Archive for Andy Rachleff

10 Ways The CARES Act Puts Money In Your Pocket

10 Ways The CARES Act Puts Money In Your Pocket

(Special Note: Read To End Regarding Wealthfront $25,000 Giveaway On April 16th 2020)

The CARES Act, which was signed into law on March 27, is a $2 trillion stimulus package to help Americans cope with the economic fallout caused by the spread of COVID-19. We know these are difficult times, and it’s not always easy to figure out these policies on your own. We want to help. There are a variety of provisions in this bill that put money in your pocket, whether you’ve lost your job or you need to withdraw from your retirement accounts early. We’ve compiled a list of the ways you can benefit from the CARES Act and how to take advantage of them:

1. There’s a new deadline to file and pay your federal taxes
The CARES Act changes the federal tax filing and payment deadline from April 15 to July 15, meaning you’ll have an additional three months to file your federal tax return and pay any taxes you owe. In the meantime, money you owe can earn interest for you. That said, if you expect to receive a refund, we recommend filing ASAP so you can take advantage of your refund sooner. State filing and payment deadlines vary and aren’t always the same as the federal deadlines. Check with your state tax agency for those details. You can find more information here.

2. There’s a new deadline to make IRA contributions
If you’ve been planning to contribute to an IRA for the 2019 tax year, you now have three extra months to do so. As a reminder, the maximum allowable contribution for 2019 is $6,000 if you are under 50, and $7,000 if you are 50 or older. For more information about IRAs, check out our recent blog post and our IRA Account Selection Tool.

3. Depending on your income, you could get a direct payment from the IRS
If you earn $75,000 or less as a single filer, you’re likely eligible for a $1,200 payment. If you are married, file jointly, and earn $150,000 or less, you’re likely eligible for a $2,400 payment. Your income is determined based on your 2019 taxes if you have already filed. If not, they’re based on your 2018 tax return.
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Written by | Posted in CARES ACT

How Do Interest Rates Work? Everything You Need To Know

Wealthfront On Interest Ratres

Whether you *think* you completely understand what interest rates are and how they work, or you know that you definitely don’t know everything about them, this will lay out all the essential details.

While “interest” can feel like a dirty word for anyone with debt, there’s a lot more going on with these rates than the way they puff up the balance on your credit card. Since interest rates will invariably appear in nearly every aspect of your financial life, it’s incredibly important to understand the different types of interest and their implications on your financial plans. An interest rate has bearing on the size of your credit card bill, how long it takes you to pay off your mortgage or student loans — and it’s also what fuels your savings..

You probably already know a few things about interest rates, like that the principal balance of a loan is the amount you borrowed, and the interest is the money you pay on top of that every month as a fee for borrowing said money. What’s harder to determine is where interest rates come from (no, they don’t just appear out of thin air), how they work, and how they impact your money. Let’s dig into everything you need to know to speak interest rates fluently.

The Different Types Of Interest Rates

An interest rate on a savings, checking, or high-yield account will usually either have the term APR or APY attached. APR (annual percentage rate) tells you how much interest is paid in a given year, while APY (annual percentage yield) takes into account the year’s compounding interest. What’s compounding interest, you ask? Essentially, you earn interest on your interest, unlike simple interest, which is only based on the principal balance of a loan or investment.

For example, if you put $100 into an account with 5% simple interest, you’ll have $105 in a year and $150.00 in 10 years. Meanwhile, $100 in an account with 5% interest compounded monthly will be $105.12 in a year and $164.70 in 10 years. It works the same way for loans. If you take out a $10,000 loan with 5% interest that compounds monthly, you’ll owe $16,470 in 10 years (If you don’t make any payments, that is). Most mortgage loans, credit cards, and high-yield savings accounts will have compound interest.

Why Compound Interest Matters

Albert Einstein reportedly called compound interest “the eighth wonder of the world,” adding: “He who understands it, earns it; he who doesn’t, pays it.”
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Written by | Posted in How Interest Rates Work • Interest Rates

10 Things To Know About Tax-Loss Harvesting

Andy Rachleff- Tax Loss Harvesting

(SPECIAL NOTE: When You Open A Savings Account You Are Entered To Win $25,000 Each Week April 2, April 9 and April 16th 2020. View Link At Bottom)

For decades tax-loss harvesting was an obscure tool used to minimize taxes that was only available to the ultra wealthy. That all changed when Wealthfront launched its tax-loss harvesting service in October 2012. Many pundits and industry professionals who were unfamiliar with its benefits thought it couldn’t add much value. One of our competitors even referred to the concept as a “joke.” Well, times have changed, and now just about every automated investment service offers a version of tax-loss harvesting.

However, there are still many misperceptions of how and when tax-loss harvesting creates value, even among very intelligent investors. Here’s our Top 10 list of things you probably didn’t know about tax-loss harvesting:

1. Tax-loss harvesting derives its benefit from the combination of the difference in tax rates applicable to ordinary income, long-term and short-term capital gains and the compounding of your annual tax savings.

Many people mistakenly believe tax-loss harvesting provides no benefit because you must ultimately pay a tax on the gain that results from the lowered cost basis achieved through tax-loss harvesting. What they fail to realize is the tax rate you pay on the ultimate gain is almost always lower than the rate at which you can benefit from your harvested loss. That’s because your loss creates value at the short-term capital loss rate and the ultimate gain is taxed at the much lower long-term capital gains rate. Our typical Wealthfront client’s combined short term federal and state tax rate is 33% vs. 24% for the long term rate. In addition, the savings you create from tax-loss harvesting can be reinvested and compounded until you withdraw all your money from your investment account. Partial withdrawals can first be taken from investments with low gains, which results in minimal taxes.
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Software Is Better At Most Jobs Than People

ANDY RACHLEFF

Software is far better at most jobs than people are. I realize that statement will make a lot of people uncomfortable, but it’s true. In just about every industry I know, software-based solutions provide greater functionality, convenience and speed than their human counterparts. There’s just no way people can keep up. That’s what prompted Marc Andreessen to make his famous assertion that “software is eating the world.”

Ability to Scale Leads to a Better Outcome
The primary advantage of software is it can serve one person, or a million of them, equally well. Today, computing power is so cheap that it’s essentially free. So it doesn’t matter how complex a piece of software is; you just throw more hardware at it as needed. In fact, the more people who use a piece of software, the more useful the software becomes, because it can use the data it accumulates to discover patterns that humans couldn’t possibly spot.

To appreciate software in action, think about Amazon. You may feel nostalgic for the old-fashioned book seller, but you can’t say she was better than Amazon. A bookstore owner might have known the preferences of a few of her best customers. But there is no way she could pick the ideal book for each of them, much less give them a thorough set of reviews, both positive and negative, for a title they are thinking about buying. And no one particularly enjoys jostling in line in a crowded store, as happens on the last day of holiday shopping. At Amazon, though, there is never a wait, and lines are never a problem.
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Written by | Posted in Software As A Service • Wealthfront

10 Things To Know About Tax-Loss Harvesting

Tax Loss Harvesting

For decades tax-loss harvesting was an obscure tool used to minimize taxes that was only available to the ultra wealthy. That all changed when Wealthfront launched its tax-loss harvesting service in October 2012. Many pundits and industry professionals who were unfamiliar with its benefits thought it couldn’t add much value. One of our competitors even referred to the concept as a “joke.” Well, times have changed, and now just about every automated investment service offers a version of tax-loss harvesting.

However, there are still many misperceptions of how and when tax-loss harvesting creates value, even among very intelligent investors. Here’s our Top 10 list of things you probably didn’t know about tax-loss harvesting:

1. Tax-loss harvesting derives its benefit from the combination of the difference in tax rates applicable to ordinary income, long-term and short-term capital gains and the compounding of your annual tax savings.

Many people mistakenly believe tax-loss harvesting provides no benefit because you must ultimately pay a tax on the gain that results from the lowered cost basis achieved through tax-loss harvesting. What they fail to realize is the tax rate you pay on the ultimate gain is almost always lower than the rate at which you can benefit from your harvested loss. That’s because your loss creates value at the short-term capital loss rate and the ultimate gain is taxed at the much lower long-term capital gains rate. Our typical Wealthfront client’s combined short term federal and state tax rate is 33% vs. 24% for the long term rate. In addition, the savings you create from tax-loss harvesting can be reinvested and compounded until you withdraw all your money from your investment account. Partial withdrawals can first be taken from investments with low gains, which results in minimal taxes.
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Written by | Posted in Tax Loss Harvesting
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