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when to use a 2 1 buydown | home sellers may want to consider offering and paying for a 2 1 buydown if they re having difficulty selling and need to provide an incentive to find a buyer borrowers may benefit from a buydown if it allows them to buy the home they want at a price they can afford however they will also want to consider what would happen if their income doesn t rise fast enough to keep up with their future monthly payments buyers should also make sure that they are getting a fair deal on the home in the first place that s because some sellers might increase the home s price to make up for the cost of the 2 1 buydown note that buydowns may not be available under some state and federal mortgage programs or from all lenders a 2 1 buydown is available on fixed rate federal housing administration fha loans but only for new mortgages and not for refinancing terms can also vary from lender to lender 1 | |
what is the 2000 investor limit | the 2 000 investor limit is a stipulation required by the securities exchange commission sec that mandates a company that exceeds 2 000 individual investors and with more than 10 million in combined assets must file its financials with the commission according to sec rules a company that meets these criteria has 120 days to file following its fiscal year s end understanding the 2000 investor limitthe 2 000 investor limit or rule is a key threshold for private businesses that do not wish to disclose financial information for public consumption congress raised the limit from 500 individual shareholders in 2016 as part of the jumpstart our business startups jobs act and title lxxxv of the fixing america s surface transportation fast act the revised rules also specify a limit of 500 persons who are not accredited investors before public filing is required the prior threshold had been 500 holders of record without regard to accredited investor status congress began debating an increase in the limit in the wake of the 2008 recession and an explosion in online businesses some of which complained that they were growing so fast that the disclosure rules had become a burden at too early a stage of their lifecycle the jobs act also set up a separate registration threshold for banks and bank holding companies allowing them to terminate the registration of securities or suspend reporting if that class of shares is held by less than 1 200 people investor thresholds and equity crowdfundingthe jobs act revisions to sec rules helped facilitate the growth of crowdfunding platforms these platforms are able to raise money from individual investors online without providing detailed financial data the rules established limits on how much individuals can invest in sec approved crowdfunding platforms as a percent of the lesser of their annual income or net worth the individual limits for crowdfunding through an investment portal approved by the sec as of may 2017 these calculations don t include the value of your home examplefor example suppose that your annual income is 150 000 and your net worth is 80 000 jobs act crowdfunding rules allow you to invest the greater of 2 200 or 5 of 80 000 4 000 during a 12 month period so in this case you can invest 4 000 over a 12 month period | |
what is the 2011 u s debt ceiling crisis | the 2011 u s debt ceiling crisis was a contentious debate in congress that occurred in july 2011 regarding the maximum amount of debt that the federal government should be allowed understanding the 2011 u s debt ceiling crisisthe federal government has rarely achieved a balanced budget and its budget deficit ballooned following the 2007 08 financial crisis in the 2008 fiscal year the deficit stood at 458 6 billion widening to 1 4 trillion in 2009 as the government engaged in a massive fiscal policy response to the economic downturn 1from 2008 to 2010 congress raised the debt ceiling from 10 6 trillion to 14 3 trillion 3 in 2011 as the economy showed early signs of recovery and federal debt approached its limit once again negotiations began in congress to balance spending priorities against the ever rising debt burden a heated debate ensued pitting proponents of spending and debt against fiscal conservatives pro debt politicians argued that failing to raise the limit would require immediate cuts to spending already authorized by congress which could result in late partial or missed payments to social security and medicare recipients government employees and government contractors moreover they asserted that the treasury could suspend interest payments on existing debt rather than withhold funds committed to federal programs the prospect of cutting back on already promised spending was labeled a crisis by debt proponents on the other hand the specter of a technical default on existing treasury debt roiled financial markets fiscal conservatives argued that any debt limit increase should come with constraints on the growth of federal spending and debt accumulation the u s has raised the debt limit 78 times since 1960 most recently it raised the debt limit in 2023 45outcome of the 2011 u s debt ceiling crisiscongress resolved the debt ceiling crisis by passing the budget control act of 2011 which became law on aug 2 2011 6 this act allowed the debt ceiling to be raised by 2 4 trillion in two phases or installments in the first phase a 400 billion increase would occur immediately followed by another 500 billion unless congress disapproved it the second phase allowed for an increase of 1 2 trillion to 1 5 trillion subject to congressional disapproval as well 2in return the law included 900 billion in slowdowns in planned spending increases over a 10 year period it also established a special committee charged with finding at least 1 5 trillion in additional savings 2in effect the legislation incrementally raised the debt ceiling from 14 3 trillion to 16 4 trillion by jan 27 2012 3following the passage of the act standard poor s s p took the radical step of downgrading the united states long term credit rating from aaa to aa even though the u s did not default the s p report says the downgrade reflects our opinion that the fiscal consolidation plan that congress and the obama administration recently agreed to fall short of what in our view would be necessary to stabilize the government s medium term debt dynamics the credit rating agency cited the unimpressive size of deficit reduction plans relative to the likely future prospects for politically driven spending and debt accumulation 7debt approval process leading to the 2011 u s debt ceiling crisisthe u s constitution gives congress the power to borrow money before 1917 this power was exercised by congress authorizing the treasury to borrow specified amounts of debt to fund limited expenses such as wartime military spending which would be repaid after the end of hostilities this kept the national debt directly linked to authorized spending in 1917 congress imposed a limit on federal debt as well as individual issuance limits in 1939 congress gave the treasury more flexibility in how it managed the overall structure of federal debt giving it an aggregate limit 8 however by delegating debt management authority to the treasury congress was able to break the direct connection between authorized spending and the debt that finances it while allowing greater flexibility to raise spending this practice also created a need for congress to repeatedly raise the debt limit when spending threatens to overrun available credit due to occasional political resistance to the idea of continually expanding the federal debt this process of raising the debt limit has at times engendered controversy which occurred during the 2011 debt ceiling crisis longer term implications of 2011 debt ceiling crisisthe american economy politics and financial markets were all affected in the long run by the country s 2011 debt limit issue as mentioned before standard poor s downgraded the united states credit rating for the first time ever from aaa to aa this resulted in several longer term implications first the protracted debt ceiling talks and brinkmanship had an adverse effect on consumer and corporate confidence on aug 8 2011 the s p 500 dropped 79 2 points while the nasdaq composite index dropped 174 72 points each of those two indexes lost over 6 6 of its value that day with the dow jones industrial average djia dropping 634 points or 5 55 9concerns about the long term viability of u s government debt were raised as a result of the debt limit crisis s failure to address the underlying fiscal issues the nation s fiscal stability and long term economic prospects may be impacted by the unsolved concerns around budget deficits and the national debt most recently the u s senate has increased the debt ceiling limit to 31 4 trillion 10the debt limit issue and the ensuing credit rating cut had some effect on the u s dollar even while there may not have been much of an immediate impact it prompted concerns about the strength and stability of the dollar in the long run the debt limit debate also sparked talks about possible adjustments to both the budgetary procedures and the debt ceiling mechanism measures have been taken to prevent similar crises in the future such as changes to the budgeting schedule and discussions about prospective changes to the debt cap structure | |
what could happen if congress does not vote to raise the debt ceiling | according to u s treasury secretary janet yellen failure to meet the government s obligations would cause irreparable harm to the u s economy the livelihood of all americans and global financial stability she also mentioned that the u s would risk facing another credit rating downgrade similar to that of 2011 11once the debt ceiling is reached what spending will be cut in a letter to the u s house of representatives yellen warned congressional leaders that the treasury would implement extraordinary measures to prevent the u s from defaulting on its obligations in the past the treasury has suspended new investments in the civil service retirement and disability fund and the postal service retiree health benefits fund it also suspended reinvestment of the government securities investment fund of the federal employees retirement system thrift savings plan 11 keep in mind that every debt ceiling debate cycle is unique and may be resolved using unique measures | |
why did increasing the debt ceiling cause contentious debate in 2011 | from 2008 to 2010 congress raised the debt ceiling from 10 6 trillion to 14 3 trillion 3 in 2011 as the economy showed early signs of recovery and federal debt approached its limit again negotiations began in congress to decide spending priorities a heated debate ensued between pro debt politicians and fiscal conservatives pro debt politicians argued that failing to raise the limit could result in late partial or missed payments to social security and medicare recipients government employees and government contractors fiscal conservatives argued that any debt limit increase should come with limits on federal spending and debt accumulation the bottom linefollowing the 2007 08 financial crisis in an effort to slow down the great recession as well as the persistently high unemployment rate the u s government increased federal spending as a result the federal debt reached its limit on multiple occasions from 2008 to 2011 which led to a series of increases in the debt limit in 2011 the treasury asked for its borrowing capacity to be extended the 2011 u s debt ceiling crisis was a contentious debate in congress that occurred in july 2011 regarding the maximum amount of debt that the federal government should be allowed congress resolved the debt ceiling crisis by passing the budget control act of 2011 which became law on aug 2 2011 6 this act allowed the debt ceiling to be raised by 2 4 trillion in two phases or installments | |
what is the 25 rule | there are two common uses of the 25 rule one uses it to refer to long term government debt in relation to its annual budget and the second is to determine intellectual property royalties understanding the 25 rulein both uses of the term the 25 rule is more a matter of customary practice or heuristic i e a rule of thumb rather than an absolute or optimal threshold or a strict legal requirement in the public finance setting the 25 rule is a rough guideline for fiscal planning based on the confidence of bondholders and credit rating agencies in the intellectual property arena the 25 rule evolved from the customary rates negotiated between intellectual property holders and licensees 25 rule for municipal debtlocal or state governments looking to fund projects through municipal bond issues have to make assumptions about the revenues they expect to bring in often through taxation or projects like toll roads which in turn will allow them to support bond payments if revenue falls short of expectations those municipalities may not be able to make bond payments which can cause them to default on their obligations and hurt their credit rating municipal bondholders want to make sure that the issuing authority has the capacity to pay which can be jeopardized by getting too deep in debt bondholders are thus cautious about purchasing bonds from local or state governments that are in violation of the 25 rule tax exempt private activity bonds bonds issued by municipalities on behalf of private or non profit organizations also have a 25 rule applied to the proceeds from the bonds this rule states that no more than 25 of bond proceeds may be used for land acquisition 125 rule for intellectual propertypatent or trademark owners use the 25 rule as a yardstick for defining a reasonable amount of royalty payments the rule assumes that a licensee should retain at most 75 of the profits of a patented product given that s he took on the bulk of the risks of developing the product and bringing the intellectual property to the market the patent owner takes the remainder as a license royalty setting the value of intellectual property is a complex matter although royalties are typically assessed against revenues the 25 rule applies to profits furthermore the 25 rule does not closely define what gross profit includes which creates ambiguity in the valuation calculation because it s a simple rule it does not take into account the costs associated with marketing the product for example the holder of a copyright will receive a 25 royalty though the party doing the selling usually incurs the cost of attracting demand in the market through advertising in the 2011 court case of uniloc usa inc v microsoft corp the court of appeals for the federal circuit ruled that the 25 percent rule may not be used as a starting point for a patent damage analysis bound for the courtroom the appeals court concluded that the rule does not rise to an admissible level of evidence and may not be relied upon in a patent lawsuit in federal court while the 25 rule may still be used by other parties in estimating a proposed patent royalty it should not be considered a legal mandate 2 | |
a 3 2 1 buydown mortgage is a type of home loan that can help would be homebuyers achieve their goal of homeownership when high mortgage rates threaten to price them out of the market the loan interest rate is reduced for the first three years of the loan term in the fourth year the original rate is applied and remains for the life of the mortgage | read on to learn how a 3 2 1 buydown mortgage works and whether one may be right for your needs | |
how 3 2 1 buydown mortgages work | a buydown is a mortgage financing technique that allows a homebuyer to obtain a lower interest rate for at least the first few years of the loan or possibly its entire life it is similar to the practice of buying discount points on a mortgage in return for a lower interest rate except that it is temporary typically the seller or homebuilder sometimes even the mortgage lender covers the cost of the 3 2 1 buydown the cost equates to the savings to the buyer in the first three years in general 3 2 1 buydown loans are available only for primary and secondary homes not for investment properties the 3 2 1 buydown is also not available as part of an adjustable rate mortgage arm with an initial period of fewer than five years the interest rate for a 3 2 1 buydown mortgage is reduced by 3 for the first year 2 for the second year and 1 for the third year the original interest rate then kicks in for the remaining term of the loan 1 by contrast with a 2 1 buydown the rate is reduced by 2 for the first year 1 for the second year and then rises to the original rate when the buydown period ends pros and cons of a 3 2 1 buydown mortgagea temporary interest rate buydown is an alternative to price cuts for sellers and homebuilders this option is typically made available when mortgage interest rates have risen to levels that affect the affordability of home purchases who subsidizes 3 2 1 buydown mortgages the savings experienced by the homebuyer in the first three years of a buydown mortgage term represent the cost of a 3 2 1 buydown mortgage typically the cost is covered by someone other than the buyer the seller homebuilder or even the lender for example motivated sellers might be willing to pay the cost to attract buyers and close the deal in some circumstances a company that s moving an employee to a new city might cover the buydown cost to ease the expense of relocation more commonly real estate developers will offer buydowns as incentives to potential buyers of newly built homes | |
is a 3 2 1 buydown mortgage right for you | as mentioned it can be risky to get a 3 2 1 buydown mortgage on the assumption that your income will rise sufficiently over the next three years so that you ll be able to afford the mortgage payments when they reach their maximum level for that reason you must consider how secure your job is and whether unforeseen circumstances could make your house payments unmanageable once you reach the fourth year in addition if by some chance you have to pay for the buydown on your own then the key question to ask yourself is whether paying the cash upfront is worth the several years of lower payments that you ll receive in return for example you might have other uses for that money such as investing it or using it to pay off other debts with higher interest rates like credit cards or car loans if you have the cash to spare and don t need it for anything else then a 3 2 1 buydown mortgage could make sense the question is easier to answer when another party foots the bill for the buydown but even then ask yourself whether the maximum monthly payments will be affordable could the enticingly low initial rates lead you to want a more expensive home and to take on a larger mortgage than makes sense financially you ll also want to make sure that the home is fairly priced in the first place and that the seller isn t padding the price to cover the buydown costs | |
what does a 3 2 1 buydown mortgage cost | the cost of a 3 2 1 buydown mortgage is the total amount that the buyer saves over the three year period of lower rates who pays for a 3 2 1 buydown mortgage usually the seller homebuilder or lender pays the cost of a buydown mortgage employers will sometimes pay for a buydown if they are relocating an employee to another area and want to ease the financial burden sometimes the buyer borrower may pay it | |
is a 3 2 1 buydown mortgage a good deal | a 3 2 1 buydown mortgage can be a good deal for the homebuyer particularly if someone else such as the seller is paying for it however buyers need to be reasonably certain that they ll be able to afford their mortgage payments once the full interest rate applies from the fourth year onward otherwise they could find themselves stretched too thin and in a worst case scenario lose their homes the bottom linea 3 2 1 buydown mortgage offers homebuyers a financing option that can get them into a home despite a high interest rate environment it offers them a way to save money on monthly loan payments in the first three years of the loan however borrowers must understand that their monthly payments will increase in the fourth year of the loan to the original interest rate and remain at that level for the life of the mortgage | |
what is the 3 6 3 rule | the 3 6 3 rule is a slang term that refers to an unofficial practice in the banking industry in the 1950s 1960s and 1970s that was the result of non competitive and simplistic conditions in the industry the 3 6 3 rule describes how bankers would supposedly give 3 interest on their depositors accounts lend the depositors money at 6 interest and then be playing golf by 3 p m in the 1950s 1960s and 1970s a huge part of a bank s business was lending out money at a higher interest rate than what it was paying out to its depositors as a result of tighter regulations during this time period the difference between what a bank earns on interest accruing endeavors and what it pays out in interest bearing accounts is known as the net interest rate spread understanding the 3 6 3 ruleafter the great depression the government implemented tighter banking regulations this was partially due to the problems namely corruption and a lack of regulation that the banking industry faced leading up the economic downturn that precipitated the great depression one result of these regulations is that it controlled the rates at which banks could lend and borrow money this made it difficult for banks to compete with each other and limited the scope of the services they could provide clients as a whole the banking industry became more stagnant with the loosening of banking regulations and the widespread adoption of information technology in the decades after the 1970s banks now operate in a much more competitive and complex manner for example banks may now provide a greater range of services including retail and commercial banking services investment management and wealth management types of banking servicesfor banks that provide retail banking services individual customers often use local branches of much larger commercial banks retail banks will generally offer savings and checking accounts mortgages personal loans debit credit cards and certificates of deposit cds to their clients in retail banking the focus is on the individual consumer as opposed to any larger sized clients such as an endowment banks that provide investment management for their clientele typically manage collective investments such as pension funds as well as oversee the assets of individual customers banks that work with collective assets may also offer a wide range of traditional and alternative products that may not be available to the average retail investor such as ipo opportunities and hedge funds for banks that offer wealth management services they may cater to both high net worth and ultra high net worth individuals the financial advisors at these banks typically work with clients to develop tailored financial solutions to meet their needs financial advisors may also provide specialized services such as investment management income tax preparation and estate planning most financial advisors aim to attain the chartered financial analyst cfa designation which measures their competency and integrity in the field of investment management | |
does the 3 6 3 rule still apply | the 3 6 3 rule was a slang term for banking conditions in the 1950s 60s and 70s when government regulations were stricter and bank lending practices were more uniform the term suggested banks paid account holders 3 interest loaned out money at 6 interest and were done with their work day and playing golf by 3 p m looser regulations in the 1970s changed this | |
what does the expression banker s hours mean | banker s hours as an expression means a shorter work day than what most businesses have which was once 9 a m to 5 p m by comparison bankers were said to work between 10 a m and 3 p m the hours that banks used to be open the bottom linethe 3 6 3 rule is an outdated slang term from the 1950s through the 1970s that referred to the perception that banking at the time consisted of paying account holders 3 charging 6 when lending money and calling it a day and leaving by 3 p m when banks used to close the term became less relevant after regulations changed in the 1970s and banks became more competitive with each other and offered a greater variety of rates | |
how a 3 27 arm works | adjustable rate mortgages arms are a type of home loan in which the interest rate applied to the outstanding balance varies throughout the life of the loan with an arm the initial interest rate is fixed for a period of time after that the rate resets periodically at yearly semiannual or even monthly intervals arms differ from fixed rate mortgages the other primary mortgage type which charge a set rate of interest that remains the same for the entirety of the loan 3 27 arms are a kind of hybrid for the first three years they have a fixed interest rate which is generally lower than the current rates on 30 year conventional mortgages but after that and for the remaining 27 years of the loan their interest rate will fluctuate based on a benchmark index such as the yield on one year u s treasury bills the lender also adds a margin on top of the index to set the interest rate that the borrower will actually pay the total is known as the fully indexed interest rate this rate is often substantially higher than the initial three year fixed interest rate although 3 27 arms usually have caps on how quickly they can increase typically the interest rate on a 3 27 arm won t increase more than 2 per adjustment period which can occur every six or 12 months that means the rate can increase by two full percentage points not 2 of the current interest rate so for example the rate might go from 4 to 6 in a single adjustment period there might also be a life of the loan cap set at 5 or more in that case the interest rate on a mortgage that started at 4 might go no higher than 9 regardless of what happens with the index on which it is based 3 27 arm examplesay a borrower takes out a 250 000 3 27 arm at an initial fixed rate of 3 5 for the first three years their monthly mortgage payment will be 1 123 then let s assume that after three years the benchmark interest rate is 3 and the bank s margin is 2 5 that adds up to a fully indexed rate of 5 5 if the borrower still has the 3 27 arm and hasn t refinanced into a different mortgage their monthly payment will now be 1 483 an increase of 360 to avoid payment shock when the interest rate begins to adjust borrowers with 3 27 arms should aim to refinance the mortgage within the first three years risks of a 3 27 armthe most serious risks for borrowers with a 3 27 mortgage are that they won t be able to refinance their loan before the adjustable rate kicks in and that interest rates will have shot up in the meantime that could happen if their credit score is too low if their home has fallen in value or simply if market forces have caused interest rates to rise across the board in that event they would be stuck with the adjustable rate which could mean considerably higher monthly payments as in the example above arm prepayment penaltiesborrowers should also be aware that arms including 3 27 mortgages may carry prepayment penalties which can make refinancing costly and defeat the purpose of taking out an arm with the intention of switching to a different loan in a few years the consumer financial protection bureau cfpb suggests that borrowers check the lender s truth in lending act disclosure for any prepayment penalties before they sign a contract remember many aspects of the loan are negotiable the cfpb notes ask for a loan that does not have a prepayment penalty if that is important to you if you don t like the terms of a loan and the lender won t negotiate you can always shop around for a different lender with terms that better suit your needs | |
is a 3 27 arm a good investment | a 3 27 arm could be a good choice for you if you re looking for a loan with relatively low monthly payments for the first several years that could make buying a home more affordable if your budget is already stretched or could give you some extra cash to spend on home repairs furnishings or other purposes compared with a more expensive loan however you ll want to be reasonably certain that you ll be in a good position to refinance by the end of the initial three year period that means for example that you ll have a strong credit score and a reliable source of income at that point a 3 27 arm is not a good idea if there s a strong possibility that you won t be able to refinance or sell the home during those first three years and the new adjustable rate payments would be too much for you | |
what is a 3 27 adjustable rate mortgage arm | a 3 27 adjustable rate mortgage arm charges a fixed interest rate for the first three years followed by a variable interest rate for the remaining 27 years because it combines the features of a fixed rate mortgage and an adjustable rate mortgage it is sometimes referred to as a hybrid arm | |
what are the advantages of a 3 27 arm | a 3 27 arm is likely to have a low interest rate for the first three years but that rate can rise substantially starting in the fourth year | |
is a 3 27 arm right for me | if you plan to sell the home or refinance it within the first three years then a 3 27 arm might make sense for you however look for a 3 27 arm without any prepayment penalties otherwise a prepayment penalty could make it very costly to get out of the mortgage | |
3c1 refers to a portion of the investment company act of 1940 that allows private investment companies to be considered exceptions to certain regulations and reporting requirements stipulated by the securities and exchange commission sec however these firms must satisfy specific requirements to maintain their exception status | understanding 3c13c1 is shorthand for the 3 c 1 exemption found in section 3 of the act to fully understand section 3c1 we must first review the act s definition of an investment company and how it relates to earlier sections of the act 3 b 1 and 3 c an investment company as defined by the investment company act are companies that primarily engage in the business of investing reinvesting or trading securities if companies are considered investment companies they must adhere to certain regulations and reporting requirements 13 b 1 was established to exclude certain companies from being considered an investment company and having to adhere to the subsequent regulations companies are exempt as long as they are not primarily in the business of investing reinvesting holding owning or trading in securities themselves or through subsidiaries or controlled companies 13 c takes it a step further and outlines specific exceptions to the classification of an investment company which include broker dealers pension plans church plans and charitable organizations 13 c 1 adds to the exceptions list in 3 c citing certain parameters or requirements that if satisfied would allow private investment companies to not be classified as investment companies under the act 13 c 1 exempts the following from definition of investment company in other words 3c1 allows private funds with 100 or fewer investors and venture capital funds with fewer than 250 investors and no plans for an initial public offering to sidestep sec registration and other requirements including ongoing disclosure and restrictions on derivatives trading 3c1 funds are also referred to as 3c1 companies or 3 c 1 funds the result of 3c1 is that it allows hedge fund companies to avoid the sec scrutiny that other investment funds such as mutual funds must adhere to under the act however the investors in 3c1 funds must be accredited investors meaning investors who have an annual income of over 200 000 or a net worth in excess of 1 million 23c1 funds vs 3c7 fundsprivate equity funds are usually structured as 3c1 funds or 3c7 funds the latter being a reference to the 3 c 7 exemption both 3c1 and 3c7 funds are exempt from sec registration requirements under the investment company act of 1940 but the nature of the exemption is slightly different whereas the 3c1 exemption hinges on not exceeding 100 accredited investors a 3c7 fund must maintain a total of 2 000 or fewer qualified purchasers however qualified purchasers must clear a higher bar and have over 5 million in assets but a 3c7 fund is permitted to have more of these people or entities participating as investors 343c1 compliance challengesalthough 100 accredited investors sound like an easy limit to monitor it can be a challenging area for fund compliance private funds are generally protected in the case of involuntary share transfers for example the death of an investor results in shares being split up among family members would be considered an involuntary transfer however these funds can run into issues with shares given as employment incentives knowledgeable employees including executives directors and partners do not count against the fund s tally however employees who leave the firm carrying the shares with them will count against the 100 investor limit the one hundred person limit is so critical to the investment company exemption and 3c1 status that private funds put a great deal of effort into making certain they are in compliance | |
what is the 3 c 7 exemption | the 3 c 7 exemption refers to a portion of the investment company act of 1940 that allows private investment companies an exemption from some securities and exchange commission sec regulation providing that they meet certain criteria 3c7 is shorthand for the 3 c 7 exemption history of the 3 c 7 exemptionthe investment company act of 1940 defines an investment company as an issuer that holds itself out as being engaged primarily or proposes to engage primarily in the business of investing reinvesting or trading in securities the act regulates the organization of companies whose securities are offered to the public companies must disclose their financial condition and investment policies regularly 1however 3c7 is one of two exemptions in the investment company act of 1940 that hedge funds venture capital funds and other private equity funds use to avoid sec restrictions this frees up these funds to use tools like leverage and derivatives that most publicly traded funds cannot hedge funds private equity funds venture capital funds and other private investment vehicles are commonly organized to fall outside the purview of the investment company act of 1940 2claiming 3c7 exemption3c7 funds are not required to register with the securities and exchange commission or provide ongoing disclosure they are also exempt from issuing a prospectus that would outline investment positions 3c7 funds are also referred to as 3c7 companies or 3 c 7 funds 21there is no limit on the number of investors under section 3 c 7 however the fund can have up to 1 999 investors before registration would be required under the securities exchange act of 1934 3to qualify for the 3c7 exemption the private investment company must show that they have no plans of making an initial public offering ipo and that their investors are qualified purchasers a qualified purchaser is a higher standard than an accredited investor and is defined as 4523c7 funds vs 3c1 fundsboth 3c7 and 3c1 funds are exempted from the requirements imposed on investment companies under the investment company act of 1940 the act however there are differences between them 3c7 funds take investments from qualified purchasers whereas 3c1 funds work with accredited investors 1investors in 3c7 funds are held to a higher wealth measure than those in 3c1 funds which can limit the investor pool for a fund hoping to raise money 3c1 funds are capped at 100 investors limiting the number of investors the fund can take in from the pool they can pull from 6 | |
what happens to a fund that does not comply with 3c7 rules | 3c7 funds must maintain their compliance to continue utilizing the exemption from the 1940 act if a fund were to fall out of compliance by taking in investments from non qualified purchasers it would open itself to sec enforcement actions and litigation from its investors and any other parties it has contracts with 1 | |
what types of investments are not defined as an investment company | some investment pools that do not qualify as an investment company in section 3 a of the investment company act include charitable organizations pension plans and church plans 1 | |
what is the difference between an accredited investor and a qualified purchaser | accredited investors typically must meet income and net worth requirements to purchase financial investments such as securities or real estate companies such as financial institutions screen participants and must determine who is an accredited investor the qualified purchaser is a legal term not based on net worth or income but on investment holdings qualified purchasers must meet higher standards so that funds with a small group of private equity investors can buy and sell public assets the bottom linethe 3 c 7 exemption is part of the investment company act of 1940 and allows private funds to avoid some sec regulations which include sec registration and public disclosure investment in a 3c7 fund is limited to qualified purchasers | |
what is 3d printing | three dimensional 3d printing is an additive manufacturing process that creates a physical object from a digital design the process works by laying down thin layers of material in the form of liquid or powdered plastic metal or cement and then fusing the layers together understanding 3d printingsince it was introduced 3d printing technology has already increased manufacturing productivity in the long term it has the potential to massively disrupt both the manufacturing logistics and inventory management industries especially if it can be successfully incorporated into mass production processes currently 3d printing speeds are too slow to be used in mass production however the technology has been used to reduce the lead time in the development of prototypes of parts and devices and the tooling needed to make them this is hugely beneficial to small scale manufacturers because it reduces their costs and the time to market that is the amount of time from a product being conceived until its being available for sale 3d printing can create intricate and complex shapes using less material than subtractive manufacturing processes such as drilling welding injection molding and other processes making prototypes faster easier and cheaper allows for more innovation experimentation and product based startups industrial usescar and aircraft manufacturers have taken the lead in 3d manufacturing using the technology to transform unibody and fuselage design and production and powertrain design and production boeing is using 3d printed titanium parts in the construction of its 787 dreamliner airliner 1 in 2017 general electric created a helicopter engine with 16 parts instead of 900 an indication of how big an impact 3d printing could potentially have on supply chains 2several companies are using 3d printing technology in many industries in medical sciences 3d printing is being used to customize implants in the future organs and body parts may be created using 3d printing techniques in the fashion world nike adidas and new balance are using 3d printing to create their shoes 345 in the construction industry companies around the world are making breakthroughs in 3d printing of the materials needed to build homes using layers of concrete homes can be built in 24 hours which are stronger than regular cinder blocks and cost a fraction of the price in the manufacturing of hearing aids 3d printing is now customary the use of 3d printing accelerates the process of manufacturing and enables manufacturers to make custom hearing aids audiologists can use 3d scanners to create a custom prototype using reference points from the scan manufacturers can feed the scan into a 3d printing machine and after fine tuning the materials and the ear shapes print the entire hearing aids 6 | |
what are 3p oil reserves | 3p oil reserves are the total amount of reserves that a company estimates having access to calculated as the sum of all proven and unproven reserves the 3ps stand for proven probable and possible reserves the oil industry breaks unproven reserves into two segments those based on geological and engineering estimates from established sources probable and those that are less likely to be extracted due to financial or technical difficulties possible therefore 3p refers to proven plus probable plus possible reserves this can be contrasted with 2p oil which includes only proven and probable reserves understanding 3p oil reservesthe 3p estimate is an optimistic estimate of what might be pumped out of a well by an oil company the three different categories of reserves also have different production probabilities assigned for example the oil industry gives proven reserves a 90 certainty of being produced p90 the industry gives probable reserves a 50 certainty p50 and possible reserves a 10 certainty p10 of actually being produced another way to think about the concept of different reserve categories is to use a fishing analogy where proven reserves are the equivalent of having caught and landed a fish it is certain and in hand probable reserves are the equivalent of having a fish on the line the fish is technically caught but is not yet on land and may still come off the line and get away possible reserves are a bit like saying there are fish in this river somewhere these reserves exist but it is far from certain that an oil company will ever fully discover develop and produce them energy companies update their investors on the amount of oil and natural gas reserves they have access to through an annual reserve update this update typically includes proven probable and possible reserves and is similar to an inventory report that a retailer might provide to investors 1 2 however there is no legal obligation for companies to report their 3p reserves in recent years oil and gas startups and exploration companies have taken to reporting their 3p reserves this is because the third p i e possible reserves can artificially inflate reserves figures and result in an acquisition by a bigger player the cost benefits of investing in hiring a 3p reserve calculation versus putting money into a costly exploration operation works out in their favor independent consultant resource assessmentseveral consulting firms provide oil companies with independent assessments of their oil reserves these audits are also beneficial to investors who want the assurance that a company has the reserves they claim one such firm is degolyer and macnaughton and another is miller and lents who have served the oil and gas industry with trusted upstream insights and reservoir evaluation for many years investors in oil and gas companies as well as independent oil projects rely on consulting firms like these to provide accurate and independent assessments of a company s full reserve base including 3p reserves crucial information includes things like estimations of reserves and resources to be recovered from discoveries and verification of hydrocarbon and mineral reserves and resources rapid classification changes in proven reservesunderstanding the natural resource extraction industry can be challenging because proven reserves are just one of three classifications most people assume proven oil and gas reserves should only go up when new exploratory wells are drilled resulting in new reservoirs being discovered in reality there are often more significant gains and losses resulting from shifts between classifications than there are increases in proven reserves from truly new discoveries for this reason it is useful for investors to know a company s proven probable and possible reserves rather than just the proven reserves if an investor does not have the data on probable reserves proven reserves can suddenly change in a number of different situations for example if a company has a large amount of probable reserves and a relevant extraction technology improves then those probable reserves are added to the proven reserves | |
what is the 30 year treasury | the 30 year treasury is a u s treasury debt obligation that has a maturity of 30 years the 30 year treasury used to be the bellwether u s bond but now most consider the 10 year treasury to be the benchmark understanding the 30 year treasurythe u s government borrows money from investors by issuing debt securities through its treasury department debt instruments that can be purchased from the government include treasury bills t bills notes and treasury inflation protected securities tips t bills are marketable securities issued for terms of less than a year and treasury notes are issued with maturities from two to 10 years tips are marketable securities whose principal is adjusted by changes in the consumer price index cpi when there is inflation the principal increases when deflation sets in the principal decreases 1 u s treasury securities with longer term maturities can be purchased as u s savings bonds or treasury bonds special considerationstreasury bonds are long term debt securities issued with a maturity of 20 years or 30 years from the issue date these marketable securities pay interest semi annually or every six months until they mature at maturity the investor is paid the face value of the bond the 30 year treasury will generally pay a higher interest rate than shorter treasuries to compensate for the additional risks inherent in the longer maturity however when compared to other bonds treasuries are relatively safe because they are backed by the u s government 2the price and interest rate of the 30 year treasury bond is determined at an auction where it is set at either par premium or discount to par if the yield to maturity ytm is greater than the interest rate the price of the bond will be issued at a discount if the ytm is equal to the interest rate the price will be equal to par finally if the ytm is less than the interest rate the treasury bond price will be sold at a premium to par in a single auction a bidder can buy up to 5 million in bonds by non competitive bidding or up to 35 of the initial offering amount by competitive bidding in addition the bonds are sold in increments of 100 and the minimum purchase is 100 330 year treasury vs savings bondsu s savings bonds specifically series ee savings bonds are non marketable securities that earn interest for 30 years interest isn t paid out periodically instead interest accumulates and the investor receives everything when they redeem the savings bond the bond can be redeemed after one year but if they are sold before five years from the purchase date the investor will lose the last three months interest 4 for example an investor who sells the savings bond after 24 months will only receive interest for 21 months because the u s is seen as a very low risk borrower many investors see 30 year treasury interest rates as indicative of the state of the wider bond market normally the interest rate decreases with greater demand for 30 year treasury securities and rises with lower demand the s p u s treasury bond current 30 year index is a one security index comprising the most recently issued 30 year u s treasury bond it is a market value weighted index that seeks to measure the performance of the treasury bond market 5 | |
what is a 341 meeting | the term 341 meeting refers to a meeting between creditors and debtors that is required to take place during the course of a chapter 7 bankruptcy proceeding accordingly its name is derived from section 341 of the bankruptcy code 1 a 341 meeting is typically scheduled roughly one month after a debtor files for bankruptcy | |
how 341 meetings work | the 341 meeting is one of many stages involved in declaring chapter 7 bankruptcy in the united states its primary purpose is to establish the facts of the bankruptcy in question and to ensure that all the paperwork necessary to carry out the bankruptcy proceedings is in order although the attorneys of the debtor and creditor are welcome to attend the only parties whose presence at the 341 meeting is legally required are the debtor in question and the court appointed bankruptcy trustee prior to the 341 meeting the trustee would have already reviewed the bankruptcy paperwork and financial records submitted by the debtor the purpose of the 341 meeting therefore is principally for the trustee to confirm the facts stated by the debtor and to collect any additional paperwork that may be required in the event that the debtor is attempting bankruptcy fraud this would likely be detected by the trustee during or prior to the 341 meeting from the debtor s perspective the objective of the 341 meeting is to provide the necessary documents in order to prove that their identity is authentic while also establishing their current assets liabilities income expenses and other relevant financial circumstances if the creditors are in attendance they will be able to ask clarifying questions such as whether the debtor is entitled to any upcoming income sources e g tax rebates or inheritances or owns undisclosed assets such as shares in a private business or assets held overseas typically discussion at 341 meetings will center on how the debtor plans to eventually repay their obligations real world example of a 341 meetingrobin is a bankruptcy trustee currently presiding over a 341 meeting the debtor present declared bankruptcy over a 5 000 debt and has attended the meeting along with their bankruptcy lawyer likewise the creditor and their lawyer are also present robin s first priority is to verify the identity and financial status of the debtor although robin already reviewed many documents prior to the meeting the 341 meeting provides an occasion to ask follow up questions about the documents provided and obtain any additional disclosures deemed necessary in the unlikely event that the debtor was attempting bankruptcy fraud this would also likely be detected due to discrepancies or inadequacies in the documents provided during the meeting the lawyers for the debtor and creditor engaged in a detailed conversation regarding the debtor s assets liabilities and income sources and they were able to negotiate a general plan for the gradual repayment of the outstanding debt as is the case with most 341 meetings the meeting took place at robin s office rather than in court before a judge declaring bankruptcy can help borrowers avoid the worst repercussions of failing to repay their debt but the impact on their credit score can be severe if you re struggling to pay back your loans consider working with a debt relief company or credit counseling agency before filing for bankruptcy becomes your only viable option | |
what happens if i don t come to my 341 meeting | according to the u s bankruptcy code your bankruptcy petition may be dismissed if you fail to appear at your 341 meeting if you are married both spouses must attend the meeting 2 | |
when does a 341 meeting take place | a 341 meeting typically occurs between 21 and 50 days after the initial bankruptcy filing this gives the trustee time to review all the submitted documents and conduct any needed research 2who is present at a 341 meeting a 341 meeting is called by the trustee on the case and it should be attended by any parties seeking bankruptcy protection as well as their lawyer additionally any creditors may attend to ask the debtor about their assets and attempt to work out a plan for debt repayment 2the bottom linea 341 meeting allows the trustee overseeing a bankruptcy filing to meet and talk with the filers it s an excellent opportunity to get a more personal take on their financial situation and perhaps work out a repayment plan prior to meeting with the judge | |
what is a 401 a plan | a 401 a plan is an employer sponsored money purchase retirement plan that allows dollar or percentage based contributions from the employer the employee or both the sponsoring employer establishes eligibility and the vesting schedule the employee can withdraw funds from a 401 a plan through a rollover to a different qualified retirement plan a lump sum payment or an annuity understanding a 401 a planthere are a variety of retirement plans that employers can offer their employees each comes with different stipulations restrictions and some are better suited for certain types of employers a 401 a plan is a type of retirement plan made available to those working in government agencies educational institutions and non profit organizations eligible employees who participate in the plan include government employees teachers administrators and support staff a 401 a plan s features are similar to a 401 k plan which are more common in profit based industries 401 a plans do not allow employees to contribute to 401 k plans however if an individual leaves an employer they do have the option of transferring the funds in their 401 a to a 401 k plan or individual retirement account ira employers can form multiple 401 a plans each with distinct eligibility criteria contribution amounts and vesting schedules employers use these plans to create incentive programs for employee retention the employer controls the plan and determines the contribution limits to participate in a 401 a plan an individual must be 21 years of age and have been working in the job for a minimum of two years these conditions are subject to vary contributions for a 401 a plana 401 a plan can have mandatory or voluntary contributions and the employer decides if contributions are made on an after tax or pre tax basis an employer contributes funds to the plan on an employee s behalf employer contribution options include the employer paying a set amount into an employee s plan matching a fixed percentage of employee contributions or matching employee contributions within a specific dollar range the majority of voluntary contributions to a 401 a plan are capped at 25 of an employee s annual pay investments for a 401 a planthe plan gives employers more control over their employees investment choices government employers with 401 a plans often limit investment options to only the safest and most secure options to minimize risk a 401 a plan assures a certain level of retirement savings but requires due diligence by the employee to meet retirement goals vesting and withdrawals for a 401 a planany 401 a contributions an employee makes and any earnings on those contributions are immediately fully vested becoming fully vested in the employer contributions depends on the vesting schedule the employer sets up some employers especially those who offer 401 k plans link vesting to years of service as an incentive for employees to stay with the company the internal revenue service irs subjects 401 a withdrawals to income tax withholdings and a 10 early withdrawal penalty unless the employee is 59 dies is disabled or rolls over the funds into a qualified ira or retirement plan through a direct trustee to trustee transfer 1qualifying for tax creditsemployees who contribute to a 401 a plan may qualify for a tax credit employees can have both a 401 a plan and an ira at the same time however if an employee has a 401 a plan the tax benefits for traditional ira contributions may be phased out depending on the employee s adjusted gross income 401 a vs 401 k plansa 401 a plan is similar to a 401 k another type of employer sponsored plan that provides a tax advantage for retirement investments the main difference is who participates while 401 k plans are intended for private sector employees 401 a plans are directed towards employees of government bodies educational institutions and charitable organizations these plans also tend to offer fewer more conservative investment options than those found in a 401 k plan if you work in the private sector you can contribute to a 401 k plan after one year but if your employer offers a 401 a plan it takes two years there are also important rule differences between the two types of plans with a 401 k plan participation is voluntary and the employee can decide how much money to contribute towards the plan so long as it is below the legal limit employers may match a portion of the employee s contribution but many do not but in a 401 a plan employers can make it mandatory for their employees to participate but employers are also required to contribute to their employees accounts they can also decide whether the 401 a plan is to be funded with pre tax or after tax dollars offered by private sector employersemployees become eligible after one year employees elect to participate in the plan employers may match a portion of employee contributions more investment options offered by government bodies educational institutions and charities employees become eligible after two years employers can make participation mandatory employers must contribute to their employee s plans investment options tend to be fewer and more conservative than a 401 k tips for a 401 a planas with other types of retirement plans it is important to understand the rules and fees associated with a 401 a before making a significant contribution this caution can help reduce your costs and expenses further down the line here are some ways to make the most out of a 401 a or any other tax advantaged retirement account | |
what happens to my 401 a plan when i quit | the money in your 401 a or other employer sponsored retirement account belongs to you even after you leave the employer when you lose your job that money can be taken as a distribution with a possible early withdrawal penalty or rolled into a different retirement account such as an ira | |
what s the difference between a 401 a and 403 b | a 401 a plan and a 403 b are both types of tax advantaged retirement plans available to certain public sector employees unlike a 401 a a 403 b plan is aimed at employees of public schools and tax exempt organizations and their investment options are limited to annuities or mutual funds the main difference is that an employer can make participation in a 401 a plan mandatory while it remains voluntary for employees to participate in a 403 b | |
how much can i invest in a 401 a plan | a 401 a plan does not have the same investment limits as a 401 k plan most plans cap voluntary contributions to 25 of the employee s take home pay the bottom linea 401 a plan is a type of tax advantaged account that allows public sector employees to save for retirement these plans typically offer fewer investment options than other types of plans and they are also relatively low risk although employers can make participation mandatory there may also be a tax credit for those who contribute to a 401 a | |
what is a 401 k | a 401 k is a retirement savings plan that provides tax advantages to savers named after a section of the u s internal revenue code the 401 k is an employer provided defined contribution plan 1 the employer may match employee contributions with some plans the match is mandatory there are two major types of 401 k s traditional and roth with a traditional 401 k employee contributions are pretax meaning they reduce taxable income but withdrawals in retirement are taxed employee contributions to roth 401 k s on the other hand are made with after tax income there s no tax deduction in the contribution year but withdrawals qualified distributions are tax free 2below we walk you through how to start a 401 k how 401 k plans work and strategies for making the most of them investopedia ellen lindner the most important thing to know when making any decision about your 401 k is to use it in a perfect world you put the maximum amount in it but at a minimum you should contribute up to the point where your company matches what you put in said peter lazaroff financial advisor and chief investment officer at plancorp in 2023 americans saved an average of 7 1 of their salaries in their 401 k s3 which was higher than the overall personal savings rate that year 4 less than 12 of working age americans were on track in 2023 to max out their retirement contributions 5 though the 401 k employee contribution limit for 2023 was 30 000 including catch up contributions for those 50 and older and 22 500 for those under 50 in 2024 those numbers are 30 500 and 23 000 respectively 6 | |
how 401 k s work | introduced in the early 1980s traditional 401 k plans allow employees to make pre tax contributions from their salaries up to certain limits 910 | |
when workers sign up for a 401 k they agree to deposit a percentage of each paycheck directly into an investment account employers often match part or all of that contribution and employees can choose from a variety of investment options typically mutual funds 11 | history of the 401 k the u s has undergone a significant shift in how americans save for retirement as illustrated below by our chart comparing the number of americans in millions in defined benefit and defined contribution plans along with the total for both defined contribution plans most of which are 401 k s are an alternative to the traditional pension known as a defined benefit plan with a pension the employer is committed to providing a specific amount of money to the employee for life during retirement 12 in recent decades as the chart below shows defined contribution plans like 401 k s have become far more common and traditional pensions have become rare as employers have shifted the responsibility and risk of saving for retirement to employees 1314direct contribution plans like 401 k s allow employees to put part of their salary into individual accounts often with matching funds from their employer their ultimate retirement benefits depend on the account s investment performance investopediaabove the number of americans in defined benefit and defined contribution plans along with the total of both in millions 15initially offered by employers to supplement other employee benefits 401 k s have become the most common private employer sponsored retirement program in the u s about a third of working age americans have a 401 k compared with one in nine who have a defined benefit pension plan 10 meanwhile u s census data suggests that as many as four in 10 baby boomers aged 55 to 64 and half of millennials aged 24 to 39 have no retirement account at all 10still the 401 k plan was designed to encourage americans to save for retirement among its benefits are tax savings there are two main options traditional and roth each with distinct tax advantages traditional 401 k with a traditional 401 k employee contributions are deducted from gross income this means the money comes from your paycheck before income taxes have been deducted as a result your taxable income is reduced by the total contributions for the year and can be reported as a tax deduction for that tax year no taxes are due on the money contributed or the investment earnings until you withdraw the money usually in retirement 16roth 401 k with a roth 401 k contributions are deducted from your after tax income this means you contribute from your pay after income taxes have been deducted as a result there is no tax deduction in the year of the contribution when you withdraw the money during retirement though you don t have to pay any additional taxes on your contribution or on the investment earnings even though contributions to a roth 401 k are made with after tax money there are generally speaking tax consequences if withdrawals are made before you re 59 always check with an accountant or qualified financial advisor before withdrawing money from either a roth or traditional 401 k however not all employers offer a roth account option if one is available you can choose between a traditional and roth 401 k you can also contribute to both up to the annual contribution limit 17order your copy of investopedia s what to do with 10 000 magazine for more wealth building advice 401k plan contributions explainedtraditional and roth 401 k plans are defined contribution plans both the employee and employer can contribute to the account up to the dollar limits set by the internal revenue service irs 16 employees contributions to a traditional 401 k plan are made with before tax dollars and reduce their taxable income and their adjusted gross income contributions to a roth 401 k are made with after tax dollars and do not impact taxable income further employees are also responsible for choosing the specific investments held within their 401 k accounts from a selection that their employer offers those offerings typically include stock and bond mutual funds and target date funds designed to reduce the risk of losses as the employee approaches retirement 718an employee s account holdings may include guaranteed investment contracts issued by insurance companies and sometimes the employer s own stock 18contribution limitsthe maximum amount an employee or employer can contribute to a 401 k plan is adjusted periodically to account for inflation which measures rising prices for 2024 the annual limit on employee contributions to a 401 k is 23 000 annually for workers under age 50 however those aged 50 and over could make a 7 500 catch up contribution 19if your employer also contributes or if you elect to make additional nondeductible after tax contributions to your traditional 401 k account there is a total employee and employer contribution amount for the year 20employer matchingemployers who match employee contributions use various formulas to calculate that match for instance an employer might match 0 50 for every 1 that the employee contributes up to a certain percentage of salary vanguard estimates that about four in 10 companies have 401 k matching contributions of up to 6 of their employees wages only 10 of companies offer more than that 21lazaroff who also hosts the investment education podcast the long term investor said that if you can take advantage of your employer s matching contributions you should 22 it s a risk free way to grow your money and not leave part of your compensation on the table meeting the match doesn t necessarily mean you have to sacrifice other financial goals such as paying down debt or establishing an emergency fund he said you can still chip away at debt and put away small amounts in an emergency fund if necessary but securing that employer match is crucial employer contributions can be made to a traditional 401 k account and a roth 401 k withdrawals from the former will be subject to tax whereas qualifying withdrawals from the latter are tax free 1617contributing to both a traditional and a roth 401 k if your employer offers both types of 401 k plans you can split your contributions putting some money into a traditional 401 k and some into a roth 401 k 17however the total contribution to the two types of accounts can t exceed the limit for one account 23 000 for those under age 50 in 2024 2017 even though everyone has different circumstances in general you should try to put in the maximum allowable amount in your 401 k said lazaroff the investopedia top 10 financial advisor | |
when you contribute to your 401 k account your money is invested according to your choices from the options your employer offers these typically include an assortment of stock and bond mutual funds as well as target date funds designed to reduce the risk of investment losses as you approach retirement | according to lazaroff target date funds are the way you re least likely to make mistakes these accounts contain a mix of stocks bonds and other securities that are adjusted as your chosen date approaches generally shifting toward more conservative investments as you near retirement you might be different from the average and you might accumulate enough wealth one day where a target date fund isn t the most appropriate but for many people it s one of the easier and least risky routes to take if available in their plan allows it lazaroff said several factors influence the pace and extent of your 401 k s growth including the amount you contribute annually any company matches investment performance and the time until retirement a significant benefit of a 401 k is tax deferred growth as long as you don t remove funds from your account you don t have to pay taxes on investment gains interest or dividends until you withdraw money from the account after retirement however if you have a roth 401 k you won t have to pay taxes on qualified withdrawals when you retire as contributions are made with after tax dollars 2324crucially opening a 401 k when you are young allows your money to grow more over time thanks to the power of compounding compounding occurs when the returns generated by your savings are reinvested into the account generating returns of their own over many years the compounded earnings on your 401 k account can exceed the amount you contributed this is why as you continue to contribute to your 401 k it can grow quite substantially by the time you retire 401 k withdrawalsonce your money goes into a 401 k it can be difficult to withdraw without paying taxes on the amount 23 make sure that you still save enough on the outside for emergencies and expenses you may have before retirement said dan stewart the head of dallas based revere asset management inc do not put all of your savings into your 401 k where you cannot easily access it if necessary earnings in a 401 k account are tax deferred for traditional 401 k accounts and tax free for roth accounts when you withdraw from a traditional 401 k that money which has never been taxed will be taxed as ordinary income roth account owners have already paid income tax on the money they contributed thus you won t owe taxes on withdrawals if you satisfy specific requirements 2524both traditional and roth 401 k owners must be at least 59 or meet other internal revenue service irs criteria such as being totally and permanently disabled when you start making withdrawals so you don t face any penalties 2317 usually there s an additional 10 early distribution tax on top of any other tax you owe if you withdraw early 2317some employers allow employees to take out a loan against their 401 k plan contributions essentially borrowing from themselves if you take out a 401 k loan and leave the job before repaying it you ll have to repay it in a lump sum or face the 10 penalty for an early withdrawal 26required minimum distributionstraditional 401 k account holders have required minimum distributions rmds after reaching a certain age withdrawals are called distributions in irs parlance 27account owners who have retired must start taking rmds from their 401 k plans at age 73 the size of the rmd is calculated based on your life expectancy at the time before 2020 the rmd age was 70 years old before 2023 it was 72 28 it was updated to age 73 in the omnibus spending bill h r 2617 in 2022 29note that distributions from a traditional 401 k are taxable but qualified withdrawals from a roth 401 k are not 24roth iras unlike roth 401 k s are not subject to rmds during the owner s lifetime 30traditional 401 k vs roth 401 k | |
when 401 k plans were first rolled out in the early 1980s companies and their employees had one choice the traditional 401 k 31 then in 2006 roth 401 k s arrived 32 roths are named for former u s senator william roth of delaware the primary sponsor of the 1997 legislation that made the roth ira possible 33 | at first roth 401 k s caught on slowly but now many employers offer them so the first decision employees often have to make is choosing between a roth and a traditional 401 k as a general rule employees who expect to be in a lower marginal tax bracket after they retire might want to opt for a traditional 401 k and take advantage of the immediate tax break employees anticipating a higher tax bracket after retiring might choose a roth 401 k to avoid paying taxes on their savings later this decision could be especially worthwhile if the roth has many years to grow as all the money earned by the contributions over decades will be tax free upon withdrawal as a practical matter the roth reduces your immediate spending power more than a traditional 401 k plan that matters if your budget is tight since it s difficult to predict what tax rates will be decades from now many financial advisors suggest putting money into both roth and traditional 401 k accounts 401 k vs brokerage accountbrokerage and 401 k accounts are both investment accounts but they serve different purposes a 401 k is primarily for retirement savings while a brokerage account can be used for various financial goals and offers more control over the investments a 401 k is a type of qualified retirement plan within it you can choose from a menu of investment options generally mutual funds where your money grows in a tax advantaged manner a brokerage account meanwhile is a private account where you can buy sell and hold whatever securities your broker has access to including mutual funds stocks bonds and exchange traded funds etfs brokerage accounts are taxable meaning that your capital gains and dividends are subject to tax in the current period there are also no contribution limits early withdrawal considerations or minimum distributions note that brokers may also offer individual retirement accounts iras which share certain features of both 401 k and individual accounts like a 401 k these retirement accounts grow tax deferred and have annual contribution limits that are lower than those of a 401 k they also require rmds at age 72 but like a brokerage account they are not employer sponsored and you can invest in a range of securities such as stocks bonds and etfs retirement accountemployer sponsoredlimited menu of investment optionstax deferredannual contribution limitsearly withdrawal penaltiesrmdspotential for employee matchingcan be used for anythingself sponsoredcan buy or sell any investmenttaxableno contribution limitsno withdrawal penaltiesno rmdsno matching | |
when you leave a company where you ve been employed and you have a 401 k plan you generally have four options | withdrawing the money is usually a bad idea unless you urgently need it the money will be taxable for the year it s withdrawn you will be hit with the additional 10 early distribution tax unless you are over 59 permanently disabled or meet the other irs criteria for an exemption from the rule 3423for a roth 401 k you can withdraw your contributions but not any profits tax free and without penalty at any time if you have had the account for at least five years 17 however you re still decreasing your retirement savings which you may regret later moving the money into an ira at a brokerage firm a mutual fund company or a bank means avoiding immediate taxes and maintaining the account s tax advantaged status what s more you can choose from among a wider range of investment choices than with your employer s plan 34the irs has relatively strict rules on rollovers and how they need to be accomplished running afoul of them is costly 35 typically the financial institution in line to receive the money will help with the process to prevent any missteps funds withdrawn from your 401 k must be rolled over to another retirement account within 60 days to avoid taxes and penalties 35in many cases employers permit a departing employee to keep a 401 k account indefinitely in their old plan though the employee can t contribute further this generally applies to accounts worth at least 5 000 for smaller accounts the employer may give the employee no choice but to move the money elsewhere 34leaving the money where it is makes sense if the former employer s plan is well managed and you are satisfied with its investment choices the danger is that employees who change jobs throughout their careers can leave a trail of old 401 k plans and may forget about one or more of them their heirs might also be unaware of the existence of the accounts capitalize an investment platform specializing in rolling over forgotten or left behind 401 k accounts estimates that in 2023 there were almost 30 million such accounts in the u s holding about a quarter of americans total assets in 401 k plans 36you can usually move your 401 k balance to your new employer s plan 34 as with an ira rollover this maintains the account s tax deferred status and avoids immediate taxes if you aren t comfortable with managing a rollover ira you can leave some of the work to the new plan s administrator | |
what is the maximum contribution to a 401 k | for most people the maximum contribution to a 401 k plan is 23 000 in 2024 if you are more than 50 years old you can make an additional catch up contribution of 7 500 for both years there are also limitations on the employer s matching contribution the combined employer employee contributions cannot exceed 69 000 in 2024 or 76 500 for employees over 50 years old 2037 | |
is it a good idea to take early withdrawals from your 401 k | there are few advantages to taking an early withdrawal from a 401 k plan if you withdraw before 59 you will face a 10 penalty in addition to any taxes you owe however some employers allow hardship withdrawals for sudden financial needs such as medical costs funeral costs or buying a home 38 this can help you avoid the early withdrawal penalty but you will still have to pay taxes | |
what is the main benefit of a 401 k | a 401 k plan lets you reduce your tax burden while saving for retirement not only do you get tax deferred gains it s also hassle free since contributions are automatically subtracted from your paycheck many employers will match part of their employee s 401 k contributions effectively giving them a free boost to their retirement savings the bottom linea 401 k plan is a workplace retirement plan that allows you to make annual contributions up to a specific limit and invest that money for your later years after your working days are over there are two types of 401 k plans traditional or roth the traditional 401 k involves pretax contributions that give you a tax break when you make them and reduce your taxable income however you pay ordinary income tax on your withdrawals the roth 401 k involves after tax contributions and no upfront tax break but you won t pay taxes on your withdrawals in retirement both accounts allow employer contributions that can increase your savings | |
what is a 403 b tax sheltered annuity plan | a 403 b is a retirement plan offered by public schools and non profit organizations and is similar to a 401 k plan a 403 b plan is designed for certain employees of tax exempt organizations participants may include teachers school administrators professors government employees nurses doctors and librarians 403 b contributionsthe 403 b tax sheltered annuity plan operates like a 401 k plan allowing participants to save money for retirement through payroll deductions while enjoying certain tax benefits there s also an option for the employer to match part of the employee s contribution with contribution limits set by the internal revenue service irs a 403 b is akin to a 401 k plan for private sector employees participants must reach 59 before withdrawing funds or face an early withdrawal penalty 1 those who contribute to a 403 b include if an employer offers a 403 b and a 401 k individuals can contribute to both but their aggregate contribution cannot exceed the annual irs limit of 23 000 in 2024 individuals aged 50 and over can contribute an additional 7 500 as a catch up contribution 3types of 403 b tax sheltered annuity planstwo 403 b plans include traditional and roth not all employers allow employees access to the roth version a traditional 403 b plan allows the employee to have pretax money automatically deducted from each paycheck and paid into a personal retirement account the employee reduces their gross income and income tax for the contribution year taxes will be due on the money only when the employee withdraws it 2a roth 403 b requires that after tax money be paid into the retirement account there s no immediate tax advantage but the employee will not owe any more taxes on that money or the profit it accrues when it is withdrawn 4clergy can also participate in a 403 b but there s a special plan type that s designed specifically for employees of religious institutions this plan is called the 403 b 9 advantages of 403 b plansearnings and returns on amounts in a regular 403 b plan are tax deferred until they are withdrawn earnings and returns on amounts in a roth 403 b are tax deferred if the withdrawals are qualified distributions 2many 403 b plans vest funds over a shorter period than 401 k s and some even allow immediate vesting of funds which 401 k s rarely do an employee with 15 or more years of service with certain nonprofits or government agencies may be able to make additional catch up contributions to a 403 b plan such as 3 000 a year up to a lifetime limit of 15 000 unlike the usual retirement plan catch up provisions individuals don t have to be 50 or older to take advantage of this as long as they have worked for the same eligible employer for 15 years 5disadvantages of 403 b plansfunds withdrawn from a 403 b plan before age 59 are subject to a 10 tax penalty individuals may avoid the penalty under certain circumstances such as separating from an employer at age 55 or older needing to pay a qualified medical expense or becoming disabled 1 | |
when the 403 b was invented in 1958 it was known as a tax sheltered annuity 6 a 403 b may offer a narrower choice of investments than other plans although these plans offer mutual fund options inside variable annuity contracts contributors can only choose between fixed and variable contracts and mutual funds inside these plans securities such as stocks and real estate investment trusts reits are prohibited 7 | earnings and returns in regular 403 b plans are tax deferred until they are withdrawnmany 403 b plans vest funds over shorter periods while some vest immediatelyemployees with 15 or more years of service may make additional catch up contributionswithdrawals before age 59 are subject to a 10 tax penaltyplans may offer narrower investment choices than other plansaccounts within a 403 b may lack the creditor protection provided by other plans | |
what are the similarities between 401 k and 403 b | some employers offer employees the opportunity to contribute to both a 401 k and 403 b each offers employees a tax advantaged way to save for retirement but investment choices are often more limited in a 403 b plan than a 401 k 401 k s serve private sector employees 82 unlike a 401 k the 403 b plan offers a special plan for those with 15 or more years of service with the same employer 5 | |
when is money in a 403 b tax sheltered annuity plan taxed | the deferred salary is not subject to federal or state income tax until the money is distributed a 403 b plan may offer designated roth accounts and contributions are taxed in the income year is tax free when distributed 9 | |
what types of employers can establish a 403 b plan | public educational institutions or 501 c 3 tax exempt organizations are the only types of employers that may establish a 403 b plan 9the bottom linethe 403 b is offered by public schools and other tax exempt organizations to many of their employees it works just like a 401 k plan supported by corporations and may include matching contributions the irs establishes annual contributions to 403 b tax sheltered annuity plans | |
what is a 408 k plan | the term 408 k account refers to an employer sponsored retirement savings plan a 408 k plan allows employees to put aside pretax dollars for retirement that grow on a tax deferred basis making it a type of individual retirement account ira this means that individuals pay taxes when they make withdrawals after they turn 59 the 408 k is commonly referred to as a simplified employee pension sep plan in fact it is the sep version of the popular 401 k plan understanding 408 k planssection 408 k of the internal revenue code irc outlines the rules and regulations associated with sep and salary reduction simplified employee pension sarsep accounts notably individual retirement accounts iras or individual retirement annuities that is why sep plans are often referred to as 408 k plans 1the irc highlights the requirements needed in order to participate in a 408 k plan plans are available to small businesses of any size and to self employed individuals participants qualify if they are annual employer contributions cannot exceed the lesser of 25 of the employee s pay or 61 000 for 2022 66 000 for 2023 the annual compensation limit cannot be calculated on incomes exceeding 305 000 for 2022 330 000 in 2023 the maximum deduction claimed on a business tax return for contributions is the lesser of the total contributions into employees accounts or 25 of compensation 2plan holders can make withdrawals from their 408 k plans at any time the same way they would from traditional iras but there are certain conditions that apply for instance most individuals make withdrawals after they turn 59 any distributions from these plans before that age incur a 10 early withdrawal penalty 2 withdrawals must be made as required minimum distributions rmds as of april 1 the year after you turn 72 if you reached that age on or before dec 31 2022 3 you must begin taking rmds if you turn 73 on or after jan 1 2023 4unlike traditional retirement plans seps don t have the same start up or administrative costs 56408 k plans vs 401 k plansas noted above a 408 k is one type of employer sponsored retirement plan the 401 k plan is the most common option and is offered by the vast majority of american corporations the plan allows taxpayers to make pre tax contributions through automatic payroll deductions and employer matches for those that make them 7plan reform has made several changes to benefit employees including lower fees and investment options the average 401 k plan now offers over two dozen investment options by balancing risk and reward in accordance with an employee s preferences 8 unlike an sep employees may contribute to a 401 k plan 9 a solo 401 k plan is also available to self employed individuals or couples with the same total contribution limits as an employer sponsored plan participation in traditional 401 k plans continues to grow these plans held roughly 6 3 trillion in assets by september of 2022 which represented more than half of the retirement market in the united states 10 there were 625 000 active plans in the country with a total of 60 million former employees and retirees at the end of september 2022 here are a few other facts related to the 401 k that taxpayers should know correction jan 27 2023 a previous version of this article misstated that 408 k plans are available to companies with 25 employees or less it was corrected to state that plans are open to companies of any size | |
what was a 412 i plan | a 412 i plan was a defined benefit pension plan that was designed for small business owners in the u s it was classified as a tax qualified pension plan so any amount that the company contributed to it could immediately be taken as a tax deduction by the company the employee could also deduct their contributions guaranteed annuities or a combination of annuities and life insurance were the only things that could fund a 412 i plan the 412 i plan was replaced by the 412 e 3 plan after december 31 2007 understanding a 412 i plannotably 412 i plans were developed for small business owners who often found it difficult to invest in their company while trying to save for employees retirement the 412 i plan was unique in that it provided fully guaranteed retirement benefits insurance companies backed and offered the 412 i plans to employers and only insurance products like annuities and life insurance policies could be held in the plan contributions to it provided large tax deductions an annuity is a financial product that an individual can purchase via a lump sum payment or installments the insurance company in turn pays the owner a fixed stream of payments at some point in the future annuities are primarily used as an income stream for retirees due to the large premiums that had to be paid into the plan each year a 412 i plan was not ideal for all small business owners the plan tended to benefit small businesses that were more established and profitable for example a small business that had reached a stable mature and profitable state would have been better positioned to create a 412 i plan than a bootstrapped startup or one that had only recently received angel or seed funding these companies also often don t generate enough free cash flow fcf to put away consistently for employees retirement instead the founding team members often re invest any profits or outside funding back into their product or service to generate new sales and make updates to their core offerings 412 i plans and compliance issues412 e 3 due to the abuses of the 412 i plan resulting in tax avoidance schemes the internal revenue service irs moved the 412 i provisions to 412 e 3 effective for plans beginning after december 31 2007 412 e 3 functions similarly to 412 i except that it is exempt from the minimum funding rule according to the irs the requirements for 412 e 3 are as follows | |
what is a 457 plan | a 457 plan is a tax advantaged retirement savings plan offered to employees of many state and local governments and some nonprofit organizations like the better known 401 k plan in the private sector the 457 plan allows employees to deposit a portion of their pre tax earnings in an account reducing their income taxes for the year while postponing the taxes due until the money is withdrawn after they retire a roth version of the 457 plan which allows after tax contributions may be allowed at the employer s discretion there are two main types of 457 plans investopedia julie bangtypes of 457 plansas noted the 457 plan comes in two flavors the 457 b and the 457 f the 457 b plan is most often offered to civil servants police personnel and other employees of government agencies public services and nonprofit organizations such as hospitals churches and charitable organizations it is similar to a 401 k participants set aside a percentage of their salary into a retirement account the employees choose how their money is invested from a list of options mostly mutual funds and annuities the account grows in value without being taxed over the years when the employee retires taxes will be due on the amount withdrawn 1employees are allowed to contribute up to 100 of their salary provided it does not exceed the dollar limit set for the year 2if the 457 plan does not meet statutory requirements the assets may be subject to different rules 457 b contribution limitsas of 2023 employees can contribute up to 22 500 per year to 457 plans this limit increases to 23 000 for 2024 in some cases workers are allowed to contribute even more for example if an employer permits catch up contributions workers over the age of 50 may pay in an additional 7 500 a year making their maximum contribution limit 30 000 22 500 7 500 in 2023 the catch up contribution remains at 7 500 for tax year 2024 making the maximum contribution limit 30 500 23 000 7 500 also 457 b plans feature a double limit catch up provision this is designed to allow participants who are nearing retirement to compensate for years in which they did not contribute to the plan but were eligible to do so in this case employees who are within three years of retirement age may contribute up to 45 000 in 2023 and up to 46 000 in 2024 32advantages and disadvantages of a 457 b planthe 457 b plan has all of the advantages of a 401 k although there are some differences tax benefitsif a traditional rather than a roth plan is chosen the contributions are deducted from an employee s paycheck on a pre tax basis that amount is subtracted from the employee s gross income effectively lowering the person s taxes paid for that year for example if alex earns 4 000 per month and contributes 700 to a 457 b plan alex s taxable income for the month is 3 300 employees invest their contributions in their choice or choices from a selection of annuities and mutual funds all interest and earnings generated from year to year remain untaxed until the funds are withdrawn 4withdrawals without penaltythere is one big difference between the 457 b and other tax advantaged retirement plans no penalty for early withdrawals in some circumstances if an employee retires early or resigns from the job for any reason the funds can be withdrawn without incurring a 10 penalty from the irs 56 early withdrawals from most retirement plans are subject to the penalty except for certain hardship reasons the penalty was waived for two years during the covid 19 pandemic 7a 457 b account holder can take a penalty free withdrawal without changing jobs like a 401 k account holder the list of acceptable reasons however is limited to unforeseeable emergencies 8exceptions to the rulesearly withdrawals from a 457 b are subject to the 10 penalty if the account holder rolls the funds over from a 457 to any other tax advantaged retirement account such as a 401 k this would happen if for example a government employee quit to take a job in the private sector 9in addition anyone who takes money out of a retirement account early must keep in mind that any income taxes due on that money will be owed in the year that the withdrawal is taken one potential advantage of most tax advantaged retirement savings plans is the employer match an employer may choose to match some portion of an employee s contribution to the plan an employer who matches the first 3 of the employee s contribution for example is presenting the employee with a 3 raise employer match is rareemployers can match their employees contributions to a 457 b but in practice most don t if they do the employer contribution counts toward the maximum contribution limit 2 this is not the case for 401 k plans 10for instance in 2023 if an employer contributes 10 000 to a 457 b plan the employee can add only 12 500 for the year until the 22 500 contribution limit is reached except for those eligible to use the catch up option 11looser rules for early withdrawals without a penalty early distributions allowed for participants who leave a job as with other retirement plans no taxes are due until money is withdrawn employer contributions count toward contribution limit the year they vest employer contributions subject to vesting schedule if the employee quits non vested funds are forfeited limited investment choices compared to private sector plans 457 b vs 403 b the 403 b plan like the 457 b is mostly available to public service employees they are a particularly common benefit offered to public school teachers 12the 403 b has its origins in the 1950s when it exclusively offered an annuity to participants 13 participants still have the option of creating an annuity but they also can choose to invest in mutual funds 4in fact the 403 b has changed over the years until it closely resembles the private sector s 401 k plan although the investment choices offered to participants are relatively limited the annual contribution limits are identical to those of the 457 b and 401 k plans 14if you re a public employee your employer may well offer a 457 b or a 403 b dan stewart cfa revere asset management dallas tx457 plans are taxed as income similar to a 401 k or 403 b when distributions are taken the only difference is there are no withdrawal penalties and that they are the only plans without early withdrawal penalties but you also have the option of rolling the assets in an ira rollover this way you can better control distributions and only take them when needed so if you take the entire amount as a lump sum the entire amount is added to your income and may push you into a higher tax bracket with the rollover route you could take out a little this year and so on as needed thus controlling your taxes better and while it remains inside the ira it continues to grow tax deferred and is protected from creditors | |
what is the difference between a 457 b plan and a 457 f plan | the 457 b plan is a version of the 401 k plan that is designed for public and nonprofit workers it helps employees save for retirement while deferring the tax bill until they retire and start withdrawing the money the roth version which is available only at the employer s discretion takes the taxes upfront so no taxes are usually due on withdrawals 1the 457 f plan is also known as a serp for supplemental executive retirement plan it is a retirement savings plan for only the highest paid executives in the tax exempt sector they are mostly employed in hospitals universities and credit unions a 457 f is a supplement to a 457 b employers make additional contributions to the employee s account beyond the usual limits these are negotiated by contract and amount to a deferred salary adjustment 15if the executive resigns before an established vesting period the 457 f contribution disappears the plan is intended as an executive retention strategy commonly known as golden handcuffs 166 | |
is a 457 b plan better than a 401 k plan | for all intents and purposes a 457 b is just as good as a 401 k plan if your employer is a public agency or a nonprofit it s probably your best option for retirement savings assuming you opt for a traditional plan rather than a roth plan you ll be lowering your taxable income from year to year while plunking that money into a long term investment account the money won t be taxed until you retire and start taking withdrawals 2 if it s a roth you ll pay the taxes up front and usually will owe no taxes on the money you deposited or the profits it earns over the years 17on the downside your contributions will probably not be matched by your employer but that s just reality in the nonprofit sector not a rule of the plan | |
how and when can i make withdrawals from my 457 b account | one advantage of a 457 b is that you can take early withdrawals without paying a tax penalty for any unforeseeable emergency this isn t a good idea since you re plundering your retirement savings but unforeseeable emergencies do happen and you ll owe income tax for that year on the amount you withdraw 8the required minimum distribution rmd you must take is determined by an irs worksheet an rmd is a minimum amount that must be withdrawn from certain retirement plans like a 457 b each year once you reach a certain age 18 if you were born between 1951 and 1959 the age is 73 if you were born in 1960 or after the age is 75 this is an increase from the previous age of 72 1920 | |
what is the 48 hour rule | the 48 hour rule is a requirement that sellers of to be announced tba mortgage backed securities mbs communicate all pool information regarding the mbs to buyers before 3 p m eastern time 48 hours before the settlement date of the trade the securities industry and financial markets association sifma enforces this rule sifma was formerly known as the public securities association or bond market association 1understanding the 48 hour rulean mbs is a bond that is secured or backed by mortgage loans loans with similar traits are grouped to form a pool the pool is then sold as a security to investors the issuance of interest and principal payments to investors is at a rate based on the principal and interest payments made by the borrowers of the underlying mortgages investors receive interest payments monthly rather than semiannually a to be announced tba trade is effectively a contract to buy or sell mortgage backed securities mbs on a specific date it does not include information regarding the pool number the number of pools or the exact amount involved in the transaction which means the underlying mortgages are not known to the parties this exclusion of data is due to the tba market assuming that mbs pools are more or less interchangeable this interchangeability helps facilitate trading and liquidity the 48 hour rule is part of the mortgage allocation process the period when the underlying mortgages will be assigned and made available to a specific mbs which was created to bring transparency to tba trade settlements the 48 hour rule states that the seller of a specific mbs must make the buyer of that mbs aware of the mortgages that make up the mbs 48 hours prior to the trade settling because of the standard t 3 settlement date this usually occurs on the day after the trade is executed the 48 hour rule as part of the tba processthe tba process benefits buyers and sellers because it increases the liquidity of the mbs market by taking thousands of different mortgage backed securities with different characteristics and trading them through a handful of contracts buyers and sellers of tba trades agree on a few necessary parameters such as issuer maturity coupon price par amount and settlement date the specific securities involved in the trade are announced 48 hours before the settlement the tba market was established in the 1970s to facilitate the trading of mbs issued by fannie mae freddie mac and ginnie mae it allows mortgage lenders to hedge their origination pipelines 2the tba market is the most liquid secondary market for mortgage loans resulting in high levels of market activity in fact the amount of money traded on the tba market is second only to the u s treasury market example of the 48 hour rulecompany abc decides to sell a mortgage backed security mbs to company xyz and company xyz accepts the sale will take place on tuesday on tuesday when the sale is made neither company abc nor company xyz knows the underlying mortgages that make up the mortgage backed security mbs the standard industry settlement is t 3 days meaning this trade will settle on friday according to the 48 hour rule on wednesday before 3 p m eastern time company abc will have to notify company xyz of the mortgage allocations it will receive when the trade settles | |
what is a 5 1 hybrid adjustable rate mortgage 5 1 arm | a 5 1 hybrid adjustable rate mortgage 5 1 arm begins with an initial five year fixed interest rate period followed by a rate that adjusts on an annual basis the 5 in the term refers to the number of years with a fixed rate and the 1 refers to how often the rate adjusts after that once per year as such monthly payments can go up sometimes dramatically after five years 1 | |
how a hybrid adjustable rate mortgage such as a 5 1 hybrid arm works | the 5 1 hybrid arm may be the most popular type of adjustable rate mortgage but it s not the only option there are 3 1 7 1 and 10 1 arms as well these loans offer an introductory fixed rate for three seven or 10 years respectively after which they adjust annually 2also known as a five year fixed period arm or a five year arm this mortgage features an interest rate that adjusts according to an index plus a margin hybrid arms are very popular with consumers as they may feature an initial interest rate significantly lower than a traditional fixed rate mortgage most lenders offer at least one version of such hybrid arms of these loans the 5 1 hybrid arm is especially popular other arm structures exist such as the 5 5 and 5 6 arms which also feature a five year introductory period followed by a rate adjustment every five years or every six months respectively notably 15 15 arms adjust once after 15 years and then remain fixed for the remainder of the loan less common are 2 28 and 3 27 arms with the former the fixed interest rate applies for only the first two years followed by 28 years of adjustable rates with the latter the fixed rate is for three years with adjustments in each of the following 27 years some of these loans adjust every six months rather than annually hybrid arms have a fixed interest rate for a set period of years followed by an extended period during which rates are adjustable example of a 5 1 hybrid arminterest rates change based on their marginal rates when arms adjust along with the indexes to which they re tied if a 5 1 hybrid arm has a 3 margin and the index is 3 then it adjusts to 6 but the extent to which the fully indexed interest rate on a 5 1 hybrid arm can adjust is often limited by an interest rate cap structure the fully indexed interest rate can be tied to several different indexes and while this number varies the margin is fixed for the life of the loan 3a borrower can save a significant sum on their monthly payments with a 5 1 hybrid arm assuming a home purchase price of 300 000 with a 20 down payment 60 000 a borrower with very good excellent credit can save 50 to 150 basis points on a loan and more than 100 per month in payments on their 240 000 loan of course that rate could rise so borrowers should anticipate a rise in their monthly payment be prepared to sell their home when their rate goes up or be ready to refinance | |
when refinancing from an arm to a fixed rate mortgage it s important to consider the new loan term carefully as it could have a significant impact on how much you pay in total interest to own the home | advantages and disadvantages of a 5 1 hybrid armin most cases arms offer lower introductory rates than traditional mortgages with fixed interest rates these loans can be ideal for buyers who plan to live in their homes for only a short period of time and sell before the end of the introductory period the 5 1 hybrid arm also works well for buyers who plan to refinance before the introductory rate expires that said hybrid arms like the 5 1 tend to have a higher interest rate than standard arms lower introductory rates than traditional fixed interest mortgagesinterest rates possibly drop before the mortgage adjusts resulting in lower paymentsgood for buyers who will live in their homes for short periods of timehigher interest rates than standard adjustable rate mortgages arms | |
could be trapped in unaffordable rate hikes due to personal issues or market forces | there s also a chance that the interest rate might decrease lowering the borrower s monthly payments when it adjusts but in many cases the rate will rise increasing the borrower s monthly payments if a borrower takes out an arm with the intention of getting out of the mortgage by selling or refinancing before the rate resets then personal finances or market forces might trap them in the loan potentially subjecting them to a rate hike that they can t afford consumers considering an arm should educate themselves on how they work 5 1 hybrid arm vs fixed rate mortgagea 5 1 hybrid arm may be a good mortgage option for some homebuyers but for others a fixed rate mortgage may be more appropriate a fixed rate mortgage has one set interest rate for the life of the loan the rate is not tied to an underlying benchmark or index rate and doesn t change the interest rate charged on the first payment is the same interest that applies to the final payment 4a fixed rate mortgage could yield advantages for a certain type of homebuyer if you re interested in predictability and stability with mortgage rates for example then you might lean toward a fixed rate loan instead of a 5 1 hybrid arm comparing them side by side can make it easier to decide on a mortgage option | |
is a 5 1 hybrid arm a good idea | a 5 1 hybrid arm could be a good choice for homebuyers who don t plan to stay in the home long term or who are confident in their ability to refinance to a new loan before the rate adjusts if interest rates remain low and adjustments to the index rate are relatively minor then a 5 1 hybrid arm could save you more money over time compared to a fixed rate mortgage but it s important to consider how feasible refinancing is and where interest rates might be when you re ready to move to a new loan if interest rates rise then refinancing to a new fixed rate loan or even to a new arm may not yield that much in interest savings if you don t plan to refinance and don t plan to move then it s important to consider how realistic that might be for your budget if a rate adjustment substantially increases your monthly payment if the payment becomes too much for your budget to handle you may be forced into a situation where you have to sell the property or refinance and in a worst case scenario you could end up facing foreclosure if you default on the loan payments if you re interested in refinancing from a 5 1 hybrid arm to a fixed rate mortgage consider the interest rates for which you re likely to qualify based on your credit history and income to determine if it s worthwhile | |
what is a 5 6 hybrid adjustable rate mortgage arm | a 5 6 hybrid adjustable rate mortgage arm has a fixed interest rate for the first five years after which the interest rate can change every six months a 5 6 hybrid adjustable rate mortgage arm combines the characteristics of a traditional fixed rate mortgage with those of an adjustable rate mortgage | |
how a 5 6 hybrid adjustable rate mortgage arm works | a 5 6 hybrid arm starts with a fixed interest rate and then the interest rate becomes adjustable for the remaining years of the loan the adjustable rate is based on a benchmark index such as the prime rate the lender will also add additional percentage points known as a margin if the index is currently at 4 and the lender s margin is 3 then the fully indexed interest rate for the borrower will be 7 a 5 6 hybrid arm should have caps on how much the interest rate can rise over the life of the loan this offers protection against rising interest rates that could make the monthly mortgage payments unmanageable see our picks for best mortgage lenders | |
how are 5 6 hybrid arms indexed | lenders use different indexes to set interest rates on 5 6 hybrid arms the u s prime rate and constant maturity treasury cmt rate are commonly used 1 in a rising interest rate environment the longer the period between interest rate reset dates the better it will be for the borrower a 5 1 hybrid arm would be better than a 5 6 arm because its interest rate would not rise as quickly the opposite would be true in a falling interest rate environment 5 6 hybrid arm vs fixed rate mortgagemany adjustable rate mortgages including 5 6 hybrid arms start with lower interest rates than fixed rate mortgages providing the borrower with a significant savings advantage especially if they expect to sell the home or refinance their mortgage before the fixed rate period of the arm ends borrowers should ensure that the lender doesn t impose costly prepayment penalties for getting out of the mortgage early the 5 6 hybrid arm comes with interest rate risk because the interest rate can increase every six months after the first five years the monthly payments may become unaffordable for the borrower with a fixed rate mortgage the interest rate will never rise the interest rate risk is mitigated if the 5 6 hybrid arm has periodic and lifetime caps on any interest rate increases | |
what is an adjustable rate mortgage | an adjustable rate mortgage arm is a home loan with a variable interest rate with an arm the initial interest rate is fixed for a period after that the interest rate applied on the outstanding balance resets periodically at yearly or even monthly intervals | |
how is the interest rate on a 5 6 arm determined | the lender will set the five year fixed rate based on creditworthiness and the prevailing interest rates when the adjustable rate kicks in after five years it will be based on a benchmark index such as the prime rate plus an additional percentage added by the lender known as the margin | |
does anything prevent interest rates from rising too high on a 5 6 arm | many 5 6 hybrid arms and other types of arms have caps that limit how much rates can rise in any given period and in total over the life of the loan the bottom linea 5 6 hybrid adjustable rate mortgage has a fixed interest rate for the first five years and then the rate adjusts every six months the rate is commonly linked to a benchmark index such as the prime rate | |
what is a 501 c 3 organization | section 501 c 3 is a portion of the u s internal revenue code irc and a specific tax category for nonprofit organizations organizations that meet section 501 c 3 requirements are exempt from federal income tax the internal revenue service irs recognizes more than 30 types of nonprofit organizations but only those that qualify for 501 c 3 status can say that donations made to them are tax deductible 1most of the organizations that may be eligible for 501 c 3 designation fall into one of three categories charitable organizations churches and religious organizations and private foundations 2 the rules outlined in section 501 c 3 are regulated by the u s treasury through the irs | |
how a 501 c 3 organization works | a group must operate exclusively for one of certain purposes to be considered a charitable organization by the irs charitable religious educational scientific literary testing for public safety fostering national or international amateur sports competition or preventing cruelty to children or animals 3the irs further defines charitable activities as relief of the poor the distressed or the underprivileged advancement of religion advancement of education or science erecting or maintaining public buildings monuments or works lessening the burdens of government lessening neighborhood tensions eliminating prejudice and discrimination defending human and civil rights secured by law and combating community deterioration and juvenile delinquency 3requirements of a 501 c 3 organizationan organization must not be serving any private interests to be tax exempt under section 501 c 3 these include the interests of the creator the creator s family shareholders of the organization other designated individuals or other persons controlled by private interests none of the net earnings of the organization can be used to benefit any private shareholder or individual all earnings must be used solely for the advancement of its charitable cause 4a 501 c 3 organization is also forbidden from using its activities to influence legislation in a substantial way including participating in any campaign activities to support or deny any particular political candidate it s typically not permitted to engage in lobbying except in instances when its expenditures are below a certain amount 56people employed by the organization must be paid reasonable compensation which is based on the fair market value that the job function requires 7the 501 c 3 designation remains for as long as the organization exists unless it is revoked by the irs 8an organization is also required to remain true to its founding purpose to stay tax exempt under section 501 c 3 an organization must maintain the purpose that it has previously reported to the irs such as that its mission is to help less privileged individuals gain access to a college education the 501 c 3 organization must first notify the irs of its change of operations if it decides to engage in another calling such as sending relief to displaced families in poverty stricken countries failing to do so would result in the loss of its tax exempt status 9some unrelated business income is allowed for a 501 c 3 organization but the tax exempt charity may not receive substantial income from unrelated business operations the majority of the firm s efforts must go toward its exempt purpose as a nonprofit organization any unrelated business from sales of merchandise or rental properties must be limited or the organization could lose its 501 c 3 status 10the irs doesn t specify exactly how much is too much unrelated business income but the law firm of hurwit associates which specializes in representing nonprofits estimates the amount at somewhere between 15 and 30 11organizations that meet the requirements of section 501 c 3 are exempt from federal income tax but they re required to withhold federal income tax from their employees paychecks as well as withhold and pay social security and medicare taxes 12special considerationsorganizations that meet the 501 c 3 tax category requirements can be classified into two categories public charities and private foundations the primary distinction between these two categories is in how they get their financial support 13a public charity is a nonprofit organization that receives a substantial portion of its income or revenue from the general public or the government at least one third of its income must be received from donations from the general public including individuals corporations and other nonprofit organizations 14individuals who donate to an organization that the irs considers to be a public charity may qualify for certain tax deductions that can help them lower their taxable income the total amount of donations to a tax exempt public charity that an individual can claim is generally limited to 60 of their adjusted gross income agi as of 2024 but there s no limitation on donations to qualified charitable organizations such as a 501 c 3 15a private foundation is typically held by an individual a family or a corporation and it obtains most of its income from a small group of donors private foundations are subject to stricter rules and regulations than public charities all 501 c 3 organizations are automatically classified as private foundations unless they can prove that they meet the irs standards to be considered a public charity 16 the deductibility of contributions to a private foundation is more limited than donations made to a public charity 15most nonprofit organizations are required to file form 1023 or form 1023 ez within 27 months from their date of incorporation to apply for tax exempt status under section 501 c 3 17 the charitable organization must include its articles of incorporation and provide documents that prove that the organization is only operating for exempt purposes 13however not all organizations that qualify for the tax category must submit form 1023 public charities that earn less than 5 000 in revenue per year are exempt from filing this form but they may still choose to file the form even though it s not required so they can ensure that donations made to their organization will be tax deductible for donors 18advantages and disadvantages of a 501 c 3 organizationthe 501 c 3 status offers a myriad of benefits to the designated organizations and the people they serve these organizations are exempt from paying federal income and unemployment taxes and patrons who donate to them are allowed to claim a tax deduction for their contributions these organizations are eligible to receive government and private grants to help with funding and to further their mission the organization must have a mission aligned with the purpose of the grant and a need for it to qualify these organizations also often receive discounts from retailers free advertising by way of public service announcements and food and supplies from other nonprofit organizations designed to help in times of need a 501 c 3 could be the lifelong dream of its founder but it no longer belongs to its founder after it s established as a 501 c 3 it s a mission oriented organization that belongs to the public it must operate within the confines of the law pertaining to 501 c 3 organizations to maintain its favorable tax treatment because the organization serves the public it must operate with full transparency its finances including salaries are available to members of the public and subject to their review 19exempt from federal taxescontributions are tax deductibleeligible for government and private grants | |
does not belong to those who created it | restricted to specific operations to receive tax exemptionsfinancial information is publicly accessibleexample of a 501 c 3 organizationthe american red cross established in 1881 and congressionally chartered in 1900 is one of the united states oldest nonprofit organizations 20 its mission statement says that the red cross prevents and alleviates human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors since its inception its goal has been to serve members of the armed forces and provide aid during disasters 21the red cross is located in 192 countries and operates the largest network of volunteers in the world this 501 c 3 organization is segmented into three divisions the national red cross and red crescent societies the international federation of red cross and red crescent societies and the international committee of the red cross 22the national red cross and red crescent societies include the american red cross they aim to relieve human suffering globally by empowering subordinate organizations to operate within their nation s borders to provide disaster relief education and other related services the international federation of red cross and red crescent societies provides global humanitarian aid during peacetime such as assisting refugees the international committee of the red cross provides humanitarian relief for people who are affected by war or other armed conflicts 22individuals who itemize their tax deductions can contribute to the red cross and claim the amount donated as a deduction 23 taxpayers who use the standard deduction could still claim up to 600 of their 501 c 3 contributions as a tax deduction in 2021 but this tax provision has expired 24 | |
how do you start a 501 c 3 | you must define the type of organization and its purpose or mission ensure that a name isn t taken before selecting one secure the name by registering it with your state if it s available otherwise secure the name when filing the articles of incorporation the articles of incorporation must be filed with the state in which it will be organized and according to the state s rules for nonprofit organizations apply for the 501 c 3 irs exemption form 1023 and state tax exemption for nonprofit organizations after you ve filed then create your organization s bylaws which specify how the organization will be structured and governed finally appoint and meet with your board of directors | |
how much does it cost to start a 501 c 3 | the costs associated with creating a 501 c 3 can vary according to the needs of the organization but some can be approximated filing the articles of incorporation with the state typically costs about 100 the irs form 1023 filing fee is 600 but form 1023 ez can be filed for 275 by organizations that expect less than 50 000 in annual earnings 2526 | |
how long does it take to get a 501 c 3 determination letter | a determination letter is sent after applying for the 501 c 3 exemption the irs will only say that applications are processed as quickly as possible and are processed in the order received by the irs 27 however it does provide a list of 10 tips that can shorten the process the website boardeffect which offers software designed to make the work of their boards of directors easier more efficient and more effective says it can take as little as two to four weeks if you can file form 1023 ez but those who must or choose to file form 1023 will likely wait for anywhere from three to six months to get their letter while in some cases the wait can be as long as a year 28 | |
do you have to be a corporation to get a 501 c 3 | the organization must be formed as a trust a corporation or an association to qualify for the 501 c 3 status according to the irs 29 | |
what is the difference between a 501 c 3 and a 501 c 4 | a 501 c 3 organization is a nonprofit organization established exclusively for one of the following purposes charitable religious educational scientific literary testing for public safety fostering national or international amateur sports competition or preventing cruelty to children or animals these organizations are mostly prohibited from engaging in lobbying 6501 c 4 organizations which are also nonprofit are social welfare groups and are permitted to engage in lobbying 30the bottom line501 c 3 organizations are nonprofit groups with a dedicated mission most people are familiar with them as churches and charities but they also include private foundations they receive favorable tax treatment such as avoiding federal income and unemployment taxes as long as they operate to support their mission | |
what is 501 c | 501 c is a subsection of the united states internal revenue code irc that confers tax exempt status on nonprofit organizations specifically it identifies which nonprofit organizations are exempt from paying federal income tax the government offers this tax break to promote the presence of organizations that exist purely for the public good and help them stay afloat common tax exempt organizations include charities government entities advocacy groups educational and artistic groups and religious entities types of 501 c organizationsunder subsection 501 c there are multiple sections that delineate the different types of tax exempt organizations according to their purpose and operations the most common include groups that might fit the designated categories must still apply for classification as 501 c organizations and meet all of the stipulations required by the irs tax exemption is not automatic regardless of the nature of the organization 2501 c 3 organizationsthe 501 c 3 organization is probably the most familiar tax category outlined in section 501 c 3 of the irc it covers the sort of nonprofits that people commonly come into contact with and donate money to see special considerations below in general there are three types of entities that are eligible for 501 c 3 status charitable organizations churches religious entities and private foundations other types of 501 c organizationsthe 501 c designation has expanded over time to encompass more types of organizations 3other organizations that qualify for listing under this designation can potentially include tax exempt organizations must file certain documents to maintain their status as explained in irs publication 557 4tax deductible donations to 501 c organizationsin addition to being tax exempt themselves 501 c organizations offer a tax advantage to others a portion of donations they receive may be deductible from a taxpayer s adjusted gross income agi organizations falling under section 501 c 3 which are primarily charities and educational or social welfare orientated nonprofits are often qualified to offer this benefit to donors 5in general an individual who itemizes deductions on their tax return may deduct contributions to most charitable organizations up to 50 60 for cash contributions of their agi computed without regard to net operating loss carrybacks individuals generally may deduct charitable contributions to other organizations up to 30 of their agi 6the irs offers an exempt organization database that allows you to check an organization s status 7a charity or nonprofit must have 501 c 3 status if you plan to deduct your donation to it on your federal tax return the organization itself can often tell you which sorts of donations are deductible and to what extent for example if you buy a one year museum membership for 100 50 might be deductible | |
what is the meaning of 501 c organization | if an organization is labeled 501 c it means it is a nonprofit organization concerned with providing a public benefit and is exempt from paying federal income taxes the 501 c designation encompasses many types of organizations including charities government entities advocacy groups educational and artistic groups and religious entities | |
what is the difference between a 501 c and a 501 c 3 | 501 c and 501 c 3 are two different tax categories in the internal revenue code both are nonprofit organizations exempt from federal income tax however a 501 c 3 which consists of charitable organizations churches religious entities and private foundations can also tell its donors that they can deduct their contributions on their tax returns | |
what are the types of nonprofits | the irs has issued a long list of the type of nonprofit organizations that can qualify for 501 c status common examples include charitable organizations churches and religious organizations social advocacy groups and trade organizations 4the bottom lineorganizations that are formed strictly to help the public and not primarily to make a profit as is the case with most businesses are an important presence in society the u s government rewards these entities with a 501 c designation and tax exempt status because they reduce the burden on the state and improve the lives of the population we aren t just talking about charities here either the irs recognizes dozens of different types of nonprofit organizations as 501 c s including some credit unions and insurers | |
what is a 51 attack | a 51 attack is an attack on a cryptocurrency blockchain by an entity or group that controls more than 50 of the network if a party were to gain this much control of a network it would have the power to alter the blockchain the attackers would be able to prevent new transactions from gaining confirmations allowing them to halt payments between some or all users they would also be able to reverse non confirmed transactions that were completed while they were in control reversing transactions could allow them to double spend coins one of the issues mechanisms like proof of work were created to prevent understanding a 51 attacka blockchain is a distributed ledger essentially a database that records transactions and information about them the blockchain s network reaches a majority consensus about transactions through a validation process the blocks where the data is stored are sealed the blocks are linked together via cryptographic techniques where previous block information is recorded in each block this makes the blocks nearly impossible to alter once they are confirmed enough times the 51 attack is an attack on the blockchain where a group controls more than 50 of the hashing power the computing that solves the cryptographic puzzle of the network this group then introduces an altered blockchain to the network at a very specific point in the blockchain which is theoretically accepted by the network because the attackers would own most of it 1changing historical blocks transactions locked in before the start of the attack would be extremely difficult even in the event of a 51 attack the further back the transactions are the more difficult it is to change them it would be impossible to change transactions before a checkpoint where transactions become permanent in bitcoin s blockchain a 51 attack is a very difficult and challenging task on a blockchain network with a large participation rate in most cases the group of attackers would need to be able to control the necessary 51 and have created an alternate blockchain that can be inserted at exactly the right moment then they would need to out hash the main network the cost of doing this is one of the most significant factors that prevent a 51 attack for example one of the most advanced application specific integrated circuit asic miners is the whatsminer m63s it costs more than 10 000 new and has a hash rate of 406 terahashes per second th s 2 a single or smaller group of miners would not be able to alter and mine the bitcoin blockchain with only a few of these machines it would take thousands of these asics to get ahead of the bitcoin network smaller networks could be out hashed using these mining rigs but the benefits of doing so wouldn t outweigh the costs of funding the attack and setting it up hashing power rental services provide attackers with lower costs as they only need to rent as much hashing power as they need for the duration of the attack 3after ethereum transitioned to proof of stake a 51 attack on the ethereum blockchain became even more expensive to conduct this attack a user or group would need to own 51 of the staked eth on the network it is possible for someone to own that much eth but it s unlikely according to beaconchain more than 32 3 million eth were staked on may 8 2024 4 an entity would need to own and stake more than 16 5 million eth more than 49 billion as of may 8 2024 to attempt an attack 5once the attack started the consensus mechanism would likely recognize it and immediately slash the staked eth costing the attacker an extraordinary amount of money additionally the community can vote to restore the honest chain so an attacker would lose all of their eth just to see the damage repaired 6in addition to the costs a group attempting to attack the network using a 51 attack must not only control 51 of the network but also introduce the altered blockchain at a very precise time even if they own 51 of the network hashing rate they still might not be able to keep up with the block creation rate or get their chain inserted before valid new blocks are created by the honest blockchain network again this is possible on smaller cryptocurrency networks because there is less participation and lower hash rates large networks make it nearly impossible to introduce an altered blockchain despite the name it is not necessary to have 51 of a network s mining power to launch an attack however such an attack would have a much lower chance of success in the event of a successful attack the attackers could block other users transactions or reverse them and spend the same cryptocurrency again this vulnerability known as double spending is the digital equivalent of a perfect counterfeit it is also the basic cryptographic hurdle blockchain consensus mechanisms were designed to overcome successful 51 attackers may also implement a denial of service dos attack where they block the addresses of other miners for the period they control the network 1 this keeps the honest miners from reacquiring control of the network before the dishonest chain becomes permanent who is at risk of 51 attack the type of mining equipment is also a factor as asic secured mining networks are less vulnerable than those that can be mined with gpus they are much faster cloud services such as nicehash which considers itself a hash power broker theoretically make it possible to launch a 51 attack using only rented hash power especially against smaller gpu only networks 7bitcoin gold has been a common target for attackers because it is a smaller cryptocurrency by hashrate since june 2019 the michigan institute for technology s digital currency initiative has detected observed or been notified of more than 40 51 attacks also called chain reorganizations or reorgs on bitcoin gold litecoin and other smaller cryptocurrencies 3 | |
are the odds of a bitcoin 51 attack growing | on may 8 2024 the bitcoin network s total hashrate was 569 29 exahashes per second eh s the top three mining pools by three day hashrate were 8combined these three pools made up 72 1 of the network hashrate a whopping 486 9 eh s 486 9 million th s the cpu in your computer might be able to hash at about 15 kilo hashes per second if foundry and viabtc were to collude they could take over 51 of the hashrate 248 eh s foundry and antpool combined could control 69 3 of the network because these pools use platforms to connect pool members and manage workloads if the managers decided to take control they could issue work orders to their pools to work on the altered chain the pool s miners would have no idea which chain they were working on since their mining rigs automatically work on whatever task they are given even more concerning is that these three pools also monopolize the majority of the network hash rates for bitcoin cash litecoin and bitcoin sv these pools have been operating for several years without issue but the fact remains that they already control most hashing power of the minable and profitable cryptocurrencies 8 | |
what does a 51 attack do | a 51 attack alters blocks that are being added to the blockchain giving the attackers the ability to create or alter transactions for the period they are in control | |
has a 51 attack ever happened | yes several blockchains have been attacked using this method but they had small networks were new or had other vulnerabilities that made it possible | |
how much would a 51 attack on btc cost | if a large mining pool was directed by its managers to conduct an attack it wouldn t cost the managers much at the time of the attack however it would likely lose its honest miners once they found out about it for a single person or group to conduct a 51 attack they would need more than 304 eh s of computing power this is an enormous cost considering the fastest miner hashes 406 th s and costs more than 10 000 per unit about 84 000 units the bottom linea 51 attack is the unlikely event that a group will acquire more than 50 of the hashing power of a cryptocurrency network these attacks happen on smaller crypto networks but tend to fail on larger ones like bitcoin because they are more secure the comments opinions and analyses expressed on investopedia are for informational purposes online read our warranty and liability disclaimer for more info | |
what is 52 week high low | the 52 week high low is the highest and lowest price at which a security such as a stock has traded during the time period that equates to one year understanding the 52 week high lowa 52 week high low is a technical indicator used by some traders and investors who view these figures as an important factor in the analysis of a stock s current value and as a predictor of its future price movement an investor may show increased interest in a particular stock as its price nears either the high or the low end of its 52 week price range the range that exists between the 52 week low and the 52 week high the 52 week high low is based on the daily closing price for the security often a stock may actually breach a 52 week high intraday but end up closing below the previous 52 week high thereby going unrecognized the same applies when a stock makes a new 52 week low during a trading session but fails to close at a new 52 week low in these cases the failure to register as having made a new closing 52 week high low can be very significant one way that the 52 week high low figure is used is to help determine an entry or exit point for a given stock for example stock traders may buy a stock when the price exceeds its 52 week high or sell when the price falls below its 52 week low the rationale behind this strategy is that if a price breaks out from its 52 week range either above or below that range there must be some factor that generated enough momentum to continue the price movement in the same direction when using this strategy an investor may utilize stop orders to initiate new positions or add on to existing positions it is not uncommon for the volume of trading of a given stock to spike once it crosses a 52 week barrier in fact research has demonstrated this according to a study called volume and price patterns around a stock s 52 week highs and lows theory and evidence conducted by economists at pennsylvania state university the university of north carolina at chapel hill and the university of california davis in 2008 small stocks crossing their 52 week highs produced 0 6275 excess gains in the following week correspondingly large stocks produced gains of 0 1795 in the following week over time however the effect of 52 week highs and lows became more pronounced for large stocks on an overall basis however these trading ranges had more of an effect on small stocks as opposed to large stocks 152 week high low reversalsa stock that reaches a 52 week high intraday but closes negative on the same day may have topped out this means that its price may not go much higher in the near term this can be determined if it forms a daily shooting star which occurs when a security trades significantly higher than its opening but declines later in the day to close either below or near its opening price often professionals and institutions use 52 week highs as a way of setting take profit orders as a way of locking in gains they may also use 52 week lows to determine stop loss levels as a way to limit their losses given the upward bias inherent in the stock markets a 52 week high represents bullish sentiment in the market there are usually plenty of investors prepared to give up some further price appreciation in order to lock in some or all of their gains stocks making new 52 week highs are often the most susceptible to profit taking resulting in pullbacks and trend reversals similarly when a stock makes a new 52 week low intra day but fails to register a new closing 52 week low it may be a sign of a bottom this can be determined if it forms a daily hammer candlestick which occurs when a security trades significantly lower than its opening but rallies later in the day to close either above or near its opening price this can trigger short sellers to start buying to cover their positions and can also encourage bargain hunters to start making moves stocks that make five consecutive daily 52 week lows are most susceptible to seeing strong bounces when a daily hammer forms 52 week high low examplesuppose that stock abc trades at a peak of 100 and a low of 75 in a year then its 52 week high low price is 100 and 75 typically 100 is considered a resistance level while 75 is considered a support level this means that traders will begin selling the stock once it reaches that level and they will begin purchasing it once it reaches 75 if it does breach either end of the range conclusively then traders will initiate new long or short positions depending on whether the 52 week high or 52 week low was breached | |
what is the 52 week range | the 52 week range is a data point traditionally reported by printed financial news media but more modernly included in data feeds from financial information sources online the data point includes the lowest and highest price at which a stock has traded during the previous 52 weeks investors use this information as a proxy for how much fluctuation and risk they may have to endure over the course of a year should they choose to invest in a given stock investors can find a stock s 52 week range in a stock s quote summary provided by a broker or financial information website the visual representation of this data can be observed on a price chart that displays one year s worth of price data understanding the 52 week rangethe 52 week range can be a single data point of two numbers the highest and lowest price for the previous year but there is much more to the story than these two numbers alone visualizing the data in a chart to show the price action for the entire year can provide a much better context for how these numbers are generated since price movement is not always balanced and rarely symmetrical it is important for an investor to know which number was more recent the high or the low usually an investor will assume the number closest to the current price is the most recent one but this is not always the case and not knowing the correct information can make for costly investment decisions two examples of the 52 week range in the following chart show how useful it might be to compare the high and low prices with the larger picture of the price data over the past year image by sabrina jiang investopedia 2021these examples show virtually the same high and low data points for a 52 week range set 1 marked in blue lines and a trend that seems to indicate a short term downward move ahead image by sabrina jiang investopedia 2021the overlapping range on the same stock set 2 marked in red lines now seems to imply that an upward move may be following at least in the short term both of these trends can be seen to play out as expected though such outcomes are never certain technical analysts compare a stock s current trading price and its recent trend to its 52 week range to get a broad sense of how the stock is performing relative to the past 12 months they also look to see how much the stock s price has fluctuated and whether such fluctuation is likely to continue or even increase the information from the high and low data points may indicate the potential future range of the stock and how volatile its price is but only the trend and relative strength studies can help a trader or analyst understand the context of those two data points most financial websites that quote a stock s share price also quote its 52 week range sites like yahoo finance finviz com and stockcharts com allow investors to scan for stocks trading at their 12 month high or low current price relative to 52 week rangeto calculate where a stock is currently trading at in relations to its 52 week high and low consider the following example suppose over the last year that a stock has traded as high as 100 as low as 50 and is currently trading at 70 this means the stock is trading 30 below its 52 week high 1 70 100 0 30 or 30 and 40 above its 52 week low 70 50 1 0 40 or 40 these calculations take the difference between the current price and the high or low price over the past 12 months and then convert them to percentages 52 week range trading strategiesinvestors can use a breakout strategy and buy a stock when it trades above its 52 week range or open a short position when it trades below it aggressive traders could place a stop limit order slightly above or below the 52 week trade to catch the initial breakout price often retraces back to the breakout level before resuming its trend therefore traders who want to take a more conservative approach may want to wait for a retracement before entering the market to avoid chasing the breakout volume should be steadily increasing when a stock s price nears the high or low of its 12 month range to show the issue has enough participation to break out to a new level trades could use indicators like the on balance volume obv to track rising volume the breakout should ideally trade above or below a psychological number also such as 50 or 100 to help gain the attention of institutional investors | |
what is a 529 plan | as the cost of higher education continues to rise and the problems of many americans spending much of their adulthood mired in student debt is readily apparent many are turning to tax advantaged 529 savings plans to help fund their children s education named after section 529 of the internal revenue code irc these plans were originally designed to cover postsecondary education costs their scope has greatly expanded in the last decade in 2017 and 2019 respectively congress passed legislation allowing 529 plans to cover the costs of k 12 education and apprenticeship programs 1 later the setting every community up for retirement enhancement secure act of 2019 and the secure 2 0 act of 2022 permitted 529 funds to be used for student loan repayment and roth ira contributions 23there are two main types of 529 plans despite their advantages the education data initiative estimated in 2023 that only about 30 of american college savings are held in 529 accounts nevertheless those who do use them contribute an average of over 7 500 annually 6understanding 529 plansalthough 529 plans take their name from section 529 of the federal tax code they are administered by the 50 states and the district of columbia 7anyone can open a 529 account but parents or grandparents typically establish them on behalf of a child or grandchild the account s beneficiary in some states the person who funds the account may be eligible for a state tax deduction for their contributions the money in a 529 plan grows tax deferred until it is withdrawn what s more as long as the money is used for qualified education expenses as defined by the internal revenue service irs withdrawals aren t subject to either state or federal taxes in addition some states may offer tax deductions on contributions 4for k 12 students tax free withdrawals are limited to 10 000 annually 8since tax benefits vary from state to state you should check the details of any 529 plan to understand the specific tax benefits to which you may be entitled types of 529 plansthe two main types of 529 plans have some significant differences of the two types 529 savings plans are more common the account holder contributes money to the plan which is invested in a preset selection of investment options account holders can choose which investments usually mutual funds they want to make how those investments perform determines how much the account value grows over time many 529 plans offer target date funds which adjust their assets as the years go by becoming more conservative as the beneficiary approaches college age withdrawals from a 529 savings plan can be used for college and k 12 qualified expenses qualified expenses include tuition fees room and board and related costs 9the secure act of 2019 expanded tax free 529 plan withdrawals to include registered apprenticeship program expenses and up to 10 000 in student loan debt repayment for account beneficiaries and their siblings 3the secure act of 2022 passed as part of the 2023 omnibus funding bill permits rolling over up to 35 000 of unspent funds in a 529 account into a roth ira account the account must be at least 15 years old to qualify 1011prepaid tuition plans are offered by a few states and some higher education institutions they vary in their specifics but the general principle is that they allow you to lock in tuition at current rates for a student who may not be attending college for years to come prepaid plans are not available for k 12 education as with 529 savings plans prepaid tuition plans grow in value over time eventual withdrawals from the account used to pay tuition are not taxable however unlike savings plans prepaid tuition plans do not cover the costs of room and board prepaid tuition plans may place a limit on which colleges they may be used for by contrast the money in a savings plan can be used at almost any eligible institution in addition the money paid into a prepaid tuition plan isn t guaranteed by the federal government and may not be guaranteed by some states 9 be sure you understand all aspects of the prepaid tuition plan before you use it there are no limits on how much you can contribute to a 529 account each year however many states cap the total amount you can contribute over time ranging from 235 000 to 575 000 12tax advantages of 529 planswithdrawals from a 529 plan are exempt from federal and state income taxes provided the money is used for qualified educational expenses any other withdrawals are subject to taxes plus a 10 penalty with exceptions for certain circumstances such as after death or disability 9contributions to a 529 plan aren t tax deductible for federal income tax purposes however more than 30 states provide tax deductions or credits of varying amounts for these contributions 12you need to invest in your home state s plan if you want a state tax deduction or credit however some states will allow you to invest in their plans as a nonresident if you re willing to forgo a tax break in 2024 the annual gift tax exclusion has increased to 18 000 up from 17 000 in 2023 this means that you can give up to 18 000 per year to any individual without it counting against your lifetime gift tax exemption which has also increased to 13 61 million for single filers and 27 22 million for married couples filing jointly up from 12 92 million and 25 84 million in 2023 respectively this background on gift taxes is important for 529 plans since there are additional tax advantages for those who wish to contribute to the savings of a future college student you can contribute up to five years worth of annual gift tax exclusions in a single lump sum without triggering gift tax consequences for instance in 2024 a grandparent could make a one time contribution of 90 000 to their grandchild s 529 plan 18 000 annual exclusion x five years as long as the grandparent does not make any additional contributions to the same beneficiary over the next five years this lump sum contribution will not count against their lifetime gift tax exemption 131benefits and potential drawbacks of 529 plans529 plans vs brokerage accountseducation savings accountinstitutionally sponsoredlimited investment optionstax deferred growthtax exempt withdrawals for qualified education expensesannual contribution limitsgeneral investment accountself sponsoredno limits on investment optionsgains and dividends are taxedno tax exemptionsno contribution limits | |
when saving for college 529 plans and individual brokerage accounts are two popular options a 529 plan is a tax advantaged investment account designed specifically for education expenses by contrast a brokerage account is a general purpose investment account with no specific tax benefits for education savings | section 529 plans are sponsored by a state or financial institution and have limited investment options often through a menu of mutual funds or etfs your selection may include age based options that automatically adjust the asset allocation as the beneficiary approaches college age they also offer tax deferred growth and tax free withdrawals for qualified education expenses plan withdrawals are then tax free if used for qualified education expenses such as tuition fees books and room and board some states offer additional tax benefits such as deductions or credits for contributions to in state 529 plans there are no annual contribution limits but there are limits on the total in a given account from 235 000 in georgia and mississippi to 575 000 in california 14meanwhile brokerage accounts offer a wide range of investment options including individual stocks bonds mutual funds and etfs there are no contribution limits but gains and dividends are taxable in the current period there are also no additional benefits to using the proceeds for educational purposes suppose your child does not end up going to college in that case funds in a 529 plan can be transferred to another qualifying family member or used for other education expenses such as apprenticeships graduate school or student loan repayments up to 10 000 nonqualified withdrawals or transfers however are fully taxable and may carry penalties brokerage account funds can be used for any purpose including education without restrictions or penalties 529 plan transferability rulessection 529 plans have specific transferability rules governed by the federal tax code the owner may transfer funds to another 529 plan once per year unless a beneficiary change is involved you are not required to change plans to change beneficiaries you may transfer the plan to another family member who is defined as one of the following you aren t restricted to investing in your own state s 529 plan but doing so may get you a tax break be sure to check out your state s plan first additional tips for 529 plansas with other kinds of investing the earlier you get started the better with a 529 plan your money will have more time to grow and compound the sooner it s opened and funded prepaid tuition plans offer the advantage of locking in current tuition rates potentially saving you money compared with future prices as many schools increase tuition annually if you have leftover funds in a 529 plan such as when the beneficiary receives a significant scholarship or chooses not to go to college you have several options you can change the beneficiary to another qualifying relative keep the current beneficiary in case they decide to pursue higher education later or attend graduate school or use up to 10 000 to repay the original beneficiary s or their siblings federal or private student loans you can also transfer unused funds to a roth ira if your account meets the necessary requirements lastly you can always withdraw the money although you will be subject to taxes and a 10 penalty on the earnings portion of the withdrawal | |
how much does a 529 plan cost | states often charge an annual maintenance fee for a 529 plan which ranges from free to 25 15 in addition if you bought your 529 plan through a broker or advisor they may charge you an additional fee for the assets under management 16 the individual investments and funds inside your 529 may also charge ongoing fees look for low cost mutual funds and etfs to keep management fees low who maintains control over a 529 plan a 529 plan is technically a custodial account so an adult custodian controls the funds for the benefit of a minor the beneficiary can assume control over the 529 once they turn 18 however the funds must still be used for qualifying education expenses | |
what are qualified expenses for a 529 plan | qualified expenses for a 529 plan include the following 1the bottom linecreating a 529 plan gives you a tax advantaged strategy to save for educational expenses from kindergarten to graduate school including apprenticeship programs 17 if the 529 account is 15 or more years old you can move up to 35 000 of unspent funds into a roth ira account with many choices for a 529 plan you get great flexibility and the potential for tax advantaged growth to help with saving for the needs of future college students | |
what is a 529 plan | as the cost of higher education continues to rise and the problems of many americans spending much of their adulthood mired in student debt is readily apparent many are turning to tax advantaged 529 savings plans to help fund their children s education named after section 529 of the internal revenue code irc these plans were originally designed to cover postsecondary education costs their scope has greatly expanded in the last decade in 2017 and 2019 respectively congress passed legislation allowing 529 plans to cover the costs of k 12 education and apprenticeship programs later the setting every community up for retirement enhancement secure act of 2019 and the secure 2 0 act of 2022 permitted 529 funds to be used for student loan repayment and roth ira contributions there are two main types of 529 plans despite their advantages the education data initiative estimated in 2023 that only about 30 of american college savings are held in 529 accounts nevertheless those who do use them contribute an average of over 7 500 annually understanding 529 plansalthough 529 plans take their name from section 529 of the federal tax code they are administered by the 50 states and the district of columbia anyone can open a 529 account but parents or grandparents typically establish them on behalf of a child or grandchild the account s beneficiary in some states the person who funds the account may be eligible for a state tax deduction for their contributions the money in a 529 plan grows tax deferred until it is withdrawn what s more as long as the money is used for qualified education expenses as defined by the internal revenue service irs withdrawals aren t subject to either state or federal taxes in addition some states may offer tax deductions on contributions for k 12 students tax free withdrawals are limited to 10 000 annually since tax benefits vary from state to state you should check the details of any 529 plan to understand the specific tax benefits to which you may be entitled types of 529 plansthe two main types of 529 plans have some significant differences of the two types 529 savings plans are more common the account holder contributes money to the plan which is invested in a preset selection of investment options account holders can choose which investments usually mutual funds they want to make how those investments perform determines how much the account value grows over time many 529 plans offer target date funds which adjust their assets as the years go by becoming more conservative as the beneficiary approaches college age withdrawals from a 529 savings plan can be used for college and k 12 qualified expenses qualified expenses include tuition fees room and board and related costs the secure act of 2019 expanded tax free 529 plan withdrawals to include registered apprenticeship program expenses and up to 10 000 in student loan debt repayment for account beneficiaries and their siblings the secure act of 2022 passed as part of the 2023 omnibus funding bill permits rolling over up to 35 000 of unspent funds in a 529 account into a roth ira account the account must be at least 15 years old to qualify prepaid tuition plans are offered by a few states and some higher education institutions they vary in their specifics but the general principle is that they allow you to lock in tuition at current rates for a student who may not be attending college for years to come prepaid plans are not available for k 12 education as with 529 savings plans prepaid tuition plans grow in value over time eventual withdrawals from the account used to pay tuition are not taxable however unlike savings plans prepaid tuition plans do not cover the costs of room and board prepaid tuition plans may place a limit on which colleges they may be used for by contrast the money in a savings plan can be used at almost any eligible institution in addition the money paid into a prepaid tuition plan isn t guaranteed by the federal government and may not be guaranteed by some states be sure you understand all aspects of the prepaid tuition plan before you use it there are no limits on how much you can contribute to a 529 account each year however many states cap the total amount you can contribute over time ranging from 235 000 to 575 000 tax advantages of 529 planswithdrawals from a 529 plan are exempt from federal and state income taxes provided the money is used for qualified educational expenses any other withdrawals are subject to taxes plus a 10 penalty with exceptions for certain circumstances such as after death or disability contributions to a 529 plan aren t tax deductible for federal income tax purposes however more than 30 states provide tax deductions or credits of varying amounts for these contributions you need to invest in your home state s plan if you want a state tax deduction or credit however some states will allow you to invest in their plans as a nonresident if you re willing to forgo a tax break in 2024 the annual gift tax exclusion has increased to 18 000 up from 17 000 in 2023 this means that you can give up to 18 000 per year to any individual without it counting against your lifetime gift tax exemption which has also increased to 13 61 million for single filers and 27 22 million for married couples filing jointly up from 12 92 million and 25 84 million in 2023 respectively this background on gift taxes is important for 529 plans since there are additional tax advantages for those who wish to contribute to the savings of a future college student you can contribute up to five years worth of annual gift tax exclusions in a single lump sum without triggering gift tax consequences for instance in 2024 a grandparent could make a one time contribution of 90 000 to their grandchild s 529 plan 18 000 annual exclusion x five years as long as the grandparent does not make any additional contributions to the same beneficiary over the next five years this lump sum contribution will not count against their lifetime gift tax exemption benefits and potential drawbacks of 529 plans529 plans vs brokerage accountseducation savings accountinstitutionally sponsoredlimited investment optionstax deferred growthtax exempt withdrawals for qualified education expensesannual contribution limitsgeneral investment accountself sponsoredno limits on investment optionsgains and dividends are taxedno tax exemptionsno contribution limits | |
when saving for college 529 plans and individual brokerage accounts are two popular options a 529 plan is a tax advantaged investment account designed specifically for education expenses by contrast a brokerage account is a general purpose investment account with no specific tax benefits for education savings | section 529 plans are sponsored by a state or financial institution and have limited investment options often through a menu of mutual funds or etfs your selection may include age based options that automatically adjust the asset allocation as the beneficiary approaches college age they also offer tax deferred growth and tax free withdrawals for qualified education expenses plan withdrawals are then tax free if used for qualified education expenses such as tuition fees books and room and board some states offer additional tax benefits such as deductions or credits for contributions to in state 529 plans there are no annual contribution limits but there are limits on the total in a given account from 235 000 in georgia and mississippi to 575 000 in california meanwhile brokerage accounts offer a wide range of investment options including individual stocks bonds mutual funds and etfs there are no contribution limits but gains and dividends are taxable in the current period there are also no additional benefits to using the proceeds for educational purposes suppose your child does not end up going to college in that case funds in a 529 plan can be transferred to another qualifying family member or used for other education expenses such as apprenticeships graduate school or student loan repayments up to 10 000 nonqualified withdrawals or transfers however are fully taxable and may carry penalties brokerage account funds can be used for any purpose including education without restrictions or penalties 529 plan transferability rulessection 529 plans have specific transferability rules governed by the federal tax code the owner may transfer funds to another 529 plan once per year unless a beneficiary change is involved you are not required to change plans to change beneficiaries you may transfer the plan to another family member who is defined as one of the following you aren t restricted to investing in your own state s 529 plan but doing so may get you a tax break be sure to check out your state s plan first additional tips for 529 plansas with other kinds of investing the earlier you get started the better with a 529 plan your money will have more time to grow and compound the sooner it s opened and funded prepaid tuition plans offer the advantage of locking in current tuition rates potentially saving you money compared with future prices as many schools increase tuition annually if you have leftover funds in a 529 plan such as when the beneficiary receives a significant scholarship or chooses not to go to college you have several options you can change the beneficiary to another qualifying relative keep the current beneficiary in case they decide to pursue higher education later or attend graduate school or use up to 10 000 to repay the original beneficiary s or their siblings federal or private student loans you can also transfer unused funds to a roth ira if your account meets the necessary requirements lastly you can always withdraw the money although you will be subject to taxes and a 10 penalty on the earnings portion of the withdrawal | |
how much does a 529 plan cost | states often charge an annual maintenance fee for a 529 plan which ranges from free to 25 in addition if you bought your 529 plan through a broker or advisor they may charge you an additional fee for the assets under management the individual investments and funds inside your 529 may also charge ongoing fees look for low cost mutual funds and etfs to keep management fees low who maintains control over a 529 plan a 529 plan is technically a custodial account so an adult custodian controls the funds for the benefit of a minor the beneficiary can assume control over the 529 once they turn 18 however the funds must still be used for qualifying education expenses | |
what are qualified expenses for a 529 plan | qualified expenses for a 529 plan include the following the bottom linecreating a 529 plan gives you a tax advantaged strategy to save for educational expenses from kindergarten to graduate school including apprenticeship programs if the 529 account is 15 or more years old you can move up to 35 000 of unspent funds into a roth ira account with many choices for a 529 plan you get great flexibility and the potential for tax advantaged growth to help with saving for the needs of future college students | |
what are 60 plus delinquencies | the 60 plus delinquency rate is a metric that is typically used for the housing industry to measure the number of mortgage loans that are more than 60 days past due on their monthly payments a 60 plus delinquency rate is often expressed as a percentage of a group of loans that have been underwritten within a specified time period such as one year understanding 60 plus delinquenciesthe 60 plus delinquency metric can also be used for auto loans and credit cards the 60 plus delinquency rate is helpful because it shows creditors and lenders whether consumers are falling behind on their payments and if they re likely to default on their loans the 60 plus rate may be split into prime loans and subprime loans subprime loans are for borrowers with a poor credit history the 60 plus delinquency rate on subprime loans is typically higher than for prime loans oftentimes 60 plus rates are published separately for fixed rate loans versus adjustable rate loans which have a variable rate and might have the option to reset to a fixed rate later in the term monitoring the 60 day rates as well as other delinquency rates for borrowers can provide enormous insight into the financial health of consumers in an economy if economic conditions are favorable meaning steady economic growth then delinquency rates tend to fall conversely as economic conditions deteriorate unemployment tends to rise as consumers are laid off from their jobs with less income it becomes more difficult for consumers to make their mortgage payments leading to a spike in delinquencies throughout the economy also banks and mortgage lenders track delinquency rates since any interruption in mortgage payments represents a reduction in revenue if delinquencies persist in a poorly performing economy bank losses can rise as fewer mortgage payments are received which leads to fewer new loans being issued fewer loans being issued to consumers and businesses can exacerbate the already poor conditions within an economy making a recovery more challenging 60 plus delinquencies vs foreclosurethe 60 plus delinquency rate is often added to another negative event measure the foreclosure rate for the same group of loans the two metrics provide a cumulative measure of the individual mortgages that are either not being paid or being paid behind schedule since 60 plus delinquencies are less than 90 days the loans have yet to enter the foreclosure process foreclosure is the legal process in which a bank seizes a home due to default or nonpayment of the mortgage payments by the borrower although each lender may differ typically 90 to 120 days past due a home loan enters the pre foreclosure process | |
when a borrower is 90 days past due the lender usually files a notice of default which is a public notice submitted to the local court stating that the borrower s mortgage loan is in default borrowers can still try to work with their bank to modify the loan at this point in the process | if the loan payments are still not made beyond the 90 to 120 day period then the foreclosure process moves forward the bank will eventually seize the home and an auction will be held to sell the home to another buyer the 60 plus delinquency rate is a critical early warning metric for lenders to monitor providing time for the bank to contact the borrower and work out a payment plan to prevent the loan from going into pre foreclosure mortgage loans are sometimes grouped into a pool of loans that make up mortgage backed securities mbs an mbs is sold to investors as a fund in which they earn interest from the mortgage loans unfortunately investors often have no idea whether the loans that comprise the mbs are current meaning that the borrowers are not behind on their payments if the delinquency rate on past due mortgages rises beyond a certain level then the mortgage backed security may experience a shortfall of cash leading to difficulty making the interest payments to investors as a result a re pricing of the loan assets can occur resulting in some investors losing a portion or most of their invested capital special considerationshomeowners are usually at risk of losing their homes in an economic downturn but certain protections were put in place to help homeowners affected by the covid 19 pandemic in 2020 congress passed the coronavirus aid relief and economic security cares act which included a provision that allowed borrowers to skip their mortgage payments for up to a year a process called forbearance it also provided a moratorium on evictions the moratorium on foreclosures and evictions for enterprise backed mortgages including those backed by the u s department of agriculture usda and the federal housing administration fha has been extended several times the forbearance expires on sept 30 2021 the u s centers for disease control and prevention cdc announced a temporary halt on evictions in counties with substantial or high levels of community transmission of covid 19 the mandate was set to expire on oct 3 2021 but a u s supreme court ruling ended this protection on aug 26 2021 by striking down the moratorium below are some of the steps and key portions of your rights under the forbearance program that borrowers can opt into if they re delinquent on their mortgage payments borrowers must contact their lender or bank that issued the mortgage loan and request forbearance borrowers mustn t stop their mortgage payments until they are approved for forbearance from the lender if approved forbearance will cause any of your skipped payments to be added to the end of the loan s term meaning that the length of the loan will increase in other words borrowers still need to make those payments but instead of making the payments in the next few months those payments will be added to the end of the payment schedule for the mortgage the good news is that there are no penalties for delaying the payments as a result of forbearance also the missed payments won t hurt your credit score which is a numeric representation of your creditworthiness and ability to pay back your debt not all mortgage loans qualify the program typically limits approval to mortgages that are backed or funded by government sponsored enterprises gses such as fannie mae or freddie mac as a result it s important to contact your lender to see what type of mortgage you have as mentioned above the emergency measures signed during the covid 19 pandemic affect mortgages backed by agencies such as the usda and the fha example of 60 day mortgage delinquenciesthe mortgage bankers association mba tracks mortgage delinquency rates for the u s economy the mortgage delinquency rate peaked at 8 22 in the second quarter q2 of 2020 but fell to 6 38 within three quarters as of the first quarter q1 of 2021 this was the sharpest decline ever seen in such a short period of time for q1 2021 the earliest stage delinquencies the 30 day and 60 day delinquencies combined dropped to the lowest levels since the inception of the survey in 1979 fha backed mortgage loans had the highest delinquency rate in q1 2021 of all loan types at 14 67 the report notes that while many areas saw improvement from their mid pandemic highs delinquency rates as a whole are still higher than they were pre pandemic | |
what is an 8 k | an 8 k is a report of unscheduled material events or corporate changes at a company that could be of importance to the shareholders or the securities and exchange commission sec also known as a form 8k the report notifies the public of events including acquisitions bankruptcy the resignation of directors or changes in the fiscal year 1understanding form 8 kan 8 k is required to announce significant events relevant to shareholders companies usually have four business days to file an 8 k for most specified items 2investors can count on the information in an 8 k to be timely documents fulfilling regulation fair disclosure reg fd requirements may be due before four business days have passed an organization must determine if the information is material and submit the report to the sec the sec makes the reports available through the electronic data gathering analysis and retrieval edgar platform 2the sec outlines the various situations that require form 8 k there are nine sections within the investor bulletin each of these sections may have anywhere from one to eight subsections the most recent permanent change to form 8 k disclosure rules occurred in 2004 3benefits of form 8 kfirst and foremost form 8 k provides investors with timely notification of significant changes at listed companies many of these changes are defined explicitly by the sec in contrast others are simply events that firms consider to be sufficiently noteworthy in any case the form provides a way for firms to communicate directly with investors the information provided is not filtered or altered by media organizations in any way furthermore investors do not have to watch tv programs subscribe to magazines or even wade through financial news websites to get the 8 k form 8 k also provides substantial benefits to listed companies by filing an 8 k in a timely fashion the firm s management can meet specific disclosure requirements and avoid insider trading allegations companies may also use form 8 k to notify investors of any events that they consider to be important finally form 8 k provides a valuable record for economic researchers for example academics might wonder what influence various events have on stock prices it is possible to estimate the impact of these events using regressions but researchers need reliable data because 8 k disclosures are legally required they provide a complete record and prevent sample selection bias criticism of form 8 klike any legally required paperwork form 8 k imposes costs on businesses there is the cost of preparing and submitting the forms as well as possible penalties for failing to file on time although it is only one small part of the problem the need to file form 8 k also deters small companies from going public in the first place requiring companies to provide information helps investors make better choices however it can reduce their investment options when the burden on businesses becomes too high requirements for form 8 kthe sec requires disclosure for numerous changes relating to a registrant s business and operations changes to a material definitive agreement or the bankruptcy of an entity must be reported other financial information disclosure requirements include the completion of an acquisition changes in the firm s financial condition disposal activities and substantial impairments the sec mandates filing an 8 k for the delisting of a stock failure to meet listing standards unregistered sales of securities and material modifications to shareholder rights 2 an 8 k is required when a business changes accounting firms used for certification changes in corporate governance such as control of the registrant or amendments to articles of incorporation need to be reported changes in the fiscal year and modifications of the registrant s code of ethics must also be disclosed 2 the sec also requires a report upon the election appointment or departure of a director or specific officers form 8 k must be used to report changes related to asset backed securities the form may also be used to meet regulation fair disclosure requirements 2 form 8 k reports may be issued based on other events up to the company s discretion that the registrant considers to be of importance to shareholders 2 | |
what is the 80 20 rule | the 80 20 rule also known as the pareto principle is a familiar saying that asserts that 80 of outcomes or outputs result from 20 of all causes or inputs for any given event in business a goal of the 80 20 rule is to identify inputs that are potentially the most productive and make them the priority for instance once managers identify factors that are critical to their company s success they should give those factors the most focus although the 80 20 rule is frequently used in business and economics you can apply the concept to any field wealth distribution personal finance spending habits and even infidelity in personal relationships can all be the subject of the 80 20 rule investopedia jessica olah | |
how does the 80 20 rule work | you may think of the 80 20 rule as simple cause and effect 80 of outcomes outputs come from 20 of causes inputs the rule is often used to point out that 80 of a company s revenue is generated by 20 of its customers viewed in this way it might be advantageous for a company to focus on the 20 of clients that are responsible for 80 of revenues and market specifically to them by doing so the company may retain those clients and acquire new clients with similar characteristics however there s a more fundamental meaning to the 80 20 rule at its core the 80 20 rule is about identifying an entity s best assets and using them efficiently to create maximum value for example a student should try to identify which parts of a textbook will create the most benefit for an upcoming exam and focus on those first this does not imply however that the student should ignore the other parts of the textbook people may not realize that the 80 20 rule is a precept not a hard and fast mathematical law furthermore it is isn t necessary that the percentages equal 100 inputs and outputs simply represent different units the percentages of these units don t have to add up to 100 it s the concept behind the rule that matters there s another way in which the 80 20 rule is misinterpreted namely that if 20 of inputs are most important then the other 80 must not be important this is a logical fallacy the 80 can be important even if the decision is made to prioritize the 20 business managers from all industries use the 80 20 rule to help narrow their focus and identify those issues that cause the most problems in their departments and organizations 80 20 rule backgroundthe 80 20 rule is also known as the pareto principle and is applied in pareto analysis it was first used in macroeconomics to describe the distribution of wealth in italy in the early 20th century it was introduced in 1906 by italian economist vilfredo pareto who is best known for the concepts of pareto efficiency 1pareto noticed that 20 of the pea pods in his garden were responsible for 80 of the peas pareto expanded this principle to macroeconomics by showing that 80 of the wealth in italy was owned by 20 of the population in the 1940s dr joseph juran a prominent figure in the field of operations management applied the 80 20 rule to quality control for business production he demonstrated that 80 of product defects were caused by 20 of the problems in production methods by focusing on and reducing the 20 of production problems a business could increase the overall quality of its products juran referred to this phenomenon as the vital few and the trivial many 2read about investopedia s 10 rules of investing by picking up a copy of our special issue print edition benefits of the 80 20 rulealthough there is little scientific analysis that either proves or disproves the 80 20 rule s validity there is much anecdotal evidence that supports the rule as being essentially valid if not numerically accurate performance results of salespeople in a wide range of businesses have demonstrated success by incorporating the 80 20 rule in addition external consultants who use six sigma and other management strategies have incorporated the 80 20 principle in their practices with good results example of the 80 20 rulea harvard graduate student carla was working on an assignment for her digital communications class the project was to create a blog and monitor its success during the course of a semester carla designed created and launched the site midway through the term the professor conducted an evaluation of the blogs carla s blog though it had achieved some visibility generated the least amount of traffic compared with her classmates blogs carla happened upon an article about the 80 20 rule it said that you can use this concept in any field so carla began to think about how she might apply the 80 20 rule to her blog project she thought i used a great deal of my time technical ability and writing expertise to build this blog yet for all of this expended energy i am getting very little traffic to the site she now understood that even if a piece of content is spectacular it is worth virtually nothing if no one reads it carla deduced that perhaps her marketing of the blog was a greater problem than the blog itself to apply the 80 20 rule carla decided to assign her 80 to all that went into creating the blog including its content her 20 would be represented by a selection of the blog s visitors using web analytics carla focused closely on the blog s traffic she asked herself carla analyzed the answers to these questions and edited her blog accordingly significantly although her analysis did confirm that the blog s biggest problem was its marketing carla did not ignore its content she remembered the common fallacy cited in the article if 20 of inputs are most important then the other 80 must be unimportant and did not want to make that mistake she knew it was necessary to address aspects of the content as well by applying the 80 20 rule to her blog project carla came to understand her audience better and therefore targeted her top 20 of readers more purposefully she reworked the blog s structure and content based on what she learned and traffic to her site rose by more than 220 | |
what s the 80 20 rule | the 80 20 rule is a principle that states 80 of all outcomes are derived from 20 of causes it s used to determine the factors typically in a business situation that are most responsible for success and then focus on them to improve results the rule can be applied to circumstances beyond the realm of business too |
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