Money Management

Putting more money into a 401(k) can be a smart move, but it’s not necessarily the right choice for everyone. Find out how to decide. 

If your company offers a 401(k), making contributions to it could help you have a more secure retirement. You get a tax break when you put money into a 401(k), so if you’re in the 22% tax bracket, you could save up to $220 on your taxes for every $1,000 you contribute. It’s also pretty easy to sign up since you just have to fill out some paperwork with your employer to have contributions taken from your paychecks, and then pick from the pool of investments on offer.

Since a 401(k) is a great way to invest in your future, you may be wondering if you should increase your contributions in 2024. Surprisingly, the answer isn’t always yes. Here’s what you need to know to decide if investing more in a 401(k) would be a smart move for your personal finances.

Are you maxing out your employer match?

The first question you need to ask yourself when deciding whether you should increase your 401(k) contributions is whether you’re getting the full company match. If you aren’t, you’re passing up money your company provides to help you save for your future.

Each company sets its own rules for 401(k) matching contributions, with some companies matching 100% of contributions up to a certain percentage of salary and others matching 50% up to a set percentage. The average 401(k) match is 4.8%, but with the typical plan, employers contribute about 4% (the average is driven up by some companies offering very generous plans).

If your company matches 100% of your contributions up to 4% of your salary and you make $50,000, your company would give you up to $2,000, but you would have to contribute $2,000 to get it. If your company matches 50% of your contributions up to 4% of your salary, you’d have to contribute $4,000 to get it.

You can talk with HR or your plan administrator about how much you are entitled to for your 401(k) match. If you are not contributing enough to get it, you should increase your 401(k) contributions. There’s no reason to leave free money on the table.

What other retirement investment options are available?

If you are already contributing enough to your account to earn your full employer match, then the question of whether to increase your 401(k) contributions or not becomes a little more complicated.

First, you’ll need to know if contributing more is an option, as there is an annual contribution limit. You can contribute up to $23,000 in 2024, and can make an additional $7,500 catch-up contribution if you are age 50 or over. Your employer match doesn’t count in these limits — this is the amount you can personally put into your account. Most people aren’t hitting these limits, so you probably have room to increase your contribution if you want to.

That doesn’t always mean you should, though. If you’re already earning your employer match, you should explore the other options available to you such as putting money into a traditional or Roth IRA with a brokerage firm.

A traditional IRA offers the same tax benefits as a 401(k) — you can deduct contributions. But you may have access to more investment options in an IRA. A Roth IRA also offers many investment options, but different tax breaks. You won’t get that upfront deduction, but can take money out tax-free. If you think your tax rate may be higher as a retiree, putting some money into a Roth may be a good idea.

If you want more flexible investment options or the chance to put money into a Roth, then it may make sense to contribute only enough to get your full match, then put the extra money you have into an IRA rather than increasing 401(k) contributions. After maxing out your IRA (you can contribute up to $7,000 or $8,000 if you’re 50 or over in 2024), if you still have money left over, then putting more into your 401(k) might make sense.

By considering all of your investment options — and looking at your employer match — you can make an informed choice about whether to raise your 401(k) contributions in 2024.

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Real estate agent fees are under pressure. And it could be good news for home buyers. 

A few real estate market trends are already taking shape this year. And they’re all monumental shifts for home buyers.

First, the Federal Reserve has paused its interest rate hikes, which has helped mortgage interest rates decline. Second, home prices have cooled and are predicted to fall this year.

Those two trends alone are significant. But another prediction from Redfin has the potential to continue reshaping the real estate industry for years to come: Agent commissions are under scrutiny.

After a $1.8 billion jury verdict against the National Association of Realtors and two other brokerages that called into question the fees agents charge, agent commissions are under the magnifying glass right now. The Department of Justice is also considering litigation that could significantly impact the industry’s current commission structure.

Already, it’s causing some agents to lower their fees.

Agent commission fees are dropping

Redfin said for the first time in its 20-year history it’s beginning to see “widespread discounting” for some agent fees and that the trend will likely accelerate this year. For context, when you buy a house, you typically pay a 5% to 6% fee on the price of the home, which is then split between the buyer’s agent and the seller’s agent.

But with home prices up 27.7% over the past three years and interest rates rising quickly over that period, agent fees become more noticeable to buyers who were paying top-dollar for homes.

Some agents are trying to get ahead of any sweeping changes to the industry and are lowering their fees. The Consumer Federation of America believes agent commission fees will drop to between 3% to 4%.

What this means for home buyers

While the real estate industry is reeling from potential changes, the result could be great news for buyers.

Shedding light on commission fees gives buyers more power to negotiate the percentage an agent takes during the real estate transaction. Redfin thinks buyers are becoming more aware of what agents charge and will be more willing to negotiate fees this year.

Buyers may also opt to work only with a home’s listing agent instead of hiring a real estate agent of their own. The result is that buyers could end up paying thousands of dollars less in agent fees (tacked onto the price of a home they buy) because only one agent is involved.

The shift underway in the real estate industry could be difficult for some agents because they could potentially make a smaller percentage on home transactions than in the past. Redfin has said the result could eventually result in half of all real estate agents leaving the industry.

But for buyers, the changes coming this year mean that housing could potentially be more affordable. Just as buyers shop around for the best mortgage lender, they may be more willing to shop around for an agent. The Consumer Federation of America estimates lower fees could save home buyers up to $30 billion annually.

With mortgage interest rates still elevated and home values soaring over the past few years, buyers will certainly take any break they can get.

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Around 1 in 10 home appraisals come in lower than the selling price. Read on to learn what to expect if this happens to you. 

If you are getting a mortgage to buy a home, your lender is going to make you jump through a bunch of hoops to make sure you are qualified to pay back the likely hundreds of thousands of dollars it is lending to you.

A home appraisal is one of those hoops in most cases.

When you get an appraisal, a professional comes to the house to assess its market value by looking at its features and comparing them to recently sold homes. In most cases, this process turns out fine and the home appraises for the amount you’ve offered to pay for it or more. But, in about 1 in 10 cases, that’s not what happens. Instead, the appraisal comes in too low.

If this happens to you, here’s what happens next.

Your lender may not be willing to give you as much money

The big problem with a low appraisal comes when you are trying to get a mortgage. See, your lender is usually not going to loan you 100% of the home’s value. It may lend you 80%, or 90%, or even as high as 97% depending on which loan you pick and your financial credentials. But you almost always have to put some money on the table (with few exceptions, such as if you’re getting a VA loan).

The value of your home that the lender uses to decide how much to lend to you is not necessarily the amount you are paying. It’s the amount the appraiser says your home is worth. So, say for example your lender required a 10% down payment and was willing to loan you a maximum of 90% of what the home is worth.

Now, say you were paying $450,000 for a house. You’d need to put $45,000 down and your lender would give you a loan for $405,000. But, if the home appraises for only $410,000, you have a problem. At this point, if you wanted to borrow $405,000 because you only had $45,000 to put down, then your lender would be loaning you 98.7% of what it believes the home is worth.

Your mortgage lender is not going to do that in most cases. Instead, it would most likely only be willing to give you a loan for 90% of $410,000, which is only $369,000. And, depending on your finances, this could be a huge problem.

Here are your options to fix the situation

If you find yourself with an appraisal that comes in too low, you have a few options:

You could go back to the sellers and ask them to lower the price. Instead of you paying $450,000, you could tell them the appraisal only came in at $410,000 so that’s all you’re willing to pay for the house. They may agree to reduce the price if they think that other potential buyers would have the same issue, or they might say no and then this wouldn’t be an option.You could walk away. If you made your offer contingent on — or conditioned upon — the home appraising for enough, you could back out of the sale and get back your deposit (hint: ALWAYS make your offer contingent on this!) Of course, this option means you wouldn’t get the house.You could put more money down. If you want the house and your lender is only willing to loan you $369,000 but the seller won’t accept less than $450,000, you’d have to put down $81,000.You could appeal the appraisal. Sometimes, lenders will allow you to appeal and request a re-estimate of the valuation. You should be prepared with comparable sales to show why you think the value was too low.You could look for another lender. The other lender may get the home appraised again and the amount could be different. Or it might have different loan-to-value rules. But you risk paying for an appraisal a second time, only to have the same problem arise.

The best course of action will depend on how badly you want the house, whether you think the appraisal is accurate, and how much money you have. It’s not a great position to be in, but at least you do have some options to choose from.

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Nobody wants to be denied on a credit card application. Learn about a few common reasons for an instant denial before applying for your next card. 

When you apply for a credit card, the best-case scenario is an instant approval. The good news is that this happens pretty often. Many card issuers offer instant approval credit cards, where if you fit what they’re looking for, you get approved on the spot.

It’s also possible to get an instant denial. In some cases, this happens because the card issuer’s computer systems determine your credit profile isn’t quite a fit for the card. But there are also certain items on a person’s credit file that can trigger an instant denial with some card issuers. Before you apply for a credit card, it helps to know what these triggers are.

1. You’ve opened too many credit cards

If you already have a wallet full of credit cards, that can make it harder to get approved for a new one. When you apply for a new credit card, the card issuer looks at how many cards you have open and how many you’ve opened recently. Some card issuers have limits in place that can lead to an instant denial.

Chase is famous for this. It has an unofficial guideline, often called Chase’s 5/24 rule. If you apply for a Chase card and you’ve already opened five or more credit cards in the past 24 months, you’re almost guaranteed to get denied.

American Express is another example. You can have a maximum of five American Express cards. This only includes American Express cards with a credit limit. Cards with no preset spending limit don’t count. But if you have five American Express cards, and they all have credit limits, then you won’t be able to get another one.

2. You have a bankruptcy on your credit history

If you’ve had to file bankruptcy, you can apply for credit cards again when it’s resolved. But getting approved can be challenging. Your credit score takes a substantial hit during the bankruptcy process. Some card issuers also won’t approve applicants with a recent bankruptcy on their credit history.

Once again, the exact rules depend on the card issuer. Online reports indicate that American Express, Chase, and Citi are strict about bankruptcy. Consumers have reported that you need to wait at least 61 months after a bankruptcy filing to get approved with any of those card issuers.

There are card issuers that are more flexible, including Capital One and Discover. Try starting with them to rebuild your credit. It’s also a good idea to check out secured credit cards. These require a security deposit to open, so they’re much easier to get.

3. Your credit score isn’t high enough

Your credit score plays a key role in which cards you can get. If you’re interested in the best credit cards, most of those require good to excellent credit — a score of at least 670 to 700.

That’s not to say your credit score is the only item that matters. The card issuer looks at much more than that as it reviews your application. It’s possible to be approved for a credit card even though your score isn’t quite as high as the recommendation for that card. It’s also possible to be denied with a high credit score.

But if your credit score is much lower than the card issuer is looking for, that normally results in an instant denial. For example, if your credit score is 500, it’d be a waste of time to look at credit cards for good credit. That’s why you should find out your credit score before shopping for a card.

You can often avoid an instant denial by doing a little research before applying for a credit card. Search online to see if the card issuer has any application rules. Also, check the suggested credit score for the card you want, and make sure your own score is in that range.

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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.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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Some promises are meant to be broken. Find out when it’s smart to break an old CD for a new one here. 

If you got a certificate of deposit (CD) before 2023, then you’re probably looking at today’s high APYs with envy and regret. Many of today’s top-paying CDs are paying out at rates above 5%, with the very best hovering around 5.50%. That’s several percentage points higher than the top-paying CDs in 2022, many of which had APYs in the decimals.

If CDs were like savings accounts, you could just open a new one and transfer the money with few consequences. Unfortunately, banks and CD providers stipulate that you have to keep your money locked up for the duration of your term, unless you want to pay penalties to withdraw early.

But sometimes promises are meant to be broken. And, in the case of an old CD, you might be better off breaking that contract to snag one of today’s higher rates. If you’re debating it, let’s take a look at when it would make sense.

When it makes sense to break your CD early

At risk of oversimplifying, it would make financial sense to replace a low-paying CD if you can net more earnings with a new one. To determine this, however, we’ll have to walk through some steps.

First, look at your current CD and ask yourself how much you stand to lose by breaking your contract. Unless you have a no-penalty CD, your contract will likely have an early withdrawal penalty, usually equal to a period of interest, like three months.

Once you figure out the penalty, you should calculate your opportunity cost, that is, the interest you’re not going to earn with your old CD. For instance, if you’re breaking a 12-month CD six months before it matures, you’d be forfeiting six months of interest. The six months of forfeited interest plus the early withdrawal penalty would be your net losses on this old CD.

Finally, you’ll want to calculate how much the new CD will pay you. You can figure this out by multiplying the APY by your savings, then adjust based on your CD term. If we were to put this into an equation, it might look something like this:

New CD earnings – Old CD losses = Net gain or loss

If the result is positive, then you would walk away with a net gain and breaking the CD contract would make sense. However, if the result is negative, then you’re losing money, and you’re better off keeping your old CD.

Ugh, formulas. Can you just give me an example?

Let’s say you’ve deposited $10,000 into a 2-year CD with an APY of 3.00%. The early withdrawal penalty on this CD is six months of interest, or $150 for your deposit. You’ve had the CD for 12 months, which has earned you $300.

If you were to walk away now, your net loss would be $450: the $150 penalty, plus $300 in opportunity costs (12 months of missed interest). All in all, you’d still walk away with $10,150 to reinvest.

Now, let’s say you’re looking at a 12-month CD with an APY of 5.30%. Your opening deposit is $10,150, so you stand to earn about $538 in interest after 12 months. As long as you keep your money invested for the full 12 months, you’d earn about $88 more in this CD than your old one. Here’s the math:

$538 – $450 = $88

So yes, it would make financial sense to break that old CD for this new one. Whether it’s worth the effort for $88 is a personal decision, but doing so would result in a financial gain.

All things considered, if you’ve been looking at today’s high CD rates through watery eyes, it might be worth doing the math, especially if your old CD has a rock-bottom rate (like 1% or lower). Take a peek at today’s top-paying CDs and see if it’s worth breaking your contract for a new one.

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Being a Costco member is worth it for some people, but not for others. Here are some signs that giving up your membership could be the right move. 

Costco earns top marks for customer satisfaction, but that doesn’t mean shopping at the warehouse club works for everyone. Once you’ve become a Costco member, it may be tempting to stick with the status quo and just keep your membership forever. But that’s not always the right move for your bank account.

Giving up your Costco membership in 2024 may be the right move in a few key circumstances. Here are some signs that remaining a Costco member isn’t the right choice for you.

1. You want a warehouse club with a cheaper membership fee

Costco membership costs $60 for the Gold Star membership, which is the cheapest membership available. By contrast, Sam’s Club offers a $50 membership and you can often get discounts on that if you’re signing up for the first time. You may be able to get as much as 50% off your membership cost depending on what promotions are available when you sign up.

If you just want a membership to buy household basics, you aren’t loyal to Costco’s Kirkland brand, and you want to pay a rock-bottom price to be part of a warehouse club, you may want to give up Costco and switch to Sam’s.

2. You want to save by buying generic brands

Costco’s Kirkland brand offers around 345 products, which is a good number, but not when you consider that around 20% of Sam’s Club’s inventory is made up of Member’s Mark products (its store brand). That’s thousands of products. Walmart also has more than 29,000 products under its private labels.

If you want to get the widest selection of generics possible on every shopping trip, then you’ll want to visit other stores like Sam’s and Walmart. It may make sense to cancel your Costco membership so you can do that.

3. You’re hoping to use coupons to help you save

Costco does not accept manufacturer coupons. If you want to use coupons you clip from the paper or print from the internet to buy your personal or household products, it may make sense to give up your Costco membership so you can shop at stores that accept them.

4. You want to start shopping online more often

Costco offers many products online, but those products come at a premium. Costco makes clear you pay more for most items bought online versus in-store to account for the added shipping and handling costs.

If you prefer to use the internet to get most of your products and don’t want to see higher credit card bills just to pay the inflated prices at Costco.com, you may prefer to cancel your Costco membership. You can buy more stuff at online retailers (like Amazon) that don’t charge you more just for the privilege of shopping from the comfort of your home.

5. You aren’t shopping at Costco much

Finally, you’ll want to give up your Costco membership in 2024 if you simply haven’t shopped there enough to make continuing to pay the $60 a year worthwhile.

Costco is cheaper than the grocery store on some products, but not all products. For example, you might save around $0.50 on a dozen eggs at Costco compared with buying them at Trader Joe’s, but Aldi’s milk may be around $0.42 less than the cost of a gallon at Costco.

You can check your receipts from Costco against your local grocery store prices to see how much you’re saving, and then figure out how many trips to Costco you’d need to make to break even. For example, if your staples are $10 a month cheaper at Costco than at your local grocery store, you’d have to buy your basics at the warehouse club for at least six months of the year to make up for your membership fee.

If you’re only going to Costco a few times a year or aren’t buying much on your visits, it may make sense to give up your membership since you’re simply not getting your money’s worth.

If you decide to cancel, you can do so by calling member services at 1-800-774-2678 or talking to someone in-store. Don’t be afraid to give up your membership if you have doubts about whether it’s worth it, as you can always rejoin later.

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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.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.

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