I have a friend who’s been doing consulting for years. Started as one project, grew into a second income stream that now equals about half what he makes at his day job. He’s still running it as a sole proprietorship. No structural liability protection for something that’s become a major income source for his family.

He’s not alone. Hardly a week goes by where I don’t talk to a small business owner who says “I have an LLC” like it’s the end of the conversation — like it’s a get-out-of-jail-free card. But when I ask follow-up questions, they don’t know how it’s being taxed, what it’s protecting them from, or what they need to do to keep that protection in place.

This post is for both groups: the people who should have formed one a long time ago, and the people who have one but don’t really understand what they have.

What an LLC actually is

An LLC — a Limited Liability Company — is a creature of your state. You form it by filing paperwork with your state government, usually the Secretary of State. It creates a legal entity separate from you. Liability protection rules vary by state, which is why local legal advice matters.

But here’s what most people miss: the IRS doesn’t recognize “LLC” as a tax category. Once you have an LLC, you still need to tell the IRS how you want it taxed. That’s a separate decision.

So when someone tells me “I have an LLC,” they’ve only given me half the picture. The LLC is the state-level structure. The tax classification is the federal piece. You need both to understand what you actually have.

The federal tax classifications

Once you have an LLC, here are your options for how the IRS treats it.

If you’re a single-member LLC and don’t elect otherwise, you’re taxed as a “disregarded entity” — essentially a sole proprietorship. Your income flows to Schedule C. You pay self-employment tax: 12.4% Social Security up to the annual wage base (adjusted each year), plus 2.9% Medicare on all net earnings. That’s 15.3% total on most of your profit.

If your LLC has two or more owners and you don’t elect otherwise, it’s taxed as a partnership by default. The LLC files an informational return (Form 1065), each partner gets a K-1, and profits pass through to your personal returns.

If you want to be taxed as an S-Corporation, you have to elect that status by filing Form 2553 with the IRS. For calendar-year businesses, the deadline is generally March 15 of the year you want the election effective (adjusted if that date falls on a weekend or holiday). If you miss that deadline, late election relief is often available under Rev. Proc. 2013-30 for up to three years and 75 days.

With an S-Corp election, you pay yourself a reasonable salary — subject to payroll taxes — and then take remaining profits as distributions, which aren’t subject to self-employment tax. That’s where the savings come from. You’ll need to run payroll, which adds some complexity. But payroll services are cheap now, and the tax savings can add up fast.

One important caveat: the IRS requires S-Corp owners to pay themselves a “reasonable salary.” If you artificially keep your salary low to avoid payroll taxes, the IRS can reclassify distributions as wages and assess back taxes and penalties.

Conventional wisdom says the S-Corp election makes sense once you’re earning $50,000–$60,000 in net profit. I think it’s worth looking at earlier — even $15,000–$20,000 in some cases, depending on your situation. The math isn’t complicated: run the numbers on your expected profit, estimate the self-employment tax savings, and compare that to the cost of payroll service and additional bookkeeping.

Finally, there’s the C-Corporation election. The corporation pays taxes at the corporate level, then shareholders pay taxes again on dividends. This “double taxation” doesn’t make sense for most small businesses unless you’re planning to raise outside investment or sell the company.

The key insight is that your LLC can grow with you. You can start simple, taxed as a sole prop, and elect S-Corp treatment later when it makes sense. If you revoke S-Corp status, you generally must wait five years before re-electing it without IRS consent.

My own example: Romano Associates

I recently started another company — a small consultancy focused primarily on pro bono work, with occasional paid projects. I formed an LLC because I wanted the liability protection. But simplicity mattered more than tax optimization at this stage. So I kept it as a single-member LLC taxed as a disregarded entity.

Sometimes simple is the right answer. The LLC can provide liability protection — if maintained properly. And if the paid work grows, I can change the election later.

What an LLC gets you

It can provide liability protection — if you maintain the separation properly. If someone sues your LLC or your LLC can’t pay its debts, your personal assets — house, car, savings — are generally protected. The LLC is a separate legal “person.”

It gives you credibility with some clients and vendors who take you more seriously if you’re operating as an LLC rather than just “John Smith, consultant.”

It gives you flexibility. You can change how you’re taxed as your business evolves.

And it gives you succession options. It’s generally cleaner to transfer ownership interests in an LLC than to unwind and sell a sole proprietorship. This is a bigger deal than most people realize — we’ll cover it in a future post.

What an LLC doesn’t get you

It doesn’t automatically save you taxes. Forming an LLC alone does not reduce self-employment tax. You have to make an election — like S-Corp — to get tax advantages beyond what you’d have as a sole proprietor.

It generally won’t protect you from liability for your own professional negligence or misconduct. If you personally do something wrong — fraud, malpractice, negligence in your professional work — the LLC won’t shield you from the consequences.

It doesn’t protect you if you sign personal guarantees. If you personally guarantee a lease or loan, you’re on the hook regardless of the LLC.

And it doesn’t protect you if you don’t maintain the separation. This is the big one.

The big mistake: piercing the veil

The liability protection only works if you treat the LLC as a separate entity. This is called “maintaining the corporate veil.” If you don’t, a court can “pierce the veil” and come after your personal assets anyway.

How do people screw this up? The most common way is commingling funds. Everything goes into one checking account — personal and business mixed together. Or worse: business income goes into the LLC’s account, but then personal expenses come out of it regularly.

Other ways: not keeping basic records, no operating agreement, no separation between you and the business on paper. Or starting the LLC with essentially no money in it and running everything through personal accounts.

The rule is simple: if you have an LLC, you need a separate business bank account. Business money stays in business. Personal money stays personal. It’s not complicated, but you have to actually do it.

When do you need one?

You probably don’t need an LLC if your side income is under $5,000–$10,000 a year, you’re doing something low-risk like selling jewelry on Etsy, or you’re just testing an idea and not sure it’s going anywhere.

You should probably form an LLC if your side business is becoming a real income source, you have meaningful liability exposure (clients could sue you, you’re doing professional services, you own rental property), or you want the flexibility to elect S-Corp treatment later.

LLCs are relatively inexpensive in most states. Filing fees range from about $35 to $500 depending on your state — Massachusetts is unfortunately at the high end with a $500 filing fee and $500 annual report. But even at the expensive end, compared to the protection you get, it’s usually worth it.

A note on rental properties: I had a client with two small rental properties — not getting rich on them, but they’re a key part of his income. Both were under one LLC. Sometimes it makes sense to have separate LLCs so they’re firewalled from each other. A little harder on the bookkeeping, but cheap insurance. And remember: an LLC is not a substitute for liability insurance. The structure helps, but insurance is what actually writes the check if something goes wrong.

The bottom line

An LLC is not a destination. It’s a starting point.

It doesn’t automatically protect you. It doesn’t automatically save you taxes. But if you understand what it is, maintain it properly, and make the right elections as your business grows, it’s one of the most flexible and useful tools a small business owner has.

And if all you know is “I have an LLC” — it’s time to learn the rest.

You might also like:

• “Why Everyone Should Have a Side Business” — the case for having one

• “How to Hire Your Kids” — where LLC structure matters

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Most people who aren’t investing don’t have a motivation problem. They have a clarity problem. They’ve heard “buy index funds” a hundred times, but nobody told them which ones or how to actually do it.

I’ve seen this play out. A woman sitting on $25,000 in cash — not a huge sum, but it was her retirement savings. She wasn’t ignorant or careless. She just didn’t know which fund to pick, so she picked none. I’ve seen people with their entire retirement in one stock — Apple, Tesla, Amazon — because it’s a name they hear in the news. They think they’re investing smart because they recognize the company. But one company can drop 40% in a year — and it may take years to recover. An index fund spreads that risk across hundreds or thousands of companies. They’re not dumb — they just went with what they knew. Nobody explained that index funds reduce single-company risk and make investing dramatically simpler.

For most people, this post is enough.

What an index fund actually is

An index fund isn’t an asset class — it’s a method of investing. It tracks a defined index instead of trying to beat it. Your job is just to understand what you’re tracking.

There are four buckets you need to know.

U.S. Total Stock Market funds hold thousands of U.S. companies in one fund — a bet on the long-term productivity of the American economy, not any single company.

International Stock funds hold companies outside the U.S. Less about upside, more about not being 100% dependent on one country.

Bond funds typically have lower long-term returns and smaller swings than stocks. Their job isn’t to maximize growth — it’s to reduce volatility and provide stability, especially as retirement approaches. They can still decline in certain markets, just usually not as dramatically as stocks.

Target-Date funds are a pre-mixed bundle that adjusts automatically over time. Choosing one isn’t lazy — it’s a deliberate tradeoff of simplicity over customization.

The Vanguard glide path

If you want to know what the biggest fund company in the world thinks is a reasonable allocation by age, here it is.

Vanguard’s Target Retirement funds stay close to 90% stocks through about age 40, then gradually reduce stock exposure over time — reaching roughly 50% stocks at retirement and about 30% stocks by your early 70s.

Within the stock portion, they allocate roughly 60% to U.S. and 40% to international, reflecting global market weight. Within bonds, the majority is U.S., with a smaller international allocation.

This is more aggressive than the old “age in bonds” rule. Vanguard keeps you in stocks longer because retirements last longer now. You can adjust based on your own risk tolerance, but if you’re stuck, this is a reasonable starting point.

Examples of funds in each category

I’m not recommending specific funds — that depends on your situation. But here are examples so you know what to look for.

For U.S. Total Stock Market: Vanguard offers VTI (ETF) or VTSAX (mutual fund). Fidelity offers FSKAX or FZROX (zero fee). Schwab offers SWTSX.

For International Stock: Vanguard offers VXUS (ETF) or VTIAX (mutual fund). Fidelity offers FTIHX or FZILX (zero fee). Schwab offers SWISX.

For U.S. Bonds: Vanguard offers BND (ETF) or VBTLX (mutual fund). Fidelity offers FXNAX. Schwab offers SCHZ.

For Target-Date funds (example: retiring around 2035): Vanguard offers VTTHX. Fidelity offers FFTHX. Schwab offers SWYHX.

Within each category, these funds are broadly similar in what they do. Picking one and moving forward matters more than picking the perfect one.

If you’re building this mix yourself instead of using a target-date fund, rebalance once per year. Don’t overthink it.

If you’re in a 401(k)

Your choices are limited to what your employer offers. That’s okay.

Look for anything with “S&P 500,” “Total Market,” or “Total Stock” in the name. Check the expense ratio — it should be under 0.20%, ideally under 0.10%. If those aren’t available, a target-date fund matching your retirement decade is a solid default.

Don’t let the perfect be the enemy of the good. A 401(k) with a decent S&P 500 fund and an employer match beats a brokerage account you never fund.

ETF vs. mutual fund

You’ll see both options when you search for index funds. Here’s the only thing most people need to know.

What’s the same: both can track the exact same index, both have low fees, and both get you the same investment exposure.

What’s different: ETFs trade like stocks anytime the market is open; mutual funds trade once per day. ETFs let you buy one share at a time (often $50–300); mutual funds sometimes require $1,000–3,000 to start. ETFs are often slightly more tax-efficient in taxable accounts, though the difference is minor in retirement accounts. 401(k)s often only offer mutual funds.

If you’re investing in a 401(k) or IRA, pick whichever is available with the lowest expense ratio. If you’re in a taxable brokerage account and have a choice, ETFs have a slight edge. But this is a tiebreaker, not a dealbreaker.

Expense ratio: the one number that matters

The expense ratio is the annual fee the fund charges, expressed as a percentage. It comes out quietly every year. It compounds against you.

Under 0.10% is excellent. Between 0.10% and 0.20% is fine. Over 0.30%, pause and ask why.

To find it, Google “[fund name] expense ratio” or check the fund company’s website.

Why it matters more in midlife: at 45–65, your balances are larger. A 0.50% difference on $300,000 is $1,500 per year staying in your account instead of going to fund managers.

Fees are one of the few variables you can control. Take that win.

Three mistakes to avoid

The first is overlapping funds. An S&P 500 fund plus a Total Market fund equals mostly the same companies. If two funds move almost exactly the same way, you probably only need one.

The second is chasing “smart” indexes. Low volatility, smart beta, factor tilts, thematic funds — these aren’t scams, but they reintroduce complexity that index investing was designed to remove. The more adjectives in the fund name, the more you should slow down.

The third is trading instead of holding. Index funds work best as long-term investments. If you’re buying and selling based on headlines, you’re doing it wrong.

The bottom line

Simplicity is a feature, not a compromise.

A two- or three-fund portfolio is not unsophisticated. Many professionals invest exactly this way. Complexity doesn’t protect you from uncertainty — discipline does.

The biggest risk to your portfolio usually isn’t the fund you pick — it’s abandoning the plan during volatility.

If your portfolio lets you sleep, stay invested, and focus on the rest of your life, it’s doing its job.

You might also like:

• “Invest Like Warren Buffett” — the philosophical case for index funds

• “SEP-IRA” — where self-employed people can hold these funds

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Before you can help your aging parents financially — or step in during a crisis — you need to know where everything is. This is the financial equivalent of an audit: getting your arms around what exists. Most families avoid this conversation because it forces everyone to confront mortality, dependency, and the possibility that things aren’t as “handled” as anyone claims.

But avoiding it doesn’t make the problems go away. It just makes them yours to solve, alone, in a crisis.

Quick note before we dive in: laws and benefits vary by state. This is practical planning guidance, not legal advice.

My dad died at 59

He’d had a heart attack in his early 40s, but he seemed fine for years after that. Then he got pneumonia, developed complications, and was gone. There was no chronic illness leading up to it, no diagnosis that triggered a big conversation, no time to prepare. It was sudden.

Anytime we’d talked about their future, my dad would say that whoever lived longer got the other’s pension, that they had insurance, and that he had long-term care insurance. That was it. “Everything’s taken care of. Don’t worry about it.”

When he died, I discovered that “handled” and “accessible” weren’t the same thing.

My mom was deeply upset — and far less involved in the finances than I’d assumed. I didn’t even know basic things, like where they banked. Everything was on paper, in cardboard boxes in the basement — decades of paystubs going back to 1963, but none of it organized. There was no guide, no list of accounts or insurance policies. Just boxes of noise with occasional important documents buried inside. If there had been a fire or a flood, everything would have been gone.

People can go before you anticipate. Death can be sudden. You don’t always have time to prepare or have the conversation when a diagnosis forces it.

Then came the second lesson

Within a year of my dad’s death, my mom was diagnosed with Parkinson’s disease. The prognosis was 10 more years of degenerative decline. She lived 18. Even when you think you know the timeline, you may not — and that has financial implications.

My mom was functional for years and wanted to stay in her home as long as possible. That became the lever for the conversation.

I had to teach myself what would be required if she eventually needed Medicaid help paying for long-term care. In our case, that meant learning about Medicaid planning tools — including an irrevocable trust — and the state’s “look-back” rules, which are often five years but can vary. California, for example, uses 30 months. This is one place where an elder-law attorney is worth the money.

The resistance was constant. “I’ll be OK.” Changing the subject. “We’ll talk about it later.” Sometimes it was more direct: “You shouldn’t have to worry about these things. I’ll figure it out.”

It took years to get the full picture.

The turning point came when she started forgetting to pay some bills and asked me to help. That built trust — within three months, she was more comfortable letting me handle things. But it was hard for her. I’m her son. She felt like her job was to protect me, not for me to take care of her.

The long-term care disaster

When I finally got a copy of the long-term care policy, I discovered the truth. My dad had purchased a real long-term care insurance policy in the mid-1990s. Then in the late 1990s, his union offered a plan that seemed just as good but much less expensive. He dropped the real policy and took the union plan.

The union plan turned out to be an emergency care plan — meant for temporary rehab after something like a hip replacement, not long-term residential care. It only covered a couple of months, and not very well.

My mom was going to need Medicaid eventually, which meant we had to position her for that. She had no savings to speak of, so we had to build a war chest from scratch.

Throughout this time, there was a real give-and-take with my mom — what she felt she needed to not let me know because she didn’t want to lose her independence, versus the realization that she just didn’t have the information or wherewithal to navigate the decisions that had to be made.

Why families avoid this

If you’re dreading this conversation, you’re not alone. There are three reasons most families put it off.

The first is that mortality is terrifying. To talk about what happens after you’re gone means confronting the fact that you’re mortal. We all know we’re going to die. We don’t know when or how. Being conscious of that is deeply unsettling. Talking about “where the money is” implies that at some point, you won’t be here.

The second is that parents want to stay parents. The implication of this conversation is that you can no longer take care of yourself — that you’re going to need help from a person you used to take care of. That’s a painful role reversal.

The third is embarrassment. Many parents don’t know 100% if they have everything together. If you’re very wealthy, you probably have advisors who helped you set things up. If you’re not, you’re likely worried that you don’t have it all figured out — and you don’t want to admit that to your child.

The result is that parents assure the child that everything’s “handled.” Sometimes it is. Often it isn’t. And even when it is, the child has no idea where anything is or what it means.

How to start the conversation

Don’t make it about death. Make it about their vision.

“If you want to stay in your home as long as possible, then there are things I’m going to have to do to help. So let’s talk about what you have and what we need to plan for.”

“If you want to leave the house to the grandkids, or make sure your funeral isn’t a burden on anyone, we need to know what’s in place.”

Help them see that avoiding it creates the problem they’re trying to prevent. They don’t want to be a burden — but avoiding the conversation makes them a burden. They want to protect you — but leaving you in the dark means you’ll be scrambling during the worst moment of your life.

The best opening line I’ve found is this: “My spouse and I have been working on getting our own estate in order. Here’s a packet with our passwords and accounts in case you ever need it. Should we do the same with you? Would that be helpful?”

This normalizes it. You’re not demanding information — you’re offering a mutual exchange. It won’t all come out in one conversation, but it opens the door.

What you need to find out

Here’s the list. You don’t need to get it all at once, but this is what you’re working toward. The goal isn’t control — it’s that someone else can find what matters in 30 minutes.

On money and accounts: Where are the bank accounts — checking, savings, CDs? Where are the investment and retirement accounts — 401(k), IRA, brokerage, pension? What debts exist — mortgage, car loan, credit cards, medical debt? What income sources exist — Social Security, pension, annuity, rental income?

On legal documents: Is there a will? Where is it? Is there a trust — revocable or irrevocable? Is there a durable financial power of attorney and a separate healthcare proxy? Where are they, and who is named? Is there a healthcare directive or living will? Most families need two separate authorities: a durable financial power of attorney lets someone manage money and sign on your behalf if you can’t, and a healthcare proxy lets someone make medical decisions if you can’t communicate. The names and forms vary by state, but the separation of roles is the key idea.

On where originals are kept: Safe deposit box? Fireproof safe at home? Attorney’s office? Who has the key or combination? If you can’t access the documents in a crisis, knowing they exist doesn’t help.

On beneficiaries and titles: Who is named as beneficiary on retirement accounts and life insurance? How is the house titled? Beneficiary designations often override what’s in the will — and mistakes here can create expensive problems.

On insurance: What health insurance do they have — Medicare, Medigap, Medicare Advantage, employer retiree coverage? (You generally can’t have Medigap and Medicare Advantage at the same time — Medigap supplements Original Medicare.) Is there long-term care insurance? Get a copy of the actual policy — don’t take their word for what it covers. Is there life insurance? Who are the beneficiaries?

On benefits: Are they receiving Social Security? How much? If they were in a union or government job, what retirement and health benefits are they entitled to?

When I took over my mom’s finances, I called each of their unions and had a conversation about all the benefits they were entitled to. I found things nobody knew about — including prescription reimbursements and other expenses that had been eating away at her money for years. They could’ve been using them the whole time.

On passwords and access: Don’t email a list of passwords. Use a password manager with an emergency-access feature, or keep a printed “how to access” sheet in a locked, known location. Include phone and computer unlock info — because without the device, you may be stuck. At one point, we had a loved one whose computer password we didn’t know. It took days to figure it out. And this wasn’t even about death — it was about them being incapacitated and needing to access information to help them.

On medical access: Consider a HIPAA authorization — a signed form that lets doctors share medical information with you even before a healthcare proxy kicks in. Without it, providers may refuse to talk to you.

On advisors: Do they have an attorney, CPA, financial advisor, or insurance agent? Get names and contact information. These people may know things the family doesn’t.

On funeral and end-of-life wishes: What do they want — burial or cremation? Religious service? Have they prepaid anything? Where do they want to be buried? It sounds morbid, but this often gets shoved into the last days or weeks of life when everyone is grieving and overwhelmed. Knowing it in advance takes pressure off.

It’s rarely one conversation

The ideal is one big conversation to get the ball rolling, with follow-up action items that you manage — because the parent will likely avoid them.

The reality is that it’s more like assembling a puzzle one piece at a time. You may hear a snippet here, learn something there, and slowly piece it together as you build trust.

Take notes as you learn each piece. If you hear something in passing, write it down. You may be pulling it all together over months or years until they’re comfortable enough to share more — or until you have no choice but to step in.

Get siblings involved

Even if one sibling is more involved than the others, everyone needs to know what’s happening.

The involved sibling could die or become incapacitated themselves. The uninvolved sibling may suddenly need to step up. Not keeping everyone informed creates confusion, resentment, and conflict later. When a parent dies, siblings who weren’t in the loop often feel blindsided or suspicious — and that’s when families fracture.

It’s critical to have siblings involved. Typically one sibling is more involved than the other, which makes it harder — you have to keep the other sibling up-to-date. But it staves off a lot of confusion and disappointment later.

This isn’t just about death

Incapacity can happen suddenly — a stroke, a bad fall, a heart attack, dementia that progresses faster than expected. In those cases, your parent is still alive but can’t help you find anything. You may be trying to get power of attorney in place while trying to access accounts and make decisions. If you don’t know where anything is, you’re doing it blind.

And you may need to contribute financially. As much as my mom had two pensions, Karen and I still needed to put a fair amount of money into her life as she got more and more sick. The healthcare system, health insurance, Medicare, Medicaid — they don’t cover everything you think they do when it comes to having a reasonable quality of life.

The mistakes to avoid

Taking their word for it. “Everything’s handled” is not an answer. You need to see the documents.

Assuming you have time. Death and incapacity can be sudden. Don’t wait for a diagnosis.

Not getting a copy of the long-term care policy. My dad thought he had good coverage. He didn’t. Read the actual policy.

Forgetting about union and employer benefits. Retirees often don’t know everything they’re entitled to. Call and ask.

Not knowing where originals are kept. A will in a safe deposit box you can’t access is useless in a crisis.

Skipping the beneficiary check. Outdated beneficiary designations on retirement accounts and life insurance can override everything else.

Leaving siblings out of the loop. Even if they’re less involved, they need to know what’s happening.

If your parents are already gone

If you learned this the hard way — scrambling after a death, piecing together a mess — then today’s the day to turn around and make it right for your kids.

Or if you don’t have kids, think about your nieces, nephews, or whoever is going to be the person managing things for you when you get sick or when you die. Make sure those things are taken care of. Don’t continue the problem.

You might also like:

• “Estate Planning Basics” — the five documents everyone needs, and how to get them in place

• “Do You Actually Need a Trust?” — when the math works, and when it doesn’t

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It wasn’t fine. Her balance had grown by over $1,000 since August. None of those months counted toward forgiveness. And the plan she’d been counting on was officially dead.

If you have federal student loans — or someone in your family does — here’s what just happened and what to do about it.

What Happened

On March 10, 2026, a federal appeals court officially ended the SAVE plan, the most affordable income-driven repayment option ever created. Nearly 8 million borrowers were enrolled at its peak; more than 6.5 million were still in forbearance as of late last year. Most have been sitting in administrative forbearance since mid-2024, meaning no payments required and no action needed.

That sounds like a relief. It’s actually a trap.

Why “Doing Nothing” Is Costing You Money

Here’s what most borrowers don’t realize: your loans started accruing interest again on August 1, 2025. Every month since then, your balance has been growing — and none of those months count toward loan forgiveness.

Let’s make this real. Say you have $35,000 in federal loans at 5.5% interest. That’s roughly $160 per month in interest accruing while you’re in forbearance. From August 2025 through March 2026, that’s about $1,280 added to your balance. By July 2026, when the replacement plan launches, you’ll have added nearly $2,000 to what you owe — with zero progress toward forgiveness.

If you’re pursuing Public Service Loan Forgiveness, every month in this limbo is a month that doesn’t count toward your 120 qualifying payments. Two years of forbearance means two years added to your timeline.

Doing nothing feels safe. It’s the most expensive choice you can make right now.

What to Do This Week

Switch to Income-Based Repayment (IBR). This is the one income-driven plan that survives all the changes coming in 2026 and beyond. Congress eliminated the old “partial financial hardship” requirement last July, and the Department of Education’s systems caught up late last year — so more people now qualify than ever before.

Here’s how to switch: Go to StudentAid.gov/idr and start a new application. When it asks which plan you want, select IBR specifically. Your payments will restart, but every payment counts toward forgiveness. Your prior qualifying months from before the SAVE forbearance carry over.

If you’re close to PSLF forgiveness, there’s an option worth knowing about. The PSLF Buyback program lets you pay for months lost during forbearance — but only if you already have 120 months of qualifying public service employment and buying back those months would complete your required payments. That’s a narrow group, but if it’s you, it’s worth filing. There’s a significant backlog (processing is taking 6 to 12 months), so continue making regular payments while you wait.

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If you have Parent PLUS loans, this is urgent. Parent PLUS loans are not eligible for the new Repayment Assistance Plan launching in July. The only income-driven path for Parent PLUS borrowers involves consolidating into a Direct Consolidation Loan first, which then makes you eligible for Income-Contingent Repayment — and from there, potentially IBR.

Here’s the catch: that consolidation must be completed by July 1, 2026. After that date, new Parent PLUS borrowers lose access to income-driven repayment entirely. Consolidation takes four to six weeks to process. If you need this option, don’t wait until June.

What’s Coming Next

The Repayment Assistance Plan (RAP) launches no later than July 1, 2026. It’s simpler than the old alphabet soup of repayment plans, but it’s also less generous. Payments are based on 1–10% of your adjusted gross income, with a $10 minimum. Forgiveness comes after 30 years instead of the 20–25 years under older plans.

If you’re already on IBR and don’t take out any new loans after July 2026, you can stay on IBR. You’re not forced into RAP. But if you borrow again after that date, all your loans — old and new — must go under RAP or the standard plan.

One more thing that flew under the radar: IDR forgiveness is generally taxable again. The temporary federal exemption from the American Rescue Plan expired December 31, 2025. Loan forgiveness through income-driven repayment in 2026 or later will generally count as taxable income at the federal level. Public Service Loan Forgiveness remains tax-free, but if you’re on the 20- or 30-year IDR path, start planning for the potential tax bill.

The One Thing to Do Today

Go to StudentAid.gov/idr and switch to IBR. It takes about 15 minutes. Don’t wait for the government to send you a letter — by the time that arrives, you’ll have lost more months and added more interest.

If this post isn’t for you, forward it to someone it is. Your adult kid. Your niece finishing grad school. The colleague who mentioned their student loans in passing. This is the kind of information that doesn’t reach people until it’s too late.

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I was almost 30 when the math finally hit me. I’d been contributing to my 401(k) for a few years — not as much as I should have, but something. Then I ran the numbers on what my balance would look like at 65 if I’d started at 22 versus 30.

Eight years. That’s all I’d missed. But those eight years cost me hundreds of thousands of dollars in projected retirement wealth.

I remember staring at the spreadsheet, sick to my stomach. Not because I’d done anything wrong — I was saving, I was trying. But because I finally understood what compound interest actually meant. Not as a concept from a textbook. As real money I was leaving on the table.

I never waited again.

If I could teach you one thing about money, it would be this: Your biggest asset isn’t your salary. It isn’t your house. It isn’t your 401(k) balance. It’s time.

Everything else I write about — retirement accounts, index funds, employer matches, debt payoff — is just mechanics. The engine underneath all of it is compound interest. And compound interest needs time.

The tale of three savers

Meet Sarah, Michael, and Jennifer. They all invest in the same thing, earn the same 7% average annual return, and contribute the same $500 per month. Same monthly amount. Same investments. Same return. Only one difference: when they started.

Sarah starts at 25 and contributes until 65 — that’s 40 years. Michael starts at 35 — that’s 30 years. Jennifer starts at 45 — that’s 20 years.

Here’s what happens: Sarah contributes $240,000 total and ends up with $1,310,000. Michael contributes $180,000 and ends up with $610,000. Jennifer contributes $120,000 and ends up with $260,000.

Read that again.

Sarah contributed $60,000 more than Michael — but she has $700,000 more at retirement. Michael contributed $60,000 more than Jennifer — but he has $350,000 more. Sarah has five times what Jennifer has, even though she only contributed twice as much.

This is compound interest. And it changes everything.

What is compound interest, actually?

Simple interest means you earn money only on what you originally invested. Put in $1,000, earn 7%, you get $70. Every year, you earn $70.

Compound interest means you earn money on your original investment AND on all the interest you’ve already earned. Put in $1,000, earn 7%, you now have $1,070. Next year, you earn 7% on $1,070 — that’s $75. The year after, you earn 7% on $1,145. And so on.

It doesn’t sound like much at first. The difference between $70 and $75 is pocket change. But give it time, and the numbers get absurd.

Here’s $10,000 invested once at 7% annual return, left alone: After 10 years, it’s worth $19,700. After 20 years, $38,700. After 30 years, $76,100. After 40 years, $149,700.

You didn’t add a penny after the first $10,000. Almost $140,000 appeared from compound growth alone. That’s not magic. That’s math. And it only works if you give it time.

(A note on that 7%: this is a commonly used estimate for long-term stock market returns after adjusting for inflation. Your actual returns will vary year to year, but over decades, it’s a reasonable planning assumption.)

The Rule of 72

Want a quick way to estimate how long it takes your money to double? Divide 72 by your expected return.

At 7%: 72 ÷ 7 = about 10 years to double. At 10%: about 7 years. At 3%: 24 years — which is why savings accounts don’t build wealth.

So at 7%, after 10 years your money doubles. After 20, it doubles again (now 4x). After 30, again (8x). After 40, again (16x).

This is why Sarah ends up with so much more than Jennifer. Sarah got four doublings. Jennifer only got two.

“But I’m not 25 anymore.” I know what you’re thinking. Great, I missed the boat. Thanks for making me feel terrible.

That’s not the point.

The point is: today is the youngest you’ll ever be.

If you’re 45 and start now, you’ll have 20 years of compound growth before 65. If you wait until 50, you’ll have 15. If you wait until 55, you’ll have 10. Every year you wait costs you a doubling.

Here’s what happens if you’re 50 today and start investing $500/month at 7%: Start at 50, you’ll have $158,000 at 65. Wait until 52, $127,000. Wait until 55, $87,000. Wait until 57, $64,000.

Waiting from 50 to 55 costs you $71,000. Waiting from 50 to 57 costs you $94,000.

That’s the price of “I’ll get to it later.”

The flip side: compound interest working against you

Everything I just showed you? It works in reverse when you’re in debt.

When you owe money at 20% interest — a typical credit card rate — compound interest is growing what you owe, not what you own.

Let’s say you have $10,000 in credit card debt at 20% APR and you pay $200 per month. After one year, you’ve paid $2,400 — but you still owe about $9,500. After five years, you’ve paid $12,000 and still owe over $6,600. It takes over 9 years to pay it off completely, and you’ll have paid nearly $22,000 total — more than double what you borrowed.

Here’s what makes it worse: during those 9 years, if you’d been investing that $200/month at 7% instead of paying off debt, you’d have over $30,000.

The total swing between being in debt versus investing? Over $40,000. That’s the real cost of carrying high-interest debt. It’s not just what you pay in interest — it’s what you’re not building while you’re paying it.

Credit card companies love compound interest. They’re using the same math against you that you should be using for yourself. This is why I talk so much about debt. Every dollar you’re paying in interest is a dollar that could be compounding for you instead of against you.

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What this means for your kids and grandkids

If you have children or grandchildren in their teens or twenties, you have an opportunity that’s hard to overstate.

A 22-year-old who invests $200/month until 65 — that’s 43 years — at 7% will have about $655,000. Their total contributions? About $103,000. The other $552,000 came from compound interest alone.

If you can help a young person understand this — or better yet, help them get started — you’re giving them a gift worth hundreds of thousands of dollars.

Open a Roth IRA for them. Match their contributions. Show them this math. It might be the most valuable thing you ever do for their financial future. I wrote about Custodial Roth IRAs for exactly this reason — check that post if you have kids or grandkids with earned income.

Why this is my starting point

Almost everything I write about comes back to compound interest. 401(k) employer match? Free money that compounds for decades. Index funds? A simple way to capture market returns and let them compound. Paying off debt? Stopping the compounding that’s working against you. SEP-IRAs and HSAs? Tax-advantaged ways to let more money compound. Social Security timing? Delaying lets a different kind of growth work in your favor.

The tactics change. The underlying principle doesn’t. Time plus consistent investing plus patience equals wealth. It’s not exciting. It’s not sexy. But it’s true.

The action step

If you’re not investing yet, start today. Even $100/month. The amount matters less than starting the clock.

If you’re already investing, increase it. Even 1% more of your income. Future you will thank present you.

If you have kids or grandkids, show them this post. Have the conversation. Help them start if you can.

If you’re carrying high-interest debt, recognize that you’re on the wrong side of this equation. Make a plan to flip it.

The math doesn’t care about your excuses. It doesn’t care that you meant to start earlier. It doesn’t care that life got in the way.

But it will reward you — generously — if you start now and stay consistent.

Your biggest asset is time. Use it.

You might also like:

• “Invest Like Warren Buffett” — why index funds are how most people should invest

• “The Custodial Roth IRA” — how to give your kids or grandkids a massive head start

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I approach taxes like a game. I always want to play by the rules — I don’t want to cheat — but I’m competitive and I like to win. And in this case, winning equals paying what you owe — no more and no less. I like to know all the rules so I can win fairly.

Because I use less common but fully legitimate tax moves, there have been times where my returns required additional steps and scrutiny — which is appropriate given what I was doing. The problem is that those additional steps mean waiting for a human at the IRS to review them. And over the past few years, there have been fewer and fewer people doing that work.

So I’ve had to learn how to navigate the system. Not the easy part — filing your return, getting your refund, moving on with your life. The hard part. The part where something goes sideways and you need someone at the IRS to actually look at it.

Here’s everything I’ve learned.

First, don’t panic

If you get a letter from the IRS, your first instinct will be fear. That’s normal. But most IRS letters are not audits. True audits are rare — the vast majority of notices are automated. Something didn’t match. A document was missing. A number looked off. The IRS relies on matching systems — if your W-2 or 1099 income doesn’t match what you reported, their system flags it automatically and sends you a notice.

Not every letter is equal. Some notices are purely informational. Others are bills. A few require action fast. Your job when you open the envelope is to figure out which one you have, read it carefully, and note the deadline. The worst thing you can do is ignore it. Silence doesn’t make it go away — it makes it worse. Respond by the date they give you, and most of the time, it’s a non-event.

And even if you do get audited — which very few people do — it’s almost certainly not what you’re imagining. In FY2024, about 78% of IRS examinations were handled by correspondence — meaning mail and document requests — while about 22% were field exams, which often take place at an IRS office or through your representative, not necessarily at your home. For most households, an audit means paperwork, not a doorstep drama.

This happened to us. We installed solar panels and took the tax credit. A few months later, we got a letter asking us to verify the installation — basically prove we’d actually done it and what we paid. I put together a package of documentation from our solar installer — receipts, the contract, proof of payment — and mailed it in. A few weeks later, we got another letter: all clear. No one came to the house. No harassing phone calls. No dramatic confrontation. Just paperwork in, paperwork out.

A quick note on scams

During tax season — especially when you’re anxious about a letter — scammers are counting on you to react without thinking. Here’s a simple filter: the IRS generally starts with a letter sent through the mail. They don’t initiate contact by email or social media, and unsolicited texts are a red flag. If you’re ever unsure whether a notice is real, log into your IRS Online Account directly — don’t click links in texts or emails — and call the published IRS number yourself.

Start online: IRS.gov/account

Before you pick up the phone, check whether your answer is already available online. The IRS online portal lets you check the status of your return and refund using the “Where’s My Refund?” tool, view your tax records and transcripts, track amended returns, make payments, and get answers to common questions. It’s available 24/7 with no hold times. For straightforward questions — where’s my refund, did my payment go through, what does this notice mean — start here.

How to actually get a human on the phone

Sometimes you need to talk to a person. Here’s how I do it.

The numbers are 1-800-829-1040 for personal tax issues and 1-800-829-4933 for business tax issues. Both lines are open Monday through Friday, 7:00 AM to 7:00 PM your local time. A tip on the business line: the representatives there tend to be less busy, they’re well-versed on what you need, and they’re used to working with small business people who don’t have a lot of time. If your question touches anything business-related, try that number first.

When you call matters more than you’d think. The best days are Tuesday, Wednesday, and Thursday. Mondays have a backlog of callers from the weekend. Fridays tend to have fewer workers on the lines. The best time is early morning — when I’m doing it, I start calling at 6:58 a.m. local time, two minutes before the lines open. The worst time is 10:00 AM to 3:00 PM, when call volume peaks and overlaps with lunch coverage gaps. And January through April is always the hardest stretch to get through.

Before you call, have three things ready: your Adjusted Gross Income from last year’s return — that’s Line 11 on Form 1040, and they use it to verify your identity. All documents related to your specific issue. And your questions written out. Once you get through, you’re going to want to be able to very clearly state what you need so they can look into it. This is not the time to try to remember.

Your secret weapon: the Taxpayer Advocate Service

The Taxpayer Advocate Service is an independent organization within the IRS that helps people resolve problems they can’t fix through normal channels. I’ve used them, and they’re excellent.

When to use TAS: your issue is causing financial hardship, you’ve tried to resolve it through normal IRS channels and hit a wall, or something has been sitting unresolved for an unreasonable amount of time. They assign you a single advocate who stays with your case, and the service is free.

My experience? They’re proactive, they communicate well, and they sometimes find issues you didn’t even know about. As embarrassing as it is to admit, one year they actually found an additional refund from one of my companies that had never been processed. I wasn’t even calling about it. I didn’t realize the money was owed to me. That tells you how thorough they can be.

Fair warning: TAS has been hit by the same staffing challenges as the rest of the IRS, so you may experience longer wait times than in past years. The National Taxpayer Advocate’s 2025 Annual Report to Congress specifically flagged high request volumes. But the service still exists and still works. You can reach them at taxpayeradvocate.irs.gov or by calling 877-777-4778. You can also download Form 911 to submit your case.

The tool nobody knows about: your congressional office

This is the one that surprises people. Every member of Congress has a caseworker — often several — who handles constituent issues with federal agencies, including the IRS. They contact the IRS on your behalf and can often move things along faster than you can on your own. This is standard constituent service, not a favor. It’s literally what they’re there for.

I’ve used this. I had a refund that got flagged — it was eventually approved, there was nothing wrong — but in between getting flagged and approved, it got gummed up in the system. Getting somebody to actually look at it was the hard part. I used an online form to contact my congressman’s office. They were very responsive — they have a caseworker who handles exactly these kinds of issues and interacts with the IRS directly. It was resolved within a couple of weeks.

To find yours, go to house.gov and enter your zip code. Most offices have an online form specifically for federal agency issues. You don’t need to be politically connected or know anyone personally. You just need to live in their district.

Using AI for tax questions

This might sound unconventional, but I’d recommend using Claude or ChatGPT for tax questions. Fact-check it like you would anything else, but increasingly these tools are getting better and better. At the very least, they can help you understand and interpret IRS guidance, which can be dense.

Good uses: understanding what an IRS notice means, interpreting tax rules in plain English, figuring out which forms you need, and getting a starting point for a question you’ll then verify with a professional or against IRS.gov. AI is a starting point, not a final answer — but it’s a powerful one that’s available at 2 AM when your anxiety about that letter is keeping you up.

A new wrinkle: refunds are going more digital

The IRS is phasing out paper refund checks as part of a broader move to electronic payments. Practically, if you file without direct deposit information, you may see delays while the IRS requests your payment details — or asks you to request a paper check as an exception. The Taxpayer Advocate Service has warned that refunds can be temporarily frozen in these situations until the IRS gets what it needs.

The cleanest move: include your bank routing and account numbers when you file. If you don’t have a bank account, prepaid debit cards with routing numbers or other electronic alternatives can work — the IRS has information at IRS.gov/refunds. Don’t let this catch you off guard. It’s a new step that could hold up your refund if you’re not prepared for it.

Why all of this matters more this year

I’m not going to get political about it, but you should know the reality. According to the National Taxpayer Advocate’s 2025 Annual Report to Congress, the IRS workforce dropped from about 102,000 employees to around 74,000 over the course of 2025 — a reduction of roughly 27%. On top of that, the new tax law changes from last summer added significant complexity that the IRS is still implementing. The report specifically warned that the IRS is simultaneously confronting workforce reductions, leadership turnover, and the implementation of extensive and complex tax law changes.

What this means for you: most people who file electronically with direct deposit information will be fine. But if something goes wrong — a flagged return, a missing document, an amended filing — it’s going to take longer to resolve than in past years. Having these tools in your back pocket before you need them is the whole point of this post.

The playbook

If something comes up with the IRS, here’s your order of operations. Start at IRS.gov/account — check whether the answer is already there. If you need to call, use the early morning strategy with your documents ready. If you hit a wall through normal channels, file with the Taxpayer Advocate Service. If things are dragging on, contact your congressional office. And don’t pay for those “tax resolution” services you see advertised on TV before trying the free options first.

You don’t need to memorize all of this. Bookmark this post. If the IRS sends you a letter or something feels off, come back and work through it step by step.

If something comes up, you have options. You’re not alone in this.

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Two trends are colliding right now—and if you’re in your 40s or 50s, you’re probably watching both.

First, layoffs. More than 1.2 million job cuts were announced in 2025—up 58% from 2024 and the highest since the pandemic. January 2026 brought 108,435 more, up 118% from January 2025. Some forecasters expect unemployment to peak around 4.5% this year, and a Harris Poll in October found that 55% of employed Americans are concerned about losing their jobs.

Second, retirement withdrawals. Vanguard reports that 4.8% of participants in Vanguard-administered plans took hardship withdrawals in 2024—up from 3.6% the year before, and more than double pre-pandemic levels. The top reasons: avoiding foreclosure or eviction, and medical bills.

These numbers are connected. When people lose income and don’t have emergency savings, they tap the only asset they have.

If you’re facing that decision—or worried you might be soon—no judgment here. Sometimes there’s no good option, just least-bad options. Let’s walk through how to think about this, what it actually costs, and if you have to do it, how to do it smartly.

The real cost of tapping retirement early

This isn’t a lecture. It’s the math.

If you take a hardship withdrawal from a traditional 401(k) before age 59½, you’ll owe income taxes plus a 10% early withdrawal penalty. In the 22% federal bracket with 5% state tax, that’s 37% gone before you see a dollar. To net $15,000, you may need to withdraw closer to $24,000.

And that $24,000 doesn’t just disappear from your account—it disappears from your future. At 7% average annual returns, $20,000 withdrawn at age 45 would have grown to roughly $75,000 by age 65.

That’s the real cost: not just what you take out, but what it would have become. A $20,000 emergency today could cost you $75,000 in retirement. That’s not a reason to lose your house—but it’s a reason to exhaust other options first.

Before you touch your 401(k): the order of operations

Work through these in order. Each does less damage than a hardship withdrawal.

1. Emergency savings. If you have cash in a savings account, use it first. That’s what it’s for.

2. Roth IRA contributions. You can withdraw your contributions—not earnings, just what you put in—at any time, tax-free and penalty-free. You’ve already paid taxes on that money. If you’ve contributed $30,000 over the years and it’s now worth $45,000, you can pull out up to $30,000 with no taxes or penalties. (Make sure you’re tracking contributions vs. earnings—your custodian can usually show this.)

3. HSA funds. If your emergency is medical and you have a Health Savings Account, use it for qualified medical expenses—including reimbursing yourself for eligible expenses you’ve already paid out of pocket.

4. Friends and family. If you have people who can help—and you can have an honest conversation about repayment—this may be less costly than tapping retirement. Not everyone has this option.

5. 401(k) loan. If you’re still employed and your plan allows it, you can borrow from your own 401(k)—typically up to 50% of your vested balance or $50,000, whichever is less. You pay yourself back with interest. No taxes or penalties as long as you repay on schedule.

The catch: if you leave your job, most plans will treat the outstanding balance as a distribution, triggering taxes and penalties. Some workarounds exist (you may be able to roll over a plan loan offset by your tax-filing deadline), but the rules are technical and timing-sensitive. Don’t rely on a 401(k) loan if layoff risk is high.

I know someone who took a 401(k) loan during the pandemic. They didn’t have emergency savings. The loan got them through until they found work, and they paid it back. It worked.

I also know someone who took a 401(k) loan for a “great investment opportunity.” They lost money on the investment, then spent years cutting their household budget to catch up on retirement contributions.

Borrowing against your retirement to bridge a real emergency can make sense. Borrowing to chase a speculative opportunity is doubling down on risk with money you can’t afford to lose.

6. The $1,000 penalty-free withdrawal. Most people don’t know this exists. As of 2024, there’s an “emergency personal expense” exception that lets you take up to $1,000 without the 10% penalty (taxes still apply). If you don’t repay or make it up through contributions, you may be blocked from another for three years. Not every plan offers it—ask your administrator.

If none of the above work, you’re into last-resort territory.

7. Hardship withdrawal. Understand what you’re giving up: taxes, penalties, and the money is gone permanently. You cannot pay it back.

8. Credit cards. High interest compounds the problem. If you’re choosing between a hardship withdrawal and credit card debt, the retirement withdrawal may actually be less damaging—depending on amounts and your ability to pay off the card. Do the math. And if you go the card route, call and ask about a temporary hardship APR reduction before you carry a balance.

Loan vs. hardship withdrawal: the critical difference

A 401(k) loan: you borrow from your account and pay yourself back with interest. No taxes or penalties if you repay on schedule. The money goes back into your account.

A hardship withdrawal: you take money out permanently. You owe income taxes on the full amount. You owe a 10% penalty if under 59½ (with some exceptions). You cannot pay it back.

If a loan is available and your employment is stable, it’s usually the better option. A hardship withdrawal is a one-way door.

What qualifies for a hardship withdrawal

The IRS requires an “immediate and heavy financial need.” Common qualifying situations may include medical expenses; costs to prevent eviction or foreclosure; costs to purchase a primary home; tuition and education fees; funeral expenses; and certain disaster-related home repairs.

Not every plan has adopted every option. Check with your HR department or plan administrator.

If you have to do it: minimize the damage

Take only what you need. Every extra dollar is taxed, penalized, and permanently removed from your future.

Understand the tax hit. The withdrawal adds to your taxable income. A large withdrawal could push you into a higher bracket. If timing allows, consider splitting across two calendar years.

Keep contributing. The old rule requiring a six-month pause after a hardship withdrawal is gone under current rules. Keep contributing—especially if your employer matches.

Recovering afterward

Don’t stop your contributions. At minimum, contribute enough to get your employer match.

Increase contributions when you’re stable. The 2026 limit is $24,500. If you’re 50 or older, you can add $8,000 more. If you’re 60-63, the “super catch-up” lets you add up to $11,250. A big withdrawal takes time to rebuild, but every year you delay makes it harder.

Build an emergency fund—even a small one. Vanguard research shows that people with just $2,000 in emergency savings are 17 percentage points less likely to take a hardship withdrawal and 43 percentage points less likely to cash out their 401(k) when they leave a job. Even $50 a month into a savings account creates a buffer.

Don’t beat yourself up. You made the best decision you could with the options you had. What matters now is what you do next.

The bottom line

“Don’t touch your retirement” is great advice—if you have emergency savings, if you haven’t been hit with a crushing expense, if you have people who can help.

That’s not most people.

For everyone else, your retirement savings is one more asset. One you want to tap toward the end of your options, not the beginning. But if you have to do it, you have to do it. That’s not failure. That’s dealing with life.

Work through the alternatives. If you must withdraw, do it smartly. Then focus on rebuilding.

You’re not behind. You’re handling what’s in front of you.

This is general guidance, not legal or tax advice. Rules vary by plan and situation.

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When I was in graduate school, I taught a class in public financial management. The most fundamental concept I emphasized—and still do when I work with organizations around their financial management—is this: working the float.

Any organization—nonprofit, government agency, business—needs to maximize the cash it has on hand. In the 90s, there were options for larger entities to park money even for 24 hours to earn interest. Even small amounts of money parked for short periods add up. It’s one of the most basic principles of sound financial management.

Here’s the irony: despite understanding this concept deeply, I didn’t start using a high-yield savings account personally until the early 2000s. I didn’t think there was an option for regular people. I assumed the only choice was CDs, and I’d use them from time to time, but it always made me anxious to have that money locked up. What if I needed it?

I only found out about high-yield savings accounts when I switched banks and the new bank mentioned it. That’s when I realized I could profit on the float—just like I’d taught others to do—without sacrificing access to my money.

If you have cash sitting in a regular savings account earning almost nothing, you’re leaving real money on the table

Not life-changing money, but real money. And it takes almost no effort to fix.

A high-yield savings account is simply a savings account that pays a significantly higher interest rate than traditional bank savings accounts. That’s it. No catch, no complexity.

The key characteristics: It’s FDIC insured up to $250,000—just as safe as any bank account. It’s liquid—you can access your money anytime without penalty. The rate is variable, meaning it changes based on Fed rates and bank competition. And it’s usually offered by online banks or brokerage houses rather than traditional brick-and-mortar banks.

Money market accounts work essentially the same way for practical purposes. They may have check-writing or debit card features, but the core benefit—higher yield plus full liquidity—is identical. I use a money market through my brokerage.

Let me show you what this looks like in real dollars

Right now, a major national bank I looked at today—early 2026—pays 0.01% APY on their standard savings account. That’s not a typo—one one-hundredth of a percent. Meanwhile, high-yield savings accounts from online banks are paying around 4% APY, with some above that.

Here’s what that difference means for your money:

If you have $5,000 sitting in a traditional savings account, you’ll earn about 50 cents in a year. In a high-yield account at 4%, you’ll earn $200. That’s $199.50 you’re just not getting.

At $10,000, the difference is about $399. At $25,000, it’s nearly $1,000. At $50,000, you’re leaving almost $2,000 on the table every year.

That’s real money for doing essentially nothing except moving your cash to a different account.

The reason most people don’t do this is simple: they don’t know it exists

Or if they’ve heard of it, they think it’s only for emergency funds. They don’t realize it should be part of their basic financial system for all kinds of cash.

Here’s the insight wealthy people figured out a long time ago: your money should always be earning something. It’s not that they’re doing anything exotic or complicated. They just have a basic system that ensures every dollar is working. Cash for short-term needs? In a money market. Cash for medium-term goals? In a high-yield account or bond fund. Long-term money? Invested.

Most regular people don’t have this system because they don’t know these options exist, they think you need a lot of money to access them, or they assume “investing” is the only way to earn on cash—and investing feels risky.

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The objection I expected to hear was “But shouldn’t I be investing that money?”

That’s not what I actually hear. The real hesitation is: “I don’t want to do a CD because I need to have the money handy, and I don’t know how else to earn something safely.”

A high-yield savings account solves exactly that problem. You don’t have to choose between CDs (locked up) and investing (risky). An HYSA gives you a guaranteed return with full liquidity.

Speaking of CDs—I would never recommend one over a high-yield savings account

What you lose in liquidity isn’t worth it. CDs lock your money for a fixed term—anywhere from three months to five years. Early withdrawal penalties can wipe out your interest gains. And current CD rates aren’t significantly higher than HYSA rates anyway—often within a quarter to half a percent.

A couple of years ago, I had cash I needed to hold for six months and didn’t want any risk. I used treasury bonds. Honestly, it wasn’t that much better in terms of the interest rate, and the lack of liquidity was very unnerving. The freedom of knowing I can access my money whenever I need it—that’s worth a slightly lower rate.

So when should you actually use a high-yield savings account?

Most people who have one only use it for their emergency fund. That’s a good start, but it’s thinking too small.

Use it for your emergency fund—three to six months of expenses, accessible but earning.

Use it for money you’re saving toward a known expense in two to five years—a home renovation, a car purchase, helping a kid with a down payment. This money shouldn’t be in the stock market because you can’t afford a 30% drop right before you need it. But it also shouldn’t be earning nothing.

Use it for cash you’ve set aside for a big purchase that’s already earmarked but not ready to spend yet.

Use it for estimated taxes if you’re self-employed or a small business owner. Your quarterly tax payments may sit for months before you send the check to the IRS. Why not earn on that money in the meantime?

Use it for transition money—holding cash while you figure out what to do with an inheritance, a bonus, or proceeds from selling investments.

Use it for flexibility—maintaining a larger cash cushion because you’re in midlife and want options. As I wrote in the Recovery Assumption piece, having accessible cash becomes more important when your timelines get shorter and your life gets less predictable.

This is a tool — not a plan

A high-yield savings account can protect you from chaos.
It can give you breathing room.
It can keep you from going into debt when life happens.

But it is not designed to build wealth.

Its job is stability — not growth.

Opening one takes about fifteen minutes

Go to the large, well-known companies. Not because I make any money from recommending them—I don’t—but because they’re easy to use, quick to set up, and you won’t have to worry about whether they’re legitimate.

Online banks like American Express, Marcus (Goldman Sachs), Ally, Capital One 360, and Discover all offer high-yield savings accounts. Brokerage houses like Fidelity, Schwab, and Vanguard offer money market funds or sweep accounts that work the same way. Many credit unions offer competitive rates too.

The process: open an account online, link your existing checking account, transfer money in. Done.

Two things to check before you sign up:

First, make sure the APY is actually high. Not all “savings accounts” are high-yield. In the current environment, you should be looking for 3.5% or higher. If a bank is advertising 0.5%, that’s not what you want.

Second, check for minimum balance requirements and fees. Some accounts require a minimum balance to earn the advertised rate or to avoid monthly fees. Look for accounts with no minimum balance and no monthly fees—American Express, Ally, Marcus, and Fidelity’s money market all fit this description.

A few mistakes to avoid:

Don’t chase the absolute highest rate. The difference between 4.00% and 4.35% is minimal on most balances. Pick a reputable institution and move on. Rate-chasing creates hassle and potential for error.

Don’t put money you’ll need this month in an HYSA. Transfers take one to two business days. Keep your immediate-need cash in checking.

Don’t ignore the minimum balance requirements if the account has them. Some accounts penalize you for falling below a threshold—make sure you understand the terms.

And don’t overthink this. The goal isn’t to optimize every last basis point. The goal is to stop leaving hundreds or thousands of dollars on the table every year for no reason.

Where does this leave you?

If you don’t have a high-yield savings account or money market, open one this week. It takes fifteen minutes.

Move your emergency fund there if it isn’t already.

Then think about what other cash you have sitting around—tax savings, upcoming big purchases, money you’re holding while you figure out what to do with it. Move that too.

Make it part of your basic system. Wealthy people don’t let money sit idle. Neither should you.

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About twenty years ago, I was having coffee with a friend. He was in his late 50s, and he was asking what stocks I thought he should invest in to accumulate as much money as quickly as possible.

I asked him why he wasn’t taking a more cautious approach.

His answer: “Isn’t that what you’re supposed to do? Aren’t you just supposed to invest in the best stocks possible and make money?”

He had no idea there were phases to investing. He didn’t know that someone in their late 50s should be thinking differently than someone in their 30s. Without that information, he would’ve been horribly exposed. If the market dropped 30%, that would’ve been a huge hit to his future—because nothing was in anything stable.

This wasn’t an argument against investing. It was an argument for sequencing. Growth matters — but only after stability exists. You can’t compound money you’re forced to pull out at the wrong time

This conversation stuck with me because it revealed something important: most financial advice assumes you have time to recover from mistakes. And nobody tells you when that assumption stops being true.

The standard advice sounds reasonable

“Stay the course.” “Don’t try to time the market.” “Time in the market beats timing the market.” “Volatility smooths out over the long run.”

And here’s the thing—that advice is correct. For a 30-year-old.

If you’re 30 and the market drops 30%, you don’t need that money for 30+ years. You keep contributing, you buy shares at lower prices, and when the market recovers, you’re ahead. The math works. Time smooths volatility. The standard playbook is built for this scenario.

But in midlife, that assumption quietly collapses

In your 40s, 50s, and 60s, you have what I call non-negotiable timelines—deadlines that don’t care about market cycles:

Your kid starts college in five years. That tuition bill is coming whether the market is up or down.

Your target retirement date is now 10-15 years away, not 30. The window for recovery is shorter.

An aging parent may need care—and you may need to help pay for it.

Your own health becomes less predictable. A diagnosis can change everything overnight.

Job security isn’t what it was. Age discrimination is real, and if you lose your job at 55, finding another one takes longer than it did at 35.

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The math changes when you have fixed deadlines

If you need money in five years and the market drops 30%, you may have to sell at a loss—or delay the goal entirely. If you lose your job and need to tap your investments to live on while you search, you’re selling low AND reducing your base for recovery. The money you pull out isn’t there to bounce back when the market does.

This is what financial planners call “sequence of returns risk.” But here’s what they don’t always tell you: it doesn’t just apply to retirement. It applies to any fixed timeline.

Let me show you how quickly this can go wrong

Say you have $500,000 invested. The market drops 30%—which has happened multiple times in recent decades—and suddenly you have $350,000. Now imagine you lose your job and need $50,000 to cover expenses while you search.

You’re not just spending $50,000. You’re selling $50,000 worth of investments at a 30% discount. When the market eventually recovers, that $50,000 isn’t there to recover with you. You’ve locked in the loss permanently.

And here’s the part people miss: job searches take longer in midlife. According to Bureau of Labor Statistics data, job seekers ages 45-54 spend an average of 32 weeks unemployed. For those 55-64, it’s about 26 weeks. For those 65 and older, it stretches to 34 weeks—the longest of any age group. AARP research shows that 64% of workers over 50 have seen or experienced age discrimination in the workplace.

In your 30s, if you lose your job, you can probably land another one relatively quickly. In your 50s, you need to be prepared for a longer search—and that means having money you can access without selling investments at a loss.

Most people are never taught that investing has phases

There’s the accumulation phase—typically your 20s through 40s. You’re building wealth. Time is on your side. You can afford volatility because you’re not touching the money for decades.

Then there’s the preservation phase—typically your 50s and early 60s. You’re protecting what you’ve built while still growing it. Risk tolerance should decrease. Resilience matters more than maximum growth.

Finally, there’s the distribution phase—retirement. You’re drawing down. Stability and income matter most.

My friend asking about aggressive stocks in his late 50s? He was in the preservation phase but investing like he was still in accumulation. That mismatch is dangerous.

I’ve seen this pattern repeatedly

I’ve worked with people in their mid-to-late 50s who kept everything in aggressive investments, hoping to “catch up quickly.” In one case, the person was doing this while also avoiding paying down high-interest debt.

I had to point out: the interest on that debt is costing more than the investments are earning—and those investment gains are unrealized. He was hemorrhaging cash and didn’t even realize it.

I know someone in their late 50s who left a stable company for a startup. The idea was: if the startup has an IPO, they’d make a lot of money. (An Initial Public Offering is when a startup begins selling stock to the public—early employees sometimes get a piece of that windfall, which is why startups can pay lower salaries but still attract talent.)

Three years later, the company went nowhere. It didn’t have great benefits, so he hadn’t been pushing his retirement savings. The gamble didn’t pay off. Now he’s three years behind and job searching—in his late 50s.

I saw this pattern growing up with my own parents. There were many times they thought they could make a bet and get out of their situation. All it meant was more cash leaving the house.

So what should you actually do differently?

The message is not “stop investing and keep everything in cash.” That’s overcorrection.

The message is: be wiser about how you leverage what you have. Think about resilience, not just returns.

Here’s what changes:

At 30, the advice is “volatility smooths out—stay aggressive.” At 50, the reality is “you may not have time to recover—build in buffers.”

At 30, you maximize growth. Higher risk, higher return. At 50, growth still matters, but so does resilience. Your money needs to actually be there when you need it.

At 30, financial advisors often say “don’t hold too much cash—it’s a drag on returns.” At 50, cash is flexibility. Cash is options. Having more liquid savings isn’t being scared—it’s being realistic about the fact that life gets more expensive and less predictable.

At 30, you might consider some high-risk, high-reward investments. At 50, unless it’s money you can genuinely afford to lose, you should prioritize stability.

At 30, taking on debt for an appreciating asset—a home, education—can make sense. At 50, be very cautious about new debt. You have less time to pay it off and rebuild savings.

Practically, this means:

Use index funds. They’re less volatile by design because they hold hundreds or thousands of companies. You don’t need to catch every market swing or pick the next big winner.

Build a larger cash buffer. Six to twelve months of expenses, not just three to six. This protects you from having to sell investments at a bad time.

Use high-yield savings accounts or money markets for money you’ll need in one to five years. You’ll earn a reasonable return—around 4% right now—without risking a 30% drop right before you need it.

Think about risk differently. The question isn’t just “how much can I make?” It’s “can I afford for this to be down 30% when I need it?”

Pay down high-interest debt. It’s a guaranteed return, it reduces your monthly cash outflow, and it increases your resilience if something goes wrong.

Consider your work timeline honestly. Can you work five more years? Ten? What if you can’t? What if your health changes? What if your company restructures?

Even if you’re doing “safer” investments—index funds combined with bonds and high-yield savings—you’re still making progress. It’s just safer progress. I always remind people to stay the course, to try to set it and forget it. The worst thing you could do is have a system that depends on you catching every change in the market. It’s virtually impossible to get ahead of it.

How does this actually feel when people realize it?

Honestly? It’s both liberating and scary.

Liberating because they don’t have to find the next big stock. They’re not searching for the next Alphabet or Anthropic. They don’t need to make a killing to be okay. There are choices they can make that are easier and less stressful.

Scary because there isn’t a silver bullet. They can catch up—but it’s going to take steady work. That’s harder than hoping for one big win that solves everything.

Here’s the empowering part:

You’re off the hook. You don’t have to find the next big investment. You don’t have to chase the “one thing” that fixes everything. The pressure to make a spectacular bet? That’s gone.

But you do have the responsibility of preservation and patience. You may need to think about trade-offs differently—because there isn’t time to say “I’ll take care of that ten years from now.”

There is still time for retirement. But it’s going to require some harder choices than you had when you were younger. The good news is those choices are clear and manageable. They just require accepting that the rules have changed.

Where does this leave you?

If you’ve been following generic financial advice without asking “was this written for someone in my situation?”—now you know to ask that question.

If you’ve been tempted to take big risks to “catch up”—consider whether you can actually afford for that bet to fail.

If you’ve been anxious about money but couldn’t articulate why the standard advice felt off—this might be what was nagging at you.

And if you’re realizing you need to think differently about your timeline, your risk tolerance, and your cash reserves—you’re not being scared. You’re being smart.

The rules changed. Now you know.

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A few years ago, I was helping a small business owner in her early 50s figure out a financial plan for her teenage son, who has a developmental disability. She’d been paying him to help out around the shop—off the books—and putting that money into a savings account in her name. She knew he’d need help down the road and wanted to set something aside for him.

But she’d also heard the horror stories. If he ever needed SSI or Medicaid, having money in his name could disqualify him. So she kept it hidden. No paper trail. No growth. No structure.

She was doing the best she could with what she knew. The problem is, there was a better way—and nobody told her about it.

There’s an account called an ABLE account that would have let her pay her son legitimately, contribute those earnings to a protected account in his name, invest the money for growth, and build for his future—all without risking his eligibility for benefits. She could have been doing this the right way for years—and building real security instead of fear.

If you’re in a similar situation—or if you have a grandchild, niece, nephew, or anyone in your life with a disability—this is the tool most families don’t know exists.

An ABLE account is a tax-advantaged savings account specifically designed for people with disabilities. Think of it like a 529 college savings plan, but instead of education expenses, the money can be used for almost anything that improves the person’s quality of life—housing, transportation, healthcare, therapy, technology, job training, even basic living expenses like food and clothing.

Here’s what makes it different from a regular savings account: the first $100,000 in an ABLE account doesn’t count toward SSI’s $2,000 asset limit. That’s not a typo. SSI beneficiaries are normally disqualified if they have more than $2,000 in countable assets—a threshold that hasn’t changed since 1989. An ABLE account lets someone save 50 times that amount without losing their benefits.

And Medicaid? An ABLE account has no balance limit for Medicaid eligibility. You can have $200,000, $300,000, even more in the account, and it won’t affect Medicaid at all.

Big news if you were told you didn’t qualify before

Until very recently, ABLE accounts were only available to people whose disability began before age 26. That ruled out millions of Americans—including veterans injured in their 30s, people with later-onset conditions, and those who developed chronic illnesses or experienced accidents in adulthood.

As of January 1, 2026, that changed. The eligibility age expanded to include anyone whose disability began before age 46. Roughly 6 million more Americans are now eligible. If you looked into this before and were told no, it’s worth checking again.

To qualify, the person with the disability—the “beneficiary”—needs to meet one of two criteria. Either they’re already receiving SSI or SSDI, which automatically qualifies them. Or they can get a disability certification signed by a licensed physician stating they have a condition with “marked and severe functional limitations” that began before age 46. No income limits. No employment restrictions. The account is always opened in the name of the person with the disability.

And here’s the part that solves a lot of family headaches: anyone can contribute to an ABLE account. Parents, grandparents, aunts, uncles, family friends, even the beneficiary themselves. This is huge for estate planning. Instead of leaving money directly to a disabled family member—which could blow up their benefits—you can leave it to their ABLE account. Problem solved.

Let me show you how the math works in practice.

Remember that business owner with the teenage son? Say she starts paying him legitimately—$500 a month through her business, or $6,000 a year. She contributes that amount to his ABLE account each year. At 7% average growth over 10 years, from age 16 to 26, that account grows to roughly $83,000. Still under the $100,000 SSI threshold. He has a real financial foundation, built over a decade, without risking a dollar of his benefits.

Compare that to what she was actually doing—cash payments off the books, money sitting in her savings account earning nothing, no legal protection, and a ticking time bomb if he ever applies for government benefits and someone asks where the money came from.

Or take the grandparent who wants to help her 12-year-old grandson with autism. She’s got $15,000 she wants to leave him. If she puts it directly in her will, that inheritance could disqualify him from SSI and Medicaid the moment he receives it. But if she contributes to his ABLE account over three years—$5,000 per year—or simply names his ABLE account as the beneficiary in her estate documents, the money is protected. It grows tax-free. It’s available for his needs. And it doesn’t touch his benefits.

Contribution Limits

For 2026, the contribution limit is $20,000 per year from all sources combined. That means if grandma contributes $15,000 and mom contributes $5,000, they’ve hit the limit—no more contributions that calendar year. If the beneficiary works and doesn’t have an employer retirement plan, they can contribute an additional amount up to their earnings or $15,650 (whichever is less). So a working adult with a disability could potentially put away up to $35,650 in a single year.

The money grows tax-free. Withdrawals for qualified disability expenses are tax-free. Contributions aren’t deductible federally, but some states offer a state tax deduction if you contribute to their ABLE program—worth checking.

What counts as a qualified disability expense?

The definition is broad: housing, rent, utilities, transportation, car payments, rideshare costs, education, tutoring, therapy, medical expenses, assistive technology, employment support, legal fees, financial management, food, clothing—essentially anything that helps maintain or improve the person’s health, independence, or quality of life. The IRS interprets this generously. If the expense benefits the beneficiary, it probably qualifies.

There is one catch you need to understand

When the beneficiary dies, if there’s money left in the ABLE account, Medicaid can file a claim to recover what it paid for the beneficiary’s care after the account was opened. This is called “Medicaid payback.” It’s different from a third-party special needs trust, which typically has no Medicaid payback.

This isn’t a dealbreaker—it just means you should know about it. If the beneficiary didn’t receive Medicaid while the account was open, there’s no payback. Some states have opted not to pursue Medicaid recovery from ABLE accounts at all. And after Medicaid is repaid (if anything is owed), remaining funds go to the beneficiary’s designated heirs. But it’s worth understanding that ABLE accounts don’t provide the same protection from Medicaid claims that a properly structured third-party special needs trust does.

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Opening an account is simpler than you’d think

You don’t need an attorney. Most state ABLE programs have online enrollment that takes 15-30 minutes. You’ll need the beneficiary’s Social Security number, date of birth, disability documentation, and a bank account for contributions. Typical fees are $0-50 to open, plus small annual maintenance fees.

You don’t have to use your own state’s program—most states allow out-of-state residents to open accounts. It’s worth comparing a few options, since investment menus, fees, and features vary. Virginia’s ABLEnow program and Ohio’s STABLE account are popular choices that accept residents from any state. Your home state might offer a tax deduction for contributions to its own program, so check that first.

Because these rules are complex and vary by situation, this section is about understanding how the system works—not replacing professional advice when larger sums or estate planning decisions are involved.

How does this compare to a special needs trust?

Think of ABLE accounts as the starter tool and special needs trusts as the heavy-duty solution.

An ABLE account costs nothing to set up, doesn’t require an attorney, and lets the beneficiary (or their representative) control the money directly. But it has a $20,000 annual contribution limit, and Medicaid can make a claim against it after death.

A special needs trust costs $3,000 or more to establish, requires an attorney, and puts a trustee in control of the funds—not the beneficiary. But it has no annual contribution limit, can hold much larger amounts, and a third-party special needs trust has no Medicaid payback provision.

Many families end up with both. The ABLE account handles day-to-day needs and smaller amounts. The special needs trust holds larger sums—inheritances, life insurance payouts, lawsuit settlements. They work together.

If this might fit your situation, here’s how to run the play

First, verify eligibility. The beneficiary’s disability must have begun before age 46. If they’re receiving SSI or SSDI, they automatically qualify. If not, they’ll need a disability certification from a licensed physician.

Second, research state programs. Start with your home state to see if there’s a tax deduction for contributions. Then compare fees and investment options across a few programs. The ABLE National Resource Center (ablenrc.org) has comparison tools.

Third, gather your documents. You’ll need the beneficiary’s Social Security number, date of birth, address, and disability documentation. If someone other than the beneficiary will manage the account, you’ll designate an authorized representative.

Fourth, open the account online. The process takes 15-30 minutes on most state program websites.

Fifth, set up contributions. You can make one-time deposits, set up recurring transfers, or arrange direct deposit from employment income or Social Security benefits. Anyone can contribute—just stay under the $20,000 annual limit from all sources combined.

Sixth, invest the money. Like a 529 plan, most ABLE programs offer several investment options. If you’re not sure, a target-date fund or balanced fund is a reasonable default. Don’t leave it sitting in cash.

A few mistakes to avoid along the way

Don’t assume you don’t qualify. The age limit just expanded from 26 to 46. Many people who were told no before now qualify.

Don’t exceed the annual contribution limit. It’s $20,000 total from all sources. If multiple family members are contributing, coordinate so you don’t go over.

Don’t forget the $100,000 SSI threshold. The account can hold more than $100,000, but SSI benefits suspend once you cross that line. Medicaid isn’t affected, but SSI is.

Don’t forget to designate an authorized representative if the beneficiary can’t manage the account themselves. This lets a trusted person handle contributions and withdrawals.

Don’t think ABLE replaces a special needs trust. They serve different purposes. For large sums or complex situations, you may need both.

And don’t keep this to yourself. Tell the grandparents. Tell the aunts and uncles. Anyone who might leave money to a disabled family member needs to know this account exists. It’s the difference between a gift that helps and a gift that destroys their benefits.

If this feels overwhelming, that’s normal. This system was not designed to be intuitive—it was layered over decades in response to gaps that families kept falling into.

Where does this leave you?

If you’ve been avoiding financial planning for a disabled family member because you didn’t know where to start, this is your on-ramp. An ABLE account is something you can set up yourself, this week, without an attorney.

If you’ve already got an ABLE account, make sure it’s invested—not sitting in cash. And make sure the people in your life who might want to contribute know it exists.

If you’re dealing with larger sums—an inheritance, a life insurance payout, more than $100,000—an ABLE account might not be enough on its own. That’s when a special needs trust becomes worth the investment in an attorney. I’ll walk through when and why in the next post.

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If you’re the parent of a disabled child and you haven’t started planning for their financial future, I need you to hear something first: you’re not behind. You’re not a bad parent. You’ve been doing the hardest job there is — getting through each day, managing therapies and IEPs and medical appointments, holding your family together. There wasn’t bandwidth left for anything else.

Now you’re here. That’s what matters.

But I also need to tell you something that might be hard to hear: the financial system for disabled individuals operates under completely different rules than everything else you know about money. The instincts that serve you well everywhere else — save money, build assets, put funds in your child’s name — can actually hurt them.

Once you understand why, the path forward becomes obvious.

The $2,000 cliff

Supplemental Security Income (SSI) provides monthly income to disabled individuals who have limited resources. In 2026, that federal payment is $994 per month. For many disabled adults (that is once your child is an adult and receiving SSI in their own name), SSI is the foundation that makes independent life possible — and it’s often the gateway to Medicaid, which covers medical care, therapy, and support services that private insurance won’t touch.

Here’s the problem: to qualify for SSI, your child cannot have more than $2,000 in countable assets. That’s it. Two thousand dollars.

This number hasn’t changed since 1989. If it had been adjusted for inflation, it would be roughly $5,500 today. But it wasn’t. So we’re working with a limit set when a gallon of gas cost 97 cents.

If your child’s assets exceed $2,000 — even temporarily, even by accident — they lose SSI eligibility. And losing SSI often means losing Medicaid too.

A regular savings account in your child’s name counts against this limit. So does money they inherit. So do gifts from well-meaning relatives.

The grandparent trap

Let me tell you about Sandra. Her 22-year-old son has autism and receives SSI and Medicaid. These benefits cover his basic needs and the support services that help him live semi-independently.

Sandra’s mother passes away and leaves her son $15,000 directly in her will. Grandma loved her grandchild. She wanted to help him. Nobody told her the rules.

That $15,000 inheritance pushes him over the $2,000 asset limit. His SSI benefits are suspended. His Medicaid coverage is at risk. Sandra now has to figure out how to “spend down” that money — quickly and in approved ways — to get her son back under the limit and restore his benefits.

A gift meant to help became a crisis overnight.

This happens constantly. Grandparents, aunts and uncles, family friends — they want to help, so they leave money directly to a disabled person. They don’t know that the gift can cost more than it gives.

The three-legged stool

Financial security for a disabled person rests on three legs:

Government benefits — SSI, SSDI, Medicaid — form the baseline, covering basic income and essential medical care. These are the foundation you don’t want to lose.

Protected savings — ABLE accounts, special needs trusts — allow money to be set aside without counting against benefit limits. These tools exist specifically because the $2,000 limit is so restrictive.

Family support — ongoing help from parents, siblings, and others — supplements benefits without replacing them.

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The goal isn’t to replace government benefits with personal savings. You can’t save enough to replace Medicaid coverage for someone with significant medical needs. The goal is to supplement benefits — to pay for things that improve quality of life beyond what government programs cover — without disqualifying your child from the benefits they need most.

The two tools you need to know about

There are two main ways to save money for a disabled person without affecting their benefit eligibility.

Because these rules are complex and vary by situation, this is about understanding the system — not replacing professional advice when larger sums are involved.

ABLE accounts are tax-advantaged savings accounts you can open yourself, no attorney needed. In 2026, you can contribute up to $20,000 per year, and balances up to $100,000 don’t affect SSI eligibility. (Balances above $100,000 can suspend SSI payments, though Medicaid remains protected.) The money can be used for disability-related expenses like housing, transportation, education, health care, and more.

ABLE accounts are the lowest barrier to entry. You can open one online in about 15 minutes. If you do nothing else after reading this, look into opening an ABLE account.

One important change for 2026: the eligibility age has expanded. Previously, the disability had to begin before age 26. Starting January 1, 2026, anyone whose disability began before age 46 can open an ABLE account. This opens the door for millions of people who were previously excluded.

Special needs trusts are legal arrangements that can hold unlimited assets without affecting benefits. They’re more powerful than ABLE accounts but require an attorney to set up — typically $3,000 or more. A trustee (often a family member or professional) manages the funds and makes distributions for the beneficiary’s benefit.

Special needs trusts make sense when you’re dealing with larger amounts — inheritance, life insurance proceeds, legal settlements — or when you want more control over how funds are used after you’re gone.

Many families eventually have both. But ABLE accounts are where to start.

The age-18 cliff (a preview)

There’s another transition point you need to know about, though I’ll cover it in more depth in a future post.

When your child turns 18, they become a legal adult regardless of their cognitive capability. This has several implications: you may need legal guardianship or conservatorship to continue making decisions for them. They may become eligible for SSI and Medicaid in their own name (your income is no longer “deemed” to them as it was when they were a minor). And the clock starts ticking on that $2,000 limit.

If your child is approaching 18, this transition deserves serious attention. But that’s a topic for another day.

What to do now

You don’t need to do everything at once. Paralysis is the enemy here, not imperfection. Start with what you can.

First, understand that regular savings accounts in your child’s name are a problem once they turn 18. Don’t open one thinking you’re helping.

Second, tell your extended family about the rules. Grandparents, aunts, uncles — anyone who might leave money to your child in a will — needs to know that direct gifts can backfire. They can still help, but the money needs to go into an ABLE account or special needs trust, not directly to your child.

Third, look into opening an ABLE account. It’s the simplest step with the biggest impact. You can find your state’s program at ablenrc.org.

Fourth, if you have significant assets to protect — or if you’re doing estate planning — talk to an attorney who specializes in special needs planning. This isn’t regular estate planning; you need someone who understands these specific rules.

I work with families navigating this all the time. A small business owner in her early 50s came to me because she’d been employing her 16-year-old son with a disability in her business — which is great — but she was paying him under the table and putting the money in a regular savings account because she didn’t know there was a better option. We got that fixed. Another family finally had mental space to think about the future after years of crisis mode with their 10-year-old. They just needed someone to explain where to start.

That’s what this series is for.

Coming next

In the next post, I’ll walk through ABLE accounts in detail — how to open one, how to use it, what counts as a qualified expense, and the mistakes to avoid. It’s something you can set up yourself this month, and it’s the foundation everything else builds on.

You’re not behind. You’re getting started.

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This is Part 2 of a two-part series. If you haven’t read Part 1 on the basics of 401(k)s, employer contributions, and vesting, start there.

In Part 1, we covered what a 401(k) is and why getting the full employer match is non-negotiable. Now let’s tackle the two decisions that trip people up the most: Should my contributions be pre-tax or Roth? And what should I actually invest in?

I review my 401(k) at least once a year. Not because I’m constantly tinkering — I’m not. But because these decisions aren’t one-and-done. My pre-tax vs. Roth split has changed as I’ve gotten older and moved through different tax brackets. My investment choices have evolved as I’ve learned more. The framework stays the same, but the application changes with your life.

The big choice: pre-tax vs. Roth. When you contribute to your 401(k), you have to choose: pre-tax (traditional) or Roth? Most people pick one without really understanding what they’re choosing. Here’s the core idea: Traditional is a tax break now; Roth is a tax break later.

Pre-tax (traditional) contributions go into your 401(k) before income taxes are calculated. Your taxable income goes down, so you pay less in taxes today. When you withdraw in retirement, you pay income taxes on everything — your contributions and all the growth.

Example: You earn $80,000 and contribute $10,000 pre-tax. Your taxable income is now $70,000. At a 22% bracket, you saved $2,200 in taxes this year. But when you pull that money out in retirement — say it’s grown to $40,000 — you pay income taxes on all $40,000.

Roth contributions go in after you’ve already paid income taxes. No tax break today. But when you withdraw in retirement, you pay nothing — not on your contributions, not on the growth.

Same example: You contribute $10,000 to Roth. Your taxable income stays $80,000. No tax savings now. But that $40,000 in retirement? You pay $0 in taxes.

So which is better? It depends on one question: Will you be in a higher or lower tax bracket in retirement than today?

Lower bracket in retirement → pre-tax wins. You avoid taxes at a high rate now, pay at a lower rate later. Higher bracket in retirement → Roth wins. You pay taxes at a low rate now, avoid them at a higher rate later. Same rate → roughly a wash, though some argue future tax rates could rise due to national debt and policy changes, which tilts toward Roth. Nobody knows for sure.

The stage-of-life framework. Here’s how I think about it:

In your 20s and 30s, you’re probably not at peak earnings. Your bracket is likely lower now than it will be later. Lean heavily Roth — maybe 80-100%. The money has decades to grow tax-free.

In your 40s, you’re approaching peak earnings. The pre-tax break is more valuable. Shift toward pre-tax — maybe 50/50 or 60/40 favoring pre-tax.

In your 50s and beyond, you’re at or near peak earnings with less time for tax-free growth to compound. Lean pre-tax, but keep some Roth — maybe 80/20 favoring pre-tax.

That’s what I do at 54. About 80% pre-tax, 20% Roth. I get the tax break now in a higher bracket, but I’m also building tax-free money for retirement flexibility. This split has changed over time — in my 30s, I was heavier Roth. I revisit it once a year to make sure it still fits.

Why having the right mix in retirement matters more than people realize. If ALL your retirement money is in pre-tax accounts, you could end up with a tax problem.

You retire with $1.5 million in a traditional 401(k). Every dollar you withdraw is taxable. Required minimum distributions force you to take money out. Add Social Security (partially taxable). Add any pension. Suddenly you’re not in a lower bracket — you’re in the same one, or higher.

I’m seeing this more and more. People focused on getting the tax break during working years without thinking about what happens when everything is taxable.

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The solution: have money in different “buckets.” A pre-tax bucket (traditional 401(k), traditional IRA) is taxable when you withdraw. A post-tax bucket (Roth 401(k), Roth IRA) is tax-free when you withdraw. A taxable bucket (regular brokerage account) means you pay taxes on gains, but you have flexibility.

With all three buckets, you have options. You can manage which bucket to pull from based on your income that year.

This is why I recommend some Roth even in your 50s. And Roth 401(k)s no longer have required minimum distributions — this changed with SECURE 2.0 in 2024. Your money can stay invested and grow tax-free as long as you want.

One important nuance: the employer match. Your employer’s contribution always goes into the pre-tax side, even if you’re making Roth contributions. So if you contribute $10,000 to Roth and your employer adds $5,000, you have $10,000 Roth (tax-free later) and $5,000 traditional (taxable later). You’ll have both buckets regardless — which is actually a good thing.

Where to invest: keep it simple. Your 401(k) will offer a menu of options — maybe 20 choices, maybe 200. This is where people overthink it.

Option 1: Target-date fund. Look for a fund with a year close to when you plan to retire — “2045 Fund” or similar. These automatically adjust your mix as you age: more aggressive when young, more conservative as you approach retirement. You don’t have to think about it.

Is it perfect? No. Some say fees are too high or allocations too conservative. But a target-date fund is vastly better than leaving money in a money market fund earning nothing, picking random funds you don’t understand, or not contributing because you’re paralyzed.

If you don’t know what to pick, pick the target-date fund closest to your retirement year.

Option 2: Index funds. If your 401(k) offers them, you can build a simple portfolio: S&P 500 or total stock market index, international index, bond index. Look at the expense ratio — for index funds, it should be under 0.10% ideally. If your plan charges 0.50%+, that’s high.

I wrote a whole piece on why index funds work. The short version: Warren Buffett tells regular people to buy index funds. If it’s good enough for him to recommend to his own wife, it’s good enough for me.

What NOT to do. Don’t leave it in a money market fund — some 401(k)s default to this, and your money sits earning almost nothing. This was my mistake early on. Don’t pick funds based on recent performance — last year’s winner is often this year’s disappointment. Don’t buy your employer’s stock — you’re already dependent on them for your paycheck.

My annual check-in. I review once a year: Is my contribution rate still right? Is my pre-tax/Roth split appropriate for my current bracket? Are my funds still performing reasonably with low fees?

Most years I don’t change anything. My investments are index funds and target-date funds — not much to tinker with. But I do the due diligence. Circumstances change. Fifteen minutes once a year is worth it.

The action steps. Find out how much you’re contributing. Make sure you’re getting the full match. Check whether you’re doing pre-tax or Roth — does it fit the stage-of-life framework? Look at what you’re invested in. Simplify if needed. Then review once a year.

The bottom line. Contribute enough to get the full employer match. Choose pre-tax vs. Roth based on your stage of life — younger leans Roth, older leans pre-tax, but have some of both. Invest in target-date funds or low-cost index funds. Think about your mix in retirement — different tax buckets give you flexibility.

You now have a framework. Use it.

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This is Part 1 of a two-part series. Part 2 covers the pre-tax vs. Roth decision and where to invest your money.

Early in my career, I made the most common 401(k) mistakes. I signed up during onboarding, clicked a few buttons, and didn’t think about it again for years. I didn’t understand that my money wasn’t actually invested — it was sitting in a money market fund earning almost nothing. And when I left that job, I was shocked to see my balance drop. I had no idea what vesting was or that I was forfeiting thousands of dollars in employer contributions by leaving before I was fully vested.

I don’t want you to make those same mistakes.

If you do only one thing after reading this: make sure you’re contributing enough to get your full employer match.That’s free money. Everything else builds on that foundation.

Your 401(k) is likely going to be your largest retirement asset. It’s also one of the few places where your employer might literally give you free money. But most people don’t understand how it works, what they’re entitled to, or what they’re leaving on the table.

What is a 401(k), actually? A 401(k) is a retirement savings account sponsored by your employer. The name comes from the section of the tax code that created it — not exactly inspiring, but here we are.

Here’s what makes it special: Tax advantages — depending on how you set it up, you either don’t pay taxes on the money going in (traditional/pre-tax) or you don’t pay taxes on the money coming out (Roth). We’ll cover this in Part 2. Higher contribution limits than IRAs. Employer contributions — many employers add money on top of what you contribute. Automatic payroll deductions — the money comes out before you see it, which makes saving easier.

Key numbers for 2026: You can contribute up to $24,500 of your own money. If you’re 50 or older, you can add another $8,000 in catch-up contributions. If you’re 60-63, there’s a higher catch-up of $11,250 (this is new under SECURE 2.0, and it applies only during those specific ages — at 64 you revert to the regular catch-up). One more wrinkle: starting in 2026, if you earned more than $150,000 in 2025, your catch-up contributions must be made as Roth, not pre-tax.

The free money: understanding employer contributions. This is where a lot of people leave money on the table. Many employers don’t just let you save in a 401(k) — they add their own money to your account.

The match is the most common structure. Your employer contributes money based on how much you contribute. A dollar-for-dollar match up to 6% means if you make $60,000 and contribute 6% ($3,600), your employer also puts in $3,600. That’s $7,200 going into your retirement, but only $3,600 came from your paycheck. If you only contribute 3%, you only get a 3% match — you’re leaving $1,800 on the table.

A partial match works differently. Your employer might match 50 cents on the dollar up to 6%. Same $60,000 salary, same 6% contribution ($3,600), but your employer puts in $1,800 (half). Still free money, but you need to understand the math.

The key question: How much do you need to contribute to get the FULL employer match? That’s your minimum target.

Non-elective contributions are different — some employers contribute a percentage of your salary regardless of whether you contribute anything. If your employer contributes 5% no matter what and you make $60,000, you get $3,000 even if you put in $0. This is generous, but don’t let it stop you from contributing yourself.

The match math: why this matters more than you think. Let’s say you’re 45, making $80,000, and your employer offers a dollar-for-dollar match up to 3%.

Contribute 1%, employer matches 1%: $800 from you, $800 from them, $1,600/year total. Contribute 3%, employer matches 3%: $2,400 from you, $2,400 from them, $4,800/year total.

Over 25 years at 7% average returns: the 1% scenario ends at roughly $101,000. The 3% scenario ends at roughly $304,000.

By contributing an extra $1,600 per year, you end up with over $200,000 more. Half of that came from your employer — money that was available to you the whole time.

Vesting: when is it actually yours? Here’s something that surprises a lot of people — and surprised me when I was young: the money your employer contributes may not be fully yours right away.

Your contributions are always 100% yours immediately.

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Employer contributions are often subject to a vesting schedule. Vesting means ownership — how much of the employer’s contributions you keep based on how long you’ve worked there.

Immediate vesting: Everything is yours right away. Generous, but less common.

Cliff vesting: You own 0% until you hit a milestone (often 3 years), then 100%. Leave at 2 years and 11 months? You might get nothing.

Graded vesting: You gain ownership gradually — maybe 20% after year 2, 40% after year 3, up to 100% after year 6.

Why this matters. Before you take a job, the vesting schedule is part of your total compensation. Before you leave a job, know what you’re walking away from — if you’re 80% vested with $50,000 in employer contributions and you leave, you forfeit $10,000. When negotiating a new job, leaving unvested money behind is a real cost you can factor in.

I’ve seen too many people assume all the money in their 401(k) was theirs, then be surprised when they leave and the balance drops. That was me, early in my career. Don’t be that person. Find out your vesting schedule now.

A note on other plan types. 401(k)s get all the attention, but depending on where you work, you might have a 403(b) (nonprofits, schools, hospitals — essentially the same), a 457(b) (government employees — same limits, no early withdrawal penalty), or a SIMPLE IRA (small businesses — $17,000 limit in 2026, with $4,000 catch-up for 50+ or $5,250 for ages 60-63). If you have self-employment income, the SEP-IRA is worth knowing about — I covered it in a previous post. The principles here apply to all of these.

What you need to find out. What type of plan do you have? Does your employer contribute — and is it a match or automatic? If it’s a match, what’s the formula? What’s the vesting schedule? What’s your current contribution rate — are you getting the full match? What is your money invested in?

The place to find most of this is your Summary Plan Description (SPD), which HR can provide or you can find on your 401(k) provider’s website.

The bottom line. Your 401(k) isn’t exciting. But it’s probably the most important retirement tool you have.

At minimum: know what you have. Contribute enough to get the full employer match — this is non-negotiable. Understand what you’re invested in.

The match is free money. The tax advantages are real. The long-term impact is enormous.

Don’t leave it on autopilot without understanding what you’ve got.

Part 2 covers the pre-tax vs. Roth decision, where to invest your money, and why having the right mix matters more than most people realize.

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A reader sent me a question after the estate planning post, and it deserves a full answer — because the honest response might surprise you.

The question was essentially this: if the federal estate tax exemption is $15 million, why do I need a trust? Good question. It’s not one that always gets a clear answer in estate-planning conversations, so let me give it one.

This isn’t an argument against trusts. It’s an argument for understanding what problem you’re actually solving.

Important note before we go any further.

This post is about revocable living trusts only — the kind most people are talking about when they say “I need a trust.” Irrevocable trusts are a completely different tool with different rules. They can provide estate tax savings, asset protection, and Medicaid planning benefits that revocable trusts cannot. But they also mean giving up control of your assets permanently. That’s a separate conversation, and I’ll cover it in a future post.

The tax savings myth.

A revocable living trust provides no federal tax savings. None. It doesn’t reduce estate taxes. It doesn’t change income taxes. It doesn’t create gift-tax advantages. And it doesn’t affect capital gains treatment or the step-up in basis at death. The IRS treats a revocable trust as if you still own everything outright — because you do.

If someone is selling you a trust based on tax savings, be skeptical.

The exemption reality check.

The federal estate tax exemption for 2026 is $15 million per person — $30 million for a married couple. Under the One Big Beautiful Bill Act, signed into law last July, this amount is permanent with no sunset provision and indexed for inflation going forward. A future Congress could always change the law, but as it stands today, well over 99% of estates will never owe a dollar in federal estate tax. The reader is right: for this audience, the federal tax argument for a trust is essentially irrelevant.

But that doesn’t mean a trust is useless. It means you need to evaluate it for what it actually does — which is avoid probate.

Where a trust actually saves money: probate.

Probate is the legal process of transferring assets after someone dies. Every state handles it differently, and the costs vary dramatically. This is where the math gets interesting.

Linda is 52 and lives in California. She owns a home worth $700,000 with a $300,000 mortgage, has $200,000 in retirement accounts with beneficiary designations, and $50,000 in savings. Her retirement accounts pass directly to her beneficiaries and skip probate entirely. But the home and savings — about $750,000 — go through probate. And here’s the part that surprises people: California calculates probate fees on gross estate value. That $300,000 mortgage doesn’t reduce the number. The home counts at its full $700,000.

California sets mandatory statutory fee schedules for both the attorney and the executor under Probate Code §10810. These aren’t negotiable. Both the attorney and the executor receive 4% on the first $100,000, 3% on the next $100,000, and 2% on the next $550,000. For Linda’s $750,000 probatable estate, that’s $18,000 for the attorney and $18,000 for the executor — $36,000 in statutory fees alone. Add the $435 court filing fee, appraisal costs, and publication fees, and you’re looking at roughly $37,000 or more before a single asset changes hands.

A revocable living trust costs $1,500 to $4,000 to set up with a local attorney. In California, the math isn’t close. The trust pays for itself many times over.

Marcus is 58 and lives in Massachusetts. He owns a home worth $450,000 — paid off — has $300,000 in retirement accounts with beneficiary designations, and $75,000 in savings. Like Linda, his retirement accounts skip probate. His probatable estate is the home and savings — about $525,000.

Massachusetts works very differently. The court filing fee for informal probate is $390. There are no statutory percentage fees — attorney fees are hourly or flat-rate and negotiable. For a straightforward estate like Marcus’s — assuming no disputes and informal probate — total probate costs might run $5,000 to $10,000 depending on the attorney and the complexity.

A trust still costs $1,500 to $4,000. The savings exist, but they’re more modest — potentially a few thousand dollars. For Marcus, the trust decision is closer to a toss-up on pure math, though there are other reasons it might still make sense, which I’ll get to.

When probate costs aren’t the real cost

Diane’s mother passed away a couple of years ago and left behind a small piece of property — worth roughly $40,000 to $50,000 — that was never placed in a trust or clearly titled for succession. Nobody thought it would be a problem. It was a modest asset. The family assumed it would work itself out.

Two years later, they’re still in court trying to resolve ownership. They’ve gone through multiple attorneys and spent $2,000 to $3,000 in legal fees so far — and they’re not done. Some family members want to see it through and get the resolution. Others think the property isn’t worth the time, the money, or the stress anymore. The family isn’t fighting over millions. They’re spending thousands to settle an asset that’s barely worth the legal bills.

A trust would have cost a fraction of what they’ve already spent, and the family would have had closure two years ago. This is the kind of situation nobody plans for and everybody regrets. It doesn’t happen because families are careless. It happens because the right paperwork wasn’t in place.

Other situations where a trust saves real money

Beyond probate costs, there are specific circumstances where a trust provides value that a will simply can’t match.

If you own real estate in more than one state, you’ll face separate probate proceedings in each state without a trust. That’s called ancillary probate, and it multiplies costs and complexity. A trust avoids this entirely.

If you become incapacitated, a trust allows your successor trustee to step in and manage your finances without a court-supervised conservatorship — which can cost thousands in legal fees and take months to establish.

If you have a blended family, a trust gives you control over how and when assets flow to different sets of children, which a will handles much less precisely.

If you have a child with a disability, a special needs trust protects their eligibility for SSI and Medicaid — benefits that can be disqualified by even small amounts of money in the wrong account. (If you missed my recent post on how disability benefits actually work, this is one of the central issues.)

And if you have young adult children, a trust lets you specify ages or milestones for distributions rather than handing an 18-year-old a lump sum they may not be ready for.

The state tax surprise

Here’s something most people don’t know, and it catches families off guard. The federal exemption is $15 million, and that number gets all the headlines. But some states have their own estate taxes with much lower thresholds — and they operate completely independently of the federal rules.

Massachusetts has a $2 million estate tax exemption. It’s not indexed for inflation, and it hasn’t changed since 2023. That might sound like a comfortable margin, but consider the math. The statewide median single-family home sale price hit $638,000 in 2025. In Greater Boston, it was close to $800,000. Add retirement accounts, savings, and a life insurance policy, and families are closer to $2 million than they think — especially when you factor in a parent’s home that’s appreciated dramatically over decades.

Massachusetts taxes estates on a graduated scale starting at about 0.8% just above the $2 million threshold and climbing to 16% for estates over $10 million. A revocable trust doesn’t reduce state estate taxes either, but avoiding probate means assets transfer faster, taxes get settled sooner, and the family isn’t paying legal fees on top of the tax bill.

About a dozen states plus the District of Columbia have their own estate taxes, and five states levy separate inheritance taxes — paid by the person receiving the assets, not the estate. Maryland is the only state with both. If your parents live in one of these states, this matters even if their estate is nowhere near $15 million.

State estate taxes deserve their own post — and they’re coming. For now, know that your state may have rules that are very different from the federal numbers you hear about.

What a will plus beneficiary designations can do

Before you write a check for a trust, it’s worth understanding what simpler tools already accomplish. Beneficiary designations on retirement accounts, life insurance policies, and bank accounts — called transfer-on-death or payable-on-death designations — pass assets directly to your heirs, skipping probate entirely. Joint ownership of property passes automatically to the surviving owner. For many people with straightforward situations, a solid will plus properly set beneficiary designations handles the majority of assets outside of probate. The gap between “will plus beneficiary designations” and a full trust may be smaller than you think.

The decision framework

So should you get a trust? Here’s how to think about it.

If you’re in a high-probate-cost state like California, Florida, or New York, a trust is likely worth it — the savings are clear. If you own property in more than one state, a trust is almost certainly worth it. If you have minor children, a trust is likely worth it because it controls how money is managed and distributed. If you have a child with a disability, a specialized trust isn’t optional — it’s essential. If you’re in a lower-probate-cost state with a straightforward estate and good beneficiary designations in place, a will may be enough. And if you’re on the fence, the $1,500 to $4,000 for a trust from a local attorney is reasonable insurance against the kind of surprises that hit Diane’s family.

Watch out for these mistakes

A few things trip people up.

• Assuming a revocable trust saves on taxes — it doesn’t. Setting up a trust but never funding it — meaning you never retitle your assets into the trust — which makes the trust useless.

• Ignoring beneficiary designations on retirement accounts, which often matter more than the trust itself.

• Not checking your specific state’s probate costs before deciding whether a trust is worth it.

• Paying for a trust when a simpler approach would accomplish the same goals.

• Confusing revocable and irrevocable trusts, which are different tools with very different implications.

The bottom line

A revocable trust isn’t a tax strategy. It’s a logistics and control strategy. Whether it’s worth paying for depends on your state, your assets, and how much friction you want your family to face when you’re gone.

Look up your state’s probate costs. Then look at what you’d pay a local attorney for a trust. The math will tell you the answer — not a sales pitch.

You might also like:

• “The Estate Plan You Need Today” — the five documents that protect your family

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Comedian Bill Burr has a bit about what he calls the “drop dead years” — men between 49 and 61 who might suddenly die for any reason. I’m 54. I’m in those years.

I know exactly what to do if Karen predeceases me — I figured out the Social Security system when my dad passed and I had to navigate it for my mom. But here’s something embarrassing to admit: I’ve never talked to Karen about what happens if I go first.

This post is me fixing that. And if you haven’t had this conversation with your spouse, consider this your nudge.

Social Security isn’t an individual decision — it’s a household decision. Plan it like one. Yet most couples make their claiming choices independently. The higher earner claims when it’s convenient. The lower earner does the same. Nobody thinks about what happens after one of them dies.

That’s the mistake. When one spouse dies, the survivor doesn’t keep both checks. They get ONE — the higher of the two. The other benefit disappears completely.

Survivor benefits are based on what the deceased spouse was receiving (or entitled to), so claiming early can permanently shrink the survivor check. If you’re the higher earner and you claimed early, you’ve locked your surviving spouse into a smaller benefit for the rest of their life.

The survivor benefit reality. Tom earned more throughout his career. His benefit at full retirement age (67) is $2,500/month. Sandra’s is $1,200/month. While both are alive, they collect $3,700/month combined.

When Tom dies, Sandra gets the higher check — $2,500 — and loses her $1,200 completely. Their household income drops 32%. But housing, utilities, and insurance don’t drop proportionally.

Now imagine Tom had claimed at 62 instead. His reduced benefit: $1,750/month. Sandra’s survivor benefit: also $1,750. That’s $750/month less than it could have been — for the rest of her life. Over 20 years, that’s $180,000 she doesn’t have.

The higher earner should generally delay. The higher earner’s benefit becomes the floor for whoever lives longest. If Tom waits until 70, his benefit grows to $3,100/month — and that’s what Sandra gets as a survivor.

Compare the scenarios: Both claim at 62, Sandra gets $1,750 as a widow. Both claim at 67, Sandra gets $2,500. Sandra claims at 62 while Tom waits until 70, Sandra gets $3,100 as a widow — $1,350/month more than the first scenario. Over 20 years, that’s $324,000.

This connects directly to my earlier post on when to take Social Security. All those timing principles apply here — but the stakes are doubled because you’re making decisions for two futures.

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Spousal benefits while you’re both alive. If you didn’t work or earned significantly less than your spouse, you may be entitled to up to 50% of their benefit at full retirement age.

The key rules: you must be married at least one year and be at least 62. Your spouse must have filed for their benefits first. And you get the higher of your own benefit or the spousal benefit, not both.

Marcus’s benefit at FRA is $2,400/month. Diana’s own benefit is $800/month. Diana’s spousal benefit is 50% of Marcus’s, or $1,200/month. Diana gets $1,200 — the higher amount — not $800 plus $1,200.

Spousal benefits max out at full retirement age. Unlike your own benefit, there’s no bonus for waiting past 67. But claiming before FRA permanently reduces the spousal benefit — 32.5% at 62 versus 50% at 67.

The divorced spouse benefit most people don’t know about. If you were married for at least 10 years and are currently unmarried, you may be entitled to benefits based on your ex-spouse’s record — even if they’ve remarried, even if you haven’t spoken in decades.

The rules: the marriage must have lasted at least 10 consecutive years. You must be divorced for at least 2 years (unless your ex has already claimed). You must be currently unmarried and at least 62. Your ex must be eligible for benefits, though they don’t have to be collecting yet. If you remarry, you generally can’t claim on an ex’s record unless that later marriage ends.

What surprises people: your ex doesn’t need to know you’re claiming. Your ex doesn’t lose anything — their benefit stays exactly the same. Their current spouse isn’t affected either. This isn’t taking from anyone.

I know a woman in her late 50s who got divorced after a long marriage. She was worried about retirement — the divorce had hit her finances hard, and her own work history was spotty from years of raising kids. When she found out she was entitled to 50% of her ex-husband’s benefit — significantly more than her own — it changed her whole outlook. She had no idea this existed.

If you’re divorced and were married 10+ years, check. You may have benefits waiting.

If your ex-spouse dies. This is different from the divorced spouse benefit while they’re alive. If your ex-spouse dies and you were married 10+ years, you can claim 100% of their benefit — not 50%. You must be at least 60, currently unmarried at the time of the claim, and the marriage must have lasted at least 10 years.

Your claim doesn’t affect benefits paid to your ex’s current spouse or children. And remarrying after 60 doesn’t disqualify you.

The self-employed credits problem. Small business owners who spent years minimizing self-employment income to reduce taxes sometimes discover they haven’t accumulated enough credits to qualify. You need 40 credits — roughly 10 years of work — to be eligible for your own benefit.

If you’re short, your only option may be a spousal benefit, which maxes out at 50%.

Check your Social Security statement at ssa.gov. Know how many credits you have before you need to make decisions.

Survivor benefit details worth knowing. If you’re recently widowed or helping a parent navigate this:

The surviving spouse can collect 100% of the deceased spouse’s benefit if they wait until full retirement age. (Survivor full retirement age is 66–67 depending on birth year.) They can claim as early as 60 at a reduced rate — 71.5% at 60, scaling up to 99% just before FRA. If disabled, they can claim at 50. If caring for a child under 16 or a disabled child, they can claim at any age.

You must have been married at least 9 months, with some exceptions.

Remarrying after 60 doesn’t affect eligibility. Remarrying before 60 does — though you’d regain eligibility if that marriage ends.

A strategy that can work. The “deemed filing” rules that force you to claim both your own benefit and spousal benefit at the same time do NOT apply to survivor benefits.

This means a widow or widower can claim their own reduced benefit early, let their survivor benefit grow, and switch to the full survivor benefit at FRA. This can maximize lifetime benefits, especially if your own benefit is small but your spouse’s was substantial.

Have the conversation. Who has the higher benefit? What’s the plan for when to claim? If something happens to one of you, what does the survivor do first?

It doesn’t have to be morbid: “If something happens to me, here’s what you need to know about our Social Security.”

Common mistakes to avoid. Not understanding that you lose one check when a spouse dies. Making claiming decisions independently. The higher earner claiming early without realizing it permanently reduces the survivor benefit. Not knowing about divorced spouse benefits. Not checking your credits. Waiting too long to have the conversation.

What to do now. Check your Social Security statements — both spouses — at ssa.gov. Have the conversation about who has the higher benefit and what the plan is.

If you’re divorced: Were you married 10+ years? Are you currently unmarried? You may have benefits waiting.

If you’re recently widowed: Don’t assume anything. Call Social Security or visit your local office.

And if you haven’t read my earlier post on when to take Social Security, start there. The timing principles apply double when you’re making decisions as a couple.

This is too important an asset to mess up.

You might also like:

• “Invest Like Warren Buffett” — why index funds are how most people should invest

• “The Estate Plan You Need Today (Yes, Even If You’re Not Rich)” - Give yourself peace of mind and make things easier on your family

• “The Best Way to Save for Your Kids’ Education (And What Happens If They Don’t Go)” — How to help support your children and grandchildren’s eduction

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Before you take on debt—or keep debt you could pay off—do the real math. Not the hopeful math. The actual math.

There’s a piece of advice floating around that sounds sophisticated but actually makes debt worse for a lot of people. And it often comes from financial advisors who should know better.

Here’s what they tell you:

“Don’t pay off your mortgage early. Give me that money instead—I’ll invest it and make you more than 7%.”

“Keep your low-interest debt. It’s cheap money. Put your cash to work in the market.”

This sounds like what smart, wealthy people do. Advisors say it with confidence.

Here’s why they say it.

Advisors who charge based on assets under management have a built-in incentive. If you use $50,000 to pay off your mortgage, that’s $50,000 they’re not earning fees on. This doesn’t make them bad people—they genuinely believe they can help. But it means their advice isn’t neutral.

And here’s the thing: most advisors don’t think through the complete math. They think about the returns they can generate. They don’t always think about what you’ll pay in taxes on those gains, or what their fees cost you over time.

Let me show you the actual math.

Say you have $50,000 in debt at 7% interest. Your advisor says keep the debt and invest instead.

What paying off the debt gets you: a guaranteed 7% return (the interest you’re no longer paying), tax-free (you don’t pay taxes on money you didn’t spend), and risk-free (the debt is gone, period).

What investing gets you: uncertain returns (could be 10%, could be -10%), taxable gains (when you eventually sell), and fees along the way.

Let’s say the advisor delivers a solid 10% return. Sounds like you’re beating 7%, right?

Not so fast. Capital gains taxes don’t apply every year—they apply when you eventually sell. But that’s the point: the return you’re counting on isn’t fully yours. When you do realize the gain, a meaningful portion goes to taxes (15-20% federal, plus state taxes in many places).

Then there are advisory fees. A 1% annual fee doesn’t sound like much, but over decades it can quietly consume 20-30% of your total investment growth.

And you’re still making payments on the debt while you wait for those gains.

So even with good years in the market, you’re often roughly breaking even with just paying off the debt. And the debt payoff was guaranteed. The investment returns weren’t.

And yes, mortgage interest can be deductible—but for most households today, the standard deduction means that benefit is often smaller than people assume.

Here’s what really gets people: the unrealized gains trap.

They see their investment account go up and think they’re winning. But you haven’t actually gained anything until you sell. And when you sell: you pay taxes on the gain, you lose the position (no more growth from that money), and you STILL have the debt.

The debt payoff is certain, immediate, and tax-free. The investment gain is uncertain, future, and taxable.

“But I doubled my money!” Great. Now sell it. Pay 15-20% in federal taxes. Pay state taxes. Pay your advisor. Now use what’s left to pay off the debt you’ve been carrying the whole time. How much did you actually come out ahead?

For most people, the answer is: you didn’t. Or barely.

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When does this strategy actually work?

It can work for ultra-wealthy individuals with access to very low-cost margin debt from brokerage houses—we’re talking millions in assets as collateral. It can work in specific tax situations where the math genuinely plays out differently. It can work with extremely low-rate debt (like 2-3% from the pandemic era) combined with high tax brackets and long time horizons.

If that’s not you—if you’re a regular person with a mortgage or car loan or credit card debt—the “invest instead” advice probably doesn’t apply.

My approach has always been to pay off debt before investing. Not because debt is shameful—it’s not—but because in the vast majority of real-life situations I’ve seen, the “invest instead” math doesn’t meaningfully outperform paying down debt. The guaranteed return of paying off debt beats the uncertain return of investing almost every time.

So what do you do with this?

If your advisor tells you to keep your debt and invest instead, do the math yourself. Include the taxes. Include the fees. Include the risk that the market doesn’t cooperate.

Ask them to show you the numbers after taxes and after their fees. See if it still looks like a good deal.

For most people, most of the time, paying off debt wins.

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Tax season is my favorite time of year. I know that sounds strange — most people dread it. But here’s how I think about it: taxes are a game, and the rules are written down. If you know the rules and play by them, you get to keep more of your hard-earned money. The people who fear tax time are usually the ones who don’t know the rules. The ones who embrace it? They win.

What’s key is knowing the rules and advocating for yourself — because nobody else is going to do it for you.

When I was 21, I started doing my own taxes and missed deductions left and right. It’s what eventually pushed me to actually learn the tax code — not just the highlights, but the details. And even now, I’m constantly discovering new wrinkles, especially when things change.

The 2025 tax law enacted in July created four new deductions available through 2028. You’ve probably seen the headlines: “No tax on tips!” “No tax on overtime!” The headlines rarely tell the whole story.

The four deductions at a glance. All four are available whether you itemize or take the standard deduction. All four have income phase-outs. And all four are temporary — 2025 through 2028 only. One important clarification upfront: these are deductions, meaning they reduce your taxable income. They are not exemptions from payroll tax or “tax-free income.”

The tips deduction lets eligible workers deduct up to $25,000 in qualified tips. The overtime deduction allows hourly workers covered by federal overtime rules to deduct up to $12,500 ($25,000 married filing jointly). The car loan interest deduction covers up to $10,000 per year in interest on a new, U.S.-assembled vehicle. And the senior bonus deduction gives anyone 65+ an extra $6,000 ($12,000 for couples where both qualify).

Real benefits. Real money. But also real complications.

No tax on tips — but payroll taxes still apply. If you work in a tipped occupation — bartender, server, hotel housekeeper, salon worker, valet, and dozens more — you may be able to deduct up to $25,000 in tips from your federal income. The IRS published a list of about 68 qualifying occupations, covering food service, personal care, entertainment, and more. Your tips must be voluntary (mandatory service charges don’t count) and reported on your W-2, 1099, or Form 4137.

You might qualify and not realize it. The list includes occupations you’d expect — servers, bartenders, hairstylists — but also some that surprise people. Fitness instructors, childcare workers, and home repair workers are all included. Rideshare drivers and similar platform workers may qualify too, depending on how tips are reported. If customers have ever tipped you, it’s worth checking whether your occupation is on the list.

Here’s what the headlines leave out: you still pay Social Security and Medicare taxes (7.65%) on every dollar. The deduction only exempts you from federal income tax.

The math. Rosa is a bartender who earns $20,000 in reported tips in 2025, putting her in the 12% bracket. Under old rules, she’d owe $2,400 in federal income tax plus $1,530 in payroll taxes — $3,930 total on her tips.

Under the new rules, Rosa owes zero federal income tax on the tips. But she still owes $1,530 in payroll taxes. Her savings: $2,400. Real money — but not “tax-free tips” the way most people understand that phrase.

If Rosa earns $32,000 in tips, only the first $25,000 is deductible. She’d pay income tax on the remaining $7,000 (about $840) and payroll taxes on all $32,000. Still saving roughly $3,000 compared to old rules — but the tax isn’t zero.

The phase-out starts at $150,000 MAGI ($300,000 joint), reducing your deduction by $100 for every $1,000 of income above that threshold. And if you or your employer operates in health care, performing arts, or athletics, you may not qualify even if tips are customary.

No tax on overtime — but only the premium portion. This one has the biggest gap between headline and reality. If you’re an hourly worker entitled to overtime under federal law — warehouse workers, nurses, retail staff, manufacturing employees — you can deduct up to $12,500 ($25,000 joint) of “qualified overtime compensation.”

The catch: you can only deduct the premium portion — the “half” in time-and-a-half. Not the whole overtime check.

The math. Linda earns $22/hour at a warehouse. Overtime pays $33/hour (time-and-a-half). She works 120 overtime hours in 2025.

Total overtime pay: 120 × $33 = $3,960. But only the premium is deductible — the extra $11/hour above her regular rate. Deductible amount: 120 × $11 = $1,320. At 12%, her actual tax savings: about $158.

Linda might have expected her entire $3,960 to be tax-free. It’s not — she saves about $158 total, or roughly $1.32 per overtime hour.

Still worth claiming? Absolutely — always take free money.

Same phase-out: $150,000 single, $300,000 joint. And only federally-required overtime counts — extra pay from state laws, union contracts, or employer policies doesn’t qualify.

Car loan interest — check the VIN before you buy. This one hits close to home. A couple years ago, I bought an EV and discovered — after the fact — that I couldn’t claim the credit because my model wasn’t assembled in the United States. Same brand made some models in Ohio, some overseas. Different assembly location, different tax outcome.

The car loan interest deduction works the same way. You can deduct up to $10,000 per year in interest on a new vehicle — but only if it underwent final assembly in the U.S. Not just an American brand — final assembly is what matters.

How to check. If the VIN starts with 1, 4, or 5, it was assembled in the U.S. But don’t guess — use the NHTSA VIN Decoder at vpic.nhtsa.dot.gov/decoder before you sign anything.

A Honda Accord assembled in Ohio qualifies. A Toyota Camry assembled in Kentucky qualifies. But some models from those same manufacturers are built overseas and don’t. Check the specific vehicle’s VIN, not just the model.

Other requirements: must be new (not used), for personal use (not business), financed with a loan (leases don’t qualify). If you use it partly for business and deduct that portion separately, you can only claim the personal-use portion here.

Example. Derek finances a U.S.-assembled truck for $40,000 at 6%, paying $2,400 in interest year one. He uses it 30% for his landscaping business. For this deduction, he claims the personal portion: 70% × $2,400 = $1,680. At 22%, that saves him about $370.

Phase-out starts at $100,000 single, $200,000 joint. You must include the VIN on your return.

The senior bonus deduction — generous, but watch the phase-out. If you’re 65+ by December 31, you can claim an additional $6,000 deduction per person — $12,000 for couples where both qualify.

This stacks on what seniors already get. In 2025, a single filer 65+ could have: $15,750 base + $2,000 existing senior add-on + $6,000 new bonus = $23,750 total. A married couple where both are 65+ could reach $46,700.

The catch. The phase-out is lower than the other provisions — just $75,000 single ($150,000 joint), at 6% of every dollar above. By $175,000 single ($250,000 joint), it’s completely gone.

Barbara, 66, with $60,000 MAGI gets the full benefit: $23,750 total deduction. At $100,000, she’s $25,000 over threshold — her bonus drops by $1,500 to $4,500. Many middle-class seniors will land in this middle ground.

One more detail: you cannot claim this if you file married filing separately.

Mistakes to watch for. Because these rules are new, this is where people tend to get tripped up. Tax software may not prompt you correctly. Preparers may not catch them — tax prep is a volume business. You need to know these exist and advocate for yourself.

For tips: make sure you’re reporting them. The deduction only applies to reported income.

For overtime: don’t assume your whole check is deductible. Calculate the premium portion from your pay stubs.

For car loans: check the VIN before you buy. Leases and used vehicles don’t qualify.

For seniors: don’t forget the phase-out. The $75,000 threshold catches people off guard.

One more thing. The IRS has issued transition guidance for 2025. Employers and lenders aren’t yet required to separately report qualified tips, overtime, or vehicle loan interest the way they will in future years. Most tax software should incorporate this automatically — but understanding what’s happening helps you catch errors.

Where does this leave you? These deductions are worth claiming if you qualify. But the value is usually smaller than the headlines suggest — and the rules are more specific than most people realize.

If you work for tips, check the IRS occupation list.

If you work overtime, run the math on the premium portion.

If you’re financing a vehicle, verify assembly location before you buy.

If you’re 65+, watch the phase-out.

And if you use a preparer, ask about these specifically. These provisions are new enough that not everyone will think to check.

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Debt is history. I don’t care how you got here—no judgment, no shame. The only questions that matter are: what do you do from here? How do you manage it, lower it, and keep it from growing?

But before we talk about managing debt, let’s talk about taking it on in the first place. Because a lot of people make debt decisions based on monthly payments, or tax benefits, or 0% financing offers—without thinking through what they’re actually agreeing to.

Here’s a better framework.

Instead of labeling debt as “good” or “bad,” ask yourself five questions.

Question 1: What is the total cost of this debt over its life?

Monthly payment times number of months equals total amount paid. Total paid minus original loan amount equals total interest cost. That’s the real price, not just the monthly payment.

Example: $25,000 car loan at 6% for 60 months. Monthly payment is about $483. Total paid: $483 times 60 equals $28,980. Interest cost: $28,980 minus $25,000 equals $3,980.

That car costs you almost $4,000 more than the sticker price. Is it still worth it at that price? This isn’t to say don’t buy the car. It’s to say: know the real price before you decide.

Question 2: Is this debt likely to produce income or long-term value—or is it guaranteed to depreciate?

A mortgage on a home that appreciates might make you money. “Might” is the key word—appreciation is never guaranteed, but historically housing behaves very differently than consumer purchases. A loan for a boat that depreciates will cost you money. Be honest about which category you’re in.

Question 3: Am I taking this on because it’s wise, or because I want something now?

No judgment—but know the difference. “I need reliable transportation to get to work” is different from “I want the nicer car.”

Question 4: If it’s 0%, will I actually pay it off before the rate kicks in?

0% financing sounds like free money. And it can be—if you pay it off before the promotional period ends. But many of these deals have deferred interest. That means if you don’t pay it off in time, you owe all the interest from day one. That 0% becomes 25%+ retroactively.

Look at your track record, not your intentions. Have you paid off 0% deals on time before? Or do they tend to linger?

Question 5: What am I risking if this goes wrong?

Credit card debt risks your credit score and peace of mind. Home equity debt risks your house. The stakes are different—know what you’re betting.

Here’s how these questions show up in real life.

The home equity trap.

When I lived in Las Vegas during the housing bubble, there were commercials constantly telling people to take out home equity loans for boats, vacations, redecorating. They were literally betting their house on things that would depreciate to zero.

When the bubble burst, a lot of those people lost their homes. Not because they couldn’t pay their mortgage—but because they’d borrowed against their equity for things that were now worthless.

The question to ask: Is this really what I want to bet my house on? Literally?

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The “tax write-off” vehicle.

Some small business owners buy larger SUVs or trucks than they need because of the Section 179 depreciation write-off.

Let’s do the math. You buy a $60,000 truck you don’t really need. If you’re in the 24% tax bracket, that write-off saves you $14,400 in taxes. But you still spent $60,000—or more likely, you took on a $60,000 loan that you’ll pay interest on. You “saved” $14,400 but you owe $60,000 plus interest.

If you genuinely need that truck for your business—hauling equipment, job sites, whatever—it absolutely makes sense. Buy the truck. Take the write-off.

But if you’re buying more truck than you need just for the tax benefit? You’re spending a dollar to save a quarter.

The question to ask: Would I buy this if there were no tax benefit? If yes, great. If no, reconsider.

The simple tool: total cost of the loan.

Before you take on any debt, run this calculation:

Monthly payment times number of months equals total amount you’ll pay. Total paid minus amount borrowed equals total interest cost.

Do this for car loans, furniture financing, personal loans—anything with payments. The number might surprise you. Sometimes it’s fine. Sometimes it changes your decision.

So where does this leave you?

Debt isn’t inherently bad. Sometimes it’s the right tool. A mortgage lets you build equity instead of paying rent. A car loan gets you to work. Business debt can fund growth.

But debt is always a trade-off. You’re borrowing from your future self. The question is whether that trade is worth it.

Before you take on new debt, do the total cost calculation. Ask yourself the five questions. Know what you’re really paying and what you’re really risking.

And if you’re already carrying debt you want to get rid of, the first step is knowing exactly what you owe. That’s where the debt audit comes in—getting your arms around the full picture so you can make a plan.

No shame. Just clarity. That’s how you move forward.

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The decision of when to start taking Social Security could be worth tens of thousands of dollars over your lifetime—or hundreds of thousands if you live long enough.

And most people get it wrong. Not because they’re bad at math, but because they make the decision reactively instead of strategically.

I’ve seen this pattern a thousand times: someone turns 62, sees a Reel or an Instagram post saying they should take Social Security as early as possible, and they grab it. Then they realize they’re going to keep working. Now they’re asking me, “What’s going to happen? Is it going to destroy my benefits? I was planning on the full amount.”

The answer is usually: you’d have been better off waiting. But it’s not too late to plan forward.

My general position: take it as late as you can. But this isn’t one-size-fits-all. The right timing depends on your situation—and there’s no shame if you need to take it early. Let me walk you through the math, the strategy, and the framework for making this decision.

First, the math. This is the part most people don’t fully understand.

If you were born in 1960 or later, your full retirement age (FRA) is 67. That’s when you get 100% of your calculated benefit. But you can start as early as 62 or wait as late as 70.

Here’s what happens at each age. Let’s use a $2,000 monthly benefit at full retirement age as our example. If you claim at 62, you get 70% of that—$1,400 a month. At 63, it’s 75%, or $1,500. At 64, you’re at 80%, which is $1,600. At 65, it’s 86.7%—$1,734. At 66, you’re at 93.3%, or $1,866. At 67, your full retirement age, you get the full $2,000.

But here’s where it gets interesting. If you wait past 67, your benefit keeps growing. At 68, you’re at 108%—$2,160 a month. At 69, it’s 116%, or $2,320. And at 70, you max out at 124%—$2,480 a month.

Look at the spread. Taking it at 62 means $1,400 a month. Waiting until 70 means $2,480 a month. That’s 77% more—for the rest of your life.

These reductions and increases are permanent. If you claim at 62 and get the 30% reduction, that reduction stays with you forever. If you wait until 70 and get the 24% bonus, that bonus stays with you forever.

Now, the break-even question—and why it’s the wrong way to think about this.

People always want to know: “If I wait, when do I break even?” It’s a natural question. You’re giving up years of checks by waiting, so at what point does the higher monthly amount make up for it?

The math usually puts break-even somewhere around age 80-83, depending on whether you’re comparing 62 to 67 or 62 to 70.

Here’s the problem: break-even analysis assumes you’d be equally happy running out of money at 83 and at 95. You wouldn’t be.

We can’t predict how long we’re going to live. And in the absence of being able to predict that, the question isn’t “will I beat the break-even?” It’s “what happens if I live a long time?”

Social Security is longevity insurance. The value isn’t just the monthly check—it’s the guarantee that the check keeps coming no matter how long you live. If you take it early and live to 95, you’ve locked in that reduced benefit for 33 years. If you wait until 70 and live to 95, you get the maximum benefit for 25 years.

Generations are living longer. Many financial planners say look at when your parents died—but our generations are getting older later and needing more help for longer. Planning for a short life when you might live a long one is a costly mistake.

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Here’s the strategy I recommend: think about the order you tap your accounts.

If you have multiple retirement resources—401(k), traditional IRA, Roth IRA, Social Security—the order you use them matters for both taxes and total lifetime wealth.

My recommended sequence:

First: 401(k) and traditional IRA. These are the accounts with Required Minimum Distributions. Starting at age 73, you’re going to have to take money out whether you want to or not. Using these accounts first lets your Social Security benefit keep growing (8% per year between FRA and 70). It also reduces your future RMD burden.

Second: Social Security. Start taking it after you’ve drawn down some of your RMD-required accounts—or at 70 at the latest, since there’s no benefit to waiting past 70.

Third: Roth IRA. This is your most flexible account. No RMDs, tax-free withdrawals, easiest to pass to the next generation. Let it grow as long as possible.

Why this order works: You maximize the growth of your largest guaranteed asset (Social Security), reduce your taxable income in early retirement, and preserve your most flexible asset for last. It also creates better tax planning opportunities throughout.

What if you’re still working? This is where people get tripped up.

If you claim Social Security before your full retirement age and keep working, there’s an earnings test. Earn too much, and some of your benefits get withheld.

Here’s how it works in 2026. If you’re under full retirement age for the entire year, the earnings limit is $24,480. Earn more than that, and $1 gets withheld from your Social Security for every $2 you earn over the limit. In the year you reach full retirement age, the limit jumps to $65,160 for the months before your birthday, and the withholding drops to $1 for every $3 over. Once you hit full retirement age, there’s no limit—earn whatever you want with no reduction.

Important: Only earned income counts—wages and self-employment. Not investment income, pensions, rental income, or IRA withdrawals.

Also important: This isn’t actually a permanent penalty. The withheld benefits aren’t lost forever. Once you reach FRA, your monthly benefit is recalculated upward to credit back the months that were withheld. But it takes years to recover, and you’re dealing with smaller checks in the meantime.

Here’s the scenario I see constantly: Someone takes Social Security at 62 and gets $1,400 a month. Then they realize they’re going to keep working and earn $50,000 a year. They’re about $25,500 over the $24,480 limit. Half of that—$12,750—gets withheld from their Social Security over the year. Their $1,400 monthly benefit effectively becomes about $335 a month after withholding.

If you’re going to keep working and earning significantly above the limit, why claim early and deal with this? Just wait.

There’s also the tax question. Up to 85% of your Social Security benefits can be subject to federal income tax, depending on your other income.

The formula uses “combined income”: your adjusted gross income plus nontaxable interest plus half of your Social Security benefits. If that total exceeds $34,000 (single) or $44,000 (married filing jointly), up to 85% of your Social Security becomes taxable.

This interacts with your retirement account withdrawals. Traditional IRA and 401(k) withdrawals count as income. Roth withdrawals don’t. This is another reason the withdrawal order matters—if you’re pulling heavily from traditional accounts while also collecting Social Security, you may be pushing more of your Social Security into the taxable zone.

Now let’s talk about when taking it early actually makes sense. Because it’s not always wrong.

Everyone is different. In some cases, people may be absolutely panicked and feel they have to take it—and that’s OK. They shouldn’t be shamed. The question then becomes: now what do you do with it?

Situations where early claiming may be right:

You have no other income source. If you’ve lost your job and Social Security is the only way to pay bills, take it. Survival comes first.

Serious health issues. If you have conditions that significantly reduce your life expectancy, the break-even math changes. Someone with a terminal diagnosis shouldn’t wait until 70.

You physically can’t work. Some jobs—physical labor, demanding schedules—people simply can’t do into their late 60s. If you can’t work, you can’t work.

You genuinely need the money. No retirement savings, no other income, bills to pay. Take it.

But even then: Consider whether you can bridge with part-time work or modest savings to delay just a year or two. Each year you wait between 62 and FRA avoids roughly 6-7% in permanent reduction. Each year between FRA and 70 adds 8%. Small delays can make meaningful differences.

What if you already took it early?

If you’re within 12 months of starting benefits, there’s a “do-over” option: withdraw your application and repay all benefits received, then start fresh later. This is rarely practical because you have to come up with all that money at once.

If you’ve passed FRA, you can voluntarily suspend your benefits. They’ll grow by 8% per year until you turn 70 or restart them. This doesn’t fully undo an early claiming decision, but it helps.

Mostly, if you took it early, you live with it. That’s OK—Social Security is still valuable, just less valuable than it would have been. Focus forward: understand how working affects your current benefits, plan your other withdrawals strategically, and don’t compound one suboptimal decision with more.

Here’s the framework for making this decision.

Ask yourself:

Can I wait? Do I have enough from other sources—401(k), savings, part-time work—to delay Social Security while it grows?

Will I keep working? If yes, will my earnings exceed the earnings test limits? If so, waiting makes more sense.

What’s my health outlook? Any serious conditions that might significantly shorten life expectancy?

Am I married? Spousal and survivor benefits may change the optimal strategy. (More on that in a future post.)

What’s my backup plan? If I wait and something goes wrong financially, what do I do?

The biggest thing to weigh: how far can you get with your existing accounts? If you don’t have much saved and Social Security is what’s going to make the difference, then take it. If you plan to keep working and don’t really need the Social Security yet, why not hold off and get the bigger benefit by waiting?

My personal plan, at 54: wait as long as humanly possible to take it.

Your action items:

Before you decide anything: Go to ssa.gov/myaccount and look at your projected benefits at 62, 67, and 70. See the actual numbers for your situation. The difference may be larger than you expect.

If you’re still working and considering claiming: Calculate whether your earnings will trigger the earnings test. If you’re going to lose half your benefits to withholding anyway, waiting starts looking a lot better.

If you’re married: Don’t make this decision in isolation. Spousal and survivor benefits add complexity—and often change the optimal strategy significantly. We’ll cover that next.

If you already claimed early and are still working: Don’t panic. The withheld money isn’t lost forever—it gets credited back at FRA. But do understand how the earnings test affects you so you can plan accordingly.

So where does this leave you?

The timing decision is one of the biggest financial choices you’ll make in retirement. For most people who can afford to wait, the math favors waiting. You’re trading smaller checks now for larger checks later—and the longer you live, the better that trade looks.

But everyone’s situation is different. The right answer depends on your health, your other resources, whether you’re still working, and whether you’re married.

What’s not a good strategy: grabbing it at 62 because you saw a social media post, or because you’re afraid it might go away, or because you didn’t think about it at all.

Think about it. Run the numbers. Make the decision that fits your life.

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If you have a side business—or any self-employment income—you can hire your kids for legitimate work, deduct their wages as a business expense, and if set up correctly, that money can flow from your business to your child’s Roth IRA without ever being taxed. Not reduced taxes. Not deferred taxes. Never taxed.

That “never taxed” result depends on doing real work, paying reasonable wages, running payroll correctly, and funding the Roth within the rules. But when it works, it’s powerful.

Most people either don’t know about this, do it wrong, or miss the Roth IRA opportunity entirely. Let me show you how to do it right.

The problem I see most often: Someone watches a Reel that says you can deduct up to the standard deduction by paying your kid. And that’s all they say. No mention of doing the W-2. No mention of filing the 941. No mention of what to do with the money afterward. They just make it sound like a big pile of cash.

Worse, I’ve seen people paying their kids off the books—no paperwork at all. The child can’t get any of the benefits, the business doesn’t get the deduction, and they’re paying the kid anyway. That’s the worst situation.

Here’s how the money flows when done right.

Your business earns revenue. You pay your child wages for legitimate work—that’s a business expense. If you’re a sole proprietorship or single-member LLC and your child is under 18, there are no FICA taxes on those wages. That exemption is specific to wages paid by a parent’s unincorporated business (not corporations). If your child’s total wages stay under the standard deduction (around the mid-$16,000s in 2026), they’ll typically owe no federal income tax. The child contributes to a Roth IRA. The Roth grows tax-free, withdrawals are tax-free.

A dollar comes into your business, goes all the way through to your child using it in retirement, and is never taxed.

Let me show you the math.

Say you have $10,000 in profit from your side business and you’re in the 22% tax bracket.

If you keep it as profit: self-employment tax is roughly $1,400 (it’s calculated on about 92% of your profit), and income tax at 22% is another $2,200. Total tax: around $3,600. (I’m simplifying here—half the self-employment tax is deductible, so the exact numbers vary, but the direction of the savings is the same.)

Now, same $10,000, but you pay your child for legitimate work (sole prop, child under 18): FICA on the child’s wages is zero. That $10,000 becomes a business expense instead of profit, which can save you thousands in taxes—often a combination of income tax and self-employment tax. The child’s income tax is zero because they’re under the standard deduction. The child puts $7,500 into a Roth IRA (2026 limit). The remaining $2,500? Spending money or a 529.

And that Roth contribution? At 7% growth for 50 years, $7,500 becomes approximately $220,000. Tax-free.

Your business structure matters.

The best case is a sole proprietorship or single-member LLC. For these structures, children under 18 are exempt from Social Security and Medicare taxes—an extra 15.3% you don’t have to pay.

If you have an S-Corp, C-Corp, or a partnership with non-parent partners, you can still hire your kids—you just have to pay the full employment taxes. But you still get the business deduction, the child’s income is still under the standard deduction, and they’re still eligible for the Roth IRA.

The worst case is off the books. No paperwork means no business deduction for you, no Roth eligibility for them, and you’re still paying tax on that money. Get a payroll service, make it formal, and take advantage of these benefits.

The two things that must be reasonable.

The IRS looks at two dimensions: is the task reasonable, and is the pay reasonable?

For the task: could a child of this age actually do this work? Is it real work that benefits the business?

For the pay: would you pay a non-family member this amount for this work? $15-20 an hour for basic tasks is reasonable. $100 an hour for shredding documents is not.

Here’s the test I recommend: if an IRS auditor watched a video of your child doing this task, would they think it’s legitimate work that a child of that age could reasonably perform?

One more thing: if you pay your child exactly the standard deduction—right to the dollar—you’d better have a good justification. If the math lands exactly on that number but the hours and tasks don’t support it, that’s a red flag.

What tasks are reasonable?

Light office work: filing, shredding, organizing supplies, preparing mailings, data entry for older kids. Physical tasks: cleaning your workspace, cleaning your rideshare vehicle, helping with inventory. Creative work: helping with an Etsy business (packaging, labeling), taking product photos, social media assistance for teens.

I started hiring my own kids when they were 5 and 9. Tasks included cleaning the office, filing, shredding, collating—basic light office work. I kept documentation including a photo of my son shredding documents. Their Custodial Roth accounts have grown about 50% from investments since we started.

Here’s how to actually do this.

Step 1: Make sure your child does real work. Identify tasks they can legitimately perform. Keep a simple log of dates, tasks, and hours.

Step 2: Determine reasonable pay. What would you pay someone else? Document your reasoning.

Step 3: Set up payroll. The easiest approach is a service like Gusto or Wave. It costs a little money but handles everything—W-2s, 941s, state requirements. If you prefer doing it yourself, you’ll issue a W-2 at year end and file Form 941 quarterly.

Step 4: File a tax return for your child if needed—and even when it’s not required, it can be a simple way to document the earned income trail. The key is that the wages are real and reported properly (W-2/payroll records).

Step 5: Fund the Roth IRA. Open a Custodial Roth if they don’t have one. Contribute up to the lesser of their earned income or the annual limit ($7,500 in 2026). For amounts beyond the Roth limit, consider a 529.

What to do with the money.

First priority: Custodial Roth IRA. Tax-free growth, tax-free withdrawals, and the earlier you start, the more powerful the compounding.

Second priority: 529 plan. Good for additional amounts beyond the Roth limit.

Third priority: Let them keep some. They see the connection between work and money.

The mistakes to avoid.

Paying with no paperwork. Paying off the books. Paying exactly the standard deduction without justification. Overpaying for the work. Assigning work they can’t actually do. Not documenting. Missing the Roth IRA opportunity—the deduction is great, but the Roth is where the real wealth-building happens.

So where does this leave you?

If you have a side business and kids, think about whether there’s legitimate work they could do. Even a few thousand dollars a year opens the door to the Custodial Roth IRA.

If you’re already paying your kids informally, formalize it. Get a payroll service. Do the W-2. Open the Roth.

The mechanics are manageable—especially with a basic payroll service—and the payoff can be substantial.

This is general education, not tax advice—if your situation is complex (S-Corp, multiple owners, high income), run it by your CPA.

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