Avoid Making These 4 Mistakes During Open Enrollment

November 16, 2018

Fall is a time of leaves changing colors, children going back to school, families enjoying Thanksgiving dinners, and… open enrollment. Yes, it’s the opportunity for most employees to select which benefits they will choose for the following year. Here are some of the most common mistakes we see people make:

1. Not fully understanding the value of an HSA-eligible health insurance plan

According to a recent study, HSA-eligible high deductible health plans have gotten 400% more popular over the last decade. These plans tend to come with lower premiums (what you pay per month or paycheck for your coverage) but higher deductibles (what you pay out-of-pocket before most of the insurance benefits kick in) than more standard health insurance plans. In addition, they make you eligible to contribute pre-tax dollars to an HSA (health savings account) that can be used tax-free for qualified medical expenses at any time.

Possible free money

While it’s easy to compare the difference in premiums and deductibles, don’t forget to factor in the value of the HSA. First, many employers will actually make contributions to your HSA for you. That’s free money! If you contribute on top of that, you also get a break on your taxes.

For example, I recently spoke with an employee who would save almost $1,900 a year in premiums by choosing the high deductible health plan. In addition, he would receive $1,000 in his HSA from his employer and would save almost another $2,000 in taxes by contributing another $6,000 to the HSA. The $4,900 in total savings dwarfed the difference in deductibles.

2. Under or over funding an FSA

FSAs (flexible spending accounts) let you put money away pre-tax that can be used tax-free for health or dependent care expenses. If you’re in the 24% tax bracket, that’s like getting a 24% discount on those eligible expenses! Not taking full advantage of these accounts could cost you hundreds or even thousands of dollars in lost tax breaks.

However, there is a catch. Unlike HSAs, FSAs are “use it or lose it” so you don’t want to contribute more than what you’re pretty sure you can spend. (Having a general health care FSA also precludes you from contributing to the more valuable HSA in the same year.) If you do end up with extra money in the account at the end of the year, try to use it by stocking up on qualified supplies like contact lenses and prescription drugs. You can find FSA-eligible items here.

3. Not taking advantage of a prepaid legal plan for estate planning

Do you have updated estate planning documents like a will, durable power of attorney, advance health care directive, and living trust? If not, you can save a lot of money by using your employer’s prepaid legal service to have these documents drafted or updated. You pay a fee per paycheck, but the legal services are free or heavily discounted. You can then choose not to renew it the following year after you’ve gotten your documents in place.

4. Ignoring insurance benefits you may actually need

Disability insurance

Disability insurance is often overlooked even though about 25% of 20-yr olds are likely to be out of work for at least a year due to a disability. If your employer doesn’t provide it, you may want to purchase it. The good news is that employee-paid disability benefits are tax-free.

Life insurance

Your employer may offer you life insurance coverage equal to one or more times your salary, but you may want to purchase supplemental life insurance if you have dependents. You can use this calculator to estimate how much you need. Then compare the cost of purchasing it through your employer with the cost of a policy in the individual market. (See if your coverage at work can be converted to an individual policy once you leave the job.)

Your benefits can be a significant part of your total compensation and open enrollment can be your only chance to take full advantage of many of them. When in doubt about your selection of benefits, see if your employer offers a financial wellness program with free guidance and coaching from unbiased financial planners who are trained on your particular benefits. Then go and enjoy the holidays knowing that your family is protected.

A version of this post was originally published on Forbes

What You Should Know Before You Buy Your First Home

November 14, 2018

With interest rates on the rise, many first time home-buyers are looking to purchase a home before mortgage rates go any higher. If you’ve never purchased a home before, the process can be confusing and even a bit scary. When a family member recently asked me for some tips, here’s what I told him:

1) Make sure you’re ready to buy. Your credit should be in as good of shape as you can get it (740 or above will generally get you the best rates), you should have no high-interest debt like credit card debt, and you should have enough savings for a down payment (ideally 20% of the home value to avoid paying mortgage insurance), closing costs (typically 1-3% of the home value), and furnishings and moving expenses you plan to pay, and an emergency fund (at least enough to cover 3-6 months’ of necessary expenses) now that you’ll be responsible for a mortgage and maintenance costs. You should also plan to keep the home at least 3-5 years to make it worth the transaction costs and the risk of selling in a down market.

2) Get pre-approved for a mortgage. This will give you an idea of what you can qualify for and how much home you can afford (which are not the same thing). Being pre-approved gives you an advantage over other buyers if you get into a competitive bidding situation and some real estate agents won’t even show you homes until you’re pre-approved. To find the best deal, shop around online comparison sites like Bankrate.com, mortgage brokers or loan officers referred to you by your real estate agent and people you know, and any credit unions you may belong to. To avoid hurting your credit score, try to do any rate shopping within a two week time period.

3) Pick the best mortgage for the time period you intend to keep the home. If you can use the savings to invest (especially in tax-advantaged accounts) or pay down high-interest debt, a 30 year mortgage can be better than a 15 year mortgage, even when you factor in the ability to ramp up your savings once the mortgage is paid off. In any case, be sure to have the rate fixed for as long as you might keep the home. Otherwise, you may find your mortgage payments skyrocketing if interest rates are higher when the fixed period ends.

4) Use an independent home inspector. The home inspector is one of the most important and underrated members of your team. People often let their real estate agent recommend someone, but they may refer someone more prone to overlook problems in order to get the deal done. That’s why an independent inspector is more likely to be on your side. You can search for one here.

5) Look for ways to earn income from your new home. Being able to rent out one or more extra bedrooms or a “granny flat” for either short-term stays on sites like AirBnB or HomeAway or to more long term tenants can be a great way to reduce the cost of the home. Just be sure renting is allowed by your building (if it’s a condo or co-op) and city and that you’re prepared to be a host/landlord.

Buying your first home can be both exciting and stressful. Following these tips should help make it more of the former and less of the latter. Happy house hunting!

5 Places To Keep Cash For Short-Term Goals

November 01, 2018

A common question I receive is where to put savings for short-term goals like an emergency fund or the down payment on a home you’re planning to purchase in the next few years. First, you probably don’t want to put it in anything risky like stocks, real estate, commodities, cryptocurrency, or even many types of bonds. That’s because their value could be down when you need the money. At best, you’ll be forced to sell at a loss and at worse, you might no longer have enough for your goal.

Where to stash your cash

Rewards checking account

Pro: Believe it or not, these checking accounts can pay more interest than anything else I’ve seen these days. The highest paying account on DepositAccounts is currently yielding over 5%! Many also reimburse ATM fees.

Con: They only pay those interest rates on a limited amount of money (the one above is limited to $10k) and you have to jump through several hoops like using direct deposit, electronic statements, and even using your debit card and/or the website a minimum number of times in a month. Many of these may also not be local to you so you would have to bank remotely.

Online savings account

Pro: They tend to pay more than brick-and-mortar banks, but unlike the reward checking accounts, they require very little effort. In fact, you can typically link them to your current checking account.

Con: Some only pay the rate on a limited balance.

Certificates of deposit (CD)

Pro: These generally pay a higher interest rate than savings accounts.

Con: You generally can’t add to a CD (you typically have to purchase new ones each time) and you lose some of the interest if you cash it in before it matures.

I-bonds

Pro: These savings bonds are guaranteed by the federal government, don’t fluctuate in price (although the interest rate fluctuates with inflation), are state tax-free, can be federal tax-deferred, and are currently paying a little over 2.5%. The interest can also be tax-free for education expenses if you meet the qualifications.

Con: You can only purchase up to $15k per year and you can’t cash them in the first 12 months. If you cash them in the first 5 years, you lose the last 3 months of interest, so these are best for goals that are at least a year out, ideally more than 5 years.

Life insurance cash value

Pro: These can provide the highest interest rates and you can borrow from it tax-free.

Con: Purchasing a new policy can be very expensive and the fees and insurance costs can outweigh the benefits of the cash value.

There is no one best place to stash your cash. It all depends on your situation and what you value. If you’re not sure which option makes the most sense for you, consider consulting with an unbiased financial planner. Your employer may even offer free access to them as part of a workforce financial wellness benefit. If so, take advantage of it since no fees means more cash in your stash.

How to Save Money While Preparing For The Next Disaster

October 23, 2018

When financial planners talk about emergency preparedness, they’re typically referring to emergency savings, insurance, and estate planning documents. All of those are important but could be useless in a natural disaster like Hurricane Michael. The news stories may have faded but the Gulf Coast is still reeling from this unexpectedly strong storm and its accompanying surge. For the rest of us, the time to prepare for an emergency is when there isn’t one in sight.

That’s why emergency planning should include a 3 day emergency kit of basic supplies. FEMA and the Red Cross also recommend having enough food and water for at least two weeks. Some preppers even like to keep a whole year’s supply of food. This may sound like a waste of money, but there are ways for storing food and other emergency supplies to make good financial sense:

1) Only store what you’re actually going to use. It doesn’t make sense to purchase food you wouldn’t want to eat, especially when you’re stressed during an emergency. In fact, your best bet is to simply purchase in advance what you would buy anyway. This allows you to buy in bulk, which is a great way to save money. It also saves you time in not having to make as many trips to the grocery store and we all know that time is money.

2) Shop around. By buying in bulk, you can take advantage of warehouse clubs like Costco and Sam’s Club. Don’t forget to compare prices with online retailers though. You can also take advantage of sales to opportunistically add to your supplies anytime you see a good deal.

3) Rotate your supplies. By storing what you’ll actually use, you can simply replenish your storage supplies as you use them. Just be sure to watch the expiration labels and make sure you eat food and use batteries before they expire.

4) Keep less in emergency cash. If you know you have food to eat in a financial emergency, you can keep less cash in savings and have more of it invested for a higher return. Of course, food supplies can’t fully replace emergency savings, since you’ll still want to be able to afford repairs without going into debt or pay your bills if you’re in between jobs. It’s a good idea to keep some actual cash on hand in your emergency kit too. But keep reading for more on that…

5) Be inconspicuous. If you let everyone around you know that you have food and other emergency supplies, you could be bombarded by people begging for things (or even worse, stealing) in an emergency. It’s up to you to decide who you share or trade with when disaster strikes.

You don’t have to be a crazy prepper to want to have some food and other basic supplies for the next emergency. You also don’t have to waste money doing so. Following the tips above can actually save you money…and maybe much more.

How To Choose A Health Insurance Plan During Open Enrollment

October 12, 2018

This fall, millions of Americans will face a choice of which health insurance plan to choose during their employer’s annual open enrollment period. Let’s take a look at some of the questions to consider when making this decision:

What are the premiums?

This may be the first thing you notice and is the only expense you know for sure you’ll have. However, the plan with the lowest premiums won’t necessarily cost you the least overall so don’t stop there.

What are the differences in coverage?

Make sure the plan you choose actually covers your needs. If you want to keep your primary doctor and other providers, check to see if they’re in-network. Otherwise, you may end up paying more for their services. See the extent to which any procedures or prescription drugs you’re expecting to need over the next year are covered as well.

How much might you have to pay out-of-pocket?

Co-pays are what you would need to pay each time you visit the doctor or fill a prescription. You may also have a deductible, which is what you would have to spend before most of the insurance benefits kick in. Once you reach your deductible, the coinsurance is the percentage of costs you would have to pay for additional medical costs under each plan. Finally, the out-of-pocket maximum is the most you would have to pay for the total of all of the above each year, with the rest covered by insurance (assuming you stay in-network for all of your needs).

Is there an HSA option?

Like a health flexible spending account (FSA), a health savings account allows you and your employer to contribute pre-tax to an account that you can use tax-free for you, your spouse and any tax dependents you have. However, you have to be enrolled in an eligible high-deductible health plan in order to contribute to an HSA.

Unlike an FSA, you can keep the full amount of whatever you don’t spend in the account and even invest the HSA (which you should only do for money you won’t need to use within the next few years). At age 65, you can withdraw the money for any purpose without penalty and tax-free for health care expenses, including premiums for Medicare (but not Medigap plans) and qualified long term care insurance.

For this reason, you may even want to consider paying for health care expenses with other savings and letting your HSA grow tax-deferred (and potentially tax-free if used for future health care expenses). In that case, be sure to keep your receipts because you can reimburse yourself from your HSA tax-free at any time (even if you’re on another plan in the future).

There are a couple of ways of valuing the HSA

If your employer is contributing to it, that’s free money that can help to offset those out-of-pocket costs since your employer is essentially putting some of that money into your pocket. (Your HSA is your money so you can take it with you when you leave or retire.) If you plan to contribute to the HSA, calculate how much you can save in taxes. (You can get the same tax benefit by contributing to an FSA for health expenses, but the contribution limits are lower and you probably won’t want to contribute as much since the FSA is mostly “use it or lose it.”)

Put it all together

As a real life example, I spoke to an employee on our Financial Helpline who was trying to decide between a traditional PPO plan with a $1,000 family deductible versus an HSA plan with a $2,600 family deductible. The coverages would have been similar for her, but she was concerned by potentially having to spend so much out-of-pocket under the HSA plan.

However, the PPO plan premiums would cost her an extra $49 a month or $588 a year. In addition, her employer would contribute $2,000 to her HSA. The total of both of those savings ($2,588) already exceeded the difference in her deductibles. So even if she spent the whole $2,600, she’d still be ahead under the high deductible plan.

In addition, if she decided to max out her HSA (an additional $7,000 for a family contribution in 2019 plus another $1,000 since she’s over 55), she would save another $1,920 in federal taxes at the 24% tax bracket (not including the tax savings on any future earnings in the account).

Of course, your numbers will be different and your decision may not be such a slam dunk. The important thing is that you’re looking at all of the factors, not just the premiums and the deductibles. In particular, don’t overlook the value of the HSA, both now and in the future.

If you’re still not sure what to do after weighing the options, consider consulting with an unbiased financial planner with an expertise in health insurance and HSAs. Your employer may even offer free access to a financial planner familiar with your particular health insurance plans as part of a workplace financial wellness program.

A version of this post was originally published on Forbes

Should You Invest In A REIT Or A Rental Property Directly?

October 11, 2018

I recently wrote a blog post about my decision to sell a rental property. What if you want to invest in real estate without all the risks and hassles of being a landlord? Another option is to invest in a REIT (real estate investment trust), which is kind of like a mutual fund for rental properties (although there are mutual funds of REITs too). Let’s look at some things to consider when deciding between the two:

How easily might you need access to your money?

This is one of the biggest differences. You can sell a publicly traded REIT immediately like a stock. (There are also non-traded REITs that come with their own rules.) On the other hand, a directly owned rental property can take months to sell and can cost thousands of dollars in transaction costs. The advantage here clearly goes to REITs.

How important is diversification for you?

A single REIT can invest in a range of commercial and residential properties. As if that wasn’t enough, you can also buy multiple REITs individually or through a real estate fund. You need a lot more money to buy enough individual properties to even approach that level of diversification. Otherwise, you’re taking more risk with less diversification and it’s a risk that doesn’t necessarily come with higher returns.

How involved do you want to be?

With a REIT, your only involvement is whether to buy the REIT and when to sell. With a rental property, you have a lot more control over the type of property you own and how it’s managed. If you know the real estate market well and/or are good at property management (or choosing good property managers), this can be a huge advantage.

For example, many real estate investors are able to keep their maintenance costs low by doing their own repairs or having a network of contractors who they trust to deliver value. If you don’t want to be that active, you might want to delegate those decisions to a REIT.

Which provides a better tax benefit?

REITs can easily be held in tax-advantaged accounts like a 401(k), IRA, and HSA. While rental properties can be held in a self-directed IRA, that can be quite complex. However, a rental property can allow you to write-off depreciation, potentially benefit from the new 20% pass through deduction, and have the basis stepped up at death. That could make it preferable from a tax standpoint if you’ve already maxed out your tax-advantaged accounts and are looking to invest in a taxable account.

At the end of the day, the decision is a personal one. If you’ve maxed out your tax-advantaged accounts and want to be actively involved in your investing, you might prefer owning a rental property directly. If you’re investing in a tax-advantaged account or prefer having easy access to your money and being more diversified, you might choose to invest in one or more REITs.

NUA – One Overlooked Benefit Of Employer Stock In Your 401(k)

October 03, 2018

Should you own stock in your current or former employer? There are mixed opinions out there regarding the risk of holding too much stock in the same company that provides your paycheck, but before you liquidate a large holding in your 401(k), keep reading.

One little known benefit of holding company stock in a 401(k) plan is the ability to have the “net unrealized appreciation” of the stock or “NUA” taxed at a lower tax rate. Normally, when you take money out of a traditional 401(k), it’s taxed at your ordinary income tax rate. However, the gain in employer stock can be taxed at the lower long term capital gains rate if you meet several conditions:

Here’s how NUA works

1) You have to reach a triggering event. This can be death, disability, separation from service, or reaching age 59 ½. You can’t take advantage of this at any time. Most people take advantage of it upon retirement or after.

2) You have to take a lump sum distribution of the entire account. You can’t just withdraw the shares of stock. However, you can choose to roll the rest of the money into an IRA or another retirement account, while moving the company stock shares to a regular brokerage account.

3) The employer stock has to be distributed “in kind.” Basically, this means you can’t sell the shares and then withdraw the cash as you would typically withdraw money from a 401(k). Instead, you have to transfer the shares of stock into a brokerage firm.

If you meet the criteria above, then when you do a withdrawal of the company stock, you would pay ordinary income taxes on the cost basis of the stock (essentially the value of the stock when you purchased or received it) at that time. You may choose to hold the stock or liquidate some or all of it at that point. When you do so, you’ll pay taxes at the lower long term capital gains rate on any growth in the value of the shares beyond what you paid for them (regardless of how long you actually held them).

Be aware that withdrawing a large amount of stock could push you into a higher tax bracket for that year, so you’ll want to be strategic about when you make this move. However, removing the stock from your retirement account would also reduce the amount of required minimum distributions you’d have to take starting at age 70 ½. (Incidentally, the capital gain would not be subject to the 3.8% Medicare surtax on investment income, but the stock would not benefit from a step-up in basis when you pass away.)

It’s about more than just the taxes

As I always like to say, don’t let the tax tail wag the dog though. This is not a reason to load up on company stock. After all, individual stocks are always a lot riskier than diversified mutual funds since an individual stock can go to zero and never recover. This is even more true when it’s the company that your job is tied to. A good rule of thumb is to never have more than 10-15% of your portfolio in any one stock, especially your employer’s.

That being said, it could be a good reason to keep some money in company stock, especially if you already have shares that have appreciated quite a bit. In fact, this is one of the main reasons I would suggest someone not roll a former employer’s retirement plan into an IRA or a new retirement plan while they are still working.

How to decide whether NUA is right for you

You can calculate the value of doing an NUA distribution vs an IRA rollover here. If you’re still not sure whether this makes sense for you, see if your employer offers access to an unbiased financial planner who can help you with what can be a complex decision, or consult your own financial advisor if not.

3 Financial ‘Truths’ For Young People That Might Be Wrong

September 21, 2018

One of the things I most often hear from people about personal finance is how much they wish they had learned about it when they were younger. In talking to younger people, I do see a lot of awareness about the importance of financial wellness. Unfortunately, there are also a lot of myths and generalities circulating around about how young people should manage their money.

Here are three of the most common:

1. Common financial “truth” that might not be right for you: Focus on paying off your student loans early.

I get it. No one likes paying student loans and we’d all like the day to come as soon as possible when we no longer have to make those payments. However, student loans typically have relatively low interest rates (at least for undergrads) so any extra cash you have would probably be better off used to pay down higher interest debt like credit cards or invested for a greater expected rate of return (especially if you can get matching contributions in your employer’s retirement plan).

A good rule of thumb I suggest is to pay down debts early if the interest rate is above 6% since you may not earn as much by investing extra savings instead. If the interest rate is below 4%, you should probably just make the minimum payments since you can likely earn more by investing the extra money. If it’s between 4-6%, you can go either way depending on how comfortable you feel with debt vs. your risk tolerance with investing. (The more conservative you are, the more it makes sense to pay down debt vs investing.)

Alternatives to paying it off ASAP

So, what should you do with your student loans? First, see if you can refinance your debt to get a lower interest rate. (Just be careful about switching from government to private loans since you lose a number of benefits.) If the rate is low, you might even want to switch to an extended payment plan since the lower payments will free up savings you can use for other goals like saving for emergencies, buying a home or retirement. If the rate is high, try to pay it down early after building up an emergency fund, getting the full match in your retirement plan and paying down any higher interest debt.

2. Common financial “truth” that might not be right for you: Roth accounts are better for young people.

Unlike traditional pre-tax accounts, Roth accounts don’t give you any tax break now, but the earnings can grow to be withdrawn tax-free after age 59 ½ as long as you have the account at least 5 years. The argument here is that young people have more time to grow those tax-free earnings. They’re also early in their careers so they may be in a higher tax bracket in retirement.

Why you might not want to use Roth at this point

However, if you’re trying to save for emergencies or a home purchase and are just contributing to your retirement plan to get the match, you may want to make pre-tax contributions and use the tax savings for your other goals. Even if you’re focused on retirement rather than more immediate goals, a traditional pre-tax account may still be better for you if you’ll end up paying a lower tax rate in retirement.

If you plan to go back to school full-time, you can also convert those pre-tax dollars to Roth at a time when you’re in a fairly low tax bracket. If you’re not sure which makes sense, you can split your contributions between pre-tax and Roth or contribute to your employer’s plan pre-tax (it may even be the only option) and to a Roth IRA (which has additional benefits).

3. Common financial “truth” that might not be right for you: Invest aggressively while you’re young.

There is some truth in this. The longer your time frame, the more aggressively you can generally afford to invest your money and young people tend to have long time horizons before retirement. There are a couple of important caveats here though.

Consider your time frame

The first is that not all of your money has a long time frame. For example, financial planners generally recommend that one of your first goals should be to accumulate enough emergency savings to cover at least 3-6 months of necessary expenses. This is especially important for young people who are more likely to change jobs and haven’t had as much time to accumulate other assets like home equity or retirement plan balances to tap into.

You may have other short term goals to save for like a vacation or home purchase. Any money you may need in the next 5 years should be someplace safe like a savings account or money market fund since you won’t have much time to recover from a downturn in the market.

Don’t forget your own personal risk tolerance

Speaking of downturns, the second problem is that this advice ignores risk tolerance. Many young people are new to investing and may panic and sell at the next significant market decline. If this sounds like you, consider a more conservative portfolio (but not TOO conservative). If you have access to target date funds, you may want to pick a fund with a year earlier than your planned retirement date. You can also see if your retirement plan or investment firm offers free online tools to help you design a portfolio customized to your personal risk tolerance.

It all depends on your personal situation

Of course, there are plenty of young people who should pay down their student loans early, contribute to Roth accounts and invest aggressively. The key is to figure out what makes the most sense for your situation. If you want help, see if your employer offers free access to unbiased financial planners as an employee benefit or consider hiring an advisor who charges a flat fee for advice rather than someone who sells investments for a commission or requires a high asset minimum that you may not be able to meet.

In any case, you don’t want to make the wrong choice now, and regret it when you’re older.

A version of this post was originally published on Forbes

How To Decide Whether It’s Time To Sell An Investment Property

September 12, 2018

A few years ago, I wrote a blog post about why I started investing in direct rental real estate. I recently decided to sell the first property I bought. This was prompted by my property management company letting me know that they were exiting the business and suggesting that I sell the property rather than find a new property manager because they felt the neighborhood was in decline.

In addition, I saw this article about rising foreclosures, which could indicate a downturn in the real estate market. For me, it’s time to get out of this investment. Here are the things I considered in this decision.

How much is the property earning?

One way to measure this is cash flow (rental income minus expenses) and a second is total return (cash flow plus growth in equity from a declining mortgage balance and real estate appreciation). The bad news for me is that vacancies and expenses were higher than I estimated with this property, so my cash flow was much lower than expected and ended up being slightly negative overall.

The good news is that appreciation was much higher than expected (at least according to the valuations on sites like Zillow, Trulia, and Redfin) so the total return might end up being pretty good. If the property continues earning at the same rate but appreciates at a more normal 2-3% a year, my future total return would be about 6-8%.

That’s not terrible, but it’s also not great, especially given the risks of a potentially declining neighborhood and a weak real estate market if interest rates continue climbing or the economy weakens. For me, the property isn’t earning enough by either measure to justify continuing to hold it.

What are the tax implications of selling?

The ability to write off depreciation in addition to the expenses has helped reduce my overall tax burden throughout the years I’ve owned. However, all that depreciation will hurt me when it comes to paying the capital gains tax by reducing my cost basis.

I can minimize capital gains taxes by waiting until the capital gains tax is lower to sell, selling when I’m in a lower (possibly even zero) capital gains tax bracket in retirement or just holding it until I pass away and allow my heir(s) to inherit it at a stepped-up cost basis, avoiding capital gains taxes altogether. Neither of those options appeal to me, so I will just pay the taxes and move on.

While taxes are important, don’t let the tax tail wag the dog. If your goal was only to minimize taxes, you could easily do that by minimizing your income and investment earnings. Instead, make your goal to maximize your after-tax return.

What else would you do with the money?

Once you know the rate of return, you need to compare it with what you could earn with that money instead. Many investment experts expect even lower future stock and bond returns in the future, given relatively high stock market valuations and low interest rates today. However, it’s generally a good idea to invest in what you know and I know stocks and bonds better than I know real estate.

What non-financial factors should you consider?

In the end, part of me wants to sell simply because I prefer having more liquidity, one less property to worry about, and one less state to file a state income tax form in. Remember, money is just a means. Happiness is the end.

Is Investing In Just The S&P 500 Enough?

September 05, 2018

One thing I often hear out in the world is that in order to grow your money, all you really need to do is just invest in an S&P 500 Index fund. This is a typically low cost mutual fund that invests in the stocks of 500 of the largest companies in the US, in proportion to how their stock price performs.

Like most index funds, it has outperformed the majority of actively managed funds that invest in similar companies, and this one fund strategy has also been promoted by Warren Buffett. It’s certainly better than trying to time the market, pick a few individual stocks, invest in high-fee funds, or stay in cash over long time periods. So what’s not to like?

A lack of diversity in the companies

The main problem is that the S&P 500 index isn’t as diversified as it may seem to be. While it does include 500 companies, it doesn’t include international or small cap stocks, both of which have had long periods of time where they’ve outperformed the S&P 500. It also doesn’t include any bonds or cash, which can help reduce risk, or real assets, which tend to do well during inflationary periods.

If you’re going to invest in an S&P 500 index fund, consider adding in funds that invest in other asset classes like international and small cap stocks too. You might also want to include bonds and cash, depending on your time frame and risk tolerance, and even some real assets. If you’re not sure how much to put in each asset class, here are some options to consider:

Alternatives to give you more diversification

Target date funds composed of index funds: Since they’re composed of index funds (typically including the S&P 500), these funds are low cost. But as target date funds, they’re also much more diversified and are designed to be a “one stop shop” that automatically become more conservative as you approach the target retirement date. All you need to do is pick one fund (generally the one with the year closest to when you plan to retire). Then “set it and forget it.”

Total market index fund: If you want to stick with all stocks, a total market index fund allows you to invest in just about all the stocks in the world. Just be aware that these funds tend to weight the stocks based on market capitalization so small cap stocks will make up a very small percentage of the fund. They also tend to be slightly more expensive than buying index funds that focus on each area of the market (large US, small US, and international).

Use a robo-advisor or model portfolio: If you want to diversify beyond stocks but want something more customized to you, you may want to consider a robo-advisor that recommends a portfolio for you based on your time horizon and risk tolerance. These programs generally use low cost index funds and are often available at no additional cost in employer-sponsored retirement plans or for a low fee outside such plans. If you want to avoid those fees, you can choose a model portfolio like one of these “lazy portfolios”, but it won’t be customized to you.

Doing simple slightly better

When it comes to investing, simpler is often better, but it’s not always the best approach. In this case, you could certainly do a lot worse than just investing in an S&P 500 index fund. But you can also do a lot better in terms of diversification with just slightly more effort.

Are You Taking The Same Risk That Could Cost The Queen Of Soul’s Family Privacy?

August 27, 2018

By now you’ve probably heard about the passing of Aretha Franklin, the “Queen of Soul.” What you may not have heard about is the big mistake she made, one shared by a majority of Americans. She didn’t have a will. People often don’t get wills because they feel they don’t need one or can’t afford it. Let’s take a quick look at each of these common misconceptions:

If you think you don’t need a will

There may be some truth to this. If you’re single with no children and few assets, you may be fine with your state’s default rules (called “intestacy”) for people who die without a will. For example, I’m unmarried and have no children and am okay with my non-retirement assets going to my parents, so I don’t have a will. (My brother is the primary beneficiary of my retirement accounts for tax purposes.)

However, if you have minor children, you need a will to determine who their guardian would be. It’s probably not something you want a court to decide. You probably also want more of say in who would inherit your assets and perhaps would like those details to remain more private than intestacy allows for.

If you think you can’t afford a will

First, check with your employer. Many offer access to free online estate planning documents as an employee benefit. There are also a host of web sites that offer wills and other basic legal documents for free (like doyourownwill.com) or a relatively low cost (like Nolo, Legal Zoom, and Rocket Lawyer). These online services may not be as good as hiring an estate planning attorney (especially if your estate is complex or you think it may be contested), but it’s still better than not having one at all.

If you prefer to hire an attorney, check again with your employer. You may have a pre-paid legal benefit that allows you to get free or low cost legal services, including estate planning with an attorney. You can sign up for the benefit (typically not until open enrollment), get your documents drafted, and then cancel or not renew it.

What was Aretha’s reason?

Of course, neither of these objections applied to Aretha Franklin. She was 76 years old, had four children, and was worth roughly $80 million. She was also advised by her lawyer to draft a will…so why didn’t she?

Like almost half of respondents in one survey, she probably just never got around to it. Procrastination is our biggest enemy when it comes to estate planning. After all, the topics aren’t exactly the most fun things to think about it and we don’t get a statement about it each month to remind us to.

We also tend to think we’ll have plenty of time to do it later…until it’s too late. So don’t be like Aretha Franklin (unless you can sing like her – then be like Aretha Franklin). Get your will done ASAP!

Why Your Regular Credit Card May Not Make The Best Travel Partner

August 20, 2018

Do you have any upcoming summer plans? If so, you might want to think twice about which cards you don’t leave home without. A recent trip I took to Switzerland and Germany reminded me of how the best credit card(s) for a vacation might not be the same credit card(s) you normally use.

More than just the rewards

When choosing a travel rewards card to book your vacation, don’t just look at the reward rate. Consider other benefits you might use like trip cancellation/interruption insurance, auto rental collision coverage, complimentary airport lounge access, lost or delayed baggage insurance, trip delay reimbursement, roadside assistance, and emergency assistance and benefits. If you’re traveling internationally, you might want to see if the credit card(s) you’re bringing charges foreign transaction fees and if the auto rental insurance coverage is valid where you’ll be traveling.

Converting to other travel rewards

Consider whether the card(s) allows you to convert points to other travel rewards programs as well. This can multiply the value of your points, depending on the value of the program you convert to. Just make sure they’re points you’ll actually use.

For example, Starwood points are currently listed as the most valuable at 2.7 cents per point, but I rarely, if ever, stay in Starwood hotels. For me, the runner-up Amtrak points would be more valuable even though they’re only worth 2.5 cents per point since I do ride Amtrak a lot.

Watch for annual fees

Finally, be aware that a lot of the best travel rewards cards charge annual fees. Don’t let that scare you away, but don’t ignore them either. It all depends on how much you travel. Do the math and see if the higher rewards would pay for the additional fee.

My personal choice for a travel card

For example, my personal choice for travel is the Chase Sapphire Reserve™ Card despite a hefty $450 annual fee. For one thing, I get an annual credit of $300 for travel expenses, making it really a $150 annual fee as long as I spend at least $300 a year on travel. (If you don’t, it’s not worth it.)

I also earn 3 points for every dollar spent on travel (and dining out) and get all the benefits listed above plus credit for global entry fees and a 50% increase in the value of my points (making them 4.5 points for every dollar spent on travel and dining out) when used in the Chase Ultimate Rewards Program®.

That doesn’t mean that card is right for everyone. If you travel less, you might prefer one with a lower or no annual fee. Just don’t assume that the best card(s) to book your trip and take with you on your journey will be the same card(s) you use every day.

Using A Roth IRA To Save For Education Expenses

August 06, 2018

When it comes to saving for college costs, you probably think of 529 savings plans and Coverdell Education Savings Accounts (ESAs). After all, the earnings in these accounts can grow to be tax-free if used for qualified education expenses and you may receive a deduction on your state income taxes, if you qualify. However, they come with a significant downside. If you need the money for another purpose, you’ll have to pay taxes plus possibly a 10% penalty on any earnings you withdraw.

A quick review of Roth IRA rules

One solution is to use a Roth IRA for education savings. Since the contributions to a Roth IRA can be withdrawn tax and penalty-free at any time and for any purpose, including education expenses, it can be a great tool to save for some of those “what-if” goals. If you withdraw earnings before you’ve had the account at least 5 years or before you turn age 59 ½, you may have to pay taxes plus a 10% penalty on them (one exception is for qualified education expenses), but the contributions always come out first.

Other things to consider when deciding between Roth IRA & other education savings options

Flexibility

Using a Roth IRA to save for education gives you a lot of flexibility. If you need the money in an emergency, you can withdraw the sum of your contributions without tax or penalty. For qualified education expenses, you can use the remainder of the contributions tax and penalty-free plus earnings penalty-free (remember that you’ll pay taxes on any earnings withdrawn for education expenses if you’re not yet 59 ½). Anything you don’t withdraw can grow to be tax and penalty-free after 5 years and age 59 ½ and help to fund your retirement.

Financial aid eligibility

Unlike 529 plans and Coverdell ESAs, Roth IRAs are also not counted as assets in determining financial aid. However, withdrawals are counted as income, which could hurt future financial aid eligibility more than assets. The solution is to wait as long as possible to withdraw money from your Roth IRA so that as much of the financial aid as possible will already be awarded. It also makes sense to deplete 529 and Coverdell ESAs first.

Investment options

One downside of using a Roth IRA for education expenses is that you won’t have access to the age-based investment options that many 529 saving plans have. These funds simplify investing much like target date retirement funds in that they are fully diversified and automatically become more conservative as your child gets closer to college age.

You could invest in target date funds using the date when your child goes to college, but these funds will likely be too aggressive since the money can be withdrawn over a much longer time frame for retirement than for education. Instead, you’ll have to make the portfolio gradually more conservative yourself or work with a qualified and unbiased financial planner who can help you with that.

In any case, consider opening your Roth IRA at a discount brokerage firm like Vanguard, Charles Schwab, Fidelity, TD Ameritrade, or E-Trade that has a wide selection of low cost investment options.

This strategy is not for everyone

If you have sufficient emergency funds and know you will use the money for education expenses, a 529 plan or Coverdell ESA would probably make more sense since the earnings could be completely tax-free. Some states also give you a state tax deduction for 529 plan contributions (which is another tax-savings strategy discussed in this post). The important thing is to be aware of the pros and cons of your options so you can make the right choice for you.

3 Different Ways To Use Your HSA For Medical Bills

July 26, 2018

Are you trying to pay off medical bills? Did you have an HSA-qualified health insurance plan when you incurred the medical expenses? If you answered yes to both of those questions, there are a few ways that an HSA can help save you money:

When you have a balance in your account: just pay the bills

This one is the most obvious. After all, that’s what it’s there for, right? On the other hand, even if you have money in your HSA, you may not want to use it if you have other savings you can use. That’s because your HSA money can be invested and be used tax-free for future health care expenses or penalty-free for any purpose after age 65. Why take money out of an account that’s growing to be potentially tax-free when you can take it out of a taxable account?

If you don’t have a balance: get an immediate tax deduction

Even if you don’t have anything in your HSA, it can still give you a nice tax break. That’s because you can take the money you plan to use to pay the medical bills (whether from other savings or a loan) and first contribute it to your HSA to get a tax deduction and then withdraw it from the HSA tax-free for qualified medical expenses. If you’re in the 24% tax bracket, that’s like getting a 24% discount on those expenses! (this assumes that you haven’t already deposited the maximum amount for the year)

If you can’t make a deposit before paying: pay yourself back with tax-free dollars

If you neglected to contribute the money to your HSA before paying the medical bill, no worries, you can still get the tax break. That’s because you can withdraw the money tax-free for qualified expenses at any time, even after you’ve paid them. It doesn’t even have to be in the same year you had the expense or paid the bill, as long as you were eligible for the HSA at the time the expense was incurred. For example, you can have an expense in 2018, pay the bill off in 2019, and reimburse yourself tax-free in 2024 after you’ve had time to contribute to it. (more about this in Rynda’s post)

No one likes paying medical bills. (Talk about adding insult to injury after an illness or…injury.) If you have an HSA, you can at least make them slightly less taxing though.

What To Do With Your Old Employer’s Retirement Plan

July 16, 2018

Have you ever had to leave a job and couldn’t decide what to do with your retirement plan? I recently got a Helpline call from a woman who was about to leave her company and had to make that exact decision. Let’s look at the pros and cons of the options:

Option 1: Cash it out

This is generally the worst decision since you have to pay taxes on anything you take out and possibly a 10% penalty if you’re under age 59 ½ and left your employer before the year you turned age 55. If you’re still working at a new job, the tax rate you pay is likely to be higher than it would be if you waited until retirement and if the balance is large enough, it could even push you into a higher tax bracket. You also lose the benefits of future tax-deferred growth.

That being said, if you absolutely need the money to get caught up on bills or to pay off debt, it may be your only choice.

Option 2: Roll it to an IRA

This option generally provides the most flexibility. It allows you to continue deferring the taxes while giving you more investment options than you may have in your current retirement plan. You also have the ability to use the money penalty-free for education expenses and for a first-time home purchase (up to $10k over your lifetime) or to convert it into a Roth IRA to grow potentially tax-free.

Option 3: Roll it into your new employer’s plan

If you want to keep things simple and consolidate everything into one account, this may be the choice for you. Just make sure the new plan allows it. It can also be the best choice if the new plan provides unique investment options that you’d like to take advantage of with this money or if you’d like to have the option of borrowing against it.

Option 4: Leave it where it is

As long as you have at least $5k in the account, most plans will allow you to keep the money there. If you have company stock or any unique investment options that you’d like to keep, this may be the best option for you. It also gives you time to decide during what is likely to be a hectic time in your life. After all, you can always roll it into an IRA or your new employer’s plan later. Just keep in mind that having too many retirement accounts in different places can make it harder to manage them.

In this particular case, the woman decided to simply leave it where it was because she had turned 55 and wanted to have the option to take penalty-free withdrawals if she needed to. If she rolled it into an IRA or a new employer’s plan, she would have had to wait until age 59 ½ to avoid the penalty.

That doesn’t mean it’s the best choice for everyone. Every situation is different. The key is to understand your options so you can make the best choice for you.

Are You Really Ready To Buy A Home?

July 09, 2018

With mortgage rates and home prices on the rise, many people are scrambling to buy a home before homes become even less affordable than they already are. If you don’t own a home, should you jump on the home buying bandwagon? Here are some questions to ask yourself first:

How long will you keep the home?

Don’t count on home prices to keep rising forever. At some point, rising mortgage rates and a weaker economy could mean lower home prices just when you want to sell. Just like with stocks, real estate should be thought of as a longer term investment for at least 3 – 5 years. Unlike stocks, falling prices could leave you owing more in mortgage debt than you own in real estate.

Even if home prices don’t fall, real estate transaction costs can more than wipe out any short term profits you make. In some cases, renting can make more financial sense. Check out this calculator to see how long you’d need to own a particular home to come out ahead of renting.

How much can you afford?

Take a look at your actual expenses to estimate what you can afford to pay. Don’t forget to include home insurance, property taxes, and possible HOA fees in addition to the mortgage payment. It’s important to do this before you start looking at homes and talk yourself into believing you can afford something that you can’t. (don’t forget increased utilities if you’re looking to upgrade to a larger space either)

How much do you have in savings?

Ideally, you want enough to put 20% down and avoid having to pay private mortgage insurance. You’ll also need 1-3% to cover closing costs plus however much you intend to spend on moving, renovations, and furnishings. Keep in mind that this is on top of the 3-6 months of necessary expenses you’ll need in your emergency fund, especially now that you’ll be on the hook for maintenance and repairs.

How is your credit score?

The lowest credit score to qualify for a mortgage is typically 620 for a conventional loan and 580 for an FHA loan. A credit score of 740 is generally needed to get the best rates though. If your credit score needs some improvement, you may want to start by checking your credit reports for errors (you can get them for free every 12 months at annualcreditreport.com) and dispute any negative ones that you find. Paying down debt and making on time payments helps too. You can get a free credit score and evaluation at creditkarma.com.

Do you have any high interest debt?

In addition to improving your credit score, paying down debt can also improve your debt-to-income ratio. This doesn’t mean you need to be completely debt free, but lower is better. Focus on high-interest debt like credit cards and personal loans.

If you plan to keep the home long enough to make it worthwhile, know how much you can afford, have adequate savings, a good credit score, and no high interest debt, you’re ready to buy a home. Just be sure to stick to your housing budget. If not, you may want to get your proverbial house in order before you buy one.

Should You Purchase Life Insurance With Long Term Care?

June 20, 2018

If you have dependents, you might need life insurance. If you’re in your 50’s to mid-60’s with $200k to $3 million in assets, you may also need long term care insurance. Why not buy both together?

That’s the question presented by hybrid life and long term care policies and life insurance policies with a long term care benefit rider. Let’s take a look at some of the pros and cons:

Pros

It can be easier to qualify for. The long term care underwriting can be more lenient when bundled with a life insurance policy. For people who can’t qualify for standalone long term care policies, it may even be the only option.
You may have a life insurance policy you no longer need or want. In that case, it can make more sense to transfer the policy to one with long term care benefits rather than to simply let it lapse. This can be especially useful since the need for long term care insurance tends to coincide when people’s children become financially independent and the need for life insurance goes away.
It can be an easier pill to swallow. Many people are reluctant to spend so much on a long term care policy that they may never use (and hope not to). On the other hand, life insurance is something that we know will eventually pay out if it’s kept in force. This way, it won’t feel like the premiums are potentially being “wasted.”

Cons

You could be paying for life insurance you don’t need. At the same time, the long term care benefit is often not enough to cover the total cost of care. In that case, the money could be better spent buying more long term care coverage.
You forego the benefits of long term care partnership programs. If you purchase a traditional long term care insurance policy through a state partnership program and use up all the benefits, you can qualify for Medicaid coverage and still keep an additional amount of assets equal to the long term care insurance coverage you purchased. A life insurance policy won’t offer the same asset protection.
They can be more complex. Make sure you understand the fine print. These policies are not standard in terms of how much will be available for long term care coverage and how you can qualify.

For the reasons above, I typically suggest people consider purchasing a standalone long term care policy. However, if you can’t qualify for regular coverage or if you have a life insurance policy you no longer want or need, a hybrid might make sense. Just remember that a “suboptimal” policy is still better than no policy at all.

Why Guys Are Getting This New Dating Trend Totally Wrong

June 11, 2018

Have you heard the latest dating trend? You may have heard of ghosting and even stashing, but how about the millennial version of gold digging? Unlike the old version, this one is a bit of a reversal that mostly involves men looking to marry women who earn more than them to help pay off their debts.

Let’s put aside the usual concerns about marrying for financial reasons, and instead look at where these guys are getting it wrong. Even if you’re going to put money before love, there are much better things to look for than income:

1) Net worth

Keep in mind that many high income people live paycheck-to-paycheck and are often deep in debt themselves, whether from credit card spending or from the student loans they needed to get the degrees to earn those high incomes. (Women, in particular, hold most of the student loan debt.) If you’re looking for someone to help with your debts, you’re much better off looking for someone with a high net worth, which is their assets minus their liabilities.

The problem is that high net worths don’t always go along with the fanciest degrees or the most impressive sounding jobs. Wealthy people (or those on the way) often don’t wear expensive clothes or drive fancy cars either. That’s typically how they get wealthy in the first place. In fact, people who are truly rich also often try to hide it. In other words, you’ll actually have to take the time to get to know someone before you know their net worth.

2) Credit score

Of course, money isn’t the only thing that’s needed to make a relationship work. A Federal Reserve study found that people with higher credit scores were more likely to commit and stay committed to their relationships. This makes sense to me — one of the key components of credit scores is “committing” to paying your bills each month. If you can do that, you’re more likely to understand the trade-offs involved in committing to a relationship too.

Even more important may be finding someone with a similar credit score as yours. Research shows that people with huge differences in credit scores are more likely to break up. This may be because of the tension brought by the lower person’s score bringing down the couple’s average or because of the difference in personalities/money philosophies that it indicates, which brings us to…

3) Money philosophy

More important than income, net worth, or even their credit score, the single most important financial factor in a successful relationship is whether you have compatible money goals, philosophies, personalities, and values. What are your key financial goals? Are you more spontaneous or a planner when it comes to money? A saver or a spender? Do you want to keep your finances separate or together?

While not exactly first date conversation topics, it’s a good idea to discuss these things well before tying the knot. After all, what if your higher-income, financially successful partner doesn’t even want to help you pay down your debt? Dating shouldn’t be about digging for gold. It should be about finding someone who wants to dig with you.

How To Handle Estate Planning For A Blended Family

May 31, 2018

Are you in a marriage and have children from a previous relationship? If so, you’re considered a “blended family” and may have some unique estate planning needs. That’s because a standard estate plan that leaves the bulk of your assets to your current spouse could leave your children from a previous relationship cut out of their inheritance if your spouse passes those assets on to their own children and relatives. Here are the pros and cons of some ways to address the problem:

1) Leave the assets to your children in your will and beneficiary designations.

Pro: This ensures that your children will get what you want to leave them.

Con: You may want to leave more of those assets to provide for your current spouse. Your children from a previous marriage may not get anything you do leave to your current spouse.

2) Draft a trust to provide income from your assets to your current spouse with the remainder passing on to your children after their death.

Pro: Your current spouse can benefit from the income from your assets while your children can inherit what you want to leave them. The trust can also avoid the time and cost of probate and can even be structured to minimize estate taxes.

Con: Drafting a trust can be expensive, although you might be able to reduce the cost if your employer has a prepaid legal plan that includes estate planning. You may also want your spouse to have access to more than just the income from your investments.

3) Leave the assets to your current spouse with the mutual understanding of how those assets will be passed on after their death.

Pro: This provides the most flexibility and avoids the cost of drafting a trust.

Con: It may be too flexible in that your wishes are not legally binding and may not be carried out.

4) Buy a permanent life insurance policy for your kids from your first marriage.

Pro: Allows you to leave everything else to your spouse, without worrying whether he/she will leave anything to your kids that you don’t share.

Con: This only works if you are healthy and able to obtain the insurance as well as pay the premiums for the rest of your life.

Some people use a trust to own the life insurance as an additional layer of ensuring the proceeds of the insurance are used for the best interest of their kids — consult an estate planning attorney to see if that added layer makes sense in your situation.

The bottom line

There’s no one right answer here. As with most estate planning, the important thing is that you give your wishes some thought, ideally in conjunction with your spouse, and get them in writing. Whatever you do, don’t wait too long. By the time you need estate planning, it will be too late.

4 Money Hacks Millennials Can Use To Make The Most Of Their Assets

May 14, 2018

If you’re a Millennial, you’re probably familiar with various “life hacks” to make life easier. Why not do the same with your finances? Here are four hacks you can use to easily get more from various financial assets:

1) Use a Roth IRA for emergency savings

When you’re early in your career, you may not have had enough time to build up an emergency fund but may not want to forego the tax benefits of saving for retirement to do so. Enter a Roth IRA. With this account, you can do both at the same time.

Since you can access the sum of your contributions at any time and for any reason without tax or penalty, it can serve as part of your emergency fund. (If you use the “backdoor method” to get around the income limits, you’ll have to wait 5 years before you can withdraw the amount you convert penalty-free.) You may have to pay taxes and a 10% penalty on any earnings you withdraw before 5 years and age 59 ½, but the contributions come out first. Anything you don’t withdraw can grow to be tax-free for retirement. Giving up this tax opportunity and having to file a withdrawal form every time you take money out can also make you think twice before spending the money on an “emergency.”

If it’s part of your emergency fund, the Roth IRA should be invested in something safe like a CD or money market fund. That’s because you don’t want it to be down in value when you need it. Once you have enough emergency savings someplace else, you can invest the Roth IRA more aggressively for retirement.

2) Consider a Traditional IRA for grad school

If you don’t have a retirement plan at work or if you meet the income limits, you can deduct contributions to a traditional IRA. Otherwise, you can contribute pre-tax to a retirement plan at work and then roll the money into a traditional IRA once you leave the job. In either case, the IRA money is penalty-free for qualified education expenses. You’ll have to pay taxes on the withdrawals but you’ll likely be in a lower tax-bracket if you’re not working full-time anymore. Just be sure to keep any money you plan to use in the next 5 years very conservative like a money market fund or a stable value fund.

If you need the money for retirement or end up not needing it for education expenses, you can also convert the traditional IRA to a Roth IRA while you’re in school. You’ll have to pay taxes on the amount you convert, but again, you’re likely to be in a lower tax bracket. The amount you convert to a Roth IRA can be withdrawn penalty-free after five years and the earnings can be withdrawn tax and penalty-free after five years and age 59 ½.

3) Use a health savings account for retirement

HSAs have the most potential tax benefits since the contributions are pre-tax and the withdrawals are tax-free for qualified health care expenses. (These medical expenses don’t have to be in the same year you make a withdrawal so you can pay for health care expenses out-of-pocket to let the HSA continue growing tax-free and then later withdraw the money tax and penalty-free as long as you keep the receipts.) When you turn age 65, you can also use the money for anything without penalty so it’s part of your retirement savings (still tax-free for qualified medical expenses, including some Medicare and long term care insurance premiums). You have to be in an HSA-eligible high deductible plan to contribute, but these plans are most beneficial while you’re young and in relatively good health so your medical expenses are likely to be low.

4) Use a home for income

Known as “house hacking,” you can purchase a home or multi-family unit and have your roommates or tenants pay at least part of your mortgage. Putting extra rooms on sites like Airbnb and Homestay can yield even more income. (Just make sure you’re not violating any building rules or local laws.) Some people even manage to essentially get paid to live in their home if the rental income exceeds their expenses. You also benefit from any appreciation in the property and you can deduct depreciation on an investment property from your taxes.

This is a good strategy to use before you have a family, especially if you would be living with roommates anyway, but there are some downsides to be aware of. First, you need to have enough savings for a down payment and closing costs plus a good credit score and a low debt-to-income ratio to qualify for a low mortgage rate. You then have to play landlord, which means finding and vetting tenants, maintaining the property, and covering the mortgage during vacancies. Finally, you’re tied down in the sense that moving can mean having to sell the property or hire someone else to manage it.

Financial planning is about making your money work as hard for you as you do for it. Don’t just make it work harder though. Use these hacks to make it work smarter too.

This post was originally published on Forbes.