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Merrick Bank Double Your Line™ Secured Visa®

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Dear Penny: Will Social Security Be Broke by the Time I Retire?

Dear Penny,
But we’re still funding Social Security with our payroll taxes. It’s just that if Social Security’s reserves were completely depleted, our payroll taxes would only fund about 79% of obligations through 2090. That’s in the event that Congress takes zero action to shore up more money, which is highly unlikely given that Social Security is the most sacred of all social programs.
Source: thepennyhoarder.com
My life plans, at least as told to my Roth IRA brokerage, are as follows: work until age 67, delay Social Security until 70, die at 92. If everything goes as planned, I’ll die with millions. But really all of the above is just wishful thinking on my part. The picture changes drastically if I’m forced to retire early, take Social Security sooner and stretch my savings over more years than I expected. Or if a prolonged bear market hits right as I’m starting to withdraw my retirement money.

Dear R.,
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.
That doesn’t mean you get free rein to spend. But if you focus on what really matters to you, I think you can strike that balance.
My bigger worry for young-ish workers like us is that our benefits won’t go very far. Even for our parents and grandparents who currently receive benefits, Social Security by itself makes for a meager retirement. The average retiree benefit in January 2021 is just ,543 per month, or ,516 annually. Social Security estimates that current benefits cover about 40% of an average worker’s pre-retirement income.
So while I think you should expect to receive Social Security someday, I don’t think it should factor into how much you save today. Knowing nothing about your budget or spending, I’ll give you the standard recommendation: Aim to save 15% of your pre-tax income for retirement. If you get an employer 401(k) match, make sure you contribute to enough to get your company’s full contribution. Once you’ve done that, make sure you have at least three months’ worth of emergency savings before you invest more for retirement. That protects your retirement funds so you don’t have to tap them when times are tough.
If you can comfortably save more, great. If 15% isn’t doable right now, figure out what’s manageable and work your way up. For example, you could commit to putting half of your next raise toward your retirement account.
I’m a 34-year-old man who just started saving for retirement last year after getting married. My husband is 39 and has been saving for some time. My question is about Social Security. Should someone in our age group expect to receive it at all? I’m always hearing about how Social Security is going broke. 
Of all the things that keep me up at night, Social Security’s solvency isn’t one of them. At 37, I’m just a tad older than you. I expect to get benefits someday, and you and your husband should, too.
Those benefits buy less and less every year. Health care costs, which eat up a huge chunk of retirees’ budgets, rise way faster than Social Security benefits.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.
The 2021 cost-of-living adjustment was just 1.3%. Ask any retiree whether that’s adequate to cover their rising living costs. The younger you are, the less of your income you should expect your benefits to replace.
All that certainly supports the argument that you should save as much as you can muster as early as possible. But too often in personal finance, we only focus on the retirement years, assuming that they’re guaranteed. The truth is, life can be snatched from us at any moment. So I also want you to have enough room to spend so that you can enjoy life now.
You’re 34. You don’t have to figure out your entire retirement plan right now. Focus on making saving a regular habit, and you can figure out the specific pieces as retirement gets closer.
There’s a kernel of truth to the stories you hear about Social Security running dry. It’s starting to pay out more than it takes in, thanks mostly to people living longer and having fewer children who eventually pay in. Widespread job losses due to the pandemic probably accelerated things a bit.
We’re both somewhat behind on where we should be on retirement. If we can’t rely on getting Social Security checks when we’re older, how much more should we be saving? We don’t want to live on rice and beans in retirement, but we also want to have enough money to enjoy life now.
Unfortunately, there’s no level of savings that guarantees you won’t have a rice and beans retirement. The younger you are, the more guesswork goes into retirement planning.

Extreme Financial Makeover: 30 Moves in 30 Days

Every January, we vow to get our financial houses in order. And each December, we face up to the reality that we didn’t quite make it happen. There are plenty of reasons why we fail on our financial resolutions, including the biggest reason of all: too little time. This year, try a new approach. Divide the job into bite-sized tasks and tackle one a day for a month. Ready to get started?

Source: moneytalksnews.com

How to Create Your Own Retirement Plan

One of the good things of working for a company is that they create a retirement plan for you. As an employee, you don’t have to do anything else but to participate in the plan. However, when you’re self-employed or a small business owner, you’re responsible of setting up your own retirement plan.

When it comes to operating your own business, time is of the essence. However, even if you’re crazy busy, saving for retirement should be a priority. Indeed, a retirement account allows you to contribute pre-tax money, which lowers your taxable income.

Luckily, a financial advisor can help you save time and help you choose the right plan that is best for you. Below are four retirement saving options you can create as a self-employer individual.

1. Solo 401k

A solo 401k is for small businesses or sole proprietors who don’t have any employees other than a spouse working for the business. The solo 401k mirrors a typical 401k plan that most companies offer. The main difference is that you can contribute as an employee and employer.

In other words, because you’re both the boss and the worker, you get to contribute in each capacity. That in turn allows you to contribute a higher amount each year. However, your total yearly contributions cannot exceed $58,000 or $64,000 for individuals age 50 or older as of 2021. To set up a solo 401k, you have to get in touch with a financial institution.


If you’re an independent contractor, self-employed, or has a small business with 25 employees or less you can set up a SEP (Simplified Employee Pension). It’s very easy to establish and don’t even require you to incorporate your business to qualify.

In a SEP IRA, the employer alone contributes to the fund, not the employees. You can contribute up to 25% of your annual salary or $58,000 in 2021, whichever is less.

3. Keogh Plan

Keogh plans are available to self-employed people, including sole proprietors who file Schedule C or a partnership whose members file Schedule E. This type of plan is preferable among those who have a high and stable income.

But the main advantage the Keogh has is the high maximum contribution you can make. In 2021, you can contribute up to $58,000. To set up, you will need to work with a financial institution such as Charles Schwab. 

4. Simple IRA

The Simple IRA was created by the Small Business Protection Act to help those who work at small companies to save for retirement. The small business can offer the plan if it has 100 or fewer employees.

Both the employer and the employee can contribute up to $13,000 in 2021, plus an additional catch-up amount of $3,000 if you’re 50 or older. If a company offers a Simple IRA, it must match an employee’s contribution dollar for dollar, up to 3% of each participant’s annual salary or make a nonelective 2% contribution to all employees.

Where to Invest Your Keogh, SEP IRA, Solo 401k, Simple IRA

As a small business owner, there is always an investment program that suits your needs for your IRA, SEP, Keogh and solo 401k. Places such as banks, brokerage firms and mutual funds institutions such as Vanguard, Fidelity, Charles Schwab are great options. But before opening account, make sure you consider how much money you have, your appetite for risks, the annual fee, etc.

The Bottom Line

If you’re a small business owner or self employed, you should take advantage of the tax benefits offered by these plans mentioned above. Creating a retirement plan is important, because not only will you be able to grow your retirement savings faster but also no one is going to do it for you. 


  • 4 Simple Ways to Accelerate Your Retirement Savings
  • How to Retire at 50:10 Easy Steps to Consider

Tips on Retirement Planning

Retirement planning can be a major challenge, but you don’t have to go in it alone. Speak with a financial advisor who can help you come up with a unique plan based on your circumstances and situations. Use SmartAsset advisor matching tool to get matched with fiduciary financial advisors in just 5 minutes.


The post How to Create Your Own Retirement Plan appeared first on GrowthRapidly.

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What Is Renters Insurance?

Learning everything from what renters insurance covers to how to get renters insurance is key to securing your possessions and lowering the risks of loss.

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Source: thesimpledollar.com

Chipotle to Hold Nationwide Hiring Event to Fill 15K New Jobs

Chipotle is kicking off the new year with a nationwide hiring blitz.

With hundreds of new restaurants in the works, the fast-casual Mexican food chain plans to fill 15,000 new openings, according to the hiring announcement.

To make headway on those recruitment efforts, all Chipotle locations are holding a “Coast to Coast” career event Jan. 14. On-site interviews are taking place from 8 a.m. to 10 a.m. and 2 p.m. to 5 p.m. local time.

As a safety precaution, outdoor and curbside interview accommodations are available.

“Please bring a mask and follow all safety protocols while you’re in the restaurant,” the company said.

Pro Tip

To participate in the hiring event, you must fill out a brief application and select an available interview time slot at your local Chipotle. Do not show up without requesting an interview.

Compared to the overall restaurant industry, Chipotle has fared well throughout the pandemic. The company hired 10,000 new workers in July as it added new locations and built drive-thru windows at many existing locations. In November, Chipotle unveiled its first ever “digital” restaurant in New York to experiment with only providing drive-thru and pick-up orders.

Job Openings at Chipotle

Chipotle’s recruitment spree is focused on hiring new restaurant team members, which primarily consist of line cooks, food preppers, and cashiers. These positions are entry level.

According to job listings on the company’s career board, the main crew-member requirement is that you must be at least 16 years old to apply. All training is provided.

Chipotle doesn’t have a company-wide minimum wage. On average, crew members earn about $10 to $11 an hour (or local minimum wage if higher) according to thousands of self-reported wages on Glassdoor.

To entice new workers, the burrito chain has been experimenting with new perks and benefits available to all employees, part- and full-time:

  • Medical, dental and vision insurance.
  • 401(k) retirement plan after one year of employment.
  • One free meal per shift.
  • 100% tuition coverage for select degrees and universities through a partnership with Guild Education.
  • Tuition reimbursement of up to $5,250 for schools and degrees outside that partnership.
  • Paid time off including parental leave.
  • English as a second language training.

If Chipotle meets its hiring goals, the company’s workforce is set to exceed 100,000.

Check out these other employers that offer health insurance and cover college costs for part-time employees.

Adam Hardy is a staff writer at The Penny Hoarder. He covers the gig economy, remote work and other unique ways to make money. Read his ​latest articles here, or say hi on Twitter @hardyjournalism.

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.

Source: thepennyhoarder.com

The Ultimate How-To on Filing Your Taxes for Free

Man at computer reading how to file taxes for free

If you bristle at the idea of having to pay to file your taxes, you’ll be happy to know that the IRS found 70% of all taxpayers are eligible to prepare and file their federal tax returns for free. And a variety of free federal and state tax solutions can help qualifying taxpayers file their 2018 tax returns without paying a cent.

Some solutions that offer free filing are tax software providers that have partnered with the IRS through the Free File Alliance, while others are standard tax preparation offerings. Many have eligibility requirements. For example, IRS Free File options are for those with incomes below $66,000. Those with incomes over $66,000 can use Free Fillable Forms, though. All free filing options are well-suited for straightforward tax returns.  IRS-affiliated free file offers must be accessed through the IRS website.

Filing and paying taxes isn’t fun, but it’s something we all have to do. And getting anything for free is always fun. So, we’ve compiled the ultimate guide to filing your taxes for free. Included are 20 ways you can file your federal and/or state taxes at no cost.

IRS Free File

You can use the IRS Free File page to find free filing software offers. Offers cover free federal returns. Some also offer free filing for state returns. The page also has a lookup tool to help you see which software you qualify to use.  The following are all IRS Free File solutions:

  • NET
  • com Free File Edition
  • eSmart Free File Edition
  • com
  • com
  • FreeTax Returns.com
  • FreeTaxUSA IRS ® Free File Edition
  • H&R Block’s Free File
  • Online Taxes at OLT.com
  • TaxAct®Free File
  • TaxSlayer
  • TurboTax Free File Program

Some solutions have income limits that fall below the $66,000 range. Some are available only in select states. And others have age restrictions.  For details on who can and can’t use these solutions, visit the IRS Free File Software Offers page or use the lookup tool. Several are covered below. 1040NOW and ezTaxReturn are not covered due to more limited eligibility requirements.

A benefit of using software—or a preparer—is that the software hunts down tax credits and deductions for you

IRS Free File Fillable Forms

If you make more than $66,000 annually, are comfortable completing your own tax returns yourself, but aren’t into paper forms, you can use the IRS Free File Fillable Forms online. These forms are accessible from the IRS website and come with basic guidance. You’ll need your 2017 tax return. Note, this option doesn’t include state tax preparation. There are no income restrictions. So, you can use these forms, even if you make less than $66,000.

IRS Paper Forms

The most basic free option is to fill out the IRS paper tax forms and file them by mail. Note: While the forms and filing are free, this method does require you pay for postage. You can find your appropriate tax return form on the IRS website or at public locations like post offices and libraries.


1040.com offers an IRS Free File option for taxpayers under 52 who make less than $60,000 annually. It also offers a general free option. The general option offers interview-style tax preparation, a free update from your prior year—if you used 1040.com last year—and an auto-completed state return. Simple 1040EZ federal tax returns are filed for free. To qualify, you have to claim no dependents, have a taxable income less than $100,000 and fit other eligibility requirements. You can add your state return for free.

1040.com donates $2 to clean water projects for every return filed on 1040.com.

eSmart Tax

eSmart Tax is a subsidiary of Liberty Tax that offers the IRS Free File option for anyone 53 or younger with an AGI of $66,000 or less. eSmart Tax also offers free returns in several states for those who qualify for free federal returns. Paid services will file your federal and state returns for just $19.95 each.


FileYourTaxes.com offers free federal returns with the Free File Alliance. Most basic tax return forms are free, but customer service is limited to Q&A web pages and email notices. FIleYourTaxes.com does file free state returns for Iowa, Idaho, North Dakota and Vermont. The free version is available to taxpayers between the ages of 15 and 65 with adjusted gross incomes (AGIs) between $9,000 and $60,000.


An IRS Free File option, FreeTaxReturns.com provides federal filing with unlimited customer support. Federal extensions are also free. To qualify for a free filing, you must be age 70 or younger, make less than $66,000, and live in any state other than Florida, Indiana, New Hampshire, New Mexico, South Dakota, Texas, Washington, Washington DC or Oregon. Free state returns are available in some states as well.


FreeTaxUSA is an IRS Free File option for those with an AGI of $35,000 or less, who qualify for the Earned Income Tax Credit or were on active military duty. It provides free federal returns and supports more advanced tax situations, such as investments, small businesses, rental property income and itemized deductions. Free filers get free customer support, but priority support, amended returns and audit assistance require upgrading to the paid version. Free filers in 22 states can also file their state return for free. Other filers pay $12.95 to file state returns.

H&R Block

With H&R Block’s Free File program, an IRS Free File option, you can file both federal and state tax returns for free if you are between 17 and 51 with an AGI of no more than $66,000, eligible for the Earned Income Tax Credit or on active military duty. Users can import their tax returns from any competing software, directly upload tax documents and prepare and file their returns using any device. Help is available through H&R Block’s online help center.

H&R block also offers paid tax preparation. Due to tax reform, H&R Block has also added a tax reform center that is available in the navigation bar. It has resources about new tax laws in effect for the 2018 tax year.


OLT.com is another an IRS Free File option. OLT.com supports more 120 federal forms and provides free amended returns and free customer service by email. Filers of any age with incomes between $14,000 and $66,000 can use the free option. Those who qualify for the free federal returns can also file free state returns.


TaxAct provides free filing of 1040EZ and 1040A federal returns and state returns as an IRS Free File provider. Eligibility requires an AGI of $55,000 or less and being 56 or younger or qualifying for the Earned Income Tax Credit. Active military personnel quality with an AGI of $66,000 or less. Free federal filers also get free state returns.

TaxAct also offers paid preparation services of less than $50 for federal returns and less than $40 for state returns. The service has both an online and desktop version of its software. And a Q&A format guides you through your return. There’s unlimited phone and email support for both tax and software-related questions. Once you’ve filed, you can track your refund status directly through TaxAct.com.


TaxSlayer uses a step-by-step guided tax process to file free 1040EZ, 1040A and 1040 federal returns. You get W-2 and PDF imports and free email and phone support. While these filings are free for those 50 an under with an AGI of $66,000 or less, state returns cost $29. The exception is residents of Georgia, who can file a state return for free. Extensions are free for anyone using TaxSlayer. Paid preparation is also available for $17 for federal returns.


If your AGI is less than $34,000, you can use the TurboTax Free File Program to file your 1040 EZ and 1040A federal tax returns and state tax returns for free. You can upload your W-2 as a file or just snap a photo, and the TurboTax software can automatically populate the right fields. You answer TurboTax’s questions to work through your return and electronically file (e-file) when you’re done. TurboTax experts and other online contributors are available to answer questions 24×7.

TurboTax Free Edition also offers free filing for anyone filing a simple tax return. Paid preparation services start at $40.


eFile.com offers free filing for 1040EZ federal tax returns. It is an authorized IRS e-file provider, but not part of the IRS Free File program. You can use efile.com to file single or married jointly with your spouse. Both e-filing and print filing are supported. And efile.com provides free online support, including a team of “Taxperts.” State return filings are available for $23.95. There are restrictions. For instance, you can’t claim dependents, have a mortgage or make more than $100,000.

Jackson Hewitt

Jackson Hewitt offers several tiers of tax software, including a free version for federal and state returns. You can file for free if:

  • Your taxable income doesn’t exceed $100,000 and includes W-2 wages or unemployment only
  • You need a simple return
  • You’re single or married filing jointly
  • You take the standard deduction

For more complicated returns that include itemized deductions, dependents, student loan interest, self-employment, retirement income and other items, Jackson Hewitt offers paid services. With Jackson Hewitt paid services, you can also get an interest-free tax advance refund loan.

Free State Return Filing

If the free federal filing provider you choose doesn’t offer free state tax filing. Or you don’t qualify for free federal filing, many states provide free tax filing services for residents. For instance, Maryland residents can receive free income tax assistance and even free electronic filing in person or over the phone. If you’ve found the perfect free federal tax tool but still need a free state tax solution, you may want to check on the resources available through your state government’s website.

Free Tax Assistance Programs

For certain individuals with qualifying circumstances, federal and state programs can provide free tax assistance, including tax preparation and filing.

The Volunteer Income Tax Assistance (VITA) program provides basic income tax return services to qualified individuals with disabilities or limited English fluency who make $54,000 or less. With this program, IRS-certified volunteers provide free basic federal tax return services, including tax preparation and e-filing.

The Tax Counseling for the Elderly (TCE) offers free tax help to all taxpayers, especially those 60 years of age and older.

How to Choose the Right Tax Preparation Solution for You

Choosing the right tax preparation solution depends on your specific needs. Of course, key is that the solution supports your specific gross income and tax scenario. Beyond that, make sure the features you need—W-2 upload, prior year tax return imports, etc.—are supported. You may also want to look for 100% accuracy guarantees with a pledge that any fees or costs associated with mistakes are covered by the solution provider.

Mark Jaeger, director of Tax Development at TaxAct, provided a few additional tips for evaluating online DIY tax products.

Find the total price to file: Many tax software providers list the price for a federal return only. It can cost extra to file a state return. So it’s a good idea to calculate both to see what it will truly cost you to file your taxes.

Look for pricing protection: In many cases, tax filers begin a return and then decide to file later. According to Jaeger, some DIY tax providers “impose steep price increases throughout the filing season, forcing filers to pay more if they’ve started but not completed their tax returns.”

Look for hidden fees: Watch for common features, such as prior year tax imports, that can be hidden behind the login and only visible after you’ve started your return.

Save time with a W-2 import: Free tax prep products that offer W-2 imports “can save time and improve accuracy since filers won’t have to do as much manual data entry,” Jaeger said.

Look for unlimited phone or email support: Phone support is sometimes excluded from free tax software products.

Consider the importance of in-product help: “It’s common for filers to have questions as they prepare their income tax return,” Jaeger said. “Look for thorough in-product help.”

However you decide to file your taxes, check out these tips on maximizing your return and how to protect yourself from taxpayer identity theft.

This article was last published January 23, 2017, and has since been updated by another author.

The post The Ultimate How-To on Filing Your Taxes for Free appeared first on Credit.com.

Source: credit.com

How to Avoid Paying Taxes on Inherited Property

Elderly woman holds a model of a house in her handsInheriting a home or other property can increase the value of your estate but it can also result in tax consequences. If the property you inherit has appreciated in value since the original owner purchased it, you could be on the hook for capital gains tax should you choose to sell it. That could result in a large tax bill if there’s a sizable gap between the original purchase price and the price you’re able to sell the property for. There are some possibilities for how to avoid paying capital gains tax on inherited property which are worth considering if you’re the beneficiary of an estate or trust

Capital Gains Tax, Explained

Capital gains tax applies when an investment is sold for more than its original purchase price. Typically, you might think about capital gains tax in terms of selling stocks or other securities you hold inside your investment portfolio. So if you bought a stock for $2 per share and sold it for $5 per share, you’d owe capital gains on the $3 in profit you realized from the sale.

The IRS taxes capital gains differently, depending on how long you hold the underlying asset. The short-term capital gains tax rate applies to investments or assets you hold for less than one year. The long-term capital gains tax rate applies to investments or assets you hold longer than one year.

Between the two, the long-term capital gains tax rate is more favorable. Short-term capital gains are taxed at your ordinary income tax rate, whereas long-term capital gains are taxed at 0%, 15% or 20% tax rates, based on your filing status and taxable income for the year. So if you’re in a higher tax bracket, it typically makes more sense to hold investments longer to minimize the amount of capital gains tax you owe.

Capital Gains Tax Rules for Inherited Property

When inheriting property, such as a home or other real estate, the capital gains tax kicks in if you sell that asset at a higher price point than the person you inherited it from paid for it. Likewise, it’s possible to claim a capital loss deduction if you end up selling the property at a loss.

The difference with inherited property, however, is that the IRS allows you to use what’s known as a stepped-up basis for calculating capital gains tax liability. The step-up cost basis represents the value of the home when you inherit it versus its original purchase price.

For example, say your parents bought a home for $100,000 that’s worth $400,000 by the time you inherit it. Under ordinary capital gains tax rules, you’d owe tax on the $300,000 difference between what your parents paid for it and its current value.

That could result in a huge tax bill for you, which is why the IRS allows you to use the stepped-up basis instead. Assume that you don’t sell the home right away, for instance. You hold on to the property for two years, at which time you sell it for $450,000. Taking the step-up basis of $400,000 into account, you’d only pay capital gains on tax on the $50,000 in appreciation value.

That wouldn’t allow you to completely avoid paying capital gains taxes on inherited property, but using the step-up cost basis can reduce the amount of capital gains tax you’d owe.

How to Avoid Paying Capital Gains Tax On Inherited Property

Elderly home owner signs her will in front of a lawyer

If you stand to inherit property and you want to avoid paying taxes on it, there are three possible options for minimizing or eliminating capital gains tax altogether. The first is to simply sell the property as soon as you inherit it. By selling it right away, you aren’t leaving any room for the property to appreciate in value any further. So if you inherit your parents’ home and it’s worth $250,000, selling it right away could help you avoid capital gains tax if it’s still only worth $250,000 at the time of the sale.

That may not be ideal, however, if it was your parents’ wish or your desire to keep the home in the family. In that scenario, there’s a second option you can consider.

Instead of selling the home right away, you could move into it and make it your primary residence. You could then sell the home two years later, potentially excluding some or all of the capital gains from the sale.

The IRS allows single filers to exclude up to $250,000 in capital gains from the sale of a home, increasing that to $500,000 for married couples filing a joint return. The key is that you have to live in the home for at least two of the five years preceding the sale. So if you can envision yourself living in your parents’ home for at least two years, this is another way you might be able to avoid paying capital gains tax on the property.

A third option is to not sell the property and rent it out instead of living in it. This can be a little tricky, however, since there are still tax rules you have to observe. An inherited home that’s treated as an investment property for tax purposes would still be subject to capital gains tax if you decide to sell it. But you could defer paying those taxes if you complete a 1031 exchange to purchase another investment property to replace the one you’re selling.

Disclaiming an Inheritance to Avoid Capital Gains Tax

There’s one more possibility for how to avoid paying capital gains tax on inherited property. That’s simply choosing not to inherit it at all.

This is called disclaiming an inheritance and it’s something you can choose to do if you’d prefer not to get entangled in tax issues related to someone else’s estate. The downside, of course, is that once you formally disclaim an inheritance, you can’t go back and change your mind. Whatever property you forfeited would be passed on to the next person in line to inherit.

The Bottom Line

A houseInheriting property can trigger capital gains tax if you choose to sell it. And there are other taxes you may need to consider, such as state inheritance taxes. If the inherited property is a residence consider living in it for a few years before selling it. Alternatively, consider renting it. Talking to an estate planning attorney or a tax professional may be helpful if you stand to inherit assets from your parents or anyone else and you’re worried about owing Uncle Sam.

Tips for Estate Planning

  • Consider talking to a financial advisor about what you should be including in your own estate plan. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect with professional advisors in your local area in minutes. If you’re ready, get started now.
  • Property taxes in America are collected by local governments as well as the federal government. The money collected is generally used to support community safety, schools, infrastructure and other public projects. A property tax calculator can help you better understand the average cost of property taxes in your state and county.

Photo credit: ©iStock.com/AND-ONE, ©iStock.com/Dobrila Vignjevic, ©iStock.com/powerofforever

The post How to Avoid Paying Taxes on Inherited Property appeared first on SmartAsset Blog.

Source: smartasset.com

7 Pros and Cons of Investing in a 401(k) Retirement Plan at Work

A 401(k) retirement plan is one of the most powerful savings vehicles on the planet. If you’re fortunate enough to work for a company that offers one (or its sister for non-profits, a 403(b)), it’s a valuable benefit that you should take advantage of.

But many people ignore their retirement plan at work because they don’t understand the rules, which may seem confusing at first. Or they worry about what happens to their account after they leave the company or mistakenly believe you must be an investing expert to use a retirement plan.

Let's talk about seven primary pros and cons of using a 401(k). You’ll learn some lesser-known benefits and get tips to save quickly so you have plenty of money when you’re ready to kick back and enjoy retirement.

What is a 401(k) retirement plan?

Traditional retirement accounts give you an immediate benefit by making contributions on a pre-tax basis.

A 401(k) is a type of retirement plan that can be offered by an employer. And if you’re self-employed with no employees, you can have a similar account called a solo 401(k). These accounts allow you to contribute a portion of your paycheck or self-employment income and choose various savings and investment options such as CDs, stock funds, bond funds, and money market funds, to accelerate your account growth.

Traditional retirement accounts give you an immediate benefit by making contributions on a pre-tax basis, which reduces your annual taxable income and your tax liability. You defer paying income tax on contributions and account earnings until you take withdrawals in the future.

Roth retirement accounts require you to pay tax upfront on your contributions. However, your future withdrawals of contributions and investment earnings are entirely tax-free. A Roth 401(k) or 403(b) is similar to a Roth IRA; however, unlike a Roth IRA there isn’t an income limit to qualify. That means even high earners can participate in a Roth at work and reap the benefits.

RELATED: How the COVID-19 CARES Act Affects Your Retirement

Pros of investing in a 401(k) retirement plan at work

When I was in my 20s and started my first job that offered a 401(k), I didn’t enroll in it. I was nervous about having investments with an employer because I didn’t understand what would happen if I left the company, or it went out of business.

I want to put your mind at ease about using a 401(k) because there are many more advantages than disadvantages.

I want to put your mind at ease about using a 401(k) because there are many more advantages than disadvantages. Here are four primary pros for using a retirement plan at work.

1. Having federal legal protection

Qualified workplace retirement plans are protected by the Employee Retirement Income Security Act of 1974 (ERISA), a federal law. It sets minimum standards for employers that offer retirement plans, and the administrators who manage them.

ERISA offers workplace retirement plans a powerful but lesser-known benefit—protection from creditors.

ERISA was enacted to protect your and your beneficiaries’ interests in workplace retirement plans. Here are some of the protections they give you:

  • Disclosure of important facts about your plan features and funding 
  • A claims and appeals process to get your benefits from a plan 
  • Right to sue for benefits and breaches of fiduciary duty if the plan is mismanaged 
  • Payment of certain benefits if you lose your job or a plan gets terminated

Additionally, ERISA offers workplace retirement plans a powerful but lesser-known benefit—protection from creditors. Let’s say you have money in a qualified account but lose your job and can’t pay your car loan. If the car lender gets a judgment against you, they can attempt to get repayment from you in various ways, but not by tapping your 401(k) or 403(b). There are exceptions when an ERISA plan is at risk, such as when you owe federal tax debts, criminal penalties, or an ex-spouse under a Qualified Domestic Relations Order. 

When you leave an employer, you have the option to take your vested retirement funds with you. You can do a tax-free rollover to a new employer's retirement plan or into your own IRA. However, be aware that depending on your home state, assets in an IRA may not have the same legal protections as a workplace plan.

RELATED: 5 Options for Your Retirement Account When Leaving a Job

2. Getting matching funds

Many employers that offer a retirement plan also pay matching contributions. Those are additional funds that boost your account value.

Always set your 401(k) contributions to maximize an employer’s match so you never leave easy money on the table.

For example, your company might match 100% of what you contribute to your retirement plan up to 3% of your income. If you earn $50,000 per year and contribute 3% or $1,500, your employer would also contribute $1,500 on your behalf. You’d have $3,000 in total contributions and receive a 100% return on your $1,500 investment, which is fantastic!

Always set your 401(k) contributions to maximize an employer’s match, so you never leave easy money on the table.

3. Having a high annual contribution limit

Once you contribute enough to take advantage of any 401(k) matching, consider setting your sights higher by raising your savings rate every year. For 2021, the allowable limit remains $19,500, or $26,000 if you’re over age 50. A good rule of thumb is to save at least 10% to 15% of your gross income for retirement.

Most retirement plans have an automatic escalation feature that kicks up your contribution percentage at the beginning of each year. You might set it to increase your contributions by 1% per year until you reach 15%. That’s a simple way to set yourself up for a happy and secure retirement.

4. Getting free investing advice

After you enroll in a workplace retirement plan, you must choose from a menu of savings and investment options. Most plan providers are major brokerages (such as Fidelity or Vanguard) and have helpful resources, such as online assessments and free advisors. Take advantage of the opportunity to get customized advice for choosing the best investments for your financial situation, age, and risk tolerance.

In general, the more time you have until retirement, or the higher your risk tolerance, the more stock funds you should own. Likewise, having less time or a low tolerance for risk means you should own more conservative and stable investments, such as bonds or money market funds.

RELATED: A Beginner's Guide to Investing in Stocks

Cons of investing in a 401(k) retirement plan at work

While there are terrific advantages of investing in a retirement plan at work, here are three cons to consider.

1. You may have limited investment options

Compared to other types of retirement accounts, such as an IRA, or a taxable brokerage account, your 401(k) or 403 (b) may have fewer investment options. You won’t find any exotic choices, just basic asset classes, including stock, bond, and cash funds.

However, having a limited investment menu streamlines your investment choices and minimizes complexity.

2. You may have higher account fees

Due to the administrative responsibilities required by employer-sponsored retirement plans, they may charge high fees. And as a plan participant, you have little control over the fees you must pay.

One way to keep your workplace retirement account fees as low as possible is selecting low-cost index funds or exchange-traded funds (ETFs) when possible.

One way to keep your workplace retirement account fees as low as possible is selecting low-cost index funds or exchange-traded funds (ETFs) when possible.

3.  You must pay fees on early withdrawals

One of the inherent disadvantages of putting money in a retirement account is that you’re typically penalized 10% for early withdrawals before the official retirement age of 59½. Plus, you typically can’t tap a 401(k) or 403(b) unless you have a qualifying hardship. That discourages participants from tapping accounts, so they keep growing.

The takeaway is that you should only contribute funds to a retirement account that you won’t need for everyday living expenses. If you avoid expensive early withdrawals, the advantages of using a workplace retirement account far outweigh the downsides.

Source: quickanddirtytips.com

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