Ask HTM - Switching Banks for an Extra 1%, How Much to Spend on a Car, & A Primary Residence to Investment Property Conundrum #754
Nov 27, 2023
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The podcast covers listener questions on topics such as budgeting software recommendations, converting primary residence into investment property, benefits of a solo 401k for contract workers, how much to spend on a new car, and the value of switching banks for higher interest rates.
Assess housing market conditions before deciding whether to sell your primary residence, considering factors such as prices, potential tax bills, and selling opportunities.
Evaluate if your home is suitable for renting by considering location, rental demand, and potential rental income, and weigh the pros and cons of self-management versus hiring a property manager.
Consider opening a solo 401(k) if you're a contract worker to maximize your investing goals, and explore options like Fidelity, Vanguard, and Schwab, while also considering whether switching banks for a 1% increase in interest rates is worth the effort compared to opening a high-yield savings account with a different bank.
Deep dives
Consider the Timing and Market Conditions
Before deciding what to do with your house, assess the housing market conditions and consider if selling now would be advantageous. Prices are currently high, but they may not stay that way. Additionally, selling now may allow you to avoid a larger tax bill in the future.
Evaluate the Rental Potential of Your Property
Assess whether your home is a good candidate for renting. Consider factors such as location, rental demand, and potential rental income. Run the numbers to determine if it would be a profitable investment and make sure to factor in expenses such as property management fees.
Choose Between Self-Management or Hiring a Property Manager
Decide whether you want to self-manage the rental property or hire a property manager. Self-management offers more control but requires time and effort. Hiring a property manager can save you time and stress, but it comes at a cost.
Carefully Select Tenants and Set the Rent
Choose tenants carefully by conducting thorough tenant screening. Consider their credit, employment stability, and rental history. Determine the appropriate rent amount by researching comparable rental properties in the area to ensure it aligns with market rates.
Benefits of a High Deductible Health Plan and HSA
Having a qualifying high deductible health care plan allows individuals to open a highly advantageous retirement account. With a Health Savings Account (HSA), contributions are triple tax-exempt, and potentially quadruple tax-exempt if FICA and payroll taxes are avoided. Money contributed to an HSA is tax-free, the growth is tax-free, and withdrawals are tax-free if used for qualifying health care expenses. An HSA can be particularly beneficial for self-employed individuals, allowing them to contribute over $4,000 per year for individuals, or up to $8,300 for married couples.
Considerations for Solo 401(k) and Choosing a Bank
While a taxable brokerage account with platforms like Betterment can be great for investments, they do not support solo 401(k) accounts. Popular choices for opening a solo 401(k) include Fidelity, Vanguard, and Schwab. Solo 401(k) accounts offer excellent benefits for self-employed individuals, and expert advice on maximizing the advantages of this account can be found in an upcoming episode featuring Sean Malaney, author of a book on solo 401(k) plans. Additionally, switching banks for a mere 1% increase in interest rates may not be worth the effort, but opening a high-yield savings account with a different bank and moving only a portion of your savings may be a viable option for earning extra interest.
We’re kicking off the week by answering your listener questions! And if you have a question that you’d like for us to answer on the show, we’d love for you to submit your own via HowToMoney.com/ask , send us your voice memo. Regardless of how random or bizarre you might think it is, we want to hear it!
1 - With Mint shutting down, do y’all have any recommendations for new budgeting software?
2 - Should I convert my primary residence into an investment property as I’m moving out of town?
3 - As a contract worker, what are the benefits of opening a solo 401k in order to achieve my investing goals?
4 - How much should I spend on a new car and what’s a good strategy for saving up for it?
5 - Is it worth switching banks for an extra 1% in interest?
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During this episode we enjoyed a Green City by Other Half Brewing- a big thanks to Jason for sending this one our way! And please help us to spread the word by letting friends and family know about How to Money! Hit the share button, subscribe if you’re not already a regular listener, and give us a quick review in Apple Podcasts or wherever you get your podcasts. Help us to change the conversation around personal finance and get more people doing smart things with their money!