Money Management

Keeping money in a 401(k) doesn’t always pay. Read on to learn more. 

Saving for retirement is downright essential. Without money in savings, you might end up struggling financially once your career comes to an end and your paycheck goes away.

If you’re offered a 401(k) plan through your employer, you may be inclined to contribute to it. After all, funding a 401(k) couldn’t be easier. You simply tell your employer how much you want to contribute per pay period, and that money is deducted from your paychecks so you don’t have to actively put it into your retirement plan yourself.

In many cases, saving in a 401(k) makes a lot of sense. But if these situations apply to you, you may want to consider rolling your 401(k) into an IRA instead.

1. You’re leaving your job

The start of a new year can be a good time to look for a new job. It’s a time when new initiatives tend to kick off that may require a higher headcount. Also, it’s when company budgets tend to renew, allowing for what could be much higher pay.

If you know for a fact that you’re looking to leave your job in the near future, then you may want to proactively open an IRA and roll your 401(k) balance into it once you’ve tendered your resignation. While your employer might allow you to leave your money in its 401(k) once you’ve parted ways, that’s generally not a good idea. An old 401(k) is a retirement plan you’re more likely to forget about.

2. You’re worried your employer will go under

The U.S. economy is in pretty good shape right now. On a national scale, the jobless rate is just 3.7%, which, historically speaking, is a low level.

Still, your specific employer may be on shaky financial ground. Perhaps your company borrowed money to launch a new product line that failed. Or it may be that your employer has been spending carelessly and is now in a dire situation.

If you have reason to believe that your company is about to fold, then that’s a good reason to open an IRA and roll your 401(k) into it. If your company goes away, chances are, so will its retirement plan, which means you’ll have to move your money somewhere else at some point.

3. You’re unhappy with your 401(k)’s investment choices

One benefit of contributing to a 401(k) is that you get to invest your money and, ideally, grow it into a larger sum over time. But you may not be pleased with the investment options offered in your 401(k). And if that’s the case, that’s reason enough to move your money into an IRA.

IRAs commonly allow savers to invest in individual stocks and pretty much any other type of investment. And doing so could be your ticket to generating solid returns over time if you’re someone who knows a thing or two about choosing companies to invest in.

With a 401(k), on the other hand, you’re generally limited to a mix of different funds that may not align with your preferred approach to investing. When you buy shares of a mutual fund, for example, which is an option you’ll typically find in a 401(k), you don’t really get a say over how your money is invested. Rather, a fund manager gets to make that call. That may not sit well with you, and understandably so.

A 401(k) plan is a great retirement savings tool for a lot of people. But that doesn’t make it the right choice for you right now. If any of these factors apply to you, you may want to think about making a change and rolling your long-term savings into an IRA with a brokerage firm instead.

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It’s important to have healthcare funds at all times. Read on for ways to lower your taxes at the same time. 

There are certain expenses we can all make an effort to shrink. It’s within our power to cut the cord with cable, say no to streaming services, and go out and buy groceries instead of relying on takeout.

When it comes to healthcare costs, though, we unfortunately have a lot less control. It’s hard to know when a health issue might arise that ends up being expensive to treat. And without money in a savings account, a series of medical bills — or even a single medical bill — could be your ticket to debt.

Recent data from Bank of America, however, finds that 45% of workers today are not saving specifically for healthcare expenses. If you’re in that boat, it’s time to change your ways. And there are two specific accounts you may want to look at as a home for your healthcare savings.

1. An FSA

An FSA, or flexible spending account, allows you to contribute money on a pre-tax basis to pay for qualified medical expenses. This means that every dollar you put into your FSA is a dollar the IRS can’t tax you on, up to an annual limit.

The amount you can put into an FSA changes yearly. Right now, contributions of up to $3,200 are allowed.

However, you don’t want to overfund your FSA, because these accounts require you to spend down your plan balance every year or otherwise risk forfeiting funds. So if you don’t expect your out-of-pocket healthcare expenses to exceed $1,200 this year, then it certainly doesn’t make sense to max out.

One thing you may want to do, though, is contribute enough to cover your health insurance deductible. This is the amount of money your insurer requires you to pay out of pocket before it starts picking up the tab for your care.

2. An HSA

An HSA is similar to an FSA on a basic level in that you contribute pre-tax dollars for healthcare expenses. But HSAs actually work differently.

With an HSA, you don’t have to spend down your balance year after year. Quite the contrary — with an HSA, you’re encouraged to keep your money in your account as long as possible. That’s because HSA funds can be invested so they grow into a larger sum over time. And investment gains in an HSA are tax-free, as are withdrawals from these accounts when the money is being used to cover qualified healthcare expenses.

Like FSAs, HSA contribution limits change annually. This year, you may contribute up to $4,150 if you have individual coverage and are under age 55. The limit is $8,300 if you’re under 55 with family coverage. If you’re 55 or older, you can put in an extra $1,000 on top of whichever limit applies to you.

However, you can only participate in an HSA if you’re enrolled in a high-deductible health insurance plan. In 2024, that means an individual deductible of $1,600 or more, or a family deductible of $3,200. Your plan must also have an out-of-pocket maximum of $8,050 for individual coverage or $16,100 for family coverage.

The last thing you want is to get stuck with a giant medical bill you can’t pay. So try to get into the habit of socking funds away in the bank for healthcare purposes. And if you can do so in an FSA or HSA, you’ll save some money on taxes along the way.

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Bad credit can have a serious impact on your finances and your day-to-day life. Learn about the fastest ways you can repair your credit this year. 

Your credit score is important, as it impacts quite a few areas of your life. For example, consumers with low scores have a harder time getting approved for housing. It’s harder to pass a credit check with a landlord, and if you’re buying a house, you could end up with a mortgage rate 1.5% higher with a low credit score.

It doesn’t take much to damage your credit. One late payment of 30 days or longer can drop your credit score by over 100 points and potentially take years to fix. The good news is there are also a few fast ways to repair your credit.

To start, you’ll need to find out your credit score. There are plenty of free tools online you can use, plus these show you the factors that are positively and negatively affecting your credit. You’ll also need your credit report. You can request yours free of charge through AnnualCreditReport.com.

With your credit report and score, you’ll know where you’re at and exactly what’s hurting your credit. Based on that, you can choose the credit repair options that apply to your situation.

1. Write a goodwill letter to get negative items off your credit report

A goodwill letter is a request sent to a creditor asking for it to remove negative items from your credit history. Let’s say you made a late payment on your credit card. You could write to the credit card issuer and ask that it makes a goodwill adjustment, removing that negative item.

This doesn’t always work, but there are many reports online of successful goodwill letters. Here are a few tips on how to write and send one:

Include your name, address, account number, the negative item (or items) and the date it was reported.Explain what caused the issue and what you did to correct it going forward. Creditors are often more lenient with those who provide a valid reason for the mistake, such as a job loss or medical emergency.Keep it under a page. Your letter is more likely to be read in its entirety if it’s to the point.Make a specific request. For example, you could ask the creditor to remove a late payment or a charged off account from your credit report.Send your letter to the creditor’s address as listed on your credit report or through your creditor’s email. If you aren’t successful, try going up the chain — some people have even been successful writing to the CEO.

Getting negative items removed can easily add 50 points, 100 points, or more to your credit score. While it’s not guaranteed to be successful, it’s worth a shot.

2. Pay down credit card debt as much as possible

One of the biggest factors in your credit score is your amounts owed, meaning your current debt. This counts for 30% of your FICO® Score, the type of score used most by lenders.

Specifically, what has the greatest impact is your credit utilization ratio: Your credit card balances compared to your credit limits. For example, if you have one card with an $8,000 balance and a $10,000 credit limit, your credit utilization is 80%. The lower your utilization ratio, the better.

An 80% credit utilization is very high. Because you’re borrowing so much, that will lower your credit score. But this is also something you can improve quickly. Let’s say you make an effort to pay down your debt and get it down to $1,500 after six months. Your credit utilization would be 15% — near the optimal range, so your score would go up. Try to avoid using more than 30% of your available credit.

3. Ask your card issuer for a higher credit limit

Paying down credit card debt is always a good idea, both for your finances and your credit score. But there’s also an even faster way to lower your credit utilization: Request a higher credit limit on all your credit cards. You can do this online with many card issuers, and if not, you can call the number on the back of your card.

If your request is approved, your new credit limit will help your credit utilization. Imagine you have a $5,000 balance and a $10,000 credit limit, for a credit utilization of 50%. You request a credit limit increase and get approved for $20,000. Your credit utilization would drop to 25% as soon as your new credit limit is reported, which would happen within a month.

By the way, make sure not to spend more if you’re approved for a higher credit limit. This tip only works if you maintain the same balance on your card (or even better, pay it down). If you charge more, your credit utilization will go back up.

4. Dispute any errors you find on your credit report

One of the reasons to review your credit report is to check that there aren’t any errors. These are more common than you might think. Back in 2021, a Consumer Reports investigation found that 34% of Americans had errors on their credit reports.

If you find any mistakes on your credit history, dispute it with the credit bureau that issued the report. Each of the three credit bureaus lets you do this online. Here are the dispute pages for each one:

Equifax disputesExperian disputesTransUnion disputes

If your dispute is successful, the negative item will be removed from your credit report. Just like writing a goodwill letter, this can make a big improvement to your credit.

There are other important habits to building credit and maintaining a high score. Consistently making on-time payments is the most significant factor in your credit score, but it can take over a year to build a strong payment history. Getting negative items removed from your credit and lowering your credit utilization can boost your score in a matter of months.

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Want a nice savings boost this month? Read on to see how to get it. 

The start of a new year is often a good time to establish different goals. And one of yours might be to grow your savings account balance in 2024. That’s not necessarily going to be the easiest thing to do. But here are three personal finance tactics you can employ to make it happen this month to the tune of $200.

1. Ditch your weekly takeout meals

When life is busy, it can be tempting to fall back on takeout to avoid having to spend time in the kitchen. Plus, with grocery costs still up 1.7% on an annual basis, as per the most recent Consumer Price Index (CPI) report, it can be easy to justify ordering takeout if you’re only cooking for yourself.

But with very few exceptions, cooking at home is still less expensive, even with elevated grocery prices. A $20 takeout order might cost just $7 or $8 if you prepare a comparable meal yourself. And in the latter scenario, you may be more likely to end up with leftovers.

Plus, if you’re using grocery-related inflation as a way to justify your takeout habit, you should know that restaurant food/food outside the home is up 5.3% on an annual basis, per the last CPI report. So if you’re willing to put in the time, you may find that steering clear of takeout this month leaves you $200 richer.

2. Get a side hustle

Many people start looking for new jobs at the start of a new year. Getting a new job could result in higher pay. But if you like your current job, you may want to stay put.

If that’s the case, picking up a side hustle this month could easily put an extra $200 in your pocket. And there are plenty of gigs out there that allow you to work at your own pace.

You could create a profile on Rover and sign up to care for pets as your schedule allows. Or, become a driver for a service like Uber or Lyft and pick up passengers when you can. You could also dedicate a night or two per week to delivering groceries for a service like Instacart or becoming a driver for DoorDash.

To be clear, you’re not guaranteed to earn an extra $200 a month from a gig like one of these. Your earnings will depend on factors such as how many hours you work and how generous people are with tips.

And remember, your side hustle earnings will be subject to taxes, so bringing home an extra $200 doesn’t mean getting to keep $200. But still, a side gig could be your ticket to meeting this month’s savings goal.

3. Arrange an office carpool

At this point, many people are back to a five-day office schedule after an extended period of remote work. That could mean paying a small fortune to commute. If that’s the case, setting up a carpool could help you bank some serious cash.

Let’s imagine you’re currently spending $400 a month to commute between gas, tolls, and a hefty daily parking fee (a not-so-uncommon expense for people who work in a big city where paid parking is almost a must). If you can find even one colleague to drive to work with and share your expenses, you might cut your costs in half.

Saving $200 this month would certainly be a great way to start off the year. And if you employ these tips, you might even manage to exceed that goal.

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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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