Get smart with your money
Health care bills are about to become far less threatening to the financial well-being of millions of Americans.
The three major credit bureaus are erasing most medical debts from people’s credit reports, and the Biden administration is reducing or eliminating medical debt as a factor in government lending decisions.
In my latest for the Associated Press, what you need to know about medical debt now.
Today’s top story: 7 things Medicare doesn’t cover. Also in the news: A new episode of the Smart Money podcast on the cost of eggs, where small businesses are feeling inflation most, and the No. 1 hotel amenity people love might surprise you.
7 Things Medicare Doesn’t Cover
From dental cleanings to overseas health care, here’s what you’ll have to cover on your own.
Smart Money Podcast: What’s Up With Eggs, and Home Improvement Projects
This week’s episode starts with a discussion about eggs — why they’re so expensive right now and how you can adjust your shopping habits.
Here’s Where Small Businesses Are Feeling Inflation Most
Consumers aren’t the only ones with rising prices. Small businesses are battling inflation and supply chain delays.
The No. 1 Hotel Amenity People Love Might Surprise You
It seems everyone’s ready to kick back by the pool this summer.
Dear Liz: I recently changed jobs. Typically I max out my 401(k) contributions each year. I contributed $20,700 to my previous company’s plan before quitting. Eligibility for my new company’s 401(k) doesn’t kick in until after 12 months of continuous employment, so I won’t be able to access this benefit until 2023. Can I set up an IRA or Roth IRA to reach the $27,500 limit for people 50 and older? I am married, filing jointly and our combined income exceeds $214,000.
Answer: Please talk to your company about fixing this outmoded requirement, which is costing its workers enormously in lost matching funds and compounded returns. Most companies have much shorter waiting periods, and the most enlightened employers enroll workers immediately. It’s hard enough to save adequately for retirement without an arbitrary yearlong delay.
The limits for contributing to workplace plans are separate from those for IRAs and Roth IRAs. For 2022, the limits for 401(k)s are $20,500 for people under 50 and $27,500 for people 50 and older. The contribution limits for IRAs (regular or Roth) are $6,000 for people under 50 and $7,000 for people 50 and older.
If you had access to a workplace plan at any point during the year, your ability to deduct your contribution would phase out with modified adjusted gross income between $109,000 and $129,000 if you are married filing jointly, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. The phaseout is between $68,000 and $78,000 for single taxpayers.
Normally when you can’t deduct an IRA contribution, you’re better off contributing to a Roth IRA. Contributions to a Roth aren’t deductible but withdrawals are tax-free in retirement.
However, the ability to contribute to a Roth IRA phases out with modified adjusted gross incomes between $204,000 and $214,000 for married joint filers and between $129,000 and $144,000 for single filers.
If you can’t contribute directly to a Roth, you could consider what’s called a “back door” Roth contribution, in which you contribute to a regular IRA and then convert the money to a Roth. Although direct Roth contributions have income limits, Roth conversions do not. However, you are required to pay income taxes on a typical conversion, so this maneuver works best if you don’t already have a large pretax IRA.
Dear Liz: My husband was laid off recently, and he quickly took a new job with a 25% pay cut to continue insurance benefits and the same retirement program. We regularly pay $500 to $1,300 extra on our house payment. We cannot keep that up. However, with his severance package and vacation day payout, we now have more in our bank account than we owe on our mortgage. If we paid off the $80,000 mortgage now (house is valued at $600,000), we’d have an emergency fund of only $10,000, but we could replenish those savings slowly each month with no house payment. We have no other debts. How do we know when is the right time to pay off the mortgage?
Answer: Think about what would happen if you paid off the mortgage and your husband were to be laid off again or you suffered some other financial setback. The $10,000 left in your emergency fund could be depleted quickly. If you don’t have stocks or other assets you could sell, you might have to raid your retirement accounts or turn to high-cost loans.
This is why financial planners recommend having an emergency fund equal to three to six months’ worth of expenses if possible — and why using your savings to pay off a low-rate debt might not be the best use of your money.
If you’re determined to pay off your mortgage, consider setting up a home equity line of credit first. That will give you a relatively inexpensive source of credit in an emergency.
Today’s top story: Using credit card points at checkout has become too easy. Also in the news: Why summer jobs are good for the teenage wallet, how to maximize your music festival savings, and how long it’ll really take you to save for a down payment.
Using Credit Card Points at Checkout Has Become Too Easy
Points may be worth less when redeemed this way. And be careful — you might even cash in points accidentally.
A Summer Job: Good for the Teenage Soul and Wallet
It’s been a rough couple of years, especially for teenagers.
Maximize your music festival savings
Summer music festivals can be a once-in-a-lifetime experience, but costs can easily blow a hole in any budget.
How Long It’ll Really Take You to Save for a Down Payment
It’s probably going to take a while in this market, but let’s crunch some numbers.
Today’s top story: How to afford your meds and support your health. Also in the news: A new episode of the Smart Money podcast on reducing child care costs, what the S&P bear market means for you, and why you might want to hold off traveling until September.
How to Afford Your Meds and Support Your Health
The cost of prescription drugs in the U.S. can be enough to make you sick.
Smart Money Podcast: Nerdy Deep Dive: How to Reduce Child Care Costs
This week’s episode is a Nerdy deep dive into the cost of child care.
What Does the S&P 500 Bear Market Mean for You?
As of market close Monday, June 13, the S&P 500 has officially entered a bear market.
Don’t Forget: Travel Prices Usually Fall in September
We know it’s tempting to get out traveling again, but waiting until fall could be a big money-saver.