The Daily Finance Guide

What Is a Tax-Deferred Investment Account?

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A tax-deferred account is a typically designated savings account or investment option that does not require claiming the investment income earned in the account every year on your tax return if the funds remain in the account.

What Is a Tax-Deferred Investment Account?

With a tax-deferred account, you defer paying taxes till you withdraw from the tax-deferred savings account or cash in the investment.

Using tax-deferred investment accounts makes common sense if your income puts you into a high tax bracket today and you think you will be in a lower tax bracket in the future when you start taking withdrawals.

The idea is to provide time on your side and allow years of investment savings and income to compound without having to pay tax on it annually.

How Tax-Deferred Savings and Investments Work

Consider you invest $1,000 in a tax-deferred savings account like a 401(k) plan or IRA, or use a tax-deferred annuity. If the account value grows 5% from the appreciating value of the investments or interest income, or a combination of both, at the end of the year, your investment account will have a balance of $1,050.

You do not have to claim the $50 as investment income on your current year’s tax return since it was earned inside of a tax-deferred account or tax-deferred annuity.

The next year, the original $1,000 and the new $50 of interest are both earning interest for you. Because of compound interest, if the account is growing another 5% in the following year, you will receive an additional $52.50 of tax-deferred earnings .

When you have such accounts that allow you to defer taxes until retirement, withdrawals of gains on your investment before age 59 ½ typically subject you to a 10% penalty tax.

This penalty is in addition to the regular income taxes. The IRS allows you to grow your funds tax-deferred as an incentive to encourage you to save for retirement, so they penalize you if you want to use the funds before your retirement.

However note that not all types of tax-deferred options have an early withdrawal penalty. For example, whole life insurance policies allow you to borrow money from your policy's cash value. When you borrow the funds, you'll have no taxes or penalties due. If you've invested in I Bonds, you pay taxes when you cash in the bonds, and that can occur at any age. You'll pay no penalty even if you cash them in before age 59 ½.

When you make a withdrawal from a tax-deferred savings account, you will only pay taxes at your ordinary income tax rate on any investment gain that is withdrawn.

If your contributions to the account is also tax-deductible, then you will pay taxes on the full amount of your withdrawal, not just the investment gain portion. When designing your investment portfolio for long-term planning, you may defer your taxes as long as possible and take advantage of years or decades of compounding by using a variety of tax-deferred investments.

Types of Tax-Deferred Accounts

There are numerous types of tax-deferred accounts and inside all this you can own just about any investment—including mutual funds, stocks, bonds, certificates of deposit, fixed annuities, variable annuities, and more. Theses accounts include the followig:

Traditional IRAs
Retirement plans like 401(k) plans, 403(b) plans, and 457 plans
Roth IRAs
Fixed deferred annuities
Variable annuities
I Bonds or EE Bonds
Whole life insurance

Traditional IRAs

Investments in a traditional IRA grow tax-deferred. Your contributions may also be tax-deductible if you meet the IRA contribution limits and rules requirements. If you are covered by a retirement plan by your employer , your deduction for contributions phases out if your modified adjusted gross income (AGI) is more than $104,000 but less than $124,000 for a married couple, more than $65,000 but less than $75,000 for a single individual or head of household, and less than $10,000 for a married individual filing a separate return.

For 2020, your total contributions to all traditional and Roth IRAs must not exceed $6,000 ($7,000 if you are age 50 or older).

401(k) Plans, 403(b) Plans, and 457 Plans

These are primarily employer-sponsored retirement plans where contributions may be tax-deductible or made with pre-tax dollars. A 403(b) is used by non-profit corporations and a 457 is for government employees.

Roth IRAs

Investments inside a Roth IRA are made with after-tax dollars, hence they are not typically tax-deferred. They do, however, grow tax-free and can have tax-free withdrawals as long as you follow the Roth IRA withdrawal rules and don't take out any money until at least five years after the account is established. Earnings limits in 2020 for a Roth IRA range from $139,000 for a single person or head of household to $206,000 for a married couple or widower.4

Fixed Deferred Annuities

This is primarily an insurance contract that allows you to accumulate tax-deferred savings. A fixed annuity offers a guaranteed rate, making it quite popular with people averse to risk.

Variable Annuities

This is again an insurance contract where the interest rate are variable, giving you an option to choose from a variety of investments with different return scenarios. Investment income earned inside a variable annuity is tax-deferred until you start the withdrawals.

I Bonds or EE Bonds

Accrued interest is tax-deferred till you cash in the bonds. Series I bonds pay interest for 30 years and keep up with inflation. Series EE bonds pay interest for 30 years or till you cash them, whichever comes first. Interest on either may be non-taxable if used for education.

Whole Life Insurance

Here the interest earned is tax-deferred until you cash in the insurance policy, or you make a withdrawal that also includes gains accrued in your policy's cash value.

Key Takeaway

Tax-deferred accounts allow you to defer paying taxes on the investment earnings until the money is withdrawn .
This compounded interest and deferred tax payment is of immense benefit if you expect your tax bracket to be lower in the future.
Different types of accounts have different types of rules , regulations, and limits.
Tax-deferred investments include IRAs, 401(k)s, I bonds and whole life insurance.

The Difference Between APR and APY in Interest Rates

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Compounding interest is a strong tool for increase wealth. When interest compounds, you effectively earn interest on your interest, and the longer your time frame for investing and saving, the more potential your money has to grow.

Both APR (annual percentage rate) and APY (annual percentage yield) are commonly used to reflect the interest rate paid on a savings account, loan, money market, or certificate of deposit. It is not as of now clear from their names how the two terms — and the interest rates they describe — differ.

Understanding what APR and APY mean and how they're calculated may give you a better knowledge of just how good your money is working for you.

APR vs. APY: It’s All About Compounding

APR and APY may defined in relatively easy terms. In the context of savings accounts, the APY reflects the annual interest rate that is paid on an investment. In the context of borrowing, APR describes the annualized interest rate you pay on credit cards, loans, and other debts. It includes both the interest rate on what you borrow, also including any fees the lender charges.

Respectively, the formulas for both are as follows:

APR = Periodic rate X Number of periods per year
APY = (1 + Periodic rate)^Number of periods - 1

A big difference between APR and APY lies in how they relate to your savings or investment growth, or the cost of borrowing.

With savings or investments, APY factors in how often the interest is applied to the balance, which may range from daily to annually. Essentially, the more frequently your rate compounds, the faster your money grows. APR doesn't work the same way.

Look at an example to show how compounding works. Say you deposit $10,000 into an online savings account that has an APR of 5 percent. If interest is only applied once per year, you would earn $500 in interest after a year.

On the other hand, lets say that the interest is applied to your balance monthly. This means that the 5 percent APR would be broken down into 12 smaller interest payments for every month.

In this case, this will amount to about 0.42 percent per month in interest. With this method, your $10,000 deposit would actually earn $42 in interest after the first month. That means in the second month, 0.42 percent would be applied to the new balance of $10,042, and so on.

Hence in this example, even though the APR is 5 percent, if interest is compounded once a month, you would actually see almost $512 of earned interest after one year which means the APY turns out to be around 5.12 percent, which is the actual amount of interest you’ll earn ,if you hold the investment for one year.

Again if you're planning an investment where the interest is applied to the balance once every year, your APR will be the same as your APY. This is not a very common scenario, however, and you're unlikely to encounter it at your bank.

Banks Mostly Advertise APY for Savers

When banks are looking for customers for interest-bearing investments, such as certificates of deposit or money market accounts, it's in their best interest to advertise their best annual percentage yield, and not their annual percentage rate.

The reason for this is very obvious: The annual percentage yield is higher, and it appears to be a better investment for the consumer. Finding a high APY should be a top priority, however, as the higher the APY, the more potential your money has to grow thanks to the compounding.

The reverse will be true with APR in a borrowing scenario, if you're getting a car loan, mortgage, credit card, or any other type of financing, you' will like the APR to be as low as possible. The lower the APR, the less interest you pay over the loan or line of credit's repayment period.

Again consider that APRs, as they're associated with borrowing, may be variable or fixed. A variable rate can fluctuate up and down over time, in tandem with movements in the index rate that it's tied to. A fixed APR, by comparison, would stay the same for the entire length of the repayment term, allowing for predictability in your monthly payments and the total amount of interest paid.

Always Compare the Same Types of Rates

When you are looking for a new savings account, CD, or money market account, ensure that you are comparing apples to apples. That means when you are considering interest rates, you’re comparing APY to APY or APR to APR, rather than blending the two .

If you're comparing one account advertising its APR with another’s APY, the numbers may not offer a true picture picture of which account is better. When comparing the APY of both, you should have a very clear picture that shows which account will yield more interest over time.

Again keep in when comparing shopping: check what traditional brick and mortar banks or credit unions offer against what you can find from online banks. Online banks tend to have lower overhead costs than traditional banks and thus are in a position to offer higher APYs on deposit accounts. Online banks may also charge fewer fees and have lower initial deposit requirements, which may also make them look more attractive than brick-and-mortar banks.

My Account Has Been Sent to Debt Collections. What Now?

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Having an account in collections may be discouraging, not to mention bad for your financial health. Most companies allow your account to be delinquent for a few months before they turn it over to a debt collections company since the debt collections company is their last resort to recover money from you.1 But if you find out you have an account in collections, you need to act quickly to fix it.

Follow these below steps if your account has been sent to debt collections.

Ask for a Statement

If you are working on repaying off old debt, or if you did not realize that you were missing payments on a bill, like a medical bill, you will need to deal directly with the debt collections company to clear up your old debt, not the original creditor.

You will have to ask for a statement from the debt collections company that outlines the original amount of the debt, as well as any fees that have been added to your account. You will be surprised at the fees that can accumulate with unpaid bills.

If the collections company contacts you and tries to collect a debt on an account you do not remember having, please be sure to request account information to ensure it’s really yours. By law, they have to provide you with more information, plus proof that the debt is yours.

Negotiate Payment Terms

If you have adequate money to pay off the debt in full, you should consider doing so. This debt will reflect on your credit report as paid in full, which will help raise your credit score by showing that you are cleaning up old debt and changing past habits.

If you are not having the funds to pay off the debt in full, go for negotiating a debt settlement. Here's how it works: You offer the amount that you have as a single lump payment to serve as a settlement in full. This means that the amount you paid will clear the debt.

But before you make the payment, ensure to receive a formal letter that states that the amount paid will be considered a settlement in full. You may also negotiate a payment plan with consistent payments each month until the debt is paid off in full.

Dealing with Identity Theft

Keep in mind that collections agencies are just not picture perfect. Sometimes, they look for people who have the same name as what is listed on the debt, and begin calling all of them to find the person that owes the debt. They are not always careful about making sure they have the right person. This is why you need proof that the debt belongs to you before you begin making any payments on that debt.

The debt can even be attributed to your name and Social Security number but may not be yours. In this case, it's usually because of identity theft. If you suspect this has happened you will need to file a police report and mail a copy of the report to the collections agency. This will stop the debt collection agency from harassing you until the issue is resolved.

And never give the debt collections agency your full Social Security number. On the contrary , let them give you the last four digits of the number attached to the account and see if it matches

Dealing with the Collections Agency

There are laws that govern how collections agencies can collect money owed. These laws keep these agencies from harassement you or engaging in other similar behaviors.

Once you have talked to them and explained the circumstances surrounding the debt, you are not obligated to answer their daily phone calls. They are also not permitted to tell other people about your debt.

If you have established the debt is not yours, they should stop contacting you. If the debt is yours and they won’t work out an affordable payment plan, then you can always ask to speak to a supervisor.

Keep in mind that if you do owe the debt and do not make payments they may take you to court, which may result in the garnishment of your wages until the debt is paid off. Its best to set up a monthly payment plan you can afford if you are not in a position to offer a lump sum payment to the agency.

How to Prevent Future Accounts from Going to Collections

Once you have handled an account in collections, it is critical that you take steps to prevent this from happening again in the future. Start with a budget and work to pay down all your debts as quickly as possible.

You should using credit cards, and create a monthly spending budget, and stay current on your utilities and rent to avoid getting into a debt in the future. Taking control of your finances is the best way to ensure that you stay out of debt and never have to worry about debt collectors again in the future.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

You Don't Have to File Your Tax Return by April 15: Ask for More Time

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Do you know that you don't have to file your tax return with the IRS by mid-April each year. The IRS will obligingly move this deadline back for you by six months. All that is required is you have to do is ask them .

Up until 2005, it used to be that you could request a second extension of time to file your income tax return with the IRS. Not anymore, but that's not as bad as it sounds. The amount of extra time you get works out to be just the same as it was back in the old days, but now you only have to ask once rather than twice. You don't have to keep in your mind to go back and tap the IRS on the shoulder a second time.

The Old Procedure

As per the old extension proceedure in place through 2004, you could request an automatic four-month extension, followed by a second extension of two months. Form 2688 was used to request the second extension, but that's scrapped now and not in use .

Any request for an automatic extension of time will grant you the same extra six months to file your taxes, but this is your only chance to ask for a bit of a reprieve.

Deadline for filing 2020 personal tax return is July 15, 2020, due to COVID-19.

What Happens When You File an Extension?

Filing an extension is one of the easier tax challenges you'll come across . However before you do it, you should clealy realise what it does and what it doesn't do. You can file Form 4868 to get the additional six months all at once.

While you file Form 4868, the new deadline to file a tax return will be October 15, 2020. But—and this is a big but—tax payments for the 2019 tax year are still due by July 15, 2020. An extension doesn't give you any extra time to pay. The IRS will charge interest and sometimes even penalties on tax payments made after July 15.

Here's How to File

Make a draft of your tax return. Do not file it. You want to know as to whether you expect a refund this year or you might owe taxes.

If you use tax preparation software, these programs will almost invariably e-file Form 4868 for you, usually without any charges. Fill out, and ensure its done so before midnight on the deadline day. It can take from five to 20 minutes to file the extension online, so give yourself more than adequate time to finish before midnight.

Here's a list of mailing addresses for sending Form 4868 to the IRS if you want to submit it the , nice old way. If you don't electronically file the form with tax preparation software, your extension must be postmarked on or before the July 15, 2019 deadline.

It's often a very good idea to send the extension form by certified mail with a return receipt requested. This receipt gives you with enough proof that you did indeed mail your extension request and when you did so, as well as proof that the IRS received the form.

Here's How to Pay

If you are supposed to pay taxes, mail a check with the extension form. If you don't owe taxes, mail only the form, you are free to go to the IRS Direct Pay website and submit it there if you file Form 4868 online. There are many software providers are set up to help you to pay by direct debit from your bank account when you file the extension form.

Americans Living Out of the Country

Americans living in other countries may sometimes make a request for additional time to file beyond the six-month extension to October 15, but they must file an additional form. Request the first extension with Form 4868, then file Form 2350. This form requests additional time to file Form 1040, so you can qualify for special tax treatment. The IRS explains this special procedure and the circumstances under which it can be useful.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.

What If My Spouse Doesn't Want to Combine Finances?

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When you are married, you become a blessed couple working toward all your common goals. These include financial ones because of which once you are married, it is best to combine finances.

Before the lucky wedding day, it's advisable to wait on combining your finances, as there are legal protections that allow married couples to safely combine finances. Once you get married, though, merging your finances allows you to work together toward all your broad financial goals very easily. You can have the tax advantages of filing your tax return jointly, and also plan your savings and retirement goals together.

Ensure to have a very good look at all the property laws relevant in your state. Some states will make you responsible for each other's debts if you are married even if you do not combine finances.

At times a spouse may be somewhat reluctant to combine finances with their partner. This may be a very difficult experience for a couple and can lead to financial problems in the future. Here are some very good tips for taking it through .

Set Up a Household Budget

If your spouse does not want to combine finances, you will have to understand why, and then work toward a solution that will allow you to combine finances in the future. Even if they do not combine with you, you will need to set up a household budget and work on covering all the expenses together, the same way that you would if you were living together unmarried.

First you need to have a budget, each of you can contribute the same percentage of your income toward your household expenses. Try and avoid dividing the budget by categories ("You cover for the groceries, I'll cover eating out"), as this is more difficult to split evenly. Dividing by income percentage keeps it fair, especially if one person earns more than the other.

What to Include in Your Budget

The household budget should cover everything from your rent to your utilities and grocery bills. If you are on insurance together, it should cover that as well. It may not include your clothing , the gas for your car, or your car payment if these aren't shared expenses. If it includes one car payment, though, it should preferably include both.

When you are operating your finances like this, it is important that you work toward your savings goals on your own. Be sure to save for an emergency fund and contributing to retirement each month. If you have children together, you will need to contribute the same percentage to cover their personal needs clothing, food, and activities, education.

Understanding the reasons your Spouse does not like to Combine Finances

Your spouse does not want to combine your finances for several types of reasons. One may be that they combined with someone in the past and it did not end well. Or perhaps that they are concerned about how you handle your finances . They may also be reluctant to fully disclose the amount of debt that they currently have, and want to keep things separate to protect you.

All these reasons can be easily addressed as you work together on your household budget. If you have been a spendthrift in the past, it may take some time to build up your spouse's trust and to communicate that you are changing the way you handle money. If they're having a difficult time because of a past experience, then the household budget may be the first step toward eventually combining all of your finances. Be sure to work through all these problems, or else they may be signs of bigger financial issues in your marriage.

Working on a household budget might help you to begin resolving financial issues in your marriage, but it can't solve deeper problems. Keep these things in mind as you're working through financial problems .,

The key to make finances work in a relationship is honesty. truth, trust
Holding past mistakes over your spouse's head will just not help you address any issues and may cause him or her to hide future ones.
Consider seeking professional counseling if this is turning into a larger issue in your marriage.

What If I Don’t Want to Combine?

You may be the spouse that is reluctant to combine your finances. There may be a plethora of reasons why you are reluctant to do so, but you should also consider the implications of not combining your finances. It may be more difficult to reach your financial goals this way. It may also adversely affect your marriage, since you may not be able to fully trust each other. If this is causing real resentment, consider visiting a professional marriage counselor together to discuss the reasons of your feelings

Ideally, you should work through this together and set out a clear plan that shows what needs to happen for you to feel comfortable combining finances. And, even if you ultimately do not combine, then be sure to plan out the long-term goals together and on your own. Talking to a financial planner should help you if you decide how to plan for your future together and separately.

Try This Simple 5-Category Budget to Help You Manage Your Money

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We realise budgets are an useful tool to reduce debt and build savings. But the thought of creating a budget from scratch can be overwhelming.

Lets begin with a practical approach. The simplest budget, the 80/20 budget, advocates committing 20% of your income to savings and 80% to everything else. Similarly, the 50/30/20 budget has you put 20% into savings, then divides the remaining portion into 50% for needs and 30% for wants.

But if you require something a little more specific and structured than that (but don't want to commit to a full budget worksheet), there is a second option . The following five-category budget allows you to break down your spending into simple, basic categories, so you can see where your spending should line up and make adjustments if necessary. If you follow this budget, you'll automatically be putting aside a portion of your money to both debt pay-down and savings, helping you reach your financial goals faster.

Housing

The most critical part of the budget is what you spend on the place you live. Ideally, housing should take up no more than 35% of your take-home income.

The housing budget includes the mortgage or rent, in addition to other housing-related expense: home repairs and maintenance; property taxes; utilities such as electricity, gas, water, and sewer; and homeowners or renters insurance.

If you are living in a high-cost-of-living area, hitting the mark may be difficult . If you truly can't trim your housing costs to 35% or less of your overall budget, you must look for ways to trim the other categories of your budget. Or, you may even reconsider your living situation: Could it be time to refinance, downsize, or take on a roommate? The critical part is that you have room in your budget for the necessities of life, including saving for the future.

Transportation

You may love luxury cars, which is alright as long as transportation expenses take up a maximum of 15% of your take-home income. If you have a car, you also have to account for the maintenance and upkeep of that car—not just the expense of your auto loan, if you have one.

Keeping in mind , transportation is just not your car payment. It includes everything: gasoline, oil changes, car washes, tune-ups, and car repairs such as a new radiator or timing belt.

Your transportation costs also include the amount you pay for parking, and if you ride public transportation, the money you spend on bus, train, or subway fare.

Other Living Expenses

Other living expenses, which are primarily optional expenses, should take a maximum of a quarter of your income. That includes recreational activities such as eating at restaurants, buying concert tickets, buying new clothes, going to sporting events, and taking the family on a nice vacation.

Your cell phone plan, cable bill, and other monthly subscriptions also fall in this group , unless you require it for work, business . Look at options to cut down on miscellaneous expenses if your spending outpaces your earning.

Savings

The saying "pay yourself first" is a good motto. With each paycheck, budget to save 10% of your pay. You might even set up a separate account that's less accessible, to reduce the temptation to spend this money; consider putting it in a money-market account or high-yield savings account so you can earn a little interest.

Your savings are primarily essential for an emergency fund, retirement, and investments in a new house or eve an old house, or the kids' future education.

Debt Payoff

Debt payoff should take around 15% of your income. This includes your credit cards or student loans. It does not cover your mortgage payment or car payment, which are listed under "housing" and "transportation." It includes any extra payments you're making toward your mortgage and car loan beyond the minimum.

The 80/20 budget and the 50/30/20 budget both recommend savings rates of 20%, but as per these budgets, "savings" included debt pay-down.

In this five-category budget, your savings and debt are listed as two separate categories. With 10% for one and 15% for the other, you in reality end up finishing 25% (in total) on a combination of savings and debt pay-down.

This is really aggressive and ambitious than the other two budget models recommend. The five-category budget can be used if you would like to create a workable budget that's slightly more detailed and effective, but not overly detailed or complex.

My Spouse Lied to Me About My Finances - What Do I Do?

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Managing money can be difficult in any relationship, but it becomes even more difficult when one spouse is lying about finances. The lies could be anything, but they commonly include hiding the following:

Specific shopping trips
Gambling habits
Extra debt
Salary information
Savings accounts

When you discover that your spouse has been lying to you, it may cause you to be angry or hurt, and it may have a lasting impact on your relationship. Depending on the deception and type of lie, you may even consider ending the relationship completely. Here is what you should consider doing if you find out your spouse has been lying to you about the finances.

Gather the Facts

Before you confront your spouse, it is important to find out as much as possible about your current financial situation. This investigation may mean going back and checking your bank statements over the past year to see if there is evidence that this may be a long-term situation. It is also important to have a general idea of the amount of money involved. When it is time to talk to your spouse, you will then have specific examples and issues to discuss.

Discuss the Issues

It is important to have this discussion as soon as possible, but it would be best if you did it when you can remain calm during the conversation. It may be a misunderstanding or a mistake, so it's important to listen to what your spouse has to say about the situation. It may be a symptom of bigger issues like shopping addiction, a gambling problem, or possible criminal behavior. Ask your spouse to be completely honest about the situation and to provide documentation to show that they have been.

Your spouse may bring up even more information or reveal more debts or issues that you did not realize that you had.

Determine If This Behavior Is a Deal Breaker

Since each situation and relationship is different, answers will differ for each relationship, so it often a good idea to seek counseling when dealing with a situation like this. The counselor can help you discuss possible solutions, mediate between the two of you, and even help you determine whether it is time for you to end the relationship.

Lying about finances and hiding debt and other issues break trust, and it can take time to repair. The other related behaviors, such as gambling or other addictions, may affect your relationship in other ways and may make it difficult to continue moving forward.

Consider Temporarily Separating Finances

If you do decide to stay together, you may want to consider separating finances until your spouse can prove that the behavior has stopped. The best way to do this is to set up a household budget where you each contribute the same percentage of your income to cover basic household needs. However, the rest of the money should be kept separate from each other.

In these situations, you still need to be accountable to each other about how the money is being spent. Your spouse may need to show you that they're paying off the debt or have stopped specific spending habits, which may require you to see their accounts and other behavior. However, that does not mean that you should have your spouse be a signer on your accounts.

Set up Clear Expectations

It is important to set up clear expectations about what needs to be done to earn the trust back and rectify the situation. If a debt is involved, it may be that the debt needs to be paid off completely as quickly as possible. If a shopping addiction was a problem, regularly attending Shopaholics Anonymous meetings and seeking counseling may be necessary. If it is a gambling addiction, seeking help to stop the addiction may be part of rebuilding trust.

The offending spouse may also need to temporarily give up control of household accounts until good behavior has again been established.

Moving Past the Situation

If you decide to stay married, you must reach the point where you forgive the person, and it becomes a non-issue in your relationship. This forgiveness does not mean that you do not still check up on the person's finances, but as time passes, it may become more infrequent. It shouldn't be something you continue to hold over their head in the future. This does not need to happen overnight, and often only after the situation has been rectified. If you continue to hold onto the hurt feelings, it can destroy your relationship.

If You Have Been Lying to Your Spouse

It may be that you have been lying to your spouse about some aspects of your finances. If so, you must discuss the situation with your spouse as soon as possible. It is better to confess what you have done wrong than to have your spouse catch you. Your spouse may be upset but willing to work with you to improve the situation, especially if you are honest and apologetic about what happened.

How Two-Income Couples Can Turbo-Charge Savings Living on One Paycheck

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Are you part of a double income couple? If you are then one of the easiest ways to create a budget is to live on one person’s income and save all of the other person’s.

Let us being by saying you and your spouse are both working outside of the home. One of you earns $40,000 per year, and the other earns $60,000 per year. At this point, you are used to living on both of your incomes. To turbo-charge your finances, consider something completely new and financially innovative. .

Take the First Step

As your first goal, both of you should aim to live on the higher of the two incomes rather than living on $100,000 a year combined, Try to live on $60,000 a year. If you can achieve it then you have just enhanced your savings rate to a great extent . You’re now saving $40,000 annually before taxes.

Take It a Step Further

If you truly want to become even more ambitious, then try and live on the lower of the two incomes. After you are accustomed to live on $60,000 a year, try to start to save the higher of the two incomes and living on the smaller of the two. This effective practice will quickly gallop your savings . .

How to Maximize Your Savings

What you should do with the savings ? There are a plethora of financially viable options:

Accelerate Your Mortgage Pay Down

Often couples have completely paid off their entire mortgage in as little as three to five years by living on one spouse’s income and using all the other earnings to pay off the mortgage.

Create a Strong Emergency Fund

Keep aside three to nine months of all living expenses. Also create a special sub-savings accounts earmarked for future home and car repairs, health co-pays and deductibles, and family vacations.

Make a Car Payment to Yourself

You should put aside adequate funds to enable buying of your next car in cash.

Max Out All of Your Retirement Accounts

It is probably the easiest way to get on course to the path of secured retirement. If your employer offers matching contributions, make sure you take full advantage of it. If you’re age 50 or older, you should make "catch-up" contributions.

Max Out Your Child’s College Savings Fund

A child born today will need at least $200,000 to attend college in 18 years time.

Save for a Big Leap

You should keep adequate savings to enable you start your own business, take some major career or entrepreneurial risk, or retire as early as age 35 or 40.

How to Start Living on One Income

How can you get down to saving one person’s income? Start by closely monitoring your budget. Budgeting worksheets will give a clear idea at exactly how much you are saving or spending.

Figure out how to cut down your costs in every single category. You should start with the categories that will give you the biggest wins. Can you cut your mortgage in half — maybe by rightsizing into a smaller home? You may minimize driving by living in a more pedestrian-friendly location and cut back on your gas money?

Cutting the expenses in these big-ticket categories will bring about the best impact, but don’t forget about the smaller categories as well. Giving up chips, soda, and other unhealthy foods can help cut your grocery bills substantially.

Lowering your thermostat while making it energy-efficient updates to your home can lower your utilities. Also taking in a renter or a roommate for your guest bedroom will quickly give you around $500 a month (or more) boost in your savings rate. (That’s $6,000 a year!). Wow!

To live on a single person’s income and saving the rest is probably one of the best ways to really ramp up your savings and live a more financially secured and peaceful life .

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.

If You Have Adopted a Child, You Might Qualify for a Tax Credit

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Taxpayers adopting a child may qualify for the adoption tax credit when they pay out-of-pocket expenses related to the adoption process. These expenses may include adoption fees, court and attorney fees, and travel expenses, and the total amount of the tax credit is directly related to how much is spent.1

Adoption Tax Credit Amounts

The adoption tax credit is adjusted for inflation, so it increases periodically. The credit amount is for each eligible child, and they' are provided in the list below year by year:

2019: $14,080, non-refundable
2018: $13,810, non-refundable
2017: $13,570, non-refundable
2016: $13,460, non-refundable
2015: $13,400, non-refundable
2014: $13,190, non-refundable
2013: $12,970, non-refundable
2012: $12,650, non-refundable
2011: $13,360, refundable
2010: $13,170, refundable
2009: $12,150, non-refundable
2008: $11,650, non-refundable
2007: $11,390, non-refundable
2006: $10,960, non-refundable

You will not be eligible for the full $14,080 credit in 2019 if you had only $10,000 in qualifying expenses because your credit is limited to the amount of your expenses. Otherwise, you will be restricted to a credit of $14,080 even if you have incurred $20,000 on qualified expenses, subject to certain income phaseouts, and with one exception. You are entitled to claim the full amount of the adoption credit if you have adopted a special needs child, even if your out-of-pocket expenses are less than the tax credit amount.

The credit is non-refundable, so it will erase any tax liability you owed to the IRS, but you won't receive direct compensation if the credit is more than this amount. However for example, if you owe $10,000 to the IRS but qualify for the full $14,080 tax credit, you will still only receive credit for $10,000. Any excess credit can be carried forward for up to five years, so the remaining $4,080 can still be claimed in later years.

Phaseout Ranges

The adoption tax credit phaseout ranges depend on modified adjusted gross income (MAGI), which numerous taxpayers find it to be the same as their adjusted gross incomes (AGI). Your MAGI is your AGI with a few add-backs, such as any tax-exempt interest you would not have included in your taxable income when you prepared your return.1

Additionally, any income excluded from tax using the foreign earned income exclusion must be added back to work out the phaseout range for the adoption credit. The IRS provides a worksheet for working out the modified adjusted gross income for the adoption credit in the instructions for Form 8839. The figures as given below are also adjusted periodically to keep pace with the economy.2

2019: $211,160–$251,160
2018: $207,140–$247,140
2017: $203,540–$243,540
2016: $201,920–$241,920
2015: $201,010–$241,010
2014: $197,880–$237,880
2013: $194,580–$234,580
2012: $189,710–$229,710
2011: $185,210–$225,210
2010: $182,520–$222,520
2009: $182,180–$222,180
2008: $174,730–$214,730
2007: $170,820–$210,820
2006: $164,410–$204,410

You cannot claim the adoption credit if your MAGI exceeds the top phaseout figure, and your credit begins reducing in value at the first threshold. For example, you can only claim a part of the credit if your MAGI fell between $211,160 and $251,160 in 2019, and the more you earn, the less of a portion you can claim. IRS Form 8839 takes you through the calculations if your MAGI is more than the lower threshold.

Other Eligibility Requirements

You must adopt an eligible child and pay the qualified adoption expenses out of your own pocket to claim the adoption credit. Eligible children include any child age 17 or younger, or a child of any age who is a U.S. citizen or a resident alien and physically or mentally challenged of caring for themselves.

Qualified adoption expenditure are calculated by summing all the necessary expenses related to the adoption, then subtracting any amounts reimbursed or paid for by your employer, a government agency, or any another organization. Expenditure for a failed adoption might qualify for the credit if a successful adoption follows , but both the adoption efforts would be considered as one adoption and subject to the dollar limit per eligible child.

Special Needs Children

For purposes of the adoption credit, special needs children are those who get adoption assistance or adoption subsidy benefits, all the more because they are in foster care. Benefits can include Medicaid or reimbursement of certain expenses and are received because the state considers that the child would not be adoptable if they weren't paid. The state must also decide that the child cannot be returned to the parents.

The child may or may not have a physical, emotional, or mental challenge , but a disability alone will not qualify a child as special needs without these other factors being present, nor does it being in foster care automatically qualify a child as special needs.

When to Claim the Adoption Credit

You may claim the adoption credit in the year after your expenses were paid if they were paid before the adoption was final, and you may take it in the same year for the expenses that were paid that year if the adoption was final in that year. For expenses paid in the year after the adoption is final, you may take the adoption credit in the year the expenses were paid.

Some different rules may apply if the child is a foreign national, however. In this case, you may take the adoption credit only in the year when the adoption becomes final, or you can take the credit for expenses in the year when you paid them , if they were paid in the year after the adoption was finalized. You will have to apply for an Adoption Taxpayer Identification Number (ATIN) to start claiming your adopted child as a dependent if the child doesn't yet have a Social Security number. The IRS provides us with comprehensive information about the ATIN on its website.

What Will Biden Do to Restore the Economy, If Elected?

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The Democratic presidential nominee in 2020, former U.S. Vice President Joe Biden presented a plan for combating the COVID pandemic and the recession it’s fueled. He put forth guidelines to overhaul the nation’s embattled health care system.

His plan, which often differs from current policies enacted by President Trump, also targets the global climate crisis, and he’s outlined plans for education, immigration, and housing, as well as taxes, infrastructure, and trade.

Key Takeaways

The Democratic presidential nominee, Joe Biden has prioritized responses to the pandemic, front-line workers’ safety, and recession recovery in his economic proposals.
Biden will make universal health care available to eligible Americans who need it.
Other planned reforms announced by Biden’s campaign include addressing climate change, education, immigration, and infrastructure.
Biden’s plans will need for tax increases for corporations and individuals, especially those with the highest incomes.

Pandemic Response

His proposed policy platform aims to restore the economy in the shorter term by protecting workers from the pandemic. He'd use the Defense Production Act to produce more of the personal protective equipment (PPE) that safeguards essential workers.

His health insurance plans will completely cover COVID-19 testing and vaccines. A prospective Pandemic Testing Board will coordinate the nation’s testing efforts, and a proposed Public Health Jobs Corp would do contact tracing. These are strategies recommended by the Centers for Disease Control and Prevention (CDC) to control the coronavirus.

Many of the actions proposed by Biden need congressional approval before they can be put into action.

Recession Recovery, Jobs Creation

On July 9, 2020, Biden released a list of his “Buy American” plan to create 5 million new jobs.1 The government will spend $400 billion to buy American products and services. An additional $300 billion will go toward research and development, which includes half for clean energy, aimed at creating jobs and securing U.S. industry leadership.

In addition to enhanced testing, contact tracing, and PPE, Biden would give essential workers a COVID pay boost. He pleads to guarantee paid leave for anyone who gets sick with COVID-19 or stays home to care for family members ill with the virus. This would reduce disease transmission by allowing sick employees to stay home.

Biden will also more than double the federal minimum wage, to $15 an hour which is meant to spur economic growth by giving workers more to spend, increasing both demand and business revenue. A 2014 Congressional Budget Office (CBO) report said that increasing the minimum wage would take 900,000 families out of poverty. At the same time, it would cost 500,000 workers their jobs.

Health Care Reforms

Biden will expand Obamacare subsidies to reach more and more middle-income families. Under his proposal, no one would pay more than 8.5% of their income for health insurance.

Having a universal health care will create a healthier workforce: Studies show that making preventive care available reduces the requirement for expensive emergency-room usage. Biden will also allow qualified residents of the states that didn’t expand Medicaid to sign up for the universal health plan for free.

Climate Change Measures

Biden would recommit to the Paris climate agreement and support the Green New Deal. He will restore environmental regulations, such as fuel economy standards that support electric vehicles (EV). Biden’s “Clean Energy Revolution” will invest $2 trillion and create 10 million jobs.6 It would also:

Achieve net-zero emissions by 2050
Spend $40 billion annually on clean energy research
End subsidies for fossil fuels
Eliminate carbon emissions from power plants by 20357
Upgrade and weatherize buildings, creating 1 million jobs

The Paris Agreement’s 1.5 C goal is only achievable if the world stopped emitting all carbon by 2030.8 Biden’s plan doesn’t meet that target.

Education Proposals

Biden will increase federal funding for K-12 education. Specifically and triple Title I funding for low-income family groups to raise teachers' pay. He promises universal pre-kindergarten, and all community health centers will have early childhood development experts.

To lower cost of higher education, Biden will make community colleges and public universities free for eligible students.

He will spend $8 billion on community college facilities and $50 billion on workforce training. Education is one of the better ways to close the racial wealth gap and boost economic growth. A McKinsey study shows that, if low-income students have had the same educational achievement as their rich peers by 1998, in the next decade they would have added $670 billion to the economy.

Immigration Changes

Biden’s proposals will undo most of Trump's immigration policies. The U.S. will no longer separate families at the border. Biden will raise annual refugee admissions to 125,000 from 22,491 in 2018.10 Biden will also provide a road map to citizenship for undocumented immigrants who pay taxes and pass a background check.

Biden will address the root cause of immigration at the Mexican border. He would provide a $4 billion aid package to Guatemala, El Salvador, and Honduras, which are countries plagued by narco-trafficking and violence.

Affordable Housing Plans

Biden plans to provide $640 billion over the next 10 years to provide affordable housing. He will target the homeless, the formerly incarcerated, and the veterans. Subsidized housing allows the residents to focus on improving their job skills and education. It will provide some stability during bouts of unemployment, so children can remain in school. Specifically, he would:

Establish a $100 billion Affordable Housing Fund to construct and upgrade affordable housing
Expand the Low-Income Housing Tax Credit
Add $10 billion to Community Development Block Grants
Fully fund Section 8 rental assistance and add $5 billion in annual tax credits for low-income renters12

Tax Approach

Biden aspires to increase federal revenue by $3.8 trillion over the first 10 years, including through individual tax increases. He will do this by imposing a 12.4% Social Security payroll tax for those making more than $400,000 a year. He will repeal the Trump tax cuts for high-income filers, and increase the corporate tax rate to 28%.13

Biden will make the tax code more progressive, meaning high-income households pay a larger share of their incomes in taxes than do lower-income taxpayers. Studies show that progressive taxation reduces income inequality by allowing the poor to save more.

Infrastructure Rebuilding

Biden will rebuild infrastructure, targeting funding low-income neighborhoods, training programs, and carbon dioxide (C02) reduction. The plan includes investing $5 billion over five years to improve battery technology for electric vehicles and add charging stations. Biden’s plan will also expand the nation’s rail system, invest in high-speed rail, and give Amtrak incentives to become fully electric.

Trade

Biden will set a goal in restoring the American leadership in strategic areas such as clean energy, artificial intelligence (AI), and quantum computing. To confront the Chinese trade barriers, Biden will work with U.S. allies to present a united front in trade disputes.