Money Management

It could end up being the best place for your money. 

Building yourself a retirement nest egg is important. Without one, you might really struggle financially once you stop working and the paycheck you’re used to collecting stops coming in.

Now, when it comes to saving for retirement, you have choices. If your employer offers a 401(k) plan, it could pay to contribute to it — especially if there are matching dollars to be claimed. But if you don’t have access to a 401(k) plan through work, worry not. You can easily open an IRA account and save there instead.

IRAs come in two main varieties — traditional and Roth. And according to recent data from Fidelity, across all generations, Roth IRAs seem to be the retirement savings vehicle of choice. In fact, Fidelity says more than 61% of all retirement plan contributions during 2022’s fourth quarter went into a Roth IRA.

If you’re looking for a home for your retirement savings, a Roth IRA could be a smart bet. Here’s why.

1. You’ll get tax-free investment gains and withdrawals

The money you sock away in a Roth IRA shouldn’t just sit in cash. Rather, you should invest it so it can grow into a larger sum over time.

The great thing about Roth IRAs is that investment gains are yours to enjoy completely tax-free. And withdrawals in retirement are tax-free as well.

The latter is a huge perk. Many seniors find that money gets tight once they stop working. Not having to pay taxes on what could be your largest source of retirement income means shedding a big financial burden.

2. You get more flexibility with your money

Most retirement plans require you to remove a sum of your savings balance each year (officially, it’s called taking a required minimum distribution). Roth IRAs, however, don’t have that requirement. And that means you’re free to do whatever you want with the savings you’ve worked hard to build.

Of course, many seniors inevitably find that they need to take consistent withdrawals from their savings to pay their living costs. But what if somehow you don’t end up needing most of your savings, either because you’ve accumulated a very large nest egg or because you’re someone who lives very frugally? In that case, a Roth IRA will give you the option to leave a large chunk of your savings to your heirs, if that’s a route you opt to take.

A great option for long-term savings

It’s easy to see why Roth IRAs have become such a popular savings choice. If you’re looking to start buckling down and building a retirement nest egg, then it pays to consider housing your money in a Roth IRA.

Now, one thing you should know is that higher earners cannot make contributions to a Roth IRA — at least not directly. That option is off the table this year if you earn more than $153,000 if you’re single or $228,000 if you’re married. But in that case, you can always open a traditional IRA and convert it to a Roth later on. So either way, the option to benefit from a Roth IRA should still be on the table.

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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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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If you have a 529 plan, you’re halfway there. 

Class is in session as Americans try to pay for the ever-increasing cost of higher education. One group that gets an A+ in saving for college? The wealthy. How do millionaires create generational wealth with nothing more than a 529 plan? Read on to find out.

Introduction to 529s

The 529 educational savings plan is almost as well known as its retirement plan cousins, the 401(k) and the IRA. However, before we break down the nuances of how the wealthy use a 529 account, let’s review the basics.

It all starts with a contribution. Contributions to a 529 account can be made by anyone. That includes parents, grandparents, aunts and uncles, and anyone else who wants to fund a child’s higher education. Typically, any one person can contribute up to $17,000 in a given year without worrying about your lifetime gift tax exemption.

The savings in a 529 account can then be invested. Investment options vary from state to state, but typically include baskets of funds ranging from conservative to aggressive. The most notable feature of a 529 plan is that the capital gains earned in an account are tax free if the proceeds are used for a qualified educational expense. This tax-free growth is key in encouraging Americans to save for higher education.

Thinking like a millionaire

There are two main provisions that allow the wealthy to build multi-generational 529 plans. Front-loading funding can put more money into an account quickly, while painless beneficiary changes allow that money to be used for many kids and grandkids.

One of the lesser-known features of a 529 plan is the ability to “superfund” the account. Instead of contributing $17,000 per year over five years, each donor can instead contribute $85,000 in one year and sit the following four years out. Hypothetically, a family with two parents and four grandparents could pack over half a million dollars into a 529 account in one year, provided they can pony up the cash.

College education is expensive, but likely not half-a-million-dollars expensive in most cases, so why would a wealthy family stash so much money in this account? Because they aren’t paying for just one child’s college education. One of the flexibilities of the 529 plan is that beneficiary changes are very easy. As long as the new beneficiary is a qualifying family member, the change will not incur any tax consequences. In wealthy families, once a child has completed their education, a 529 can easily be transferred to the original beneficiary’s sibling, cousin, or child. This tax-free multi-generational benefit has earned this strategy the name of a ‘Dynasty’ 529 plan.

How can you save like a millionaire?

At first glance, the ability of the wealthy to take advantage of the 529 plan may appear unfair. However, there is a very important lesson that the average American can learn from this strategy.

The reason why this strategy works well for the rich is that they plan it well in advance. If a funded 529 account is not given enough time to grow, there is little benefit to using it at all (it still might help save on state taxes). After all, a child’s grandparent could just give them $17,000 each year without worrying about the lifetime gift tax exemption. By saving early and investing appropriately, you get the power of compounding growth, regardless of what your net worth is.

529 plans are popular for a reason, and the wealthy aren’t letting the opportunity to grow college funds tax free go to waste. However, the average American should pay attention to the fundamental approach of saving early for college. The best part: you don’t need to be a millionaire to take advantage of this million-dollar strategy.

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It’s important to move quickly once you lose your job. 

The start of 2023 hasn’t exactly been great for workers in the tech space. That’s because a number of large companies have implemented layoffs in an effort to cut costs. In fact, tech job tracker layoffs.fyi reports that in 2023 alone, more than 400 tech companies have cut over 110,000 jobs.

But the reality is that layoffs haven’t been limited to just tech firms. And we don’t know what the rest of 2023 has in store as far as downsizing efforts go.

Now, if you’re self-employed or work on a contract basis, then you should know that unfortunately, you won’t be eligible for unemployment benefits if you find yourself out of work. But if you work for an employer and lose your job through no fault of your own, then you generally can claim unemployment. And if you’re wondering when to file for those benefits after losing a job, the answer is, as quickly as possible.

Don’t wait to file for unemployment

It can take some time for your state to process your unemployment claim. So the sooner you get that application in, the sooner you might start getting your benefits.

It’s especially important to apply for unemployment benefits as soon as possible, especially if you don’t have money in savings at the time of your layoff. If your paycheck is yanked away and you aren’t entitled to severance, it could take at least a few weeks for your weekly unemployment benefits to start rolling in. And you risk racking up costly credit card debt during that time. It wouldn’t be unreasonable to say that if you get laid off on a Tuesday morning, go home and file your unemployment claim on Tuesday afternoon.

What if you’re getting severance?

Employers aren’t always obligated to offer severance pay upon laying workers off. But many do give severance, the amount of which can vary based on factors like company size and employee tenure.

Your severance pay might impact your unemployment benefits — but you should still file your claim as soon as possible upon getting laid off, even if you’re eligible for severance. What will often happen is that your unemployment benefits will be delayed until you’re done receiving that payout.

So let’s say you get laid off on March 1 and your employer is giving you enough severance so you’re getting paid your salary in full through April 30. In that case, you can still file your unemployment claim in March, and what might happen is that you won’t receive your first weekly unemployment benefit until May, because that’s when your income is going away. But to be clear, as long as you disclose that you’re entitled to severance, and you put down the length of your severance as part of your application, you are allowed to claim unemployment in this sort of scenario.

All told, unemployment benefits could be a lifeline when you lose your job. So if you end up in the unfortunate situation of being laid off, your first priority should be to submit an application for unemployment benefits.

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An extra step to stymy comparison shoppers? 

Online “window” shopping has become one of my favorite personal-finance-friendly hobbies. Filling a digital cart with this and that provides a similar satisfaction to strolling the stores — without the need to put on outside clothes or, you know, leave the house.

But there’s a weird little quirk I’ve run across while online shopping that you simply don’t see in stores. While most items will conveniently list the price right there on the product page, every now and then, I’ll see an item that isn’t so forthcoming. Rather than display the price, it tells me I must “Add to Cart” to see how much it costs.

What gives? Why make me jump through this extra hoop?

As it turns out, it’s not really the retailer’s fault. It’s instead due to rules set forth by the manufacturer. (Rules, it’s worth noting, that are actually illegal in many countries.)

The Minimum Advertised Price (MAP)

The particular practice at play here is known as the Minimum Advertised Price (MAP). This is a policy set by the manufacturer that limits how low a retailer can advertise a given item’s price.

Note the distinction here; it’s not a rule about how much they can sell the item for — it’s about how low a price they can advertise. In other words, while a retailer can sell a given item for whatever price they like, they can’t market the item for a price lower than the MAP rate in their sales flyers or commercials.

But it doesn’t stop there. For the purposes of MAP rules, this applies not just to promotional materials but to openly displaying the price on their website as well.

Why all the bother? In general, it’s due to branding. If you’re trying to curate a feeling of luxury around your product, having some uppity retailer lowball your MSRP (manufacturer suggested retail price) can undermine your goal. How fancy can a product be if someone is selling it at half the price?

It’s also a tool used to keep competition in check by manufacturers that sell their own products. For example, Apple may use MAP to restrict other retailers from advertising Apple products well below the rate at which Apple sells them on its own website.

The “Add to Cart” loophole

So, if MAP policies prohibit marketing the price lower than the MAP rate on their websites, how can online retailers let shoppers know what the item actually costs? That’s where the “Add to Cart” function comes into play.

You see, adding an item to your online shopping cart implies a certain intent to purchase the item. As such, giving you the price at this point is no longer considered to be advertisement — it’s simply part of the sales agreement.

Think about it this way: The retailer must be allowed to show you the price at some point. No one (outside a few of the ultra wealthy) is going to buy an item if they don’t know how much it costs.

On the plus side, adding an item to your cart is as far as you need to go in most cases; you typically don’t need to add your credit card information or create an account to see the price. However, a few sites (I’m looking at you, Costco!) are even more restrictive, and you may need to log into your account to see prices on certain products.

The international distinctions

In general, the distinction between advertised price and sale price is what keeps MAP policies legal, at least in the United States. Since MAP doesn’t stop the retailer from selling the products at whatever price they like, U.S. law doesn’t typically consider it to be an antitrust violation.

Other countries…have a different view. Specifically, the European Union generally considers MAP policies to be restrictive of fair competition and therefore prohibits their use.

What retailers can do is make suggestions. Providing an MSRP, for instance, is perfectly fine — so long as it remains within the retailer’s discretion whether or not to abide by it. But manufacturers aren’t allowed to apply penalties for advertising or selling items below a given price.

Common sense pricing

Whether MAP policies are anti-competition is a matter for lawyers to debate. Personally, I wonder how necessary they really are. I mean, how often is a retailer really going to price products so low as to annoy the manufacturer? The retailer still needs to make a profit, so I’d think common sense would impact the pricing far more than MAP policies.

Either way, they seem to be here to stay, at least for U.S. shoppers. But hopefully you now at least know why the restriction is there — and how you can get around 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.Brittney Myers has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Costco Wholesale. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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Even in 2023, women make less money than their male counterparts. 

Equal Pay Day is on March 14, 2023, making for the perfect opportunity to discuss what we can do to work toward continued progress for equality. Sadly, financial inequalities still exist between men and women — even in 2023. But that doesn’t mean that continued progress is impossible. We can take action in our everyday lives to bring more awareness to the issue as we fight to eliminate the wage gap.

Women are still paid less than men

In 2023, there is a significant difference in the wages that men and women are paid, and a wage gap still exists. The wage gap has narrowed over the years as continued attention is brought to the problem. But unfortunately, even in the United States, the average woman still makes significantly less money than the average man. Women of color make even less.

According to recent data from Pew Research Center, in 2022, American women typically earned $0.82 for every $1 earned by men.

How does the current wage gap compare to prior years?

In 2002, women earned $0.80 to the dollar.In 1982, women earned $0.65 to the dollar.

Looking back at history, we can see that there has been some progress in narrowing the wage gap, but progress has been slow, and there is still a lot of work to do. According to the Institute for Women’s Policy Research, it’s estimated that women won’t reach pay parity until 2059. That’s a long time to wait for equal compensation.

Five ways to fight for progress

Reading stats like those mentioned above can be depressing. But if we want to make changes, we must do the work. So, what can we do to work towards continued progress to close the wage gap? Here are some ways that you can make a difference:

Talk about pay: We all need to get more comfortable discussing wages. When we talk about pay with family, friends, and coworkers, we’re helping to normalize the conversation. These discussions also help educate and may encourage someone you care about to ask for a raise or apply for a new job to be compensated more fairly.Learn negotiation skills: Learning new skills is never a bad idea. By learning to negotiate, you can feel more confident and comfortable when asking for a raise or negotiating for a higher salary when a new job opportunity comes your way. You’ll feel more financially secure with more money in your checking account.Support legislation to increase the federal minimum wage: There are significantly more women than men working minimum wage jobs in the United States. According to the National Women’s Law Center, women make up over two-thirds of minimum-wage workers across the country. Raising the federal minimum wage would not only improve many women’s lives, but could help narrow the wage gap more quickly.Research compensation before accepting a job offer: Take the time to research average wages for a position before deciding to accept it. You want to ensure you’re getting paid fairly for the work you will be doing. Online research tools like Salary.com and Payscale.com can help you learn about average salary rates and compensation packages.Improve your personal finance knowledge: Women can improve their personal finance knowledge and make financial decisions that set them up for a better future. Starting to invest as early as possible is one way women can work to increase their wealth and protect their financial futures.

Knowledge is power

Yes, many women workers are making less money than men — even for the same work. But we can use our knowledge about wage gaps to make positive changes. Learn as much as possible about important financial matters to stretch your money further. And as you learn more, share your knowledge with the women in your life so they can benefit, too.

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Even if it’s allowed, is it worth it? 

The idea of having a proper emergency fund is well-worn financial advice. But what is less discussed is what you should actually do with that savings. Do you stick it in a checking account? Stash it in a savings account? Invest it in a brokerage account?

Personal finance guru Suze Orman says the latter option, at least, is a big no-no. You want your emergency fund to be easily accessible so you can cover, you know, emergencies.

But if your big-bank savings account is only giving you 0.1% interest, it can seem almost wasteful to keep your money in the bank. So, some Orman fans have asked about whether short-term Treasuries make sense for your emergency fund.

To this, Orman says: Go for it. The key here, however, is that Orman is specifically okay-ing short-term Treasuries. You want to avoid tying up your emergency fund in anything that means you can’t access it for years at a time.

The types of Treasuries

The term “Treasuries” is generally used to describe various types of debt obligation securities issued by the U.S. Treasury. In other words, when you buy a Treasury security, you’re giving the government a loan. The government then pays you interest on that loan.

Treasuries are typically considered to be a very low-risk investment because the U.S. government has never — and, optimistically, will never — defaulted on its debt obligations.

There are three types of Treasuries, organized by how long they take to mature: bills, notes, and bonds. Treasury bills (also called T-Bills) can have the shortest terms, with options for maturities of four weeks, eight weeks, 13 weeks, 26 weeks, and one year.

When people talk about short-term Treasuries, they’re usually talking about T-Bills.

You can purchase T-Bills through regular auctions held by the U.S. Treasury. This is done through the TreasuryDirect website. You’ll need to register and create an account, which is free to do. You’ll need to invest a minimum of $100.

Pros and cons of T-Bills

The unique thing about T-Bills is that they don’t pay interest in the same sense that, say, T-Bonds do. You don’t receive regular interest payments. Instead, you can purchase T-Bills for less than their face value. Then, when the T-Bill matures, you get paid the face value. Your “interest” is then the difference between how much you paid and the face value of the T-Bill.

Discount rates can vary, but they are rarely more than a few percentage points. So, this makes T-Bills less profitable than other types of Treasuries, since longer-term Treasuries tend to pay higher interest rates.

However, the shorter terms offered by T-Bills mean you’re only tying up your money for a few weeks or months, rather than years. That makes them much better suited for emergency funds than longer-term Treasuries are.

T-Bills vs. savings accounts

While Suze Orman has no problem with folks investing their emergency funds in short-term Treasuries, you may not need to.

Banks across the board have been rapidly increasing interest rates over the last few months. Today, some of the best online banks offer savings accounts with rates of 3% or more. Since this is comparable to the typical T-Bill return, you could save yourself the hassle and simply park your money in a high-yield savings account instead.

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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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