Money Management

401(k) plans are great for building retirement savings. Read on to find out some benefits you may be overlooking. [[{“value”:”

Employer-sponsored 401(k) plans are some of the most popular retirement accounts, and nearly 35% of working-aged Americans have one. Since you can sign up for one at work, they require less effort than opening a retirement account with a brokerage firm.

Some common benefits of 401(k) plans include employer matching programs that allow you to quickly boost the total amount of contributions in your account. But there are many other 401(k) perks that many people don’t know about.

Here are five you should know about and how to take advantage of them.

1. Some 401(k) contributions reduce your taxable income

Your 401(k) plan has several tax advantages, including reducing your taxable income for the full year if you have a traditional 401(k).

For example, if you’re a single taxpayer earning $120,000 and take the standard deduction on the 2024 tax filing of $14,600, your table income for the year is $105,400. But if you contribute $6,000 to your 401(k) during that year, you’ll lower your taxable income to $99,400.

In this scenario, your 401(k) contributions push you down to a lower tax bracket, and you pay a 22% marginal tax rate instead of 24%.

2. You can take out a loan

Some plans allow you to take a loan from your 401(k). While taking a loan out of a retirement account is not usually advisable, it can be a better option than using high interest credit cards for large expenses you can’t pay off right away.

Most 401(k) will let you borrow up to 50% of your vested account balance, up to $50,000. You’ll have to repay the loan within five years, with interest, and your plan provider typically sets the rate.

When you take out the loan, you don’t have to pay taxes or penalties, and the interest you pay goes back into your 401(k) account. Also, if you miss a payment or default on your loan, it won’t impact your credit score because 401(k) loans aren’t reported to credit bureaus, according to Fidelity.

Keep in mind that if you leave your job while you still owe money on the loan, you may have to repay it in full before you switch jobs.

3. You can make catch-up contributions

There’s an annual cap on how much you can contribute to your 401(k); in 2024, the amount is $23,000. But if you’re 50 or older, you can make catch-up contributions to your retirement account.

The catch-up contribution amount for workers who are 50 or older is $7,500, which means those workers can contribute up to $30,500 in 2024. That’s a lot of money, and many people may not be able to contribute that much, but it’s good to know that you can make extra contributions as you get closer to retirement if you need to.

4. It’s protected from creditors

In most cases, your assets in a 401(k) are protected from claims by creditors. This means that if you ever go through bankruptcy, creditors likely wouldn’t be able to touch your 401(k) balance. There’s also no limit to the amount that’s protected. If you have $2,000 or $2 million in your 401(k), creditors typically cannot go after this money.

The exception to this is that in some court orders involving divorce, child support, or civil judgments, some or all of your funds could be claimed. The same goes for delinquent federal taxes.

5. Some 401(k) plans let your money grow tax-free

You may have heard of Roth IRAs, which allow you to put money into a retirement account and let it earn money tax-free. The good news is there’s a version of this for 401(k)s called the Roth 401(k).

If you sign up for a Roth 401(k), your contributions will be taxed when you put the money into the account. But when you withdraw money in retirement, you won’t owe any taxes on them. This works differently than a traditional 401(k), where you can lower your taxable income when you make contributions but are taxed on your retirement withdrawals.

Another important thing to note about Roth 401(k) is that in some cases, an employer’s matching contributions may go into a traditional 401(k), while your contributions are placed in Roth 401(k). Employers used to be required to put their matching contributions into a traditional 401l(k) but can now opt to have them directly in the employee’s Roth 401(k).

Don’t be overwhelmed by these plans

401(k) plans can sometimes be confusing, especially if you’re just starting out in the workforce and signing up for one. But knowing some of the perks of these plans can help you better understand why having one is a good idea.

While 401(k) plans aren’t perfect, they offer many Americans an easy way to automate their retirement investments and potentially earn free money through employer contributions, which may be one of the best 401(k) perks of all.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

“}]] Read More 

You may not realize that you can improve your personal finances in a big way with tiny money moves. Keep reading to learn how. [[{“value”:”

Life just keeps on getting more expensive, and sometimes it feels as if we’re powerless to stop it. While you and I can’t impact the economy at large, we can certainly make small changes to our personal finances to cope.

Moves as simple as turning down the heat and putting on a sweater, or working out at home instead of paying for a gym membership can add up to big money saved over time.

Keep reading for 10 tiny tasks to make your own existence less costly.

1. Grocery shop with a list

I hate forgetting to buy something I need at the grocery store, and making a list can certainly help you avoid this. Before you head to the store, take some time to open the fridge, freezer, and all your cabinets, and see what you’ve got at home. Sketch in a meal plan based on what you already have, and write down the ingredients you lack, so you just buy those. Impulse buys can be hard to resist, but a shopping list can also help you place a comprehensive grocery order for pick-up — eliminating the urge to visit all the aisles.

2. Shop around for insurance

Plugging your info into insurance company websites isn’t the most riveting way to spend an afternoon, but the results can be remarkable. If it’s been a while since you shopped for car or home insurance, you might be surprised at how much you can save by switching insurers. Ask about discounts you might qualify for, see about bundling coverage, and if you don’t drive much, pay-per-mile insurance could be a good fit.

3. Audit your subscriptions

This is not where I tell you to cancel every streaming service you pay for and pawn your TV. But it’s absolutely a good idea to sit down with bank and credit card statements and see what exactly you’re paying for every month. Can’t remember the last time you watched Netflix? Consider canceling it — or even putting it on pause for a month to see if you miss it. Your budget probably won’t.

4. Clean out your closets

This may not be the kind of move you can make regularly, but if it’s been a while since you saw the back of your closet, what are you waiting for? Spend some time on a Saturday and mercilessly weed clothing items you haven’t worn in years — or at all. You can translate them to cash by selling them, or possibly receive a tax deduction if you donate them to a qualified nonprofit and itemize on your return.

5. Put on a sweater

That classic Dad advice is actually wiser than you may realize. Higher heating bills can eat away at your budget. If you make a point to dress warmly at home (and perhaps invest in a space heater to warm the room you’re in), you can turn down your furnace and save money on the bill every month. For bonus points, do this and also sign up for budget billing through your utility company, which can help you pay a predictable amount every month.

6. Keep your car maintained

Cars are expensive, but staying on top of maintenance (like oil changes and tire rotation) can help you save in the long run. Fixing a small problem before it becomes a bigger one means a cheaper bill at the mechanic shop. And ensuring your tires are properly inflated can improve your gas mileage. Finally, keeping an old paid-off car for as long as you can (assuming it is safe and comfortable to drive) is a great way to cut down on the cost of ownership.

7. Open a cash back card

If you can avoid the temptation to overspend that credit cards are notorious for, applying for the right kind can save you money by paying back a percentage of what you spend. Consider a flat-rate cash back card — you can find them paying 1.5% or 2% across the board. If you have higher spending in some budget categories, target higher rates on those instead — a gas and grocery rewards credit card is a smart move for many people.

8. Automate your savings

Treating savings account contributions as a must-pay bill (rather than an afterthought) is a great way to “pay yourself first.” If you don’t have to remember to save, there’s no chance of forgetting. Set up automatic contributions through your bank, and have cash sent from your checking account to your savings whenever you get paid, weekly, or whenever works for you.

9. Pay more toward debts

Depending on your income and bills, it may be unrealistic to ramp up payments to the point that you can quickly shed all of your debt. However, any extra you can put toward those payments can make a big difference. Let’s say you owe $5,000 on a credit card, and your minimum payment is $100. Meanwhile, your balance is piling on interest at 20% APR. Paying $150 toward the balance every month (rather than just the minimum due) gets you out of debt in 49 months (versus 106 months), and you’ll pay just $2,205 in interest (rather than $5,503).

10. Quit the gym

Definitely don’t quit exercising (because the benefits of being active cannot be overstated), but reconsider whether it’s worth paying a monthly membership fee to do so. If you’re an active member of a low-cost gym, it might well be. But if you struggle to get there or pay a lot every month, could you instead walk, jog, or run around your neighborhood? Do you live near a park with walking trails? There might even be room in your basement for a lower-cost (maybe pre-owned) treadmill, elliptical, or other piece of user-friendly exercise equipment.

Just as a journey of 1,000 miles starts with a single step, saving $1,000 (or even $10,000) starts with that first dollar. Use these tips to cut your costs and improve your finances in the process.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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 Netflix. The Motley Fool has a disclosure policy.

“}]] Read More 

Childfree folks can more easily take advantage of the greatest investment of all: ourselves. Keep reading to learn how. [[{“value”:”

There are many personal finance benefits to not having kids. While most of us aren’t rich, we might be more likely to have more spare income to invest and set ourselves up for the future. Raising children isn’t cheap — research from The Motley Fool Ascent found that in 2023, the cost of raising a child to age 17 cost an average of $310,605.

There’s a lot you can do with $310,605, but the real gift of this lifestyle choice isn’t having extra cash. Many of us still struggle with low wages and high-cost debt. But you’re likely to be richer in free time and flexibility than someone with kids.

Being childfree doesn’t equal having no responsibilities, but raising children is incredibly time-consuming and exhausting, especially if you have young kids. Without them, finding more time in your schedule may be a matter of giving up some free time you’d normally spend with friends or pursuing a hobby — rather than compromising on your parenting responsibilities. And you can turn that time and flexibility into professional development for you.

A guaranteed investment

Warren Buffett was spot on when he said in 2022, “The best investment by far is anything that develops yourself, and it’s not taxed at all.” As a person without kids, you are uniquely positioned to take advantage here. This isn’t to say that parents can’t go back to school, change careers, or lean into their passions, but it’s certainly easier if you’re not worrying about (and paying for) another human’s development.

Learning new skills can pay off in many ways, including a higher income, more work opportunities, and even just being a more interesting conversationalist at parties!

How do you invest in yourself?

A classic example of investing in yourself is putting time, money, and effort into improving your professional profile. If you’ve been spinning your wheels in a go-nowhere job and not earning as much as you’re worth, it pays to make a few key moves with any free time you have (and the odds are that you have more of it, as a non-parent).

I changed careers a few years ago, and along the way, I paid about $150 for help from a career counselor. We talked about the kind of work I was targeting, and she rewrote my resume, tailoring it to appeal to employers in a new field. I also boosted my online presence with a revamped LinkedIn profile. These are all good and low-cost places to start if you’re hoping to change your work circumstances.

Education is a great way to improve your standing in the world. And this doesn’t have to mean enrolling in your local university (although it certainly can). Thanks to the wonders of the internet, we have access to resources for learning new skills — and if you’re not responsible for child care, you may have more time to use them.

LinkedIn Learning is a good place to start — you’ll find resources for more topics than you can imagine, including customer service, time management, accounting, and beyond. Explore options like Skillshare, as well — it offers more than 25,000 video classes and access can be yours for a reasonable annual cost (after a free seven-day trial).

Take advantage of networking opportunities in your current field, or even the one you aspire to. Attending professional conferences is a good way to do this, and you might just find that getting the chance to meet new people and put in face time with hiring managers and tastemakers ultimately pays for itself.

Create a financial safety net, too

If you are sans children and fortunate enough to have some extra financial breathing room, there’s more you can do to ensure your security today, tomorrow, and into the future.

Save up an emergency fund

Make building an emergency fund a top priority in your life. Experts say it’s best to aim for enough cash to cover three to six months’ worth of regular bills, and without kids, your monthly bill tab is likely to be lower than a parent’s. That still might be an overwhelming figure to save, but having any amount of money in a savings account can improve your peace of mind and save you from paying interest on a surprise bill.

Invest for retirement

You won’t be helping a child pay for college, so why not focus on ensuring your future financial security? If you have access to an employer-sponsored retirement plan, like a 401(k), and said employer will match your contributions to a certain point, there’s no reason not to invest enough to get the match.

If you want more flexibility with choosing investments, consider also opening an IRA with a brokerage firm to get access to stocks, ETFs, and beyond.

Avoid high-interest debt

Life is expensive, but if you can stay out of credit card debt, you’ll give yourself a huge advantage. The average credit card interest rate hit 21.47% near the end of last year, and tacking a surcharge like that onto your purchases is a short trip to being broke.

If you’re already struggling to stay afloat, increasing your income is your best chance of paying off debt sooner. And if you don’t have kids to care for, finding extra time for more hours at work or perhaps a side hustle could be more doable. Consider consolidating your debt via a personal loan or balance transfer credit card to make it easier and cheaper to pay off.

Being able to leverage time, money, and flexibility to invest in your growth, talents, and career is an unsung benefit of being childfree. Lean in and reap the rewards.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.

“}]] Read More 

A tax extension gives you more time to file your return — but that’s really it. Read on to learn more. [[{“value”:”

At this point, if you haven’t finished (or even started) your 2023 taxes, there’s no need to panic. You still have a few weeks to get your return done by the April 15 filing deadline.

But what if you really don’t think you’ll be ready by April 15? Maybe you’ve had a hard time connecting with your accountant, or you’re still chasing down tax forms that are essential to an accurate return. In that case, you may want to request a tax extension by April 15. If you do, you’ll automatically be granted six extra months to get your return to the IRS.

And the best part of requesting a tax extension? You don’t need to rack your brain to come up with an excuse. The IRS doesn’t care if you need more time to get your taxes done because you were busy training your new rescue dog or you got stranded on an exotic island following a cruise excursion. None of that matters. If you ask the IRS for those six extra months, your wish will be granted. (If only everything else IRS-related were that easy!)

However, there’s one big point of confusion that tends to arise in the context of tax extensions. And not getting to the bottom of it could cost you.

Know what a tax extension can and cannot do for you

If you’re late filing your taxes and you don’t owe the IRS money, guess what? Nothing bad really happens other than incurring a delay in your refund hitting your bank account. But if you’re late with your taxes and you do owe the IRS money, you can be hit with a failure-to-file penalty. That can cost 5% of your unpaid tax bill for each month or partial month you’re late with your return, up to a total of 25%.

And that’s the benefit of requesting a tax extension. If you owe the IRS $5,000 and are a month late submitting your return, you could be charged $250. But with an extension on record, you won’t be.

That said, a tax extension will not give you extra time to pay your tax bill. So if you don’t pay the IRS what you owe by April 15, you’ll accrue interest and penalties. Specifically, the failure-to-pay penalty equals 0.5% of your unpaid tax bill for each month or partial month you’re late. So if you owe $5,000 and pay a month late, you’ll be charged $25.

Try to pay up by April 15

It absolutely makes sense to request a tax extension if filing your return by April 15 this year seems unlikely. But it’s also smart to try to estimate your 2023 tax bill and pay that sum to the IRS by April 15 to avoid interest and penalties on it.

Now you may be thinking, “Great advice, genius, but how would I know what to pay the IRS if I haven’t finished my taxes?” And that’s a fair point. One thing you can try to do is take an educated guess. If your income and tax payments made during the year in 2023 were similar to 2022, and you owed $1,500 the last time around, it’s not unreasonable to assume that you’ll owe about $1,500 this time around.

So let’s say you pay that amount by April 15 and then, a month later, you discover that you really owed $1,550. And that point, you are looking at interest and penalties — but on $50, not $1,550. That’s a huge difference.

All told, a tax extension could help you avoid one very expensive IRS penalty. But don’t buy into the myth that it gives you more time to pay. In fact, even if you decide to get an extension, log into your tax software and try to get your taxes done as close to April 15 as possible. That way, you can minimize the interest and penalties you accrue for failing to pay on time.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

“}]] Read More