Money Management

Working on your tax return can be stressful, but it doesn’t have to be. Read on for ways to set yourself up for a stress-free 2024 filing. 

Filing taxes is an activity you might come to dread more and more each year. And if so, you’re in good company. An early 2023 survey by SurePayroll found that nearly half of Americans report getting a headache just thinking about their taxes.

Now, the good news is that it’s still the summer of 2023, which means you’re many months away from having to file your next return. The bad news, though, is that come early 2024, you’ll have to start dealing with tax matters once again. So if you want that process to go more smoothly, here are a few moves you may want to make in the coming weeks.

1. Get your files organized

For many people, a lot of the stress of filing taxes stems from not knowing where to find key documents. You can spare yourself that anguish by getting your files organized ahead of time.

Start putting different physical and electronic folders together by category. For example, you may be able to claim medical expenses as a deduction on your taxes, so you’d want one folder for copay and prescription receipts.

Meanwhile, if you’re self-employed, you can deduct expenses incurred in the course of your work, like office supplies, licenses, and travel. So you’ll want to start making a folder of receipts for things like printer ink and train tickets.

2. Find an accountant

Not so shockingly, accountants tend to be very busy during the first four months of the year. If you know you’ll need help preparing your taxes in 2024, don’t wait until the new year to start looking for it. Instead, start looking now, when accountants are commonly less busy.

If you’re not sure where to start your search, talk to friends and neighbors who might be in a similar situation to you and ask for recommendations. If you recently became self-employed and your neighbor has run their own business for years, they could be a good person to get a recommendation from.

3. Start working to maximize deductions

Contributing money to an IRA, 401(k) plan, or HSA could shave a lot of money off of your 2023 tax bill. But you don’t want to wait too long to ramp up your contributions.

First, you should know that you only have until Dec. 31 to fund your 401(k) for 2023. IRAs and HSAs give you a little more time — until next year’s tax-filing deadline — but even so, you don’t want to end up in a crunch. If you’re eager to max out one of these accounts, or get as close as possible, start boosting your contributions now, while you have the money and have plenty of time to get it into your account.

Taxes may not exactly be on your radar at this time of the year. But a few key moves on your part could make early 2024 much easier from a tax-filing perspective. So as summer winds down, take a little time to tackle these key tasks. You’re apt to be thankful for it later on.

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My husband and I enjoy traveling. But read on to see how we’ve gone to extremes to keep our costs down. 

Travel is a priority for a lot of people, and understandably so. There’s something about seeing new things and escaping the daily grind that’s inherently good for the soul.

The problem with travel, though, is the cost involved. Forbes says that in a recent survey, half of respondents were budgeting $4,000 or more for travel during the year. That’s not a small sum of money. And while the right credit card can help offset some of your travel costs, you may need to go to certain extremes to pull off your next trip on the cheap.

That’s something my husband and I are certainly familiar with. Traveling is a big hobby of ours, but we’re also money-conscious people who realize we can only afford to spend so much on travel year after year. And so we’ve done the following somewhat ridiculous things to trim our travel costs.

1. Stayed at super-budget hostels

There’s absolutely nothing wrong with staying at a hostel rather than a hotel if you’re someone who’s not particularly picky about privacy or accommodations. But years back, my husband and I were trying to pull off a low-budget trip to Panama (this was pre-kids) and found a hostel that charged less than $20 a night. We assumed that at that price point, it would be a really basic room with no frills. But it was actually way worse.

Panama’s weather tends to be hot. And so air conditioning at night is essential. The room we rented had an air conditioner. Only every time we turned it on, it sparked repeatedly.

Meanwhile, we knew we’d have to share a bathroom in that hostel setup. What we didn’t realize was that other guests would just walk in freely while we were in the shower and join us. I guess for under $20 a night, we had no right to complain. But making small talk with naked strangers generally falls outside my comfort zone, so that was an unwanted part of the experience.

2. Driven through the night to save on lodging

My family has been to Disney World several times, but we’ve always tried to visit in the most frugal way possible. Years back, that meant making the 16-hour drive from New Jersey to Orlando in one stretch without stopping at a hotel.

The upside? We saved ourselves a night of lodging. The downside? The drive left us utterly exhausted. And when you’re doing Disney, which is tiring in its own right, that’s not a good thing.

3. Driven cross-country to save on airfare

My husband and I like taking road trips. They give us a chance to get off the beaten path and discover things we’d probably miss out on by flying. But years ago, when we decided to drive from New Jersey to the far corner of Montana, our decision was fueled more so by a desire to save money and less so by a desire to discover more of rural America.

We were looking to visit Glacier National Park, and the cost of airfare was coming in at around $950 a person. Throw in baggage fees and the cost of getting to and from the airport for our family of five, and we were looking at about $5,000.

Instead, we made the 2,400-mile trek each way by car. Our minivan gets about 24 miles to the gallon, and at the time, a gallon of gas was around $3. So 200 gallons cost us around $600. We also had to pay for four nights of lodging at around $200 a pop, plus food while we were on the road. But all told, it cost us about $2,000 to drive to Montana, as opposed to spending $5,000 to fly out.

It’s all about priorities

I’m very grateful for the fact that my husband and I have gotten to take some awesome trips — both with kids and without. But a big part of the reason we’ve been able to get to so many places is that we’ve subjected ourselves to situations that a lot of the people I know wouldn’t be willing to deal with. Most of my friends, for example, wouldn’t make the 16-hour drive to Disney World by car — forget driving to Montana.

If you’re willing to be frugal, you might manage to travel more. But there does come a point when you need to consider your personal comfort during your travels.

I don’t regret driving to Montana, as it was a cool experience. But the next time I’m tempted to book a stay at a budget hostel, I’ll remember that flame-throwing air conditioner and group shower experience and will most likely spring for a hotel room instead.

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The combination of higher home prices and mortgage rates is making life difficult for buyers. Read on to learn how to navigate today’s real estate market. 

Home buyers have been struggling with low housing inventory for a long time now. But while that’s a big enough challenge itself, buyers today are also being forced to grapple with sky-high mortgage rates and home prices.

In July, the median existing home sale price rose to $406,700 after five months of declines, according to the National Association of Realtors (NAR). But given where borrowing rates are at, buyers today are looking at potentially expensive mortgages — even if they don’t stretch their budgets to complete a home purchase.

Why are home prices rising?

Home prices typically rise when buyer demand is strong. Given that mortgage lenders are charging such high rates these days, you’d think buyers would be backing out of the market. But the reason home prices have managed to rise largely boils down to a lack of real estate inventory.

As of the end of July, there was only a 3.3-month supply of available homes on the market, says the NAR. That’s a welcome 3.7% increase from a month prior. But it’s also well below the 4- to 6-month supply that’s typically needed to fully meet buyer demand.

Also, buyers might finally be coming to terms with today’s mortgage rates and aren’t getting spooked by them. When borrowing rates first started to soar in 2022, it came as a shock to many buyers, especially on the heels of 2020 and 2021’s record-low mortgage rates. But at this point, mortgage rates have been elevated for more than a year, so perhaps buyers are learning to accept today’s costs.

How to navigate today’s housing market

Between higher home prices and mortgage rates, it’s clearly not an easy time to buy a home. But one thing you may want to do if you’re hoping to buy in the near term is reset some expectations.

At a time when inventory is low and home prices are up, being too choosy could work against you. So you may want to shorten your wish list and focus on the features that are really important to you.

You might want an updated kitchen. But if you need three bedrooms due to the size of your family, then that should take priority on your list. And so if you come across a home that has enough square footage to fit your family but needs updating, don’t write it off immediately just because it doesn’t have everything you want.

In fact, a good bet could be to try to find yourself a starter home — one that’s perhaps on the smaller side and needs some work. You may find that a starter home is far more affordable than a larger, more updated property, and that your ongoing ownership costs are more manageable as well.

Of course, one challenge you might encounter is that investors are scooping up starter homes in short order, so there aren’t that many on the market. But if you manage to come across one, consider it a good opportunity.

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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.
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If you want to save and invest for a child, but don’t want to have to use the money for college, this could be the right way to go. Find out more. 

Do you want to start an investment portfolio for your child while they’re young? Or do you want to set aside money for college, but not have to use it for educational expenses if they end up not needing it? A custodial account could be the solution.

Custodial accounts are a special type of brokerage account that allows parents (or any adult) to invest on behalf of a minor child. There are two major types, known as UGMA (Uniform Gift to Minors Act) and UTMA (Uniform Transfer to Minors Act). Both account types allow you to save money and invest it on behalf of a child until they reach the age of majority specified on the account, which is usually 18 or 21.

There’s a subtle difference between UGMA and UTMA accounts. Specifically, UTMA accounts can own physical assets (such as real estate and fine art), while UGMAs can only hold financial products like stocks and mutual funds. And while UGMA accounts are available in all states, there are a couple (Virginia and South Carolina) that don’t allow UTMA accounts. But in practice, if you’re opening an account through a brokerage, there isn’t much of a difference.

Advantages of using UGMA/UTMA accounts

There are a few big advantages to using UGMA and UTMA accounts to set aside money for your kids.

First and foremost, they aren’t just for college. One of the biggest reasons parents are often hesitant to put money into a 529 plan is that the money must be used for college, or a penalty will be assessed. Money invested in a UGMA or UTMA account can be withdrawn for any purpose, or not withdrawn at all.

Second, you’ll find more investment options in these accounts than with 529 plans. If you open a custodial account through a broker, you can use the money to invest in virtually any stocks, mutual funds, ETFs, bonds, or other securities you want.

There are also no contribution limits with UGMA and UTMA accounts. If you contribute large amounts, there could be gift tax implications, but that’s true with most types of accounts when you contribute on behalf of another person.

Potential drawbacks

Money you put into your child’s UGMA or UTMA account officially becomes their money. You can make investment decisions within the account until the child reaches the age of majority, but once they reach that age, you can’t tell them what to do with the money. You can tell them you’ve set aside that money to help pay for college, or that you’d like them to leave it invested for years to come, but the reality is that they can legally withdraw it and spend it on whatever they want.

Plus, in the meantime, you can’t change your mind and choose to take your money back out of the account — once you deposit it into a custodial account, it cannot be withdrawn until the recipient reaches the designated age.

Speaking of college, an UGMA/UTMA account could affect your child’s ability to qualify for financial aid. When your child fills out the FAFSA (Free Application for Federal Student Aid), they will have to list all of their assets as well as yours. Only up to 5.64% of parents’ assets are counted as money that’s available to pay for college, but as much as 20% of assets owned by the student are considered.

How to open a UGMA or UTMA account

If you think a custodial account is right for you, UGMA and UTMA accounts are available through many of our top-rated brokerage firms. In most cases, they can be easily opened online, and money can be transferred from a linked bank account quickly and easily.

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Roth IRAs have some key benefits over traditional IRAs. You can save tax breaks for retirement and take money out on your own schedule. Find out more. 

When it comes to retirement savings, you should always contribute enough to your 401(k) to earn your full employer match if you’re eligible for one. But, once you’ve done that, you may want to invest in an IRA with a brokerage firm of your choosing so you can get access to a wider pool of investments.

You can actually choose between a traditional and a Roth IRA for your retirement investments, but they work very differently. For many people, a Roth IRA is the better choice for these four reasons.

1. You can save your tax breaks for retirement

When you contribute to a traditional IRA or a traditional 401(k), you get to deduct the contribution in the year you make it. You can’t do that when you invest in a Roth IRA.

Instead, with a Roth IRA, you save your tax breaks until later. As a retiree, you can withdraw money tax-free from your account. If your tax bracket is higher in retirement, you’ll save more in taxes because of deferring the deduction.

Of course, you also won’t have to worry about losing some of your retirement money to the government either. You’ll have more money to spend at a time when you may really need it, since your paychecks will no longer be coming.

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

With a traditional IRA or 401(k), you have to take required minimum distributions starting from age 72 or starting from age 73 if you will turn 72 after Dec. 31, 2022. This means you have to take money out of your retirement account — and pay taxes on those distributions — on a schedule the government sets for you.

You may not want to take out your money on someone else’s schedule. If you invest in a Roth instead of a traditional account, you won’t have to worry about that.

3. You won’t have to worry as much about Social Security benefits becoming taxable

Social Security benefits are taxed by the federal government only once countable income goes above a certain point. If your countable income tops $25,000 as a single tax filer or $32,000 as a married joint filer, a part of your benefits can become subject to federal income tax. Some states also tax you when your income goes above a specific level, with a few locations following different rules from the IRS and others mirroring the federal rules.

The key word mentioned above, though, is countable. Countable income equals your taxable income, half of your Social Security benefit, and a limited amount of non-taxable income like MUNI bond interest — but it doesn’t include Roth IRA distributions.

So, if you want to make sure you don’t pay taxes on Social Security benefits, putting money into a Roth can be a better choice. You won’t have to worry about taking too much out and suddenly finding yourself owing the IRS money on your Social Security.

4. You have more flexibility with withdrawals

Finally, when you put money into a Roth IRA, you can withdraw contributions without owing any tax penalties at any time — although you would have to pay taxes on earnings and gains if you withdraw them before reaching age 59 1/2.

The ability to access contributions early can provide added flexibility that could help you if you have an emergency or retire earlier than expected.

For all of these reasons, it can make sense to choose a Roth IRA when you’re deciding what kind of retirement investment account to open with your brokerage firm. Just remember to max out your 401(k) match first, because there’s no use in giving up free money.

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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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