Money Management

You may want to put your money there.  

Saving for retirement is essential. Without personal savings, you might struggle financially later in life.

But it’s important to find the right home for your retirement savings, especially since you have different options. You can open an IRA account as long as you have earned income. And from there, you can opt for a traditional IRA or a Roth IRA.

In a recent podcast episode, financial guru Suze Orman called the Roth IRA “my favorite type of retirement account.” And here’s why it could end up being the best home for your money.

Tax-free withdrawals could come in handy during retirement

The money you put into a traditional IRA will serve as a near-term tax break. Contribute $3,000 to one of these accounts this year, and that’s $3,000 of income the IRS won’t tax you on. Only once the time comes to start withdrawing from your IRA, you’ll be forced to pay taxes on your distributions, which means you’ll need to deal with that headache during retirement.

With a Roth IRA, taxes on withdrawals won’t come into play. Now, you will give up your immediate tax break with a Roth IRA. But during retirement, when money may be tighter than it is during your working years, the money you remove from your savings will be yours to keep in full. There’s a lot of value in that.

Also, we don’t know what tax rates will look like in the future. If you save for retirement in a Roth IRA, you won’t have to worry about future tax hikes across the board. That’s because you won’t be paying taxes on the money you take out of your account.

More flexibility with your money

Most retirement accounts force you to remove a portion of your savings every year in the form of required minimum distributions. Roth IRAs don’t have these. And that’s a really good thing.

Even though there’s a strong chance you’ll need to take yearly withdrawals from your retirement account once you stop working, what if you have a year when you decide to work part-time, and therefore don’t have to tap your savings? Or what if you get an inheritance one year that covers your expenses in full? With a Roth IRA, you can leave your money alone and let it grow during that time rather than be forced to remove a chunk of cash.

Also, while your goal of funding your retirement plan may be to support yourself as a senior and avoid financial stress, you might really want to leave some of that money behind to your heirs. Since Roth IRAs don’t mandate that you take required minimum distributions, that will be an option you can explore if your finances allow for it.

You can bet that if Suze Orman is going to play favorites in the context of retirement savings accounts, there’s going to be a good reason for it. So it pays to consider keeping your long-term savings in a Roth IRA.

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What happenedIn February, consumer prices rose 0.4% compared to January, as per the latest Consumer Price Index (CPI). On an annual basis, consumer prices were up 6%, which is a notable drop from January’s 6.4% annual inflation reading.So whatInflation has been surging since the latter part of 2021, and in 2022, many consumers experienced financial hardships due to higher living costs. Thankfully, the annual rate of inflation has been steadily declining since peaking at 9.1% last June.In fact, February marks eight consecutive months of declines in the annual inflation rate. But a monthly uptick from January to February could push the Federal Reserve to act aggressively to fight inflation, and that could hurt consumers.”Services inflation is still hot; the Fed still has work to do, and their actions and communications are going to come under increasing scrutiny given the events of the past few days,” said Andrew Patterson, senior international economist for Vanguard, referring to recent banking industry woes. “They need to be careful in balancing the risks of price and financial stability.”Now whatThe Federal Reserve is on a mission to combat inflation, and, ideally, bring it back down to the 2% annual range. To achieve that goal, it’s been implementing consistent interest rate hikes that have driven up the cost of consumer borrowing, from credit cards to personal loans.At this point, the Fed has a tough decision to make, since February’s CPI was a bit of a mixed bag. On the one hand, inflation did rise on a monthly basis. But the drop in annual inflation was significant. So it’s a little hard to know whether the Fed’s next rate hike will be a more aggressive one or a more moderate one.One factor that might push the Fed toward the aggressive side of things is February’s recent positive jobs report. Though job growth wasn’t as robust as it was in January, the U.S. economy still added more than 300,000 new jobs last month. And when jobs are plentiful, it sets the stage for strong consumer spending, which the Fed wants to see slow down so that inflation can cool.At this point, consumers would be wise to brace for higher borrowing rates given February’s jobs and CPI data. Those thinking of doing things like financing a car or taking out a personal loan for home renovations may want to hold off and wait for borrowing rates to get less expensive. And those with variable-interest debt, like outstanding credit card and HELOC balances, may want to work on getting those paid down before their interest rates rise and their payments become even harder to keep up with.Alert: highest cash back card we’ve seen now has 0% intro APR until 2024If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee. In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes. Read our free reviewWe’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. 

What happened

In February, consumer prices rose 0.4% compared to January, as per the latest Consumer Price Index (CPI). On an annual basis, consumer prices were up 6%, which is a notable drop from January’s 6.4% annual inflation reading.

So what

Inflation has been surging since the latter part of 2021, and in 2022, many consumers experienced financial hardships due to higher living costs. Thankfully, the annual rate of inflation has been steadily declining since peaking at 9.1% last June.

In fact, February marks eight consecutive months of declines in the annual inflation rate. But a monthly uptick from January to February could push the Federal Reserve to act aggressively to fight inflation, and that could hurt consumers.

“Services inflation is still hot; the Fed still has work to do, and their actions and communications are going to come under increasing scrutiny given the events of the past few days,” said Andrew Patterson, senior international economist for Vanguard, referring to recent banking industry woes. “They need to be careful in balancing the risks of price and financial stability.”

Now what

The Federal Reserve is on a mission to combat inflation, and, ideally, bring it back down to the 2% annual range. To achieve that goal, it’s been implementing consistent interest rate hikes that have driven up the cost of consumer borrowing, from credit cards to personal loans.

At this point, the Fed has a tough decision to make, since February’s CPI was a bit of a mixed bag. On the one hand, inflation did rise on a monthly basis. But the drop in annual inflation was significant. So it’s a little hard to know whether the Fed’s next rate hike will be a more aggressive one or a more moderate one.

One factor that might push the Fed toward the aggressive side of things is February’s recent positive jobs report. Though job growth wasn’t as robust as it was in January, the U.S. economy still added more than 300,000 new jobs last month. And when jobs are plentiful, it sets the stage for strong consumer spending, which the Fed wants to see slow down so that inflation can cool.

At this point, consumers would be wise to brace for higher borrowing rates given February’s jobs and CPI data. Those thinking of doing things like financing a car or taking out a personal loan for home renovations may want to hold off and wait for borrowing rates to get less expensive. And those with variable-interest debt, like outstanding credit card and HELOC balances, may want to work on getting those paid down before their interest rates rise and their payments become even harder to keep up with.

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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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What will you do with yours? 

The IRS has issued over 42 million tax refunds for 2022 so far, and there’s a lot more left to come. Whether you’ve gotten yours or not, you’ve probably started thinking about how you want to use it. You have a lot of options, and at the end of the day, it’s your call. But here are a few possibilities you may want to consider.

1. Your emergency fund

Those who don’t have any emergency savings should consider using their tax refund to jumpstart their emergency fund. This will help you be better prepared for unexpected costs that may arise in the future, whether that’s a hospital bill, an insurance claim, or a job loss.

Ideally, you should keep at least three months of living expenses in your emergency fund, and some people like to have six months of savings or more. So your tax refund may not be enough on its own. But you can add to it a little each month until you get it to the level you want.

2. Debt repayment

Those with high-interest credit card or payday loan debt may be able to breathe a little easier if they put their refund toward their debt repayment. If the total amount of your debt exceeds your refund, put it toward the account with the highest interest rate first. When you pay that off, move onto the debt with the next-highest interest rate, and so on.

You may want to try using a balance transfer card or a personal loan to help you get rid of the remaining debt. Balance transfer cards temporarily halt the growth of your balance by saving you from interest charges, so any payments you make go toward the principal. Personal loans give you a predictable monthly payment, so you know exactly how much you’ll pay in interest over time.

3. Professional development

Taking a professional development course or pursuing additional training for your job isn’t the most exciting way to spend your tax refund. But it could be worth it if it helps you secure a higher-paying job in the future. That would give you additional income and could pave the way for more financial freedom.

Look at what sorts of credentials are respected in your field or in the field you’d like to break into. Then, see what sort of training you need in order to earn them. There are a lot of online programs available these days, so chances are, you won’t even need to leave your couch to get started.

4. A high-yield savings account

If you plan to make a big-ticket purchase within the next five years or so, a high-yield savings account is probably your best home for your tax refund. You’ll still earn interest here, and you won’t have to worry about losing money like you would if you invested in the stock market.

Savings account annual percentage yields (APYs) vary by bank and over time. But right now, the best savings accounts are paying about 4%. That could make you tens or even hundreds of dollars per year in interest, depending on your balance.

5. A retirement account

If you have an emergency fund and don’t have any high-interest debt or major upcoming expenses, you might prefer to keep your money in a retirement account. Doing so could earn you a nice tax break, either now or in retirement, depending on the account type. It’ll also help you better prepare for your future.

Investing your money can help it grow much faster than it could in a savings account. There is some risk of loss, as the stock market can be volatile in the short term. But this usually doesn’t matter if you plan to leave your savings alone for at least a decade before withdrawing it.

You don’t have to pick just one

You can split your tax refund between several of the goals above if a few of them are jumping out at you. Or you could decide to use some of your refund for one of the goals above and spend the remainder on things you enjoy. You can figure out what works best for you.

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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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It made my life easier in many ways. 

I’ve long been a fan of online shopping, and I rely on more than one credit card that offers special opportunities to earn cash back. One of the sites I shop most often is Amazon, and I’ve been a Prime member since 2015, so I can take advantage of free fast shipping on most items, with no order minimum. It’s incredibly convenient.

In 2022, I made more orders than ever — 105, to be exact. If you do the math, that comes out to an average of two Amazon orders per week. For many people, this might be a sign that they need an online shopping intervention. Not me, though, and here’s why.

It saved me money in multiple ways

While Amazon is many people’s go-to for a variety of items, it may not actually be the cheapest place to buy those items. But you really can’t beat Amazon for convenience, especially if you have a Prime membership and can count on fast free shipping.

I buy some household products, like paper towels, at Amazon regularly, and not only can I get a large package of them for less money than I’d spend at the grocery store, I can also save money by not having to physically shop for them in person during the time I could be working. I’m a freelancer, so I like to maximize the time I can spend working, rather than running errands.

Another way Amazon shopping saved me money was via the particular items I bought. I like to cook big batches of soups and stews, and freeze portions of my leftovers to have for future meals. Amazon is where I buy the takeout containers that allow me to do that, and eat for less money. It’s also where I got my supply of plastic sheeting for my apartment’s ancient leaky windows — by covering them with plastic in the fall and leaving it up until spring, I save a ton of money on my heating bills.

It made me a better pet owner

Having pets certainly isn’t cheap, but the love and companionship my three spoiled cats provide makes it worth the money I spend on them. While I also shop at Chewy and a few big-box retailers for pet supplies, Amazon has really become my go-to for cat food and other pet items. In fact, it helped me give the cats a better life in 2022 by giving me access to a wider variety of toys and other necessary items than I’d find at any other retailer. My youngest cat in particular must be kept busy with toys, or he will make his boredom and displeasure known. Since we got new toys frequently, he remained entertained throughout the year.

It let me care for others

Thanks to spending my adulthood moving around so frequently, I now have a network of friends all over the country. Amazon made it easy and convenient to send them items they needed, plus I didn’t have to pay for shipping thanks to my Prime membership. One friend had surgery and created an Amazon Wish List for items to make her recovery easier, so I sent her a few gifts from it. Another friend was laid off from her job in 2022, and she’s a fellow cat owner, so I sent her some toys and treats for her cat, as money was suddenly tight for her.

It helped me improve my own life

Finally, Amazon shopping made my own life better in 2022. I made some “frivolous purchases” for my home, including new dishes and new wine glasses. I replaced my workout sneakers, which were falling apart (Pro tip: Amazon can be a great place to buy clothes and shoes if you already know what size you are with a particular brand). And despite saying I wasn’t going to shop on Prime Day in July 2022, I caved and got a great deal on a new e-reader that I use every single day. Money well spent.

Many people have a go-to retailer where they give their credit card a workout. Mine was definitely Amazon in 2022, and while making 105 orders sounds like a lot, I think it was worth it.

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

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