Posts by SmartAsset Team
Financial Planning
Financial Advisor for Early Retirement: Services and Examples
Planning for early retirement requires a different approach than retiring at a traditional age. You have to make your savings last longer, balance growth with stability and manage the risk of leaving the workforce early. A financial advisor who focuses on early retirement can help you build a plan that covers these challenges. They can… read more…
Pensions & Other Retirement Accounts
403(b) vs. Pension: Retirement Plan Comparison
A 403(b) plan is common in public schools, nonprofits and religious groups. It is a defined contribution plan where employees add money to a pre-tax or Roth account. The money is usually invested in mutual funds or annuities. Growth depends on contributions, investment performance, fees and time. Some employers may contribute, but matching is not… read more…
Investing for Beginners
Variable Annuity vs. Mutual Fund: Pros and Cons
A variable annuity is an insurance contract that invests in market-based subaccounts and grows tax-deferred. It may offer features like lifetime income guarantees or death benefits. These features come with higher fees, possible surrender charges, and withdrawals taxed as ordinary income. A mutual fund is usually lower-cost, liquid, and easy to hold in brokerage or… read more…
Investing for Beginners
Interest vs. Dividend: Income Comparison and Examples
Interest income and dividend income are two ways that investors can earn money from their holdings. However, they come from very different sources and have different tax treatments. Interest income usually comes from lending arrangements, such as bonds, savings accounts or certificates of deposit (CDs), and is taxed as ordinary income. Dividend income, meanwhile, represents… read more…
Portfolio Management
Long Call vs. Covered Call: Option Strategy Comparison
Long call and covered call approaches both involve call options, but they serve very different purposes in a portfolio. A long call is typically a speculative strategy, allowing investors to profit from a stock’s upward movement with limited upfront investment. A covered call, on the other hand, is more conservative, often used by stockholders who… read more…
Tax Planning
Taxable Income vs. AGI: Key Differences and Examples
While taxable income and adjusted gross income (AGI) might sound similar, they refer to different stages of your income after certain deductions and adjustments have been applied. AGI starts with your gross income and subtracts specific adjustments, such as retirement contributions or student loan interest, to arrive at a baseline number. Taxable income then takes… read more…
Financial Planning
Net Worth vs. Liquid Net Worth: Definitions and Calculations
Net worth and liquid net worth are related financial concepts that provide different insights into your financial picture. Net worth represents the value of everything you own minus what you owe, providing a big-picture view of your wealth. Liquid net worth narrows the focus to assets that can be quickly converted into cash, showing how… read more…
Portfolio Management
How to Diversify Your Portfolio With Stocks: Tips and Strategies
Investing in stocks can be one of the most powerful ways to grow wealth, but putting all your eggs in one basket can expose you to unnecessary risk. That’s where diversification comes in. By spreading your stock investments across different sectors, company sizes and even global markets, you can reduce volatility and improve your chances… read more…
Portfolio Management
Palladium vs. Silver: Which Is Better for Your Portfolio?
Palladium and silver are two precious metals often compared by investors for their distinct roles in a portfolio. Silver has long been viewed as a store of value and is widely used in jewelry and industry. Palladium has gained attention for its applications in automotive manufacturing and its tighter supply dynamics. Price movements for both… read more…
Tax Planning
Capital Gains Exemption for Primary Residence: Tax Rules
Selling your home can have tax consequences if its value has gone up. The IRS offers an exemption that lets you exclude some of the profit from capital gains tax when selling your primary residence, as long as you meet certain rules. This can save you a significant amount of money. Knowing how the exemption… read more…
Investment Taxes
ESOP Distribution: Rules, Taxes and Payout Options
An Employee Stock Ownership Plan (ESOP) provides employees with an ownership interest in their company, but accessing those funds follows strict distribution rules. These rules govern when payouts can begin, the form they take and how they are taxed. Understanding the timelines, options and tax implications helps you evaluate the value of an ESOP distribution… read more…
Investing for Beginners
What Is an Employee Share Scheme? Types, Benefits and Taxes
An employee share scheme lets workers own part of the company, often through discounted shares or stock options. This gives employees a stake in the business while helping employers keep and motivate talent. Different schemes work in different ways, with some based on options and others on performance, but all come with specific rules and… read more…
Investment Taxes
ESPP Qualifying Disposition: Rules and Holding Requirements
An employee stock purchase plan (ESPP) qualifying disposition occurs when you meet certain IRS holding requirements before selling the stock you acquired through your company’s plan. Qualifying dispositions often get more favorable tax treatment than if you were to sell too soon, known as a disqualifying disposition. But the rules can be specific, and your… read more…
Trusts
Probate vs. Trust: How They Work and When to Use Each
When planning for the transfer of assets after death, two terms come up often: probate and trust. Probate is the court-supervised process of validating a will, paying debts and distributing assets to heirs. A trust is a legal arrangement that holds and manages assets for beneficiaries, which can allow them to bypass probate entirely. Choosing… read more…
Income Investing
Municipal Bonds vs. Treasury Bonds: Which Should You Buy?
When comparing municipal bonds vs. Treasury bonds, investors often weigh tax advantages against perceived safety. Municipal bonds, issued by state and local governments, may offer tax-free interest income at the federal and sometimes state level. Treasury bonds, backed by the U.S. government, provide reliable interest payments and strong credit security. The decision between the two… read more…
Income Investing
Treasury Bills vs. CDs: Where Should You Invest?
Investors looking for low-risk places to park cash often compare short-term options like Treasury bills and certificates of deposit (CDs). Both offer predictable returns and are widely considered safe, but they operate differently. Treasury bills are sold at a discount and mature at face value, while CDs typically pay interest at a fixed rate over… read more…
Roth & Traditional IRAs
Are Roth IRA Contributions Tax Deductible? Rules and Exceptions
With a Roth IRA, you contribute after-tax dollars, so there is no tax deduction when you put money in. The benefit comes later because your investments grow tax-free and qualified withdrawals in retirement are also tax-free. This differs from traditional IRAs, which give you a tax break upfront but require you to pay taxes when… read more…
401(k)
How to Withdraw Money From Your 401(k) Before Retirement
Tapping into your retirement savings early may seem like a risky idea, but there are many reasons why you may have to take money from your 401(k) before retirement. These accounts are meant to support you in your later years, yet unexpected financial challenges can force your hand at using your funds sooner. Before doing… read more…
401(k)
Should You Roll Over Your 401(k) to an IRA or a Roth?
When you leave a job or retire, you need to decide what to do with your 401(k). If it’s a traditional 401(k), you can move it to a traditional IRA, where taxes are paid when you withdraw, or to a Roth IRA, where you pay taxes now but withdrawals in retirement are tax-free. If it’s… read more…
Retirement Planning
How Much Should I Have in My 401(k) at Age 55?
By age 55, you’re about a decade away from retirement. Many financial experts suggest having seven to eight times your annual salary saved by this age if you want to maintain a comfortable retirement. By 55 you still have time to benefit from compounding and catch-up contributions, but not much. Knowing the benchmarks, the potential… read more…
Retirement Planning
How Much Should I Have in My 401(k) at Age 45?
Financial planners often recommend aiming for roughly three times your annual salary in retirement savings by the time you reach 45. At the same time, your mid-forties are a turning point when compounding can still work in your favor. The decisions you make now, whether you’re on track or catching up, will affect your nest… read more…
Income Investing
Fixed Annuity vs. CD: Which Should You Invest In?
Fixed annuities and certificates of deposit (CDs) are both low-risk savings vehicles that provide guaranteed returns, but they work in different ways. A CD locks in funds for a set period at a fixed interest rate, with penalties for early withdrawal. A fixed annuity, offered by insurance companies, provides tax-deferred growth and often guarantees income… read more…
Investing for Beginners
Nominal vs. Real Return: How Inflation Affects Investments
Distinguishing between nominal and real returns gives investors expanded insight into how their money grows over time. Nominal return reflects the raw percentage gain on an investment. Real return adjusts for inflation, showing the actual increase in purchasing power. Inflation can erode gains, meaning a high nominal return may not result in meaningful real growth.… read more…
Retirement Taxes
I’m 63 With $1 Million in an IRA. Should I Convert $100,000 a Year to a Roth to Avoid RMDs?
If you’re 63 years old with $1 million in a traditional IRA, you may be wondering whether converting $100,000 per year to a Roth IRA makes sense. Doing so could help you avoid required minimum distributions (RMDs) later on. This strategy may reduce your future tax burden and give you more control over your retirement… read more…
Legislation & Policy
Trump 401(k): Investment Options to Include Alternative Assets
President Donald Trump is paving the way for a significant shift in retirement investing by permitting 401(k) plans to include alternative investments like private equity, real estate and digital assets. Trump’s recent executive order aims to provide 401(k) participants with greater access to diversified investment opportunities, potentially enhancing retirement outcomes. However, these alternative investments come… read more…