Required minimum distributions are back. Do they apply to you?

By Sabrina Karl

One of Congress’ myriad stimulus measures of 2020 was suspending required minimum distributions for retirement accounts. But that free pass ended with the calendar year, and required minimum distributions, or RMDs, are back for 2021.

An RMD is the federal government’s way of putting some limit on how much tax savings you can get from tax-advantaged retirement accounts. Still, the tax most retirees will pay on RMDs is significantly outweighed by many years’ worth of tax advantages earned before RMDs are triggered. In a way, RMDs are like finally having to eat some vegetables after years of enjoying dessert.

RMDs are required on 401(k), 403(b), traditional IRA, SEP IRA, SIMPLE IRA, and Roth 401(k) accounts. They do not apply to Roth IRAs, as those can only be funded with money that’s already been taxed.

The year you must start taking RMDs is the year you turn 72, and how much you’re required to take out depends on your age, standard life expectancies, and your account’s value at the end of last year. Your brokerage or financial advisor can tell you the correct amount.

Of course, you’re free to withdraw more than the RMD amount. But beware that what you withdraw is taxed like ordinary income, so retirees tend to withdraw only as much as they need for the year to minimize the tax hit.

So what’s changed? Last year’s CARES Act suspended the RMD requirement, but just for 2020. That means anyone 72 or older last year could have skipped their 2020 RMD. But the rules are back in normal force this year.

That means you’ll need to withdraw the minimum amount from all of your RMD-required accounts by December 31 this year, or by April 1 next year if this is your first year of RMD status.

Three reasons the U.S. is short on available homes

By Sabrina Karl

The U.S. is experiencing a significant shortage of available homes, and it’s possible the scarcity could last a decade or more.

An analysis by National Public Radio’s “Planet Money” identified three factors that on their own would have significantly impacted the number of available housing units. But combined, they are having a dramatic effect that’s likely to take years to reverse.

The first is generational. Baby boomers are staying in their homes longer than older Americans of the past. In large part it’s because they’re healthier than previous cohorts, enabling them to live independently in their homes until a more advanced age. Consequently, though they make up 28% of the adult population, they own 44% of the homes.

A second impediment to increasing housing inventory is the growing practice by homeowners of blocking new developments. Many want nothing but stand-alone single-family homes added to their neighborhoods, and they’ve gotten more active in their opposition. As a result, many cities' zoning laws now prevent the building of duplexes, three-units, etc., which will make it very difficult, if not impossible, to add as many housing units as we need.

Lastly, our shortage can be traced back to the Great Recession, when the U.S. saw a glut of homes on the market. With too much inventory, the industry pulled back on more building, essentially starting this backlog more than ten years ago. More importantly, people who might have entered the housing trades didn't, since the near-term prospects for the industry were dim. As a result, the number of skilled trades needed for homebuilding is far below what’s needed to meet current demand, and it could take ten years or more to sufficiently replenish the country’s trades capacity.

Planet Money’s “Three Reasons for the Housing Shortage” aired July 30 and can be found online.

Protect yourself against identity theft with smart passwords

By Sabrina Karl

It might seem identity theft is such a common problem in today’s world that there’s little you can do to prevent it, other than hope you’re not among the unlucky victims. But there are lines of defense, and one of the most effective is simple: use strong passwords.

Millions of Americans reuse one password for numerous accounts, keep the password for years without changing it, use a single common word (“password” is among the most common), or use easily guessable personal details such as their birthdate or pet’s name. Still others use sequential characters or common keyboard paths, such as 123456, qwerty, 111111, abc123, or 123123.

So how do you choose hard-to-crack passwords? One of the smartest moves is using a password manager, which stores all of your passwords in an ultra-secure, encrypted data locker. These apps also offer random password generators to create long, complex passwords (which you won’t have to remember).

Still, you’ll occasionally need to create a password from scratch, including when setting the master password for your password manager. In these instances, use at least 15 characters, and consider mixing uppercase, lowercase, numeric, and symbol characters. Also avoid substituting numbers for letters (e.g, 3 for E and 8 for B). Hackers are entirely wise to this common trick.

If you prefer using words or phrases, two good tactics are to link 4-5 capitalized words that have no connection to one another with a special character, such as Lagoon#Coffee#Holiday#Cobra#. Or, craft a sentence unique to you and use the first two letters of every word. For instance, turn “My favorite crayon color is Burnt Sienna” into MyFaCrCoIsBuSi.

By combining use of a password manager with clever strategies for manual passwords, you can dramatically reduce the odds of identity thieves gaining access to your personal accounts.

Mortgages for income properties look a little different

By Sabrina Karl

If you’ve ever considered buying a property to rent out, or a home to renovate and flip, today’s historically low mortgage rates might have you tempted to take the leap.

But before you do, it’s important to know this: mortgages for investment property do not look the same as what you’re used to for primary residences.

Some things will be familiar. For instance, you can still choose a conventional mortgage or an FHA, VA, or USDA mortgage, depending on your qualifications. And 30-year fixed terms are certainly available for income properties (as are 10-, 15-, and 20-year terms and adjustable-rate mortgages).

However, loans on investment properties are riskier than those made on homes people will occupy themselves, as payments on one’s own mortgage tend to receive high priority when finances get tight.

Consequently, the best rate you can get for a rental property will always be higher than you can get from the same lender on a primary home. A good rule of thumb is that investment property loans tend to have rates 0.50% to 0.75% higher, with the rate premium going up if you’re buying a multi-unit investment property.

You’ll also face stricter qualification guidelines. For one, you’ll need a larger down payment. Fifteen percent (15%) down is generally the lowest threshold, and the requirement can go up to 25%, particularly for multi-unit properties.

In addition, minimum credit scores are also higher for investment properties. Whereas you can qualify for a primary residence mortgage with a score as low as 620, income property mortgages will require scores of 640 to 680, depending on loan type and number of units.

Also be aware that the lender will require you to have a cash reserve on hand that is sufficient for covering 6 to 12 months of mortgage payments.

4 in 10 millennials comfortable with buying a home online

By Sabrina Karl

Even after the pandemic is behind us, it appears that plenty of millennial homebuyers will continue to feel comfortable buying a home online.

The data comes from a recent survey by Zillow, which found that 39% of U.S. adults ages 25 to 40 report feeling comfortable with an all-virtual home purchase. More specifically, almost 6 in 10 (59%) said they are at least somewhat confident about making an offer on a home they viewed only virtually.

It’s an important finding, given that more than a third of homes nationwide (37%) are being bought by millennials, according to the National Association of Realtors’ 2021 Home Buyer & Seller Generational Report.

Millennials grew up as digital natives, making them more comfortable with online technologies than many older Americans. Combine that with the dramatic shift in home buying practices brought on by Covid-19 and it’s easy to see why millennials are feeling not just open-minded, but welcoming of a virtual home buying process.

The sentiment also extends beyond homes, with at least 70% of millennials saying they’d be comfortable buying furniture, appliances, televisions and jewelry online, with 45% saying they’d be comfortable buying a car online.

The readings on Generation Z buyers, the oldest of whom are now 26 years old, are not far behind the millennial buyers, with 58% of Gen Z feeling at least somewhat confident in making an offer on a home viewed only virtually.

Not surprisingly, comfort zones on this narrowed with age, with only 39% of Generation X and 23% of baby boomers indicating they’d feel at least somewhat confident with an all-virtual home purchase.

“It’s clear that strong demand from the next generation of buyers will keep real estate technology in place long after the pandemic is over,” said Zillow senior vice president of product Matt Daimler.