Your 401(k) just got more valuable

If your tax refund this year was disappointing, you may be able to do something about it: Contribute more to a retirement fund.

Tax-deductible contributions to 401(k)s, IRAs and other retirement accounts are among the few remaining ways to reduce taxable income if you don’t itemize deductions. And few of us do these days: Only about 1 in 10 taxpayers is expected to itemize now that Congress has nearly doubled the standard deduction, tax experts say. That’s down from about 1 in 3 before the law changed.

As a result, many of the traditional tips and tricks for reducing tax bills either no longer work or are of limited help.  In my latest for the Associated Press, how to use your 401(k) to reduce your taxable income.

Thursday’s need-to-know money news


Today’s top story: Why you should love robo-advisors. Also in the news: 7 ways to trim your tax bill in retirement, how Roth IRA taxes work, and how to save money for the future when it’s uncertain.

Why You Should Love Robo-Advisors
Keeping costs low and advice honest.

Taxes in Retirement: 7 Ways to Trim Your Bill
Ideas that can reduce financial stress in retirement.

How Roth IRA Taxes Work
A good investment at tax time.

How to save for the future when it’s uncertain
Preparing for a variety of outcomes.





Tuesday’s need-to-know money news


Today’s top story: 5 empowering tips for women on Equal Pay Day. Also in the news: 5 smart ways to invest your tax refund, 7 ways to trim your taxes in retirement, and how changes to the ACA might affect your insurance premiums.

5 Empowering Tips for Women on Equal Pay Day
It’s time to bridge the gap.

5 Smart Ways to Invest Your Tax Refund
Putting it towards the future.

Taxes in Retirement: 7 Ways to Trim Your Bill
Making your retirement a little less stressful.

How Changes to the ACA Might Affect Your Insurance Premiums
Playing the waiting game.






Tuesday’s need-to-know money news

Today’s top story: Home affordability watch: the priciest and cheapest time zones. Also in the news: 5 things you don’t have to pay a tax preparer to do, cheap flights to Hawaii, and the 10 cities most prepared for retirement’s financial realities.

Home Affordability Watch: Priciest and Cheapest Time Zones
NerdWallet crunches the numbers.

5 Things You Don’t Have to Pay a Tax Preparer to Do
You can handle these on your own.

Say Aloha: Southwest Flights to Hawaii Are Now on Sale
Time for a vacation?

The 10 cities where seniors are the most prepared for retirement’s financial realities
Did yours make the list?

Q&A: Delaying Social Security

Dear Liz: In a recent column you mentioned Social Security’s delayed retirement credit, writing that someone’s benefit could grow 32% by delaying benefits for four years between ages 66 and 70. Four years’ worth of accrued 8% increases in Social Security result in a cumulative increase of 36%, not 32%. I would think any financial planner would understand compound growth.

Answer: Social Security’s delayed retirement credits don’t compound.

Now, you may feel a little silly for pointing out an error that wasn’t actually an error, especially because you could have found the correct answer through a quick internet search (“Is Social Security’s delayed retirement credit compounded?”). But who hasn’t made a similar mistake? Sometimes what we don’t know about money isn’t the problem — it’s what we do know for sure that just isn’t true. (A similar quote is often attributed to Mark Twain, although there seems to be no evidence he ever said or wrote it.)

When I’ve made errors in this column, it’s often because I thought I understood something I didn’t or that my knowledge was up to date when it wasn’t. That’s why it’s so important to double-check our information with authoritative sources.

Thursday’s need-to-know money news

Today’s top story: 5 divorce mistakes that can cost you. Also in the news: How to achieve financial independence without retiring early, consolidated debt and how to do it right, and where to go when you have a travel insurance problem.

5 Divorce Mistakes That Can Cost You
Curb your social media.

How to Achieve Financial Independence Without Retiring Early
A worthwhile goal.

What Is Consolidated Debt and How to Do It Right in 2019
Don’t start charging again.

Where To Go When You Have A Travel Insurance Problem
Being your own best advocate.

Thursday’s need-to-know money news

Today’s top story: The average 401(k) balance by age. Also in the news: Taking the next step with your student loans, 3 money tasks to do right now, and what to do with all the tax documents you’re receiving.

The Average 401(k) Balance by Age
How do you match up?

Take the Next Step With Your Student Loans in 2019
Setting small goals.

3 Money Tasks You Need to Do Right Now
Starting the year off right.

What to Do With All the Tax Documents You’re Getting Right Now
What to keep and what to toss.

Q&A: Retirement planning needs expert help

Dear Liz: I am about to retire and have had to make some very important decisions: How should I receive my company pension, when should we start taking Social Security, should we convert some IRAs to Roths, how to best cover our healthcare needs and what the best ways are to manage our tax bill. I think we are OK and on track, but I worry about people who don’t have a college degree and who have not studied these issues trying to make similar decisions. I think it’s scary and we should do more to help people secure their retirement.

Answer: You’re quite right that retirement involves a number of complex choices, many of which are irreversible. It’s easy to make the wrong decisions, even if you do have a college degree and think you know what you’re doing.

Everyone approaching retirement should realize that they don’t know what they don’t know, and if possible seek out an expert, objective second opinion on their retirement plans to ensure they’re making the best possible choices.

Q&A: Fear of a market meltdown has frozen this retiree’s money decisions

Dear Liz: I sold my home two years ago and still have not done anything with my gain of $200,000. It’s in a one-year certificate of deposit so at least it’s earning something while I try to figure out what to do with it. I’m 66, retired and have an IRA of $500,000 that’s invested in the market. I get $1,450 from that plus a monthly Social Security check of $1,750.

I know that my hesitation has to do with the crash of 2008. I know that things have recovered nicely but I just don’t want to feel like I did then, watching my money disappear. I don’t know if I’m the only older person who has this fear of riding it out again.

Answer: Few who watched their portfolios plunge in 2008-09 look forward to experiencing that again. But risk is inextricably tied to reward. If you want the reward of inflation-beating returns that stocks offer, you must accept the risk that your portfolio can go down as well as up.

And you probably do want that reward for a big chunk of your investments. Retirees typically need about half of their portfolio in stocks to generate the kinds of returns that will preserve their buying power and help insulate them against running short of money.

That doesn’t mean all your money has to be at risk. You still need to have a good stash of savings sitting in safe, liquid accounts to help you ride out any market downturns or emergencies. Financial planners often recommend that their retired clients keep six months’ worth of expenses in an emergency fund, and some like to see 12 months’ worth. Beyond that, though, your money probably should be working for you, not simply dwindling away to taxes and inflation.

If you find yourself unable to move forward with a plan for this money, consider hiring a fee-only financial planner who can help you review your options.

It’s time to fix Social Security’s tax burden

People on Social Security need a tax break. The rest of us need to make sure they get it — for everyone’s sake.

When Congress made Social Security benefits taxable in 1983, lawmakers didn’t index the tax thresholds to inflation. They “forgot” inflation again when adding a second layer of taxation in 1993.

That means the proportion of recipients who have to pay federal income taxes on their benefits keeps increasing. Initially, only 1 in 10 Social Security recipients had to pay any federal tax. Now, it’s over half.

In my latest for the Associated Press, why this sneaky way of boosting taxes is unfair to those who have already paid their dues.