The Free Financial Advisor

You are here: Home / Archives for Tamila McDonald

Can an Employer Charge Fees to Turnover Your 401(k) After You Quit a Job?

by Leave a Comment

Fees to Turnover Your 401(k)

Nobody wants to pay fees to turnover your 401(k). When you quit a job, you usually lose access to the various benefits your former employer provides. However, while the company may manage your 401(k), that doesn’t mean you don’t have a right to the funds. In some cases, you may even be required by your former employer to move the money out of their program.

While you may have the option of leaving your retirement savings in place, there are also benefits to rolling over your 401(k). However, you may be worried that your former employer will charge you a fee to make that happen. If you want to ensure you’re fully aware of the potential costs, here’s what you need to know.

Can an Employer Charge Fees to Turnover Your 401(k) After You Quit?

Generally, no, a former employer can’t charge a fee if you are rolling over your 401(k) into a new retirement account after quitting. They have to turn over the balance that belongs to you. At a minimum, this means your personal contributions, along with any vested matching funds from your employer.

Now, if you have a match from your employer but it isn’t fully vested, then the employer can keep that money. Until it vests, it isn’t technically yours. So, while losing the unvested match may feel like a fee, it actually isn’t.

It’s also important to note that you may have to contend with fees when you roll over your 401(k) from the company or program that is managing the receiving retirement account. All retirement programs come with costs, and they can vary from one program to the next.

However, there usually isn’t any fee to actually complete the rollover. Instead, the new account will come with unique maintenance and administration fees, commission costs, or similar expenses.

You may also have to deal with taxes or withdrawal penalties. When you are not of retirement age and choose to cash out your 401(k) when you leave your former employer, you’ll have to deal with both. If you are of retirement age, then you’ll bypass any early withdrawal penalties but will still owe taxes in most cases.

If you choose to roll over your 401(k), you may or may not have to pay taxes. That will depend on how the rollover is managed, as well as the kind of account receiving the funds.

Can You Keep Your 401(k) With Your Former Employer?

If you like the 401(k) program your former employer offered, keeping it in place may seem like a good idea. However, whether that is an option depends on the company’s program and policies, along with other factors.

With a 401(k), the employer is responsible for the program’s management, and that comes with costs. As a result, they may not want to shoulder that burden for former employees. Instead, they require them to transition the money out of that account and into another one, such as by rolling it over into a new employer’s 401(k) or an IRA.

Mandating that you move the funds is more common for 401(k)s with contributions made – and earnings achieved – during your time with that employer totaling to less than $5,000. It isn’t actually the balance that matters; it’s the amount of money added to your account while you were working for that company.

For example, if you rolled over a previous 401(k) worth $9,000 and then contributed $4,000 to the account while working with the new employer, your balance would be $13,000. However, only that $4,000 is factored into this decision process.

Contribution Factors

With contributions below $5,000, the expenses associated with managing the account may seem unreasonable to them, and they are perfectly within their right to tell you to move the money.

If the contributions are below $1,000, the company might just cut you a check for the balance. In most cases, this is something you want to avoid, as you’d end up owing taxes on the money and may also have to pay an early withdrawal penalty, depending on your age. Luckily, you usually have 60 days to transition the funds into a different kind of retirement account, giving you a pathway for avoiding the fees and taxes.

If the contributions are between $1,000 and $5,000, your former employer may even initiate an involuntary cashout. With this, they transition your money to an IRA of their choice, suggesting you don’t take other action. To avoid this, you’ll need to handle a rollover within 60 days, giving you the ability to choose the destination.

For accounts with contributions above $5,000, you can typically keep the money in place. This can be beneficial if there is a unique aspect of the program that you can’t get in your new employer’s plan or with an IRA. For example, if the fees are far lower than what’s common or there are investment options that are hard to access otherwise, it could be worth leaving the savings in place.

However, you won’t be able to make new contributions to a former employer’s 401(k) plan. Instead, it will simply exist as-is, only growing based on the investments themselves.

What It Means to Rollover a 401(k)

Rolling over a 401(k) simply means transitioning the money into a different retirement account. It isn’t a withdrawal, as you won’t actually gain access to the cash. Instead, it’s shifting the held assets straight into another similar retirement plan.

Generally, you have two options for rolling over a 401(k). First, if you have a new job with an employer that has a 401(k) or similar retirement plan, you might be able to roll over the money into that account. This would allow you to centralize and consolidate your 401(k) savings into a single place, which could make it easier to monitor and manage.

Second, you could roll over a 401(k) into an IRA. With this option, you may get access to a wider range of investment opportunities, have the ability to choose a company with a better fee structure, or, if you already have an IRA, consolidate some of your retirement savings.

With a 401(k) to IRA rollover, you will be responsible for overseeing the account. If you decide to roll over your 401(k) into your new employer’s program, they’ll handle most of the management, though you may still need to set asset allocations or make similar decisions.

Should You Rollover your 401(k)?

Whether you should roll over your 401(k) depends on several factors. First, it may not be optional, particularly if your contributions are under $5,000.

Generally speaking, if your 401(k) contributions are below $5,000, it’s wise to plan for a rollover. There is a decent chance the company may require it, so it’s best to prepare for that situation. However, if you like your 401(k) offerings and the company is fine with maintaining your account, you can always opt not to initiate the rollover.

If your balance is below $1,000 and your former employer would cut you a check for that amount, rolling it over is more urgent. If you don’t, you’ll owe taxes, as well as an early withdrawal penalty if you aren’t of retirement age.

For contributions above $5,000, then you’ll want to look at the virtues of the program. If it has a low fee structure, unique investment options, or other benefits you can’t get elsewhere, then you may want to leave it in place. If not, then exploring your rollover options is wise, as it may let you pay less in fees, access investments you can’t tap currently, and more.

Have you ever had an employer try to charge a fee to turn over your 401(k) after you quit a job? If so, what did you do? Share your thoughts in the comments below.

Read More:

Is It Ever Okay To Accept Unsolicited Financial Advice From Your Bank?

by Leave a Comment

unsolicited financial advice from your bank

While many people know how to deal with unsolicited financial advice from friends, family members, and colleagues, a surprising number aren’t sure what to do when the recommendation is coming from their bank. After all, a bank may seem like an authority on all things money-related, leaving many people assuming that the information they are offering is sound. However, even if that is the case, that doesn’t mean your bank is always focused on your best interests. If you need to decide if it’s okay to accept unsolicited financial advice from your bank, here’s what you need to consider.

Are They Selling Something?

While most people don’t view banks the same way as retailers, that doesn’t mean financial institutions aren’t selling something. They can benefit from the accounts you open with them financially, so they have a vested interest in getting you to sign up for new products.

Now, this doesn’t mean that what they recommend may not benefit you. However, this kind of advice might not have your best interest in mind. Instead, it might be serving their best interest, which may or may not align with yours.

If the unsolicited financial advice from your bank seems like a sales attempt, review it with a grain of salt. Determine if their goal is really helping you or if it’s more about getting you to sign up for something new. If it’s the latter, accepting their advice might not be a smart move.

What Is the Impact of Following the Advice?

Another way to determine if accepting unsolicited financial advice from your bank is okay is to consider the impact it would have on you. For example, would you need to pay a fee? Will it hurt your credit score? Does it alter your monthly debt payments? Does it limit your financial options? Could it create a hardship?

Ideally, you should only follow advice from any source if it results in a notable, reliable gain and any negatives are manageable or acceptable. Only you can determine if that is the case.

If you get advice from your bank, always take your time to look at what accepting it means. Envision how things could play out, including the best-case and worst-case scenarios. Try to get a full picture. That way, you can ultimately make a choice that’s right for you.

In the end, there’s nothing wrong with accepting unsolicited financial advice from your bank if you’ll genuinely come out ahead and the risk associated with the move is reasonable or minimal. However, remember, if you do follow it, the consequences of doing so fall squarely on you and not on your bank. If you aren’t comfortable with that, then it may be better to decline.

Have you ever accepted unsolicited financial advice from your bank? If so, how did it turn out? If not, why did you choose not to follow the advice? Share your thoughts in the comments below.

Read More:

 

 

Should I Be Saving For My Ten Year Old’s Future?

by 1 Comment

saving for your ten year old's future

If you have a ten-year-old child, you likely want to do all you can to secure their future. However, it isn’t uncommon to wonder precisely what steps you should be taking and whether now is the right time to make certain moves. If you can’t figure out if you should be saving for your ten-year-old’s future, here’s what you need to know.

Reasons to Save for Your Ten Year Old’s Future

In the end, there is a slew of reasons why saving for your child’s future is a smart move. Over time, your child is going to potentially have quite a few high-cost needs. Many of which can be hard to shoulder once those times arrive.

One of the biggest examples is paying for college. On average, college costs $35,720 per student per year. That’s more than many people can pay out of pocket without planning for the expense.

However, there are other costs you may also encounter. For example, if you want to help your child get their first car. That will likely cost several thousand dollars. If you want to have a little nest egg to lend a hand if they get married. You may need to save for that, too.

Plus, there is a range of expenses that you may not see coming. Anything from field trips to sports fees to medical costs not covered by insurance could all make saving important.

Ultimately, by saving for your child’s future now, you’re giving yourself time to gather up some cash before you need it. That can make a range of costs more manageable, both for you and for them.

Deciding If You Should Start Saving for Your Child’s Future Now

Even though most parents feel that there are plenty of good reasons to start saving for their child’s future, that doesn’t mean now is always the right time to do it. In the end, it isn’t the child’s age that should be a determining factor. Instead, it’s the household’s financial situation.

If you’re living paycheck-to-paycheck, your first priority should be to give yourself some breathing room. That way, you can handle other more crucial goals, like starting an emergency fund and paying off high-interest debt and then potentially move on to saving for your child’s future.

You may be able to get some space by reviewing your budget and trimming various expenses. Launching a job search to find a higher-paying position or a second job could also work, depending on your exact situation.

As you review costs, resist the urge to stop funding your own retirement. While you may think your child’s future is more important, you don’t want to neglect yours to make it happen. Instead, view your retirement contributions as high-priority expenses, and leave them as-is while you evaluate your budget.

If all of your financial needs are met, and you find room in your budget to save for your child’s future, then start right away. As with all kinds of saving, the earlier you start, the better, as it gives you time to benefit from compound interest and other kinds of gains you may experience.

How to Save for Your Child’s Future

When it comes to how to save for your child’s future, that may depend on the exact savings goal. Different techniques are often best in different situations, so you need to use a strategy that makes sense for what you want to accomplish.

Generally, if you are trying to set money aside for your child’s college education, a 529 College Savings Plan or 529 Prepaid Tuition Plan is your best bet. Which of those options is available depends on where you live, and they each have their own benefits and drawbacks. However, those are good places to start if setting money aside for school is the priority.

Uniform Gifts to Minors Act

You can also explore the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) options. These are the most widely used types of trusts, allowing parents to set money aside for child-related expenses or to transfer the assets to their child once they reach the legal age. These accounts make it possible to purchase stocks, bonds, or other kinds of securities for a minor, so it could be an option that’s worth exploring if your goal is to hand those assets over to your child.

Brokerage Account

Alternatively, you can open your own brokerage account. Then, you can invest outside of plans that are designated solely for education or retirement and where withdrawals aren’t age-restricted. That way, you can pull the money when the time comes. Just make sure you also account for the taxes that can come with a withdrawal, as you’ll need to handle them.

Traditional Savings Accounts

In some cases, a traditional savings account is a better option for handling your child’s future expenses. For example, it could be a great choice if you want to help them buy a car, as that purchase is almost on the horizon if your child is already ten years old. Just make sure that you opt for a high-yield savings account. Look at the interest rate, as well as any fees, to find the option that lets your money earn the most.

Ultimately, all of those options are potentially viable. Choose the one (or ones) that align with your goals, and you can make significant strides toward helping secure your child’s future.

Do you think that it’s wise to start saving for your ten year old’s future? Do you think ten years old is a good time to begin or is another age a better choice? Share your thoughts in the comments below.

Read More:

Are You Financially Prepared to Return to The Office?

by Leave a Comment

financially prepared to return to the office

Now that vaccine rates are rising, and restrictions on gathering are loosening. Many professionals will soon be returning to their traditional workplaces. While the idea of transitioning back may not seem like a big deal. As many people have years and years of experiencing going to an office. That doesn’t mean there won’t be an impact. Returning to the office will come with a financial burden. If you aren’t ready, it can be hard to start shouldering again. If you want to make sure you’re financially prepared to return to the office. Here’s what you need to know.

The Costs of Heading Back to the Office

Often, you can’t determine if you’re financially prepared to return to the office without first understanding the costs you may face. That way, you can estimate how they may impact your budget, giving you a chance to make adjustments in advance.

Commuting

One of the biggest shifts in your expenses will involve your commute. Since you won’t be working from home, you’ll need to tackle transportation costs that may not have been a part of your life for some time. This can include increases in fuel expenses, tolls, parking fees, and wear-and-tear costs if you drive your own vehicle. If you use public transit, then you may need a new pass or to factor in the price of tickets.

Lunch, Drinks, and Snacks

Another point you may need to cover is food and drinks. While you can certainly pack a lunch to bring with you and only drink beverages available for free at work, meals and drinks out may also be part of the equation. If you don’t plan on bringing your own, you need to factor in these costs.

Wardrobe

Additionally, you may have to spring for new clothing. You’ll need to look at your wardrobe to determine two things. First, you need to see if your clothes are in good repair. Second, you need to find out if they still fit.

Many people saw their weight change during the pandemic, as being stuck at home altered activity levels and may have also led to diet changes. Since you want to look professional when you head back to the office, you need to make sure your clothing is the right size for you now.

PPE

Finally, you may need to cover some PPE costs that you didn’t have to shoulder before. This could include a higher quality mask, particularly if you aren’t yet vaccinated, and your job doesn’t allow for six feet of separation, as well as personal stashes of hand sanitizer, gloves, or other items that may not be available through your employer.

Child Care

If you have children at home, you may need to make child care arrangements for when you head back to the office. This is especially true if your children aren’t school-aged or if schools have not reopened in your area and your kids aren’t old enough to take care of themselves.

It’s also important to note that these costs may be higher than they were pre-pandemic. Many child care facilities have seen their costs rise and may still be dealing with restrictions about the number of kids who can be on-site at a time. As a result, they might have had little choice but to raise their prices in order to sustain their operations.

How to Financially Prepare to Return to the Office

If you want to make sure that you’re financially prepared to return to the office, your biggest step is to review your budget. Estimate the cost of any expenses you’ll have to cover once you start heading to a workplace and see if you can cover them comfortably. If not, you may need to cut back in various areas, ensuring that any costs that you can’t avoid can fit into your budget.

Additionally, for any items you need to buy – like clothing or PPE – shop around. Discount retailers like TJ Maxx or Ross Dress for Less may help you stretch your budget, or you may find solid options from thrift stores.

It’s also wise to keep a close eye on your food and drink expenses. Dining out is convenient, but it typically costs far more than bringing your own meals, snacks, and beverages. If you’re worried about safety, consider investing in an insulated lunch box or thermos if you need to keep items cold or hot. That way, you don’t have to store your food or drinks in areas that all employees can access, which may give you more peace of mind.

Finally, try to make room for saving. Keeping a solid emergency fund and your retirement on target should be priorities. While you may have to scale back while you regain your financial footing, try to stay committed to setting aside as much as possible. That way, you can maintain your savings habit.

Do you have any tips or insights that can help people financially prepare for a return to the office? Share your thoughts in the comments below.

Read More:

Here’s What Your Children Know About Investing That You Don’t

by Leave a Comment

 

what your children know about investing

While younger generations often get a bad rap when it comes to how they handle their finances. A decent portion of that reputation is underserved. In fact, on occasion, younger investors are savvier than their older counterparts. Causing them to make better choices than their parents. If you are wondering what your children know about investing that you don’t. You should keep reading.

Dodging Fees and Other Costs

Overall, younger generations are more fee and cost-conscious than older ones. They don’t just understand that investment-related expenses can hinder their progress. They also know how to find information about the associated fees.

Millennials and Gen Z aren’t afraid to get online and dig into the fine print about what various brokerages or investments will cost them. Additionally, Millennials are particularly value-driven. So they look for opportunities to save whenever they exist.

Thanks to the rise of low-cost robo-advisors, many younger investors have learned that high fees aren’t something they have to accept. That isn’t necessarily true of many older investors, particularly those that have been using the same approach for years, if not several decades. In the latter case, the investors simply settle into the status quo, and that can be costly in the long run. With the former, it’s all about finding the best value, ensuring that more of their money works for them instead of going to fees.

Investing Isn’t Just for the Rich

Investing is often touted as a pathway to long-term financial success. However, outside of retirement plans, a reputation of investing just being for the rich arose. In some cases, this was initially true, as getting access to a broker wasn’t an option for lower-income households. The issue is that the idea remained even as that became less and less of the case.

That myth that investing is only for the rich is often more pervasive among older generations than younger ones, causing some households to shy away from investing outside of retirement plans. Younger generations know that investing is something anyone can do. App-based robo-advisors are an expression of that fact, as they give people a quick, easy way to get started.

Plus, information about investing is usually only a few clicks away, either in the apps or online in general. For Millennials and Gen Z, this further demystifies investing, making it feel even more accessible.

Downturns Can Be Opportunities

During the early days of the coronavirus, stock markets tumbled. Many companies that were classically viewed as solid – and financially inaccessible from a stock-buying perspective – saw the price of their shares drop.

For younger investors, the downturn wasn’t just a crisis; it was an opportunity. Some investors who previously couldn’t afford to purchase certain stocks suddenly could, so they hopped on board with companies they believed would ultimately recover.

Older generations didn’t always view the situation similarly. The closer you get to retirement, the more you tend to focus on portfolio value preservation. In some cases, this led investors to abandon companies that were experiencing hardship, even if the odds of that hardship persisting were relatively low.

Investing Doesn’t Have to Be a Taboo Subject

For many older generations, the idea of having genuine conversations about money isn’t appealing. Money is often discussed in hushed tones, viewed as one of the most private topics in a person’s life.

Millennials and Gen Z don’t necessarily see it that way. Many younger people are comfortable with sharing details about their lives with the masses, thanks to their comfort level with social media. As a result, they aren’t averse to learning about and discussing investing with their peers, something that can work in their favor.

By being open to talking about money and investing, members of younger generations learn from each other. They can find out about mistakes their peers made and opportunities that were seized. The odds of them being pointed to valuable informational resources may also be higher.

Now, it is true that this can also lead to trouble. After all, not all information is accurate or reliable, so it can lead to the spread of misinformation, too. However, treating the topic as if it isn’t taboo is something that older generations could benefit from, as it can create openings for learning from others, getting support, and, ultimately, making better decisions.

Can you think of anything else young children know about investing that you don’t? Share your thoughts in the comments below.

Read More:

 

Editors Note: If you want more on this topic, consider reading Andrew Adam’s Behaviors Of A Millionaire, it’s got a thorough discussion on evaluating securities, which is helpful if you’re looking at selecting individual stocks.

Work From Home? Here’s How to Take The Tax Deduction

by Leave a Comment

work from home tax deductions

If you’re self-employed. You may be eligible for a variety of tax deductions designed to reduce your tax burden. Overlooking these deductions means potentially paying more in taxes than necessary. Something that isn’t ideal for anyone. If you want to make sure you get every deduction you’re eligible to snag. Here are some work from home tax deductions that you should take advantage of if you qualify for them.

Home Office

If you have either a separate home office or a designated spot in your home where you work. You may be eligible for a home office deduction. The IRS does require that the space be used “exclusively and regularly” for work. Though, for many self-employed professionals who mainly handle computer-based tasks. This requirement is often fairly simple to meet.

With this deduction, you have two potential approaches. If you’re looking for the easiest option, go simplified. With that, self-employed individuals have the ability to deduct $5 per square foot of office space, up to a total of 300 square feet.

If you aren’t afraid of handling some calculations. You can use the regular method. With that, you can calculate the percentage of your home that you are using for work only. Then, apply that percentage to eligible housing related costs. Which allows you to determine what portion of the allowable expenses are deductible.

In many cases, it’s wise to run both options to determine which approach results in the largest deduction. Just make sure that you handle the calculations carefully to ensure accuracy when you go through the more complex method.

Health Insurance

If you’re self-employed, bought your own medical coverage, and aren’t eligible for coverage through a spouse’s employer, you may be able to deduct the cost of your premiums. Technically, this isn’t a deduction. Instead, it’s an income reduction, so you don’t necessarily have to itemize to claim this benefit.

Vehicle Expenses

If you drive your car as part of your self-employment business, you may be eligible for vehicle expense tax deductions. Usually, you’ll get a specific amount per mile driven, allowing you to recoup some of the financial loss related to greater wear and tear on your car.

Claiming this deduction does require an accurate log of your miles traveled for business purposes. However, it can be substantial, so it’s worth keeping those records to reduce your tax burden.

Plus, there are also potentially deductible vehicle costs. For example, gas, parking fees, tolls, repairs, and similar expenses related to business-connected travel may be claimable.

Self-Employment Tax

While it may seem odd, it is possible to snag a tax deduction for paying self-employment tax. Self-employment tax is the Social Security and Medicare tax that people who are self-employed have to pay and comes in at a rate of around 15.3 percent.

With traditional employment, the employer and employee split that tax burden. If you’re self-employed, you have to pay it all. But you also get to deduct half of the amount you pay when you file your taxes, helping you to reduce some of that burden.

Internet and Phone

If you use your home internet for work or have a separate phone for business purposes, you can deduct the portion of your bill that aligns with your business use. For example, if half of your internet time is work-related, half of your internet bill can be a deductible expense. If you have a separate phone line for business calls that is only used for that purpose, that is 100 percent deductible.

Trade Publications, Memberships, or Subscriptions

Self-employed individuals who pay for specialty publications, memberships, or subscriptions that directly align with their work can deduct the cost as a business expense. The most critical part of the equation is that the content is specialized. For example, a trade magazine counts, while a national newspaper does not, as the latter is too general to be profession-specific.

Educational Expenses

Educational expenses related to honing work skills in your current self-employment field can be deductible. The course or skill has to connect to your existing business, not something you hope to do later or anything you do for personal growth. For example, a self-employed web developer can deduct the cost of a course on responsive design but wouldn’t be able to take the deduction for a yoga class or music theory course.

Advertising

If you spend money to advertise your business, that cost is deductible. This can include any kind of paid-for ad, including Facebook or Google ads, television commercials, bench ads, or mailed flyers.

Business Insurance

In most cases, business insurance premiums are deductible. There are some nondeductible premiums, though, so it’s wise to review IRS guidance to determine which ones you can use to reduce your tax burden.

Office Equipment and Supplies

In many cases, office equipment or supplies that you purchase to use for your self-employed business can reduce your tax burden. The value of the items may determine what kind of deduction or benefit you receive, as high-cost items like computers may be treated differently than pens and paper.

Credit Card and Loan Interest

If you paid interest on a business purchase because you used a credit card or loan to cover the cost, you might be able to deduct the interest. The card or loan doesn’t necessarily have to be a business one. However, you usually need to use that card or loan solely for business purposes to claim the deduction cleanly.

Travel (Including Meals)

If you’re gone on business, some of your travel-related costs are deductible. Plane tickets, hotel stays, Uber rides, and similar expenses that you incur while away from home handling a work-related activity can potentially qualify. Similarly, certain meal-related costs may be deductible, including if you take a client out for dinner or have to pay for meals because you are on the road.

Retirement Contributions

If you have a self-employed retirement plan – like an SEP IRA, Solo 401(k), or SIMPLE IRA – you can potentially deduct the contributions. This can be a boon if you save up to the contribution limit, though it does make a difference even if you are setting aside less than that each year.

Qualified Business Income

A newer self-employed tax deduction, the qualified business income deduction allows self-employed individuals – as well as some small business owners – to deduct part of their business income when they file their taxes. Your total taxable income from all sources does have to be below a set threshold to qualify. But if it is, you may be able to deduct 20 percent of your taxable business income.

Do you know of any other work from home tax deductions? Share your thoughts in the comments below.

Read More:

Is It Ever Worth Buying Solar Panels For Your Home?

by Leave a Comment

buying solar panels for your home

For many homeowners, finding ways to save on their electricity bills is a priority. In most parts of the country. Utility costs usually go up over time and can be hard to shoulder for many households. On occasion, this piques homeowner interest in solar panels. However, it’s normal to wonder. Is it ever worth buying solar panels for your home? After all, they can be pricey to install and have to be maintained. So do you get enough from them to make it worth the investment? If you’re trying to decide if buying solar panels for your home is the right move for you. Here’s what you need to consider.

The Cost of Purchasing and Installing Solar Panels

First and foremost, you need to determine how much it will cost to buy the solar panels you need.  You also need to understand how much additional equipment is required – and have them installed. Along with the panels themselves. You’ll usually need other items. Like an inverter, cables, wiring, and metering equipment. You may also want to invest in batteries to store some of the energy you produce. Though those tend to be incredibly costly.

Installation can also come with a large price tag. Usually, solar panel installation requires specialized skills. That can push the total cost up.

Ideally, you want to gather several quotes in advance. That way, you can get a grip on the price. Thus, allowing you to determine if the investment is worthwhile.

Solar Panel Incentives in Your City, State, or Country

At times, there are incentives available that can offset some of the cost of buying solar panels for your home. For example, you may be eligible for rebates, tax breaks, subsidies, or other incentive programs.

In most cases, incentives are offered through the government – including on the local and national level – though they may also be available through your utility company. The incentives vary regularly, so you need to review the programs to see when they expire, allowing you to estimate which ones may be available to you based on your prospective installation date.

Ongoing Maintenance After Buying Solar Panels for Your Home

After installation, you have to contend with maintenance costs. The solar panels are a critical energy system, and they can’t be left unmaintained. If you neglect maintenance, you may find your system breaking down quickly or not functioning at its best.

Usually, cleaning is the most frequent form of maintenance you’ll need to handle. However, inverters, batteries, and other components may only last several years. As a result, you might have to plan for regular replacement based.

Additionally, you might need to budget for panel damage. While today’s solar panels are tough, that doesn’t mean they can’t be harmed. For example, a hail storm could be problematic and may require a panel to be repaired or replaced if it is damaged.

Sun Exposure on Your Roof, Not Just in Your Area

While solar panels are more efficient than they used to be, you get the best performance if your solar panels get a high amount of direct sun exposure. That means you need to look past the weather in your region and actually check out how sunlight moves across the section (or sections) or your roof you are considering for the installation.

Your Current Electric Bill

Your current electric bill is brimming with information that can help you decide if buying solar panels for your home is a good investment. Not only does it list your current electricity costs, but it can also reveal the amount of electricity you use, usually in kWh.

You can use the kWh information to estimate the number of panels you need based on the amount of sunlight the installation area receives. Alternatively, you can provide that information to the companies you receive estimates from, allowing them to give you a more accurate quote.

Once you have an idea of how much a solar panel system that could cover your energy needs costs, you can estimate how long it would take to recoup that expense through electricity bill savings. For example, if the solar panel system would run $20,000 to purchase and install, and your monthly electric bill is $200, then it would take around eight years and four months to recoup that investment, not including the additional money you’ll spend on maintenance.

Is Buying Solar Panels for Your Home Worth It?

By looking at all of the information above, you can estimate how long it would take to get your money back after buying solar panels for your home. At that point, you can decide if the investment is worthwhile to you.

For some homeowners, it will be incredibly worthwhile thanks to a high amount of sun exposure, solar panel incentives, and other factors. For others, the cost of a system that can handle 100 percent of their energy needs will be too high to make recouping the investment in a timely manner possible.

Ultimately, the choice is always yours. However, by doing the math, you can make sure you understand the financial side of the picture, ensuring you make a choice that’s best for your household.

Interested in environmentally friendly options? Why not try out an environmentally friendly neobank, Aspiration, and start earning cashback on your everyday spending. Not only does the Aspiration and Aspiration Plus accounts offer great cashback percentages, but they put its customers and the planet first. Instead of using your deposits to fund oil pipelines or exploration like big banks, Aspiration invests it in positive change.

Do you think buying solar panels for your home is ever a good idea? Why or why not? Share your thoughts in the comments below.

Read More:

What Should I Do With the Next Stimulus Check?

by Leave a Comment

next stimulus check

With the new COVID relief bill passed by Congress and signed by President Joe Biden. Many Americans have stimulus checks on the way if they aren’t already in hand. However, figuring out what to do with the money can be surprisingly tricky. Particularly if you have some conflicting needs. Luckily, it is possible to choose the best path for you. If you aren’t sure where to begin. Here are some options for what to do with the next stimulus check.

Handle an Urgent Need

If you have an urgent financial need, such as issues buying enough food for your household or past-due utility bills, using your stimulus check to handle those costs is your best bet. It ensures you can continue to live without undue hardship, and that’s important during this pandemic recovery period.

Additionally, if you have secured debt – like an auto loan – and you’ve fallen behind on payments, putting the asset at risk of seizure, it may be a solid target. By catching up, you may be able to avoid the repossession or foreclosure. Depending on the asset involved, that might be crucial.

However, before you send stimulus money toward any bill, you may want to see if there are other programs available that may reduce that burden. For example, utility companies, mortgage lenders, certain state or county offices, and many other organizations have relief programs to help those who are struggling due to the pandemic. If you’re eligible for their assistance, don’t hesitate to use it. Then, you can direct your stimulus check toward other needs.

Pay Your Taxes

If you have filed (or are about to file) your federal taxes and owe money to the IRS, using your stimulus check to handle that burden isn’t a bad idea. Unlike for the 2019 tax year filings, the IRS isn’t postponing 2020 tax filings this year. If you want to avoid fees and interest, then you need to pay what you owe in full by April 15.

Even if the stimulus check only covers part of your obligation, using it to handle some of your taxes reduces this total burden. Then, if you need to enter into a payment plan with the IRS to address the rest, what you’ll need to pay could be easier to shoulder.

Create an Emergency Fund

If you don’t have any cash – or very little money – set aside in an emergency fund, using your stimulus check to get one started is a good idea. It’s wise to have a little cash available for unexpected events, something that the pandemic made abundantly clear for many.

Ideally, you want at least $1,000 set aside initially. Then, you can work your way up over time, aiming to save a minimum of three to six months’ living expenses.

Pay Down High-Interest Debt

Using your stimulus check to tackle high-interest debt is always a good idea. Not only will it reduce the amount of money you’ll pay over the life of the debt, but it could potentially boost your credit.

For many people, starting with high-interest credit cards is the best way to go, especially if the cards are close to being maxed out. However, for others, a high-interest personal loan could also be a good target.

Finally, if you have a payday loan, focusing on that might be your ideal option. Payday loans usually come with astronomical interest rates, making them a wise debt to tackle with stimulus money.

Boost Your Retirement Savings

By using your stimulus check to boost your retirement savings, you not only do something to help secure your financial future, but you may also get a tax benefit. You have until April 15, 2021, to finish up your 2020 retirement investing. If you contribute your stimulus to a tax-advantaged account, you might be able to lower your 2020 tax burden.

However, you can also use the money for your 2021 retirement savings. You may be able to get a jump start on it or even fully fund an IRA, depending on how much you receive in your stimulus check.

Handle a Large Purchase

If you have a solid emergency fund, fully funded retirement accounts, no high-interest debt, and have your financial house otherwise in order, then using your stimulus check for a large purchase is certainly an option. It may give you the ability to buy high-cost items in cash, allowing you to potentially avoid high-interest debt.

Even using stimulus money to fund a vacation can be a smart move if you’re in good financial shape otherwise. Again, it lets you avoid the need for debt and could give you something fun to look forward to once you feel comfortable traveling.

Invest, Invest , Invest

If you want to put your stimulus check to work but already have a fully-funded retirement account, then you could always invest separately. There are many options that can help people get started, including full-service brokers, robo-advisors, and anything in-between.

You will need to do some research if you don’t currently have an investment account, ensuring you choose the right brokerage for you. Additionally, if you aren’t sure where to invest the money, you might need professional guidance or to conduct more research.

In many cases, focusing on individual stocks isn’t wise for beginners. Instead, options like index funds may be a better bet, as they come with an innate level of diversification.

Save Money for College

Whether you have children or may go back to college yourself, setting your stimulus check aside in a 529 college savings plan could be a smart move. It lets your money grow tax-free, and any withdrawals you make for qualifying expenses aren’t taxed either. In the end, this option can help make college more affordable, allowing you or your child to potentially avoid or reduce the need for costly student loans.

Do you already have plans for your next stimulus check? Share your thoughts in the comments below.

Read More:

Should You Be Investing in SPACs?

by Leave a Comment

investing in SPACs

Many investors are constantly on the prowl for new options that could help them make a bit of cash. If SPACs have recently made their way onto your radar and you’re wondering if you should be investing in them, here’s what you need to know.

What Are SPACs?

SPAC stands for “special-purpose acquisition company.” Also referred to as “blank check companies,” SPACs are publicly-listed, but are considered non-operating. Instead, they exist solely to purchase private companies, allowing the company that has been acquired to have a connection with a publicly listed stock.

Generally, the process of becoming a publicly-listed is cumbersome. By going the SPAC route, a private company can avoid the challenges associated with an initial public offering (IPO). The SPAC is already public. Plus, by using a reverse merger after the acquisition, the once private company can transition to a public one while maintaining autonomy.

Are SPACs a Good Investment?

Like any part of the investment landscape, there is certainly risk associated with investing in SPACs, even if there doesn’t appear to be any on the surface. While it’s true that if a SPAC doesn’t find a private company to scoop up, investors get their money back after a set amount of time, your money may not be working for you as hard as it could going another route.

Additionally, there’s no guarantee that the private company a SPAC grabs is going to be successful once it is part of the market. As recent history has shown, not all IPOs go well. If the SPAC selects the wrong company, you can certainly experience losses.

Finally, by design, SPACs benefit the SPAC sponsors far more than individual investors. Generally, the sponsors get a significant stock allocation for the SPAC IPO, and the founder shares can dilute common stockholders.

In many cases, a SPAC’s performance can be subpar. When there is a high-valued private company serving as a potential target, it can generate competition among SPACs. When that happens, the price may inflate, causing the SPAC that “wins” to overpay, something that doesn’t work in investors’ favor.

SPAC Overpays

However, the sponsors – due to the nature of the arrangement – can still come out ahead even if the SPAC overpays, creating a level of conflict of interest. The decisions may not be in the best interest of individual investors. Instead, only the sponsors serve to gain.

Ultimately, it’s wise to be cautious about investing in SPACs. You may not know exactly what the SPAC will scoop up when you invest, which isn’t ideal. Additionally, there can be issues with transparency, as well as potential conflicts of interest.

In many ways, a SPAC is riskier than a traditional IPO. If you’re risk-averse, that’s far from ideal. However, even if you are open to some risk, the low historical performance should give you pause. If you do think SPACs are right for you, research is your ally, as it may give you an indication about the SPAC’s ability to choose the right private company. Make sure you really dig in, as that may be your only way to determine if a SPAC has potential.

Do you think investing in SPACs is a smart move? Do you plan on adding them to your portfolio? Why or why not? Share your thoughts in the comments below.

Read More:

 

Annuities and Taxes: Here’s What You Need to Know

by Leave a Comment

annuities and taxes

Annuities can be a reliable source of income in retirement. Once you begin receiving benefits. You’ll receive a set amount of money each month or year for the rest of your life. Even if you live for decades more. However, annuities can come with tax implications. Both on the front and back ends. If you want to find out more about annuities and taxes. Here’s what you need to know.

Annuities and Taxes – Qualified vs. Non-Qualified Annuities

First, it’s important to understand that how an annuity is taxed does vary depending on the type of annuity involved, especially how it was funded.

Qualified annuities are funded with pre-tax dollars. In most cases, these involve principal payments from a type of tax-deferred retirement account, like a 401(k) or a traditional IRA. However, there may be other approaches available, as well.

When you make withdrawals from a qualified annuity, you pay taxes on the money just as you would other traditional kinds of income. Since none of the money has been taxed, every dollar in the withdrawal is treated the same.

Non-qualified annuities are funded with after-tax money. With those, when you make withdrawals, you’ll only owe taxes on earnings, not the deposited amounts. The money used to fund the annuity has already been taxed, so it won’t be taxed again. However, the earnings haven’t, making them subject to taxation.

Usually, with non-qualified annuities, the taxed amount is determined by the exclusion ratio. This calculation determines how much of an annuity income payment is taxable by separating the portion of the payment funded with the principal from the part funded by interest earnings.

In some cases, annuities purchased with funds from a Roth 401(k) or Roth IRA are tax-free. However, very specific conditions have to be met for that to happen.

Tax Rates on Annuities

When you’re receiving income from an annuity, the taxable amount is taxed based on traditional income tax rates. Annuities aren’t eligible for capital gains rates, which are often lower than income tax rates.

If you need to estimate how much you’ll owe, use the traditional tax tables from the IRS. That will give you the most accurate picture, at least on a federal level.

In some cases, you’ll also need to pay taxes on the state level. State income tax rates vary, and some may exclude annuities – as well as other kinds of retirement income – while others do not. Additionally, not all states have an income tax in the first place. As a result, you’ll need to research rules in your area to determine how much you may owe.

Depending on where you purchase your annuity, you may also owe a state premium tax. Some states tax insurance premiums, including during the sale of annuities. If you live in one of those states, you may see a 1 to 3.5 percent tax. However, some states waive the fee under certain circumstances, such as if you make the purchase using funds from a qualified retirement plan.

When Withdrawal Timing Impacts Taxes on Annuities

Another factor in how money from an annuity is taxed is when withdrawals are made. Usually, if you take any money out before you reach the age of 59 ½, you’ll owe a penalty of up to 10 percent to the IRS. However, by waiting until you’re at least 59 ½, you can avoid this entirely.

Additionally, if you take a lump sum instead of annuity income payments, at a minimum, all of your earnings are taxed right away. If you funded the annuity with pre-tax dollars, then the entire lump sum, including both the principal and earnings, are taxed immediately.

Inherited Annuities and Taxes

If you inherit an annuity from another person, the same tax rules apply to you as would to the deceased. As a result, if the annuity was qualified because it was funded with pre-tax dollars, you’ll owe taxes on the entire value of any withdrawals. If it was non-qualified, then you’ll only owe taxes on the earnings.

Ultimately, annuities are fairly simple to understand from a tax perspective. Earnings are typically taxed as income, and withdrawals from principal only are if the annuity was funded pre-tax. While your income tax rates may vary depending on your total income level, how your annuity factors in is reasonably straightforward.

Is there anything else people should know about annuities and taxes? Share your thoughts in the comments below.

Read More: