Money Management

Once you’ve been scammed out of retirement money, you may also be on the hook for taxes. Here’s why. [[{“value”:”

Like many Americans, I don’t regularly get caught up reading U.S. Senate reports, but one I read recently is an exception. It was written by the majority staff of the Special Committee on Aging and contained some of the most devious ways retirees have been scammed out of their life savings.

The report tells how victims of these scams face huge tax bills after having their bank or brokerage firm accounts cleaned out. The tax bills can be traced back to the Tax Cuts and Jobs Act (TCJA), a 2017 bill that eliminated fraud victims’ ability to deduct losses from their federal income tax.

Scams

Scams come in all shapes and sizes and appear custom-designed to snag as many people as possible. Here are two examples of the scams mentioned in the Senate report.

Larry, a retiree in his 70s

After being contacted by someone impersonating a Social Security Administration (SSA) official, Larry was scammed into withdrawing money from his IRA, 401(k), and savings account to purchase cryptocurrency.

Larry’s initial loss was $765,000. However, because he can’t deduct the loss from his federal income tax return, he’s on the hook for an additional $220,000 in federal taxes, bringing his total loss to nearly $1 million.

Richie, a retiree in his 60s

Like Larry and countless others, Richie was contacted by someone pretending to be someone they weren’t. Richie’s financial nightmare began after his laptop froze and a pop-up directed him to call a number.

The person on the other end of the line told Richie that he worked for Microsoft and that Richie’s Social Security number had been compromised. He said two fraudulent charges had already been made to Richie’s bank account.

Richie was then connected to someone who claimed to be a Social Security administrator. This scammer tricked Richie into wiring money from his bank accounts to “keep his assets safe.” Over a month, Richie sent 11 wire transfers, totaling more than $567,000. He also faced federal and state tax bills on the stolen money, totaling more than $44,000.

It’s ultimately about playing into fears

Scammers employ a multitude of schemes. When one doesn’t work, they move on to the next. And it’s not just beginning investors or elderly retirees who fall for these scams. People from all walks of life have fallen victim.

The Senate report also tells the story of Sally and Bill, retirees in their 70s, who fell for a scam perpetrated by someone posing as a bank representative. According to Sally, the scammer was very convincing. That ability to be believable while offering a “solution” draws a victim close enough to rob.

Scammers depend on their victim’s emotional response to the idea of losing their life savings. That emotion clouds their critical thinking and pushes them into taking steps they would never usually take without further investigation.

How taxes come into play

When a person withdraws funds from a taxable or tax-deferred retirement account, like an IRA or 401(k), taxes must be paid on the withdrawal. The amount due is based on the person’s total taxable income for the year. Since the TCJA was implemented in 2017, it doesn’t matter why the funds were withdrawn, and there are no protections in place for those who were scammed out of their money.

Further, victims under 59 1/2 on the distribution date may be subject to a 10% penalty on early distribution from their accounts.

Protecting yourself

Here are three practical tips for protecting your hard-earned money.

1. Do not respond to fear tactics

Scammers know that many retirees worry about having enough money to get them through retirement. If someone contacts you saying that one of your accounts has been compromised or offers you an investment opportunity that sounds too good to be true, be skeptical.

If anyone pressures you to “act quickly,” be immediately suspicious of their motivation. They don’t want you to have time to consider your options critically.

2. Don’t acknowledge outreach attempts

Another red flag involves unsolicited phone calls, texts, or emails from someone you don’t know. Many of those scammed out of their life savings have received contact from total strangers, eventually allowing those people to weasel their way into their lives.

If you receive a call from a number you don’t recognize, don’t answer. If you receive a text from an unfamiliar number, report it as junk. And if you receive an email from an unfamiliar person (even if it claims to be from a U.S. government agency), delete it. If there were a problem, the government would not contact you via phone, text, or email, but by mail.

3. Understand how ID spoofing works

Let’s say someone calls you, saying they’re with your bank. You only answered the call because the caller ID appeared to be from your financial institution.

Unfortunately, scammers can make it look like they’re calling from anywhere, using a method known as “ID spoofing.” They may be sitting in a basement in Peoria, Illinois pretending to be a bank executive, or in a boiler room pretending to be a brokerage firm’s tech support.

If someone says they’re from your bank or brokerage, get their name and hang up the phone. Then, using the actual number for your bank or brokerage firm (not one the caller has given you), call and ask to speak with a manager. Explain your situation. Chances are good, they will advise you to ignore any further communication from the caller.

For retirees who’ve been caught up in a recent scam, owing taxes on the money they’ve lost is a double whammy. At this point, the best anyone can do is outsmart the scammers by not responding.

Alert: highest cash back card we’ve seen now has 0% intro APR until nearly 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.Dana George has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

“}]] Read More 

In many real estate markets, $1 million homes are becoming the norm. Find out what you’d owe every month on a million-dollar house. [[{“value”:”

Once upon a time, buying a million-dollar home seemed like something only a mogul could do. But in some parts of the country where home prices remain stubbornly high, you may have to fork over $1 million or more for a pretty average house. A recent Zillow analysis found that a “starter home” (defined as being in the lowest one-third of homes in terms of price for the area) cost at least $1 million in 237 cities in the U.S.

Wondering what your mortgage payment would be on a $1 million house? Let’s break down the numbers.

Getting a mortgage on a $1 million home

To finance a $1 million home, you may need a jumbo loan. These are loans that exceed the annual limits set by the Federal Housing Finance Agency (FHFA). In 2024, these limits are $766,550 for a single-family home in most parts of the U.S., or $1,149,825 in Alaska and Hawaii.

Jumbo loans aren’t especially unusual, given the soaring costs of housing. However, they typically have stricter underwriting rules. You’ll need a solid credit score (usually 680 or higher) and debt-to-income ratio, healthy cash reserves, and predictable income.

You can also expect to put more money down. Jumbo lenders typically require a down payment of at least 10%, though some have minimums as high as 20% or 30%.

What’s the monthly payment on a $1 million house?

In our calculations, let’s assume that you make a 20% down payment on your million-dollar home and finance the remaining $800,000. We’ll also assume you get a fixed-rate mortgage, so your interest rate won’t change during the life of the loan.

If you opt for a 30-year fixed rate mortgage: If you took out an $800,000 loan at 7% APR, which is fairly typical for a 30-year mortgage in our current high-rate environment, your monthly payment would cost about $6,046 per month. Your payment would break down as follows:

$5,322 for principal and interest$658 for property taxes$66 for homeowners insurance

If you opt for a 15-year fixed rate mortgage: If you took out a 15-year $800,000 loan at 5.5% APR, your monthly payment would be roughly $7,261. Your monthly payment would break down as follows:

$6,537 for principal and interest$658 for property taxes$66 for homeowners insurance

In our example, we used a ZIP code in Tampa, Florida. Property taxes and homeowners insurance are typically included in a mortgage payment, but these costs vary widely depending on where you live. If you buy a home in a community with a homeowners association, you’ll also be on the hook for dues.

Can you afford a million-dollar home?

You may be wondering whether you should buy a home now or wait, especially if you live in an area where pickings are slim in the $1 million-and-under range. Many would-be borrowers are also holding their breaths in hopes that the Fed will cut the federal funds rate when it meets in September.

The truth is, though, that no one has a crystal ball for the housing market. Instead of trying to predict where home prices are headed or what the Fed will do, let your financial situation determine whether you can afford to buy.

One good rule of thumb (and a common guideline lenders follow) is that your housing payment shouldn’t exceed 36% of your income, while total debt payments shouldn’t be more than 43%.

In other words, if your income is $10,000 per month, your housing payment shouldn’t exceed $3,600. But if, for example, you’re already paying $2,000 per month for credit card and car payments, you’d want to limit your monthly housing payment to $2,300 — since the $2,300 housing payment plus your $2,000 debt payment would put you at the 43% threshold.

If you’re on the fence, crunch the numbers on what you’d pay for rent. In many parts of the country, you may be better off renting instead of buying.

Alert: highest cash back card we’ve seen now has 0% intro APR until nearly 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.Robin Hartill has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool has a disclosure policy.

“}]] Read More 

Less than 2% of Americans have perfect credit. Find out what they do differently so you can improve your own credit score. [[{“value”:”

Under the widely used FICO® Score system, the highest possible score is 850. Only 1.54% of Americans have a perfect 850 credit score, according to recent research by Experian.

You don’t need perfect credit, but having a high credit score comes with lots of benefits. It could help you qualify for credit cards with the most benefits, low-interest loans, and even lower insurance rates.

Experian’s research also looked at characteristics of Americans with an 850 credit score. Knowing how this group manages credit could help with improving your own. Here are four traits they share.

1. They have more credit cards

Consumers as a whole have an average of 3.9 credit cards per person. Consumers with perfect credit have an average of 5.8 credit cards.

If you’ve ever heard the myth that having too many credit cards is bad for your credit, this might come as a surprise. The number of credit cards you have actually isn’t one of the factors used to calculate your credit score.

Carrying several credit cards isn’t necessary for a high credit score, but it can have financial benefits. Consumers who like travel credit cards or cash back cards often open multiple cards to maximize rewards. For example, many of these cards have welcome offers for new cardholders, so opening more cards means you’ll have more bonus opportunities.

The downside is that it’s harder to manage multiple credit cards. But this generally isn’t a problem for people with perfect credit.

2. They keep their balances low

Even though Americans with perfect credit have more credit cards, they spend much less. The average credit card balance is $6,501. Among those with perfect credit, it’s less than half that: $3,028.

As a result, these consumers also have much lower credit utilization. Your credit utilization is your credit card balances divided by your credit limits, and it’s one of the most important factors in your credit score. For example, if you have $2,500 in balances and $10,000 in credit limits, your credit utilization would be 25%.

The average credit utilization is 29%. That’s pretty good — a popular rule of thumb is to keep your credit utilization under 30%. But lower is better, and people with perfect credit have an average credit utilization of just 4%.

That’s in part because they spend less, but the fact that they have more credit cards also helps. When you have more credit cards, you’ll also have more total credit, which keeps your credit utilization lower.

3. They have perfect payment history

Nothing affects your credit score more than your payment history. If you pay credit cards and loans on time, it’s good for your credit. If you pay late, it can potentially take over 100 points off your credit score.

The average consumer has 1.5 accounts that have been delinquent on their credit history. Among consumers with perfect credit, the average is zero — no late payments, ever.

Late payments only count against your credit score when they’re at least 30 days past due. Before that, the creditor can charge you a late fee, but it can’t report the payment as late on your credit history. If you’re a few days late on a payment, it’s not going to hurt your credit, as long as you get caught up before the 30-day mark.

4. They’re older

Baby boomers and older consumers make up 66% of the consumers with perfect credit. Generation X is another 26%. That means 92% of the people with perfect credit are in their mid-40s or older.

In addition to how you manage your credit, your credit score is also based on how long you’ve been using credit. You’re not going to have perfect credit after doing everything right for a year. You just won’t have a long enough credit history yet.

If you’re new to credit, be patient. Focus on paying on time and keeping your credit utilization low. Ideally, pay your credit card bill in full to keep your utilization low and avoid interest charges. It may take a couple of years, but following these habits will eventually lead to a high credit score.

There’s nothing complicated about building and maintaining a high credit score. The key factors are your payment history, your credit utilization, and the length of your credit history. Consumers with perfect credit do exceptionally well in each of these areas. They also tend to have more credit cards, but that’s likely because they want more benefits, rather than to help their credit scores.

Alert: highest cash back card we’ve seen now has 0% intro APR until nearly 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.

“}]] Read More 

There’s one passive income option it pays to steer clear of. Read on to learn more. [[{“value”:”

Having extra money at your disposal can do your finances a world of good. It could make it easier to put money in your savings account, pay bills, and splurge on fun experiences like vacations.

Getting a side hustle could be one path toward extra money, but it may not be such a desirable one, since it requires you to put in the time working a second job. Instead, you may be more interested in generating passive income.

One option you may be looking at is a multilevel marketing business (MLM). These require some upfront work, but they can evolve into a passive income stream under the right circumstances. However, before you sign up, recognize that not only are MLMs hard to make money from, but they can end up basically blowing up in your face.

The big problems with MLMs

If you’re not familiar with MLMs, they basically go like this. You sign up to sell a given product, whether it’s face cream, candles, or clothing, directly to other people. You’re then tasked with recruiting sales people to work under you to build your own team of sorts.

If your underlings earn commissions from their sales, you get a cut of them. Eventually, you may be able to earn money by simply sitting back and snagging a portion of your sales team’s commissions without having to go out and sell anything yourself.

It sounds great in theory, but there are some big problems with this plan.

First, many of the MLMs that are accessible to side hustlers have you selling overpriced products that are beyond the average consumer’s reach — think $80 bottles of wrinkle serum or $45 leggings. It’s hard to get budget-conscious people to buy these products when there are much cheaper versions available on Amazon or at Walmart.

Second, with MLMs, a lot of people only end up making decent money if they’re able to build a large, successful team. But that takes time, and it also boils down to a lot of luck. So it’s by no means a given that you’ll earn a meaningful amount of extra cash.

Finally, to be good at selling whatever product you sign up for, you need to be pretty aggressive. In doing so, you could end up alienating the people you try to sell to, whether it’s family members, friends, neighbors, or acquaintances you know through different activities. The people in your bowling league, for example, may not take kindly to feeling pressured to buy things when they’re trying to have a fun night out.

A better way to earn passive income

While a MLM could earn you some extra income without you having to do actual work if you end up assembling a nice-sized team, it could also backfire on you. The reason? Some of these companies require you to shell out the money for inventory and then sell it to get paid back and profit. If you’re not successful, you could end up losing money instead of earning it passively.

Plus, if you’re unable to build a successful team, you’ll have to put in a lot of hours selling products on your own to make money. If your goal is to earn income passively, that doesn’t exactly count.

A better approach is to try to cut expenses or work a side hustle that comes with guaranteed pay. For example, if you get a weekend job at a local retailer paying $18 an hour, you’re guaranteed that money no matter what.

Once you’ve earned some extra money, you can use it to generate passive income by investing it or using it to open a CD. You can even earn a nice amount of extra income in a regular savings account based on today’s rates.

However, savings account rates aren’t guaranteed, whereas CD rates are. So if you’re going to keep your money in the bank rather than in an investment portfolio, you may want to favor CDs.

Don’t fall into a money trap

To make a decent amount of money in passive income, you need to have a decent amount to begin with. A $500 CD with a 12-month term and 5% APY will only pay you $25. That’s not exactly a life-changing amount to earn in a year.

But the more money you’re able to save and invest, the more passive income you can enjoy. So instead of getting caught up in an MLM, put in the time to work a side hustle for a limited period, or live a scaled-back lifestyle for a year. From there, you can sit back and enjoy the free money your bank or brokerage account pays you.

Alert: highest cash back card we’ve seen now has 0% intro APR until nearly 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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. Maurie Backman has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.

“}]] Read More 

What makes wealthy Americans different from everyone else? Check out the interesting insights researchers have discovered about them. [[{“value”:”

For as long as there have been rich people, there has been a fascination with what their lives are like. How did they make their fortunes? What are their everyday routines? And is being wealthy as amazing as it sounds?

There’s been plenty of research about wealthy Americans over the years. Some of the findings are what you’d expect. They invest in stocks, they stay out of credit card debt — no surprises there. Here are a few insights about the wealthy that you might not have heard before.

1. Most of them aren’t self-made

Multimillionaires may like to promote the idea that they did it all themselves, but more often than not, they didn’t. Only 25% are self-made, according to a Bank of America Private Bank study. It surveyed Americans with at least $3 million in investment assets.

The study grouped multimillionaires into three categories:

Legacy wealth (32% of respondents): Those who self-identified as coming from a wealthy upbringing and receiving an inheritance. An average of 20% of assets came from inheritance.Head start (43% of respondents): Those who self-identified as coming from a wealthy upbringing with no inheritance or a middle-class upbringing with an inheritance. For the latter group, an average of 11% of assets came from inheritance.Self-made (25% of respondents): Those who self-identified as having a middle-class or poor upbringing and no inheritance.

It’s certainly possible to be successful with little help. But it’s important to acknowledge the roles that a stable upbringing and inherited wealth play. Those are significant advantages that most rich Americans have.

That’s also one of the reasons why you shouldn’t feel bad about your own financial situation compared to other people’s. You don’t know what kind of advantages they had.

2. Being wealthy doesn’t get rid of financial stress

I’m a regular viewer of the I Will Teach You To Be Rich podcast, where Ramit Sethi talks to couples about their finances. In some episodes, it sounds as if the couple is in pretty bad shape. They’re constantly worried about money, to the point where they get annoyed over $5 purchases their partners have made.

Then, they reveal their numbers, and it often goes something like this: “OK, so our net worth is $1.4 million, and our household income is $250,000 per year.” And as a viewer, my immediate reaction is shock. It was in the beginning, at least. I’ve since gotten used to it, because it happens all the time.

Many of us have this idea that more money would solve all our financial stress. We’re going to reach that magic number and never worry about money again. It rarely works out that way.

Don’t get me wrong — increasing your income and building wealth are great. They can significantly improve your quality of life. But they don’t fix everything. The wealthy are often still stressed about money and hesitate to spend it, despite the fact that they have far more than the average American.

3. They develop positive lifestyle habits in addition to their financial habits

Building wealth largely depends on your financial habits. Wealthy Americans tend to save money and invest regularly, avoid high-interest debt, and plan ahead for future expenses.

They also develop positive habits in other parts of their lives. Certified Financial Planner™ (CFP®) Tom Corley spent five years studying the habits of millionaires. He found that 80% read for at least 30 minutes each day, typically in subjects related to their careers. Here are a few more of his findings:

Nearly all of the millionaires he studied exercised at least 30 minutes a day.Nearly 90% devoted time to building and maintaining relationships.They all scheduled daily downtime for relaxation and leisure activities.

It’s probably safe to say that not all millionaires work out regularly or read every day. But in general, people who build positive habits in one area of their lives normally build them in other areas, as well.

There are valuable lessons you can learn from successful Americans. Their financial and lifestyle habits, in particular, could be worth incorporating into your own routine.

However, it’s also important to remember that nobody does it alone. While wealthy people don’t all come from rich families, most of them did have at least some assistance along the way. They can also be just as stressed about finances as anyone else. The idea that rich Americans are self-made or have stopped worrying about money are largely myths and misconceptions.

Alert: highest cash back card we’ve seen now has 0% intro APR until nearly 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.Bank of America is an advertising partner of The Ascent, a Motley Fool company. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.

“}]] Read More