Get smart with your money
Today’s top story: How seniors can save money with discounts. Also in the news: Home equity borrowing and taxes, smart ways to save on car expenses, and the 3 times you shouldn’t ask for a raise.
How Seniors Can Save Money With Discounts
Every penny counts.
Is Interest on Home Equity Borrowing Tax-Deductible
Understanding the rules.
Smart Ways to Save on Car Expenses
Tips to find savings.
3 times you shouldn’t ask for a raise
When the timing is right.
Today’s top story: Brace yourself for higher car insurance rates. Also in the news: 3 tax errors that could be hiding in your paycheck, how to make sense of your credit card number, and how other people’s weddings are preventing millennials from buying homes.
Brace Yourself for Higher Car Insurance Rates
Get ready to pay more.
See If These 3 Tax Errors Are Hiding in Your Paycheck
You could be in for a surprise come tax time.
How to Make Sense of Your Credit Card Number
Some credit card trivia.
Another reason millennials can’t afford homes? Other people’s weddings
Dear Liz: I am having difficulty determining if I should invest money in my 457 deferred compensation account or in a taxable account, as I am in the 15% tax bracket.
Also, does it matter whether I invest in a Roth IRA instead of my traditional IRA? My biggest pot of money is in a taxable account, then my IRA, then a Roth. I am single, no dependents and over 50.
Answer: In retirement, having money in different tax “buckets” can help you better control your tax bill.
Taxable accounts, for example, can allow you to take advantage of low capital gains tax rates plus you can withdraw the money when you want: There are no penalties for withdrawals before age 59½ and no minimum distribution requirements.
Tax-deferred accounts allow you to save on taxes while you’re working but require you to pay income taxes on withdrawals — and those withdrawals typically must start after you turn 70½.
Roth IRAs, meanwhile, don’t have minimum distribution requirements, and any money you pull out is tax free, but contributions aren’t tax deductible.
Because most people drop to a lower tax bracket in retirement, it often makes sense to grab the tax benefit now by taking full advantage of retirement accounts that allow deductible contributions.
That means the 457 (generally offered by governmental and nonprofit entities) and possibly your regular IRA. (Your ability to deduct your IRA contribution depends on your income, since you’re covered by the 457 plan at work.)
If your IRA contribution isn’t deductible, then contribute instead to a Roth. If you still have money to contribute after that, use the taxable account.
If you expect to be in the same or higher tax bracket in retirement, though, consider funding the Roth first. Prioritizing a Roth contribution also can make sense if you have plenty of money in other retirement accounts and simply want a tax-free stash you can use when you want or pass along to heirs.
Today’s top story: Suing banks will get easier – if CFPB rule survives. Also in the news: 2017 Driving in America report, 7 tips for preparing your taxes in a divorce, and why you need to stop beating yourself up over past money mistakes.
Suing Banks Will Get Easier — if CFPB Rule Survives
And that’s a big “if.”
2017 Driving in America Report: The Costs and Risks
A NerdWallet report.
7 Tips for Preparing Your Taxes in a Divorce
Don’t ignore Uncle Sam.
Why You Need to Stop Beating Yourself Up Over Past Money Mistakes
Stop dwelling.
Today’s top story: How folks took charge of their credit card fears. Also in the news: Getting tax relief from good deeds, five sales to shop on Amazon Prime Day besides Prime Day, and how to tell where your state tax dollars are actually going.
How Folks Took Charge of Their Credit Card Fears
Taking the first steps.
No Good Deed Goes Unpunished — but You Can Get Tax Relief
Doing the smart thing can be costly.
5 Sales to Shop on Amazon Prime Day Besides Prime Day
Lots of good deals to be had.
This Chart Shows How Your State Government Is Funded
Where your hard-earned money is going.
Dear Liz: I’ve have been following your responses related to the tax exemption on home sales. I understand that up to $250,000 per person of home sale profit is exempt from capital gains taxes and that married couples are entitled to exempt up to $500,000.
My spouse and her two siblings inherited a home from their parents. My father-in-law passed away four years ago, and my mother-in-law died last year. My wife was assigned as executor of their living trust. Who is entitled to take the tax exemption of the proceeds from the sale of the house? My wife? All three siblings? All of the above and their spouses?
Answer: None of the above, but don’t despair because the house will incur little if any capital gains when it’s sold.
We’ll assume your mother-in-law inherited the house outright from her husband, since that’s usually the case. When your mother-in-law died, the house received a “step up” in tax basis to reflect its current market value. If the house was worth $2 million when she died, for example, that’s the new value for tax purposes — even if she and your father-in-law paid only $25,000 decades ago for the house. All the gain that occurred in between their purchase and her death won’t be taxed.
If your wife sells the house for $2.2 million, there potentially would be some taxable capital gain. But the costs of marketing and selling the home would be deducted from its sale price. If those costs are 6% of the sale price — which is a pretty conservative assumption — the taxable gain would be about $68,000. (Six percent of $2.2 million is $132,000. Subtract the $2 million value at death and the $132,000 of sales costs, and you’re left with $68,000.) If your wife as executor sells the house and distributes the proceeds to the beneficiaries, the estate would pay the tax. If siblings inherit the house and then sell it, they would pay any tax.
Every year, millions of dollars of potential capital gain vanish this way as people inherit appreciated property. It’s a huge benefit of the estate tax system that many people don’t understand until they’re the beneficiaries of it.