Not only are SUVs spacious, but many are also family vehicles, so they come with high-end safety features. These features make some SUVs cheaper to insure than other popular vehicles on the market. The Subaru Outback takes the top spot on this list, and it’s also rated one of the safest midsize vehicles by the Insurance Institute for Highway Safety.
SUV
Average Annual Premium
Subaru Outback
$1,603
Honda CR-V
$1,635
Honda Pilot
$1,726
Ford Escape
$1,734
Honda Odyssey
$1,735
What Factors Make a Vehicle Expensive to Insure?
The primary factor that makes a vehicle more expensive to insure than another is the risk. Insurance companies calculate the risk for different vehicles based on how many claims people file for those vehicles, plus the cost of the repairs. While this data can’t predict the likelihood of someone getting into an accident, the data gives insurers a rough idea.
Insurance providers look at how much a vehicle costs to repair and the likelihood of the vehicle being in an accident. For example, insurance rates are higher for sports cars because people who buy sports cars are more likely to speed and drive recklessly, based on the data.
Some of the most common factors that make vehicles more expensive to insure include:
Vehicle age: An older vehicle may not have the newest safety features, but premiums may be lower on some older vehicles if the average repairs cost less.
Vehicle value: When cars are more expensive, they’re often more expensive to insure as well.
Cost of parts: Some vehicles have more expensive and specialty parts, which cost more to replace if the vehicle is in an accident. Various trim features in a vehicle can also raise the price of premiums.
Safety rating: Many insurance policies also cover physical injuries to you or another driver, which is why safety ratings play a major role in determining the cost of insurance.
Size: Although a larger vehicle may be safer, it can also cause more damage if it’s involved in an accident.
Most Expensive Cars to Insure
If you’re thinking about purchasing a new or used vehicle, it’s helpful to know which types of vehicles typically have the highest rates. They include:
Sports cars
High-end luxury vehicles
Electric vehicles
Cars that attract thieves
These vehicles are more expensive than others primarily due to the overall cost of repairs. For example, while electric vehicles may save you money on fuel, the cost of the battery can range from $4,000 to $20,000. There are also certain vehicles that thieves commonly target. A recent article from MoneyGeek[1] listed the following as the top 10 most stolen vehicles in America:
Chevrolet trucks
Ford trucks
Honda Civic
Honda Accord
Toyota Camry
GMC trucks
Nissan Altima
Honda CR-V
Jeep Cherokee and Grand Cherokee
Toyota Corolla
5 Tips to Get Cheaper Car Insurance
Whether you want cheap insurance for your new vehicle or to lower the rate for your current vehicle, these five tips may help.
Be a good driver. This sounds obvious, but it’s a must. When you’re a good driver, you save money on insurance. This means avoiding car accidents, DUIs, and other major violations.
Consider the insurance cost when buying a new vehicle. A vehicle’s make and model alone can make car insurance more expensive. Remember this when you’re buying a new vehicle, because not only will you have monthly car payments when financing a car, but you’ll also have insurance premiums.
Shop around. Like many other expenses and purchases, it’s a good idea to get multiple quotes before settling on an insurance company.
Look for discounts. Some insurance providers offer discounts, so be sure to ask. You may also receive discounts for bundling your auto and home insurance through one provider.
Improve your credit score. Your credit score may impact your car insurance rate, so make sure you watch for derogatory marks on your credit report that can lower your score.
FAQ
Here, we go over some of the most common questions people have about car insurance rates.
What Type of Car is the Least Expensive to Insure?
Subaru holds the top two spots for the cheapest cars to insure: the Subaru Outback and the Subaru Crosstrek.
Why Are Some Cars Cheaper to Insure?
Some cars are cheaper to insure because they’re cheaper to repair, have better safety features, and are a low-risk for insurance providers based on their data.
Is Insurance Cheaper for Older Cars?
Insurance for older cars is not necessarily cheaper than newer cars. If an older vehicle is more expensive to repair or has poor safety features, it may have higher rates. on the other hand, older vehicles that meet current safety standards and are inexpensive to repair may have lower rates than some newer vehicles.
What’s the Most Expensive Car to Insure?
Out of the top 25 most popular vehicles in the United States, the Tesla Model Y is the most expensive car to insure, and the Tesla Model 3 is the second most expensive.
How Your Credit Score Affects Your Car Insurance Rate
Many people don’t realize that not only does your credit score affect the cost of your vehicle, but it can also affect your insurance rates. If you have derogatory marks on your credit report from late payments, missed payments, or collections, you may face higher insurance premiums.
Before you shop for auto insurance, it’s helpful to know your credit score. You can receive a free credit report card at Credit.com, and our ExtraCredit® subscription offers even more credit management tools.
Methodology
Data was sourced from Quadrant Information Services and provided to NerdWallet[1] and Bankrate[2] . Both studies analyze data from ZIP codes throughout all 50 states and Washington, D.C., and are weighted based on geographic region and population.
NerdWallet’s research used data from Kelley Blue Book for the top 25 best-selling models, along with rates from different ZIP codes in the United States. NerdWallet based its data on both male and female drivers 35 years old with good credit and clean driving records using the following coverage limits:
$100,000 bodily injury liability coverage per person
$300,000 bodily injury liability coverage per crash
$100,000 property damage liability coverage per crash
$100,000 uninsured motorist bodily injury coverage per person
$300,000 uninsured motorist bodily injury coverage per crash
Collision coverage with $1,000 deductible
Comprehensive coverage with $1,000 deductible
The Bankrate study analyzed rates for a 40-year-old female and male who have clean driving records and good credit. Rates are for full coverage and are based on the following limits for a 2021 Toyota Camry that drives five days per week and roughly 12,000 miles per year:
$100,000 bodily injury liability per person
$300,000 bodily injury liability per accident
$50,000 property damage liability per accident
$100,000 uninsured motorist bodily injury per person
$300,000 uninsured motorist bodily injury per accident
These days, you can insure almost anything. Did you know, for example, that Julia Roberts has insurance for her teeth, and before Daniel Craig filmed a James Bond movie, he insured his entire body? While you probably don’t need to insure any of your body parts for millions of dollars, you might find yourself wondering when you should buy life insurance, or whether renter’s insurance is really necessary.
To help you decide on the right type and amount of coverage, we’ve broken down which kinds of insurance you will most likely need (other than health insurance, of course).
1. Life insurance
Life insurance is about more than just financing your funeral. It also allows your family to keep paying the bills if something happens to you.
People often think they don’t need life insurance if they don’t have dependents. But if you have debt such as student loans that someone has co-signed, your life insurance can be used to pay off your loans.
It’s common for employers to offer life insurance as part of their benefits package, but it’s worth noting that the life insurance your employer offers may not be enough, especially if you have dependents. Ideally, your life insurance payout should be enough to invest and yield returns that could replace your income annually. For example, if you assume that you’ll get a 5% return on the money you invest, you would need $1 million in coverage to replace a $50,000 income.
Here’s an overview of some of the most common life insurance options you might consider.
Term Life Insurance
Term life insurance is the simplest and most common form of life insurance. It covers your life for a specific period of time, and pays only if your death occurs during the term. This timeframe is typically anywhere from one to thirty years, the longer the term the higher the premium. Term life insurance can be more affordable than other types of life insurance.
💡 Quick Tip: Term life insurance coverage can range from $100K to $8 million. As your life changes, you can increase or decrease your coverage.
Whole Life Insurance
Whole life insurance covers you for your entire life. If you make consistent payments toward your policy, you’ll build a cash reserve for your family upon your death.
Universal Life Insurance
In exchange for premiums, universal life insurance can provide coverage for as long as the policyholder is alive, and some policies also accrue cash value. When the policyholder dies, their beneficiaries typically receive a tax-free death benefit in the amount specified by the policy.
Indexed Universal Life Insurance
Indexed universal life insurance (IUL) gives policyholders the option to put money towards either a fixed account or an equity index account. Index accounts with universal life policies often include well-known indexes and can be a good option if you’d like to accumulate tax-deferred cash as well as maintain a set amount of money in a fixed account.
2. Disability Income Insurance
Disability income insurance, also referred to as disability insurance, replaces a portion of your salary if you become disabled. Some employers don’t offer disability insurance, but even if yours does, you may want to consider a supplementary policy to top up the amount that you receive.
Depending on the policy, disability insurance kicks in when you become partially, completely, temporarily, or permanently disabled. Keep in mind that there is often a waiting period before benefits start, which could range from one month to a year, depending on your policy and whether you have short-term or long-term disability insurance. The longer the waiting period on your policy, the cheaper your premiums often are.
If you have to take a job that pays less because of a disability, some policies may pay you part of the difference.
Note that disability insurance is expensive, often between 1% and 3% of your salary, and many organizations offer it as a benefit. If you’re evaluating offers between two employers, it’s worth factoring in how valuable this type of insurance is to you.
3. Long-Term Care Insurance
If you’re considering a nursing home, day care, home health aide, or other type of long-term care, be prepared to pay. A Genworth survey found that the average price of a private room in a nursing home is $9,034 a month. A typical assisted living facility charges around $4,500 a month, while a home health aide runs $5,148 a month.
To ensure you can foot the bill, the American Association for Long-Term Care Insurance recommends buying a policy in your mid-50s to qualify for the best premiums. Benefits kick in when someone isn’t able to take care of everyday activities or suffers from severe cognitive impairments. Policies vary by the specific level of impairment, the type of services provided, and the length of time the covered person lives after becoming impaired.
Depending on your policy, your benefits may not start until up to 90 days after impairment, and some may require that you receive paid care in the meantime.
Recommended: 8 Popular Types of Life Insurance for Any Age
4. Car Insurance
If you own or lease a car, car insurance is a must. But there are different kinds to consider.
Collision and comprehensive insurance will cover damage to your car and can help replace it if it’s been stolen.
Liability insurance covers you if you get sued after causing an accident. There are three maximum liability limits you can get in a car insurance policy: bodily injury per person in a given accident, bodily injury for all injuries in a given accident, and personal property damage in a given accident. Each state requires different insurance minimums by law.
However, you may want higher limits than the minimum. You may be able to save money on collision and comprehensive coverage by getting a higher deductible of $500 or $1,000. If you drive a car that’s worth less than $1,000, you may want to consider dropping collision and comprehensive, though you’ll still need liability.
💡 Quick Tip: Saving money on your fixed costs isn’t always easy. One exception is auto insurance. Shopping around for a better deal really can pay off.
5. Homeowners or Renter’s Insurance
Homeowners insurance covers damages to your home or theft of personal possessions. It also includes liability insurance to cover accidents that happen on your property. However, it excludes things like floods, earthquakes, and the (hopefully unlikely) event of war.
You should have at least enough insurance to cover the replacement value of your home and possessions. This usually means getting guaranteed (or extended) replacement cost coverage. That’s different from actual cash value coverage, which covers you for the current value of your possessions.
If you’re renting instead of buying, renter’s insurance is similar, but only covers your possessions and personal liability for damages. It’s worth having in case you leave the water on and accidentally flood your kitchen. The minimum deductible for tenant or homeowner’s insurance is usually $500, but according to the Insurance Information Institute, raising the deductible could save you money.
One important element for both of these is liability insurance. This helps protect you against lawsuits, and covers things like people slipping and falling on your property. One hundred thousand dollars of liability coverage is a fairly standard amount.
Recommended: How Much Homeowners Insurance Do You Need?
6. Umbrella Liability Coverage
Umbrella coverage is essentially extra liability insurance, and most importantly, it protects you and your assets in the event of a lawsuit. It covers you beyond the limits of your car or home liability coverage. For example, umbrella coverage will protect you from libel, slander and false imprisonment.
Often it is more economical to get an umbrella policy rather than getting excess home or car liability coverage. It’s a good idea to coordinate car, home, and liability coverages. After all, you wouldn’t typically have a $100,000 deductible on your umbrella policy if your car and homeowner’s insurance have $100,000 of coverage.
The first $1 million in umbrella coverage typically costs about $150 to $300 a year, which is often less than what most people would pay for additional coverage in that amount. As your income grows and you accumulate assets, you may want to consider raising the limit.
The Takeaway
Insurance can offer peace of mind and a degree of financial security. But the type and amount of coverage you need will depend on a number of factors, including your lifestyle, health, budget, and financial goals.
When the unexpected happens, it’s good to know you have a plan to protect your loved ones and your finances. SoFi has teamed up with some of the best insurance companies in the industry to provide members with fast, easy, and reliable insurance.
Find affordable auto, life, homeowners, and renters insurance with SoFi Protect.
Photo credit: iStock/urbazon
Insurance not available in all states. Experian is a registered service mark of Experian Personal Insurance Agency, Inc. Social Finance, Inc. (“SoFi”) is compensated by Experian for each customer who purchases a policy through Experian from the site.
Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, Social Finance. Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under Ladder Life™ policies. SoFi is compensated by Ladder for each issued term life policy.
SoFi Agency and its affiliates do not guarantee the services of any insurance company.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Medicare beneficiaries can buy Medicare Supplement Insurance, or Medigap, to help cover certain out-of-pocket costs associated with Medicare Part A and/or Part B. (If you’re shopping during Medicare open enrollment, Oct. 15 to Dec. 7, remember that people with Medicare Advantage can’t buy Medigap plans.)
For example, depending on which plan type you choose, a Medigap policy could cover the 20% Medicare Part B coinsurance for office visits and the $1,600 deductible before Medicare Part A starts to pay for inpatient hospital care.
Medigap policies are sold by private health insurance companies. They’re regulated by the federal government and have certain standard benefits. But shopping for them isn’t always straightforward.
Shoppers might expect higher prices to come with more benefits, but that’s not always the case. Here are three scenarios to watch for so you don’t end up paying too much.
1. Paying more for the same coverage
New Medicare beneficiaries in most states can choose from up to eight out of 10 letter-named Medigap plan types: A, B, D, G, K, L, M and N. Each plan type offers a different set of benefits. (Medigap Plans C and F aren’t available to new Medicare members.)
“One of the most common and popular counseling tips we provide is that all plans of the same letter, i.e., A, B, C, D, are exactly the same. So there is no reason to pay more for one Plan A, B, C, D, over another,” Maureen McIntyre, CEO of Connecticut’s North Central Area Agency on Aging, which offers free Medicare counseling for local residents, wrote in an email.
It’s worth comparing quotes for the plan type you want. Companies might differ in terms of customer service and minor non-Medicare perks, but there’s no additional coverage to gain from buying a more expensive Plan G policy when a cheaper one is available, for example.
Still deciding on the right carrier? Compare Medigap plans
2. Paying more for less coverage
Of the eight standard Medigap plan types available, Plan A has the most basic benefits and Plan G is the most comprehensive.
One might expect Plan A to cost less than other plan types with more coverage. But sometimes lower-coverage plans are priced higher.
For example, for a 65-year-old female nonsmoker in Chicago, Cigna quotes monthly premiums of $152.06 for Medigap Plan G and $169.33 for Medigap Plan A, with identical discounts built into both rates. The lower-coverage option (Plan A) costs $17.27 more per month.
“While it is not typical for Plan A plans to be rated higher than Plan G, we recognize that this can sometimes happen, due to the actuarial experience and cost relativities related to those plans,” a Cigna spokesperson wrote in an email.
Plan A might have higher premiums if the insurance company expects members with Plan A to have more expensive claims, even though Plan G has more coverage, according to the Cigna spokesperson.
Representatives for State Farm, Mutual of Omaha and Blue Cross and Blue Shield of Texas offered similar explanations for instances when their quotes showed Plan A priced higher than Plan G.
When you’re shopping, your own budget is what matters, so compare prices carefully to find the most cost-effective option.
3. Paying too much for add-ons
Some companies offer add-ons for purchase with their Medigap plans. For example, UnitedHealthcare’s “wellness extras” packages include access to a 24/7 nurse line, vision, hearing and dental discounts and a gym membership. (In some locations, these perks are included at no additional cost.)
Sometimes adding these packages might have unexpected effects on the price of the plan.
For example, here’s what it costs to add UnitedHealthcare’s wellness extras — the same package — to two plans for a 65-year-old female nonsmoker in Dallas:
Plan G: $6.62 per month ($133.22 for the base plan, or $139.84 with extras).
Plan A: $174.80 per month ($130.81 for the base plan, or $305.61 with extras).
These extras might be compelling with Plan G, but the drastically higher price to add the same perks to Plan A is a much worse deal.
On the other hand, there are also scenarios when add-ons make the whole package cheaper.
In Columbus, Ohio, UnitedHealthcare quotes $91.71 per month for Medigap Plan A for a 65-year-old female nonsmoker. But Plan A with wellness extras costs $87.23 — $4.48 cheaper. Even if you never use any of the extras, Plan A with the add-ons would still be a better deal than the option without them.
This article was written by NerdWallet and was originally published by The Associated Press.
Adopting a rescue or shelter dog doesn’t just give a needy animal a home. It can provide a playmate for your kids, a jogging buddy for you and a loyal companion for everyone to cuddle with on the couch. But a new pet can also come with unexpected vet bills, which is why you might want to consider pet insurance.
Pet insurance policies can help pay for treatment if your furry friend gets sick or hurt. In some cases, they may also cover vaccinations and other routine care. Here’s how to decide whether pet insurance is right for your rescue dog.
Estimate the cost of vet care
It’s impossible to know which medical problems a given pet may have in the future. However, researching the breeds you’re interested in can help you get a sense of which health conditions are most likely to crop up, says Dr. Antonio DeMarco, chief medical officer at GoodVets, a chain of animal hospitals with locations across the U.S. Some of these conditions can be both serious and expensive to treat, he says.
For example, large-breed dogs like golden and Labrador retrievers are prone to hip dysplasia, a deformity of the hip joint. Some dogs may need surgery to treat it, costing thousands of dollars.
A local vet can advise you on potential health concerns and how much it might cost to manage them. They can also help you estimate the price of routine care.
Understand pet insurance
Pet insurance likely won’t reimburse every dollar you spend at the vet. For example, most plans won’t cover pre-existing conditions that your dog had before you bought the policy. So if you adopt a senior dog with diabetes, you’ll need to pay for the treatment yourself.
For the same reason, you can’t simply wait to get a policy until your vet diagnoses an injury or illness. DeMarco has had pet owners ask him if they can buy insurance after their dog tears an ACL. “[You] sure can, but this isn’t covered,” he tells them.
Most pet insurance plans pay to treat illnesses and injuries but won’t help with routine care unless you buy extra coverage. That coverage may be worth adding for certain dogs, says Maureen Sosa, director of pet support at the Humane Rescue Alliance in Washington, D.C. Smaller dogs are more prone to dental disease and benefit from regular cleanings, which wellness plans can help pay for.
When shopping for pet insurance, check for deductibles and copays. Say your plan will pay 80% of your expenses after you’ve met the $500 annual deductible. That means you’d have to spend $500 on your pet’s treatment in a given year before your plan would start reimbursing you.
Your policy may also have a maximum payout limit, such as $5,000 or $10,000 per year.
Get pet insurance quotes
The average cost of accident and illness coverage for a dog is about $640 per year, according to the North American Pet Health Insurance Association. However, you might pay more or less depending on where you live, the coverage options you choose and the breed and age of your dog.
You can get online quotes from most pet insurance providers. Check rates from at least three companies to make sure you’re getting the best price for the coverage you want.
Pet insurance isn’t worth the cost for every rescue dog. Policies may be prohibitively expensive for older dogs, especially if they already have chronic conditions that the policy won’t cover. In these cases, you may be better off skipping insurance and setting up an emergency fund for vet expenses.
Consider your peace of mind
One of the biggest benefits of pet insurance is avoiding heart-breaking financial decisions. Sosa has seen owners forced to surrender pets because they couldn’t afford to treat their medical conditions. “The economy is in a really bad place,” she says. “That’s trickling down and affecting what people are able to afford.”
Even worse, some owners may have to euthanize their dogs if the treatment for a serious condition is simply too expensive, DeMarco says. “As veterinarians, that is the worst-case scenario for us.”
You may go years without having to use your pet insurance. But in a crisis, having the policy can give you peace of mind, DeMarco says. You’ll know that “if those situations arise, you’re going to be able to handle them financially and not have to make decisions based on finances rather than what’s best for your animal.”
This article was written by NerdWallet and was originally published by The Associated Press.
Open enrollment is no one’s idea of a good time, but health coverage is a crucial part of your financial health. Whether you’re getting insurance through an employer or the Affordable Care Act marketplace, it’s important to ask the right questions before you choose a health plan for 2024.
“Open enrollment is a great time to do a personal health audit,” says certified public accountant Charlene Rhinehart, a personal finance editor at drug savings site GoodRx. “Understanding your current and anticipated health care needs will help you decide which plan is the best fit.”
Here’s how to weigh your options.
Are your doctors in network?
Plan networks change from year to year. If you love your doctor or specialist, make sure they’re still in the network of the plan you’re considering for 2024.
You should also consider whether you want the option to go out of the network — which you can usually do in a preferred provider organization, or PPO, plan, although it will cost more. Health maintenance organizations, or HMOs, tend to be cheaper but lack the out-of-network flexibility.
Are your medications covered?
If you’re on prescription medications, check plan formularies to make sure you understand how your drugs will be covered in 2024. Drug coverage can change from year to year, even if you stick with the same plan.
“Even if you were in an Aetna plan before, and you say, ‘Well, I’ll stay with Aetna again,’ you still want to look and make sure the medication you’re taking is still on the formulary,” says Abbie Leibowitz, chief medical officer and co-founder of Health Advocate, which provides integrated health advocacy and health benefits programs.
What are the out-of-pocket costs?
Every plan has set costs, like the monthly premiums, plus the costs of care, which include the deductible and any copays and coinsurance. Comparing plans means estimating how much health care you’ll use next year.
On the one hand, you have the costs you’d pay if you don’t use the plan much beyond preventive care. On the other hand, you have the maximum amount you could pay in each plan if you’re a heavy health care user. You can easily compare these situations.
There’s a squishy middle ground, however, where the best plan for you depends on the amount and type of care you’ll need next year.
“The tricky part is we never really know how much we’re going to spend in a given year if we’re in the middle,” says Adam Rosenfeld, a health care benefits expert and president of employee benefits company Rubicon Benefits. The best thing, he says, is to look at your current claims information and imagine that the next year will be identical. On which plan would you be better off?
“It’s the best predictive modeling you can do at this point,” Rosenfeld says.
Is a high-deductible plan right for you?
A high-deductible health plan, or HDHP, in 2024 is defined as a plan with a deductible of at least $1,600 for individual coverage or $3,200 for family coverage, with out-of-pocket maximums of no more than $8,050 or $16,100, respectively. HDHPs usually have lower premiums, and sometimes companies kick in a contribution to a health savings account, or HSA, to help cover the deductible.
An HDHP can be an appropriate plan for people in a variety of health situations, as long as they’re prepared to pay the deductible if they need health care.
“The question is, ‘Can you afford it?’” says Adria Gross, an insurance broker, consultant and founder of MedWise Insurance Advocacy, which helps clients and attorneys with medical claims issues. If you’re healthy, Gross says, go for the HDHP. But in the case of a bad accident, you’ll want to make sure you have the means to pay the full deductible.
Can you stack benefits?
You might have access to voluntary benefits through your employer that can help cover costs that your insurance doesn’t cover. For example, Aflac policies can help pay expenses if you have an accident or get cancer.
You may find that you can get a high-deductible health plan plus a supplemental plan that would help you cover your deductible for less than the cost of a traditional health plan. “It can be a lot less than moving to the next tier where the deductible is lower,” Leibowitz says.
Do you have special care needs?
Some insurance plans cover things like weight loss surgery or infertility treatments — but some don’t, and the exclusion can make a huge difference if it’s a procedure you’re considering. You might find that one insurance company covers a certain surgery or test while another views it as investigational and not medically necessary.
“I call them the fringes,” Leibowitz says. “They’re beyond the typical medical and surgery coverage.” The focus is narrow, he says, but the coverage can be important.
The underlying message, he says, is that just because it looks like the same plan from the same company you were with this year, don’t assume that it hasn’t changed in ways that are important to you. “Network, formulary, benefits,” Leibowitz says, “you have to do your homework.”
This article was written by NerdWallet and was originally published by The Associated Press.
American Express has made major changes to the Hilton Surpass and Hilton Aspire cards.
Annual fee increases will go into effect on 2/14/24 for existing cardholders
Increased sign up bonuses good through 1/17/24
New benefits now live for new & existing cardholders
American Express Hilton Surpass
Annual fee increase from $95 to $150
Sign up bonus of 170,000 points after $3,000 in spend within the first three months
Up to $200 back in statement credits annually for eligible Hilton purchases made with your Hilton Honors American Express Surpass® Card directly at participating Hilton properties (up to $50 in statement credits each quarter)
4X Hilton Honors Bonus Points on U.S online retail purchases
Free national Car Rental® Emerald Club Executive® status
10 free priority passes per year benefit is being removed (Effective February 1, 2024, the Hilton Honors American Express Surpass® Card will no longer offer a complimentary membership to the Priority Pass™ Select program. Through January 31, 2024, you may still enroll in the benefit by calling the American Express customer service number on the back of your card. If you enrolled in the Priority Pass Select program on or before January 31, 2023, your Priority Pass membership will continue through January 31, 2024 and will be cancelled as of February 1, 2024. If you enrolled in the Priority Pass Select program between February 1, 2023 and January 31, 2024, your membership will continue through October 31, 2024 and will be cancelled as of November 1, 2024. Any unused lounge visits will be forfeited at the time of cancellation.)
American Express Hilton Aspire
Annual fee increase from $450 to $550
Sign up bonus of 180,000 points after $6,000 in spend within the first six months
Free national Car Rental® Emerald Club Executive® status
Up to $400 in statement credits annually for eligible purchases made with your Hilton Honors Aspire Card directly at participating Hilton Resorts (up to $200 in statement credits semi-annually)
Up to $200 in statement credits annually on eligible flight purchases (up to $50 in statement credits each quarter) made on your Hilton Honors Aspire Card
$189 in statement credits per calendar year after you sign up and pay for a CLEAR Plus membership (subject to auto-renewal) with your Hilton Honors Aspire Card
One Free Night Reward after you spend $30,000 in purchases on your Card in a calendar year
Cell phone protection: You can be reimbursed, the lesser of, your repair or replacement costs following damage, such as a cracked screen, or theft for a maximum of $800 per claim when your cell phone line is listed on a wireless bill and the prior month’s wireless bill was paid by an Eligible Card Account. A $50 deductible will apply to each approved claim with a limit of 2 approved claims per 12-month period
The following benefits will be removed:
Priority pass membership (1/31/24)
$250 airline free credit (12/31/23)
$250 statement credit for Hilton resorts (12/31/23)
Our Verdict
American Express seems intent on increasing the annual fee across all cards and introducing statement credits that can be difficult to use. Frustrating for some to lose priority pass access as well. Surpass has offered 130,000 points + free night certificate in the past, bonus on the Aspire is the best we have seen (I think).
Overall I see these as negative changes as quarterly credits are very annoying to use. It should be possible to purchase a $50 Hilton gift card at reception and it trigger the credit (for the Surpass), but that still involves going into a hotel and hoping they actually sell the gift cards.
While the principal of a student loan isn’t tax deductible, the interest you pay on it can be — and that includes refinanced student loans. If you’re eligible, you may be able to deduct up to $2,500 from your taxable income.
The amount you can deduct is dependent on your income; as you earn more, the amount you can deduct is decreased and eventually eliminated. You also must have paid interest on a qualified student loan – that is, one taken out to pay for qualified higher education expenses, such as tuition, books, or room and board.
Here’s what to know about refinanced student loans and tax returns, including when interest on student loans is tax deductible, how tax deductions differ from tax credits, and how refinancing can affect taxes.
What Is a Tax Deduction?
For starters, it’s helpful to review what a tax deduction is: A tax deduction lowers your taxable income by reducing the amount of your income before you or a tax professional calculates the tax you owe.
For example, a $100 exemption or deduction reduces your taxable income by $100. So it would reduce the taxes you owe by a maximum of $100 multiplied by your tax rate, which can range from 0% to 37%. So your deduction could reduce your taxes between $0 to $37.
And before considering how refinancing affects your taxes, it’s helpful to review what happens when you refinance a student loan: Your lender “swaps out” (or “pays off”) your existing loans and gives you a new loan with new terms. A student loan refinance may be beneficial if you get a lower interest rate and/or a lower monthly payment, which can save you money in the long run. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)
If you’re considering refinancing federal student loans, however, it’s important to understand that you would lose access to certain federal benefits and protections, such as Public Service Loan Forgiveness, federal deferment and forbearance as well as income-driven repayment options. 💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.
The Difference Between a Tax Deduction and a Tax Credit
Keep in mind that a tax deduction is not the same as a tax credit. While a tax deduction reduces your taxable income, a tax credit directly reduces your taxes.
Tax credits give you a dollar-for-dollar reduction on your taxes. In other words, if you qualify for a $2,000 tax credit, the tax credit lowers your tax bill by that exact amount — $2,000.
Recommended: Tax Season 2022: A Guide to Understanding Your Taxes
How Does Paying Student Loans Affect Taxes?
If you paid qualified student loans during the year, you may be eligible for the student loan interest tax deduction. This deduction can reduce your taxable income by the amount of student loan interest you paid during the year — up to $2,500.
Note that the interest on student loans is tax deductible, not your total payment amount (which includes the principal). You can claim it without having to itemize deductions on your tax return because it’s taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Form 1040.
Who Is Eligible for the Student Loan Interest Deduction?
The student loan interest deduction is an “above the line” deduction, which means that it is deducted to calculate your adjusted gross income (AGI).
As mentioned earlier, the interest paid must be for a qualified student loan that you take out for yourself, your spouse, or a dependent for qualified undergraduate or graduate education expenses, such as tuition, books, or room and board. In addition, the expenses must have been incurred within “a reasonable period of time” prior to or after taking out the loan, according to the IRS.
For taxable years beginning in 2023, your modified adjusted gross income (MAGI) must also amount to less than $80,000 ($160,000 if filing a joint return). Your amount will be phased out (reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return).
You cannot claim the deduction at all if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). You also will not qualify for the deduction if you are married and filing separately.
Recommended: How Income Tax Withholding Works
Are Refinanced Student Loans Tax Deductible?
Yes, you can get a tax deduction on the interest you’ve paid on refinanced or consolidated student loans as long as the new loan refinanced qualified student loans.
Refinancing affects your taxes only insofar as the refinancing might change how much interest you pay in a given year – and thus, how much you can deduct. For instance, if refinancing lowers the amount of interest you pay below the $2,500 deduction amount, then that would mean you can’t deduct as much on your taxes. Still, refinancing may save you more money in the long run than a student loan interest deduction because it’s a deduction, not a tax credit. It’s important to do the math or consult a tax professional before you make a final decision.
Recommended: Where Is My Tax Refund?
Refinance Qualifications
It’s also worth taking a look at common eligibility requirements for a refinance. For most borrowers, the soonest you can refinance is usually after graduating. In addition to a degree, you often need to have:
• A debt-to-income (DTI) ratio under 50%: Your DTI refers to how much of your income goes toward debt and how much goes toward your regular income. It’s best to keep your DTI under 50%, but being over doesn’t necessarily mean you won’t qualify for a student loan refinance.
• Minimum credit score of 650: Your credit score is a three-digit number that shows how well you pay back debt. It’s best to have a minimum credit score of at least 650 to be eligible for student loan financing. Again, your personal situation will be considered before determining whether you qualify for a refinance.
• A steady job and/or consistent income: You may need to prove that you have a steady job and have enough savings to be able to pay for at least two months’ worth of regular expenses.
• A certain balance amount: In most cases, lenders will require you to have a certain minimum balance on your student loans in order to qualify for a refinance.
Refinancing Your Student Loans With SoFi
If you’re thinking about refinancing your student loans, SoFi offers flexible terms with fixed or variable rates. You can apply online, and there aren’t any fees.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
What refinance costs are tax deductible?
When it comes to refinancing and taxes, lenders usually don’t charge any upfront fees to refinance your student loans, which means that there aren’t any refinance costs to deduct.
When you make payments on a qualified student loan — including refinanced student loans — you may be eligible for the student loan interest deduction.
Is it worth it to claim student loan interest?
Yes, when it comes to student loans and tax returns, you may be able to deduct up to $2,500 from your taxable income if you’re eligible.
To be able to claim the deduction, your modified adjusted gross income (MAGI) must be less than $80,000 ($160,000 if filing a joint return). You’ll also experience a phased-out deduction if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). It disappears entirely at MAGIs above $90,000 and $180,000 for joint filers.
Are student loan payments tax deductible?
Only the interest you pay on your student loans is tax deductible. Whole student loan payments (which include principal) are not tax deductible.
Student Loan Refinancing If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
As anyone savvy in personal finance knows, it’s never too early or too late to start thinking about retirement. An individual retirement account, or IRA, is a retirement account that allows you to save money for your golden years in a tax-advantaged way.
There are several types of IRAs—Traditional, Roth, SEP, and SIMPLE—with varying rules and benefits. With the right account, you can grow your savings, manage your tax burden, and prepare for a comfortable retirement.
6 Best IRA Accounts
Check out our top 6 picks for 2023‘s best IRA accounts. Let’s examine each one so you can decide quickly and easily which is best for you.
Charles Schwab
Charles Schwab offers one of the best IRA accounts available thanks to its superior customer service. The company offers 24/7 customer support as well as extensive resources about retirement planning.
Charles Schwab recently eliminated its commissions on stocks, EFT, and options trades. Standard trades are $4.95. So, you can begin investing commission-free, and there’s no account minimum to get started.
The company also offers a robo-advisor called Schwab Intelligent Portfolios. The company will invest your money in up to 20 different asset classes at no annual charge.
This feature alone makes Charles Schwab one of the best options for new investors and anyone who is looking for a low-cost investing option.
Merrill Edge
Merrill Edge is one of the best brokerages for hands-on investors. The company is owned by Bank of America, so it’s a great option for anyone who is already a customer of the bank.
And this means Merrill Edge customers also have the option to receive in-person customer service. If you live near any of the bank’s locations, you can receive in-person assistance at the bank.
Merrill Edge offers unlimited $0 online stock and ETF trades with no trade or balance minimums. The company also offers mutual funds for $19.95 per purchase, though some mutual funds are available for free.
And the online broker doesn’t have a minimum deposit requirement to open an account. So, it’s an excellent option for new investors and anyone who is looking for in-person customer support.
Betterment
Betterment works to automate and simplify the investment process and offers traditional, SEP, rollover, and Roth IRAs. This robo-advisor makes managing your IRA extremely hands-off while helping you save money on excessive fees.
What’s the pricing structure like?
You have two levels of service to choose from. The first is the Digital level, which comes with a 0.25% annual fee and no minimum balance. So if your first year’s balance is $5,000 your fee would be $12.50.
Because Betterment is a robo-advisor, it offers automatic rebalancing so that you’re always hitting your target allocations, even with a shifting market.
Their portfolios are globally diversified, and you can adjust your risk tolerance based on your preferences. Plus, Betterment implements automatic tax-loss harvesting to boost your after-tax returns.
Need to talk to a certified financial planner?
No problem, you can chat online with a licensed expert with no limit on the number of questions you ask. If you want even more advice and support, you can upgrade to the Premium level. The annual fee jumps to 0.40%, and you’ll need at least $100,000 to start your retirement account.
But you get holistic advice on all of your financial questions, not just those related to your Betterment investments. So in addition to chatting about retirement, you can also talk to your advisor about joint financial goals with your spouse.
You can also discuss college savings plans for your children, and new and existing investments.
If you’re interested in a “set it and forget it” mentality for your IRA, Betterment certainly provides that option.
Ally Invest
Ally Invest is a great option if you’re just starting to build out your IRA rather than rolling over existing funds. It’s also directed to individuals who want to manage their own investments.
There’s no account minimum to get started, and you can choose from multiple types, including Roth, traditional, rollover, SIMPLE, and SEP IRAs.
Account fees are fairly limited as well. You don’t have to pay anything to set up the account, and there’s no minimum account opening, so it’s easy for anyone to start saving. Ally also doesn’t charge an annual fee or an inactivity fee.
There’s a $50 fee if you decide to terminate your IRA account with Ally Invest. If you transfer your funds, you’ll have to pay an additional $50 as a transfer fee — plus the first $50 termination fee. There’s also a $50 conversion fee if you want to change from a traditional IRA to a Roth IRA or the other way around.
If you’re an active trader even with your IRA, then you’ll appreciate Ally’s low trading fees.
Stocks and exchange-traded funds (ETFs) are $4.95 per trade, but you can get that lowered to $3.95 if you trade at least 30 times each quarter or have a balance of $100,000 or more. Options fees start at $4.95 each plus $0.65 per contract, and that price also lowers with heavy quarterly trading activity.
If you don’t want the burden of actively trading your IRA portfolio, then look elsewhere for an IRA account. But if you like handling your investments regularly, then Ally Invest could be a strong contender for your IRA account.
Wealthfront
Wealthfront is a robo-advisor that’s growing quickly. Your first $10,000 is managed for free. Thereafter, you’re charged an annual management fee of 0.25%, regardless of how much you have in your account.
You do have to open an IRA with at least $500. The more friends you refer to Wealthfront, the more you access free services, like getting an additional $5,000 managed for free. You can choose from a few different IRA types, including traditional, Roth, SEP, and rollovers.
Where does Wealthfront shine?
The answer is in retirement analytics. Wealthfront has a retirement planning tool called Path. It lets you integrate your various retirement accounts across financial institutions so you can see an accurate and comprehensive picture of your overall retirement plan.
Wealthfront economists use projects for things like inflation and Social Security to help plan for a realistic future.
Considering a major life event or financial change?
Wealthfront’s Path program lets you see potential impacts of these types of scenarios, so you’re not surprised at how your retirement savings are affected. Plus, like other online robo-advisors, all Wealthfront investments provide tax-loss harvesting and portfolio rebalancing.
You don’t have to worry about tracking individual stocks and funds. Instead, you get to invest passively while Wealthfront’s analytics keeps track of your portfolio. With IRA options and other tools at your disposal, Wealthfront is a solid choice for hands-off retirement investing.
E*TRADE
E*TRADE offers a ton of financial products, and their IRA offerings are straightforward with low fees.
There’s a great balance of getting access to in-depth research and resources, while also having the option to let E*TRADE take on your account management.
You can choose from a traditional IRA, Roth IRA, rollover IRA, or one-stop rollover IRA. That last one lets you transfer existing IRA funds in a diversified ETF that is managed by professionals.
This adaptive portfolio takes advantage of the automation processes. It requires a $5,000 minimum deposit to get started and comes with an annual advisory fee of 0.30%.
If you’re an avid ETF trader, you can trade for free on more than 100 funds; otherwise, it’s $6.95. Like Ally, that number drops if you make 30 or more quarterly trades, costing just $4.95 per trade at that point.
Stock trades also cost $6.95 each, with the same discount available as ETFs. Fees vary on mutual funds, but E*TRADE offers more than 4,400 no-transaction-fee mutual funds.
If you’re happy working with certain restrictions on the funds you choose, you can get away with a lot of fee-free trading via E*TRADE. Plus, you don’t have to worry about a minimum opening balance for most IRA accounts.
The company has been around for decades and consistently gets strong ratings from external sources, so they have a strong reputation in the industry, which can be comforting for beginning investors.
Understanding Different Types of IRAs
Now that we’ve explored the best IRA accounts of 2023, it’s crucial to understand the differences between the various types of IRAs. Each one comes with distinct advantages and rules tailored to unique financial circumstances and retirement goals.
Whether you’re just starting your retirement journey or you’re well on your way, familiarizing yourself with these options can help you make informed decisions about your future. Here, we delve into Traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs.
Traditional IRAs
Traditional IRAs provide a way to save for retirement with tax-deductible contributions. The contributions you make to a traditional IRA may lower your taxable income, meaning you’ll pay less income tax in the year you make the contribution.
You’ll pay taxes on your withdrawals in retirement. This type of IRA might be beneficial if you anticipate being in a lower tax bracket during retirement than you are now.
Roth IRAs
With Roth IRAs, you make contributions with after-tax dollars. This means you pay income taxes on contributions upfront, but qualified withdrawals in retirement are tax-free. Roth IRAs are attractive if you expect to be in the same or higher tax bracket in retirement.
Additionally, Roth IRAs don’t have required minimum distributions (RMDs) during the owner’s lifetime, a feature that can provide significant tax advantages.
SEP IRAs
SEP (Simplified Employee Pension) IRAs are for self-employed individuals and small-business owners. They work like a traditional IRA, allowing you to contribute pre-tax money, which grows tax-deferred until you withdraw it in retirement.
SIMPLE IRAs
SIMPLE (Savings Incentive Match Plan for Employees) IRAs are also for small businesses and self-employed individuals. They offer higher contribution limits than traditional and Roth IRAs but come with mandatory employer contributions.
Criteria for Selecting the Best IRA Accounts
As you embark on IRA investing, there are a few key factors you should consider when selecting the best IRA accounts.
Fees: Look for IRA providers with low or no annual account fees, low expense ratios on mutual funds or exchange-traded funds (ETFs), and no transaction fees. Even small fees can add up over time, eroding your investment returns.
Investment options: The best IRA accounts offer a broad array of investment options, including mutual funds, index funds, ETFs, bonds, and individual stocks. More options mean more opportunities to create a diversified portfolio.
Minimum balance requirement: Some providers require a minimum deposit to open an account, while others don’t have account minimums. This can be a barrier for new investors who want to start small.
Customer support: Excellent customer support can be invaluable, particularly if you’re new to investing. Look for providers that offer easy-to-use platforms, comprehensive educational resources, and responsive support.
Additional services: Some IRA providers also offer services like automated investing, financial planning, and wealth management, which can help you craft and stick to a retirement savings strategy.
Taxation: Understanding how different IRAs are taxed can help you optimize your retirement savings. For instance, traditional IRAs provide a tax deduction on contributions, but you’ll pay taxes upon withdrawal. Roth IRAs, on the other hand, don’t offer a tax deduction on contributions, but the growth and withdrawals are tax-free.
How to Open an IRA Account
Opening an IRA account is a fairly straightforward process, similar to opening a regular savings or brokerage account.
Choose an IRA provider: Decide whether you prefer an online bank, an investment firm, a robo advisor, or a traditional bank for your IRA. Each of these financial institutions offers unique benefits, so choose the one that fits your needs best.
Decide the type of IRA: Choose between a Roth IRA and a Traditional IRA based on your current income, future income predictions, and tax considerations. If you’re self-employed or a small business owner, you might consider a SEP or SIMPLE IRA.
Open an account: Visit your chosen provider’s website and select ‘open an account.’ You’ll need to provide some personal information, including your Social Security number, date of birth, mailing address, and employment information.
Fund your account: Decide how much you want to contribute to your account. Be mindful of the annual IRA contribution limits set by the IRS. You can fund your account through a transfer from a bank account or rollover from another retirement account.
Select your investments: Choose how your money is invested. Depending on the provider, you might be able to choose individual stocks and bonds, or you might select from a list of mutual funds or ETF trades. Some providers also offer target-date funds, which automatically adjust your asset allocation based on your age and retirement timeline.
Set up automatic contributions: If possible, set up automatic contributions to your account. Regular, consistent contributions can help your retirement savings grow over time.
Remember, it’s essential to regularly review your IRA to ensure it aligns with your retirement goals. Over time, you may need to adjust your contributions or rebalance your investment portfolio.
Common Mistakes to Avoid When Investing in an IRA
Procrastinating on opening an account: The sooner you open an IRA and start contributing, the more time your money has to grow. With the power of compounding, even small contributions can grow significantly over time.
Not contributing enough: Try to contribute the maximum amount to your IRA each year to take full advantage of the tax benefits and growth potential. If you can’t afford the max, aim to increase your contributions over time.
Investing in high-fee funds: Fees can eat into your retirement savings. Be sure to understand the expense ratios, management fees, and any transaction fees associated with your investments.
Not considering your tax situation: The tax benefits of Traditional and Roth IRAs are different, so consider your current and future tax situation when choosing an account. If you anticipate being in a higher tax bracket when you retire, a Roth IRA may be a better choice since withdrawals are tax-free.
Ignoring the income limits: Roth IRAs have income limits that can affect your ability to contribute. If you earn too much, you may be unable to contribute directly to a Roth IRA, though you might still be able to contribute to a Traditional IRA or execute a backdoor Roth IRA conversion.
Failing to update your beneficiary designations: Life changes, and so should your beneficiary designations. Make sure to review them regularly, especially after major life events like marriage, divorce, or the birth of a child.
Bottom Line
When it comes down to picking your IRA account, two of the most important factors are cost and your preferred management style. The two generally go hand in hand.
Do you want a DIY IRA that lets you do your own trading? You’ll need to compare online brokers and robo-advisors that offer free trades or lower-cost trade fees based on your trading activity.
Prefer a hands-off style? Think about how much money you’re likely to invest in the near term. Then, pick an IRA account that lets you go on autopilot while charging a flat annual fee.
For these types of IRA accounts, you’ll definitely want to dig deeper into how the financial advisors’ portfolios are chosen and whether their investment styles agree with your own.
Having any type of IRA can help you prepare for retirement. You can always transfer or roll over your funds into another IRA. However, choosing the best account in the first place can help prevent unnecessary fees.
And once you’re ready to retire, you’ll have a healthy nest egg helping you to finance your daily expenses.
Frequently Asked Questions
What is the maximum contribution limit for IRAs in 2023?
The maximum contribution limit for IRAs in 2023 stands at $6,500 for individuals who are under 50 years of age, and it’s $7,500 for those who are 50 or older. This represents a $500 increase from the 2022 limits for all age groups. It’s important to remember that these contribution limits apply collectively to your contributions to both traditional and Roth IRAs.
Can I have both a traditional IRA and a Roth IRA?
Yes, you can have both a traditional IRA and a Roth IRA. However, the total amount you can contribute to both accounts combined cannot exceed the annual contribution limit.
What is a backdoor Roth IRA?
A backdoor Roth IRA is a strategy for people whose income exceeds the Roth IRA income limits to still contribute to a Roth IRA. It involves contributing to a traditional IRA and then converting that contribution to a Roth IRA. There may be tax implications with this strategy, so it’s recommended to consult a certified financial planner or tax advisor.
Is the money I contribute to an IRA protected from loss?
No, the money you contribute to an IRA is not protected from loss. The value of your IRA is subject to market fluctuations and the performance of the investments within the account. It’s important to diversify your investments and align them with your risk tolerance and retirement goals.
Can I withdraw money from my IRA before retirement age?
Yes, you can withdraw money from your IRA before reaching retirement age. However, early withdrawals are subject to income tax and potentially a 10% early withdrawal penalty. There are some exceptions to the penalty, such as using the funds for qualified education expenses or a first-time home purchase. Be sure to understand the rules and potential tax implications before making an early withdrawal.
Are there any penalties for not taking distributions from my IRA?
Yes, there are penalties for not taking required minimum distributions (RMDs) from your traditional IRA. The penalty is 50% of the amount you should have withdrawn but didn’t. Roth IRAs, on the other hand, do not require minimum distributions during the owner’s lifetime.
Like human health insurance, pet insurance helps cover unexpected medical expenses for our furry friends. One crucial component of that coverage is your pet insurance deductible. Understanding how deductibles work can help you choose the right plan for you and your pet.
What is a pet insurance deductible?
A pet insurance deductible is the amount you pay out of pocket for your pet’s veterinary care before the insurance company starts covering costs. It’s a set amount you choose when you purchase your policy.
For example, if your deductible is $250 and your pet’s vet bill is $1,000, you’ll pay the first $250, and the insurance company will help cover the remaining $750, depending on your policy’s terms. If you have an annual deductible, you’d have to pay this amount only once per year.
How do pet insurance deductibles work?
A deductible is a way for insurance companies to share the cost of vet bills with pet owners. Once you’ve met your deductible, the pet insurance company will pay any remaining portion of your vet bills that qualify for coverage.
In most cases, you’ll need to pay the full vet bill yourself and then file a claim for reimbursement with your pet insurance company. If there are any expenses insurance doesn’t cover, like taxes or waste disposal, the company will subtract them along with your deductible before reimbursing its share of the bill.
Raising or lowering your deductible will affect how much you pay for pet insurance. Selecting a higher deductible usually lowers your insurance premium but means you’ll pay more out of pocket when your pet needs care.
🤓Nerdy Tip
The amount you pay for routine care like vaccines or wellness visits usually doesn’t count toward your deductible. Even if you have separate coverage for preventive care, the deductible typically applies only to covered illnesses and accidents.
Types of pet insurance deductibles
There are two main kinds of deductibles: annual and per condition.
Annual pet insurance deductible
An annual pet insurance deductible is a set amount you pay each year before insurance starts covering your vet bills. You pay this deductible only once per policy term. It doesn’t reset until your policy renews, regardless of how many claims you make. This is the most common type of pet insurance deductible.
Say you have a $300 annual deductible. If your pet has a minor accident and the vet bill is $150, you pay the entire amount since it’s less than the deductible. (Note that you’d still want to file a claim so your pet insurance company can apply the amount you’ve paid toward your deductible.)
Later in the same year, your pet gets sick and racks up a $500 bill. You’d pay the remaining $150 of your deductible, and the insurance would cover a portion of the remaining $350, depending on your policy’s terms.
If your pet has more health issues within the same year, the insurance would continue to help cover the costs since you’ve already met the deductible. But once your policy renews, your deductible will reset and you’ll need to pay it again before receiving more insurance coverage.
Per-condition deductible
With a per-condition deductible, you pay a set amount out of pocket for each illness or condition your pet has. This type of deductible may also be called a per-incident deductible.
For example, if your pet gets an ear infection and later breaks a leg, you would pay your deductible twice: once for the ear infection and once for the broken leg.
After you pay the deductible for a specific condition, insurance helps cover additional costs for that condition over the life of your pet. This is beneficial if your pet develops a chronic problem that needs ongoing treatment each year. Once you meet the deductible for that condition, you don’t pay it again, whereas you’d pay it each year with an annual deductible.
The downside is that if your pet needs care for an unrelated problem later in the same year, you’re stuck paying the deductible all over again.
Did you know…
Very few pet insurers offer per-incident deductibles. Most have annual deductibles, so pet owners have to meet the limit only once per year.
Deductibles vs. copays and reimbursement rates
Deductibles, copays and reimbursement rates are different parts of how you and your insurance company share costs. Once you’ve paid your deductible, the insurance company uses the copay and reimbursement rate to calculate how much of the remaining vet bill it will cover.
A copayment, or copay, is your share of the vet visit cost after you’ve met your deductible. The reimbursement rate is the percentage of the bill the insurer will pay. For example, if your policy has a 70% reimbursement rate, that means your copay is 30%.
To see how these policy limits work together, imagine you have a $200 deductible, a 20% copay and an 80% reimbursement rate. If your pet’s vet bill is $1,000, you’d pay the $200 deductible first. Then, of the remaining $800, the insurance would pay 80% ($640), and you’d pay the 20% copay ($160). So, for a $1,000 vet bill, you’d pay $360, and the insurance would cover $640.
In general, a policy with a higher reimbursement rate will be more expensive, but the insurance company will cover more of your vet bills.
🤓Nerdy Tip
In addition to deductibles, copays and reimbursement rates, most pet plans have an annual coverage limit, which is the most your insurer will reimburse for vet care in a 12-month period. This limit is often customizable, and you may have the option to choose unlimited coverage. Your annual coverage limit is another factor that can influence the cost of pet insurance.
How to choose a pet insurance deductible
The goal when choosing a deductible is to strike a balance between good coverage and manageable out-of-pocket expenses.
First, determine how much you can comfortably pay for vet care. Imagine if your pet needed to visit an emergency vet tomorrow. How much of a deductible could you afford to pay? You shouldn’t struggle to cover your deductible in an emergency, so choose an amount that fits your budget.
Remember, the deductible is just one part of your policy. Consider it alongside copays, reimbursement rates and annual coverage limits to get the full picture. The more costs you take on yourself, the less you’ll pay for insurance, and vice versa.
If you’ve had your pet for a while, looking at what you’ve spent in vet care over the past year may help you predict future costs.
Compare deductible options from popular pet insurance companies
Pet insurance company
Deductible options
$100 to $1,000 annually.
$100 to $500 annually.
$100 to $1,000 annually.
$250 to $2,500 annually.
$100 to $1,500 annually.
$100 to $500 annually.
$100 to $1,000 annually.
$100 to $500 annually.
$250 to $1,000 annually.
$0 to $2,500 annually.
$250 annually. (Other options may be available.)
$50 to $1,000 annually.
$100 to $1,000 annually.
$100 to $1,000 annually.
$0 to $1,000 lifetime per-condition deductible in most states; some states have no deductible.
Saving and investing both involve setting money aside for future expenses. However, there are key differences between the two.
Each has its own set of rewards and challenges. A balance of the two can lay the groundwork for financial prosperity and safeguard your wealth.
The Basics: Defining Saving and Investing
Saving: The Safety Net
What is a Savings Account?
A savings account represents the initial wealth-building step in most financial journeys. At its core, saving means putting money in a secure location, like a bank account. This ensures your money remains safe while also earning interest. High yield savings accounts, frequently found with online banks and credit unions, offer particularly appealing interest rates.
The Role of the FDIC
The safety of savings accounts, money market accounts, and CDs is often reinforced by the federal deposit insurance corporation (FDIC). This entity ensures that even if a financial institution faces challenges, your money remains protected up to the FDIC-defined limits.
Emergency Funds: Why Are They Important?
Life throws curveballs, making it essential to have an emergency fund—a financial buffer. This fund should ideally encompass three to six months’ worth of living expenses, ensuring you’re prepared for unexpected financial setbacks.
The Savings Trade-Off
While savings accounts offer peace of mind, they come with a compromise. The interest rates, especially in traditional savings accounts, often lag behind inflation. This dynamic means your diligently saved money might gradually lose purchasing power.
Investing: The Growth Engine
Dipping Into the Investment World
Investing means allocating money into assets with the hope of appreciating value. Whether it’s shares in the stock market, real estate properties, or units in mutual funds, the primary objective is growth.
Stock Market: A Historic Wealth Builder
The allure of the stock market lies in its historical track record. Over extended periods, it has typically provided returns surpassing those of standard or even high yield savings accounts. Diversifying investments, like putting money in mutual funds, can help harness these potential gains.
The Reality of Investment Risks
However, with potential reward comes inherent risk. Unlike the predictability of an FDIC-insured savings account, money put into the stock market or other investment vehicles isn’t guaranteed. It’s possible to see significant gains, but it’s equally possible to encounter losses.
When to Save vs. When to Invest: Making the Right Call
It’s vital to recognize that while both saving and investing are pillars of financial security, their roles vary according to your needs and circumstances. It’s important to know when to use each of these financial tools.
Immediate Needs and Short-Term Goals
Emergency fund: It’s always paramount to have savings set aside for unexpected expenses. Whether it’s a medical emergency, sudden job loss, or major car repair, an emergency fund acts as a financial buffer. Keeping this in an easily accessible savings account or money market account allows for quick withdrawal without penalties.
Upcoming purchases: If you’re planning major purchases within the next 1-3 years, such as a down payment for a house or a new car, the priority is preserving the principal. In such cases, a high yield savings account or a short-term CD might be more suitable than volatile investments.
Travel plans: Saving for a vacation in the next year? While it’s tempting to try to “grow” your vacation fund quickly through investments, the short timeframe means a higher risk of not having enough money when it’s time to book that trip. Opt for saving in this case.
Mid to Long-Term Objectives
Retirement: For goals that are more than a decade away, such as retirement, the potential returns from the stock market or mutual funds typically outweigh the risks. Even with market fluctuations, long-term investing often results in appreciable growth, especially if one starts investing early.
Children’s education: If you’re saving for your child’s college and they’re still in diapers, investing might offer the growth potential needed to meet rising education costs. 529 plans or other investment accounts might be apt choices.
Building wealth: If you’re aiming to increase your net worth over time and don’t have a specific goal in mind, investing is the route. It leverages the power of compound interest and potential market returns.
Debt Consideration
High-interest debts: If you’re carrying a significant credit card balance or other high-interest loans, focus on paying these down before considering investing. The interest on these debts often surpasses potential investment returns.
Personal Risk Tolerance
Emotional comfort: Your comfort with market fluctuations plays a role. If the thought of losing some of your investment keeps you up at night, even if it’s a generally recommended strategy, you might lean more towards saving or very conservative investments.
Strategies to Optimize Your Financial Balance
To establish and maintain an ideal equilibrium between saving and investing, it’s essential to employ strategic approaches that cater to evolving financial scenarios and goals. Here’s a deeper dive into methods that can help you optimize this balance.
Diversification: The Financial Safety Net
Spread your assets: Avoiding concentration in one type of investment can mitigate risks. By dividing your capital across varied assets, such as stocks, bonds, and real estate, you can potentially safeguard against significant losses in any single asset class.
Low cost index funds: These funds replicate the performance of a specific market index, like the S&P 500. Due to their broad exposure, they offer a balanced growth potential coupled with relatively lower risk. Plus, their typically lower fees mean more of your money stays invested.
Seek Professional Guidance: Navigate with Expertise
Why advisory services?: The financial landscape is vast and often intricate. For those unfamiliar or even those looking for a second opinion, brokerage services or financial advisors provide valuable insights. They help decode the complexities, ensuring your strategies align with your objectives.
Certified financial planners: CFPs undergo rigorous training and certification processes. They can offer comprehensive financial planning advice, ensuring your saving and investing strategies are cohesive and well-aligned with your broader financial goals.
Automate to Accumulate: Consistency is Key
The power of direct deposits: By automating transfers from your checking account to investment or savings vehicles, you ensure consistent contributions. Over time, this approach can substantially amplify your savings and investments.
Harness dollar-cost averaging: This strategy involves investing fixed amounts regularly, irrespective of market conditions. It can potentially reduce the impact of market volatility on your investment.
Review, Reflect, and Refine: Adaptability Matters
Changing tides: Life isn’t static, and neither is the financial world. Personal milestones, market shifts, or alterations in financial objectives can necessitate a change in strategy.
Scheduled check-ins: Dedicate time periodically (annually or semi-annually) to review your portfolios. Rebalancing, which involves realigning the proportions of your investments, can be essential to ensure they continue to match your risk tolerance and goals.
Common Myths and Pitfalls: Separating Fact from Fiction
While financial literacy has grown over the years, myths still abound. These misconceptions can hinder sound financial decision-making. Let’s demystify some of the most common myths and pitfalls in the realm of saving and investing.
Investing Equals Gambling: A Risky Misconception
Understanding the difference: Yes, both investing and gambling involve risk. However, investing is about making informed decisions based on research, market trends, and historical data. Gambling is more reliant on chance and often lacks a strategic foundation.
Strategic approach: Investors often utilize various tools, analyses, and professional advisory or brokerage services to make informed decisions. Over time, while there are market fluctuations, historically, the stock market has trended upwards.
Age Constraints: The Timeless Truth
Power of compound interest: Starting young has its perks. Even small investments can grow exponentially over time, thanks to compound interest. But it’s essential to note, it’s not just for the young.
Every moment counts: Older individuals can still benefit from investing, especially with more substantial amounts and a well-thought-out investment strategy. No matter your age, it’s about finding the right investment portfolio that aligns with your financial goals and risk tolerance.
Minimums and Barriers: Breaking the Monetary Myth
Modern investing landscape: The financial markets have become increasingly accessible. With advancements in technology and the emergence of online banks and brokerage platforms, the barriers to entry have significantly lowered.
Fractional shares & micro-Investing: Some platforms today allow individuals to invest with as little as a few dollars, purchasing fractional shares of stocks or ETFs. This democratization means that virtually anyone can participate in the financial markets, regardless of their initial investment size.
Avoiding paralysis: One of the pitfalls here is waiting for the “right amount” to start investing. This can lead to missed opportunities. Consistently investing, even smaller amounts, can be beneficial in the long run.
Safety Nets, Backups, and Financial Security: A Three-Pronged Approach
Achieving true financial security is akin to constructing a sturdy building. It’s not just about the facade or height but ensuring a robust foundation and safety mechanisms in place. Here’s an expanded view on establishing a comprehensive financial safety framework.
Building a Strong Foundation: The Indispensable Emergency Fund
Significance of the fund: Think of an emergency fund as your financial cushion. When unexpected expenses – like medical emergencies or sudden job losses – arise, this fund ensures you don’t have to dip into long-term investments or accrue high-interest debt.
FDIC insured banks and credit unions: Parking your emergency savings in institutions insured by the Federal Deposit Insurance Corporation or similar protections in credit unions offers an added layer of security. Such institutions guarantee the safety of your deposits up to a certain limit, ensuring your money is shielded against unforeseen institutional failures.
Insurance: Your Financial Umbrella
Different types, singular purpose: The world of insurance is vast: health, life, disability, homeowners, renters, and more. Each type serves a unique purpose but shares a common goal: safeguarding you and your loved ones against financially detrimental events.
Preventive approach: Paying insurance premiums might feel like an added expense. However, in the face of adversities, insurance policies can prevent significant out-of-pocket expenses, ensuring financial stability.
Tax-Savvy Approaches: Maximize Your Returns
Taxable vs. tax-advantaged accounts: Recognizing the difference between these two is crucial. A standard brokerage account will have its earnings subject to taxes annually. In contrast, retirement accounts, like IRAs or 401(k)s, offer tax advantages, either deferring tax payments until withdrawal or eliminating them altogether, depending on the account type.
Compound and save: Over time, the money you save on taxes can compound, potentially leading to significantly larger returns. Being tax-smart is a key component of holistic financial planning.
Stay Liquid: Balancing Accessibility and Growth
Importance of liquidity: Investments tied up for the long term can offer excellent growth potential. However, it’s equally vital to have assets that can be quickly converted to cash for immediate needs, without penalties or a significant loss in value.
Ideal liquid venues: Savings accounts and money market accounts are perfect contenders for such liquid assets. They offer a blend of easy accessibility and modest growth, ensuring you’re not caught off-guard by short-term financial needs.
Bottom Line
Balancing saving vs. investing is an ongoing journey, not a one-time decision. As you navigate life’s ups and downs, your strategy will need tweaks and adjustments. However, with a solid foundation, informed choices, and a commitment to both saving and investing, you can optimize both risk and security, paving the way for a bright financial future.
Frequently Asked Questions
How much should I aim to save before I begin investing?
While it varies for each individual, many financial experts recommend building an emergency fund covering 3-6 months’ worth of living expenses before starting to invest aggressively.
Can I lose all my money if the stock market crashes?
While stock market downturns can lead to significant losses, diversified portfolios can mitigate this risk. It’s rare to lose all money unless invested in single, high-risk stocks.
Do I need a financial advisor, or can I start investing on my own?
You can certainly start on your own, especially with numerous online platforms and resources available. However, a financial advisor can offer personalized advice tailored to your goals and risk tolerance.
Is real estate a safer investment than the stock market?
Both real estate and stocks come with their risks and rewards. While real estate is tangible and can provide rental income, it requires more capital upfront and may not be as liquid as stocks. Diversifying investments across asset classes can help balance risk.
What’s the difference between a Roth IRA and a traditional IRA?
Both are retirement accounts, but they differ in tax treatments. With a Roth IRA, you contribute post-tax money, and withdrawals during retirement are tax-free. With a traditional IRA, contributions may be tax-deductible, but withdrawals during retirement are taxed.
How frequently should I review and adjust my investment portfolio?
While there’s no one-size-fits-all answer, many experts suggest reviewing your portfolio at least annually or whenever there are significant changes to your financial situation or goals.
Can I invest in stocks without going through a brokerage?
Yes, some companies offer Direct Stock Purchase Plans (DSPPs) that allow investors to purchase shares directly without a broker. However, using a brokerage can offer more options and tools for managing investments.
How can I protect myself against inflation eroding my savings?
Investing a portion of your savings can help. Stocks, bonds, and real estate have historically outpaced inflation over the long term. Additionally, consider high yield savings accounts or inflation-protected securities.
