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How To Save For Retirement When Your Job Has No 401(k) Plan

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When it comes to saving for retirement, putting your money in a low-interest savings account is akin to shoving your money under a mattress. Ideally, you’d invest your money for bigger gains over time while reaping a few tax benefits instead. In other words, you’d contribute to your employer’s 401(k) plan.

So, what if you don’t have one?

More than a third of all private-sector workers over the age of 22 don’t work for a company that offers a retirement plan, according to data analyzed by The Pew Charitable Trusts. That number jumps to 41 percent for millennials.

Fortunately, if you don’t have access to a 401(k) or another employer-sponsored retirement plan, you’re not out of luck. Whether you work for a company or for yourself, here are six types of accounts that can help you reach your retirement savings goals.

1. Traditional IRA

Best for: Just about anyone.

How it works: An individual retirement account, or IRA, is a type of tax-advantaged retirement savings account. It’s similar to a 401(k) except you don’t have to open one through your employer. “It’s common for people to change employers frequently, and the great thing about an IRA is that it’s employer-independent,” said Lyn Alden, the founder of Lyn Alden Investment Strategy. “You can keep the same account open and keep contributing to it year after year, regardless of who you work for.”

An IRA lets you contribute pre-tax dollars, which grow tax-deferred. You only pay taxes on the investment gains when you make withdrawals in retirement. One of the biggest benefits to contributing to a traditional IRA is that it’s easier to make larger contributions since you don’t have to pay taxes on the money. That lets you take full advantage of compounding returns while you’re young. Plus, if you don’t contribute to a retirement plan through work, you can deduct your IRA contributions on your taxes.

The downside is that the contribution limits for IRAs are much lower than for 401(k)s. For 2019, you can contribute a total of $6,000 across all your IRA accounts ($7,000 if you’re age 50 or older) or your taxable income for the year, whichever is smaller. You’re allowed to begin making penalty-free withdrawals when you turn 59½. Once you reach 70½, you can no longer contribute and must start making required minimum distributions instead.

2. Roth IRA

Best for: Lower-earning employees who expect to be in a higher tax bracket during retirement.

How it works: A Roth IRA is similar to a traditional IRA with a few exceptions. The first is the way your money is taxed: Rather than contributing pre-tax money, you contribute funds after taxes have already been taken out. “That money is never subject to capital gains taxes or dividend taxes from that point on,” Alden said. In other words, your withdrawals in retirement are made tax-free.

This can be a major benefit to workers who don’t earn a lot now but expect to increase their income significantly in the future. For example, maybe you just graduated from medical school and are in your first year of residency. Eventually, you plan to open your own private practice. In this case, you will likely save money on taxes by paying them now while your income is relatively low instead of at retirement. “Tax-deferred compounded growth over decades can really make a big impact to one’s retirement nest egg, in addition to being able to have tax-free income later on during retirement,” said Celeste Hernandez Revelli, a certified financial planner and director of financial planning at eMoney Advisor.

Another major benefit? “You can also withdraw your principal at any time without penalty if you need to, so it’s one of the more flexible types of accounts for retirement and general investing,” Alden said. Keep in mind this applies to principal only and not investment earnings.

The downside is there is a cap on how much you can earn in order to be eligible for a Roth IRA. The income limit for single filers in 2019 is $122,000–$137,000, depending on the contribution amount. Roth IRA contribution limits are the same as traditional IRAs. And despite the benefits, there are a few other reasons why you might want to think twice about contributing to a Roth IRA.

3. SEP-IRA

Best for: People who are self-employed.

How it works: The “SEP” in SEP-IRA stands for simplified employee pension. Contributions to this type of retirement plan are made by the employer on the employee’s behalf. The good news is that any employer with one or more employees can create a SEP plan. So if you’re self-employed ― for instance, you own a small business or are a freelancer ― you are both the employer and employee. Contributions are also tax-deductible for the business, and the money isn’t taxed until it’s withdrawn in retirement.

Contributions made in 2019 to an employee’s SEP-IRA can’t exceed 25 percent of compensation or $56,000, whichever is less. The nice thing about the SEP-IRA is that your contributions to any personal IRAs don’t affect the limits for the SEP employer contributions. That means you could max out both plans if you wanted. However, participating in a SEP plan could affect your ability to deduct traditional or Roth IRA contributions, since the IRS doesn’t allow you to deduct as both employer and employee.

4. Solo 401(k)

Best for: Self-employed individuals who want higher contribution limits.

How it works: Another option for freelancers, small business owners and other self-employed individuals is the one-participant 401(k) plan, also known as a solo 401(k). This account has the same rules and requirements as a traditional 401(k) you’d contribute to through an employer except that it’s designed for the self-employed.

According to IRS rules, you must be a business owner to contribute to a solo 401(k), but you can’t have employees. The good news is that the plan can cover both you and a spouse.

So why would you choose a solo 401(k) over a SEP-IRA? The contribution limits, namely. It’s possible to make contributions to a solo 401(k) as both an employer and an employee. In 2019, the contribution limit for employees is $19,000, or $25,000 for those 50 and older. As an employer, you can contribute up to an additional 25 percent of compensation, or up to $56,000 in total contributions. You can choose to make traditional or Roth contributions.

5. Health Savings Account

Best for: Individuals with high-deductible health insurance plans.

How it works: If you have a high-deductible health plan, you might qualify to contribute to a health savings account.

Though an HSA is technically not a retirement savings account, it’s as good ― if not better ― than a 401(k) because the contributions are triple tax-exempt, according to Megan Gorman, a managing partner at Chequers Financial Management.

“What that means is you fund the account and get an above-the-line deduction on your tax return. The money grows tax-deferred, and if you take it out for qualified medical expenses, it is a tax-free distribution,” Gorman said. In 2019, an individual with family coverage under an HDHP can contribute up to $7,000 for the year, which can be used to cover certain medical expense.

After age 65, you can withdraw the funds tax-free to cover health insurance premiums in addition to other qualified medical expenses. You can also use the money for non-medical expenses without paying a penalty; you just have to pay taxes on the withdrawals.

About 35 percent of employer-sponsored health plans offer HSAs. However, you can open your own HSA through most financial institutions even if your employer doesn’t offer one, as long as you meet all eligibility requirements.

6. Brokerage Account

Best for: Investors who want flexibility and the ability to invest beyond their annual contribution limits.

How it works: If you want more flexibility beyond what the above tax-advantaged accounts offer, consider opening an investment account through a brick-and-mortar or online brokerage, such as Charles Schwab, Fidelity, Etrade or Ally.

“While you won’t receive tax benefits, you can contribute to this investment account with your retirement goal in mind,” explained Alissa Todd, wealth adviser at The Wealth Consulting Group. For example, you can contribute more than the annual limits on other retirement savings vehicles, making it possible to reach your goals faster.

In fact, you might find that your best strategy is to contribute to a variety of account types in order to maximize your earning and tax savings opportunities.

“Even if you have access to a 401(k) or other employer-sponsored plan, it is best to consider saving into other types of investment accounts because each has their own unique benefits and characteristics,” Revelli said. “There are many other savings options out there that give you full control of your assets, have more flexibility in distributions and have more investment choices.”

Whichever plan you choose, the most important thing is that you do have a plan. Not everyone has the means to max out their retirement accounts every year, but saving something is always better than saving nothing. Your future self will wholeheartedly agree.

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20 Percent Of Americans In Relationships Are Committing Financial Infidelity

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Nearly 30 million Americans are hiding a checking, savings, or credit card account from their spouse or live in partner, according to a new survey from CreditCards.com. That’s roughly 1 in 5 that currently have a live in partner or a spouse.

Around 5 million people — or 3 percent — used to commit “financial infidelity,” but no longer do.

Of all the respondents, millennials were more likely than other age groups to hide financial information from their partner. While 15 percent of older generations hid accounts from their partner, 28 percent of millennials were financially dishonest.

Regionally, Americans living in the South and the West were more likely to financially “cheat” than those living in the Northeast and Midwest.

Insecurity about earning and spending could drive some of this infidelity, according to CreditCards.com industry analyst Ted Rossman.

When it comes to millennials, witnessing divorce could have caused those aged 18-37 to try and squirrel away from Rossman calls a “freedom fund”.

“They’ve got this safety net,” Rossman said. They’re asking: “What if this relationship doesn’t work out?”

As bad as physical infidelity

More than half (55 percent) of those surveyed believed that financial infidelity was just as bad as physically cheating. That’s including some 20 percent who believed that financially cheating was worse.

But despite this, most didn’t find this to be a deal breaker.

Over 80 percent surveyed said they would be upset, but wouldn’t end the relationship. Only 2 percent of those asked would end the relationship if they discovered their spouse or partner was hiding $5,000 or more in credit card debt. That number however is highest among those lower middle class households ($30,000-$49,999 income bracket): Nearly 10 percent would break things off as a result.

Roughly 15 percent said they wouldn’t care at all. Studies do show however that money troubles is the leading cause of stress in a relationship.

That’s why, Rossman says, it’s important to share that information with your partner.

“Talking about money with your spouse isn’t always easy, but it has to be done,” he said. “You can still maintain some privacy over your finances, and even keep separate accounts if you and your spouse agree, but you need to get on the same page regarding your general direction, otherwise your financial union is doomed to fail.”

With credit card rates hovering at an average of 19.24 percent APR, hiding financial information from a partner could be financially devastating.

But, Rossman adds, it’s not just about the economic impact but also the erosion of trust.

“More than the dollars and cents is that trust factor,” he said. “I think losing that trust is so hard to regain. That could be a long lasting wedge.”

Kristin Myers is a reporter at Yahoo Finance. Follow her on Twitter.

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7 Examples Of Terrible Financial Advice We’ve Heard

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Between television, radio, the internet and well-meaning but presumptuous friends and family, we’re inundated with unsolicited advice on a daily basis. And when it comes to money, there’s a ton of terrible advice out there. Even so-called experts can lead us astray sometimes.

Have you been duped? Here are a few examples of the worst money advice advisers, bloggers and other personal finance pros have heard.

1. Carry a balance to increase your credit score.

Ben Luthi, a money and travel writer, said that a friend once told him that his mortgage loan officer advised him to carry a balance on his credit card in order to improve his credit score. In fact, the loan officer recommended keeping the balance at around 50 percent of his credit limit.

“This is the absolute worst financial advice I’ve ever heard for several reasons,” Luthi said. For one, carrying a credit card balance doesn’t have any effect on your credit at all. “What it does do is ensure that you pay a high interest rate on your balance every month, neutralizing any other benefits you might get from the card,” Luthi explained. “Also, keeping a 50 percent credit utilization is a surefire way to hurt your credit score, not help it.”

Some credit experts recommend keeping your balance below 30 percent of the card limit, but even that’s not a hard-and-fast rule. Keeping your balance as low as possible and paying the bill on time each month is how you improve your score.

2. Avoid credit cards ― period.

Credit cards can be a slippery slope for some people; overspending can lead to a cycle of debt that’s tough to escape.

But avoiding credit cards on principle, something personal finance gurus like Dave Ramsey push hard, robs you of all their potential benefits.

“Credit cards are a good tool for building credit and earning rewards,” explained personal finance writer Kim Porter. “Plus, there are lots of ways to avoid debt, like using the card only for monthly bills, paying off the card every month and tracking your spending.”

If you struggle with debt, a credit card is probably not for you. At least not right now. But if you are on top of your finances and want to leverage debt in a strategic way, a credit card can help you do just that.

3. The mortgage you’re approved for is what you can afford.

“The worst financial advice I hear is to buy as much house as you can afford,” said R.J. Weiss, a certified financial planner who founded the blog The Ways to Wealth. He explained that most lenders use the 28/36 rule to determine how much you can afford to borrow: Up to 28 percent of your monthly gross income can go toward your home, as long as the payments don’t exceed 36 percent of your total monthly debt payments. For example, if you had a credit card, student loan and car loan payment that together totaled $640 a month, your mortgage payment should be no more than $360 (36 percent of $1,000 in total debt payments).

“What homeowners don’t realize is this rule was invented by banks to maximize their bottom line ― not the homeowner’s financial well-being,” Weiss said. “Banks have figured out that this is the largest amount of debt one can take on with a reasonable chance of paying it back, even if that means you have to forego saving for retirement, college or short-term goals.”

4. An expensive house is worth it because of the tax write-off.

Scott Vance, owner of taxvanta.com, said a real estate agent told him when he was younger that it made sense to buy a more expensive house because he had the advantage of writing off the mortgage interest on his taxes.

But let’s stop and think about that for a moment. A deduction simply decreases your taxable income ― it’s not a dollar-for-dollar reduction of your tax bill. So committing to a larger mortgage payment to take a bigger tax deduction still means paying more in the long run. And if that high mortgage payment compromises your ability to keep up on other bills or save money, it’s definitely not worth it.

“Now, as a financial planner focusing on taxes, I see the folly in such advice,” he said, noting that he always advises his client to consider the source of advice before following it. ”Taking tax advice from a Realtor is … like taking medical procedure advice from your hairdresser.”

5. You need a six-month emergency fund.

One thing is true: You need an emergency fund. But when it comes to how much you should save in that fund, it’s different for each person. There’s no cookie-cutter answer that applies to everyone. And yet many experts claim that six months’ worth of expenses is exactly how much you should have socked away in a savings account.

“I work with a lot of Hollywood actors, and six months won’t cut it for these folks,” said Eric D. Matthews, CEO and wealth adviser at EDM Capital. “I also work with executives in the same industry where six months is overkill. You need to strike a balance for your work, industry and craft.”

If you have too little saved, a major financial blow can leave you in debt regardless. And if you set aside too much, you lose returns by leaving the money in a liquid, low-interest savings account. “The generic six months is a nice catch-all, but nowhere near the specific need of the individual’s unique situation… and aren’t we all unique?”

6. You should accept your entire student loan package.

Aside from a house, a college education is often one of the biggest purchases people make in their lifetimes. Often loans are needed to bridge the gap between college savings and that final tuition bill. But just because you’re offered a certain amount doesn’t mean you need to take it all.

“The worst financial advice I received was that I had to accept my entire student loan package and that I had no other options,” said Gina Zakaria, founder of The Frugal Convert. “It cost me a lot in student loan debt. Now I tell everyone that you never have to accept any part of a college financial package that you don’t want to accept.” There are always other options, she said.

7. Only invest in what you know.

Even the great Warren Buffett, considered by many to be the best investor of all time, gets it wrong sometimes. One of his most famous pieces of advice is to only invest in what you know, but that might not be the right guidance for the average investor.

In theory, it makes sense. After all, you don’t want to tie up your money in overly complicated investments you don’t understand. The problem is, most of us are not business experts, and it’s nearly impossible to have deep knowledge of hundreds of securities. “Diversification is key to a good portfolio, and investing in what you know leads to a very un-diversified portfolio,” said Britton Gregory, a certified financial planner and principal of Seaborn Financial. “Instead, invest in a well-diversified portfolio that includes many companies, even ones you’ve never heard of.”

That might mean enlisting the help of a professional, so make sure it’s one who has your best interests at heart.

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How To See What Facebook, Google, And Twitter Know About You

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Facebook CEO Mark Zuckerberg wants you to know that your data is important to his company. In a Wall Street Journal op-ed published Thursday evening, Zuckerberg laid out why Facebook collects data to use for advertisements, and how it lets you control that information.

The op-ed is meant to explain how and why Facebook collects information about its users: It lets the company sell ads and keeps the service free to consumers.

Zuckerberg’s op-ed comes at an important moment. In a recent Pew Research Center survey, 74 percent of Facebook users said they had no idea that the company categorizes their interests based on their actions on the social network.

Facebook isn’t the only company that creates these kinds categorizations. Google and Twitter follow the same formula. Thankfully, the three companies also offer you a means to see how these services view you, and let you opt out of having your data used at all.

How Facebook follows you

If you’re a Facebook user and want to see what the company thinks it knows about you, follow these instructions:

From your desktop, navigate to Facebook.com and click the arrow in the top right corner of the screen. Select “Settings” from the dropdown menu and click “Ads” toward the bottom left of the screen.

From there you’ll be taken to the “Your Ad Preferences” page where you can see interests and advertisers associated with your account. Click on the “Your Information” tab and then select “Your Categories.”

These are the categories Facebook believes best match you. It can include your marital status, whether you use Gmail, if you travel frequently, the type of devices you use to access Facebook, and more. Using my profile and habits, Facebook was able to determine I’m a technology early adopter, that I am a commuter, that I recently changed my smartphone, and that I’m a gamer.

None of that is exactly top-secret information. I assumed Facebook knew at least that much about me if not more.

If you’re so inclined, you can delete these categories by clicking the “X” icon in the top right corner of each category box. You can also turn off custom ads by clicking the “Ad Settings” tab and changing “Allowed” to “Not Allowed” under the “Ads based on data from providers” and “Ads based on your activity on Facebook Company Products that you see elsewhere.”

You can also ensure that Facebook doesn’t use your social actions in any ads. For example, if you like a page for a movie, your friends may see ads for the movie indicating that you liked it. To turn that feature off, click “Ads that include your social actions” and change the dialogue to “No one.”

Checking your Google account

Like Facebook, Google assigns you with specific categories it believes align with your interests. But Google’s list is far more comprehensive than Facebook’s, ensuring it shows the most pertinent ads. Google also has the ability to scoop up information from you from a whole host of services ranging from your search history to the YouTube videos you watch and locations you look for in Google Maps.

To see how Google categorizes you, navigate to Gmail in your browser, click on your account image in the upper right corner of the screen and select “Google Account.” Choose “Data and personalization” on the left rail, scroll down to “Ad Personalization” and click “Go to ad settings.”

From here you’ll be able to see every category Google believes interests you and how it reached that conclusion, whether that was through web searches or YouTube videos.

You can turn off ad personalization from the top of the screen to ensure Google doesn’t use your information for ads, but that doesn’t mean it won’t still track what you do. To turn that off, you’ll need to go back to your Google account homepage and select “Data and personalization” from the left rail.

Scroll down to “Activity controls” and choose “Manage your activity controls.” This is where you can see the kind of detailed information Google has saved about you, including where you’ve been around the world, what Google Docs you’ve accessed, and which voice searches you’ve performed.

It gets to be a little creepy when you realize how far back all of this information goes. I haven’t been to Germany in almost six years, but Google still has that data.

If you don’t want Google to collect this kind of information, you can turn off each setting by adjusting the slider next to each category.

Twitter’s data tracking

As with any other free social network, Twitter collects on its users. To see what Twitter has on you, log into your account on your desktop, click your profile icon in the top right corner of the screen, select “Settings and privacy,” and then click “Your Twitter data.”

Scroll down to “Interest and ads data” and choose “See all.” You’ll then see a list of the inferred interests Twitter has matched to your account.

If you want to ensure Twitter doesn’t collect such data, you can disable the app’s controls by clicking on your profile icon, selecting “Settings and privacy” and clicking “Privacy and safety.”

Scroll to “Personalization and Data” and click “Edit.” From here you can choose to individually disable how Twitter uses your data, or simply turn the features off completely.

Email Daniel Howley at dhowley@oath.com; follow him on Twitter at @DanielHowley. Follow Yahoo Finance on Facebook, Twitter, Instagram, and LinkedIn.finance.yahoo.com/

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