Money Management

IRAs impose penalties for early withdrawals, but there are exceptions for home buyers. Read on to learn more. 

The money in your IRA account is supposed to serve an important purpose — to give you funds to live on once you stop working. The IRS wants to encourage savers to put money into their IRAs. That’s why you get the benefit of tax-free contributions to an IRA, and tax-deferred investment gains (meaning, you don’t pay taxes on gains year after year, but rather, when you take withdrawals).

Because of these tax breaks, the IRS doesn’t take kindly to non-retirement withdrawals from an IRA. And so generally, tapping that account prior to age 59 1/2 will result in a 10% early withdrawal penalty.

There is, however, an exception for first-time home buyers. If you fall into this category, you can remove up to $10,000 from your IRA if you’re putting that money toward a first-time home. And if you’re buying a home jointly with a spouse or partner, they, too, can tap their IRA to the tune of $10,000 penalty-free. So all told, it’s conceivable that $20,000 of your home down payment might come from IRA funds without any penalties involved.

But just because you’re allowed to take a penalty-free IRA withdrawal to buy a home doesn’t mean that’s the best idea. While accessing that money may get you closer to homeownership sooner, it could leave you short on funds once retirement rolls around.

The danger of raiding an IRA for non-retirement purposes

The money in your IRA doesn’t just sit there in cash. Rather, it should be invested so that, ideally, it grows into a larger sum over time.

When you remove funds from an IRA, you leave yourself with that much less money in retirement. But also, you lose out on gains associated with that money.

So, let’s say you take a $10,000 IRA withdrawal at age 35 to buy a home. You might think, “Oh well, guess I’ll have to make it through retirement with $10,000 less.” But actually, your decision might have greater consequences.

Let’s imagine your IRA is invested in a manner that generates a 10% average annual return. That’s the average yearly return the stock market has delivered over the past 50 years (before inflation), as measured by the performance of the S&P 500.

If you end up retiring at age 65, taking a $10,000 withdrawal from your IRA at age 35 could end up costing you about $175,000 when you factor in lost investment gains. That’s a much bigger deal than getting to retirement age with $10,000 less to your name.

It’s best to leave your IRA alone

The purpose of an IRA is to save for retirement. Tempting as it may be to access some of those funds for a home purchase, your down payment is something you’re better off saving for separately.

You may need to delay homeownership a bit in the absence of raiding your IRA. But you might end up very thankful for that decision once retirement rolls around and your nest egg is looking nice and robust because you left it alone.

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Housing inventory is down across the board. But read on to see which buyers have even less to choose from. 

There’s a reason 2023 has been such a tough year to buy a home. Not only are mortgage rates relatively high, but home prices in many areas remain elevated as well. Throw in a glaring lack of inventory, and it’s easy to see why so many buyers are being forced to sit this year’s market out.

But while a lack of inventory is certainly a problem in the broad real estate market, middle-income buyers are especially low on options at this point in time, says the National Association of Realtors (NAR). And that could continue to be a problem for a long time.

Middle-income buyers don’t have many choices

Today’s housing market is short about 320,000 listings in the $256,000 and under price range. That’s considered an affordable range for households earning up to $75,000 a year.

To put it another way, based on today’s inventory levels, middle-income buyers can only afford to purchase 23% of available listings nationwide. And until property listings start to pick up, middle-income buyers may get stuck waiting on the sidelines.

Why housing inventory is so low

In 2020 and 2021, it was possible to chalk low inventory up to pandemic-related uncertainty. It’s doubtful that’s a big driver of low inventory today, though economic uncertainty may be prompting some would-be sellers to sit tight for the time being.

Rather, a big reason real estate inventory is so low boils down to the fact that it’s gotten expensive to sign a mortgage loan. In 2020 and 2021, many people rushed to refinance their mortgages when borrowing rates started to plummet. It’s doubtful that many of those people would want to sell their homes today, as doing so would inevitably mean signing a new mortgage at a much higher rate.

Even homeowners who didn’t refinance during the 2020-2021 boom may be sitting on mortgages with rates that are significantly lower than the rates being offered to buyers today. And so until mortgage rates start to slide, we may not see housing inventory pick up all that much. Unfortunately, that could leave a lot of buyers out in the cold — especially middle-income buyers who may not have the most flexibility.

Of course, in time, rates should come down and real estate listings should pick up. But it’s pretty fair, at this point, to say that we’re not going to see a whole lot of inventory hit the U.S. real estate market in 2023. And that means many people may have to put off their plans to buy a home until 2024 or even beyond.

The good news is that delaying a home purchase gives prospective buyers more time to save for down payments. And the more money that’s put down at closing, the less expensive a mortgage ends up being. But still, many people don’t want to wait to buy a home, so today’s lack of inventory is apt to be a major source of frustration for buyers who can only stretch their budgets so far.

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It’s possible to keep kids entertained on a budget when school’s not in session. Read on for some of the ways your local dollar store can come to your rescue when money is tight. 

Many parents look forward to summer. There are generally fewer places to constantly run to once school’s not in session, and you don’t have to spend every afternoon screaming at your kids to do their homework.

But the summer months can be a very challenging period of time if money is tight. Last year, the average cost of summer camp was $178.49 a day, according to the American Camp Association. If you’re not looking to raid your savings account to send your kids to camp, or if you don’t have savings to raid in the first place, then you may have to come up with other ideas to keep your children busy.

The good news is that your local dollar store may be able to come to your rescue. Here are a few ways your dollar store can help you get through the summer without racking up a giant credit card tab in the process.

1. You can buy inexpensive craft supplies

If your kids enjoy crafts, you’re in luck. Dollar stores commonly stock a host of supplies, from markers to crayons to glitter and glue. For under $20, you could load up on crafting supplies and keep your kids busy for hours. It’s a great alternative to TV on those days when it’s too wet or scorchingly hot to spend a lot of time outdoors.

2. You can introduce your kids to baking without spending a lot of money

Baking with your kids is a great activity. Not only does it fill time, but it can help them learn some pretty useful skills. And it’s nice to be able to enjoy a sweet reward at the end of the day. Dollar stores commonly sell inexpensive baking supplies, from muffin tins to cookie sheets. You may even find a lot of your ingredients at the dollar store if you’re using a basic recipe.

3. You can buy outdoor toys that help them stay entertained

It’s natural for your kids to want to spend a nice amount of time outdoors during the summer. But if your backyard doesn’t have a swimming pool or playset, then they might get bored after a few minutes of playing hide and seek or tag. That’s why it pays to turn to your local dollar store for supplies like bubbles, kites, and even inexpensive outdoor toys. If you mix things up with a new find every few days, your kids may not grumble so much about hanging out behind their own house.

It’s not an easy thing to keep your kids busy for what’s generally a two-month stretch or longer. You may not be able to rely on your local dollar store to occupy your kids every single day. But it pays to explore these options for helping them stay busy without breaking the bank.

At the same time, if your kids are school-aged, you may want to see if their district is offering any sort of no-cost summer enrichment program. There may be a program your kids are eligible for even if they’re not behind on learning. And while many kids would perhaps rather not attend school during the summer, it’s a good way to help them keep up their skills and fill a few hours of the day.

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Being denied life insurance can leave loved ones unprotected. Read on for some Dave Ramsey suggestions to address this scenario. 

Life insurance provides vital protection for loved ones. With the right policy, a covered person doesn’t have to worry that those in their care will be left with an empty checking account and no ability to pay the bills.

Since life insurance is so important, it can be very frustrating to apply for a policy and be denied coverage. If this happens, following some advice from finance expert Dave Ramsey could be helpful.

Here’s what Ramsey said to do after being denied coverage.

Get more information about the reason for the denial

Ramsey suggested learning more about why the insurer rejected the application for coverage after receiving a denial letter. “Your first move should be to contact your insurance agent or company to find out the why behind your life insurance denial,” he advised.

Ramsey is right to suggest making this move first. In fact, taking this step is important for a few reasons.

First, researching the reasons for the denial could make it possible to correct the issue and either re-apply with the same insurer or find another one. For example, if a life insurance company denied coverage due to a risky hobby, it may be possible to get covered by giving it up.

There’s also a chance the denial could be based on an error, such as inaccurate information in a medical record. Consumers need to find this out, so they can correct the mistake and avoid being denied life insurance for no reason.

So, follow Ramsey’s advice and reach out to the insurance company or an agent who is providing assistance to learn exactly why the application for life insurance wasn’t approved.

Work with an insurance agent

Ramsey also suggested working with an independent insurance agent after a life insurance denial to try to find a company that will offer coverage. Normally, it’s not really necessary to work with an agent. And some people may not want to if they’d prefer to get quotes from insurers of their choosing rather than those the agent happens to work with. But after a denial, heeding Ramsey’s suggestion on this issue could make good sense.

An independent insurance agent who works with multiple insurers will usually know which companies are more willing to approve an application for someone who poses a certain type of risk. An agent can point consumers denied coverage in the right direction rather than those individuals having to potentially apply with dozens of insurers who will absolutely not cover them based on their underwriting guidelines.

Look into getting covered at work

Ramsey’s next piece of advice is to try to get covered at work after being denied life insurance. Some companies offer group life insurance as a workplace benefit and, if so, it may be easier to get approved to be covered on a group plan that doesn’t require a medical exam first.

The problem is, this coverage is often pretty limited. When I’ve been offered the chance to buy life insurance through various jobs in the past, the death benefit was well below what I would have needed.

There’s also a risk that a person with employer-provided life insurance will lose coverage if they leave their job. This can be a huge problem. Being denied coverage in the first place shows there’s already an issue that will make insurers reluctant to offer coverage. Since risks increase by age, waiting to get even older to buy coverage certainty isn’t going to improve the situation.

It’s better to find a coverage option outside of work now, rather than having employer coverage for a few years and then scrambling to find a policy after a job loss and loss of coverage — when it’s even harder to get covered due to more advanced age.

Wait a while until health improves

Ramsey said there are times when putting off the purchase of life insurance for a while could be a good bet after being denied coverage.

“Sometimes when you’re denied life insurance, your best bet is to play the waiting game and give yourself a chance to correct any health issues that led to your denial.” He gave the example of someone with high blood pressure who works to reduce it before applying for coverage again.

This advice makes sense if there’s a specific health goal consumers are working toward and will achieve in a timely manner that could make buying life insurance easier. This advice is not useful to those with chronic conditions that won’t get better. Plus, those who wait will face a greater risk of not being able to get covered at all later due to their advancing age or due to pre-existing conditions that develop or worsen.

So consider carefully whether waiting and trying to apply for coverage in a healthier future state is likely to pay off. And, if it’s not, don’t listen to this Ramsey suggestion.

Get a different kind of life insurance coverage

Finally, the last option on the table is to get a different kind of coverage. This could include guaranteed issue coverage.

While guaranteed issue policies don’t require a medical exam, the coverage limits are often low and there may be waiting periods before the death benefit is fully paid out after a policyholder signs up. These policies can still be better than nothing, but should typically be a last resort.

Still, while Ramsey’s advice isn’t perfect here, some of his suggestions are worth implementing. Those who were denied life insurance may want to try out his better tips ASAP.

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Looking for the perfect present to show your dad (or any other important man in your life) that you care? Here are a few great Amazon finds. 

If you’re looking at the calendar and feeling indecisive about what to buy for the special dad or dad-like figure in your life, Amazon can come to the rescue, even if you’re shopping on a budget. If you’ve got a Prime membership, you’ll get fast free shipping on your purchases, but even if you don’t, you might still have time to get one of the following excellent items sent to the recipient of your choice. Check out these great gift ideas from Amazon. NOTE: The prices listed are what the items were selling for at time of writing and may vary based on when you read this.

1. Beautiful tree-patterned whiskey glasses

Having a nice beverage is truly one of life’s little pleasures. Whether the guy in your life enjoys alcohol or not, a lovely set of whiskey glasses from TOOWELL is just the ticket. You’ll get two in the set, and these glasses have a nice weight to them. The tree pattern is etched all the way around and adds a touch of class to your drink.

They are technically dishwasher safe, but the manufacturer recommends you hand wash them (and they’re very easy to wash). At the time of this writing, these glasses were on sale and priced at just $16.99 — a bargain.

2. An insulated mug that really keeps things hot (and cold)

Why limit Dad to just cold beverages? If you want to give him the option to spend all morning drinking his coffee, check out the 20 ounce YETI Rambler tumbler. You can buy these mugs in a variety of sizes and colors, but I’ve found that the 20 ounce model is excellent containment for a large cup of fresh coffee or tea, and it’ll keep your drink hot for a few hours.

It’s important to note that these are not spill-proof, as the MagSlider lid doesn’t completely seal. But they are dishwasher-safe. As of this writing, you can snag a 20 ounce YETI in Canopy Green (a bright shade that will make this mug much harder to lose) for $35.

3. A trash can to keep a car neat and tidy

At first glance, a trash can might sound like a terrible gift for Dad. But if he spends a lot of time in his vehicle, perhaps shuttling kids to various after-school activities and sports, or even just commuting to and from work, this unassuming little purchase might be just the ticket. The EPAuto Waterproof Car Trash Can comes in eight different colors, so you can likely match the interior color of your favorite driver’s vehicle.

This can is soft sided and sticks to the car floor with velcro. It holds a lot of trash, too — talk about a road trip lifesaver! Right now, you can snag the gray one for just $9.87. At that price point, you might want to tack on a gas station gift card or perhaps a deluxe car wash to make the perfect gift for a gearhead.

4. The coziest footwear

To all who don’t own slippers, I implore you: Why deny yourself comfort? If you want to give a special man the gift of cozy feet, I recommend RockDove Memory Foam Slippers. They’re available in a variety of colors and sizes, so you’re sure to find the right fit. You can toss them in the washing machine (might want to let them air dry, though) if they get dirty.

I’ve bought these for a few guys who are important to me, and they were much appreciated. Prices vary by size and color, but you can pick up the dark gray/blue ones for $18.69 right now.

5. A solar-powered lantern

Do you have a camping Dad? If he likes spending time out in the woods, have a look at the Solight Design Solar Lantern. This nifty pop-up light can be hung outside your tent or cabin during the day to soak up the rays and recharge. When it gets dark, the lantern provides a nice glowing light in your choice of colors.

And if your man’s not into camping, this lantern is also great for hanging out in the backyard on a summer evening. You can pick one up for $34.95.

6. One of the best e-readers on the market

If you want to splurge on a thoughtful gift for a special man who likes to read, consider whether he might be interested in an e-reader. The Kindle Paperwhite will hold thousands of books, and you can even score free reads from your library. It’s got a backlight and there are so many unique covers available for it, so consider browsing Amazon and picking out one that’s just Dad’s style.

As of this writing, the Kindle Paperwhite is going for $139.99, but Amazon frequently runs deals on these. I expect they’ll be among the sales on Prime Day, so if you have a special guy with a late summer birthday, consider waiting until then to buy!

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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. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool has a disclosure policy.

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Summertime heat can lead to sky-high utility bills. Here are some practical ways to keep those costs under control. 

Summer has officially landed, and it’s hot as blazes out there. If high utility bills have become as much a part of summer afternoons as longing for a dip in a cool pool, these 10 tips should help you rein in those energy bills.

1. Keep air circulating

It drives me around the bend when my husband suggests turning the ceiling fan on. It’s not because he’s wrong, but because he suggests it so often. With that out of my system, if you have an attic fan or ceiling fan in any room of your home, turn that baby on and let it run (make sure your ceiling fans run counterclockwise in the summer, to push air down).

If you don’t have an attic or ceiling fan, spread any portable fans you have around the house. It doesn’t matter if it’s a box fan or a tower fan. The idea is to keep air circulating throughout the space. Even if the room doesn’t cool down by much, it will feel cooler, which should ultimately help you save money.

2. Raise the thermostat

I know, this one is awful. As someone who always wants to be cool, though, here’s something I’ve learned: I cannot tell a temperature difference whether the thermostat is set to 71 or 72 degrees Fahrenheit. What I’ve done over the past few weeks is to set it one degree higher each day. I’m also trying to get any house cleaning done first thing in the morning before the heat has time to set in.

3. Schedule regular central AC maintenance

No one wants to pull out a credit card to pay for maintenance, but scheduling an annual check of your central air conditioning system can save you money in two ways:

You’re less likely to have to pay for expensive repairs if an issue is caught early.An AC unit that’s working well runs more efficiently and uses less energy.

The average cost for an AC tune-up is $99, while the average cost of an AC repair is $320, depending on how complex the problem is. Your best bet is always to focus on maintenance.

4. Give your window unit the once-over

If you’re cooling your home with a window unit, the U.S. Department of Energy recommends inspecting the seal between the air conditioning unit and the window frame to ensure there’s no gap. If your window unit needs more maintenance than you can provide, call a licensed heating and air conditioning tech. Again, a properly operating window unit will run more efficiently, saving you money on electricity.

5. Change filters regularly

The Department of Energy also recommends replacing dirty filters regularly. This will increase energy efficiency and improve the air quality in your home. Plus, doing so can save you up to 15% in energy costs, leaving more money in your savings account.

6. Close the curtains

If you’re not claustrophobic, lowering the blinds and pulling the drapes will help block heat and allow your AC to cool the space more quickly.

Consider investing in LED light bulbs. While they’re more expensive than traditional bulbs, LED bulbs use at least 75% less energy and last up to 25 times longer than the incandescent bulbs many of us grew up with.

7. Wash clothes in the morning

Using cold water, run the washing machine early in the morning and, if you have one available, hang the clothes on a clothesline to dry. Getting laundry out of the way first thing in the morning means you’ll have time to put clothes out on the line, allow them to dry, and get them back in the house before the day heats up too much.

If you don’t have access to a clothesline, it’s raining, or you simply prefer to use a clothes dryer, that’s okay. Running the dryer in the morning, before midday heat has set in, is less likely to make your home feel sweltering hot.

If you’re using your dryer, don’t forget to clean the lint filter after each load. Not only does a clean filter allow the machine to operate more efficiently, but you reduce the risk of fire.

8. Wash dishes in the evening

Make sure your dishwasher is completely full before you run it. While it can be tempting to run smaller loads and get them out of the way, waiting until it’s totally full will cut down on costs.

According to American Home Shield, your dishwasher uses four to six gallons of water per cycle. In addition, each load sucks up between 0.87 and 1.59 kWh of electricity. If you’re going to require that much energy on a regular basis, your best bet is to run the dishwasher in the evening when rates are lower.

9. Control the temperature of the water heater

Check your water heater to ensure it’s set at no more than 120 degrees Fahrenheit. The Department of Energy reports that manufacturers set water heater thermostats at 140 degrees Fahrenheit, a temperature that poses a scalding hazard.

Lowering the temperature to 120 degrees Fahrenheit has the added benefit of slowing mineral buildup and corrosion in the water heat and pipes.

10. Call your local utility company

Some utility companies offer free energy assessments. That means someone will come to your home to test for cracks or air leaks and offer concrete ways to save money on utility costs. You can then implement their recommendations.

The goal is to enjoy every moment of summer without worrying about what the price of energy will do to your monthly budget. Cutting down on energy use may come in increments as you find ways to save.

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