Linda Stern http://blogs.reuters.com/linda-stern Mon, 24 Aug 2015 05:30:07 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.5 What to do on Monday about that stock market selloff http://www.reuters.com/article/2015/08/24/us-stern-advice-idUSKCN0QT0DD20150824?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/linda-stern/2015/08/24/what-to-do-on-monday-about-that-stock-market-selloff/#comments Mon, 24 Aug 2015 05:01:54 +0000 http://blogs.reuters.com/linda-stern/?p=779 NEW YORK (Reuters) – Last week’s $1 trillion stock market selloff was scary. After almost seven years of bull market, we were all reminded of the fallibility of our retirement accounts and college nest eggs – as in: yikes, this can really fall fast.

But don’t ask yourself why you didn’t sell last Monday, before the market fell almost 6 percent and had its worst week since the fall of 2011. Ask yourself instead, now what?

When the U.S. markets open on Monday, none of us will know whether this is a spectacular buying opportunity or the beginning of a bloodbath that will push our retirements out until we are 85. Here is how you can make money either way.

— Maximize tax losses. Sell losing shares of stocks or mutual funds that you own directly, outside of a tax-protected retirement account. That enables you to lock in the loss that can net you sizeable tax savings.

You can use your losses to offset any investment gains you have at the end of the year and up to $3,000 in ordinary income. If you lost a bundle, you can carry forward unused losses too.

Here’s an example. Say you bought 100 Apple shares for $13,200 on July 20. At yesterday’s close, they were worth $10,500. Sell at that price and lock in the $2,700 loss.

That will save you at least $560 in taxes if you use it to offset a gain in a security you’ve held at least a year. But it can save you much more – $756 off of your federal taxes in the 28 percent tax bracket and another $200 or more in a high tax state – if you use it to offset a gain in another short-term security, one you’ve held for less than a year.

To maximize your losses, do this: Sell all of your long-term losers – you can use them to offset gains and ordinary income. Sell short-term losers more circumspectly: Sell them if you can offset them by also selling short-term winners you’ve decided not to keep owning, or if you have no long-term losers and would be happy with the $560 in savings as in the case above. Note that you have to wait a month to rebuy shares of a security you’re selling for a loss, and you can’t sell securities you’ve held less than a month to take a loss.

— Match your portfolio to your promises. Maybe the big bull made you lazy about selling stocks and stock funds. But if you have money in the market that you’ll need within five years – say to pay college tuition or begin your retirement or make a house downpayment – take it out now and tuck it away safely, even if your bank won’t pay you much to keep it there. Short-term money doesn’t belong in stocks, it belongs safe.

— Buy off of a list. Though all but 10 companies in the broad Standard & Poor’s 500 index fell in Friday’s rout, that doesn’t mean that every company suddenly has a much worse outlook than it did a week ago. If you know which companies and industries interest you in the long term, it is better to buy them at post-selloff low prices than high ones. If you are buying individual stocks, check factors beyond their price, like sales growth figures and price-earnings ratios, which offer a way to measure how expensive a stock really is. Stocks are roughly 6 percent less expensive than they were a week ago, though they could become cheaper still. If you have your list ready, you’ll be ready to pounce.

— Keep perspective, and know yourself. Most bull markets are marked by regular “corrections” – periods in which shares fall 10 percent from their high. This long up market has been notably absent of corrections – the last one was four years ago and we are in that territory now. Stocks may just be pausing for a few weeks while professional investors go on vacation and wait for a September signal from Federal Reserve policymakers about where they see the economy. Given that shares may fall further, and badly, or may pause and rise again, don’t make an all-or-nothing move based on the market. Make it based on what you know about yourself.

If you are a very long-term investor who’s been afraid to commit to a costly market, this month may give you an opportunity to move more money into stocks. If you haven’t slept since Friday because you’re so worried about the 5.8 percent weekly decline that you can’t function, sell.

(Editing by Andrea Ricci)

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Stern Advice – What to do on Monday about that stock market selloff http://www.reuters.com/article/2015/08/24/stern-advice-idUSL1N10X0B520150824?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/linda-stern/2015/08/24/stern-advice-what-to-do-on-monday-about-that-stock-market-selloff/#comments Mon, 24 Aug 2015 05:00:00 +0000 http://blogs.reuters.com/linda-stern/?p=781 NEW YORK, Aug 24 (Reuters) – Last week’s $1 trillion stock
market selloff was scary. After almost seven years of bull
market, we were all reminded of the fallibility of our
retirement accounts and college nest eggs – as in: yikes, this
can really fall fast.

But don’t ask yourself why you didn’t sell last Monday,
before the market fell almost 6 percent and had its worst week
since the fall of 2011. Ask yourself instead, now what?

When the U.S. markets open on Monday, none of us will know
whether this is a spectacular buying opportunity or the
beginning of a bloodbath that will push our retirements out
until we are 85. Here is how you can make money either way.

— Maximize tax losses. Sell losing shares of stocks or
mutual funds that you own directly, outside of a tax-protected
retirement account. That enables you to lock in the loss that
can net you sizeable tax savings.

You can use your losses to offset any investment gains you
have at the end of the year and up to $3,000 in ordinary income.
If you lost a bundle, you can carry forward unused losses too.

Here’s an example. Say you bought 100 Apple shares for
$13,200 on July 20. At yesterday’s close, they were worth
$10,500. Sell at that price and lock in the $2,700 loss.

That will save you at least $560 in taxes if you use it to
offset a gain in a security you’ve held at least a year. But it
can save you much more – $756 off of your federal taxes in the
28 percent tax bracket and another $200 or more in a high tax
state – if you use it to offset a gain in another short-term
security, one you’ve held for less than a year.

To maximize your losses, do this: Sell all of your long-term
losers – you can use them to offset gains and ordinary income.
Sell short-term losers more circumspectly: Sell them if you can
offset them by also selling short-term winners you’ve decided
not to keep owning, or if you have no long-term losers and would
be happy with the $560 in savings as in the case above. Note
that you have to wait a month to rebuy shares of a security
you’re selling for a loss, and you can’t sell securities you’ve
held less than a month to take a loss.

— Match your portfolio to your promises. Maybe the big bull
made you lazy about selling stocks and stock funds. But if you
have money in the market that you’ll need within five years –
say to pay college tuition or begin your retirement or make a
house downpayment – take it out now and tuck it away safely,
even if your bank won’t pay you much to keep it there.
Short-term money doesn’t belong in stocks, it belongs safe.

— Buy off of a list. Though all but 10 companies in the
broad Standard & Poor’s 500 index fell in Friday’s rout, that
doesn’t mean that every company suddenly has a much worse
outlook than it did a week ago. If you know which companies and
industries interest you in the long term, it is better to buy
them at post-selloff low prices than high ones. If you are
buying individual stocks, check factors beyond their price, like
sales growth figures and price-earnings ratios, which offer a
way to measure how expensive a stock really is. Stocks are
roughly 6 percent less expensive than they were a week ago,
though they could become cheaper still. If you have your list
ready, you’ll be ready to pounce.

— Keep perspective, and know yourself. Most bull markets
are marked by regular “corrections” – periods in which shares
fall 10 percent from their high. This long up market has been
notably absent of corrections – the last one was four years ago
and we are in that territory now. Stocks may just be pausing for
a few weeks while professional investors go on vacation and wait
for a September signal from Federal Reserve policymakers about
where they see the economy. Given that shares may fall further,
and badly, or may pause and rise again, don’t make an
all-or-nothing move based on the market. Make it based on what
you know about yourself.

If you are a very long-term investor who’s been afraid to
commit to a costly market, this month may give you an
opportunity to move more money into stocks. If you haven’t slept
since Friday because you’re so worried about the 5.8 percent
weekly decline that you can’t function, sell.

(Editing by Andrea Ricci)

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Candidate Jeb Bush bares 33 years of tax returns in show of transparency http://www.reuters.com/article/2015/06/30/us-usa-election-bush-idUSKCN0PA1QF20150630?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/linda-stern/2015/06/30/candidate-jeb-bush-bares-33-years-of-tax-returns-in-show-of-transparency/#comments Tue, 30 Jun 2015 21:05:51 +0000 http://blogs.reuters.com/linda-stern/?p=777 WASHINGTON/NEW YORK (Reuters) – Republican presidential candidate Jeb Bush released 33 years of tax records on Tuesday showing that his net worth of between $19 million and $22 million has been amassed largely through investments and speaking fees that have been as high as $75,000 per engagement.

In a show of transparency expected to pressure his rivals to bare their tax records, Bush revealed that since the end of his tenure as Florida governor in 2007, his annual income has risen sharply to nearly $7.4 million in 2013 from $260,580 in 2006.

Talking to a handful of reporters in Washington about the 1,150 pages of returns made public, Bush, 62, said his hope was to “give people a sense of who I am.”

He said, “It’s not a life that has been scripted to run for president. I’ve led a life with ups and downs,” said Bush, who comes from a family of means and whose father George H.W. Bush and brother George W. Bush were elected president.

In his quest for the Republican nomination in a crowded field of 14 candidates, Bush has increasingly sought to contrast himself with rivals in his own party, and Hillary Clinton, the front runner for the Democratic nomination in the November 2016 election.

Clinton and her husband, Bill, the former president, earned more than $25 million for delivering 104 speeches since the beginning of 2014, her organization said in May.

“I made less than Chelsea Clinton,” Bush said, referring to the reported $65,000 speaking fee of the Clintons’ daughter, Chelsea.

The tax records released covered nearly his entire business career, including his long-time involvement in Miami real estate.

Using a common tax burden measure, Bush and his wife Columba paid an effective tax rate, based on their taxable income, in 2013 of 40.5 percent. Based on adjusted gross income, before itemized deductions, their effective tax rate was 40.3 percent.

While that rate is high, compared to some other wealthy politicians such as Mitt Romney, it is worth noting that Bush has written off substantial pre-tax business expenses from 2007 to 2013, reducing the income used in calculating effective tax rate.

“He’s revealing in this that he’s going to be transparent,” said Rick Wilson, a Florida Republican strategist. “It’s an invitation to the Clintons to open the books.”

SPEAKING FEES

In each of 2011, 2012 and 2013, Bush has written off more than $1 million each in business expenses. Over the seven year period, he has deducted roughly 20 percent of his business income in expenses. Had those expenses all been considered part of his taxable income, his effective tax rates would be lower.

Bush’s tax records show that speaking fees have been a major part of his income. He said his fees have ranged from $40,000 in the United States to up to $75,000 per speech abroad.

From 2007 through 2013, he grossed $24.6 million in fees and used that business to write off $6.7 million in expenses, including contributions of $2.4 million to his own pension and profit sharing funds.

Over those years, he became a successful investor and a savvy tax filer. He and his tax preparer were aggressive about capturing investment losses through the credit crisis and thereafter. For example, in 2009, the market bottom following the crisis, he claimed $97,079 in capital losses that have allowed him to reduce his taxes that year and subsequent years.

Bush’s investments in so-called passive activity, such as real estate and investment partnerships has grown substantially. In 2008, he declared $590 in income in real estate and partnerships; in 2013, he claimed $679,526 in real estate and partnership income.

Bush has earned most of his money since 2007 through Jeb Bush & Associates, a consulting firm, and by forming, with three partners, a company called Britton Hills, which has focused on a few growth-capital investments.

Bush made an average of $1.3 million per year over two years in working as a consultant for Lehman Brothers before the firm went bankrupt during the 2008 financial crisis. His brother was president at the time.

For the past several years, Bush has held shares in private funds founded – and in some cases managed – by relatives. As early as 2001, Bush was earning money from investments in the Winston Capital Fund, managed by his brother Marvin Bush.

More recently, beginning in 2007, Jeb Bush bought shares in several funds issued by a Texas-based real estate investment company co-founded by his son George P. Bush that is now known as Pennybacker Capital which buys office buildings, retail properties and apartments that are in disrepair and renovates them to increase their potential returns through higher rents.

George P. Bush left the company to become Texas Land Commissioner, a position to which he was elected in 2014.

(Additional reporting by Emily Flitter in New York and Alex Wilts in Washington and Howard Schneider; Editing by Kevin Drawbaugh, Doina Chiacu, Grant McCool)

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Stern Advice – Peak 30-something http://www.reuters.com/article/2015/06/03/us-stern-advice-idUSKBN0OJ29R20150603?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/linda-stern/2015/06/03/stern-advice-peak-30-something/#comments Wed, 03 Jun 2015 16:45:04 +0000 http://blogs.reuters.com/linda-stern/?p=775 NEW YORK (Reuters) – Maybe it is time for a millennial remake of that 1980s boomer angst television show, “thirtysomething,” because there are more 30-year-olds in the United States than ever before.

Within nine years, almost 45 million Americans will be in their 30s, according to U.S. Census Bureau data. As their parents did a generation ago, they are starting to settle down and buy houses and cars.

But unlike their parents, they are toting heavy college debt burdens, juggling $200+ cell phone and Wi-Fi bills, and facing a financial marketplace far more complex than when Hope and Michael Steadman, the central characters of “thirtysomething,” first started worrying about being too materialistic. (The generations do have something in common: watching a TV show just to make fun of it is still popular.)

Today’s 30-somethings may be smarter about money than their parents were: They are not calmly expecting any large institution to take care of them, and they know they have to compete with the biggest cohort ever in a challenging job market, said Catherine Hawley, a Monterey, California, financial adviser who has many 30-something clients.

So old financial advice will not apply. Here are some fresh new money rules for the latest greatest generation.

– Be strategic about your career. “Our greatest asset is our ability to earn money,” said Sheryl Garrett, a Eureka Springs, Arkansas, fee-only financial adviser. Think carefully about what you want your future work life to look like, and invest time and money into getting there. Keep up your schooling and your skills, network via social media and professional organizations.

– Open a Roth IRA, even before you feed an emergency fund. The Roth individual retirement account is one of the best tax-favored saving mechanisms around. Once you put money into a Roth, it can grow without the earnings ever being taxed if they are not withdrawn until you are 59-1/2. Over decades, that is an enormous benefit.

If you are cash strapped, you can jump start your savings by using a Roth IRA as your emergency fund, too, at least until you have enough money to fund both retirement savings and emergency savings, suggests Hawley.

That is because there are no penalties for withdrawing the money you contributed to your Roth in the first place. You can start your Roth and know that in an emergency situation – job loss or health crisis, for example – you could get at the money you invested. Of course, it is better not to tap the Roth, but this double-counting strategy is better than not having one in the first place.

– Order your debts. If you are still carrying credit card debt, pay it off as quickly as possible. Do not be in such a rush to pay off student loan debt, especially if it consists of federal loans with a relatively low interest rates. Pay your monthly minimums on those low-interest loans while you build up savings and pay off other debts first.

– Get the 401(k) started. You still have a lot of time for compounding of income to work in your favor, but only if you start soon. Aim to put 10 percent of your salary into your retirement.

– Those 529 plans? Meh. Invest money in a state-sponsored college savings plan, and you will save taxes on the buildup in that account. Some states also offer a tax credit for a portion of those contributions. But you give up a lot for that. You give up liquidity at a time when you might also need to buy life insurance, save up for a home down payment and pay for a car seat and diapers.

“The 529 plans would be way down my list of my priorities,” said Garrett, who admits she does not have one for her child. It is not that they are a bad idea, just that they are hard to fund at a time when there are so many other financial goals and investments to make.

If you live in a state that offers a tax credit for 529 plans, you can set one up in your own name (to maximize the tax breaks), name your child as a beneficiary, and use it to sweep financial gifts for your child, without shorting your own retirement or other savings plans.

(Reporting by Linda Stern; Editing by Richard Chang)

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Stern Advice: Don’t wait for Washington to protect retirement investors http://www.reuters.com/article/2015/02/24/us-column-stern-advice-idUSKBN0LS2HK20150224?feedType=RSS&feedName=everything http://blogs.reuters.com/linda-stern/2015/02/24/stern-advice-dont-wait-for-washington-to-protect-retirement-investors/#comments Tue, 24 Feb 2015 21:11:24 +0000 http://blogs.reuters.com/linda-stern/?p=773 NEW YORK (Reuters) – After years of talk about how to protect retirement savers, the White House has gotten behind a Labor Department proposal that would require financial advisers to put clients’ interests ahead of their own.

Consumer champion Sen. Elizabeth Warren, who says she is not running for president, is doing wall-to-wall media on her view that the government should do more to regulate providers of 401 (k) plans, 403(b) plans and individual retirement accounts.

The Supreme Court heard arguments on Tuesday in a case challenging high 401(k) fees.

But savers should not pop champagne corks yet. It takes forever and a day to legislate and regulate in Washington. Even if it ends up on a fast track, the Labor Department’s draft rule is expected to leave a loophole big enough to drive the brokerage industry through.

Labor Department officials have said it would allow retirement advisers to continue selling investments on commission, as long as they disclosed that to clients.

There are several issues involved in regulating retirement investment advice. A primary one is the quality of 401(k) and 403(b) plans. Employers, who have a fiduciary responsibility to provide good plans to their employees, often hand over program management to consultants, who can keep program costs to employers low and jack up investment fees that workers pay when they buy funds in their plans.

A second issue involves the quality of advice investors get on their individual retirement accounts. If the advice is from brokers, there is a possibility investors are being put into mutual funds that carry higher fees than are optimal for them or are in other ways being put into funds that are not right for them. Higher fees may compensate brokers who are paid by commission or may compensate fund companies that spend the extra cash in ways that benefit the brokerage firms that offer their funds. That can result in investment advice that is conflicted.

After years of lobbying by the brokerage industry, the Labor Department is leaning toward a rule that would allow conflicts, such as commissions and fund company payments to brokerages, as long as they were disclosed. So investors take note: you are eventually going to have to read all the small print, so you might as well start now.

Here’s how to protect your retirement savings:

– Check your 401(k) plan. Numerous large employers have spent big bucks to settle class action lawsuits focused on mutual fund fees in retirement plans, and fees have fallen. Average annual management fees of 401(k) funds are below 0.5 percent at large companies and below 1 percent at small companies. If your company’s fund choices are out of line, talk to your human resources department. If your only choices are substandard funds and high fees, put only enough in your 401(k) to get the employer matching contributions, and then invest additional funds in a personal IRA or Roth IRA.

– Choose inexpensive mutual funds. Investing in low cost index funds instead of costlier actively managed funds will put you ahead. A person earning $75,000 a year who starts saving at age 25 would spend $104,033 in fees over a lifetime if fees were capped at 0.25 percent of assets annually. At 1.3 percent, that same worker would spend $409,202, according to the Center for American Progress. That extra $305,169 could support roughly $1,000 a month for life in extra retirement income.

– Separate advice from your investments. If you want help figuring out which funds to invest in, pay a fee-only financial adviser, do not depend on “free” advice from a commissioned broker. You can get inexpensive advice from big fund companies like Vanguard, Fidelity Investments, and T Rowe Price, or from so-called “robo advisers” like Wealthfront or Betterment.

– Be especially careful about rollovers. When you leave a job, you typically have the right to keep your money invested in your 401(k), an excellent choice if you work for a company that provides good funds within the plan. Or you can roll it over into a so-called “Rollover IRA” at any brokerage or fund company. Choose a low-fee fund company or discount brokerage that will enable you to choose your own investments from a large pool of individual stocks and inexpensive funds, and buy only the advice you need.

(Linda Stern is a Reuters columnist. The opinions expressed are her own. The Stern Advice column appears irregularly. Linda Stern can be reached at linda.stern@thomsonreuters.com; She tweets at www.twitter.com/lindastern .; Read more of her work at blogs.reuters.com/linda-stern; Editing by Dan Grebler)

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Stern Advice – Where to spend when you’re young and squeezed http://in.reuters.com/article/2015/01/22/column-stern-advice-personalfinance-idINL1N0U60YM20150122?feedType=RSS&feedName=everything&virtualBrandChannel=11709 http://blogs.reuters.com/linda-stern/2015/01/22/stern-advice-where-to-spend-when-youre-young-and-squeezed-2/#comments Thu, 22 Jan 2015 14:00:34 +0000 http://blogs.reuters.com/linda-stern/?p=771 NEW YORK, Jan 7 (Reuters) – The most financially challenging
state of life is not retirement, it is early career.

That’s the time when your salary is still probably low, but
you have the longest list of expenses: career clothes, cell
phone bills, your first home furnishings, cars, weddings, rent –
need I go on? You probably don’t have enough money to pay for
all of that at once, unless your parents have set you up very
well or you are a junior investment banker.

The rest of us have to make choices with our limited
“discretionary” income. Here is a rough priorities list for
newbies who have shopping lists that are bigger than their bank
accounts.

– First, feed the 401(k) to the match, not the max. If your
employer matches your contributions, make sure that your
paycheck withdrawals are high enough to capture the entire
company match. That is free money. If you have enough money to
contribute more to your 401(k), that is a good thing to do, but
only if you’re able to cover other key expenses.

– Invest in items that will improve your lifetime earning
power: A good interview suit. An advanced degree. The right
electronic devices and services for the serious job hunt.

– Pay off credit card balances. Chasing those “balance due”
notices every month will kill just about any other financial
goal you have. If you’re carrying significant credit card
balances, abandon all other extra savings and spending until
you’ve paid them off, in chunks as large as possible.

– Put money into a Roth Individual Retirement Account. The
younger you are and the lower your tax bracket, the better this
works out for you. Money goes in on an after-tax basis and comes
out tax-free in retirement. You can withdraw your own
contributions tax-free whenever you want. Once the account has
been in existence for five years, you can pull an additional
$10,000 out, tax-free, to buy a home. It’s nice to have a Roth,
and the younger you start it the better.

– Save for a home down payment. Homeownership is still a
smart way to build equity over a lifetime. New guidelines will
once again make mortgages available to people who make
downpayments as low as 3 percent. Even though interest rates are
still at unrewarding lows, it’s good to amass these earmarked
funds in a savings or money market account.

– Pay down high-interest student loans. If you had private
loans with interest rates over 8 percent, find out whether you
can refinance them at a lower rate. If not, consider paying
extra principal to burn that costly debt more quickly. Don’t
race to pay off lower-interest student loans; the interest on
them may be tax deductible, and there are better places to put
extra cash.

– Buy experiences, not things. Still have some money left?
Fly across the country to attend your college roommate’s
wedding. Take road trips with friends. Spend money to join a
sports team, theater group or fantasy football league. Focus
your finances on making memories, not acquiring things –
academic research holds that you get more happiness for the
dollar by doing that, and you’ll probably be moving soon anyway.

– Buy a couch. For now, make this the bottom of your list.
Sure, everyone needs a place to sit, but there’s nothing wrong
with living like a student just a little bit longer. If you
defer expensive things for a few years while you put money
towards all the higher priorities on this list, you’ll be
sitting pretty in the future.

(Linda Stern is a Reuters columnist. The opinions expressed are
her own. The Stern Advice column appears monthly, and at
additional times as warranted. Linda Stern can be reached at
linda.stern@thomsonreuters.com; She tweets at www.twitter.com/lindastern
.; Read more of her work at blogs.reuters.com/linda-stern;
Editing by Paul Simao)

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Where to spend when you’re young and squeezed http://www.reuters.com/article/2015/01/07/us-column-stern-advice-personalfinance-idUSKBN0KG1LS20150107?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/linda-stern/2015/01/07/where-to-spend-when-youre-young-and-squeezed/#comments Wed, 07 Jan 2015 15:47:10 +0000 http://blogs.reuters.com/linda-stern/?p=769 NEW YORK (Reuters) – The most financially challenging state of life is not retirement, it is early career.

That’s the time when your salary is still probably low, but you have the longest list of expenses: career clothes, cell phone bills, your first home furnishings, cars, weddings, rent – need I go on? You probably don’t have enough money to pay for all of that at once, unless your parents have set you up very well or you are a junior investment banker.

The rest of us have to make choices with our limited “discretionary” income. Here is a rough priorities list for newbies who have shopping lists that are bigger than their bank accounts.

– First, feed the 401(k) to the match, not the max. If your employer matches your contributions, make sure that your paycheck withdrawals are high enough to capture the entire company match. That is free money. If you have enough money to contribute more to your 401(k), that is a good thing to do, but only if you’re able to cover other key expenses.

– Invest in items that will improve your lifetime earning power: A good interview suit. An advanced degree. The right electronic devices and services for the serious job hunt.

– Pay off credit card balances. Chasing those “balance due” notices every month will kill just about any other financial goal you have. If you’re carrying significant credit card balances, abandon all other extra savings and spending until you’ve paid them off, in chunks as large as possible.

– Put money into a Roth Individual Retirement Account. The younger you are and the lower your tax bracket, the better this works out for you. Money goes in on an after-tax basis and comes out tax-free in retirement. You can also withdraw your own contributions tax-free once the account has been in existence for five years. You can pull an additional $10,000 out, tax-free, to buy a home. It’s nice to have a Roth, and the younger you start it the better.

– Save for a home down payment. Homeownership is still a smart way to build equity over a lifetime. New guidelines will once again make mortgages available to people who make downpayments as low as 3 percent. Even though interest rates are still at unrewarding lows, it’s good to amass these earmarked funds in a savings or money market account.

– Pay down high-interest student loans. If you had private loans with interest rates over 8 percent, find out whether you can refinance them at a lower rate. If not, consider paying extra principal to burn that costly debt more quickly. Don’t race to pay off lower-interest student loans; the interest on them may be tax deductible, and there are better places to put extra cash.

– Buy experiences, not things. Still have some money left? Fly across the country to attend your college roommate’s wedding. Take road trips with friends. Spend money to join a sports team, theater group or fantasy football league. Focus your finances on making memories, not acquiring things – academic research holds that you get more happiness for the dollar by doing that, and you’ll probably be moving soon anyway.

– Buy a couch. For now, make this the bottom of your list. Sure, everyone needs a place to sit, but there’s nothing wrong with living like a student just a little bit longer. If you defer expensive things for a few years while you put money towards all the higher priorities on this list, you’ll be sitting pretty in the future.

(Linda Stern is a Reuters columnist. The opinions expressed are her own. The Stern Advice column appears monthly, and at additional times as warranted. The Stern Advice column appears monthly, and at additional times as warranted.)

(Linda Stern can be reached at linda.stern@thomsonreuters.com; She tweets at www.twitter.com/lindastern .; Read more of her work at blogs.reuters.com/linda-stern; Editing by Paul Simao)

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Stern Advice – Where to spend when you’re young and squeezed http://www.reuters.com/article/2015/01/07/column-stern-advice-personalfinance-idUSL1N0U60YM20150107?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/linda-stern/2015/01/07/stern-advice-where-to-spend-when-youre-young-and-squeezed/#comments Wed, 07 Jan 2015 15:39:47 +0000 http://blogs.reuters.com/linda-stern/?p=767 NEW YORK, Jan 7 (Reuters) – The most financially challenging
state of life is not retirement, it is early career.

That’s the time when your salary is still probably low, but
you have the longest list of expenses: career clothes, cell
phone bills, your first home furnishings, cars, weddings, rent –
need I go on? You probably don’t have enough money to pay for
all of that at once, unless your parents have set you up very
well or you are a junior investment banker.

The rest of us have to make choices with our limited
“discretionary” income. Here is a rough priorities list for
newbies who have shopping lists that are bigger than their bank
accounts.

– First, feed the 401(k) to the match, not the max. If your
employer matches your contributions, make sure that your
paycheck withdrawals are high enough to capture the entire
company match. That is free money. If you have enough money to
contribute more to your 401(k), that is a good thing to do, but
only if you’re able to cover other key expenses.

– Invest in items that will improve your lifetime earning
power: A good interview suit. An advanced degree. The right
electronic devices and services for the serious job hunt.

– Pay off credit card balances. Chasing those “balance due”
notices every month will kill just about any other financial
goal you have. If you’re carrying significant credit card
balances, abandon all other extra savings and spending until
you’ve paid them off, in chunks as large as possible.

– Put money into a Roth Individual Retirement Account. The
younger you are and the lower your tax bracket, the better this
works out for you. Money goes in on an after-tax basis and comes
out tax-free in retirement. You can also withdraw your own
contributions tax-free once the account has been in existence
for five years. You can pull an additional $10,000 out,
tax-free, to buy a home. It’s nice to have a Roth, and the
younger you start it the better.

– Save for a home down payment. Homeownership is still a
smart way to build equity over a lifetime. New guidelines will
once again make mortgages available to people who make
downpayments as low as 3 percent. Even though interest rates are
still at unrewarding lows, it’s good to amass these earmarked
funds in a savings or money market account.

– Pay down high-interest student loans. If you had private
loans with interest rates over 8 percent, find out whether you
can refinance them at a lower rate. If not, consider paying
extra principal to burn that costly debt more quickly. Don’t
race to pay off lower-interest student loans; the interest on
them may be tax deductible, and there are better places to put
extra cash.

– Buy experiences, not things. Still have some money left?
Fly across the country to attend your college roommate’s
wedding. Take road trips with friends. Spend money to join a
sports team, theater group or fantasy football league. Focus
your finances on making memories, not acquiring things –
academic research holds that you get more happiness for the
dollar by doing that, and you’ll probably be moving soon anyway.

– Buy a couch. For now, make this the bottom of your list.
Sure, everyone needs a place to sit, but there’s nothing wrong
with living like a student just a little bit longer. If you
defer expensive things for a few years while you put money
towards all the higher priorities on this list, you’ll be
sitting pretty in the future.

(Linda Stern is a Reuters columnist. The opinions expressed are
her own. The Stern Advice column appears monthly, and at
additional times as warranted. Linda Stern can be reached at
linda.stern@thomsonreuters.com; She tweets at www.twitter.com/lindastern
.; Read more of her work at blogs.reuters.com/linda-stern;
Editing by Paul Simao)

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Act now: Congress delivers a few last minute tax savers http://www.reuters.com/article/2014/12/17/us-column-stern-advice-idUSKBN0JV23X20141217?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/linda-stern/2014/12/17/act-now-congress-delivers-a-few-last-minute-tax-savers/#comments Wed, 17 Dec 2014 17:17:15 +0000 http://blogs.reuters.com/linda-stern/?p=763 NEW YORK (Reuters) – The U.S. Congress, in its wisdom, waited until the waning weeks of the year to approve some tax breaks that will only be good for 2014.

That means that in some cases, you lost out: it is too late to take advantage of them and you are going to lose them at the end of the year.

But there are a handful of provisions that may benefit some taxpayers who have special situations and can act quickly to lock in their breaks, once President Barack Obama signs the tax extenders bill as he is expected to do soon.

In addition to the usual year-end moves – make your charitable contributions, feed your individual retirement account, take your investment losses – consider this short list of limited time strategies:

* Give away part of your IRA. There is a special situation for people who face mandatory minimum distributions from their retirement accounts, but do not itemize their tax deductions, and as a result, can’t write off charitable contributions. They can avoid taxes on their IRA distribution by transferring it directly to a charity, suggests Greg Rosica, a partner with Ernst & Young.

This provision expires on Dec. 31, however, and it is unclear whether it will be renewed next year. Taxpayers in high tax brackets who do not itemize may want to transfer more than the minimum to get money out of their IRA and cover gifts they would otherwise make in subsequent years: under this rule, you can transfer as much as $100,000. So contact your favorite charity and make sure they can effect the rollover before year-end.

* Buy your boat. Congress also extended, just through the end of 2014, the provision that allows taxpayers to deduct their state sales taxes from their taxable income instead of deducting their state income taxes. In places like Florida where there is no state income tax, that is a benefit that can be worth a lot. If you’ve had your finger on the “buy” button for a new boat, car or other expensive item, you might save significantly by buying it this year, says Rosica, one of the authors of the voluminous EY Tax Guide 2015.

* Make a tuition payment. Even people who do not itemize deductions are allowed to write off up to $4,000 in tuition and education expenses if their income falls under certain levels. You may have already spent that much on qualified education costs this year. But if you have not – and you expect to be ponying up for spring semester – make that payment before 2014 ends.

* Talk to your human resources department about that commuting benefit. For almost all of 2014, employers operated under the clearly inequitable (and environmentally unfriendly) rule that people who used mass transit could set aside pre-tax income of up to $130 a month for commuting costs, but those who drove to work could set aside $250 a month for parking. Now Congress has equalized those two benefits at $250 per month for all of 2014 – but this year alone.

For many workers at large companies, it is too late to get an additional $1,440 taken out of their pay for commuting costs this year. That’s too bad, because it could save some people more than $600 in state, federal and Social Security taxes. If you have a more flexible HR department, go ask for a make-up withdrawal. You could always load your farecard for next year when Congress may go through this exercise again.

(Reporting by Linda Stern, editing by G Crosse)

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Stern Advice-Act now: Congress delivers a few last minute tax savers http://www.reuters.com/article/2014/12/17/column-stern-advice-idUSL1N0U11DI20141217?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/linda-stern/2014/12/17/stern-advice-act-now-congress-delivers-a-few-last-minute-tax-savers/#comments Wed, 17 Dec 2014 17:15:01 +0000 http://blogs.reuters.com/linda-stern/?p=765 NEW YORK, Dec 17 (Reuters) – The U.S. Congress, in its
wisdom, waited until the waning weeks of the year to approve
some tax breaks that will only be good for 2014.

That means that in some cases, you lost out: it is too late
to take advantage of them and you are going to lose them at the
end of the year.

But there are a handful of provisions that may benefit some
taxpayers who have special situations and can act quickly to
lock in their breaks, once President Barack Obama signs the tax
extenders bill as he is expected to do soon.

In addition to the usual year-end moves – make your
charitable contributions, feed your individual retirement
account, take your investment losses – consider this short list
of limited time strategies:

* Give away part of your IRA. There is a special situation
for people who face mandatory minimum distributions from their
retirement accounts, but do not itemize their tax deductions,
and as a result, can’t write off charitable contributions. They
can avoid taxes on their IRA distribution by transferring it
directly to a charity, suggests Greg Rosica, a partner with
Ernst & Young.

This provision expires on Dec. 31, however, and it is
unclear whether it will be renewed next year. Taxpayers in high
tax brackets who do not itemize may want to transfer more than
the minimum to get money out of their IRA and cover gifts they
would otherwise make in subsequent years: under this rule, you
can transfer as much as $100,000. So contact your favorite
charity and make sure they can effect the rollover before
year-end.

* Buy your boat. Congress also extended, just through the
end of 2014, the provision that allows taxpayers to deduct their
state sales taxes from their taxable income instead of deducting
their state income taxes. In places like Florida where there is
no state income tax, that is a benefit that can be worth a lot.
If you’ve had your finger on the “buy” button for a new boat,
car or other expensive item, you might save significantly by
buying it this year, says Rosica, one of the authors of the
voluminous EY Tax Guide 2015.

* Make a tuition payment. Even people who do not itemize
deductions are allowed to write off up to $4,000 in tuition and
education expenses if their income falls under certain levels.
You may have already spent that much on qualified education
costs this year. But if you have not – and you expect to be
ponying up for spring semester – make that payment before 2014
ends.

* Talk to your human resources department about that
commuting benefit. For almost all of 2014, employers operated
under the clearly inequitable (and environmentally unfriendly)
rule that people who used mass transit could set aside pre-tax
income of up to $130 a month for commuting costs, but those who
drove to work could set aside $250 a month for parking. Now
Congress has equalized those two benefits at $250 per month for
all of 2014 – but this year alone.

For many workers at large companies, it is too late to get
an additional $1,440 taken out of their pay for commuting costs
this year. That’s too bad, because it could save some people
more than $600 in state, federal and Social Security taxes. If
you have a more flexible HR department, go ask for a make-up
withdrawal. You could always load your farecard for next year
when Congress may go through this exercise again.

(Reporting by Linda Stern, editing by G Crosse)

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