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Betterment by Sherrillstgermain - 2d ago

$430,480. That’s what it costs to be a woman, according to the National Women’s Law Center. It’s the wage gap that results from a lifetime of being paid less than men.

It’s no secret that women fight more of an uphill battle than male peers in their efforts to reach personal financial goals. That nearly half-million dollar wage disparity may be the best known financial hurdle that a number of women face today, but it’s not the only one.

Let’s take a look at what other financial hurdles women face, issues they should reconsider, the opportunities they should take advantage of, and what it will take to bridge the gap.

The Hurdles You Should Pay Attention To Earning Their Money

The wage gap women face starts with lower pay for comparable work. More time out of the workforce (15% of working years vs. 2% for men), primarily for family caregiving, compounds the problem. On top of that, when women are fired from their role, they tend to take an average 24% pay cut at their next job, as compared to the 1.3% increase men see.

Spending Their Money: The “Pink Tax”

Not only do women often earn less for comparable work, they also tend to pay more for comparable goods and services. This so-called “pink tax” is levied on everything from hair care to healthcare. In some cases, it extends to financial products such as mortgages, business loans, and annuities.

The Issues You Should Reconsider How confident are you?

A mere 9% of women think they are better investors than men, per a recent study. Traditional gender roles had them showing up late to the party on this, so a case of newbie nerves is to be expected. The problem is that this confidence gap results in reduced risk tolerance.

Women wait longer to invest and, when they finally do, they tend to stash larger portions of their money in safer, but low earning, accounts. Compounded over time, this more conservative approach can exact a big toll on women’s net worth.

Are you considering your life expectancy as much as you should?

According to 2017 Center for Disease Control data, the life expectancy for American women is 81.6 years. This means, on average, women get 5 more years than men to enjoy the good life, whether that’s globe hopping, playing golf, or spending time with the grandkids.

But it’s also 5 extra years of living expenses to fund. And some of those additional years can be extra costly as healthcare expenses soar in later life.

Thanks to the hurdles faced en route to retirement, women are forced to cover these higher costs with a comparatively smaller pool of resources. That can include:

  • Lower Social Security benefits
  • Reduced pension payouts
  • Smaller nest eggs
The Opportunities You Should Take Advantage Of Behavioral Finance Is On Your Side

On the plus side, some gender differences work in women’s favor as do demographic trends. For starters, studies show that women are better savers than men.  In particular, they have higher 401(k) participation rates and those that do participate, contribute a higher percentage of pay.

Furthermore, behavioral finance research has found that women are also better long-term investors. That’s primarily because, once invested, they are more inclined to “stay the course” regardless of market conditions.

Not only does this reduce unprofitable panic selling, it minimizes fees and capital gains taxes. Additional data suggests that this may ultimately result in generally higher rates of return.

Shifting Gender Roles

Shifting gender roles are affording women more opportunities to leverage those inherent advantages. With 2/3 now acting as primary or co-breadwinner, it’s not surprising that women, and the men in their lives, want to make the most of that hard-earned money.

Accordingly, many are eager to learn about financial planning—92 percent according to one study.

This hunger for information has spawned a treasure trove of resources. That includes a burgeoning cadre of role models of all stripes, from finally-debt-free millennial bloggers to women CFOs. Watching these prominent women in finance talk openly and confidently about money is inspiring others to overcome cultural barriers and do the same.

The cost of ignoring women is finally dawning on the historically male-centric financial services industry. The push to better serve women remains in its infancy, but an estimated $800 billion missed market opportunity is driving it forward.

Bridging the Gap

When it comes to gender and money, things are moving toward parity with increasing momentum, and there’s a few steps women can take to accelerate the process even more. Here’s how.

Just start.

Fear of making mistakes often prompts women to delay important financial decisions until fully versed in the matter at hand. While it’s smart to look before you leap, losing out on the magic of compound interest can be just as costly as imperfect execution.

Get smart.

Financial education is one of the few investments that comes with little to no risk. These days, it’s easily accessible via a startling assortment of seminars, blogs, podcasts, videos, forums, and more—many free or low cost.

Take part.

Splitting up your money management “To Do” list with a spouse or financial planner makes good sense,  but women should stay intimately involved to ensure their interests are represented.

The journey to women’s financial parity is far from over, but the progress has been impressive. And with the collective impact of more and more women taking control of their money, maybe someday “the gender gap” can be relegated to the dustbin of history.

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Betterment by Eric Bronnenkant - 3d ago

Whether you’re opening a new IRA or rolling over an old 401(k) into an IRA, here are five hacks to make the most of the hard earned money you are putting towards your future.

Remember, you can contribute up to $6,000 into your IRA each year. If you’re over 50, you can contribute up to $7,000.

1. Max out—and do it as early as possible.

There is truly no time like the present.

Our analysis shows that funding an IRA at the start of the year—rather than at the end—can increase returns simply because your money is in the market for a longer period of time.

If you max out in January of every year instead of December, you could end up with an estimated $8,800 more to spend in retirement.

2. Costs matter—especially in the long run.

Minimizing your costs by choosing low-cost investments is one of the smartest ways to increase your retirement savings. For example, the difference between paying an all-in cost of 0.31% and paying 1% for a mutual fund is enough to buy a small house. Those fees can add up to $162,000 over 30 years.

“In investing, you get what you don’t pay for. Costs matter.”

John Bogle

We’ll help you avoid paying for that house you’ll never get to live in. Sync your external accounts to your Betterment account and we’ll show you which of your other investment accounts may be charging fees that are too high.

3. Use the ACATS process to transfer funds—quickly.

ACATS is the fastest way to move your investments from an old IRA account into a new one at Betterment. Once you initiate a transfer into a Betterment IRA, the assets generally arrive within five business days.

A small percentage of accounts are not ACAT eligible through our website. In these cases, you may want to consider an indirect rollover, where you withdraw and then deposit the funds within 60 days. The IRS permits only one indirect rollover every 12 months.

4. Consolidate accounts–less really is more.

True or false: Two retirement accounts worth $50,000 at two different providers are likely to cost more in fees than one single account worth $100,000 at one provider.

It’s true.

There is another cost associated with having multiple accounts in multiple places: time. It takes time to check on, manage, and rebalance accounts in multiple places.

Consolidate your accounts with us and save time and money. Our retirement recommendations could help you earn an estimated 1.61% extra per year compared to the approach taken by the typical investor. That may not sound like a lot, but over 30 years, that could lead to an estimated 43% more to spend in retirement.

5. Say goodbye to target-date funds—it was never meant to be.

Target-date funds are a popular but simplified option for retirement investing. They are easy to set up and they keep you on an investing path with an asset allocation that adjusts over time.

The problem with these funds is they set your allocation based solely on your target retirement date, rather than how much money you have already saved.

We offer a solution that’s both easy and holistic. We offer a similar all-in-one concept, but with personalized advice based on your existing savings, how much time you have left, and your future contributions.

Bonus Hack

If you have a Roth and a Traditional IRA, or, if you save for retirement in both an IRA and a taxable account, you can take advantage of asset location to earn even more. We’ll manage your assets as a single portfolio across all included legal accounts, using every dividend and deposit to optimize the location of the assets. We’ll also rebalance in order to improve your asset location when we see opportunities to do so—without causing taxes.

Setting up asset location could increase your portfolio value by an estimated 15% over 30 years.

Ready to make the most of your money?

Get started by opening an IRA within minutes on our website. There is no paperwork required. If you’re unsure whether to use a Traditional or a Roth IRA, we’ll help you decide.

Please note that Betterment is not a tax advisor—please consult a tax professional for further guidance.

When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. The information on this page is being provided for general informational purposes and is not intended to be an individualized recommendation that you take any particular action.

Factors that you should consider in evaluating a potential rollover include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account and consult tax and other advisors with any questions about your personal situation.

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It’s easy to get overwhelmed by the number of new and foreign terms we encounter while investing. In this article, we will provide a basic overview of different types of investments and how you should think about using them.

Before we get started, the first jarongy term that you may encounter is “asset class.” Though it sounds fancy, it simply describes a broad group of fundamentally similar investments.

You can think of different asset classes as different species of investments — investments in each asset class share common traits. Stocks, bonds and cash are three of the most common asset classes in the investing world.

There are others, like commodities (raw materials or agricultural products) and real estate, but they fall outside the scope of this article and are less common for investors to consider.

Investing In Stocks

First, let’s understand exactly what we are getting when we buy a stock.

When you buy a stock you are getting partial ownership of the company, and with that comes all the benefits (and risks) of being an owner.

You get a vote in how the company is run — which often takes the form of proxy votes. You participate in the value creation when the company does well — generally in the form of an increase in the value of the stock or dividends. You also experience the downside when the company performs poorly — generally in the form of lower share prices or reduced dividends.

As a stockholder you have a claim on a company’s earnings after debts are paid. This is a fundamental feature of stocks and differentiates them from bonds and cash. The most meaningful difference here is that potential future value of a stock is not limited.

So, if a company does very well, you participate in all the positive performance after debts are covered. The flip side of this is that if the company does poorly, stockholders are the first to absorb losses, before lenders are impacted.

Overall, this means stocks are more risky than bonds but also have the potential to generate higher returns. Historically, stocks have outperformed bonds. The chart below shows the historical growth of a broad stock investment compared to bonds and cash, after adjusting for inflation.

As you can see, stocks are more volatile, but also generated the most growth.

Data source: Stocks For The Long Run. Page 10. 1998.

Buying Bonds

Bonds are essentially IOU’s from companies or governments. A bondholder essentially owns a loan that must be repaid in the future. Bondholders earn income from interest payments and return of the initial loaned amount, called principal, at the bond’s maturity.

Unlike stocks, the return on a bond is capped. The payments to the bondholder are predetermined at the time the bond is issued. This means that even if a company does extremely well, the bondholder will only get what was agreed upon in the terms of the bond.

This is why bonds are often called “fixed income” investments — because the amount of income generated by a bond is fixed at the time of purchase.

If a company does poorly, however, bondholders have priority when it comes to getting paid. This makes bonds less risky than stocks. In general, bonds are a safer asset class than stocks.

Holding Cash And Equivalents

Cash is the asset class you might be most familiar with. There are a wide range of places you can park your cash and earn interest in the process. Cash and cash equivalent assets are very low risk, highly liquid (easily convertible to cash), short term investments. These include money markets, treasury bills, certificates of deposit (CDs), and short-term corporate debt.

Because cash and cash equivalents tend to be very safe, the biggest risk is inflation eroding the buying power of your dollars. In fact, historically holding cash can lose an investor money after accounting for inflation. Below is a chart of interest rates on a savings account after accounting for inflation.

As you can see, after accounting for inflation, the “safe” investment in cash can actually lose value.

Purchasing Funds

Now that we understand the different kinds of assets in which we can invest, it’s worth considering one additional concept — investment funds.

Mutual Funds vs. ETFs

Investment funds will select a group of stocks or bonds and manage those assets for the benefit of fund shareholders. The two most common type of funds are mutual funds and exchange traded funds (ETFs).

The advantage of an investment fund is that you immediately benefit from diversification since a fund holds many individual assets. Diversification is the process of investing in different assets to reduce exposure to risk.

In fact, investment funds allow you to invest in broad swaths of asset classes in one fell swoop. For example, Vanguard’s Total Stock Market ETF (VTI) invests in the entire U.S. stock market. The fund owns over 3,000 individual US stocks.

There are some subtle, but meaningful distinctions between mutual funds and ETFs. Perhaps the most obvious is that ETFs, as the name suggests, are traded directly on the stock exchange. This means that you can buy or sell shares of an ETF throughout the trading day. Mutual funds transactions, on the other hand, occur once at the end of each day at the funds closing Net Asset Value (NAV).

ETFs are also more tax efficient than mutual funds.  Without getting into too much detail, ETFs are able to swap out investments with large taxables gains with new shares of the same investment. This means that ETFs are substantially less likely to generate capital gains inside the fund.

Ultimately, there are many advantages to using ETFs that could better serve your financial plan.

How To Invest

We know that stocks are generally more risky than bonds and that we can use investment funds to get broad exposure to these asset classes.

The next logical question is: What exactly should I buy and how much of each?

To answer this, we want to focus on two things: risk level and diversification.

First, we want to make sure that we are building a portfolio of stocks and bonds that takes an appropriate amount of risk for your investment goal and time horizon. In general, shorter term goals should take less risk, which means holding more bonds and fewer stocks.

As your investment horizon (or the length of time you are aiming to invest your portfolio) lengthens, you should consider investing a larger part of your portfolio in stocks. More time allows for more opportunities to participate in the upside potential that stocks provide. However, you should think broadly about all the factors influencing your financial life and set customizable goals to further your financial plan.

You also want to make sure that you are selecting stocks and bonds in our portfolio that maximize the level of diversification in your portfolio. Simply put, you want to add investments that you believe will grow in value but also don’t go up or down in value in exactly the same way at exactly the same time.

In the illustrative example below, you can see that by combining U.S. and international stocks, the overall portfolio is less volatile.

A portfolio with good diversification overall will typically grow while the value of the overall portfolio remains more stable compared to individual investments.

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When I think about financial planning, I often draw parallels with athletic training. Star athletes win over the long-term by remaining flexible and putting in a great deal of effort. Saving and financial planning works much the same way.

We often focus a lot on athletes’ effort—their time in the weight room and practice. That’s like saving. It’s hard work to hold off your spending and put your money aside for later.

But what we often forget is the focus on flexibility that goes into becoming a great athlete. You might be surprised to learn that the strongest athletes spend more time with their backs on a yoga mat than on a bench press. That emphasis on flexibility and our common oversight of it: that’s how I think about financial planning.

Just look at Tom Brady, quarterback for the New England Patriots.

He’s adopted a deeply personalized approach to how he prepares his body. And it’s not a focus on lifting heavy weights. Instead, Brady focuses on pliability and a proper diet. What has that done for him? 6 Super Bowl titles, 3 MVP awards, 14 Pro Bowls, and he’s still dominating the NFL at age 41. He’s defying odds, and he’s mastered longevity in a game where the average career length is just a few seasons.

That same focus on flexibility is critical to how you think about your retirement finances—especially because, like in a season of football, there are many unforeseeable possibilities when investing for retirement.

In this article, we’ll discuss what analysts called the “sequence-of-returns risk” and why it means you need to retain flexibility when you’re nearing retirement.

Why Retiring Changes Your Reaction to Market Volatility

When you retire, your relationship with market volatility sees a sudden change. Instead of depositing against market changes as you do when you’re saving, retired individuals generally just have to ride out volatility, making withdrawals along the way. That can make volatility feel different than it did when you were simply saving for retirement.

The timing of your first withdrawals and market volatility can also lead to very different retirement outcomes. This possibility is called the “Sequence of Returns Risk” in financial planning. While you can’t control this risk specifically, you can control your behavior and flexibility for reacting to the sequence of your returns.

Let’s review the historical performance of a Betterment portfolio at 70% stocks, 30% bonds over a seven-year period from 1/1/2012-12/31/2018 to demonstrate how the sequence of returns matters, especially as you hit your retirement age.

An Overview of the Risk in Your Sequence of Returns

This Betterment portfolio’s historical performance numbers are based on a backtest of the ETFs or indices tracked by each asset class in a Betterment IRA portfolio as of December 2018. Though we have made an effort to closely match performance results shown to that of the Betterment Portfolio Strategy at 70% over time, these results are entirely the product of a model. Actual client experience could have varied materially.  Performance figures assume dividends are reinvested and daily portfolio rebalancing at market closing prices. The returns are net of a 0.25% annual management fee and fund level expenses.

Backtested performance does not represent actual performance and should not be interpreted as an indication of such performance. Actual performance for client accounts may be materially lower. This figure does not reflect the potential for loss or gain, nor is it any indication of future performance. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investment advisor’s decision-making process if the adviser were actually managing client money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model portfolios designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable.  See additional disclosure here.

Annualized, this portfolio returned 6.9% per year for the time period. But, that’s on average. In actuality, the portfolio did not return 6.9% each year. In fact, the returns in each calendar year were as follows:

2012 +13.3%
2013 +16.2%
2014 +4.2%
2015 -1.2%
2016 +8.4%
2017 +17%
2018 -7.4%

If you invested in such a portfolio, making just one initial deposit and no subsequent transactions, your ending balance would change with the returns, but remember, most investors deposit over time. We generally do not recommend holding onto cash with the idea of depositing at the “right time”, as we believe that the amount of time spent in the market is more important than timing the market. But once you’re retiring and start making withdrawals, this is where the order of returns can make a huge difference in your final outcome. If your first year of retirement is like Year 7, and you’re making withdrawals, that impact on your future portfolio value will look far different than if your first year looks like Year 2.

Depending on the timing of withdrawals, two customers who start off with the same balance and invested in the same portfolio at the same risk level could have drastically different end results. Withdrawing while markets are down means that you may be selling a higher quantity of shares to generate your withdrawal amount. When markets eventually recover, your portfolio has taken a hit because you have less shares in your account that are taking advantage of the market rebound.

When we offer advice to customers, we want them to focus on what they can control, and the sequence of returns risk isn’t controllable. But you can control your behavior, fees, target allocation, and taxes. The key is flexibility in how much you’ll spend in retirement and solid planning to make that possible. Below are some of the ways that Betterment helps you maintain flexibility and mitigate risk.

How Betterment Helps Manage the Sequence of Returns

While there’s no getting around the inherent risk in making the shift from planning for retirement to withdrawing retirement income, Betterment has several components that aim to manage your risk.

1. Automatically adjusting your allocation

The challenge many people face is having too risky a stock-to-bond allocation near retirement. This can augment the impact of the sequence of returns risk. Over time, as you near a goal like retirement, your risk level should adjust accordingly. Betterment automatically manages your allocation, adjusting by rebalancing according to our automated allocation advice.

By reducing volatile assets, your portfolio is better protected against large market swings. With a narrower range of outcomes, sequence risk can be mitigated. Our retirement income advice recommends a gradual reduction of risk throughout retirement, starting at 56% stocks and gliding down to 30% stocks towards the end of retirement. You can turn automatic allocation adjustment for your retirement income goal at Betterment.

2. Rebalancing using deposits, withdrawals, and dividends.

Any cash flows, like withdrawals and dividends, are automatically used to rebalance your Betterment portfolio to keep your portfolio within a target allocation as it drifts with market returns. This works to your advantage when rebalancing in down markets – if stock markets are down and your bonds are overweight compared to stocks given your target allocation, we will first sell bonds when you when you make a withdrawal. This leaves more of your portfolio invested in the stock funds that form part of your target allocation.

3. Retirement income withdrawal advice

Betterment aims to account for the sequence of returns risk with our safe-to-withdraw recommendation for your retirement income goal. We provide you with a personalized recommended withdrawal amount based on your portfolio’s balance and risk level. This recommended withdrawal amount is estimated, assuming that you’ll see only the lowest 4% of projected expected returns—a very conservative projection—so, in other words, our advice provides a 96% likelihood that you will not run out of money during your lifetime.

The consequence, of course, is that if you follow our withdrawal advice, a low returns period could mean our recommended withdrawal is less.

This same advice is incorporated while you are accumulating wealth for retirement. We account for this withdrawal approach when estimating how much you’ll need to save in order to reach your desired retirement spending goals. See our Retirement Methodology for more detail.

While our retirement withdrawal advice is designed to be conservative, the advice you receive from Betterment is dynamic. Your recommended monthly withdrawal amount could change based on market performance. When markets are up, our advice will show that you might be able to withdraw a bit more (but beware of lifestyle creep). When markets are down, we might suggest you not withdraw quite as much. Over time, flexibility in your spending can extend your capital if necessary, helping to prevent your portfolio from being depleted prior to the end of your lifetime.

Additional Ways You Can Stay Flexible to Mitigate Risk Aim to set an income floor.

If you can’t be flexible in your spending, or just hold a strong preference to have guaranteed income to cover your expenses, you may consider options to create an income floor. Careful Social Security planning can help you maximize your benefit based on your needs. You may receive a pension, depending on your work, and if given the option, may choose to annuitize rather than take a lump sum. Other options could range from purchasing an annuity product to finding part-time work. If you are considering any of these options, our team of financial experts is able to address your questions.

Express your preference for income-focused portfolio strategy.

Another option could be to explore removing the risk of holding stocks in your portfolio. While this isn’t recommended, we understand many people have a strong bias to only generating income in retirement, which is why we offer target income portfolios by BlackRock in Betterment accounts.

Have a safety net, even in retirement.

Create a separate, low-risk portion of your overall portfolio that covers six months of expenses for the possibility of a poor sequence of returns. This can be in a low-risk bond portfolio, like Betterment’s Smart Saver, or even a high-yield savings account.

Aim for retirement savasana—final relaxation.

Sequence of returns risk is a part of retirement you should be aware of—not afraid of. Betterment’s portfolio advice is designed to help you plan around it; just remember to practice your retirement yoga regularly.

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We all have an estate, even if we’ve never thought about it. Each of our estates includes our financial assets, bank accounts, life insurance, pensions, real estate, cars, personal belongings, and even debts. Estate planning means putting a plan in place for how the physical and financial assets we described above will be transferred after either your death or a serious illness.

It is crucial for everyone to prepare an estate plan, no matter what the value of your estate is. It will help others follow your wishes when it comes to protecting your family, loved ones, and assets—in case you’re unable to do so.

Don’t know where to start? All you need for a basic estate plan are three essential documents.

1. Financial Power of Attorney

A durable financial power of attorney document (POA) allows you to designate someone to handle your finances if you are unable to do so. The person you choose is considered to be your designated agent. If you don’t designate an agent, it may be difficult for someone—even your spouse—to do things on your behalf, such as pay bills, file taxes, or cash checks.

Your agent’s signature will be required for every decision, so before choosing an agent, consider their schedule and where they live.

Betterment can take direction from your agent if you have an approved POA on file with us. Note that we are not able to create a POA document for you—this is something your legal counsel can help you with. Your POA must clearly reflect that you allow your agent a sufficiently broad scope of capabilities, such that they are able to fully interact with the account. The POA must undergo an approval process with our estates team before it’s considered to be valid. For more information, please email estates@betterment.com.

2. Advanced Health Care Directive

An advanced health care directive allows you to designate someone to make medical decisions on your behalf. Again, this person is known as your agent and they can make decisions such as choosing a doctor, accessing medical records, and putting you on life support.

Your agent’s signature will be required for every decision, so before choosing an agent, consider their schedule and where they live. Make sure your doctors have a copy of your advanced health care directive on file. Some entities may even require additional documentation or have specific procedures when dealing with agents. Make sure to check ahead of time to avoid putting your agents in a difficult position.

3. Last Will and Testament

Your will is the document that determines who will inherit any of your assets if there is no joint ownership, or beneficiaries are not file at an institution. If you named beneficiaries for most of your assets, this document will mostly be reserved for your personal belongings.

However, a will can help with other important decisions, such as naming a guardian to look after your children. You’ll also choose an executor in your will, which is the person who is charged with ensuring your wishes are carried out.

Protect What’s Important

An estate plan is an important step to help ensure that you and your assets are protected. We highly recommend speaking with an estate planning professional or an attorney to help you implement your estate plan.

Once your estate plan is set up, you’ll want to review it every two years at least, or whenever there is a major life event such as marriage, divorce, or death—especially among your beneficiaries. Additionally, if there are any significant changes to estate planning laws, you’ll want to review your plan again.

Betterment does not currently offer estate planning services. We do, however, encourage you to add beneficiaries to your Betterment account, which you can do in your account without any paperwork.

Our Experts Can Help You Plan

Our team of CERTIFIED FINANCIAL PLANNER professionals are ready to speak with you about planning for the next stage in your life. We offer five unique advice packages that help you review your current financial situation. Our Financial Checkup or Marriage Planning packages provide a perfect opportunity to discuss basic estate planning recommendations.

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As a CERTIFIED FINANCIAL PLANNER, I’ve asked hundreds of clients about the hurdles they face when getting their finances on track.

Two common answers I hear are, “I just don’t know where to start,” and “What if I mess up?”

Underlying both of those responses is a lack of confidence in making financial decisions. I have found that a great way to improve confidence is through education. Unfortunately, most of us don’t have the time to read decades’ worth of empirical data and financial theory.

Luckily, you don’t have to, because we do it for you. At Betterment, we read Nobel Prize-winning research, and we use it to build the investment strategies we recommend.

There are also plenty of incredible books that distill complicated jargon into easy-to-understand principles. Below is a curated list of five books on all things related to personal finance, saving, and investing.

1. The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley & William D. Danko

Source: Amazon

This is my favorite finance book of all time. The authors conducted one of the most rigorous studies of millionaires to ever take place, and took a data-driven approach in order to find what America’s millionaires did differently to achieve such financial success. Spoiler alert—most millionaires are not famous athletes or movie stars.

This book also destroys the myth that being wealthy is synonymous with conspicuous consumption. Instead, it highlights that most millionaires succeeded by spending far less than they earned, avoiding lavish homes and cars, and instilling good financial habits in their children so they would be financially independent from their parents.

This book is worth another read every time you need a reminder of what good money habits look like. And although I haven’t read it yet, the sequel just came out with updated data and findings.

2. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle

Source: Amazon

Written by the late John Bogle, founder of the behemoth Vanguard, this book is Investing 101 for investors of any experience level. It shatters the myth that the best way to make money in the stock market is by taking big bets on individual companies, and by getting in and out of the market at just the right time.

Instead, it teaches time-tested investing strategies like controlling risk, utilizing diversification, reducing your fees, using index funds, and avoiding market timing. Betterment believes whole-heartedly in these same strategies, and it’s exactly why so many of the investments we use and recommend are Vanguard index funds.

3. Set for Life: Dominate Life, Money, and the American Dream by Scott Trench

Source: Amazon

Author Scott Trench, CEO of BiggerPockets and cohost of the BiggerPockets Money Podcast, wrote this book in a format that is extremely intuitive. He outlines the three stages of wealth creation and how you can achieve each of them.

My biggest takeaway after reading this book is that in order to jump-start your ability to build wealth, you must control “the big three”, which means the costs for housing, transportation, and food. For most households, these items make up the vast majority of your living expenses. Despite that, many people choose to ignore these costs or label them as non-discretionary, thus mentally accepting the fact that they have no control over them.

Scott encourage you to consider techniques such as house hacking. He also explains how powerful real estate and index funds can be as investments.

4. The Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey

Source: Amazon

Dave Ramsey is an author, podcaster and public speaker who has helped countless individuals get out of debt and take control of their own lives.

Dave is most well-known for his 7 Baby Steps principle. These are the 7 steps that he recommends in order to achieve true financial freedom. They include actions like building an emergency fund, saving for retirement, and giving back.

You may not agree with all of his advice, but this book will help provide you with a foundation and a plan. Then, feel free to tweak that plan slightly to meet your individual needs.

5. Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler & Cass R. Sunstein

Source: Amazon

This book’s co-author, Richard Thaler, won the 2017 Nobel Prize in Economics and is a behavioral finance legend. I found it particularly interesting to learn about all the behavioral biases humans naturally have, and how that can affect our financial decisions. Examples of biases include loss aversion and recency bias.

Thaler’s theory of libertarian paternalism outlines how we can help reinforce better behavior and better outcomes without limiting choices and individual freedoms. Some great examples the book touches on involve 401(k) investment choices, school lunch menus, and even organ donation. After reading this book, your view on the world will be forever changed—and so will your view of money.

Let’s get it together. Together.

The education provided in these five books can help arm you with the necessary knowledge and confidence to take control of your finances. But remember, education alone isn’t enough. You must also take action.

Betterment makes it easy to get started with saving and investing for your future. And, we follow many of the principles outlined in this booklist, such as avoiding high-interest debt, using low-cost index funds, setting concrete goals, and using behavioral nudges to encourage better investing behavior.

Let us help you take control of your finances by signing up for an account in just a few minutes. Or, consider scheduling a Getting Started Call with one of our CERTIFIED FINANCIAL PLANNERS who can help you set up your plan and get on your way to a better financial future.

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Betterment by The Editorial Staff - 2w ago

Buying life insurance is an involved process, and chances are, once you’ve signed the dotted line, you know what you’re getting into. But if you have your policy in your hands and still have questions, you might need help deciphering what you’ve just purchased. This article helps to give you a starting place; it is not a replacement for professional financial advice on life insurance choices.

Your life insurance policy is a binding document, and, as such, it has a lot of legalese, but it’s nothing you can’t handle. Each carrier’s policies will look a little different, so if your policy isn’t in this exact order, that’s okay.

In general, there are three key parts of your life insurance policy:

Read on to learn more about each of these components if you’re considering looking at life insurance policies.

Life Insurance Declarations Page

This section goes by a few different names — it’s often also titled “policy specifications” or “schedule of benefits,”but the content is the same. This is the executive summary, with all the important information about you and your policy, including:

  • Name(s) of the insured and the policy owner: This is usually the same person — you — but you could be buying a policy for someone else, in which case you’re the policy owner and they’re the insured
  • Policy type: Either term or permanent
  • Policy number: This makes you official
  • Policy issue date: The date your policy is active, or in force
  • Rate class or premium class: The class the underwriters have put you in based on your medical exam, history, and age
  • Term length: For term insurance, the term of your policy
  • Riders: Any riders you have will be listed here, and then detailed later in the policy
Policy Terms and Definitions

Also known as “general provisions,” the policy terms and definitions section of your life insurance contract is devoted to decoding some of the more complicated language that you’ll encounter in your policy.

Here are some of the terms likely to be included:

  • Death benefit: The amount of money that will be paid out to your beneficiary or beneficiaries upon your death.
  • Beneficiary: A recipient of your policy’s death benefit. Your beneficiary can be one person, multiple people, or even an organization. You choose who the death benefit goes to, and what percentage of the benefit each beneficiary receives.
  • Coverage date or Policy date: The date that your policy is considered to be in force, or active. If you die on the effective date, then your policy will pay the death benefit.
  • Insurance age: Your age on your birthday closest to the policy date.
  • Premium: Amount you pay for your policy.
  • Non-participating: Means that the policy doesn’t receive any dividends issued by the insurer.

You can learn more about life insurance definitions at Policygenius.

Coverage Details

Also called the insuring agreement, this section puts to use all the terms and definitions from the previous section, summarizing the promises the insurance company is making to you and that you’re making to it (namely, how much you’re going to pay them, and how much they’ll pay your beneficiaries in the event of your death).

Premium and payment information

This section lists your premium amounts. For term life policies with level premiums that do not change as you age, this section will include monthly and annual premium amounts. For permanent policies, which act as investment vehicles and may have variable premiums, this section will showcase a table with the premiums over time.

This section also includes info on the grace period — the time you have after your premium due date during which your policy will remain active — and reinstatement terms, which will detail when and how you can reinstate your policy if you let it lapse. This section also usually has exclusions, for example, a suicide exclusion, which notes that the policy won’t pay a death benefit if you commit suicide within two years of the policy issue date.

Ownership and conversion rights

This section details your rights to transfer your policy or convert it to a permanent life policy. The language in this section will let you know what your options are.


This section will list out the person, people, or organizations that you’ve chosen to receive your death benefit when you die. It will also outline payment details for your beneficiaries, including whether they can choose a lump sum payment or installments.


This section details the riders listed on the policy specifications page. Each rider will be fully detailed here, including definitions, exceptions, and guidelines. Here are some common life insurance riders that may be built into your policy or that you may have opted to include:

  • Disability income rider: Replaces your income if you become disabled and cannot work
  • Disability waiver of premium: Waives premiums if you become disabled
  • Term conversion rider: Allows you to convert a term life insurance policy to a permanent policy at the end of the term
  • Acceleration of death benefit rider: Pays out all or a portion of the death benefit if you’re diagnosed with a terminal illness
  • Long-term care rider: Like acceleration of death benefit rider, will pay out all or part of the death benefit to pay for the costs of long-term care services if you’re critically ill
  • Critical illness rider: Pays a lump-sum benefit (subtracted from your death benefit) if you are diagnosed with a covered critical illness.

Policygenius has a lot more helpful information on life insurance riders. Read more from them if you think you have specific needs like those above.

This article originally appeared on Policygenius, a licensed insurance broker. Betterment is not an insurance broker and this article is not insurance advice nor an offer for particular insurance products or services.

The content was not written by an insurance agent, and it is intended for informational purposes only, and it should not be considered legal or financial advice.

Betterment makes no warranties or representations with respect to specific insurance offerings.

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If you’re taking time off work, it’s probably not for tax reasons. But did you know that doing so could open up a major tax opportunity. It turns out, if you work less than half the year—without becoming dependent on another person—you may be able to take advantage of a special tax credit that could save you hundreds of dollars.

And, get this: This year may be one of the only times in your life you’re eligible.

Today, we’ll show you how you can potentially take advantage of the retirement saver’s credit. The only major move you have to make is to contribute to an IRA (which you might want to make a Roth IRA) or your employer-sponsored retirement plan, like a 401(k) or 403(b).

Why is this tax opportunity a big deal?

  1. It’s a win-win. You could potentially pay less in taxes simply by saving for retirement. But you’d have to save this calendar year. If you can put away money for your future self right now, while you aren’t working, you’ll actually get more back from Uncle Sam for your current self.
  2. Chances are, you may never be eligible to receive this tax credit again if you normally make more than $32,000 per year. It works this year because even if you make a high amount per month, you’re only working a few months in total for the year.
  3. It’s one of the rare triple tax advantages in life. This tax credit helps reduce how much you pay in taxes for this year, while letting you save into a Roth IRA or Roth 401(k) where gains are tax deferred, and you don’t have to pay taxes on withdrawals in retirement. In this way, it’s one of the few opportunities where the government offers three tax advantages at once.
How does this tax opportunity for not working work?

Getting the retirement saver’s credit during a year of taking time off isn’t going to be possible for everybody, but if you plan the next few months effectively, it might just work for you. Let’s walk through exactly what you’d need to do to take advantage.

1. You have to file taxes as an independent person.

If you’re taking time off in May, then depending on what choices you make next, you’ll either be independent for the year (supporting yourself in the government’s eyes) or you might be dependent on somebody else (like a family member). If you plan to work and live off existing savings while you take time off, then more than 50% of your lifestyle support will come from yourself, and you can file your taxes independently.

This situation opens up tax credits and deductions for you that otherwise would not be there because somebody would be claiming you as a dependent. One of these is the Retirement Savings Contribution Credit.

2. You have to be a full-time student for less than 5 months during the year.

In general, if you’re taking off to start school, you’re usually not eligible for this credit, but there are a few exceptions. For instance, if your school is on a quarter/trimester schedule and you’re only taking one term, then you could be eligible. Also, if you’re only enrolled part-time and still supporting yourself, then you could be eligible too.

3. Because you’re only working 50-60% of the year, your annual income will likely be significantly lower than in future years.

Because you’re only probably working six or seven months of the year, your federal tax bracket will be far lower than you might expect for future years. If you make a salary, and the annual amount is $50,000, then you could earn as little as $25,000 in gross income. You can qualify for the saver’s credit if your income for the tax year is less than $32,000 if you’re single and less than $64,000 if you’re married filing jointly.

The level of credit you get is tied to how much you save and depends on the size of your income. If you live and work in an area with a low cost of living, you could have a respectable entry salary of $36,000, and you could be eligible for the maximum credit. We have the entire Saver’s Credit income table below for 2019.

4. Start saving into a Roth IRA or employer plan when you’re ready.

If the three steps above apply, you’re ready to go after the saver’s credit. Your next step should be to start putting away money for retirement. We suggest using a Roth account, given that if you qualify for the credit, you’re almost certainly making less money than you expect to take during retirement. You can read more about why a Roth accounts might make sense for you, but the short of it is this: any employer plan you’re eligible for may not offer a Roth 401(k)/403(b), but you can always open a Roth IRA as an individual.

We make it easy to start a Roth IRA.
5. You need to have a tax liability.

The retirement savers credit is non-refundable which means that it cannot reduce your tax liability below zero. Some other credits like the Earned Income Tax Credit are refundable which means you may receive net payout (otherwise known as a negative tax) from the IRS. One of the challenges is keeping your income low enough to qualify for the credit but high enough to have a tax liability that will allow the greatest amount of the credit to be used.

6. Decide how much you’ll save each month.

The final step is to decide how much you’ll save and to set up automatic savings deposits.

To qualify for the credit at all, your gross salary isn’t likely to be more than $54,000 for the year (and more likely, it will be less)—or just over $4,500 per month before taxes. Since IRA contributions are limited to $6000, you’d need to contribute $2,000 to capture the maximum retirement saver’s credit, which could easily be a half of a month’s salary. In other words, maxing out might be aggressive as you’re getting your first post-collegiate paychecks. But even if you don’t max out, every amount saved supports your long-term retirement and your 6-month chance to get the retirement saver’s credit.

If you have a lot in savings, then you can definitely consider transferring savings account money or even taxable invested savings into a Roth IRA to take advantage.

Our auto-deposit tool can help fund your IRA.
FAQs about the Retirement Saver’s Credit

So, there you have it: the tax incentive that few people taking a sabbatical or time off work think about using, but many should consider. What other questions might you have?

Should I save into my new employer’s 401(k) or an IRA?

The great thing about this credit is that both your contributions to your employer’s plan and your IRA help you qualify. So, if you can contribute to an employer plan for part or all of the year, which one should you choose?

The answer is that it depends. If your employer plan offers a company match on your contributions, then you should certainly contribute there to capture the match—that’s free money. However, as explained above, it probably makes sense to contribute to a Roth plan—where you pay taxes now and not in retirement—so if your employer doesn’t offer a Roth 401(k) or 403(b), you may want to contribute to get the match, then save further in a Roth IRA. Moreover, some employer plans may have higher fees on the investments provided than you might find by opening a Roth IRA.

Is there any way I can qualify for the saver’s credit if I my salary is greater than $64,000?

There may be situations that help you qualify for the saver’s credit. For instance, if you get married this year—maybe taking a 6-month honeymoon using savings—then you and your spouse could feasibly qualify for a partial credit if your annual income is not more than $64,000 for the year—meaning your combined salary could be far greater.

Also, as you’ll see in the table below, the limits are based on adjusted gross income (AGI), which isn’t just your gross income. Certain life situations can adjust your income, lowering it in a way that may help you qualify or increase your credit. Examples of ways you can reduce your AGI include: pre-tax employer retirement contributions, health insurance premiums,  medical expenses, saving into a health savings account (HSA), moving expenses, capital losses, school tuition or fees you paid, or student loan interest.

What are the qualification rules for the credit?

See the table below full table of adjusted gross income limits and partial credit rates. Be sure to read the IRS’ detail on the Retirement Savings Contribution Credit too.

2019 Saver’s Credit
Credit Rate Married Filing Jointly Head of Household All Other Filers*
50% of your contribution up to $1,000 per spouse AGI not more than $38,500 AGI not more than $28,875 AGI not more than $19,250
20% of your contribution up to $400 per spouse $38,501 – $41,500 $28,876 – $31,125 $19,251 – $20,750
10% of your contribution up to $200 per spouse $41,501 – $64,000 $31,126 – $48,000 $20,751 – $32,000
0% of your contribution more than $64,000 more than $48,000 more than $32,000

Any tax information provided by Betterment is not a substitute for the advice of a qualified tax advisor. You should consult with your tax advisor to discuss tax-related concerns.

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So far, we’ve told you about the consequences of having uninvested cash in your investment portfolio. But cash is king, and so even the most savvy investors still keep money in places like checkings and savings accounts in order to have easy access to those funds, which then can be used for day-to-day expenses.

Here at Betterment, we want you to do better.

What Is “Idle Cash”?

Idle cash is money that is not invested in anything and is therefore not earning investment income. It’s money that is not actually participating in the economy– not being spent on anything and not increasing in value. Therefore, it can’t earn you anything.

Ultimately, keeping idle cash on hand is simply not as beneficial as you may think.

In fact, these funds are frequently considered wasted, as they typically cannot keep up with the effects of inflation. In the U.S, the inflation rate that the Federal Reserve targets is 2% annually— given that your idle cash likely does not increase in value, its purchasing power actually decreases as time passes.

That’s right– uninvested funds gradually lose value, since they are unable to keep up with the rate of inflation in the U.S, which means that as time goes on, the $100 under your mattress can eventually only buy $98 worth of things, then $96, then $94, and so on.

And that’s just inflation– the opportunity cost of keeping cash that you otherwise could invest in the market is even worse.

Why do people keep uninvested cash?

Despite the fact that keeping idle cash can be detrimental to successful, long term saving, there are still plenty of reasons for people to keep cash on hand.

Accessibility and liquidity are huge factors– investors want to be able to pay their bills from their checking accounts with the click of a button, for example– as is safety and security, and the fact that savings accounts are FDIC-insured.

The current reality is that among the checking and saving accounts out there, the return on deposited funds is very low. In fact, the FDIC announced that as of April 2019, the average yield on a savings account is 0.1% APY— in a 2% inflation environment, this is still a purchasing power losing investment. The yield on checking accounts is even worse- most of these products have very low interest rates.

How much uninvested cash can I get away with keeping?

While a small portion of uninvested cash may seem insignificant, it can be disadvantageous for at least two reasons:

  1. Preventing it from keeping up with inflation rates means your cash loses value over time, and
  2. You fail to benefit from money that can compound over time and garner even higher returns.

Typically you shouldn’t reinvest cash if it costs you more to actually invest it than what you would earn, due to, for example, broker commissions. However, at Betterment, the absence of trading commissions, as well as our ability to support fractional shares, help ensure that every last cent of your cash is being put to work for you.

If we assume an average trading cost of $7 per trade (typical of discount brokerages) and you don’t want to reduce your returns by more than 1%, then you should have, at most, $700 of cash.

Even though we recommend having no cash at all because any amount may reduce your returns, for practical reasons we believe portfolios have too much cash when they exceed $700 in cash.

How should I manage the rest of my cash instead?

There are many schools of thought as to how cash can be managed, but the most common objectives are the following:

  1. Yield (without meaningful risk) and liquidity– simultaneously making sure that your cash does not waste away due to the effects of inflation while mitigating potential high risk.
  2. That you are able to access your cash within a reasonable amount of time.

At Betterment, we spend a lot of time thinking about how to help you make the most of all your funds. In fact, our Smart Saver product is designed to help you manage your idle cash, while keeping your potential uses for it in mind.

For example, our Two Way Sweep feature for Smart Saver runs an automated daily cash analysis on your checking account, in order to determine if your account is holding too much, or too little, cash. We’ll then adjust it accordingly, all automated for your convenience.

Idle cash can also result from cash dividends which are not reinvested: at Betterment, your dividends are automatically reinvested, resulting in zero idle cash and zero cash drag from your accounts.

In addition, we provide you with a holistic picture of all your investment accounts from a cash management perspective, from idle funds in external accounts to the cash inside the funds you purchase. We highlight each portfolio’s total idle cash, along with a simple projection of how much potential returns could be lost by holding that cash amount long-term.

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Long before I started working in the tax profession, I had my first experience with state and local taxes as a young child. While at the grocery store with my mother, I wanted a pack of gum. It was advertised as $1.00 and I felt pretty energized about persuading my mother to give me a one dollar bill to pay for it.

Once at the register, I found out that with the 7% state sales tax in New Jersey at the time, the actual price came to $1.07—and I came up short.

Smart investing can help you minimize your tax liability.
First, let’s define some of the various types of state and local taxes that you will face.
  • Income tax: Tax that is paid to the state or local authority based on income such as wages, business profits, interest, dividends, capital gains, etc. Wage income is typically subject to tax withholding at the time it is received (and reconciled through annual filing). In contrast, taxes on investment income are typically paid through quarterly estimated payments or at the time of annual filing.
  • Sales tax: Tax that is paid to a local authority on goods and services, typically at the time of the sale. In some states, there may be an exemption for basic necessities such as medicine, food, or clothes. New York City has a sales tax rate of 8.875%, which  is one of the highest in the nation.
    • Sales tax can be funny sometimes. For example, New York does not tax unprepared food like a whole bagel, but one that is sliced for you is taxed.
  • Real estate tax: A tax on the value of owned real estate and property, based on the appraised value. It’s typically paid either on a quarterly basis to the local authority, or through an escrow account as part of a monthly mortgage payment.
  • Excise tax: A tax typically paid at the time of sale on a variety of goods and services such as alcohol, tobacco, gasoline, and gambling. Sometimes these taxes are referred to in the context of “double taxation” because sales tax may also be imposed in addition to the excise tax.

The good news is that you can minimize or even avoid certain state and local taxes. Investing in specific types of funds, or in specific types of accounts, can help reduce what you owe. You can even reduce or avoid certain taxes by living in a state with tax laws that help you keep more in your wallet.

Treasury bond interest is not taxable at the state level.

Most states and localities with income tax requirements look at your federal tax return as a starting point, and then they make adjustments. This means that your taxable income at the federal level might be higher or lower than your taxable income at the state level. One reason your state income might be lower is due to U.S. government interest, because it’s taxed at the federal level but not at the state level.

Most of our portfolios here at Betterment contain at least some income from U.S. Treasury bonds, unless your allocation is set to 100% stocks.

Municipal bond interest provides double, or even triple, tax benefits.

Municipal bonds are another component of tax-smart investing, particularly because the interest they earn is generally not taxed at the federal level. The highest income tax rate at the federal level is 37% plus an additional 3.8% tax on investment income. Reducing what’s taxed helps you keep more in your wallet. Not having to pay any % of income tax on your municipal bond interest can help you keep more of what you earn.

But, why settle for one tax exclusion when you can get two…or even three? States generally don’t tax interest on municipal bonds issued within their borders (but they do tax interest from out-of-state municipal bonds), so residents who buy them can typically collect interest without having to pay state taxes.

Residents of cities that assess their own income tax, like New York City, could exclude income from municipal bonds issued within their state on their city tax forms, too, resulting in a tax-break trifecta of federal, state, and city tax breaks.

New York and California Residents

State municipal bonds are most advantageous for those in high-income tax brackets.

Our standard portfolio for taxable accounts utilizes MUB, a bond ETF providing exposure to municipal bonds from all states. We offer ETFs that invest solely in either New York or California municipal bonds, for New York and California residents with a minimum balance, or an intent to fund, of at least $100,000. If you want to switch out MUB in your portfolio to CMF or NYF, please . We generally recommend making this switch before you fund your account.

The state you live in affects how much you’ll owe in taxes.

State and local income taxes can significantly reduce the amount of cash you have left after paying taxes—and this varies based on the state you live in.

California, New York State, and New York City typically have the highest personal income tax rates in the U.S. California’s highest income tax rate is 13.3% and New York City residents pay up to 12.696%. Note that only New York City residents pay New York City income tax. New Yorkers who live outside of New York City do not pay any New York City income tax, instead, they’ll pay the state up to 8.82%.

These rates apply to all types of income unless there is a special exclusion or exemption. The state and local income tax burden has recently increased due to tax reform. The federal tax deduction for all state and local taxes paid by a taxpayer is now limited to $10,000 per year.

Distributions From Retirement Accounts

Certain states provide a full or partial exemption from state and local taxes for distributions from your retirement accounts. Each state has its own rules and limitations. There are a few states with income tax rules that are generous to retirees.

  • Illinois has a blanket retirement income exemption for withdrawals from 401(k)s, IRAs, pensions, and even for Social Security payments.
  • Pennsylvania has similar income tax exemptions to Illinois but may impose taxes for early retirees.
  • New York allows for each spouse to exclude up to $20,000 from 401(k)s, IRAs, and corporate pension income per year, and also excludes Social Security payments from income tax.
  • California taxes all retirement income at the same rate as the federal government with the exception of Social Security payments, which are automatically exempt.

If you move states in retirement, your former state of residence cannot tax your retirement income. Only the new state can, which means you can avoid taxes by moving to a state that generally doesn’t have any taxes on retirement income, like Florida or Pennsylvania.

Tax Smart Investing With Smart Saver

Our Smart Saver account can save you on taxes because 80% of the funds in the portfolio generate U.S. Government bond interest, which is exempt from state and local income taxes. Open an account or log in to make a Smart Saver deposit.

Please note that Betterment is not a tax advisor—please consult a tax professional for further guidance.

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