finance

Don’t leave until these signposts show you’ve covered all the bases

Reviewed by Ebony Howard
Fact checked by David Rubin

Are You Ready to Retire?

If you’re considering retiring early, you’ll forego not only the headaches of working but also the additional earnings that could have made your retirement even more comfortable. Make sure you’re truly ready before you leave.

Key Takeaways

• Start debt free, with a solid retirement account that will support your extra years not working.
• Make sure you can withdraw some money from your retirement accounts without penalty.
• Plan to pay for your own healthcare coverage until Medicare kicks in.

Here are six signs you may be able to retire early instead of continuing to work.

1. Your Debts Are Paid Off

If your mortgage is paid off and you don’t have any loans, credit lines, large credit card balances, or other debt, you won’t have to worry about making large payments during retirement. This leaves your savings and retirement income available to enjoy life and free to use in the event of an emergency.

2. You Have Ample Savings

You planned and set a goal for retirement savings. Now your investments meet or exceed the amount you were hoping to save. This is another good sign you could take early retirement.

If you didn’t plan for early retirement, you will need to recalculate how long your savings will last. Also, depending on your age, you may not yet be eligible for Social Security or Medicare. Your savings will need to cover your expenses until you reach the eligible age.

Important

Keep in mind that if you do leave work several years before you planned to, your savings must be enough to cover these additional retirement years.

“Think ‘Rule 25.’ Prepare to have 25 times the value of your annual expenses,” says Max Osbon, partner at Osbon Capital Management in Boston, Massachusetts.

The Rule of 25 is used by many participants in the Financial Independence, Retire Early (FIRE) movement, and it depends on a 4% maximum portfolio withdrawal rate (adjusted for inflation). Many experts, though, question the validity of the 4% guideline, especially for folks who plan to retire early. Since the 4% rule for retirement budgeting only allows for safe withdrawals for about 30 years, this means it may not provide sustainable income for individuals who retire early.

3. You Can Get at Your Savings

No one likes to pay unnecessary penalties.

If your 59th birthday was at least six months ago, you’re eligible to take penalty-free withdrawals from any of your 401(k) plans. These policies generally apply to other qualified retirement plans, but there are exceptions.

For instance, the 457 plan doesn’t have an early withdrawal penalty. But remember that you’ll still pay income tax on your withdrawals.

There’s also good news for wannabe early retirees with 401(k)s. If you continue working for your employer until the year that you turn 55 (or after), the Internal Revenue Service (IRS) allows you to withdraw from only that employer’s 401(k) without penalty when you retire or leave, as long as you leave it at that company and don’t roll it into an individual retirement account (IRA).

“There is a caution, however: If an employee retires before age 55 [except as noted above], the early retirement provision is lost and the 10% penalty will be incurred for withdrawals before age 59½,” says James B. Twining, CFP, founder and CEO of Financial Plan Inc. in Bellingham, Washington.

The third option for penalty-free retirement plan withdrawals is to set up a series of substantially equal withdrawals over at least five years, or until you turn 59½, whichever is longer. Like withdrawals from a 457 plan, you’ll still have to pay income taxes on your withdrawals.

If your retirement plans include any of the above penalty-free withdrawal options, it’s another point in favor of leaving work early.

4. Your Healthcare Is Covered

Healthcare can be incredibly costly, and early retirees should have a plan in place to cover the costs before becoming eligible for Medicare at age 65. If you have coverage through your spouse’s plan or if you can continue to get coverage through your former employer, this is another sign that early retirement could be a possibility for you.

Keep in mind that COBRA may extend your healthcare coverage for a period of time after leaving your job, although your costs with COBRA may be higher than other options.

Another option for early retirees is to purchase private health insurance. If you have a Health Savings Account (HSA), you can use tax-free distributions to pay for your out-of-pocket qualified medical expenses no matter what age you are.

5. You Can Live on Your Budget

Retirees living on fixed incomes, including pensions or retirement plan withdrawals, usually have lower monthly incomes than they did when they were working.

Try practicing sticking to your reduced retirement budget for at least a few months before you actually retire. You’ll get a sense of just how easy or difficult it would be to make that lower budget permanent.

“Humans do not like change, and it is hard to break old habits once we have become accustomed to them. By ‘road-testing’ your retirement budget, you are essentially teaching yourself to develop daily habits around what you can afford in retirement,” says Mark Hebner, founder and CEO of Index Fund Advisors Inc. in Irvine, California, and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”

6. You Have a New Plan

Leaving work early to spend long days with nothing to do will lead to an unhappy early retirement. Having a defined plan—or even the outline of a daily routine—can help you prepare.

Perhaps you’ll replace sales meetings with a weekly golf outing or a volunteer gig, in addition to adding daily walks or trips to the gym. Plan a long-overdue trip or take classes to learn something new.

If you can easily think of realistic, non-work-related ways to enjoyably pass your days, early retirement could be for you. In the same way you test-drive your retirement budget, try taking a week or more off work to spend your days as you would in retirement. If you become bored with long walks, daytime TV, and hobbies within a week, you’ll certainly get antsy in retirement.

What Is Retirement?

Retirement, fundamentally, is when you leave the workforce behind. The traditional retirement age is 65 in the United States. The full retirement age (when you can collect full Social Security benefits) is 66 or 67, depending on your birth year. The early retirement age is 62 (the earliest age you can collect Social Security benefits).

What Is Retirement Planning?

Retirement planning is a strategy for long-term saving, investing, and finally withdrawing money you accumulate to achieve a financially comfortable retirement. Creating a retirement plan begins with determining your long-term financial goals and tolerance for risk, then starting to take action to reach those goals. The process of creating a retirement plan includes identifying your income sources, adding up your expenses, putting a savings plan into effect, and managing your assets.

How Much Do I Need to Save to Retire?

The answer varies by individual, and it depends largely on your current income and the lifestyle you want and can afford in retirement. Many retirement experts recommend strategies such as saving 10 times your pre-retirement salary and planning on living on 80% of your pre-retirement annual income.

The Bottom Line

These are questions nearly all young and middle-aged workers have asked themselves: Should I leave my job and retire early? What would I need? How do I know I’m ready?

When it comes to deciding if you should retire early, there are several signs to watch for. The signposts also point to a number of plans you can make now to increase the chances that you could fulfill this dream if you end up wanting (or needing) to do so.

Reviewed by David Kindness
Fact checked by David Rubin

While many Americans struggle to save for retirement, elected representatives and senators in the U.S. Congress receive substantial pension benefits for life. Though congressional retirement pay is not typically a big election-year issue, it might serve as evidence of a disconnect between lawmakers and the mainstream United States.

Key Takeaways

• Congressional representatives have access to a variety of retirement plans.
• A typical member of Congress has a net worth that far surpasses a typical American citizen’s net worth.
• The average American saves far less for retirement than a member of Congress does.

Overview

The median net worth for a member of Congress is over $1 million. The median wealth for an American household, in contrast, was $176,500 in 2022, the most recent data available. That means half of American households’ wealth is lower than that number, and half is higher. (This includes households that are in debt, with negative wealth.)

Congressional members are eligible for their own unique pension plans under the Federal Employees Retirement System (FERS), though there are other retirement options available, ranging from Social Security to the Civil Service Retirement System (CSRS). Members of Congress are eligible for a pension dependent on the member’s age at retirement, length of service, and salary. The pension value can be up to 80% of the member’s final salary, which is $174,000 per year. At an 80% rate, that’s a pension benefit of $139,200. (The Speaker of the House has a salary of $223,500. The Senate President makes $193,400, as do the majority and minority leaders in the House and Senate.) All benefits are taxpayer-funded.

Additionally, members of Congress enjoy the same Thrift Savings Plan (TSP) as all other federal employees, which is similar to a 401(k). Congressional contributions are matched up to 5% of salary per year, in addition to an extra 1% giveaway regardless of how much the congressperson contributes, if anything.

Few private employees have the option to contribute to an employer-sponsored defined benefit pension plan. Most have the option to contribute to a 401(k) or 403(b), while others may contribute to an employee stock ownership plan (ESOP) or some other retirement option. The median benefit for private pensions and annuities for those 65 and older was $11,040 per year in 2022, the most recent data available. For state and local government pensions, it was $24,980 per year. Of course, some people receive both Social Security and a private pension. The median Social Security benefit for those 65 and older was $18,520, so with a private pension, that’s an income of nearly $30,000 per year. As far as other retirement assets, the Federal Reserve found that the median retirement account balance in 2022 (the most recent data available) was $86,900 and the average balance was $334,000.

Social Security Fairness Act

The Social Security Fairness Act, concerning the Windfall Elimination Provision and Government Pension Offset, was signed into law on Jan. 5, 2025. It eliminates the reduction of Social Security benefits while entitled to public pensions from work not covered by Social Security. The Social Security Administration is finalizing its plan to implement the act.

How Benefits Have Changed Over Time

Participation in defined-benefit pension plans peaked in the private sector in the early 1980s. More than 80% of American employees who worked for large companies in the private sector contributed to a pension plan. By 2011, that rate for all private industry workers dropped to 18%. In 2001, 5% of the Fortune 1000 closed down or froze their defined-benefit retirement plans. By 2004, it was over double that (11%).

Defined contribution plans, like 401(k)s, have become more prominent. In 2023, 67% of private-sector workers had access to defined contribution plans. Only 15% could access defined-benefit plans. Of these, 49% and 11% of workers participated, respectively.

Increasingly, American workers are forced to rely on 401(k) plans, individual retirement accounts (IRAs), and Social Security for their retirement. Among these, only Social Security provides a guaranteed minimum payment in retirement, and even those benefits seem uncertain, considering the massive unfunded future liabilities faced by the U.S. government.

Previous Pensions

Congress did not always receive a gold-plated pension. Before 1942, members of Congress did not receive a taxpayer-funded retirement plan. This early system was quickly scrapped after public outcry, however. A pension was put into place after World War II and eventually replaced by FERS in the 1980s. The congressional pension system has not changed much since September 2003, after which all incoming representatives were no longer able to decline FERS.

During and After the Financial Crisis

Unfortunately, the once-promising 401(k) era failed to live up to its promise after unrealized gains were wiped out by the 2007–2009 recession, though some of the lost retirement wealth from 2009 recovered quickly. By 2011, the average retirement account balance increased by 7%.

Those gains were conspicuously concentrated among the wealthiest Americans. Approximately 45% of workers saw declines in the value of their retirement assets to the tune of thousands of dollars from 2009 to 2011, despite the fact that the S&P 500 grew approximately 54% over that period.

Note

Nine in 10 high-income families had retirement savings account balances in 2019. For low-income families, that ratio dropped to one in 10.

What Does a Member of Congress Make in Retirement?

Since 2009, congressional pay has been $174,000 per year, which, at an 80% rate, equates to a lifelong pension benefit of $139,200. (There are a few exceptions. The Speaker of the House has a salary of $223,500. The Senate President has the same salary as the majority and minority leaders in the House and Senate: $193,400.) Under the Federal Employees Retirement System (FERS), members of Congress are eligible to receive this full pension once they are at least 62 years old, as long as they’ve served for at least five years. Alternatively, if they’ve worked in the job for at least 20 years, their pension can kick in at age 50. If they’ve served for at least 25 years, there’s no minimum age to receive their pension. The Civil Service Retirement System (CSRS), which is only an option for representatives elected before 1984, is similar: A member of Congress may retire at age 60 with 10 years served, or at age 62 with five years of civilian federal service, which includes working in Congress.

Can Members of Congress Be Paid After They Retire?

While members of Congress don’t get paid their full salary after they retire, they do receive a pension that can be up to 80% of their $174,000 salary, depending on the amount of time served.

Do Members of Congress Receive Full-Pay Retirement Benefits After Serving One Term?

No, members of Congress do not receive their full pay as a retirement benefit after serving only one term. Their pension is based on the amount of time served. To be eligible for the Federal Employees Retirement System (FERS) pension, they must have served in Congress for a minimum of five years (and be at least 62 years old).

The Bottom Line

There are more retirement plan options for a member of the U.S. Congress than for the average citizen.

Every member of Congress has access to several retirement plans, and their defined benefits are not negatively impacted by stock market recessions.

Congress also has the unique position of determining its own benefits without having to worry about turning a profit—a private company may have to freeze its pension plan or perform a buyout if it experiences balance sheet problems, but the U.S. Congress must only appropriate tax dollars. Even state and local government pensions are often limited by balanced budget amendments or the tolerance of local taxpayers.

Correction—Feb. 11, 2025: This article has been corrected to state that the median wealth for an American household means half of American households’ wealth is lower than that number and half is higher.

Here’s how to protect your sensitive financial data before and after a breach

Reviewed by Pamela Rodriguez
Fact checked by Jiwon Ma

From Capital One to Target, the Home Depot to TJ Maxx, criminals have stolen customers’ credit card information—and there’s no indication that the thefts will stop. Fortunately, there are a number of ways to minimize the damage.

Even if you haven’t yet been hacked, many of the seven moves described below can make your information less easy to find and less usable if you are caught up in a breach. They range from monitoring your accounts regularly to freezing your credit.

Key Takeaways

• Data breaches that compromise your credit card information are becoming commonplace. 
• Well-known breaches that exposed customer data include the 2019 hacking of Capital One. 
• If you’re the victim of a breach, protect your credit record by immediately ordering a replacement card and freezing your credit report.
• There’s no need to sign up for high-priced fraud protection.
• Be on the lookout for phishing schemes.
• Use tough-to-crack passwords. 

1. Get a Replacement Card

If you’ve been told that you’re part of a data breach, tell the company that you need a new card immediately. You’re not likely to get any pushback from the already-embarrassed company. But if you do, don’t back down.

Important

Credit card fraud pays. On the black market, your card number and information can be worth anywhere from $5 to more than $100, according to credit reporting agency Experian. So if a hacker steals information on a million cards, that can be lucrative.

2. Check Your Account Online

After a breach, don’t wait for your statement to arrive before you check it—monitor your account regularly online. Keep checking daily for at least 30 days, even after you get a new card. If you find a suspicious charge, dispute it immediately.

3. Freeze Your Credit

If you are caught up in a data breach, call each of the three main credit bureaus (Equifax, Experian, and TransUnion) and request that your credit report be frozen. Freezing means that no one will be able to access your credit report without your approval. Creditors likely won’t approve an application without having access to your credit report.

Important

If you’re deeply worried about potential breaches, then you can also put a credit freeze on your accounts proactively—you don’t have to be a fraud victim. Just remember to unfreeze it any time you’re applying for a loan.

4. Place a Fraud Alert

An alternative—and less drastic—step to freezing your credit is to place a fraud alert on your credit profile with the credit bureaus. A fraud alert can protect your credit history from unauthorized access for one year, after which it can be renewed. A fraud alert won’t completely lock down your credit reports the way that a credit freeze does, but it does require creditors and lenders to take the extra step of verifying your identity before authorizing new lines of credit in your name.

Important

There’s no need to sign up for high-priced fraud protection. In the panic of the moment, you might be tempted to shell out hundreds of dollars per year for credit monitoring services. But that’s not necessary. You can monitor your own accounts by closely reviewing the information that you get free of charge.

5. Order Your Credit Reports

By law, you get one free credit report per year from each credit reporting company. Even if you haven’t yet been targeted, be proactive and take a look at your free reports. Ideally, you can order one every four months by staggering the requests across the three main credit reporting agencies, so you can be better covered across the entire year.

6. Watch for Phishing Scams

Just because thieves have your credit card number doesn’t mean they also have its expiration date and the three- or four-digit card verification value (CVV) number. Beware of phishing, a scam where the thief might send an email or call in an attempt to obtain the rest of the information.

Don’t give your information to anybody unless you call the company directly. If somebody leaves a message, go to the company’s website and find a contact number to make sure it matches what the person in the message provided. For even more security, call the company directly and make sure that the person who called you is legitimate.

7. Be Smart About Passwords

Simply employing all the password rules won’t prevent a breach, but since you don’t know exactly what information thieves are looking for, it can’t hurt. Use strong passwords, and change them frequently.

You may also want to take advantage of additional digital security measures such as two-factor authentication. Newer types of authentication, such as Face ID and Touch ID, are slowly replacing passwords as a legitimate means to grant a person access to sensitive financial information.

What Is Two-Factor Authentication?

Two-factor authentication delivers a one-time code to a trusted device, such as a mobile phone. This provides a secondary layer of protection that requires physical possession of your device before allowing an unknown sign-in to your accounts.

How Many Capital One Customers Were Affected in the 2019 Data Breach?

One of the largest data breaches involved Capital One, which reported that the personal information of 106 million of its customers had been compromised in July 2019.

How Many Target Customers Were Affected in the 2013 Data Breach?

Over 70 million customers’ personally identifiable information and credit card information were stolen from Target’s databases in 2013.

The Bottom Line

Even if you haven’t been a victim of a credit card breach, it’s important to act proactively to make yourself less vulnerable. If you have, don’t panic. It’s going to take time to clear up everything, but you won’t pay for any charges that weren’t yours. Call your credit card company, tell them about any incorrect charges, and be patient as they work to clear them from your account. In the meantime, continue monitoring your credit report and credit card bills for further signs of unauthorized activity.

Navigating the World of Cryptocurrency ETFs

As cryptocurrencies capture more and more attention from retail and institutional investors, cryptocurrency exchange-traded funds (ETFs) have emerged as an accessible way to gain exposure to these volatile assets.

“Crypto ETFs mark a monumental shift in the regulatory landscape,” said Christina Lynn, a behavioral finance researcher and certified financial planner at Mariner Wealth Advisors. “Their approval lends legitimacy to the asset class and provides [investors] with a more straightforward, regulated investment vehicle.” However, she suggested anyone interested “abandon get-rich-quick schemes and aim for an above-average return on investment.”

Whether you’re considering adding a crypto ETF to your portfolio or want to understand how these instruments compare to direct cryptocurrency investments, this guide gives you what you need to know.

Key Takeaways

• Crypto ETFs allow investors to gain exposure to digital assets through traditional brokerage accounts without the need to manage wallets or custody issues.
• Spot ETFs hold actual cryptocurrencies, while futures ETFs track price movements via derivatives.
• The major U.S.-listed crypto ETFs by issuers like iShares, Fidelity, and Grayscale have had significant growth despite major price changes among crypto assets.
• If you are interested in crypto ETFs, you’ll need to assess the effect of expense ratios, tracking errors, and evolving regulations on risks and returns.

Understanding Crypto ETFs

An ETF is a pooled investment vehicle that trades on stock exchanges like a regular stock, but holds a basket of securities such as stocks, bonds, or other assets, allowing investors to buy and sell shares throughout the trading day at market-determined prices. Crypto ETFs do the same thing, but track the performance of one or more of the major cryptocurrencies.

The most attractive aspect of crypto ETFs is their convenience. Instead of dealing with the technical challenges of setting up digital wallets, managing private keys, or storing cryptocurrencies securely, investors can simply buy ETF shares from their broker just like they would with any other stock or traditional ETF. This accessibility makes crypto exposure possible for both retail and institutional investors without requiring deep technical knowledge of the crypto ecosystem.

Lynn suggests that when choosing a crypto ETF, “opt for the product with the lowest fees, as this helps maximize returns by minimizing costs—a principle that applies equally to both traditional and crypto ETFs. Additionally, consider ETFs that offer high liquidity and providers with a strong and reliable track record in managing crypto assets.”

Types of Crypto ETFs & How they Work

There are four major types of crypto ETFs available, each designed to meet different investor needs and risk appetites:

• Spot ETFs: When investors buy shares of a spot crypto ETF, the fund manager uses those funds to buy an equivalent amount of the cryptocurrency (such as bitcoin or ether) and holds it in secure storage—often a cold wallet or through a trusted custodian. Each share of the ETF represents fractional ownership of the underlying crypto assets.
• Futures ETFs: Instead of holding crypto, futures-based crypto ETFs invest in cryptocurrency derivatives contracts. A futures contract is an agreement to buy or sell an asset at a preset price on a specific future date. By holding these contracts, the ETF track the expected future price movements of the cryptocurrency.

Important

Because futures contracts have expiration dates, futures-based ETFs must periodically “roll over” —selling contracts nearing expiration and purchasing new ones. This can sometimes lead to tracking errors, meaning the ETF’s performance might not perfectly mirror the spot market price of the cryptocurrency.

• Inverse and leveraged ETFs are designed to deliver multiples of the daily performance of a given cryptocurrency index or inverse exposure. Inverse ETFs profit from declines in the underlying asset’s price (and vice versa), while leveraged ETFs amplify gains (and losses). Both types carry considerably higher risks and are generally more suitable for short-term trading rather than long-term investing.
• Blockchain company ETFs: While not directly investing in cryptocurrencies, blockchain ETFs focus on companies involved in the blockchain space and related technology. This broader exposure lets investors benefit from the growth of the blockchain sector without the direct volatility of crypto prices.

Pros & Cons of Crypto ETFs

Pros of Crypto ETFs

• Diversification: Crypto ETFs offer a way to gain exposure to a basket of crypto assets or related companies, unlike investing in a single cryptocurrency. Investors can benefit from broader market trends without the concentration risk that comes with direct ownership.
• Simplicity and accessibility: Like traditional ETFs, crypto ETFs can be traded through standard brokerage accounts.
• More security: By investing in a regulated fund, investors cut the risk of direct crypto ownership, such as hacking or losing access to digital wallets.
• Professional management: Crypto ETFs are managed by professionals with the expertise and resources to navigate the volatile cryptocurrency market.

Cons of Crypto ETFs

• Potentially higher fees: ETFs have management fees and other expenses that can erode returns over time.
• Lack of direct ownership: When you invest in a crypto ETF, you do not own the underlying cryptocurrency.
• Limited trading hours: ETFs are traded during regular stock market hours, unlike the 24/7 nature of cryptocurrency exchanges. This can restrict your ability to react to market movements outside these hours.
• Regulatory and market risks: Shifts in regulations can lead to increased uncertainty and impact the performance or even the availability of these funds.
• Volatility: The significant swings in the cryptocurrency market are the biggest risks with these assets.

Pros

• Diversification potential

• Accessibility

• Security

• Professional Management

Cons

• Potentially higher costs

• Lack of direct ownership

• Not traded 24/7

• Potential for regulatory shifts

Regulatory Environment

The regulatory landscape for crypto ETFs has shifted dramatically in the mid-2020s. Under new U.S. Securities and Exchange Commission (SEC) leadership and a more crypto-friendly administration, the approval process for crypto ETFs has accelerated considerably.

Nevertheless, “there is still no comprehensive federal regulation of any type of digital assets or cryptocurrency,” said V. Gerard Comizio, associate director of business law programs at American University’s Washington College of Law and author of Virtual Currency Law: The Emerging Legal and Regulatory Framework.

The SEC approved the first spot Bitcoin ETFs in January 2024 and spot Ethereum ETFs in mid-2024, a major change from the previous years when only futures-based crypto ETFs were permitted in the U.S. markets. A key factor in shifts since their approval is the changing political attitudes toward digital assets, with President Donald Trump himself a purveyor of meme coins and members of his administration previously involved in various cryptocurrency offerings.

However, regulatory scrutiny remains selective. While bitcoin and ether ETFs have gained approval, other cryptocurrencies face varying levels of regulatory uncertainty. For example, analysts suggest that ETFs holding Litecoin may have an advantage in gaining approval since the SEC has never classified it as a security. In contrast, XRP faces a more challenging path because of ongoing legal questions about its status.

For investors, understanding these regulatory nuances is crucial. The approval status of different crypto ETFs can significantly impact their liquidity and trading volumes, that is, your ability to buy and sell your shares with relative ease.

Important

The first spot bitcoin ETFs were approved by the SEC in January 2024.

Crypto ETFs vs. Direct Crypto Investments

Direct Crypto Investments

Investing directly in cryptocurrencies involves purchasing tokens through online exchanges or from a private party. This offers complete ownership, enabling participation in activities like staking, lending, or voting in decentralized governance. However, direct investments also require secure storage, navigating complex exchange interfaces, and the potential for hacking or fraud.

Direct crypto ownership means maintaining a digital wallet to store assets and transact. You are also responsible for remembering and keeping your private keys secure, which lets you access your wallet. Without your private keys, your tokens are as good as lost.

Crypto ETFs

Crypto ETFs, on the other hand, provide exposure to cryptocurrency markets without requiring you to handle digital wallets or worry about cybersecurity at the individual level. Instead, ETF shares stay in your brokerage account alongside the rest of your portfolio holdings.

The tradeoff, however, is that investors pay fees and lose the benefits of direct token ownership.

Strategic Considerations

• Risk management: Investors with a lower risk tolerance may appreciate the structure and professional management of crypto ETFs to gain exposure to cryptocurrencies.
• Investment goals: Those looking for potential additional benefits like staking rewards might prefer owning cryptocurrencies directly, despite the added responsibilities and risks.
• Market timing: The 24/7 trading environment of cryptocurrency exchanges allows for rapid reactions to market shifts, while ETFs are constrained to market hours.

The Bottom Line

Crypto ETFs are for investors who want exposure to the burgeoning cryptocurrency market while avoiding some of the complexities and risks associated with direct ownership. For investors considering crypto ETFs, aligning your investment strategy with your risk profile and financial goals is key. Conducting thorough research and, if necessary, consulting a financial advisor can help determine whether these funds are the right fit for your portfolio.

A step-by-step guide to help you fill out a W-4

You’re about to begin that much-needed, new job and your employer hands you an IRS Form W-4 to fill out and submit to them immediately. Don’t wince. This required tax form controls how much tax will be withheld from your paychecks and affects your take-home pay. Form W-4 is your friend and it’s not difficult to fill out.

This doesn’t mean that you’ll owe less taxes at year’s end. You might owe more when you file your tax return depending on the information you’ve included on your W-4. This can happen if your withholding per your W-4 isn’t sufficient to meet your ultimate tax obligation for the year. The form determines whether you’ll pay your taxes paycheck-by-paycheck as the year goes on, in a lump sum at the end of the tax year, and if you’ll owe interest and penalties on an unpaid balance.

Key Takeaways

• IRS Form W-4 dictates how much money is withheld from your gross pay for taxes.
• Step 1 requires you to input personal details while Step 2 is required if you have more than one job or you are married filing jointly with a spouse who works.
• You must list your dependents in Step 3.
• Indicate on the form how much you want withheld from each paycheck in Step 4.
• Sign and date your form so your employer can fill out their portion before it is submitted to the IRS.

Purpose of Form W-4

Form W-4 is called the Employee’s Withholding Certificate. It dictates how much is deducted from your gross income for taxes. Your gross pay is the total amount you’ve earned for the pay period before any taxes or other deductions are withheld. The amount withheld depends on numerous personal factors. Form W-4 walks you through determining what they are so your employer gets the deductions just right.

The total tax withheld from your pay is largely based on your filing status. Your employer is legally obligated to identify you as single or married filing separately if you don’t complete and submit a Form W-4 with your correct information, even if you’re married or qualify as head of household. This can result in more taxes being withheld from your pay. You’ll get the money back in a tax refund at the end of the year but who wants to wait that long?

The 2025 tax year Form W-4 is just one page but it includes five steps that must be completed and three additional pages of helpful guidance and instructions.

Your Personal Details

Step 1 of the Form W-4 is devoted to your personal information. This is where you can declare your filing status. This can be critical if you’re a single parent because you may qualify as head of household. This filing status provides a good many tax breaks and is far superior to filing as a single taxpayer if you qualify. You must have a dependent, be “considered unmarried,” and pay more than half the cost of maintaining your home.

You can check a box at the bottom of the Step 1 section claiming this status or another one. Your employer will base your tax withholding on this information. Step 1 also asks for your name, address, Social Security number, and whether your name matches the name on your Social Security card.

Your Job(s)

Completing Step 2 of the Form W-4 is required if you hold more than one job and/or you’re married and filing jointly with a spouse who also works. Your tax withholding will depend on all your sources of income. Step 2 directs you to use one of three options to finetune how much should be withheld from your pay. Completing Step 3 and a portion of Step 4 depends on the result.

Your first option is perhaps the easiest. You can use the IRS’s online Tax Withholding Estimator. Your second option is to use the Multiple Jobs Worksheet that’s provided on page 3 of the W-4 form along with detailed instructions. There’s a box you can check as your third option indicating that you and your spouse, if applicable, have only two jobs total. The IRS recommends that you use the highest paying job in this case for the best accuracy.

Note

You and your employer can submit your W-4 electronically.

Your Dependents

Step 3 is devoted to your dependents. Keep in mind that they don’t have to be your children. An adult relative can qualify as can an unrelated adult who lives with you all year. Their gross income must be less than $5,050 as of 2025 and you must provide more than half their financial support.

It’s time to do a little math after you determine how many dependents you have. Step 3 of Form W-4 instructs you to multiply each qualifying child who’s younger than age 17 by $2,000 and enter the total. Multiply each adult dependent by $500 and enter the total then add the two totals together.

This information is necessary if you plan to claim tax breaks such as the Child Tax Credit or the Credit for Other Dependents on your return. Your income must be $200,000 or less if you’re single or $400,000 or less if you’re married and filing jointly to qualify as of tax year 2025.

Completing Step 3 of Form W-4 is voluntary. More taxes will be withheld from your pay if you have qualifying dependents and you don’t enter them here. This might help you at tax time if you have other sources of income from which taxes aren’t being withheld. This might be the case if you have investments or you’re a gig worker on the side and you want to make sure you don’t owe a mountain of taxes on that income when you file your tax return.

Step 4 of Form W-4 can help with this type of situation as well.

How Much Do You Want Withheld?

Completing Step 4 of Form W-4 is also optional. This is where you let your employer know that you want more withheld from your paychecks or less. You have three options here as well.

Your first choice is to enter the extra income you want to account for, such as from that gig work or other Form 1099 non-employment income. This section also directs you to a worksheet on page 3 that you can use to reduce your withholding because you expect to claim other deductions rather than just the standard deduction for your filing status. You can also elect to simply cite a simple dollar amount that you’d like withheld for your pay in addition to your regular withholding.

That’s it. You’re done. Just don’t forget to sign and date the form at the bottom. The very last spaces on the form aren’t your concern. Your employer will complete those.

What Changes Have Been Made to Form W-4 Over the Years?

Form W-4 was changed in December 2020 under the terms of the Tax Cuts and Jobs Act (TCJA) that went into effect at the end of 2017. The TCJA eliminated the personal exemptions that taxpayers used to be able to claim for themselves, their spouses, and their dependents.

What If I Want to Make Changes to My W-4?

Simply ask your employer for a new W-4 form to fill out or access the current year’s version online. You can update your W-4 at any time if you want to adjust your withholding or record a change such as getting married, having a child, gaining another dependent, or enjoying a new source of income.

What Happens to the Money That’s Withheld From My Paychecks?

Your employer forwards the money that’s withheld to the IRS on your behalf. The IRS records the receipt and applies it to your tax debt when you file your tax return. The totals are reported on Form W-2 which you’ll receive from your employer after the close of the tax year.

The Bottom Line

Form W-4 is a valuable tool to get your tax withholding just right or as close as possible barring unforeseen circumstances. You can submit a new one to your employer to accommodate any changes if unforeseen circumstances do occur. Preparing the form correctly can prevent you from being hit with a monstrous tax bill when you file your return and it can protect you from having to wait until you receive your tax refund for some much-needed cash if you overpay all year.

The IRS provides straightforward instructions with the form to help you get it right but always check with a tax professional if your tax situation is a little complicated and you’re unsure.

Reviewed by Charlene Rhinehart
Fact checked by Vikki Velasquez

Investors who own bonds or a bond fund watch to see if Treasury yields and interest rates will rise and to what extent. If rates are increasing, they may avoid bonds with longer-term maturities, shorten the average duration of their bond holdings, or plan to weather the ensuing price decline by holding their bonds to maturity to recoup par value and collect coupon payments.

Key Takeaways

• Any bond riskier than a Treasury bond with the same maturity must offer a higher yield.
• The Treasury yield curve shows the yields for Treasury securities of different maturities.
• The Treasury yield curve reflects the cost of U.S. government debt.
• Supply and demand-related factors shift the yield curve.

Treasury Yields

U.S. Treasury debt is the benchmark used to price other domestic debt and is a factor in setting consumer interest rates. Yields on corporate, mortgage, and municipal bonds rise and fall with those of the Treasuries, debt securities issued by the U.S. government.

To attract investors, any bond riskier than a Treasury bond with the same maturity must offer a higher yield. For example, the 30-year mortgage rate historically runs about one to two percentage points above the yield on 30-year Treasury bonds.

The Treasury yield curve (or term structure) shows the yields for Treasury securities of different maturities. It reflects market expectations of future interest rate fluctuations over varying periods.

Yield Curve Example

Below is an example of the Treasury yield curve. This yield curve is considered normal because it slopes upward with a concave slope as the borrowing period, or bond maturity, extends into the future.

The curve shows nominal interest rates. Inflation will erode the value of future coupon and principal repayments. The real interest rate is the return after deducting inflation. So, the curve reflects the market’s inflation expectations.

The Federal Reserve controls only the short-term interest rate at the extreme left of the curve. It sets a narrow range for the federal funds rate, the overnight rate at which banks lend each other reserves. Supply and demand in the auction process determine the curve.

Like all markets, bond markets match supply with demand; in the case of the market for Treasury debt, much of the demand comes from sophisticated institutional buyers. Because these buyers have informed opinions about the future path of inflation and interest rates, the yield curve offers a glimpse of those expectations in the aggregate.

Long Rates Follow Short Rates

The Treasury yield curve can change in various ways.

• It can move up or down (a parallel shift)
• Become flatter or steeper (a shift in slope)
• Become more or less humped in the middle (a change in curvature)

The following chart compares the 10-year Treasury note yield (red line) to the two-year Treasury note yield (purple line) from 1977 to 2016. The spread between the two rates, the 10-year minus the two-year (blue line), is a simple measure of steepness.

The two rates move up and down somewhat together (the correlation for the period above is about 88%). Parallel shifts are common. Although long rates directionally follow short rates, they tend to lag in the magnitude of the move.

When short rates rise, the spread between 10-year and two-year yields tends to narrow (the curve of the spread flattens), and when short rates fall, the spread widens (the curve becomes steeper). The increase in rates from 1977 to 1981 was accompanied by a flattening and inversion of the curve (negative spread); the drop in rates from 1990 to 1993 created a steeper curve in the spread, and the marked drop in rates from 2000 to the end of 2003 produced an equally steep curve by historical standards.

4.51%

The 10-year yield as of Feb. 11, 2025; up from 4.17% on Feb. 9, 2024.

Supply-Demand Phenomenon

What moves the yield curve up or down? Complex dynamics of capital flows interact to produce market interest rates, but the Treasury yield curve reflects the cost of U.S. government debt and is a supply-demand phenomenon.

Supply-Related Factors

Central Bank Purchases: The Federal Reserve has purchased Treasury debt to ease financial conditions during downturns in a policy known as large-scale asset purchases or quantitative easing (QE) and can sell government debt on its balance sheet during recovery in a quantitative tightening. Because large-scale asset purchases (and sales) of securities by a central bank can force other market participants to change their expectations, they can have a counterintuitive effect on bond yields.

Fiscal Policy: When the U.S. government runs a budget deficit, it borrows money by issuing Treasury debt. The more the government spends keeping revenue constant, the higher the supply of Treasury securities. At some point, as the borrowing increases, the U.S. government must increase the interest rate to induce further lending, all other things being equal.

Demand-Related Factors

Federal Funds Rate: If the Fed increases the federal funds rate, it is effectively increasing rates across the spectrum since it is effectively the lowest available lending rate. Because longer-term rates tend to move in the same direction as short-term ones, fed fund rate changes also influence the demand for longer-dated maturities and their market yields.

U.S. Trade Deficit: Large U.S. trade deficits lead to the accumulation of more than $1 trillion annually in the accounts of foreign exporters and foreign central banks. U.S. Treasuries are the largest and most liquid market in which such export proceeds can be invested with minimal credit risk.

Regulatory Policies: The adoption by bank regulators of higher capital adequacy ratios requiring increased holdings of high-quality liquid assets increased the attraction of Treasury notes for banks. Public and private pension plans and insurance company portfolios must also satisfy risk regulators while threading the needle between delivering the required returns and limiting the volatility of those returns. They are another source of demand for Treasuries.

Inflation: If buyers of U.S. debt expect a given real return, then an increase in expected inflation will increase the nominal interest rate (nominal yield = real yield + inflation). Inflation also explains why short-term rates move more rapidly than long-term rates: When the Fed raises short-term rates, long-term rates increase to reflect the expectation of higher future short-term rates. However, this increase is restrained by reduced inflation expectations because higher short-term rates also imply lower future inflation as they curb lending and growth:

Interest and Inflation Rate Changes

An increase in fed funds (short-term) tends to flatten the curve because the yield curve reflects nominal interest rates: higher nominal = higher real interest rate + lower inflation.

Fundamental Economics

A stronger U.S. economy tends to make corporate (private) debt more attractive than government debt, decreasing demand for U.S. debt and raising rates. A weaker economy, on the other hand, promotes a “flight to quality,” increasing the demand for Treasuries, which leads to lower yields.

It is sometimes assumed that a strong economy will automatically prompt the Fed to raise short-term rates, but not necessarily. The Fed is only likely to raise rates if growth spurs unwelcome inflation.

What Determines Treasury Yields?

Treasury yields are determined by interest rates, inflation, and economic growth, factors which also influence each other as well. When inflation exists, treasury yields become higher as fixed-income products are not as in demand. Strong economic growth also leads to higher treasury yields.

What Happens When Treasury Yields Go Up?

When yields rise, this signals a drop in the demand for Treasuries because investors are bullish about the economy and seek higher returns elsewhere. These investors believe there is a reduced need to invest in safer investments, such as Treasuries.

Why Do Treasury Yields Rise With Inflation?

Treasury yields rise with inflation to make up for the loss in purchasing power. Interest rates and bond yields increase, and prices decrease when inflation exists.

The Bottom Line

Longer-term Treasury bond yields move in the direction of short-term rates, but the spread between them tends to shrink as rates rise because longer-term bonds are more sensitive to expectations of a future slowing in growth and inflation brought about by the higher short-term rates. Bond investors can minimize the effect of rising rates by reducing the duration of their fixed-income investments.

Reviewed by Julius Mansa
Fact checked by Yarilet Perez

Companies earn their revenue by executing the core principles of their business model; they sell a product or service that they believe the wider public would be interested in buying. The company sets a price for this product, which is dictated by supply and demand.

If the product is successful and costs are managed well, a company will see profits. However, creating and selling a product is not the only way a business can add to its bottom line. They can also do this through the purchase and sale of marketable securities.

Key Takeaways

• Companies can increase their profits by investing in stocks, bonds, and other assets.
• These assets are listed as marketable securities on a company’s balance sheet and can quickly be converted to cash.
• The way these securities are classified and reported determines how long they’ll be held for.
• Marketable securities impact a company’s balance sheet, income statement, and cash flow statement, influencing financial reporting.

Marketable Securities

A marketable security is a financial asset that can be sold or converted to cash within a year. They are typically securities that can be bought or sold on an exchange. Common examples of marketable securities include stocks, bonds, certificates of deposit (CD), or commodities contracts.

Marketable securities are a component of current assets on a firm’s balance sheet. It is part of a figure that helps determine how liquid a company is, and its ability to pay expenses or pay down debt if it needs to liquidate assets into cash to do so.

Investing in marketable securities is much preferred to holding cash in hand because investments provide returns and therefore generate profits.

For example, Apple (AAPL), which has one of the largest cash reserves of any company, holds $30.3 billion in cash and cash equivalents and $24.5 billion in marketable securities, as of Q1 2025.

A company reports marketable securities in its financial statements and how they classify and record these investments depends on how long a company intends to hold them for. Marketable securities can be classified as:

• Held-for-trading securities
• Available-for-sale
• Held-to-maturity

The manner in which a company reports the changes in the market price of these securities varies, but it affects several parts of the financial statements.

Balance Sheet

The balance sheet is the starting point for marketable securities. This is the primary location where they are noted and they are listed as an asset. Usually, the securities are stated at fair market value as of the date of the financial statements. Held-to-maturity securities may be listed at cost, but this has become fairly uncommon.

Marketable securities are most often designated as current assets, that is because they are intended to be held for less than a year. Some companies will list marketable securities as noncurrent assets if they intend to hold them for a long period of time.

An example of this would be if a company is planning an acquisition of a target firm. In this case, it will purchase the shares of a company, hold on to them, and consider them noncurrent marketable securities.

Marketable securities are also denoted under shareholder’s equity on the balance sheet as unrealized proceeds. They are unrealized because they have not been sold as yet so their value can still change. They are listed at their current market value as they are under the assets section of the balance sheet.

Note

While cryptocurrencies can be bought and sold on exchanges and are relatively liquid, they are generally not considered marketable securities because of their extreme volatility and regulatory uncertainty.

Income Statement

Marketable securities, particularly trading securities, are recorded at the time they are sold. The gain or loss of the sale is recorded on the income statement under the operating income segment as a line item denoted as “Gain (Loss) on Trading Securities.” The gain or loss will impact the overall income statement and therefore the earnings of the company.

Cash Flow Statement

The cash flow statement would show the changes in the fair market value of the investments as a reconciling item in the operating section of the statement.

The investing section of the statement always shows the cash used to purchase securities or the cash received from the sale of securities. For example, when marketable securities are sold at a gain, the cash inflow from the sale would be denoted on the cash flow statement.

Disclosures

Disclosures to the financial statements describe how the marketable securities have been classified. They also provide further detail as to what kinds of securities are owned by the company and what transactions may have taken place during the fiscal year.

This section tends to be more qualitative than quantitative, shedding more light on the marketable securities that a company has on hand.

What Are Examples of Marketable Securities?

Marketable securities are liquid investments that can easily be bought and sold on public exchanges. Such investments include stocks, bonds, exchange-traded funds (ETFs), mutual funds, and Treasury bills. These assets can be quickly converted to cash, making them useful for companies that need short-term liquidity.

Is a 401(k) a Marketable Security?

No, a 401(k) is not a marketable security. In fact, a 401(k) is not a security at all because you can’t buy or sell it like you can marketable securities, which are investments such as stocks and bonds. A 401(k) is a retirement account with its own rules and is not intended to be converted to cash. While 401(k)s do make investments, primarily in mutual funds, individuals are not allowed to withdraw from them until they are 59 1/2 without facing a penalty.

Why Do Firms Hold Marketable Securities?

Firms hold marketable securities for one primary reason: to generate a return on excess cash while still keeping it accessible. Rather than letting excess cash sit idle, it is better to invest it and earn a return. That’s the purpose of marketable securities. Additionally, marketable securities are liquid, meaning they can be converted to cash easily, which makes them useful for companies when they need the cash, such as to cover unexpected expenses or use towards business opportunities.

The Bottom Line

Companies invest their money in stocks, bonds, and other assets to increase profitability. These investments can quickly be converted to cash, are listed as marketable securities on a company’s balance sheet, impact the income statement when sold, and appear on the cash flow statement when traded. The way they’re classified (held for trading, available for sale, held to maturity), determines how they’re reported.

Reviewed by Michael J Boyle

What Is a Cost of Living Index?

Cost of living data includes the expenses incurred for food, shelter, transportation, energy, clothing, education, healthcare, childcare, and entertainment.

A cost of living index tracks how much basic expenses for these categories rise over time and in different regions. It can demonstrate how need-based expenses vary from one area to another.

The costs of consumer goods and services vary between urban and suburban residential areas. A person’s salary might provide a high standard of living in a small city in the Midwest. But it might not do the same in a large city like New York, Los Angeles, or Boston. An amount of $100 may purchase more goods and services in Iowa than in Texas.

No official cost of living index is provided by the U.S. government, but a few organizations track the costs of living throughout the country.

Learn about the Social Security Administration’s 2.5% cost of living benefit increase for 2025.

Key Takeaways

• A cost of living index compares the expenses from one town or geographic region to another.
• It includes costs for food, shelter, transportation, energy, clothing, healthcare, and childcare.
• A cost of living index can track how much basic expenses rise over time.
• The Economic Policy Institute and the Council for Community and Economic Research calculate cost of living indexes.
• The Social Security Administration issues an annual cost of living adjustment, or COLA, based on the inflation rate.

How a Cost of Living Index Works

Most indexes set a base cost of living, often represented by 100. The base can be the cost of living in one region or the average of multiple regions. For example, Chicago could be pegged as the base city, and other regions would be measured against the base and assigned a cost of living number accordingly.

If it is 20% more expensive to live in Boston than in the base city, Chicago, Boston’s cost of living number is 120.

The average income for a geographic area is a factor in evaluating a region’s cost of living. A small town in the rural south might have a lower cost of living than most towns on the east or west coasts. However, the southern town’s median income might be below the cost of living for that area.

Note

The cost of living can impact a person’s choice of work and where to live, and affect the ability to save for a home or pay off college debt.

Examples of Cost of Living Indexes

Economic Policy Institute

The Economic Policy Institute provides families with updated cost of living data for various metro areas throughout the U.S. with a helpful Family Budget Calculator.

The calculator helps families measure the differences in the cost of living for geographic locations and figures the costs of food, housing, child care, transportation, health care, other necessities, and taxes.

Based on most recent data, the calculator found that the San Francisco metro was the most expensive metro area for parents with two children.

The cost of living was estimated at $211,473 per year, while the median income for San Francisco was approximately $141,446 per year (2023 data). Although a salary of $141,446 is highly attractive, it doesn’t cover the costs to live in San Francisco.

COLI

The Cost of Living Index or COLI (formerly called the ACCRA COLI) is designed to compare the living expenses for various regions of the country. The index measures consumer spending on housing, utilities, groceries, health care, and transportation.

The quarterly publication is compiled and produced by the Council for Community and Economic Research.

For the final quarter of 2024, the COLI shows that Manhattan, New York had the highest cost of living, followed by Honolulu, Hawaii. Decatur, Illinois had the lowest.

Social Security Administration’s COLA

While not a cost of living index, the Social Security Administration’s cost of living adjustment (COLA) reflects the broad increase in costs represented by the rate of inflation, which is the pace of rising prices as measured by the Consumer Price Index (CPI).

The COLA is announced each year and increases the Social Security benefits paid to retirees. For 2025, benefits will increase by 2.5%.

If a retiree earns $20,000 per year in benefits and inflation rises by 3% per year, the purchasing power of the income will decrease over time. The COLA increases can help combat the effect of inflation.

The CPI is the average price of a basket of basic goods and services that are selected to measure rising prices in an economy. CPI includes prices for housing, apparel, transportation, education, food, and beverages.

Below is a table from the Social Security Administration detailing the cost of living adjustments each year since 1975.

^{Source: The Social Security Administration}

CPI vs. Cost of Living Index

There are limitations to using CPI as an index since it does not measure the actual costs of living in a given area or region. A typical cost of living indicator shows changes in costs over time that are required to maintain a specific standard of living.

A cost of living indicator factors in changes in consumer buying that stem from economic conditions, adjustments in spending, and habits that people make, such as using alternative products when a product becomes prohibitively expensive. The process of shifting expenditures is commonly referred to as substitution.

Is the Consumer Price Index Considered a Cost of Living Index?

The CPI is the average price of a selected basket of goods and services that measures rising prices in an economy but is not a cost of living index. The CPI does not measure the costs of living in a given area or region.

What Does it Mean When the Cost of Living Index Is Below 100?

Cost of living indexes have a baseline of 100, with figures above or below representing an area as more expensive or less expensive.  An index figure below 100 means the area is less expensive to live in than the national average.

What Causes Differences in Cost of Living?

The cost of living is affected by the average income and prices in an area. When residents earn more, their housing, food, and gas will cost more in the region. The cost of living is also affected by access to resources and the lifestyle of the residents.

The Bottom Line

Cost of living indexes measure the costs of food, shelter, transportation, energy, clothing, healthcare, and childcare and compare the expenses of one geographic region to another.

The Economic Policy Institute and the Council for Community and Economic Research provide indexes for areas within the U.S. A cost of living adjustment, COLA, is issued by the Social Security Administration annually and reflects the inflation rate.

Fact checked by Giselle Cancio

The Internal Revenue Service (IRS) reports that more than 9 million taxpayers failed to claim various tax benefits during the 2022 tax filing season. Those people admittedly missed out because they hadn’t filed tax returns. However, the IRS also noted that many taxpayers who did file overlooked one or more tax credits they qualified for.

Key Takeaways

• You can claim tax credits for improving your primary home’s energy.
• Your dependents don’t have to be your children for some tax credits. They can be adults.
• The IRS is willing to reward you a little when you save for retirement.

There are a variety of reasons why tax credits go unclaimed. Some may not know these credits exist, while others may feel intimidated by the qualifying rules or recent tax law changes. Some taxpayers might assume they don’t qualify for certain credits at all. But these credits may still be available when you prepare your return.

Residential Energy Credits

Many taxpayers overlook several residential energy credits. According to Michael Merlino, president and CEO at Atlantic Accounting Associates in Egg Harbor Township, NJ, these include “Solar, wind, geothermal, fuel cell, and building components such as exterior doors, windows, skylights, and insulation.”

The Inflation Adjustment Act expanded two energy tax credits in 2022: the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit. You must claim them in the year you had the work done. You can’t carry them over, and you must use the improved home as your residence.

The Energy Efficient Home Improvement Credit is 30% of what you spend up to a cap of $1,200 annually through tax year 2032. Some major improvements, like biomass boilers and stoves, are subject to a higher limit of $2,000. The Residential Clean Energy Credit is also 30% through 2032, but there is no annual or lifetime limit.

Child and Dependent Care Credit

The Child and Dependent Care Credit is available for taxpayers who need to pay for childcare so they can work or look for work. This credit applies if your spouse is unavailable to provide care due to their own employment.

Many taxpayers think this credit is restricted to paying for care for your child or children, but that’s not the case. You can claim it if you must pay for care for an older dependent because they’re unable to care for themselves while you’re away from home.

The child and dependent care credit can be as much as 35% of your expenses, depending on your adjusted gross income (AGI). It drops to 20% if your AGI is more than $43,000 as of tax year 2024.

Tax Credit for Other Dependents

Most taxpayers are familiar with the Child Tax Credit, but did you know there’s a similar credit for other dependents? The Tax Credit for Other Dependents offers a $500 credit for dependents who do not qualify for the Child Tax Credit. There are no age restrictions for your dependent, unlike the Child Tax Credit, which requires your child to be younger than 17.

It covers qualifying relatives supported by you and dependents who aren’t related to you provided that they live with you. They must have a Social Security or Individual Taxpayer Identification Number and be a U.S. citizen, national, or resident alien. You can’t claim both the Child Tax Credit and the Tax Credit for Other Dependents for the same dependent.

The rules for this one can be a little complex, so the IRS provides an online tool to determine whether you and your dependent qualify. It takes about 10 minutes to complete.

The Saver’s Credit

The Retirement Savings Contribution Credit is commonly referred to as the “Saver’s Credit.” It’s equal to 10%, 20%, or 50% of the contributions you make to various retirement plans during the tax year. These plans include traditional and Roth IRAs, 401(k)s, and several others such as governmental plans, too.

You must be at age 18 to claim this credit, and it can’t be claimed as dependent on anyone else’s tax return. You also can’t be a student.

These percentages are based on your AGI as well. The income thresholds vary depending on your filing status such as whether you’re single, married, or filing as head of household. A single filer can’t claim this credit if their 2024 AGI is more than $38,250. Married taxpayers who file jointly are limited to AGIs of $76,500.

Tax Credits vs. Deductions

There are tax credits and then there are tax deductions. Many people confuse the two. Tax credits are generally better than deductions because they subtract directly from what you owe the IRS. Deductions subtract from your income to determine how much of it is subject to tax.

Important

Claiming tax deductions can put you in a lower tax bracket and that’s an advantage that can’t be overlooked. A disadvantage is that you can’t claim various deductions and take the standard deduction for your filing status, too. It’s an either/or decision.

Merlino notes some commonly overlooked tax deductions that can reduce your taxable income. “1) interest on money you borrow to buy an investment, 2) casualty and theft losses on income-producing properties, and 3) points paid when buying real estate.”

Points are those discount points you pay to reduce your mortgage interest rate when you purchase and finance a home. It has to be your principal residence and act as collateral for the mortgage.

You can also deduct state and local taxes you paid up to a limit and gambling losses. And yes, your gambling winnings are taxable.

Potential Changes in Tax Deductions

Some deductions were eliminated from the tax code in 2017, at least temporarily.

“After President Trump’s Tax Cuts and Jobs Act, many deductions that previously fell under ‘miscellaneous itemized deductions’ are now gone,” says Merlino. However, President Trump has indicated that he intends to extend portions of the Tax Cuts and Jobs Act in his second term when the act expires at the end of 2025.

The Bottom Line

Tax provisions including credits and deductions are a shifting landscape. Qualifying income levels for tax credits and how much the credits are are adjusted annually to keep pace with inflation. Legislation can play a big part as well.

These rules and limits are effective for the 2024 tax year for which you’ll file a return in 2025. Be alert for announcements regarding changes for 2026. The IRS usually makes them in mid-autumn.

Reviewed by JeFreda R. Brown

Face it, if you’re one of its regular customers, Uber knows more about you than your own mother does. It knows how often you get out, where you like to have lunch, where you go at night and when, or whether, you go home at the end of it.

Key Takeaways

• Uber’s data collection system is constantly in motion to match up drivers and riders. Its “surge pricing” draws in more drivers as needed.
• The company has made a number of marketing alliances, including many in the travel space.
• Its biggest rival, Lyft, has concentrated on partnering with medical services providers to provide non-emergency transport.

That makes Uber potentially a giant data-mine, just like Google, Visa, or Facebook. All of those companies can use the data to run their businesses more efficiently or develop their services more effectively. Or, they can sell it in batches to advertisers for delivery of customized advertising and promotions.

Here are some of the ways that Uber is using its data so far.

The Uber Disclaimer

First, it should be noted that Uber states that the data it constantly collects on both riders and drivers is “anonymized and aggregated.”

Whatever its other uses, the data is critical to its efficient 24-hour operation in more than 10,000 cities around the world. Uber knows where customers are waiting and where drivers are cruising, and it has to put them together fast. Tracking supply and demand allows them to implement “surge pricing,” boosting fares at peak times to draw more drivers out.

Marketing Partnerships

Uber’s customer base of mobile urban professionals is catnip to marketers looking for partners. The company has made the most of it, signing deals with Starwood Hotels & Resorts, American Airlines, Hilton Hotels, American Express, Capital One, PayPal, and Pepsi.

These partnerships can take many forms. Starwood offered extra points to Preferred Guest members who took Uber rides. American Airlines added an Uber reminder button to its app. Pepsi gave free DeLorean rides to London Uber riders.

Uber’s top competitor, Lyft, has also been active in the co-marketing space. It has been particularly successful in attracting partners like Allscripts and Blue Cross Blue Shield to expand its ride services for non-emergency healthcare transportation. 

Municipal Partners

If anybody is in need of some traffic data, it’s America’s city planners.

Starting with an initiative in Boston that began in 2015, Uber handed over data to city planners in hopes that it would help them understand how people move around Boston, or at least how they try to.

Important

The reach of the AMBER Alert program was broadened by adding Uber’s drivers to its notifications of missing children.

That experiment reportedly had mixed success in delivering information that was of use to city planners and policymakers trying to improve traffic flow and reduce congestion.

However, Uber is still trying. It has launched a site called Uber Movement that includes a searchable database of historical trip data from every city in which it does business.

AMBER Alert Program

Uber has partnered with the National Center for Missing & Exploited Children (NCMEC) to provide time-sensitive and critical AMBER Alerts to its drivers across the U.S.

According to Robert Hoever, director of special programs for NCMEC, “The AMBER Alert program’s success is built on the ability to reach the right people at the right time with these potentially life-saving messages. Uber’s presence in communities all across the country will be an incredible asset and we are proud to team up with Uber to increase the reach of the AMBER Alert program and help bring more missing children home safely.” 

Surge Pricing

While Uber didn’t invent dynamic pricing, it is largely responsible for raising public awareness of surge pricing. Surge pricing or peak pricing is the practice of temporarily raising prices during periods of high demand. In many ways, surge pricing is the truest expression of a business adjusting prices in real time based on supply and demand.

Uber uses geolocation data from users, drivers, and street traffic to assess the optimal price to charge users to ensure it can capture the most business possible and boost profits. When many users are requesting rides, and there are not enough drivers to meet demand, prices rise (surge). Uber can adjust pricing extremely accurately based on demand, surging prices in one neighborhood while lowering prices in the next based on user demand, driver availability, and traffic.

How Does Uber Match Riders With Drivers?

Uber uses a process known as batched matching to pair riders with drivers. Batched matching considers all the rides requested around the same time in a given area, calculates ETAs for those rides, and then assigns drivers to reduce the total wait time for users as much as possible. This means it doesn’t always connect drivers to the closest prospective rider but rather assigns rides to reduce the average wait time for everyone.

How Can You Avoid Uber Surge Pricing?

The best way to avoid surge pricing on Uber is to not request a ride during peak hours. To find out peak hours. Peak hours can vary, but are typically highest during rush hour, on weekends, and during events.

How Does Uber Use Rider Data?

Uber uses rider data in numerous ways, including understanding and resolving support tickets, finding and solving software bugs, and displaying trip history. It uses location data to match riders with available drivers and also to adjust pricing based on supply and demand in a given area.

The Bottom Line

Uber has partnerships with numerous entities, including marketing agreements with private brands and programs with municipal organizations. It shares rider data with these organizations to provide additional benefits to its users and react to time-sensitive and urgent situations such as AMBER Alerts. Uber also uses rider data to adjust pricing in real-time, raising the cost of using its services when demand for rides is high, and there are a limited number of available drivers.