first-floor master suites that are expected to be some of the most luxurious accommodations available in area retirement communities.
3) The Elms of Charleston
The Elms of Charleston is another 55+ community perfect for socially inclined seniors, and it offers low-maintenance living. There are 325 homes in this idyllic community, ranging in cost from the low $100,000s to the mid-$200,000s. The significantly lower home prices make this community especially appealing to seniors who are less financially well-off.
There are a number of resort-style amenities at The Elms, and the clubhouse is the hub for all of the community's activities. Residents can interact with neighbors and utilize the facility's exercise room, lounge, ballroom, game room and catering-style kitchen.
Outdoor amenities include a pool, tennis courts and various walking paths. A community transit system transports residents, taking them on trips and tours throughout the area as well.
All the homes include single-level living with large master bedrooms on the first floor. The community was designed around cul-de-sac streets to ensure low traffic.
4) The Pines at Gahagan
The Pines at Gahagan is a neighborhood for active adults over the age of 55. This gated community was started in 2006. With a total of only 109 homes, it is one of the most intimate communities in the area. The typical cost of these homes ranges from the mid $200,000s to the mid $300,000s. Buyers can choose from resale inventory, or they can acquire new homes.
Though it is a small community, The Pines offers a luxurious clubhouse. The clubhouse's multipurpose great room includes a kitchen, a juice bar, exercise rooms, a library and several game areas. Outside the clubhouse, there is a resort-style swimming area with a patio.
There are 11 different two- and three-bedroom models of homes within the community, ranging in size from just under 1,400 square feet to over 2,500 square feet. Some second-story loft options are available as well. The developer for the community allows buyers of new homes to modify floor plans. The homes are low-maintenance and include tankless hot water heaters and screened porches or sunrooms.
5) Marrington at Cobblestone
Marrington at Cobblestone is highly intimate, and the smallest community on this list, with a total of 98 homes. Designed with active 55+ adults in mind, the community is quiet, situated on approximately 21 acres bordered by wetlands and woods.
The central feature of Marrington is the clubhouse, which is equipped with an exercise room, a catering kitchen and a multipurpose room used for community events. Outside the clubhouse is a large resort-style swimming pool and sun deck.
The homes in this retirement community come in a variety of styles and range in size from 1,130 square feet to just under 2,000 square feet, with two or three bedrooms and bathrooms. A limited number of homes come with attached two-car garages.
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a498882e62a30cd3c032f8f4eeae14e7 | https://www.investopedia.com/articles/personal-finance/093015/divorce-planning-checklist-what-you-need-know.asp | Divorce Planning Checklist: What You Need to Know | Divorce Planning Checklist: What You Need to Know
Divorce doesn't have to be messy, costly or complicated if you plan for it. Decisions must be made, though there are many unknowns. But those decisions — trivial as they may seem — will have a long-lasting impact on how you live your life as a divorcee.
Key Takeaways File an uncontested divorce if possible, so that both parties come up with a settlement and file together; a contested divorce or default divorce is more expensive, drawn out and complicated. Before approaching your spouse about a divorce or separation, consider where you'll live, what money you'll need and how shared assets will be split; also think about custody arrangements if you have children or pets. Divorce is expensive, so start putting money aside early to cover all the eventual fees that come with the proceedings, not to mention the cost of potentially moving into a new home. Get financial paperwork in order, both physically and digitally, before you file for divorce, and save yourself time and a headache in the long run. Hiring an attorney is essential if you think the divorce might be contested; however, you may also want to hire a lawyer even if the divorce seems to be amicable and straightforward. Get yourself a P.O. box if you think you're going to be moving out of your current residence; you don't want to miss important paperwork.
Know the Types of Divorces
One of the first things you'll want to learn about when considering a divorce is the different options for you and your soon-to-be ex. Assuming you've been married for more than five years and share assets and/or children, then an uncontested divorce is the one you want. That means both parties will come up with a settlement on their own and then file divorce papers together. A default divorce happens if you file for divorce, but your spouse does nothing. The other types of divorces typically come into play when one party doesn't agree with the other and involve courts, attorneys and costly legal fees.
Come Up With a Plan
Before you approach your spouse about a divorce or separation, you'll want a plan about where you'll live, how much money you'll have coming in and how much will go out. You’ll also want to take inventory of your shared financial assets including investment accounts, insurance policies and other assets like cars, boats and homes. If you're a parent, consider how you want to handle custody and what you'd like to tell the children about the break-up.
The more you've considered and thought through ahead of the conversation, the more likely you are to get what you want.
By getting organized and planning carefully when preparing to divorce, it is possible to avoid complications, messy litigation and drawn-out proceedings.
Start Putting Money Aside
Divorce isn’t something you can do for free. Be sure you have money to cover the attorney and other legal fees. You also want to have a cushion for the expenses associated with moving into a new home or daily living expenses. The last thing you want to do is end up in a bad financial situation and then accept a divorce settlement that doesn't fully compensate you. If you have money in the bank ahead of time, you're in a stronger position to demand what you deserve.
Even uncontested divorces can be heavy with paperwork, so creating a special digital file on your computer or in the cloud that houses all your information, financial and otherwise will eliminate some of the stress that comes with breaking up and splitting financial assets.
Get Your Paperwork in Order
When it comes to getting divorced, you need to have all your financial paperwork at the ready. Photocopy deeds, insurance policies and other financial documents. You should also write down all the account numbers for banks accounts, investment accounts, retirement savings accounts and liabilities like credit cards and car loans. Have it all available both digitally and physically, so the information is easily accessible wherever you are.
Hire an Attorney
If there's a chance the divorce will be contested or you're concerned you won’t get your fair share, get an attorney involved. Even uneventful divorces should have an attorney. Divorces that drag out in the courts can get expensive, so the guidance of a good attorney is important. Before you hire one, interview at least three. You want to choose someone you feel comfortable with who has a good track record with their clients.
Open Up a P.O. Box
If you move out of the home or apartment, it’s a good idea to set up a P.O. box so you don’t miss important documents or mail, especially if you get checks in the mail or your attorney sends you time-sensitive legal documents.
The Bottom Line
Divorce is never fun, but it doesn't have to be drawn out, costly or complicated if you take the time to plan. Figure out what will happen with the home and kids, set aside money to cover financial expenses, take an inventory of the assets and open a P.O. box before you file for divorce.
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03f772337e3384d60b0cd5c724ea04a9 | https://www.investopedia.com/articles/personal-finance/093015/life-insurance-vs-annuity.asp | Life Insurance vs. Annuity: What's the Difference? | Life Insurance vs. Annuity: What's the Difference?
Life Insurance vs. Annuity: An Overview
At first glance, permanent life insurance policies and annuity contracts exhibit polar opposite goals. While life insurance seeks to provide an individual's family with a lump-sum fiscal payout when that individual dies, annuities act as safety nets by providing individuals with a lifetime of guaranteed income streams. Both products are often marketed as tax-deferred alternatives to traditional stock and bond investments. They each also have high expenses that can blunt investment returns.
Key Takeaways Life insurance and annuities both allow individuals to invest on a tax-deferred basis. Life insurance pays an individual's loved ones after they die. Annuities take payments upfront then dole out a lifelong income stream to policyholders until they die. Qualified annuities are funded with pre-tax dollars, and non-qualified annuities with post-tax dollars. Both life insurance and annuities tend to have hefty fees.
Life Insurance
Life insurance financially safeguards your dependents in the event of your passing. There are several types of policies:
Simple Term Life
A term life policy simply pays out a death benefit to an individual's loved ones.
Permanent Life
Sometimes referred to as cash-value policies, these products add a savings component. For this reason, the premiums tend to have substantially higher fees than those associated with commensurate term policies.
Whole Life
With whole life policies, life insurance companies credit policyholders' cash accounts based on the performance of relatively conservative investment portfolios.
Variable Life
These life insurance products increase a policy's growth potential by letting policyholders choose a basket of stock, bond, and money market funds to invest in. But variable life policies also carry increased risk if the underlying investments underperform.
The money in a policy's cash/investment account grows on a tax-deferred basis. Unlike ordinary investment or savings accounts, consumers do not pay taxes on investment gains until the funds are actually withdrawn. These policies also offer spending flexibility. For example, if your cash balance is high enough, you can take out tax-free loans to pay for unexpected needs. The full death benefit will remain intact, as long as you pay the account back the borrowed amount, plus any accrued interest.
The younger you are, the lower your premiums—but older people can still purchase a life insurance policy.
Special Considerations for Life Insurance
It's important to know that the use of life insurance as an investment strategy has drawbacks, including high fees. Roughly half of a policyholder's premiums go toward the sales representative's commission. Consequently, it takes a while for the savings component of a policy to start gaining traction.
In addition to the upfront costs, policyholders must pay annual administrative and management fees, which can counteract the benefits of the funds' tax-sheltered growth. Furthermore, it is often unclear what the fees are, making it difficult to compare providers. Sadly, many people let their policies lapse within the first few years because they cannot maintain the steep payment schedules.
Many fee-based financial planners urge investors to purchase lower-cost term insurance policies, then funnel the leftover funds that would have gone toward permanent life premiums into tax-advantaged retirement plans such as 401(k)s or IRAs. This approach lets policyholders pay smaller investment fees, while still enjoying tax-deferred growth in their accounts.
Of course, for individuals who have already maxed their contributions to these tax-advantaged retirement accounts, cash value policies may be prudent—especially if they choose low-fee providers and have the time needed to let their cash balances grow. In addition, high-net-worth individuals sometimes park cash value policies inside irrevocable life insurance trusts in order to minimize their beneficiaries' federal estate taxes, which can be as high as 40%.
Annuities
Many people worry that they will not have a big enough nest egg to see them through their retirement years. Annuities were developed to help alleviate these concerns. An annuity is essentially a contract with an insurer, where individuals agree to pay the company a certain amount of money, either in a lump sum or through installments, which entitles them to receive a series of payments at some future date. These payments often last for a specific time span—say, 10 years. Other annuities offer lifetime disbursements. In either case, policyholders know they'll have a financial cushion.
The number of annuity products has exploded over the years. This holds true for fixed contracts that credit your account at a guaranteed rate, as well as variable contracts, whose returns are attached to a basket of stock and bond funds. There are even indexed annuities, where performance is linked to a specific benchmark, such as the S&P 500 Index.
Special Considerations for Annuities
Unfortunately, as with permanent life insurance policies, annuity products also command substantial upfront commission fees that can erode long-term gains. They also feature high surrender fees, which are essentially penalties investors must pay for prematurely withdrawing funds from an annuity contract, or canceling it altogether. For this reason, an annuity's funds may be tied up for as much as a decade. It's not unusual for a policyholder to take a hit on distributions taken during the first few years of the contract.
Tax treatment is also a concern. Although earnings grow on a tax-deferred basis, if a policyholder withdraws funds before they reach the age of 59½, any investment gains would be subject to ordinary capital gains taxes.
For all of these reasons, annuities make the most sense for individuals with longevity in their families. For individuals likely to reach age 90, a lifetime income stream is essential, especially if their 401(k) withdrawals and Social Security payments fall short.
For younger investors, variable annuities are only prudent if they've already maxed out their 401(k) and IRA contributions and seek tax shelters.
Qualified vs. Non-Qualified Annuities
The aforementioned annuities fall under the category of non-qualified. Qualified annuity contracts are those held in IRAs or other tax-advantaged retirement plans, like 401(k)s. A qualified annuity is funded with pre-tax dollars, and a non-qualified annuity with post-tax dollars.
Qualified annuity contracts are subject to the same early withdrawal penalty and required minimum distribution (RMD) rules as other investments in qualified retirement plans.
On March 27, 2020, former President Donald Trump signed a $2 trillion coronavirus emergency stimulus package, called the CARES (Coronavirus Aid, Relief, and Economic Security) Act, into law. The CARES Act waives the 10% tax penalty for early withdrawals from retirement funds, including qualified annuities, if the withdrawals are related to the financial impact of the coronavirus. The waiver is retroactive to Jan. 1, 2020. You are also not subject to an RMD from your retirement account in 2020.
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9fc8dc3146c1a0534c9855a1a1bae933 | https://www.investopedia.com/articles/personal-finance/100215/how-car-insurance-companies-value-cars.asp | How Car Insurance Companies Value Cars | How Car Insurance Companies Value Cars
When your vehicle is totaled in an auto accident, your insurance company pays you for the totaled car value—or, more accurately, it pays you for what it claims the value to be. You can put this money toward the amount you still owe on the totaled car—if you still have a car loan—or you can use it to purchase a new vehicle.
Nearly everyone who has been through this process can attest that the most frustrating part is accepting the auto insurance company’s assessment of your car’s value. Almost invariably, the estimate comes in much lower than you anticipated, and the amount you receive is not enough to purchase an apples-to-apples replacement. For many drivers it is not even enough to cover what they still owe on the car.
Confounding the issue is the fact that most car insurance customers are clueless as to the methodology used by insurance companies to value cars. The valuation methods of car insurers are esoteric, relying on abstract data, the specifics of which they are careful not to reveal. This information asymmetry makes it difficult for a consumer to challenge a low-ball offer from a car insurance company. However, simply knowing the basics of how insurance companies value cars and the terminology they use can bring you to a more auspicious place from which to negotiate.
Key Takeaways Car insurance is meant to make you whole in case your car is damaged or stolen, but what is your car actually worth, according to your insurer? Market value vs. replacement cost can be divergent, so make sure you understand what your policy indemnifies you for. For repairs, insurance companies will often enlist an adjuster to inspect the vehicle and estimate the cost, as well as recommend a preferred garage.
The Car Insurance Valuation Process
When you report a car accident to your insurance company, the company sends an adjuster to assess the damage. The adjuster’s first order of business is determining whether to classify the vehicle as totaled. An insurance company may consider the car to be totaled even if it can be fixed. Generally speaking, the company decides to total a car if the cost to repair it exceeds a certain percentage of its value, anywhere from 51% to 80%, according to Insure.com. However, some states mandate or provide guidelines for this percentage: Alabama, for example, sets it at 75%.
Assuming the vehicle is totaled, the adjuster then conducts an appraisal and assigns a value to the vehicle. The damage from the accident is not considered in the appraisal. What the adjuster seeks to estimate is what a reasonable cash offer for the vehicle would have been immediately before the accident took place.
Next, the insurance company enlists a third-party appraiser to issue its own estimate on the vehicle. This is done to minimize any appearance of impropriety or underhandedness and to subject the vehicle to a different valuation methodology. The company considers its own appraisal and that of the third party when making its offer to you.
Actual Cash Value vs. Replacement Cost
A huge distinction exists between the insurance value of your car as determined by the insurance company and the amount it actually costs to purchase a suitable replacement. The insurance company bases its offer on the actual cash value (ACV). This is the amount that the company determines someone would reasonably pay for the car, assuming the accident had not happened. The value usually takes into consideration such things as depreciation, wear and tear, mechanical problems, cosmetic blemishes, and supply and demand in your local area. State Farm explicitly references its insurance value car calculator: “We base your vehicle’s value on its year, make, model, mileage, overall condition, and major options—minus your deductible and applicable state taxes and fees.”
Even if you purchased a car new and only drove it a year before the accident, its ACV will be significantly lower than what you paid for it. Simply driving a new car off the lot depreciates it by as much as nearly 10%, and depreciation accelerates to 20% by the end of the first year, according to Edmunds.com. Indeed, the insurance company dings you for everything from the miles on the odometer to the soda stains on the upholstery accumulated during that year.
The amount of the ACV offer is also going to be less than the replacement cost—the amount it costs you to purchase a new vehicle similar to the one that was wrecked. Unless you are willing to supplement the insurance payment with your own funds, your next car is going to be a step down from your old one.
A solution to this problem is purchasing car insurance that pays the replacement cost. This type of policy uses the same methodology to total a vehicle but, after that, it pays you the current market rate for a new car in the same class as your wrecked car. The monthly premiums for replacement cost insurance can be significantly higher than for traditional car insurance.
If you total your car shortly after buying it, you could wind up with negative equity in the car, depending on your financing deal.
Other Challenges
Not being able to afford a comparable car with the money from your insurance company after an accident is exceedingly frustrating. That being said, there is another potential situation that can further compound the stress of an auto accident.
Often the amount an insurance company offers for a totaled car is not even sufficient to cover what is owed on the wrecked car. This may occur if you wreck a new car shortly after buying it. The vehicle has taken its big initial depreciation hit, but you have barely had time to pay down your loan balance. This can also occur if you have taken advantage of a special financing offer that minimized or eliminated your down payment. While these programs certainly keep you from having to part with a large chunk of cash to buy a car, they almost guarantee that you drive off the lot with negative equity. This becomes a problem if you total the car before restoring a positive equity position.
When your insurance check cannot pay off your car loan in full, the amount that remains is known as a deficiency balance. Because this is considered unsecured debt—the collateral that formerly secured it is now destroyed—the lender is especially aggressive about collecting it.
Like the replacement cost issue, this problem has a solution. Add gap insurance to your car insurance policy to ensure that you never have to deal with a remaining balance on a totaled car. This coverage pays for the cash value of your car as determined by the insurance company and pays for any deficiency balance left over after you apply the proceeds to your loan. Gap coverage, like replacement cost coverage, adds to your insurance premium. You should consider, however, that if you fall into one of the above scenarios, it could make a deficiency balance more likely in the case of an accident.
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6d464d36075741fbffe04052ef5aa27c | https://www.investopedia.com/articles/personal-finance/100215/what-do-when-your-doctor-doesnt-take-medicare.asp | What to Do When Your Doctor Doesn't Take Medicare | What to Do When Your Doctor Doesn't Take Medicare
Not all doctors accept Medicare for the patients they see, an increasingly common occurrence. This can leave you with higher out-of-pocket costs than you anticipated and a tough decision if you really like that doctor.
So what happens when you sign up for Medicare only to learn your all-time favorite doctor doesn’t accept it? Fortunately, you have some options.
Key Takeaways If you choose a doctor who accepts Medicare, you won't be charged more than the Medicare-approved amount for covered services. A doctor can be a Medicare-enrolled provider, a non-participating provider, or an opt-out provider. Your doctor's Medicare status determines how much Medicare covers and your options for finding lower costs.
What Is Medicare?
Medicare is a federal government–sponsored program that provides health insurance for American citizens ages 65 and over. President Lyndon B. Johnson signed Medicare into law on July 30, 1965. By 1966, 19 million Americans were enrolled in the program.
Now, more than 50 years later, that number has mushroomed to over 60 million; more than 18% of the U.S. population. As more baby boomers reach age 65, enrollment is expected to hit 81 million in 2030. It’s no wonder that Medicare benefit payments totaled an estimated $796 billion in 2019.
Annual open enrollment for Medicare runs from Oct. 15 to Dec. 7 every year.
If your long-time physician accepts assignment, this means they agree to accept Medicare-approved amounts for medical services. Lucky for you. All you’ll likely have to pay is the monthly Medicare Part B premium ($148.50 base cost in 2021) and the annual Part B deductible: $203 for 2021. As a Medicare patient, this is the ideal and most affordable scenario.
Can Doctors Refuse Medicare?
The short answer is "yes." Thanks to the federal program’s low reimbursement rates, stringent rules, and grueling paperwork process, many doctors are refusing to accept Medicare’s payment for services.
Medicare typically pays doctors only 80% of what private health insurance pays. While a gap always existed, many physicians feel that in the past several years, Medicare reimbursements haven't kept pace with inflation; especially the costs of running a medical practice. At the same time, the rules and regulations keep getting more onerous, as do penalties for not complying with them.
Most American physicians participate in Medicare and "accept assignment" (what Medicare pays) for their services without additional charges. However, if your doctor is non-participating or has opted out of Medicare, here are five options.
1. Stay Put and Pay the Difference
If your doctor is what’s called a non-participating provider, it means they haven’t signed an agreement to accept assignment for all Medicare-covered services but can still choose to accept assignment for individual patients. In other words, your doctor may take Medicare patients but doesn’t agree to the program’s reimbursement rates. These nonparticipating providers can charge up to 15% over the official Medicare reimbursement amount.
If you choose to stick with your nonparticipating doctor, you’ll have to pay the difference between the fees and the Medicare reimbursement. Plus, you may have to cough up the entire amount of the bill during your office visit. If you want to be paid back afterward, either your doctor will submit a claim to Medicare or you may have to submit it yourself using Form CMS-1490S.
Let’s say, for example, your doctor’s bill comes to $300, and Medicare pays $250. This means you’ll have to pay the $50 difference, plus any copay, out of pocket. Obviously, this can add up quickly over time. However, you may be able to cover these extra expenses through a Medigap insurance policy. This coverage is also called Medicare Supplement Insurance. Provided by private insurers, it is designed to cover expenses not covered by Medicare.
2. Request a Discount
If your doctor is what’s called an opt-out provider, they may still be willing to see Medicare patients but will expect to be paid their full fee; not the much smaller Medicare reimbursement amount. These docs accept absolutely no Medicare reimbursement, and Medicare doesn't pay for any portion of the bills you receive from them. That means you are responsible for paying the full bill out of pocket.
Opt-out physicians are required to reveal the cost of all their services to you upfront. These doctors will also have you sign a private contract saying you agree to the opt-out arrangement.
Of course, you can always try to negotiate a discount. It's not uncommon for physicians to lower their rates for established patients. As a courtesy, they may also offer extended payment plans if you're in need of a series of expensive treatments or procedures.
3. Visit an Urgent Care Center
Urgent care centers have become a popular place for people to go for their healthcare needs. There are now more than 9,000 urgent care centers in the U.S. These centers may also operate as walk-in clinics. Many provide both emergency and non-emergency services including the treatment of non-life-threatening injuries and illnesses, as well as lab services.
Most urgent care centers and walk-in clinics accept Medicare. Many of these clinics serve as primary care practices for some patients. If you just need a flu shot or you've come down with a relatively minor illness, you may consider going to one of these clinics and save the doctor visits for the big stuff.
4. Ask Your Doctor for a Referral
If you simply cannot afford to stick with your doctor, ask them to recommend the next best doctor in town who does accept Medicare. Your current doctor has probably already prepared for this eventuality and arranged to transfer Medicare patients to another physician's care.
Just because you are eligible for Medicare doesn't mean you have to enroll in all four parts. If you have other health insurance—for example, you're still working and can remain covered by your employer's group plan—you may want to stick with that plan. Medicare Advantage Plan networks are another alternative to investigate. Physicians in those HMO-like plans have agreed to accept the network's fees.
5. Search Medicare's Directory
There are still plenty of doctors who take Medicare. You can find them in Medicare’s Physician Compare directory, a comprehensive list of physicians and healthcare providers across the nation. Once you pinpoint a provider, call to make sure they’re still taking on new Medicare patients. After all, this can change on a dime.
Another approach is to check the best local hospitals and see if any physicians on their staff are taking Medicare patients. When you get names, research them online to learn about their backgrounds.
The CARES Act of 2020
On March 27, 2020, President Trump signed a $2 trillion coronavirus emergency stimulus package, called the CARES (Coronavirus Aid, Relief, and Economic Security) Act, into law. It expanded Medicare's ability to cover treatment and services for those affected by COVID-19. The CARES Act also:
Increases flexibility for Medicare to cover telehealth services. Authorizes Medicare certification for home health services by physician assistants, nurse practitioners, and certified nurse specialists. Increases Medicare payments for COVID-19–related hospital stays and durable medical equipment.
For Medicaid, the CARES Act clarifies that non-expansion states can use the Medicaid program to cover COVID-19–related services for uninsured adults who would have qualified for Medicaid if the state had chosen to expand. Other populations with limited Medicaid coverage are also eligible for coverage under this state option.
The Bottom Line
Thanks to plummeting reimbursement rates, ever-tightening rules, and cumbersome paperwork, many doctors are dropping Medicare. If you recently enrolled in Medicare only to find that your long-standing doctor doesn’t accept it, you have a number of options.
Whether you choose to stick with your cherished physician and pay the potentially exorbitant price or switch to a doctor who does accept Medicare, it’s important to carefully crunch the numbers before you make a final decision. Also, review your own medical situation and whether you need your current doctor—or someone with similar expertise—because of a specialized health issue.
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99ef02b62e2ae881dc207ed8bd5b31a3 | https://www.investopedia.com/articles/personal-finance/100714/when-declare-bankruptcy.asp | When to Declare Bankruptcy | When to Declare Bankruptcy
If you have large debts that you can’t repay, are behind in your mortgage payments and in danger of foreclosure, are being harassed by bill collectors—or all of the above—declaring bankruptcy might be your answer. Or it might not be.
Bankruptcy can, in some cases, reduce or eliminate your debts, save your home and keep those bill collectors at bay, but it also has serious consequences, including long-term damage to your credit score. That, in turn, can hamper your ability to borrow in the future, raise the rates you pay for insurance, and even make it difficult to get a job.
Key Takeaways Filing for bankruptcy is one way to get out from under a crushing debt load, but it has negative consequences that can last for years. The two common types of personal bankruptcy—Chapter 7 and Chapter 13—will stay on your credit record for 10 years and seven years, respectively. Before filing for bankruptcy, it's worth contacting your creditors to see if they are willing to negotiate. Many lenders, for example, have programs for people who are having trouble paying their mortgage.
Types of Bankruptcy
Bankruptcy cases are handled by federal courts, and federal law defines six different types. The two most common types used by individuals are Chapter 7 and Chapter 13, named after the sections of the federal bankruptcy code where they are described. Chapter 11 bankruptcy, which is often in the headlines, is primarily for businesses.
Chapter 7 bankruptcy, the type most individuals file, is also referred to as a straight bankruptcy or liquidation. A trustee appointed by the court can sell some of your property and use the proceeds to partially repay your creditors, after which your debts are considered discharged. Some types of property can be exempt from liquidation, subject to certain limits. Those include your car, your clothing, and household goods, the tools of your trade, pensions, and a portion of any equity you have in your home. You should list the property you are claiming as exempt when you file for bankruptcy.
Chapter 13 bankruptcy, on the other hand, results in a court-approved plan for you to repay all or part of your debts over a period of three to five years. Some of your debts may also be discharged. Because it does not require liquidating your assets, a Chapter 13 bankruptcy can allow you to keep your home, as long as you continue to make the agreed-upon payments.
Certain types of debts generally can’t be discharged through bankruptcy. Those include child support, alimony, student loans, and some tax obligations.
The Bankruptcy Filing Process
There are a number of legally required steps involved in filing for bankruptcy. Failing to complete them can result in the dismissal of your case.
Before filing for bankruptcy, individuals are required to complete a credit counseling session and obtain a certificate to file with their bankruptcy petition. The counselor should review your personal situation, offer advice on budgeting and debt management, and discuss alternatives to bankruptcy. You can find the names of government-approved credit counseling agencies in your area by calling the federal bankruptcy court closest to you or by visiting its website.
Filing for bankruptcy involves submitting a bankruptcy petition and financial statements showing your income, debts, and assets. You will also be required to submit a means test form, which determines whether your income is low enough for you to qualify for Chapter 7. If it isn’t, you will have to file for Chapter 13 bankruptcy instead. You will also need to pay a filing fee, though it is sometimes waived if you can prove you can’t afford it.
You can obtain the forms you need from the bankruptcy court. If you engage the services of a bankruptcy lawyer, which is usually a good idea, they should also be able to provide them.
Once you have filed, the bankruptcy trustee assigned to your case will arrange for a meeting of creditors, also known as a 341 meeting for the section of the bankruptcy code where it is mandated. This is an opportunity for the people or businesses that you owe money to ask questions about your financial situation and your plans, if any, to repay them.
Your case will be decided by a bankruptcy judge, based on the information you have supplied. If the court determines that you have attempted to hide assets or committed other fraud, you may not only lose your case but also face criminal prosecution. Unless your case is very complex, you generally won’t have to appear in court before the judge.
After you have filed for bankruptcy—but before your debts can be discharged—you must take a debtor education course, which will provide advice on budgeting and money management. Again, you will need to obtain a certificate showing that you have participated. You can obtain a list of approved debtor education providers from the bankruptcy court or from the Justice Department.
Assuming the court decides in your favor, your debts will be discharged, in the case of Chapter 7. In Chapter 13, a repayment plan will be approved. Having debt discharged means that the creditor can no longer attempt to collect it from you.
Consequences of Bankruptcy
Both types of individual bankruptcy have some negative consequences. A Chapter 7 bankruptcy will remain on your credit record for 10 years, while a Chapter 13 bankruptcy will generally remain for seven years.
According to Experian, one of the three major national credit bureaus, “Declaring bankruptcy has the greatest single impact on credit scores.” It may also make you appear to be a poor risk to companies that request your report, including other lenders, insurance companies, and potential employers.
Note, too, that there are limits on how often you can have your debts discharged through bankruptcy. For example, if you have had debts discharged through a Chapter 7 bankruptcy, you must wait eight years before you can do so again.
Is a Lawyer Necessary?
Unlike corporations and partnerships, individuals can file for bankruptcy without an attorney. It's called filling the case "pro se." But because filing for bankruptcy is complex, and must be done correctly to succeed, it's generally unwise to attempt it without the help of an attorney experienced in bankruptcy proceedings.
Even the Internal Revenue Service is sometimes willing to negotiate. You may be able to reduce the amount you owe in taxes or spread your payments out over time.
Alternatives to Bankruptcy
Bankruptcy is sometimes the best way to get out from under crushing financial burdens, but it is not the only way. There are alternatives that can often reduce your debt obligations without the messy consequences of bankruptcy.
Negotiating with your creditors, without involving the courts, can sometimes work to the benefit of both sides. Rather than risk receiving nothing, a creditor might agree to a repayment schedule that reduces your debt or spreads your payments over a longer period of time.
If you are unable to make your mortgage payments, it's worth calling your loan servicer to find out what options you might have, short of filing for bankruptcy. Those could include forbearance, which will allow you to stop making payments for a specified time, or a repayment plan designed to stretch smaller monthly payments over a longer period. Another option might be loan modification, which will change the terms of your loan (such as lowering the interest rate) on a permanent basis, making it easier to repay. However, beware of unsolicited offers from companies claiming that they can keep your home out of foreclosure. They may be nothing more than scam artists.
If you owe money to the IRS, you may be eligible for an offer in compromise, allowing you to settle with the agency for an amount less than you owe. In some instances, the IRS also offers monthly payment plans for taxpayers who can’t pay their tax obligations all at once.
When to File for Bankruptcy
Bankruptcy law exists to help people who have taken on an unmanageable amount of debt—often as a result of large medical bills or other unexpected expenses that are no fault of their own—to make a fresh start. But it isn’t a simple process and doesn’t always lead to a happy ending.
So before filing for bankruptcy, be sure to explore all your alternatives and be prepared for some of the negative consequences described above. If you decide that bankruptcy is your only viable option—as hundreds of thousands of Americans do every year—remember that the blot on your record will not be permanent. By using credit carefully in the future and paying your bills on time, you can begin to rebuild your credit and gradually put bankruptcy behind you.
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b6976488569a80213c5fc5ed65a4d0d4 | https://www.investopedia.com/articles/personal-finance/100715/top-10-caribbean-tax-havens.asp | Top 10 Offshore Tax Havens in the Caribbean | Top 10 Offshore Tax Havens in the Caribbean
What Is a Tax Haven?
A tax haven is simply a country that offers individuals or businesses little or no tax liability. The Caribbean offers some of the most popular tax havens in the world, providing benefits such as very low tax liability and financial privacy. Among the most used Caribbean tax havens are the Bahamas, Panama, and the Cayman Islands.
Key Takeaways Most of the Caribbean nations boast tax security for business owners and individuals due mainly to their financial privacy laws and low tax implications.The only cost for most of these countries is an annual business license fee, with a 0% tax rate.It is advisable to work with a seasoned tax professional before setting up an offshore account or business.
Many of the Caribbean tax havens are what is sometimes known as pure tax havens, in that they impose no taxes at all. A number of Caribbean nations were motivated to become tax havens so they could reduce dependence on foreign countries and maintain their own economies.
The Cayman Islands
The Cayman Islands is one of the five largest offshore financial centers worldwide, providing services such as offshore banking, offshore trusts, and the incorporation of offshore companies.
Offshore companies are not taxed on income earned abroad, and there is no taxation of Cayman international business companies (IBCs). The Cayman Islands has no income tax, no corporate tax, no estate or inheritance tax, and no gift tax or capital gains tax, making it a pure tax haven.
The Caymans have very strict banking laws designed to protect banking privacy. Offshore corporations in the Caymans are not required to submit financial reports to any Caymans government authority. Incorporation in the Caymans is a very simple, streamlined process.
There are no exchange controls in the Caymans restricting money transfers in any way. Offshore businesses are not required to pay stamp duty on asset transfers.
Panama
The Republic of Panama is considered a very secure pure tax haven. One noteworthy characteristic of Panama offshore jurisdiction law is that offshore companies are allowed to conduct business operations within and outside of the offshore jurisdiction. Offshore Panamanian companies and their owners are not subject to income taxes, corporate taxes, or local taxes, and people of any nationality may incorporate within Panama. Panama strictly protects the privacy of offshore trusts and foundations by law.
As a provider of offshore banking services, Panama has strict banking secrecy laws designed to protect the privacy of account holders. Panama has no tax treaties with any other country and no exchange control laws.
The Bahamas
The Bahamas became widely popular as a tax haven in the 1990s after passing legislation that enabled the incorporation of offshore corporations and IBCs. It remains one of the preferred tax havens for residents of the United States and European countries. The Bahamas provides offshore banking, registration of offshore companies, registration of ships, and offshore trust management.
The Bahamas was the first Caribbean nation to adopt strict banking secrecy laws. Information on offshore bank account holders can only be disclosed by the specific order of the Bahamian Supreme Court. The Bahamas is a pure tax haven, with no tax liability at all for offshore companies or individual offshore bank account holders on income earned outside of the jurisdiction.
The British Virgin Islands
The British Virgin Islands (BVI) is an ideal place to establish an offshore bank account. The country does not impose any taxes on offshore accounts, and it has no tax treaties with other nations, thus protecting the financial privacy of bank account holders.
There are no taxes on offshore companies, and BVI IBCs pay no taxes on profits or capital gains generated from outside of the BVI.
An advantage to offshore banking customers and offshore companies incorporated in the BVI is that there are no exchange controls. This makes it much easier to transfer funds from one place to another for trading and investment purposes while protecting financial privacy.
Dominica
Often confused with the Dominican Republic, the Commonwealth of Dominica has initiated legislation that facilitates the creation of offshore corporations, trusts, and foundations, providing tax-friendly and privacy-protected offshore banking services.
Dominica is a pure tax haven that imposes no income taxes, no corporate taxes, and no capital gains tax on income earned abroad. There are also no withholding taxes and no estate taxes, including inheritance taxes or gift taxes. Offshore companies and trusts do not have to pay any stamp duty on transfers of assets. People of any nationality may form offshore corporations in Dominica. The nation has privacy laws that shield the identities of owners and directors of offshore companies incorporated in Dominica.
There is no taxation of interest earned on offshore bank accounts, and information on offshore account holders is not shared with tax authorities of any other country. Dominica's asset protection and financial privacy laws are very strict, making Dominica a secure offshore tax haven.
Nevis
Nevis, together with St. Kitts, forms the St. Kitts and Nevis Federation. Nevis offers tax-friendly formation of offshore limited liability companies (LLCs), trusts, and foundations, along with excellent offshore banking and insurance services.
Nevis provides financial privacy by not making public any information regarding owners and directors of offshore companies. Incorporation in Nevis only requires one director and one shareholder, who can be the same person. A Nevis exempt trust is exempted from taxation on any income earned outside of Nevis, including dividends and interest. Nevis trusts do not have to pay stamp duty on transactions.
Nevis doesn't impose any local taxes on income earned outside of the jurisdiction. Offshore companies and their owners do not have to pay withholding taxes, capital gains taxes, or estate taxes, and they are not subject to corporate taxes or local taxes on income generated outside of Nevis.
There are no exchange controls in Nevis, and the country has steadfastly refused to sign any taxation treaties with other countries.
Anguilla
Anguilla is a part of the Britain Overseas Territory, and it has become a respected tax haven. The offshore jurisdiction of Anguilla levies zero-taxation on all income generated outside of the jurisdiction by offshore companies. Anguilla is a pure tax haven that does not impose income taxes, estate taxes, or capital gains taxes on individuals or corporations.
All offshore entities incorporated in Anguilla are exempt from paying stamp duty.
Anguilla financial legislation strictly protects the privacy of offshore bank accounts and business entities. The Offshore Banking Act of 2005 prohibits all bank employees or agents from disclosing any financial information without the express consent of the account holders. There are no exchange controls regarding monetary or asset transfers.
Costa Rica
Costa Rica, bordered by Nicaragua and Panama, is not considered a pure tax haven, but it is recognized as tax-friendly enough to have been referred to as the Switzerland of Central America. Through a number of tax incentives, the country has been extremely successful in attracting some of the world's largest corporations.
Companies incorporated in Costa Rica are allowed to conduct business both within and outside of the jurisdiction. No local taxes are imposed on revenue generated by companies that do not conduct business in the jurisdiction. As a business incentive, Costa Rica grants eight-year exemptions from any taxation to many corporations. Corporate entities that are required to pay taxes pay extremely low rates and are generally exempt from taxes on interest, capital gains, or dividend income.
Offshore companies incorporated in Costa Rica do not have to file any financial reports with Costa Rican tax authorities and are not required to disclose the names of owners to the registrar of companies.
Costa Rica tightly protects the privacy of offshore banking. Money or other financial assets can be transferred in or out of Costa Rica without any limitation on the amount and without having to disclose the source of funds.
Belize
Belize offers offshore banking and the easy incorporation of offshore companies or the formation of trusts or foundations. Offshore businesses incorporated in Belize do not pay any taxes on income earned abroad. Belize-incorporated companies and trusts are exempt from paying stamp duty.
Offshore bank accounts are not taxed on earned interest, nor subject to repatriation or capital gains taxes. Banking legislation guarantees strict confidentiality for offshore banking. The names of account holders and any other financial information can only be disclosed by court order in relation to a criminal investigation.
Belize does not have any exchange controls, nor does it have any tax treaties with foreign governments. The government of Belize is strongly committed to protecting financial privacy.
Barbados
Barbados offers a thriving offshore financial sector providing offshore banking, incorporation of offshore corporations, and exempt insurance.
Barbados is not a pure tax haven, but it is a very low-tax environment for offshore corporations incorporated in Barbados. Taxes on profits of offshore companies are generally in the range of 0% to 5.5%, and the tax rate decreases as the profits earned increase. Offshore companies can import the necessary machinery or business equipment without paying any import duty.
There are no withholding taxes or capital gains taxes. Unlike most Caribbean tax havens, Barbados does have double taxation treaties with a number of other countries, including Canada and the U.S.
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4b5441e092c7f2c493b3ede9d2ddeb91 | https://www.investopedia.com/articles/personal-finance/101014/10-characteristics-successful-entrepreneurs.asp | 5 Characteristics of Successful Entrepreneurs | 5 Characteristics of Successful Entrepreneurs
What Are 5 Characteristics of Successful Entrepreneurs?
The first thing that any entrepreneur will tell you, is that success doesn't come from staring at a computer screen reading articles like these. It starts with an idea.
Entrepreneurship can mean many things, but ultimately, it's about paving your own path. So, you have what it takes to be an entrepreneur? In this article, we're going to skip past the cheesy inspirational quotes and the click-bait idioms.
Instead, we're going to look at the rise of one of New York's most successful entrepreneurs, Michael Bloomberg, analyze the choices he made on the way to the top, and compare that with expert opinions on achieving entrepreneurial success.
1:24 Mohamed El-Erian: Inside Track
Understanding Characteristics of Successful Entrepreneurs
Michael Bloomberg
Michael Bloomberg first achieved success as a stockbroker, then a billionaire entrepreneur, then as mayor of New York City from 2002 to 2013. As of early 2020, Bloomberg's net worth was around $56 billion. In 1981, he co-founded the New York-based financial information and media company, Bloomberg LP.
After putting down the company's seed funding from his own severance package from a job he was fired from, he has retained an 88% stake in the business, which has a yearly revenue of around $9 billion. He's also a major philanthropist and has donated more than $8 billion to climate change, gun control, and other causes. He owns at least six homes from Bermuda to London.
Key Takeaways Looking at the rise of Michael Bloomberg and the choices he made on the way to the top is one way to learn about achieving entrepreneurial success. Some of the lessons learned from Bloomberg include: take risks, don't waste your time avoiding failure, be persistent, make your own luck, find an audience to serve, never stop learning, and give back
So where did Bloomberg get his start? He started on Wall Street in 1966 with an entry-level job at the successful investment bank, Salomon Brothers. At Salomon Brothers, he excelled as a trader and was made a partner. But, in 1978, he was demoted to run the information technology division of the company until the company merged with the commodity trading firm Phibro.
In his own words, "In 1981, at the age of 39, I was fired from the only full-time job I’d ever had—a job I loved." This was the company he'd worked for since graduating from Harvard Business School. The company he said he would never have left. And it was letting him go. While getting fired from a job you loved may sound like a failure, for Bloomberg, his termination was one of the most important steps towards achieving success. This takes us to our first key to entrepreneurial success:
Take Risks and Don't Waste Your Time Avoiding Failure.
Salomon Brothers gave Bloomberg a pat on the back and a severance check of $10 million and sent him on his way. “But I never let myself look back," Bloomberg said of his firing, "the very next day I took a big risk and began my own company based on an unproven idea that nearly everyone thought would fail: making financial information available to people, right on their desktops." Keep in mind, this was before people had desktops.
Bloomberg took a chunk of his $10 million, and wasting no time at all, created a business that merged the two skills he had developed at Salomon Brothers—knowledge of the securities and investment world, and of the technologies that made those deals happen. He thought that if he could build a system that took information about a mass of different investment types—stocks, bonds, and currencies—and organized it, traders could use it to see investment opportunities previously hidden by too much data.
In his book A Dozen Lessons for Entrepreneurs, a collection of twelve pieces of advice collected from various conversations with entrepreneurs and VCs, Tren Griffin makes an important point—that "entrepreneurs don't 'noodle'; they do." Most entrepreneurs will tell you that the hardest part is starting. Griffin writes that “lots of people talk a good game about wanting to leave a big company for a startup, but when the time comes, most don’t do it."
So, Bloomberg was fired, and without a moment's rest, hired four people from his old company and began creating then selling what would eventually become the well-known Bloomberg Terminal. He identified a major problem: the inaccessibility of investment data was preventing traders from making smart investments, and thought of a solution, but most importantly, he took a risk and went all-in.
This takes us to our next lesson:
Be Persistent. Make Your Own Luck.
So Bloomberg has an idea, and he thinks it can impact the entire financial world, but no one thinks it'll catch. This is where luck comes in, but this is a different kind of luck. Bloomberg once said that "luck plays a part in success, but the harder you work, the luckier you get ... Hard work creates opportunities where your resume cannot.” He worked tirelessly to get his name and idea out there.
When he started his company, Bloomberg would go downtown and buy cups of coffee and take them up to Merrill Lynch, his target audience, and just walk the hallways. “Hi,” he would say. “I’m Mike Bloomberg and I brought you a cup of coffee. Can I talk to you?”
Bloomberg kept coming back day after day, working to build relationships with potential customers. "I learned about the audience for our product and what they could really use," explained Bloomberg. "Three years after starting Bloomberg LP, Merrill Lynch purchased 20 terminals and became our first customer."
If Bloomberg hadn't been persistent in talking to potential customers and understanding the market however he could, he may not have had such great success. His coffee cup trick illustrated the importance of persistence and creating your own luck, but it also illustrates another important lesson:
Find an Audience to Serve
Behind every good idea is a hypothesis, a belief that your idea will be valuable to a target market. For Bloomberg, that hypothesis was that investors could make smarter investments if they had better access to and understanding of investment data. He believed that technology that simplified and organized that data would be immeasurably valuable to the investing community. And he was right.
Bill Campbell, a businessman in Silicon Valley, explains: “At the core of any great business is an entrepreneur who creates a value hypothesis in the first place so that core product value (a real and significant solution to a valuable customer problem) can be tested and discovered.”
Entrepreneurs know their product inside and out. They also know the market. Most become successful because they create something that didn't already exist, or they significantly improve an existing product after experiencing frustration with the way it worked. Remaining unaware of changing market needs, competitor moves, and other external factors can cause even great products to fail.
The last two pieces of advice may seem unrelated to the entrepreneurial endeavor, but Michael Bloomberg would beg to differ.
Never Stop Learning and Give Back
According to Bloomberg, "the most powerful word in the English language is 'Why.' There is nothing so powerful as an open mind. Whatever path you choose in life—be a lifelong student." Bloomberg argues that "The world is full of people who have stopped learning and who think they've got it all figured out. "You've no doubt met some of them already..." says Bloomberg. "Their favorite word is 'No.' They will give you a million reasons why something can't be done or shouldn't be done." Bloomberg's advice is to simply not listen to them. And certainly, don't become one of them.
Finally, Bloomberg offers some wisdom on the meaning of success. "You are ultimately responsible for your success and failure, but you only succeed if you share the reward with others." After serving as New York City's mayor, Bloomberg returned to Bloomberg LP but also devoted more time to philanthropy, which had become a top priority for him. In 2019, he launched a self-funded campaign for the 2020 U.S. presidential election.
Bloomberg Philanthropies uses a data-driven approach that mirrors his approach on the Bloomberg Terminal. The organization focuses on five areas — public health, environment, education, government innovation, and arts & culture. As of 2018 it was estimated that Bloomberg had donated over $8 billion to a variety of causes and organizations. In his own words, "At the end of the day, ask yourself: 'Am I making a difference in the lives of others?'" Only if the answer is yes can you call yourself a successful entrepreneur.
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30d8db2f7e05a17f3de8f5fcf08af1a4 | https://www.investopedia.com/articles/personal-finance/101016/family-retirement-plan.asp | How to Factor Family Into Your Retirement Plan | How to Factor Family Into Your Retirement Plan
Factoring family into your retirement plan—and other aspects of annual financial planning—often calls for significant change. Your retirement plan when you’re married will look completely different from when you’re single. You not only have to consider your own needs and retirement dreams; you also have to consider your spouse’s. If you have kids or parents who rely on you for support, financial or otherwise, that further complicates your planning.
When you make an annual financial plan—or update the plans you've already made—you need to review these needs and see what might require adjustments. Here’s a look at how your family might factor into your retirement plans and how to manage the challenges that come with considering multiple people’s priorities.
Saving for Kids to Attend College
Many parents want to pay for their kids to attend college, but feel the pull of competing financial demands.
“College saving can be a daunting task, especially with multiple children,” says Michael Briggs, an investment adviser representative with NEXT Financial Group at Horizon Investment Management Group in Springfield, Mass. “The advice I give my clients is, when having to choose between college saving and your own retirement, always choose your own retirement first.”
Parents’ contributions to their own individual retirement accounts (IRAs) can be used for their children’s educational expenses. The annual contribution limits—established by the Internal Revenue Service (IRS)— to 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 for $1,000. On the other hand, if you place money in a 529 plan, it can’t be used for non-educational purposes without paying taxes and penalties.
“Just think of being on a plane—they tell you to put your own mask on first and then help the other person. The same applies when choosing where to put your funds,” Briggs adds.
Another benefit of prioritizing retirement savings over education savings is that money in qualified retirement accounts isn’t counted as an asset on the Free Application for Federal Student Aid (FAFSA). That means they don’t count toward your family’s expected financial contribution. Money in 529 plans in parents’ or students’ names is counted towards your family’s expected financial contribution and can reduce financial aid by as much as 5.64%.
Sharon Marchisello, author of the personal finance ebook Live Cheaply, Be Happy, Grow Wealthy, agrees that funding retirement should be higher on your list than sending the kids to college. Your kids have other options for paying for college—including scholarships, part-time work, and student loans—but you won't be able to borrow your way through retirement.
“You help your children more by being self-sufficient, so you don't have to ask for their support in your old age,” Marchisello says.
So first plan what you'll be saving for retirement; then see what you might be able to put aside to help with college for your children.
Caregiving for Elderly Parents
Speaking of caring for parents who aren’t financially self-sufficient in their old age, review whether this burden is likely to fall on your family. If the answer is yes, there are proactive steps you can take to defray how caregiving for elderly parents could derail your current and future financial plans.
Long-Term Care Insurance
The U.S. Department of Health and Human Services estimates that about 52% of Americans who turned 65 in 2019 will need long-term care services. Long-term care can be financially devastating. According to Genworth’s 2019 Cost of Care Survey, a month in a private room in a nursing home, costs nearly $8,517. Imagine paying that expense for months or even years.
It's best to start planning for this before your parents are actually elderly. “If your parents are approaching age 60 and you can afford long-term care insurance, paying the premium now may save you much more later if a parent needs to go into a nursing home,” says Oscar Vives Ortiz, a CPA financial planner with First Home Investment Services in the Tampa Bay-St. Petersburg area of Florida.
Ask yourself whether this is the year you need to buy long-term care insurance for any of your parents—or make sure that those parents have purchased it for themselves. For every year that you postpone buying this insurance, you face higher rates based on the insured’s increased age; rates can increase even further if health problems develop, or it might become impossible to get insurance at all. If your parents are paying, be sure they keep up with the premiums—sometimes, you can sign up to be alerted if an older person hasn't been paying the bills.
Either life insurance or an annuity with a long-term care component offers an alternative to long-term care insurance that may be more practical for some families.
While you and your spouse are planning for your parents’ long-term care needs, you should be thinking about your own as well.
“In many situations, it’s almost better financially for your spouse to die than to go into a long-term care facility,” says Richard Reyes, a certified financial planner based in Orlando, Fla.
He adds that planning for long-term care can also give you more flexibility in that you won’t have to depend on the government, your children, or your neighbors to take care of you; you’ll be able to call the shots.
“If you have no care insurance or have not planned adequately for care, then obviously the only flexibility you have is what others have planned for you,” Reyes says.
“If you go on Medicaid, your care will be what the government prescribes it is, and who takes care of you is based on where and when there is space available for you—not a great solution,” he adds.
There are also many problems with depending on the family. Your kids may not live nearby or may have their own issues, concerns, and families to take care of. A spouse you depend on will likely be close to your age and have diminished physical capacities.
“When someone gives me lip about having long-term care, I tell one of the spouses to lie down on the floor and ask the other to pick them up and carry them all around the house and in and out of their vehicle,” Reyes says.
Life Insurance
Life insurance with a living benefit or long-term care rider can help pay for long-term care as it’s needed. But life insurance can also be a tool for reimbursing family members who help with long-term care after the loved one who needed that care passes away.
“If you feel that you have to spend some of your money taking care of your elderly parents, then try to make sure that any life insurance policies that they have listed you as a beneficiary to repay you and replenish your investments upon their death,” says Rick Sabo, a financial planner with RPS Financial Solutions in Gibsonia, Pa.
If your parents don’t have life insurance, can’t afford it, and are likely to rely on you for help when they’re older, talk to them about purchasing a guaranteed universal life insurance policy that you and your spouse will pay the premiums on. Unlike term life insurance, which your parents could outlive, you can purchase guaranteed universal life insurance that lasts until age 121, making it essentially a permanent policy, but at a much lower cost than whole life insurance.
You and your spouse may also want to carry your own life insurance policies. The younger you are when you purchase it, the less expensive it will be. The policy’s death benefit could be a godsend if a breadwinner or homemaker passes away prematurely.
Retirement Timing
People of any age can start establishing retirement goals by thinking about how they want to live during retirement. Saving will be much easier when you know what you’re saving for, says Kevin Gallegos, vice president of Phoenix sales and operations with Freedom Financial Network, an online financial service for consumer debt settlement, mortgage shopping, and personal loans.
Think about where you will live, if you will move to a smaller home, whether you plan on traveling, and whether you will want to work part-time. Plan to live on 80% to 85% of your current income once you retire.
To fully understand what your retirement income will be, make sure you understand any pension you’re entitled to, review all your investments, and estimate your Social Security income, Gallegos says.
Planning retirement with a spouse is more complicated than planning retirement for just yourself. You’ll need to create a shared vision for what your retirement will look like. You’ll also need to agree on whether you’ll both stop working at the same time or whether it makes sense for one spouse to retire first.
Age differences between spouses are common, and these can create issues in retirement planning. At retirement, if you are 66 and your spouse is 62, for example, you will be able to get health insurance through Medicare, but your spouse won’t until age 65. That’s an expense of potentially $600 to $700 a month for premiums that you must plan for, Reyes says.
Other issues to sort out include when to claim Social Security, how one spouse’s claiming decision could affect the other’s benefits, and how to claim pension benefits in a way that will be most beneficial to the spouse.
The Bottom Line
Annual financial planning for a family requires considering the needs and desires of everyone involved. You need to make strategic decisions about funding your retirement, helping children with their college expenses, caring for elderly parents, purchasing long-term care insurance and life insurance, and timing your retirement and that of your spouse.
If you plan for each of these items and learn about the different options and consequences of each choice, you’re less likely to face unpleasant surprises and financial struggles that could prevent you from retiring when and how you want. Once you have a basic plan, review these decisions and expenditures each year to see whether any adjustments need to be made.
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d69eff9790f467a47db5361dfd1f7a59 | https://www.investopedia.com/articles/personal-finance/101315/7-smart-ways-raise-cash-fast.asp | 7 Smart Ways to Raise Cash Fast | 7 Smart Ways to Raise Cash Fast
Whether you are facing an onslaught of unexpected medical bills, you recently lost your job, or your home has been hit by a hurricane or other natural disaster, one thing is certain: You need cash, and you need it now. Unfortunately, when a financial emergency crashes into everyday life, the vast majority of us are caught completely unprepared.
If you find yourself in this fix, you are not alone. About six out of ten American households experience at least one financial emergency a year and about one-third of American families have no savings at all, according to FEMA. And almost 40% of Americans would have trouble paying for an unanticipated emergency expense such as a $400 car repair, according to a report from the U.S. Federal Reserve.
If you need quick cash to cover an urgent expense, where do you turn? Here are seven smart ways to raise money quickly without causing irreparable harm to your finances.
Key Takeaways Selling personal belongings—such as clothing, electronics, or books—online may help you raise cash in an emergency. Consider taking on an odd job, such as babysitting, dog walking, or yard work, to help bring in extra money. You might consider borrowing or withdrawing funds from your retirement account—in most years, that could mean paying taxes on the distribution and a 10% penalty, depending on various factors, but penalties are waived in 2020, due to the coronavirus pandemic. If you borrow money from friends or family, it's best to draw up a contract about the terms of the loan.
1) Liquidate Your Assets
Does the corner of your jewelry box hold your dad's Rolex, your mom's engagement ring, or a diamond pin you rarely wear? What about goodies tucked away in your closet—perhaps a fancy bridesmaid dress or your inherited great-aunt's fur coat. One online platform ready and willing to pay cash for your clothes is thredUp—in the Help Center click on "The Clean out Process" to find out how the selling process works. Or, you can try selling your clothing on eBay.
You also may be able to make fast cash by selling off recent-model electronics, like big-screen TVs, tablets, phones, laptops, and game consoles, as well as media like DVDs, CDs, books, and games, on sites such as Decluttr, Gazelle, and uSell, and marketplace sites like Swappa. Or you can try posting them on Facebook, Craigslist, and Twitter; run an ad in your local newspaper; or peddle these pieces to friends and family members.
Depending on the quality of the garments, electronics, and media you're willing to sell, you could quickly rake in hundreds—or more—in much-needed cash.
2) Take on Odd Jobs
If you don't have any high-value items to unload, you can try selling your services instead—especially if you are out of work and have time on your hands. You might babysit and/or pet-sit for friends or start up a neighborhood dog-walking service. According to ZipRecruiter, the nationwide average hourly wage for a babysitter is $28 an hour, while pet sitting pays an average of $14 per hour. Dog walkers can typically earn about $15 an hour, according to PayScale.
If you're not up for dealing with dogs or kids, you might offer to mow the grass and wash cars for people in your neighborhood, or drive a neighbor's elderly aunt to her doctors' appointments. Or, if you enjoy driving, you might sign up to be a Lyft or Uber driver. According to Gridwise, rideshare drivers' earnings in 2021 depend on where they live, but range from $14.65 per hour in San Antonio, Texas, to $19.44 in California's Bay Area.
You could also grocery shop for busy friends or the elderly offer to repair and paint your sister's dilapidated fence. Depending on how many jobs you take on and how much you charge for each task, you could scrape together a few hundred bucks within a single weekend. If you don't have enough people who need work done, try signing up for jobs through websites such as TaskRabbit, Thumbtack, or skills-based work in Upwork, Freelancer, or Fievrr.
An emergency fund can provide a financial cushion to help when unexpected costs, like medical bills, or loss of a job, occur. Try to set aside money when you can to start one.
3) Track Down Your Loose Change
At first glance, this advice may seem a little absurd—but it's not a joke. According to a 2016 news report from Bloomberg, Americans throw away approximately $61.8 million of coins in the trash each year. That's a lot of money stuffed in couch cushions, piggy banks, and old paint cans across the nation.
Hunt around the house to collect all those hidden coins. Once you dig up every last cent, haul the trove to your local bank or credit union. Some banks will count change for free for their customers, although others may require you to count and roll your change on your own.
Either way, once you convert those coins to cash, you could have another hundred bucks to put toward your emergency expense.
4) Organize a Garage Sale
One man's trash is another man's treasure, as the saying goes. While garage and yard sales require a lot of work, they can bring in a decent chunk of change for some sellers. Be sure to advertise on Craigslist, Facebook (if you have a local group), your local newspaper (online as well as print), and church bulletins, and put up neon signs with black lettering in key locations to bring in as many people as possible.
5) Get Money From Your Retirement Accounts
For more significant amounts of money, the first four steps may not suffice. That's when it makes sense to look at your 401(k). In most years, if you're younger than 59½, you pay a 10% penalty for withdrawing from your 401(k) funds, but there are times when it may pay to do this. Also, there are certain exceptions when the 10% penalty may be waived, such as when you have unreimbursed medical expenses that exceed 7.5% of your modified adjusted gross income. And in 2020, those affected by the corona virus pandemic can withdraw up to $100,000 from their 401(k) without a penalty. You can also borrow, rather than withdraw, money from your 401(k), a better choice if you can manage it.
If you don't have a 401(k) but you do have an IRA, this could also be a source of funds, especially if it's a Roth IRA. With a traditional IRA, your options are more limited, but even then, there are some situations in which you can withdraw retirement money at little cost to you.
6) Part With Your Plasma
Now we're getting to the more extreme options. Plasma is a valuable resource used for a variety of medical treatments and research. Donating plasma is similar to giving blood, according to Octapharma Plasma Inc., a company that collects plasma used to create life-saving medicines for patients worldwide.
Once your blood is drawn, it's cycled through special equipment that separates plasma from the other parts of your blood. Your plasma is then collected in a container, while the other parts are safely returned to your body in a process called plasmapheresis.
Reports vary as to how much you can make, and it will depend on a variety of factors. You could make between $20 and $60 for each donation. According to the Octapharma Plasma website, "Generally, the more you weigh, the more plasma we can collect, and the longer it takes to donate it. The amount of money new and returning donors make reflects this."
7) Borrow Money From Friends or Family
We saved this one for last because it really should be a last resort. While borrowing money from friends and relatives may be a quick fix, it can lead to some adverse consequences. When a loved one lends you some cash, it can put a strain on your relationship—especially if you don't pay the person back quickly.
According to an article in Psychology Today, unpaid loans can lead to lingering bad feelings between the lender and borrower. If you plan on borrowing money, it's probably best to draw up a contract stating when you will begin to pay back the lender and if you will also pay interest on the money borrowed.
The Bottom Line
If you find yourself cash-strapped when a financial emergency strikes, you're not alone. The vast majority of Americans don't have enough cash on hand to pay for unexpected expenses. When you find yourself in this scenario, the worst thing you can do is drive up credit-card debt or take out a payday loan, which will have exorbitant interest rates.
Fortunately, there are plenty of smart ways to raise money quickly without decimating your finances. Whether you choose to sell some of your belongings, take on odd jobs, or borrow money from a parent or friend, one thing is sure: As soon as you recover from this financial calamity, it's time to start building up an emergency fund.
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ab72112d5622372d58fa7b92b40cd14c | https://www.investopedia.com/articles/personal-finance/101315/using-your-401k-pay-mortgage-pros-and-cons.asp | Using Your 401(k) to Pay Off a Mortgage | Using Your 401(k) to Pay Off a Mortgage
There are some understandable questions you might encounter as you plan for retirement: Is it sensible to be squirreling away money in an employer-sponsored retirement plan such as a 401(k) while simultaneously making a hefty monthly mortgage payment? Could it be better, in the long run, to use existing retirement savings to pay down the mortgage? That way, you'd substantially reduce your monthly expenses before you leave behind work and its regular paychecks.
Key Takeaways Paying down a mortgage with funds from your 401(k) can reduce your monthly expenses as retirement approaches. A paydown can also allow you to stop paying interest on the mortgage, especially if it's fairly early in the term of your mortgage. Significant disadvantages to the move include reduced assets in retirement and a higher tax bill in the year in which the funds are withdrawn from the 401(k). You'll also miss out on the tax-sheltered investment earnings you'd make if the funds remain in your retirement account.
There's no single answer as to whether it's prudent to discharge your mortgage prior to retirement. The merits depend on your financial circumstances and priorities. Here, though, is a rundown of the pros and (compelling) cons of the move, to help you decide whether it might make sense for you.
Pros Increased cash flow Elimination of interest Estate-planning benefits Cons Reduced retirement assets A hefty tax bill Loss of mortgage-interest deductibility Decreased investment earnings
Pros to Discharging Your Mortgage
Here are the factors in favor of living mortgage-free in retirement, even if it means using up much or all of your 401(k) balance in order to do so.
Increased Cash Flow
Since a mortgage payment is typically a hefty monthly expense, eliminating it frees up cash for other uses. The specific benefits vary by the age of the mortgage holder.
For younger investors, eliminating the monthly mortgage payment by tapping 401(k) assets frees up cash that can be used to meet such other financial objectives as funding college expenses for children or purchasing a vacation property. With time on their side, younger workers also have the optimal ability to replenish the drawdown of retirement savings in a 401(k) over the course of their working years.
For older individuals or couples, paying off the mortgage can trade savings for lower expenses as retirement approaches or begins. Those reduced expenses may mean that the 401(k) distribution used to pay off the mortgage needn't necessarily be replenished prior to leaving the workforce. Consequently, the benefit of the mortgage payoff persists, leaving the individual or couple with a smaller need to draw income from investment or retirement assets throughout retirement years.
The excess cash from not having a mortgage payment may also prove beneficial for unexpected expenses that could arise during retirement, such as medical or long-term care costs not covered by insurance.
Elimination of Interest
Another advantage of withdrawing funds from a 401(k) to pay down a mortgage balance is a potential reduction in interest payments to a mortgage lender. Over the course of a conventional 30-year mortgage on a $200,000 home, assuming a 5% fixed interest rate, total interest payments equal slightly more than $186,000 in addition to the principal balance. Utilizing funds from a 401(k) to pay off a mortgage early results in less total interest paid to the lender over time.
However, this advantage is strongest if you're barely into your mortgage term. If you're instead deep into paying the mortgage off, you've likely already paid the bulk of the interest you owe. That's because paying off interest is front-loaded over the term of the loan.
Estate Planning
Additionally, owning a home outright can be beneficial when structuring an estate plan, making it easier for spouses and heirs to receive property at full value, especially when other assets are spent down prior to death. The asset-protection benefits of paying down a mortgage balance may far outweigh the reduction in retirement assets from a 401(k) withdrawal.
Cons to Discharging Your Mortgage
Against those advantages of paying off your mortgage are a number of downsides—many of them related to caveats or weaknesses to the pluses we noted above.
Reduced Retirement Assets
The greatest caveat to using 401(k) funds to eliminate a mortgage balance is the stark reduction in total resources available to you during retirement. True, your budgetary needs will be more modest without your monthly mortgage payment, but they will still be significant. Saving toward retirement is an overwhelming task for most, even when a 401(k) is available. Savers must find methods to outpace inflation while balancing the risk of retirement plan investments.
Contribution limits are in place that cap the total amount that can be saved in any given year, further increasing the challenge. The IRS limits contributions to $19,500 for 2021 for 401(k) plans, while the catch-up contribution limit is $6,500 for people aged 50 or over. And with the passing of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in December 2019, you can now contribute past the age of 70½. That's because the act allows plan participants to begin taking required minimum distributions (RMDs) at age 72.
Due to these restrictions, a reduction in a 401(k) balance may be nearly impossible to make up before retirement begins. That's especially true for workers who are middle-aged or older, and therefore have a shorter savings runway in which to replenish their retirement accounts. The cash flow increase resulting from no longer having a mortgage payment may be quickly depleted due to increased savings to make up a retirement plan deficit.
A Hefty Tax Bill
If you're already retired, there is a different kind of negative tax implication. Overlooking the tax consequences of paying off a mortgage from a 401(k) could be a key mistake. The tax scenario is no better if you borrow from your 401(k) in order to discharge the mortgage, rather than withdraw the funds outright from the account. Withdrawing funds from a 401(k) can be done through a 401(k) loan while an employee is still employed with the company offering the plan or as a distribution from the account.
Taking a loan against a 401(k) not only requires repayment through paycheck deferrals but may also result in costly tax implications for the account owner. This happens if an employee leaves their employer before repaying the loan against their 401(k).
In this situation, the remaining balance is considered a taxable distribution unless it is paid off by the due date of their federal income tax, including extensions. Similarly, employees taking a distribution from a current or former 401(k) plan must report it as a taxable event if the funds were contributed on a pretax basis. For individuals making a withdrawal prior to age 59½, a penalty tax of 10% is assessed on the amount received in addition to the income tax due.
The Loss of Mortgage-Interest Deductibility
In addition to tax implications for loans and distributions, homeowners may lose valuable tax savings when paying off a mortgage balance early. Mortgage interest paid throughout the year is tax-deductible to the homeowner, and the loss of this benefit may result in a substantial difference in tax savings once a mortgage balance is paid in full.
It's true, as we noted earlier, that if you're well along in your mortgage term, much of your monthly payment pays down principal rather than interest, and so is limited in its deductibility. Nonetheless, homeowners—especially those with little time left in their mortgage term—should carefully weigh the tax implications of paying off a mortgage balance with 401(k) funds before taking a loan or distribution to do so.
Decreased Investment Earnings
Homeowners should also consider the opportunity cost related to paying off a mortgage balance with 401(k) assets. Retirement savings plans offer a wide array of investment options meant to provide a way in which returns are generated at a greater rate than inflation and other cash equivalent securities. A 401(k) also provides for compound interest on those returns because taxes on gains are deferred until the money is withdrawn during retirement years.
Typically, mortgage interest rates are far lower than what the broad market generates as a return, making a withdrawal to pay down mortgage debt less advantageous over the long term. When funds are taken out of a 401(k) to pay off a mortgage balance, the investment opportunity on these assets is lost until they are replenished, if they are replenished at all.
The Bottom Line
Keep in mind that you enjoy the likely appreciation in the value of your home regardless of whether you've discharged its mortgage. Financially, you might be better off overall to leave the funds in your 401(k) and enjoy both their possible appreciation and that of your home.
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43de64f9690fd2c8441605ea00d55d63 | https://www.investopedia.com/articles/personal-finance/101414/why-entrepreneurs-are-important-economy.asp | Why Entrepreneurship Is Important to the Economy | Why Entrepreneurship Is Important to the Economy
Entrepreneurship is important for a number of reasons, from promoting social change to driving innovation. Entrepreneurs are frequently thought of as national assets to be cultivated, motivated, and remunerated to the greatest possible extent. In fact, some of the most developed nations such as the United States are world leaders due to their forward-thinking innovation, research, and entrepreneurial individuals.
Great entrepreneurs have the ability to change the way we live and work, on local and national bases. If successful, their innovations may improve standards of living, and in addition to creating wealth with entrepreneurial ventures, they also create jobs and contribute to a growing economy. The importance of entrepreneurship is not to be understated.
Key Takeaways Entrepreneurship is important, as it has the ability to improve standards of living and create wealth, not only for the entrepreneurs but also for related businesses.Entrepreneurs also help drive change with innovation, where new and improved products enable new markets to be developed.Too much entrepreneurship (i.e., high self-employment) can be detrimental to economic development.
Entrepreneurs Spur Economic Growth
New products and services created by entrepreneurs can produce a cascading effect, where they stimulate related businesses or sectors that need to support the new venture, furthering economic development.
For example, a few information technology companies made up the IT industry in India during the 1990s. The industry quickly expanded and many other sectors benefited from it. Businesses in associated industries—such as call center operations, network maintenance companies, and hardware providers—flourished. Education and training institutes nurtured a new class of IT workers who were offered better, high-paying jobs.
Similarly, future development efforts in other countries require robust logistics support, capital investments, and a qualified workforce. From the highly qualified programmer to the construction worker, entrepreneurship benefits a large part of the economy. In the U.S. alone, small businesses created 1.6 million net jobs in 2019.
Entrepreneurs Add to National Income
Entrepreneurial ventures help generate new wealth. Existing businesses may remain confined to existing markets and may hit a limit in terms of income. New and improved products, services, or technology from entrepreneurs enable new markets to be developed and new wealth to be created.
Additionally, increased employment and higher earnings contribute to better national income in the form of higher tax revenue and higher government spending. This revenue can be used by the government to invest in other struggling sectors and human capital. Although it may make a few existing players redundant, the government can soften the blow by redirecting surplus wealth to retrain workers.
According to the U.S. Small Business Administration, there are 31.7 million small businesses in the U.S. in 2019.
Entrepreneurs Create Social Change
Through offering unique goods and services, entrepreneurs break away from tradition and reduce dependence on obsolete systems and technologies. This can result in an improved quality of life, improved morale, and greater economic freedom.
For example, the water supply in a water-scarce region will, at times, force people to stop working to collect water. This will impact their business, productivity, and income.
However, with a project such as the U.S. Agency for International Development's Kenya RAPID program, an innovative and automatic pump powered by smart sensors fills people's water containers automatically, ensuring more than 184,000 people now have improved access to clean and safe drinking water. This type of innovation ensures people are able to focus on their jobs without worrying about a basic necessity like water. More time to devote to work translates to economic growth.
For a more contemporary example, smartphones and apps have revolutionized work and play across the globe. Smartphones are not exclusive to wealthy countries or people, as more than 5 billion people have mobile devices around the world. As the growth of the smartphone market continues, technological entrepreneurship can have a profound, long-lasting impact on the world.
Moreover, the globalization of technology means entrepreneurs in developing countries have access to the same tools as their counterparts in developed countries. They also have the advantage of a lower cost of living, so a young entrepreneur from a developing country can compete with a multimillion-dollar existing product from a developed country.
Community Development
Entrepreneurs regularly nurture ventures by other like-minded individuals. They also invest in community projects and provide financial support to local charities. This enables further development beyond their own ventures.
Some famous entrepreneurs, such as Bill Gates, have used their money to finance good causes, from education to public health. The qualities that make one an entrepreneur can be the same qualities that help motivate entrepreneurs to pay it forward through philanthropy, in a later chapter of life.
Is All Entrepreneurship Good?
Are there any drawbacks to cultivating entrepreneurs and entrepreneurship? Is there a limit to the number of entrepreneurs a society can hold?
Assistant Professor of Business at Columbia Business School Tania Babina, in a report written alongside Assistant Professors Wenting Ma and Christian Moser, Associate Professor Paige Ouimet, and Assistant Director of the Board of Governors of the Federal Reserve System Rebecca Zarutskie, found that "employees at young firms receive lower earnings as compared to employees at older firms."
Italy may provide an example of a place where high levels of self-employment have proved to be inefficient for economic development. Research has shown that Italy has experienced large negative impacts on the growth of its economy because of self-employment. There may be truth in the old saying, "too many chefs and not enough cooks spoil the soup."
The Role of Government
Regulation plays a crucial role in nurturing entrepreneurship. Unregulated entrepreneurship may lead to unwanted social outcomes, including unfair market practices, pervasive corruption, and criminal activity.
Findings from the United Nations University also indicate the possible implications of "over-nurturing" entrepreneurship. European economist Wim Naudé argues that "while entrepreneurship may raise economic growth and material welfare, it may not always result in improvements in non-material welfare (or happiness). Promotion of happiness is increasingly seen as an essential goal."
Paradoxically, a significantly high number of entrepreneurs may lead to fierce competition and loss of career choices for individuals. With too many entrepreneurs, levels of aspirations usually rise. Owing to the variability of success in entrepreneurial ventures, the scenario of having too many entrepreneurs may also lead to income inequality, making citizens unhappier.
The Bottom Line
The relationship between entrepreneurship and economic development is important to understand for policymakers and business owners. Understanding the benefits and drawbacks of entrepreneurship allows a balanced approach to nurturing entrepreneurship to be taken, which can result in a positive economic and societal impact.
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6b7491056d13fa14bff3daaa5dbd3cf9 | https://www.investopedia.com/articles/personal-finance/101414/why-how-where-and-when-entrepreneurs-make-money.asp | How Entrepreneurs Make Money | How Entrepreneurs Make Money
You’ve done all your hard work and planning, secured funding, and established your business. But what about the rewards? Where, when, and how can you expect your high-yield rewards to be realized, and why should your entrepreneurial venture succeed where others have failed?
Key Takeaways One of the most important things that an entrepreneur can do to make windfall profits is to protect their hard work through patents and copyright procurement. The sector of a given product or service dictates the patent length. Being aware of these particular requirements is important in any entrepreneur's plan for success. Entrepreneurs will experience growth and success through a general timeline that will adjust based on the type of product or service provided. The initial investment period, the plain period, is when time, energy, and work are at a premium, but funding may not be in place yet—at this step, angel investor funding can make a world of difference. Following the success of a product or service, an entrepreneur may choose to end the project or sell to pivot on to new ventures.
Why Entrepreneurs Should Make Windfall Profits
Imagine two hypothetical workers. Joey goes to the office each day, works a standard 40-hour workweek, and gets paid a standard salary. They are great at their job, but their contributions to the world remain confined to their work.
Alex has a passion to change and improve the world by introducing new products and services. They work way more than 40 hours a week, investing their time, capital, and energy to try something new that they hope will make the world a better place.
Clearly, the world would be less dynamic if there were only Joeys and no Alexs around. Alex takes more risks and puts in more effort than Joeys, so it’s logical that Alex will have a greater impact on the general welfare through their contributions. If the reward for Alex is more or less similar to that of Joey, however, Alex will not be as willing to put in the extra effort to improve the world's wellbeing.
The Lack of Suitable Awards
According to neoclassical economic theory, a lack of suitable rewards discourages entrepreneurs to take on risk and put in extra effort, without which the world becomes stagnant. Government authorities rightly offer entrepreneurs special rewards through patents, copyrights, and royalties. Entrepreneurs are less likely to invest their time, effort, energy, and money without windfall profits.
During a product or service lifecycle, it’s imperative that an entrepreneur weighs the perceived value of sweat equity against taking a salary or payment.
How Entrepreneurs Make Windfalls
Entrepreneurs introduce new products or services that may result in significant improvements in productivity, reduction in costs, and improvement in the quality of life. Knowing their offerings much better than anyone else and being aware of customer needs, the entrepreneur can charge a premium for their innovations, which can translate to big rewards.
If competitors are not able to build and introduce similar products or services in a short span of time, the product becomes a monopoly for the entrepreneur, and they can expect windfall profits from being the sole manufacturer or sole service provider.
Protection Through Patents and Copyrights
Even if competitors find it easy to replicate and introduce similar products quickly, the entrepreneur can seek protection for their innovation through patents or copyrights. These channels offer protection to the original inventor and act as a safeguard for successful entrepreneurial ventures.
But how long can this monopoly continue? Without government intervention in the form of patents or copyright protection, profitability will continue until competitors start offering similar products and services. Without any intervention, the market becomes open to further innovations and new variants on the original product or service. Entrepreneurs usually keep a close eye on such developments and are circumspect enough to upgrade their products and maintain the upper hand in the market.
In the case of patents, protection is available for a certain amount of time, which can span from a few months to a few years. In the U.S., patents usually last for 20 years. This again encourages healthy competition: Either entrepreneurs start work on something new or they succumb to market Darwinism.
Where and When Entrepreneurs Make Money
When it comes to money matters, timing is very important. Here is an illustrative graph indicating possible cash flows and their timing during the different phases of an entrepreneurial venture:
Image by Sabrina Jiang © Investopedia 2020
Term 1 to Term 4: The Pain Period
This is the initial investment period where different activities will be performed including, but not limited to, product idea development, feasibility and market study, prototype building, and customer identification. The order may differ depending on the venture, but the concepts remain the same. It is assumed that funding from angel investors becomes available in Term 4.
Term 5 to Term 6: The Introduction Period
Activities in this period may include applying for and securing patents and building sales channels and a distribution model to final product introduction to the market.
Term 7 to Term 9: The Profit Period
These terms are the profit-taking “monopoly” periods when the entrepreneur is either protected by patents or copyright, or there are no competitors for other reasons.
Term 9 is assumed to be the peak profit period, just prior to competitors entering the market. It is during this term that further development is initiated for introducing new product variants. However, reinvestment and research and development can come earlier, depending on the product's lifecycle and other factors. This can also be the time to introduce the original offering to new markets.
Term 10 to Term 11: The Sunset Period
At this point, entrepreneurs may exit the venture completely by closing it completely or selling it to interested parties, or they may continue with newly developed variants. Profits will vary greatly during these terms.
The Bottom Line
The above is an illustration of a general entrepreneurial cycle. The duration and activities mentioned will vary depending on the nature of the product and markets. For example, a pharmaceutical drug may have a longer monopoly period because of a patent, while a mobile technology innovation may get replicated within a very short span of time.
All business ventures aim for profitability. Owing to the high-risk/high-reward scenarios of entrepreneurial ventures, entrepreneurs are expected to make windfall profits, provided they plan their activities carefully and complete their plan effectively.
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76f87bd36c4a7cfac7c02bfc84d025fa | https://www.investopedia.com/articles/personal-finance/101614/build-your-credit-score.asp | Build Your Credit Score | Build Your Credit Score
Getting your first credit card can be a challenge. Few banks will offer a regular credit card to someone without a credit history—and how do you build a credit history, and establish a solid credit score, unless you have a credit card? Not having a credit history creates other problems, too. It can make it difficult, if not impossible, to get a car loan or mortgage. And you may need a credit card simply to rent a car or book a hotel room. So, how can you begin to build credit? Here are four ways.
Key Takeaways It can be difficult to get credit if you don't already have a credit history. Some financial products can help address that problem: student credit cards, secured credit cards, and credit building loans. Finding a cosigner who already has a good credit history is another option.
1. Get a Student Credit Card
Many banks have credit cards designed specifically for college students. If you are in college, go online or check with nearby banks to see if they have any special credit card programs for students. These cards often carry lower fees and interest rates than other cards designed for first-time cardholders, and some of them even offer rewards. Making timely payments on a student credit card each month will help you establish a good credit history and a solid credit score.
Investopedia periodically rates the best student credit cards.
2. Find a Cosigner
Finding someone with excellent credit who is willing to cosign a credit card application is another way to get a credit card if you'd otherwise be unable to. Doing so has a couple of other benefits, as well. For one, you’ll get a better interest rate than you could on your own. For another you’ll get a head start on a good credit score because your score will be helped by your cosigner's strong credit history. (So be sure to pick a cosigner with good credit or you could start off with a poor credit history.)
Often parents or siblings are the best candidates for cosigners. However, both the new cardholder and the cosigner should be aware of the risks. If either of you is late in making payments, that can hurt both of your credit scores. And if one of you can't pay their share of the bill at all, the other one could be stuck with it.
3. Sign up for a Secured Credit Card
Another option for someone who is just starting out (or starting over if they've had credit troubles in the past) is a secured credit card. The way it works is that you deposit a sum of money with the lender, and that becomes how much you can charge to the card. For example, if you want a $300 credit limit, you'd need to deposit $300.
No one can tell the card is secured; they look the same, and you use them just as you would any other credit card. The primary difference is that the bank takes no risk in issuing this type of card. You’ve secured the debt with the amount you have on deposit.
Many secured cards today have low or no annual fees. However, the interest rates can be high, so it's best to pay the balance in full each month. Doing that also restores the credit limit to its full amount. You'll also want to make sure that any card you choose will report your payments to the three major credit bureaus—Equifax, Experian, and TransUnion—to help build your credit history.
Most lenders will let you graduate to an regular, unsecured credit card in 12 to 18 months. If you’re diligent about paying your bill on time and have a steady income, you could apply for an unsecured credit card within six to eight months.
Investopedia publishes regularly updated lists of the best secured credit cards.
You can check your credit reports for free at least once a year at the official website for that purpose, AnnualCreditReport.com.
4. Take out (and Pay Back) a Credit Builder Loan
Many credit unions and smaller banks offer loans specifically for the purpose of establishing a good credit history, often referred to as credit builder loans. These loans work much like a secured credit card, but without the card: You deposit money with the financial institution and take out a loan of that amount. As you make payments on the loan, the financial institution reports them to the three credit bureaus, helping you establish a credit history.
Once the loan is paid off—typically in six months to two years—you'll get your money back with interest. And if you've made on-time payments consistently over that period, you will have built a good credit history, which will translate into a good credit score.
The Bottom Line
Getting credit can seem like a classic Catch-22. You need a credit history to get credit, and you can’t establish a credit history unless you already have credit. But there are some relatively easy ways to get around the problem, including financial products that are specifically designed for that purpose.
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a8259a381120a702045a14cceccd0b47 | https://www.investopedia.com/articles/personal-finance/101714/credits-firsttime-home-buyers.asp | Credits for First-Time Homebuyers | Credits for First-Time Homebuyers
Homeownership remains a vital part of the American dream. Maybe that's why there are a host of incentives designed to make it easier for first-time homebuyers to afford a place. These incentives include federal and state grants, tax credits, and other options. Even if you've owned a home in the past, you may qualify for these programs if you meet specific guidelines.
Key Takeaways A host of options ease the path for first-time homebuyers (which can actually include past owners of property).HUD-issued grants and state programs both exist to assist first-timers.First-time homebuyers can withdraw IRA funds for housing-related costs penalty-free.Like all homebuyers, first-timers can take advantage of tax deductions on mortgage interest and energy credits.
First-Time Homebuyer Definition
According to the U.S. Department of Housing and Urban Development (HUD), a first-time homebuyer is someone who meets any of the following conditions:
An individual who has not owned a principal residence during the three-year period ending on the date of purchase of the property (and the spouse of such an individual)A single parent who has only owned a home with a former spouse while marriedA displaced homemaker who has only owned with a spouseAn individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulationsAn individual who has only owned a property that was not in compliance with state, local, or model building codes—and which cannot be brought into compliance for less than the cost of constructing a permanent structure
As long as you qualify as a first-time homebuyer as delineated above, the options discussed in this article can help make your dream of buying a new home a reality. Do not be afraid to apply just because no one in your family ever owned a home before or you were unfairly rejected in the past.
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).
First-Timer Benefits
Hone in on HUD
The first place to look for grant assistance is HUD. Although the agency itself does not make grants to individuals, it does grant funds earmarked for first-time homebuyers to organizations with IRS tax-exempt status. The HUD website has details.
Look to Your IRA
Every first-time homebuyer is eligible to take up to $10,000 out of a traditional IRA or Roth IRA without paying the 10% penalty for early withdrawal. Like HUD, the IRS's "definition of a first-time homebuyer is someone who hasn't owned a personal residence in three years," says Dean Ferraro, an agent authorized to represent taxpayers before the Internal Revenue Service (IRS). So even if you owned a home in the past, you're eligible to tap these funds for a down payment, closing costs, or other related expenses if you meet the federal criteria.
The first-time homebuyer exclusion only exempts you from the 10% penalty. You will still have to pay income tax on the money you withdraw from a traditional IRA, but Roth IRA accounts are not subject to additional taxes.
Because that penalty-free $10,000-lifetime withdrawal is per individual, a couple could withdraw a maximum of $20,000 (from their separate IRAs) combined to pay for their first home. Just be sure to use the money within 120 days, or it does become subject to the 10% penalty, Ferraro cautions.
Size Up State Programs
Many states—for example, Illinois, Ohio, and Washington—offer down payment assistance for first-time homebuyers who qualify. Typically, eligibility in these programs is based on income and may also limit the price of the property purchased. Those who are eligible may be able to receive financial assistance with down payments and closing fees as well as costs to rehab or improve a property.
Know About Native American Options
Native American first-time homebuyers can apply for a Section 184 loan (in fact, all Native Americans can). "Next to the no-money-down VA loan, this is the best federal-subsidized loan offered," says Ferraro. This loan requires a 1.5% loan upfront guarantee fee and only a 2.25% down payment on loans over $50,000 (for loans below that amount, it's 1.24%).
Unlike a traditional loan's interest rate, which is often based on the borrower's credit score, this loan's rate is based on the prevailing market rate. Section 184 loans can only be used for single-family homes (one to four units) and primary residences.
Feel out the Feds
If you're game for a fixer-upper, the Federal National Mortgage Association's (FNMA) HomePath ReadyBuyer program is geared toward first-time buyers. After completing a mandatory online homebuying education course, participants can receive up to 3% in closing cost assistance. The assistance goes toward purchasing a foreclosed property owned by Fannie Mae, as FNMA is affectionately known.
Other federal or government-sponsored enterprises offer programs and assistance that, although not exclusively for first-timers, favor those with less money or limited credit history. Best-known among these are Federal Housing Administration loans (FHA loans) and Department of Veterans Affairs loans (VA loans).
Tax Benefits for All Homebuyers
Buying a first home also makes you eligible for the tax benefits afforded to every homebuyer, whether they're on their first or fifth residence.
Home Mortgage Interest Deduction
Home mortgage interest used to be one of the largest deductions for those who itemize. However, the Tax Cuts and Jobs Act (TCJA) has limited this deduction to the interest paid on $750,000 or less ($375,000 or less for those married filing separately).
At the same time, it has nearly doubled the standard deduction for a single or married couple filing jointly from $12,400 to $24,800 in 2020, respectively (increasing to $12,550 and $25,100 in 2021), making it less likely that people will have enough deductions to itemize them. Still, mortgage interest is deductible. You should be advised of interest paid to your lender on a 1098 form sent out annually in January or early February.
Points or Loan Origination Fees Deduction
The fees and points you pay to obtain a home mortgage may be applied as a deduction, according to Greene-Lewis. “Points will also be reported on Form 1098 from your lender or your settlement statement at the end of the year,” she says, adding that the rules for how you deduct points are different for a first purchase or a refinancing.
Property Tax Deduction
Property tax deductions are available for state and local property taxes based on the value of your home. The amount that's deducted is the amount paid by the property owner, including any payments made through an escrow account at settlement or closing. However, the TCJA has put a $10,000 cap on the deduction.
“You may find property taxes paid on your 1098 form from your mortgage company if your property taxes are paid through your mortgage company,” says Greene-Lewis. “Otherwise, you should report the amount of property taxes you paid for the year indicated on your property tax bill.”
Residential Energy Credit
Homeowners who install solar panels, geothermal heat systems, and wind turbines may receive a tax credit worth up to 30% of the cost. Energy-efficient windows and heating or air-conditioning systems are also eligible for the credit. Check the IRS’s energy incentive list to see if you qualify.
Bear in mind the difference between a tax deduction and a tax credit, says Lisa Greene-Lewis, a certified public accountant. "A tax deduction reduces your taxable income, but your actual tax reduction is based on your tax bracket. A tax credit is a dollar-for-dollar reduction in the taxes you owe."
That means a credit saves you a lot more. “A tax credit of $100 would reduce your tax obligation by $100, while a tax deduction of $100 would reduce your taxes by $25 if you are in the 25% tax bracket,” says Greene-Lewis.
The Bottom Line
Homeownership costs extend beyond down payments and monthly mortgage payments. Be sure to consider how much home you can actually afford before you begin to hunt—not just for the home, but for a mortgage lender.
“Make sure you factor in closing costs, moving costs, the home inspection, escrow fees, home insurance, property taxes, costs of repairs and maintenance, possible homeowner's association fees, and more," says J.D. Crowe, president of Southeast Mortgage and the Mortgage Bankers Association of Georgia.
Knowing you can afford the home you choose gives you the best chance of being able to live there for years to come.
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6df71617732ba115001910d52bea47db | https://www.investopedia.com/articles/personal-finance/101915/6-best-places-buy-winter-home-us.asp | 6 Best Places to Buy a Winter Home in the U.S. | 6 Best Places to Buy a Winter Home in the U.S.
Whether you dream of flip-flops and shorts or packing up your skis and snowboards and heading for the slopes, there are many great destinations in the U.S. where you can escape from or enjoy winter. Here are six to consider—three in warm climates and three in cold.
1. Anna Maria Island, Fla.
This barrier island in South Florida is just seven miles long and one and a half miles wide. Ron Schmedley, who lives in Cincinnati, Ohio, and bought a vacation house there in 2007, says, “Anna Maria Island is the perfect place to escape the hustle and bustle of our busy lives and rest our toes in the sand. The island is what ‘Old Florida’ used to be."
There is an ordinance that no structure can be built higher than the tallest palm trees, so you don’t have huge high-rise condos dotting the beach, just great views of the crystal clear water. Numerous restaurants offer seafood right off fishermen’s boats.
When Schmedley and his family visit, they spend most of their time at the beach, where, he says, “it’s not surprising to see manatees, dolphins, stingrays and plenty of other wildlife while we’re looking out at the water.”
According to Zillow, the median home value for Anna Maria Island is $1.16 million as of Dec. 31, 2020, and home values have gone up 8.0% over the past year.
2. Beaufort, S.C.
Beaufort (pronounced Byew-fort, and not to be confused with Beaufort, N.C., pronounced Bow-fort) is a great destination for anyone looking for a temperate climate during the winter. Located in South Carolina Lowcountry, the "winters are very mild and allow for plenty of outdoor recreation—inshore fishing is popular as are trips to the nearby beaches, golf, biking, and tennis,” says Edward Dukes, a lifelong resident and managing partner in Lowcountry Real Estate.
Chartered in 1711, Beaufort sits on the Intracoastal Waterway between Charleston and Savannah, each just a short drive away. Hunting Island, 15 miles from town, offers an “amazing beach, bike paths, and a canal for kayaking, paddle-boarding, and fishing,” says Dukes.
He recommends buying a vacation house right in the town, which is rich with history and Lowcountry architecture and culture and an easy walk to dinner, shopping, and the University of South Carolina’s Performing Arts Center. You can also buy properties in nearby gated golf and beach communities and, if you like boating, you can buy in a neighborhood with a community dock.
Homes in Beaufort have a median value of $244,063 as Dec. 31, 2020, on Zillow. Home values have risen 8.9% over the past year, making the market “very hot,” according to Zillow.
3. Phoenix, Ariz.
Encompassing Scottsdale, Paradise Valley, and Mesa, the Phoenix area makes outdoor living in the middle of winter easy and fun with lots of sunshine, little rain, and mild temperatures. Combine golfing, hiking, tennis, biking, and swimming with visits to the Phoenix Art Museum or the Heard Museum dedicated to American Indian art and history, or to a performance by the Phoenix Symphony, Ballet Arizona, or the Arizona Opera.
Phoenix was hit hard during the housing crisis, but the housing market has now fully recovered. According to Troy Reeves, owner of The Reeves Team, "While housing prices have had growth at a slightly faster than average pace over the last few years, it is mainly fueled by the fact that prices previously were too low and we have been catching up to where we need to be all along."
The median home value in Phoenix is $302, 963 as of Dec. 31, 2020, and values have gone up 16.7% over the past year, according to Zillow.
4. Jackson Hole, Wyo.
Jackson Hole Mountain Resort took first place in the Ski Magazine list of top ski resorts in 2014 and the magazine continues to heap praise on the town. It also makes frequent appearances at the top of Forbes' annual rankings of Top 10 Ski Resorts in North America.
But downhill skiing is only one choice for getting outside: You can ski cross-country on groomed tracks or into the national parks and forests, snowmobile around nearby Yellowstone National Park, take a sleigh ride through the National Elk Refuge, dogsled, helicopter ski, snowshoe, and ice skate. Since 97% of Jackson Hole’s land is currently permanently protected from development, properties on the remaining 3% are pretty scarce. As a result, dollar volume and transactions are extremely high.
Kelli Ward, an associate broker at Jackson Hole Real Estate and Christie's International Real Estate, says that “Wyoming is one of the friendliest states in the U.S. for people relocating for the purposes of…trusts and overall asset protection.” But, “that is just a bonus to some who want to be in Jackson Hole for the beauty of the land.”
That is apparent as soon as you fly into the area airport: It is the only airport in the U.S. located in a national park, and passengers get a look at “huge views of the Tetons, which are absolutely breathtaking” even before their plane has landed, says Ward.
As of Dec. 2020, the median home value listed in Jackson Hole is $1.6 million, trending up 20.3% year-over-year, according to Realtor.com.
5. South Lake Tahoe, Calif.
Lake Tahoe is huge—71 miles around—with ski areas on its north end (in Nevada) and its south end (in California). The South Shore is the livelier of the two, according to Dan Spano, who went there to ski 30 years ago and never left. According to Spano, a broker with Sierra Sotheby's International Realty, the south end is also somewhat more affordable.
“People are attracted to Lake Tahoe because it’s one of the most beautiful places on earth and the winters are mild compared to resorts in the eastern part of the U.S.,” says Spano. At the Heavenly Mountain Resort area, you can ski two states in one day and enjoy what Spano says is the best snow-making equipment in the area.
The real estate market in Tahoe is “very strong,” says Spano. “San Francisco Bay area residents doing well financially are buying second or even third homes before prices go out of sight.”
The median home value in South Lake Tahoe is $524,598 as of Dec. 31, 2020, up 16.5% over the past year, according to Zillow.
6. Okemo Mountain Resort, Ludlow, Vt.
Okemo is routinely included in OnTheSnow.com's “Best Family Resort in America” rankings—so if you’re looking for a family vacation destination, this might be it.
According to Bonnie MacPherson, director of public relations at the resort, Okemo gets this top rating because the family who owns the operation understands that “families are looking for activities they can enjoy together on and off the slopes.”
The resort boasts options for skiers of every level, available from the top of each chair with 46 miles of trails, 667 skiable acres, and thanks to snowmaking equipment that covers 98% of the mountain, a “weatherproof” ski vacation. Okemo is a three-hour drive from Boston and just under five hours from New York City.
According to Zillow, the median listing price in Ludlow, Vt., is $360,679 as of Dec. 2020, trending up 4.5% over the past year.
The Bottom Line
Whether you like to escape the snow or have fun in it, there are many great destinations to find the perfect winter home. In addition to price, climate, and activities, decide if you will rent out your home when you’re not there. If so, it's a good idea to consider destinations that have lots to offer all year round.
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b760f50ad0fb3ef7abd03eb2bc4598cf | https://www.investopedia.com/articles/personal-finance/102014/top-5-elder-care-strategies.asp | 8 Strategies to Help Pay for Eldercare | 8 Strategies to Help Pay for Eldercare
Medicare, the federal health insurance program primarily for adults 65 and over, pays doctor and hospital bills for many older Americans. However, it doesn’t cover everything. Long-term custodial care for help with the activities of daily living such as bathing, dressing, and eating, are not covered under the plan. There are other uncovered costs as well.
These can be devastating to your finances if you don't have a plan in place. So what do you do to cover the most burdensome of medical costs for yourself or another older member of your family? Read on to discover some of the ways you can plan ahead.
Key Takeaways Most people will require eldercare at some point, but few can really afford the high cost. In order to qualify for Medicaid, individuals need to meet and fall below a certain income level. Older people can set up irrevocable trusts or gift their assets to a child or other family member. Other options include annuities, pooled trusts, or personal care agreements. If all else fails, the older person's spouse may sign a spousal refusal.
The Costs of Eldercare
Many older people will eventually need eldercare—perhaps because of a physical or mental impairment—and they and their families will have to find a way to pay for it. Unfortunately, it is rarely cheap. In fact, it can quickly wipe out a person’s life savings.
A semi-private room in a nursing home in the United States cost an average of $247 a day, or $7,513 a month in 2019, according to a report on long-term care by Genworth. A private room averaged $280 a day, or $8,517 a month.
For people who don’t need the level of care that a nursing home provides, a one-bedroom unit in an assisted living community runs about $133 a day, or $4,051 a month, according to Genworth's report. Home health aides for people who are able to remain in their own homes but still need some assistance can cost as much as $23 an hour. These are just averages, of course. In high-cost areas such as New York City, the bills can run much higher.
1. Long-Term Care Insurance
Privately purchased long-term care insurance is one way to handle some of these costs. It provides coverage for nursing-home care, home-health care, personal care and adult daycare.
But long-term care insurance can be expensive and is not for everyone. It’s also generally most cost-effective when purchased before age 60. The average annual premium in 2020 for a couple, both 55-years-old, is $3,050, according to the American Association for Long-Term Care Insurance.
Long-term care insurance offers more flexibility and options than public assistance programs, such as Medicaid.
2. Medicaid and Eldercare
Another solution is applying for Medicaid, a joint federal and state program, and the largest national program that provides health-related services for low-income individuals. Though the specifics vary by state, Medicaid generally covers nursing home services. In some states, Medicaid also covers services that can help people remain in their homes.
In order to be eligible for Medicaid, you must meet specific income and asset requirements, although the amount varies widely by state. In New York, for example, the 2020 Medicaid income eligibility level is $15,750 and below for individuals and $23,100 for couples.
In order to qualify, a potential beneficiary must also have total countable assets under a certain amount—typically $2,000 for an individual and $3,000 for couples. Countable assets include bank accounts, stocks and bonds, the cash value of life insurance policies and, in some cases, retirement assets.
A home, if the person owns one, may be excluded, though home equity over a certain level can affect eligibility. Once the home is no longer the person’s principal residence, it will be counted as a resource and can become subject to a Medicaid claim for reimbursement.
Traditionally, people have often reached the eligibility threshold either by giving money to family members or through a spend down. This occurs when they pay for their own care until enough of their assets are depleted, which is often quickly. However, there are legal strategies that can help older people qualify for Medicaid without impoverishing themselves or their spouse.
Though the rules are complex, some of the specifics vary by state and the services of a knowledgeable lawyer are essential, here are a few options to investigate.
Because Medicaid rules vary by state, it may be best to speak directly to a regional office to obtain the correct guidelines for your home state. You can find a link to connect you via the Medicaid website.
3. Asset Protection Trusts
A properly established irrevocable trust can be one way to shelter assets where they will not affect Medicaid eligibility. An irrevocable trust, which transfers assets to the control of a trustee, effectively removes them from the older person’s control. This means that once established, this kind of trust cannot be changed or broken without the beneficiaries' permission.
This is in contrast to a revocable trust, in which the person retains the right to change the arrangement. Revocable trusts, which are also referred to as revocable living trusts, have their uses, but qualifying for Medicaid isn’t one of them.
Example of an Irrevocable Trust
David A. Cutner, an elder law attorney with Lamson & Cutner, P.C., offers an example of an irrevocable trust using New York State's rules that are slightly simplified: Suppose a person transfers $120,000 to an irrevocable trust, enters a nursing home thereafter and applies for Medicaid.
Using Medicaid’s regional rate of $12,000 per month for nursing home care in that geographic region, the penalty period of ineligibility can be easily calculated in the following way: The $120,000 transfer divided by the regional rate of $12,000 equals a 10-month period of ineligibility. The penalty period starts when the person is in the nursing home, has applied for Medicaid and is otherwise eligible for benefits. In New York, the look-back period applies only to nursing homes and not to assisted living or home care. In other states, it may apply to all three. So it's important to check what the rules are for your state.
In most cases, the actual cost of nursing home care is higher than Medicaid’s regional rate. As a result, the out-of-pocket cost of nursing home care during the penalty period will be greater than the amount of the transfer that caused the penalty. That is where the next strategy comes in.
4. Gifting Assets Before Eldercare
Another option would be to simply give the money to a responsible child or another relative. However, Cutner says that route can be far riskier. Once the money is transferred, it legally belongs to the other person. So even if the person is totally trustworthy, events in their own life—a divorce, a business failure, a lawsuit, their death—could put that money in jeopardy. Creating a trust instead can avoid these risks.
Medicaid currently has a five-year look-back period, so if someone transfers assets into a trust and enters a nursing home more than five years later, the money in the trust will not be counted toward Medicaid eligibility. However, if the money was transferred within the five-year look-back period, that will affect their eligibility for a certain period of time.
5. Set Up an Annuity
If a person needs to apply for Medicaid before the five-year look-back period is up, it still may be possible to preserve a significant portion of their assets by using a properly drafted private annuity or promissory note that complies with federal law, according to Cutner.
Suppose the person in the example above transferred $60,000 into a trust and used the remaining $60,000 to purchase a private annuity prepared by an elder law firm. The monthly annuity payments, along with the person’s Social Security and any other income, could be used to pay the nursing home bill for the five months that the person was now ineligible for Medicaid—$60,000 divided by $12,000. There would be no transfer penalty for the money used to purchase the annuity under federal law so it wouldn’t affect the person’s eligibility. Plus, the $60,000 in the trust would now be preserved.
The person could also have transferred that same remaining $60,000 to someone in return for a promissory note, with a similar $12,000 monthly payback period. As with a private annuity, such an agreement would need to be structured by an elder law attorney to make sure it met Medicaid requirements.
Using the annuity or promissory note strategy, many people can protect from 40% to 50% of their assets, Cutner says. High-net-worth individuals, with, say, $1 million or more in assets, are unlikely to benefit. For example, for someone transferring $500,000 to trust in a locale where the regional rate is $8,000, the penalty period would be greater than the look-back period and might be longer than the person’s nursing home stay.
6. Pooled Trusts
States differ in how they treat income for Medicaid purposes. In general, a Medicaid recipient who is in a nursing home must turn over all of their income, except for a small monthly allowance, in order to defray the cost of care. If the person needs home care or lives in a continuing-care retirement community, the state may consider any income over a certain limit to be excess or surplus and require that it go toward the cost of care. In those instances, a pooled trust can protect some of that income.
With a pooled trust, the older person arranges for their excess income to be paid to a charitable organization. The person no longer has control over the money, but can submit bills to the charity for payment. Someone who is still living at home might use it for food and utilities, for example. This allows the person to defray everyday living costs that might exceed Medicaid’s relatively low limits.
Only a limited number of states permit pooled trusts.
7. Personal Care Agreements
A lump sum paid to a caregiver for future services may not be considered a penalized transfer if it is structured correctly. That can serve a number of purposes. One is to reduce the size of the estate, so the person will be eligible for Medicaid. Another is to buy the older person some care beyond what Medicaid provides.
This kind of personal care agreement can also help ease the financial strain on a child or other relative who has given up work and sacrificed income in order to provide care. Often, Cutner says, it can help prevent family rifts when the burden of caregiving falls disproportionately on a particular child. Such an agreement can also be used with an agency that provides home care services.
8. Spousal Transfers and Spousal Refusal
A transfer of assets from one spouse to the other is not penalized under Medicaid, so a common move is for a spouse who needs to go into a nursing home to turn over their assets to their spouse. Even so, the spouse is still legally obligated to provide for the other spouse’s care, and their collective assets will be considered for Medicaid eligibility purposes.
By signing a spousal refusal, however, the healthy spouse may be able to renounce that responsibility, making the other spouse immediately eligible for Medicaid. The documents, usually prepared by a lawyer, are sent and filed with the Department of Social Services. After the documents are reviewed, and each requirement from Medicaid is met, the state's healthcare program can begin paying for health services.
Medicaid can attempt to collect reimbursement from the spouse at a later date, though Cutner says strategies are available that may lessen the impact. Even if Medicaid does collect, the couple is likely to benefit, because Medicaid’s reimbursement will be based on the discounted rate it pays nursing homes rather than on the private-payer rate the couple would otherwise have had to pay. This option is not available in every state so make sure to check first.
The Bottom Line
If older family members lack the funds to pay for the care that they need when they become mentally or physically frail, investigate these ways to help pay the bills without impoverishing the individual or their spouse. Healthy older adults should use this information to plan ahead for the care they might need in the future.
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609b8e56c0eb61cd4687131d278bd9d0 | https://www.investopedia.com/articles/personal-finance/102015/series-b-c-funding-what-it-all-means-and-how-it-works.asp | Series A, B, C Funding: How It Works | Series A, B, C Funding: How It Works
A startup with a brilliant business idea is aiming to get its operations up and running. From humble beginnings, the company proves the worthiness of its model and products, steadily growing thanks to the generosity of friends, family and the founders' own financial resources. Over time, its customer base begins to grow, and the business begins to expand its operations and its aims. Before long, the company has risen through the ranks of its competitors to become highly valued, opening the possibilities for future expansion to include new offices, employees and even an initial public offering (IPO).
If the early stages of the hypothetical business detailed above seem too good to be true, it's because they generally are. While there are a very small number of fortunate companies that grow according to the model described above (and with little or no "outside" help), the large majority of successful startups have engaged in many efforts to raise capital through rounds of external funding. These funding rounds provide outside investors the opportunity to invest cash in a growing company in exchange for equity, or partial ownership of that company. When you hear discussions of Series A, Series B and Series C funding rounds, these terms are referring to this process of growing a business through outside investment.
There are other types of funding rounds available to startups, depending upon the industry and the level of interest among potential investors. It's not uncommon for startups to engage in what is known as "seed" funding or angel investor funding at the outset. Next, these funding rounds can be followed by Series A, B and C funding rounds, as well as additional efforts to earn capital as well, if appropriate. Series A, B and C are necessary ingredients for a business that decides bootstrapping, or merely surviving off of the generosity of friends, family and the depth of their own pockets, will not suffice.
1:39 Explaining Series A Financing
Below, we'll take a closer look at what these funding rounds are, how they work and what sets them apart from one another. The path for each startup is somewhat different, as is the timeline for funding. Many businesses spend months or even years in search of funding, while others (particularly those with ideas seen as truly revolutionary or those attached to individuals with a proven track record of success) may bypass some of the rounds of funding and move through the process of building capital more quickly.
Once you understand the distinction between these rounds, it will be easier to analyze headlines regarding the startup and investing world, by grasping the context of what exactly a round means for the prospects and direction of a company. Series A, B and C funding rounds are merely stepping stones in the process of turning an ingenious idea into a revolutionary global company, ripe for an IPO.
How Funding Works
Before exploring how a round of funding works, it's necessary to identify the different participants. First, there are the individuals hoping to gain funding for their company. As the business becomes increasingly mature, it tends to advance through the funding rounds; it's common for a company to begin with a seed round and continue with A, B and then C funding rounds.
On the other side are potential investors. While investors wish for businesses to succeed because they support entrepreneurship and believe in the aims and causes of those businesses, they also hope to gain something back from their investment. For this reason, nearly all investments made during one or another stage of developmental funding is arranged such that the investor or investing company retains partial ownership of the company. If the company grows and earns a profit, the investor will be rewarded commensurate with the investment made.
Before any round of funding begins, analysts undertake a valuation of the company in question. Valuations are derived from many different factors, including management, proven track record, market size and risk. One of the key distinctions between funding rounds has to do with the valuation of the business, as well as its maturity level and growth prospects. In turn, these factors impact the types of investors likely to get involved and the reasons why the company may be seeking new capital.
Pre-Seed Funding
The earliest stage of funding a new company comes so early in the process that it is not generally included among the rounds of funding at all. Known as "pre-seed" funding, this stage typically refers to the period in which a company's founders are first getting their operations off the ground. The most common "pre-seed" funders are the founders themselves, as well as close friends, supporters and family. Depending upon the nature of the company and the initial costs set up with developing the business idea, this funding stage can happen very quickly or may take a long time. It's also likely that investors at this stage are not making an investment in exchange for equity in the company. In most cases, the investors in a pre-seed funding situation are the company founders themselves.
Seed Funding
Seed funding is the first official equity funding stage. It typically represents the first official money that a business venture or enterprise raises. Some companies never extend beyond seed funding into Series A rounds or beyond.
You can think of the "seed" funding as part of an analogy for planting a tree. This early financial support is ideally the "seed" which will help to grow the business. Given enough revenue and a successful business strategy, as well as the perseverance and dedication of investors, the company will hopefully eventually grow into a "tree." Seed funding helps a company to finance its first steps, including things like market research and product development. With seed funding, a company has assistance in determining what its final products will be and who its target demographic is. Seed funding is used to employ a founding team to complete these tasks.
There are many potential investors in a seed funding situation: founders, friends, family, incubators, venture capital companies and more. One of the most common types of investors participating in seed funding is a so-called "angel investor." Angel investors tend to appreciate riskier ventures (such as startups with little by way of a proven track record so far) and expect an equity stake in the company in exchange for their investment.
While seed funding rounds vary significantly in terms of the amount of capital they generate for a new company, it's not uncommon for these rounds to produce anywhere from $10,000 up to $2 million for the startup in question. For some startups, a seed funding round is all that the founders feel is necessary in order to successfully get their company off the ground; these companies may never engage in a Series A round of funding. Most companies raising seed funding are valued at somewhere between $3 million and $6 million.
Series A Funding
Once a business has developed a track record (an established user base, consistent revenue figures, or some other key performance indicator), that company may opt for Series A funding in order to further optimize its user base and product offerings. Opportunities may be taken to scale the product across different markets. In this round, it’s important to have a plan for developing a business model that will generate long-term profit. Often times, seed startups have great ideas that generate a substantial amount of enthusiastic users, but the company doesn’t know how it will monetize the business. Typically, Series A rounds raise approximately $2 million to $15 million, but this number has increased on average due to high tech industry valuations, or unicorns. The average Series A funding as of 2020 is $15.6 million.
In Series A funding, investors are not just looking for great ideas. Rather, they are looking for companies with great ideas as well as a strong strategy for turning that idea into a successful, money-making business. For this reason, it's common for firms going through Series A funding rounds to be valued at up to $23 million.
The investors involved in the Series A round come from more traditional venture capital firms. Well-known venture capital firms that participate in Series A funding include Sequoia Capital, Benchmark Capital, Greylock and Accel Partners.
By this stage, it's also common for investors to take part in a somewhat more political process. It's common for a few venture capital firms to lead the pack. In fact, a single investor may serve as an "anchor." Once a company has secured a first investor, it may find that it's easier to attract additional investors as well. Angel investors also invest at this stage, but they tend to have much less influence in this funding round than they did in the seed funding stage.
It is increasingly common for companies to use equity crowdfunding in order to generate capital as part of a Series A funding round. Part of the reason for this is the reality that many companies, even those which have successfully generated seed funding, tend to fail to develop interest among investors as part of a Series A funding effort. Indeed, fewer than half of seed-funded companies will go on to raise Series A funds as well.
Series B Funding
Series B rounds are all about taking businesses to the next level, past the development stage. Investors help startups get there by expanding market reach. Companies that have gone through seed and Series A funding rounds have already developed substantial user bases and have proven to investors that they are prepared for success on a larger scale. Series B funding is used to grow the company so that it can meet these levels of demand.
Building a winning product and growing a team requires quality talent acquisition. Bulking up on business development, sales, advertising, tech, support, and employees costs a firm a few pennies. The average estimated capital raised in a Series B round is $33 million. Companies undergoing a Series B funding round are well-established, and their valuations tend to reflect that; most Series B companies have valuations between around $30 million and $60 million, with an average of $58 million.
Series B appears similar to Series A in terms of the processes and key players. Series B is often led by many of the same characters as the earlier round, including a key anchor investor that helps to draw in other investors. The difference with Series B is the addition of a new wave of other venture capital firms that specialize in later-stage investing.
Series C Funding
Businesses that make it to Series C funding sessions are already quite successful. These companies look for additional funding in order to help them develop new products, expand into new markets, or even to acquire other companies. In Series C rounds, investors inject capital into the meat of successful businesses, in an effort to receive more than double that amount back. Series C funding is focused on scaling the company, growing as quickly and as successfully as possible.
One possible way to scale a company could be to acquire another company. Imagine a hypothetical startup focused on creating vegetarian alternatives to meat products. If this company reaches a Series C funding round, it has likely already shown unprecedented success when it comes to selling its products in the United States. The business has probably already reached targets coast to coast. Through confidence in market research and business planning, investors reasonably believe that the business would do well in Europe.
Perhaps this vegetarian startup has a competitor who currently possesses a large share of the market. The competitor also has a competitive advantage from which the startup could benefit. The culture appears to fit well as investors and founders both believe the merger would be a synergistic partnership. In this case, Series C funding could be used to buy another company.
As the operation gets less risky, more investors come to play. In Series C, groups such as hedge funds, investment banks, private equity firms, and large secondary market groups accompany the type of investors mentioned above. The reason for this is that the company has already proven itself to have a successful business model; these new investors come to the table expecting to invest significant sums of money into companies that are already thriving as a means of helping to secure their own position as business leaders.
Most commonly, a company will end its external equity funding with Series C. However, some companies can go on to Series D and even Series E rounds of funding as well. For the most part, though, companies gaining up to hundreds of millions of dollars in funding through Series C rounds are prepared to continue to develop on a global scale. Many of these companies utilize Series C funding to help boost their valuation in anticipation of an IPO. At this point, companies enjoy valuations in the area of $118 million most often, although some companies going through Series C funding may have valuations much higher. These valuations are also founded increasingly on hard data rather than on expectations for future success. Companies engaging in Series C funding should have established, strong customer bases, revenue streams, and proven histories of growth.
Companies that do continue with Series D funding tend to either do so because they are in search of a final push before an IPO or, alternatively, because they have not yet been able to achieve the goals they set out to accomplish during Series C funding.
The Bottom Line
Understanding the distinction between these rounds of raising capital will help you decipher startup news and evaluate entrepreneurial prospects. The different rounds of funding operate in essentially the same basic manner; investors offer cash in return for an equity stake in the business. Between the rounds, investors make slightly different demands on the startup.
Company profiles differ with each case study but generally possess different risk profiles and maturity levels at each funding stage. Nevertheless, seed investors and Series A, B, and C investors all help ideas come to fruition. Series funding enables investors to support entrepreneurs with the proper funds to carry out their dreams, perhaps cashing out together down the line in an IPO.
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4584eab8f112a417f2c66b01adeaaaf3 | https://www.investopedia.com/articles/personal-finance/102015/taxes-oregon-small-business-basics.asp | Taxes in Oregon for Small Business: The Basics | Taxes in Oregon for Small Business: The Basics
Entrepreneurs on the West Coast have several incentives to choose Oregon as the home for their small businesses. Oregon's neighbor to the south, California, has a much higher cost of living, as do many of the big cities in Washington, the state's northern neighbor. Many parts of Oregon, in particular the Portland area, feature growing, thriving, educated populations, along with several reputable universities that turn out new classes of qualified employees each year. Where quality of life is concerned, Oregon may not offer the abundant sunshine and year-round warmth of Southern California, but its residents enjoy less-crowded conditions, lower crime and lighter traffic, and still reap the benefits of mild winters and temperate summers.
Key Takeaways Oregon may not be a well-known hub for businesses like its neighbors Washington State and California, but the state does offer some favorable tax breaks to small businesses.Depending on which organizational form a business takes, the tax treatment will vary.The most common form of corporate taxation in Oregon is the excise tax, which begins at a rate of 6.6%.
Tax Advantages for Small Business
While not a total tax bargain like some of the Sun Belt states, such as Texas and Florida, Oregon confers several tax advantages to small business owners that paint it in a favorable light, especially compared to California. Business owners in California are frequently assessed hefty taxes on business income and personal income derived from the business. In Oregon, by contrast, business owners pay one or the other. Moreover, personal income taxes in Oregon tend to be lower than in California, especially for high earners.
Until 2020 (when a Corporate Activity Tax took effect), Oregon had only one type of tax on businesses, and for the most part, it is only imposed on corporations and limited liability companies (LLCs) that elect to be treated as corporations. Most small businesses are set up as S corporations, LLCs not treated as corporations, partnerships and sole proprietorships, meaning their business taxes in Oregon, if applicable at all, are minimal.
Oregon's Corporation Excise Tax
If a small business is set up as a C corporation or as an LLC that elects to be treated as a corporation, Oregon imposes something called a corporation excise tax, which is basically the state's fancy terminology for a corporate tax. While most small businesses are not C corporations, nor do the ones that are LLCs elect to be treated as corporations, this tax is important to understand since small businesses often grow into traditional corporations over time.
The corporate excise tax applies to corporations based in Oregon and is assessed on income from business conducted within the state. As of 2020, this tax has two marginal rates: 6.6% on the first $10 million of income and 7.6% on all income above $10 million. For example, an Oregon corporation with a net income of $20 million owes a total of $1.42 million in tax: $660,000 on the first $10 million and $760,000 on the additional $10 million.
Oregon corporations that claim no net income or have net losses must still pay minimum taxes based on total sales. This minimum tax ranges from $150 for sales under $500,000 to $100,000 for sales in excess of $100 million.
Businesses not set up as corporations are mostly shielded from Oregon's corporation excise tax. However, certain non-corporation business types must pay a minimum excise tax of $150. This minimum tax applies to S corporations and all LLCs classified as partnerships.
C Corporations
C corporations pay the Oregon corporation excise tax described above, which is calculated in one of two ways: based on net income or net sales. The tax due is the greater of the two calculated amounts. Corporations are separate entities from their owners for tax purposes, and therefore income does not pass through. However, these owners can still be taxed at the state level on certain income they derive from having a stake in the business. Capital gains and dividends are taxed at the taxpayer's marginal income tax rate, which can be as high as 9.9%.
S Corporations
S corporations operate like C corporations in that they set up separate entities that confer to business owners and their personal assets a host of legal and financial protections. The distinction between the two is the S status filed with the Internal Revenue Service (IRS), which allows income derived from sales to pass through the corporation to its owners. Because the owners then pay personal income tax on this money, the federal government does not charge the business a corporate tax, considering this to be double taxation. Most states follow this philosophy as well. California is not one of them, but Oregon is, with the exception of a $150 excise tax that must be paid by S corporations.
For example, an Oregon S corporation with a net income of $20 million still pays only $150 in tax. This income then passes through to the owners, who pay personal state income tax on it at marginal rates that run from 5 to 9.9% based on total income.
LLCs
LLCs are pass-through entities that can be classified in different ways. This classification determines an LLC's tax treatment in Oregon. The default LLC classification is as a partnership for businesses owned by multiple persons and as a disregarded entity for businesses owned by individuals. For LLCs classified as partnerships, taxes are the same as for S corporations. The business owes the minimum excise tax of $150, while the business owners pay personal income tax on the income that passes through. For LLCs classified as disregarded entities, no business income tax applies; only personal tax is owed on the pass-through income. In some cases, albeit rarely, an LLC elects to be treated as a corporation. When this is the case, the same tax rules as for Oregon C corporations apply to the LLC.
Partnerships and Sole Proprietorships
In the majority of partnerships and sole proprietorships, the business owner receives his share of income from the business directly, and it does not pass through the company. In these cases, Oregon does not impose any income tax on the business, even the minimum excise tax of $150. The business owner pays personal state income tax at ordinary rates based on which of Oregon's four tax brackets he falls under. The only exception is for LLCs that file partnership tax returns. In this situation, the business is responsible for paying Oregon's minimum excise tax of $150.
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e99c2c55918c894e7ab22ecf6aa9f5f6 | https://www.investopedia.com/articles/personal-finance/102015/where-do-lawyers-earn-most-money.asp | States and Industries Where Lawyers Are Paid Highest | States and Industries Where Lawyers Are Paid Highest
Lawyers earned a median annual wage of $120,910 in 2018, according to the U.S. Bureau of Labor Statistics (BLS). However, this number varies greatly depending on sector and location. For example, the median wage for lawyers working with the federal government was $145,160, while a lawyer working for the state government may earn $86,900. Wages also vary by state. The mean salary for lawyers in the District of Columbia was $192,530 per year, which is the state with the highest pay for lawyers.
Key Takeaways The median wage for lawyers in 2018 was $120,910. Lawyers typically need a bachelor’s degree and a Juris Doctor (JD) degree from an American Bar Association–accredited school. Lawyers also need to be licensed, which requires passing the written exam in the state where they plan to practice. The District of Columbia pays lawyers the most—typically $192,530 per year—followed by California and New York. Lawyers in the cable and other subscription programming industry make the most, being paid $234,310 per year.
Job Outlook for Lawyers
Between 2018 and 2028, the jobs growth rate for lawyers is expected to be 6%, which is slightly better than 5% growth rate for all occupations in U.S.
As of 2018, there were approximately 823,900 lawyers in the U.S. and it is projected that 50,100 new lawyers will be needed by 2028. However, competition for available jobs will be steep since the supply of law school graduates exceeds the number of available jobs.
There is always a demand for legal services and law firms are the largest employers of lawyers. However, to save expenses, firms are beginning to assign more work to legal assistants, paralegals, and overseas providers. For those who want to work in the public sector, state and federal government agencies have an ongoing need for lawyers. Government agencies, however, are not usually considered high-wage employers.
Highest-Paying Industries for Lawyers
So where do lawyers earn the most money? Below are the industries, states, and metropolitan and non-metropolitan areas that pay the highest wages to attorneys. Wages will vary depending on the lawyer’s level of experience and also the size of the company.
Highest-Paying Industries for Lawyers Industry Annual Mean Wage Cable and Other Subscription Programming $234,310 Pipeline Transportation of Crude Oil $215,700 Motor Vehicle Manufacturing $205,610 Computer and Peripheral Equipment Manufacturing $204,710 Petroleum and Coal Products Manufacturing $200,830
Source: U.S. Bureau of Labor Statistics.
Though wages are high in cable and other subscription programming, competition is steep for the scarce number of legal jobs in the industry. There are roughly 110 lawyers in this entire industry. In comparison, there are nearly 400,000 lawyers in legal services, the sector with the highest level of employment. However, annual mean wages for these lawyers is just $150,200 per year.
Highest-Paying States for Lawyers
Lawyers also earn more or less than the national mean wage depending on the state in which they work. Below are the top-paying states for lawyers.
Highest-Paying States for Lawyers State Annual Mean Wage District of Columbia $192,530 California $171,550 New York $167,110 Massachusetts $165,610 Connecticut $153,640
Source: U.S. Bureau of Labor Statistics.
The District of Columbia, California, and New York are also three of the five locales that employ the most lawyers, along with Florida and Texas.
At the bottom of the spectrum, lawyers make the least in these states earning between $74,690 and $107,120 annually: Montana, Idaho, Wyoming, Maine, West Virginia, Kentucky, South Carolina, Mississippi, Louisiana, Arkansas, and New Mexico.
Highest-Paying Metropolitan Areas for Lawyers
Highest-Paying Metropolitan Areas for Lawyers Metropolitan Areas Annual Mean Wage San Jose-Sunnyvale-Santa Clara, CA $207,950 San Francisco-Oakland-Hayward, CA $183,070 Washington-Arlington-Alexandria, DC-VA-MD-WV $179,980 Los Angeles-Long Beach-Anaheim, CA $176,020 Houston-The Woodlands-Sugar Land, TX $175,380
Highest-Paying Non-Metropolitan Areas for Lawyers
Highest-Paying Non-Metropolitan Areas for Lawyers Non-Metropolitan Areas Annual Mean Wage North Valley-Northern Mountains Region of California $ 159,320 West Texas Region of Texas $ 153,490 Central New Hampshire $ 130,300 Arizona nonmetropolitan area $ 127,210 Alaska nonmetropolitan area $ 126,940
Source: U.S. Bureau of Labor Statistics.
Becoming a Lawyer
Lawyers typically need a bachelor’s degree, followed by a Juris Doctor (JD) degree from an American Bar Association–accredited school. Lawyers must also be licensed by passing the written exam in the state where they plan to practice. Lawyers who work for law firms usually start their careers as associates and after several years of experience, they may become partners.
Some lawyers start their own practices while others work as in-house counsel for large corporations. Lawyers may also teach classes at colleges and universities and some become judges.
Successful lawyers possess certain core traits and qualities. For example, they need excellent communication skills since they are required to speak and write clearly and persuasively. Lawyers should also be analytical, with strong research and problem-solving skills. They often need to sort through mountains of information to quickly determine the facts and objectively determine the best course of action for their client.
The Bottom Line
While the competition for jobs is stiff, knowing which industries and locations offer the highest wages can help lawyers plan their job search strategically.
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0a88c0e2118096a007ee5dc0728f04d4 | https://www.investopedia.com/articles/personal-finance/102115/taxes-california-small-business-basics.asp | Taxes in California for Small Business: The Basics | Taxes in California for Small Business: The Basics
Small business owners enjoy several distinct advantages from doing business in California. The state is home to several populous, growing ,and dynamic metropolitan areas, including Los Angeles, San Francisco, and San Diego. These cities are ripe with talent, flush with upper-class and wealthy residents, and all are home to prestigious universities that pump out new classes of educated workers every spring and winter.
Additionally, California is a pleasant place to live. In most parts of the state, winters are not too cold, and summers are not too hot or humid. The state offers diverse scenery and landscapes, including beaches, deserts, mountains and valleys.
That said, California is not all easy living for small business owners. In particular, business taxes in California are some of the most oppressive of any state. High taxes, combined with the onerous business regulations for which California is also known, have led many business owners in the 21st century to flee the state for places they perceive as more friendly operating grounds, such as Texas and Florida.
Recently, a California business owner encapsulated this phenomenon with a state map he circulated on social media; on top of the map he printed, "The Best Avenues for Business Owners in California," and then highlighted all the interstates and highways leading out of the state.
Key Takeaways California's economy is the largest in the U.S., and on its own would represent a top national economy compared to global output.Businesses located in California are subject to an 8.84% flat tax on income, plus a franchise tax in certain situations.California businesses may be subject to double taxation since certain loopholes available elsewhere do not exist, so CA businesses must pay both state and federal tax.
Double Taxation for Small Businesses
California imposes higher-than-average state income taxes on business and personal income. However, this is not the worst part. California is one of the few states that imposes both taxes, business and personal, on small business owners who set up their businesses as pass-through entities, such as S corporations or limited liability companies (LLCs).
Businesses formed using these designations avoid federal income tax because the income they earn passes through to the business owners. The federal government considers it double taxation to tax both the business owners on the pass-through income and the business itself, so it taxes only the business owners at personal income tax rates. While most states follow the same philosophy, California stands out as one that hits these business owners from both sides.
Depending on several factors, including the net income of a pass-through entity and the amount of personal income derived from the business by its owners, this double taxation imposed by California can as much as double a small business owner's tax burden. Considering the state also has a very high cost of living, the tax treatment of small businesses in California can make it difficult for an entrepreneur to get his venture off the ground.
Types of California Business Taxes
California imposes three types of income taxes on businesses: a corporate tax, a franchise tax, and an alternative minimum tax. Nearly all businesses in the state are subject to at least one of these taxes, and sometimes more than one.
The corporate tax applies to corporations and LLCs that elect to be treated as corporations. This tax rate is a flat 8.84%, which is higher than average in the United States, and it applies to net taxable income from business activity in California. Corporations are not subject to the state's franchise tax, but they are subject to the alternative minimum tax (AMT) of 6.65%, which limits the effectiveness of a business writing off expenses against income to lower its corporate tax rate.
The franchise tax applies to S corporations, LLCs, limited partnerships (LPs) and limited liability partnerships (LLPs). Additionally, traditional corporations, or C corporations, that do not earn positive net incomes and, therefore, are not subject to the corporate tax must pay the franchise tax instead.
The alternative minimum tax of 6.65% is based on federal AMT rules and applies to C corporations and LLCs that elect to be treated as corporations. This is a tax that prevents corporations from effectively writing down income to minimize corporate tax.
C Corporations
C corporations, or traditional corporations, pay the corporate tax of 8.84% or AMT of 6.65%, depending on whether they claim net taxable income. For example, a corporation with a net taxable income of $1 million owes 8.84% of that, or $88,400, in California state income tax. Additionally, the state taxes shareholders on any personal income they derive from the corporation. If that income is paid in the form of dividends, California is a particularly brutal state. The state's top marginal tax rate on dividends, at 13.3%, is one of the highest in the U.S.
S Corporations
S corporations, which provide similar legal and financial protections as C corporations but pass through income to business owners, pay a franchise tax of 1.5% of net income. The minimum franchise tax is $800, even for S corporations that claim zero or negative net income.
Therefore, an S corporation with a net income of $1 million owes 1.5% of that, or $15,000, in California state income tax. The business' income then passes through to the business owners, who must pay personal state income tax on it. California has nine brackets for personal income tax, which carry marginal rates from 1% to 12.3%.
LLCs
Limited liability companies also pay the franchise tax, but it is calculated differently than for S corporations. Instead of a flat percentage rate based on net income, LLCs are taxed at flat dollar amounts based on gross income tiers.
Gross incomes between $250,000 and $499,999 pay a tax of $900. Gross incomes between $500,000 and $999,999 pay a tax of $2,500. Gross incomes between $1 million and $4,999,999 million pay a tax of $6,000. Gross incomes of $5 million or greater pay a tax of $11,790. For businesses with less than $250,000 in gross income, the $800 minimum franchise tax applies. The net income from an LLC passes through to the business owners, who must pay personal income tax at marginal rates from 1% to 12.3%.
Partnerships and Sole Proprietorships
Tax treatment of partnerships depends on the specific type. Limited liability partnerships (LLP) and LPs must pay the $800 minimum franchise tax, and the business owners must pay personal income tax on any income that passes through from the partnership.
For general partnerships in which income is distributed directly to business owners, only the personal income tax applies. This is also the case with sole proprietorships.
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538d0512bc3a379f7db8bcccc4f89d09 | https://www.investopedia.com/articles/personal-finance/102315/why-restaurant-biz-has-narrow-profit-margins.asp | Threats That Drive Down Restaurant Profit Margins | Threats That Drive Down Restaurant Profit Margins
Everyone has heard that the restaurant industry is tough. In fact, a new restaurant offers a textbook example of all the challenges of entering a highly competitive small-business market.
A variety of factors, including inventory spoilage and low scalability, lead to generally low profit margins. To fully understand why the restaurant business is so tough, we will examine it using Porter’s Five Forces, an industry analysis framework created by Harvard Business School Professor Michael E. Porter.
Porter’s Five Forces
Porter’s Five Forces is an analysis methodology based on the economics of industrial organizations. The analysis, which gives a measure of competitive intensity within an industry, is a staple in strategy planning. According to Porter, every industry and business is faced by the same five competitive forces:
the threat of new entrantsthe threat of substitutesthe bargaining power of customersthe bargaining power of suppliersthe threat of competition within the industry
Let's look at how each of these five forces affects the restaurant industry and how, together, they drive down restaurant profit margins.
The Threat of New Entrants
As far as small businesses are concerned, opening a restaurant is comparatively straightforward. The costs, such as payroll, inventory, and rent, do not require a large up-front investment. There are certainly regulatory hoops to jump through, yet with low fixed costs, almost any chef can try to be the next Gordon Ramsey or Thomas Keller.
Many already-successful chains offer franchising options that require aspiring restaurateurs to put very little money down. Starting a restaurant can seem very attractive, due in part to the survivorship bias. Survivorship bias means that we, the public, do not see the restaurants that fail, only the ones still in operation.
This gives a false sense of optimism about the potential for success. Such false optimism can lead to many aspiring restaurateurs entering the business, creating a threat of new competition and decreasing industry profit margins. But direct competition may be the least of a restaurant's worries.
The Threat of Substitute Products
Sometimes the greatest competitive challenge comes from substitute products and services. Grocery and supermarket chains are a huge substitute for the restaurant industry, especially in economically hard times. Truly, eating out is discretionary spending. In tough times, consumers can reduce their eating-out budget or not eat out at all.
Like restaurants, grocery stores run on low profit margins and are always looking for a way to capture more market share. Restaurateurs need to bear in mind that increasing prices too much could lead to consumers shifting over to the supermarket where they may be tempted by prepared foods or ready-to-eat salads and entrees. This further decreases restaurant industry profit. (See also: The Most Profitable Grocery Stores.)
The Bargaining Power of Suppliers and of Buyers
Two important competitive drivers in Porter's Five Forces are the bargaining power of suppliers and the bargaining power of buyers. Restaurants, especially trendy or high-end establishments, often must offer exotic or rare ingredients to set themselves apart from competitors.
When dealing with suppliers of fringe products like wild porcini mushrooms, truffles, cow tongue, and organic watercress, restaurants may not have much bargaining power because of the lack of competition in the supply market. Even large producers of simple ingredients, like potatoes, sell to a huge number of restaurants, which makes bargaining with these suppliers challenging as well.
One upside of the restaurant business is that customers cannot typically bargain for their food prices. However, unless the restaurant is offering something extraordinary (like a celebrity chef or a 15-course tasting menu), it cannot set prices too high: Buyers have a good knowledge of the market and will simply go to another restaurant. The power of the huge supplying companies and savvy customers are two forces pushing restaurant profit margins down.
The Intensity of Competitive Rivalry
There is an enormous amount of competition in the restaurant industry at every level – from fast-food chains, cafes, food trucks to fast-casual venues (cafés, deli, and diners), and independent eateries all the way to Michelin-starred gastronomic temples. Conglomerates with enormous advertising power have a huge advantage over small businesses.
Additionally, very little customer loyalty exists in the restaurant industry. One bad experience for a customer means they may not return, especially if it is was their first visit. Companies in the life insurance and real estate business only have to sell to their customers once, or perhaps once every few years. Restaurants have to sell to the customer at every single encounter.
With apps, blogs, and websites cataloging and reviewing the vast number of restaurants, it has never been easier for a customer to try a different restaurant every single day. Perhaps more than any other of Porter's Five Factors, it's intense competition in the restaurant industry that keeps profit margins low. (See also: Restaurant Segments Going Under.)
The Bottom Line
All that being said, customers do respect quality food and atmosphere. Restaurants with new or unique ideas can become extremely successful.
The Japanese steakhouse Benihana (with 100 outlets worldwide), in particular, innovated many processes to increase its profit margin. Deciding to offer only a few menu items decreased the inventory costs. Combining the kitchen and dining areas maximized space. Benihana also had a competitive edge: when it began in 1964, teppanyaki cooking was unheard of in the United States. Benihana specialized further by employing only highly trained Japanese chefs.
This limited direct competition and the threat of new entrants. Benihana shows that it is possible to increase profit margins through a strong strategy and by offering a unique attractive experience. (See also: America's 10 Fastest-Growing Restaurant Chains.)
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decc62002e8713cd70e3a5744b73357f | https://www.investopedia.com/articles/personal-finance/102715/deferred-compensation-plans-vs-401ks.asp | Deferred Compensation Plans vs. 401(k)s: What’s the Difference? | Deferred Compensation Plans vs. 401(k)s: What’s the Difference?
Deferred compensation plans offer an additional choice for employees in retirement planning and are often used to supplement participation in a 401(k) plan. Deferred compensation is simply a plan in which an employee defers accepting a part of his compensation until a specified future date.
For example, at age 55 and earning $250,000 a year, an individual might choose to defer $50,000 of annual compensation per year for the next 10 years until retiring at age 65.
Deferred Compensation Plans
The deferred compensation funds are then set aside and can earn a return on investment until the time they are designated to be paid out to the employee. At the time of the deferral, the employee pays Social Security and Medicare taxes on the deferred income just as on the rest of his or her income but does not have to pay income tax on the deferred compensation until the funds are actually received.
Key Takeaways High-paid executives often opt for deferred compensation plans.Deferred compensation plans cannot generally be accessed and are a disadvantage in terms of liquidity.Unlike many 401(k) plans, deferred compensation plans cannot be borrowed against.
The Advantages of Deferred Compensation Plans
Deferred compensation plans are most commonly used by high-paid executives who do not need the total of their annual compensation to live on and are looking to reduce their tax burden. Deferred compensation plans reduce an individual’s taxable income during the deferral.
They may also reduce exposure to the alternative minimum tax (AMT) and increase the availability of tax deductions. Ideally, at the time when the individual receives the deferred compensation, such as in retirement, their total compensation will qualify for a lower tax bracket, thereby providing tax savings.
How 401(k) Plans Differ
One reason deferred compensation plans are often used to supplement a 401(k) or an individual retirement account (IRA) is that the amount of money that can be deferred into the plans is much greater than that allowed for 401(k) contributions, up to as much as 50% of compensation. The maximum allowable annual contribution to a 401(k) account, as of 2020 and 2021, is $19,500.
Another advantage of deferred compensation plans is that some offer better investment options than most 401(k) plans. Deferred compensation plans are at a disadvantage in terms of liquidity. Typically, deferred compensation funds cannot be accessed, for any reason, prior to the specified distribution date. The distribution date, which may be at retirement or after a specified number of years, must be designated at the time the plan is set up and cannot be changed. Nor can deferred compensation funds be borrowed against.
The majority of 401(k) accounts can be borrowed against, and under certain conditions of financial hardship—such as large, unexpected medical expenses or losing your job—funds may even be withdrawn early. Also, unlike with a 401(k) plan, when funds are received from a deferred compensation plan, they cannot be rolled over into an IRA account.
Deferred compensation plans are less secure than 401(k) plans.
Risk of Forfeiture
The possibility of forfeiture is one of the main risks of a deferred compensation plan, making it significantly less secure than a 401(k) plan. Deferred compensation plans are funded informally. There is essentially just a promise from the employer to pay the deferred funds, plus any investment earnings, to the employee at the time specified. In contrast, with a 401(k) a formally established account exists.
The informal nature of deferred compensation plans puts the employee in the position of being one of the employer’s creditors. A 401(k) plan is separately insured.
By contrast, in the event of the employer going bankrupt, there is no assurance that the employee will ever receive the deferred compensation funds. The employee in that situation is simply another creditor of the company, one who is standing in line behind other creditors, such as bondholders and preferred stockholders.
Using Deferred Compensation Plans Wisely
It is generally advantageous for the employee deferring compensation to avoid having all of the deferred income distributed at the same time, as this typically results in the employee receiving enough money to put them in the highest possible tax bracket for that year.
Ideally, if the option is available through the employer’s plan, the employee does better to designate each year’s deferred income to be distributed in a different year. For example, rather than receiving 10 years’ worth of deferred compensation all at once, the individual is usually better off receiving year-by-year distributions over the following 10-year period.
Financial advisors usually suggest using a deferred compensation plan only after having made the maximum possible contribution to a 401(k) plan—and only if the company an individual is employed by is considered very financially solid.
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0cab609677f40cb0b0a15dfe288cab9e | https://www.investopedia.com/articles/personal-finance/102815/3-most-affordable-retirement-communities-north-carolina.asp | The 3 Most Affordable Retirement Communities in North Carolina | The 3 Most Affordable Retirement Communities in North Carolina
North Carolina is rapidly growing in popularity as a retirement destination. Many retirees favor the state because it features all four seasons with relatively mild winters. North Carolina is also becoming the retirement destination for Florida transplants, as many retirees find summers in the extreme south to be too severe and the cost of living too steep.
According to federal data, South Carolina and North Carolina are the third and fourth most popular retirement destinations in the United States, trailing only behind Florida and Arizona which rose to number one and two respectively in 2019.
Key Takeaways If you're thinking of retiring to North Carolina, you're in good company—the state consistently ranks as a top retirement destination. Its central location, temperate climate, proximity to beaches and bigger cities, and relatively modest cost of living make it a great place to settle down. Here we profile just three of the highest-rated retirement communities in the state.
The Gables at Kepley Farm
The Gables at Kepley Farm is located in Salisbury, North Carolina, and it is restricted to active adults aged 55 and over. The community is relatively small, with 260 homes in total. With home prices ranging from the $200,000s to around $300,000, the community is one of the most affordable in the state.
The low-maintenance homes at the Gables come with four different floor plans and range from 1,500 square feet to just under 2,000 square feet. All homes feature two bedrooms, two bathrooms, and an attached two-car garage. Each home is also designed for one-level living to accommodate retirees.
At the heart of the Gables at Kepley Farm is a 4,000-square-foot clubhouse, where residents can find nearly all of the community's activities and amenities. The clubhouse features an entertainment room with a large-screen television, expansive hobby and game rooms, an exercise room, and a catering kitchen. Outdoors, residents may grow their own vegetables in the community garden or utilize one of several barbecue areas on the clubhouse's covered veranda.
Knollwood Village
Knollwood Village is arguably the most affordable retirement community in North Carolina. Located in the Pinehurst area, Knollwood Village's real estate consists of 240 homes. These homes start below $100,000, with the most expensive selling for less than $250,000.
Buyers may purchase a condominium or townhome. All floor plans are designed around single-level living and feature exteriors that require little to no maintenance. The condominiums range from studio layouts to those with two bedrooms, all of which include one bathroom and easily accessible parking.
Condos generally range from 560 square feet to over 1,000 square feet. Attached townhomes typically have two or three bedrooms, two bathrooms, and either an attached garage or a covered carport. These homes range from 1,450 square feet to nearly 2,000 square feet.
Knollwood Village offers residents a variety of amenities with a major focus placed on the 22-acre nine-hole golf course, complete with practice facilities that include a driving range and an all-grass practice tee. Residents may also enjoy the community's wooded walking trails or go for a swim in the outdoor pool.
Memberships to the Midland Country Club, two miles west of Knollwood Village, are also available to residents. The 12,000-square-foot clubhouse includes a well-stocked library, meeting rooms, an activity center, and a modern exercise room. The clubhouse also features a full-service restaurant, a pro shop and an outdoor pool.
Pinehurst Trace
Pinehurst Trace is also located in the Pinehurst area and is one of the most intimate communities, with only 225 homes. The homes in this community range from the high $100,000s to low $300,000s and typically feature two or three bedrooms, two bathrooms, and an attached garage. In general, the homes range from approximately 1,300 square feet to over 2,400 square feet.
The 7,000-square-foot clubhouse at the center of the community houses amenities to rival those in the most expensive retirement communities. This clubhouse provides residents with access to several multipurpose rooms, a beauty parlor/barbershop, a game room, and an exercise room. Outdoors, residents can swim in the pool or enjoy a game of horseshoes, tennis or shuffleboard on one of several courts.
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79e8b5a0feff949ddf687e60f1ff80b2 | https://www.investopedia.com/articles/personal-finance/102815/does-your-startup-need-venture-capital-money.asp | Does Your Startup Need Venture Capital Money? | Does Your Startup Need Venture Capital Money?
If you are an entrepreneur who has built up a successful business and are looking to take it to the next level, one strategy could be to tap venture capital funding. This provides an inflow of money from savvy investors and can help you build up your business. That sounds alluring, but you should weigh the pros and cons carefully before you decide to take this route.
What is Venture Capital?
Venture capital is typically provided in the form of equity investments in your business. The source of the funding could be angel investors or venture capital funds. Angel investors are individuals with a high net worth and money to invest. They might prefer to invest in industries with which they are familiar. Venture capital funds typically invest in a portfolio of companies, some of which will be successful enough to repay them for their investments even if some businesses in the portfolio fail. These sources of venture capital will look at your business plan to decide if it has potential. They will also vet your business and do their due diligence before deciding to invest. They typically have a long-term investment horizon and are prepared to be patient as you grow your business. Besides giving you capital, they also tend to want to have a say in how the business is run. For instance, they will likely want a seat on your board of directors.
Infusion of Funds
The major advantage of tapping venture capital funding is that you will now have access to the funding necessary to grow your business. If you have big growth plans for your business, this is one way to accomplish them. Certain industries, like biotechnology, need a lot of financing to grow to the next level. Of course, you will have to be diligent about managing this money you raise from venture capitalists so as to make the best use of it.
Another Resource to Tap
Another positive about going for venture capital funding is that it opens up resources for an entrepreneur. You can now also tap into the venture capital firm’s resources, including its network of connections and its existing expertise. This could include access to marketing and industry expertise. (Read more in, "The Rise of Corporate Venture Capital.")
But Your Goals May not Align
Before you take money from venture capitalists, you will have to be clear about what their goals are for the investment. While they tend to have a long-term horizon, they are also eventually looking for a return on their investment. And they may be inclined to exit their holdings through an initial public offering (IPO) of stock, or through a merger with another company. If your plan is to run your business and retain control while building it up and taking it to the next level, there may be a misalignment there. If your long-term plan does not encompass the possibility of an IPO or a merger with another company, and you just want to continue to run your business as a family enterprise, you are likely better off without the venture capital funding.
Loss of Independence
Another downside to accepting venture capital money is that you will have to cede some control of your business decision making. The venture capital firm is likely to have its own ideas about how best to run your business, and if you think your ideas are better, there could be a clash. Since you are taking their money, you will have to entertain their ideas as well. Before you accept venture capital money, negotiate how much say the firm will have in your business decisions.
The Bottom Line
If you have built up a successful business and want to grow it further and take it to the next level, one tactic is to seek venture capital funds. Venture capitalists are savvy investors and they usually have a long-term horizon. While venture capital firms can provide capital and expertise for your business, taking the money also typically means that you will cede some control over your business.
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6f9fbff7eabcdcd584471ebc6368991a | https://www.investopedia.com/articles/personal-finance/102815/how-make-your-own-retirement-fund.asp | How to Make Your Own Retirement Fund | How to Make Your Own Retirement Fund
Building a retirement fund—which we will define as saving enough money to pay your bills when you are no longer working—can seem like a daunting challenge. Taking a practical approach that focuses on what you can do today will help you tackle the challenge one step at a time.
Key Takeaways Building a successful retirement plan is a long-term process requiring commitment and discipline. Your primary goals should be increasing your income and reducing your debts. It’s not enough to save money; you need to invest it wisely.
Retirement Fund Theory vs. Reality
Regardless of your current age or income, the recipe for a successful retirement fund has a simple formula: Set a goal, commit to it, and repeat. One common approach encourages would-be investors to participate in their employer-sponsored retirement savings plan. Another suggests entering personal information into a retirement planning calculator in order to project how much money will be needed in order to fund retirement.
While both ideas are great in theory, reality can come crashing down quickly. Consider, for example, that about 40% of all workers in the U.S. don’t have access to an employer-sponsored savings plan, according to 2018 figures from the U.S. Bureau of Labor Statistics. That, of course, leaves 60% who do, but only 71% of workers with access to a plan choose to participate in it, and only 42% of all American workers are saving in one.
Also, the enormous dollar amounts that most people see when they use a retirement planning calculator can be disheartening. A savings goal of a million or more dollars can seem unreachable to younger workers with low incomes, high debts, and nothing in the bank. “Thinking in terms of the total amount of money you will need in retirement is daunting. But I believe if you break it down into small steps, it is much easier to swallow,” says Shane P. Larson, CFP, a senior associate financial planner for Mainspring Wealth Advisors, which has five offices in Washington state.
Given these realities, let’s start with a difficult scenario—one most of us find ourselves in early in our careers—and lay out a practical plan for building a retirement fund. Under this scenario, we’ll assume that you:
Do not have an employer-sponsored savings plan and a high-paying job Do have a high debt burden from college loans, a car payment, and rent or a mortgage, in addition to living expenses
42% The number of American workers who are saving in an employer-sponsored retirement plan as of 2018.
Set a Goal, Commit, Repeat
Several goals can be set in this scenario. The first is to start saving. Even if it’s just a few dollars a week, open up a bank account and deposit the money. While a bank account isn’t the best investment vehicle in the world, it is a great way to start to make saving a habit. Remember, building a retirement fund is a long-term journey—and, as the saying goes, even a journey of a thousand miles starts with a single step.
Once you’ve set and committed to the goal of saving, the next goals are clear: increase your income and reduce your debts. Achieving the first objective will help you achieve the second one. To increase your income, you can either take a second job or get a better-paying job than the one you currently have. Although it may take time and effort to increase your income, it will help you stick to your plan if you keep in mind that this is a long-term effort. Set a goal of getting a better job (or a second job), then commit time to a dedicated job search.
Once you’ve achieved your goal, your newfound income will enable you to reduce your debts. Then you will be able to tuck more money into your retirement fund. Putting together a budget can help you with this process. It’s a great way to make sure your money is being used wisely. Remember that the earlier you start, the more time your savings have to increase through what experts call “the magic of compound interest.”
“The power of compound interest is the eighth wonder of the world. Having a long-term mindset with compound interest as your ally will allow you to turn a small, consistent savings rate into a comfortable retirement,” says Mark Hebner, founder and president of Index Fund Advisors, Inc. in Irvine, Calif., and author of Index Funds: The 12-Step Recovery Program for Active Investors.
The power of compound interest is crucial to successful retirement planning.
Don’t Just Save, Invest
Once you’ve increased your income and your savings, you should have enough money saved up to trade in your bank account for an individual retirement account (IRA). At this stage, you are transitioning from saving money to investing money.
The Internal Revenue Service (IRS) establishes the annual limit as to how much a person can contribute to an IRA. For 2020 and 2021, individuals under age 50 can save $6,000 per year in an IRA. If you're over the age of 50, you can add a catch-up contribution of $1,000 for 2020 and 2021 for a total of $7,000 per year.
You can, of course, start with a much smaller amount. An IRA is different from a regular investment account; you need to open one with a firm that handles IRAs.
If you don’t know much about investing, think of it as a way to put your money to work earning more money. From a practical standpoint, you can start by putting your money into a mutual fund, as it is one of the easiest methods of investing for beginners.
Just choose either an index fund that replicates a major U.S. stock market index, such as the S&P 500, or an actively managed fund that invests in blue-chip stocks. To get focused, set a goal of learning more about investing and commit to that goal. Start by checking out Investopedia's introduction to investing to pick up the basics and get the terminology down. Let topics that catch your attention help you to determine the next subject that you would like to learn about.
Again, this is a long-term endeavor. Don’t try to absorb everything all at once. Just start reading, commit to doing it regularly, and stick to it. As you learn more, take time to teach yourself about mutual fund fees and make sure you aren’t reducing your returns by paying more than you need to.
Get Yourself a 401(k)
Once you master the art of budgeting and start investing, you’ll probably want more money to increase both your standard of living and the amount you invest. Another job search can help you to achieve these goals. This time, look for a job that offers a 401(k) plan with an employer that matches your contributions. Invest enough to get the full company match. Over time, as you get raises and promotions, increase your contribution rate to the maximum allowable amount.
“Working for a company with a 401(k) is one thing. Working for a company that offers matching contributions is another. 401(k) matching is where you can really see your funds grow—and fast,” says David N. Waldrop, CFP, president of Bridgeview Capital Advisors, Inc., in El Dorado Hills, Calif.
The IRS has established annual contribution limits for 401(k)s. For 2020 and 2021, the maximum contribution to a 401(k)—as an employee—is $19,500. If you are over the age of 50, catch-up contributions totaling $6,500 per year for both 2020 and 2021 are also allowed.
As an example, let's say you earn $50,000 per year, and your employer is willing to match 5% of your salary as long as you also contribute a minimum of 5%. As a result, your minimum contribution would be $2,500 (5% of $50,000), and your employer would deposit $2,500 annually into your 401(k). The employer match is free money as long as you invest in yourself and save for your retirement. The annual match has the potential to increase your savings rate dramatically because the matching contributions get invested, and the interest and earnings on that money get compounded over the years along with your contributions.
The Bottom Line
Retirement planning is a long-term endeavor. Think of a marathon rather than a sprint. It will take most people a lifetime of effort to build a solid retirement fund. “Preparing for retirement is more about persistence and less about brilliance,” says Craig L. Israelsen, Ph.D., investment portfolio designer of 7Twelve Portfolio in Springville, Utah. “When thinking about getting ready for retirement, think Crock-Pot—not microwave.”
Commit to the effort and continue bettering your position by reducing your debts, improving your income, and increasing your education (among other activities). While the early years will be a challenge, with every passing year, the progress that you have made will become more evident.
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e9ef8ff9032d5db6f242a6ed40230c9f | https://www.investopedia.com/articles/personal-finance/102815/rules-rmds-ira-beneficiaries.asp | The Rules on RMDs for Inherited IRA Beneficiaries | The Rules on RMDs for Inherited IRA Beneficiaries
When you are named the beneficiary of an individual retirement account (IRA), and the IRA owner dies, you may think you've received a tax-free inheritance. Well, that's only partially correct. Under current tax law, the receipt of the inheritance is tax-free, but you are still required to take distributions from the account, which may well be taxable. Taxation depends on the type of IRA involved and the relationship of the beneficiary to the deceased.
Key Takeaways Individual retirement account assets are passed to the named beneficiaries, often the person's spouse, upon death. IRA beneficiaries may be required to take required minimum distributions, which can be a taxable event. Non-spousal beneficiaries must withdraw all funds from an inherited IRA within 10 years of the original owner's death. However, spousal IRA beneficiaries have different rules and more options to consider when taking their RMDs.
You Inherit an IRA: What Happens Next?
When you inherit an IRA, you are free to withdraw without penalty as much of the account as you want at any time. However, it's important to be aware of any potential income tax implications for when you withdraw money from an inherited IRA. Also, there are distinct differences in the rules for withdrawing money, depending on whether you're the deceased owner's spouse or you're a non-spousal beneficiary of the IRA.
Traditional IRA
There are various types of IRAs. A traditional IRA offers a tax deduction in the years that the contributions are made to the account. In other words, the contribution amount is used to reduce the person's taxable income in the tax year in which the contribution was made.
You can also make contributions that are not tax-deductible. IRAs also grow tax-deferred, meaning the earnings and interest over the years are not taxed. However, when the money is withdrawn in retirement—called a distribution—the amounts are taxed at the individual's income tax rate in the year of the withdrawal.
If the money is withdrawn before the age of 59½, there's a 10% tax penalty imposed by the IRS and the distribution would be taxed at the owner's income tax rate. If you inherit a traditional IRA to which both deductible and nondeductible contributions were made, part of each distribution is taxable.
Roth IRA
A Roth IRA doesn't offer an upfront tax deduction like traditional IRAs, but withdrawals from a Roth are tax-free in retirement. If you inherit a Roth IRA, it is completely tax-free if the Roth IRA was held for at least five years (starting Jan. 1 of the year in which the first Roth IRA contribution was made).
If you receive distributions from the Roth IRA before the end of the five-year holding period, they are tax-free to the extent that they represent a recovery of the owner's contributions. However, any earnings or interest on the contribution amounts is taxable.
Required Minimum Distributions
The IRS has established a minimum amount that needs to be withdrawn from an IRA each year. These mandatory withdrawals are called required minimum distributions (RMDs). RMDs are designed to eventually exhaust the funds in the account so that the accumulations won't last forever. RMDs apply to traditional IRAs and defined contribution plans, such as 401(k)s. However, Roth IRAs don't require RMDs.
Typically, you must begin your distributions when you reach age 72 (or 70½ if you reach 70½ before January 1, 2020). All RMD withdrawals will be included in your taxable income except for any portion that was taxed before or that can be received tax-free, such as with Roth IRAs. If you fail to take your RMD, you can be subject to a whopping 50% penalty on the amount you should have withdrawn but was not distributed.
The 2020 CARES Act temporarily waives the required minimum distribution (RMD) rules for 401(k) plans and individual retirement accounts (IRAs) and the 10% penalty on early withdrawals up to $100,000 from 401(k)s. Account-holders would be able to repay the distributions over the next three years and be allowed to make extra contributions for this purpose. These measures apply to anyone directly affected by the disease itself or who faces economic hardship as a result of the COVID-19 pandemic.
The SECURE Act and the 10-Year Rule
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) became law on December 20, 2019. The passage of the Secure Act by the U.S. Congress made major changes to IRA RMD rules.
If a person reached the age of 70½ in 2019, they must have taken their first RMD by April 1, 2020. If a person is due to reach age 70 ½ in 2020 or later, they can take their first RMD by April 1 of the year after they reach the age of 72.
The SECURE Act also changed when money is to be withdrawn from inherited IRAs and defined contribution plans. The SECURE Act requires the entire balance of the participant's inherited IRA account to be distributed or withdrawn within ten years of the death of the original owner. The 10-year rule applies regardless of whether the participant dies before, on, or after, the required beginning date (RBD)—the age at which they had to begin RMDs, which is now age 72.
In other words, you must withdraw the inherited funds within 10 years and pay income taxes on the distributed amounts. If you're under the age of 59½, you won't pay the 10% penalty, but you must pay income taxes on the distributions. However, there are exceptions to the 10-year rule for a surviving spouse, a disabled or chronically ill person, a child who hasn't reached the age of majority, or a person not more than ten years younger than the IRA account owner.
Special Rules for Surviving Spouses
Spouses who inherit an IRA have more flexibility than non-spousal beneficiaries in regards to when they must withdraw the funds. The surviving spouse typically has a few choices. The spouse can treat the IRA as their own IRA by designating themself as the account owner. The spouse can also treat it as their own IRA by rolling it over (or transferring it) into their IRA. They can also treat themselves as the beneficiary rather than treating the IRA as their own.
The choice is usually based on when the spouse is due to take their RMDs or whether the deceased owner was taking their RMDs or not, at the time of their death. The option that's chosen can impact the size of the required minimum distributions from the inherited funds and, as a result, have income tax implications for the spousal beneficiary.
Surviving Spouse Becomes the IRA Owner
If you are the surviving spouse and sole beneficiary of your deceased spouse's IRA, you can elect to be treated as the owner of the IRA and not as the beneficiary. By electing to be treated as the owner, you determine the required minimum distribution as if you were the owner beginning with the year you elect or are considered to be the owner.
Spousal beneficiaries also have the option to roll over the inherited IRA funds, or a portion of the funds, into their existing individual retirement account. Spouses have 60 days from receiving the inherited distribution to roll it over into their own IRA as long as the distribution is not a required minimum distribution. By combining the funds, the spouse doesn't need to take a required minimum distribution until they reach the age of 72.
Becoming the owner of the IRA funds can be a good choice if the deceased spouse was older than the spousal beneficiary because it delays the RMDs. If the IRA was a Roth, and you are the spouse, you can treat it as if it had been your own Roth all along, in which case you won't be subject to RMDs during your lifetime.
However, this is not an all-or-nothing decision. You can parse the account and roll over some of it to your own IRA and leave the balance in the account you inherited., but there's no changing your mind. If you make a rollover and need funds from it before age 59½, you'll be subject to the 10% penalty (unless some penalty exception other than death applies).
Surviving Spouse Is Treated as the Beneficiary
RMDs are based on the life expectancy of the IRA owner. Spousal beneficiaries can plan the RMDs from an inherited IRA to take advantage of delaying the RMDs as long as possible.
If the IRA owner dies before the year in which they reach age 72, distributions to the spousal beneficiary don't need to begin until the year in which the original owner reaches age 72. After which, the surviving spouse's RMDs can be calculated based on their life expectancy. This can be helpful if the surviving spouse is older than the deceased spouse since it delays RMDs from the inherited funds until the deceased spouse would have turned age 72.
If the original owner had already started getting RMDs or reached their required beginning date (RBD)—the age at which they had to begin RMDs, at the time of death, the spouse can continue the distributions as were originally calculated based on the owner's life expectancy.
Please note that the RMD rules for beneficiaries do not eliminate the need for the deceased owner’s estate to take his or her RMD for the year of death if the owner died on or after attaining age 72. The RMD for the owner reduces the account value on which the RMD for the beneficiary is figured.
However, the surviving spouse can also submit a new RMD schedule based on their own life expectancy. This process would mean applying the life expectancy for your age found in the Single Life Expectancy Table (Table I in Appendix B of IRS Publication 590-B).
Ideally, spousal beneficiaries want to use the longer single life expectancy, so that the annual RMDs are smaller, resulting in a delay in paying taxes on the inherited IRA funds for as long as possible. Remember, you can always withdraw more money than the required minimum distribution, if you need the funds.
When you inherit an IRA, make sure that the title to the account conforms to tax law. If you are a non-spouse beneficiary, do not put the account in your own name. The account title should read: "[Owner’s name], deceased [date of death], IRA FBO [your name], Beneficiary" (FBO means "for the benefit of"). If you put the account in your name, this is treated as a distribution, and all of the funds are immediately reported. It's very difficult to undo this error.
Special IRA Transfer Rule
You can transfer up to $100,000 from an IRA directly to a qualified charity. The transfer, which is called a qualified charitable distribution (QCD) even though no tax deduction is allowed, is tax-free and can include RMDs (i.e., they become non-taxed). In other words, the transfer can satisfy your RMD for the year up to $100,000 and you're not taxed on the amount. This tax break was made permanent by the Consolidated Appropriations Act of 2016, which became law on Dec. 18, 2015.
Handling Tax Issues
When taking RMDs from a traditional IRA, you will have income taxes to report. You'll receive Form 1099-R showing the amount of the distribution. You must then report in on your Form 1040 or 1040A for the year.
If the distribution is sizable, you may need to adjust your wage withholding or pay estimated taxes to account for the tax that you’ll owe on the RMDs. These distributions, which are called nonperiodic distributions, are subject to an automatic 10% withholding unless you opt for no withholding by filing Form W-4P.
If the IRA owner died with a large estate on which federal estate taxes were paid, as the beneficiary you are entitled to a tax deduction for the share of these taxes allocable to the IRA.
The federal income tax deduction for federal estate tax on income with respect to a decedent (such as an IRA) is a miscellaneous itemized deduction. (You can’t claim it if you use the standard deduction instead of itemizing.) Still, it is not subject to the 2%-of-adjusted-gross-income threshold applicable to most other miscellaneous itemized deductions.
However, please check with the custodian or trustee of the IRA for the amount and timing of your RMDs. Also, please consult a knowledgeable tax advisor to ensure that you meet the RMD requirements and the applicable tax laws.
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d721abc5bf9cb3dab0115545f501fbe5 | https://www.investopedia.com/articles/personal-finance/102815/taxes-new-york-small-business-basics.asp | Taxes in New York for Small Business: The Basics | Taxes in New York for Small Business: The Basics
New York offers a wide array of benefits to prospective small business owners. The state is home to New York City, which is considered to be the epicenter of the world's economy. The global economy is complex and powered by many economic engines, but the biggest and most powerful of these are housed in New York City. New York is home to many elite colleges and universities that turn out new graduates every spring and send them into the business world, where they provide immense value. Because graduates often prefer to settle down where they went to school, small businesses in New York are well-positioned to recruit this talent.
While New York confers a host of benefits to small businesses, the state has a few drawbacks that prospective business owners must consider. Most notably, New York is known for a business tax code that is costly and complicated. Depending on the breakdown of a business's financial statements, its required taxes may be calculated via several methods – and the state requires it to use the method that results in the highest tax bill. While the worst tax treatment in New York is aimed at C corporations, the state still expects small businesses to maintain some skin in the game.
Corporation Franchise Tax
Most small businesses are not traditional C corporations, but many make the transition after their growth reaches a certain level. Understanding how corporations are taxed at the state level can help a business owner decide the best place to locate.
In New York, corporations must pay a corporation franchise tax. While this is standard across many states, New York makes it more complex for a business to determine how much tax is due. Moreover, the state attempts to close as many financial reporting loopholes as possible that businesses use to minimize taxes. For this reason, New York imposes four ways to calculate tax due, each based on a different metric, and the state requires the business to pay the highest amount of the four.
The simplest calculation is based on entire net income, which, for the most part, equals the federal taxable income. The state makes a few esoteric adjustments to this amount and taxes the resulting amount at 7.1%. However, small businesses with net incomes of less than $290,000, along with qualified manufacturers, get a bit of a break, paying only 6.5%. Businesses with net incomes of less than $390,000 pay only 6.5% on the first $290,000.
A corporation may also be taxed based on its business and investment capital, minus liabilities. The tax rate applied to this amount is 0.15%, with a cap of $1 million in taxes. Qualified manufacturers taxed using this method are capped at $350,000.
Another possibility is minimum taxable income, which is net income with certain federal adjustments added back in. The tax rate on this amount is 1.5%; for qualified manufacturers, the tax rate on this amount is 0.75%.
The fixed dollar minimum method taxes corporations on their gross receipts. This method sets tiers for gross receipts and assigns each tier a flat dollar tax amount. These amounts range from $25 for businesses with gross receipts of under $100,000, to $5,000 for businesses with gross receipts of over $25 million.
S Corporations
An S corporation is a traditional corporation with a special designation, known as S status, which allows income to pass through the company to its owners. Since the business owners then pay personal income tax on this money, many states do not tax S corporations. New York, however, is not one of these states; it requires S corporations to pay the corporation franchise tax. However, S corporations may use the gross receipt method to calculate taxes, and they are taxed at slightly lower rates than traditional corporations. The effective maximum corporation franchise tax on S corporations in New York is $4,500.
Any New York business seeking S status must file an additional form with the state in addition to filing the federal designation form. Failure to do so results in the business being taxed as a traditional corporation, which means a much higher tax bill, in all likelihood.
The net income from the S corporation passes through to the business owners, and New York also taxes this income. State tax rates on personal income range from 4 to 8.82%, as of 2015.
Limited Liability Companies
Like S corporations, limited liability companies (LLCs) pass through income to their owners, who then pay personal income tax on it. LLCs are unique because they can be classified in one of several ways: as a partnership, as a corporation or as the default classification, a disregarded entity. New York LLCs classified as corporations pay the corporation franchise tax under the same rules as traditional corporations. LLCs of any other classification are not subject to this tax, but they must pay state filing fees. These fees are calculated based on gross income, and range from a minimum of $25, which applies to LLCs with gross incomes of less than $100,000, to a maximum of $4,500, which applies to LLCs with gross incomes of greater than $25 million.
Partnerships
Partnerships are another business designation that pass income through to the individuals who own them. As such, they do not pay federal income tax or state tax in most places, including New York. Like LLCs, however, they are subject to the state filing fee, which is calculated using the same formula based on gross income. New York partnerships get even more of a break than S corporations, as they are only subject to the filing fee if their gross income exceeds $1 million. The business owners must pay state income tax as individuals on their share of income that passes through from the partnership.
Sole Proprietorships
Sole proprietorships in New York do not pay any corporation franchise taxes or filing fees. The sole proprietor who owns the business pays personal income tax, which ranges from 4 to 8.82% in New York, on his taxable income from the business.
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c95e8c0a2ef226af81ee76389033100a | https://www.investopedia.com/articles/personal-finance/102914/do-drivers-really-need-gap-insurance.asp | Do You Really Need Gap Insurance? | Do You Really Need Gap Insurance?
Gap insurance is a supplemental auto policy that covers any difference between the insured value of a vehicle and the balance of the loan or lease that the owner must repay. If your vehicle is totaled or stolen before the loan on it is paid off, gap insurance will cover any difference between your auto insurance payout and the amount you owe on the vehicle.
Gap is an insurance industry acronym for "guaranteed auto protection".
Gap policies are available whether the vehicle is purchased or leased. But is gap insurance worth it? Yes, but only if and when you owe more money on that vehicle than the total that your comprehensive auto insurance policy would pay out if it is lost or stolen.
Key Takeaways Gap insurance—also known as guaranteed auto protection—reimburses a car owner when the payment for a total loss is less than the outstanding loan or lease balance.Gap insurance makes the most sense for people who put no money down and choose a long payoff period. For a couple of years, they may owe more on the car than its current value.It also makes sense for those who lease rather than purchase a vehicle.You may be able to skip gap insurance if you made a down payment of at least 20% on the car when you bought it, or if you're paying off the car loan in less than five years.You don't need gap insurance for the life of the car, just until your loan balance doesn't exceed the car's value.
How Gap Insurance Works
It’s fairly easy for a driver to owe the lender or leasing company more than the car is worth in its early years. A small down payment and a long loan or lease period are enough to do it, at least until your monthly payments add up to sufficient equity in the vehicle.
And, remember, that equity must equal the current value of the car. That value, not the price you paid, is what your regular insurance will pay if the car is wrecked.
The problem is that cars depreciate quickly during their first couple of years on the road. In fact, the average automobile loses nearly a third of its value after just two years of driving.
If your vehicle is wrecked, your policy won't pay the cost of replacing the car with a brand-new vehicle. You’ll get a check for what a car comparable to yours would sell for on a used-car lot. Insurers call this the vehicle’s actual cash value.
Gap insurance doesn't cover that particular gap. The payouts are based on actual cash value, not replacement value.
Example of Gap Insurance
Say you purchased a new car with a sticker price of $28,000. You paid 10% down, bringing your loan cost down to $25,200. You got a five-year auto loan. For the sake of simplicity, let's say you scored one of those zero-percent new-car financing deals, so your monthly payment is $420. After 12 months, you've paid $5,040. You still owe $20,160.
One year later, the car is wrecked and the insurance company writes it off as a total loss. According to your auto insurance policy, you are owed the full current value of that vehicle. Like the average car, your car is now worth 20% less than you paid for it a year ago. That's $22,400.
Congratulations. Your collision coverage will reimburse you enough to cover the outstanding balance on your car loan and leave you $2,240 to put down on a replacement vehicle.
But wait. What if your car was one of the models that don't hold their value as well? Some cars depreciate by 30% in the first year after their purchase. In that case, your insurance check will be $19,600.
You owe your lender $560. And you still need a new car.
If you don't have gap coverage Total Loan Amount Owed $20,160 Collision Insurance Payout $19,600 Shortfall $-560 (Gap Payout) (0) Your Out-of-Pocket Cost $560
If you have gap coverage Total Loan Amount Owed $20,160 Collision Insurance Payout $19,600 Shortfall $-560 Gap Payout $560 Your Out-of-Pocket Cost $0
Do You Need Gap Insurance?
You may have heard the term "upside-down" in reference to a home mortgage debt. The concept is the same whether the item financed is a house or a car: The thing financed is currently worth less than the balance of the loan that was taken out to acquire it.
This isn't as dire as it sounds. If you put only a little money down on a purchase and pay the rest in small monthly installments spread over five years or more, you don't immediately own much of that house or car free and clear. As you pay down the principal, your ownership share expands and your debt shrinks.
Gap insurance at least covers the shortfall so you're not on the hook if the car is wrecked.
Gap Insurance May Make Sense If...
You leased rather than purchased the vehicle, and paid little or no cash down for it.You bought the vehicle with little or no money down and a long loan payoff period.
In either case, you put little of your own cash on the table to get this deal. That's great. You got a good deal on the car. But it probably means you owe more money on that vehicle than you will get from your insurance company if it is wrecked or stolen in the next couple of years. You could use gap insurance.
If you've purchased gap insurance, check your loan balance from time to time and cancel the insurance once you owe less than the book value of your vehicle.
You May Be Able to Skip Gap Insurance If...
If you're still paying off your car, you almost certainly have collision coverage. You'd be playing with fire without it, and, in any case, you're probably required to have collision coverage by the terms of your loan or lease agreement.
You made a down payment of at least 20% on the car when you bought it, so there’s little chance you will be upside-down on your loan, even in the first year or so that you own it.You're paying off the car loan in less than five years.The vehicle is a make and model that historically holds its value better than average.
It's worth checking the National Automobile Dealers Association (NADA) guide or Kelley Blue Book periodically to get an idea of how much your car is worth. Compare it to your loan balance. If your loan balance is less than your car's value, you no longer have a gap to worry about.
Pros and Cons of Gap Insurance
Buying a new car is an expensive proposition these days. The average new car loan is in excess of $32,000. The average loan term is now 69 months.
You wouldn't dream of skipping collision insurance on that car, even if your lender allowed you to do it.
You should consider gap insurance to supplement your collision insurance for the period of time that you owe more for that car than its actual cash value. That is what your collision insurance policy will pay out if the car is wrecked.
This is most commonly the case in the first few years of ownership if you put down less than 20% on the car and stretched the loan repayment term to five years or more.
A quick look at a Kelley Blue Book will tell you whether you need gap insurance. Is your car currently worth less than the balance on the loan? If so, you need gap insurance.
How Much Does Gap Insurance Cost?
You can add gap insurance to your regular comprehensive auto insurance policy for as little as $20 a year, according to the Insurance Industry Institute.
That said, your cost will vary according to the usual laws of insurance. That is, your state, age, driving record, and the actual model of the vehicle all play a part in pricing.
A major insurer will typically price it at 5% to 6% of the collision and comprehensive premiums on your auto insurance policy. For example, if you pay $1,000 a year combined for those two coverages, you’ll only have to kick in $50 to $60 extra a year to protect your loan with gap insurance.
Going to an insurer for gap coverage is usually cheaper than the two other options, going through the dealer or a lender, according to Bank Rate Monitor.
The Dealer Option
There’s a good chance the car dealer will try to sell you gap coverage before you drive off the lot. In fact, some are required by state law to offer it.
But dealers typically charge substantially more than the major insurance companies. On average, a dealership will charge you a flat rate of $500 to $700 for a gap policy.
So, it pays to shop around a bit, starting with your current auto insurer. Many insurers will allow you to add gap insurance to your existing auto insurance policy.
Another advantage of going with a big-name carrier is that it's easy to drop the gap coverage once it no longer makes financial sense.
Gap Insurance FAQs
Here are some brief answers to the most commonly-asked questions about gap insurance.
Is Gap Insurance Worth the Money?
If there is any time during which you owe more on your car than it is currently worth, gap insurance is definitely worth the money.
If you put down less than 20% on a car, you're wise to get gap insurance at least for the first couple of years you own it. By then, you should owe less on the car than it is worth. If the car is wrecked, you won't have to pay out-of-pocket to make up the shortfall between the insured value of the car and the amount you owe a lender.
Gap insurance is particularly worth it if you take advantage of a dealer's periodic car-buying incentive. If you're getting a deal for a low down payment and three months "free," you are surely going to be upside-down on that loan for many months to come.
Do You Need Gap Insurance If You Have Full Coverage?
Comprehensive auto insurance is full coverage. It includes collision insurance but also covers every unexpected calamity that can destroy a car, from vandalism to a flood. But it pays the actual cash value of the car, not the price you paid for it or the amount you may still owe on the loan.
Gap insurance covers the difference.
So, you need gap insurance if there is indeed a gap between what you owe and what the car is worth on a used car lot. That is most likely to occur in the first couple of years of ownership, while your new car is depreciating faster than your loan balance is shrinking.
You can cancel the gap insurance once your loan balance is low enough to be covered in full by a collision insurance payment.
What Does Gap Insurance Do?
Think of it as a supplemental insurance policy for your car loan. If your car is wrecked, and your comprehensive auto insurance policy pays less than you owe the lender, the gap policy will make up the difference.
How Do I Get Gap Insurance?
The easiest way, and probably the cheapest way, is to ask your auto insurance company if they can add it to your existing policy.
You can compare prices online to make sure you're getting the best deal.
The car dealership will probably offer you a gap policy but the price will almost certainly be higher than a major insurer will offer.
In any case, check to make sure you don't already have gap insurance on your vehicle. Auto lease deals often build gap coverage into their pricing.
Can You Get Gap Insurance After You Buy a Car?
Yes. Your best bet is to call your auto insurance company and ask whether you can add it to your existing policy.
The Bottom Line
Did you know that there are actually six types of auto insurance and another five optional insurance products for drivers? And, as if that weren't complicated enough, the requirements for coverage and the cost of the products differ by state.
Gap insurance is one of those optional "other" products unless it's required by the terms of your lease or loan agreement.
Nevertheless, it's a product that could give you considerable peace of mind if you recently shelled out for a new car.
Suppose you bought a $30,000 car and, two years later, it's stolen and never recovered. Due to depreciation, the car is now worth only $21,000 on the market. You still owe the lender $24,000.
If you have gap coverage, the insurance carrier will kick in $3,000 to cover the difference. If you don't, you owe the lender $3,000 out of pocket.
Gap insurance is sensible for those with significant negative equity in a car. That includes drivers who put little money down or have a protracted loan payoff period. If you're interested in cutting your car insurance costs, not paying for gap insurance once you don't really need it is one way to save some money.
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02afdc6ba6a603f57768e8630771668c | https://www.investopedia.com/articles/personal-finance/102915/tax-implications-opening-foreign-bank-account.asp | The Tax Implications of Opening a Foreign Bank Account | The Tax Implications of Opening a Foreign Bank Account
For Americans who hold assets with foreign institutions, for whatever reason, the tax ramifications are an area of serious concern. The Internal Revenue Service (IRS) treats money held in foreign banks differently than money held in domestic bank accounts. To put it bluntly, they don't like U.S. citizens having offshore or overseas accounts—mostly out of fear of being unable to take revenue from such accounts—and so they discourage the practice.
And frankly, most foreign banks nowadays do not want deposits from U.S. citizens, either—not even those in the traditional destinations, such as Switzerland and the United Kingdom. Their reluctance is due to the increased aggressiveness from the IRS and the Department of Justice (DOJ). Foreign banks are only willing to devote so much time and energy to courting American clients, and very few have the type of compliance department that can handle complex U.S. regulations and heightened scrutiny.
Americans who want to open foreign bank accounts should consider these hurdles and do what they can to clear up credit concerns or other risk flags. Simply being an American citizen who is subject to IRS taxation can make an overseas bank hesitate, so it is a good idea to seem less risky on an individual level.
Key Takeaways Any U.S. citizen with foreign bank accounts totaling more than $10,000 must declare them to the IRS and the U.S. Treasury, both on income tax returns and on FinCEN Form 114.The Foreign Account Tax Compliance Act (FATCA) requires foreign banks to report account numbers, balances, names, addresses, and identification numbers of account holders to the IRS.The federal government can bring civil and criminal charges against those who fail to disclose foreign accounts or pay taxes on foreign account assets.
Double Taxation of U.S. Expatriates
Unlike almost every other country on the planet, the U.S. government levies taxes on its citizens on income earned anywhere in the world, even if the activity took place exclusively on foreign soil, with foreign capital, and with foreign trading partners. In fact, the U.S. is the only developed nation that taxes global activity.
What this means is an American expatriate living and working in Germany, say, has to pay income taxes to both the German government and the U.S. federal government. If the American worker deposits his monthly earnings into a German bank, the IRS can grant itself access to that account to collect taxes. There are some relief provisions, including a partial credit for foreign taxes paid on overseas income, but they are often insufficient.
Not all foreign account holders engage in economic activity abroad, which means they do not have to worry about this double taxation. However, concerned workers and investors need to file returns with the IRS.
FinCEN Form 114
Since foreign accounts are taxable, the IRS and U.S. Treasury have a very rigid process for declaring overseas assets. Any American citizen with foreign bank accounts totaling more than $10,000 in aggregate, or at any time during the calendar year, is required to report such accounts to the Treasury Department. They are also required to report and pay tax on all income from these accounts, except so-called "signature authority accounts."
From the 1970s until June 2013, foreign account holders filed under Treasury Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, better known as an FBAR. Forms were due annually and processed in the Treasury office in Detroit.
After June 2013, the Treasury announced the paper-based FBAR was no longer acceptable. Instead, all U.S. taxpayers with offshore accounts totaling more than $10,000 needed to electronically fill out the new Financial Crimes Enforcement Network (FinCEN) Form 114, also titled FBAR. FinCEN 114 included more information and had to pass through the Treasury's Bank Secrecy Act E-Filing System. This new FBAR did not replace an income tax filing but was instead a separate document to be submitted individually. Taxpayers had until June 30, 2014, to file the new form, or else be subject to a penalty of as much as 50% of their assets.
The Foreign Account Tax Compliance Act
Congress passed the Foreign Account Tax Compliance Act (FATCA) in 2010 without much fanfare. One reason the act was so quiet was its four-year-long ramp up: FATCA did not take effect until 2014. Never before had a single national government attempted, and so far succeeded in, forcing compliance standards on banks across the world.
FATCA requires any non-U.S. bank to report accounts held by American citizens worth over $50,000 or else be subject to 30% withholding penalties and possible exclusion from U.S. markets. By mid-2015, more than 100,000 foreign entities had agreed to share financial information with the IRS. Even Russia and China agreed to the FATCA. The only major global economy to fight the Feds is Canada; however, it was private citizens, not the Canadian government, who filed suit to block FATCA under the International Governmental Agreement clause, making it illegal to turn over private bank account information.
Through FATCA, the IRS receives account numbers, balances, names, addresses, and identification numbers of account holders. Americans with foreign accounts must also submit Form 8938 to the IRS in addition to the largely redundant FBAR form. Those interested in opening a foreign bank account must be aware of these requirements and possible tax penalties, especially for retirement accounts abroad, which have their own unique treatment.
All foreign accounts need to be reported to the IRS, even if the accounts do not generate any taxable income.
Foreign Bank Accounts and Tax Evasion
The popular colloquial notion of offshore tax evasion includes a multi-millionaire U.S. citizen who has an ultra-secret bank account in Geneva. In reality, millions of Americans open offshore bank accounts for a huge number of reasons. Whether they report them is a different story.
The U.S. State Department estimated that roughly 9 million Americans lived abroad in 2016; the Federal Assistance Voting Program’s “2016 Overseas Citizen Population Analysis Report”, issued in September 2018, put the number at 5.5 million. It's safe to guess that many millions more living stateside have foreign accounts. Yet less than 1 million taxpayers filed FBARs to declare these assets in 2016.
Obviously, plenty of foreign account holders are not reporting assets. Since 2009, however, the IRS has emphasized compliance, and Americans are more likely than ever to face stiff fines and penalties for nondisclosure. Individuals can be penalized with up to $500,000 and a prison sentence of up to 10 years for failure to file an FBAR.
Even more serious than non-disclosure is a failure to pay taxes on income earned and deposited into a foreign bank account. The federal government can bring civil and criminal charges against those who do not pay Uncle Sam, even by accident.
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b5f4acd14346ef2ec0bcdced7d79a4c8 | https://www.investopedia.com/articles/personal-finance/103015/are-credit-karma-scores-real-and-accurate.asp | Are Credit Karma Scores Accurate? | Are Credit Karma Scores Accurate?
Credit Karma promises to provide you with your credit score and credit report for free. But, how accurate and reliable is this information? Is Credit Karma giving you precisely the same information that a lender can access if you're applying for a mortgage or a car loan? And, for that matter, is it giving you anything you can't get elsewhere?
First, you need to know what Credit Karma is and what it does, and how its VantageScore differs from the more familiar FICO score.
Key Takeaways Credit Karma gives you a free credit score and credit report in exchange for information about your spending habits. It then charges companies to serve you targeted advertisements. The scores and credit report information on Credit Karma come from TransUnion and Equifax, two of the three major credit bureaus. Credit Karma compiles its own VantageScore based on that information. Your Credit Karma score should be the same or close to your FICO score, which is what any prospective lender probably will check. The range of your credit score (such as "good" or "very good") is more important than the precise number, which will vary by source and edge up or down often.
What Is Credit Karma?
Credit Karma is best known for its free credit scores and credit reports. However, it positions itself more broadly as a website that offers its users "the chance to build a better financial future."
To use Credit Karma, you have to give it basic personal information, usually just your name and the last four digits of your Social Security number. With your permission, Credit Karma then accesses your credit reports, compiles a VantageScore, and makes it available to you.
VantageScore or FICO: Does It Matter?
VantageScore is not FICO, for Fair Isaac Corp. They are the two biggest competitors in the business of creating scoring models that are used to rate the creditworthiness of consumers. To complicate matters, both update their models occasionally, and lenders use different versions with slightly different results.
You don't have a credit score. You have many credit scores, each calculated by a lender based on one of many models or versions of models. The important thing is, they should all be in the same range, such as "good" or "very good."
Your score should be roughly the same on either model. One model may put slightly more weight on unpaid medical debt. One may take longer to record a loan application. But if your credit is "good" or "very good" according to one system, it should be the same in the other.
What Else Credit Karma Offers
Credit Karma will access your credit information from TransUnion and Equifax, two of the three major consumer credit agencies. (The third is Experian.) It will come up with its own independent rating based on VantageScore. You will then receive your current VantageScore rating and the more detailed credit reports behind it.
More Credit Karma Services
But, besides this free service, Credit Karma has other related services, including a security monitoring service and alerts for new credit checks on you. Outside of Credit Karma, many of the best credit monitoring services provide similar alerts and services.
And, once it has your personal information, you can search for personalized offers for a credit card, a car loan, or a home loan, and your search won't pop up in your credit report on Credit Karma or anywhere else. A standard section of credit reports is "inquiries," which lists requests for your report from lenders you've applied to for a loan.
Credit Karma also offers personalized recommendations on money management. (Example: "Your car loan is 16%. You might be Overpaying!")
Who Runs Credit Karma?
Credit Karma is a multinational company founded in 2007 by Kenneth Lin, Ryan Marciano, and Nichole Mustard. Today, Lin is chief executive officer, Marciano is chief technology officer, and Mustard is chief revenue officer.
In December 2020, Intuit, the company behind TurboTax, closed the acquisition of Credit Karma in a deal valued at $8.1 billion including cash and stock.
100 Million + The number of users worldwide that Credit Karma claims.
How Credit Karma Makes Money
Credit Karma's business model is not entirely altruistic. It is a for-profit business that makes money by giving you a free credit score in exchange for learning more about your spending habits and charging companies to serve you targeted advertisements.
Credit Karma places advertisements in front of its users, hoping that they will respond to them by clicking on them. Many of these advertisers are lenders, and Credit Karma may earn a fee if you apply through one of its links.
Your personal data is valuable stuff to advertisers, and they pay more to target it. With more than 100 million users, this is a healthy revenue model for Credit Karma.
Is Your Credit Karma Score Accurate?
Investopedia reached out to Credit Karma to ask why consumers should trust Credit Karma to provide them with a score that is an accurate representation of their creditworthiness.
Bethy Hardeman, chief consumer advocate at Credit Karma, responded: “The scores and credit report information on Credit Karma comes from TransUnion and Equifax, two of the three major credit bureaus. We provide VantageScore credit scores independently from both credit bureaus. Credit Karma chose VantageScore because it’s a collaboration among all three major credit bureaus and is a transparent scoring model, which can help consumers better understand changes to their credit score.”
Credit Karma isn’t a credit bureau, meaning they don't gather information from creditors. The credit scores and reports you see on Credit Karma reflect your credit information as reported by TransUnion and Equifax, two of the major consumer credit bureaus. These scores are not estimates of your credit rating, which makes them accurate and reliable.
What Is VantageScore?
While the FICO score is arguably the best-known credit score (and the one that nearly every personal finance guru will advise you to track), many people don’t know that FICO doesn’t actually collect information. FICO is a model used to create a score by looking at your files from the three major credit reporting bureaus.
VantageScore follows much the same process, except that its scoring model was actually created by the credit bureaus. Although VantageScore is less known to the public, it claims to score 30 million more people than any other model. One advantage is that it scores people with little credit history, otherwise known as having a “thin” credit file. If you're young, that could be important.
FICO vs. VantageScore: Which Is Better?
VantageScore and FICO are both software programs that are used to calculate credit ratings based on consumers' spending and payment history. FICO, for Fair Isaac Corp., is the older and better-known model, having been introduced in 1989. VantageScore, released in 2006, was developed by the three leading consumer credit agencies, Experian, Equifax, and TransUnion.
Because they are different models, your VantageScore will inevitably be a little different from your FICO score. For that matter, you may get a different FICO score from various sources at any given time, depending on whether the source uses a specialized variety of FICO or the most-often-used base model, and which of its many versions is used.
The key point is, your score should be in the same range on any or all of those models. You should not have a "good" VantageScore and only a "fair" FICO score.
The Differences
The differences are relatively minor:
VantageScore is designed to keep track of new or infrequent credit users. This can be an advantage to young adults, or to anyone who for any reason has dropped off the consumer radar for a time. When you apply for a new loan, your credit rating gets dinged. Consumer protection law requires that multiple applications be treated as one query so that you don't get dinged multiple times for comparison shopping. Since the two rivals handle these queries a little differently, VantageScore may ding you a little more than FICO. Both compile a credit score at the moment it is requested. The FICO system relies on current information as it is reported to the credit bureaus. The VantageScore system incorporates information on your spending behavior over the past two years.
The Chief Similarity
Both FICO and VantageScore have the same straightforward goal: To predict the likelihood that a consumer will default on a debt sometime in the next 24 months.
And that's why you shouldn't get too fussed about the differences. Every one of your credit scores should be in the same general range, but they'll never be identical.
Different lenders use different scores. Because you can’t predict which score they will choose, it may not matter which score you rely on–FICO or VantageScore. There are many other scoring models and no practical way for you to keep track of or access all of them.
Which Should You Check Regularly?
Credit Karma's Hardeman recommends picking one and sticking with it. “It can be surprising to know that there are potentially hundreds of credit scores,” she says. “However, credit scores are highly correlative. That means if you rated ‘good’ in one scoring model, you most likely have a ‘good’ credit rating in all other models. Whether you’re building your credit from scratch, working on bouncing back after a hardship, or just in maintenance mode, I recommend tracking one score for changes over time.”
Credit Karma Limitations
The first question is whether you need Credit Karma's services, free or not. And that may depend on how urgently you need detailed information on your credit status. Remember:
You have a legal right to a copy of your credit score and credit report from each of the three credit bureaus once every 12 months. Many banks and lenders offer account holders access on-demand to their credit scores. For example, if you have an American Express card, click on Account Services to view your FICO score and your FICO history.
That's enough for most of us most of the time. If you're about to apply for a mortgage, or you're working to improve your credit rating, or you want the related services Credit Karma offers, you may want this access to your credit report and to the related services the company offers.
Your FICO Score May Differ
Credit Karma uses two of the three major credit bureaus and scores your creditworthiness according to the widely-used (but not quite as widely used as FICO) VantageScore system. Your score should be within the same range as everywhere else, including the major credit bureaus and its many competitors.
On the customer review site ConsumerAffairs.com, some people have reported that their Credit Karma score is quite a bit higher than their FICO scores. Whether these posts are reliable is unknown, but it is worth noting.
If your Credit Karma score isn't accurate, the problem is probably elsewhere. That is, one of the bureaus made an error or omitted information. Or, the information might have been reported to one bureau but not others.
Using Credit Karma won't hurt your credit score. Your search is a self-initiated inquiry, which is a "soft" credit inquiry, not a "hard" inquiry.
Your Credit Karma Score May Be Insufficient
Credit Karma updates its scores once per week. For most people that's plenty, but if you’re planning to apply for credit in the near future, you may need a more timely update.
Although VantageScore's system is accurate, it’s not the industry standard. Credit Karma works fine for the average consumer, but the companies that will approve or deny your application are more likely to look at your FICO score.
Credit Karma May Encourage Borrowing
Credit Karma’s business model is to earn advertising revenue and commissions from loans you get through the site. Although the site positions itself as a trusted adviser, it is motivated to sign you up for new loans.
Use Credit Karma to monitor your score—not to get advice on whether you should take on new debt.
Credit Karma FAQs
Is Credit Karma Really Free?
Yes. Credit Karma will not charge you any fees. You can apply for loans through the site, and the company will collect a fee if you do.
Is It Safe to Use Credit Karma?
Yes. Credit Karma uses 128-bit encryption, which is considered nearly impossible to crack, to protect its data transmission. It also vows not to sell your information to third parties.
Does Credit Karma Hurt Your Credit?
No, using Credit Karma doesn't hurt your credit. When you access your information on Credit Karma, it counts as a "soft" inquiry that isn't reported to the credit bureaus. A "hard" inquiry, such as a lender's credit check when you apply for a loan, is reported.
How Many Points Off Is Credit Karma?
The only possible answer is, a few if any. Your credit score can vary every time it is calculated depending on whether the VantageScore or FICO model is used, or another scoring model, and even on which version of a model is used. The important thing is, the number should be in the same slice of the pie chart that ranks a consumer as "bad," "fair," "good," "very good," or "exceptional." (Even the words on the pie chart can vary slightly.)
Why Is My Credit Karma Score Different From My FICO Score?
VantageScore and FICO are the two big rivals in the credit rating business. Credit Karma uses VantageScore. Their models differ slightly in the weight they place on various factors in your spending and borrowing history.
The Bottom Line
Millions of people use Credit Karma to track their credit score. The company is highly transparent and provides its services through VantageScore. Thus, it offers a reliable snapshot of your current credit status.
The credit scores are updated only weekly, but that's sufficient for most people most of the time.
In fact, that weekly check may be particularly valuable to consumers who are working on repairing their credit rating, for young consumers building a credit rating for the first time, and for loan shoppers anxious about their own creditworthiness.
You can also use Credit Karma to spot inaccuracies in your credit report. As Hardeman advises, “Stay proactive and monitor your credit regularly so you can catch inaccuracies or fraudulent information. Make sure you dispute these inaccuracies before applying for credit.”
Keep in mind that you have other free options to use instead of Credit Karma or in addition to it. Your credit card issuer or bank may offer an update online. And, you have a legal right to a full copy of your credit report once a year, available at annualcreditreport.com.
Credit Karma can also help you research loan products. If you're in the market for a loan, having a recent credit score and current credit offers in one place can be a valuable service.
Don't forget that these offers are Credit Karma's bread-and-butter. Its advertisers are eager to lend you money, and that may not be the best thing for your credit score.
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1edd78b6f528bccc3e56cde7b97d7998 | https://www.investopedia.com/articles/personal-finance/103015/can-your-401k-impact-your-social-security-benefits.asp | Can Your 401(k) Impact Your Social Security Benefits? | Can Your 401(k) Impact Your Social Security Benefits?
The income you receive from your 401(k) or other qualified retirement plan does not affect the amount of Social Security retirement benefits you receive each month. However, you may be required to pay taxes on some or all of your benefits if your annual income exceeds a certain threshold—and your 401(k) distributions can cause it to do that.
Key Takeaways Social Security retirement benefit income does not change based on other retirement income, such as from 401(k) plan funds. Social Security income, instead, is calculated by your lifetime earnings and the age at which you elect to start taking Social Security benefits. Distributions from a 401(k), however, may increase your total annual income to a point that your Social Security income will be subject to taxes.
Why Doesn't 401(k) Income Affect Social Security?
Your Social Security benefits are determined by the amount of money you earned during your working years—years in which you paid into the system via Social Security taxes. Since contributions to your 401(k) are made with compensation received from employment by a U.S. company, you have already paid Social Security taxes on those dollars.
But wait—weren't your contributions to your 401(k) account made with pre-tax dollars? Yes, but this tax shelter feature only applies to federal and state income tax, not Social Security. You still pay Social Security taxes on the full amount of your compensation, up to a pre-determined annual limit established by the IRS, in the year you earned it. This limit is typically increased yearly and is currently capped at $142,800 for 2021.
"Contributions to a 401(k) are subject to Social Security and Medicare taxes, but are not subject to income taxes unless you are making a Roth (after-tax) contribution," notes Mark Hebner, founder and president of Index Fund Advisors Inc. in Irvine, Calif., and author of "Index Funds: The 12-Step Recovery Program for Active Investors."
In a nutshell, this is why you owe income tax on 401(k) distributions when you take them, but not any Social Security tax. And the amount of your Social Security benefit is not affected by your 401(k) taxable income.
The Tax Impact of 401(k) Savings
Once you begin taking distributions from your 401(k), or other retirement savings plan, such as an IRA, you won't owe Social Security tax on the distribution for the reason described above; you paid your dues during your working years. But you may have to pay income taxes on some of your benefits if your combined annual income exceeds a certain amount.
The income thresholds are based on your "combined income," which is equal to the sum of your adjusted gross income (AGI), which includes earned wages, withdrawals from any retirement savings accounts (like IRAs and 401(k)s, any non-taxed interest earned, and one-half of your Social Security benefits). If you take large distributions from your traditional 401(k) in any given year that you receive benefits—and remember, you're required to start taking them from all 401(k)s once you turn 72—you are more likely to exceed the income threshold and increase your tax liability for the year.
According to the Social Security Administration, for 2020, if your total income for the year is less than $25,000 and you file as an individual, you won't be required to pay taxes on any portion of your Social Security benefits. If you file jointly as a married couple, this limit is raised to $32,000.
You may be required to pay taxes on up to 50% of your benefits if you are an individual with income between $25,000 and $34,000, or if you file jointly and have income between $32,000 and $44,000. Up to 85% of your benefits may be taxable if you are single and earn more than $34,000 or if you are married and earn more than $44,000.
Other Factors Affecting Social Security Benefits
In some cases, other types of retirement income may affect your benefit amount, even if you collect benefits on your spouse's account. Your benefits may be reduced to account for the income you receive from a pension based on earnings from a government job or from another job for which your earnings were not subject to Social Security taxes. This primarily affects people working in state or local government positions, the federal civil service, or those who have worked for a foreign company.
If you work in a government position and receive a pension for work not subject to Social Security taxes, your Social Security benefits received as a spouse or widow or widower are reduced by two-thirds of the amount of the pension. This rule is called the government pension offset (GPO).
For example, if you are eligible to receive $1,200 in Social Security but also receive $900 per month from a government pension, your Social Security benefits are reduced by $600 to account for your pension income. This means your Social Security benefit amount is reduced to $600, and your total monthly income is $1,500.
The windfall elimination provision (WEP) reduces the unfair advantage given to those who receive benefits on their own account and receive income from a pension based on earnings for which they did not pay Social Security taxes. In these cases, the WEP simply reduces Social Security benefits by a certain factor, depending on the age and birth date of the applicant.
What Determines Your Social Security Benefit?
Your Social Security benefit amount is largely determined by how much you earned during your working years, your age when you retire, and your expected lifespan.
The first factor that influences your benefit amount is the average amount that you earned while working. Essentially, the more you earned, the higher your benefits will be. The SSA's annual fact sheet shows workers retiring at full retirement age will receive a maximum benefit amount of $3,148 for 2021. The Social Security Administration calculates an average monthly benefit amount based on your average income and the number of years you are expected to live.
In addition to these factors, your age when you retire also plays a crucial role in determining your benefit amount. While you can begin receiving Social Security benefits as early as age 62, your benefit amount is reduced for each month that you begin collecting before your full retirement age. Full retirement age is 66 and ten months for those who turn 62 in 2021. It increases by two months each year until it hits the current full retirement age cap of 67 for anyone born in 1960 or later.
Conversely, your benefit amount may be increased if you continue to work and delay receiving benefits beyond full retirement age. For example, in 2021, the maximum monthly benefit amount for those retiring at full retirement age is $3,148. For those retiring early, at age 62, the maximum drops to $2,324, while those who wait until age 70—the latest you can defer—can collect a benefit of $3,895 per month.
The Bottom Line
Income from a 401(k) does not affect the amount of your Social Security benefits, but it can boost your annual income to a point where they will be taxed or taxed at a higher rate. This can be a conundrum for someone who's at an age where they're required both to start withdrawing from the 401(k) and to start collecting Social Security.
Regardless, make sure you are aware of annual changes to Social Security income thresholds and factor in tax liabilities when planning for retirement or deciding how big a 401(k) distribution to take.
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2ba1673a9a79efa3058f5f28214a192b | https://www.investopedia.com/articles/personal-finance/103114/roth-iras-investing-and-trading-dos-and-donts.asp | Roth IRAs: Investing and Trading Dos and Don’ts | Roth IRAs: Investing and Trading Dos and Don’ts
More than 24 million households in the U.S. have Roth individual retirement accounts, which accounted for $810 billion in retirement assets as of 2019, according to the Investment Company Institute. The retirement savings vehicles are funded with after-tax dollars, which means distributions are tax-free.
Key Takeaways Roth IRAs are retirement savings vehicles that are funded with after-tax dollars, which means distributions are tax-free. While there are a few exceptions, you can hold just about any investment in this increasingly popular retirement account: stocks, bonds, mutual funds, money market funds, exchange-traded funds (ETFs), and annuities are among the choices. There are a handful of investments that you are not allowed to hold in Roth IRAs: collectibles, including art, rugs, metals, antiques, gems, stamps, coins, alcoholic beverages, such as fine wines, and certain other tangible personal property the Internal Revenue Service deems as a collectible are prohibited.
Roth IRA vs. Traditional IRA
Introduced in the 1990s, the Roth IRA is the younger sibling to traditional individual retirement accounts (IRAs), which are funded with pre-tax dollars and in which distributions are taxed as ordinary income. They are popular with the self-employed, and a portion of the taxes paid at distribution may be deductible depending on the taxpayer's income.
Traditional IRAs are more popular, but Roth IRAs are the fastest growing among the different types of IRAs. The number of households owning Roth IRAs has increased on average 5.3% annually between 2000 and 2013 compared to a 1.3% growth rate for traditional IRAs.
While there are a few exceptions, you can hold just about any investment in this increasingly popular retirement account. Stocks, bonds, mutual funds, money market funds, exchange-traded funds (ETFs), and annuities are among the choices.
Most Common Investments
Roth IRAs, on average, include three different types of investments per account, Investment Company Institute data reveals. Unsurprisingly, mutual funds are the most common investment in Roth IRAs by a wide margin. They account for 62% of investments and include equity, bond, and balanced funds.
Equity mutual funds are the most popular by far, making up more than half (52%) of the mutual funds in Roth IRAs, while bond funds and balanced funds follow at 27% each.
Individual stocks are the second most common, representing 31% of Roth IRA investments, followed by annuities, both fixed and variable (22%), and money market funds (18%). Individual bonds and U.S. savings bonds, meanwhile, make up 15%, and ETFs 9% of investments held in Roth IRAs.
Prohibited Investments
There are a handful of investments that you are not allowed to hold in Roth IRAs. Collectibles, including art, rugs, metals, antiques, gems, stamps, coins, alcoholic beverages, such as fine wines, and certain other tangible personal property the Internal Revenue Service deems as a collectible are prohibited.
There are exceptions, however, for some coins made of precious metals. Life insurance contracts are also prohibited as investments.
Margin Accounts
Some transactions and positions are not allowed in Roth IRAs. The IRS does not allow you to invest in your Roth IRA with borrowed money. As a result, investing on margin is prohibited in Roth IRAs, unlike a non-retirement brokerage account, wherein margin accounts are allowed.
Margin accounts are brokerage accounts that allow investors to borrow money from their brokerage firm to buy securities. The broker charges the investor interest and the securities are used as collateral. Because the margin is leverage, the gains or losses of securities bought on margin are increased.
Certain trading strategies and contracts require margin accounts. This includes some options contracts, for example, that require borrowing on margin. You also can’t short stocks in Roth IRAs. Short selling occurs when an investor borrows on margin a stock betting that its price will decline. A profit is made when the investor buys back the stock at a lower price.
Roth and traditional IRAs are a way for investors to save and invest long-term toward retirement with tax benefits, not make a quick profit. Both buying and trading on margin are risky moves and not for the novice or everyday investor.
The Bottom Line
Roth IRAs are the fastest growing among the different types of IRAs, and some believe that paying the tax upfront provides an advantage overpaying tax on distributions, such as in regular IRAs. Roth IRAs allow for investing in a wide array of investment products, although there are a few exceptions. Check with your brokerage firm to see what it has on offer.
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383b6b77036b293302bdda18c82b2ed2 | https://www.investopedia.com/articles/personal-finance/110415/7-solutions-homeowners-struggling-their-mortgage.asp | 7 Solutions for Homeowners Struggling with their Mortgage | 7 Solutions for Homeowners Struggling with their Mortgage
If you are now struggling to make your mortgage payments, you're not alone. According to RealtyTrac, one in every 12,448 homes is in foreclosure throughout the United States, as of Dec. 2020. In Florida, one in every 6,240 homes, while in California, one in every 11,342 homes are in foreclosure.
The novel coronavirus pandemic has led to rising levels of unemployment and loss of income. If you believe you’re in danger of foreclosing on your home, please know that there are programs designed to provide mortgage relief to borrowers.
Mortgage Relief Options for COVID-19
If your mortgage is backed by a government program, a moratorium—or postponement—on foreclosures and evictions is in place for those impacted by COVID-19. The moratorium was due to expire on Jan. 31, 2021, but was extended. However, the extension expiration dates vary, depending on the government home-loan program.
For those who are looking to request forbearance, the Department of Housing and Urban Development, Department of Veterans Affairs, and Department of Agriculture have extended the enrollment window for which borrowers can request forbearance until June 30, 2021. Forbearance is an agreed-upon postponement of mortgage payments between the lender and the borrower to help prevent foreclosure.
For mortgage loans backed by Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA) has extended the foreclosure moratoriums on single-family foreclosures and real estate owned (REO) evictions until Mar. 31, 2021. REO properties are bank-owned properties seized due to default or nonpayment by the borrower.
For mortgage loans that are backed by the U.S. Department of Agriculture (USDA), the foreclosure moratorium for its Single-Family Housing Direct and Guaranteed loan program expires on June 30, 2021.
Also extended through June 30, 2021, mortgage loans made through the U.S. Department of Housing and Urban Development (HUD) insured by the Federal Housing Administration (FHA) or guaranteed by the Office of Native American Programs’ (Section 184 and 184 A loan guarantee programs).
For those who have VA loans, the Department of Veteran Affairs has also been pushed out the eviction and foreclosure moratorium until June 30, 2021.
Please check with your bank or mortgage service provider, which collects your payments, to determine if your mortgage loan qualifies for the moratorium program. Whether your trouble meeting your mortgage payments is coronavirus-related or not, the first thing to do is to call your loan provider. If you can, try doing this before missing payments, as this will keep the largest number of options available to you. In this article, experts lay out different options for when you're struggling to pay on time.
Key Takeaways If your mortgage is backed by a government program, a moratorium—or postponement—on foreclosures and evictions is in place for those impacted by COVID-19.Both Fannie Mae and Freddie Mac are offering assistance to those financially struggling to make mortgage payments due to COVID-19.Whether it's related to the coronavirus pandemic or not, if you can't make your mortgage payments, the first step is to contact your lender.Many options exist for altering your loan repayment to make the monthly payments more affordable.
Solution #1: Request Mortgage Forbearance
As stated earlier, Both Freddie Mac and Fannie May released guidelines for mortgage forbearance related to COVID-19. That means that individuals can reduce or suspend their payments for that time. Additionally, any related mortgage delinquency won't be reported to the credit bureaus, so missing payments won't hurt your credit score. After the forbearance is over, lenders will work with borrowers to modify loans to lower monthly payments as necessary.
Solution #2: Refinance to a Longer-Term Loan
Spacing your loan out over a longer period is one option that can reduce your monthly payment amount. Refinancing to a longer-term loan is the simplest way to reduce monthly mortgage payments, especially when cash flow is a problem, according to Al Hensling, president of United American Mortgage in Irvine, Calif.
However, it's important to note that your interest rate will increase. To offset this, Matt Hackett, underwriting and operations manager at New York-based Equity Now, recommends making higher payments to increase the speed at which you pay down the principal. The majority of mortgages have no prepayment penalty (though you should definitely check yours).
Solution #3: Refinance to Change Your Interest Rate Terms
Refinancing to an adjustable rate mortgage (ARM) is a viable option if you’ve almost finished paying off your mortgage. “More and more consumers recognize the financial benefits an adjustable rate mortgage can provide under the right circumstances,” says Hensling. A perfect example is a homeowner who anticipates selling their home in the next three years and currently has a $400,000 fixed rate loan at 4.25% paying $1,976.76 per month.
Hensling says if the homeowner refinanced to a hybrid adjustable rate mortgage fixed for five years at 2.875%, this would reduce the monthly payment to $1,695.57 per month and save $281.19 per month.
Jeremy Brandt, CEO of WeBuyHouses.com, agrees, adding, “If a home is nearly paid off, the vast majority of the monthly payments are going to equity and not interest. Refinancing to an ARM might solve short-term cash flow issues by reducing the monthly payment at the expense of subsequent payments." That being said, if interest rates start increasing, the monthly payments may increase over a period.
Alternatively, if you have an ARM, switching to a fixed rate mortgage may not lower your current monthly payments, but it can stop your payments from growing. “This makes sense if current fixed rates are lower than the ARM interest rate, or if you expect to move later than the next three years,” says Brandt. However, he warns that if you've been in an ARM for a while, the fixed rate you refinance into may be higher than your existing rate and this can cause your monthly payment to go up.
Solution #4: Challenge Property Taxes
If the value of your home has dropped, challenging your property tax may provide some financial relief, says Cara Pierce, a certified housing counselor at Clearpoint Credit Counseling Solutions, a national nonprofit organization. “You'll need to contact the county tax assessor's office in the county in which the house is located to see what type of information they will need as proof that the housing values have dropped,” says Pierce.
However, Pierce says this is a short-term strategy. She warns that as property values increase, property taxes will rise. Also, be advised that it may cost several hundred dollars to have your home appraised.
Solution #5: Modify the Loan
A loan modification is an alternative for those who cannot refinance their loan but need to lower their monthly house payment. But, unlike a refinance, it requires a hardship. Pierce says borrowers must show the lender that as a result of financial hardship, they are not able to continue making the regular monthly house payment. “This process involves extensive paperwork that must be completed and sent to the lender for review,” says Pierce.
She recommends that homeowners get counseling through a HUD-certified organization to fully understand their options and get help contacting the lender. “However, not all lenders offer loan modifications or may just offer short term loan modifications,” says Pierce.
As part of their mortgage assistance plans related to COVID-19, Fannie Mae and Freddie Mac are both allowing borrowers to modify their loans after forbearance.
Solution #6: Get a Home Equity Loan
Getting a home equity loan may provide immediate assistance to struggling homeowners, but this strategy only works if you have a lot of equity in your house, which means that your home is valued at much more than you owe on it. Anthony Pili, director of strategic planning at Greater Hudson Bank in Bardonia, New York, advises struggling homeowners to consider paying off a mortgage with a home equity line. “Banks usually cover all closing costs on home equity lines. The savings in closing costs can be used to pay off the principal balance quicker,” says Pili.
He adds that this strategy is highly effective for borrowers who have the self-discipline to pay more than what is owed each month since the minimum payment is usually just the interest that has accrued during the month.
Solution #7: Get the Lender to Eliminate Private Mortgage Insurance
Depending on how much equity is in your home, eliminating the private mortgage insurance (PMI) can lower your mortgage payments. “If you have at least 20% equity in the property, I recommend contacting the lender about dropping the mortgage insurance,” says Pierce. She explains that borrowers who usually don’t pay 20% down are required to have PMI for at least two years, but says there may be exceptions to the two-year rule. For example, if the homeowner made improvements to the house that increased the value, the requirement may be waived.
The Bottom Line
If you’re struggling with your mortgage, don’t throw in the towel. There are various solutions that can help you stay in your home and manage your monthly mortgage payments.
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a33dde60644af1398b2d4b97a109fbe6 | https://www.investopedia.com/articles/personal-finance/110415/why-does-house-always-win-look-casino-profitability.asp | Why Does the House Always Win? A Look at Casino Profitability | Why Does the House Always Win? A Look at Casino Profitability
In gambling, there's one certainty—one thing not left to chance: The house always comes out the winner in the end. A casino is a business, not a charitable organization throwing free money away. Like any other business, it has a business model in place designed to ensure its profitability.
key takeaways A casino has a number of built-in advantages that insure it, and not the players overall, will always come out a winner in the end.These advantages, known as the "house edge," represent the average gross profit the casino expects to make from each game.The longer you play, the greater the odds are that the result of your play will match up with the house edge—and that you will lose money.The house edge varies significantly among the different casino games, with blackjack the lowest and keno the highest.
The House Edge
No matter what game you choose to play, the odds of the casino winning your money are greater than the odds of you winning the casino's money. That's because all casino games are designed to provide the house with a built-in edge, diminishing the chances and the size of potential payouts.
For example, in roulette, the highest payout for a single number bet is 36 to 1. However, roulette wheels, besides having the numbers 1 to 36, also have a 0 and sometimes a 00 as well. The true odds of winning are 37 to 1 or 38 to 1, not the 36 to 1 that is the most the player can get paid on a winning bet.
The house edge, the odds advantage in its favor, represents the average gross profit the casino can reliably expect to make from each game. On the games with the lowest house edge, the smallest advantage, a casino might only be generating about a 1% to 2% profit. On other games, it may make profits of up to 15 %to 25% or more.
The house edge on a 00 roulette wheel is 5.26%. For every $1 million that's bet at the roulette tables in a casino, the management expects to pocket a profit of slightly more than $50,000. The other approximately $950,000 is returned to the bettors. The casino isn't aiming to bankrupt a player in one sitting—it just wants to make sure that in the long run, the players walk out with a little less money than they came in with, leaving money in the casino's pocket.
How Players Lose More Than They Expect
Many people who are aware of the house edge still don't really grasp its implications for their bankrolls. They believe that the roughly 5% edge the house has at the roulette table means that they can reasonably expect to sit down with $100, gamble for a few hours, and the odds are that they will only lose about $5. They fail to understand that the house edge doesn't apply to their starting bankroll, but to the total amount they wager.
For example, assume a person is making $5 bets on every spin of the roulette wheel, and the wheel spins 50 times an hour. While he may be winning some bets and losing some bets, he is wagering $250 an hour. If the house edge plays out perfectly, at the end of four hours of play, he loses $50, or 5% of $1,000—an amount 10 times greater than what he had expected from his misunderstanding of the house edge.
The Extra House Edge
The longer you play, the greater the odds are that the result of your play will match up with the house edge. In the short term, a player may well be ahead; over the long haul, the house edge will eventually grind the player down into unprofitability.
Knowing this, casinos do all they can to keep you playing longer. Casinos are famous for lacking clocks and windows. They're designed that way to keep players unaware of the passage of time. Many first-time players are pleasantly surprised at being offered free drinks by the management. Those complimentary libations will cost you, though: being inebriated doesn't usually improve their judgment when it comes to betting.
The Bottom Line
Although all the laws of probability are in the casino's favor, the house edge varies significantly among the different casino games. The game with the lowest advantage to the casino is blackjack; if a player follows a perfect betting strategy, the house edge is only 0.5%. At some very liberal casinos, the house edge at blackjack may even be as low as 0.28%. Craps offers the next lowest edge, 0.8%, followed by baccarat with a 1.06% house advantage.
The smallest edge only applies if the player is playing the odds perfectly, which few people do. The house edge increases as players wager less expertly. Roulette remains one of the most popular casino games, but it carries a high 5.26% edge for the house. The house edge on slot machines goes as high as 17%; for keno, it is a massive 25%.
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7f56d221b60dcfa855740c0d395567e2 | https://www.investopedia.com/articles/personal-finance/110514/asset-protection-trusts-help-seniors.asp | Asset Protection Trusts: Help For Seniors | Asset Protection Trusts: Help For Seniors
An asset-protection trust can help seniors in need of constant nursing care pay the substantial costs of assisted living or skilled nursing facilities and at-home help. Average daily nursing home costs exceed $247 and can be significantly higher in certain metropolitan areas, according to a 2019 Genworth survey.
Medicare, the federal health care program for seniors aged 65 and above, only covers nursing home expenses when one enters a facility for short-term rehabilitation. Medicaid, a joint federal and state program, can cover the balance. But in order to qualify for the latter, a person's total countable assets—including cash in bank accounts, plus investments such as mutual funds, stocks, and bonds—can't exceed $2,000 to $3,000, depending on the state.
People often exhaust their life savings before Medicaid kicks in, making it difficult to leave an inheritance or to provide for surviving dependents. By shifting assets into an irrevocable trust, individuals may qualify for Medicaid, while preserving a portion of their wealth for their loved ones.
Key Takeaways Medicaid can provide assistance for those who need to relocate to an assisted living facility, but this program only kicks in for individuals with a low amount of assets. By placing assets into an irrevocable trust, a person can qualify for Medicaid and still preserve a portion of their assets for loved ones. Medicaid imposes a five-year “look back” period, where any money transferred into a trust five years before a person applies for Medicaid may delay the benefits from kicking in.
How Do Trusts Help Protect a Senior's Assets?
The two basic kinds of trusts are revocable and irrevocable. As the name implies, revocable trusts can be revoked. Medicaid considers assets in such a trust to be still owned by the person who established it. And if that amount exceeds the countable assets limit, they won't qualify for assistance.
On the other hand, an irrevocable trust effectively lets a person transfer control of their money to a trustee, allowing them to qualify for Medicaid. Note that there is a lag time, due to Medicaid's current five-year “look back” period. Any money transferred into a trust five years before a person applies for Medicaid may delay the eligibility for benefits. The length of the delay, known as the “penalty period,” is determined by dividing the value of the transferred funds by Medicaid’s “regional rate” for nursing home care, in a given region.
For example, in an area with a regional rate of $10,000 a month, an individual who transfers $100,000 into a trust before entering a nursing home would be ineligible for a total of 10 months of Medicaid assistance. In this case, someone (typically a family member) would have to pay the nursing home out of pocket before Medicaid began covering the bills, which effectively wipes out any advantage of putting $100,000 into the trust. Alternatively, if that individual transferred the assets more than five years earlier, they could immediately qualify for aid.
A trust is a separate legal entity, so the money is generally safer than it would be if it were simply handed to a family member, who may be vulnerable to lawsuits, divorce, or other misfortunes that may put that money at risk.
Tax Advantages of a Trust
Trusts also offer tax advantages. Assets in a trust benefit from a step-up in basis, which can mean substantial tax savings for the heirs. By contrast, assets that are simply given away during the owner’s lifetime typically carry the original cost basis.
Consider the following example. Let's assume that shares of stock costing $5,000 when originally purchased are worth $10,000 when the beneficiary of a trust inherits them. In this case, that stock would have a basis of $10,000. Had the same beneficiary received them as a gift when the original owner was still alive, their basis would be $5,000. Later, if the shares were sold for $12,000, the person who inherited them from a trust would owe tax on a $2,000 gain, while someone who was given the shares would owe tax on a gain of $7,000. Simply put: the tax consequences on assets received from a trust are greatly reduced.
By combining the creation of an irrevocable trust with a promissory note or the purchase of a private annuity, many people can still preserve 40% to 50% of their assets.
The Importance of Choosing the Right Trustee
A properly-drawn trust will not only preserve an individual's assets but also give trustees the discretion to distribute money to beneficiaries, who in turn can spend it for the older person’s benefit. For this reason, it's essential to appoint a reliable person as trustee.
You can also name a bank as either the trustee or a co-trustee.
The Bottom Line
People who need financial assistance from Medicaid don’t necessarily have to exhaust their life savings in order to qualify for aid. A properly-drawn irrevocable trust can protect at least a portion of their assets, both for their own benefit and for that of their heirs.
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f2bada9f82d47012cbf7a71038fa8dcb | https://www.investopedia.com/articles/personal-finance/110514/medigap-insurance-who-needs-it.asp | Who Needs Medigap Insurance? | Who Needs Medigap Insurance?
If you are covered by Medicare and are wondering whether you really need a Medicare Supplement Insurance policy, also known as Medigap, you’re not alone. The Medicare website contains hundreds of pages of information, few of which are easy reading. It’s hard to get an answer to the big question: Why should anyone who has Medicare get a Medigap plan? Below is our answer.
Key Takeaways Medigap pays some or all of the costs Medicare doesn’t cover, depending on the level of coverage you choose. The costs of what Medicare doesn’t cover can be substantial, especially if you need extensive treatment or long-term hospitalization. Many private insurance companies offer Medigap policies, so be sure to shop around.
What Is Medigap?
Medigap is a supplement to Medicare coverage. Depending on the type of coverage, Medigap policies are designed to provide more coverage for routine services Medicare does cover and, in some cases, all or part of the expenses Medicare does not cover—such as long-term care, vision, or dental coverage.
The purpose of a Medigap plan is to be reimbursed for the costs you pay directly out of your own pocket. These plans are offered by private insurance companies, so you'll have to do some comparison shopping to get the one that fits your needs and financial situation. Keep in mind that lettered plans from each company have the same benefits, according to government mandate.
As is the case with any health insurance plan, you will pay a higher price for higher coverage. And a less expensive plan will have a higher deductible.
Why Buy More Insurance?
As noted above, Medicare isn't a blanket insurance policy. This means it does have holes in it. Original Medicare, as the government calls what we now know as Parts A and B—and Medicare prescription drug coverage, Part D—pays most of your expenses. But it's far from all of the costs you may face if you become seriously ill or get injured. Even routine services come with copayments and deductibles. This is where Medigap insurance kicks in.
Medicare Deductible
Here are a few examples. If you are admitted to the hospital, you have 100% hospitalization coverage after the $1,484 annual deductible under Original Medicare Part A, as of 2021. That’s the basic bed and board. However, you may owe up to 20% of some other costs, such as anesthesiologist fees.
If you are in the hospital for more than 60 days, you have to pay $371 per day. There are similar copayments for long stays in nursing facilities and hospices. Regular doctor visits and outpatient medical care may cost you too. Your deductible for 2021 is $203, but after that, you’ll pay up to 20% of the Medicare-approved amount for most doctor services. There’s no upper limit.
Medicare Donut Hole
Prescription drugs can also eat into your budget if you need expensive medications. You should know that you can purchase standalone prescription coverage. That’s Part D in Medicare terminology.
Under the Affordable Care Act (ACA), the prescription price donut hole has been closing each year, but it’s not completely gone yet. At a certain level—$4,130 in 2021—you enter the notorious donut hole in coverage that requires you to pay up to 25% of covered brand-name and generic drug costs. When costs go above $6,550 in 2021, you pass through the donut hole and owe only 5% of the cost of drugs.
How Does Medigap Work?
You may already know that Medicare Parts A and B comprise basic coverage, while Part D is an optional prescription drug plan you can buy from a private provider and attach to your Medicare. Part C, also known as Medicare Advantage, replaces all of the basic government coverage with a private insurance plan; if you choose Part C, you do not need a Medigap Plan.
But if you go for Original Medicare, plus Part D—and do want a Medigap plan for more complete coverage—there are more letters to learn (this time for "plans" rather than "parts"). Each letter represents a standard level of coverage. For Medigap plans, the most popular choices are F and G.
Medicare Plan F
This is the most comprehensive plan and has been the most popular choice for years. The average cost per month for the most popular Medigap F Plan is approximately $326.
As of January 1, 2020, however, Plan F is no longer available to people newly eligible for Medicare. People who already have Plan F will be able to keep it, and people who were eligible for Medicare before 2020 but didn’t have a Medigap plan may still be allowed to get Plan F if they wish.
Medicare Plan G
This plan will likely replace Plan F in popularity, as it has virtually the same coverage except for reimbursement of the Part B deductible—a perk that is no longer included in any plans offered to Medicare newbies as of 2020. The average Plan G should be cheaper than Plan F. However, costs vary widely according to an applicant’s zip code, gender, and tobacco use, and they increase with age.
Medigap Plan G has almost the same coverage as the popular Plan F—which has been retired as of January 1, 2020, for anyone newly eligible for Medicare—lacking only the reimbursement of the Plan B deductible.
Which Plan Is Best?
Here’s the short answer: If you want 100% coverage of everything, an F or G plan (depending on your eligibility) is your choice. The other plans offer progressively less coverage for lower upfront costs.
For a more detailed answer, you can do one of the following:
Speak with a qualified insurance agent or Medicare advisor to find the plan that fits you. Read the Medicare publication Choosing a Medigap Policy, where you’ll find descriptions of each policy type and what it covers.
Medigap vs. Medicare Advantage
A Medigap policy is a supplement to your Original Medicare coverage that pays expenses that Original Medicare doesn’t cover. A Medicare Advantage Plan (Medicare Part C) is a private replacement for the public Medicare program. Most of these plans are set up as health maintenance organizations (HMOs) that replace all of the services of Original Medicare and add additional services, such as preventive healthcare, within a preselected network of doctors and hospitals.
A Medigap plan will probably give you more freedom of choice than Medicare Advantage, provided your physician or facility accepts Medicare. It is a better option for snowbirds and others who travel a great deal or have homes in more than one location.
You can’t have Medigap and a Medicare Advantage Plan at the same time. In many cases, having both would mean you’d be paying for duplicate coverage. An insurer will sell you a Medigap policy if you’re leaving Medicare Advantage. This allows you to start your Medigap coverage the day after your Advantage plan runs out.
Is My Spouse Covered?
No. A Medigap policy covers only one person and doesn't cover expenses incurred by your spouse. Medicare isn't like an employer-sponsored plan; you can't enroll your spouse under your coverage. This means you and your spouse have to purchase separate plans to be covered for supplemental insurance.
Can My Plan Be Canceled?
No, that’s illegal. As long as you pay your premiums, your policy is renewable for the rest of your life. You can only be dropped if any of the following apply:
You stop paying premiums You lied on your original Medigap application The company goes bankrupt
If you choose to cancel your Medigap policy, you must do so by contacting the insurance company directly.
The CARES Act of 2020
On March 27, 2020, President Trump signed into law a $2 trillion coronavirus emergency stimulus package called the CARES (Coronavirus Aid, Relief, and Economic Security) Act. It expands Medicare's ability to cover treatment and services for those affected by COVID-19. The CARES Act also:
Increases flexibility for Medicare to cover telehealth services. Authorizes Medicare certification for home health services by physician assistants, nurse practitioners, and certified nurse specialists. Increases Medicare payments for COVID-19–related hospital stays and durable medical equipment.
The changes will likely continue into 2021 or whenever the pandemic ends.
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5e8358447cb4ab18bae13da3813cc4cd | https://www.investopedia.com/articles/personal-finance/110515/5-unusual-ways-come-home-down-payment.asp | Unusual Ways to Come up With a Home Down Payment | Unusual Ways to Come up With a Home Down Payment
Most Americans want to own a home, but the hefty down payment required to purchase a house makes owning property a pipe dream for many.
Banks and other lenders often require a 20% down payment of the purchase price for the home. If you pay anything less, you'll need to buy private mortgage insurance (PMI). PMI is insurance that protects the lender if a borrower defaults, which is when a borrower can't make any more payments. The PMI goes away once the mortgage is under 80% of the purchase price of the home.
For those looking to buy a home, PMI insurance adds to the monthly outlay of cash for payments. On the other hand, unless you have a lot of money saved or wealthy benefactors, coming up with 20% on a $200,000 or $300,000 house, for example, can be quite challenging.
Potential homeowners have plenty of options. In this article, we review some of the most common methods used to come up with the cash needed for a home down payment.
Key Takeaways Most Americans want to own a home, but the required down payment can make owning property a pipe dream.Potential homeowners can come up with the downpayment by getting a part-time job or borrowing from family.Downsizing to a smaller apartment—saving rent—can save thousands of dollars per year.Programs can help, such as the Federal Housing Administration (FHA), which offers mortgage loans through FHA-approved banks.
Look for Down Payment Assistance Programs
Most people who don't have enough for the down payment accept private mortgage insurance as a necessary evil without first checking if they're eligible for assistance. For example, many banks have their own programs to help those looking to buy a home. It pays to check the local banks in your neighborhood.
The Federal Housing Administration (FHA) offers loans for low-to-moderate-income borrowers through FHA-approved banks or lenders. The mortgages are backed by the U.S. government, meaning the lender doesn't have any risk. As a result, borrowers have more favorable treatment with FHA loans versus traditional mortgages. For example, you may only need to come up with a 3.5% downpayment versus the 20% that banks typically like to see.
If your credit history isn't perfect, FHA loans may also help since borrowers with a credit score of above 580 can qualify for the program. A credit score is merely a numerical representation of a person's credit history that includes factors such as late payments and the number of credit accounts.
Veterans and active-duty military can also get help by qualifying for VA loans provided by the U.S. Department of Veterans Affairs. VA loans or mortgages require zero down and typically offer a favorable interest rate. States also give consumers down payment assistance through a variety of programs.
There are also programs geared toward encouraging people to purchase homes in a particular neighborhood or region.
Tap Into Benefits for First-Time Buyers
Coming up with a down payment is particularly challenging for people who have never owned a home before, but many incentives exist for first-time buyers. Furthermore, more people qualify for these benefits than you might think. If you haven't owned a home in three years or only owned a house with a spouse, then you can access incentives for new homebuyers. You may also be able to get these benefits if your only home is a mobile home not permanently affixed to a permanent foundation.
The Department of Housing and Urban Development (HUD) supports programs for first-time buyers, and some states have programs as well. First-time homebuyers can also take up to $10,000 from a traditional IRA or Roth IRA without the 10% early withdrawal penalty. What is more, there are programs to help Native American first-time homebuyers. Do not assume you cannot afford a down payment just because nobody in your family ever owned a home. Also, be aware that demanding an overly high down payment can be a sneaky way to discriminate against minorities.
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).
Supplement Your Income With a Part-Time Job
Unfortunately, one of the consequences of the 2008 financial crisis and the ensuing Great Recession is that banks no longer offer no-income verification loans, zero document loans, or mortgages for 100% of the home's value.
These days banks and lenders require income verification and a debt-to-income ratio of no more than about 43%. The debt-to-income ratio is a metric that measures how much of your monthly gross income goes to debt payments. For example, if you have $5,000 in gross income and make debt payments totaling $1,500 per month, your DTI is 30% or (($1,500 / $5,000) x 100 to create a percentage). Debt payments can be from a mortgage, student loans, and credit cards.
Some lenders will accept a lower down payment, but borrowers might pay for it in the form of a higher interest rate. Borrowers that put less than 20% down for the mortgage will pay PMI, which can cost nearly $100 per month on top of the mortgage payment.
As a result of the more stringent income requirements, would-be borrowers may need to get a part-time job to supplement their income. The extra money should be placed in a savings vehicle to be used only for the down payment.
Sell Some of Your Belongings
People ready to take the step into homeownership typically have a lot of stuff they've acquired along the way. Those things may seem worthless to the owner, but that old car or piece of furniture might be what someone else is interested in buying. Selling used goods can help supplement your income and raise much-needed cash for the down payment. The Internet makes it easy to sell everything from clothes to electronics. Some of the sites let you do it for free while others take a cut of your profit.
Downsize Your Lifestyle
If you want to free up cash to save for a home, downsizing your lifestyle could go a long way in saving money. For example, you could move into a smaller apartment or studio apartment to save on rent and utilities. If your two-bedroom apartment has a rent of $1,200 per month, switching to a $600-per-month studio will save you over $7,000 annually. If you're a couple with two cars, perhaps selling one of them to cut down on car loans can help cut expenses. Even cutting back on dining out or buying a coffee can add up and steadily increase the amount you save.
Ask for a Gift From Family
Asking family or friends for money may not seem like the ideal option. However, if you have a favorite aunt, grandparent, or cousin that has a lot of cash, it could be a win-win for both of you. If you're gifted some or all of your down payment, it will not only be a good deed, but they can get a tax write-off from it.
The Internal Revenue Service (IRS) allows people to give gifts worth thousands of dollars per year tax-free for the donor and the recipient. The gift tax exemption depends on the amount gifted. According to the IRS website, $15,000 can be gifted each year in 2020 and 2021 without paying taxes on it.
Please check the IRS site for any changes in tax laws before accepting cash gifts. If a gift is out of the question, ask to borrow the money, and come up with a repayment schedule that also includes interest.
The Bottom Line
Homeownership is the dream for many, but the down payment may prevent some from realizing that dream. While coming up with thousands of dollars may seem impossible at first, there are many non-traditional ways to raise cash for your down payment.
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b20bd510bf3d57080dc73e55d1392eeb | https://www.investopedia.com/articles/personal-finance/110714/car-title-loan-requirements.asp | Car Title Loan Requirements | Car Title Loan Requirements
A car title loan is a short-term loan in which the borrower's car is used as collateral against the debt. Borrowers are typically consumers who do not qualify for other financing options.
If you live in a state that permits car title loans (see: States That Allow Car Title Loans), here's how getting one works. The borrower brings the vehicle and necessary paperwork to the lender. Although some title loan applications are available online, lenders still need to verify the condition of the vehicle – and the completeness of the paperwork – prior to releasing the funds. The lender keeps the title to the vehicle, places a lien on it, and gives the money to the borrower.
The loan limit is generally 25% to 50% of the car's cash value ( The borrower repays the loan, plus fees and interest, within the time period allowed (usually 30 days) and reclaims the title, lien-free.
Key Takeaways Car title loans are short-term secured loans that use the borrower's car as their collateral.They are associated with subprime lending, as they often involve high-interest rates and borrowers with poor credit ratings. and not all states allow them.To obtain a title loan you'll need to provide documentation that you are who you are and you own your vehicle, that you have earned income, and at least two references.Additional steps are sometimes required in order to reduce the lender's risk, such as installing GPS trackers on the car to assist in potential repossession.
Documents You'll Need
In order to obtain a car title loan, also called a pink slip loan, in most cases a borrower must own the vehicle outright; there may be no liens against the title. Lenders also require certain paperwork, including any or all of the following:
Original vehicle title showing sole ownershipGovernment-issued identification matching the name on the titleUtility bill or other proof of residency matching the name on the titleCurrent vehicle registrationProof of vehicle insuranceRecent pay stubs or other proof of ability to repay the loanNames, phone numbers and addresses of at least two valid referencesWorking copies of the vehicle's keys
Some lenders also require a GPS tracking device to be attached to the car, in case the borrower defaults and the lender wins the right to repossess the car. Some of these devices are designed to permit the lender to disable the car remotely.
You do not need good credit to get a title loan. In fact, most title-loan lenders won't check your credit at all, since the loan depends entirely on the resale value of the vehicle. Likewise, you do not need to be employed to qualify for a title loan.
Rates and Fees
Car title loans are considerably more expensive than traditional bank loans. Interest rates vary, but in states where the interest rate is not capped, it is generally set at 25% per month, or 300% annually. This means that a consumer who borrows $1,000 will need to repay $1,250 at the end of the 30 days to avoid going into default.
Most lenders charge a lien fee. In states where title lending is not regulated, some lenders also charge origination fees, document fees, key fees, processing fees or other fees. The fees add up quickly, and can amount to an additional $25 (or more) on top of the loan and interest charges. Be sure to add up all the fees when figuring the total cost of the loan.
(For more on this topic, see: Car Title Loan Limits).
Example of a Title Loan
Say that Maria has recently lost her job and she is now struggling to make ends meet to make rent. As a short-term solution, she decides to borrow money using a car title loan against her vehicle, which has a current market value of $2,500. The loan provider agrees to extend her a car title loan for $1,250.
In the application process, Maria needs to provide proof of title (that she owns the car) as well as additional documentation. The interest rate was advertised as being 20% for the 30-day duration of the loan, but Maria made the mistake of assuming that the interest rate was already annualized. The true annualized interest rate (APR) was actually 240%! —far more than Maria would have accepted knowingly.
By the end of the one-month term, Maria was required to repay $1,500, significantly more than the roughly $1,270 that she was expecting. Given her desperate financial situation, Maria was unable to find the additional $230 and was therefore forced to forfeit the title to her car.
The Bottom Line
The best candidate for a car title loan is someone who owns a vehicle outright, understands the potentially high cost of the loan and has a reasonable expectation of having access to the cash to repay the loan before the repayment period expires. If there is no clear and realistic plan for paying off the loan, a car title loan can amount to selling the vehicle for half or less of its value.
Many title-loan borrowers renew their loans several times, making the financing much more expensive overall. So, again, the most critical consideration is ability to repay the loan on or before its due date.
(For more information, see Getting a Car Title Loan.)
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d91a58eb7d1b5ef92b022b45cadebd99 | https://www.investopedia.com/articles/personal-finance/111015/best-places-exchange-currency-philippines.asp | Best Places to Exchange Currency in the Philippines | Best Places to Exchange Currency in the Philippines
Known for its sunny beaches, stunning scenery, and the rich biodiversity of its flora and fauna, the Philippines is a popular tourist destination. In 2019, this land of 7,000+ islands hosted 8.26 million tourists.
If you are planning a visit to the Philippines, you’ll probably need to exchange some of your home currency for Filipino pesos (PHP). Here's how to do it.
Key Takeaways Kiosks are often the worst deal in exchanging for Phillippine currency, but they're typically the most convenient. Tourists should beware of scams and counterfeit bills. The safest and quickest way to exchange currency in the Philippines is through the ATM.
The First Stop
Airport currency-exchange kiosks typically offer a relatively poor deal, but they do offer convenience, especially if you are arriving exhausted after a long trip with no local coin in your pocket. Manila Ninoy Aquino International Airport (MNL) has several currency exchange facilities.
Since you're going to take a hit on the rate, do what savvy travelers do and convert only as much cash as you need to get the trip started (taxi ride to the hotel or that first meal). Wait until you can hit a place with better rates to exchange more money.
A Few Warnings
One thing to watch out for when exchanging currency in the Philippines is getting fleeced by someone who is very good at counting out the cash so it looks like the correct amount, when in reality, it's short a few bills—and not in your favor. These sleight-of-hand scams are especially common when using small street money exchanges. They may offer a better rate than the banks, but just be sure you count your money in front of them before you walk away.
Be leery of anyone walking up to you on the street offering to change your foreign currency into pesos. It’s not unheard of for an unsuspecting tourist to follow someone into an alley or some other dark corner in search of a great exchange rate —only to be robbed. Use common sense, and remember that those few extra pesos aren’t worth any risk.
Counterfeit Bills
Finally, one other scam worth noting: counterfeit bills. Here’s how it works. You give your cash to a money exchanger, who in turn says something like “Let me go check the exchange rate with my boss.” When the person returns, you are told the boss didn’t approve the exchange rate, so you are given back your money. But—and here’s the scam—instead of handing back your actual bills, they give you "funny money" (which you don't realize until you try to exchange it somewhere else).
Moral of the story: Hold on to your cash until the actual exchange; don't let anyone disappear with it.
8.26 million The number of tourists in the Philippines in 2019.
The Safest Option
Probably the quickest and safest option is to use an ATM—preferably one issued from your bank if available—to make your withdrawals once you are in the Philippines. Although there are certain scams regarding PIN code theft, you are generally safer making ATM withdrawals than you are exchanging currency at an exchange.
Using this method, you won't be able to physically change your currency, but you are able to withdraw money in the local currency, only paying your bank's ATM fee and currency exchange fee. However, it is often lower than the exchange booths, and you also won't have to carry around valuable foreign currency such as the dollar or the euro.
Avoiding Travel
Because of continued violence, certain areas in the Philippines should be avoided by travelers. The U.S. Department of State updated a travel warning on April 9, 2019, regarding the Philippines, and in particular the Sulu Archipelago, the island of Mindanao and the southern Sulu Sea area.
That said, other areas in the Philippines are generally considered as safe as other places in Southeast Asia. U.S. citizens traveling to the Philippines are encouraged to research current U.S. Department of State travel alerts and warnings, and enroll in the Department of State’s Smart Traveler Enrollment Program (STEP), which provides security updates and makes it easier for the nearest U.S. embassy or consulate to contact you and your family in case of an emergency.
The Bottom Line
ATMs often have the best rates and can be the best deal, as long as you don't have to pay high ATM fees. Money changers are next, but you have to watch out for scams. If that concerns you, go to a bank. While a little less advantageous, the rates in banks are still good. Many travelers find a combination of in-person currency exchange, ATM withdrawals, and credit card purchases work best.
No matter where you exchange money, always ask how much local currency you’ll receive before handing over any cash. And once you receive the local cash, remain in place until you’ve had a chance to count it yourself.
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5b6c5b2847a6142c31a7e6d76fa2effe | https://www.investopedia.com/articles/personal-finance/111015/majoring-entrepreneurship-good-idea.asp | Is Majoring in Entrepreneurship a Good Idea? | Is Majoring in Entrepreneurship a Good Idea?
Majoring in entrepreneurship can be a good idea, but it is not necessary to become a good business owner or manager. Many people succeed in business without any degree, let alone one in entrepreneurship. The real question is whether you need the extra focus on entrepreneurship. Otherwise, a degree in business or a related field may be more appropriate. It depends on your goals as a business person and as an individual, the experiences you already have, and your understanding of business and management.
Key Takeaways An entrepreneur is an individual who starts and runs a business with limited resources and planning and is responsible for all the risks and rewards of his or her business venture. Entrepreneurial ventures target very high returns to growth with an equally high level of uncertainty. Business schools and specialized academic programs educate and train students in successful entrepreneurship. These degrees may come at a significant expense, and some argue that successful entrepreneurship is something that can't be learned in school.
Entrepreneurship as a Major
First, understand that entrepreneurship is different from business as a field of study. Entrepreneurship as a major helps you develop effectual reasoning. You learn how to identify goals as they grow naturally and learn strategies for facilitating the evolution of those objectives. You learn about concepts such as bootstrapping and different marketing techniques, as well as how to start a business from the ground up. These skills have their place, but they are very different from what you learn as a business major.
The word entrepreneur comes from the 19th-century French word entreprendre: 'to undertake.’
Choosing a Business Program
In a business program, whether it is for an MBA or a business degree, your focus is on causal reasoning and relationships. You learn about business plans, but you also learn how to calculate the return on the investments a company makes and how different business models work. Within a business major, there may be different specialties, but the core curriculum focuses on developing that causal, linear focus.
Many business degree programs have entrepreneurship components or options to specialize in entrepreneurship. This way, you have the chance to learn more about effectual business matters while still developing knowledge about business theory and how companies operate. However, business degrees tend to be more corporate-focused.
Advantages and Disadvantages of an Entrepreneurship Degree
Advantages
Entrepreneurship degrees have their benefits. While obtaining a degree in the field does not guarantee your success, it certainly does not hurt. Having a degree in entrepreneurship can serve as a sort of validation of your business skills. When you go to get funding for a business concept or develop a partnership, a degree in entrepreneurship can add to your credibility.
In your studies as an entrepreneurship major, you will develop your business instincts. If you have not managed a business before, developing your business reasoning in this way is valuable. Likewise, if you have run a business but not had much freedom in how you approached your management style, entrepreneurship helps you learn to identify opportunities and think critically about how to take advantage of them. You also take classes with other people who are interested in starting their businesses. These people could become lifelong business connections and possibly develop into partnerships.
Disadvantages
Getting a degree in entrepreneurship is a significant expense. In addition to absorbing the cost of your studies, you also must calculate the wages you will lose while you are in a program and unable to work full-time. Moreover, better entrepreneurship programs tend to cost more and require more of a time investment, meaning the costs are even higher. You are taking on these costs all for a degree in something that people succeed in every day without any formal training. You are also spending time in class that you could be spending on your business concept. Depending on your idea, this could mean you will miss out on the window of opportunity. Also, if your business idea is unsuccessful, a degree in entrepreneurship may not be as desirable as a more general business degree when looking for outside work.
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3dbd49f85f90962c22ba1a2b6b5fa7e9 | https://www.investopedia.com/articles/personal-finance/111015/should-retirees-reinvest-their-dividends.asp | Reinvesting Dividends for Retirees | Reinvesting Dividends for Retirees
Dividend reinvestment can be a lucrative option for retirees as long as they have other sources of short-term income. In fact, dividend reinvestment is one of the easiest ways to grow your portfolio, even after your earning years are behind you.
However, it isn't the best strategy for everyone. You'll want to carefully examine your current financial situation and future needs before choosing this investment option.
Key Takeaways Dividend reinvestment involves using dividends paid to purchase more shares instead of receiving it as cash. Automatic dividend reinvestment plans (DRIPs) are a set-it-and-forget-it way to ensure your dividends keep growing your portfolio. For long-term investment accounts, like retirement plans, DRIPs are a smart way to keep your money growing over time. At retirement, it may be smart to turn those dividends back into cash flows that you can use to live off of.
How Dividend Reinvestment Works
Dividend reinvestment is the practice of using dividend distributions from stocks, mutual funds, or ETFs to purchase additional shares. While investing in dividend-bearing securities can be a good way to generate regular investment income each year, many people find that they are better served by reinvesting those funds into a growing portfolio rather than taking the cash.
"Investors should keep reinvesting their dividends after retirement since most dividend payments are not substantial enough to warrant any immediate use by the investor," says Mark Hebner, founder and president of Index Fund Advisors in Irvine, Calif.
If you receive $500 each year in dividends but earn $50,000, for example, those dividend earnings will not likely make a huge difference to your yearly income. If you consistently reinvest those dividends each year, however, you can grow your portfolio without sacrificing any additional income. Reinvesting dividends is one of the easiest and cheapest ways to increase your holdings over time.
There are two ways you can reinvest dividends: either by taking the cash and purchasing additional shares through your broker or by using an automatic dividend reinvestment plan (DRIP).
How DRIPs Work
Many brokers offer DRIPs that automatically allocate the dividends you receive to reinvestment. Your dividend distributions are used to purchase additional shares of the security – often at a discount.
Unlike purchasing additional shares in the traditional way, dividend reinvestment plans allow you to purchase partial or fractional shares if the amount of your dividend payment is not enough to purchase full shares.
If the current price of a given stock is $20, for example, a dividend payment of $30 would purchase 1.5 additional shares. If you reinvested manually, you would only be able to purchase one additional share and take the $10 in cash.
A few extra bucks in your pocket may seem like a good deal, but the buying power of $10 is unimpressive compared to the potential earnings generated by increasing your investment. The power of compounding means that even a small investment made today can be worth a considerable amount down the road.
Benefits of Dividend Reinvestment for Retirees
Dividend reinvestment can be a powerful tool for retirees. Retirees have spent years building their portfolios, so the amount of dividend income they receive each year can be considerable. By reinvesting those earnings even after retirement, you could continue to grow your investment so that it can provide even more income down the road when you may have exhausted other income streams.
"Historically, the total return of the S&P 500 has delivered just over nine percent per year. About half of that total return has come from price appreciation and half from dividends," Hebner explains.
What could your earnings be? "Based on historical estimates, somewhere around 4.5% per year for someone with a long time horizon," Hebner says.
If you have planned well for retirement, you may have savings squirreled away in several different accounts, between investment portfolios, individual retirement accounts (IRAs) and 401(k) plans. If so, you may find that you have enough saved to keep you comfortable without taking your dividend distributions as cash.
In addition, most retirement savings vehicles require that participants take a minimum distribution by a certain age. If you're required to withdraw from these accounts after retirement anyway, and the income from those sources is sufficient to fund your lifestyle, there is no reason not to reinvest your dividends. Earnings on investments held in Roth IRAs accrue tax-free, making dividend reinvestment especially lucrative.
If you are lucky enough to be in this position, reinvesting dividends in tax-deferred retirement accounts and taxable investment accounts offers two major benefits. It can extend the period over which your retirement accounts will provide income, and it can also ensure that your taxable accounts provide a healthy source of funds once your retirement accounts are exhausted.
Shares purchased with reinvested dividends in a taxable account likely carry a different cost basis than original shares, since share prices change over time. Employing a professional tax accountant can help you avoid errors in calculating your taxable investment income at tax time.
When to Consider Pocketing Your Dividends
Many people don't have the kind of earnings history that enables aggressive investing. If you are not as well-prepared for retirement as you would like to be, reinvesting your dividends can certainly help you bulk up your portfolio during your working years. However, after retirement begins you may find that dividend distributions provide a much-needed income stream.
Another situation in which dividend reinvestment may not be the right choice is when the underlying asset is performing poorly. While all securities experience ups and downs, if your dividend-bearing asset is no longer providing value, it may be time to pocket your dividends and think about making a change. If the security value has stalled but the investment continues to pay regular dividends that provide much-needed income, consider keeping your existing holding and taking your dividends in cash. Over the long term, companies or funds that are unable to generate positive returns for extended periods are likely to reduce or suspend dividends.
Reinvesting dividends over the long term certainly helps grow your investment, but only in that one security. Over time, you may find that your portfolio is weighted too heavily in favor of your dividend-bearing assets, and it is lacking diversification. If you think it's time to rebalance your assets to hedge against potential losses, consider taking your dividends in cash and investing in other securities.
Careful portfolio management is not just for the young, even if you primarily invest in passively-managed securities. Keep a close eye on your dividend-bearing investments to assess which strategy is most beneficial. Reinvesting dividends in a failing security is never a smart move, and an unbalanced portfolio can end up costing you if your primary investment loses value.
Of course, your financial goals may change over time. While dividend reinvestment may be the right choice early in your retirement, it may become a less profitable strategy down the road if you incur increased medical expenses or begin to scrape the bottom of your savings accounts.
The Bottom Line
If you're lucky enough to have amassed a substantial amount of wealth, dividend reinvestment is almost always a good strategy if the underlying asset continues to perform well. If you play your cards right, you may even be able to leave a substantial nest egg behind for your family or other beneficiaries after your death.
Don't approach dividend reinvestment with a set-it-and-forget-it mentality. While DRIPs make reinvestment virtually effortless, continue to keep an eye on your investment to ensure that you're not automatically doubling down on a losing bet.
If you can afford it, consider enlisting the aid of a professional financial advisor. A trusted financial advisor can help ensure that your dividends are put to the best possible use, give you guidance regarding which investments are best suited to your individual goals and help you avoid common investment pitfalls, such as escheatment and improper asset allocation.
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660b7f44d3c791eee996e6728a4609a5 | https://www.investopedia.com/articles/personal-finance/111115/how-raise-seed-capital-and-grow-your-startup.asp | How to Raise Seed Capital and Grow Your Startup | How to Raise Seed Capital and Grow Your Startup
Even revolutionary ideas need a little help to get rolling. When an entrepreneur has a new business vision, they usually need to raise money for development, marketing, and talent management. Unless the startup founders are high rollers with years of experience, they will look to venture capital and angel investors who will guide them through the first round of funding, known as the seed stage.
There are a few guidelines that founders should listen to carefully in order to raise seed capital and grow their startup. First and foremost, leaders should be prepared before meeting with prospective investors, and have a list of references who will back the idea. Founders should get creative with funding, always willing to put themselves out there beyond a comfortable limit.
Key Takeaways Seed capital is the initial investment into a business provided by venture capitalists or angel investors to help it grow.Many investors that provide seed capital are involved in the business in more than just a financial way.When seeking seed capital, a business must be prepared with a solid business plan, avenues for growth, and cost and revenue projections.Networking is an important part of obtaining seed capital, and mentorship programs such as incubator firms help as well.Crowdfunding is an increasingly popular and quicker route in obtaining seed capital.
What Is Seed Capital?
Seed capital rounds differ from proceeding rounds quite significantly. More than a few players are involved, as multiple funds invest an average of $200,000 to $700,000 each. In addition, there are usually a few individual angel investors who invest more than just financially in the company.
Angel investors usually get to know the founders and have an interest in the business that transcends the necessary belief in a high return on investment (ROI). Some distinguished angel investors include serial entrepreneurs and former CEOs who have a track record of bringing businesses public. The seed stage “plants the seed” for a startup to thrive, in order to launch business operations and show revenue data for the next rounds of funding.
Above All, Be Prepared
Business leaders need to have specified projections and hard numbers ready on demand for venture capitalists before diving head-first into the seed capital round. A compelling business plan will include a strength, weaknesses, opportunities, and threats analysis (SWOT). Founders need to have a thorough understanding of how venture capitalists make investment decisions.
Venture capitalists will need to know exactly how much funding a business will need and specific plans for allocating investment resources. A detailed cost projection will need to be explained and defended. In order to uphold credibility and shield oneself from entering an unfair deal, founders should have a strong idea of how much of the business they are willing to give up. They should also have a clear concept of the interests and goals of the investors, and an understanding of the capital structure of proposed funding.
Seed capital is a form of equity financing, where the business owners give up a percentage of ownership in exchange for capital. It stands in contrast to debt financing.
Many upside provisions are confusing and if not understood can prevent founders from realizing future profits. Everything should be based on hard numbers that give best-case and worst-case ROI scenarios to founders. The numbers will ultimately drive negotiations for the VC's percentage stock ownership.
Business founders should put together a list of supporters prior to meeting with venture capitalists. Founders should identify references and make sure that they are on board, understand the business idea, and know what to say when questioned by investors.
Gather Committed Investors
Winning over investors is the focus of seed capital rounds, which is easier if businesses have established themselves prior to seed fundraising. Human psychology has shown time and time again that if someone else already went through the decision process, another will be more comfortable in making the same decision. No one wants to be the first one to take a risk, even risk-loving venture capitalists.
Founders should solidify investor commitments. This way, when prospective investors make contact, the committed angels can confirm their decision to invest X amount in the startup.
Founders may strategically shoot for relatively small commitments, around $20,000 to $50,000. They should also consider giving reasonable provisions on these promises, such as minimum amounts and other stipulations. This will make early investors more willing to negotiate, given the downside protection.
Put Yourself Out There
If a founder doesn’t have mentors and angel investors as contacts, they cannot be afraid to get out there and go to the VC community directly. Networking is the most essential tool and skill that an entrepreneur needs, ahead of business acumen.
Gagan Biyani, the co-founder of Udemy, a platform for online courses, told his story of seed funding wherein he was initially rejected by over 30 top investors. He wrote on the Udemy blog: “I went to every conference I could and literally killed myself while there. I attended tons of networking events and met as many entrepreneurs and investors as I could."
Startup mentorship programs and incubator firms are open for applications. Y Combinator and TechStars are two well-known programs that churn out a mass of successful startups. Many programs choose applications that receive on-premise coaching and a small investment to get the businesses off the ground, in turn for a percentage of equity ownership.
Incubator firms and accelerator firms are very similar businesses that help startups grow, but have some differences that are important to consider when deciding which to join.
Ways to Plant Seeds
In the technology age, it's easier than ever to reach angels, who enjoy using social media channels and interacting with enthusiastic entrepreneurs. Many lesser-known VC firms focus on local entrepreneurship funding, in counties and communities outside big startup hubs like San Francisco and New York.
Additionally, founders may consider the newly popularized crowdfunding method for raising seed capital. Kickstarter.com and many others now act as a platform to match investors and startups. The Jumpstart Our Business Startups Act, or JOBS Act of 2012, lifted restrictions on investing in early-stage companies so that the common person could have the opportunity to invest. Companies that aim to raise less than $1 million in total capital can do business with aspiring investors.
Find a Responsible Driver
The presence of a lead investor is essential in seed stage rounds. In general, relatively more firms and investors are involved in seed capital funding than in other rounds. However, few actually take the reins in “leading” the round.
Leading the round means taking a risk by providing a large amount of capital in relation to other key players. VC firms that lead have the responsibility for due diligence and setting the terms for future rounds. They, therefore, limit their involvement as lead investors.
For founders, it is vital to find a lead early on and secure other investments with strategic value add propositions later on. Leads must be completely enthusiastic about the long-term growth potential in order to take on this important role. Founders must make sure to space out exciting news and keep the momentum going throughout this courtship.
Don’t Give Up
Again, it is important to keep the entrepreneurial spirit and stay optimistic without wearing away credibility with a naive sense of idealism. Business projections should include the "best worst-case scenario." Staying transparent coincides with a clear pledge by the founders that they believe in the business and will sacrifice for it.
Usually, in seed rounds, the business does not have a track record to fall back on, and therefore VC firms and angels rely on faith in the management team more than ever. Keeping in mind all of these tips will help a company gain traction and succeed in later rounds of funding that are essential for developing and scaling the business.
The Bottom Line
Seed stage capital funding allows business leaders to hit the ground running with their new ideas. The seed stage differs from other stages in the sense that many more key players are involved, including angel investors interested in aspects of the business other than ROI.
Founders should prepare well before meeting investors, by hashing out hard numbers and lining up support that will back them up to questioning VC firms. If you're an entrepreneur, you should already be inclined to get creative with your strategy, and never be hesitant to exert extra effort and confidence.
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151eec91d2d11fe8ae82b89fa96f1d4e | https://www.investopedia.com/articles/personal-finance/111115/understand-permanent-life-insurance-illustrations.asp | Understand Permanent Life Insurance Illustrations | Understand Permanent Life Insurance Illustrations
Selecting a permanent life insurance policy can be confusing. Insurers offer a wide variety of life insurance policies, including term, whole, universal, and variable life policies. Once you decide on permanent life insurance, you should ask your insurance agent or broker to send you an illustration of the policy to help you understand the terms and which type of permanent policy is best for your needs.
Key Takeaways A life insurance illustration is a document that estimates how a prospective insurance policy will perform over the course of its coverage.Illustrations are used to inform potential policyholders and help agents in their sales process.The illustration will depict expected costs and benefits related to the policy, based on several assumptions about the policyholder and macroeconomic forecasts such as interest rates.Bad assumptions will lead to poor projections, which can significantly alter a policy's actual performance from the initial illustration.
What Is a Life Insurance Illustration?
The term "life insurance illustration" is a bit misleading because these are not simple charts or pictures. These illustrations are instead hypothetical ledgers that show exactly how a policy might perform under many different circumstances and outcomes. The illustration can be comprised of up to 15-20 pages of complex text, but it does follow a general format and guidelines established by regulators. Yet, even with the standardized format, there is no denying that illustrations are difficult to understand, even for professionals.
To create a life insurance illustration, the agent plugs many different variables into a software program developed by the insurer. Some of these variables will include your age, health rating, and family medical history. Other variables include how you plan to pay, the assumed rate of return, and the age you will be at the end of the policy. These variables help the software calculate the cost of insurance, policy charges, expenses, and riders. Finally, the variables determine a planned or target premium.
How to Read a Life Insurance Illustration
Check Your Variables on the First Few Pages
The first few pages of the illustration contain an explanation of the coverage, terms, and definitions. Every company’s illustrations differ, as do illustrations for different kinds of coverage.
As you look through these pages, you want to verify that the agent entered your correct variables—check that your rating, age, and how you plan to pay are all correct. Also, check any riders that are part of the policy, the premium, and if the policy has a level or increasing death benefit (sometimes called option 1 or 2). If you have a policy with a level death benefit of $250,000 and a $25,000 cash value, the policy will only pay out $250,000. A policy with an increasing death benefit of $250,000 and a cash value of $25,000 would pay $275,000 (the $250,000 death benefit plus the $25,000 cash value). Since you are buying more insurance with an increasing death benefit, the numbers in the illustration will differ.
There should also be an explanation of current and maximum policy fees and expenses as well as a minimum guaranteed and current interest or dividend rates. It's very important to check that all the variables are correct because once the company issues the policy, contractually guaranteed items, such as your age or rating, can’t change. However, the insurer can adjust fees and crediting rates. No lapse policies are not affected by these changes since the insurer absorbs any interest rate risk or policy cost increases and guarantees. As long as you pay the premium on schedule, the policy will stay in force until a set age. But in exchange, the policies build little cash value.
Read the Ledger or Table
Next, you want to look for a ledger or table, usually on or near a page that requires your signature. Based on the proposed premium, these ledgers (labeled "guaranteed" and "nonguaranteed") illustrate, in five-year increments, how the policy could perform under different scenarios.
The guaranteed column (a worst-case scenario) illustrates how long the policy would stay in force if the insurer charged the maximum fees and paid the minimum interest or dividend crediting rate. Usually, the policy lapses long before your expected mortality, and to keep it in force; you would need to pay a significantly higher premium.
The nonguaranteed column may include two ledgers, sometimes called "current" or "illustrated", and "midpoint". Using the proposed premium, the current ledger (a best-case scenario) shows the death benefit and how much cash value the policy could build based on the current policy fees and a high assumed interest or dividend crediting rate. The midpoint ledger (a most likely scenario) shows how the policy would perform assuming current policy fees, but with an interest or dividend rate that is between the current and guaranteed. The assumed rate of return is usually shown at the top of each ledger column.
The illustration will also include many pages of detailed ledgers showing the guaranteed and nonguaranteed values year by year, as well as supplemental reports showing policy fees and expenses.
Examine the Rate of Return Assumptions
When reviewing the ledgers, it’s important to think about your risk tolerance and the rate of return assumptions. If an aggressive return is illustrated in the nonguaranteed ledger, for example, variable policies often assume a 7-8% return after fees and expenses, and the actual return is less the policy could lapse prematurely, or you will have to significantly increase your premium payment at some point in the future.
Remember, the proposed premium is a suggested payment based on the assumptions in the illustration. In most policies (with the exception of a no-lapse guarantee and whole life policies), you have the flexibility to pay a higher or lower premium.
The Bottom Line
Since you are buying permanent life insurance to cover the rest of your life, it's a good idea to take a conservative approach. Don’t get sold on the best-case scenario of high returns every year and endlessly growing cash values.
For example, policyholders who purchased universal life policies when illustrations were projecting higher interest can experience problems with those policies when interest rates decline and remain low for prolonged periods of time. In today’s low-interest-rate environment, for instance, these policies will only earn the minimum guaranteed rate and many are lapsing, or the owners—often retirees—are forced to pay significantly higher premiums to keep the coverage in force.
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853b746b1ca7e5df19913af12985ea4a | https://www.investopedia.com/articles/personal-finance/111115/zillow-estimates-not-accurate-you-think.asp | Zillow Estimates: Not As Accurate As You Think | Zillow Estimates: Not As Accurate As You Think
Zillow is one of the most popular real estate databases online. Founded in 2006 by former Microsoft executives Rich Barton and Lloyd Frink, Seattle-based Zillow lists information about millions of homes for sale and rent across the United States and Canada. Users can search for a home in a particular area using different criteria including—but not limited to—prices, number of bedrooms and bathrooms, square footage, type of home, and other amenities.
One of Zillow’s key features is its Zestimates, a popular consumer tool for seeing how much homes are worth. These estimates are based on information from sources such as comparable sales and public data. Launched in 2011 with information about 90 million homes, Zestimates has expanded its reach, providing users with data about more than 100 million homes across the United States.
Whether you're looking to see how much your home’s value has changed, if your home’s appraised value is high enough to let you refinance, or curious about how much your coworker spent on his new house, Zestimates offers users a starting point in home valuation.
But there are several reasons these numbers may not be as accurate as you’d like them to be.
Key Takeaways Zillow's Zestimates allows users to see how much homes are worth. Figures are based on information from sources like comparable sales and public data. Zestimates are only as accurate as the data behind them, meaning they may be outdated or incorrect. There may be mistakes in property taxes paid or tax assessments, and Zestimates may not include any upgrades or improvements made by homeowners. Zillow also accounts for turnover rate, so an area where people keep their homes for longer periods of time may not be as accurate.
Inaccurate Basic Information
Zillow’s unique algorithms update its collection of property values three times a week, based on information from both public data and user-submitted data. According to Zillow, most Zestimates are "within 10 percent of the selling price of the home.” But Zestimates are only as accurate as the data behind them, so if the number of bedrooms or bathrooms in a home, its square footage, or its lot size are inaccurate on Zillow, the Zestimate will be off.
Users can correct these mistakes. However, Zillow cautions that updating a property’s details won’t result in an immediate change in the home’s Zestimate, and sometimes won’t result in any change at all. For example, having a fourth bathroom may not necessarily do much for home values in your town. So, inputting this information may not have any effect at all.
Along with accepting user-submitted data, Zillow deals with problems of inaccuracy by reporting estimated value ranges for individual properties. The smaller the range, the more reliable the Zestimate because it means Zillow has more data available on that property. Looking at the high and low end of the range will give you a better sense of what a home is worth.
Zillow calls its Zestimates a starting point to determine home values, so users should not consider them to be appraisals in any way.
Mistakes in Key Figures
Zillow factors the date and price of the last sale into its estimate. In some areas, this information makes up a big part of that figure. But if this information is inaccurate, it can throw off the Zestimate. And since comparable sales also affect a home’s Zestimate, a mistake in one home’s sales price record may affect the Zestimates of other homes in the area.
The Zestimate also takes into account actual property taxes paid, exceptions to tax assessments, and other publicly available property tax data. Tax assessor’s property values can be inaccurate, though. The tax assessor’s database might have a mistake related to a property’s basic information, causing the assessed value to be too high or too low.
Homeowners that see discrepancies can report incorrect sales data or tax records to Zillow online.
Where are the Upgrades?
Sometimes a homeowner makes improvements or upgrades to a property, which should increase the value of the home. But, Zillow may not necessarily be aware of these factors. That is, unless the local property tax assessor has that information. If a homeowner takes out a permit from the city to make any upgrades, that information may be passed along to the property tax authorities and entered into the public record. Zillow can only update its listings when this information is available.
For example, if you add a permitted fifth bedroom to your home and the property tax assessor deems the upgrade increases your home’s value, that information would likely find its way into your home’s Zestimate at some point. But if your home has a brand-new designer kitchen that didn’t require any major permits, yet your neighbor’s home has its original 1975 kitchen, Zillow will value both homes similarly even though your home may fetch a higher sale price.
Upgrades aren’t always as valuable as you think, though. It depends a lot on local housing market conditions and what projects you’ve done. So just because your home’s value on Zillow hasn’t changed since you added that bedroom or remodeled your kitchen, don’t assume you can tack on an extra $30,000 to the Zestimate. Conversely, if Zillow says your home is worth $300,000 but you know you haven’t updated it as much as similar homes in your neighborhood, it may sell for less or take longer to find an interested buyer.
Housing Turnover Rate
The more home sales there are in your area, the more data Zillow has about how much buyers think those homes are worth. This makes Zestimates more accurate. So if you live in a hot market in the San Francisco Bay Area, your Zestimate might be more accurate than if you live in a rural town where people stay in their homes for decades and sales are rare.
Updates to Zillow's Algorithm
Zillow updates its algorithm as it comes up with more ways to improve its accuracy. When this happens, Zestimates can change significantly even though nothing has changed about those homes or the real estate market.
In January 2019, Zillow announced it awarded a $1 million contract to a team of data scientists and engineers to help improve the accuracy of the site's Zestimates. The team leveraged different factors affecting a home's value including public data, commute times, road noise, and other information to factor into its algorithm. Zillow estimated the nationwide error rate would drop below 4%.
The company was the subject of a class-action lawsuit, filed in 2017 by Chicago homeowners who claimed it misled homebuyers by providing them with very low figures. The plaintiffs also stated most users treated Zestimates like appraisals. According to a report by MarketWatch, Zillow, said the lawsuit had no merit, denying that its Zestimates were appraisals. Instead, it called them a reference point where users can start their search for home values.
The Bottom Line
Zillow isn’t trying to hide the imperfections of its Zestimates from consumers, and you can’t expect perfectly accurate estimates from competing sites, either. The point is for homeowners to use prices from Zestimates as a broad guideline, and contrast these figures against other sources. It should not, in any way, be considered an appraisal. A comparable market analysis from a local real estate agent and a professional appraisal of the home are the best ways to learn its value.
Even these tools are imperfect: Sometimes there are no recent sales of similar homes, and appraisers—who are only human—may be somewhat subjective in their assessments. In the end, there is no way to get a perfect assessment of a home’s value, but there are just guidelines we have available to follow when buying, selling, applying for a loan, and when we need to know a home’s value.
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cc5c40a50e770672429f65a77a737df7 | https://www.investopedia.com/articles/personal-finance/111214/buying-home-cash-vs-mortgage.asp | Buying a Home: The Difference Between Cash vs. Mortgage | Buying a Home: The Difference Between Cash vs. Mortgage
Cash vs. Mortgage: An Overview
Everywhere you turn, you hear how bad it is to carry debt. So naturally, it's logical to think that buying a home with cash—or sinking as much cash as possible into your home to avoid the massive debt associated with a mortgage—is the smartest choice for your financial health.
But there's a lot to consider when contemplating purchasing a home outright versus financing it. Here are some of the major differences between using cash or a taking out a mortgage to buy a home.
Key Takeaways Paying cash for a home means you won't have to pay interest on a loan and any closing costs. A mortgage can provide tax benefits for some and means a buyer will likely have more cash in the bank to tap when needed. When considering whether cash or a mortgage makes the most sense, opt for the choice that gives you the bigger bang for your buck.
1:26 Should You Buy a Home With Cash Or a Mortgage?
Benefits of Cash
Paying cash for a home eliminates the need to pay interest on the loan and any closing costs. "There are no mortgage origination fees, appraisal fees, or other fees charged by lenders to assess buyers," says Robert Semrad, JD, senior partner and founder of DebtStoppers Bankruptcy Law Firm of Robert J. Semrad & Associates LLC, headquartered in Chicago.
Paying with cash is usually more attractive to sellers, too. "In a competitive market, a seller is likely to take a cash offer over other offers because they don't have to worry about a buyer backing out due to financing being denied," says Peter Grabel, managing director, MLO Luxury Mortgage Corp in Stamford, Connecticut. A cash home purchase also has the flexibility of closing faster (if desired) than one involving loans, which could be attractive to a seller.
These benefits to the seller shouldn't come without a price. "A cash buyer might be able to obtain the property for a lower price and receive a 'cash discount' of sorts," says Grabel.
A cash buyer's home is not leveraged, which allows a homeowner to sell the house more easily—even at a loss—regardless of market conditions.
Is a Mortgage Better?
On the other hand, obtaining financing also has significant benefits. "Even if a buyer has the ability to pay cash for a home, it might make sense to not tie up a lot of cash to purchase real estate," says Grabel. Doing so could limit your options if other needs arise down the road. For example, if the home turns out to need major repairs or renovations, it may be tough to obtain a home-equity loan or mortgage, as you don't know what your credit score will look like in the future, how much the home will then be worth, or other factors that determine approval for financing.
Selling a home bought with cash could also be a problem if the owners stretched a lot financially to buy it. "If cash buyers decide it’s time to sell, they need to make sure they will have sufficient cash reserves to put down as a deposit on the new home," says Grabel.
In short, "cash buyers need to be sure to leave to leave themselves plenty of liquidity," says Grabel. By opting to go with a mortgage, you can give yourself more financial flexibility.
Paying a mortgage can also provide tax benefits for homeowners who itemize deductions versus taking the standard deduction. And while you shouldn't opt for a mortgage just to get a deduction, a reduced tax obligation never hurts.
"In most cases, mortgage interest payments are tax-deductible," says Semrad. The Tax Cuts and Jobs Act (TCJA) passed in 2017, however, nearly doubled standard deductions, making it unnecessary for many taxpayers to itemize, meaning they forgo use of the mortgage interest tax deduction entirely.
Of course, with a mortgage, you end up paying more overall, since it comes with interest payments that do add up over time. But, depending on the state of the stock market, Semrad also notes that saving on mortgage interest by paying cash might not be financially prudent. You could be saving less than that money might have earned had you taken out a mortgage and invested the cash you didn't spend on your house.
Special Considerations
In some instances, having a mortgage can protect you from certain creditors. Most states grant consumers a certain level of protection from creditors regarding their home. Some states, such as Florida, completely exempt the house from the reach of certain creditors.
Other states set limits ranging from as little as $5,000 to up to $550,000. "That means, regardless of the value of the house, creditors cannot force its sale to satisfy their claims," says Semrad. This is known as a homestead exemption, but keep in mind it does not prevent or stop a bank foreclosure if the homeowner defaults on their mortgage.
Here's how it works: If your home is worth $500,000 and the home's mortgage is $400,000, your homestead exemption could prevent the forced sale of your home in order to pay creditors the $100,000 of equity in your home, as long as your state’s homestead exemption is at least $100,000. If your state's exemption is less than $100,000, a bankruptcy trustee could still force the sale of your home to pay creditors with the home's equity in excess of the exemption.
Having a mortgage won't completely protect your money, however. "If a homeowner left the funds in the bank and financed the house, a judgment creditor could lien the bank account and use the majority of the funds to satisfy its claims," says Semrad.
Not having a mortgage could negate a homestead exemption if you find yourself seriously in debt in the future.
The Bottom Line
The best advice when considering whether cash or mortgage makes the most sense is to opt for the choice that gives you the bigger bang for your buck. Also, ask yourself which will provide a greater return on your investment.
"Paying cash for the full purchase price of a house is similar to investing in a bond that pays the same interest rate you'd pay with a mortgage," says James Bregenzer, owner of Bregenzer Group LLC, a private equity and capital management company in Indianapolis, Indiana. For example, opting to not pay a 30-year mortgage with a 5% interest rate is essentially the same as realizing a 5% return on the investment price.
If you decide to purchase a house with a loan, make sure you can easily afford the principal and interest payments each month. If you decide to go with cash, make sure you'll still have enough to cover ongoing costs like property taxes, homeowners insurance, homeowner association, and other fees each month.
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873fb6ee54aeb358f6d167ee4e95c918 | https://www.investopedia.com/articles/personal-finance/111313/six-critical-rules-successful-retirement-investing.asp | Tips for Successful Retirement Investing | Tips for Successful Retirement Investing
In planning for retirement, you identify your goals and then figure out how to save and invest to get there. A lot of retirement investing advice revolves around very specific formulas and strategies. Still, sometimes it's helpful to take a step back and look at the big picture. Here are six basic tips to help make retirement investing a little easier.
Key Takeaways Understand your options when it comes to retirement savings accounts and investments.Start saving for retirement early, so your money has more time to grow.Calculate your net worth on a regular basis to see if you're on track for retirement.Pay attention to investment fees since they can significantly erode your retirement funds.Work with a financial professional if you need help or advice.
1. Understand Your Retirement Investment Options
You can save for retirement in various tax-advantaged and taxable accounts. Some are offered by your employer, while others are available through a brokerage firm or bank. Keep in mind that accounts—including 401(k)s, IRAs, and brokerage accounts—are not investments themselves. Instead, they are portfolios that hold the investments you choose.
Tax-Advantaged Accounts
Accounts can be tax-advantaged in different ways. 401(k)s and IRAs are tax-deferred accounts—meaning you don't have to pay taxes on the earnings that accrue from the investments within them each year. Income tax is due only on the money you withdraw during retirement.
In addition, traditional IRAs and traditional 401(k)s are funded with pre-tax dollars—meaning, you get a tax deduction for the deposits the year you make them. In contrast, Roth 401(k)s and Roth IRAs are funded with after-tax dollars; you can't deduct the amount you deposit at the time. However, you pay no taxes on any withdrawals you make in retirement from these accounts.
Taxable Accounts
Taxable accounts don't incur any sort of tax break. They are funded with after-tax dollars—so, when you make a deposit, no deduction for you. And you pay taxes on any investment income or capital gains (from selling an investment at a profit) the year you receive it. Most "regular" brokerage or bank accounts are taxable accounts. However—at the risk of sowing confusion—you can maintain a tax-deferred account like an IRA at a brokerage.
Retirement Accounts
Defined-Benefit Plans
These retirement plans, also known as pensions, are funded by employers. They guarantee a specific retirement benefit based on your salary history and duration of employment. They are increasingly uncommon today outside of the public sector.
401(k)s and Company Plans
These are employer-sponsored defined-contribution plans that are funded by employees. They provide automatic savings, tax incentives, and, in some cases, matching contributions. For 2020 and 2021, you can contribute up to $19,500, or $26,000 if you're age 50 or older.
Traditional IRAs
You can deduct your traditional IRA contributions if you meet certain requirements. Withdrawals in retirement are taxed at your individual income tax rate. For 2020 and 2021, you can contribute up to $6,000, or $7,000 if you're age 50 or older.
Roth IRAs
Roth IRA contributions are not tax-deductible, but qualified distributions are tax-free. Unlike most retirement accounts, Roths have no required minimum distributions (RMDs). For 2020 and 2021, you can contribute up to $6,000, or $7,000 if you're age 50 or older.
SEP IRAs
These IRAs are established by employers and the self-employed. Employers make tax-deductible contributions on behalf of eligible employees. For 2021, the annual contribution limit is $58,000 ($57,000 for 2020).
SIMPLE IRAs
These retirement plans can be used by most small businesses with 100 or fewer employees. Employees can contribute up to $13,500 for 2020 and 2021. The catch-up limit (if you're age 50 or older) is $3,000. Employers can choose to make a 2% contribution to all employees or an optional matching contribution of up to 3%.
Types of Investments
Annuities
Annuities are insurance products that provide a source of monthly, quarterly, annual, or lump-sum income during retirement.
Mutual funds
Mutual funds are professionally managed pools of stocks, bonds, and other instruments that are divided into shares and sold to investors.
Stocks
Stocks, or equities as they're also called, are securities that represent ownership in the corporation that issued the stock.
Bonds
Bonds are securities in which you lend money to an issuer (such as a government or corporation) in exchange for interest payments and the future repayment of the bond’s face value.
Exchange-traded funds
ETFs are investment funds that trade like stocks on regulated exchanges. They track broad-based or sector indexes, commodities, and baskets of assets.
Cash investments
You can put cash in low-risk, short-term obligations that provide returns in the form of interest payments. Examples include certificates of deposit (CDs) and money market deposit accounts.
Dividend reinvestment plans (DRIPs)
DRIPs allow you to reinvest cash dividends by buying additional shares or fractional shares on the dividend payment date. DRIPs are an effective way to build wealth through compound interest.
1:43 Six Rules For Successful Retirement Investing
2. Start Saving and Investing Early
No matter which types of accounts and investments you choose, one piece of advice stays the same: start early. There are lots of reasons why it makes sense to start saving and investing early:
You can take advantage of the power of compounding—reinvesting your earnings to create a snowball effect with your gains. You make saving and investing a lifelong habit, which improves your odds of a comfortable retirement.You have more time to recover from losses, so you can try higher-risk/higher-reward investments.Barring a major loss, you have more years to save, which means more money by the time you retire. You gain more experience and develop expertise in a wider variety of investment options.
Remember that compounding is most successful over longer periods of time. Assume you make a single $10,000 investment when you're 20 years old, and it grows at a conservative 5% each year until you retire at age 65. If you reinvest your gains (this is the compounding), your investment would be worth almost $90,000.
Now imagine you didn’t invest the $10,000 until you were 40. With only 25 years to compound, your investment would be worth only about $34,000. Wait until you’re 50 to start, and your investment would grow to less than $21,000.
Image by Julie Bang © Investopedia 2020
This is, of course, an oversimplified example that assumes a constant 5% rate without taking taxes or inflation into consideration. Still, it's easy to see that the longer you can put your money to work, the better the outcome. Starting early is one of the easiest ways to ensure a comfortable retirement.
3. Calculate Your Net Worth
You make money, you spend money: For some people, that's about as deep as the money conversation gets. Instead of guessing where your money goes, you can calculate your net worth, which is the difference between what you own (your assets) and what you owe (your liabilities).
Assets typically include:
Cash and cash equivalents—things like savings accounts, Treasury bills, and CDsInvestments—for example, stocks, mutual funds, and ETFsReal property—your home and any rental properties or a second homePersonal property—boats, collectibles, jewelry, vehicles, and household furnishings
Liabilities, on the other hand, include debts such as:
MortgagesCar loansCredit card outstanding balancesMedical billsStudent loans
To calculate your net worth, subtract your liabilities from your assets. This number gives you a good idea of where you stand (right now) for retirement. Of course, net worth is most useful when you track it over time—say, once a year. That way, you can see if you're heading in the right direction, or if you need to make some changes.
You should calculate your net worth at least once a year to ensure your retirement goals can stay on track.
Put Net Worth Into Your Retirement Goals
It’s been said that you can’t reach a goal you never set, and this holds true for retirement planning. If you don't establish specific goals, it’s hard to find the incentive to save, invest, and put in the time and effort to ensure you're making the best decisions. Specific and written goals can provide the motivation you need. Here are some examples of written retirement goals.
I want to retire when I’m 65.I want to travel internationally for 12 weeks each year.I want a $1 million nest egg to fund the retirement I envision.
Regular net worth "check-ups" are an effective way to track your progress as you work toward these goals.
4. Keep Your Emotions in Check
Investments can be influenced by your emotions far more easily than you might realize. Here’s the typical pattern of emotional investment behavior when investments perform well:
Overconfidence takes overYou underestimate riskYou make bad decisions and lose money
When investments perform badly:
Fear takes overYou put all your money into low-risk cash and bonds and can't benefit from a market recoveryYou don’t make any money
Emotional reactions make it difficult to build wealth over time. And potential gains are sabotaged by overconfidence, and fear makes you sell (or not buy) investments that could grow. As such, it is important to:
Be realistic. Not every investment will be a winner and not every stock will grow as your grandparents’ blue-chip stocks did.Keep emotions in check. Be mindful of your wins and losses, both realized and unrealized. Rather than reacting, take the time to evaluate your choices and learn from your mistakes and successes. You’ll make better decisions in the future.Maintain a balanced portfolio. Diversify in a way that makes sense for your age, risk tolerance, and goals. Rebalance your portfolio periodically as your risk tolerance and goals change. Most younger investors have decades left to recover from any market declines—which means they can focus on higher-risk/higher-reward investments like individual stocks. Those at or near retirement, however, have less time to recover from any losses; as a result, older adults typically shift their portfolios toward a higher proportion of lower-risk/lower-reward investments, such as bonds.
5. Pay Attention to Investment Fees
While you're likely to focus on returns and taxes, your gains can be drastically eroded by fees. Investment fees include:
Transaction feesExpense ratiosAdministrative feesLoads
Depending on the types of accounts you have and the investments you select, these fees can really add up. The first step is to figure out what you’re spending on fees. Your brokerage statement should indicate how much you’re paying to execute a stock trade, for example, and your fund’s prospectus (or financial news websites) will show expense-ratio information.
If you're paying too much, you can shop for investments such as a comparable lower-fee mutual fund or switch to a broker that offers reduced transaction costs. Many brokers, for example, offer commission-free ETF and mutual fund trading on select groups of funds.
To illustrate the difference that a small change in expense ratio can make over the course of an investment, consider the following (hypothetical) table:
As the table shows, if you invest $10,000 in a fund with a 2.5% expense ratio, your investment would be worth $46,022 after 20 years, assuming a 10% annualized return. At the other end of the spectrum, your investment would be worth $61,159 if the fund had a lower, 0.5% expense ratio—an increase of more than $15,000 over the 2.5% fund’s return.
6. Get Help When You Need It
“I don't know anything about investing” is a common excuse for postponing retirement planning. Like ignorantia juris non excusat (loosely translated as “ignorance of the law is no excuse”), lack of investing prowess is not a convincing excuse for failing to save and invest for retirement.
There are plenty of ways to receive a basic, intermediate, or even advanced education in retirement planning to fit every budget. Even a little time spent goes a long way, whether through your own research or with the help of a qualified financial professional.
The Bottom Line
You can improve your chances of enjoying a comfortable future if you learn about your investment choices, start planning early, keep your emotions in check, and find help when you need it.
Of course, there are many issues to consider when you plan for retirement. How much you need to save depends on numerous factors, including:
When you want to retire—the number of years you have to save, and the number of years you'll spend in retirement.Where you want to live—the cost of living varies greatly among cities, states, and countries.What you want to do in retirement—traveling is more expensive than, say, catching up on decades of reading.Your lifestyle now and the lifestyle you envision later.Your healthcare needs.
Specific investing “rule of thumb” guidelines—such as “You need 20 times your gross annual income to retire” or “Save and invest 10% of your pre-tax income”—can help you fine-tune your retirement strategy. Still, it’s helpful to remember the big picture, too.
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0066061e3dc878c8b19b73baf34f2df7 | https://www.investopedia.com/articles/personal-finance/111315/5-ways-small-businesses-are-disadvantage.asp | 5 Ways Small Businesses Are at a Disadvantage | 5 Ways Small Businesses Are at a Disadvantage
Politicians are fond of saying that small businesses are the backbone of the economy. And while standing up for the little guy is a popular way to win over voters, there is actually some truth to that assertion. The Small Business Administration (SBA) reports that smaller companies—those with fewer than 500 employees—account for more than two-thirds of all the new jobs created since the 1970s. They’re also responsible for a lot of innovation, as many ultra-successful tech startups have proven in recent years.
But in a number of respects, small businesses are at a distinct disadvantage compared with their larger competitors. And that’s why some argue that government policies that favor these big firms are important. Here are five areas where being a large business is an advantage.
Key Takeaways Small businesses can't sell bonds or issue new stock to raise capital—rather, they tend to rely on loans. Larger corporations benefit from economies of scale, while production costs for small businesses tend to be higher. Volume helps the purchasing power of large corporations. The perks small businesses offer their employees may not be enough to compete with the benefits of large companies. Having a brand name consumers can easily recognize helps large corporations stay above their smaller rivals.
Raising Capital
Businesses need to raise outside capital at some point if they want to expand. If a large corporation plans to hire new workers or build a new factory, it has the ability to sell bonds or issue stock to the public. But smaller organizations don’t have that flexibility.
Small-scale operations tend to be much more reliant on loans. The most obvious way is to approach a bank or other lender. One of the goals of the SBA is to encourage banks to lend by guaranteeing the value of loans made to these businesses. Although the SBA doesn't actually provide loans itself, it guarantees them by working with banks and lenders and reducing their risk.
Some SBA-guaranteed loans restrict how business owners can use the funds.
Small businesses—especially those that are particularly small—may also be able to approach friends and family, angel investors and venture capitalists, or even crowdfunding sites. By going online, business owners may be able to raise small amounts of money from a large group of people.
Efficiency
One of the reasons big corporations have a leg up on smaller rivals is that they benefit from economies of scale—that is, the cost for each product or service they deliver is lower.
Imagine trying to build just one table. There's a very good chance that you’d spend a lot of money investing in tools and purchasing the raw materials and a good deal of time getting the pieces to fit just right. But building a second table is cheaper than the first because you can buy all the materials at once and depreciate the cost of the equipment. And a third is cheaper still. That is how efficiency develops.
Large businesses produce large quantities, whether it’s pieces of furniture, electronics, or bakery items. So, they can keep the total expense for each piece they manufacture very low. Small businesses, on the other hand, may find it difficult to mass-produce. Therefore, their production costs tend to be higher—costs that are normally passed on to the customer.
Purchasing Power
Another way large corporations keep costs down is by negotiating for lower prices. Take, for example, a big automaker that has to buy steel in order to make its cars and trucks. Because of the large volume of material the carmaker is ordering, the vendor or supplier has an incentive to lower its price per ton.
It would be hard for a much smaller competitor to get the same deal. The steel company simply doesn't have as much reason to bend its price. And if the firm pays more for raw materials, it receives a smaller profit on each car that it sells.
The lack of purchasing power affects virtually every cost that a business takes on, from telephone service to real estate. It particularly affects health care costs, which represents one of the biggest expenditures for companies today. The Small Business Health Options program, part of the Affordable Care Act (ACA) or Obamacare, is trying to provide a more level playing field by giving small firms more purchasing power in the insurance market.
The Talent Gap
Every business owner knows that in order to excel, you need the best workers available. But it’s much easier for big players to attract high-level employees because, in most cases, they can afford to pay them more. Some companies offer lucrative benefits like fully-paid health and dental care, sick leave and vacation time, employee stock ownership plans, and expense accounts.
Small businesses may lack when it comes to compensation but they may make up for in non-financial perks, like the ability to move up the ladder more quickly. Some also offer benefits like flextime and telecommuting opportunities in order to woo employees who may want to chase a bigger paycheck elsewhere.
Name Recognition
The easiest way to get a sale is to make sure the customer already has your brand in mind before they start shopping. That’s often the case with big corporations, which have the marketing muscle to advertise much more than their smaller rivals. A lot of the big-name companies have also been in business for decades— just think about McDonald’s, IBM, or Nike. That means they’ve had years of exposure in the marketplace.
The Bottom Line
Some people think that bigger companies take advantage of small businesses, which are the underdogs. The truth is smaller companies have a number of factors working against them that they may have to overcome in order to be successful.
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76430baf4c019fefa27d284cf2f2a1f6 | https://www.investopedia.com/articles/personal-finance/111414/understanding-credit-card-balance-transfers.asp | Understanding Credit Card Balance Transfers | Understanding Credit Card Balance Transfers
The 0% introductory interest rate on balance transfers is a common feature of many credit cards targeted to consumers with good to excellent credit. While this offer looks great on the surface, people who take advantage of it might find themselves on the hook for unexpected interest charges.
The problem is that transferring a balance means carrying a monthly balance, and carrying a monthly balance—even one with a 0% interest rate—can mean losing the credit card’s grace period and paying surprise interest charges on new purchases. Here’s what you need to know about this potential situation and how to avoid it.
Balance Transfers Change the Grace Period
The grace period is the time between when your credit card billing cycle ends and when your credit card bill is due, during which you don’t have to pay interest on your purchases. By law, it must be at least 21 days. You only get the grace period if you aren’t carrying a balance on your credit card. What many consumers don’t realize is that carrying a balance from doing a promotional balance transfer—not just from making purchases—can mean losing the grace period on any new purchases made with the card.
With no grace period, if you make any purchases on your new credit card after completing your balance transfer, you'll incur interest charges on those purchases from the moment you make them. When that happens, some of the money you’re saving by having a 0% interest rate on the balance transfer will go right back out of your pocket.
The only way to get the grace period back on your card and stop paying interest is to pay off the entire balance transfer as well as all your new purchases. If you had enough cash saved up to do that, you probably wouldn’t have done the balance transfer in the first place.
Key Takeaways Balance transfers can help you pay down debt and avoid paying interest during a promotional period but they can involve transfer fees and unexpected costs.Unless the new credit card to which balances are transferred has a 0% APR offer on purchases as well consumers could forfeit their grace period on new purchases.If the new card doesn't have a 0% APR on purchases it would probably be best to avoid using for new purchases until the transferred balance is paid off.
Balance Transfer Math
A Transfer Can Save you money…
Say you have a $5,000 balance on a credit card with a 20% APR. Carrying that balance is costing you $1,000 a year at this rate. Then, you get a 0% balance transfer offer on a new credit card. You can move your $5,000 balance to the new card and you’ll have a whole year to pay it off with no interest. You just have to pay a 3% fee to transfer the balance, which amounts to $150. (Balance transfer fees typically range from 3% to 5% of the amount transferred.)
Even after the fee, you’ll come out way ahead by not paying interest for a year, as long as you put about $415 per month toward your $5,000 balance so that it’s paid in full by the end of the promotional period.
…Unless You Buy Something Else on That Card
Let's say you need to spend $150 on toilet paper, paper towels and other household essentials during a routine shopping trip and you charge it to your new card, the same card to which you’ve transferred the balance.
You assume that, if you pay off the $150 when your bill comes due in three weeks, you won't owe any interest on the purchase—after all, you just made it. And you know you’ll have the money because your financial situation has improved since you racked up that $5,000 balance. You were unemployed then; you have a job now and you’re not taking on new debt, just cleaning up the past. You just charged the purchase to your card for convenience.
But when your credit card statement arrives, you find you’ve been charged 15% APR—your new card’s interest rate on purchases—on your $150 purchase. It’s a small amount, but what if you had charged your child’s college tuition for the semester? Plus, there’s the principle of the thing: If you’re going to pay interest or fees to a credit card company, you want to do it knowingly, not because the company caught you off guard.
The rules governing this process are spelled out in the fine print. Credit card companies used to routinely apply payments to the lowest-interest balances first, in which case any amount over the minimum payment would go toward the balance transfer amount, and any purchase balances would keep sitting there accruing interest at the higher interest rate until paid off. However, with the advent of the Credit Card Act of 2009 issuers must first apply payments above the minimum amount due to the highest interest rate balance.
Deceptive Marketing
The Consumer Financial Protection Bureau (CFPB) says many card issuers don't make these terms clear in their promotional offers, and that it plans to continue cracking down on card issuers. It calls card issuers' failure to clearly disclose the loss of the grace period "deceptive" and potentially "abusive."
Credit card issuers are required to tell consumers how the grace period works in marketing materials, in application materials, on account statements and with balance transfer or cash advance checks, the CFPB states. It says some issuers aren't doing so in a way that consumers can easily understand. In fact, the fine print might not even use the term “grace period.” It might say something like “avoiding interest on purchases.”
Also, bear in mind that many balance transfer offers don’t guarantee that you will actually receive a 0% balance transfer for the maximum number of months in the introductory period. Your credit score determines what you actually get. Unless you have excellent credit, you could wind up with a low-interest balance transfer for a fraction of the time you expected.
Decoding Grace Period Terms
Here's a real-life example from Discover that indicates you will pay interest on new purchases, with no grace period, if you take advantage of a balance transfer offer:
“You can avoid interest on new purchases you make if you pay your entire balance in full each month. This means unless you have a 0% introductory purchase APR, you will pay interest on new purchases if you do not pay the balances you transfer under this offer in full by the first payment due date.”
Citi puts it this way:
“If you transfer a balance, interest will be charged on your purchases unless you pay your entire balance (including any balance transfers) by the due date each month or you have a 0% promotional APR on purchases.”
Wells Fargo is somewhat clearer—and at least uses the term "grace period":
“If you transfer amounts owed to another creditor and maintain a balance on this credit card account, you will not qualify for future grace periods on new purchases as long as a balance remains on this account.”
Keep in mind the CFPB’s warning that consumers may not be able to find the information they need in the fine print. Sometimes these statements aren’t even in the credit card offer itself, but elsewhere on the credit card issuer’s website, such as in a help, FAQ or customer service area.
Avoiding the Balance Transfer Trap
If the terms of the grace period for purchases after you do a balance transfer are unclear to you, you have three options:
1. Pass on the offer and look for one with clearer terms.
2. Take the 0% balance transfer offer, but don't use the card for any purchases until you've completely paid off the balance transfer.
3. Choose a credit card that offers a 0% introductory APR for the same number of months on both balance transfers and new purchases. Numerous such offers are advertised in the market.
The Bottom Line
If you want to accept a balance transfer offer, don’t assume that the only costs are the balance transfer fee plus the interest rate, if any, charged on the transferred balance. If you use the card to make new purchases, be aware that you may incur interest on those charges from the day you make them, rather than getting the interest-free grace period you normally receive when you pay off your purchases in full, on or before the billing due date.
The fact of the matter is that not all credit cards are created equal, and some balance transfer cards are better than others. It's best not to apply for any new credit card with the goal of using its balance transfer promotion until you know exactly how balance transfers work with the issuer and if the transfer will eliminate the grace period on any new purchases.
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89a04d794feabc79830eeca2548269d7 | https://www.investopedia.com/articles/personal-finance/111516/highest-paid-ceos-dis-orcl.asp | The Highest Paid CEOs | The Highest Paid CEOs
The year 2018 was another good one for CEOs and their pay packages, if not for shareholder value creation.
The median pay for the 200 highest-paid CEOs at U.S. public companies with more than $1 billion in revenue rose 16.4% in the fiscal year 2018 to $18.6 million, according to the latest Equilar/New York Times study. The number of executives who received more than $100 million in total compensation climbed to five from two last year.
However, the median total shareholder return for these companies was -5%, down from 20% in 2017 and 14% in 2016.
Highest and Lowest
The highest pay increases were seen by electric car maker Tesla Inc.'s (TSLA) Elon Musk, who enjoyed a whopping 4,575,310% increase thanks to his 10-year performance award, Steven J. Kean of energy infrastructure company Kinder Morgan Inc. (KMI) and home decor retail chain At Home Group Inc.'s (HOME) Lewis L. Bird, III. Kean and Bird saw their compensations increase 4,381% and 2,477%, respectively.
Those awarded the most dramatically lower amounts were Ari Bousbib of health care data and services provider IQVIA Holdings (IQV), biotech firm United Therapeutics's (UTHR) Martine Rothblatt and financial services provider Fidelity National Information Services (FIS) chief Gary A. Norcross. They saw their pay packages drop 57%, 55%, and 37%, respectively.
This is the second year firms have been disclosing the ratio of their CEOs' pay to that of a median employee. The median CEO pay ratio for the 200 companies was 277:1 for 2018, up from 275:1 in 2017. The top five firms with the highest ratios were Tesla, retailer Gap Inc. (GPS), toy manufacturer Mattel Inc. (MAT), medical device company Align Technology (ALGN) and restaurant chain Chipotle Mexican Grill (CMG). Gap and Mattel were among the top five in 2017 as well.
Listed below are the highest paid CEOs of 2018 at U.S. public companies with more than $1 billion in revenue. Bloomberg released a similar ranking of the highest paid executives at publicly traded U.S. companies with no revenue lower limit.
1. Elon Musk, CEO of Tesla Inc.
Total compensation in 2018: $2.28 billion
CEO pay ratio at Tesla was 1:1 in 2017 and 40668:1 in 2018. Elon Musk has famously refused to accept a salary at the struggling manufacturer. He is paid minimum wage since the firm has to abide by California law, but Musk has said he does not cash the checks, so that money still exists in a Tesla bank account.
But in January of 2018, the controversial chief was given a performance award of Tesla stock options tied to market cap and operational milestones that will vest in 12 tranches over a decade. The last compensation award Musk received was in 2012.
"The new performance award has been designed so that Tesla and Elon remain tightly aligned with shareholder interests as they now execute on Master Plan, Part Deux—continuing to build what is the world's first vertically-integrated sustainable energy company, from generation to storage to consumption," said the company in a statement.
Tesla shares rose 6.89% in 2018.
2. David M. Zaslav, CEO of Discovery Inc. (DISC.A)
Total compensation in 2018: $129.49 million
David Zaslav saw his pay package soar 207% in 2018 after his employment contract was extended through the end of 2023. The media boss, who joined Discovery Inc. (DISC.A) as president and CEO in 2007, received a $9 million bonus to stay on, in addition to $102 million in Discovery stock options, $14.8 million in stock awards, and his $3 million base salary, reported Variety.
The company acquired Scripps Networks Interactive last year. "Under David's leadership, Discovery has scaled new heights becoming the leader in sports across Europe, building the leading global IP portfolio of high-quality content, and positioning Discovery for continued global growth. We are lucky to have him," said Discovery Director and Chairman John Malone in a statement.
Discovery shares rose 10.55% in 2018.
3. Nikesh Arora, CEO of Palo Alto Networks Inc. (PANW)
Total compensation in 2018: $125 million
Nikesh Arora was named CEO of cybersecurity firm Palo Alto Networks (PANW) in June 2018 after the company's fiscal third quarter. The former SoftBank Group and Alphabet Inc. (GOOG) executive received a lucrative package that included $40 million of restricted stock, stock options valued at $66 million and a target bonus of $1 million on top of a base salary of $1 million, according to Bloomberg.
The company also matched Arora's purchase of PANW shares worth $20 million with restricted shares.
Daniel J. Warmenhoven, lead independent director, said, "As we move forward in this era of digital and security transformation, there is no better person to lead Palo Alto Networks than Nikesh Arora. The Board of Directors is very pleased to have such a proven business and technology leader who brings demonstrated leadership and ability to scale to the company."
Palo Alto Networks shares rose 29.95% in 2018.
4. Mark V. Hurd, Co-CEO of Oracle (ORCL)
Total compensation in 2018: $108.29 million
In 2018, Oracle Corp. (ORCL) CEO Mark Hurd received a base salary of $950,000, stock options valued at $103.7 million, perks of $32,470, and a bonus of $3.7 million, according to a filing from the company. The total salaries of the top four highest-paid executives at Oracle, which include Chairman and Chief Technology Officer Lawrence J. Ellison, Co-CEO Hurd, Co-CEO Safra A. Catz, and Product Development President Thomas Kurian, was around $400 million.
Hurd was previously Hewlett-Packard's CEO before he resigned after the board of directors found he had misstated expense reports and hidden a personal relationship with a contractor.
Oracle shares fell 2.58% in 2018.
5. Safra A. Catz, Co-CEO of Oracle
Total compensation in 2018: $108.28 million
Safra A. Catz, who is also a director of The Walt Disney Company (DIS), received the same compensation package as Mark Hurd in 2018, except her perks were lower at $19,780.
Both of their pay packages increased by around 165% from $41 million in 2017. While their base salaries remained the same and they didn't receive any stock awards, their bonuses were five times higher and the stock options they received were six times higher.
You can view the rest of the ranking here.
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6d699896e0cc45f8549c37374c69908a | https://www.investopedia.com/articles/personal-finance/111615/using-your-ira-buy-investment-property.asp | Using Your IRA to Buy Real Estate | Using Your IRA to Buy Real Estate
When it comes to IRAs, financial assets—stocks, bonds, and mutual funds or exchange-traded funds (ETFs)—are the usual investment suspects. Still, it’s possible to hold real estate in your IRA under certain conditions. You can buy single-family or multiplex homes; apartment buildings; commercial properties such as retail stores, hotels, or office complexes; raw land and lots; and even boat slips.
It’s not as easy as purchasing a few hundred shares of stock, though. If you want to plunge into property purchases through your self-directed IRA, you need to know the rules—and there are a lot of them.
Key Takeaways You can hold real estate in your IRA, but you’ll need a self-directed IRA to do so.Any real estate property you buy must be strictly for investment purposes; you and your family members can't use it.Purchasing real estate within an IRA usually requires paying in cash, and all ownership expenses must be paid by the IRA.Holding real estate in your IRA can be tricky, with tax issues and red tape. But, on the other hand, property can provide you with a good (or great) rate of return, and diversify your portfolio.
The Right IRA for Buying Investment Property
First of all, your IRA has to be self-directed. The term “self-directed” means that alternative investments are accepted or offered by the IRA custodian, the financial institution, or the company responsible for record-keeping and IRS reporting requirements. A self-directed IRA is independent of any brokerage, bank, or investment company that would make decisions for you (most brokerage accounts don’t allow real estate holdings, anyway).
To buy and own property via your IRA you will still need a custodian, an entity specializing in self-directed accounts that will manage the transaction, associated paperwork, and financial reporting. Everything goes through the custodian to keep you from violating the strict rules regarding these types of real estate transactions.
As you would expect, the custodian will charge a fee for the service. However, it won’t advise you on how to best structure your holdings. This custodian’s job is to handle the back-office work.
Before we look at the rest of the rules, understand this basic fact: You and your IRA are two separate entities. Your IRA owns the property—you don’t. In fact, the title to the property will read “XYZ Trust Company Custodian [for benefit of] (FBO) [Your Name] IRA.”
If you buy real estate with your IRA improperly, you can disqualify the IRA. If that happens, all the funds in it immediately become taxable.
What Is and Isn’t Yours
Your real estate property must be purely an investment. You can’t use it as a vacation home, a place for your kids to live, a second home, or an office for your business. These rules apply to you and to people the IRS deems “disqualified.” So who is considered a disqualified person?
Your spouseYour parents, grandparents, and great-grandparentsYour children and their spouses, grandchildren, and great-grandchildrenService providers of your IRAAny entity that owns more than 50% of the property
You also can’t purchase the property from one of these disqualified people—this is called a self-dealing transaction—nor can the IRA purchase property that you already own. You can learn more about prohibited transactions in section 4.72.11.2.1 of the Internal Revenue Manual.
Making the Purchase
Your IRA balance will have to be pretty high because getting a mortgage to purchase property inside an IRA isn’t easy. You’ll likely have to pay in cash, which not only takes a big bite out of the account, it also affects your rate of return down the road.
Real estate investors often put down a small amount and take advantage of still relatively low-interest rates to leverage the purchase, figuring they can make more money on the property than they’ll pay in interest. If you can’t finance your real estate purchase, you lose that potential for a significant return on investment (ROI).
Some banks will consider loans for this sort of transaction, but it presents another problem: Any revenue from the property may then be considered unrelated business taxable income (UBTI). You can learn more about UBTI from Section 511 of the IRS Internal Revenue Code (IRC).
Owning the Property
As your IRA doesn’t pay taxes, you can’t take advantage of the deductions that come with owning real estate. Because you’ve paid cash, there are no mortgage interest payments to deduct. Nor do you get the benefits of property tax deductions or depreciation. If your property generates rental income, every bit of it goes right back into your IRA. As you don’t own the property, you can’t pocket any of the income. (Of course, you will get the money eventually, when you make withdrawals from the account at retirement.)
On the bright side, none of the maintenance or other associated costs of owning real estate comes out of your pocket. The IRA pays for everything. However, this is not without drawbacks. Every dollar that comes out of your IRA is a dollar that no longer gets a couple of decades to appreciate in value tax-free.
One huge risk: maintenance expenses that drain your IRA's cash and lead to expensive penalties if you "over contribute" to the account to cover them.
And what happens if property incurs a series of major expenses that push your IRA balance so low that the account doesn’t have enough money to pay for it? Remember, you can’t pay for anything relating to this property out of your own pocket, and IRA contributions are limited: You can only deposit $6,000 in 2021, $7,000 if you’re 50 or older.
If that doesn’t cover the repair, and you have to deposit more, you’re on the hook for penalties associated with contributing too much. This is a significant risk, as property can quite often require pricey upkeep, and the income you get from rentals may not cover what you need to spend in a high-maintenance year.
Selling the Property in an IRA
To sell your property, work out a sales price just as you would with any other real estate holding. Once both parties agree on a price and terms, request that your custodian sell the property on behalf of your IRA. All money will go back into your IRA either tax-deferred or tax-free, depending on the makeup of your IRA.
One final consideration: liquidity. Just how easy is it for you to get out of the investment? With stocks, it’s relatively easy. Sometimes you can have your money back in seconds. In contrast, real estate is a notoriously illiquid investment. It may take a long time to divest, and you could lose money along the way. As eight million people learned in the Great Recession of 2008, you could find yourself with an asset that is worth less than the amount of money you owe on it.
Pros and Cons of Property in an IRA
We've mentioned so many hassles and drawbacks, you might be wondering at this point if there is any point to putting property in an IRA. Historically, real estate has been a good long-term investment as property values rise over time, and long-term appreciation goes hand-in-hand with the long-term investment horizon of a retirement account. In the short term, any income the property generates is tax-sheltered within the IRA. Finally, as a hard asset, real estate helps diversify a portfolio otherwise invested in equities and other securities—not the worst idea in the world.
Pros Real estate helps diversify a portfolio, often moving counter to financial markets. Real estate has historically appreciated over time, ideal for an IRA's long-term investment horizon. Real estate can provide a steady income stream from rents, and any rental income you collect grows tax-free within the IRA. You can buy, sell, flip, and accumulate properties. Cons You need to set up a self-directed IRA with a custodian. You can’t claim deductions for property taxes, mortgage interest, depreciation, and other property-related expenses. All expenses, repairs, and maintenance costs must be paid with IRA funds, and you must pay others to do them and manage the property. You and your relatives can’t live in or run a business out of the property.
The Bottom Line
Using an IRA to buy an investment property is not for the faint of heart, nor is it for anyone unfamiliar with the differing types of individual retirement accounts. Real estate investing of any type is quite risky or at best high maintenance; for an IRA, though, real estate is a particularly high-risk choice. Not only may property values drop rather than rise, but a year of significant maintenance costs could also subject you to penalties if your income and IRA contribution limit don’t cover repairs you can’t afford to ignore.
Unless you have both the time and expertise to manage real property, you are probably best off with more mainstream strategies for your IRA. Or consider securitized real estate options, like real estate investment trusts (REITs) or mutual funds and ETFs that invest in property. These are an indirect form of property ownership, but they're a simpler, more liquid proposition—and they can be held in regular IRAs, too.
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066757311626a4d9b5a55d6d835518cf | https://www.investopedia.com/articles/personal-finance/111715/how-does-dental-insurance-work.asp | How Does Dental Insurance Work? | How Does Dental Insurance Work?
Dental insurance policies help many people effectively budget for the cost of maintaining a great smile. Compared with medical insurance, understanding dental insurance policies is a breeze. Most policies are straightforward and specific regarding which procedures are covered and exactly how much you have to pay out of pocket. Dental insurance is available as part of medical insurance plans or as a stand-alone policy.
Key Takeaways Dental insurance covers issues related to the teeth and gums, as well as to preventative care such as annual cleanings.Not all procedures are covered; for example, cosmetic procedures, such as crowns or whitening, are not.Deductibles, co-pays, and coinsurance will apply, and many policies have annual coverage maximums that are relatively low, ranging from $750 to $2,000 in many cases.
Overview of the System
First, here’s a breakdown of how private dental insurance works. You select a plan based on the providers (dentists) you want to be able to choose from and what you can afford to pay.
If you already have a dentist you like, and they are in the insurance company’s network, you’ll be able to opt for one of the less expensive plans.If you don’t have a dentist at all, you can choose from the dentists who are in the network and again have the option of a less expensive plan.If your existing dentist is not in the network, you can still get insurance, but you’ll pay significantly more to see your dentist than an in-network one—so much more that you may not have any chance at coming out ahead by being insured.
The monthly premiums will depend on the insurance company, your location, and the plan you choose. For many people the monthly premium will be around $50 a month. This means that you’re spending $600 on dental costs each year even if you don’t get any work done.
Waiting Period for Dental Insurance
Most dental insurance policies have waiting periods ranging from six to 12 months before any standard work can be done. Waiting periods for major work are typically longer and can be up to two years. These periods are set in place by insurance companies to guarantee that they profit off a new account and to discourage people from applying for a new policy to cover impending procedures.
Deductibles, Co-Pays, and Coinsurance
An insurance deductible is the minimum amount that must be paid before the insurance policy pays for anything. For example, if the deductible is $200, and the covered individual’s procedure is $179, the insurance does not kick in and the individual pays the entire amount. Co-pays, which are a set dollar amount, may also be required at the time of the procedure.
Once a dental deductible is met, most policies only cover a percentage of the remaining costs. The remaining balance of the bill paid by the patient is called coinsurance, which typically ranges from 20% to 80% of the total bill.
Most dental insurance plans follow the 100-80-50 payment structure: They pay 100% for preventive care, 80% for basic procedures, and 50% for major procedures.
How Dental Insurance Categorizes and Pays for Procedures
Dental procedures covered by insurance policies are typically grouped into three categories of coverage: preventive, basic, and major. Most dental plans cover 100% of preventive care, such as annual or semiannual office visits for cleaning, X-rays, and sealants.
Basic procedures are treatment for gum disease, extractions, fillings, and root canals, with deductibles, co-pays, and coinsurance determining the patient’s out-of-pocket expenses. Most policies cover 80% of these procedures, with patients paying the remainder. Major procedures such as crowns, bridges, inlays, and dentures are typically only covered at 50%, with the patient paying more out-of-pocket expenses than other procedures.
Every policy differs in which procedures are categorized as preventive, basic, and major, so it is important to understand what is covered when comparing policies. Some policies classify root canals as major procedures, while others treat them as basic procedures and cover much more of the cost.
Dental Insurance Does Not Cover Cosmetic Procedures
Most dental insurance policies do not cover any costs for cosmetic procedures, such as teeth whitening, tooth shaping, veneers, and gum contouring. Because these procedures are intended to simply improve the look of your teeth, they are not considered medically necessary and must be paid for entirely by the patient. Some policies cover braces, but those usually require paying for a special rider and/or delaying braces for a lengthy waiting period.
Yearly Coverage Maximums
While most medical insurance policies have yearly out-of-pocket maximums, the majority of dental policies cap the amount of annual coverage. Coverage maximums typically range from $1,000 to $2,000 per year. Generally speaking, the higher the monthly premium, the higher the yearly maximum. Once the yearly maximum is reached, patients must pay for 100% of any remaining dental procedures. Many insurance companies offer policies that roll over a portion of the unused annual maximum to the next year.
Applying Tax Credits for Dental Insurance
Any leftover tax credit not used to pay for your family’s health insurance purchased through Healthcare.gov may be applied to pediatric dental insurance premiums if your medical insurance policy does not include dental coverage. If your health insurance policy includes children’s dental coverage, you cannot use tax credits to buy an additional plan.
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6f6adfde7597b4a7be2d52c8025239c5 | https://www.investopedia.com/articles/personal-finance/111715/when-are-personal-loans-good-idea.asp | When Are Personal Loans a Good Idea? | When Are Personal Loans a Good Idea?
A personal loan can be used for just about anything. Some lenders may ask what you plan do with the money, but others will just want to be sure that you have the ability to pay it back. While personal loans aren't inexpensive, they can be a viable option in a variety of circumstances. Here's how to decide if one is right for you.
Key Takeaways Personal loans can be used for almost any purpose.Unlike home mortgages and car loans, personal loans are usually not secured by collateral.Personal loans can be less expensive than credit cards and some other types of loans, but more expensive than others.
How Personal Loans Work
Some kinds of loans are earmarked for a specific purchase. You can buy a home with a mortgage, purchase a car with an auto loan, and pay for college with a student loan. With a mortgage, your home serves as the collateral. Similarly, with an auto loan, the car you're buying will be the collateral.
But a personal loan often has no collateral. Because it is unsecured by property that the lender could seize if you default on the loan, the lender is taking a greater risk and will most likely charge you a higher interest rate than it would with a mortgage or car loan. Just how high your rate will be can depend on a number of factors, including your credit score and debt-to-income ratio.
Secured personal loans are also available in some cases. The collateral might be your bank account, car, or other property. A secured personal loan may be easier to qualify for and carry a somewhat lower interest rate than an unsecured one. As with any other secured loan, you may lose your collateral if you are unable to keep up with the payments.
Even with an unsecured personal loan, of course, failing to make timely payments can be harmful to your credit score and severely limit your ability to obtain credit in the future. FICO, the company behind the most widely used credit score, says that your payment history is the single most important factor in its formula, accounting for 35% of your credit score.
When to Consider a Personal Loan
Before you opt for a personal loan, you'll want to consider whether there may be less expensive ways you could borrow. Some acceptable reasons for choosing a personal loan are:
You don't have and couldn't qualify for a low-interest credit card.The credit limits on your credit cards aren't adequate to meet your current borrowing needs.A personal loan is your least expensive borrowing option.You don't have any collateral to offer.
You might also consider a personal loan if you need to borrow for a fairly short and well-defined period of time. Personal loans typically run from 12 to 60 months. So, for example, if you have a lump sum of money due you in two years, but not enough cash flow in the meantime, a two-year personal loan could be a way to bridge that gap.
Here, for example, are five circumstances when a personal loan might make sense.
1. Consolidating Credit Card Debt
If you owe a substantial balance on one or more credit cards with high interest rates, taking out a personal loan to pay them off could save you money. For example, at this writing, the average interest rate on a credit card is 19.24%, while the average rate on a personal loan is 9.41%. That difference should allow you to pay the balance down faster and pay less interest in total. Plus, it's easier to keep track of, and pay off, a single debt obligation rather than multiple ones.
However, a personal loan is not your only option. Instead, you might be able to transfer your balances to a new credit card with a lower interest rate, if you qualify. Some balance transfer offers even waive the interest for a promotional period of six months or more.
2. Paying Off Other High-Interest Debts
While a personal loan is more expensive than some other types of loans, it isn't necessarily the most expensive. If you have a payday loan, for example, it is likely to carry a far higher interest rate than a personal loan from a bank. Similarly, if you have an older personal loan with a higher interest rate than you would qualify for today, replacing it with a new loan could save you some money. Before you do, however, be sure to find out whether there's a prepayment penalty on the old loan or application or origination fees on the new one. Those fees can sometimes be substantial.
3. Financing a Home Improvement or Big Purchase
If you're buying new appliances, installing a new furnace, or making another major purchase, taking out a personal loan could be cheaper than financing through the seller or putting the bill on a credit card. However, if you have any equity built up in your home, a home-equity loan or home-equity line of credit could be less expensive still. Of course, those are both secured debts, so you'll be putting your home on the line.
4. Paying for a Major Life Event
As with a major purchase, financing an expensive event, such as a bar or bat mitzvah, major milestone anniversary party, or wedding, could be less expensive if you do it with a personal loan rather than a credit card. Important as these events are, you might also think about scaling back somewhat if it means going into debt for years to come. For that same reason, borrowing to fund a vacation may not be a great idea, unless it's the trip of a lifetime.
A personal loan can help improve your credit score if you make all your payments on time. Otherwise it will hurt your score.
5. Improving Your Credit Score
Taking out a personal loan and paying it off in a timely manner could help improve your credit score, especially if have a history of missed payments on other debts. If your credit report shows mostly credit card debt, adding a personal loan might also help your “credit mix.” Having different types of loans, and showing that you can handle them responsibly, is considered a plus for your score.
That said, borrowing money you don't really need in the hope of improving your credit score is a dangerous proposition. Better to keep paying all your other bills on time, while also trying to maintain a low credit utilization ratio (the amount of credit you are using at any given time compared with the amount that's available to you).
The Bottom Line
Personal loans can be useful, given the right circumstances. But they aren't cheap and there are often better alternatives. If you're considering one, Investopedia's personal loan calculator can help you figure out what it would cost you.
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65bcf0bb0116514ebf9934c192e29735 | https://www.investopedia.com/articles/personal-finance/111815/10-ways-ensure-success-entrepreneur.asp | 10 Ways to Ensure Success as an Entrepreneur | 10 Ways to Ensure Success as an Entrepreneur
It's well-known that around 50% of new businesses will close within the first five years. However, there is hope. A recent study by two economists from Stanford and the University of Michigan found that failed entrepreneurs are much more likely to be successful their second time around. In short, wannabe entrepreneurs can learn a thing or two from their already successful counterparts.
We tracked down successful entrepreneurs and asked them their number one tip for ensuring success.
Have a servant’s attitude
Vladimir Gendelman, the founder of Company Folders, hit the nail on the head with this tip: “To succeed in business, you must have a servant's attitude. Most business owners think, 'Finally, I'm my own boss!' They relish the idea of being in charge. But that idea is false. In a normal job, you have one boss, but as a business owner, everyone is your boss: customers, vendors, even your employees. When you have a servant's attitude, you recognize that it's your job to make those three groups happy,” he says.
Stick to the business plan
Many new business owners underestimate the power of a business plan. Nicholas Kensington, Scottsdale Real Estate Agent, shares “I think so often so many of us think we don't need a business plan, or that it might be a waste of time. It's not. Writing up the business plan, and making sure to get rid of anything vague was so helpful. Hammering this down to be as specific as possible with what I would do next helped me greatly.” (Also read, How to Write a Business Plan.)
1:37 Entrepreneur
Provide value to others
Being passionate about your business is important if you want to make it long-term. In addition to passion, you also have to “identify something that provides value to others,” according to founder and CEO of Hush Hush Little Baby Newborn Care, Haleigh Almquist.
Be better than your competition
Almquist says another tip for success is outing your competition: “Respond to clients faster, work longer hours and take smaller profit margins." To be in business long-term, you have to make sacrifices upfront.
Hire someone to do the easy tasks
We love Allen Walton’s tip from Spy Guy Security: “Hire someone to do the $10 per hour tasks so you can do the $100 per hour tasks. I can't stress this enough and am totally guilty of doing this. I try to 'save money' by doing the small tasks that practically any untrained person can do – like going to the post office or packing orders, but I should be doing the stuff that doubles my business revenue and increases profitability,” says Walton.
Network like crazy
Almost every single entrepreneur we spoke with mentioned the value of networking. You can’t have a business without customers, so get out there and meet as many people as you can. Dr. Jeanett Tapia of Intouch Chiropractic went door-to-door meeting people in the neighborhood before opening. “By the time we opened our doors, we had 25 new patient appointments due to those long hours of getting to know our neighbors and other business owners. It paid off!” she exclaims.
Be generous with your employees
Your employees are the face of your business. Treat them fairly, and your company will reap the benefits. Curtis Boyd, the founder of Future Solutions Media, says, “It's important to maintain an image of authority and generosity. You want to be the boss who rewards employees on good hard work. People will work harder for you and your business will be more successful.”
Set up a tax account from day one
Don’t let taxes be what sinks your business. Rebecca West, an interior designer and author of upcoming book Happy Starts at Home, shares her advice. “From day one, set up a tax account (it’s straightforward, just set up two checking accounts at your bank) and put at least 10% of every single check you get into that account. One of the big things that sink a new business is not having the cash to cover those taxes at the end of the year,” she says.
Take care of your physical health
Surprisingly, many entrepreneurs mentioned how to be successful in the professional world, you have to take care of your physical health. Get exercise every day, meditate and eat healthy foods. Tasha Mayberry of Best in Baby Biz shares a few tips on healthy living: Drink two full glasses of water in the morning and always eat a healthy, clean breakfast. “By doing these things, I am laser focused all day long,” she shares.
Test your idea before launching it
You may think you have a great idea – but do other people? Many of the entrepreneurs we spoke with said you should always test your idea or product before going “all in.” Make sure you get a few second opinions on your business and have people that are interested in what you’re doing. For example, Travis Bennett, Managing Director of Studio Digita, freelanced and developed a steady stream of clients before launching his agency. The more you can test your business, the better chances you have of success.
The Bottom Line
To ensure success as an entrepreneur, learn as much as you can from other, successful entrepreneurs, test your product or idea before launching it, and never give up. Passion coupled with hard work and determination will lead to a successful business.
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bff29eb54f0cb2122beca5d034ef473a | https://www.investopedia.com/articles/personal-finance/112015/how-hras-work.asp | How Does an HRA Work? | How Does an HRA Work?
Health reimbursement arrangements (HRAs) are a benefit that some employers offer their employees to help with healthcare expenses. They’re a way for companies to reimburse workers for these costs, and reimbursements are generally tax-free when used for qualified medical expenses.
Beginning in January 2020, the government now allows employers to offer their employees two new types of HRAs. The first is called an "individual coverage HRA," and companies can only offer it if they don't offer group health insurance.
Employees can use these HRAs to buy their own comprehensive health insurance with pretax dollars either on or off the health insurance exchange. Individual coverage HRAs can also reimburse employees for qualified health expenses such as copayments and deductibles.
It’s up to employers how much to contribute to employees’ individual coverage HRAs, except that all workers in the same class of employees must receive the same contribution. Workers who are older or who have dependents may receive more.
Under the new rules, employers that continue to offer traditional group health insurance can also offer the second new type: "excepted benefit HRAs." These plans reimburse employees for up to $1,800 a year in qualified medical expenses. Employees can enroll in an excepted benefit HRA even if they decline group health insurance coverage, but they cannot use the funds to buy comprehensive health insurance. They can, however, use the funds to pay for short-term health insurance, dental and vision premiums, and qualified medical expenses.
Key Takeaways Beginning in January 2020, employers of all sizes can now offer to reimburse their employees for some of the cost of buying individual health insurance plans instead of offering group health insurance.These reimbursement arrangements, called individual coverage HRAs, can also pay employees back for qualified medical expenses such as coinsurance and deductibles.Employers who continue to offer group coverage may also offer their employees excepted benefit HRAs to reimburse employees for qualified medical expenses, but not for comprehensive health insurance premiums.
Who Funds an HRA?
HRAs are funded entirely with employer money. An HRA is not an account (though you may see it mistakenly referred to that way). It’s a reimbursement arrangement between employee and employer. Employees can’t invest the balance and it doesn’t earn interest. If you participate in an HRA, you won’t see any deductions from your paycheck.
Instead, your employer decides how much it is willing to reimburse you for healthcare costs on a monthly or annual basis. If you still have a balance at the end of the year, it may roll over to the next year as long as your employer continues to offer the HRA and you continue to participate, but it also may not: That decision is up to your employer, too.
How to Participate
To participate in an HRA, you must opt-in during your employer’s open enrollment period. If you have a qualifying life event, you can sign up outside of open enrollment. Spouses and children who participate in your employer’s health insurance plan can also be reimbursed through an HRA. Unfortunately, if you’re self-employed, you can’t use an HRA.
The IRS has released new guidance that allows employers more flexibility for benefit plans during the Covid-19 crisis. If an employer elects to allow this (these provisions are entirely at the discretion of the employer), an employee can make a new election if the employee initially declined to elect employer-sponsored health coverage; revoke an existing election and make a new election to enroll in different health coverage sponsored by the same employer; and revoke an existing election, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer. If you're not sure about your options, check with your HR or benefits person.
Reimbursable Expenses
It’s up to your employer to decide which expenses you will be reimbursed for. The expense must be a qualified medical expense listed in IRS Publication 502, but your employer can use a narrower list. In general, employees can use an HRA to be reimbursed for qualified medical expenses their health insurance doesn’t pay for, such as medical and pharmacy expenses they must pay out of pocket before meeting a deductible, as well as a coinsurance that applies after meeting a deductible.
Qualified medical expenses include costs like visiting the doctor when you’re sick, getting X-rays, or having surgery. Dental and vision expenses usually qualify, too, as do a few over-the-counter items, such as diabetes-testing aids, blood-pressure monitors, and contact-lens solution.
Employers can’t let you use HRA funds for things the IRS doesn’t allow, though. You can’t use an HRA for over-the-counter medicines unless your doctor has written a prescription for them. You also can’t use an HRA to be reimbursed for costs you incurred before your HRA participation became effective or for costs from a different year.
$14,273 The average employer contribution to an HRA to cover premiums for a family in 2019; the average employer contribution for a single person was $5,758.
Reimbursement Logistics
Often, your HRA administrator will be able to verify your claim automatically, but sometimes you’ll need to submit an itemized bill from your healthcare provider to substantiate your claim. By law, no expense is too small to be reimbursed, but your employer might require you to accumulate a minimum amount of reimbursable expenses before it will issue a check.
Your employer chooses how it will reimburse you for qualified medical expenses. You may receive a debit card so you can pay for your expenses as needed, or you may have to pay up front, then request reimbursement. Some plans will reimburse your doctor directly, so you don’t need to use a debit card or wait to get your money back.
The maximum you can be reimbursed per year is whatever your employer decides. In 2019, the average employer contribution to an HRA to help covered workers pay for premiums was $5,758 for single coverage and $14,273 for family coverage, according to the Kaiser Family Foundation’s 2019 Employer Health Benefits Survey employers contributed an additional $1,713 for singles and $3,255 for families to pay for qualified medical expenses. If your employer allows it, you may be able to spend the amount remaining in your HRA within a limited period if you are terminated.
Tax Benefits
You don’t have to report your participation in an HRA on your tax return. The amount your employer is willing to reimburse you for medical expenses through an HRA is not considered taxable income, nor are the actual amounts reimbursed, as long as you put the money toward qualified medical expenses as defined by the IRS and your employer.
Exceptions to tax-free distributions apply in a few situations: If your employer pays out your unused reimbursements at the end of the year or when you leave your job, the money will be considered taxable income. Since it’s not being used to reimburse you for qualified medical expenses, it’s treated as ordinary income.
Using an HRA With an HSA or FSA
Can you combine an HRA with an HSA or FSA? Before answering that question, it's important to spell out the meaning of these two other acronyms. Here's a quick reminder, since health insurance terms can get confusing:
HSAs are health savings accounts, which must be used with a high-deductible health plan (HDHP). Contributions can come from both employers and employees, the balance can be invested and rolled over from year to year, and the account goes with you when you change jobs. (These accounts can also be useful as retirement savings vehicles.)FSAs are flexible spending accounts (also known as flexible spending arrangements), which don’t have to be used with an HDHP. Contributions come only from employee payroll deductions and the balance can’t be invested and doesn’t earn interest. FSA funds must be used in the current plan year, though some employers allow small amounts to roll over or give employees a grace period at the beginning of the following year to use up the balance. Also, FSAs don’t go with you when you change jobs.
In most cases, you cannot use an HRA along with a health savings account (HSA). However, it is possible to have both an HRA and an FSA. If you do, great—that’s even more untaxed income you can use for medical expenses. You can contribute up to $2,700 to an FSA in 2019, and your employer will take that money out of your paycheck.
The question is if you have both an HRA and an FSA, which account should you use to pay for a given medical expense? If an expense is only covered by one account or the other, you have your answer. If it’s eligible to be paid from either account, you’ll need to know your employer’s rules about which account pays first. It probably goes without saying, but you can’t double-dip and be reimbursed for the same expense from both accounts.
The Bottom Line
If your employer offers you a new type of HRA called an individual coverage HRA in lieu of group health insurance, you'll receive a tax-free reimbursement for the premiums you pay for the comprehensive health insurance you purchase on or off the exchange. You can also get reimbursed for qualified medical expenses such as coinsurance and the bills you pay before you meet your deductible.
HRAs can vary significantly from one employer to the next in terms of how much coverage they offer and which expenses will be reimbursed. So while this article has provided a broad overview of what to expect, you’ll want to read your employer's summary plan description of its HRA, if it offers one, to get the details.
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ab5d90a7964dd1c341801a39ffd225e1 | https://www.investopedia.com/articles/personal-finance/112315/berkshire-hathaway-stock-suitable-your-ira-or-roth-ira.asp | Is Berkshire Hathaway Suitable for an IRA? | Is Berkshire Hathaway Suitable for an IRA?
Berkshire Hathaway, Inc. (BRK.B) is a conglomerate holding company that is best known for its iconic chief executive officer, Warren Buffett. Otherwise known as "The Oracle of Omaha," Buffett has been building the company for more than five decades and is one of the wealthiest people in the world—estimated to have a $70.1 billion net worth as of 2020, per Forbes.
Berkshire Hathaway started as a textile manufacturing firm in which Buffett began acquiring shares early in his career. By 1965, he had taken control of the company outright.
Buffett soon began exiting the textile mill business and adding businesses from other industries including insurance, retail, and media to Berkshire's overall portfolio. Berkshire has continued acquiring stakes in financial services, utilities, and manufacturing. Berkshire has a market capitalization of $661 billion as of July 2020.
Along the way, Buffett has built a reputation as one of history's greatest investors, which makes Berkshire Hathaway stock coveted by other investors.
The Berkshire Hathaway Portfolio
Berkshire Hathaway is not a traditional company. It is a conglomerate of many different companies and exists only as a collection of stakes in publicly traded companies. Changes made by Buffett in the Berkshire portfolio often move the stock prices of the companies traded and get significant media coverage.
The portfolio's top five holdings as of March 31, 2020, included Apple (AAPL), Bank of America (BAC), Coca-Cola (KO), American Express (AXP), and Wells Fargo (WFC).
The big stake in Apple was of particular interest to Buffett-watchers, as he's historically been averse to investing in technology stocks.
Warren Buffett's Management Style
Buffett is a long-term, buy-and-hold investor focused on value. He has long been known to focus his investments on companies that he knows. As such, he tends to avoid higher risk momentum names. His preference is for well-established, slower-growth businesses. Buffett typically makes investments with plans to hold them for at least 10 years.
One of Buffett's more popular quotes is, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
One of Berkshire's more recent buyouts, the purchase of Precision Castparts for $235 per share in cash in 2015, diverged slightly from Buffett's traditional investment style. The company is typical of the type of businesses Buffett tends to favor. However, Berkshire paid a 21% premium per share to buy it, departing from Buffett's preference for good value in his trades.
Berkshire Hathaway's Performance
Buffett's investment style and choices make for a conservative portfolio overall, with less than average volatility. The principle of risk and return suggests stocks with lower risk levels also provide lower return potential.
While Berkshire Hathaway has underperformed the S&P 500's performance over the five-year period ending May 20, 2020, Berkshire has significantly outperformed the benchmark index over the 10- and 20-year time horizons. This performance demonstrates Buffett has been able to deliver above-average returns at below-average risk over the long term.
Income investors likely find the lack of a dividend yield as one of the only drawbacks of investing in Berkshire Hathaway stock. Berkshire has only paid a dividend once in 1967 and has not paid one since.
For those considering Berkshire Hathaway as an individual retirement account (IRA) holding, this is less of a concern, as withdrawals from IRA accounts are generally not permitted until the individual reaches age 59½.
The Two Share Price Classes
One of the most unusual features of Berkshire Hathaway stock is its stock price. It never splits. On July 10, 2020, Berkshire Hathaway's Class A shares (BRK.A) closed at $335,400 per share. This puts even a single share purchase out of reach of many investors. Buffett has made it clear that he prefers to attract long-term investors as opposed to traders.
In 1996, Buffett partially conceded, issuing a Class B block of shares to make his company more accessible. These shares made a 50-for-1 stock split in January 2010 and trade at $222.85 per share as of December 14, 2020.
There is essentially no difference in these shares outside of the stock price. Trading flexibility is the primary advantage of Berkshire Hathaway Class B shares.
Does Berkshire Hathaway Fit in an IRA Account?
The portfolio's composition of well-established mature businesses that can operate successfully in most market environments makes Berkshire Hathaway an investment that is appropriate for most IRA accounts. Buffett's style of investing for the long-term aligns well with the long-term nature of IRA accounts.
Younger investors can use the stock as a core long-term holding for growing portfolios. Retirees will likely maintain a lower equity allocation in their portfolios overall with capital preservation being a primary consideration. However, equities are still needed in these portfolios to help stay ahead of inflation, and Berkshire Hathaway can be an ideal choice to fill out that part of the portfolio.
The Bottom Line
For most investors, Class B shares are the only option when looking to add Berkshire Hathaway to an IRA. The maximum annual contribution to an IRA is $6,000 a year for 2020 and 2021, although people who are 50 and older can contribute an additional $1,000.
This means the Class A shares are not an option unless the investor has built up a sizable portfolio. The Class B shares are within the reach of all investors.
Mutual funds and exchange-traded funds (ETFs) that contain broadly diversified portfolios of well-established, large-cap names are often recommended as core retirement portfolio holdings. Buying shares of Berkshire Hathaway is akin to buying shares of a large-cap value mutual fund. Class B shares could thus make an ideal holding in retirement portfolios.
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378de56f986992bc439355915314f63c | https://www.investopedia.com/articles/personal-finance/112414/getting-mortgage-your-20s.asp | How to Get a Mortgage in Your 20s | How to Get a Mortgage in Your 20s
You’re twenty-something and you’re considering buying a place. Maybe you moved back in with your parents to save for a down payment—or you're living in a rental that gobbles up a huge chunk of your first grown-up paycheck and you don't feel you have anything to show for it. Unless Mom and Dad are rich, your great aunt left you a trust fund, or you're a brand-new internet mogul, you probably won’t be able to buy a home without taking on some debt.
That’s when it’s time to consider a mortgage—likely to be the biggest debt you ever take on in your life. Acquiring a mortgage, especially this early in your life ties up a lot of your money in a single investment. It also ties you down and makes it less easy to relocate. On the other hand, it means you're starting to build up equity in a home, provides tax deductions, and can boost your credit history.
Key Takeaways Getting a mortgage in your 20s allows you to start building equity in a home, provides tax deductions, and can boost your credit score. The mortgage process, however, is long and thorough, requiring pay stubs, bank statements, and proof of assets. Preapproval helps make twentysomethings more appealing homebuyers to sellers. Twentysomethings need to have enough credit history to qualify for a mortgage, which means handling debt responsibly early on and making timely student loan payments. Borrowers in their 20s may find it easier to get a mortgage through the Federal Housing Administration (FHA) or Veterans Affairs (VA).
What Is a Mortgage?
In simple terms, a mortgage is a loan used to buy a home where the property serves as collateral. Mortgages are the primary way most people buy homes; the total outstanding mortgage debt of the U.S. was approximately $15.5 trillion in the first quarter of 2019.
Unlike opening a credit card or taking on an auto loan, the mortgage application process is long and thorough. Very thorough. Going in, be ready with your Social Security number, your most recent pay stub, documentation of all your debts, three months worth of bank account statements and any other proofs of assets, such as a brokerage account.
How Do You Get a Mortgage?
If you've already found a house—much of the above also applies when you're just trying to be preapproved for a mortgage—bring as much information as possible about the place you want to buy. Pre-approval can make it easier to have your offer accepted when you try to buy a home, which could be especially crucial if you're the youngest bidder.
Lenders will scrutinize your credit score and history, which may be problematic for twentysomethings who have a limited borrowing history, or none at all. This is where having student loan debt actually helps you—if you’re making your payments on time, you’ll likely have a good enough credit score for banks to feel comfortable lending to you. Generally, the better your credit score, the lower your interest rates will be. This is why it’s absolutely vital you handle debt responsibly and build credit at an early age.
One of the biggest hurdles for first-time homebuyers is the down payment. Generally, lenders want you to pay 20% of the total loan upfront. You can get a mortgage for a smaller down payment, but your lender might require you take out a private mortgage insurance (PMI) to cover the greater perceived risk. This will add to your home's monthly carrying costs.
Tax breaks help reduce the effective cost of a mortgage, where mortgage interest paid is tax deductible.
When Is the Right Time to Buy?
Figuring out when to take out a mortgage is one of the biggest questions. Unless you somehow already own home through divine providence, you’ve probably been paying rent and changing residences every couple of years or so. Here are some factors to consider when deciding when to take out a mortgage.
Where Will You Be in Five Years?
A mortgage is a long-term commitment, typically spread out over 30 years. If you think you'll move frequently for work or plan to relocate in the next few years, you probably don’t want to take out a mortgage just yet. One reason is the closing costs you have to pay each time you buy a home; you don't want to keep accumulating those if you can avoid it.
How Much Real Estate Can You Afford?
What would you do if you lost your job or had to take many weeks off due to a medical emergency? Would you be able to find another job or get support from your spouse’s income? Can you handle monthly mortgage payments on top of other bills and student loans? Refer to a mortgage calculator to get some idea of your future monthly payments and measure them against what you pay now and what your resources are.
What Are Your Long-Term Goals?
If you hope to raise kids in your future home, check out the area for its schools, crime rates, and extracurricular activities. If you’re buying a home as an investment to sell in a few years, is the area growing so that the value of the home is likely to increase?
Answering the tough questions will help you determine which type of mortgage is best for you, which can include a fixed or adjustable-rate mortgage. A fixed-rate mortgage is one in which the interest rate of the mortgage stays the same for the life of the loan.
An adjustable-rate mortgage (ARM) is one where the interest rate changes at a set period according to a specified formula, generally tied to some kind of economic indicator. Some years you might pay less interest, in others, you might pay more. These generally offer lower interest rates than fixed loans and might be beneficial if you plan to sell the home relatively soon.
Making a Mortgage More Affordable
There are a handful of ways to reduce the price tag associated with a mortgage. The first is tax breaks, where the interest you pay on your mortgage is tax-deductible. There are also Federal Housing Administration (FHA) loans. Loans through the FHA generally require smaller down payments and make it much easier for borrowers to refinance and transfer ownership.
There’s also the Veterans Affairs Home Loan Guaranty Service, which is perfect for twentysomethings returning from military service, VA home loans make it much easier for veterans to buy and afford a home; many of its loans require no down payment.
The Bottom Line
Homeownership can seem like a daunting prospect, especially as you’re starting your career and still paying off your student loans. Think long and hard before you take out a mortgage; it’s a serious financial commitment that will follow you until you either sell the property or pay it off decades from now. But if you’re ready to stay in one place for a while, buying the right home can be financially and emotionally rewarding.
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25bb25337428574fa584472adac4dadc | https://www.investopedia.com/articles/personal-finance/112515/how-life-insurance-works-divorce.asp | How Life Insurance Works in a Divorce | How Life Insurance Works in a Divorce
Among the messy tasks that must be undertaken in a divorce, sorting out life insurance is one that often gets overlooked. In the midst of the custody battles, divvying up assets, searching for a new home, ensuring the children adjust as smoothly as possible and just generally re-acclimating to life as a single person, figuring out what to do with life insurance sometimes falls by the wayside.
However, dealing with life insurance is an important part of the divorce process. This is especially true for divorcing couples with children. Keeping life insurance in order protects the financial interests of both parties and their dependent children. This process involves making necessary beneficiary changes, accounting for the cash value in whole or universal life policies, protecting child support and alimony income, and, most importantly, ensuring that any children involved are financially protected, no matter what.
Key Takeaways Life insurance policies pay out a death benefit upon the insured's death to their named beneficiaries. Permanent life insurance policies also have cash values associated with them that can be drawn upon. In a divorce, both beneficiaries and policy ownership should be modified to account for the change in marital status and its implications.
Insurance Beneficiary Changes to Make During a Divorce
Most married people with life insurance list their spouse as the primary beneficiary. The purpose of life insurance is to protect those closest to you from financial devastation if you die and your income is lost. For a married person, no one is closer than a spouse. Having your spouse as your beneficiary ensures he can keep paying the mortgage, putting food on the table and, if applicable, raising the children without your income. Having life insurance is especially important if you provide the majority of the income.
In the case of a divorce, particularly an acrimonious one, there is a good chance you will no longer want your ex-spouse profiting from your death. If no children are involved, few good reasons exist to continue having an ex-spouse as your life insurance beneficiary. Most life insurance policies are revocable, meaning the policy owner may change the beneficiary at any time. Some appoint irrevocable beneficiaries, in which case the beneficiary, once designated, cannot be changed. The easiest way to change your beneficiary after the divorce is to contact your life insurance agent; he can verify if the policy is revocable and re-designate your beneficiary.
Accounting for Cash Value
Some life insurance policies, particularly whole life and universal life policies, accumulate cash value over time. Each month when you make your premium payment, a portion of that money enters a fund that grows with interest. The balance of this fund is the policy's cash value. This is your money. At any point, while the policy is active, you may elect to forgo the death benefit and instead take the cash value. This process is known as cashing out your life insurance policy.
The cash value from a life insurance policy represents part of your net worth. The most equitable thing to do is to list the life insurance policy, including its cash value, among the marital assets to be divided. In a common divorce situation where assets are divided evenly, this means you leave the marriage with half the cash value from the policy.
Protecting Child Support and Alimony Income
Protecting child support or alimony income is especially important for the spouse who takes primary custody of the children after the divorce. The money this spouse receives in child support from the noncustodial parent is supposed to go toward feeding and clothing the children and saving for college. If the worst happens and the noncustodial parent is not around anymore, this income goes away and potentially leaves the custodial parent in a bind.
If you have custody of the kids, the most prudent way to insulate yourself from the above situation is to maintain a life insurance policy on your ex-spouse with a benefit amount high enough to replace your child support or alimony income at least until the last child leaves for college. As the custodial parent, if your ex is irresponsible or untrustworthy, you may want to own the policy and pay the premium yourself since life insurance becomes null and void if the payments lapse.
Protecting Your Children
One of the biggest challenges of divorce is that it frequently turns people into single parents. Sadly, many parents find they cannot rely on their ex-spouses after they end the marriage, financially or otherwise. Divorced people in these sorts of situations become solely responsible for the care and upbringing of their children. When this happens, it is important to have an emergency plan in place.
With your ex-spouse no longer in the picture and your children relying solely on you for financial support, if you die, they have nothing. Without your income, your children have no way to feed or clothe themselves, much less save for college. A guardian, either a relative or someone appointed by the state, will assume the care of your children, but there are still many unknown factors in this situation.
If divorce makes you a single parent, you need adequate life insurance on yourself to protect your children. To determine the minimum benefit amount, calculate how many years you have until your youngest child turns 18 (or, if you want to be extra safe, 21) and multiply this number by your annual income.
For example, if you make $50,000 per year and your youngest child is six, a death benefit of $600,000 replaces your income until that child is 18. A $750,000 benefit sees the child through until he is 21. In an era of rapidly increasing college costs, choosing the larger benefit amount is prudent as long as the premiums are not too oppressive.
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b14bc61203ec16154afc433bd3e32b66 | https://www.investopedia.com/articles/personal-finance/112515/top-5-reasons-banks-wont-cash-your-check.asp | Top Reasons Banks Won't Cash Your Check | Top Reasons Banks Won't Cash Your Check
We may be moving toward a cashless society, but we're not there yet. Despite the growth of electronic payments, debit cards, and credit cards, checks are still widely used in the United States. More than 14 billion paper checks were issued in 2018 alone, according to a Federal Reserve report.
While writing a check is quite simple, cashing one can be a chore. if you're heading into a bank or credit union with your check, it's important to be prepared. To avoid any problems, review these top reasons a bank may not cash your check.
Key Takeaways You will need a government-issued photo ID when cashing a check.If the check is made payable to your business, make sure you have a business account at the bank and that the business is properly registered with the state.Banks may require advance notice to cash large checks.Checks can be difficult to cash if they're "stale-dated."2
You Don't Have an Account There
A bank is not obligated by law to cash a check for you if neither you nor the writer of the check has an account with that bank.
If the check was written by someone with an account at that bank, the bank may honor the check assuming there's enough money in the account.
You Don’t Have Proper ID
Banks have to protect themselves against check fraud. Without proper proof of identity, a bank can legally refuse to cash a check made out to your name.
Always carry proper government-issued identification such as a driver’s license or passport when you intend to cash a check. The bank may demand that these proofs be "valid," or current, even though your picture is right on it.
In some states, banks are allowed to swipe the magnetic stripe of the driver’s license or identification card issued by the Department of Motor Vehicles as a requirement to cash a check, as long as they stay within the legal limitations of what they can do with that information.
The Check Is Made to a Business Name
Say a business owner wants to cash a check written to the business. For example, John Smith, owner of John Smith Landscaping Services LLC, wants to cash a payment from a customer.
That may seem harmless enough, but it might not be cashable if the owner has not followed through with a few simple—and necessary—procedures.
John just finished a large job and receives a check made to John Smith Landscaping Services LLC. He tries to cash that check at a nearby bank, but the bank teller refuses to complete the transaction unless John can provide proof of valid business registration with the state.
Business owners need to take two steps to prevent the problem:
Complete the registration of the business with the state government. The limited liability company (LLC) is the most common type of state business registration. Others include corporations, nonprofit organizations, and partnerships.Open a business account at the bank under the business name.
Both these steps are needed for other purposes, notably for tax filing, but they'll also save aggravation at the bank.
If you don't have an account at that bank, you may be charged a check-cashing fee, especially if you go to the payor's bank.
Large Transactions
Not all bank branches can handle a large cash transaction without advance notice. Credit unions and smaller branches of large national bank chains may not have the necessary cash on-site to clear a very large check.
For example, a bank may routinely keep $50,000 available per day for customer transactions. It will not be willing to hand most or all of it to a single customer and tell the next customer that the bank is out of cash.
When you have a check for a very large amount of money, call ahead to the manager of the bank branch you intend to visit. The bank manager will advise you whether you should go in by appointment, go to the main branch, or even go to another bank that can handle the transaction.
Stale Checks
Some checks carry notices indicating that they will become void after a certain period of time. Once that date has passed, these checks are referred to as stale dated.
Some checks can become stale-dated as early as 60 days, while others may be 90 to 180 days. While the Federal Reserve considers those notices to be guidelines, some banks are very conservative and won't budge.
If you wait too long to cash a check, a bank can refuse to cash it. Legally, a bank can refuse to cash any check that is older than six months. Some banks may decide to cash it anyway as a favor to a long-time customer, but that is entirely at the bank's discretion.
Another reason a bank may not be able to cash a check that is too old is that the routing number of the institution issuing the check may have changed as a result of a merger or acquisition.
Hold Payment Requests
If you try to cash a post-dated check (one with a future date on it) and a bank refuses to cash it, the bank may be following instructions from the person who wrote the check.
When someone gives advanced written notice to your bank to not cash a post-dated check, the request is valid for six months under state law. An oral notice is valid for only 14 days. Banks are obligated to follow these requests from their clients strictly.
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ddc307ed1bb552559f107acb654506c2 | https://www.investopedia.com/articles/personal-finance/112915/how-much-money-do-you-need-retire-56.asp | How Much Money Do You Need to Retire at 56? | How Much Money Do You Need to Retire at 56?
To most of us who have to go to work every day, retirement sounds wonderful. Getting out of the rat race early sounds like an even better idea. Instead of working until we're in our 60s, retiring a decade earlier would give us that much more time to enjoy the good life. The question is: To retire at age 56—10 years sooner than the full Social Security retirement age for those born between 1943 and 1954—how much money will it take?
Key Takeaways Retiring at age 56 takes careful financial planning. If you earn the maximum in social security, it will make it easier to stretch your dollars. You will need to use your savings during retirement until social security kicks in at age 66. If you take social security at age 62, the amount you receive will be lower than if you wait.
How Much Income Do You Need?
Let's do some informal, back-of-the-napkin calculations to get a ballpark idea of how much income is required to make the dream come true.
Jot down the amount of money you spent last year. If you spent $35,000 to maintain your lifestyle, then you need $35,000 a year starting at age 56. If you spent $100,000, $200,000, $250,000, or some other amount last year, then that is the number you will need.
This simply assumes that the lifestyle you want next year is the same lifestyle that you enjoyed last year, so you need adequate savings and other income sources to pay your bills once you reach full retirement age at 66.
But it doesn't take into account things that might affect your expenses in a major way, either pleasant (a trip around the world) or unpleasant (a serious illness).
It also ignores the insidious effects of inflation.
How Much Savings Do You Need?
If you retire, the earned income stream is shut off. So, how much in savings do you need to pay the bills?
All other things being equal, you'll need to have about 10 times the amount of your expenses saved up in order to generate sufficient income on which to live until you can start collecting Social Security benefits at age 66.
Income Requirement = $35,000 Income Requirement = $100,000 Year 1 $350,000 savings $1,000,000 savings Year 2 $315,000 savings $900,000 savings Year 3 $280,000 savings $800,000 savings Year 4 $245,000 savings $700,000 savings Year 5 $210,000 savings $600,000 savings Year 6 $175,000 savings $500,000 savings Year 7 $140,000 savings $400,000 savings Year 8 $105,000 savings $300,000 savings Year 9 $70,000 savings $200,000 savings Year 10 $35,000 savings $100,000 savings
Until you can start collecting Social Security benefits at age 66, you'll need approximately 10 times the amount of your annual expenses saved up to generate sufficient income on which to live comfortably.
The Government's Role
What if you look at those numbers and think to yourself that you don't have nearly enough money to maintain your lifestyle for a decade and still pay your bills. But you still want to retire at 56. This brings us to a second back-of-the-napkin calculation of how much you need to get by in early retirement.
Again, start with the simplest of assumptions: At age 66, Social Security will be your only source of income at retirement. You started work at age 20. You qualify for the maximum possible Social Security benefits. In this scenario, the maximum that a retiree in 2021 could collect is $3,895 per month. That comes to $46,740 a year.
So, let's assume that's your minimum: an annual income of $46,740. By that math, you would need $467,400 total to pay your bills for a decade until the first benefit check arrives.
Of course, you can elect to start collecting Social Security benefits a bit earlier, at age 62. That will significantly lower the size of the payments, however.
1:48 How To Retire At 50
The Bottom Line
Naturally, these assumptions do not reflect the realities of a complex world. While the simple math is easy to calculate, it does not take into account the variables of investment returns, the rising cost of living, unexpected expenses, potential healthcare costs, and a host of other factors as well as potential changes in personal spending habits and lifestyle.
Whichever of these two methods you choose, the bottom line is you'll need a tidy sum in savings to tide you over until Social Security kicks in.
Ask yourself: Can you cut any of your current expenses? Will you have a pension check waiting for you 10 years from now? Do you stand to inherit some money? Does your spouse have an income that can help fund your plan? Do you even qualify for the maximum Social Security payment? Can you live on the amount of Social Security you do qualify for?
The answers to these questions are different for everyone. Retirement planning is a highly personal process. Only you know all the specific details of your personal financial situation, and only you know what sacrifices you are willing to make to realize that dream of kissing the working-stiff life goodbye.
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1953c601c98959647fd4f786d6a7edba | https://www.investopedia.com/articles/personal-finance/113015/using-your-ira-pay-credit-card-debt.asp | Using Your IRA to Pay off Credit Card Debt | Using Your IRA to Pay off Credit Card Debt
You feel like you're drowning in credit card debt. And while you can't squeeze anything more out of the paycheck, you may have a tidy sum sitting in your individual retirement account (IRA). Sure, those funds are supposed to stay untouched until you retire. But that's a long way off.
Might it be a better move to use all or part of them now to get those high balances off your back? Read on to find out more about the downsides to using your retirement funds to pay off your credit card debt.
Key Takeaways Withdrawing funds from your IRA is not a wise financial decision.Any withdrawals from a traditional IRA before the age of 59½ are subject to taxes and a 10% penalty.Roth IRAs limit withdrawal amounts—which are also taxed—and funds must be in the account for at least five years.Make sure you use the funds to pay off your debt, and use wise financial decisions so you don't end up overwhelmed by debt again.
The Downside
First of all, it’s important to acknowledge up front that this may not be a wise financial move for several reasons. Depending on the type of account you have, the rules may vary when it comes to withdrawals. When you withdraw funds early from an IRA, you will likely face taxes and/or penalties, which can add substantially to the cost of taking out that money.
With a traditional IRA, since you did not pay taxes on the money before you put it in, you have to pay income taxes when you take it out. In addition, if you're making that withdrawal before the age of 59½, you will owe a 10% tax penalty.
Withdrawing funds from an IRA before age of 59½ will result in a 10% penalty.
A Roth IRA allows you to withdraw funds tax-free, assuming the money has been there at least five years, because that contribution was made with after-tax dollars. However, you are limited to the amount you've actually contributed. Any part of the withdrawal that comes from investment earnings is subject to taxes if you take it out before the age of 59½. These early withdrawals are also subject to the 10% penalty.
Here's another consideration that you may need to consider. A significant early withdrawal of traditional IRA funds could bump you into a higher tax bracket. The same would apply to earnings from a Roth IRA, which would be taxed and considered income in the year in which it was withdrawn.
"Paying off credit card debt using your IRA jeopardizes your future retirement savings," says Carolyn Howard, founder of SeaCure Advisors LLC, in Sarasota, Fla. "It also causes you to pay more for the credit card debt due to the taxes on the IRA withdrawal."
Making the Withdrawal
Okay, so you understand you'll take a hit. If you wish to proceed, it’s important to follow a plan that minimizes collateral financial damage.
Start by listing all outstanding credit card debt, in order of annual percentage rate (APR), from highest to lowest. Decide how much of the total debt you want to pay off.
Next, check the IRA current balance. When calculating how much to withdraw, take into account any taxes and penalties, along with the amount of debt you wish to pay off. Remember that the rules for traditional and Roth accounts are different.
Calculate whether the total amount you wish to withdraw will put you in a higher tax bracket. If so, consider withdrawing over two tax years, paying off part of the debt one year and one the next.
"It's wise to be as tax-conscious as possible," says Carlos Dias Jr., founder and managing partner of Dias Wealth LLC in Lake Mary, Fla. "I always recommend running a projection report with an accountant or software (if you know what to do), potentially spreading the tax liability over several years."
Contact the financial institution that holds your IRA and ask for a distribution form. If you do not need to withdraw the full amount, make sure you're allowed partial withdrawals. When you submit the form, make sure you include all required documentation including how you wish to receive the funds, whether that's by check or direct deposit.
When You Get It
Once the funds are in your checking account, promptly pay off the credit cards you earmarked in order of highest APR. Remember, this isn't a windfall. Use the money for the intended purpose and for nothing else.
It may be tempting to scrape a little off the top for a big-ticket item you couldn't otherwise afford, or to use it for a quick, unexpected vacation. Don't do it. Leaving a balance on a credit card continues to add an expense until it is paid off.
Look for Exceptions
There are exceptions to the 10% early withdrawal penalty from an IRA including death, disability, and qualified education expenses.
A full list of exceptions appears on this IRS chart. One in particular, known as rule 72(t), allows penalty-free early withdrawals from an IRA, provided you make at least five substantially equal periodic payments (SEPPs) over your lifetime. Depending on the amount of credit card debt you wish to pay off, the time frame in which you want to make payments, and the amount you would receive via the application of rule 72(t), this may or may not help.
Even if you qualify for an exemption from the penalty, the regular income taxes on your withdrawal are still due.
Other Options
Before making any withdrawals, make sure you consider other options for paying off your credit card debt.
One is going on a budget diet. This consists of taking a hard look at how much money comes in, how much goes out. You should also consider making cuts wherever possible. This means you may need to drop satellite or cable for over-the-air television, carpooling instead of driving to work, or borrowing books from the library instead of buying them from Amazon. Dig deep to find out how you can cut costs and create a pool of funds to dedicate to debt repayment.
There are different ways to attack your debt. A number of apps and online spreadsheets promote a variety of debt reduction strategies such as paying the cards with the highest interest rates first, or the debt snowball method. This strategy involves paying off the account with the lowest balance first, while making minimum payments on the rest. You will then use that money you save on the eliminated account to pay off the next lowest balance card, and so on, until your entire debt load is clear.
Regardless of what strategy you use, they involve applying the same amount of money to reduce debt each month—even after one account is paid off. You just apply bigger amounts to each remaining balance until all accounts are at zero.
Other methods for paying off debt include:
Transferring balances to lower-interest credit cards.Taking out a personal loan.Borrowing from your 401(k).Filing for bankruptcy. In most cases, IRA accounts are protected during bankruptcy proceedings.
It’s important to examine other options to make sure the path you are on is the right one for you.
"Because credit card debt has such high interest rates, there are virtually no investments that will outperform it," says Cullen Breen, president of Dutch Asset Corporation in Albany, N.Y. "Because of this it can make sense to take the money from elsewhere."
The Finish Line
After all this, you've decided to make that withdrawal, you've prepared yourself for the implications, and you pay off your debt. Congratulations. But you're not out of the woods yet. Keep a handle on your spending and credit card use. If you don't, you may end up in the same position, and you can't rely on your IRA every time. After all, it's meant to be tucked away until you retire, and isn't a cash machine.
The Bottom Line
As good as it is to get out of debt, using IRA funds to do so comes at a cost, and not just the immediate ones of the taxes and penalties. You cannot effectively replace withdrawn funds since there are limits on the amount you can contribute to your IRA in any given year. If you are already putting in the full annual amount, you have no way to put in more, and so "make up" the amount you'll have lost in savings and interest.
"One of the benefits of a retirement account is the tax-deferred or tax-free growth of your principal. This means that more money is working for you to grow your retirement nest egg. If you remove part of your retirement savings, it will not only provide you with less retirement savings, but you will also have less money compounding for you over time," says Kirk Chisholm, wealth manager at Innovative Advisory Group in Lexington, Mass.
Still, sometimes using an IRA to pay off consumer debt is the best available option. If it’s your best available option, make sure you are well-organized and prepared to avoid traps. Do all you can to minimize the cost to you and your finances, so that when it’s all over you can start afresh on the important tasks of living within your means and re-building your retirement nest egg.
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fd8a731ebe0af5217665c92b37e9d1f1 | https://www.investopedia.com/articles/personal-finance/120215/going-back-india-retire-howto-guide.asp | Going Back to India to Retire: A How-to Guide | Going Back to India to Retire: A How-to Guide
If you have ever held an Indian passport, are married for at least two years to an Indian citizen, or at least one of your parents, grandparents, or great grandparents is or has been an Indian citizen, you may qualify as a Non-Resident Indian (NRI) or Overseas Citizen of India (OCI).
Having NRI or ORI status can impact Social Security benefits, owning property, dual citizenship, and taxes. (Note that citizens of Pakistan or Bangladesh may not have OCI status.)
Key Takeaways As a U.S. citizen, you can continue receiving your Social Security benefits in India for as long as you are eligible for them.NRIs and OCIs can legally own non-farm property and exercise property ownership rights.The U.S. Embassy in New Delhi notes that "India does not allow dual nationality."
Social Security Benefits
As a U.S. citizen, you can continue receiving your Social Security benefits in India for as long as you are eligible for them. If you are eligible for Social Security benefits and are an Indian citizen but not a U.S. citizen, your payments will continue while you are out of the U.S. for six consecutive calendar months or more (depending on your situation) as, according to the Social Security Administration, "you have met an exception to the alien nonpayment provisions of the Social Security law."
Use the Social Security Administration's Payments Abroad Screening Tool for details pertaining to your specific situation.
You can have your benefits deposited directly into a bank account or other financial institution in the U.S. or India (or in any country that participates in the Social Security Administration's International Direct Deposit program).
There are several advantages to using direct deposit: You'll have access to your money faster than if you wait for checks to arrive, plus you eliminate the risk of a delayed, lost, or stolen check. If your benefits are deposited in a U.S. bank, you can use your ATM card to access funds while abroad.
Nonresidents in India can open rupee accounts only for the duration of their visa (about six months for a tourist visa); the account will automatically close unless the visa is extended.
Instead of using direct deposit, you can opt to have your benefit checks mailed to you, or you can pick them up in person; the U.S. Embassy's American Citizen Services Unit in New Delhi receives Social Security and other federal benefit checks from the U.S. Department of Treasury between the 10th and 15th of each month. Checks are then mailed out.
However, if you prefer, you can pick up your check at the U.S. Embassy if you live in the New Delhi Consular District or at one of the U.S. Consulate offices in Mumbai, Kolkata, Hyderabad, or Chennai, depending on where you reside. The embassy does not process claims for Social Security. The closest Social Security Administration office is located in the U.S. Embassy in Manila, Philippines.
Remember, Medicare doesn't cover health services you receive outside the U.S. If you return to the U.S., Medicare benefits will be available to you, but you will pay a 10% higher premium for every 12-month period you could have been enrolled but were not.
Land-Ownership Laws
NRIs and OCIs can legally own nonfarm property and exercise property ownership rights. If you are a foreign national, you can legally buy property in India if you are a resident of the country. To qualify as an Indian resident, you must have lived in India for more than 182 days during the previous financial year (note that the tourist visa is valid for only 180 days).
Also, your continued presence in India must be for the purpose of taking up employment, carrying on business or vocation in India, or for any other purpose that would indicate your intention to stay in India for an uncertain period.
Real estate transactions in India are complicated whether you are an NRI, OCI, or a foreign national resident. To protect your interests and help ensure a smooth process, work with a qualified real estate attorney.
Dual Citizenship and Visas
The U.S. Embassy in New Delhi notes that "India does not allow dual nationality. By asserting your U.S. citizenship, India would expect you to renounce your Indian citizenship." OCI is the closest thing to dual citizenship that the government offers. You can eventually become an Indian citizen if you are an OCI for five years and live in India for at least one year.
Taxes
Indian residents are taxed on worldwide income. If you are a resident but not ordinarily resident (RNOR) or a nonresident, you are taxed only on Indian-sourced income. Although you must file your taxes in both countries, the U.S. and India have a tax treaty in place, which means you can avoid double taxation by taking advantage of specific exclusions and tax credits. Indian tax laws are complicated and are liable to change frequently, so it is strongly recommended that you hire an experienced tax accountant to receive the most favorable tax treatment possible.
The Bottom Line
Figuring out details like Social Security benefits and land ownership are essential parts of planning a retirement abroad. In addition to the logistics, it's crucial to think about the financial impact and cultural effects that living in a foreign country will have on you.
Anyone who has ever lived overseas knows that visiting a foreign country is one thing, but settling there is a different experience. Even if you have family in India and no language barrier, your comfort zone may be challenged each day as you adapt to the new surroundings, customs, and way of life.
While some adventurous retirees enjoy such changes, others may find them overwhelming. In these cases, it might be better to live overseas on a part-time basis only, perhaps six months at home and the rest of the year abroad. If your situation permits, it's essential to consider your comfort level, friends, family, finances, and health care needs before making any decisions to retire overseas full-time.
If you are a U.S. citizen traveling or living abroad, consider enrolling in the Department of State's Smart Traveler Enrollment Program (STEP), which provides security updates and makes it easier for the nearest U.S. embassy or consulate to contact you or your family in case of an emergency.
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8ed1be1855894a4ef43e5afd842b17f5 | https://www.investopedia.com/articles/personal-finance/120315/how-create-budget-your-spouse.asp | How to Create a Budget with Your Spouse (in 7 Steps) | How to Create a Budget with Your Spouse (in 7 Steps)
Creating a budget with your spouse is one of those less discussed issues of being married. Working it out is a significant part of learning to be married, or getting better at it.
Marriage is variously described as an equal partnership, a merger, or a union. No matter how you describe yours, you likely agree that communication is key to your happiness. You and your spouse will need to communicate on all major issues including lifestyle choices, parenting, sex, and, of course, money. In fact, money issues are among the major reasons marriages fail.
Key Takeaways Lack of communication about money is among the top reasons marriages fail.Creating a budget together will provide a framework for avoiding conflict about finances.Using software to track your money can increase your efficiency and make it easier to stay on top of spending.A once a week “money date” can foster continued communication and help you achieve your financial goals.
The Budget Solution
Money doesn’t have to be a contentious issue. Whether your marital status is “soon-to-be,” “newlywed,” or “been in the trenches for awhile,” the key to handling money is having a financial agenda or budget. Budgets can sound complex and difficult, but they don’t have to be. A budget is simply a best guess regarding the amount of income you and your spouse will receive over a set time period along with how you plan to use it.
Start by sketching out a basic budget plan together. Then, once you and your spouse have a budget, following your plan is just a matter of checking in with each other on a regular basis. Ideally you will do this using free or inexpensive software to track your ongoing financial success in a way that is easy, accurate, and quick (see more on this in Step 6). Here are the seven steps to follow.
Step 1: Set S.M.A.R.T. Goals
Your short-term, medium-term, and long-term financial goals will have a huge impact on your overall budget. Short-term goals typically take one or two years to achieve and include things like creating a three-to-six-month emergency fund, paying off credit card debt, and saving for a special vacation. Medium-term goals include saving for a down payment on a house, paying cash for a new car, or paying off student loan debt. This can take up to 10 years. The most important long-term goal anyone can have is saving for retirement and that requires saving and investing for most of your working life, which can be up to 40 years—or even longer.
When it comes to setting goals, many people rely on the S.M.A.R.T. acronym. The words have varied, but the ones often used for financial goal-setting are:
Specific—State your goal in a few well-chosen words. “We want to own a condo in the Bahamas.”Measurable—How will you know you’ve achieved your goal? “How much will it cost?”Achievable—It must be something you can accomplish financially given your means. “Can we save that much given our current and predicted future income?”Realistic—Even if achievable, does it make sense in your situation? “What will we have to give up and is that OK?”Time-based—Your timeline will tell you whether this is a short, medium, or long-term goal. “How long will this take?”
Use S.M.A.R.T. to test and, if necessary, adjust your goals. If a condo in the Bahamas is out of reach or takes too long to achieve, how about a time share? Or a stateside beach condo? You may have to set some goals aside to be revisited later—say, after a big raise or promotion.
Divide your financial goals into short-, medium-, and long-range categories to make sure you are planning for your present and your future.
Step 2: Determine Your Net Income
Once your financial goals are set, take stock of your monthly income. Gross income is the amount you have before taxes and deductions. That isn’t helpful for creating a budget, although any amount that comes out for retirement, a pension, or Social Security does come into play later so be sure to note it in the money you use to budget. For purposes of creating a budget, use your net monthly income or take-home pay. This is the amount you receive before spending begins.
If you and your spouse are paid a salary or an hourly wage, your net income is likely stable. If either of you has irregular income through seasonal work, self-employment, or sales commissions, you will need to revisit the income section on at least a monthly basis.
Step 3: Add Up Mandatory Expenses
Mandatory expenses consist of costs you must pay every month. Examples include housing, which could be in the form of a mortgage payment or rent, car payments, gasoline, parking, utilities, student or other loan payments, insurance, credit card payments, and food. For some people food becomes “what’s left over after all the bills are paid,” but you and your spouse should have a rough idea of the minimum amount you need to spend on groceries and include it as a mandatory expense. Subtract mandatory expenses from net income. If your combined monthly net income is $8,000 and your mandatory expenses total $4,000, for example, you have $4,000 to carry forward to Step 4.
Step 4: Calculate What You Need to Save
Refer to Steps 1 and 2 to determine how much you need to save to reach your financial goals (Step 1), as well as how much is covered by deductions for a 401(k), IRA, or pension (Step 2). Include all of this in Step 4 before moving on. Subtract the amount you need to save (for retirement and other goals) from the amount left over in Step 3 and that is the amount available for the next category—discretionary spending. Let's say the total amount you need to save each month is $1,600. Subtract that from the $4,000 left over in Step 3 and you have $2,400 for the next step.
Step 5: Divvy Up Discretionary Spending
Discretionary spending is just what it sounds like—spending on things you want but don’t need. You and your spouse will likely have your most interesting “discussions” about discretionary spending, so buckle up. Discretionary spending means paying for the things you do or enjoy together such as eating out, vacations, watching cable/streaming shows, or wearing matching outfits for this year’s ugly Christmas sweater party. It also includes how much you spend individually. This could include individual nights out with friends, sports (i.e., tennis for one of you, golf for the other), or any of several different types of activities that each of you do with others or by yourself. Beyond the basics, it could include clothes, electronics, and how fancy a car you drive.
List all potential discretionary spending and categorize it as “joint” or “individual” spending. Discretionary spending typically is its own mini budget, created monthly based on available discretionary funds. In the example above, you have $2,400 left over for discretionary spending. That will not likely be the case every month, which means you and your spouse will need to negotiate discretionary spending with each other monthly. This will often require sacrifices from both of you. If you both accept an equal amount of pain, conflict can be minimized. And despite the need for negotiation, marriage does tend to have a positive impact on your financial picture.
Step 6: Select Your Budgeting Software
Now comes the fun part. Armed with your basic budget, you’re going to look for budgeting software that meets your needs and that both of you feel comfortable using. While almost any budgeting software program or app will work, some have features that are specifically designed to be used by couples. Three are described here.
You Need A Budget (YNAB for short) is designed around the zero-based budgeting principle that requires you to “give every dollar a job.” It works best for people who are willing to be involved in their finances and change old habits in order to make the system work.
YNAB runs on Windows and Mac computers and on Alexa and has both iPhone and Android apps available, making it a true cross-platform system. The software connects to bank and credit card accounts but does not track investments. YNAB budgets can be shared among multiple users and the YNAB site even offers information on how to budget as a couple. Designed for budgeting beginners, the platform features tutorials, videos, and a weekly podcast. YNAB comes with a 34-day free trial after which it costs $11.99 per month (or $84 for the whole year).
Honeydue is a budgeting app specifically designed for couples and includes a feature that lets you and your partner decide how much you want to share with each other. This allows for tracking of shared expenses as well as individual spending. The app is available for both iPhone and Android but has no web or computer version so everything must be done on a smartphone.
You and your partner can set monthly limits for each spending category, chat within the app, react to transactions, and ask each other about questionable spending (from a shared account). More than 10,000 U.S. banks support the app, and best of all, Honeydue is free.
Goodbudget, formerly known as EEBA, utilizes the familiar envelope budgeting system that requires you to divide monthly income into virtual “envelopes” for each spending category. When the money in an envelope is gone, that category is closed for the rest of the month. All budgets are synced between devices, and the web version, which can be viewed on any computer, makes this program (like YNAB) cross-platform as well.
The paid version of Goodbudget automatically adds transactions from multiple accounts. With the free version, everything must be entered manually. Graphs and reports of spending help reinforce the easy-to-understand envelope concept and Goodbudget’s Getting Started tutorial makes setup easy.
The free version of Goodbudget allows you to create up to 10 categories or envelopes on two devices with one bank account. The paid version, which runs $6 per month or $60 per year, allows unlimited categories and bank accounts on up to five devices, and provides email support.
Step 7: Schedule a Weekly Money Date
With software selected and up and running, the final step is to keep communication open and ongoing. Schedule a “Money Date” once a week to check in and re-evaluate your goals. Talking about finances regularly will keep you and your spouse on the same page and motivated to meet your goals. It doesn’t have to be a five-hour conversation, especially since your budgeting software will be doing most of the work. Discussing your budget over a glass of wine or while cooking dinner can be an enjoyable way to spend time together while keeping finances under control.
The Bottom Line
Setting up a budget, keeping track of it, and meeting once a week to review where you are can keep money conflicts to a minimum and help you, as a couple, meet the goals you set out for yourselves. What better way to start a new marriage on the best footing—or solidify a long-established union?
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85cfdfcc9c864ade72809cfd573901d7 | https://www.investopedia.com/articles/personal-finance/120415/5-little-known-ways-reduce-small-business-taxes.asp | 5 Ways for Small Business Owners to Reduce Their Taxable Income | 5 Ways for Small Business Owners to Reduce Their Taxable Income
Taxes can be stressful for a small business owner. You likely wear many hats, and the last thing you want to do is give more of your hard-earned business income to the government. Thankfully, there are many tax savings strategies to reduce your taxable liability as a business owner. If you need ways to reduce your taxable income this year, consider some of the following methods below.
Employ a Family Member
One of the best ways to reduce taxes for your small business is by hiring a family member. The Internal Revenue Service (IRS) allows for a variety of options, all with the potential benefit of sheltering income from taxes. You can even hire your children.
According to Scott Goble, a certified public accountant (CPA) and founder of Sound Accounting, by hiring family members, “small business owners are able to pay a lower marginal rate, or eliminate the tax on the income paid to their children.”
For example, sole proprietorships do not need to pay social security and Medicare taxes on the wages of a child, nor the Federal Unemployment Tax Act (FUTA) tax. It is important to point out that earnings need to come from justifiable business purposes. The IRS also allows small business owners the benefit of reducing their taxes by hiring a spouse, who would not be subject to the FUTA tax. Depending on the benefits they may have through another job, you may also be able to put aside retirement savings for them.
Start a Retirement Plan
As a small business owner, you give up a 401(k) match matched by an employer. However, there are several retirement account options that maximize retirement savings and reap valuable tax benefits. For example, with the one-participant 401(k) plan, the IRS allows you to put away up to $57,000 in total contributions for retirement. Some of those retirement planning vehicles include:
Simplified Employee Pension Plan (SEP)IRA or a Roth IRA403(b) plans
There are a variety of different retirement plan options for business owners on the IRS website as a tax savings strategy.
Save Money for Healthcare Needs
One of the best ways to reduce small business taxes is by putting aside money for healthcare needs. Medical costs continue to increase, and while you may be healthy now, saving money for unexpected or future healthcare needs is essential. You can accomplish this through a Health Savings Account (HSA) if you have an eligible high-deductible health plan.
“I also encourage every business owner to explore utilizing an HSA. As medical costs rise, many businesses look to lower the costs of health insurance," says Sean Moore, CFP, ChFC of Smart College Funding. "By utilizing HSAs, the business and the employees can reduce taxes and potentially associated medical costs.”
Moore explains that the savings come in three key ways, otherwise known as the triple tax advantage: your contributions are pre-tax, they grow tax-free, and withdrawals for qualified medical expenses are tax-free.
Change Your Business Structure
As a small business owner, you don't have the benefit of an employer paying a portion of your taxes. You're on the hook for the entire amount of Social Security and Medicare taxes. If your business is taxed as a Limited Liability Company (LLC), you still have to pay those taxes, though in certain circumstances you may be able to eliminate the employer-half of those two tax responsibilities. This might be a wise switch for some small businesses. While there are many things to consider in this switch, such as paying yourself a reasonable salary and other associated risks, it can be a good way to reduce your taxable responsibility.
Deduct Travel Expenses
If you travel a lot, you may be able to reduce your business taxes. Business travel is fully deductible, though personal travel does not enjoy the same benefit. However, to maximize your business travel, small business owners can combine personal travel with a justifiable business purpose. Any frequent flier miles earned from business travel can also be redeemed for personal travel later on.
The Bottom Line
With wise planning, you can reduce your taxable income as a small business owner and keep more of your money working for you. Just remember to consult a tax professional to make sure you qualify for the potential savings discussed here.
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5ac51ae2d78f45321debbb5e1576f1c2 | https://www.investopedia.com/articles/personal-finance/120415/how-secure-social-security.asp | How Secure Is Social Security? | How Secure Is Social Security?
Is Social Security safe? There are some folks in Congress predicting its bankruptcy and pushing cuts in benefits or even privatization of the program. Is there any need for such drastic measures?
First, we’ll review the basics of the program, then we’ll survey the latest numbers provided in the 2020 Annual Report from the Board of Trustees that oversees the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds. Finally, we’ll examine possible fixes that have been proposed to keep Social Security solvent and able to pay benefits for the next 75 years.
Key Takeaways The 2020 Social Security Trustees Report shows that combined retirement/survivor and disability funds will run out in 2035, the same as the 2019 estimate.A key reason: The Disability Insurance trust fund is now estimated to last until 2065, 33 years longer than 2032, the prediction of just two years ago.Population demographics mean that fixes are still needed to keep both of these funds solvent.Repair options include raising the payroll tax, raising or eliminating the ceiling over which no Social Security taxes are paid, changing how COLA is calculated, raising the retirement age, and investing Social Security funds in the stock market.
What Is Social Security?
Notice that insurance is part of the names of both Social Security trust funds. That’s because Social Security was designed during the Great Depression as a safety net to be sure that we never again find seniors living under bridges, as was common then. It was designed as insurance, and Social Security payments are called “benefits.”
But first, let's explore some terminology. The whole program managed by the Social Security Administration (SSA) is known as Old-Age, Survivors, and Disability Insurance (OASDI). Note that, as the annual report’s name makes clear, there are two funds: one for retirees (the OASI Trust Fund), and one for the disabled (the DI Trust Fund). The financial status of each is in a very different position, with different possible solutions to fix the financial problems.
How Does Social Security Pay the Benefits?
Social Security benefits are based on a pay-as-you-go system. That means current workers pay Social Security taxes, while current retirees get benefits based on that tax revenue and earned income from the trust fund bonds.
The concern related to that pay-as-you-go structure is that the huge baby boomer generation (people born between 1946 and 1964) will create a crisis because so many will begin collecting Social Security. By the year 2031, when the youngest boomers reach age 67, there will be 75 million people over the age of 65, nearly double the 39 million who were that age in 2008. This will change the ratio of retirees collecting benefits to workers paying into the system.
The beneficiary-to-worker ratio is expected to rise from 35 per 100 in 2014 and reach 45 per 100 in 2030, putting a strain on that pay-as-you-go system.
2035 The year that the Old-Age, Survivors, and Disability Insurance Trust (OASDI) fund will run out of money.
Greenspan Commission
This baby boomer wave was not unexpected; in fact, it was planned for in 1983, when Alan Greenspan headed the National Commission on Social Security Reform, also known as the Greenspan Commission. At that time the trust funds almost did run out of money. The commission did an excellent job of finding fixes to deal with the boomer wave.
One of the biggest changes was accelerating scheduled increases in Social Security tax rates, in order to build up the trust funds. In 1983, the tax rate was 5.4% for employees and another 5.4% for employers. The commission proposed hiking it to 5.7% beginning in 1984, then 6.06% in 1988, and 6.2% in 1990.
2065 The year that the Disability Insurance (DI) trust fund will run out of funds.
Today’s Social Security Finances
The Greenspan Commission’s fix worked just as intended, and the nation has billions in the Social Security trust funds. The 2020 annual report on the trust funds showed these basic facts:
The OASDI trust funds held $2.897 trillion dollars at the end of 2019, or 261% of the estimated cost for 2020.Total expenditures for 2019 were $1.059 trillion, and total income was $1.062 trillion.Collectively, OASDI trust fund reserves will be depleted in 2035, the same date as last year.The depletion dates are different for the two funds. OASI trust funds are estimated to run out in 2034, and DI reserves in 2065. In 2019, DI reserves were projected to run out in 2052, and the year before that in 2032.Why the difference? According to the report, “For the second year in a row, there has been a significant change in the DI reserve depletion date for two main reasons: (1) a change in the ultimate assumed disability incidence rate, and (2) continuing favorable experience for DI applications and benefit awards, which remained at historically low levels for 2019.” When OASI trust funds are depleted in 2034, only 76% of Social Security benefits will be able to be paid based on the pay-as-you-go income to the OASI trust fund.When DI funds are depleted in 2065, if there is no fix in time, 92% of disability benefits will be able to be paid based on the pay-as-you-go income to the DI trust fund.For the 75-year projection period, the actuarial deficit is 3.21% of taxable payroll (an increase from 2.78% last year). In other words, Social Security taxes would need to increase by 3.21% to fix the problem permanently.
Possible Fixes
Yes, a fix is needed to avoid a reduction in benefits when the trust funds run out of money. Many different fixes have been suggested to restore Social Security’s financial health for the next 75 years. A tax increase is not the only way. It is most likely that some combination of the fixes will be used to minimize the impact on everyone. The sooner Congress acts to fix the system, the less painful the fix will be:
Fix 1: Raise the payroll tax rate. To remain fully solvent over the next 75 years, payroll taxes would have to rise by 3.14 percentage points to 15.54%. At the moment the rate is 12.4%, with 6.2% coming each from workers and their employers.Fix 2: Raise the ceiling on which Social Security taxes must be paid. The ceiling was $137,700 for 2020, but the cap is adjusted for inflation each year and rose to $142,800 in 2021. According to a Congressional Research Service report issued Sept. 27, 2019 (and based on 2019 statistics), eliminating the payroll cap while leaving in place current rules for capping benefit calculations would eliminate 84% of the projected 75-year shortfall.Fix 3: Change the way the annual cost-of-living adjustments are calculated. The annual cost-of-living adjustment (COLA) for 2019 was 2.8%, the largest in seven years. A 1.6% hike followed for 2020 and 1.3% for 2021. In some years, though—2016, for example—there was no COLA. This means changes may not be an effective long-term fix.Fix 4: Raise the full retirement age. In 2020 the full retirement age for baby boomers is 66, and for those who were born in 1960 or after it is 67. Some people are suggesting that it be increased to 69 or 70. Fix 5: Invest Social Security trust funds in the stock market. Some people want the Social Security Administration to invest some of the trust fund money in the stock market to get a better return. Of course, the problem with this is an excessive risk.
The Bottom Line
Social Security is nowhere near bankruptcy. As Alicia H. Munnell, director of the Center for Retirement Research at Boston College, put it in her analysis of the 2017 annual report from the Board of Trustees:
Social Security faces a manageable financing shortfall over the next 75 years, which should be addressed soon to share the burden more equitably across cohorts, restore confidence in the nation’s major retirement program, and give people time to adjust to needed changes.
If there is no fix in the next 20 years, reduced benefits could be still paid with pay-as-you-go tax revenue. However, the sooner Congress does pass a fix and makes Social Security solvent, the better it will be for all of us.
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543fcb37415c6c07a8cc15f4b6c9a8d9 | https://www.investopedia.com/articles/personal-finance/120715/estate-taxes-who-pays-what-and-how-much.asp | Estate Taxes: Who Pays? And How Much? | Estate Taxes: Who Pays? And How Much?
When a person dies, their assets could be subject to estate taxes and inheritance taxes, depending on where they lived and how much they were worth. While the threat of estate taxes and inheritance taxes is real, in reality, the vast majority of estates are too small to be charged a federal estate tax—which, as of 2021, applies only if the assets of the deceased person are worth $11.70 million or more. What's more, most states have neither an estate tax, which is levied on the actual estate nor an inheritance tax, which is assessed against those who receive an inheritance from an estate.
Indeed, the number of jurisdictions with such levies has been dropping, as political opposition has risen to what some criticize as "death taxes." That said, a dozen states plus the District of Columbia continue to tax estates, and a half dozen levy inheritance taxes. Maryland collects both.
As with federal estate tax, these state taxes are collected only above certain thresholds. And even at or above those levels, your relationship to the decedent—the person who died—may spare you from some or all inheritance tax. Notably, surviving spouses and descendants of the deceased rarely, if ever, pay this levy.
It's relatively uncommon, then, for estates and inheritances to actually be taxed. Still, it's helpful to know more about the various taxes associated with these assets, and who needs to pay them, and when. Want to find out if you're likely to be stuck with an estate tax or inheritance tax and what you can do to reduce any such taxes? Read on.
Key Takeaways As of 2021, only estates valued at $11.70 million or more are subject to federal estate tax.A dozen states impose their own estate taxes, and six have inheritance taxes, both of which kick in at lower threshold amounts than the federal estate tax.Taxes are assessed only on the value of the estate or inheritance that exceeds the threshold amount.Surviving spouses are generally exempt from these taxes, regardless of the value of the estate or inheritance.To minimize estate taxes, taxpayers whose estates are above the $11.70 million threshold can set up trusts that facilitate the transfer of wealth.
Estate Taxes
For tax purposes, these levies, both federal and state, are assessed on the estate's fair market value, rather than what the deceased originally paid for their assets. While that means any appreciation in the estate's assets over time will be taxed, it also protects against being taxed on peak values that have since dropped. For example, if a house was bought at $5 million, but its current market value is $4 million, the latter amount will be used.
Anything in the estate that is bequeathed to a surviving spouse is not counted in the total amount and isn't subject to estate tax. The right of spouses to leave any amount to one another is known as the unlimited marital deduction. However, when the surviving spouse who inherited an estate dies, the beneficiaries may then owe estate taxes if the estate exceeds the exclusion limit. Other deductions—including charitable donations or any debts or fees that come with the estate—are also not included in the final calculation.
An heir due to receive money or assets can choose to decline the inheritance through the use of an inheritance or estate waiver. The waiver is a legal document that the heir signs, declining the rights to the inheritance. In such an instance, the executor of the will would then name a new beneficiary of the inheritance. An heir might choose to waive their inheritance to avoid paying taxes or to avoid having to maintain a house or other structure. A person in a bankruptcy proceeding might also choose to sign a waiver so that the property can't be seized by creditors. State law determines how the waivers work.
40% The top federal statutory estate tax rate in 2020 and 2021.
Federal Estate Tax
For the tax year 2021, the Internal Revenue Service (IRS) requires estates with combined gross assets and prior taxable gifts exceeding $11.70 million to file a federal estate tax return and pay the relevant estate tax.
The portion of the estate that’s above the $11.70 million threshold will ostensibly be taxed at the top federal statutory estate tax rate of 40%. In practice, however, various discounts, deductions, and loopholes allow skilled tax accountants to pare the effective rate of taxation to well below that level. Among those techniques is to take advantage of flexibility over the valuation date of the estate in order to minimize the estate's value or cost basis.
State estate taxes are levied by the state in which the decedent was living at the time of death; inheritance estate taxes are levied by the state in which the inheritor is living.
State Estate Taxes
If you live in a state that has an estate tax, you’re more likely to feel its pinch than you are to pay federal estate tax. The exemptions for state and district estate taxes are all less than half those of the federal assessment. Some go as low, relatively speaking, as $1,000,000. An estate tax is assessed by the state in which the decedent was living at the time of death.
Here are the jurisdictions that have estate taxes. Click on the state's name for further information from the state government on its estate tax.
Connecticut District of Columbia Hawaii Illinois MaineMassachusetts MarylandNew YorkOregonMinnesota Rhode IslandVermont Washington State
Above those thresholds, tax is usually assessed on a sliding basis, much like the brackets for income tax. The tax rate is typically 10% or so for amounts just over the threshold, and it rises in steps, usually to 16%. The tax is lowest in Connecticut, where it begins at 10% and rises to 12%, and highest in Washington State, where it tops out at 20%.
20% The maximum rate for inheritance tax charged by any state
State Inheritance Taxes
There is no federal inheritance tax, but select states (such as Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) still tax some assets inherited from the estates of deceased persons. Whether your inheritance will be taxed—and at what rate—depends on its value, your relationship to the person who passed away, and the prevailing rules and rates where you live.
Life insurance payable to a named beneficiary is not typically subject to an inheritance tax, although life insurance payable to the deceased person or their estate is usually subject to an estate tax.
As with estate tax, an inheritance tax, if due, is applied only to the sum that exceeds the exemption. Above those thresholds, tax is usually assessed on a sliding basis. Rates typically begin in the single digits and rise to between 15% and 18%. Both the exemption you receive and the rate you’re charged may vary by your relationship to the deceased—more so than with the value of assets you are inheriting.
As a rule, the closer your relationship to the decedent, the lower the rate you'll pay. Surviving spouses are exempt from inheritance tax in all six states. Domestic partners, too, are exempt in New Jersey. Descendants pay no inheritance tax except in Nebraska and Pennsylvania. Inheritance tax is assessed by the state in which the inheritor is living.
Some states offer tax reductions for widows or widowers, such as a reduction in property taxes for a certain period of time. For example, in Florida, a surviving spouse is entitled to receive a reduction in the taxable value of a property they own by $500 each year, in perpetuity, or until they remarry.
Here are the jurisdictions that have inheritance taxes. Click on the state's name for further information on its inheritance tax from the state government.
IowaKentuckyMarylandNebraskaNew JerseyPennsylvania
How to Minimize Estate Taxes
To minimize estate taxes, keep the planning simple and keep the total amount of the estate below the $11.70 million threshold. For most families, that's easy. For those with estates and inheritances above the threshold, setting up trusts that facilitate the transfer of wealth can help ease the tax burden.
One way to reduce estate tax exposure is to use an intentionally defective grantor trust (IDGT)—a type of irrevocable trust that allows a trustor to isolate certain trust assets so as to separate income tax from estate tax treatment on those assets. The grantor pays income taxes on any revenue generated by the assets but the assets can grow tax-free. As such, the grantor's beneficiaries can avoid gift taxation.
There are ways to reduce estate taxes if you own a life insurance policy as well. On their own, life insurance proceeds are federal income-tax-free when they are paid to your beneficiary. But when the proceeds are included as part of your taxable estate for estate tax purposes, they might push your estate over that $11.7 million cutoff. One way to make sure that doesn't happen is to transfer ownership of your policy to another person or entity, including the beneficiary. Another possibility is to set up an irrevocable life insurance trust (ILIT).
Maximizing your gifting potential is another way to reduce estate taxes. As of 2021, an individual can give another $15,000 or less per year and a married couple can give $30,000 per year without having to file a federal gift tax return.
Estate Taxes FAQs
What Assets Are Subject To Estate Taxes?
All the assets of a deceased person that are worth $11.70 million or more, as of 2021, are subject to federal estate taxes. 12 states and the District of Columbia also charge estate taxes, but the rules are different depending on the state.
What Is the Estate Tax Rate?
On the federal level, the portion of the estate that surpasses that $11.70 million cutoff will be taxed at a rate of 40%, as of 2021. On a state level, the tax rate varies by state, but 20% is the maximum rate for an inheritance that can be charged by any state.
What Is the Difference Between an Estate Tax and an Inheritance Tax?
An estate tax is levied on the estate itself and an inheritance tax is levied against those who receive an inheritance from an estate.
Do I Have To Pay Taxes on an Estate?
If you receive an inheritance from an estate and the assets are worth more than $11.70 million, you will have to pay inheritance taxes. The estate tax is levied on the estate itself.
How Can I Avoid Estate Taxes?
Keeping your estate under the $11.70 million threshold is one way to avoid paying taxes. Other methods include setting up trusts, such as an intentionally defective grantor trust (IDGT), which separates income tax from estate tax treatment, transferring your life insurance policy, so it won't be counted as part of your estate, and making strategic use of gifting.
The Bottom Line
Inheritance taxes are complex and change frequently. Most of us engage with them during a stressful and busy period of our lives. It's wise to prepare for the inevitable by doing some homework in advance.
As long as the estate in question does not have assets exceeding $11.70 million for 2021, you are most likely not on the hook for federal estate or inheritance taxes. But keep an eye on individual states for what their rules are since a dozen of them and the District of Columbia charge estate and inheritance taxes as well.
Monitor any changes to the laws that affect you, perhaps by setting online news alerts for the state relevant to you and the terms "estate taxes" and "inheritance taxes." As you grow older, you can help prepare your loved ones for taxes by explaining the laws to them. You might even want to set aside a fund to help offset that tax burden when it comes. Consider, too, meeting with a lawyer, CPA, or CFP to begin planning your estate and minimizing the tax your beneficiaries will have to pay when they inherit it.
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6ceb7d92d8b79b06a05c4936bc41f145 | https://www.investopedia.com/articles/personal-finance/120815/4-most-common-reasons-small-business-fails.asp | The 4 Most Common Reasons a Small Business Fails | The 4 Most Common Reasons a Small Business Fails
Running a business is not for the faint of heart; entrepreneurship is inherently risky. Successful business owners must possess the ability to mitigate company-specific risks while simultaneously bringing a product or service to market at a price point that meets consumer demand levels.
While there are a number of small businesses in a broad range of industries that perform well and are continuously profitable, 20% of small businesses fail in the first year, 50% go belly up after five years, and only 33% make it to 10 years or longer, according to the Small Business Administration (SBA).
To safeguard a new or established business, it is necessary to understand what can lead to business failure and how each obstacle can be managed or avoided altogether. The most common reasons small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.
Key Takeaways Running out of money is a small business’s biggest risk. Owners often know what funds are needed day to day but are unclear as to how much revenue is being generated, and the disconnect can be disastrous. Inexperience managing a business—or an unwillingness to delegate—can negatively impact small businesses, as can a poorly visualized business plan, which can lead to ongoing problems once the firm is operational. Poorly planned or executed marketing campaigns, or a lack of adequate marketing and publicity, are among the other issues that drag down small businesses.
1:38 Top 6 Reasons New Businesses Fail
1. Financing Hurdles
A primary reason why small businesses fail is a lack of funding or working capital. In most instances a business owner is intimately aware of how much money is needed to keep operations running on a day-to-day basis, including funding payroll; paying fixed and varied overhead expenses, such as rent and utilities; and ensuring that outside vendors are paid on time. However, owners of failing companies are less in tune with how much revenue is generated by sales of products or services. This disconnect leads to funding shortfalls that can quickly put a small business out of operation.
A second reason is business owners who miss the mark on pricing products and services. To beat out the competition in highly saturated industries, companies may price a product or service far lower than similar offerings, with the intent to entice new customers. While the strategy is successful in some cases, businesses that end up closing their doors are those that keep the price of a product or service too low for too long. When the costs of production, marketing, and delivery outweigh the revenue generated from new sales, small businesses have little choice but to close down.
Amid the COVID-19 pandemic in 2020, the government gave help to small businesses through its Paycheck Protection Program, which in its first two rounds gave 5.2 million forgivable loans to small businesses of up to $10 million each. The second round ended August 8, 2020, after the government distributed roughly $545 billion of the allotted funds. The third round of PPP funding went into effect on January 11, 2021, with $284 billion in available funds. First-time recipients of PPP can receive up to $10 million each, and companies that have already received an earlier round can receive a second round of up to $2 million. The deadline is March 31, 2021, or until funds run out. For info on how to apply, click here.
Small companies in the startup phase can face challenges in terms of obtaining financing in order to bring a new product to market, fund an expansion, or pay for ongoing marketing costs. While angel investors, venture capitalists, and conventional bank loans are among the funding sources available to small businesses, not every company has the revenue stream or growth trajectory needed to secure major financing from them. Without an influx of funding for large projects or ongoing working capital needs, small businesses are forced to close their doors.
To help a small business manage common financing hurdles, business owners should first establish a realistic budget for company operations and be willing to provide some capital from their own coffers during the startup or expansion phase. It is imperative to research and secure financing options from multiple outlets before the funding is actually necessary. When the time comes to obtain funding, business owners should already have a variety of sources they can tap for capital.
67% The percentage of small businesses that fail within the first 10 years, according to the Small Business Administration.
2. Inadequate Management
Another common reason small businesses fail is a lack of business acumen on the part of the management team or business owner. In some instances, a business owner is the only senior-level person within a company, especially when a business is in its first year or two of operation.
While the owner may have the skills necessary to create and sell a viable product or service, they often lack the attributes of a strong manager and don't have the time to successfully oversee other employees. Without a dedicated management team, a business owner has greater potential to mismanage certain aspects of the business, whether it be finances, hiring, or marketing.
Smart business owners outsource the activities they do not perform well or have little time to successfully carry through. A strong management team is one of the first additions a small business needs to continue operations well into the future. It is important for business owners to feel comfortable with the level of understanding each manager has regarding the business’ operations, current and future employees, and products or services.
Lack of a business plan and an unwillingness to adapt the plan as challenges arise can create structural problems for a small company that are ultimately insurmountable.
3. Ineffective Business Planning
Small businesses often overlook the importance of effective business planning prior to opening their doors. A sound business plan should include, at minimum:
A clear description of the business Current and future employee and management needs Opportunities and threats within the broader market Capital needs, including projected cash flow and various budgets Marketing initiatives Competitor analysis
Business owners who fail to address the needs of the business through a well-laid-out plan before operations begin are setting up their companies for serious challenges. Similarly, a business that does not regularly review an initial business plan—or one that is not prepared to adapt to changes in the market or industry—meets potentially insurmountable obstacles throughout the course of its lifetime.
To avoid pitfalls associated with business plans, entrepreneurs should have a solid understanding of their industry and competition before starting a company. A company’s specific business model and infrastructure should be established long before products or services are offered to customers, and potential revenue streams should be realistically projected well in advance. Creating and maintaining a business plan is key to running a successful company for the long term.
4. Marketing Mishaps
Business owners often fail to prepare for the marketing needs of a company in terms of capital required, prospect reach, and accurate conversion-ratio projections. When companies underestimate the total cost of early marketing campaigns, it can be difficult to secure financing or redirect capital from other business departments to make up for the shortfall. Because marketing is a crucial aspect of any early-stage business, it is necessary for companies to ensure that they have established realistic budgets for current and future marketing needs.
Similarly, having realistic projections in terms of target audience reach and sales conversion ratios is critical to marketing campaign success. Businesses that do not understand these aspects of sound marketing strategies are more likely to fail than companies that take the time to create and implement cost-effective, successful campaigns.
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11ad0b2957a1801347ad7ae077ad75a3 | https://www.investopedia.com/articles/personal-finance/120815/maid-worth-money-or-should-i-clean-myself.asp | Is a Maid Worth the Money or Should I Clean Myself? | Is a Maid Worth the Money or Should I Clean Myself?
Hiring a maid or a house cleaning service may seem like the ultimate luxury for many of us. But your time is worth money, and the time you spend scrubbing the kitchen floor might be more profitably, not to mention more enjoyably, spent elsewhere.
To borrow a term from economics, it's lost opportunity cost.
Key Takeaways Could your time be better spent doing something else? Maybe it's worth hiring a cleaning service. What's your time worth? Compare your hourly rate to the cost of a cleaning service. Paying for services you could do yourself is always a luxury. Make sure you're taking care of the real necessities first.
What Does a Maid Cost?
According to thumbtack.com, a home services company, a house cleaning service costs $25 to $50 an hour on average, depending on where you live, as of 2020. The total cost could range from $80 to $110 for a small apartment to $150 to $250 for a 2,000-square-foot house. Some charge per hour while others base their fees on the square footage of the home.
If you have a maid come more often, you can typically get a discount of $5 to $10 per visit. Weekly visits will cost less than monthly visits.
All of the above prices are for professional agencies. A local freelance found through word-of-mouth might be considerably less, or more.
Professional cleaning services cost $25 to $50 an hour on average.
What Is Your Time Worth to You?
Every choice we make in life has a cost. Some of our decisions are obviously strictly financial while others require us to give up other assets, such as time.
You can use opportunity cost as a way to decide what your time is worth to you. If you earn $25 per hour at work, or $50 per hour, you might consider your time to be worth that much. If your time is worth $50 per hour and the maid charges $25 per hour, you may conclude that your time is better spent elsewhere.
However, if you decide your time is worth $15 per hour and the maid charges $25 per hour, you probably should clean your home yourself. It's simply more cost-effective.
Do You Want a Cleaner Home?
If you clean your home regularly, or at least once in a while, but are unhappy with the results, a maid could be worth a shot.
Some people are just better at cleaning than others.
There is an in-between choice. You could limit the professional services to once or twice a month, and promise yourself to keep the place reasonably neat and clean between visits.
A few minutes a day devoted to routine pickup can't hurt. And with a little professional help, your home could be cleaner than ever before.
Consider Your Budget
If you have any outstanding credit card balances or high-interest loans, you should focus on paying those off first before spending on a maid service or any other discretionary expense.
The same goes for meeting other priorities including basic living expenses, emergency savings, and retirement savings.
No matter how you analyse the expense, a maid is not a need, it is a want.
Independent vs. Corporate Maid Services
If you decide you can afford a maid and want to hire one, you have several options to consider. One of the most important is deciding between an independent maid or a home cleaning company.
Independent maids generally cost less, and 100% of the money you pay goes to the service provider. A friend or neighbor might be able to recommend an ideal candidate.
A professional services company, on the other hand, may come with insurance, proper background checks, and greater reliability. Scheduling is typically flexible since these companies have multiple employees.
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51f9fc8f6f95209338b906558e86195c | https://www.investopedia.com/articles/personal-finance/121114/top-checking-accounts-no-overdraft-fees.asp | Top Checking Accounts With No Overdraft Fees | Top Checking Accounts With No Overdraft Fees
There are so many checking account options available that it can often be a daunting task to find one that fits your needs. And you have a lot of things to consider before you decide which one you'll open. First, you need to nail down your account usage. Are you the kind of person who likes to visit a branch or do you do most of you your banking online? Do you write a lot of checks or is your debit card your best friend? This will help you decide which financial institution with which you'll want to bank. If you love face-to-face interaction, consider one of the bigger name banks. If that's the least of your concerns, you have many online banks at your disposal. But perhaps one of the most important things you'll want to factor into your decision is how much you're willing to pay for fees—especially if the word overdraft is a common part of your banking vocabulary. This article will try to help you out by narrowing down your choices. Read on to find out the basics of overdraft and some of the more popular banks that don't charge overdraft fees.
Key Takeaways While many banks charge you for going into overdraft, some offer accounts with no overdraft fees. Among the benefits they offer, Moven and Simple don't allow accounts to go into overdraft.The Capital One 360 account generally doesn't allow overdraft, but in certain cases, you are only responsible for the interest on the overdrawn balance.A linked Schwab brokerage account covers any overdraft incurred on your High Yield Investor Checking Account.Bank of America's Advantage SafeBalance Banking will decline any charges that put you in overdraft.
The Lowdown on Overdraft Fees
What do you do when money's tight and you lose track of your bank account balance? In most cases, the bank will reject any attempts you make to withdraw cash and will bounce any payments. This results in nonsufficient funds (NSF) fees. But in some cases, the bank may actually honor the payment and put you into overdraft.
A bank may allow you to go into overdraft, putting you into a negative balance on an exception basis or if you have overdraft protection. Overdraft protection is a credit facility issued by a bank and attached to your checking account It essentially acts as a cushion or short-term loan, so you can still take out money from your account if you don't have enough to cover payments or withdraws. But it comes at a cost. In fact, overdraft fees can turn a quick pit stop into a major headache. Banks charge overdraft fees when you withdraw more money than what's available in your checking account.
For instance, banks charge a flat fee if you use your debit card to pay for a $5 latte and there’s only $2 in your account. Overdraft fees can range between $30 and $35. Some financial institutions may charge multiple overdraft fees per day, so all those $40 cups of coffee add up to big business for banks. You may also be hit with additional fees if the balance isn't repaid in full by a certain date. And let's not forget overdraft interest. This is often at a premium and is based on the average overdraft balance each month.
Use your account wisely because overdraft fees can range anywhere between $30 and $35.
Keeping You in the Black
The Consumer Financial Protection Bureau (CFPB) found Americans pay an average of $260 a year in overdraft fees. Millennials are particularly hard hit, with one in 10 having more than 10 overdrafts a year.
Consumers got some relief in 2010, though, when the Federal Reserve barred banks from automatically enrolling customers in overdraft protection. You now must give consent for your purchases to be covered in the event of an overdraft. If you don't, the charge will be declined. But the rules don’t apply to checks or recurring automated payments—you may still be on the hook for $35 for these charges.
Still, there are ways to beat the system. Plenty of checking accounts are available that remove the overdraft option from the equation entirely. Here are a few of our picks for the best checking accounts with no overdraft fees.
Moven or Simple
Moven and Simple are two mobile banking apps with no overdraft fees, no minimum account balances, and access to thousands of no-fee automated teller machines (ATMs) through the nationwide STAR ATM network. Since they don't let you go into overdraft, your debit card will be declined instead. Simple may allow you to go into overdraft in some cases, for which you still won't be charged an overdraft fee, but it's up to you to bring the account back above a $0 balance.
Each service also offers budgeting tools. Moven provides real-time feedback on your spending patterns, and Simple’s Safe-to-Spend feature shows your true current balance minus upcoming bill payments, pending transactions, and items for which you’re saving. Sounds good, right?
There are drawbacks, though. Each has a daily ATM withdrawal limit of $500, and you may not like the idea of banking primarily online or on your phone—especially considering the occasional bug that some mobile users experience during app updates.
Capital One 360
If you want the convenience of online and mobile banking with the confidence of a big bank’s name behind it, Capital One 360—formerly ING Direct—might do the trick. Like an old-school checking account, it accrues interest, lets you use paper checks if you choose, and there’s no minimum account balance. The account will decline any charges if they put you into overdraft, so you won't pay any fees.
If you do end up in overdraft, you will be responsible for interest charges on the amount you overdraw your account until you pay it back. For instance, $100 overdraft for 10 days would cost 31 cents. And there’s a $9 insufficient funds charge for a bounced paper check. That’s still far lower than the national average bounced-check fee of $30. While you can’t get over-the-counter service at Capital One branches, customers have access to 2,000 Capital One ATMs, plus 38,000 fee-free ATMs through the Allpoint ATM network.
Schwab Bank High Yield Investor Checking Account
The online- and mobile-only Schwab Bank High Yield Investor Checking Account is a great option if you want your money to do double duty. Customers are required to have a linked Schwab One brokerage account, which covers any overdrafts from your checking account while letting you trade stocks, bonds, mutual funds, and more.
Both accounts are free to open and maintain. The only fees you’ll come across are a $25 charge for a bounced check and a $5 fee for a deposited check that's been returned. As for the account’s best feature—it's a tie. It offers rebates on all ATM fees worldwide and accrues interest at a variable rate of 0.15% annually.
Bank of America’s SafeBalance Banking
Bank of America’s Advantage SafeBalance checking account offers a more traditional banking experience without incurring overdraft fees. There’s no overdraft protection, so your debit cards are declined if you don’t have enough money in your account. Customers can make deposits or withdrawals at any BofA branch, though they can’t write paper checks.
Other downsides include a $4.95 monthly maintenance charge. The bank will waive the fee, though, if you sign up for its Preferred Rewards program, which requires a three-month average combined balance of $20,000 or more in your BoA accounts. There's also a $25 minimum balance and you won't earn any interest on your account balance. You do have access to Bank of America’s extensive ATM network, but they’ll pay $2.50 per non-BofA ATM transaction and $5 in foreign countries—unless you use one of BofA’s partner banks.
The Bottom Line
While there are plenty of checking accounts that cut out those pesky overdraft fees, each has tradeoffs. Most accounts don’t accrue interest, and there’s usually minimal access to old-school means of payment like paper checks and over-the-counter transactions. But if you’re willing to jump into online-only or mobile banking, choose one of these accounts and breathe a sigh of relief that $40 lattes are a thing of the past.
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0c61c3cc4ba83d8ee9f8db48d6ce4f15 | https://www.investopedia.com/articles/personal-finance/121115/should-i-sell-my-home-when-i-retire.asp | Should I Sell My Home When I Retire? | Should I Sell My Home When I Retire?
Whatever your vision for retirement, you have to consider whether or not you will continue to live in your current home. Some retirees downsize from a house that was once full of kids. Others want to stay forever, if possible, where they’ve lived for decades. Which option is right for you?
Key Takeaways Selling while the market is healthy could produce a needed influx of funds.Moving even a small distance could lower property taxes or put a retiree closer to newly desirable amenities such as a senior center.If a retiree’s home equity is low, they may lower their monthly housing costs by selling and then renting.
Benefits of Selling Your Home in Retirement
There are plenty of reasons to put a house up for sale. Here are the top ones:
Influx of Funds
Many people today go into retirement without enough savings. If you own your home outright or have a lot of equity in it, and if the housing market is healthy, selling could produce the extra funds your retirement accounts need.
Tax Break
Selling can also come with a tax break. “If you’ve lived in your home for the last two out of five years from the date of sale, you can exclude up to $250,000 of the capital gain from the sale of the house if you’re single. If you’re married, you can exclude up to $500,000,” says Carlos Dias Jr., founder and managing partner of Dias Wealth LLC in Lake Mary, Fla.
Eliminating Maintenance Costs
Ongoing costs are another consideration since homes come with maintenance. The older your home, the more maintenance it’s likely to require. Was the home purchased originally to meet the needs of a big family? Are all of those extra rooms now only used when grown children or grandchildren visit? The larger the house, the higher the cost of property taxes, which are the taxes on real estate levied by local governments. Are crucial retirement funds being wasted on a large house?
As you age, a home might also have an essential feature that could suddenly become a big problem: stairs. They can create mobility challenges for older adults, and expensive remodeling of your home might become unavoidable.
If your home has stairs, they may become a mobility challenge late in life, requiring expensive remodeling.
Buying Your Ideal Home
The perfect home probably also means something different to a retiree than it meant when they were younger. You might have looked for a home in the best school district or near a workplace, but you likely have different priorities as a retiree (even to the point of selling everything and relocating overseas). Moving even a small distance could lower property taxes or put you closer to your grandchildren or newly desirable amenities such as a senior center.
Benefits of Staying in Your Home When You Retire
Should I sell my home and rent when I retire—or not? Let’s take a look at the advantages of staying put.
Staying Might be Cheaper than Renting
After a home sale, the most likely next steps involve renting or buying a downsized home. Buyers can pay cash, but renters pay with a monthly stream of money they’ll never get back. Staying in your home, even with all the expenses, might be cheaper in the long run than renting.
Much depends on the amount of home equity you have or whether you have a mortgage loan on the house. If you're nowhere near to paying off the mortgage and owning the home outright, you might reduce your payments by selling your home and then renting a different one. Remember, too, that all the maintenance and possibly some of the utilities are often included in the rent.
On the other hand, if your home is appreciating in value, it might be worth holding on to it. A realtor can give an opinion on the local housing market.
Psychological Benefits
The non-financial reasons for staying may be strong. The sense of family inherent in a home after years of raising children can loom large in how you want to live in retirement. There’s nothing wrong with that, providing the financial resources are there.
“In many cases, it makes financial sense for retirees to downsize, as it eliminates maintenance costs and higher rent or mortgage payments,” says Matt Cosgriff, a certified financial planner and retirement consultant at BerganKDV. “That’s a big plus for retirees who are now relying on their retirement assets to support their spending."
Cosgriff adds the following:
The decision, however, is not always an easy one, due to the fact that many retirees have years, if not decades, of memories tied up in their home. To help overcome this hurdle, it is important for retirees to focus on the positives of downsizing, which include more time to be able to spend with loved ones and a lower monthly mortgage or rent payment.
The Bottom Line
When it comes to a home, retirement planning depends not on a single answer but an individual and specific financial picture. Find a trusted financial advisor or planner who will know the questions to ask and help you think through the issues and do the math.
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929184849884cb84f39c3bbb229e73ba | https://www.investopedia.com/articles/personal-finance/121315/3-things-buy-could-soon-be-collectibles.asp | 4 Things To Buy That Could Soon Be Collectibles | 4 Things To Buy That Could Soon Be Collectibles
Looking to make some extra cash? Maybe you need some money for a rainy day, or you're saving up for a great vacation. Perhaps you want to boost your retirement account. Many people look to individual retirement accounts (IRA) or 401(k)s. Others turn to safer bets like savings accounts and certificates of deposit (CDs). Then there are the collectors—people who buy and sell items whose value are far more than their original worth. It is possible to make money by buying and selling collectibles, but there are some things you need to consider. Read on to find out more about the pros and cons of collectibles, as well as some of the things you may find that can bring in some big money.
Key Takeaways Collectibles are items that can be purchased or sold for much more than their original value—the rarer the item, the more it will fetch.Collectibles aren't very common and they may not be as great an investment as many people think.Look for toys that are popular and tied in with movies, and keep them in their original packaging.Art photography has become very popular, with many collectors lucking out.Depending on their popularity, vintage electronics can bring in a pretty penny.
The Basics of Collectibles
Collectibles are items that can be purchased or sold for much more than their original value. If they're scarce, they can be worth even more. But the condition of the item has a lot to do with how much you can get. The more pristine your collectible, the more you'll be able to get. If it's deteriorated, there's an excellent chance you won't get anything at all.
Keep in mind, though, that collectibles aren't very common, and they may not be as great an investment as you may think. After all, it's a notoriously fickle market—not to mention an expensive and expansive one. People collect all kinds of items, from stamps to stuffed animals. And it takes patience to build a valuable collection.
Let’s say you’ve researched what’s selling now and are contemplating what may make you money in the future. You plan to buy items today at face value and watch their worth increase exponentially. But that can take decades.
Do Your Research
It’s easy to track what’s currently selling online. Check what's big on eBay (EBAY). This is where you can also get guidance for putting your own items on the market. Note that many collectibles only retain their value if they’re kept in their original packaging. As eBay explains it, “New in Box” (NIB) means “a collectible that is new, in its box, and has never been removed from its original packaging." “Mint in Box" (MIB), on the other hand, means the item is “in mint condition and in its original box, which has been opened.”
Check eBay to see what's selling and to get guidance on how to market your item.
Here are some ideas for finding collectible items that may be the operative word—gain value in the future.
Sports Memorabilia
If you’re a sports fan, you may find sports memorabilia worth pursuing. Maybe caught a fly ball, or better yet, you may have gotten the game ball after the Superbowl—and had it signed. If that's the case, you may be able to cash in.
But a rise in fake autographs has undermined this once-lucrative market. To establish the authenticity of an autographed item, follow this tip: When you’re getting your sports hero to sign that home-run ball, ask someone to take a photo of you with the athlete while he or she wields the pen. No one can refute the autograph with that kind of photographic evidence.
Toys
Let’s say you’ve already ransacked your home for any unopened toys you might have fortuitously stashed away, such as those original Star Wars figurines that your son turned up his nose at in the last century. Start thinking about what’s current in toys that you could buy today at face value. Toys tied in with movies are usually also a big hit. These items aren’t huge investments, after all.
Disney collectibles always have a strong market. How about limited-edition “Frozen” dolls? Oops, too late. There are already several posted on eBay—one's going for $2,999.99. Nobody could have predicted the runaway phenomenon that is “Frozen.” But let’s consider what’s coming up with Disney. The studio is producing "Raya and the Last Dragon." Disney's 59th animated film is a fantasy feature about a young person named Raya who sets off to find the world's last dragon. Although it won’t be released until March 12, 2021, there is plenty of time to mark your calendar so you can snap up those dolls as soon as they hit the market.
Once you’ve bought a few dolls, stash them away carefully in their original boxes, and keep checking their value over the next few years. They could be the next big Disney collectible.
Emerging Photographers
Art photography is a field where collectors have lucked out in recent years. In 2007, three Chicago collectors stumbled upon a huge cache of prints and negatives taken in the 1950s to the 1970s by a then-unknown street photographer named Vivian Maier. After John Maloof, one of the collectors, introduced some of the photos through his blog in 2009, the world quickly recognized Maier’s outsized talent. Since then, numerous books and documentary films have covered her work, with prints starting at $4,500.
Appraiser Mike Japp tells a similar story of a photographer named Frank Worth. Allowed access to movie sets, Worth captured unposed photos of the stars. His images began appearing just over a decade ago, such as a brooding James Dean slouched in a lawn chair behind a barbed-wire fence on the set of "Giant," sell for around $5,200.
How do you find an emerging photographer? Visit local galleries and student art shows. You can also try looking online. There’s even a magazine called “Emerging Photographer.” Trust your taste and buy work that you love and want to live with on your walls—even if it doesn’t appreciate. Good art will lift the spirits.
The Future of Electronics
You won’t be surprised to learn that there’s a market for vintage electronic products. An old computer you might once have had trouble unloading could now be worth three times its original price and listed on eBay as “a great conversation piece.” Collectors share tips on websites like VintageComputer.com.
The most valuable electronic items are the first of their kind, such as the Apple 1. There's one on eBay going for a mere $1.5 million on eBay. In 2013, a 1976 Apple I computer sold at auction in Cologne, Germany, for $671,400.
Used electronics don’t necessarily bring huge amounts. For example, a seller recently got $2,749 for a 1984 Original Apple Macintosh 128k. But prices are mounting sky-high for items that are “NIB." A 20 GB Apple iPod classic 2nd Generation still in its factory-sealed box is described as “COLLECTORS RARE VINTAGE NEW” and listed at $29,999.99.
Who knows what an original iPad in its unopened box might fetch in 2025? Keep an eye out for the next groundbreaking electronic product to be released and grab it. Apple Watch? Maybe not. But there’s bound to be something amazing coming soon.
The Bottom Line
Likely, investing in collectibles will always involve a leap of faith. For that reason, it’s wise not to spend too much upfront. After all, there’s no guarantee which items will escalate in value. If you do buy with reselling in mind, be patient. And don’t open that box.
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5abb1200ba03f358055f5f8ed9d82b14 | https://www.investopedia.com/articles/personal-finance/121415/how-find-and-buy-offmarket-homes.asp | How to Find and Buy off-Market Homes | How to Find and Buy off-Market Homes
With real estate inventory still tight in many markets around the country, as a potential homebuyer, you want to stay ahead of your competition. This is where off-market listings come in. Also known as quiet or pocket listings, these homes may be for sale but aren’t listed on multiple listing services (MLS). That means real estate agents who sell these properties must do the legwork to find buyers on their own.
Listing homes off the market was a bit of a rarity in the past but has gained traction with homeowners in recent years, making these listings part of a secondary market of sorts—especially in the face of ever-increasing demand.
A new policy from the National Association of Realtors® known as “MLS Statement 8.0” greatly restricts off-market listings.
Off-market listings may seem counterintuitive to a seller. After all, there is more demand than inventory, which means bidding wars are common in many neighborhoods. So why would sellers want to do secret listings, and how do you—the buyer—find them?
Key Takeaways Off-market listings are properties that are for sale but aren’t listed on multiple listing services. Some sellers desire an off-market listing to test the waters, maintain privacy, save on commissions, or create a sense of exclusivity that could result in a higher selling price. For buyers, off-market listings provide access to additional inventory, an opportunity to save if the commission is lower, and the opportunity to avoid competition for property in a desirable area. Off-market sales involving only one agent can sometimes provide very little wiggle room for buyers looking to negotiate a price. To get access to these listings, buyers can approach agents or homeowners directly, or try going online.
Advantages for Sellers
Some home sellers opt for an off-market listing to test the waters while others want a more private sales process or the opportunity to negotiate a lower sales commission as there is only one agent involved.
Certain homeowners have thought that a pocket listing creates an allure that will get them a higher price. After all, if the home is listed and ends up sitting on the market for more than 30 days, there is a good chance that potential buyers will try to make lowball offers. Without the "days on the market" ticker going off, there isn't as much chance that a seller will be undercut.
How Buyers Win
For you as a buyer, the benefits of an off-market listing are twofold. For starters, it gives you access to inventory that fellow homebuyers aren’t seeing. If you are buying in a particularly hot market, pocket listings may be the only way to purchase a home. In regular market climates, you may get a deal partly because the commission that the seller has to pay is lower.
Not all homebuyers are looking for a primary residence. You may be searching for an investment property, or homes to buy and flip for a profit. An off-market listing in a great neighborhood can be an excellent way to accomplish that goal.
MLS Statement 8.0 Clear Cooperation Policy
A significant roadblock to off-market listings came with the recent passage, by the National Association of Realtors, of “MLS Statement 8.0 Clear Cooperation Policy.” This policy, effective January 1, 2020, with local implementation mandatory by May 1, 2020, requires any real estate broker who participates in a multiple listing service to submit their listing to the MLS within one business day of marketing the property to the public.
The Practical Impact of MLS Statement 8.0
It’s worth noting that MLS Statement 8.0 is not the law in the traditional sense. According to Realtor Doug Wagner of RE/MAX Victory + Affiliates, “The National Association of Realtors is a governing association, not a legal entity, but all member MLSs, brokerages and agents of the association must abide by the new policy.”
Wagner notes that licensed agents who are non-Realtors (not members of the National Association of Realtors (NAR) are not bound by the policy. However, given the fact that in 2020, 88% of homebuyers used a real estate agent or broker, the practical impact is that Statement 8.0 applies to most residential real estate transactions.
Off-Market Listings Remain
Fortunately, MLS Statement 8.0 does not mean the end of off-market listings. NAR’s new policy has built-in options that allow member agents and brokers to maintain both limited and full off-market listings.
For example, under MLS Statement 8.0, sellers may opt-out of the MLS IDX or Internet display. Another option, known as an “office exclusive” listing is also available to sellers who want to maintain privacy. In the case of an office exclusive, the agent can share the listing with other agents in the office or one-on-one with buyers.
Certain other off-market options previously available through brokers, such as “private listing networks” are no longer permitted by Statement 8.0. Others, including “coming soon” and “delayed showing” will be under the control of local MLSs but will include new restrictions that prevent agents from sharing them with buyers.
According to Wagner, online website Zillow, which draws listings from MLS data but is not a member of NAR, is not precluded from continuing in-house off-market programs such as "Coming Soon," "FSBO," and "iBuyer."
Contact Real Estate Agents
Finding a traditional, exclusive, off-market home requires a little homework and lots of networking. Once you pinpoint the neighborhood you want to buy in, you’ll need to come up with a list of top real estate agents and contact them about any office exclusive listings they may have.
Go Online
In addition to contacting real estate agents directly, buyers have tools available to them online to find non-MLS listings such as For Sale by Owner (FSBO), newspaper classifieds, or even Craigslist. As noted above, the online website Zillow has several off-market programs available to potential sellers and buyers.
Approach Homeowners
If there's an area or neighborhood you're particularly interested in, one option is to check in with homeowners directly. You may be able to find a lead by door-knocking or sending out mailers. Though it will cost you time and money—and won't guarantee success—there is a small chance at least one person will respond.
Don't rule out neglected properties, especially if you know you can afford to do repairs. Perhaps there's a homeowner who's so overwhelmed with the costs of upkeep—and one who never believed he could ever sell—that an unsolicited offer would be considered a blessing.
Just so you don't end up breaking the bank, make sure you print mailers that are both cheap and effective. After all, you want to seem as professional in your approach as possible. And you never know until you ask.
Know the Process
Finding an off-market listing is only half the battle. Seeing a deal go through is the endgame, which is why buyers of off-market listings have to know the ins and outs of the process. Once you get to contract, it is a standard deal, but as the agent is likely representing both of you, it can get a bit murky.
Known as a dual agency sale—while perfectly legal—it can be hard for the buyer to tell if the agent has their best interest in mind. The higher the sale price, the heftier the commission for the agent. If you are buying in a market with little inventory, it may not matter if you get the best deal as long as you get the home, but it pays to be aware of any conflicts of interest.
The Bottom Line
The real estate market is still hot in many areas of the country with more demand than inventory. Frustrated buyers who have been bid out of homes need any advantage they can get. Although MLS Statement 8.0 severely restricts access to off-market listings it does not ban them entirely. Do your homework, realize that there are risks, and know that finding your next home through an off-market listing can be worth the effort.
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3522a9589b209fb6695ebbbc156b14c5 | https://www.investopedia.com/articles/personal-finance/121714/how-tinder-makes-money.asp | How Tinder Makes Money | How Tinder Makes Money
For two years, Tinder has been able to stay afloat without relying on any kind of revenue stream. Now, the free match-making mobile app is exploring a new money-making model in an effort to cash in on the international $2 billion-a-year online dating industry. What moves will Tinder make to enter this growing market, and can the app make money as fast as it makes matches?
Tinder Plus
Tinder’s model works. The dating app, which pairs potential hook-ups based on a mere glance and swipe of a user’s photograph, is easy to navigate and eliminates the standard, time-consuming features of traditional dating sites that can be overwhelming for users. This user-friendly approach produces 1.2 billion profile views a day and creates 15 million matches. As a result, Tinder will soon begin offering a “freemium” service to appeal to the app’s growing user base.
Tinder Plus, Tinder’s newly minted subscription-based service, will add opt-in features for a fee while maintaining the app’s free service for those uninterested in a premium account. One such add-on, Passport, will expose users to more matches by eliminating geographical restrictions, providing access to profiles not limited to the user’s location (the existing model limits users to profiles within a 120-mile area). Passport will appeal to the Tinder traveler, allowing users to peruse profiles across the country and across the globe.
The Passport feature will accommodate the company’s expansion outside of the dating sphere and beyond romantic interactions, an effort that Tinder would like to make in the long-term to grow its user base by connecting people on social and professional levels. A recent investment in the app by California-based Benchmark – led by Matt Cohler, Tinder board member and former executive at Facebook (FB) and LinkedIn (LNKD) – suggests Tinder is already thinking about this next move.
Mulligans for Matches?
Tinder Plus will also roll out Undo, a feature that will allow users to recall a profile lost by swiping to the left, a hasty gesture that permanently eliminates potential matches. Tinder co-founder Sean Rad is confident the new services will begin bringing in cash as he insists users are both asking and willing to pay for the added features.
Tinder was born in Hatch Labs, the now defunct mobile startup incubator backed by Tinder’s parent company, Barry Diller’s IAC/InterActive Corp. (IACI). With its ownership of Match.com and OkCupid, IAC leads the online dating market with a reigning 23.7% market share and provides the expertise Tinder will need as it looks to monetize its services via subscription-based features. IAC’s Match Group division estimates Tinder could bring in $75 million in 2015 upon implementing a monetization model via Tinder Plus.
Though sites like Match.com use advertisements to produce revenue, Tinder’s founders are not interested in cashing in on advertising just yet. The nature of the app's mobile format makes ad implementation trickier, and despite initial claims the company would move toward paid messaging and prominent profile placing before it would place ads, both Tinder and IAC acknowledge the app may entertain advertising in the future. Celebrity-sponsored advertisements will also be a part of the model, inviting recognizable names to create profiles to connect with users. (For more, see: Valuing And Investing In Internet Companies.)
The Bottom Line
Tinder has proven it is does not require revenue to be successful. Due to the app’s investor backing, it had the security to grow its business growth model first and revenue model later. The company will want the added cash, however, after a recent and highly publicized sexual harassment and discrimination lawsuit brought about by a former executive. The legal limbo increased costs and prompted IAC to invest an additional $10 million.
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59a99f7062896834b19488c09bb24f8d | https://www.investopedia.com/articles/personal-finance/121715/11-social-security-calculators-worth-your-time.asp | 11 Social Security Calculators Worth Your Time | 11 Social Security Calculators Worth Your Time
Social Security is a government program serving about 65 million people, so you might use one word to describe it: complicated. Hats off to the Social Security Administration (SSA), though. It produces one of the best government websites, using plain English (and 13 other languages) to explain its rules. It also has plenty of calculators and worksheets to help.
We pulled together some of our favorites. Keep this list handy next time you’re sifting through the maze of Social Security rules and regulations. You won't need all 11, but some of them will likely help answer some of your questions as you start to plan.
Key Takeaways Social Security offers plenty of online calculators to help you estimate benefits and—if you care to know—your life expectancy, too. They range from simple to complex. The best and most accurate pull data from your actual Social Security account.
1. Retirement Estimator
What’s more important than knowing the amount of your Social Security check? The awesome thing about the Social Security Administration's Retirement Estimator is that it looks at your actual account to estimate your benefits. It will ask for your name, Social Security number, and your earnings last year to calculate your estimated benefits.
It gives you estimates based on different retirement ages in an easy-to-read format. There are all kinds of disclaimers on the calculator saying that it’s only an estimate, so if your situation is more complicated, these numbers may not apply. Still, it’s a good place to start.
2. Benefits Planner
If you don’t want to enter your personal information into the Social Security website, you can still get a pretty accurate estimate of your benefits by manually entering a whole lot of information into the Benefits Planner. You’ll need to know your earnings for the years that you’ve worked along with a bunch of other information, but you’ll get a similar result, assuming the information you provide is accurate.
Social Security says that it would rather you use the Retirement Estimator (described above) because its readings are based on your actual personal information. You can feel relatively confident that your information is safe, but if you would rather not give the Social Security website your Social Security number, use this calculator.
If you use calculators on third-party websites, there’s no guarantee that the information is accurate or that your sensitive data is safe.
3. Quick Calculator
The quick calculator, complements of Social Security, estimates your future checks, but this one is about as simple as they come. Enter your birth date, current year’s earnings, and estimated retirement date, and the calculator will give you an estimated payout. You can even select the amount in today’s dollars or inflation-adjusted future dollars. Remember that the less information you enter, the less accurate your results are likely to be.
4. Life Expectancy Calculator
If you enjoy embracing your mortality, check out Social Security’s Life Expectancy Calculator. Enter your gender and date of birth, and it will give you a rough estimate of how long you can expect to live if you reach certain age milestones. Who will live longer? You or your loved one? Turn your research into a really dark and depressing competition.
The practical application of this calculator is to help with retirement planning. The longer you live, the more money you will need in your retirement account, both to support yourself and because you’re more likely to experience medical issues the older you get. This isn’t something to pull up on days when you’re feeling a little down.
5. WEP Calculator
If you work or have worked for a company that gives you a pension based on work not covered by Social Security, the basic calculators above aren’t an accurate representation of your benefits. Like the online calculator above, the WEP Calculator requires you to manually enter a lot of information that you probably won’t have at the ready. You’ll have to do some digging. Social Security recommends that you use its Detailed Calculator, explained below.
6. Earnings Test Calculator
You probably know that your benefit amount is largely based on how much money you’ve earned. The more you make, the more you pay into Social Security, so you deserve a larger benefit, right? The Retirement Earnings Test Calculator shows how the amount you make affects your benefits. Remember that this calculator is overly simplistic—it only takes into account one of your retirement variables.
7. Early or Late Calculator
Early or Late Retirement is another calculator that isolates one variable to show you how relatively small decisions can dramatically affect your benefits. It shows how waiting longer to receive your benefits will substantially raise the dollar amount of your benefit checks.
8. Retirement Age Calculator
In the past, the retirement age was set at 65, but because Social Security has found itself low on cash—and because people are living and working longer—the agency has slowly raised the retirement age over the years. Your retirement age is based on your birth date. Use the Retirement Age Calculator to figure out when you can start receiving benefits. It’s not as straightforward as you might think.
9. GPO Calculator
There’s a better-than-average chance that you won’t need the GPO Calculator. However, if you worked for a company or organization where your earnings weren’t taxed by Social Security—but you expect to receive spousal benefits—the amount may be reduced by something called the Government Pension Offset. (Confused yet?) This calculator helps you figure out how the offset will affect your benefits.
If you don’t know if GPO applies to you, read Social Security's publication that explains it in detail.
10. Spousal Benefits Calculator
When you file for Social Security benefits, your spouse may be eligible for benefits as well. The subject of spousal benefits gets quite complicated depending on individual family variables. Simply enter some basic information, and the Spousal Benefits calculator will tell you the effect on your spouse’s benefit amount.
11. Detailed Calculator
Some people’s financial situation is simple and straightforward. The Retirement Estimator calculator listed first in this article takes into account a few variables other than age, earnings, and credit. Many people have additional factors to consider when calculating their benefits. If that’s you, you need to use the Detailed Calculator. It’s as close as you will get to the calculator that a Social Security employee would use to calculate your earnings.
The SSA warns that the Detailed Calculator is not easy to use, and you have to download and install it on your PC. There’s no official mobile app, and the Mac OS X version, though functional, is still under development and doesn’t work with newer versions of OS X. You can download a user’s guide and the calculator from the website.
The Bottom Line
The best calculators to use are the ones that pull your actual record from the Social Security Administration. As long as you’re on the Social Security website, any information you input on the forms is encrypted and considered to be safe.
Always start with calculators from the official Social Security website. You will probably find everything you need there.
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f24979cf2460c537e0ef48e8bc4097a5 | https://www.investopedia.com/articles/personal-finance/121913/six-things-buy-after-christmas.asp | 6 Things to Buy AFTER Christmas | 6 Things to Buy AFTER Christmas
Despite the fact that many Christmas displays are up when stores are still marking down fake fangs and pint-sized chocolate bars, the winter holidays come and go quickly. In their wake, they leave exhausted credit cards and some purchases that are regretted as soon as the post-Christmas sales, or Boxing Day sales in many countries, roll around. When shopping for so many people, it is hard not to buy some items for yourself, too.
But waiting out the frenzy of Christmas sales could actually save you a lot of money. We talked to a trio of savvy shoppers to learn what items you should wait until after Christmas to buy to save some cash.
Key Takeaways Taking advantage of post-holiday sales can save you a lot of money. To make the most of the sales you need to plan ahead, such as putting together a list of target items. Winter clothing, toys, holiday decorations for next year, and consumer electronics all tend to see a marked drop in price as retailers clear their holiday stock.
The Importance of Planning Ahead
Shopping after Christmas might mean waiting longer for a particular item, but the money you save on that product will make the wait worthwhile. You’ll see a lot of deep discounts on major appliances, furniture, sporting goods, and just about every other retail item that is updated in the January inventory turnover.
You will need to plan ahead to make the most of post-holiday sales. Timing major purchases for after-Christmas sales can yield huge savings if you have a list of target items.
“I always tell people that if they have the money and the storage space, shop with the entire next year in mind,” suggests Josh Elledge of SavingsAngel.com. “Rock bottom pricing is available on everything from electronics to clothing to jewelry.”
The following are six items that you should wait to buy until after Christmas.
One of the fears many buyers face is that the next year’s update will bring new features that significantly increase the functionality of the product. This is especially true of TVs, but it applies to everything from ovens to closet organizers. There is almost no window of time to compare current and upcoming models in the post-Christmas rush, so you need to know what items you feel comfortable buying as-is.
1. Winter Clothing
When new winter clothing hits the shelves it is priced at the top of the range and barely works its way down as winter arrives. Carrie Rocha, formerly of PocketYourDollars.com, advises shoppers to plan a year ahead to save on winter clothing. “January and July are the two times of year when retailers turn over their merchandise for the new season. That makes January a great time to buy next year's winter gear for you and your kids.”
Children can pose a challenge if they hit a particularly large growth spurt, but parents are usually safe buying the next size up.
2. Toys and Small Gifts
When Christmas is over, retailers are left with excess stock of cosmetic sets, toys, spa gift baskets, and much more. These items are quickly moved to the clearance bin to make room for regular merchandise again.
“I watch for toy clearances at 70% off or more and then buy toys for my kids' birthdays and to keep on hand for the birthdays of cousins and school friends,” says Rocha. “I pick up a supply of adult gifts for unexpected occasions as well. A spa set is a good gift for welcoming new neighbors, returning a kindness, or just saying thank you.”
3. Decorations
Like winter clothing, decorations and other Christmas paraphernalia don’t budge much in price until the big day is over. “Christmas trees, lights, decor, wrapping paper, and more will all be 50% to 75% off within a few weeks after Christmas," says Crystal Paine of MoneySavingMom.com. "Buying ahead for next year will save you a bundle.”
4. Fitness Products
The fitness industry runs contrary to the logic of charging higher prices during periods of high demand. That’s because the demand for fitness goods after Christmas is fragile in that it hinges on one tradition.
“Most people make New Year's resolutions to get in shape and lose weight,” Paine explains. “The stores and gyms know this and they capitalize upon everyone's great intentions by running sales on fitness equipment, video workouts, and gym memberships after the first of the year.”
Although everything from exercise balls to treadmills can be bought cheap in the new year, there are even bigger deals in the used market. “If you can hold off for a few more months, you can usually find killer deals on Craigslist and at garage sales on almost-new fitness equipment that people purchased at the beginning of the year and then never ended up using,” Paine says.
$998 The average amount Americans plan to spend on gifts, food, and decorations during the 2020 holiday season, according to the National Retail Federation.
5. Food
Food is in demand year-round, but the type of food that’s in demand changes drastically after the holidays. Elledge says that after Christmas is prime time to scoop up some serious deals in the grocery aisles.
“Baking supplies, wine, cheese, and seasonal flavors of products are all on the way out,” he explains. “Grocers clearance a lot of what is left from the holiday season to make way for the health foods everyone seems to want in January.”
6. Consumer Electronics
“Black Friday can have some great electronic deals, but you can find sales that are just as good or better after the New Year," says Elledge. "The International Consumer Electronics Show takes place every January and showcases new items and models. Retailers know these new models are on the way, so they want to unload last year’s models and free up shelf space.”
The Bottom Line
Waiting until after the holidays to shop for certain items can save you money. But you will need to shop smart and that means having a clear plan. Put togther a list of target items. Following the above tips will go along way to control your holiday spending.
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5e9931eab80fa483b0e3dc42e82b0838 | https://www.investopedia.com/articles/personal-finance/122013/where-put-your-cash-call-deposit-vs-time-deposit-accounts.asp | Where to Put Your Cash: Call Deposit vs. Time Deposit Accounts | Where to Put Your Cash: Call Deposit vs. Time Deposit Accounts
For most people, a bank account is simply a place to hold money, not make money. That's especially true these days, with interest rates remaining near historic lows (as of July 21, 2019, the yield on the 10-year Treasury was 2.05%, according to Yahoo Finance). Yet, there are several types of bank accounts, so consumers should know which ones best fit their needs.
A lot of people understand the two major types of bank accounts: savings accounts, which allow easy access and earn modest interest, and checking accounts, which are used for day-to-day cash needs and pay little or no interest.
Those are fine for starters, but there are other types of accounts that allow customers to earn higher interest in exchange for less access to their cash. These are called time deposit accounts and call deposit accounts, which are similar but have some key differences.
Time Deposits
Time deposits, also known as certificates of deposit, pay a much higher interest rate but require a minimum deposit and tie your money up for a set period of time, which can range anywhere from six months to 30 years (with interest rising the longer you agree to go without your money).
At least in the United States, the most popular time deposits have historically been for one, two or five years. Beyond that duration, your money has greater potential for growth via an investment account. Time deposit/CD rates fluctuate largely in step with the prime lending rate, which is itself a function of the federal funds rate set by the Federal Reserve Board.
Time deposits are known by different names in other countries. In Canada, for example, they are called a term deposit; in Ireland, it’s a fixed-term account, and in the United Kingdom, it's a savings bond (which is different from the United States' debt security of the same name).
Call Deposits
Call deposits are basically accounts that require you to keep a minimum balance in exchange for a higher interest rate. Unlike time deposits, you have ready access to most of your cash, yet are still able to earn a higher return.
Banks have been marketing these types of accounts for years, often calling them Checking Plus or Advantage Accounts. It's an attempt to offer the consumer the best of both worlds – easy access plus higher interest than they would get with a regular checking or savings account.
One advantage of call deposits is that they can be denominated in different currencies. For a South African who wants to minimize her rand holdings while capitalizing on the relative stability of the pound sterling or U.S. dollar, a call deposit is a way to do so without being subjected to giant transaction costs with every deposit or withdrawal.
Banks offer time and call deposit accounts simply to attract more depositors. Since banks make money by making loans, the more money they have on deposit, the more loans they can make. For banks, offering a slightly higher interest rate in return for a more stable cash flow makes sense.
Which is Better?
Deciding which account is better is simply a matter of your objective. If you want ready access to your money, a call deposit is probably a better choice. But if you've got excess cash that you don't think you'll need for awhile, a time deposit may offer a higher return and be the best choice.
The beauty of a time deposit is that they’re among the surest things in all of personal finance. Hidden costs are virtually nonexistent, happening only in the rarest of cases. (For instance, a lending institution will reserve the right to shorten the term at its discretion, not that they ever do.) See the deposit to term, as it were, and you’ll enjoy your money back, with interest. Withdraw early, though, and you’ll be subject to penalties.
In practice, time deposits are used by investors (individuals, businesses, etc.) that are looking for safe storage. For that they sacrifice liquidity – or more accurately, liquidity beyond a certain level. Everyone needs some readily accessible cash. Once you’re past the point where having that cash is not a problem, only then should you examine time and call deposits.
Conclusion
Whether call deposits or time deposits suit you better, understand that a bank account is never a vehicle for making significant gains. It’s simply a safe place in which to gain a return a few points greater than what you’d receive from doing nothing with your money.
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250f91c50153b38b81379e68b960071e | https://www.investopedia.com/articles/personal-finance/122314/can-you-get-rich-creating-apps.asp | Can You Get Rich Creating Apps? | Can You Get Rich Creating Apps?
Can You Get Rich Creating Apps?
With the proliferation of smartphones and mobile devices, apps have emerged as an integral part of the tech economy. Over five million apps are available for download via Apple (AAPL) iTunes app store, the Google Play Store, or Amazon (AMZN) in dozens of categories.
Some apps help people manage their finances, and some provide up-to-the-minute news of the world. Others act as a GPS, allow users to shop at their favorite stores from their phones, take pictures, send messages around the world, find somebody to date within a five-block radius, or find the best nearby bar or restaurant. Whatever you can imagine, there is probably an app for that.
Apps of all kinds have become ubiquitous, and the majority of mobile device owners use multiple apps daily. Some apps have become hugely popular, leading to success and wealth for the developers, bringing in millions or even billions of dollars. These success stories, however, are the exception, not the rule.
Key Takeaways Most app developers work hard to create the next big thing while barely scraping by. Consumers spent over $120 billion on apps in 2019, though a huge majority of that revenue went to large tech companies. While some do strike it rich, an average hard-working app maker with five apps can expect just around $20,000 a year before taxes.
The unfortunate truth is that most app developers will work hard to create the next big thing while barely scraping by in a world of ever-increasing competition and consumers with short attention spans.
Understanding Getting Rich Creating Apps
Some free apps generate revenue via in-app purchases or advertising, while others are purchased. The good news for both kinds of apps is that people use them a whole lot. ComScore's Global State of Mobile 2019 found that more than seven out of every eight minutes spent on mobile devices is app-related.
The bad news is that ComScore also found the majority of mobile device users download no new apps each month. There is, however, a small set of around 7% of smartphone users who download apps like crazy, accounting for nearly half of all monthly downloads.
Apps can be a huge source of profits. Consumers spent over $120 billion on apps in 2019. These days, there are tens of thousands of developers working independently, with start-ups, or with established companies to come up with the next big app.
The competition to develop a successful app is fierce, and there's no guarantee that even a great idea executed well will catch on and bring financial success. Even though some apps have made millionaires out of their creators, most app developers do not strike it rich, and the chances of making it big are depressingly small.
Successes
First, it is worth noting that the most popular apps—rated by unique visitors per month—are owned and operated by large technology firms like Facebook (FB) and Google (GOOG).
There have been a few instances of small apps generating big success and making their creators exceedingly rich. Some apps have been snatched up by larger companies for huge sums of money, for example when Facebook bought Instagram, Onavo, and WhatsApp.
Square, the point of sale app, has a market cap of $32.9 billion as of mid-2020. Snapchat has a market cap of $26.15 billion. Uber and Lyft have caps of $54.6 billion and over $9.35 billion, respectively. Airbnb was worth over $38 billion at the end of 2019.
Challenges
While those valuations and sales numbers may seem encouraging, don't be fooled: the average app developer is unlikely to strike it rich. According to Forbes, the average app developer produces between three and five apps, each app bringing in an average revenue of $1,125 on Google's platform and $4,000 on Apple's.
A hard-working app maker with five apps can expect just around $20,000 a year before taxes. And that doesn't account for the money, time, and effort invested in creating those apps.
With those small revenue potentials, it is hard to build a team of developers and create advertising and marketing campaigns to increase recognition and drive downloads. There is also a huge amount of competition. For every category of app, there are numerous options to choose from, and making yours the one to gain traction can be hit or miss.
On top of all that, even with a hugely successful app, there is no guarantee that it will be able to produce a profit. It is increasingly difficult to monetize activities that many people have come to expect to be free—such as messaging, social networking, photo sharing, and cloud storage.
Many other apps have seen their valuations drop as users' short attention spans and increasing access to new offerings make them passé in ever shorter periods of time. A study by Techcrunch showed that anywhere from 80% to 90% of all downloaded apps are used just once and then eventually deleted.
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f7b92c3129e1d047c4feb706762432a5 | https://www.investopedia.com/articles/personal-finance/122314/credit-card-rewards-cash-back-vs-airline-miles.asp | Cash Back vs. Airline Miles: What's the Difference? | Cash Back vs. Airline Miles: What's the Difference?
Cash Back vs. Airline Miles: An Overview
In choosing between cash back and airline miles rewards, the main question is, which type of rewards card makes the most sense for you? It makes sense to pick the card and rewards program that fits your goals and lifestyle.
Before choosing a card, it's important to consider if you spend enough to make it worth it since many rewards cards have annual fees. If not, there are still many credit cards that offer valuable rewards yet don't charge an annual fee.
Then, read the fine print. Are there any blackout dates that would limit your ability to use your travel rewards? Do your rewards expire? Are there ways for you to earn more, such as making online purchases through your credit card rewards website? Paying attention to these details can help you optimize your rewards so that you can get the most out of the benefits your credit card offers.
Key Takeaways In choosing between cash back and airline miles, think about what you want to achieve with your card spending—cash in hand or earning enough miles to redeem for travel. Before choosing a card, it's important to consider if you will earn enough in terms of cash back, points or miles to justify any annual fees. For cards with annual fees, look beyond any one-time bonus or first year annual fee waiver and calculate how much rewards value you will likely derive year after year with your typical spending patterns.
Cash Back
Cash back credit cards have the advantage of flexibility. You can choose to spend that cash on travel, use it for other purchases you'd like to make, or simply put it into savings. However, if you carry a balance on your credit card month to month, even the most generous rewards program will be greatly offset, if not completely nullified, by the amount you are paying in interest.
Most cash back cards don't charge an annual fee, which saves the effort to determine whether a certain rewards value must be earned over the course of the year to justify the cost. That makes cash back cards a natural fit for people who don't spend a significant amount on credit cards. Cash back rewards can reach up to 6% of a transaction, though such rich bonus rewards are limited to categories of spending (like groceries) and are typically capped on a quarterly or yearly basis. Others pay a fixed cash back percentage, like 1.5%, on all purchases. Cash back rewards are typically redeemed as a statement credit, which can offset a a portion of costs incurred through monthly purchases. Consumers may also receive the cash reward directly by deposit to a linked checking account or through the mail by check. Cash back rewards typically have fewer redemption options compared to points and miles-based rewards but tend to be more straightforward in their value.
Typically, the cardholder must reach a certain transaction level to qualify for cash or other benefits, usually around $25, but it varies from card to card. Some credit cards offer varying levels of cash back, depending on the spending category of purchase or transaction level. Ultimately, not all cash back cards are created equal, so be sure to do your research to ensure you're receiving the best card possible.
Airline Miles
There are two main types of travel cards that deliver rewards in miles or points: airline-specific co-brand cards issued in partnerships between airlines and banks, and more general travel cards that earn rewards that can redeemed for travel on any air carrier. Travel rewards credit cards are more likely to charge annual fees.
Co-brand airline miles are more limited, but they can be a good choice if your lifestyle involves travel—or you hope it will in the future (maybe you need a little motivation to start planning that trip to Spain). Usually, airline miles earn at about the same rate as cash back rewards (though airline cards often offer bonus miles for airline purchases and other categories like hotel, dining or gasoline) and there may be a one-time bonus incentive offered in exchange for a certain amount of spending during the first several months the account is open.
The one-time bonuses can sometimes be the most lucrative rewards you will get out of your credit card, so it makes sense to satisfy the initial spending requirements involved. Some miles cards (both general travel and co-branded airline cards) also let you use earned rewards for other travel redemptions besides airline tickets, such as hotel rooms or rental cars.
Airline-specific cards will often limit your ability to shop for the lowest cost ticket because you are only earning and redeeming rewards with a single carrier, but the rewards can sometimes be redeemed at more favorable rates during off-peak travel times. However, if you are trying to travel during peak travel seasons or the holidays, expect lower reward returns and beware of blackout dates. Premium airline-specific cards might throw in added perks, such as seat upgrades, waived baggage fees, priority boarding, or access to airport lounges.
General travel cards have the benefit of flexibility as they allow redemption across many airlines and hotels but will generally yield similar rewards rates as a cash back credit card. Don’t expect to get upgrades or special treatment with a general travel credit card; this type of card is the equivalent of a cash rewards card in its rewards and perks, except that the rewards must generally be redeemed for travel through the card issuers reward program portal and not through any airline's frequent flyer program.
If you don't think you'll redeem earned travel rewards for airline tickets or hotel stays frequently enough to justify any annual fees involved, opt for the flexibility of a cash back card; you may earn a little less in terms of total value, but you will probably be able to enjoy full use of the rewards.
Special Considerations
Before signing up for a card with an annual fee, consider the value of the first-year bonus along with its spending requirement and rewards earning rate to determine how much you will need to spend each year for the rewards value to at least equal the cost of the annual fee. Figuring this out may be a little tricky because sometimes you have to convert miles into dollars, but it can be done. For example:
Miles values can vary but are generally worth 1 cent per mile. If the bonus is 50,000 miles and each mile is generally worth $.01 so the bonus value would equal $500. You have to spend $3,000 within the first three months to get this one-time bonus. That's a 16.7% return on required spending. If a card offers 2x miles for every purchase. For every $1 that you spend, you earn $.02 in rewards value. (This is the same as earning 2% back.) The annual fee is $95. If earning $.02 for every purchase dollar, you would have to spend a minimum of $4,750 on your card each year (which is under $400 per month) to justify the annual fee. The one-time bonus would equal over 5 years of the annual fee, though, so this illustrates that travel rewards credit cards with annual fees can be a good deal if you redeem the rewards for their maximum travel redemption value.
A desirable travel card also has no foreign transaction fees, the miles don't expire, and there are no blackout dates for redeeming travel points, which can be spent on any airline and hotel. Most general travel cards provide these attributes. Co-branded airline cards often don't, however, but do provide other valuable benefits like airline frequent flyer status, priority boarding, free checked bags and other perks.
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4d7d6c09f055052bdd4e6e8a50ab1c8c | https://www.investopedia.com/articles/personal-finance/122315/group-term-life-insurance-what-you-need-know.asp | Life Insurance Through Work | Life Insurance Through Work
Many employers provide group term life insurance as a benefit for their employees. Some employers also make it available to the employee's spouse and dependents. If you're covered by a group policy at your job, it's important to understand how it works and whether your employer's coverage is enough.
Key Takeaways: Group term life insurance is an employee benefit that's often provided for free by employers. Employees may also have the option to buy additional coverage through payroll deductions. The first $50,000 of group term life insurance coverage is tax-free to the employee.
What Is Group Term Life Insurance?
Group term life insurance is a common part of employee benefit packages. Many employers provide, at no cost, a base amount of coverage as well as an opportunity for the employee to purchase additional coverage through payroll deductions. The insurance plan may also offer employees the option to buy coverage for their spouses and children.
Like other types of life insurance, group term life insurance pays out a death benefit to the beneficiary you've designated if you pass away while the policy is in effect.
How Group Term Life Insurance Works
Group term life insurance covers not just you but your coworkers. You're covered by the policy as long as you're employed by the company.
These policies aren't necessarily the same from one company to the next, however. Employers can decide how much of a death benefit to offer, whether to allow employees to increase their death benefit, and whether to make coverage available for spouses and children.
Here's a closer look at what to consider when evaluating a group term life insurance policy.
Coverage Amounts
The coverage offered through a group plan varies among employers. The amount of coverage available to you may also differ depending on where you are situated in the organizational hierarchy. Benefits for highly paid executives and managers may be more robust than those offered to lower-level or hourly employees. At the top of the corporate pyramid, some employees may be eligible for both a group policy and their own individual one, through what's known as a group carve-out plan.
Many group plans only cover an individual's base salary or some multiple of it. Other forms of compensation may be excluded, such as bonuses, sales commissions, or incentives that are reported as income—for example, an auto reimbursement or a restricted stock award.
Premium Costs
Your employer may provide a certain amount of coverage free of charge. If you wish to buy additional coverage, what you'll pay for it will depend, in large part, on your age.
Group term coverage is generally inexpensive, especially for younger workers. However, the rates go up as individuals age. Most plans also have rate bands in which the cost of insurance automatically goes up in increments, for example, at ages 30, 35, 40, etc. The premiums for each rate band are outlined in the plan document.
Eligibility
For group plans, all employees are typically enrolled in the base coverage automatically once they meet the eligibility requirements. Those requirements might include working a certain number of hours per week or having been an employee for a specified length of time.
Participants in a group plan may not be required to go through underwriting, the process insurance companies use to assess how much of a risk a person poses when they apply for an individual policy. Instead all eligible employees are automatically covered, regardless of their health.
Whether the employee is eligible to buy additional group term coverage also differs from employer to employer. In some plans, that is possible only when an individual is initially employed or after a qualifying event, such as the birth of a child. In other plans, supplemental group term coverage can be added during open enrollment periods.
Unlike basic coverage, supplemental coverage may require underwriting. Usually, it is a simplified underwriting process in which the employee answers some questions to determine their eligibility rather than having to go through a physical exam. The insurance company then decides whether or not it will offer coverage and, if so, at what price.
As mentioned, some employers give employees the option to buy a limited amount of group coverage for spouses and children (age eligibility for children varies).
Portability of Coverage
Since a group term is linked to ongoing employment, the coverage automatically ends when an individual's employment terminates. Some insurance companies do offer the option to continue coverage by converting to an individual permanent life insurance policy.
The conversion options vary from plan to plan, may not be automatic, and could require underwriting. The new policy may also carry a much higher premium.
Taxation of Benefits
Employers can provide employees with up to $50,000 of tax-free group term life insurance coverage. According to IRS Code Section 79, the cost of any coverage over $50,000 that is paid for by an employer must be recognized as a taxable benefit and reported on the employee's W-2 form as income. The taxable amount is calculated using an IRS premium table, based on the employee's age, and is also subject to Social Security and Medicare taxes.
If an employer does differentiate, which is allowed, by offering different amounts of coverage to select groups of employees, the first $50,000 of coverage may become a taxable benefit to them. This includes corporate officers, highly compensated individuals, or owners with 5% or a greater stake in the business.
Is Your Employer-Sponsored Life Insurance Enough?
Group term life insurance is a good benefit to have, but there are some limitations to keep in mind.
As mentioned above, because group coverage is linked to employment, if you change jobs, stop working for a period of time, leave to open a business, or retire, the coverage will stop. This puts you at risk of being uninsured or, if you have health issues, having difficulty finding new coverage. You may have the option of converting to a permanent policy, but that can be costly.
Beyond that, the amount of coverage your employer offers may not be enough to meet your loved ones' financial needs after you're gone. A basic $50,000 life insurance policy could pay funeral expenses and clear a few debts, but you'll need a larger policy if you want to leave money behind to pay off the mortgage, put your kids through college, or cover your family's day-to-day living expenses for years to come.
For both those reasons it often makes sense to buy some individual coverage on your own. Investopedia periodically rates the best life insurance companies for different types of policies.
Group Term Life Insurance FAQs
Can I get group life insurance from other sources than my employer?
Yes, if you belong to an alumni association, trade group, professional society, or other organization, it may offer group term life insurance for its members. And unlike employer-based insurance, it will be portable if you change jobs.
If I don't have any dependents, do I need any life insurance?
As discussed earlier, having at least a small amount of life insurance can help pay your final expenses if you happen to die. For example, if a parent co-signed for a student loan or car loan for you, you might want to leave behind enough insurance so they aren't stuck with the payments.
Why is permanent insurance more expensive than term insurance?
A major reason is that permanent insurance has a savings component, often referred to as the policy's cash value, while term insurance does not. The premiums you pay for a permanent policy go part to the buy insurance and part to build cash value.
What happens if the insurance company my employer uses gets into financial trouble?
Most insurance companies are backed up by state guaranty funds, which step in when that happens.
If I die, will my beneficiaries have to pay tax on the money they receive?
No, with rare exceptions, death benefits paid to a beneficiary are not considered taxable income.
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fad56dabcbc0bdbf00530244d33e88f4 | https://www.investopedia.com/articles/personal-finance/123014/what-harvard-actually-costs.asp | What Harvard Actually Costs | What Harvard Actually Costs
What Does Harvard Actually Cost?
To most people, the term Ivy League refers to a group of academic institutions, conjuring up images of elitism, selectivity, and academic excellence. What they may not know, though, is that it's also an athletic conference in which these private schools participated. This group consists of Columbia, Brown, Cornell, Princeton, Yale, University of Pennsylvania, Dartmouth, and Harvard. Attending one of these schools is a dream for many, with Harvard being a big contender on many students' lists.
Founded in 1636, Harvard is the country’s oldest post-secondary institution and is the alma mater of many noteworthy figures, including a number of U.S. presidents and Nobel Laureates. But how much does it cost to attend? You may be surprised to find that financial aid can significantly reduce the hefty price tag associated with getting an education at an Ivy League school. Read on to find out what studying at Harvard really costs.
Key Takeaways Attending Harvard costs $49,653 in tuition fees for the 2020-2021 academic year. The school provides lucrative financial aid packages to many of its students through its large endowment fund. Most students whose families make less than $65,000 attended Harvard for free in the most recent academic year. The cost to attend Harvard is less than a state school for 90% of students. Harvard graduates with only an undergraduate degree can earn as much as $146,800 by mid-career.
Understanding Harvard's Costs
For many top students, a Harvard degree is about more than just a social cachet. In fact, it's often the ticket to a great-paying job. That’s good news because a stint at Harvard doesn’t always come cheap.
The standard tuition for the 2020-2021 academic year is $49,653 without any financial aid. Room and board and other fees bring the total price tag to a hefty $72,391. That’s pricey even by private school standards. The average cost of a private, non-profit, four-year institution nationally is $32,410, according to the College Board. The average for tuition and room and board combined was $48,510.
Plentiful Financial Aid
One of the benefits of a uniquely successful alumni pool is that many give back to the school and make it easier for low- and middle-income students to attend the institution. The school’s endowment, which was reported to be $40.9 billion at the end of the 2019 fiscal year, helps make it possible to offer generous financial aid packages to those in need.
Attending Harvard costs the same or less than a state school for roughly 90% percent of families with students enrolled. According to the university, more than half of the students enrolled at Harvard receive need-based scholarships.
Household income determines how much families are required to contribute to the cost of education at Harvard:
Families with a household income below $65,000 aren't required to make any contribution to students' educational costs. Students from families that make between $65,000 and $150,000 typically have to kick in 10% of their family income or less. Those who come from families making slightly more also receive considerable financial support from the school.
The average grant disbursed per student was more than $53,000. Meanwhile, out-of-pocket costs for students who had to pay amounted to $12,000.
The average out-of-pocket costs to those who have to pay to go to Harvard was estimated to be $12,000.
The university says that its admissions process is entirely need-blind. If you come from a lower-income family and are eligible to receive a sizable financial aid package, you theoretically have the same chance of admission as someone from a wealthier family. While international students cannot receive federal financial aid awards, they are eligible for university funds, which can help alleviate the cost of attending the institution.
Big Dividends Down the Road
A Harvard education is, by nearly any measure, an amazing investment even when you factor out the financial aid you may receive. For many employers—including some Wall Street banks and prominent consulting firms—having the school on a resume offers an enormous leg up on the competition. According to a 2018 survey by the school newspaper, more than half of those graduating expected to earn $70,000 or more in their first year on the job. That's well above the average college graduate who earned $51,000 in 2017.
Here's another important fact. Attending Harvard leads graduates to valuable connections as their careers unfold, allowing them to sustain their success. PayScale's College Salary Report suggested Harvard graduates are among the top earners nationally when it comes to salary at the midpoint of their careers. Graduates who only have an undergraduate degree have median earnings of $147,700 at the mid-career mark, with Harvard ranking sixth in the country in that category. The median income increases to $159,400 by mid-career for those with a graduate degree. Keep in mind that earnings fluctuate based on a graduate's job and type of degree.
PayScale also ranks American universities based on their 20-year return on investment (ROI). Harvard took the 19th spot, even before factoring in financial aid. When you factor in getting financial aid and compare Harvard graduates only to those from private colleges and those paying out-of-state tuition at public universities, it jumps to the sixth position with a median 20-year net payout of $1,014,000.
Harvard's Demographics and Diversity Issues
According to the school's website, Harvard is committed to diversity. Home to students from more than 100 different countries, Harvard states that it aims to register diverse individuals with different backgrounds, beliefs, and financial situations. The ethnicities of the admitted class of 2024 were broken up as follows:
But the school has come under fire for what some allege is a discriminatory admissions process. A student advocacy group called Students for Fair Admissions filed a lawsuit against the school in 2014, alleging that Harvard's admissions process was race-based and discriminated against Asian Americans. Both the lower court and the federal appeals court that presided over the case found that the school's practices were not discriminatory.
Drew Gilpin Faust, who was president of Harvard in 2016, created a task force to address diversity issues at the school, including gender, race, ethnicity, and sexuality. The report made a series of recommendations such as the hiring of diverse staff, improved mentoring, and departmental plans to advance inclusion.
Harvard Costs FAQs
How Much Does It Cost to Go to Harvard University for 4 Years?
A four-year undergraduate degree program at Harvard University costs $198,612 without room and board or any other fees. Financial aid can significantly cut down the out-of-pocket expenses for those who qualify and need it the most.
How Much Is Harvard Tuition 2020?
The tuition for the 2020-2021 academic year at Harvard is $49,653.
How Much Financial Aid Will I Get at Harvard?
The amount of financial aid you receive depends on your household income. Harvard states that the average grant exceeds $53,000 per student.
Is Harvard Free?
The university states that one of its main goals is to be more affordable and doesn't require students to take out loans to fund their education. Students whose household income falls between $65,000 and $150,000 usually contribute between 0% and 10% of their annual income toward costs. Anyone with a household income above that threshold may still qualify for financial aid. Those whose incomes are below $65,000 won't pay anything.
Can You Get Into Harvard With Money?
The Harvard admissions process is need-blind, which means having money doesn't necessarily mean you'll be accepted to the school. Applying for admissions and to Harvard's financial aid program is completely based on merit—not money.
The Bottom Line
Harvard may have one of the country’s highest tuition rates, but many students pay far less—thanks to a strong financial aid program. Either way, research suggests that an education at this illustrious school is a terrific long-term investment if you can afford it.
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984ab418dcc433732c84542ca6777081 | https://www.investopedia.com/articles/pf/05/cards.asp | Credit, Debit, and Charge: Sizing Up the Cards in Your Wallet | Credit, Debit, and Charge: Sizing Up the Cards in Your Wallet
While debit cards, charge cards, and credit cards are all made of plastic and share the same space in your wallet, they each have distinct features and drawbacks. Read on to figure out which one is right for you.
Credit Cards
Credit cards usually come with a set credit limit (say $500, $2,500, or $25,000) based on the cardholder's credit rating and income. Credit cards allow consumers to carry a balance from month to month, on which they must pay interest. In general, a credit card issuer will raise your credit limit as you spend more and make regular payments. If you habitually pay late or miss payments, your limit could be reduced or your credit cut off. The issuer might also raise the interest rate on the remaining balance.
Shop carefully when selecting a new card. An attractive offer of no annual fee might be accompanied by an exorbitant interest rate as high as 30%. If you have no credit history or poor credit history, consider obtaining a secured card. In exchange for a deposit of $200 to $500, a bank will issue a credit card with an equal spending limit. This allows the cardholder to establish credit while earning interest on the deposit.
Charge Cards
When you think of charge cards, you often think of American Express. Unlike credit cards, charge cards do not have a monthly spending limit. You can charge virtually an unlimited number of purchases to your card, but need to pay the balance in full every month. To encourage you to do so, charge cards generally impose a fee and penalties on unpaid balances.
Like credit cards, some charge cards assess an annual fee. Despite the fees, many consumers prefer charge cards because they avoid the interest-related expenses that come with credit cards.
Debit Cards
Debit cards work like old school checks. When you make a purchase with a debit card, the payment is taken directly from your linked bank account. If your account has insufficient funds, your card payment may be declined. Some banks, however, offer overdraft protection which will cover a transaction up to a set dollar limit, in the event of insufficient funds, or transfer the necessary funds from another linked bank account, should you have one.
Online, debit cards function like credit cards. You need to provide the merchant with the card's number, expiration date, and validation code to complete a purchase. Offline, your debit card functions much like an ATM card. You need to enter your personal identification number (PIN) to initiate the transfer of funds from your bank account to the merchant's bank account.
If you want to curb your spending and avoid the urge to buy stuff you can't afford, debit cards are a good choice. The money comes directly from your bank account, there are no interest charges and generally no fees. Visa and MasterCard affiliates issue most debit cards, so most merchants that accept Visa and MasterCard credit cards will also accept debit cards.
However, debit cards have fewer protections against fraud compared with credit cards, and it can be more difficult to get your money back. One other point: because you're paying with your own money, debit cards don't help you build credit history and improve your FICO score.
The Bottom Line
Putting plastic in your wallet is a convenient way to buy things and avoid carrying cash. And if you participate in various perks programs offered by credit cards and charge cards, you can earn airline miles or other rewards with each purchase.
From a financial perspective, debit and charge cards are structured so they pose little danger to your financial wellbeing. They discourage or make it impossible to carry a balance, so the temptation to buy what you can't afford is minimized.
Credit cards, on the other hand, have been an instrument of financial ruin for more than a few careless consumers seduced into living beyond their means. Interest rates border on the obscene. Minimum monthly payments can stretch a purchase's payback period for years. To avoid these pitfalls, pay attention to your spending habits. Keep in mind that being able to afford the minimum monthly payment doesn't mean you can afford the purchase. It simply means that if you buy an item, not only will you be in debt, the interest payments will increase the total cost of the item to well beyond the sticker price.
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6e738423009b33ea54949dbb9fa98ecb | https://www.investopedia.com/articles/pf/05/payoffmortgage.asp | The Benefits of Mortgage Repayment | The Benefits of Mortgage Repayment
You've taken the leap and decided to buy a home. After signing a mountain of paperwork, you are now the proud owner of your own residence. Thirty days later, when the first mortgage payment comes due, you are hit by the reality of what you have done. You have taken on 30 years worth of massive payments, in an economy that makes no promises about long-term job stability. Don't panic.
In this article, we'll look at the benefits of paying off your mortgage as soon as you can and give you pointers on how to do it.
Pay It Off: Pros and Cons
The first and most obvious reason to pay off your mortgage as soon as possible is that it will save you tens of thousands of dollars. Read the papers you signed when you bought the place and take a close look at your amortization schedule. The mortgage companies disclose right up front that you will pay more than twice the purchase price of the home, before you actually own it.
(To learn more about the amortization schedule, see "Understanding the Mortgage Payment Structure.")
The second reason is the peace of mind you gain from owning your home. With the lower monthly cash outlay requirement, the prospect of unemployment or underemployment is no longer so daunting. You can now afford to take a job that pays a whole lot less than your previous position, without any concerns about losing your home.
However, many people argue that paying off your mortgage is a bad financial move. They claim that you will get a higher return, in the long run, if you invest your money, instead of making extra mortgage payments. While there is some chance that you will achieve such a feat, there's also a chance that you won't. Given the choice between a guaranteed savings of the 6% interest on their mortgage (compounded for 30 years), or the possibility of achieving some other rate of return, which may be higher or lower, conservative investors will take the safe bet.
Of course, the entire argument is moot when you truly look at the facts of the situation. Most people buy a home so they have a place in which to live. Even if it doubles or triples in value, they aren't going to sell it, and if they do, it will take every cent they earn to buy a comparable home in the same neighborhood. Besides, since you can't live in a mutual fund, most home shoppers don't make their purchase in an effort to beat the return of the S&P 500.
The next argument against paying off your mortgage is even more dubious, but you hear it all the time, even from sophisticated investors: mortgage interest will provide you with a tax break. While technically this is true and you spend $1 in interest to get a or 25- or 35-cent tax break, it only works if you a) itemized deductions, and b) are in the highest income tax brackets. For the average person, it's not a good return on your investment.
Paying off your mortgage provides a return on your investment that is much more reliable than anything the stock market can offer. It also saves you tens, and sometimes hundreds, of thousands of dollars. To top it all off, it provides the security of having an affordable place to live, in the event that your income declines. With all of these benefits in mind, it's time to look at the strategies that will help you pay off that mortgage.
Plan Before You Buy
Look before you leap and do the math in advance, to determine how much house you can afford to buy. Then buy less house than you can afford. This strategy will ensure that you have adequate cash flow to make extra mortgage payments and will provide some cushion, should you have to take a lower-paying job at some point in the future. Also, make sure that your mortgage does not impose a penalty for prepayment. This clause can put a damper on your efforts to get out of debt.
(To learn more, see "Mortgages: How Much Can You Afford?")
Next, you need to pay attention to the financing terms. While adjustable-rate mortgages (ARMs0 offer lower initial payments, they are used all too often to enable buyers to get into homes they cannot actually afford. When interest rates rise, some homeowners are caught unprepared. Similarly, home buyers often plan their finances based on the idea that their mortgage payments won't change; they discover this isn't always true, when their local government raises real estate taxes. If your plan is to get out of debt as quickly as possible, a fixed-rate mortgage provides the predictability of a steady interest rate, and it can always be refinanced if rates fall.
(To learn more, see "Mortgages: Fixed-Rate versus Adjustable-Rate.")
How to Pay Off a Mortgage
Once you have a mortgage, the key to paying it off is simple: Send money. Some mortgage plans offer a bimonthly payment schedule, which results in one extra payment per year. It's a great strategy, unless there is a fee associated with it. If there is, simply set aside some cash and make an extra payment on your own.
If your career advances over the years, put those raises and bonuses to work by sending them to the mortgage company. You were doing just fine without that money, and you won't miss it if you don't get used to having it in your budget.
Keep an eye on interest rates and, if they fall, consider refinancing. If you can reduce your interest rate, shorten the term of your loan or both, refinancing can be an excellent strategy. Just don't make the mistake of keeping your term the same and taking money out.
(To learn more, see "Mortgages: The ABCs of Refinancing.")
The Bottom Line
There's no time like the present to begin your quest to pay off that mortgage. Start by reading your amortization schedule; once you see exactly how much of your monthly payment goes to interest, and what a tiny portion goes toward paying off the principal, you will realize that every extra dollar you send reduces the portion of your payment that services your interest expense. That can be a powerful motivator for financially savvy individuals.
If you focus your efforts on the task at hand, you may be surprised at how quickly you can retire a mortgage. With your mission accomplished, you will find that the comforts of home are even more pleasurable when it is you, not the bank, who owns the home.
(For more information, see "Shopping for a Mortgage" and "Understanding Your Mortgage", "Mortgage Basics")
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81b009c12946e7ea351ef38978c900ff | https://www.investopedia.com/articles/pf/05/singlepremlife.asp | A Look at Single-Premium Life Insurance | A Look at Single-Premium Life Insurance
The main benefit of life insurance is to create an estate that can provide for survivors or leave something to charity. Single-premium life (SPL) is a type of insurance in which a lump sum of money is paid into the policy in return for a death benefit that is guaranteed until you die. Here we look at some of the different versions of SPL available, offering a wide range of investment options and withdrawal provisions.
With single-premium life insurance, the cash invested builds up quickly because the policy is fully funded. The size of the death benefit depends on the amount invested and the age and health of the insured. From the insurance company's perspective, a younger person is calculated to have a longer remaining life expectancy, giving the funds paid in the premium more time to grow before the death benefit is expected to be paid out. And, naturally, the larger the amount of capital you initially contribute to your policy, the greater your death benefit will be as well. For example, a 60-year-old female might use a $25,000 single premium to provide a $50,000 income-tax free death benefit to her beneficiaries, whereas a 50-year-old male's $100,000 single premium might result in a $400,000 death benefit.
Living Benefits of Single-Premium Life Insurance
While the death benefits of insurance policies provide you with an efficient means of providing for your dependents, you also need to consider unexpected needs that might arise before you die. You probably understand the importance of long-term care (LTC) insurance, as long-term care can often turn out to be an expensive predicament. But what if you can't bring yourself to pay the annual LTC premiums? SPLs can offer a solution.
Some SPL policies give you tax-free access to the death benefit to pay for long-term care expenses. This feature can help protect your other assets from the potentially overwhelming cost of long-term care. The death benefit remaining in the policy when you die will pass income-tax free to your beneficiaries. And if you don't use any of it, the money will go to your loved ones just as you had originally planned. Therefore, your SPL plan allows you to cover your long-term care needs as required, but still leaves the maximum possible amount of your death benefit intact for your dependents.
A number of SPL plans also allow you to withdraw part of the death benefit if you are diagnosed with a terminal illness and have a life expectancy of 12 months or less. This flexibility can make the decision to pay a large single premium less daunting, and it is important to consider if you have limited financial assets outside of your SPL.
Investment Options With SPL Policies
There are two popular single-premium policies that offer different investment options:
Single-premium whole life pays a fixed interest rate based on the insurance company's investment experience and current economic conditions. Single-premium variable life allows policy owners to select from a menu of professionally managed stock, bond and money market sub-accounts, as well as a fixed account.
Your choice should depend on your ability to handle market changes, the makeup of the other assets in your portfolio, and how you plan to use the policy's cash value. With a fixed interest rate, you can depend on the safety and stability of the constant growth rate in your policy, but you miss out on potential gains if the financial markets have a good run. The minimum death benefit is established when you purchase the policy, but if the policy's account value grows beyond a certain amount, then the death benefit can go up as well.
On the other hand, if you are willing to risk underperformance for a chance for greater returns, a variable life insurance policy with sub-accounts invested in equities and bonds may make more sense for you.
Withdrawal Options
SPL policies give you control over your investment, allowing access to the cash value for emergencies, retirement, or other opportunities. One way to tap into the cash in the policy is with a loan. You can generally take a loan equal to 90% of the policy's cash surrender value. This will, of course, reduce the policy's cash surrender value and death benefit, but you have the option to repay the loan and re-establish the benefit.
Companies will also let you withdraw funds and deduct the withdrawal from the policy's cash surrender value. They usually have a minimum amount you can remove. The amount you can take out each year without paying a surrender charge might be 10% of the premium paid in or 100% of the policy's gains, whichever is greater.
However, an extra cost can arise from withdrawals or loans from your SPL, since SPL policies are usually considered modified endowment contracts. This means there is a 10% IRS penalty on all gains withdrawn or borrowed before age 59½. You will also have to pay income tax on those profits. Plus if you cash in the policy, the insurance company might hit you with a surrender charge.
Investment Grows Tax-Deferred
Your investments will grow tax-deferred inside the policy. As noted above, you will pay tax on the earnings if you withdraw or borrow from the policy, but your named beneficiaries will receive the benefits income-tax free and without the time delay and expense of probate. This is an important benefit, as you do not want the effort and expense you devoted to providing death benefits for your dependents to be muted by undue time delays and probate costs.
SPL Has Drawbacks
The minimum amount you can invest in an SPL policy is generally $5,000, which can make it cost-prohibitive for many investors. Additions are not allowed. You should only consider using funds you had intended to pass on to the next generation or to help fund a long-term goal, such as retirement. Also, you will have to meet the insurance company's medical underwriting standards to qualify for SPL.
The Bottom Line
If you have cash you don't need right now and you want guaranteed life insurance protection for your family or your favorite charity, single-premium life insurance may be the ideal product for you. It is also an excellent way to begin a child's life insurance program.
For instance, you could specify a child or grandchild as the insured and keep the policy in your name. That way you would still have control over the cash value. Or you could make them owner as a way to remove the policy from your estate. However you choose to use a single-premium life insurance policy, remember to consider your personal financial situation and other retirement vehicles already in use so you can select and shape your policy to best match your needs. Additionally, compare single-premium plans from several different firms to ensure you'll be receiving the best life insurance policy possible.
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6041e440e09df63ea80b818569782799 | https://www.investopedia.com/articles/pf/06/boomerangs.asp | Why Some Kids Never Leave the Nest | Why Some Kids Never Leave the Nest
According to the Pew Research Center, close to 52% of Americans aged 18-29-year-olds were living with their parents as of July 2020. There are many reasons, most often financial, why some adult children may not leave their family home or return to live for a period of time.
And although every family dynamic is different, there are specific steps that parents can take to reduce the potential for negative effects on their kids and themselves.
Key Takeaways According to the Pew Foundation, slightly over half of 18-29-year-old live at home with their families. Adult children come home for various reasons, but finances most often play a role in their decision. Parents may need to set definite boundaries and rules for their adult children living at home. The high cost of college and university may keep some young adults living at home instead of on-campus.
Why Adult Children Return (or Remain) Home
Growing up is not only tough, but it is also increasingly expensive. The rising cost of higher education (especially the cost of living at university or college) has amplified financial stress for young people.
Four years of college or university may mean starting young adulthood with heft student loans. Add in the cost of a car, food, clothing, shelter, and social life, and suddenly a young adult may find themself digging out of personal debt. When things get really hard, it may be tempting to return home or remain there.
What's a Parent to Do?
Clearly, moving back home (or never moving out) has enormous and immediate advantages for the kids, but, depending on the parents, it might not be it's not such a great deal for the parents and, in the long term, it may not be good for the kids either.
Some parents may be too kind to kick out their still-dependent kids, so instead of using their prime earning years to save and invest for retirement, the parents are pouring their money into adult children who can't or won't strike out on their own. Furthermore, in addition to jeopardizing mom and dad's retirement, Junior isn't learning a thing about the responsibilities that come with being an adult.
Most young adults and adult children remain at home or move back due to financial stress and debt.
Set Rules
If your adult kids want to come back home, or they won't leave, you need to lay down the law. Teach them that there's no free lunch in life. Maintaining a household is an expensive proposition, so everyone living under your roof needs to carry his or her own weight by paying his or her fair share of the expenses. This includes paying rent, paying utility bills, and paying for food.
While the kids are chipping in to pay for telephone and cable service, the parents need to make sure to keep their wallets closed. Your children need to pay their own bills. This includes car payments, insurance, gasoline, credit cards, and cell phones. Kids need to learn that if they incur expenses, they are responsible for paying them.
More than Money
Besides learning to pay their own way, your children need to understand that households don't keep themselves up without some assistance. Everyone living in the house needs to be responsible for keeping it clean and keeping it maintained. Mowing the lawn, weeding the flower beds, painting the shutters, and cleaning the bathroom are par for the course when you own a home. If the kids are living at home, they need to do their share of the work.
The Bottom Line
When kids learn to manage their money and maintain a household before they leave home, they (and you) will be better off in the long run. But if your adult children are struggling financially, returning to their familial abode may make sense—for a while. Creating a game plan with them and setting and keeping household rules (paying their own bills, helping with chores, and creating a timetable for when they will depart) may go a long way towards keeping harmony in the home.
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083def99a4379c20a8c9295f2e390d2e | https://www.investopedia.com/articles/pf/06/demographictrends.asp | How Demographic Trends Could Affect Your Portfolio | How Demographic Trends Could Affect Your Portfolio
Demographic changes in the United States and elsewhere have major implications for investment risks and returns. The combination of ever-declining birth rates and the ever-increasing numbers of pensioners could have disastrous consequences for pension schemes and wealth creation. Therefore, any portfolio should be constructed with the aging population in mind.
In this article we'll show you what demographic trend risks you should look out for and what effects they can have on your portfolio.
The Baby Boomer Time Bomb
Statistics given by the U.S. Centers for Disease Control and Prevention (CDC) and the Administration on Aging (AOA) warn of the frightening economic implications of a growing aged population. By 2040, the number of people older than 65 is expected to increase to almost 21.7 percent of the country's population, up from about 14.9 percent in 2015.
Some experts believe that this increase in the older cohort will bring about a kind of "asset meltdown." This suggests that as the post-war "baby boomers" across retire, they will convert their investments to cash in order to consume more. At the same time, the shrinking number of younger people — who in any event tend to buy rather than save — will further reduce the demand for all kinds of investments.
If this ticking time bomb scenario materializes, it would lead to a disastrous decline in asset values, extending from equities to bonds to real estate. A downward spiral in the capital and investment markets might last for decades.
Declining Investment in Equities
A study by researchers at Yale University and the University of California indicates that population shifts can have a significant impact on investor behavior and equity values. The study says population estimates are relatively reliable and the group that generally invests the most (the older generation) will move increasingly into retirement and out of equities.
Indeed, these baby boomers were largely responsible for the "roaring nineties" in which equity investment was so profitable. The big investors, middle-aged people between 40 and 59, will decline in number constantly — at least over the short and medium terms. This could leave a gap in the demand for investments.
However, other research suggests that demographic trends only explain approximately 50 percent of equity values. There is evidence that the link between demographic trends, capital stock and equity trends is foggy. Washington's CSIS Global Aging Initiative points out that there has never been such a situation before, and that predictions cannot be based on historical data. Also, it may be possible that expectations of such trends are already factored into equity prices.
People Moving Across Borders
Despite the challenges posed by an aging population, it is feasible that investment and consumer behavior may change for the better as a result of large influxes of immigrants. A country such as the United States already has substantial immigrant flows, and will have less to fear than other countries with lower immigration rates. This trend may change, too, and the ultimate result depends partly on the extent to which influences from America or continental European countries spill over into the whole of North America.
Also, business cycle trends caused by different factors, such as entrepreneurship, investment or technological developments, may prove more significant than population changes. If such trends do prevail, they may cause strong economic growth.
In any event, these demographic trends not only create risks, but also opportunities. A clear implication is that investors may want to focus on emerging market economies and regions where demographic trends differ from those back home.
Examine Demographics to Find Future Winners
Financial journalist Peter Temple draws further conclusions for investments in his article "The Long Term" (2002) that appeared in Interactive Investor. He points out that the aging population and the pension time bomb create an obvious link to healthcare and financial services. However, he warns that this does not automatically mean that buying stocks from the major drug companies or health sector funds are smart investments, as many are already yesterday's winners.
Temple says tomorrow's winners will be companies that provide a variety of cost-effective services to elderly people and pensioners. These services extend from medical treatment, care homes, travel and anything else focusing on that specific target market.
The large number of pensioners who are relatively poor suggests that luxury services may not make the best investments. However, firms that produce medical and orthopedic products for the aging will do a roaring trade if prices fall over time.
It is also important to consider the risks associated with biotechnology sectors. These sectors can be extremely volatile. Therefore, they are not for low-risk investors — or only a small portion of a portfolio should be allocated to these funds and equities.
Monitor Population Trends
It is difficult to project prevailing demographic trends and their impact on future asset values. However, it is less difficult to monitor trends as they evolve and to rebalance your portfolio accordingly over time. Such ongoing vigilance is essential in view of the major changes in the investment landscape that inevitably will result from the relationship between birth, death and what happens in between.
While no investor can accurately predict what the coming decades will have in store for the financial markets, there are a few strategies to consider trying if you believe that the boomers' retirement could weigh on the marketplace.
For example, you should monitor population trends in any country in which you invest, particularly the developed regions like North America, Western Europe or Asia. If the investing public continues to decline, consider reducing your investment in equities in general. Certain types of bonds and other asset classes like hedge funds might provide lucrative alternatives.
Also consider investing more in equities and property in dynamic economies where populations are rising and remain youthful. Parts of Asia and South America would be the prime targets in this case.
The Bottom Line
If you're concerned about this effect, you'll need to keep observing these trends so you can be prepared to act on them, if necessary. Demography is always in flux, and so are the investment opportunities associated with it.
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d66c0810d87e75c515815d22719f41d6 | https://www.investopedia.com/articles/pf/06/fdicinsurance.asp | Are Your Bank Deposits Insured? | Are Your Bank Deposits Insured?
What Is the FDIC?
The Federal Deposit Insurance Corporation (FDIC) was created at the height of the Great Depression, following the closure of 4,000 banks in the first few months of 1933 and the loss of $1.3 billion in deposits. President Franklin Roosevelt signed the Banking Act of 1933 on June 16 of that year, creating the independent agency.
This FDIC's job is to maintain confidence in the nation's financial system, which it does by insuring bank deposits, examining financial institutions for soundness, working with troubled banks, and managing them in receivership.
Discover which types of deposits the FDIC covers and how to make sure you are getting the highest insurance level for your money.
Key Takeaways If your bank closes, FDIC insurance protects and covers the principal and any accrued interest on all your bank deposits. The FDIC covers the following accounts: checking, savings, money market accounts, and certificates of deposit (CDs).POD accounts are insured up to $250,000 for each beneficiary.
How the FDIC Works
Initially, federal deposit insurance provided up to $2,500 in coverage. By all counts, it was successful in restoring public confidence and stability in the nation's banking system. Only nine banks failed in 1934, whereas more than 9,000 had failed during the preceding four years.
In July 1934, the coverage increased to $5,000. Since then, the maximum insurance has changed as follows:
1950 to $10,0001966 to $15,0001969 to $20,0001974 to $40,0001980 to $100,000 for all accounts2006 to $250,000 for self-directed retirement accounts2008 to $250,000 for all accounts (initially temporary, but was made permanent in 2010)
What's Covered
FDIC insurance covers the principal and any accrued interest through the date of the insured bank's closing on all your bank deposits, including checking, savings, money markets, and certificates of deposit (CDs). FDIC does not insure investment products such as stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you bought these from an insured bank. U.S. Treasury bills, bonds, and notes are also excluded. These are backed by the full faith and credit of the U.S. government. The FDIC has no jurisdiction over cases or losses incurred by identity theft.
Ownership Counts
The amount of coverage you have in an FDIC-Insured Account depends on establishing the ownership and, if applicable, beneficiary designations.
Single Accounts
Single accounts include those:
Held in one person's nameOpened under the Uniform Transfers to Minors Act (UTMA)For a sole proprietorshipEstablished for a decedent's estate
The FDIC coverage is $250,000 for the total of all single accounts owned by the same person at the same insured bank.
Joint Accounts
Joint accounts are owned by two or more people, such as couples or business partners. To qualify, all co-owners must:
be people, not legal entities such as corporationshave equal rights to withdraw fundssign the deposit account signature card
Each co-owner's share of every account jointly held at the same insured bank is added together. Joint accounts may be a valuable tool in helping couples manage money. The maximum insured value for each co-owner is $250,000.
Self-Directed Retirement Accounts
Self-directed retirement accounts are retirement accounts in which the owner—not a plan administrator—directs how the funds are invested. Examples include:
Traditional IRAsRoth IRAsSimplified Employee Pension (SIMPLE) accountsSection 457 deferred compensation plansSelf-directed Keogh accountsSelf-directed defined-contribution plans, for example, 401(k) plans
All self-directed retirement funds owned by the same person in the same FDIC-insured bank are combined and insured up to $250,000. This means that your traditional IRAs are added to your Roth IRAs and all other self-directed accounts to get the total.
Revocable Trust Accounts
When you set up a revocable trust account, you generally indicate that the funds will pass to named beneficiaries upon your death.
Payable-on-Death (POD) Accounts
Your POD account is insured up to $250,000 for each beneficiary. However, there are some requirements, including:
The account title must include a term such as:payable-on-deathin trust foras trustee forYour beneficiaries must be identified by name in your bank's deposit account records.You can only name "qualifying" beneficiaries. These would be your:spousechildgrandchildparentsibling
Others—including in-laws, cousins, and charities—do not qualify. Therefore, if you set up a POD account naming your three children as beneficiaries, each child's interest would be FDIC insured for up to $250,000, and your account could have $750,000 in potential coverage.
The FDIC offers an online calculator to help you with personal and business accounts, which are also covered by the FDIC.
Living or Family Trust Accounts
Living or family trust accounts are insured up to $250,000 for each named beneficiary as long as you follow the rules:
The account title must include a term such as:living trustfamily trustYour beneficiaries must be "qualifying" as described above
If you don't meet the requirements, the amount in the trust, or any portion that does not qualify, is added to your other single accounts at the same insured bank and insured for up to $250,000.
You may be glad to learn that the coverage extends to more than one group of qualifying beneficiaries. For example, suppose you specify in your living trust that your spouse is to receive an income during his or her lifetime after your death. Then when he or she dies, your four children will get equal shares of what remains. Your account would be insured for $250,000 for each beneficiary (spouse and four children) for a total of $1.25 million.
Irrevocable Trust Accounts
The interest of each beneficiary of an irrevocable trust you establish at the same insured bank is covered up to $250,000. There are no "qualifying" beneficiary rules. But the following requirements must be met; otherwise, the trust will fall into your $250,000 maximum single account classification:
The bank's records must disclose the existence of the trust relationship.The beneficiaries and their interests must be identifiable from the bank's or the trustee's records.You cannot specify conditions beneficiaries must meet, such as a child must get a college degree to qualify for the inheritance. The trust must be valid under state law.You cannot retain an interest in the trust.
Employee Benefit Plan Accounts
Employee plans that are not self-directed, for instance, pension plans or profit-sharing plans, fall into this category. Each participant is insured up to $250,000 for his or her non-contingent interest.
Corporations, Partnerships, Associations, and Charities
Deposits owned by a corporation, partnership, association, or charity are insured up to $250,000. This amount is separate from the personal accounts of the stockholders, partners, or members. However, they must be engaged in an "independent activity" other than existing to increase FDIC insurance coverage.
The number of stockholders, partners, or members has no bearing on the total coverage. For example, a property owners' association with 50 members will only qualify for $250,000 maximum insurance, not $250,000 per member.
How to Protect Yourself
Insured funds are available to depositors within a few days after an insured bank's closing, and no depositor has ever lost a penny of insured deposits. Nevertheless, it would be best if you took precautions.
Make sure your bank or savings association is FDIC insured. You can call 1-877-ASK-FDIC (877-275-3342) or check out the FDIC Electronic Deposit Insurance Estimator.
Also, take time to review your account balances and the FDIC rules that apply. This could be especially important whenever there has been a big change in your life, for example, a death in the family, a divorce, or a large deposit from your home sale. Any of those events could put some of your money over the federal limit.
The FDIC uses the insured bank's deposit account records (ledgers, signature cards, CDs) to determine deposit insurance coverage. Your statements, deposit slips, and canceled checks are not considered deposit account records. Therefore, review the appropriate records with your bank to ensure they have the correct information that will result in the highest available insurance coverage.
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695df1b04478a812b1cba6fbfb9cf968 | https://www.investopedia.com/articles/pf/06/lifeplanning.asp | How Your Lifestyle Can Affect Your Financial Plans | How Your Lifestyle Can Affect Your Financial Plans
Life planning is different than traditional financial planning because the focus is more about who you are and who you want to be than it is about money. Unlike people engaged in the traditional planning process, people engaged in the life planning process don't look ahead to figure out how to maintain their current lifestyles in retirement. Instead, they look at how to change their current lifestyle to achieve the lifestyle of their dreams. Read on to discover how you can use this approach in financial planning.
The Ideal Lifestyle
Many people credit the baby boomers for this trend – former flower children who grew up and were absorbed by corporate America, but who never lost their ideals. Just as the boomers redefined their "golden years" as a time to be more active than their predecessors were, some want to go a step further and redefine themselves.
For these people, the concept of money is intertwined with the concepts of spirituality, creativity, family, service and other emotional aspects of personal satisfaction. Happiness is measured in more than just dollars and cents. It's not, "he who dies with the most toys wins," it's "he who gets the most out of life wins."
For many, it's more of a lifestyle change than anything resembling the retirement-planning process most of us are familiar with from 401(k) seminars at work or meetings with a financial advisor. The doctor who wants to be a painter, the law clerk who wants to be a poet and the city-dwelling office manager who longs for a cabin in the mountains are all increasingly turning to financial-service professionals for help in making those dreams come true.
Of course, money plays a big role too.
Money and Sacrifice
There's just no escaping the money (or the lack thereof). The mailman who wants to become Bill Gates is probably out of luck. However, the attorney who wants to trade in her suit to pick up a hammer and open a repair shop might be able to do it in cash. The others have to make choices, so they work with a financial advisor in order to determine how to develop the financial plan that will allow them to realize their personal goals.
Rather than trying to earn more money or build a bigger nest egg, a significant number of people need to make do with less in order to achieve their goals. Giving up the big house, trading in the BMW and skipping the month-long trips to Europe can help decrease expenses and enable people to trade in their day jobs for lower-paying, but personally fulfilling, professions and pastimes.
If living in a small apartment frees up enough cash to increase time spent on the golf course, some people are willing to make the trade. In order to exchange the stress of corporate management for the quiet bliss of a career grooming pets, some people are willing to take a significant cut in pay. When you don't like what you're doing and know how you'd rather spend your time, life planning can help you make the transition.
It's Your Life
If your goal is simply to retire, still be able to pay the bills and maybe take a few trips each year, that's one thing. If your goal is to trade in your spot in cube city for a spot behind the counter at your own bakery, that's another thing entirely. Instead of asking yourself, "How much do I need to save," ask yourself, "How am I willing to change my lifestyle in order to achieve my goal?"
From there, it's more about the mechanics of orchestrating a transition than it is about saving a certain amount of money or earning a certain rate of return on your investments. Just as each person has his or her own definition of happiness, the decision to pursue a lifestyle change is highly personal. It can involve enormous upheaval, but it can also result in enormous satisfaction.
Prior to taking the leap, you should carefully examine your motivation and your financial resources. Then all you have to do is come up with the plan that will get you there.
See: Enjoy Life Now and Still Save for Later
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2fd92a25d51caa1231e7960efd5c3c21 | https://www.investopedia.com/articles/pf/06/mortinttaxdeduct.asp | Tax Deductions on Mortgage Interest | Tax Deductions on Mortgage Interest
Introduced along with the income tax in 1913, the mortgage interest tax deduction has since become the favorite tax deduction for millions of U.S. homeowners. Here we look at the existing rules behind this deduction, as well as new changes resulting from the tax legislation of December 2017.
Getting Deductions: Who Qualifies
In most cases, all mortgage interest up to a certain level of loan can be deducted from U.S. federal taxes, provided the homeowner meets the following requirements:
He or she files Form 1040 and itemizes deductions on Schedule A.He or she is legally liable for the loan – you cannot deduct interest if you make a payment on someone else's loan.He or she made the payment on a qualified home.
Acquisition Debt vs. Equity Debt: Big Tax Difference
Of course, because the deductions are regulated by the government, the rules are never quite as simple as they seem at first glance. There are two types of debt that generate tax-deductible interest. The first is debt that was taken out in order to buy, build or improve your home. This type of debt is known as "acquisition debt." The second type is debt that was taken out for other purposes and is known as "equity debt" because it draws on the equity of your property. This distinction has become particularly important since the passage of the new tax legislation in December 2017 (see How the GOP Tax Bill Affects You).
The bill includes significant changes in the amount of interest borrowers can deduct on mortgage loans and home-equity debt, making interest deductible only for loans of $750,000 or less. In addition, the rules have changed for home-equity loan money that is not used as acquisition debt – for example, to pay medical or college expenses rather than renovate a home. Here are some details.
Post-Oct. 13, 1987, until Dec. 16, 2017, Debt: Interest on a mortgage taken out to buy, build or improve your home after October 13, 1987, may be fully deducted only if the total debt from all mortgages, including any grandfathered debt, amounts to $1 million or less for married couples and $500,000 or less for singles or married couples filing separately.Post-Dec. 16, 2017, until Dec. 31, 2025, Debt: Interest on a new mortgage taken out to buy, build or improve your home is fully deductible only if the total debt from all mortgages amounts to $750,000 or less for married couples and $500,000 or less for singles or married couples filing separately. (Also covered: loans under a binding contract that was in effect before 12/16/17, as long as the home purchase closed before 4/1/18). Interest on older loans – and new refinancing of such older loans – remains deductible at $1 million.Home Equity Debt Post-Oct. 13, 1987, until Dec. 16, 2017: Interest on second mortgages (or home-equity lines of credit) taken out for reasons other than to buy, build or improve your home must total $100,000 or less for married couples and $50,000 or less for singles or married couples filing separately. They must also total less than the fair market value of your house minus the value of all grandfathered debt and all post-October 13, 1987, mortgage debt.Home Equity Debt Post-Oct. 13, 1987, until Dec. 16, 2017: Interest on second mortgages (or home-equity lines of credit) taken out for reasons other than to buy, build or improve your home is not deductible at all. This is true. even if the original loan was taken out before Dec. 16, 2017, and will last until Dec. 31, 2025. Then, theoretically, loan rules would revert to the post 1987 rules..
If you managed to follow that logic without getting confused, you are in good shape so far – but don't start your deductions yet. There are additional stipulations. Even if you qualify for the deduction based on the criteria outlined above, you cannot take the deduction unless your mortgage is classified as secured debt, which means that your home must serve as collateral for the debt. If it is unsecured debt, it is considered a personal loan, and the interest on it is not deductible.
The Definition of 'Home'
The next hurdle that you need to cross is ensuring that your property is a "qualified home." In order to meet this definition, the property must have sleeping, cooking and toilet facilities. Items that fit this definition can include your primary residence, a second home, a condominium, a mobile home, a house trailer or a boat.
If your home is a second home, you can deduct the interest from only one second home. You must use that property at least 14 days during the year. If your second home is a rental property, you must use it more than 10% of the time that the property is rented out. If your rental property does not meet these criteria, the interest cannot be listed on Schedule A and must instead be listed on Schedule E.
Refinancing
In recent years, falling interest rates have encouraged homeowners to refinance their mortgages. Refinancing provides an opportunity to reduce monthly mortgage payments, reduce the term of the loan, or both. When refinancing is done without taking on additional debt, all interest generated by the mortgage remains tax deductible. When homeowners use their homes as a piggy bank and refinance in order to take out equity to generate spending money – that is, for reasons other than to buy, build or improve their homes – the Home Equity Debt Post-October 13, 1987, rules apply: You can only deduct interest on $100,000 or less, etc., depending on your tax status. (For more on this, read When (and When Not) to Refinance Your Mortgage.)
Proving It to the IRS
In the event of an audit by the Internal Revenue Service, you will need to have a copy of Form 1098, Mortgage Interest Statement, which should be provided each year by the firm that holds your mortgage. If you pay your mortgage payment to an individual, you will need to supply the name, Social Security number and address of the mortgage holder, in addition to the amount of interest paid. (For further reading, see Surviving the IRS Audit.)
The Bottom Line
The home mortgage interest tax deduction is cherished by homeowners and despised by proponents of income tax reform. Flat-tax advocates favor the demise of this deduction and, for many years, U.S. lawmakers on both sides of the aisle had been discussing a variety of tax reform schemes that generally involved the abolition of the mortgage interest tax deduction. It did survive, in diminished form, in the 2017 tax bill. What happens next remains to be seen
To learn more, check out Understanding the Mortgage Payment Structure.
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f6ff9a22e7c495eae0c832c34e199949 | https://www.investopedia.com/articles/pf/06/revocablelivingtrust.asp | Should You Set up a Revocable Living Trust? | Should You Set up a Revocable Living Trust?
Do you ever worry about how your beneficiaries will manage their portion of their inheritance when you pass away? One solution that allows you to still exert some control over your money–even after passing–is with a revocable living trust (RLT).
Key Takeaways A revocable living trust is a trust document created by an individual that can be changed over time. Revocable living trusts are used to avoid probate and to protect the privacy of the trust owner and beneficiaries of the trust as well as minimize estate taxes. Revocable trusts, however, have several limitations including the expense to have them written up, and they lack features of an irrevocable trust.
Establishing the Living Trust
The trust is established by a written agreement or declaration that appoints a trustee to manage and administer the property of the grantor. As long as you're a competent adult, you can establish an RLT. As the grantor, or creator of the trust, you can name any competent adult as your trustee; some people prefer to choose a bank or a trust company to fill this role. You the grantor can also act as trustee throughout your lifetime.
Once it's set up, you begin by placing your assets—including investments, bank accounts, and real estate—into the trust. At this point you no longer own those assets; they belong to the trust. And because your assets belong to the trust, they do not have to go through the probate process upon your death. (In essence, the trust is like a rule book for how your assets are to be handled when you die.)
However, as this is a revocable living trust, you retain control of the assets, even though they no longer belong to you, while you're alive. You can amend or change the trust at any time. Income earned by the trust's assets goes to you and is taxable; but the assets themselves do not transfer from the trust to your beneficiaries until your demise.
1:29 Revocable Trust
Advantages of the Living Trust
Avoiding probate is the main advantage of establishing a living trust, but other benefits like privacy protection and flexibility make it a smart choice.
Avoidance of Probate
Probate is the legal process for transferring your property when you die. It requires presenting documents to a probate court and going through a multi-step process – or processes if you have assets or property in different states. Establishing an RLT avoids expensive probate proceedings, allowing assets to be transmitted to beneficiaries faster. Assets named in trust bypass the costly courts and typically take precedence over the property designated in your will.
Changeable and Flexible
The living trust allows you to make changes (or amendments) to the trust document while you are still alive, at your own discretion.
Privacy Preservation
Revocable trusts are a good choice for those concerned with keeping records and information about assets private after your death. The probate process that wills are subjected to can make your estate an open book since documents entered into it become public record, available for anyone to access.
Eliminate Challenges to the Estate
The standard will may create family disputes at your death and be challenged for alteration by any member of your family. By using a trust, you can specifically disinherit anyone who posts a challenge to your wishes upon your death.
Segregation of Assets
This is useful for married couples with substantial separate property that was acquired prior to the marriage. The trust can help segregate those assets from their community property assets.
Assignment of Durable Power of Attorney/Guardianship
A living trust can be used to help control a guardian's spending habits for the benefit of your minor children. It can also authorize another person to act on your behalf if you become incapacitated and need someone to make decisions for you. Should you become impaired or disabled, the trust can automatically appoint your trustee to oversee it and your financial affairs with no requirement to obtain durable power of attorney.
Continuous Management
This allows the wealth that you've accumulated to continue to grow for multiple generations by using a professional trustee to manage your property. You can limit the number of withdrawals to income only, with special emergency provisions if you wish.
Estate Tax Minimization
While the RLT is not a good tax minimization tool on its own, provisions can be included in the trust documentation to transfer wealth by establishing a credit shelter trust in the event of your death. The CST is a very effective tool to help reduce estate taxes for large estates that exceed the combined estate tax exclusion amounts.
Disadvantages of the Living Trust
While there are many advantages to establishing a revocable living trust, there also some drawbacks:
Expense of Planning
Establishing a trust requires serious legal help, which is not cheap. A typical living trust can cost $2,000 or more, while a basic last will and testament can be drawn up for about $150 or so.
Maintaining Trust Books and Records
And once you create the trust, your work isn’t done. Most people need to monitor it on an annual basis and make adjustments as needed (trusts do not adapt automatically to changed circumstances, such as divorce or the birth of a child). You should consider the added inconvenience of making sure that future assets are continuously registered to the trust and providing other professionals with access to the trust documents to review trustee powers and duties.
Re-titling of Property
Once the trust is established, property must be re-titled in the name of the trust. This requires additional time, and sometimes fees apply to processing title changes.
Minimal Asset Protection
Contrary to popular belief, revocable living trusts offer very little asset protection if you retain an ownership interest, such as naming yourself as trustee.
Administrative Expenses
Expect to contend with additional professional fees such as investment advisory and trustee fees if you appoint a bank or trust company as the trustee.
No Tax Break
For all your hard work, you will not receive a tax benefit from a revocable trust. Your assets in the trust will continue to incur taxes on their gains or income and be subject to creditors and legal action.
Unpredicted Problems
Hassles such as problems with title insurance, Subchapter S stock and real estate in other countries can create a whole host of new issues. More problems can crop up if you fail to adequately educate your spouse on the terms and purpose of the trust.
The Bottom Line
Compared to wills, revocable trusts provide increased privacy as well as more control and flexibility over asset distribution. With a revocable living trust, you do most of the work up front, making the disposition of your estate easier and faster. But they also require substantially more effort and higher costs. As with any major legal issue, you should consult with a trusted professional, in this case, someone well versed in estate planning, before embarking on a project of this magnitude.
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92e3bcd67bb94322314b452038e29235 | https://www.investopedia.com/articles/pf/06/riskyportfolio.asp | How Risky Is Your Portfolio? | How Risky Is Your Portfolio?
The level of risk exposure that an investor takes on is fundamental to the entire investment process. Despite this, investors often misunderstand this issue and both brokers and investors can spend far too little time determining appropriate risk levels.There are articles, books and pie charts galore out there that deal with the categorization of risk for practical investment purposes. However, many investors have never seen this literature, or, at the time of investment, do not understand it. Consequently, many people just check off "medium-risk" on a form, thinking, quite understandably, that somewhere between the two extremes "should be about right".
However, this isn't the case as products are often misrepresented as medium-risk or low risk. Furthermore, the appropriate category for an investor depends on several factors such as age, attitude to risk and the level of assets the investor owns. In this article, we'll introduce you to portfolio risk and show you how to make sure that you aren't taking on more risk than you think. (For more insight, see Determining Risk And The Risk Pyramid.)
How does it work in practice?Very few people are truly high-risk investors. For most, therefore, an all-equity portfolio is neither suitable nor desirable. Discretionary income can certainly be put into the stock market, but even if you don't need this money to survive, it still can be difficult to see surplus funds disappear along with a plummeting stock.
As a result, regardless of their level of disposable income, many people are happier with a balanced portfolio that performs consistently, rather than a higher risk portfolio that can either skyrocket or hit rock bottom. A medium- to low-risk portfolio made up of somewhere between 20% and 60% in equities is the optimum range for most people. An all-the-eggs-in-one basket portfolio with 75%+ equities is suited to a rare few. (To learn more about portfolio construction and diversification, see The Importance Of Diversification and A Guide To Portfolio Construction.)
The most fundamental thing to understand is that the proportion of a portfolio that goes into equities is the key factor in determining its risk profile. Most sources cite a low-risk portfolio as being made up of 15-40% equities. Medium risk ranges from 40-60%. High risk is generally from 70% upwards. In all cases, the remainder of the portfolio is made up of lower-risk asset classes such as bonds, money market funds, property funds and cash.
Some Sellers Push Their Luck … and Yours!There are some firms and advisors who might suggest a higher risk portfolio - if they do, beware. It is theoretically possible for a portfolio to be so well managed that it is mainly comprised of equities and has a medium risk. But in reality, this does not happen very often and the percentage of equities in the total portfolio does reveal the risk level pretty reliably.As a general rule, if your investments can ever drop in value by 20-30%, it is a high-risk investment. It is, therefore, also possible to measure the risk level by looking at the maximum amount you could lose with a particular portfolio.
This is evident if you look at a safer investment like a bond fund. At the worst of times, it may drop by about 10%. Again, there are extremes when it is more, but by and large, the fluctuations are far lower than for equities.
Why then do people end up with higher risk levels than they want? One potential problem is that the industry often makes more money from selling higher-risk assets, creating the temptation for advisors to recommend them. (To learn more, read Is Your Broker Acting In Your Best Interest?)
Also, investors are easily tempted by the huge returns that can be earned in bull markets. They tend not to think about possible losses, and they may take it for granted that their fund managers and brokers will have some way of minimizing or preventing losses.
Despite the potential upside, when the equity markets go down, most equity-based investments go down with it. For this reason, the most important and reliable way of preventing losses and nasty surprises is to keep to the basic asset allocation rules and to never put more money into the stock market than corresponds to the level of risk that is appropriate for you. (For further reading, check out Achieving Optimal Asset Allocation and Asset Allocation Strategies.)
The Risk Dividing Lines Are Clear EnoughIf there is one thing investors need to get right, it is the decision about how much goes into the stock market as opposed to safer and less volatile investments. There really are clear dividing lines between the categories of high, medium and low risk. If you make sure that your portfolio's risk level fits into your desired level of risk, you'll be on the right track.
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