How To Use Roth 457 Plans

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roth 457 retirement plan

When it comes to retirement planning, 457 plans are kind of the neglected younger sibling of the better known 401k plans. Both are employer sponsored retirement plans, meaning your employer has to set them up for you, unlike an IRA or Roth IRA which are individual retirement plans. However, a 457 plan is a special retirement savings plan in that it is only allowed for certain organizations, specifically governmental employers and non-profit employers. The non-profit 457 plans are known as non-governmental 457 plans and are less flexible. For governmental 457 plans, the main advantage is that unlike 401k plans, there is no 10 percent penalty for withdrawing money from a 457 plan prior to age 59 1/2 like there is for a 401k savings plan. However, withdrawals from a 457 plan are taxable, just like withdrawals from a 401k plan are taxable. Which brings us to the Roth 457 savings plan. Roth 457 Retirement Plan As you can probably guess from the name, a Roth 457 plan has similar tax-advantages to a Roth IRA, or Roth 401k, namely that withdrawals from the account are tax-free, rather than taxable. In exchange, you do not get the up-front tax savings from your …

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Stock Market Melt Up

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stock market melt up

Oh, goodie. It’s time for some more stock market terminology. What Is a Melt Up? The world of finance, like any specialized group, has numerous terms, acronyms, and phrases that apply to managing money and investing in the stock market. Things like “Santa Claus Rally” are less about being able to describe something, and more about having fun, sometimes clever, ways to describing events, strategies, and happenings that occur. Santa Claus Rally — The somewhat common phenomenon of the stock market rising into the end of the year. Today’s word of the day comes courtesy of CNN Finance and Luke Lango, InvestorPlace senior investment analyst who wrote that they believe there will be a massive melt up over the next two years in which the stock market would rise 20% or more before tipping over into a recession or crash. I haven’t had a chance to look into Luke Lango’s track record. Maybe I’ll do that when I finish writing my freelance finance writer projects. Should We Worry About a Melt Up? Good news, investors. As always, the best way to invest for long-term goals is with a well-diversified portfolio tailored to your goals and risk tolerance. Such a portfolio …

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Did Mortgage Rates Hit 12-Year High?

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Did Mortgage Rates Hit 12-Year High? 1

The press loves a good scare story, and mortgage rates hitting a 12-year high is just the ticket. Mortgage rates did hit a 12-year high, and I suppose for those who are newer to the world of finance that probably seems like a big deal, but the reality is a little different. The 30-year fixed mortgage averaged 5.11% last week. That isn’t remotely a historically high mortgage interest rate. In fact, it wasn’t that long ago that a 5% mortgage was a great rate. It still is. But, these haven’t been normal times. The U.S. economy seems to lag on differently than it once did. The inflation we see today is the only real inflation we have seen in decades. Every time the American economy looked it like might get going back to “normal” something happened to smack it back down turning what used to be crazy, historically low interest rates into normal interest rates to the newest generation hitting financial literacy. This 10-year chart of the Federal Funds rate shows that we haven’t seen a Fed Funds rate above 2.5% in the last decade. In fact, just when we got close to something that might be considered normal or …

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Can I Pay My Taxes with a Credit Card?

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credit cards

Yes, you can pay your taxes by credit card, but it isn’t free. In order to pay your taxes by credit card, you must use one of three payment processors. They charge slightly different fees to process your credit card tax payment. How Much Will It Cost to Pay My Federal Income Taxes with a Credit Card? Depending upon the credit card processor you use to pay your federal income taxes with, the fee will range from 1.87% to 1.98% with a minimum payment of $2.50. If you owe $3,000 on your federal taxes, your fee will be $56.10 to $59.40. That is a lot of money and probably not worth it unless you are doing it for some special reason. Is It Worth It to Pay My Income Taxes with a Credit Card to Get Credit Card Points or Miles? As a former financial planner, I still get a lot of money questions and have a lot of money conversations with friends and colleagues, like, “Can I pay my taxes with a credit card?” The number one reason people tell me they pay their taxes with a credit card is to earn credit card reward points or credit card …

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The Fed’s Balance Sheet

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interest rates federal reserve

The Federal Reserve is best known for setting the Fed Funds Rate which is the interest rate that the Federal Reserve charges banks for overnight loans. That, in turn, influences, or outright directly adjusts, several other interest rates that have a meaningful impact not only on business, but American citizens and consumers as well What Is the Fed’s Balance Sheet? What is the Federal Reserve’s balance sheet? Well, that’s a tiny bit complicated. To understand you have to accept the concept that there is a certain amount of money floating around in the U.S. economy at any one time. That amount is not fixed. One day, you have $50,000 in your checking account, and a $50,000 loan, for a total of $100,000 floating around in the overall money supply. The next day, you use that $50,000 in your checking account to pay off the loan, essentially removing that $50,000 from the economy. The U.S. economy is enormous, and at any one time there are trillions of dollars floating around in the economy. However, some of that money is moving and doing something and some of it is stuck. Think of all those gold coins in Scrooge McDuck’s vault. They exist. …

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Stock Market Trading Sideways

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nothing to see here

Update: It’s been 15 days of breathless up and down headlines from the financial media since I first wrote this article, and the stock market is STILL trading sideways. Take a look at three months of the Dow. The stock market often trades “sideways” as it consolidates after moves up or down. This is very common after big run-ups or drops, as well as when the economy is sort of waiting to see what happens. Of course, the stock market doesn’t literally trade sideways with the S&P 500 chart moving to the right as some sort of straight line. Instead, the market goes up and down, sometimes daily, sometimes over a period of a few days, all with the eventually outcome of having not moved up or down much at all. However, that doesn’t make for a clickable headline for financial reporters and financial news sites. So instead, we see things like this from Marketwatch. U.S. stocks fell Tuesday, with the Nasdaq Composite leading the way down after the previous session’s technology sector gains, as investors kept a close eye on plans for more sanctions on Russia and remarks by Federal Reserve policy makers. Nasdaq leads stocks lower as investors …

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Active Mutual Funds Suck Compared To Index Funds

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Active Mutual Funds Suck Compared To Index Funds 2

You have probably heard before that most mutual funds do not beat the market. Well, it’s true again, or true still, whichever you prefer. The S&P Dow Jones Indexes (yes, they might be a little biased, but they make their data available, and no one says it’s wrong) put out a report called SPIVA U.S. Year-End 2021 in which they state that nearly 80% of all actively managed domestic equity funds lagged the S&P 1500 in 2021. Even worse, 98.6% of actively managed large-cap growth funds failed to beat the S&P 500 Growth. If that sounds too specific for you, 85% of actively managed large-cap funds trailed the S&P 500. The numbers aren’t much better for other categories. This year, the SPVIA leaves no room to “Yeah, but…” by putting to bed the notion that actively managed mutual funds better handle volatility noting that whether it’s 3-year, 5-year, 10-year, or 20-year risk-adjusted returns, active funds underperform the index. Survivorship Bias The reality is that the situation is actually much worse. Every year approximately 5% of actively managed mutual funds disappear via merger or liquidation. If you think mutual fund companies are merging or liquidating their winning funds, then I have …

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Free TurboTax Software Online – Deals on Tax Programs

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Free TurboTax Software Online - Deals on Tax Programs 3

Here comes tax time for that huge group of Americans who wait until the proverbial last minute to file their income taxes. For them, crunch time is approaching, and they need to find all those tax receipts and records that they will need to file Federal Income Taxes. Fortunately, one of the best tax tricks for 2022 is getting tax preparation software. The best part is that there is no real downside if you are smart and keep an eye out for optional add-ons, upgrades, and online tax filing options that might shatter your free tax software deals. Many of the deals websites out there (check out Slickdeals.net and Gottadeal.com as well as Dealnews.com for starters) will notify you when companies like Intuit offer cheap online TurboTax applications for users who show up within a certain time frame. The HR Block guys similarly offer free TaxCut software signups from time to time. If you are wondering what the catch is, because obviously these companies can’t make money by giving their programs away online, then good for you. The first step to avoid being a sucker who gets scammed is to be aware of what makes sense, what motivates people and …

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401k Contribution Limits 2022 and 2023

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401k

401k contribution limits prevent higher income taxpayers from stuffing too much money tax-free into their 401k plans. Each year, the IRS adjusts tax numbers due to either tax law changes, or statutorily mandated adjustments. However, in some cases, the tax amounts are tied to inflation so that they automatically adjust. In many cases, numbers are only modified for the current tax year when a certain limit or threshold is met. Limits for 401k contributions are indexed to inflation and adjusted every year in this manner, provided there is enough change caused by inflation to modify the numbers. 2022 401k Contribution Limits The current 401k contribution limits for 2022 were set by the IRS in late 2021. These limits are tied to an economic index that measures the overall cost of living. The index is designed to rise with inflation. By tying 401k contributions to the index, Congress doesn’t have to pass a law to change the 401k income limits or maximum annual 401k contribution amounts for 2022. The 2022 maximum 401k contributions limits are higher than they were in 2020 because there was enough inflation during the year to cause an increase. Check out this close look at the details of Acorns …

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