Money Management

A Roth IRA can be a great investment account option. Here are three reasons why you may want to consider investing in one. 

When you invest for retirement, the first thing you need to do is to max out your 401(k) match if you have one.

If your company offers this workplace benefit, you can sign up with HR or your plan administrator to have contributions taken right out of your check before your pay hits your bank account. You don’t pay taxes on the money you contribute in the year you invest it, and if your employer provides a match, that’s free money.

Once you have maxed out the match, though, you may want to open a Roth IRA with a brokerage firm and invest some of your retirement money there, before putting more into a 401(k). Here are three big reasons why.

1. You won’t have to worry about taxes as a retiree

One of the biggest reasons to put money into a Roth IRA is the way the tax benefits work. With this account (unlike a traditional IRA), you do not get to deduct the amount you contribute from your taxes in the year you invest the money.

But, you do get to withdraw the funds tax-free in retirement (provided you follow basic requirements set forth by the IRS, such as waiting until five years after account opening to make withdrawals). This means as a senior, you aren’t going to have to worry about giving the government a cut of your retirement money and you’ll have more to live on.

Many people would prefer to get their tax savings as retirees rather than when they’re working and can more easily pay the tax man (and may be eligible for more deductions like a child tax credit if they’re raising kids). If you suspect your tax bracket could be higher as a senior, this would make sense for you.

2. You won’t have to take required minimum distributions

There’s another big benefit to Roth IRAs as well. You do not have to take required minimum distributions.

Required minimum distributions, or RMDs, are required once you reach age 72 or age 73 if you turn 72 after Dec. 31, 2022. Basically, the government requires you to take a certain amount of money out of your 401(k), traditional IRA, and other non-Roth accounts each year. That’s so it can tax the funds, since you made your contributions with money you weren’t taxed on and enjoyed tax-free growth.

If you don’t want to be stuck with the government telling you that you have to withdraw a certain amount from your retirement plan each year, then a Roth IRA could be the right choice for you, since this requirement is not imposed on this type of account.

3. You can withdraw your contributions at any time without a penalty

Finally, another reason you may want to choose a Roth IRA is that you can withdraw your contributions to it at any time without incurring taxes or paying penalties. You don’t necessarily have to wait until retirement. This isn’t the case for traditional accounts, where you face a 10% penalty in addition to being taxed on the entire withdrawal if you take your money out before age 59 ½ and don’t fall within an exception.

While it’s not generally a good idea to raid your retirement account early, you may prefer the flexibility of knowing you can access your Roth IRA money earlier if you need it for a truly pressing expense.

For all of these three reasons, consider a Roth after you’ve maxed out your 401(k) match. You can open one with just about any brokerage firm and get started investing for your future.

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Did you know your bank can lower your savings account rate at any time? Read on to learn the right reasons to open a savings account. 

Shock and horror. You were lied to. It’s been five years since you opened your savings account, but you’re earning pennies on deposits. Despite adding thousands of dollars, your nest egg has hardly inched up. Now, you’re behind on saving for retirement. Plus, you’re pissed off. What gives?

There are good reasons to open a savings account: to earn passive income safely; to build an emergency fund; and to save for medium-term financial goals, like home or car down payments. But there are wrong reasons, too. Below are three bad reasons to open a savings account.

1. To beat the stock market long term

When times are tough, you may be tempted to stick your money in a savings account and call it quits. In fact, it’s often a good idea to keep some funds in a savings account. That way, you have money to draw upon in a pinch. Plus, you can use it to invest during downturns.

But here’s the thing: The average savings account rate is less than 1%. Compare that to the stock market, which has returned an average of 10% per year over the past 50 years. Investing in stocks long term is much more profitable than keeping money in savings.

So don’t open a savings account to beat the stock market over five or more years. You probably won’t, as history has proven time and time again. Instead, open a top-tier online brokerage account and invest in a well-diversified stock portfolio for the long term.

2. To lock in high interest rates

When interest rates are high, you may be tempted to open a high-yield savings account to lock in historic premiums. This is a solid strategy for as long as the Federal Reserve elevates rates. Right now, you can easily earn more than 3% APY on deposits in the top savings accounts.

But there’s a problem. Savings account rates aren’t locked in. That’s right — your bank can lower rates whenever it wants. Your savings rates are likely to fall with Federal Reserve rates. But they could fall sooner or later — there’s no way to tell. It’s up to your bank.

So don’t open a savings account to lock in high rates. Instead, open a certificate of deposit (CD), which does lock in increased interest rates for six months to five years, depending on the term length you choose.

3. To spend with a cash back card

Many debit and credit cards offer you cash back on purchases. Earning cash back is basically receiving a 1% to 5% discount applied when purchasing an item. You may be tempted to open a savings account to combine high interest rates with the perks of cash back debit cards.

But most savings accounts don’t offer cash back cards. What’s worse, many banks limit you to six convenient monthly withdrawals, as per Regulation D.

So don’t open a savings account to spend with a cash back card. Instead, consider opening a money market account to combine the best features of a checking account (easier spending; note that some money market accounts also limit you to six withdrawals per month) with the best features of a savings account (interest on deposits).

One good reason to open a savings account

Open a savings account to build an emergency fund. An emergency fund should ideally be enough to cover three to six months’ worth of expenses. You’re supposed to withdraw from the fund when you need to pay for unexpected bills, like medical treatment. That way, you can avoid taking on debt.

There are many good reasons to open a savings account. They make it easier to save, they’re convenient, and you can open a bank account online in minutes. Stick to good reasons to open an account. You’ll be glad you did, and you’ll probably make more money long term.

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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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Credit cards offer lots of great features. Find out how one personal finance writer benefits by opening new credit cards every year. 

Opening lots of credit cards generally isn’t recommended. It gives you more to manage, and there’s the risk of credit card debt. Most Americans follow that advice to keep it simple, with the majority having one or two credit cards, according to a study by The Motley Fool Ascent. Only 13% of Americans said they carry four or more credit cards.

I’m firmly in that 13%. I have well over a dozen credit cards, and I apply for new cards every year, because it saves me money.

This isn’t something I’d recommend to most people. If you have any trouble managing credit or paying off your cards in full every month, then adding more cards to the mix isn’t going to help. But if you’re comfortable managing multiple cards, and you always pay off the full balance, then there are some key advantages to occasionally opening more.

More credit cards, more sign-up bonuses

The No. 1 reason I regularly open new credit cards is because I want to maximize rewards. The fastest way I’ve found to do that is with sign-up bonuses.

If you’ve shopped around for credit cards before, you’ve probably seen these kinds of welcome offers: Spend $4,000 on purchases in three months to earn 60,000 points, spend $500 to earn $200 cash back, etc.

I’ve always figured that if I’m going to spend that much money anyways, why not get a sign-up bonus out of it? Here’s the key — make sure you can meet the spending requirement with your regular bills. If a sign-up bonus requires spending $4,000 in three months, but you only spend $500 per month, it’s not a good idea to get that card.

I love travel credit cards, and I normally save at least $1,000 per year on travel just from sign-up bonuses I’ve earned. But there are also plenty of valuable sign-up bonuses on cash back cards, too.

RELATED: Best Credit Card Sign-Up Bonuses

It also means more benefits

There are all kinds of credit card features out there. By opening cards regularly, I get more card perks that can save me money or improve my travel experience.

For example, I started out by getting a card with airport lounge access and that covered my Global Entry/TSA PreCheck membership. Not only do I get through airport security faster thanks to my credit card, I can wait for my flight in airport lounges with free food and drinks.

Later on, I opened a couple of good hotel credit cards. Those have gotten me free night certificates and complimentary Diamond status with Hilton, which has helped me get free upgrades and free breakfast.

If you prefer cash back cards, you can still benefit by having more than one. Maybe you start with a card that earns bonus cash back on gas and groceries. After a few months, you decide to add one of the dining credit cards that earns more back at restaurants. With more cards, you can earn bonus rewards across more spending categories.

An advanced way to save

To reiterate, having multiple credit cards can make your finances more complicated. You need to stay on top of your payments for all of them. You also may need to occasionally close or downgrade cards with annual fees if you aren’t getting your money’s worth anymore.

Even though it’s more work, I’ve also seen the benefits firsthand. Being willing to open new cards helped unlock amazing travel opportunities for me. Don’t rush into anything by getting several new cards at once. But if you think you can manage it, consider adding the occasional new card to your wallet.

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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.Lyle Daly 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.

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Want to spend even less at Costco? Read on to see how. 

Many people are drawn to Costco for the low prices the warehouse club giant is known for. But there are ways to save money at Costco beyond your basic “load up on bulk goods” and “check for sales.” Here are a few tricks you can employ to spend less and save more.

1. Don’t shop online

The upside of shopping at Costco.com is that you might get access to a wider range of products than what you’re able to find at your local warehouse club store. But one thing you should know is that online Costco purchases are almost always more expensive than their in-store alternatives.

To put it another way, a fleece jacket you see online for $19.99 may be just $17.99 at the store. So if you have a Costco nearby, try to visit instead of sticking to online ordering. The only exception is if you’re only buying one or two items, and the amount you’re likely to spend on gas will wipe out your in-store savings.

2. Don’t order two-day delivery if you’re not buying $75 worth of products

Costco offers a range of grocery items for two-day delivery. These grocery items don’t tend to be as marked-up as the fresh items you can order for same-day delivery, so you may be tempted to buy certain items you can’t find at your local warehouse club store.

The problem, though, is that you need to spend $75 to avoid a shipping charge on items that are eligible for two-day delivery. And that might cause you to spend more than you intend to.

Let’s say you really want a few bulk grocery items from Costco.com that are eligible for two-day delivery and cost $50 in total. You might push yourself to spend an additional $25 to snag free shipping. That’s not great, because while you’re saving on the items you do buy, you’re racking up a higher tab. So if you’re eager to save money at Costco, don’t order two-day delivery unless you really have a use for $75 worth of products.

3. Sign up for the Executive membership

An Executive membership at Costco costs $120 a year, while a basic membership costs $60. As such, you may be thinking, “How am I going to save money at Costco by paying double for my membership?”

The answer is that the Executive membership offers 2% cash back on all Costco purchases, including those made online. And once you spend more than $3,000 in a year at Costco, you’ve saved money and made back your membership fee upgrade.

It costs an extra $60 to pay for Executive membership. But if you end up spending about $100 a week at Costco, or $5,000 in the course of a year, your Executive membership will give you $100 back. Subtract $60 for the upgrade, and you’ve just saved yourself $40.

4. Don’t linger in the front of the store

Costco tends to put new and discounted items on display so customers can check out that selection when they first walk into the store. And it can be very tempting to make impulse buys in that situation since you have a large, empty shopping cart at your disposal and you haven’t begun making purchases.

A better bet? Clear out of that front area unless there’s an item there you specifically have on your list. The less you’re tempted to buy, the more you might save.

5. Ask for price adjustments

Like other retailers, Costco will sometimes discount its merchandise, resulting in better deals. So perhaps you end up paying $19.99 for a given item that’s reduced to $14.99 a few weeks later.

In that situation, you’re not out of luck. Costco offers price adjustments on items purchased within 30 days. Just head on over to customer service or log into your Costco.com account to request a price adjustment online.

Between elevated interest rates and lingering inflation, every dollar you can save right now is a dollar that can go a long way. So it pays to do what you can to spend less and save more at Costco, and ideally, these tricks will help.

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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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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MasterClass lets you learn about everything from cooking to sleep, from people who are truly leaders in their field. Find out why this writer canceled her subscription. 

The big draw of MasterClass is that it offers high-quality online courses from celebrity instructors. You can learn about leadership from Bill Clinton himself, prepare your mind for victory with Lewis Hamilton, or uncover Neil Gaiman’s storytelling secrets. With high-quality production values, the courses are broken down into bite-sized learning opportunities, meaning you don’t have to commit an hour to each study session.

That said, MasterClass’ content won’t be for everybody. A lot of the courses teach broad brush principles, rather than getting bogged down in the nitty gritty. I loved Yotam Ottolenghi’s course on Middle Eastern cookery. But I learned a lot more about the nuts and bolts from his books and if I were training to be a professional chef, it wouldn’t be my first port of call.

Is MasterClass right for you?

When it comes to online learning, everybody is different. A lot depends on your learning style, what you want to learn, and why you’re learning. For example, I wouldn’t look to MasterClass if I wanted to learn to build a website or improve my technical writing skills. I’d use Udemy for that. And if I wanted to pursue a career in data analysis and needed certifications to show what I’d learned, I’d probably use Coursera.

Here’s how much MasterClass subscription costs:

$120 a year: One account, one device ($10 a month)$180 a year: One account, two devices ($15 a month)$240 a year: One account, six devices ($20 a month)

You have to subscribe for a year; the monthly fee is just for guidance. MasterClass does offer promotional pricing for holidays like Mother’s Day and Father’s Day. Just make sure you and the recipient fully understand the terms and conditions.

The way I view MasterClass is that it gives you content that will broaden your mind in an entertaining way. I completed fascinating courses on topics I might never otherwise have engaged with. For example, former FBI lead hostage negotiator Chris Voss both explains and demonstrates how you can come out on top in your negotiations. I learned about the science of sleep from neuroscience professor Matthew Walker. A few years on, and I still tell people about the nuggets I picked up in those courses.

You won’t get a certificate at the end of the course, and you’re unlikely to put any MasterClass learnings directly onto your CV. Moreover, MasterClass is fascinating and fun, but it isn’t essential. If you feel like you never have enough cash in your bank account and are struggling to save for the future, it probably isn’t the right time for you to subscribe.

Why I canceled my MasterClass subscription

My biggest objection to MasterClass is that it sells a high-quality product, but then nickel and dimes you more than a budget airline. Firstly, you can’t buy individual courses. So if you only want to watch Dr. Jane Goodall’s incredible course on conservation, you still have to pay for a whole year’s subscription. And once your subscription is finished, you can’t watch it again. In contrast, the Udemy courses I bought in 2018 are still available.

Which brings me to my second irritation. MasterClass gives you a monthly price on its website, but you can’t pay by month. You have to sign up for a full year. In fairness, it does have a 30-day cancellation policy. But if you want to end your subscription after, say, three months, you won’t get a refund for your unused time.

Those things are annoying, but they are not super uncommon in the world of subscriptions. Where I drew the line and canceled my MasterClass subscription is the way its gift passes work. These two experiences left a very bad taste in my mouth:

A Christmas gift that actually cost my Mum money: A few years ago, I gave my Mum a year’s subscription to MasterClass. Unbeknownst to me, to receive the gift, she had to enter her credit card details. A year later, the auto-renewal kicked in and she wound up paying for another year’s membership. Now, in fairness to MasterClass, it is now possible to redeem the gift without entering your card details. And you can switch off the auto-renewal option. But neither I, nor my Mum, knew either of these things.MasterClass’ so-called “free” trials: As a member of MasterClass, you get a couple of two-week guest passes that you can share with friends or family. It sounds great. But again, my loved ones had to enter their credit card details to redeem the gift. In theory, if you cancel the subscription before the two weeks are up, you won’t get charged. However, the charge for a full year’s membership — over $100 — appeared on my friend’s credit card immediately. He did get the money back. But he’d just come out of hospital and did not need that stress. I was mortified.

Frankly, I’d have forgiven both incidents if the customer service team had given me some reassurance. I gave them several opportunities to acknowledge the issue and help my friend. The boiler-plate emails I received did neither.

Bottom line

When it comes to online learning, my aspirations are often bigger than my ability to study. I am very good at signing up for courses, but not always so good at actually doing them. I found MasterClass helped me overcome this — I used to do one or two lessons at lunchtime each day. The celebrity instructors are inspirational and the courses are super engaging.

But there is a disconnect between its courses and its customer service. One offers high-quality content at relatively high prices. The other is a money-grabbing system that seeks to exploit its customer loyalty. I’d highly recommend MasterClass’ content. Just don’t try to share it with your loved ones.

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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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