Now Playing
On Air
No Program
Now Playing


200 items
Results 11 - 20 of 200 < previous next >

How Library Fines Can Hurt Your Good Credit

You likely know some of the most obvious things that can send your credit score into a tailspin — filing for bankruptcy, a foreclosure on your home, habitually being late on payments, not returning a library book on time.

Wait, what does the library have to do with your credit? Potentially a lot.

Read between the lines

So you checked out a book and somehow lost track of the due date. The library charges you a fine, but since the amount is so small, you decide not to pay it or it slips your mind. Before you know it, that book fine turns into a financial nightmare as you field a call from a collection agency and you see your credit score dip.

The issue isn’t just library fines, of course; any debt that goes to collections looks bad on your credit report. You can see if you have collections against you by checking your credit reports; you’re entitled to a free copy from each of the three credit bureaus every year.

The collection agency may report your unpaid debt to a credit-reporting agency, which is where your credit score and your overdue library book cross paths. If this happens to you, you could face added penalties from the collection agency as well as a hit to your good credit, all over a minor fine.

How to protect your good credit

Don’t worry only about the large bills you assume will affect your credit. As seen in the example above, it’s not just credit card bills that you must pay punctually so your good credit stays that way. It’s parking tickets, library fines and a number of other fees as well.

Try to avoid such penalties in the first place, and if you are faced with a charge, pay it promptly. One of the keys to good credit is making payments on time, as it’s an indicator of your creditworthiness.

Late payments that go to collections, no matter how small, can cause your credit score to drop. And that could mean you’d be turned down when you apply for loans or credit cards for people with good credit.

Updated Sept. 29, 2016.

Strategies to Maximize Your Child’s Financial Aid Eligibility

By Mike Eklund

Learn more about Mike on NerdWallet’s Ask An Advisor

Parents need to be wise about how they will pay for the increasingly high costs of college. That means many families should be applying for financial aid — and preparing their finances to get the most aid possible. With smart college planning, you can maximize your student’s financial aid eligibility.

Types of aid

First, there are two main types of college aid: merit aid and need-based aid. Merit aid is straightforward — it is based on academic and extracurricular achievements. Students who excel in academics, sports or the arts can be awarded merit-based scholarships directly from their schools or through other institutions. Online tools such as Fastweb can help students seeking scholarship opportunities.

Need-based aid is more complicated. It depends on the student’s financial circumstances and can take the form of grant money, loans or work-study. Many affluent families assume that their children will be ineligible for need-based aid, but it often makes sense to apply anyway. By taking the right steps before the college-funding years, even affluent families may still qualify for a significant amount of aid. Plus, those who don’t qualify will still need to go through the federal student aid application process to receive federal loans.

Because finances are generally not considered for merit aid eligibility, the financial preparations you do will impact your student’s eligibility for need-based aid, whether it is federal or institutional.

Applying for need-based aid

To apply for federal need-based aid, families must complete the Free Application for Federal Student Aid (FAFSA), which is administered by the government. To apply for institutional aid from almost 400 schools and programs, students must also complete the CSS Profile, administered by the College Board.

These forms collect information about your family’s finances to determine your expected family contribution (EFC), the minimum amount your family is deemed able to contribute toward the cost of college. The amount of need that a student is eligible for is the cost of attendance less the EFC. The EFC takes into account factors like family size and the number of children in college, but the key drivers of aid eligibility are the income and assets of the parents and the student. Note that the FAFSA and CSS Profile use similar formulas, but the CSS Profile considers additional factors like home equity and businesses.

The FAFSA and CSS Profile are available in October of your child’s senior year of high school and each year thereafter until the year before they graduate from college. However, the income used to determine the level of need is based on the previous year’s tax return. For example, if your child starts college in the fall of 2017, your income will be based on your 2015 tax return. (These are recent changes for the FAFSA, which used to open in January and require the tax return information from the year immediately prior to enrolling.) The federal FAFSA deadline is in June, but deadlines vary for your state, school and the CSS Profile.

How income and assets are counted

For most families, the parents’ income will be the most important determinant for aid eligibility. Under the EFC formula for the FAFSA and CSS Profile, up to 47% of parents’ adjusted gross income (AGI) is considered available for college funding. (Since this is progressive and there is an income allowance, it typically averages 20% to 25% of AGI for most families.) Up to 5.64% of non-retirement assets are counted, with a small allowance as well. Students are expected to contribute as much as 50% of their income and as much as 20% of their assets.

It’s important to note that your retirement assets are not counted in the calculation of EFC. Other assets like the value of small businesses, home equity and nonqualified annuities are not included on the FASFA either, but they are on the CSS Profile. However, in some cases, home equity is capped at 1.2 times the parent’s adjusted gross income on the CSS Profile.

Also note that parent and student assets are based on their market value at the time that you complete the aid forms. However, remember that you’ll be completing the financial aid forms annually, so as your financial situation changes so will your student’s aid eligibility.

Ways to increase aid eligibility

There may be steps your family can take to increase your child’s chances of receiving the most student aid possible. Here are some strategies to consider:

  • Max out your retirement accounts. While your child is younger, you can build up significant savings in retirement accounts, which will not be included in determining aid eligibility. In the year your student applies for aid, you’ll need to add contributions back into your income, but the assets still won’t be included for aid. Assets in a bank or brokerage account, on the other hand, would reduce aid eligibility.
  • Pay down debt. Use taxable accounts like bank or brokerage accounts to pay down expensive credit card or student loan debt. This not only reduces your interest costs, but reduces your taxable assets, which can help increase aid eligibility. Since home equity is included for the CSS Profile, paying down your mortgage may not be the best strategy. But remember, FASFA does not consider home equity in determining aid and many CSS Profile schools place a cap on how much is counted.
  • Reduce income. If possible, it helps to limit your income in years that are counted for financial aid. This is difficult to do if you have a regular salary, but you can watch out for selling assets that would trigger a large capital gain in your taxable accounts or look for ways to offset them with capital losses.
  • Do not open custodial accounts for your children. Student assets are counted more heavily for financial aid purposes. If you already have custodial accounts, consider moving those assets to a 529 college savings plan for your child instead. Liquidating existing custodial accounts could result in capital gains, but you may still save more money in the long run. Since 529 assets are typically included at a lower rate than custodial accounts for financial aid, you’d want to run the numbers to see whether it is beneficial to make the move.
  • Plan ahead for family contributions. Plan carefully if grandparents or other family members want to contribute toward college expenses. The amount and timing of this type of contribution can materially impact your child’s aid eligibility, so it’s critical to optimize such assistance.

Parents should also consider how aid is affected when they have more than one child in college. For instance, with two children in college, the parent’s expected family contribution is not twice what it would be for one child. In fact, the parents’ expected contribution is reduced for each child, though the percentage may differ on the FAFSA and CSS Profile.

Aid packages

When a student qualifies for a certain amount of need-based aid, it doesn’t necessarily mean that the student will receive that much in the form of a grant. The college or university might not meet 100% of the student’s need or may offer a combination of grant money, work-study and/or loans. Schools also base some of their aid package decisions on how desirable the student is to the school, so it’s possible that the same financial information could produce very different aid packages from one school to the next.

You’ll find the information about the type and amount of aid the school is offering your student in financial aid award letters. It’s important to be sure you fully understand each type of aid being offered. You can compare award letters from different schools using the College Board’s online tool. If you are not happy with your aid results, you can always appeal, especially if your financial situation changes.

Also, keep in mind that to receive federal loans, you have to file the FASFA. Therefore, even if your income is too high for aid, but you would like your child to pay for a portion of college costs through federal loans, you should still complete this form.

Finding your strategy

College funding and admissions experiences are unique to each family. There are so many variables that even minor differences can have a dramatic impact on a family’s aid eligibility. Thus, it’s best to base your college planning and decisions on your situation only.

In some cases, the cost of a bad decision can be painful, especially when parents end up spending money on college at the expense of their own retirement. To develop a sound financial aid strategy, I recommend working with a fee-only financial planner who understands the process and the potential pitfalls. Applying for financial aid is complicated, and the wrong strategy can result in paying thousands of dollars extra for college.

Mike Eklund is a financial planner at Financial Symmetry in Raleigh, North Carolina. A summary of this blog is also available via podcast on the Financial Symmetry website.

7 Ways to Tell If That IRS Tax Collections Call Is Fake

A new IRS program set to take effect next spring may make it harder to tell which of those dubious phone calls many people get about outstanding tax bills are actually fake.

The agency announced this week that it’s hired four private debt-collection firms to search America’s couch cushions for overdue federal taxes: ConServe, based in Fairport, New York; Pioneer, based in Horseheads, New York; Performant, based in Livermore, California; and CBE Group, based in Cedar Falls, Iowa. The IRS says the four contractors will mostly get old, overdue accounts or accounts it doesn’t have the manpower to pursue.

One problem, however, is that taxpayers are up to their eyeballs in tax-collection scams and could easily mistake legitimate calls for yet another criminal trying to sucker them.

This year, the IRS reported it has already seen a 400% increase in phishing schemes. And in March, the Treasury Inspector General for Tax Administration, which oversees IRS activities, said it’s received over a million reports of phone scams involving fake tax collectors since October 2013. Over 5,500 people collectively have lost about $29 million, it said.

The IRS is aware of the problem — it keeps a dedicated, ongoing list of scams on its website. In May, for example, it warned taxpayers about phone calls regarding a bogus “federal student tax,” and in August it reported that IRS impersonators were demanding tax payments on iTunes cards and other gift cards.

Now that some debt-collection calls will actually have the IRS’ blessing, how will you be able to tell the real ones from the fakes? Here are seven red flags.

1. You didn’t get a letter first.

Under the new program, the IRS will first mail you a written notice that it’s turning your account over to a private collection agency. Then, one of the four collection agencies will send you a letter confirming the transfer. That agency is the only one that should be calling.

2. The caller asks you to pay the collection agency.

The contracted agencies aren’t allowed to accept payment on the IRS’ behalf. They also aren’t allowed to ask for payment on a prepaid debit card. Instead, they should send you to if you want to see your electronic payment options; checks should always be made payable to the U.S. Treasury and sent directly to the IRS, not the collection agency.

3. You already have a repayment plan in place with the IRS.

The IRS won’t assign your account to a private collection agency if you’ve already got an installment agreement going. Likewise, if you have or are negotiating an offer in compromise with the IRS, legitimate debt collectors shouldn’t be calling you.

4. The caller doesn’t know or care that you’re in a disaster area or deployed.

The IRS won’t turn over accounts involving taxpayers who are deployed in combat zones or who are in presidentially declared disaster areas and are requesting relief from collection. If that describes you, and one of the IRS’ contracted collection agencies gets your case by mistake, it’s supposed to return it to the IRS. (That doesn’t mean you’re off the hook; it means the IRS will pursue payment itself.)

5. The caller wants payment from someone who is deceased or under 18.

People who have died or are minors may have outstanding tax liabilities, but their accounts won’t be going to private collection agencies, according to the IRS.

6. The caller doesn’t know or care that you’re already grappling with the IRS over a specific issue.

The IRS’ private collection agencies have to keep their hands off cases involving tax-related identity theft, litigation, examinations, criminal investigations, levies, appeals or innocent spouse classifications — for those going through a divorce or other problems in their marriage.

7. The caller is a huge jerk.

The private collection agencies have to abide by the Fair Debt Collection Practices Act, which means they can’t swear at you, threaten you with violence or harm, call in the middle of the night or lie about what you owe, among other things. Though the IRS is using the law to ensure contracted debt collectors respect taxpayers, another agency — the Consumer Financial Protection Bureau — might say good luck with that. It gets more complaints about debt-collection companies than any other financial product or service.

Tina Orem is a staff writer at NerdWallet, a personal finance website. Email:

Liz Weston: Treat Your Marriage Like a Business

My artist husband likes to say that if I were in charge of our spending, we’d be sitting on milk crates instead of furniture and that if he were in charge, we’d have no retirement accounts.

The fact that we have both nice furniture and retirement funds is a testament to compromise — and the wealth-building power of marriage.

Married people are significantly wealthier than single people in every age group, and the gap tends to widen as people approach retirement age. Married couples age 55 to 64 had a median net worth, excluding home equity, of $108,607 in 2011, the latest available Census Bureau figures show. By contrast, single men in the same age bracket were worth a median $14,226 and single women $11,481.

Income and education also contribute heavily to wealth — and to the likelihood that people will marry. But a 15-year study of 9,000 people found that even after controlling for those and other factors, marriage itself contributed to a 4 percent annual increase in net worth. The same study found that wealth typically began to drop four years before a divorce, which ultimately reduced people’s wealth by 77 percent.

Since marital status is so powerfully associated with financial status, people would be smart to view marriage as a business arrangement in addition to a romantic one. Taking a few pages from the business world has certainly made our 19-year marriage stronger as well as wealthier.

Here’s what works for us:

Conduct due diligence

Before a “merger of equals,” companies can spend millions of dollars and countless hours scrutinizing each other’s financial details, performance and prospects. You don’t need to hire a fleet of lawyers and accountants, but knowing what each person owns and owes before marriage can prevent unpleasant surprises later.

Create your own financial statements

You need two: a balance sheet showing your net worth as a couple — your assets minus your debts — and a cash flow statement, which shows your current incomes and expenses. Use these documents to judge your financial health, spot potential problems, such as spending more than you make, and track your wealth-building progress.

Draft your business plan

Successful businesses have to set priorities and decide where to concentrate their resources. So do couples, who have to figure out how to save for the future (with retirement, emergency and college funds, for example), pay off the past (mortgages, student loans, credit card debts) and live their lives in the present (paying the bills and having some fun). You’re likely to have more goals than money to achieve them, so you’ll need to decide together which are the most important and how to divvy up your income among them.

Appoint a chief financial officer

Chances are one of you is better at the day-to-day financial details, such as paying bills and monitoring financial accounts. Having one person take responsibility for these chores helps make sure they get done. The CFO also may be the person who researches large purchases, does the tax returns, shops for insurance and rebalances the investment accounts. The CFO does not, however, make financial decisions unilaterally. In the business world, the CFO is responsible to the board of directors. In a marriage, the partners are responsible to each other and should be making the big decisions together.

Commit to full disclosure

Publicly traded companies have to keep their shareholders informed with quarterly financial statements, audited annual reports and announcements of major events. Couples don’t have to keep to a federally mandated schedule, but regular meetings to review the finances are a good idea. Disclosure is key if you’re going to make sound financial decisions together. Unfortunately, a recent Harris poll for NerdWallet found that 1 in 5 Americans in a relationship with a partner who’s saving for retirement have no idea how much their partner has saved.

A similar proportion of those saving for retirement haven’t disclosed the amounts to their partners. That’s bad enough, but what’s worse than lack of disclosure is deliberate dishonesty. Hiding debts, concealing purchases and having secret accounts all undermine intimacy and trust. That doesn’t mean you can’t have separate accounts or “no questions asked” spending money to reduce conflict. But you shouldn’t conceal or lie about your financial situation to avoid a fight. That’s a red flag that there’s something you two should be discussing.

Liz Weston is a certified financial planner and columnist at NerdWallet, a personal finance website, and author of “Your Credit Score.” Email: Twitter: @lizweston.

This article was written by NerdWallet and was originally published by The Associated Press.


3 Things to Know About Student Loan Consolidation (Told in Under 350 Words)

Do you have three minutes? If you’ve ever considered student loan consolidation or refinancing, it’ll be worth your time. Those terms are often conflated and confused, so we want to set the record straight. Here goes:

1. Consolidation doesn’t always = refinancing

Student loan consolidation is often made to seem synonymous with refinancing, but the two aren’t always identical.

Federal loan consolidation means changing one or more federal student loans into a single new federal Direct Consolidation Loan. Student loan refinancing, which is also sometimes referred to as consolidation, is a way to save money by taking out a new, lower-interest loan to pay off your existing loans.

2. Consolidation won’t necessarily save you money

Refinancing can save you money by lowering your interest rate, but federal loan consolidation can actually cost you more in the long run because it may increase your term length. So why do it?

To access repayment and forgiveness options: Only federal direct loans are eligible for most income-driven repayment plans and Public Service Loan Forgiveness. If you don’t know what kind of loans you have, sign in to your Federal Student Aid account on to look it up. Consolidating will help you qualify for those programs if you don’t already have a federal loan that qualifies.

To get out of default: Consolidation is one of three ways (along with full repayment and loan rehabilitation) to escape federal loan default. After consolidating, you’ll be able to sign up for an income-driven repayment plan or put your loan in deferment or forbearance, but the default status will remain on your credit report.

3. Consolidating federal loans is free

You may have seen Facebook ads or gotten phone calls about companies offering to consolidate or forgive your debt. They’ll charge you fees to do so, but you can consolidate your federal loans for free by logging in to your Federal Student Aid account and filling out an application.

That’s the CliffsNotes version of student loan consolidation. To dig deeper, read about the pros and cons of consolidation and refinancing.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @teddynykiel.

3 Personal Finance Tips for Small-Business Owners

By Heather Castle, CFP

Learn more about Heather on NerdWallet’s Ask an Advisor 

As entrepreneurs, many small-business owners are comfortable taking risks. But their business is often their biggest asset, as well as the largest source of their household’s income, which means it’s especially important for them to follow basic personal finance and investing guidelines. Not doing so can cause business owners to take on too much risk and endanger their business and income.

Here are three tips that small-business owners should use to guide their personal-finance and investing decisions.

1. Establish an emergency fund

Business is cyclical, meaning there will be times throughout the year when business is better than at other times, and income can vary from month to month.

That’s why it’s critically important to set up an emergency fund account containing enough cash or liquid funds to cover the months when your income does not cover your household’s living expenses. Keeping at least three to six months’ living expenses is a good rule of thumb, and more is even better.

Money market accounts are good places to store this emergency fund, because they give you a better return than most traditional savings accounts while remaining free of stock market volatility, which is important for a short-term savings vehicle.

2. Diversify, diversify, diversify

I’m sure you’ve heard, probably more than once, that diversification is one of the most important concepts in investing. For small-business owners this is a critical point, because many of them invest all of their assets back into their businesses. While investing in your business is a good idea, you should consider setting limits on it.

When small-business owners invest their funds back into their companies, they are concentrating funds into one asset. This increases their level of risk because if something were to happen to their business, it would endanger the household’s financial security.

When reviewing investment options, make sure you invest as much money as possible outside of your business, as well as outside of your industry and sector. Doing this will help protect your portfolio if the markets change and your business’ sector goes out of favor.

3. Customize your investments

Don’t overlook getting help when evaluating investment options. There is no one-size-fits-all investment approach, and it’s easy to get bogged down with research. When reviewing their overall portfolio, business owners sometimes forget to include other investments they hold, such as their companies or real estate investments they may have, as assets. This can lead to less-than-optimal investment decisions.

Working with a professional can help you factor in all of your investment holdings, determine your right time horizon, evaluate your risk tolerance, and weigh your options against your current holdings to help you select an investment strategy that is tailored to you.

Heather Castle is a certified financial planner and the founder of Castle Wealth Advisors LLC in Los Angeles.

Money Order vs. Cashier’s Check: How to Decide

There are times when a personal check doesn’t cut it. You may have an important expense, such as a used-car purchase or a rent deposit, but the person you’re paying won’t accept that little piece of paper from your checkbook.

The recipient may ask instead for some form of guaranteed payment. If you’re not keen on carrying around large amounts of cash, your other options include a money order or a cashier’s check.

The $1,000 question

Money orders generally are cheaper and therefore better for payments under $1,000. Cashier’s checks, sometimes called official checks, are often better for larger amounts.

Many businesses won’t issue a money order above $1,000. So if you have to write a check for more than a grand — say, $5,000 to buy a used car — a cashier’s check may be your best option.

Cashier’s checks can be written for less than $1,000, but they usually cost more than money orders. Money orders can sell for less than $2, while cashier’s checks in any amount often cost around $10.

Wal-Mart has some of the cheapest prices for money orders, charging 70 cents for amounts up to $1,000. The U.S. Postal Service charges between $1.20 and $1.60, depending on the amount. Banks often charge around $5.

Though cashier’s checks cost more, some banks and credit unions waive the fees for customers with premium accounts. It’s worth asking your financial institution if you qualify.

The amount of the check may be the most important factor when choosing between a money order and cashier’s check. But there are other differences between them.

Where to buy money orders and cashier’s checks

You can buy money orders at post offices, retail stores, banks, money transfer outlets and elsewhere. Going to a supermarket to buy milk? You could also pick up a money order at the customer-service counter.

Cashier’s checks, on the other hand, usually are available only from financial institutions.

If you’re hoping to buy either one online, you won’t have much luck. Issuers generally require that you visit a physical location to buy a money order or cashier’s check. You could ask your recipient if you could send money online instead.

Protections of money orders and cashier’s checks

If you lose a cashier’s check or money order, or if it’s stolen, you can take steps to recover your money. You’d generally need to go to the issuer with your receipt and ask for a refund. That makes either option better than carrying cash.

But cashier’s checks offer a bit more protection, since the financial institution fills out the “pay to” line, instead of the purchaser. Compare that with writing a money order, which is similar to writing a check. The purchaser has to fill in the receiver’s name. If the purchaser loses the money order before it’s filled in, anyone could cash it. And once someone cashes that money order, you more than likely won’t get your money back.

If a money order or cashier’s check is cashed fraudulently, the purchaser could contact police and work through the legal system to try to recover the money.

Since it already has the payee’s name typed on it, a cashier’s check provides an extra level of protection for both the sender and the receiver. And an official check drawn up by a financial institution may seem more credible to a receiver than a money order from Chucky’s 24-Hour Market. But either option is a good way to offer guaranteed payment.

Margarette Burnette is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @margarette.

6 Crucial Money Tips for Young Entrepreneurs

By Dmitriy Fomichenko

Learn more about Dmitriy on NerdWallet’s Ask An Advisor

Entrepreneurs have to wear many hats. One of their key responsibilities is to understand and properly manage their business’s finances. But they must also be careful with how they handle their own money.

Here are smart financial steps every young entrepreneur should consider.

1. Separate your business and personal funds

It’s common for entrepreneurs to use their personal assets as startup capital. But as your business grows, it’s crucial to separate your personal and business funds. Simply knowing which is which is not enough; you must be able to prove the same to the IRS. For instance, in the case of an IRS audit, a sole proprietor or independent contractor would be required to provide proof of his or her business expenses and income, usually by providing receipts and spending records.

From the beginning, sole proprietors and independent contractors should create separate checking accounts for personal and business funds. If your business is a corporation, you’re required by law to keep business and personal funds separate, and you can’t use business funds for personal expenses. If you’re having a hard time separating these funds, seek professional help.

2. Monitor your expenses

One of the surest ways to go out of business is to have more money going out than coming in. Monitoring and categorizing your expenses can help you find ways to control overhead costs or other spending that doesn’t generate revenue or add to your business’s growth. It may also help you identify and claim tax deductions your business may be eligible for, increasing your tax savings. Maintaining good records of your expenses will also save you the hassle of going through a pile of receipts during tax-filing season.

If you’re an independent contractor, have an owner-only business or have only a handful of employees, using something as simple as a spreadsheet or an online calendar to note your regular or recurring expenses will work. Make sure to include the type of expense — rent, utilities, supplies, etc. — and the recipient of the funds. If your business is expanding, you may need to use accounting software.

It’s equally important to have a budget for your personal spending. You can use something as simple as to track your monthly expenses. Because your income is likely to vary, even though your expenses may stay the same, it’s particularly important to pay close attention to cash flow.

3. Build up an emergency fund

Small businesses often experience profit fluctuations over the course of a year. That means entrepreneurship and irregular income go hand in hand. Without a buffer of savings, lean months could add to your mental stress. A lack of business capital could even force you to tap your personal savings, which could leave you with no cushion for emergencies. If you don’t already have a personal emergency fund in place, start working on one.

For entrepreneurs, the key to building an emergency fund is to save during your high-earning months. That will allow you to pass leaner months comfortably while ensuring that you can pay your bills on time.

If you have a spouse or partner who has a stable income, your emergency fund should be around six months’ worth of living expenses. However, if your entire family is relying on your business, you should save at least a year’s worth of expenses.

4. Purchase disability insurance

With a business to run, worrying about your own future may not be a top concern. This mindset may work well for your business, but how do you plan to take care of your family if you become sick or temporarily disabled?

Disability insurance can provide supplemental income to your family while you recover. The type of disabilities covered and amounts of coverage will vary depending on your policy. Adding a cost-of-living-adjustment option to your policy is more expensive but ensures that payouts stay current with inflation.

You’ll also want to protect your business in case you’re ill or unable to work. For this, consider business overhead expense insurance. These policies are designed to help cover recurring business expenses like rent or mortgage payments, employees’ salaries, utilities and taxes during your absence. This can help keep your business going while you’re unable to work.

5. Start a retirement savings plan

Without an employer-sponsored retirement plan, it’s entirely your responsibility to fund your retirement. While that may sound distressing, you may actually have the opportunity to save even more than other workers do for your retired life. There are several qualified retirement plans for business owners that allow you to make sizable contributions toward retirement. In most cases, contribution limits to these plans are higher than traditional individual retirement accounts or employer plans. Some of the prevalent retirement options for entrepreneurs include a SEP IRA, SIMPLE IRA or a self-directed 401(k) plan. The key to building adequate retirement funds is to start as early as possible. Having time on your side is your biggest advantage when saving for retirement.

6. Seek professional financial advice

Small-business owners are often too busy to attend to these important financial matters. Hiring a financial advisor for your business and personal finances might help you avoid costly money mistakes. A financial advisor could help you identify business tax deductions, set up a strategy for your personal finances and even help you create an efficient financial structure for your business.

Dmitriy Fomichenko is president and founder of Sense Financial, a provider of self-directed retirement accounts.

This article also appears on Nasdaq.

Mortgage Rates Today, Sept. 28: Mixed Bag, Cash Sales Drop

Thirty-year mortgage rates inched up, while 15-year fixed and 5/1 ARM rates fell even lower, according to a NerdWallet survey of mortgage rates published by national lenders Wednesday.

Mortgage Rates Today, Tuesday, Sept. 28 (Change from 9/27) 30-year fixed: 3.58% APR (+0.01) 15-year fixed: 2.98% APR (-0.02) 5/1 ARM: 3.41% APR (-0.05) Cash sales hit lowest level since housing crisis began

It looks like investor purchases are taking a back seat in the housing market. Cash sales accounted for 29.3% of total home sales in June 2016, down 2.5 percentage points year over year, according to CoreLogic.

CoreLogic reported that cash sales peaked in January 2011, when cash transactions accounted for nearly half (46.6%) of total home sales in the U.S. During that time, housing markets across the country were just starting a slow but steady recovery following several years of depressed values and a glut of distressed properties on the market.

June 2016 marks the first time that cash sales accounted for under 30% of home purchases since late 2007. Before the downturn, the cash sales share of total home sales averaged approximately 25%. If this downward trend in cash sales continues at the latest rate, the share should hit 25% by mid-2018, wrote Molly Boesel, senior economist at CoreLogic, in a blog post.

Homeowners looking to lower their mortgage rate can shop for refinance lenders here.

NerdWallet daily mortgage rates are an average of the published APR with the lowest points for each loan term offered by a sampling of major national lenders. Annual percentage rate quotes reflect an interest rate plus points, fees and other expenses, providing the most accurate view of the costs a borrower might pay.

More from NerdWallet Compare online mortgage refinance lenders Compare mortgage refinance rates Find a mortgage broker

Deborah Kearns is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @debbie_kearns.

Investment Advantages of Health Savings Accounts

By Mark Struthers

Learn more about Mark on NerdWallet’s Ask an Advisor

Open enrollment, that time of the year when you can make changes to various benefits options at your workplace, is just around the corner. For most companies, it occurs during the last quarter of the year, October through December.

Those of you with a high-deductible health plan, or HDHP (for 2016, that’s a plan with a deductible of at least $1,300 for an individual or $2,600 for a family), may have the option to open a health savings account, or HSA.

How does it work?

If you have an HDHP, you or your employer can contribute money tax-free to your HSA, up to certain limits, so that you can use tax-free funds to pay for noncovered qualified medical expenses, like deductibles, copays, vision and dental care. The 2016 contribution limit is $6,750 for families and $3,350 for an individual.

Why is it a good idea?

One great advantage of these accounts is that you contribute pretax income, the money grows tax-free, and you don’t pay tax when you withdraw it to use it for eligible medical expenses. In addition, because you’re putting pretax money aside, it lowers your overall taxable income. Plus, it offers significant retirement savings and investment options, which we’ll detail in this article.

How is it different from an FSA?

An HSA is not the only tax-advantaged health plan. The flexible spending account, or FSA, is also a popular option. Unlike an FSA, however, an HSA is not a use-it-or-lose-it proposition. The money in an HSA rolls over from year to year, and if used for qualified health care expenses, both contributions and earnings come out tax-fee. There is no other account like it. And this is where the opportunity lies.

More facts about HSAs
  • You don’t have to use the HSA provider associated with your employer’s health insurance company. HSAs are individual accounts that don’t have to go through your employer. You can shop around for the lowest fees and best investment options.
  • You can choose from many different types of investments within an HSA. In addition to low-risk, savings-type accounts, you can invest in the same type of fixed income and equity mutual funds that may be in your 401(k) or IRA.
  • An HSA is portable. If you change employers, your HSA goes with you, unlike a 401(k).
  • You can reimburse yourself anytime. In other words, you are able to pay medical expenses with non-HSA funds and delay reimbursing yourself from the HSA for years. The most obvious reason to delay is to allow your HSA to grow. This flexibility allows you to make the most out of the performance of your HSA.
  • After age 65, you can use HSA funds for any purpose, and you just have to pay ordinary income tax, without an early-withdrawal penalty. Withdrawals before age 65 that are not used for qualified medical expenses are subject to both income tax and a 20% penalty.
  • If you or your spouse is over 55, you can make a yearly catch-up contribution of $1,000 each. Adding this to the normal contribution limit can give a family $8,750 of saving and investing potential.
  • You may be able to use the funds for health care continuation coverage, such as COBRA, if you lose your job.
  • When you die, your HSA can become your spouse’s HSA, tax-free.
  • There are no required minimum distributions for HSAs at age 70½, making tax planning easier.
Using an HSA for retirement savings

In addition to its other advantages, an HSA is a good retirement savings option, especially for high-income earners who can’t make deductible contributions to a traditional IRA or any contributions to a Roth IRA.

As with any investment, pay careful attention to risk. If you are 100% sure you will need the funds for health care, then low-risk, cash-like investments are best. But if you don’t need the funds or can pay expenses from other sources, allowing the HSA to grow, then the account can add to the growth and diversification of your portfolio.

One investment strategy that works well for an HSA is a three-bucket strategy. Each bucket has a different risk level for different time frames:

Bucket 1: Low-risk investments to cover one to two years of medical expenses, if needed. If you know you will need the money in a year or two, don’t take chances. Put your funds in low-risk investments.

Bucket 2: Low-to-medium-risk investments to act as a backup to Bucket 1 and used to replenish Bucket 1.

Bucket 3: Higher-risk, higher-growth investments. These funds are for use in 10 years or more, for example, for ordinary expenses in retirement or to cover things that Medicare doesn’t, including long-term care.

The three-bucket strategy in action

Here’s an example: Virginia and Jason Johnston are 40 years old. They have an HDHP with a deductible of $2,600 and make their maximum 2016 yearly contribution to an HSA of $6,750. They don’t have a lot of medical needs, even with two young kids, and decide on the following investment strategy:

(Note: Please consult with a professional before investing. Rates of return may vary, and loss of principal in buckets 2 and 3 is possible.)

Here’s how the Johnstons might use this approach:

In Year 1, they put $3,375 in Bucket 1 (to cover one to two years of health care expenses, if needed), $843 in Bucket 2 and $2,532 in Bucket 3.

After Year 1, each year they put 25% of their contributions in Bucket 2 and 75% in Bucket 3. If Bucket 1 is used up, it is replenished by contributions or from Bucket 2, and if Bucket 2 is used up, it is replenished by contributions or from Bucket 3.

Here’s an example of the growth potential: If the Johnstons make no distributions from any buckets (because they are able to pay medical expenses through other sources), the three buckets could potentially have more than $400,000 in 25 years, by the time they are 65:

(Note: Assumes a total of $6,750 contributed every year and yearly compounding.)

According to the Employee Benefit Research Institute, the cost of health care in retirement for a 65-year-old couple in poor health could easily top $300,000. If you have the need for long-term care, the costs can go even higher.

With health care costs rising, having access to a large sum that can be used tax-free for health care in retirement and for general retirement funding while paying ordinary income tax is a fantastic option.

It will take a little work to safely integrate a higher-risk HSA into your health care and retirement plan, but your 65-year-old self will thank you.

Mark Struthers, CFA, CFP, is a fee-only planner with Sona Financial in Chanhassen, Minnesota.

200 items
Results 11 - 20 of 200 < previous next >