Posts by SmartAsset Team
Investing for Beginners
Risk Capacity: What Is It and How Is It Measured?
Risk capacity refers to an individual’s financial ability to absorb investment losses without disrupting long-term goals. Objective factors, including income, assets, time horizon and liabilities, determine risk capacity. To measure your risk capacity, analyze key aspects of your finances to determine how much risk you can afford. A financial advisor can help you evaluate your… read more…
Real Estate
Short-Term Rental Investment: What to Consider, Pros and Cons
Individuals looking to diversify their income streams are increasingly looking at short-term rental investments. Airbnb and Vrbo simplify listing properties, giving investors more potential to earn high returns. However, anyone considering this investment path must weigh the pros and cons carefully. Consulting a financial advisor may be useful for investors who want a clear picture… read more…
Tax Planning
Straight Line Depreciation: Definition and How to Calculate
Understanding the financial health of a business involves a lot of accounting. One of the most popular methods for determining the value of a business is straight line depreciation. Investors often choose the straight line method for its simplicity and consistency. Straight line depreciation shows how an asset’s value declines over time. This method aids… read more…
Retirement Planning
6 Safe Investments for Retirees to Consider
As retirement approaches and the focus often shifts from accumulating wealth to preserving it, retirees often prioritize choosing safe investments. Given market unpredictability, retirees may look for investments that offer more stability and security. Safe investments for retirees typically prioritize capital preservation and steady income over high returns. These options can include government bonds, which… read more…
Investing for Beginners
Risk Capacity vs. Risk Tolerance: What’s the Difference?
The terms risk capacity and risk tolerance may appear similar at first. However, they reflect different aspects of an investor’s financial profile. Risk capacity refers to the objective ability to absorb losses based on income, assets, time horizon and financial goals. Risk tolerance, by contrast, measures a person’s subjective comfort level with market volatility and… read more…
Tax Filing
Form 6252: How to Report Installment Sale Income
Taxpayers use Form 6252 to report installment sales when at least one payment arrives after the tax year of the sale. Rather than recognizing the full gain upfront, sellers have the option to spread their tax liability over several years as they receive payments. Form 6252 helps calculate the gain portion of each payment and… read more…
Tax Filing
Form 2439: What Is It, Who Files It and Who Gets It?
Form 2439 is a tax document that a regulated investment company (RIC) or real estate investment trust (REIT) issues when it retains capital gains and pays taxes on behalf of its shareholders. Instead of distributing the gains, the fund provides Form 2439 to shareholders, allowing them to report the income and claim a tax credit.… read more…
Investing for Beginners
Trailing Stop Order: How to Use Them, Pros and Cons, Examples
A trailing stop order is a type of trade that helps you lock in profits or limit losses as a stock’s price moves. Unlike a traditional stop-loss orders, a trailing stop moves with the price, adjusting automatically if the stock goes up. If the price drops by a set amount or percentage, the order triggers… read more…
Social Security
Social Security Benefits: Early Retirement vs. Age 70
Determining when you claim Social Security benefits will affect your quality of life in retirement. Many people have a tough time deciding between taking early retirement or waiting until age 70 to maximize their benefit payments. Working with a financial advisor can help you evaluate your options and choose the best strategy for your situation.… read more…
Retirement Planning
What Age Should You Retire: 62 or 65?
Deciding whether to retire at 62 or 65 involves multiple factors. Retiring at 62 lets you enjoy retirement earlier, but claiming Social Security at that age reduces your monthly benefit. Retiring at 65 provides additional time to build savings but delays your retirement plans. Other important considerations include your health, financial situation and personal lifestyle… read more…
Tax Planning
Noncash Charitable Contributions: Rules and Examples
Charitable donations are not just limited to cash contributions. Many individuals and businesses choose to make noncash charitable contributions for anything from clothing and household items to real estate and stocks. Noncash donations must be made to qualified organizations, and, in many cases, donors may need to determine and document the fair market value of… read more…
Tax Planning
Form 4952: How to Claim Investment Interest Expense Deduction
Form 4952 helps investors who borrow money to finance their investments deduct the interest paid on those loans. This tax deduction can offset investment interest costs but comes with specific limitations and eligibility criteria. The deduction can only be applied to interest expenses related to investments in taxable income-generating assets, such as stocks and bonds.… read more…
Tax Planning
Where to Find Tax-Exempt Interest Income on Your Taxes
Tax-exempt interest income is an important part of many investors’ portfolios, and knowing where to find it on your tax forms is essential when it comes to preparing your tax return. While this type of income— commonly earned from municipal bonds, certain U.S. savings bonds and other qualifying investments—is not subject to federal income tax,… read more…
Tax Planning
Tax-Exempt Interest Income: What It Is, How It Works, Examples
Tax-exempt interest income is earned primarily from municipal bonds and other qualifying investments that are exempt from federal, and sometimes state, income taxes. By holding these investments, taxpayers can reduce their taxable income while still earning passive returns. However, tax-exempt interest income may still be subject to other tax considerations, such as the alternative minimum… read more…
Annuities
How Long Does It Take to Cash Out an Annuity?
The time it takes to cash out an annuity depends on the type of annuity it is, the withdrawal method and the company processing the request. Lump-sum withdrawals may take a few days to several weeks, depending on administrative requirements and potential surrender charges, whereas structured payouts follow a predetermined schedule and cannot be expedited.… read more…
Retirement Planning
25x Retirement Rule: How to Calculate and Examples
Planning for retirement could be complex, but the 25x retirement rule can simplify it. This guideline suggests that you need to save 25 times your annual expenses to retire comfortably. It’s a straightforward calculation that gives you a clear target for your savings. Working with a financial advisor can help you develop a more comprehensive… read more…
Retirement Planning
What Percentage of Retirees Have $4 Million?
As retirement approaches, many ask themselves how much money they will need to save for a comfortable retirement. One common benchmark is $4 million, which is considered by some as the amount needed for a worry-free retirement. However, achieving this amount is rare. According to the Federal Reserve Board, only a small fraction of retirees… read more…
Retirement Planning
What Percentage of Retirees Have $3 Million?
If you have $3 million in retirement savings, you are among a tiny percentage of American households with a nest egg that large. When calculating what percentage of retirees have $3 million, the Employee Benefits Research Institute (EBRI) analysis found that just 0.8% of households have saved $3 million in retirement. While that may seem… read more…
Retirement Planning
What Percentage of Retirees Have $2 Million?
Achieving a $2 million nest egg for retirement is relatively uncommon among Americans. According to the Employee Benefit Research Institute, less than 2% of households have $2 million or more saved for retirement. Factors like lifetime earnings, investment growth and inheritance play roles in achieving this level of wealth. However, building a $2 million retirement… read more…
Retirement Planning
Should You Retire Early and Claim Social Security at 64 or 67?
Deciding whether to retire at age 64 or wait until 67 can significantly affect your social security benefits. Generally, the longer you wait, the more you will be able to collect. However, there are limits, and you will also have to consider your lifestyle, healthcare and life expectancy to determine whether you should retire early… read more…
Tax Planning
Is There a Tax Break for Paying Your Child’s College Tuition?
Covering the cost of a child’s college tuition can be a significant financial burden. However, several tax breaks can help you reduce your overall tax liability. These include credits, deductions and tax-advantaged savings accounts, which could offset some expenses associated with higher education. Working with a financial advisor can also help you identify other tax… read more…
Tax Planning
8 Tax Breaks for Independent Contractors
As an independent contractor, you have more flexibility and control over your work, but you also face specific tax obligations. Unlike traditional employees, independent contractors are responsible for self-employment taxes, income taxes and business expenses, which can add up quickly. Fortunately, here are eight tax breaks that can help you lower your taxable income and… read more…
Tax Policy
How Do States Tax Exempt-Interest Dividends?
Exempt-interest dividends, often paid by municipal bond funds, are generally free from federal taxes. However, they may still be taxed at the state level. How states tax exempt-interest dividends depends on factors like the investor’s residency and where the bonds were issued. Some states exclude dividends from in-state municipal bonds while taxing those from out-of-state… read more…
Trusts
California Living Trust Laws: Things to Consider
California living trust laws govern how residents can create and manage trusts to hold their assets, potentially bypassing probate—a court-supervised process for transferring property after death. Understanding these laws can help residents determine who will control their assets, manage distributions to beneficiaries and preserve privacy. Trust creators, known as grantors, typically retain control over their… read more…
How to Invest
Accredited Investor Requirements: Rule 501 of Regulation D
Accredited investor 501(d) status is defined under Rule 501 of Regulation D. It outlines the financial criteria that individuals and entities must meet to participate in certain private securities offerings. Generally, individuals qualify with a net worth exceeding $1 million excluding their primary residence or an annual income of at least $200,000 ($300,000 for joint… read more…