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Widow Tax

ArticleJohn Urban | Jul 25, 2026

THE WIDOW TAX is sold to the wrong households. It gets pitched to affluent couples as the reason to convert to a Roth or buy life insurance. The pitch says that when one spouse dies, the survivor files single, lands in a higher bracket, and gets clobbered. I ran the numbers for three couples at three incomes, and at the comfortable end the widow tax often costs nothing, or even less than nothing. The real cost lands lower down, on households nobody is selling anything to. What follows uses 2026 federal figures to show what the widow tax actually does in dollars, not in scary percentage points. The pattern runs opposite to the marketing. The higher your income, the smaller the hit, and the lower you go, the more it bites. Three Things Move When the first spouse dies, three things change, and they get bundled under one frightening label. One Social Security check stops, and a pension may shrink or end. That is lost income, and it is usually the largest of the three. It is not a tax. Spending shifts as well. The survivor pays one Medicare premium instead of two, but the mortgage still comes out of the same account. The third change is the only one the tax code causes: narrower single brackets, a smaller standard deduction and lower thresholds for the Medicare surcharge. The widow tax is that third piece alone, and the three households below measure how big it really is. The Affluent Couple Both spouses are over 65. Their income is about $360,000: $80,000 from Social Security, $210,000 from a pension and required minimum distributions, plus $30,000 in qualified dividends and $40,000 in long-term gains. They sit in the 24% bracket, and both already pay the Medicare surcharge. One spouse dies. The survivor keeps the larger Social Security check and most of the other income, landing at roughly $308,000. As a couple, they paid about $53,900 in federal income tax and a Medicare surcharge of about $9,240. As a single filer, the survivor pays about $55,000 in federal tax and a surcharge of about $6,355. The effective rate rises from 15.7% to 18.7%, which is the headline people remember. But the federal tax barely moves, up only about $1,100, because the survivor has less income to tax. The Medicare surcharge actually falls about $2,900, because two enrollees in the couple's joint tier cost more than one survivor a tier above. Net it all out, and the survivor pays about $1,800 a year less than the couple did. The rate went up, and the dollars went down. At the high end, the widow tax measured in money hands back a small refund. This is why the Roth conversion pitch aimed at comfortable couples misfires. If converting to Roth would cut the survivor's future taxable income without cutting the couple's lifestyle, the converted money was surplus. Surplus is money the survivor never needed to replace. Edward McQuarrie, a finance professor emeritus at Santa Clara University, made a version of this argument in a 2023 paper. He found the dollar hit inconsequential for affluent couples, and located any real cost lower down, where the Social Security torpedo bites. Where It Actually Bites Drop down to a couple with $180,000 of income: $60,000 from Social Security and $120,000 from a pension and required minimum distributions, all ordinary income. Both are over 65. The couple files jointly at $180,000; the survivor files single at about $150,000. As a couple, they paid about $17,148 in federal tax and no Medicare surcharge. The survivor pays about $22,737 in federal tax and a new surcharge of about $2,885. The federal tax rises about $5,600, and a surprising chunk of that comes from the collapse of the new $6,000 senior deduction, which phases out against a lower income threshold for singles. Then the survivor crosses into a Medicare surcharge tier the couple never paid. The total cost of widowhood here is roughly $8,500 a year, set against a $30,000 income loss. This is the one band where both the dollars and the rate move the wrong way. Now take a couple with $90,000 of income: $38,500 from Social Security, about the national average for two retired spouses, plus $51,500 from a pension and distributions. The survivor keeps the larger Social Security check and the full pension, landing at $73,500. As a couple, they paid about $3,433 in federal tax, at an effective rate of 3.8%. The survivor pays about $5,278, at an effective rate of 7.2%. There's no Medicare surcharge at this income, and there never will be. But the survivor's effective rate nearly doubles, because more of the Social Security benefit becomes taxable, up to the 85% ceiling, when the single thresholds replace the joint ones. The added tax is about $1,845, and the lost income is $16,500. Real money for a household least able to absorb it. It doubles the effective rate, and it hurts. Read the three together and the widow tax points the wrong way from the marketing. At $360,000 it costs less than nothing, roughly a $1,800 annual saving. At $180,000 it costs about $8,500. At $90,000 it costs about $1,850, but the effective rate doubles. The affluent couples being sold protection don't need it. The middle couples who feel the sting are not being sold anything, and they're the ones for whom a few thousand dollars a year actually constrains a life. The tax code has three different mechanisms, and which one finds you depends almost entirely on your income. At the top, the Medicare surcharge does the work, and it falls. In the middle, the surcharge appears from zero. At the bottom, the Social Security torpedo raises the taxability of the benefit from 75% to 85%. The mechanism changes with the income, and so does the household's ability to absorb the hit. Plan Ahead This is where the widow tax conversation usually stops, and where I think it should start. The moves most likely to leave a survivor better off are the ones you make years before, and they help whether or not the widow tax ever bites. Converting traditional IRA money to Roth over several years before retirement smooths your taxable income. It lowers the required minimum distributions that will later push a single filer into higher brackets. It can also keep a survivor under a Medicare surcharge tier the couple never worried about. Drawing accounts in a sensible order, spending down the right buckets first, reduces the future tax base that a single bracket structure will tax more steeply. Managing required distributions as they grow, rather than letting them balloon off a rising balance, limits the single bracket exposure that builds across a long widowhood. A more tax-efficient bequest helps the people who inherit what is left. None of that is widow rescue. It is good multi-year planning that happens to compound in the survivor's favor. The widow tax is one input to that planning, not the reason for it. The reason is that the year your spouse dies is the worst possible year to be making financial decisions, and the more of those decisions you have already made, the fewer you hand to someone who is grieving. You can do a rough version of this at your own kitchen table, and you should, ideally long before you need to. Estimate the survivor's income after the smaller Social Security check and any pension change, then estimate the survivor's spending from your actual budget, not a generic rule of thumb. Subtract. If reliable after-tax income still supports the life the survivor wants, with margin, the tax rate was never the thing to worry about. Then project the survivor's federal tax, the net investment income tax where it applies and the Medicare surcharge as a single filer, and compare it to the couple. Keep the tax separate from the lost income, so you can see what the tax code actually did. Sometimes, as the affluent couple shows, it does you a small favor. Only then does a planning move earn a look, and only if you can answer what it costs today, what it might save later, who benefits and what has to come true for it to work. The widow tax is real, but it isn't the catastrophe it's sold as. At higher incomes it's not a cost at all. Lower down it is a real cost, and the lower you go, the more it's worth measuring, because the households it constrains have the least margin to spare. The planning that matters most is the kind you do years ahead, smoothing income, holding down future distributions, managing the surcharge tiers and putting the estate in order. Do that, and you've done right by your survivor, for reasons that have little to do with fear and a great deal to do with care. You'll have done it in the years when you still had the time, and the clarity, to do it well. ________________________________________________________________________________ John Urban is the founder of RetireSmartIRA, a retirement tax-planning app. Earlier, he founded GT Nexus, a supply-chain software company acquired by Infor in 2015. He lives in Northern California with his wife, Kathy, and enjoys time with family, travel, reading, Bay Area sports, and the occasional deep dive into the fine print of the tax code.

Degrees of Doubt: When Higher Education Misses the Mark

Mark Crothers | Jul 16, 2025

"As a retired career-long educator from the early 1980's to 2020, I observed the American education system transition to a focus on ever-increasing testing, largely coming from federal initiatives such as "A Nation at Risk" and "No Child Left Behind". As a result, increased amounts of time that students spend in a classroom are devoted to preparing to do well on the next standardized test and significantly less time is available for teachers to work with students to develop critical thinking and problem-solving skills. Preparing for a test is not the same as learning new concepts. Our state commissioner of education, commenting probably 25 years ago about increased testing, said something to the effect of: "I grew up on a farm. We didn't weigh our cattle more to see if they were gaining weight; we fed them more". I believe that is a very fitting analogy."

- Dave Melick

Fear of the Unknown…

gnussen623 | Jul 22, 2026

"I'm a college professor, and been fortunate enough to have had the opportunity to have a 6 month sabbatical. Having the opportunity to really think is an absolutely amazing gift. This is what my sabbatical have me. One peice of advice I give to my students as they send the "accept" email to their first career employer is to first think about all the decisions made, choices taken, choices not taken, that had led them to this moment where they can say "yes" to a career. I trek them to them send the email, and then spend some time thinking about how their life just completely changed, ans was sent in a particular direction. What short and long term goals do they now have? It seems to me that you have the mirror of this (rather than a career, a lack of career), but can still go through the same process"

- David Firth

Market Indicators

ArticleAdam M. Grossman | Jul 25, 2026

WHEN IT COMES to financial decisions, many investors subscribe to an approach known as evidence-based investing. The idea, as the name suggests, is to base decisions, whenever possible, on data rather than on intuition or other informal methods. This sounds logical. It isn’t perfect, though. Economic and financial indicators have weaknesses which are important to be aware of. Consider, for example, the Cyclically-Adjusted Price-to-Earnings, or CAPE, ratio, developed by Robert Shiller, a Yale professor and Nobel laureate, along with a colleague. Owing to its pedigree, the CAPE is highly respected. And a study by the Vanguard Group found that the CAPE had the strongest ability to predict market returns among fifteen different metrics it tested. For these reasons, many view it as the gold standard for stock market valuation. But how accurate has it been? For years, the CAPE ratio has been flashing red. Since 2018, in fact, it’s been more elevated than it was at the peak in 1929, just before the crash. It seems to be indicating extreme risk. And yet, the market has continued to move higher with only temporary setbacks, defying the CAPE’s warnings. Even Shiller himself has acknowledged that the CAPE’s predictive abilities can fall short. In 2021, he made this seemingly contradictory statement in an opinion piece: “The stock market is already quite expensive,” he wrote, “But it is also true that stock prices are fairly reasonable right now.” Here’s how he explained this seeming contradiction: While the stock market at the time was expensive by historical standards, he noted that investors should never look at any one metric in a vacuum. Investments need to be considered in comparison to other available options. On that basis, he said, stocks were not expensive, because bonds at the time were also expensive. Recognizing how the CAPE can register misleading readings under certain conditions, Shiller and a colleague have since developed a modified version of the CAPE called the Excess CAPE Yield. This new metric helps investors compare the prospective relative returns of stocks and bonds. Shiller’s message, in other words: The original CAPE ratio on its own shouldn’t be seen as conclusive. Another well-respected metric that’s stumbled in recent years is the Sahm rule. In general terms, this rule says that when the unemployment rate begins to increase at a particular rate, a recession is likely. In back-testing, it’s been shown to be remarkably accurate. Since 1959, it would have generated just two false positives. A few years ago, however, the Sahm rule threshold was breached, theoretically indicating a recession. But Claudia Sahm, the rule’s creator, was quick to explain why investors shouldn’t be nervous. “The Sahm rule is likely overstating the labor market's weakening due to unusual shifts in labor supply caused by the pandemic and immigration,” she wrote. And in the years since, as Sahm guessed, the economy and the stock market have indeed avoided recession. The upshot: Economic indicators may work—and even work reliably—for a period of time, but then break down when something about the economy changes in a fundamental or unique way, as occurred in the wake of Covid. Economic indicators carry another fundamental flaw: In some cases, an indicator might be correct in its prediction but less than accurate in its timing. It might tell us what’s likely to happen, in other words, but won’t tell us when that event is expected to occur. Probably the most famous occurrence along these lines was in 1996, when Alan Greenspan, then the chair of the Federal Reserve, proclaimed that the stock market was exhibiting “irrational exuberance.” Greenspan turned out to be absolutely right: A bubble was forming in the market, valuations were irrational and a crash was coming. But he didn’t get the timing right. The crash that ultimately occurred didn’t arrive until early 2000—more than three years after he issued his warning. And in those intervening three years, the market more than doubled. Investors who got more cautious in response to the initial warning would have missed out on significant gains. Along the same lines, consider what occurred with the pandemic. When Covid appeared in 2020, it seemed to arrive completely out of left field with no warning. The reality, though, is that certain experts did have pandemic risk on their radar. A 2019 risk assessment by the Federal Emergency Management Agency (FEMA) highlighted the risk of a pandemic among a short list of concerns. The problem, though, was that the report was vague, describing a risk but without any indication when it might occur. It was like a clock with no hands. It was because of examples like this that the fund manager Peter Lynch has said, “It’s futile to predict the economy, interest rates, and the stock market...If you spend 13 minutes a year on economics, you’ve wasted 10 minutes.” That’s humorous, but where does that leave us? On the one hand, we know better than to consult storefront psychics. But economic indicators aren’t terribly reliable either. Investor Howard Marks offers a helpful answer. In his book Mastering the Market Cycle, Marks offers this suggestion: Imagine, he says, a jar filled with a mix of balls of various different colors. No one can tell with the naked eye how many there are of each. But if you can at least have a sense of the mix, that can be helpful. By the same token, no economic indicator should be seen as conclusive, but taken together, they may provide a sense of where things stand. What does this mean in practical terms? Suppose, for example, you’re considering rebalancing your portfolio and wondering how aggressive to be in reducing risk. You could use Marks’s guideline in this case. If the market seems high, you might be a little quicker to reduce risk. But at the same time, we should always keep in mind the “irrational exuberance” episode as a cautionary tale. It’s a reminder to never veer too far in any one direction. As I’ve suggested before, a center-lane approach often represents the best path forward. Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.

One Person’s Luxury, Another’s Necessity

Mark Crothers | Jul 21, 2026

"Wendy, sorry to hear of your loss. Sport, and the social side that comes with it, has been a constant thread through my life since childhood. I'd say the social aspect matters as much for the mind as the exercise does for the body. And as you say, it doesn't happen on its own — we have to make the effort. My sporting journey has evolved with age: rough contact sports like rugby and football when I was young, faster competitive sports like tennis and badminton as I moved on from contact, and now easing into gentler ones like pickleball and padel. Through it all, the constant has been the social connection."

- Mark Crothers

Can we be completely safe?

Ben Rodriguez | Dec 17, 2025

"The main problem would be picking out the millionaire next door, and distinguishing him from the guy who really is a couple hundred dollars away from being a homeless vagrant. Criminals don't even think this way; if they had money, they would flaunt it, so they are looking for people who are flaunting money."

- Ormode

FIFA Financials

R Quinn | Jul 19, 2026

"If one can afford it, why not? Many buy expensive cars and lose far more to depreciation, boats, etc. Many give to charity for zero return other than it feels good. In this instance you are seeing a game. The purpose of money is not to max financial returns."

- AnthonyClan

Jonathan’s Parting Thoughts: No. 9

Jonathan Clements | Jul 3, 2026

"May you rest in Peace Jonathan. Right on with that advice, pretty much what Buffett says also. And for me, I am 85% Index Stocks, and 15% cash, no bonds needed."

- William Dorner

Buying a car in retirement

Julie C | Jul 11, 2026

"Julie, what happened was this: I was actually shopping for an SUV and was at the dealership test driving yet another one when my husband suggested I test drive the Camry. I relented and liked it. The next day after research, the salesperson wrote up the numbers and I signed and talked to Finance and was good to go. When I got home, I did an online search to send a link to a family member and lo and behold, the online price was $3000 less. I called and they (amazingly) apologized and rewrote the agreement - claiming an error was made by the internet team. If I had searched on line while I was originally sitting in front of the salesperson, I would've have found it. I was just lucky I wanted to share my purchase with my sister!"

- joanm114

IRMAA & late filing of tax returns

Danbo | Jul 15, 2026

"William, your analysis is helpful."

- Danbo

Go While You Still Can

DavidHLancaster | Jul 22, 2026

"Great article…and a lot of truth contained therein! Back in April I had a medical event. For two months after I lived with dizziness, every day! I am getting medical care and the prognosis is positive. 2 weeks ago, I had another medical issue. Now I am awaiting an MRI, to determine if gall bladder surgery is in my near term future. Thinking positive, I am hoping for the best, but I am reminded that no one is promised tomorrow! Travel…now..,while you have your health! Waiting for later is rarely going to be the right choice!"

- Kevin Lynch

Costa Rica: The Richest Man On The River

Andrew Clements | Jul 22, 2026

"Bob, thank you so much for sharing this information and for taking the time to read my post."

- Andrew Clements

Widow Tax

ArticleJohn Urban | Jul 25, 2026

Degrees of Doubt: When Higher Education Misses the Mark

Mark Crothers | Jul 16, 2025

- Dave Melick

Fear of the Unknown…

gnussen623 | Jul 22, 2026

- David Firth

Market Indicators

ArticleAdam M. Grossman | Jul 25, 2026

One Person’s Luxury, Another’s Necessity

Mark Crothers | Jul 21, 2026

- Mark Crothers

Can we be completely safe?

Ben Rodriguez | Dec 17, 2025

- Ormode

FIFA Financials

R Quinn | Jul 19, 2026

- AnthonyClan

Jonathan’s Parting Thoughts: No. 9

Jonathan Clements | Jul 3, 2026

"May you rest in Peace Jonathan. Right on with that advice, pretty much what Buffett says also. And for me, I am 85% Index Stocks, and 15% cash, no bonds needed."

- William Dorner

Buying a car in retirement

Julie C | Jul 11, 2026

- joanm114

Manifesto

Jul 26, 2026

NO. 22: IF WE’RE saving enough each month for retirement and other goals, it doesn’t much matter how we spend our remaining money—and there’s likely no need to budget.

Truths

Jul 26, 2026

NO. 68: OUR HUMAN capital—our income-earning ability—should drive our asset allocation. Early in our adult life, with decades of paychecks ahead of us, we can risk investing heavily in stocks. But as we approach retirement and the need to replace our paycheck with portfolio withdrawals, we might shift half our nest egg into bonds and other conservative investments.

humans

Jul 25, 2026

NO. 42: WE'RE OVERLY influenced by information that’s easy to recall. Think about Warren Buffett, or Amazon, or Apple. Even casual observers of the financial world know about the huge gains associated with each. The danger: We become captivated by such winners and assume it’s easy to get rich by investing with top money managers or betting on select stocks.

act

Jul 25, 2026

ACCESS FINANCIAL accounts from a dedicated device. Online thieves could load malware onto your computer, which then captures usernames and passwords for your financial accounts. To protect yourself, buy a low-cost notebook computer or other device to check your financial accounts—and never use it to read emails or visit other websites.

Money Guide

Manifesto

Jul 26, 2026

NO. 22: IF WE’RE saving enough each month for retirement and other goals, it doesn’t much matter how we spend our remaining money—and there’s likely no need to budget.

Spotlight: Spending

A Very Politically Incorrect Ramble With a Potentially Real Point: Is Your Retirement Calculator Sexist?

Mark Crothers | Jul 22, 2025

I’m seriously sticking my neck out with this speculative, non politically correct observation and expect to get it chopped off by someone. And deservedly so!
Last week, my wife, Suzie, spent a considerable sum of money on hair care, nail salons, and other female-focused purchases. Certainly enough to make my right eyebrow twitch slightly. I only highlight this for the sake of my speculation, not as a manly moan about female spending choices. But the spending got me thinking about retirement calculators.

A Grievance Most Fowl: When Golf Ate My Lunch.

Mark Crothers | Jul 15, 2025

I have a grievance this morning. Strange as it may seem this involves a chicken and bacon burger, one of my favourite restaurants, the global market economy and golf. At first glance they seem odd bedfellows don’t you think?
Yesterday afternoon I was feeling peckish and decided to indulge myself with a chicken burger. Whilst about to order the offending item I was alarmed to discover the price had increased by 125% in a matter of a week.

Our $1000’s Of Dollars Mistake: A Lesson Learned

Mark Crothers | Jul 1, 2025

My wife, Suzie, and I have just uncovered the biggest financial oversight mistake we’ve probably made in a very long time.
Since entering retirement, we have been reorganizing our everyday finances, including consolidating our two separate current accounts (a checking a/c without a checkbook) into one for the majority of our recurring bills. During this process, we realized we were paying for three mobile phone plans, two coming from my wife’s account. It turns out Suzie had always assumed my plan was taken from her account.

Oh Dear, the Accidental Wedding Downgrade

Mark Crothers | Jul 20, 2025

While attending a recent wedding, something rare happened to me—an event so unique, I’d say it hasn’t occurred in at least thirty years.
My main task before the wedding, anticipating significant spending, was to transfer extra funds to my debit card. Understandably, or so I thought, I forgot. My wife, Suzie, disagreed with my assessment, suggesting I was simply a bit “daft.” The result of this oversight? I was extremely intentional with my spending throughout the three-day event.

The Illusion of Wealth

Mark Crothers | Jun 27, 2025

I was sitting on the deck of my holiday home, enjoying the morning sunshine and breakfast, when a deep rumble announced the arrival of an expensive, sporty car. It was my neighbour. He’s a very nice man in his 40s who always dresses impeccably, with two well-turned-out kids and an immaculate wife – to all intents and purposes, a family living the dream.
Contrast that with me: I drive a seven-year-old SUV with 70,000 miles on the clock,

Shoppers Spend Average of $260 on Mother’s Day??

John Katz | May 9, 2025

In this weekend’s Barron’s, Jack Hough wrote that ‘…. shoppers say they’ll spend an average of $259.04 per person on Mother’s Day this year, up exactly $5 from last …”
Sadly, my mother died several years ago. But my wife and I have two children, and they are getting her a gift. However, I can promise you that total the pair spend on their mother won’t begin to approach $520+.
Does the average shopper really spend an average of $260 per person for their mother?

Twenty-five years ago today….

Sanjib Saha | Mar 25, 2025

The S&P 500 Index peaked on this day after years of dot-com euphoria. Over the next two and a half years, it lost about half its value, and it took nearly five more years to recover. But the relief was what the Fed Chair might call “transitory” —just a couple of years later, the 2008 financial crisis hit, causing an even deeper crash. Ignoring dividends, it took over a decade from the year 2000 for the S&P 500 Index to shake off the bears and take off. While the result so far is impressive - the Index nearly quadrupled in these 25 years, I can’t help but wonder how this lost decade affected retirees or those who invested heavily during the dot-com boom. The decade-long wait to recover compared to a risk-free investment, including the unprecedented financial crisis that threatened a complete meltdown of capital markets, must have been painful and devastating. I can’t imagine how I’d feel if I had to endure such a market in my early retirement years. I didn’t know about the significance of March 24, 2000, until I saw today’s Barron’s “Review and Preview” email mentioning the anniversary. It made me reflect—what was I doing at that time? In 2000, I was new to this country and clueless about most things, including stock investments. (I'm still clueless about most things, except that I know a little bit about investments). The term “S&P 500 Index” would have sounded like a sci-fi gadget to me at that time. All I knew was that the company stock options (a mysterious term that I didn't understand until much later) that I received upon joining my new work—and in the years that followed—became worthless instead of making me a millionaire. I wasn’t particularly upset. Honestly, I couldn’t even grasp how…

Taking Shelter

Sanjib Saha | Dec 20, 2021

EARLIER THIS YEAR, I swapped the Vanguard Short-Term Bond Index Fund (symbol: VBIPX) in my 401(k) for an inflation-indexed Treasury ETF (VTIP). The trade worked out well: The replacement fund has since fared better, thanks to this year’s accelerating inflation. To buy the inflation-indexed ETF, I had to open a brokerage subaccount within my company’s retirement plan—a feature some 401(k)s offer, though these “brokerage windows” typically aren’t heavily promoted for fear employees will end up trading too much. Initially, I didn’t think I’d use the subaccount for anything else. But I’ve come to realize that the flexibility to choose from thousands of securities in a tax-deferred account could come in handy. For instance, in my regular taxable account, I had bought income-producing funds that own real estate investment trusts (REITs). I like the generous dividends, but not the tax bill, even after the 20% deduction. I wish I owned these in my 401(k) subaccount instead. That way, I could defer the taxes, instead of footing the bill during my high-earning years. Another problem I often face: headaches caused by tax-loss harvesting. In the past, I’d sell an investment to book a loss and use the proceeds to buy a similar, but not substantially identical, investment to preserve my market exposure. I’d then look to switch back to the original investment after the 30-day wash-sale period. But if the temporary investment had gone up in the intervening period, often I’d be reluctant to reverse course. The reason: The short-term capital gain from the sale would partly negate the harvested tax loss. Result? I’d be stuck with the temporary fund indefinitely. Now, I can simply buy the temporary fund in the tax-deferred subaccount instead of my taxable account. Even if the temporary fund climbs in value, I can sell it after 30 days—with no taxes owed—and…

Working the Plans

Sanjib Saha | Mar 10, 2020

I’VE DEVELOPED a series of what I call “Geico talks,” named after the ubiquitous insurance company commercials. They’re 15-minute talks that, I joke, are aimed at boosting financial knowledge by 15% or more. The talks are for friends and acquaintances who work at the same company as me or at companies with similar employee benefits. These firms typically have great retirement plans and many employees own company stock. I figured the topics I’d researched for my own finances would help these folks. I also suspected that some friends were making the same mistakes I’d made. With that in mind, I came up with three Geico talks: 1. After-tax 401(k) contributions. Only a minority of 401(k) plans allow so-called mega-backdoor Roth conversions, but it’s worth checking to see whether your plan does. What’s involved? It starts with making after-tax contributions to your employer’s 401(k). These contributions are over and above the usual tax-deductible or Roth 401(k) contribution limit, which in 2020 is $19,500 for those under age 50. The after-tax contributions can sometimes be immediately converted to the company’s Roth 401(k), where the money grows tax-free thereafter. Alternatively, the after-tax dollars can be transferred to a Roth IRA, either while you’re still employed or when you leave the company. If the money ends up in a Roth IRA, either immediately or when you leave your employer, it also escapes the rules for required minimum distributions that apply starting at age 72. My employer’s 401(k) plan allows both after-tax contributions and the ability to convert that money over to the Roth 401(k) option. Ditto for the employers of some friends. Be warned: If you convert to a Roth and the after-tax dollars have enjoyed some investment gains, the conversion will trigger a tax bill, though it’ll typically be modest. 2. Company stock. Many…

Simply Works

Sanjib Saha | Oct 25, 2021

I THANK MURTHY, a friend at college, for teaching me guitar. Instead of theories, he taught me five easy chords. I could soon play a few songs and that fueled my motivation to learn more. The same strategy can help beginner investors. Novices often find the stock market intimidating and mysterious. Result? Inaction and opportunity cost. Solution? Simple steps. A former coworker comes to my mind. He was uninterested in stocks, including the company shares he received as part of his pay. He sold the shares immediately—often the smart thing to do—but he didn’t know what to do with the cash. For people like him, a simple solution is a fund like Vanguard Total World Stock ETF (symbol: VT). No need to research individual stocks. All my friend had to do was sell his company shares as he received them and then buy this fund. Over time, his interest in investing grew, and he’s no longer ignorant about the stock market. Another example: A friend’s daughter needed help with investing. She learned fast and decided to invest equal amounts in four commission-free index funds. She adopted a shortcut for rebalancing. Whenever she had money to invest, she’d buy the fund with the lowest balance. Was this the best strategy? Maybe not. But it works for her. My last example: A recent acquaintance had a large sum sitting in her bank account for years. She was too afraid to invest and too embarrassed to ask. After we chatted a few times, she realized that—while she was avoiding risk—she was also avoiding return. She decided to start investing in small installments, but invest less if stock prices were high. To keep things simple, she transfers just enough from her bank each month so her investment account reaches a fixed dollar target. If…

Affordable Mistakes

Sanjib Saha | Aug 29, 2023

WHEN I SET OUT TO improve my financial knowledge, sites like HumbleDollar didn’t exist. Instead, I garnered insights from books, investment seminars and like-minded people. Still, my greatest lessons came from my own financial mistakes. I’ve made many, and I still occasionally stumble. A few missteps were costly and had lasting repercussions, but the rest were less damaging, especially considering the lessons I learned from them. Here are six of what I call my “affordable mistakes.” 1. Investing in individual stocks without research. After losing years of investment compounding by ignoring the stock market, I foolishly adopted an invest-now-research-later approach. Relying solely on company name and price history, I narrowed my buy list to a dozen or so public companies and then invested equal amounts in each. Among my selections were two familiar names. I knew about Eastman Kodak from my college days, when one of my hobbies was developing film. And I was familiar with Washington Mutual because the bank sponsored a spectacular annual firework display that I loved to watch. I naively assumed that these stocks, together with the others I chose, would be good long-term investments. They weren’t. Both Kodak and WaMu eventually failed, leaving me with no chance of recouping my investment. I figured that unless you enjoyed stock research (which I didn’t), had a strong desire to beat the market (which I didn’t), and could dedicate time to staying on top of company and industry news (which I couldn’t), it made no sense to favor individual stocks over low-cost, diversified stock funds. 2. Borrowing from my 401(k). In my mid-30s, when I was going through a financially challenging period, I found myself in need of immediate cash. My 401(k) plan offered a loan that seemed appealing. The paperwork was minimal, the funds would be available…

My Favorite Store

Sanjib Saha | Dec 2, 2021

WHEN I MOVED to the U.S. for work, a friend graciously helped me settle in. He shared many useful tips, one of which was to become a Costco member. I’m glad I heeded my friend’s advice. I’ve saved thousands of dollars over the years and found the store’s service to be exceptional. In recent years, my Costco shopping has expanded to include not just everyday purchases, but also luxury items, gas, tires, electronics and vacations. I bought a piece of jewelry from the warehouse this year to surprise my wife on her milestone birthday. Thanks to the no-fuss return policy, she was able to exchange it for another ring that fit better. Recently, we needed to replace our washer and dryer. I checked out Costco’s online store—something I’ve rarely used. I found models that were highly rated by Consumer Reports. The price was higher than I’d hoped, but it included delivery, installation and hauling away the old machines. I went ahead and placed the order. In a few days, I got the delivery confirmation and a two-hour window for the delivery. The crew showed up on time. In less than an hour, the new appliances were installed and running. The next week, I had to go online again to download the manuals. To my surprise, I noticed a 25% price drop on the same models that I’d purchased. I was disappointed to miss the promotion, but I also had a feeling that Costco would somehow make it right. Indeed, Costco has a price adjustment policy for people in my situation. If an item goes on promotion within 30 days of purchase, Costco refunds the difference. All I had to do was fill out a simple online form. The refund appeared on my credit card account in three days. No questions asked. No wonder…

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