Tax-loss harvesting enables investors to use investment losses to help reduce the tax impact of investment gains, thus potentially lowering the amount of taxes owed. While a tax loss strategy â sometimes called tax loss selling â is often used to offset short-term capital gains (which are taxed at a higher federal tax rate), tax-loss […]
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If you have a Health Savings Account but not enough money to cover your medical expenses, you are not necessarily doomed to insurmountable debt â even if you owe on old medical bills. Alexandra Wilson, a Certified Financial Planner in Atlanta, used her HSA contributions to cover medical bills from when she gave birth to [â¦]
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What are deductions anyway? This guide will help you find all the tax deductions you qualify for, whether you itemize or not.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
While using tax preparation software or even better, a professional tax preparer can ease the burden of preparing your annual taxes, thereâs still some work youâll have to do on your end. The silver lining of filing a tax return is the potential promise of a refund. And one of the best ways to land [â¦]
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
With todayâs low interest rates, it takes planning to create sufficient retirement income without taking more risk than you need to. The days when you could get good income from a collection of Treasury bonds are long gone.
You can get income from dividend-paying stocks, bank accounts, bonds and bond funds, and several different types of annuities.
Each has pros and cons. Stocks that pay high dividends can yield a good amount of income, but stocks can be volatile. You can lose money, and if youâre retired, you may not be able to wait until the market recovers.Â
Guaranteed deposits, such as bank CDs and fixed-rate annuities, may pay less, but both the interest income and principal are assured (although in different ways).
Most retirees use a portfolio of products and strategies. By mixing and matching appropriately, you can produce income, counteract inflation and provide some liquidity that you might need for anything from medical expenses to a great vacation or giving money to kids or grandchildren.Â
The right mix is highly individual. Retirees with pensions that cover the bulk of their monthly expenses may be able to take more risk with their money. Others who donât have that cushion and canât afford to lose anything look to guaranteed strategies.
One type of guaranteed product is the fixed annuity. A very popular option today is the multiyear guaranteed annuity, or MYGA. Underwritten by a life insurance company, it acts much like a bank certificate of deposit (CD). You deposit a lump sum, called a single premium. You then receive a set interest rate for a set period.Â
Unlike bank deposits, fixed annuities are not FDIC-insured. However, there is a form of insurance provided by state guaranty associations in case the insurer becomes insolvent. Coverage varies by state.Â
Annuity interest is tax-deferred until withdrawn. If you receive income from an annuity before age 59½, youâll normally be hit with a 10% IRS penalty in addition to ordinary state and federal income tax. Â
Fixed annuity features vary. If youâll be relying on an annuity for income, make sure that the product youâre considering allows either monthly or annual interest withdrawals, depending on your needs and preferences.
While these products often allow withdrawals of up to 10% annually, they do levy penalties for taking excessive withdrawals before the guarantee period is over.Â
A big advantage of fixed-rate annuities is that they usually pay higher rates than other fixed-rate instruments, such as CDs and investment-grade bonds. As with CDs and bonds, youâll get a higher interest rate if youâre willing to tie up your money for a longer period.
But is it worth it? On the one hand, âgoing longâ will produce more current income. Some people are comfortable with that.Â
On the other, going short gives you flexibility. If interest rates improve in the interim, youâll be able to get a better rate once the guarantee period is over.
So, what makes the most sense? For people with enough money to spread among different annuities, I suggest laddering guarantee terms. Because no one knows for sure which direction interest rates are headed in the future, laddering makes the most sense. It gives you both good current income and future flexibility.
Whatâs the best laddering strategy? It depends on what the interest rate curve looks like at the time youâre creating the annuity ladder. If the curve is flattish, going mostly short would make sense. If itâs steep, you might want to commit more to longer terms.
Today, I recommend laddering annuities from three to five years. Hereâs why:Â
First, there is a significant interest-rate bump when comparing two- and three-year terms. For example, currently (January 2022), you can earn 2.00% on a two-year annuity from an insurer rated A- for financial strength by A.M. Best. Â
With a three-year MYGA, you can earn 2.50% from that same A- rated company. Thatâs 25% more interest. Unless youâll need all that money two years from now, itâs probably worth going for an additional year.Â
Three years from now, youâll be able to roll the proceeds tax-free, via a 1035 exchange, into any other annuity that looks most attractive then. Maybe rates will be higher.
While a four-year annuity is an option too, five years is a sweet spot. Even if youâre willing to tie up your money longer, you wonât get much more interest with a seven- or 10-year contract right now.
For instance, as of February 2022, if youâre willing to go with a B++ rated company, you can get 3.15% on a five-year contract with limited liquidity. Youâd get only a bit more, 3.20%, with the same insurerâs seven-year annuity.
If you prefer an A- or better rated company, you can earn 3.00% on a five-year annuity and 3.15% for seven years.
Besides being useful for nonqualified savings, fixed annuities also work well for IRAs. And the same laddering approach works.
Between the ages of 59½ and 72, you may take taxable interest withdrawals from a traditional IRA annuity, or you can let the interest compound and defer taxes. At 72, you must begin taking required minimum distributions (RMDs).Â
If youâre already taking RMDs or soon will be, look for an annuity that lets you take out your RMDs without penalty. Many issuers have that feature.Â
If you have all of your IRA in equities or even long-term bonds, you may be forced to make an untimely withdrawal when the stock or bond market is down. Whether you choose a three- or five-year or other term annuity, youâll be assured that youâll have the guaranteed withdrawals to pay your RMD.
Annuity expert Ken Nuss launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. A free quote comparison service with interest rates from dozens of insurers is available at https://www.annuityadvantage.com or by calling (800) 239-0356.
Keogh retirement plans are one type of tax-deferred retirement plan that self-employed individuals and their employees use to invest and grow their savings. Although theyâre relatively uncommon today, Keogh plans are still an option that some high-income savers may use to save for their golden years, however a tax law change in 2001 that made […]
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This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
You probably know that saving and investing are essential to retirement planning. But just as important to the equation: Social Security planning. Itâs impossible to overstate the importance of Social Security to retirees. The truth is, Americans arenât saving or investing enough for a secure retirement. Without Social Security, approximately 4 out of 10 people [â¦]
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.