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الثلاثاء، 29 أكتوبر 2019

You May Not Need to Save As Much in an Emergency Fund As You Think

Saving three-to-six months worth of expenses in an emergency fund is longstanding financial advice gospel. But it can seem impossible — especially if you’re struggling to cover necessities. 

However, if that goal feels so out of reach that you ignore saving altogether, a new report challenging that advice might give you hope.

Economists Jorge Sabat and Emily Gallagher recently published a report suggesting the minimum emergency fund for low-income households should be $2,467 — only about one month of a $30,000 annual salary.

Putting aside more is great, but Sabat and Gallagher’s analysis found each additional dollar has less of an impact on reducing the probability of experiencing financial hardship.

The report, titled “Rules of Thumb in Household Saving Decisions,” focused on households in the bottom 30% of incomes, which tend to have less cash reserves and are more likely to rely on high-interest loans in order to survive an unexpected expense. The report used data from the U.S. Census Survey of Income and Program Participation, which obtained financial information from 70,000 households from 2009 to 2011.

That $2,467 figure isn’t a magical number that works for all low-income households, though. The circumstances or unique needs of your household may warrant more savings. The report mentions families led by single mothers and households without health insurance should save an additional $1,000.

It’s also important to emphasize that the amount of savings Sabat and Gallagher recommend is the minimum that should be on hand for emergencies.

“Our estimates should not be interpreted as an optimal savings level,” the report states.

Think about it: You may be able to cover a $500 car repair, but you probably won’t be able to stretch $2,467 if you were out of work for a few months.

FROM THE SAVE MONEY FORUM

While three-to-six months worth of savings is the standard recommendation for an emergency fund, Sabat and Gallagher aren’t the first to suggest a lower threshold. Popular financial personality Dave Ramsey asks his followers to save just $1,000 for emergencies before paying off debt and later bulking up savings.

If you need help building your emergency fund, this list of 44 ways to save money fast can get you started. Or consider picking up a side hustle to have more money to sock away. You can even make money at home.

Nicole Dow is a senior writer at The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.



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Will my daughter pay tax if she gifts me £250,000?

Will my daughter pay tax if she gifts me £250,000?

My daughter is receiving about £300,000 from her grandfather’s will. She is gifting me £250,000 to buy my social housing property. Will there be any tax implications?

Patrick Connolly Tue, 10/29/2019 - 00:09
From
LR/Cambridge

As the gift you are receiving is more than the exempt tax-free amount allowed for gifts, most of it will be treated as a Potentially Exempt Transfer (PET) for inheritance tax (IHT) purposes.

For a PET to be free of IHT, your daughter would need to survive for seven years after making the gift. 

If she dies within seven years of making a PET and the total of PETs she has made is less than £325,000, then the amount she has gifted will simply reduce her nil-rate band on her death. The nil-rate band is the standard amount that an estate can be worth before any IHT becomes payable.

This means that you won’t be liable to pay IHT on the gift, but it also means that she won’t make any IHT savings by making the gift.

It is only if the total value of PETs and other chargeable transfers that she has made within seven years ending on the date of the PET is more than £325,000 that you could face a potential IHT bill if your daughter dies within this period.

However, your tax liability would reduce on a sliding scale if her death occurs between three and seven years after making the gift.

An alternative approach is a deed of variation. This is where the will of the person who died, in this case your daughter’s grandfather, is effectively changed so that other people can benefit.

In your case, you would change the will so that you received the £250,000 straight from the deceased’s estate.

This must be done within two years of the death and any beneficiaries who are left worse off by the changes must agree to them, which means your daughter would have to agree.

But remember that if you receive means-tested state benefits, the money your daughter gives you could be taken into account, affecting the amount you will receive.

This can be complicated, so seek independent financial and legal advice first.

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7 Debit Cards That’ll Give You Cash Back (and More!) for Swiping

Debit cards are popular. Like, really popular.

Nearly 43% of adult Americans reported using debit cards as their main form of payment, according to a 2017 LendEDU study. And each year, people make billions (with a big ol’ b) of transactions using one.

As a bonus, some debit cards offer rewards, similar to credit cards. So, if you’re one of the many using a debit card — or looking to upgrade yours — keep reading. We’ll explore why you might consider getting one, plus we’ll look at the best cards available today.

Why Some Bank Debit Cards Don’t Offer Rewards (Anymore)

After the 2008 financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in 2010. The goal was to stabilize and reform the financial industry.

Before it passed Congress, lawmakers added the Durbin Amendment — named after Sen. Dick Durbin of Illinois — to the act. This amendment was introduced to curb processing fees for debit card purchases.

When you use a debit card to make a purchase, the merchant pays an interchange or swipe fee. This fee goes to the bank that issued the debit card. Banks said these fees covered the costs of providing debit cards and monitoring accounts for fraudulent activity.

However, retailers argued they were too high. Before the act’s passage, retailers paid up to 44 cents per debit card transaction, according to Reuters, which made it difficult for some businesses to accept them.

After Dodd-Frank passed, the cap fee was reduced to 21 cents. (It’s worth noting credit card interchange fees were not affected.)

As a result, the financial incentive for banks to offer debit card rewards just isn’t what it used to be.

Why You Should Consider a Debit Card That Offers Rewards

Just because debit card rewards aren’t flowing like they used to doesn’t mean you shouldn’t keep your eyes peeled for them.

Debit cards that offer rewards are appealing for a few reasons:

  • Your bank may only charge a small — or no — monthly (or annual) fee to use it.
  • They’re good if you want to monitor your spending and find credit cards too tempting.
  • Since it’s money from your account, there’s no monthly balance owed or accumulated interest to worry about.
  • The REWARDS: anything from cash back to points to discounts on qualified purchases.

7 Debit Cards That Offer Rewards (Plus a Bonus!)

We picked several options that could work for you.

1. American Express Serve® Cash Back

The American Express Serve Cash Back option is a prepaid debit card. (To be clear, it’s not connected to a checking account.) When shopping online or in stores, you can earn unlimited 1% cash back on your purchases. Bonus: The cash back is immediately available to use after you earn it.

Other features include free ATM withdrawals at over 30,000 locations, fraud protection and 24/7 customer service.

Card price: $0 online or $3.95 in stores

Monthly or annual fee: $7.95 a month (no fee in Texas, New York or Vermont)

2. Bank of America BankAmeriDeals®

Bank of America has a program called BankAmericaDeals for BoA card holders. Existing customers can log into online banking or use the mobile app to see available deals (for example, 15% cash back at Petco). You’ll earn cash back on these deals when they use an eligible BoA debit or credit card to make a purchase. You can also earn BankAmeriDeals Coins for qualifying purchases to earn more rewards.

Other features include 24/7 account monitoring, fee-free BoA ATM usage and the ability to add your debit card to a digital wallet for easier checkout.

Card price: $0

Monthly or annual fee: $0

3. Discover® Cashback Debit

With Cashback Debit, users can earn 1% cash back on up to $3,000 in purchases per month. So, if you make $500 worth of purchases monthly with your debit card, you’ll earn back $5 a month, or $60 a year.

Other features include 24/7 customer service and access to over 60,000 surcharge-free ATMs. Also, if you lose your debit card, Discover will replace it for free.

Card price: $0

Monthly or annual fee: $0

4. Axos Bank CashBack Checking

Axos offers CashBack Checking for customers who want to earn rewards with a debit card. You can earn up to 1% cash back on signature-based purchases (so, something routine like grocery shopping doesn’t count) and earn up to $2,000 cash back per month. However, you’ll also need to maintain a daily balance of $1,500 to earn the 1% cash back.

Other features include reimbursement for over 60,000 ATMs worldwide, and no balance or activity requirements to maintain the account.

Card price: $0

Monthly or annual fee: $0

5. PayPal Business Debit Mastercard®

Once you activate the cash-back program, PayPal Business Debit Mastercard users can get unlimited 1% cash back on qualifying purchases. The cash back is added to your PayPal account each month. Note that business owners face a $1.50 domestic ATM usage fee, and have a daily limit of $3,000 in purchases and $400 in cash withdrawals.

Other features include a free additional card for the account and no liability for unauthorized charges.

Card price: $0

Monthly or annual fee: $0

6. Consumers Credit Union Rewards Checking

CCU offers rewards in the form of annual percentage yield (APY). There are three rewards tiers with varying requirements to earn 3.09% APY, 4.09% APY or even 5.09% APY on account balances up to $10,000. For the first tier, you must make at least 12 debit card purchases that equal $100 or more a month as one of the qualifications, so you’ll need to be organized to reap these rewards.

Other features include over 30,000 surcharge-free ATMs and no minimum balance requirement.

Card price: $0

Monthly or annual fee: $0

7. Empower

Empower is an app and bank account. You can get 1% cash back on the first $1,000 you spend per month with your debit card, earn 1.65% APY on your money and even snag cash back when you refer your friends. You’ll have access to over 25,000 fee-free ATMs and even get reimbursed for one out-of-network ATM use per month. You can fund your account in a number of ways, though it does not support cash or check deposits.

Other features include no account fees or required minimum balances. Accounts are also FDIC-insured up to $250,000.

Card price: $0

Monthly or annual fee: $0

Bonus: Your Local Credit Union

Check out your neighborhood credit union for other reward-card options. Many institutions offer debit card rewards in the form of redeemable points or cash back. Some even allow you to support a local charity or cause if you choose to make a donation when you open an account.

Contact your local credit union online or in person to see what costs and conditions may apply.

Card price: Varies

Monthly or annual fee: Varies

What About Credit Card Rewards?

When it comes to serious rewards, credit cards typically offer better ones — think, a higher percentage of cash back on purchases or larger sign-up cash bonus — and may provide perks such as price-matching and travel protection. My newest card reimbursed me for TSA PreCheck, which wasn’t something I’d otherwise spend money on. But for free? Sign me up.

Fraud protection is generally stronger with credit cards versus debit cards, too. And credit cards can help you build and/or improve your credit score.

While you can earn rewards, you should pay off your balance each month to avoid accruing interest. Be mindful of signing up for credit cards simply for the rewards, especially if you’d need to make extraneous purchases to qualify for them, too — 40,000 bonus miles won’t matter much if it will wreak havoc on your budget to earn them.

Are Debit Card Rewards Worth It?

It depends. Like anything, you’ll want to read the fine print and maybe crunch some numbers; make sure any associated fees don’t cancel out your potential rewards, for instance. You’ll want to be organized in case you need to redeem rewards before any deadlines, too.

But if you’re just looking to get started with a rewards card, period, a no- or low-fee debit card may be a good choice for you.

Kathleen Garvin (@itskgarvin) is a writer and editor whose work has appeared in U.S. News, Clark.com and Well Kept Wallet.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.



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Does Castile Soap (Like Dr. Bronner’s) Really Work for Many Household Uses at Once?

Several months ago, I had a handful of users in rapid succession contact me and ask whether or not I had used castile soap as a multipurpose hygiene soap and household cleaner. They recommended all kinds of uses for it: bath soap, hand soap, window washing, dish washing, laundry soap, even toothpaste.

Before we get too far into this, let’s back up and talk about what castile soap actually is.

Castile soap is a particular type of soap made strictly from vegetable oils. Soap of all kinds is made from various fats – often animal fat, but almost any kind of fat or oil will work – mixed with some kind of alkali metal, usually lye. Castile soap, then, is just a sub-type of soap that uses vegetable oils for the fat – olive oil, canola oil, and so on.

What’s special about castile soap? Because it’s made with just vegetable oil, castile soap has a more neutral pH than most soaps, which tend to register higher on the basic end of the scale. Castile soap is virtually always biodegradable, which isn’t always true for other soaps.

What about the actual use of castile soap, though? How does it compare with other soaps? That’s what we’re going to talk about today.

Before we get started, I wanted to point out that the Dr. Bronner’s website offers some suggestions for diluting castile soap for various uses. I didn’t discover this until later in my experimentation, but most of the dilutions I ended up finding acceptable were similar to what their website suggested; if anything, mine were somewhat more concentrated, but not enormously so. A lot of the dilutions on the website were 1 part soap to 16 parts water, while (as you’ll see) I used a lot of 1 part soap to 8 parts water dilutions.

First, the Cost

During this exercise, I used two different brands of castile soap, Dr. Bronner’s and Public Goods. More specifically, I used this 16 ounce bottle of Public Goods castile soap for $8 and this type of Dr. Bronner’s castile soap. The Public Goods castile soap cost me about $0.50 per ounce and the Dr. Bronner’s soap, bought in a much larger quantity, cost about $0.32 per ounce.

In other words, it’s cheaper to try the Public Goods kind, but if you’re using it for lots of things around the house, Dr. Bronner’s was easier to find at a low rate.

The important thing to note here is that you almost always seriously cut castile soap with water before using it. Most of the things I did with castile soap involved diluting it with three parts water to one part castile soap before using it. It made for a watery soap, but it also meant that a quart of castile soap became a gallon of diluted soap, and it was the diluted soap that I actually used for everything.

There are quite a few brands of castile soap out there. I didn’t try them all, just these two, but I found that these two were extremely similar in terms of practical use.

So, let’s start talking about some uses.

Hand Soap

Most of the time, we use a 10 ounce store brand liquid soap bottle with dispenser that we buy for $0.99 at Target. Thus, our cost for this is about $0.10 per ounce. It’s a good hand soap that we’ve been happy to use.

To compare the two, I diluted the castile soap with three parts water to one part castile soap and filled up an empty dispenser. With the Dr. Bronner’s soap, this reduced the cost to about $0.08 per ounce of diluted soap; the Public Goods soap was about $0.12 per ounce of diluted soap. So, the price here is comparable.

We used a normal soap dispenser at first and I found that the diluted castile soap did a really good job of cleaning your hands. In fact, they almost felt squeaky clean afterwards, even after using just a bit of soap, and whatever I had on my hands was easily washed away. They felt and smelled clean afterwards. The only drawback was that the soap was really watery and it was easy to make a mess at the side of the sink, as the watery soap easily spilled out of your hand.

I then switched to a foaming hand soap dispenser and this worked far better. The foaming soap created by the dispenser was basically the same as any other foaming hand soap in terms of quantity and neatness, and it produced the same “squeaky clean” feeling from hand washing.

I read that you can actually dilute it even further, so I tried diluting it to eight parts water to one part soap (this reduces the price to $0.04 to $0.06 per ounce for castile soap). In other words, I added two tablespoons of the castile soap to a cup of water and used that in the foaming dispenser. This worked perfectly fine, too, though it didn’t “suds up” as much as the more concentrated soap. It did leave a faint “squeaky clean” feeling. I would be happy to have soap concentrated at this level as a hand soap for bathrooms and the kitchen in my home.

Recommendation: get a foaming hand soap dispenser before trying it, but castile soap does a good job when you dilute it with 8 parts water to 1 part castile soap and it’s very inexpensive

Body Wash / Shower Soap

My experience with using castile soap as a body wash in the shower was very, very similar to my experience using it as a hand soap.

First of all, for the last few years, I’ve primarily used bar soap – a wide variety of it. I’ve really only ever disliked one particular kind of bar soap and it’s been long discontinued. A bar of soap, depending on the size, lasts a month or two of daily use. I’d estimate an average bar of soap that I use costs $3, again, varying based on size (I honestly usually buy soap based on how it smells and the price). Thus, I’d say a single shower’s worth of soap costs about $0.10 for me, give or take a little.

My first attempt at using castile soap in the shower was identical to my first hand soap attempt – three parts castile soap to one part water, in a normal squirt bottle. The issue I had with that arrangement is that the soap was so runny that I’d lose a lot of it while lathering up as it would just run down the drain before making a lather.

Thus, I wound up doing the same thing in the shower that I did with hand soap. I wound up cutting it at the same rate – eight parts water to one part castile soap – and putting it in a foaming dispenser. I found that I had to use quite a lot of squirts of it to get myself satisfactorily clean, but the expense of each squirt was minute. As I noted earlier, an ounce of this watered down castile soap is about $0.05 per ounce, so I’d have to use two ounces in a shower to match the cost of using bar soap. I probably used more than an ounce, but not two (based on the speed of refilling the container), so castile soap wound up being a small savings in the shower.

Again, it provides kind of a “squeaky clean” feeling which felt unusual on my skin. I felt clean, but it somehow felt different than the soaps I was used to – not bad, but different. My wife noted that I smelled citrus-y after a shower a couple of times, which made sense since I was using citrus castile soap.

After several uses, I think it might have been drying out my skin a little bit, but it was hard to really determine if that was due to other conditions or the castile soap. I think it might have a very minor skin drying effect, but it would probably only be an issue to someone with sensitive skin.

Shampoo / Conditioner

I tried using the castile soap mix described above as a replacement for shampoo as well. I used the same cut as described above – eight parts water to one part castile soap – and used it out of the same foaming dispenser.

It seemed to get my hair clean, though it didn’t feel as “fluffy” as it usually did. That’s probably due to a lack of conditioner.

I keep my hair pretty short, so I didn’t need to use much of it. After several showers, I didn’t notice any effects like dandruff or anything. I don’t think my hair is particularly oily or fine or coarse or anything – it’s pretty average hair. I think I would use it as a shampoo substitute, but if I wanted my hair to feel more soft, I’d also want to use a conditioner in conjunction.

The quantity of shampoo and castile soap I use for each shower is very small, due to my hair being short, so I think the cost difference is negligible. I usually use Suave for Men as it smells fine and I don’t have any particular special hair needs.

General Purpose Household Cleaner

I initially tried using an eight parts water to one part castile soap mix in a spray bottle as a general household cleaner, but I found that it was too soapy for doing things like cleaning up little messes and stains or getting a mark off the wall.

What I ended up doing is diluting it again, down to 16 parts water to 1 part soap, or one tablespoon of soap per cup of water in the spray bottle. This was fine, but still almost a bit too soapy. If I were to make another batch, I’d probably make 24 parts water to 1 part soap, or a cup and a half of water to one tablespoon of soap.

It basically tackled every small cleaning job I threw at it. It cleaned up a dog mess, coffee stains, some mystery mark on the wall, and several other little things. It also did a pretty bang-up job cleaning a window with a rag, though this is where I noticed it being almost too soapy. I think the 24 parts water to 1 part soap would be even better for windows in particular.

A final note: do not mix this with vinegar. I often use diluted vinegar as a general household cleaner, but vinegar and castile soap do not mix well at all. You end up with a white film on everything it touches and it doesn’t clean much at all.

Laundry Soap

I usually either use store brand laundry soap or detergent or I use my own homemade mix of equal parts soap flakes, borax, and washing soda – a tablespoon of that mix is all that’s needed for a load and it’s substantially cheaper than even store brand laundry detergent. I can usually wash a load of clothes for about $0.05 of soap/detergent at most.

I tried washing a few loads of normal laundry with a tablespoon of straight castile soap, not watered down at all, per load. For laundry that was barely dirty, it did a fine job and came out without any noticeable odor or any other problem. I did notice that on gym clothes, there was a very faint residual odor on a couple of the items from … well, gym odor. A second washing seemed to get rid of it, or at least lowered it to the level I couldn’t detect any more.

I also noticed that a muddy pair of jeans did not get completely clean. However, on a later load, I had another muddy garment (a t-shirt this time) and I scrubbed just a little castile soap right on the muddy spots and it came out clean. I also had a shirt with some dried blood from a nosebleed and it seemed to come out clean as well after being scrubbed right on the bloodstain with a tiny bit of castile soap.

I don’t think that castile soap on its own would make for a good laundry soap. However, I think that a mix of castile soap, borax, and washing soda would do a pretty good job, as it would be pretty equivalent to the homemade laundry soap mix I already use.

Dish Soap

Castile soap is not intended for dishwasher use. You don’t want a cleaner that lathers in the dishwasher, so although castile soap doesn’t lather much, it does lather a little, and thus you don’t want to do it in there.

I tried it for handwashing dishes at an 8 parts water to 1 part soap ratio and I thought it did a fine job on almost all of my dishes. They got nice and clean with no troubles.

On really dirty caked-on stuff, the diluted soap didn’t really work. It would get some of it off after a lot of scrubbing, but it wouldn’t get the worst stuff off. I ended up using full strength castile soap on a few things and that seemed to do the trick, but at that cost, normal dish soap is more cost-effective.

Toothpaste

I tried this, using one drop of castile soap, because it was recommended both on the Dr. Bronner’s site and several other websites that I read. Never again. Don’t do this. Yeesh.

Toilet Bowl Cleaner

This was the one cleaning job where the castile soap kind of flunked the test. It did almost nothing to get a mildly dirty toilet clean, whereas a toilet bowl cleaner did the job really well.

I tried even using pure castile soap in the toilet but, for some reason, it almost did nothing at all to affect stains in there, even with a ton of scrubbing. I switched to using a toilet bowl cleaner and, while the stain didn’t come off easily, it did gradually come off after some scrubbing and I wondered if it would have been even easier had I not used castile soap first.

Don’t bother using castile soap to clean a toilet unless it’s very mildly dirty.

So, What Are We Using Castile Soap For?

At this point, I intend to use the rest of our castile soap for a few specific purposes.

It’s definitely going to stick around in a foaming soap dispenser for hand soap. In fact, it’s a switch I’m considering making as a permanent change. I think it does a great job at this with an eight parts water to one part soap ratio (basically two tablespoons of soap in a cup of water in the dispenser, sloshed around a little) and it’s really cheap.

I’m almost definitely going to continue using it as a general household cleaner. In the future, I’m going to keep it diluted to a 24 parts water to 1 part soap ratio – a cup and a half of water to a tablespoon of soap – as that seems to work well for small household messes and windows.

I’m on the fence about using it as a shower soap. It seems to do fine in the shower for me, but I don’t think it’s saving me much money and I’m not sure whether it will dry out my skin over a lot of uses. I’ll probably use up what I have and go back to bar soap.

I’m not going to use it as a shampoo, a laundry soap, a dish soap, or as a toilet bowl cleaner. I think I’ll go back to my original shampoo/conditioner combo and my previous laundry soap and dish soaps, and I thought it didn’t work well at all as a toilet bowl cleaner.

So, basically, it’s going to be a hand soap and a general household cleaner for us going forward, though I will continue to use it as a “body wash” in the shower for a while. I would use it for the other purposes in a pinch (except for toothpaste) if needed, but I think other solutions do the job better.

Final Thoughts

Castile soap does what it’s advertised to do – it functions as a very good multipurpose cleaner when diluted appropriately. I found that it was as good as specialized products for a few uses, but that for a lot of uses, specialized products were just better for a similar price.

I’d recommend trying it for hand soap (in a foaming dispenser to minimize mess) at an 8 parts water to 1 part soap dilution and as a general purpose cleaner around the house at a 24 parts water to 1 part soap dilution in a spray bottle. It worked okay at most other household uses, too, and I wouldn’t really object to using it as a body wash in the shower at all.

For those two specific good uses, though, castile soap works well and, by my calculations, it’s cost effective, too, especially if you can pick up a bottle on the cheap.

I don’t have a brand recommendation as I found that Dr. Bronner’s and Public Source castile soap both did the job in all cases in which I tried both kinds.

Good luck!

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Is a Roth or Traditional 401(k) Right for You?

The traditional 401(k) has been around a while. Now the new kid on the block, the Roth 401(k), is the current darling of the investment world. 

Both are employer-sponsored investment savings accounts and are good ways to save for retirement. The big difference involves whether contributions are made using pre- or post-tax money, and thus whether the distributions you take in retirement are taxable or tax-free. 

It’s important to understand the differences between a Roth vs. traditional 401(k).

The Basics: Roth vs. Traditional 401(k)s

In a traditional 401(k), money comes out of your paycheck before you pay taxes on it. Doing this reduces your overall taxable income by the amount you contribute, and the contributions and earnings grow tax-deferred. You pay taxes on the money once you start taking distributions at your current income tax rate. 

Money for a Roth 401(k) comes out after taxes, so you have already paid taxes on it when you begin taking distributions. It’s tax-free income at that point, and the thinking behind it is you might be in a lower tax bracket now than you will be when you retire. 

Both types of plans have contribution limits based on age. In 2019, the annual limit is $19,000, and those over 50 can put in an additional $6,000. Those limits increase by $500 in 2020. Anyone at any income level can participate in both types of 401(k)s. 

The Roth 401(k) is different from a Roth IRA, which has smaller contribution limits and a maximum income limit impacting who can participate.  

More and more companies are now offering a Roth 401(k) in addition to a traditional 401(k). A 2017 survey of 349 large and mid-sized American companies by Willis Towers Watson found about 70% of companies now have Roth features in their 401(k) plans, up from 54% in 2014 and 46% in 2012.

“It’s essentially giving anybody the opportunity to pay some tax, which they normally do, but then put money in an account that’s never, ever taxed again for the rest of their lives,” said Andrew Barnett, a certified financial planner with GFA Wealth Design based in Fort Myers, Florida. “There’s no other thing like that in this country, in the tax code, there’s absolutely nothing like it. It’s an amazing thing. Think about investing and never paying taxes again, forever.”

You don’t have to pick just one type of 401(k) to invest in. As long as you don’t go over the total contribution limit, you can split your contributions between the two types of accounts. 

Investing in a Roth 401(k)

Roth 401(k)s are attractive to people who think their tax bracket will be higher when they retire than it is now. 

Primarily, these people are early in their career, like millennials born between 1979 and 2000. A 2018 survey of 5,100 workers and 1,8000 employers by The Harris Poll for the 19th Annual Transamerica Retirement Survey found millennials are the most likely to contribute to a Roth 401(k) if it is available. Baby Boomers contribute at a rate of 30%, Generation X at 42%, and millennials at 52%. 

“They’re going to be paying taxes now in a low tax bracket and that money has the chance to grow for the rest of their lives and into their kids’ lives, if they want it to, without ever paying taxes again,” Barnett explained. 

If your employer offers a Roth 401(k) option, your contributions go into it after taxes, but any employer match must go into a pre-tax account. You will eventually have to pay taxes on that company match, but not on the earnings from that money. 

Paying the taxes when you contribute also eliminates uncertainty about changing tax laws in the future. 

The plan handles all of the bookkeeping, so the investor doesn’t have to do anything to keep it all straight. 

FROM THE RETIREMENT FORUM

As with traditional 401(k) accounts, the owner is eligible to take distributions at age 59½ and must take distributions at age 70½. It is also possible to roll the money from a Roth 401(k) into a Roth IRA, eliminating the required minimum distributions. 

But there is one caveat. In order to take a distribution from a Roth 401(k) at age 59½ or any other age, the account must have been open for at least five years. 

Because of that five-year rule, a Roth 401(k) is not an attractive option for people who are close to retirement and will need to access the money within five years or who expect their tax brackets to drop because of a drop in income. 

“If you’re going to be needing the money any time soon, [the Roth 401(k)] is a bad idea because you’re going to get a penalty,” Barnett said.

Rolling a Traditional 401(k) into a Roth  

If you currently have a traditional 401(k) and want to roll over your money into a Roth 401(k), you can do so but you will pay taxes when you do it since that money has not been taxed yet. 

Barnett has a warning about conversions since money moving from a traditional 401(k) into a Roth 401(k) is taxed as income at your current tax rate: “If you’re considering doing conversions, you have to be really careful, because what if you’re in a low tax bracket right now and if you did a conversion, it would throw you into a higher tax bracket?” he said. “So you would want to manage that conversion, meaning you don’t do it all in one year. You do as much as you can without throwing yourself into a higher bracket and then maybe do a little bit more the next year.”

  Roth 401(k) Traditional 401(k)
Money comes directly from paycheck Yes Yes
Contribution limits Yes Yes
Taxation Money goes in after tax Money goes in before tax
Company match Yes, but pre-tax Yes
Contributions reduce gross taxable income No Yes
Distributions are tax-free Yes No
Age for withdrawals 59½ (but account must have been open for 5 years) 59½
Required Minimum Distributions Age 70½ (unless still working for the company) Age 70½ (unless still working for the company)

Deciding Which Type of 401(k) is Best For You

Since it is impossible to predict your future tax bracket, it isn’t always easy to know which is right for you, a Roth vs. traditional 401(k). 

Take a look at your current cash flow. Contributing to a Roth 401(k) hits your budget harder because you are paying taxes on your whole income and then making the contribution. If you need more cash now, deferring the taxes until you begin taking distributions might work best for you.

But if you’re the type who would rather miss the money a bit now and have more later, a Roth 401(k) would allow you to later receive exactly the amount you take out, stretching the nest egg even further. 

“Let’s say there’s a million dollars in there when you’re ready to take it out. In a regular 401(k) you are going to be writing checks for $250,000. But with a Roth 401(k), you’re never going to be writing a tax check,” Barnett said. “So if you had two buckets of money, one was taxable and one was not taxable, the non-taxable one is going to last longer.”

Remember, it doesn’t have to be all or nothing. You can divide your contributions between both types of accounts, as long as you don’t contribute more than the maximum. 

For most people, Barnett says the Roth 401(k) makes sense. 

“There’s no other tax opportunity out there that gives you those advantages,” he said. “It has given savers a way to pay taxes once when they’re in a low tax bracket. I can’t stress the impact of what that means over a long period of time. Interest is never taxed, dividends are never taxed, capital gains are never taxed. It’s an absolute no-brainer.”

Tiffani Sherman is a Florida-based freelance reporter with more than 25 years of experience writing about a variety of topics, including finance, health and travel. She likes to save money so she can travel more. 

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.



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If a Robot Takes a Job From a Human, Should It Pay Taxes, Too?

Bill Gates thinks it should. Payroll taxes from workers fund Social Security, Medicare and defense among other federal programs. But other experts firmly disagree.

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If a Robot Takes a Job From a Human, Should It Pay Taxes, Too?

Bill Gates thinks it should. Payroll taxes from workers fund Social Security, Medicare and defense among other federal programs. But other experts firmly disagree.

Source Business & Money | HowStuffWorks https://ift.tt/2BOqfmx

Relief for mortgage prisoners? Regulator paves way to release thousands from debilitating loans

Relief for mortgage prisoners? Regulator paves way to release thousands from debilitating loans

Thousands of "mortgage prisoners" trapped for years by expensive loans will be able to move to cheaper deals under new lending rules

Lily Canter Tue, 10/29/2019 - 10:37
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The Financial Conduct Authority (FCA) has confirmed that affordability checks have been relaxed to allow customers stuck with expensive mortgages to switch to a better product.

The new rules will affect an estimated 30,000 customers who have not been able to move to a more affordable mortgage despite being up to date with their monthly payments.

"Responsible lending is hugely important, and unaffordable borrowing is a cause of significant harm.

"We are removing barriers to switching in our rules and we would like to see firms make changes to their own processes quickly in order that customers can benefit as soon as possible," says Christopher Woolard, executive director of strategy and competition at the FCA.

"We are also taking steps to help those who have mortgages with inactive lenders or unregulated entities to ensure that they are aware that they may now be able to switch and save money," he adds.

The new rules allow lenders to use "more proportionate" affordability checks for customers who meet certain criteria, such as being up-to-date with payments under their existing mortgage and not looking to move house, or borrow more.

The proposals also aim to reduce the time and costs of switching mortgage.

Affordability checks were tightened during and after the 2008 financial crisis and were followed by more stringent lending standards. This led to customers being stuck on mortgage products with high interest rates unable to switch to new loans because they no longer met the criteria.

Interest rates are now at an historic low and yet thousands of consumers have become "mortgage prisoners" stuck with payments significantly above the market rate through no fault of their own.

The financial regulator says the new rules have now removed barriers preventing some mortgage customers from finding a cheaper deal.

But Martin Lewis, founder of MoneySavingExpert warns that there are still more than 100,000 mortgage customers stuck in a financial trap and the new rules will only unchain "a tiny fraction of the UK’s mortgage prisoners".

He adds: "Mortgage prisoners are victims of irresponsible pre-crisis lending. As a result of the banks’ reckless behaviour they were often given mortgages which were too large – sometimes up to 125% of their income.

"Post-crisis, when lending rules tightened up, they were left out in the cold, unable to benefit from competition and therefore exposed to a decade of expensive standard variable rates – the type most mortgage customers want to run from. Some were sold on, by the state, to unregulated and inactive lenders as a financial asset.

"The damage this has done to their finances means many of these consumers are now unattractive to most lenders and prevented from accessing the most competitive rates – and the FCA has no way to force or incentivise firms to take them on. It is now time for the government to act."



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7 Home-Based Travel Job Opportunities

Who doesn't love to travel, right?! And to be able to make money while doing something you love, that's the dream. But if you don't have training or experience as a travel agent, how can you make money as a digital nomad? Luckily, there are lots of ways in which you can make money as […]

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'My smart meter is spying on me' and nine other myths busted

'My smart meter is spying on me' and nine other myths busted Rebecca Goodman Tue, 10/29/2019 - 00:00


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Government should pay into pensions of women who take care of kids or relatives, says think tank

Government should pay into pensions of women who take care of kids or relatives, says think tank

The government should contribute towards the pensions of women who stop working to care for children or relatives, according to a think tank

Lily Canter Tue, 10/29/2019 - 09:26
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A report by the think tank Social Market Foundation warns of the widening gap between men and women's wealth as life spans increase.

On average women accrue smaller pension contributions than men due to earning lower salaries and taking time out to care for children or elderly relatives.

The SMF Gender equality and the 100-year life report recommends applying the 3% minimum contribution rates from automatic enrolment pensions schemes to a woman on maternity leave. This would equate to a new government contribution of £22.88 per week, or £1189.89 per year, to that woman’s pension pot.

Kathryn Petrie, SMF chief economist says: “Rising life spans are a good thing, but if we don’t have the right policies to respond, they could amplify financial differences between men and women.  

“For all the strides we’ve made towards equality, social attitudes that push women to give up work to care for children and parents remain strong. As well as trying to give women and men more flexibility and choices, government policies should do more to help women with the financial implications of taking time out of work.”

In 2016, the Office for National Statistics estimated that a woman on maternity leave carries out weekly unpaid work with an economic value of £762.75, well above the average weekly wage. 

The SMF report released this week shows that five years after graduation, men’s median wages are £3,600 higher than female graduates’. Ten years after graduation this figure rises to £8,400.

Women in their late 50s typically have around half the pension savings of men the same age.

“Taking time out of the labour market to raise children or care for relatives is one of the key causes of the pension gap. Addressing the lack of pension accumulation during this period is essential if we are to close – or even narrow – the gap in pension savings between men and women,” says the report.

Ian Browne, pensions expert at financial services company Quilter says it is unlikely that the Government can deliver the SMF proposal but there is scope to make the system fairer for those caring for elderly relatives.

 "If you formally register as a carer for someone you can get some benefits and NI credits toward the state pension but it is nowhere near satisfactory. When we eventually get some form of social care policy from the government, it needs to address this issue head on.

"The current system in some ways levies a ‘dementia tax’ on those who are caring for someone with the debilitating condition, and can have an enormous impact on their ability to earn and thus their ability to save for their own later life."

Retirement research body the Pensions Policy Institute reported earlier this year that women in their 60s have an average of £51,100 in their private pension pots while men have £156,500 - over two thirds more.



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