Alan Fraser Houston
Personal Finance
Mortgage News, Personal Finance

5 Tips For Throwing A Virtual Super Bowl Party That Your Friends Will Actually Want To Attend

Can you throw a remote, budget-friendly Super Bowl party that’s actually fun? Absolutely; in fact, here are five ways to make 2021 the most memorable Super Bowl yet.Can you throw a remote, budget-friendly Super Bowl party that’s actually fun? Absolutely; in fact, here are five ways to make 2021 the most memorable Super Bowl yet.

The post 5 Tips For Throwing A Virtual Super Bowl Party That Your Friends Will Actually Want To Attend appeared first on Money Under 30.


Mortgage News, Personal Finance

Save on a Gym Membership With At-Home Workouts

Save on a Gym Membership with At-Home Workouts

Somewhat unsurprisingly, search traffic for “gym membership” peaks between January 3 and January 9, according to Google Trends. If you already belong to a gym you’ve probably noticed that things get pretty crowded every January. But if you want to save money this year, consider some of these free or inexpensive alternatives to a gym membership. 

Find out now: How much house can I afford?

Try At-Home Yoga

Save on a Gym Membership with At-Home Workouts

There are plenty of options for anyone who wants to save money by canceling their gym membership or skipping out on the usual early-January gym membership purchase. One option is at-home yoga. You can buy an inexpensive yoga mat, or just use a towel or the floor if you don’t want to commit to buying a mat. An internet search will turn up sample yoga routines or you can head to your local library for a book on yoga. If you know how to do a basic sun salutation, you can start off with that – and repeat until you feel like you’ve gotten a good workout. The cost? $0.

Related Article: The Best 3 Gyms for Your Wallet

Use YouTube

Save on a Gym Membership with At-Home Workouts

YouTube is a great resource if you want to try working out at home but you’re not sure which type of exercise is the best fit for you. You can find short videos and long videos, videos for beginners and for advanced users. There are videos with Pilates routines, body weight exercises, Zumba classes and more.

You can try one-off routines to get a feel for a particular style of exercise, a particular YouTube channel or a particular vlogger. But you can also commit to a series or program that, through the aid of YouTube videos, will take you on a multi-week fitness journey. The cost to you? $0.

Related Article: How to Cancel Your Gym Membership

Go Old-School

If taking up yoga or learning something like Pilates or Zumba through YouTube doesn’t sound like your speed, you can always go old-school with classic body weight exercises performed free of charge, in the comfort of your own home. That means push-ups, squats, lunges and other exercises that require no equipment.

There’s a lively online community devoted to helping people achieve their strength and fitness goals through body weight alone, without using free weights or any gym accoutrements. If you think you need to pay for a pricey gym membership to get the results you want, take a look at the information that’s out there on body weight training – you might be surprised by what’s possible.

Head Outside

OK, so this one isn’t technically “at home” but you can always hit the streets, head to a local park or set up in your backyard to get your exercise. Running and walking are popular forms of exercise, but you can also do the body weight training mentioned above. At first, you might feel a little self-conscious doing walking lunges in your yard or in the park, but the (free) fitness gains should help you overcome any initial embarrassment.

Bottom Line

Every January, gym owners count on consumers to buy pricey gym memberships and then never use them. They oversell gyms the way airline owners oversell flights, counting on a high number of no-shows. This year, why not prove them wrong and opt for an at-home workout regimen?

Photo credit: Â©, Â©, Â©

The post Save on a Gym Membership With At-Home Workouts appeared first on SmartAsset Blog.


Mortgage News, Personal Finance

7 Solid New Year’s Credit Resolutions for a Happier 2021

We’re not going to lie—2020 was a tough year for everyone. Between COVID-19 and pandemic-driven layoffs, we’re all ready to move on from last year. So, what are your new year’s credit resolutions for 2021? Do you want to improve your credit score, pay your bills on time or create a savings plan?

If you haven’t thought of any financial resolutions yet, don’t worry. We’ve got a few suggestions. Here are some tips on how to stay on top of your credit and make your money work for you in 2021:

  1. Get on Board with ExtraCredit
  2. Build Your Savings Account 
  3. Pay Bills on Time
  4. Get Your Taxes Done Early
  5. Open a Few Extra Credit Accounts
  6. Maintain a 30% Credit Utilization Rate
  7. Check Your Credit Score Regularly

1. Get on Board with ExtraCredit

The more you know about your financial profile, the better off you’ll be. You can monitor, build, earn, protect and restore your credit profile with ExtraCredit from Fully loaded and intuitive, ExtraCredit includes five powerful tools to help you stay on top of your money:

  • Build It: Build It adds information about your rent and bill-paying habits to your credit profile. Whenever you pay on time, you get kudos—and your on-time payments are reported to all three bureaus.
  • Guard It: A staggering 14.4 million people became victims of identity theft in 2019. Guard It comes with Dark Web Monitoring, which scans hidden sites and nefarious file sharing sites for consumer data breach information. Guard it also includes a Compromised Account Monitoring feature and valuable Identity Theft Insurance.
  • Track It: Believe it or not, you have at least 28 different FICO scores. That’s a lot to keep on top of. Thankfully, you can keep track of all of them through Track It. 
  • Reward It: When you sign up with ExtraCredit, you get a rewards card in the mail. It’s preloaded with a $5 signup bonus, and you earn more money every time you’re approved for a Reward It financial offer.
  • Restore It: Credit score looking a little low? Restore It connects you with a leading credit repair company in your state so that you can begin to solve problems on your profile. Better still, you get a signup discount at or at an equivalent leader in your area. 

2. Build Your Savings Account

Almost everyone could have done with a little extra money in 2020. So, what’s the best savings option on the market? Both savings accounts and money market accounts are Chime a go? Chime has a lot of neat features, including a clever automatic savings tool and a competitive 0.50% Annual Percentage Yield interest rate—10x the national average!

3. Pay Bills on Time

You might be surprised to learn that your payment history makes up 35% of your credit score. If you don’t pay your bills on time, your financial outlook can suffer in the long term—so do whatever you can to avoid late payments. If you’re busy or somewhat forgetful, stay on schedule by:

  • Automating payments
  • Setting reminders on your phone or computer
  • Writing payment dates on a calendar
  • Creating a bills spreadsheet

Does Your Credit Improve After 7 Years?

In a nutshell, if you have a delinquent debt on your credit report and you don’t do anything about it, it’ll generally drop off after seven years. Late payments are generally removed around the seven year mark, while bankruptcies usually stay on record for seven to 10 years. Unpaid collection accounts stay on record for about seven years—and that timeframe renews if you begin to pay and then stop again. Over time, delinquencies affect your credit score less and less.

4. Get Your Taxes Done Early

Enjoy doing your taxes? No, neither do we. There are benefits to filing early, though. If you file your taxes before the late-tax-season rush, you could get a faster refund. You’ll also reduce the chance of identity theft, avoid penalties and—if applicable—give yourself extra time to save for your tax bill.

5. Open a Few Extra Credit Accounts

The more account types you have in good standing on your credit report, the more likely you are to get approved when you go for a low-interest car loan, personal loan or mortgage. Lenders scrutinize your credit report—and they look for a good mix of account types.

Revolving accounts include credit cards, store cards and home equity lines of credit (HELOCs). Installment accounts are products like personal loans and car loans, which have fixed monthly payments. Open accounts, like charge cards and utility accounts, require payment in full each month. Your unique credit mix accounts for 10% of your credit score.

6. Maintain a 30% Credit Utilization Rate

Credit utilization ratio is the amount of credit you have available versus how much you’re using. If you regularly max out your credit card, your score will almost certainly go down. Instead, try to avoid using more than 30% of your available credit at any one time. If you have a card with a $1,000 credit limit, for example, stop spending when you reach the $300 mark. 

Your credit utilization rate accounts for a whopping 30% of your credit score. If you need to borrow a little more money, try asking for a limit increase to avoid messing up your ratio.

7. Check Your Credit Score Regularly

It’s important to check your credit score regularly. Checking your own credit score is a type of soft inquiry, which won’t harm your credit. If you know your credit score:

Whenever you apply for credit, lenders look at your credit score—and often, your entire credit report. This is known as a hard inquiry. Too many hard inquiries and your score could drop temporarily, so try to keep applications to a minimum. If you already know your credit score, you can gauge your likelihood of success in advance.

If you don’t already know your credit score, check out your Credit Report Card or sign up with ExtraCredit as soon as possible. 

Let’s face it—2020 was a doozy. If you follow a few of our new year’s credit resolutions, 2021 might be a bit better. Maybe you want to increase your credit score, or perhaps you’d like to build your savings account for the future. Either way, slay those at least one financial resolution and shine on in 2021.

Looking for more financial tips for 2021? Check out these helpful articles!

  • Important Tax Document Enclosed: 4 Tax Forms to Watch Your Mailbox For
  • 3 Important Steps Often Overlooked by Beginner Investors
  • 1099-C: What You Need to Know about the Cancellation of Debt Tax Form
  • Step-by-Step Guide for How to Do Taxes Yourself
  • What Is Going on with GameStop? How to Protect Yourself When Making Risky Investments

The post 7 Solid New Year’s Credit Resolutions for a Happier 2021 appeared first on


Debt, Personal Finance, Retirement

How My 401k Loan Cost Me $1 Million Dollars

401k loan

Today, I have a great guest post from a reader, Ashley Patrick. She asked if she could share her story with my audience, and I, of course, had to say yes! This is her personal story about how her 401k loan cost her a ton of money and why you shouldn’t take be borrowing from your 401k.

You’ve been thinking about getting a 401k loan.

Everyone says it’s a great loan because you are paying yourself back!

It sounds like a great low risk loan at a great interest rate for an unsecured loan.

But you know the saying “if it sounds too good to be true, it probably is”.

So you’re thinking, what’s the catch?

I take out a loan without having to do a withdrawal and I pay myself back. I’m paying myself back at a low interest rate right, so what’s wrong with that?

Well, I’m about to tell you how our 401k loan cost us $1,000,000 dollars.

You see, there are a lot of reasons to not take out a 401k loan and they all happened to ME!

Related content:

  • Personal Capital Review 2018- Manage Your Money For Free
  • To Pay Off Debt Or Invest- Which One Is Best For You?
  • 12 Work From Home Jobs That Can Earn You $1,000+ Each Month
  • How To Start Investing With Little Money

How My 401k Loan Cost Me $1,000,000


Let me start at the beginning….

My husband and I bought our dream house when we were just 28 & 29 years old. This was our second house and honestly, more house than we really should have bought. But you know, it had a huge 40×60 shop and we loved the house and property. So there we were buying a $450,000 house with a 18 month old.

This house was gorgeous on 10 acres of woods with floor to ceiling windows throughout the entire house.

So there we were with a $2200 a month house payment, an 18 month old in daycare, and both of us working full-time. Within 2 months of us buying this house we found out I was pregnant again! We had been trying for sometime so it wasn’t a surprise but there was a major issue with our new dream home.

The layout didn’t work for a family of 3. It was a small 2 bedroom with an in-law suite that didn’t connect to the main house.

There was a solution though. We could enclose a portion of the covered patio to include another bedroom and play area and connect the two living spaces.

The problem was this was going to cost $25,000. We certainly didn’t have that much in savings and the mortgage was already as high as it could go.

So what were we to do? We have numerous people that were “financially savvy” tell my husband that we should do a 401k loan. We would be paying ourselves back so, we weren’t “really borrowing” any money. It was our money and are just using it now and will pay it back later.


Our first issue with the loan

This seemed like a perfect solution to our problem. So we took out a $25,000 401k loan in the summer of 2013. I checked the 401k account shortly after the loan and realized they took the money out of the 401k. I was very upset about this and thought there must have been some mistake.

Come to find out, they actually take the money out of your 401k. So, it’s not earning any compound interest. I thought that the 401k was just the collateral. I didn’t realize they actually take the money out of it.

So, nothing else seemed like a good option so we just kept the loan. Construction was finished just in time for the arrival of our 2nd child. The layout is much better and much more functional for our family.

Everything seemed fine and the payments came out automatically from my husband’s paycheck.


Then issue #2 with 401k loans

Then came the second issue with the 401k loan…..

In January 2014, my husband was laid off from his job. So there we were with a newborn and a 2 yr old in an expensive house and my husband, the breadwinner, lost his job of 7 years. You know the one he never thought he would lose, so why not buy the expensive house? Ya, that one, gone.  

I cried about it but figured out how long our savings and severance package would last and knew we would be okay for several months.

Well, then we get a letter stating we have 60 days to payback the 401k loan, which at this point was over $20,000. We had made payments for less than a year out of the 5 year loan.

My husband didn’t have job yet and we didn’t have that much in savings. I certainly wasn’t going to use what was in savings to pay that loan either. I may have needed that to feed my children in a few months.

So, we ignored it because we couldn’t get another loan to pay it at this point.

Luckily, I married up and everyone loves my husband. So, he was able to find another job rather quickly.

We were thankful he had another job and didn’t think about the 401k loan again.

Then came issue #3

That was until a year later in January of 2015. Here came issue number three with 401k loans.

We got a nice tax form in the mail from his 401k provider. Since we didn’t/couldn’t pay back the loan in the 60 days, the balance counted as income. You know, since it actually came out of the 401k.

Then I did our taxes and found out we owed several thousand dollars to the IRS. We went from getting a couple thousand back to owing around $6500. So it cost us around $10,000 just in taxes. It even bumped us up a tax bracket and cost us more for taxes on our actual income as well.

I ended up putting what we owed on a 0% for 18 months credit card and chalked it up to a big lesson learned. I will never take out a 401k loan again.


The silver lining

In reality, my husband losing his job has been a major blessing in our lives. He is much happier at his new job. This also started my journey to financial coaching.

You see, when I put the taxes on the credit card, I didn’t have a plan to pay that off either. When I started getting the bills for it, I realized I had no idea how we would pay it off before interest accrued.

That led me to find Dave Ramsey. Not only did we have it paid off in a couple months, but we paid off all of our $45,000 debt (except the mortgage) in 17 months!


The true cost of 401k loans

Just recently I did the math and realized what our 401k loan really cost us.

It cost us $25,000 from our 401k and roughly about $10,000 in taxes. So that’s already $35,000 from the initial loan.

We were really young for that $25,000 to earn compound interest. If we had left it where it should have been, we would have had a lot more money come retirement age.

The general rule of thumb for compound interest is that the amount invested will double every 7 years given a 10% rate of return. And yes, you can earn an average of 10% rate of return after fees.

We were 28 and 29 years old when we took that loan out. If we say we would retire or start withdrawing between 65-70 years old, then that $25,000 cost us around $1 million dollars at retirement age.

Now yes, I could try to make up for the difference and try to put more in retirement but I’ve already lost a lot of time and compound interest. Even if we had $25,000 to put in retirement today to make up for it, I’ve already missed a doubling. 


But that won’t happen to me, so why shouldn’t I take out a 401k loan?

Life changes and now I am not working full-time and have an extra kid. So, thinking that you will pay it back later doesn’t always happen as fast as you think it will.  

Something always comes up and is more important at that time. So learn from my mistakes and don’t take out a 401k loan.

Actually, start saving as much as you can as young as you can. 

You may even be thinking that you aren’t quitting your job and will pay it all back, so no big deal, right? Actually you are still losing a ton of compound interest even if you pay the entire thing back.

The typical loan duration is 5 years. That’s almost a doubling of interest by the time it’s paid back in full. So, it may not be as dramatic as my example but you are still taking a major loss at retirement age.

The thing is, you have to figure in the compound interest. You can’t only look at the interest rate you are paying. You are losing interest you could be gaining at a much much higher rate than what you are paying on the loan.


Lessons Learned from my 401k loan

Some lessons I learned from taking out this 401k are:

  • Don’t miss out on compound interest
  • It’s not a loan, it’s a withdrawal
  • If you want to change jobs or lose your job, it has to be paid back in 60-90 days depending on your employer
  • If you can’t or don’t pay it back, it counts as income on your taxes

So if you are considering a 401k loan, find another way to pay for what you need. Cash is always best. If you can’t pay cash right now, wait and save as much as you can. This will at least limit the amount of debt you take on.

Determine if what you want is a need or a want. If it’s a want, then wait. A 401k loan should be used as an absolute need and last resort.

It keeps you tied to a job for the duration of the loan which is usually 5 years. This could limit your opportunities and put you in an even bigger hardship if you lose your job.

I hope you will learn from my mistakes and make an informed decision about these types of loans. Don’t be like me and make an ill-informed decision.

Ashley Patrick is a Ramsey Solutions Financial Master Coach and owner of Budgets Made Easy. She helps people budget and save money so they can pay off their debt.

What do you think of 401k loans? Have you ever taken one out?

The post How My 401k Loan Cost Me $1 Million Dollars appeared first on Making Sense Of Cents.


Personal Finance

Got Cash? What to Do with Extra Money

I received a great email from Magen L., who says:

I no longer have any retirement savings because I cashed it all out to pay my debt. We also sold our home and moved into an apartment just as the pandemic was hitting. With the sale of our house, the fact that my husband is working overtime, and the stimulus money, we've saved nearly $10,000 and should have more by the end of the year. My primary question is, what should we do with it?

Right now, I have our extra money in a low-interest bank savings [account], and I'm considering moving it to a high-yield savings [account] as our emergency fund. Is that a good idea? For additional money we save, I intend to use it as a down payment on a new house. However, should I be investing in Roth IRAs instead? What is the best option?

Another question comes from Bianca G., who says:

I have zero credit card debt, but I have a car loan and a student loan. I will be receiving a large amount of money sometime next year. If my fiancé and I want to buy a home, is it better to pay off my car first and then my student loan, or should I just pay down a big portion of my student loan?

Thanks Megan and Bianca for your questions. I'll answer them and give you a three-step plan to prioritize your extra money and make your finances more secure. No matter if you're a good saver or you get a cash windfall from a tax refund, an inheritance, or the sale of a home, extra money should never be squandered.

What to do with extra cash

Maybe you're like Magen and have extra cash that could be working harder for you, but you're not sure what to do with it. You may even be paralyzed and do nothing because you have a deep-seated fear of making a big mistake with your cash.

In some cases, having your money sit idle is precisely the right financial move. But it depends on whether or not you've accomplished three fundamental financial goals, which we'll cover.

To know the right way to manage extra cash, you need to step back and take a holistic view of your entire financial life.

To know the right way to manage extra cash, you need to step back and take a holistic view of your entire financial life. Consider what you're doing right and where you're vulnerable.

Try using a three-pronged approach that I call the PIP plan, which stands for:

  1. Prepare for the unexpected
  2. Invest for the future
  3. Pay off high-interest debt

Let's examine each one to understand how to use the PIP (prepare, invest, and pay off) approach for your situation.

How to prepare for the unexpected

The first fundamental goal you should have is to prepare for the unexpected. As you know, life is full of surprises. Some of them bring happiness, but there's an infinite number of devastating events that could hurt you financially.

In an instant, you could get fired from your job, experience a natural disaster, get a severe illness, or lose a spouse. If 2020 has taught us anything, it's that we have to be as mentally, physically, and financially prepared as possible for what may be around the corner. 

While no amount of money can reverse a tragedy, having safety nets can protect your finances. That makes coping with a tragedy easier.

Getting equipped for the unexpected is an ongoing challenge. Your approach should change over time because it depends on your income, debt, number of dependents, and breadwinners in a family.

While no amount of money can reverse a tragedy, having safety nets—such as an emergency fund and various types of insurance—can protect your finances. That makes coping with a tragedy easier.

Everyone should accumulate an emergency fund equal to at least three to six months' worth of their living expenses. For instance, if you spend $3,000 a month on essentials—such as housing, utilities, food, and debt payments—make a goal to keep at least $9,000 in an FDIC-insured bank savings account.

While keeping that much in savings may sound boring, the goal for an emergency fund is safety, not growth. The idea is to have immediate access to your cash when you need it. That's why I don't recommend investing your emergency money unless you have more than a six-month reserve.

The goal for an emergency fund is safety, not growth.

If you don't have enough saved, aim to bridge the gap over a reasonable period. For instance, you could save one half of your target over two years or one third over three years. You can put your goal on autopilot by creating an automatic monthly transfer from your checking into your savings account.

Megan mentioned using high-yield savings, which can be a good option because it pays a bit more interest for large balances. However, the higher rate typically comes with limitations, such as applying only to a threshold balance, so be sure to understand the account terms.

Insurance protects your finances

Another critical aspect of preparing for the unexpected is having enough of the right kinds of insurance. Here are some policies you may need:

  • Auto insurance if you drive your own or someone else's vehicle
  • Homeowners insurance, which is typically required when you have a mortgage
  • Renters insurance if you rent a home or apartment
  • Health insurance, which pays a portion of your medical bills
  • Disability insurance replaces a percentage of income if you get sick or injured and can no longer work
  • Life insurance if you have dependents or debt co-signers who would suffer financial hardship if you died

RELATED: How to Create Foolproof Safety Nets

How to invest for your future

Once you get as prepared as possible for the unexpected by building an emergency fund and getting the right kinds of insurance, the next goal I mentioned is investing for retirement. That’s the “I” in PIP, right behind prepare for the unexpected.

Investments can go down in value—you should never invest money you can’t live without.

While many people use the terms saving and investing interchangeably, they’re not the same. Let’s clarify the difference between investing and saving so you can think strategically about them:

Saving is for the money you expect to spend within the next few years and don’t want to risk losing it. In other words, you save money that you want to keep 100% safe because you know you’ll need it or because you could need it. While it won’t earn much interest, you’ll be able to tap it in an instant.

Investing is for the money you expect to spend in the future, such as in five or more years. Purchasing an investment means you’re exposing money to some amount of risk to make it grow. Investments can go down in value; therefore, you should never invest money you can’t live without.

In general, I recommend that you invest through a qualified retirement account, such as a workplace plan or an IRA, which come with tax benefits to boost your growth. My recommendation is to contribute no less than 10% to 15% of your pre-tax income for retirement.

Magen mentioned Roth IRAs, and it may be a good option for her to rebuild her retirement savings. For 2020, you can contribute up to $6,000, or $7,000 if you’re over age 50, to a traditional or a Roth IRA. You typically must have income to qualify for an IRA. However, if you’re married and file taxes jointly, a non-working spouse can max out an IRA based on household income.

For workplace retirement plans, such as a 401(k), you can contribute up to $19,500, or $26,000 if you’re over 50 for 2020. Some employers match a certain percent of contributions, which turbocharges your account. That’s why it’s wise to invest enough to max out any free retirement matching at work. If your employer kicks in matching funds, you can exceed the annual contribution limits that I mentioned.

RELATED: A 5-Point Checklist for How to Invest Money Wisely

How to pay off high-interest debt

Once you're working on the first two parts of my PIP plan by preparing for the unexpected and investing for the future, you're in a perfect position also to pay off high-interest debt, the final "P."

Always tackle your high-interest debts before any other debts because they cost you the most. They usually include credit cards, car loans, personal loans, and payday loans with double-digit interest rates. Remember that when you pay off a credit card that charges 18%, that's just like earning 18% on an investment after taxes—pretty impressive!

Remember that when you pay off a credit card that charges 18%, that's just like earning 18% on an investment after taxes—pretty impressive!

Typical low-interest loans include student loans, mortgages, and home equity lines of credit. These types of debt also come with tax breaks for some of the interest you pay, making them cost even less. So, don't even think about paying them down before implementing your PIP plan.

Getting back to Bianca's situation, she didn't mention having emergency savings or regularly investing for retirement. I recommend using her upcoming cash windfall to set these up before paying off a low-rate student loan.

Let's say Bianca sets aside enough for her emergency fund, purchases any missing insurance, and still has cash left over. She could use some or all of it to pay down her auto loan. Since the auto loan probably has a higher interest rate than her student loan and doesn't come with any tax advantages, it's wise to pay it down first. 

Once you've put your PIP plan into motion, you can work on other goals, such as saving for a house, vacation, college, or any other dream you have. 

Questions to ask when you have extra money

Here are five questions to ask yourself when you have a cash windfall or accumulate savings and aren’t sure what to do with it.

1. Do I have emergency savings?

Having some emergency money is critical for a healthy financial life because no one can predict the future. You might have a considerable unexpected expense or lose income.  

Without emergency money to fall back on, you're living on the edge, financially speaking. So never turn down the opportunity to build a cash reserve before spending money on anything else.

2. Do I contribute to a retirement account at work?

Getting a windfall could be the ticket to getting started with a retirement plan or increasing contributions. It's wise to invest at least 10% to 15% of your gross income for retirement.

Investing in a workplace retirement plan is an excellent way to set aside small amounts of money regularly. You'll build wealth for the future, cut your taxes, and maybe even get some employer matching.

3. Do I have an IRA?

Don't have a job with a retirement plan? Not a problem. If you (or a spouse when you file taxes jointly) have some amount of earned income, you can contribute to a traditional or a Roth IRA. Even if you contribute to a retirement plan at work, you can still max out an IRA in the same year—which is a great way to use a cash windfall.

4. Do I have high-interest debt?

If you have expensive debt, such as credit cards or payday loans, paying them down is the next best way to spend extra money. Take the opportunity to use a windfall to get rid of high-interest debt and stay out of debt in the future. 

5. Do I have other financial goals?

After you’ve built up your emergency fund, have money flowing into tax-advantaged retirement accounts, and are whittling down high-interest debt, start thinking about other financial goals. Do you want to buy a house? Go to graduate school? Send your kids to college?

How to manage a cash windfall

Review your financial situation at least once a year to make sure you’re still on track.

When it comes to managing extra money, always consider the big picture of your financial life and choose strategies that follow my PIP plan in order: prepare for the unexpected, invest for the future, and pay off high-interest debt.

Review your situation at least once a year to make sure you’re still on track. As your life changes, you may need more or less emergency money or insurance coverage.

When your income increases, take the opportunity to bump up your retirement contribution—even increasing it one percent per year can make a huge difference.

And here's another important quick and dirty tip: when you make more money, don't let your cost of living increase as well. If you earn more but maintain or even decrease your expenses, you'll be able to reach your financial goals faster.


Personal Finance, Retirement

Roth IRA vs. Roth 401(k) – Choose The Best Plan For You

The Roth IRA vs. the Roth 401(k) – they have so much in common, yet they’re also so different! How can that be, since are both Roth plans? Mostly, it’s because one is an employer-sponsored plan, and the other is a self-directed account.

But the IRS allows certain specific benefits for each plan type. The Roth IRA versus the Roth 401(k) – how are they similar, and how are they different?

Table of Contents

  • Roth IRA vs. Roth 401(k) – The Similarities
  • Differences Between Roth IRA and Roth 401(k)
  • Which Will Work Better for You?

Roth IRA vs. Roth 401(k) – The Similarities

On the surface, the two Roth plan types seem to be identical. And in regard to the basic structure of the two plans, there is a lot of common ground.

Both Provide Tax-free Distributions in Retirement

The biggest distinguishing factor about a Roth plan, the one that makes it so attractive for so many people, is it offers the opportunity to create a tax-free income source in retirement. This benefit is available whether you have a Roth IRA or a Roth 401(k) plan.

In order to qualify for tax-free income in retirement, distributions cannot be taken before you reach age 59 ½. In addition, you must be participating in a Roth plan for a minimum of five years at the time distributions are taken. But as long as you meet those two criteria, the distributions you receive from the plan will be tax-free.

This makes Roth plans completely different from other tax-sheltered retirement plans, such as traditional IRAs and 401(k) plans.

All other retirement plans are merely tax-deferred. That means while you get generous tax benefits during the accumulation phase of the plan, you will have to pay ordinary income tax when you begin taking distributions in retirement.

In this way, both Roth IRAs and Roth 401(k) provide excellent tax diversification strategies for retirement. This means either will allow you to have at least some tax-free income along with other income sources that are fully taxable.

Neither offers Tax-deductible Contributions

When you make a contribution to a Roth plan, whether it’s an IRA or a 401(k) account, there is no tax deduction. This is unlike both traditional IRAs and 401(k) plans, where contributions are generally fully deductible in the year they’re made.

In fact, tax deductibility of contributions is one of the major reasons why people participate in retirement plans. But no such deduction is available for either a Roth IRA or a Roth 401(k).


You can Withdraw Your Contributions from Either Plan at Any Time – Tax-free

There is another unique feature of Roth accounts, and it applies to both Roth IRAs and Roth 401(k)s. That is, you can withdraw your contributions from a Roth plan at any time, without having to pay either ordinary income tax or the 10% early withdrawal penalty on the distributions.

This is in part because Roth IRA contributions are not tax-deductible at the time they are made. But it’s also true because of IRS ordering rules for distributions that are unique to Roth plans. Those ordering rules enable you to take distributions of contributions, ahead of accumulated investment earnings.

There is some difference in exactly how early distributions are handled among Roth IRAs and Roth 401(k)s.

Early distributions from Roth IRAs enable you to first withdraw your contributions – which were not tax-deductible – and then your accumulated investment earnings once all of the contributions have been withdrawn. This provides owners of Roth IRAs with the unique ability to access their money early, without incurring tax consequences.

With Roth 401(k)s the contribution portion of your plan can also be withdrawn free of both ordinary income tax and early withdrawal penalties. But since they’re 401(k)s, they’re also subject to pro-rata distribution rules.

If you have a Roth 401(k) that has $20,000 in it, comprised of $14,000 in contributions and $6,000 in investment earnings, then 30% ($6,000 divided by $20,000) of any early distribution that you take, will be considered to represent investment income.

If you take a $10,000 early distribution, $3,000 of it, or 30%, will be considered investment income and subject to both income tax and the 10% early withdrawal penalty. The remaining $7,000, or 70%, will be considered a withdrawal of contributions, and therefore not subject to tax or penalty.

IMPORTANT NOTE: Not all 401(k) plans permit early withdrawal of Roth contributions, for all the same reasons they don’t permit early withdrawals from 401(k) plans in general. Many only allow for early withdrawals as either loans or hardship withdrawals. The rules we discussed above are IRS rules, not employer rules.)

Both offer Tax-deferred Investment Returns

Despite the lack of contribution deductibility, both plans have one major feature in common with other retirement plans. That’s the money contributed to the plans will accumulate investment income on a tax-deferred basis.

So, how can an account that is supposedly tax-free in retirement, be merely tax-deferred during the accumulation phase?


It gets down to early withdrawals. We’ve already discussed how you can withdraw your contributions early from either a Roth IRA or Roth 401(k) without creating a tax liability. But if you’re distributions also include investment earnings, the situation is different.

Accumulated Investment Earnings are Taxable if Withdrawn Early

Whether you have a Roth IRA or a Roth 401(k), if you take distributions from either plan that includes investment earnings (which it will under the pro-rata rules for the Roth 401(k)), and you are either under age 59 ½, or have been participating in the Roth plan for less than five years, those earnings will create a tax liability.

Let’s say you have been taking early distributions from your Roth plan. You have already withdrawn the full amount of your contributions to the plan. You continue taking distributions, but you are now withdrawing funds that represent accumulated investment earnings.

Those withdrawals – the ones that are comprised of accumulated investment earnings – will be subject not only to ordinary income tax, but also the 10% early withdrawal penalty. In this way, early distributions from a Roth plan are handled the same way they are for other retirement plans, at least in regard to the withdrawal of investment earnings.

This is the reason why, technically speaking, investment earnings within a Roth plan accumulate on a tax-deferred basis, rather than fully tax-free.

Distributions from Either won’t Affect the Taxability of Your Social Security Benefits

This is another advantage that applies to both the Roth IRA and the Roth 401(k) plan.

Distributions from other retirement plans are added to your taxable income in retirement. But not only will those distributions be subject to income tax, but they will also affect your income in calculating how much of your Social Security income will be subject to income tax.

Under current law, Social Security income is subject to income tax using a two-tiered calculation. If your combined retirement income falls below one of these limits, then your Social Security benefits are not taxable. However, if you are single, and your combined income exceeds $25,000, then 85% of your Social Security benefit will be taxable.

If you’re married filing jointly, and your combined income exceeds $32,000, then 85% of your Social Security benefit will be taxable.

Now the term “combined income” refers to income from all other sources – investment income, like interest, dividends and capital gains; other retirement income, like pensions and distributions from traditional IRAs and 401(k)s; and any earned income.

Your Roth plan distributions don’t count toward that calculation! For Social Security purposes, it’s as if the distributions from your Roth plans don’t exist. Since they’re not taxable, they’re not included in “combined income”, and will be excluded from the threshold calculations.

This is yet another way Roth plans provide for tax diversification in retirement.

That covers the similarities between Roth IRAs and Roth 401(k)s. But let’s move on to the differences,

Differences Between Roth IRA and Roth 401(k)

Most of the differences between the Roth IRA and Roth 401(k) have to do with the fact the Roth 401(k) is part of an employer-sponsored plan. That by itself creates a lot of differences.

Contribution Amounts

The maximum you can contribute to a Roth IRA in 2020 is $6,000, or $7,000 if you’re age 50 or older. That’s unchanged from 2019.

But Roth 401(k) contributions are potentially more than three times higher!

The employee contribution limit for 2020 for a 401(k) plan is $19,500 per year, or $26,000 if you are age 50 or older (up from $19,000 and $25,000 for 2019). If you participate in a 401(k) plan that also has a Roth 401(k) provision, you could actually contribute up to the maximum 401(k) contribution limit entirely to your Roth 401(k).


Now, that doesn’t mean you want to contribute the entire amount to the Roth portion. After all, the Roth 401(k), being a Roth plan, does not offer tax-deductible contributions. $19,500 or $26,000 may be a lot of money to take out of your paycheck without getting a tax break. But it still gives you a lot more room to allocate funds to a Roth plan than what you can with a Roth IRA account.

Employer Matching Contributions

As an employer-sponsored retirement plan, you can also get an employer matching contribution in a Roth 401(k) plan. Since a Roth IRA is a self-directed account, the employer match does not exist.

Though not all employers offer either the Roth 401(k) or even an employer matching contribution, the ones that do may not make a distinction between a regular 401(k) and the Roth portion. In that situation, if the employer offers a 50% match on your contribution, that means there will be a 50% match on the part of your contribution that goes into your Roth 401(k).

There is one limitation on the employer match, however. Since a Roth 401(k) is a fully segregated account in your retirement plan, the employer cannot put matching contributions into that part of your plan. Instead, the employer match goes into your regular 401(k) plan.

That means even if you were to allocate 100% of your 401(k) contribution into the Roth portion, you would still have a regular 401(k) if the employer offers a match.

While it would be an advantage to have the employer match going into the Roth 401(k) as well, that would create a tax problem. Since the employer match is not taxable to you when made, it would be taxable when you begin taking distributions from the plan. For this reason, you’re better off having it in the regular 401(k) portion of your plan, where it will be tax-deferred.

Loan Provisions

Since a Roth 401(k) is part of an employer-sponsored plan, a loan provision may be available on it.

Not all employers offer loan provisions on their 401(k) plans. But if they do, the IRS permits you to borrow up to 50% of the vested balance of your account, up to a maximum of $50,000 Naturally, if you do take the loan against your plan, you will have to make monthly payments, including interest, until the loan is repaid.

Once again, since a Roth IRA is a self-directed plan, no loan provision is available.

Required Minimum Distributions (RMDs)

This is where the Roth IRA and a Roth 401(k) are completely different. IRS required minimum distribution (RMD) rules require you begin taking mandatory distributions from your tax-sheltered retirement plan beginning at age 70 ½. The withdrawals are based on a percentage calculated based on your remaining life expectancy at the age that each distribution is made.

Roth 401(k) plans are subject to RMD provisions. Roth IRA accounts are not.

The benefit of not being required to take RMDs is you can allow your Roth IRA to grow for the rest of your life. This will enable you to leave a larger amount of money to your heirs upon your death.

**A Roth IRA is an excellent strategy to avoid outliving your money. Since RMD’s are not required, the money in a Roth IRA can be available for the later years of retirement, when other plans may have been severely drawn down.

Income Limits

There are no income limits restricting your ability to make Roth 401(k) contributions. As long as you’re participating in the 401(k) plan, you’re able to make contributions to a Roth 401(k).

This is not true with a Roth IRA. If your income exceeds certain limits, you will not be able to make a contribution at all.

For 2020, the Roth IRA income limits look like this:

  • Married filing jointly, or qualifying widow(er) – allowed up to an income of $196,000, partial allowed between $196,000 and $206,000, after which no contribution is allowed.
  • Married filing separately – partial contribution on an income up to $10,000, after which no contribution is allowed.
  • Single, head of household, or married filing separately AND you did not live with your spouse at any time during the year – allowed up to an income of $124,000, partial allowed between $124,000 and $139,000, after which no contribution is allowed.

For 2021, the Roth IRA income limits have been increased slightly, as follows:

  • Married filing jointly, or qualifying widow(er) – allowed up to an income of $196,000, partial allowed between $198,000 and $208,000, after which no contribution is allowed.
  • Married filing separately – partial contribution on an income up to $10,000, after which no contribution is allowed.
  • Single, head of household, or married filing separately AND you did not live with your spouse at any time during the year – allowed up to an income of $124,000, partial allowed between $125,000 and $140,000, after which no contribution is allowed.

Trustee and Investment Selection

This is another area that usually favors Roth IRA plans. As a self-directed account, a Roth IRA can be held with the trustee of your choosing. That means you can decide on an investment platform for the account that meets your requirements for both fees and investment selection. You can choose a platform that charges low fees, as well as offering the widest variety of potential investments.

But with a Roth 401(k), since it’s part of an employer-sponsored plan, gives you no choice as to the trustee. This is one of the biggest issues people have with employer-sponsored plans. The trustee selected by the employer may charge higher than normal fees.


They also commonly restrict your investment options. For example, while you might choose a trustee for a Roth IRA that has virtually unlimited investment options, the trustee for a Roth 401(k) may limit you to no more than a half a dozen investment choices.

Which Will Work Better for You?

Fortunately, most people won’t have to make a choice between a Roth IRA and a Roth 401(k). That’s because current law allows you to have both. That is, you can have a 401(k) plan with a Roth 401(k) provision and still fund a Roth IRA. You can do that as long as your income does not exceed the limits to making a Roth IRA contribution.

There’s also a maximum combined limit for contributions to all retirement plans. For 2020, it’s $57,000, or $63,500 if you’re 50 or older. For 2021, it’s $58,000, or $64,000 if you’re 50 or older.

In fact, if you can have both plans then you absolutely should. The Roth 401(k), because it is part of a 401(k) plan in general, provides much higher contribution limits. This will enable you to save a very large amount of money. As well, you always have the choice to allocate some of your 401(k) contribution into a regular 401(k). That means that the portion contributed to the traditional 401(k) will be tax-deductible.

But the big advantage to also having the Roth IRA is that it will provide you with much wider investment options. That means you can make the best of the investment selections offered within your 401(k) plan, but expand your investing activities through your Roth IRA, into whatever investments you choose.

And don’t forget the Roth IRA means you will already have an account in place should you leave your employer, and need an account to transfer your Roth 401(k) into. In addition, you could also do a Roth IRA conversion of the balance that’s in your traditional 401(k) plan.

So if you have the option, take advantage of both the Roth IRA and the Roth 401(k) plan.

The post Roth IRA vs. Roth 401(k) – Choose The Best Plan For You appeared first on Good Financial Cents®.


Loans, Personal Finance

Should I Refinance My Student Loans?

Should I refinance my student loans? It depends on your situation. But a common reason for people to refinance their student loans is that they want to pay less interest. Even a small decrease in the rate could save you a lot of money over the life of the loan and ultimately help you pay off your student loans faster.

Another reason could be that you want to change the loan type (i.e., switching from a fixed rate to a variable rate or vice versa).

Whatever your reasons for wanting to refinance your student loans may be, you should always compare your student loan rate with other rates on the market. Some lenders always update their rates to make sure they are competitive on the market. So the chance is high that you could get a better deal with another lender.

The best way to compare student loan rates is through LendKey. LendKey’s rate starts as low as at 1.9%. And they have 5, 7, 10, 15 & 20 year loan terms. The great thing about LendKey is that checking your rates will NOT affect your credit score.


What does refinancing your student loans mean?

In simple terms, when you refinance your student loans, you’re essentially taking out a brand new loan in order to pay off your existing student loan. This can get you a better deal and save you money in the long term. The trick is to figure out if it makes sense to refinance.

Should I refinance my student loans? Does it make sense to do so?

When it makes sense to refinance your student loans:

  • Lower interest rates are available.
  • You have other large debts, such as credit card debts and personal loans, and you want to consolidate all of your loans.
  • A major change in your life has happened recently.
  • You want to switch to a fixed rate.

When it doesn’t make sense to refinance your student loans

  • Your credit score is low and you are less likely to get a good rate.
  • You’re no longer have a stable job, and your income is not reliable.
  • Your current loan is at a fixed rate.

To decide whether you should refinance your student loans, you should have a reason why you want to refinance. Is it because you want to pay a lower interest rate? Do you want to consolidate all of your loans?

Wanting a lower interest rate on your student loans should not be your only consideration when wanting to refinance. The life of the loan should also be considered, and not just the interest rate. That means, will it be variable interest rate or fixed interest rate. This is important as it can impact your long term financial obligations.

You should also consider the cost of switching to another lender. There are fees, such as application fees and ongoing charges associated with switching to another lender.

Is now the right time to refinance your student loans?

A better interest rate is not the only factor to consider when thinking of refinancing your student loans.

The stability of your job should also be considered. How stable is your job? Can you manage to make monthly payments on your income? If you’ve recently gone part-time, or gone freelancing, now is probably not a good time to refinance your student loans.

Likewise, if you have just switched to a more stable, full time job, you may need to wait for like 6 months or even a year before a bank can consider your loan application.

This is where a financial advisor can be handy, as they can help you make the right financial decision.

It’s also a good idea to talk to existing student loans provider when considering refinancing. Some lenders, in order to keep your business, might try to lower your interest rates or waive some fees for you. They’d be very willing to do that especially if you always make your payments on time and have been with them for a long time.

If you decide to go with another lender, make sure your financial situation is in shape. That means that you don’t have that much outstanding debts such as credit card debts, and that you have always paid your bills on time. This is important not only to get qualified, but also to get a better rate.

When refinancing your student loans make sense

There can be several reasons to refinance your student loans. Perhaps you have a better job, making more money. Or perhaps your current student loan rate is not competitive anymore.

Even if you don’t have any specific reason, it’s always a good idea to know what’s available to you. There might be great deals out there.

Every once in a while, you might want to reassess your student loan rate and compare it to other student loan rate on the market.

One easy way to reassess your options is with LendKey. LendKey is an online platform that allows you to browse multiple low-interest loans from almost 300 community banks and credit unions, instead of big banks.

LendKey allows for more flexibility and lower interest rates. It can help you find the right student loan for you without visiting dozen bank branches.

Plus applying to a dozen of student loans will not HURT your credit score. LendKey does a soft check on you, so you can compare student loans from multiple lenders before you actually apply for one.

Click here to check your rates through LendKey.

Indeed, a lower interest rate and lower repayments are some of the more common reasons to refinance your student loans. Even a slight decrease on your interest rate might make a big difference on your monthly student loan payments.

Indeed any student loan refinance calculator out there can tell you how much you can save.

Another common reason to refinance your student loans might be to consolidate all of your debts and have one monthly repayment. Debt consolidation is when you combine all of your debts so you have one big repayment, instead of several.

If you have other debts such as personal loans, car loan, credit card debts, home loan, then it makes sense to roll these debts together with your student loan. The advantage is that your student loan rate is typically lower.

When refinancing your student loans doesn’t make sense.

There are times when refinancing doesn’t make sense.

For example, if you have built a good relationship with your lender, it might not be a good idea to switch to another lender simply to get a lower interest rate. The new lender might raise your rate once you switch, but you’ve just ruined your good relationship with your old lender.

Another reason you should not refinance your student loans is if you you have been paying for a long time already. Refinancing to a longer term might reduce your monthly payments, but will cost you many more years and more money. So if your current balance is already low, it’s not very beneficial to refinance.

You should also not refinance your student loans if your interest rate on your current student loan is low. There is no real benefit to be had from refinancing an already low interest rate. In fact, you may end up incurring more costs and fees when switching.

Your credit score is low

Refinancing your student loans may not be a good idea if your credit score is low.

While you can apply with a co-signer if you have a low credit score, but it can be hard to find someone to co-sign for you.

So, at a minimum, make sure your credit score is at least 650. If it’s not where is supposed to be, take steps to raise your credit score.

Don’t know your credit score, get a free credit score with Credit Sesame.

Bottom line

If you’re asking yourself: “should I refinance my student loans?” The answer is: it depends on your unique situation. But there are great benefits to refinancing your student loans. To reiterate, it can save you thousands of dollars over the life of the loan; it can reduce your loan payments significantly. However, before deciding to take the plunge you have to make sure you’re getting a better deal.

After you have checked your rates, you should definitely refinance your student loans. Not only will you get a reduced interest rate, you will also get a lower monthly payment and pay less over the life of your loan.

Plus when you’re approved for a loan you applied through Lendkey, you’ll get a $100 bonus after the loan is disbursed.

Read More:

  • 5 Tips To Pay Off Your Student Loans Faster
  • How Much Should You Save A Month?
  • Buying A Home For The First Time? Avoid These Mistakes

Work with the Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). So, find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post Should I Refinance My Student Loans? appeared first on GrowthRapidly.