Easy Wins – HumbleDollar Money tips you can use right now

Here’s a several practical ways to keep and put more money in your pocket.

Easy Wins Jonathan Clements  |  January 9, 2021

IF YOU SAW $20 on the sidewalk, you’d pick it up, right? Unfortunately, when we buy stocks and stock funds, there are no guarantees we’ll emerge a winner. But elsewhere in our financial life, $20 bills abound—and it often takes little effort and scant risk to grab this free money. Looking for some easy financial wins? Here are 15 of them:

🔴 If you’re eligible for a Roth IRA and you have the spare cash to fund the account, there’s almost no downside. The money will grow tax-free once it’s in the Roth, plus you can withdraw your contributions at any time for any reason, with no taxes or penalties owed. The one modest disadvantage: It’ll be at least five years, and likely far longer, before you can get access to the account’s investment earnings without triggering taxes or penalties.

🔴 If your employer offers a 401(k) with an employer match, contributing enough to earn the full match is perhaps the greatest free lunch available. Yes, your money will be effectively locked up until age 59½ because of the 10% tax penalty on early withdrawals. But that’s a small price to pay to get free money from your employer—plus, even if you ended up tapping the account early and paying the 10% penalty, there’s a good chance you’d still come out ahead.

🔴 Got bonds or cash investments sitting in a regular taxable account? You can almost certainly improve your overall financial return by selling these investments and using the proceeds to pay down debt. Why? The interest you’re earning on these investments is likely less than the interest rate you’re paying on the money you borrowed. But there are two caveats. First, if you sell bonds, you may trigger capital gains taxes. Second, by selling investments to reduce debt, you’ll have less ready access to cash.

🔴 If you have money languishing in your checking account or a savings account at your local brick-and-mortar bank, you might be able to earn an extra 0.5% over the next 12 months by moving that money into a high-yield online savings account.

🔴 Want to give to charity, but doubt you’ll have enough deductions to itemize and thereby get a tax break for your generosity? Consider bunching two or three years of donations into a single year. If you aren’t sure which charities to support, you can always park the money in a donor-advised fund for now.

A digression: In last month’s coronavirus relief legislation, Congress extended the “above the line” tax break to 2021 for those who give to charity and don’t itemize. In 2021, the deduction is capped at $300 for individuals and $600 for couples.

🔴 Want to give to charity and you’re in your 70s or older? Consider making a qualified charitable distribution from your IRA directly to your favorite charity. While you won’t get a tax deduction for your donation, the distribution counts toward the required minimum distribution from your retirement accounts. Result: You’ll have less taxable income to report—which is as good as, and often better than, getting a tax deduction—plus you could enjoy a few other key financial benefits, including lower Medicare premiums.

🔴 Thanks to the standard deduction, single individuals can have taxable income of $12,550 in 2021 and pay zero federal income taxes, while married couples can pull in $25,100 without worrying about taxes. If you’re on track to have a year with no taxable income, you should find some way to generate at least enough income to take advantage of this freebie. What if you overshoot by a little? That wouldn’t be so terrible: The additional income would be taxed at just 10%.

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Source: Easy Wins – HumbleDollar

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