Money Management

401(k) plans are a great way to save for retirement and take advantage of employer matching, but there’s a lot more to know. Keep reading for less-discussed perks. [[{“value”:”

Some of the advantages of saving for retirement in a 401(k) plan or similar retirement plan are well-known, such as employer matching contributions. On the other hand, there are some benefits of investing in employer-sponsored retirement plans like 401(k), 403(b), and 457 accounts that aren’t quite as well-known. Here’s a few you need to know.

1. Higher contribution limits than you might think

It’s well known that the money you contribute to your 401(k) gets you a tax deduction, but many people don’t know how much money they’re allowed to set aside, tax deferred.

For 2024, the contribution limit to your 401(k) is $23,000, and this doesn’t include any employer matching contributions. Plus, if you’re 50 or older, you can contribute an additional $7,500 as a catch-up contribution.

Now, you don’t necessarily need to max out your 401(k) to save enough for retirement. But the point is that if you’re looking for some extra tax deductions, you might have more room than you think to boost your 401(k) contributions.

2. Automated, low-cost investing

401(k) plans take the guesswork out of investing, and usually do it with low-cost mutual funds. Many plans (especially larger ones) use institutional mutual funds that have lower fees than are available to everyday investors.

Your 401(k) typically will have a “menu” of investment funds to choose from, but there are usually some automated portfolio options and target-date funds. If you see options called “Target Retirement 2040,” or something similar, that’s an example of an all-in-one investment option that puts your retirement investing on autopilot.

3. Access to low-interest loans if you need them

Many 401(k) plans allow you to borrow money from your account and pay yourself back (with interest) over time. These loans can be as much as $50,000 or 50% of your account, whichever is less.

To be perfectly clear, it is preferable to leave your money alone in your 401(k) if you can. This isn’t a substitute for using, say, a home equity line of credit (HELOC) to fund a home renovation project, and shouldn’t be used for unnecessary expenses such as vacations. And it’s still important to maintain an emergency fund so you can generally avoid borrowing money to cover unforeseen costs.

However, if you need the money for an unexpected expense, a 401(k) loan can certainly be preferable to using a credit card or high-interest personal loan. The key takeaway is that while you don’t necessarily want to use a 401(k) loan, the added financial flexibility is nice to have.

4. Portability

One overlooked benefit of 401(k) plan investing is that if you end up changing jobs, you have several options with your account. While cashing it out is almost never a good option, you can:

Leave it in the current plan (this may require a minimum balance).Roll the account into your new employer’s plan.Roll the account into an individual retirement account, or IRA, which allows for much more investment flexibility. You can open one through many brokerage firms.

5. Great for early retirement

Many people incorrectly think the minimum age to withdraw money from a 401(k) without penalty is 62 or 65. But it’s actually after you reach 59 1/2 years of age.

What’s more, if you are no longer working for the employer that sponsored the plan, you can start taking money out penalty-free as early as age 55 (age 50 if you’re a public safety employee). This is known as the “separation from service” exception and makes the 401(k) a more valuable tool than you might think for those who aim to retire early.

The bottom line

Many employees — especially those who are relatively early in their careers — know that a 401(k) is designed to help them save for retirement, but don’t fully appreciate what an amazing wealth-building and tax-reducing tool it can be. By knowing and understanding the benefits of your 401(k), you’ll be in a better position to set yourself up for financial success, both now and in the future.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Costco’s former CFO spent almost 40 years with the company. Read on for his surprising insights about what makes Costco such a good deal. [[{“value”:”

Costco’s longtime Chief Financial Officer (CFO), Richard Galanti, retired from the company on March 15, 2024, after almost 40 years with Costco. In a recent interview with Bloomberg, the retiring Costco CFO shared some interesting insights about how Costco operates and how it keeps prices low for customers.

Many Costco members don’t see Costco as just a store; they really do feel like “members” of a larger club and culture. Costco has a unique company culture and is known for paying employees well and being a great place to work.

Let’s look at a few key points from Bloomberg’s interview with Richard Galanti, retired CFO of Costco, on what makes Costco a great place to shop.

1. Costco “keeps things simple”

In the interview with Bloomberg, Galanti mentioned that Costco “only” carries 3,800 items for sale, not 100,000. And it’s true — you don’t see five different varieties of paper towels or 14 different toothpastes; you get one or two good options, and that’s that. Carrying fewer items on the shelves makes a retail business simpler to operate, and helps keep delivering good Costco deals.

Costco also serves a special role for shoppers by, in a way, “curating” products. Costco doesn’t have many different options for each type of item on the shelves, but you can usually feel confident that the “one choice” it gives you is going to be high quality. Costco relieves you of the paradox of choice; you don’t have to feel paralyzed by choosing from seven different varieties; instead, you can feel confident that Costco is sourcing good products and giving you a good deal.

2. Costco tries to do the right thing

Costco’s retiring CFO mentioned a few examples of the Costco culture that the company leaders try to live by in their business decisions: “Obey the law, take care of your customers, take care of your employees, respect your suppliers…then, reward your shareholders.” He also shared a story from earlier in his CFO career about a situation when Costco could’ve made some aggressive (legal, ethical) corporate tax planning moves, but he didn’t go through with it — because it might have hurt Costco’s reputation.

Instead of trying to maximize shareholder profit as its first priority, Costco has built a business that tries to take care of all the other stakeholders along the way: customers, suppliers, and employees. If Costco is a great place to work, shop, and sell products to, shareholders will likely benefit, too. In a way, Costco culture can be considered an example of “stakeholder capitalism,” where companies work to make a profit, but also take into account the concerns and goals of all the other people, communities, and larger society involved in their operations.

3. E-commerce is only 10% of Costco sales

Costco is not a big player in online sales; the company’s brick-and-mortar warehouse stores are still a big part of its business model. There’s something special about the in-store Costco shopping experience that most people still seem to prefer; you can’t buy a Costco hot dog online or go on a “treasure hunt” on the website in quite the same way.

Retiring Costco CFO Richard Galanti said that Costco has not believed that e-commerce and “buy online, pickup in store” is the right fit for its customers. The company offers online shopping and you can definitely find some great deals from Costco online, but today, online shopping makes up less than 10% of Costco’s total sales. Most people still want to go to Costco in person, and fill their own huge shopping carts.

4. Costco will (hopefully) keep selling its $1.50 hot dog combo

Costco is famous for its $1.50 hot dog and soda combo, which has never had a price increase. When asked what will happen to this beloved Costco snack bar item now that he’s retired, outgoing CFO Richard Galanti told Bloomberg that, “It’s probably safe for a while.”

Bottom line

In his recent interview with Bloomberg prior to retirement, Costco’s CFO shared some surprising insights, not just about numbers and accounting, but about culture and people. Costco members often love Costco as a company — not just for low prices, but for the positive spirit of the place, and for the ways it makes their lives better. If you want to improve your personal finances and your everyday life, a Costco membership could be worth paying for — and it’s only $5-$10 per month, depending on the membership tier you choose!

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Unsurprisingly, most 30-year-olds don’t have enough money saved for retirement. Read on to find out if you’re on track, and what to do if you aren’t. [[{“value”:”

There are many benchmarks you can use to figure out if you’re on track with your finances or not. And when it comes to retirement, your 401(k) balance can have a big impact on your life. Thanks to compound interest, it will determine just how comfortable you’ll be and help shape what’s possible for your golden years.

Here’s what the average person has in their account by age 30, and what you should know if you’re behind.

The average 30-year-old has $30,000 in their 401(k)

According to Vanguard, the average 401(k) account balance total for someone aged 25 to 34 is $30,017, with a median balance of $11,357, based on the latest available data. To put that into context, if you were not to touch that money for the rest of your life (including making no further contributions), you’d have about $231,000 by the time you turned 65. That’s certainly better than nothing — but there’s also much room for improvement, especially considering most Americans estimate they’d need about $1.8 million to retire comfortably.

Of course, the only way you’ll know if you’re on track with your savings is to understand how much you’ll actually need based on your desired lifestyle. For example, someone who plans on living modestly and spending $50,000 a year in retirement won’t need to save as much as someone who wants to travel and live a more lavish lifestyle. So “enough” is relative.

A retirement calculator is an excellent tool to help you figure out if you’re behind on your retirement savings or not. But as a general rule, you should try to have your annual salary saved by age 30, and three times that much by age 40.

How to catch up if you’re behind on retirement contributions

If you do find that you haven’t saved enough money for retirement given your age, there are still steps you can take to help catch up — though it’s admittedly more difficult because you won’t have as much time to take advantage of compound interest.

Here are a few tips to get you started:

Do the math: If you know how behind you are, you’ll be better positioned to actually reduce that gap, either via higher contributions or adjusting your expectations for what your retirement will look like. The more detailed you can get with your retirement need calculations, such as what your actual budget may look like on a month-to-month basis, the better.Make sure to score all retirement matches: Even if you aren’t in a position to max out your 401(k), if you can afford to contribute as much as is needed to get the maximum employer contribution match, that’s the best option. That way, you’ll get that free money even if you’re only contributing, say, 3% of your annual salary.Consider an IRA: Many Americans are eligible to contribute to both a 401(k) and an IRA at the same time, and the contribution limits for those are separate. So while you can contribute up to $22,500 a year to a 401(k) for the 2023 tax year, you can contribute an additional $6,500 per year to an IRA, boosting your total contributions. You can open an IRA with many brokerage firms, and they offer a wider range of investments than a 401(k).Take advantage of any catch-up contribution amounts: If you’re 50 or older, you can contribute more each year toward retirement as a part of the “catch-up” contributions rule. That lets you add an extra $7,500 per year toward a 401(k), and an extra $1,000 per year into an IRA.

Saving enough for retirement can be difficult. But if you take a strategic approach and give yourself time to catch up, you can create a retirement that not only meets your basic needs but lets you live a fulfilling post-work life.

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Gas prices are going up. Read on to find out how you can still save at the pump. [[{“value”:”

Finding a good deal at the pump is more important than ever to many Americans as they grapple with stubborn inflation.

And in California, even Costco members may feel pain at the pump. The average price of Costco gas from three California locations (Los Angeles, San Francisco, and San Diego) is about $4.45 per gallon, compared to $3.46 nationally.

Of course, Costco members in California will still save lots of money on gas, considering $4.45 per gallon is about $0.45 cheaper than the average price per gallon in the state.

The good news is that no matter where you buy Costco gas, you’ll likely get a better deal at the wholesale warehouse company than at other gas stations. Here’s how drivers can maximize their gas savings to help their personal finances.

1. Choose Costco gas no matter where you live

GasBuddy says Costco gas can be $0.05 to $0.25 cheaper per gallon than at most gas stations and can be as much as $0.30 cheaper. A gallon of regular unleaded fuel is $2.88 at my local Costco, which is $0.21 cheaper per gallon than the gas station down the road from my home.

If you’re skeptical about buying gas at the discount wholesale club, you shouldn’t be. A study conducted by AAA found that Costco gas is a top-tier fuel and can help preserve an engine’s original performance and manage emissions over time.

2. Use a Costco credit card

Drivers who want to save even more on Costco gas should consider getting a Costco credit card. The card gives you a high cash back rate on eligible gas purchases with a generous yearly cap, followed by a more modest rate.

That can be a significant savings on top of the already-inexpensive price for Costco gas. If you own an electric vehicle, the same cash back rewards also apply to EV charging.

An added benefit of the credit card is that you’ll earn cash back on eligible Costco purchases. With all these rewards, this card could be a great choice for Costco members who frequently shop at the store and gas up their cars often.

3. Find a good gas rewards card

Drivers who don’t have a Costco membership can still save money at other gas stations by using a gas rewards card.

For example, a gas rewards card might offer 3% cash back on eligible gas purchases and 1% back on other eligible purchases. If you fill up your tank regularly, a card that earns you more rewards points or cash back on that expense can be a big source of savings. Just keep in mind that Costco only accepts Visa credit cards in person, so you’ll need to buy gas at other stations besides Costco unless you have a Visa card.

How to find cheap gas without signing up for anything

My family and I buy Costco gas about once per month, so I find it helpful to have a few alternative ways to find inexpensive gas.

One way I do this is by using apps like GasBuddy and Google Maps to find lower-priced gas stations on my phone. I’ve often used GasBuddy to find the best prices near me, and it’s always shocking to see the different prices in the same general area.

You can also search for gas stations in the Google Maps app. The results will display nearby gas station locations along with the price of a gallon of regular unleaded fuel. I find this especially helpful when I’m on long road trips and want to save the most money on a fill-up.

With gas prices at a four-month high, now is a good time to use a gas rewards card, Costco membership, or an app to find a better deal. With so many options available, it’s easier than ever to avoid paying top dollar at the pump.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Citigroup is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Costco Wholesale, and Visa. The Motley Fool has a disclosure policy.

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Of the millions of tax returns filed each year, the IRS audits two more frequently than others. Keep reading to learn who they are. [[{“value”:”

Not many taxpayers are audited. For example, less than 0.38% of all returns were audited for tax year 2022. And even when a taxpayer is “audited,” it may not be what you think of in the traditional sense. Recently, the IRS has relied heavily on automated processes to send letters through the mail, asking taxpayers to provide additional documentation rather than sit them down for interrogation.

However, that’s not to say that no one is audited. According to the Transactional Records Access Clearinghouse (TRAC) at Syracuse University, the two groups most likely to be audited are millionaires and the lowest-income wage earners — taxpayers earning less than $25,000 annually.

The wealthy

While the wealthy are one of the most scrutinized groups of taxpayers, they’ve had it relatively easy for a while. A decade of deep budget cuts has left the IRS unable to ensure that wealthy taxpayers and corporations pay the taxes they legally owe.

The IRS says it’s ramping up efforts to find wealthy taxpayers who owe back taxes. Using funds made available through the Inflation Reduction Act, the agency plans this year to pursue 1,600 millionaires who owe at least $250,000 each in overdue taxes.

Auditing the wealthy may involve more legal complexity, but the goal is to generate more tax revenue by focusing on those who hide or underreport their income. In addition, the IRS is also heightening its scrutiny of 75 large business partnerships with assets of at least $10 billion on average.

The IRS intends to use artificial intelligence (AI) to track tax cheats, in addition to live agents.

While right-leaning policy pundits and some Republican lawmakers claim the IRS intends to use this fresh round of funding to target middle-income workers, the IRS says this is simply not true. In fact, the revenue service underscored that it does not intend to increase audit rates for those earning less than $400,000 a year.

This brings us to taxpayers earning less than $25,000 a year, households most likely to face empty bank accounts. Where does this leave the other most-audited group?

Low-income taxpayers

As mentioned, TRAC found that 0.38% of all individual tax returns were audited for tax year 2022. However, among those returns filed by taxpayers earning less than $25,000, that percentage jumped to 1.27%. There are a couple of reasons for this. The first has to do with budget cuts. Here’s how it has worked in the recent past:

Auditing tax returns of high-income taxpayers takes more time and requires more resources, and due to budget cuts, the IRS could not keep up its pace. Between 2010 and 2019, the audit rate for millionaires dropped by 71%.Since they were no longer focusing on high-income individuals, the IRS began to focus instead on the simpler returns of low-income taxpayers, disproportionately households of color.Due to budget cuts, low-income households became as likely to be audited as those in the top 1%.

The second reason concerns sorely outdated software. Underfunded, the IRS still relies, in part, on computer software from the days of the Kennedy administration. This ancient technology generates paper audits that target benefits like the Earned Income Tax Credit (EITC) — a tax credit designed for low- to moderate-income working households.

In a sense, it’s like picking low-hanging fruit. The IRS pursues the easiest cases to investigate. And compared to wealthy households and corporations with complex, investment-rich returns, low-income households are relatively easy and inexpensive to audit.

Now that the IRS has received a new round of funding and is recommitted to pursuing wealthy tax dodgers, change may be around the corner, and fewer low-income taxpayers will be caught up in audits.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Having kids is a huge financial decision. Read on to see if you’re ready or not. [[{“value”:”

Recently, someone asked me what I miss the most about life before kids. My first answer? Sleep. My second answer? Having far less financial stress than I do now.

Let me be clear that having children is the best thing I’ve ever done in my life. I don’t have an iota of regret and love my kids with every ounce of energy my old self can muster.

But I’d be lying if I were to gloss over the financial implications of having kids. I also have to be real and say point blank that even if you earn a decent income, saving money can often become very difficult once you bring kids into the mix.

As such, it’s important to take that step at the right time. And if these signs apply to you, it means you may not be financially ready to grow your family just yet.

1. You have no emergency savings

Whether you’re a parent or not, it’s important to have an emergency fund with enough money to, ideally, cover at least three full months of essential living costs. And if you’re able to save beyond that point, even better — you’ll have that much more protection in the face of unplanned bills.

If you have no emergency savings, though, then it’s probably best to wait to have kids and build some first. Once you have kids, putting money into a savings account gets harder. And also, once you have kids, you’re responsible for human beings outside of yourself, so you need a financial cushion in case things like medical bills arise that you need to handle.

2. You have no idea what child care costs

You wouldn’t buy a car without first figuring out what your monthly auto loan payments might look like, right? Well, similarly, you shouldn’t have kids before researching child care costs so you know what you’re getting into.

Care.com puts the cost of a daycare center at $321 a week for an infant in 2023. For a nanny, that figure rises to $766. If you know you’ll need child care and can’t afford what it costs in your area, you may want to hold off on having kids, build savings, and then grow your family. Otherwise, you could end up with instant debt.

Now it’s not a secret that being in debt can be stressful. But so can having a baby. So you don’t want to take on two stressful situations at the same time.

3. You have a lot of debt you’re still trying to work through

Speaking of debt, if you have a lot of it already, you may want to consider waiting to have kids while you first pay it off. As mentioned repeatedly, once you’re forced to bear the expenses that come with having kids, your ability to save may be non-existent. So if you go into parenthood with a load of debt, that load has the potential to escalate, trapping you in a terrible financial cycle.

Now you may be thinking, “I know I have a lot of debt, but it’s going to take years to shed. And I don’t want to put off having kids for too long.”

But there may be steps you can take to pay off your debt sooner. These could include consolidating it into a lower-interest personal loan or working a side hustle to chip away at your balances.

Do what’s best for you, but know what you’re signing up for

Look, I’m not the procreation police. You may decide to read this advice and say, “Thanks, but I’m emotionally ready to have a baby, so I’m just going to go for it.”

And that’s totally fine.

Having kids is a very personal choice. That applies to your decision to have children in the first place or not, and when to take that step. My goal here, rather, is to point out some signs that you may not be in the best place financially to grow your family and highlight the benefits of waiting.

And know that I practice what I preach. Before having kids, I made sure to have a fully loaded emergency fund, no debt, and a clear knowledge of what child care would cost me.

Heck, the latter was unavoidable seeing as how I had to put down a deposit for daycare when my son was still in the womb. But because of this, I was able to approach parenting from a more financially confident place. I still sometimes feel clueless when it comes to the actual child-rearing part, but in that regard, I have no advice. Many of us are still just winging it.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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