You must report the death to the Social Security Administration

Fact checked by Suzanne Kvilhaug

When a beneficiary of Social Security or Supplemental Security Income passes away, their benefits must either be canceled or transferred to an eligible survivor.

There are several steps in the process. The first is reporting the death of the beneficiary to the Social Security Administration (SSA). If a death is not reported promptly, the survivors must repay the benefits received after the beneficiary’s death, including for the month the person died.

Key Takeaways

• Surviving family members are responsible for reporting the death of a beneficiary to the Social Security Administration.
• The report is crucial before applying for survivor benefits for eligible family members, including the spouse of the deceased and any dependents.
• Payments received after the death of the beneficiary must be returned to the SSA.

Reporting the Death to Social Security

The Social Security Administration sends benefit payments to a recipient until the person’s death is reported. This is routinely done by funeral homes but the real responsibility for reporting the death lies with the surviving family members.

This can be done by visiting the nearest Social Security office or by calling the SSA. To report the death you will need the beneficiary’s:

• Full legal name
• Social Security number (SSN)
• Dates of birth and death

If You Fail to File a Report

Failure to report a death in a timely manner can cause several problems.

First, any payments received after the beneficiary’s death—including for the month in which they passed away—must be returned to the SSA. This can be a real burden if, for example, the deceased beneficiary shared a joint account with a spouse and the spouse continued to spend benefits that were automatically deposited.

Second, spouses and children of a deceased beneficiary are often eligible to receive Social Security survivor benefits. These benefits cannot be collected until after the death is reported to the SSA.

Important

The death of a Social Security beneficiary must be reported by phone or in person. It cannot be reported online.

Who Is Eligible for Survivor Benefits?

When a Social Security recipient dies, the person’s spouse and several other surviving family members may be eligible to receive benefits.

Potential beneficiaries include ex-spouses, dependent children, and dependent parents.

Part of the process of signing up for survivor benefits includes reporting the decease in the family.

Role of the Funeral Home

In many cases, the funeral home that is handling burial arrangements will notify the SSA of the death. If this happens, the survivors do not also need to report the death.

If the funeral home does not report the death, a surviving family member must report it.

Understanding Social Security Survivor Benefits

After a Social Security beneficiary passes away, their survivors may be eligible for monthly Social Security benefits based on the beneficiary’s work record.

“This can provide additional financial support to the family of a deceased person who has contributed to the Social Security system,” explained Melissa Joy, CFP, CDFA, and president of financial advising group Pearl Planning. “This is a way to provide a financial safety net for more vulnerable survivors.”

Eligible survivors can be:

• Widows/widowers age 60 or older (50 or older if disabled)
• Widows/widowers of any age caring for the deceased’s child(ren) who are under age 16/disabled and receiving benefits
• Some divorced spouses
• Some non-married legal partners
• Children who are age 17 or younger/age 18-19 and in secondary school full-time
• Adult children with a disability that began before age 22
• Married children, stepchildren, grandchildren, or step-grandchildren in certain situations
• Dependent parents age 62 or older

Benefits are calculated based on the survivor’s relationship to the beneficiary, as well as the benefit the deceased was receiving. If multiple people in the same family are receiving benefits, the benefit each person receives may be reduced to stay within the “family maximum.”

Social Security Survivor Benefit Amounts
Relationship	Age	Percent of Beneficiary’s Benefit
Widow/widower/	Full retirement age (FRA)	100%
	60-FRA	71.5%-99%
	50-59	71.5%
Eligible ex-spouse	FRA	100%
	60-FRA	71.5%-99%
	50-59	71.5%
Widow/widower caring for an eligible child		75%
Child	17 or younger	75%
	18-19 and still in secondary school	75%
	any and disabled	75%
Parents	62 or older	75%
Sole surviving parent	62 or older	82.5%

To be eligible for survivor benefits, ex-spouses must have been married for at least 10 years and may not have remarried before age 60 (or age 50 if disabled). However, a former spouse does not have to meet either of these rules if they care for a child of the deceased beneficiary who is under 16 (or any age and disabled).

How long you receive benefits will depend on your age and your relationship to the deceased beneficiary.

“If you’re receiving benefits as the parent of a minor or disabled child, those benefits would end when the child turns 16 or is no longer disabled,” said Joy. “Then, they could begin again, depending on eligibility, at later retirement ages as early as age 60.”

If you are already retired, you can opt to continue receiving survivor benefits for the rest of your life, with the amount adjusted for inflation.

How to Apply for Social Security Survivor Benefits

If you believe you qualify for Social Security survivor benefits, you can begin your application process as soon as the death has been reported to the SSA. To apply for benefits, call the Social Security Administration or visit your local Social Security office. Though you don’t need an appointment, you may be seen more quickly if you have made one in advance.

Required Documentation

The Social Security Administration requires documentation to prove your identity, age, and relationship to the deceased beneficiary. The documents you need to provide will vary depending on your relationship. These include:

• Death certificate or other proof of beneficiary’s death
• Birth certificate or other proof of birth
• Proof of U.S. citizenship or proof of lawful alien status if you weren’t born in the U.S.
• W-2 form(s) for the previous year or tax return if self-employed
• Marriage certificate if applying as a spouse
• Divorce decree if you are applying as a divorced surviving spouse
• Medical forms describing a disability if you have one

Important

You can apply with photocopies of forms such as medical documents, W-2s, or tax returns. However, you will need to provide original copies of other documents, such as a birth certificate and proof of citizenship. These will be returned to you after your application has been processed.

Interview and Questions

In addition to providing documentation, the SSA will conduct a short interview. The questions asked will depend on your situation and will likely cover:

• Your name, Social Security number, date of birth, and place of birth
• The deceased beneficiary’s name, Social Security number, date of birth, date of death, and place of death
• Citizenship status
• Previous applications for Social Security, Medicare, or Supplemental Security Income benefits
• Your work and earnings history, including any military service, railroad industry service, inability to work due to disability, government pension, or work in a foreign country
• The deceased beneficiary’s work and earnings history, including any military service, railroad industry service, inability to work due to disability, government pension, or work in a foreign country
• Previous marriages, spouses, and divorces
• Any dependent parents or children

If you intend to set up direct deposit, bring your banking information to the interview.

Other Considerations for Survivor Benefits

If you are a widow, widower, or surviving divorced spouse, you can switch to your own Social Security benefits, rather than survivor benefits, after you turn 62.

If you do intend to eventually claim your own Social Security benefits, remember that your benefit amount will increase the longer you delay taking retirement benefits between age 62 and 70.

If you work while receiving survivor benefits, the size of your benefits can be reduced. If you are younger than full retirement age, your benefit amount can be reduced by $1 for every $2 you earn that exceeds the annual limit ($23,400 in 2025). In the year you reach full retirement age, your benefits can be reduced by $1 for every $3 earned above a new limit ($62,160 in 2025) until the month you reach full retirement age.

Choosing Your Best Option

Working with a financial planner can help you make the best plan for your Social Security benefits, including any survivor benefits.

“I’ve had cases where the higher-earning spouse has a lower life expectancy due to chronic health conditions where claiming early, if single, [would have made] sense,” said Joy. “But, since their spouse would be receiving a lower benefit when they pass away, they’ve chosen to wait to claim.”

“If you have considered your options but don’t want to make changes now, you might pre-plan for contingencies or changes you would be comfortable with if either spouse were to pass away early,” suggested Joy. “This can help reduce anxiety and make you feel like you have a shared plan in case one of you is navigating a new financial normal on your own.”

The Bottom Line

The death of a loved one can come with unexpected logistical concerns, and one of these is notifying the Social Security Administration of the death.

Fortunately, reporting a death is not difficult. Many funeral homes will handle notifying the SSA; otherwise, you can report it with a phone call or a visit to your local Social Security office.

Delays can be financially and legally costly, especially if you end up being forced to return several months’ worth of benefits to the SSA.

And if you or anyone else are entitled to claim survivor benefits based on the deceased beneficiary’s work record, those applications cannot be processed until after the death is reported to the SSA.

How To Actually Buy Your First Home

Buying a home is the largest purchase most people will make in their lifetime. In today’s market of high mortgage rates, low inventory, and high prices, that big financial decision can quickly become an emotional—and intimidating—one.

As a first-time homebuyer, I can relate. When my partner and I started our buying journey in 2021, mortgage rates were lower, but inventory in my area was almost non-existent. Buyers were bidding tens of thousands of dollars over the asking price, bypassing inspections (don’t do this), and engaging in other financially risky behaviors like waving contingencies and paying for extra repairs to win deals. It was discouraging, to say the least. 

I quickly learned that while buying a home for the first time is a big deal, what matters most is patience, flexibility, and building a great team (such as a realtor, lender, lawyer, and even your local friend and colleague network). Our realtor helped us make smart, not rash, decisions. By shopping around for a lender, we secured a pre-underwritten mortgage that looked like a cash offer to sellers, giving our first-time buyer budget a leg up on the competition. Within a few months, we closed on our first home. 

Now it’s your turn. 

Investopedia talked to four real-life, first-time buyers who shared their stories. They mapped out their journeys, walking us through their timelines and offering creative insights on how to buy. Our biggest takeaway? There isn’t one single method to purchase a home, and with a little outside-the-box thinking, persistence, and teamwork, you can secure not just a property you love, but one you can actually afford. 

We hope these stories offer encouragement and motivation and that our supporting library helps inform every stage of your homebuying journey. Investopedia is here for you each step of the way. 

–Sienna Wrenn, Associate Editorial Director, Investopedia Special Projects

Fact checked by Vikki Velasquez

A professional home inspection is one of the most important steps in the homebuying process. It can alert you to any problems with the property that you might not have noticed or that the seller failed to mention. Depending on what the inspector finds, it can, in some cases, also give you leverage to negotiate for a better price or other concessions. Here’s what you need to know about home inspections and how to make the best use of one.

Key Takeaways

• Having a professional inspection before you finalize your home purchase is especially important for first-time buyers.
• It can flag any problems with the property that need to be fixed.
• If the inspector discovers significant issues, you may be able to negotiate a price reduction or other valuable concessions from the seller.
• How much leverage you’ll have in a negotiation can depend on the state of the real estate market at the time.

Understanding Home Inspections

Home inspections are usually optional. But having one is a very good idea. Eloise Gauthier of Gauthier Real Estate in Lafayette, Louisiana said she recommends inspections to 100% of the buyers she works with, adding that they’re especially important for first-timers, who “may not know what they’re getting into.”

While state and local laws generally require sellers to disclose any serious defects and other pertinent matters that might affect a home’s value, an inspection can verify the accuracy of their disclosures and point out any significant issues that even the seller might not have been aware of.

Note

Many home purchase contracts contain an inspection contingency clause, making the sale contingent on a satisfactory inspection.

What a Home Inspection Entails

Home inspections can vary in their thoroughness. So it’s worth asking any inspector that you are considering for a sample of their typical inspection report, suggested Eric Tyson, a financial counselor and co-author of the book Home Buying Kit for Dummies, now in its eighth edition. “You want a report that details any negatives and deficiencies, not just a checklist,” he said.

In general, a proper inspection should take two to three hours, depending on the size and condition of the home, the National Association of Realtors (NAR) said. The buyer should try to be there so the inspector can point out any issues they find. For first-time buyers, in particular, this can be a valuable opportunity to learn how the various systems in the home (heating, plumbing, etc.) work and what’s necessary to maintain them.

You can find local inspectors on the American Society of Home Inspectors (ASHI) websites or the International Association of Certified Home Inspectors (InterNACHI). You can also ask for recommendations from your lawyer if you have one, or from your real estate agent. Remember that real estate agents can have a potential conflict of interest here. “Sometimes agents don’t like tough inspectors—also known as ‘deal killers,'” Tyson cautioned.

Expect to pay from $300 to $500 for the inspection, although in some cases, you might be able to get the seller to cover the cost as part of your deal.

The Home Inspection Report

A good inspection report will cover the home from top to bottom, inside and out. The NAR’s Realtor.com website said that the report should pinpoint any issues involving the home’s:

• Grounds 
• Structure
• Roof
• Exterior 
• Windows, doors, trim  
• Kitchen  
• Bathrooms
• Plumbing  
• Electrical systems

Common Issues Found in Home Inspections

The inspector may discover problems that need immediate attention or things that you will want to keep an eye on in the future, such as a roof or hot-water heater that’s nearing the end of its life. Inspectors might also suggest upgrades to consider when you have some money to spare.

According to the NAR, “Some common problems inspectors look for are structural or foundation problems, improper drainage that could damage the structure over time, faulty wiring that could disqualify a home from being insured, HVAC system issues, and safety issues such as tripping hazards or too few smoke alarms or carbon monoxide detectors.”

If the repair is urgent and/or costly, you have several options. One is to ask the seller to fix the problem before the deal goes through or to reduce the sale price accordingly.

Important

In some states, the seller is legally required to remedy any structural deficiencies, building code violations, or safety issues, the NAR said on another of its websites, Houselogic.com.

Using the Inspection Report To Negotiate

As mentioned, if your inspection uncovers certain kinds of problems, the seller could be legally required to fix them before they can sell the home to you or anyone else.

Otherwise, you may be able to use the results of your inspection report to negotiate a better deal than you and the seller initially agreed to. That could mean a lower price or some other type of concession, such as covering a portion of your closing costs or buying a home warranty for you. Gauthier, also an NAR regional vice president, said that sellers are often willing to pay for at least a one-year home warranty, which the new owner can later renew if they wish to.

If repairs are necessary but not required by law, having the seller arrange and pay for them before you move in will save you some time and bother. However, you’ll have more control over the result if you can choose your contractors and supervise their work.

What to ask for—and how likely you are to get it—will depend, in large part, on how eager the seller is to close the deal. Your real estate agent may be of help here. And while it probably goes without saying, it’s wise to be cordial about it. Even if you feel you have the upper hand, Tyson said, “Don’t beat up” on the seller, or they may simply tell you to buzz off.

Bear in mind, too, that contingency clauses carry a deadline, and if you don’t reach a satisfactory deal (or call it off altogether) before that time, the seller may be entitled to keep any earnest money or deposit you put up when you signed the initial contract.

Market Conditions and Their Impact on Home Inspection Negotiations

How much leverage you’re likely to have in negotiating will also depend on whether you’re facing a buyer’s market or a seller’s market. In a buyer’s market, the supply of available homes will exceed the demand, while in a seller’s market, the opposite is true. 

If you’re lucky enough to be in a buyer’s market, the seller will usually be more eager to make a deal with you than they would otherwise. In a seller’s market, several potential buyers may be willing to meet their price, so you could have little or no room to negotiate. 

In a really tight seller’s market, buyers will sometimes make an offer with no inspection contingency clause. That can give you an edge over other would-be buyers who insist on one. However, you’ll be taking a calculated risk that there is nothing seriously wrong with the property. 

When To Walk Away From the Deal

If you’re unable to reach what you consider a reasonable arrangement with the seller, your ultimate recourse is simply to call off the deal, walk away, and look for another home. (Remember to do it before your contingency clause expires, however.)

You might want to walk away if the inspection discovers problems that the seller refuses to fix or if they won’t drop their price enough for you to deal with the matter yourself. Even if they are open to coming down in price, you need to consider how much time and energy you’re willing to put into the project. Unless the housing market is incredibly tight, there are likely to be other homes out there that will be less of a hassle, and you’ll enjoy just as much. 

How Can a Buyer Prepare for a Home Inspection?

First, plan to attend the inspection if possible. Before the inspection, jot down any questions or concerns you have based on your earlier visits to the home. If an appraiser has already been through the home, and you have read their report, plan to point out any issues they may have raised. Come equipped to take notes; it’s likely to be a few days before you receive an official report from the inspector.

What Should a Buyer Do if a Seller Refuses To Negotiate After an Inspection?

At that point, you’ll have to decide whether you want to go through the deal anyway or simply walk. If the inspector has pointed out problems that need to be remedied, consider how urgent they are, how expensive they’re likely to be, and whether you can reasonably
afford them. No matter how much you love the place, try to make a dispassionate decision. Even people whose new homes don’t need any work at all often experience buyer’s remorse; think how remorseful you’ll feel if yours turns out to be a money pit.

What Are the Legal Implications of Walking Away From a Deal After an Inspection?

Generally speaking, if the inspection contingency clause is still in effect, you can walk away without any legal issues. But laws can vary from place to place, so be sure to read your contract and consult your real estate agent.

The Bottom Line

Unless you happen to be a home inspector yourself, paying a pro to check out any property you’re considering buying is almost always worth the money. An inspection may more than pay for itself if it turns up issues that give you the leverage to negotiate a lower price or other concessions from the seller.

How much leverage you’re likely to have will depend on the state of the real estate market at the time and how eager that seller is to make a deal. But, as Eric Tyson put it, “you don’t have much to lose by trying to negotiate something with the seller. The worst that can happen is they’ll say no.”

Reviewed by Eric Estevez
Fact checked by Michael Logan

A company’s balance sheet, also known as a “statement of financial position,” reveals the firm’s assets, liabilities, and owners’ equity (net worth) at a specific point in time. The balance sheet, together with the income statement and cash flow statement, makes up the cornerstone of any company’s financial statements.

If you are a shareholder of a company or a potential investor, it is important to understand how the balance sheet is structured, how to read one, and the basics of how to analyze it.

Key Takeaways

• The balance sheet is a key financial statement that provides a snapshot of a company’s finances.
• The balance sheet is split into three sections: assets, liabilities, and owners’ equity.
• A balance sheet must balance out where assets = liabilities + owners’ equity.
• Assets and liabilities are split into long-term and short-term.
• Equity is the remainder value when liabilities are subtracted from assets.

How the Balance Sheet Works

The balance sheet is divided into three parts that, based on the following equation, must equal each other or balance each other out. The main formula behind a balance sheet is:

Assets = Liabilities + Shareholders’ Equity

This means that assets, or the means used to operate the company, are balanced by a company’s financial obligations, along with the equity investment brought into the company and its retained earnings.

Assets are what a company uses to operate its business, while its liabilities and equity are two sources that support these assets. Owners’ equity, referred to as shareholders’ equity, in a publicly traded company, is the amount of money initially invested into the company plus any retained earnings, and it represents a source of funding for the business.

Assets are at the top of a balance sheet, and below them are the company’s liabilities, and below that is shareholders’ equity. A balance sheet is also always in balance, where the value of the assets equals the combined value of the liabilities and shareholders’ equity.

Within each section, the assets and liabilities sections of the balance sheet are organized by how current the account is. So, for the asset side, the accounts are typically classified from most liquid to least liquid. For the liabilities side, the accounts are organized from short- to long-term borrowings and other obligations.

Important

It is important to note that a balance sheet is just a snapshot of the company’s financial position at a single point in time.

Types of Assets

Current (Short-Term) Assets

Current assets have a lifespan of one year or less, meaning they can be converted easily into cash. Such asset classes include cash and cash equivalents, accounts receivable, and inventory.

Cash, the most fundamental of current assets, also includes non-restricted bank accounts and checks. Cash equivalents are very safe assets that can be readily converted into cash; U.S. Treasuries are one such example.

Accounts receivable (AR) consist of the short-term obligations owed to the company by its clients. Companies often sell products or services to customers on credit; these obligations are held in the current assets account until they are paid off by the clients.

Lastly, inventory represents the company’s raw materials, work-in-progress goods, and finished goods. Depending on the company, the exact makeup of the inventory account will differ.

For example, a manufacturing firm will carry a large number of raw materials, while a retail firm carries none. The makeup of a retailer’s inventory typically consists of goods purchased from manufacturers and wholesalers.

Non-Current (Long-Term) Assets

Non-current assets are assets that are not turned into cash easily, are expected to be turned into cash within a year, and/or have a lifespan of more than a year. They can refer to tangible assets, such as machinery, computers, buildings, and land.

Non-current assets can also be intangible assets, such as goodwill, patents, or copyrights. While these assets are not physical in nature, they are often the resources that can make or break a company—the value of a brand name, for instance, should not be underestimated.

Depreciation is calculated and deducted from most of these assets, which represents the economic cost of the asset over its useful life.

Types of Liabilities

On the other side of the balance sheet are the liabilities. These are the financial obligations a company owes to outside parties. Like assets, they can be both current and long-term.

Current (Short-Term) Liabilities

Current liabilities are the company’s liabilities that will come due, or must be paid, within one year. This includes both shorter-term borrowings, such as accounts payable (AP), which are the bills and obligations that a company owes over the next 12 months (e.g., payment for purchases made on credit to vendors).

The current portion of longer-term borrowing, such as the latest interest payment on a 10-year loan, is also recorded as a current liability.

Non-Current (Long-Term) Liabilities

Long-term liabilities are debts and other non-debt financial obligations, which are due after a period of at least one year from the date of the balance sheet. For instance, a company may issue bonds that mature in several years’ time.

Shareholders’ Equity

Shareholders’ equity is the initial amount of money invested in a business. If at the end of the fiscal year, a company decides to reinvest its net earnings into the company (after taxes), these retained earnings will be transferred from the income statement onto the balance sheet and into the shareholders’ equity account.

This account represents a company’s total net worth. In order for the balance sheet to balance, total assets on one side have to equal total liabilities plus shareholders’ equity on the other side.

How to Read a Balance Sheet

Below is a corporate balance sheet for Walmart as of Jan. 31, 2025:

Source: Walmart, Inc.

As you can see from the balance sheet above, Walmart had a large cash position of $9 billion in 2025, and inventories valued at over $56.4 billion. This reflects the fact that Walmart is a big-box retailer with its many stores and online fulfillment centers stocked with thousands of items ready for sale.

On the liabilities side, Walmart has $58.7 billion in accounts payable, likely money owed to the vendors and suppliers of many of those goods. Subtracting total liabilities from total assets, Walmart had a large positive shareholders’ equity value, over $97.4 billion.

Analyzing a Balance Sheet With Ratios

With a greater understanding of a balance sheet and how it is constructed, we can review some techniques used to analyze the information contained within a balance sheet. The main technique is financial ratio analysis.

Financial ratio analysis uses formulas to gain insight into a company and its operations. For a balance sheet, using financial ratios (like the debt-to-equity (D/E) ratio) can provide a good sense of the company’s financial condition, along with its operational efficiency.

It is important to note that some ratios will need information from more than one financial statement, such as from the balance sheet and the income statement.

Looking at Walmart’s balance sheet above, we can see that the debt-to-equity ratio as of Jan. 31, 2025 was:

D/E = Total Liabilities / Total Shareholders’ Equity = $163.4 billion / $97.4 billion = 1.68.

The result means that WMT had $1.68 of debt for every dollar of equity value. Generally speaking, a D/E ratio under 2.0 is favorable.

Important ratios that use information from a balance sheet can be categorized as liquidity ratios, solvency ratios, financial strength ratios, and activity ratios. Liquidity and solvency ratios show how well a company can pay off its debts and obligations with existing assets.

Financial strength ratios, such as the working capital and debt-to-equity ratios, provide information on how well the company can meet its obligations and how the obligations are leveraged. These ratios can give investors an idea of how financially stable the company is and how the company finances itself.

Activity ratios focus mainly on current accounts to show how well the company manages its operating cycle (which includes receivables, inventory, and payables). These ratios can provide insight into the company’s operational efficiency.

Explain Like I’m 5

People are generally familiar with their own personal finances: what they own and what they owe. What you own, like your laptop, car, and house, are your assets. These are balanced against what you owe, such as your mortgage, loans, or credit card debt. The difference between the two is your net worth: what’s truly yours.

The balance sheet of a company works in the same way. It lists everything a company owns (assets), such as cash, equipment, and inventory, and balances that against everything it owes (liabilities), such as loans and unpaid bills to suppliers. The difference between assets and liabilities is shareholders’ equity, the owners’ stake in the company, which is the same idea as net worth.

The balance sheet provides a snapshot of a company’s financial condition at a specific moment. From it, people can understand a company’s financial health. If a company has more assets than liabilities, it is generally in a better financial condition. If the opposite is true, it may face financial difficulties.

Understanding the balance sheet enables investors, analysts, and managers to make informed decisions about investing and strategy.

How Will I Use This in Real Life?

Understanding what a balance sheet can tell you will help you in investing and making informed financial decisions. A company’s balance sheet will tell you if it is in a stable financial condition or struggling with debt. Based on other factors about the company, you can determine whether it’s a good investment or if you might lose your money.

Similarly, you can organize your own finances like a balance sheet to get a clear understanding of your own financial profile. This can help you with budgeting, planning for future expenses, and setting financial goals.

What Can You Tell From Looking at a Company’s Balance Sheet?

Balance sheets give an at-a-glance view of the assets and liabilities of the company and how they relate to one another. The balance sheet can help answer questions such as whether the company has a positive net worth, whether it has enough cash and short-term assets to cover its obligations, and whether the company is highly indebted relative to its peers. Fundamental analysis using financial ratios is also an important set of tools that draws its data directly from the balance sheet.

What Are the Main Things Found on a Balance Sheet?

The balance sheet includes information about a company’s assets and liabilities, and the shareholders’ equity that results. These things might include short-term assets, such as cash and accounts receivable, inventories, or long-term assets such as property, plant, and equipment (PP&E). Likewise, its liabilities may include short-term obligations such as accounts payable to vendors, or long-term liabilities such as bank loans or corporate bonds issued by the company.

Does a Balance Sheet Always Balance?

Yes, the balance sheet will always balance since the entry for shareholders’ equity will always be the remainder or difference between a company’s total assets and its total liabilities. If a company’s assets are worth more than its liabilities, the result is positive net equity. If liabilities are larger than total net assets, then shareholders’ equity will be negative.

The Bottom Line

A balance sheet, along with the income and cash flow statement, is an important tool for investors to gain insight into a company and its operations. It is a snapshot at a single point in time of the company’s accounts, covering its assets, liabilities, and shareholders’ equity.

The purpose of a balance sheet is to give interested parties an idea of the company’s financial position, in addition to displaying what the company owns and owes. It is important that all investors know how to use, analyze, and read a balance sheet. A balance sheet may give insight or reason to invest in a stock.

It has to do with who is allowed to participate in the plan

Reviewed by David Kindness
Fact checked by Jiwon Ma

Two types of Internal Revenue Service (IRS)-sanctioned, tax-advantaged employee retirement savings plans are the 401(k) plan and the 457 plan.

These retirement savings accounts were each designed to serve as one leg of the famous three-legged stool of retirement: workplace pension, Social Security, and personal retirement savings. As employers have transitioned away from workplace pensions, however, personal retirement savings have increasingly come to serve as most people’s primary retirement plan, along with Social Security. (This can be a 401(k) or a 457, but it doesn’t have to be.)

Key Takeaways

• 401(k) plans and 457 plans are tax-advantaged retirement savings plans.
• 401(k) plans are offered by private employers, while 457 plans are offered by state and local governments and some nonprofits.
• The two plans are very similar, but because 457 plans are not governed by ERISA, some aspects, such as catch-up contributions, early withdrawals, and hardship distributions, are handled differently.

They share similar features. Like 401(k)s, 457 plans are funded via employee payroll deductions. A participant sets aside a percentage of their pretax salary to put into their retirement account. This money compounds without being taxed until it is withdrawn, typically in retirement.

That’s the traditional way—but now, many plans also offer a Roth option. With a Roth account, the contributions are taxed upfront, and—as long as the account has been open for at least five years and the participant is at least age 59½—any subsequent growth and withdrawals are not taxed.

Both plans also allow for early withdrawals in limited circumstances. (However, the qualifying circumstances for early withdrawal eligibility may be different.) And contributions to both plans qualify employees for a saver’s tax credit. It is also possible to take loans from both 401(k) and 457 plans.

Though 401(k) plans and 457 plans operate similarly, there are differences, including who is allowed to participate in each one.

401(k) Plans

401(k) plans are offered by private, for-profit employers and some nonprofit employers. They are the most common type of defined contribution retirement plans. Notably, 401(k) plans are considered qualified retirement plans and are therefore subject to the Employee Retirement Income Security Act (ERISA) of 1974.

Employers sponsoring 401(k) plans may make matching or non-elective contributions to the plan on behalf of eligible employees. Earnings in a 401(k) plan accrue on a tax-deferred basis. At the same time, 401(k) plans offer a menu of investment options that are prescreened by the sponsor, and participants choose how to invest their money.

The plans have an annual maximum contribution limit of $23,500 for 2025 ($23,000 for 2024). For employees age 50 or older, the plans contain a catch-up provision that allows you to contribute an additional $7,500 for 2024 and 2025.

Withdrawals from a 401(k) taken before age 59½ result in a 10% early withdrawal tax penalty. However, plan participants can make early withdrawals without a penalty from a 401(k) under financial hardship, which is defined by the plan.

Important

Contribution limits for all plans are increased every year to account for inflation.

457 Plans

457(b) plans are IRS-sanctioned, tax-advantaged employee retirement plans offered by state and local public employers and some nonprofit employers. They are some of the least common defined contribution retirement plans.

The annual maximum contribution limit for 457 plans is $23,500 for 2025 ($23,000 for 2024). For employees age 50 or older, the plans contain a catch-up provision that allows up to $7,500 in additional contributions for 2024 and 2025.

However, 457 plans are a type of non-qualified retirement plan: They are not governed by ERISA. As such, the Internal Revenue Service (IRS) does not assess an early withdrawal penalty for 457 plan participants who take money out before age 59½, though the amount taken is still subject to normal income taxes.

Notably, 457 plans feature a double-limit catch-up provision that 401(k) plans do not have. This provision is designed to allow participants who are nearing retirement to compensate for years in which they did not contribute to the plan but were eligible to do so. This provision allows an employee to contribute up to $47,000 to a plan for 2025. For 2024, it was up to $46,000.

With 457 accounts, hardship distributions are allowed after an “unforeseeable emergency,” which must be specifically laid out in the plan’s language.

Both public government 457 plans and nonprofit 457 plans allow independent contractors to participate.

Special Considerations

It is possible to contribute to both a 401(k) plan and a 457 plan at the same time. Many large government employers offer both plans. In such cases, the joint participant can contribute the maximum amounts to both.

What Is the Contribution Limit for a 401(k) Plan?

The contribution limit for a 401(k) plan is $23,500 in 2025 and $23,000 in 2024. For both tax years, those age 50 or older can contribute an additional $7,500.

Can I Contribute to Both a 401(k) and an IRA?

Yes, you can contribute to both a 401(k) and an individual retirement account (IRA)—either a traditional IRA or a Roth IRA. IRAs and 401(k)s are different types of plans. You can only contribute to a 401(k) if your employer offers one. Anyone can contribute to an IRA. Just ensure that you abide by the contribution limits.

How Do You Open an IRA?

Most banks and brokerage companies offer IRAs. You can simply inquire at your bank or brokerage or open one online at most financial institutions.

The Bottom Line

The 401(k) and the 457 are retirement plans offered by employers to their employees to save for retirement. They are similar in almost every way with a few distinctions, the primary one being that 401(k)s are offered by private employers while 457 plans are offered by local governments and some nonprofits.

If you have a question about what’s on offer, check with your employer or plan administrator.

You’re discussing a recent market dip in a social media investment forum when a message arrives. Someone claiming to represent a famous investor such as Bill Ackman or Cathie Wood has noticed your comments and offers to include you in an exclusive investment group where they trade tips on accumulating extraordinary returns. Their profile looks legit, complete with professional credentials and up-to-date market analysis. Soon, you’re in a private WhatsApp group with other “successful investors,” feeling like you’ve been specially selected for an insider opportunity.

However, it’s all part of an elaborate scam the Financial Industry Regulatory Authority (FINRA) says has been exploding across digital platforms.

Key Takeaways

• Imposter fraud has been taken to a new level as scammers imitating well-known investors are sliding into direct messages and social media feeds.
• According to recent U.S. Federal Trade Commission (FTC) data, Americans lost $12.5 billion to fraud and identity theft in 2024, with almost half that figure coming from investment scams.

Investment Scams Succeed More Now, Despite Warnings

According to the FTC, Americans lost $5.7 billion in 2024 to investment scams, a 24% increase from the previous year and a 50% jump over two years. Most concerning is that scammers are becoming even more effective. The percentage of people who reported losing money to fraud jumped dramatically, from 27% in 2023 to 38% in 2024, about a 40% increase in the success rate for scammers.

Thus, despite officials and financial experts warning numerous times about ID theft and fraud, scam artists have only become more successful in recent years. Marti DeLiema, assistant research professor at the University of Minnesota, Twin Cities, told a FINRA roundtable on fraud that she and her colleagues have found that most educational initiatives can only have so much impact. “Maybe the biggest limitation of consumer protection education is that it has … short-term effects,” she said.

One reason is simply that scam artists aren’t sitting still as people are educated about the previous generation of scams. “Fraud tactics are constantly changing,” Duygu Başaran Şahin, a researcher at the RAND Center for the Study of Aging, said in the same FINRA discussion. But there’s also something counterintuitive at work: “People with higher financial literacy and with more education were more likely to engage with scammers,” he said.

Also, according to the FTC, contrary to stereotypes, young people reported losing money to fraud more often than older people—44% were 20-29 years old, while only 24% were 70-79 years old.

Even experienced investors with market knowledge are often duped by the increasingly sophisticated techniques scammers employ. The examples abound: A construction company owner who regularly followed market trends losing half his savings, a Nashville couple with investment experience getting taken for $1.3 million. A February 2025 survey of 2,000 high-net-worth individuals by Saltus in the U.K. found that a third (33%) had been victims of fraud and other cybercrime.

How Wall Street Guru Scams Operate

So, it’s not just the elderly, naive, or inexperienced who are taken in. What’s more, guru impersonation scams are often as carefully staged as any Broadway production. The first step typically involves identity theft, as scammers create convincing online impersonations of well-known financial figures like Bill Ackman, Cathie Wood, or even Warren Buffett. These fake profiles appear on platforms where potential victims already spend time discussing investments. The scammers might begin to engage the target by commenting on market trends or offering general advice.

Once they’ve established basic credibility, scammers move the conversation to private messaging groups on platforms like WhatsApp or Telegram. Once there, the targets witness what appears to be a community of successful investors sharing tips on earning substantial profits. In reality, most or all of these “members” are fake accounts operated by the scammers. These manufactured success stories build a sense of FOMO (fear of missing out) that drives victims to participate, while the scammers pepper in mainstream advice to develop and keep credibility.

As trust deepens, the scam takes the exploitative turn it was always headed for. The targets are encouraged to invest in low-priced, low-volume stocks, often penny stocks, on foreign exchanges where prices are more easily manipulated. This follows the classic “pump-and-dump” pattern, where fraudsters manipulate stock prices through misleading promotional campaigns.

The Bottom Line

Investment scams continue to evolve at an alarming pace, and with the help of AI, fraudsters are becoming more sophisticated at creating their bogus scenarios, while cryptocurrencies help make their ill-gotten earnings untraceable afterward.

Meanwhile, we’re ever more accessible to them. “Fraudsters can get us with emails, texts, social media, even phone calls still 24/7,” said Gary Mottola, research director for the FINRA Foundation. “The odds [of getting duped] have increased dramatically with technology [that] the fraudsters [can use to dupe the unwitting].”

Fact checked by Stella Osoba

After emerging under the hashtag #NoBuy on TikTok in 2024, a growing counter-movement to relentless consumerism has formed under the banner “No-Buy 2025.” Taking off from a mix of economic pessimism, environmental concerns, and academic insights on overconsumption, this movement is challenging the culture of perpetual buying and spending.

David Tenerelli, a certified financial planner at Values Added Financial Planning, told Investopedia that most people are facing “systemic headwinds” financially because of major spikes in college and housing costs, inflation more generally, and the significant economic shocks of the past two decades.

Within this context, it’s no surprise that what began as a minimalism movement among Gen-Z on social media like TikTok and Reddit Inc. (RDDT) has evolved into a broader social phenomenon, with participants pledging to limit their spending to only essential items throughout the year while avoiding discretionary purchases entirely.

Key Takeaways

• “No Buy 2025” (with some practicing “Low Buy 2025”) is a call to pause unnecessary spending amid growing economic pressure and environmental concerns.
• While the goals behind the movement can be both practical and noble, there could be unintended consequences for some, including eventual splurging.

What’s Driving the ‘No-Buy’ Pledges

The No-Buy 2025 challenge has resonated particularly with younger generations, given their economic anxiety. Consumer confidence is much lower than in the pre-pandemic period. Then there’s the “proliferation of social media and the resulting widespread status orientation, overconsumption, and the mental health challenges” that can result, Tenerelli said.

The movement offers a shift away from this overconsumption, with some participants mentioning climate change and global inequities as among the reasons for taking the pledge. “No-Buy” participants say they’ve also discovered the fun of free activities like visiting parks and libraries, as well as using items that fell by the wayside when they were constantly shopping.

Note

Many participants report that the challenge isn’t about saving for a specific goal but making sure they can afford basic necessities like groceries and household items in an increasingly expensive economy.

10 Tips for ‘No-Buy 2025’

Tenerelli suggested a good way to get started is to identify and define your values, all to better align your spending with them. You can also help yourself succeed by checking your spending and making it as concrete as possible.

“Where are you spending your money—really, each dollar? And then start to translate your purchases into actual hours worked, and determine whether each purchase is worth it in terms of fulfillment, nourishment, and value,” he said.

Here are ways you might find more success once you’ve decided to take the pledge:

1. Define clear, personalized rules: Decide which categories are off-limits (clothing, beauty products, home decor) and which are allowed.
2. Create a “why” document: Document the values or motivations behind taking the pledge and hold yourself accountable. Review these when temptation strikes.
3. Find an accountability partner: Connect with others attempting the challenge or join online communities like r/nobuy (67.5K+ members) to get help with your struggles and share your victories.
4. Track your progress: A calendar with stickers, a spreadsheet that calculates savings, or a dedicated journal to document your progress will all do.
5. Delete shopping apps and unsubscribe from retail emails: Get rid of the spending triggers from your digital environment.
6. “Shop your stash”: Before you buy something, inventory what you own—do you need it?
7. Use a waiting period: For any non-essential purchase, add it to a list with the date. Revisit it after 30 days and see if you still want it.
8. Replace shopping with free activities: Develop hobbies that don’t require spending, like hiking, reading library books, or “shopping” your own closet for new outfit combinations.
9. Redirect savings immediately: Move money you would have spent into a separate high-yield savings account, CD, or investment portfolio to prevent it from being spent too easily.
10. Practice mindful consumption: When you need to buy something, do your research, buy quality items that last, and ensure they align with your values and long-term needs.

Wallets Closed, Eyes Open: Potential Drawbacks

The No-Buy 2025 movement could have drawbacks, both personally and economically. Overly restrictive spending rules might backfire with eventual “spending binges” that exceed what would have been spent otherwise. An all-or-nothing approach can create unhealthy relationships with money, replacing overconsumption with obsessive austerity.

Some people may feel socially isolated when they can’t join friends and family for activities that involve spending, which can be a problem for important relationships. Some participants could develop anxiety around any spending, even on necessities, making a more balanced approach of mindful consumption potentially more sustainable for many.

Lastly, there are the broader economic effects: Consumer spending accounts for nearly 70% of U.S. GDP, and widespread adoption of no-buy principles would affect employment in the retail and service sectors and tax revenues for local and state governments. Small businesses, which often operate on thin margins and depend on steady customers, may be particularly vulnerable.

The Bottom Line

“No Buy 2025” is more than just a call for cutting one’s spending—it is a reflective campaign urging consumers to consider the long-term implications of their buying habits on the environment, social equity, and their financial stability. While there are potential drawbacks, getting “on track for a more sustainable relationship with money,” Tenerelli said, can help you see it’s not an end in itself, but a “tool for achieving a deeper life satisfaction.”

Reviewed by Marguerita Cheng
Fact checked by David Rubin

Registered Retirement Savings vs. Registered Pension: an Overview

Registered retirement savings plans (RRSP) and registered pension plans (RPP) are both retirement savings plans that are registered with the Canada Revenue Agency (CRA). RRSPs are individual retirement plans, while RPPs are plans established by companies to provide pensions to their employees. The two plans are comparable to defined-contribution savings plans and defined-benefit pension plans in the United States.

Key Takeaways

• Registered retirement savings plans (RRSP) and registered pension plans (RPP) are Canadian retirement vehicles.
• An RRSP is a retirement savings and investment account for individuals, including employees and the self-employed.
• An RPP is an employee pension plan, funded by either the employer and the employee or in some cases, just the employer.
• The two plans are similar to defined-contribution savings plans and defined-benefit pension plans that are offered in the United States.
• Money is generally deposited pre-tax, and investment income grows tax-free, but tax is paid upon distribution.

Registered Retirement Savings Plan

A registered retirement savings plan is a retirement savings and investment account for employees and self-employed people in Canada. Contributions are made before taxes, but distributions are taxed at the marginal rate. If someone is taxed at a rate of 30% and they contribute $1,000 to an RRSP, the entire sum is applied to the account. In contrast, if the individual took those funds in wages, they would pay $300 in income taxes.

Individuals are allowed to contribute up to 18% of their earned income annually to their RRSP, up to an annually adjusted cap ($32,490 for the 2025 tax year and $33,810 for 2026).

You can find your maximum deduction limit on your latest notice of assessment or on Form T1028, Your RRSP Information. However, if your taxable income has changed from the previous tax year, your contribution limit has also changed.

If you have not made maximum contributions in previous years, however, you may add the value of contributions that were allowed but not made to your current year’s allowance. As a result, your maximum contribution limit may be higher than the listed contribution limit for a given year.

Important

If you contribute more than the annual allowed maximum amount, the extra contribution is considered excess. Excess contributions may be taxed at a rate of 1% per month.

Registered Pension Plan

A registered pension plan (RPP) is a trust that provides an employee with pension benefits after they retire. RPPs are registered with the Canada Revenue Agency. An RPP can be funded by an employer or an employer in conjunction with an employee. Funds are contributed to the pension for a number of years until the recipient of the pension reaches retirement age, or leaves the company.

Contributions to the plans are tax-deductible for the employee and employer. The contributions and any gains on the assets are tax-deferred and therefore taxed when the money is withdrawn. 

Taxation on RRSPs and RPPs

Contributions to both RRSPs and registered pension plans are not taxed for Canadian residents (those living abroad may face local taxes). Individuals and their employers may both contribute to RPPs, and neither’s contributions are taxed.

Money earned within both RRSPs and RPPs is not subject to income or capital gains taxes as long as the funds remain in the accounts. However, earnings from both plans are taxed as income when withdrawn or paid.

Special Considerations

Maximum contributions on RPPs vary based on which type of RPP is being used. There are two types of RPPs: defined benefit RPPs and money purchase RPPs. In defined benefit plans, the pension amount is known and does not change, but the contribution amount varies. These plans do not have a yearly maximum contribution limit.

Money purchase or defined contribution plans do not have a set or predictable pension amount, but employees know how much they are expected to contribute.

A practical walkthrough of individual tax-planning essentials

Fact checked by Vikki Velasquez

Filing taxes can be tough, even for highly educated Americans. In a Tax Foundation poll designed to gauge tax literacy, 55% of respondents with postgraduate degrees showed only beginner-level tax knowledge. Another 43% demonstrated intermediate knowledge, and only around 2% answered well enough to be considered proficient.

This guide will walk you through essential tax fundamentals to help you understand how to maximize your tax return, covering everything from filing statuses and tax deductions to tax credits and advanced strategies.

Key Takeaways

• You may be eligible for more than one filing status; compare them and choose the one that results in the lowest tax liability.
• You can reduce your taxable income by claiming deductions, like the standard deduction and retirement contributions. 
• Tax credits reduce your tax bill and are generally more valuable than deductions, though not all tax credits can generate a refund.
• Adjust your tax withholding or quarterly tax estimates to avoid grossly underpaying or overpaying during the year.
• Advanced tax strategies can help maximize your return, and a tax professional can help you implement them effectively.

Optimize Your Filing Status

Your filing status can have a significant impact on your tax return. For example, it affects your tax bracket, the size of your standard deduction, and your eligibility for certain tax credits.

Here are the five filing statuses the Internal Revenue Service (IRS) recognizes:

• Single: The default status for a taxpayer who is unmarried, divorced, or legally separated from their former spouse.
• Married filing jointly: The filing status for a married couple submitting one tax return that details both spouses’ annual activities.
• Married filing separately: The filing status for a married individual filing a tax return for themselves separate from their spouse.
• Head of household: A filing status for single taxpayers who have paid more than half the cost of maintaining a household for themselves and a qualifying person who lived in the home for at least half the year.
• Qualifying surviving spouse: A filing status for a taxpayer with a dependent child whose spouse died during one of the last two years.

While you can’t freely choose your filing status, you may be eligible for more than one, in which case you should choose the one that maximizes your tax refund, or at least minimizes your tax liability.

For example, married individuals can choose to file jointly or separately. Filing jointly often results in lower taxes because it can help you maximize certain tax credits, like the Child and Dependent Care Credit.

However, filing separately can make more sense in specific circumstances, such as when there’s an uneven income distribution between spouses or when one has significant itemized deductions.

Tip

Not sure which filing statuses you qualify for? Use the IRS Interactive Tax Assistant tool to determine your eligibility.

Maximize Your Tax Deductions

Tax deductions reduce your taxable income, which is the amount IRS and state tax agencies use to calculate how much you owe. While they don’t lower your tax bill dollar-for-dollar like tax credits, maximizing your tax deductions is still essential for optimizing your tax return.

Tax deductions fall into several categories, and the ones you can take depend on factors like your income sources and expenses. Here’s how the main types work.

Standard or Itemized Deductions

Every taxpayer must choose between taking the standard deduction or itemized deductions each year. You can always claim either, but you can’t take both.

The standard deduction is the simpler, more common option. It lets you subtract a fixed amount from your income based on your filing status. Here are the standard deduction amounts for tax years 2024 and 2025:

Standard Income Tax Deductions: 2024 & 2025
Filing Status	2024 Standard Deduction	2025 Standard Deduction
Single	$14,600	$15,000
Married filing separately	$14,600	$15,000
Head of household	$21,900	$22,500
Married filing jointly or qualifying widow(er)	$29,200	$30,000

Itemizing only makes sense if your deductible expenses exceed the standard deduction. For example, if you’re a single filer and paid $20,000 in eligible expenses during tax year 2024, you would probably benefit from itemizing rather than taking a $14,600 standard deduction.

Some examples of itemized deductions available through 2025 due to the passage of the Tax Cuts and Job Act (TCJA) include state and local taxes (SALT) up to $10,000, charitable contributions, and out-of-pocket medical expenses over 7.5% of your adjusted gross income (AGI).

Note

Under 15% of taxpayers itemized deductions instead of claiming the standard deduction for tax year 2022, according to the most recent IRS data.

Above-the-Line Deductions

Also known as adjustments to income, above-the-line deductions are available whether you take the standard deduction or itemize. These deductions reduce both your taxable income and your AGI, which can help you maximize other deductions and tax credits.

Typically, the most significant above-the-line deductions come from contributions to tax-advantaged accounts, such as:

• Traditional 401(k) plans
• Traditional individual retirement accounts (IRAs)
• Health savings accounts (HSAs)

Important

Contributions to Roth retirement accounts like Roth IRAs don’t generate above-the-line deductions, but they offer tax-free withdrawals in retirement.

For example, employees could contribute up to $23,000 to their 401(k) for 2024. Taxpayers age 50 or older also qualify for $7,500 in catch-up contributions, resulting in a maximum contribution limit of $30,500 for the year.

If you were to earn $75,000 in 2024 and take the standard deduction as a single filer, you would owe about $8,341 in federal income taxes. However, if you claimed $25,000 in above-the-line deductions for retirement contributions, you’d reduce your taxable income to $50,000 and your federal income taxes to roughly $4,016.

Tip

Some other potential above-the-line deductions include student loan interest, teacher expenses, early withdrawal penalties, and alimony payments.

Business Deductions 

If you’re self-employed, even through a part-time side hustle, you can deduct qualified business expenses from your business income. The IRS requires that these expenses be ordinary (common and accepted in your industry) and necessary (helpful and appropriate for your business).

As a result, allowable deductions vary by business type, but they often include:

• Home office expenses
• Business vehicle costs
• Marketing and advertising
• Office supplies and equipment
• Professional services, like legal or tax help

Take Advantage of Tax Credits

While deductions reduce your taxable income, tax credits reduce your actual tax bill. That means a $1,000 tax credit lowers your tax liability by $1,000. As a result, tax credits are generally more valuable than deductions.

There are two main types of tax credits:

• Nonrefundable credits can reduce your taxes to zero but won’t generate a tax refund even if they exceed the amount you owe.
• Refundable credits can reduce your tax liability below zero, resulting in a refund if the amount is greater than the taxes you owe.

Important

Some tax credits may be partially refundable and partially nonrefundable, such as the American Opportunity Credit.

Tax credits typically have more specific eligibility criteria than tax deductions. For example, they may require you to meet certain income thresholds, have a specific filing status, or claim a qualifying dependent.

Here are some of the most notable federal tax credits to consider pursuing:

• Saver’s Credit: A refundable tax credit to a qualified retirement plan worth 10%–50% of your contributions, up to a maximum of $1,000 for single filers ($2,000 for married couples) in 2024. Income must be below $38,250 for single filers and below $76,500 for married couples.
• Child Tax Credit (CTC): A partially refundable tax credit for those with qualifying children under age 17. It’s worth $2,000 per child, with up to $1,700 refundable in 2024. The CTC starts phasing out at $200,000 in income for single filers and $400,000 for married couples.
• Premium Tax Credit: A refundable tax credit for those who purchase health insurance through the Health Insurance Marketplace. Typically, your income must be between 100% and 400% of the federal poverty line for your family size to qualify. 

Consider Adjusting Your Tax Withholding

If you’re a W-2 employee, your employer withholds taxes from your paychecks based on the information you provide on your Form W-4. Withholding more increases your odds of receiving a refund, while withholding less raises the risk of owing and triggering underpayment penalties.

Getting a tax refund may feel satisfying, but it means you’ve effectively given the government an interest-free loan. Ideally, you should aim to break even at the end of the year, minimizing both your refund and your risk of owing.

Consider revisiting your W-4 form to fine-tune your withholding, especially if you significantly under- or over-withheld last year, experience a change in filing status, or get a new dependent. The IRS Tax Withholding Estimator can help inform your efforts.

Tip

If you’re self-employed, you can achieve a similar effect by adjusting your quarterly estimated tax payments. To avoid penalties, make sure you pay at least 100% of your previous year’s tax liability (110% if your income exceeds $150,000) or 90% of your current year’s tax liability.

Explore Advanced Tax Strategies

Once you’ve covered the fundamentals, you can explore more advanced tax strategies to further increase your savings. However, some strategies don’t apply to every situation, and others may carry added risk.

Here are some advanced tax strategies to consider:

• Tax loss harvesting: If you have investments in taxable accounts that have lost value, you can sell them to offset capital gains from assets that have increased in value. However, you must avoid repurchasing substantially identical investments for at least 30 days to avoid triggering the wash sale rule.
• Tax-efficient investing: The account you hold an investment in can affect how much you pay in taxes. For example, placing high-dividend stocks in tax-deferred accounts—like a 401(k) or IRA—is often beneficial to shield the income they generate from taxation.
• Income and expense timing: Your taxes may benefit from collecting income or paying deductible expenses sooner or later. For example, if you’ve already had multiple medical procedures during the year, paying any outstanding bills before year-end could help you exceed the threshold for deducting medical expenses and make itemizing more worthwhile.

Seek Professional Tax Advice

The more complex your tax situation, the more beneficial professional guidance becomes. A tax expert, such as a certified public accountant, can help ensure you maximize your deductions, claim all available tax credits, and develop a sophisticated long-term tax strategy.

To find a quality advisor, ask for referrals from your network or search online for the best local tax professionals in your area. To screen potential candidates, read through reviews from previous customers and use free consultations to gauge their suitability for yourself.

Tip

If you’re self-employed, any fee you pay for tax preparation or strategic advice is a deductible business expense.

Do You Get a Bigger Tax Refund if You Make Less Money?

How much money you make doesn’t directly determine your tax refund. Your tax refund is the difference between what you paid in taxes throughout the year and what you actually owed. Lower-income individuals may qualify for certain refundable tax credits easier than those with higher incomes, but whether that results in a bigger tax refund depends on other factors.

Is It Better To Owe Taxes or Get a Refund?

Whether it’s better to owe taxes or get a refund depends on your preferences and circumstances, but a generally reasonable goal is to come as close to breaking even as possible. You don’t want to give the government too big of an interest-free loan, but you don’t want to risk incurring underpayment penalties either.

Can I Write Off Business Losses on My Personal Taxes?

If you’re a sole proprietor, you can net your business losses against your other personal income. If you own an LLC, S corporation, or partnership, you can write off your share of the losses on your personal return. However, if you own a C corporation, any losses stay within the business and aren’t deductible from your personal taxes.

The Bottom Line 

Maximizing your tax return can be complex, but it’s easier when you take it step-by-step. Start by choosing the most favorable filing status, then claim every credit and deduction you qualify for. Avoid paying too much or too little in taxes during the year by adjusting your withholding or estimated payments. When you’re ready for more advanced strategies, consult a tax professional to make sure you execute them correctly.

Reviewed by Julius Mansa
Fact checked by Yarilet Perez

You’re a twentysomething and are considering buying a place. Maybe you moved back in with your parents to save for a down payment—or you’re living in a rental that gobbles up a huge chunk of your first grown-up paycheck, and you don’t feel that you have anything to show for it. Unless Mom and Dad are rich, or your great-aunt left you a trust fund, or you’re a brand-new internet mogul, you probably won’t be able to buy a home without taking on some debt.

That’s when it’s time to consider a mortgage—likely to be the biggest debt that you ever take on in your life. Acquiring a mortgage, especially this early in your life, ties up a lot of your money in a single investment. It also ties you down and makes it less easy to relocate. On the other hand, it means that you’re starting to build up equity in a home, earning tax deductions, and boosting your credit history.

Key Takeaways

• Getting a mortgage in your 20s allows you to start building equity in a home, provides tax deductions, and can boost your credit score. 
• The mortgage process, however, is long and thorough, requiring pay stubs, bank statements, and proof of assets. Pre-approval helps to make twentysomethings more appealing homebuyers to sellers. 
• Twentysomethings need to have enough credit history to qualify for a mortgage, which means handling debt responsibly early on and making timely student loan payments. 
• Borrowers in their 20s may find it easier to get a mortgage through the Federal Housing Administration (FHA) or the U.S. Department of Veterans Affairs (VA).

What Is a Mortgage?

In simple terms, a mortgage is a loan used to buy a home where the property serves as collateral. Mortgages are the primary way that most people buy homes and also can be used to purchase investment properties. The total outstanding mortgage debt in the United States was approximately $12.61 trillion through the 4th quarter of 2024.

A mortgage is a type of secured debt, meaning that if you fail to pay what’s owed, then you risk losing your collateral. This typically happens through the foreclosure process, in which a lender seeks to take back the home to recover unpaid mortgage debt.

Like other loans, mortgages have an interest rate and an annual percentage rate (APR). There also are fees involved in getting a mortgage, including origination fees and closing costs. Lenders typically expect homebuyers to make a down payment toward their home loan, though the amount required can depend on the type of mortgage.

Note

Twentysomething homebuyers can help with their down payment through down payment gifts from family members, but these must be properly documented.

How to Get a Mortgage: A Step-by-Step Guide

Unlike opening a credit card or taking on an auto loan, the mortgage application process is long and thorough. Therefore, it helps to understand what steps are involved and what’s expected if you’re planning to buy a home in your 20s.

Estimate What You Can Afford

Before you apply for a mortgage, it’s important to understand what you can realistically afford to pay. This includes estimating both the upfront and ongoing costs of buying a home in your 20s. Using a mortgage calculator is a good resource to budget these costs. It can help you estimate monthly payments, down payment requirements, and closing costs to get a better sense of what you can afford.

The main costs of homebuying and homeownership include:

• Home appraisal fees.
• Inspection fees.
• Down payment.
• Closing costs.
• Monthly mortgage payments, including private mortgage insurance (PMI) if you’re required to pay it.
• Homeowners insurance, property taxes, and possibly homeowners association (HOA) fees; these may be escrowed into the mortgage payment.
• Basic maintenance and upkeep.
• Home repairs and renovations.

One of the biggest hurdles for first-time homebuyers is the down payment. You’ll need a down payment of at least 20% to avoid PMI on a conventional home loan. PMI premiums offer protection to the lender in case you default; they can’t be removed until you reach 20% equity in the home. This will add to your home’s monthly carrying costs.

Organize Your Documents

You will need several pieces of information to apply for a mortgage. Before going in, be ready with your Social Security number, your most recent pay stubs, documentation of all your debts, and three months’ worth of bank account statements and any other proof of assets, such as a brokerage account or a 401(k) at work.

If you’re self-employed, you may need additional documentation. For instance, a lender might ask to see your tax returns from the previous two years. You also may need to provide an up-to-date cash flow statement and/or letters from one or more freelance clients attesting to the fact that you’re an independent contractor.

Compare Mortgage Options

Mortgage loans are not all the same, and it’s important to understand what type of mortgage might be best when buying a home in your 20s. You can start by looking into conventional loans, which are backed by Fannie Mae or Freddie Mac. These loans typically require 20% down to avoid PMI.

Inportant

Upfront fees on Fannie Mae and Freddie Mac home loans changed in May 2023. Fees were increased for homebuyers with higher credit scores, such as 740 or higher, while they were decreased for homebuyers with lower credit scores, such as those below 640. Another change: Your down payment will influence what your fee is. The higher your down payment, the lower your fees, although it will still depend on your credit score. Fannie Mae provides the Loan-Level Price Adjustments on its website.

Next, you could consider Federal Housing Administration (FHA) loans. Loans through the FHA generally require smaller down payments and make it much easier for borrowers to refinance and transfer ownership. You also may be able to qualify for an FHA loan with a lower credit score than what might be required for a conventional loan.

There’s also the U.S. Department of Veterans Affairs Home Loans guaranty service, which is perfect for twentysomethings returning from military service. VA home loans make it much easier for veterans to buy and afford a home; many of its loans require no down payment. The home you choose, however, will be subject to a rigorous inspection.

Shop Around for a Home Loan

Just like all mortgages aren’t alike, all lenders also are not the same. It’s important to shop around for different mortgage options so you can compare interest rates and fees. A difference of even half a percentage point could substantially increase or decrease the amount of interest that you pay for a mortgage over the life of the loan.

Also, consider getting pre-approved for a mortgage. This process involves having a mortgage lender review your finances and make you a conditional offer for a loan. Pre-approval can make it easier to have your offer accepted when you try to buy a home, which could be especially crucial if you’re the youngest bidder. 

Note

If pre-approval requires a hard credit check, that could impact your credit score.

When Is the Right Time to Buy?

Figuring out when to take out a mortgage is one of the biggest questions. Here are some factors to consider when deciding when to take out a mortgage.

Where Will You Be in 5 Years? 

A mortgage is a long-term commitment, typically spread out over 30 years. If you think you’ll move frequently for work or plan to relocate in the next few years, then you probably don’t want to take out a mortgage just yet. One reason is the closing costs you have to pay each time you buy a home; you don’t want to keep accumulating those if you can avoid it.

How Much Real Estate Can You Afford? 

What would you do if you lost your job or had to take many weeks off due to a medical emergency? Would you be able to find another job or get support from your spouse’s income? Can you handle monthly mortgage payments on top of other bills and student loans? Refer to a mortgage calculator to get some idea of your future monthly payments, then measure them against what you pay now and what your resources are.

Important

Tax breaks help reduce the effective cost of a mortgage, where mortgage interest paid is tax deductible. 

What Are Your Long-Term Goals? 

If you hope to raise kids in your future home, check out the area for its schools, crime rates, and extracurricular activities. If you’re buying a home as an investment to sell in a few years, is the area growing so that the value of the home is likely to increase?

Answering the tough questions will help you determine which type of mortgage is best for you, which can include a fixed-rate or adjustable-rate mortgage.

A fixed-rate mortgage is one in which the interest rate of the mortgage stays the same for the life of the loan.

An adjustable-rate mortgage (ARM) is one in which the interest rate changes at a set period according to a specified formula, generally tied to some kind of economic indicator. You might pay less interest in some years and more in other years. These generally offer lower interest rates initially than fixed loans and might be beneficial if you plan to sell the home relatively soon.

Pros and Cons of Homeownership in Your 20s

Buying a home in your 20s can make sense if it saves you money compared to paying rent and if you’re looking for a long-term investment. The longer you plan to stay in the home, the longer your timeframe for gaining equity as your home’s value increases.

If you choose a fixed-rate mortgage, then your payments will remain consistent for the life of the loan, rather than being subject to price hikes the same way you might be as a renter. You’ll be able to customize the property according to your tastes and make improvements or renovations as you see fit. And you’ll get the benefits of a tax deduction for mortgage interest while you’re paying on the loan. Of course, there are some potential downsides to consider.

Pros

• May cost less than rent

• Builds equity

• Positive impact on credit

Cons

• Upfront costs

• Mortgage approval required

• Adds to debt

Pros Explained

• May cost less than rent: Owning a home could be less expensive than renting, and a fixed-rate mortgage could offer stability and predictability with payments.
• Builds equity: The younger you are, the longer you have to build equity in the home as the property’s value increases.
• Positive impact on credit: Paying a mortgage on time each month could help to improve your credit score and make it easier to qualify for other types of credit.

Cons Explained

• Upfront costs: You may not recoup your down payment or closing costs in the form of monthly savings if you don’t stay in the home for the long term.
• Mortgage approval required: Qualifying for a mortgage as a twentysomething can be challenging if neither your credit history nor your work history is solid.
• Adds to debt: Having student loan debt, credit cards, or other debts could make meeting monthly mortgage payments more difficult.

Making a Mortgage More Affordable

There are a handful of ways to reduce the price tag associated with a mortgage. The first is tax breaks, where the interest you pay on your mortgage is tax deductible. You’ll need to itemize your deductions to take advantage of this tax break.

You can also reduce your mortgage costs by paying 20% or more as a down payment. The more you put down, the less you have to borrow, which can reduce your monthly mortgage payment. Improving your credit score can also help if it allows you to qualify for a lower mortgage interest rate.

Lenders will scrutinize your credit score and history, which may be problematic for twentysomethings who have little to no borrowing history. This is where having student loan debt actually helps you. If you’re making your payments on time, then you’ll likely have a good enough credit score for banks to feel comfortable lending to you. Generally, the better your credit score is, the lower your interest rates will be.

Tip

Refinancing student loan debt could help to reduce your interest rate and lower your monthly payment, making a mortgage more affordable.

What Is PMI?

Private mortgage insurance typically is required if your down payment is less than 20%. Borrowers see you as riskier if you have limited equity in the home, so they require the insurance as a means of protection against defaulting on the loan. Expect to pay $30–$70 for every $100,000 borrowed.

What Is Pre-Approval?

If you are pre-approved for a mortgage, this means a lending institution already has done a thorough check of your credit history, income, and more. The institution will provide you with a letter estimating how much you can borrow. This letter lets sellers know you are serious and already have a head start on the process.

What Costs Are Part of Home Ownership?

Even if your mortgage payment is less than what you were paying for rent, that’s not where your expenses stop. In addition to insurance and property taxes, upkeep of the home also is your responsibility. The roof is leaking? Maybe you need a plumber or an electrician? It’s no longer as simple as calling the landlord or building superintendent. You need to take care of those costs.

The Bottom Line

Homeownership can seem like a daunting prospect, especially as you’re starting your career and still paying off your student loans. Think long and hard before you take out a mortgage; it’s a serious financial commitment that will follow you until you either sell the property or pay it off decades from now. But if you’re ready to stay in one place for a while, then buying the right home can be financially and emotionally rewarding.