Personal Finance

Vanguard’s $106 million TDF settlement offers a key lesson about taxes

Published

8 hours ago

January 23, 2025

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There’s an important lesson for investors in Vanguard Group’s recent $106 million settlement with the Securities and Exchange Commission over its target-date funds: Being mindful of your investment account type can save you from a big tax bill in certain cases.

Vanguard, the largest target-date fund manager, agreed to pay the sum for alleged “misleading statements” over the tax consequences of reducing the asset minimum for a low-cost version of its Target Retirement Funds.

Lowering the asset minimum for its lower-cost Institutional share class — to $5 million from $100 million — triggered an exodus of investors to these funds, according to the SEC. That created “historically larger capital gains distributions and tax liabilities” for many investors who remained in the more-expensive Investor share class, the agency said.

Here’s where the lesson applies: Those taxes were only borne by investors who held the TDFs in taxable brokerage accounts, not retirement accounts.

Investors who hold investments — whether a TDF or otherwise — in a tax-advantaged account like a 401(k) plan or individual retirement accounts don’t receive annual tax bills for capital gains or income distributions.

Those who hold “tax inefficient” assets — like many bond funds, actively managed funds and target-date funds — in a taxable account may get hit with a big unwelcome tax bill in any given year, experts said.

Placing such assets in retirement accounts can make a big difference when it comes to boosting net investment returns after taxes, especially for high earners, experts said.

“By having to pull money out of your coffers to pay the tax bill, it leaves less in your portfolio to compound and grow,” said Christine Benz, director of personal finance and retirement planning at Morningstar.

Vanguard neither admitted nor denied wrongdoing in its settlement agreement with the SEC.

“Vanguard is committed to supporting the more than 50 million everyday investors and retirement savers who entrust us with their savings,” a company spokesperson wrote in an e-mailed statement. “We’re pleased to have reached this settlement and look forward to continuing to serve our investors with world-class investment options.”

Vanguard held about $1.3 trillion of assets in target-date funds at the end of 2023, according to Morningstar.

What’s best in a retirement account

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The concept of strategically holding stocks, bonds and other assets in certain account types to boost after-tax returns is known as “asset location.”

It’s a “key consideration” for high earners, Benz said.

Such investors are more likely to reach annual contribution limits for tax-sheltered retirement accounts, and therefore need to also save in taxable accounts, she said. They’re more likely to be in a higher tax bracket, too.

While most middle-class savers predominantly invest in retirement accounts, in which tax efficiency is a “non-issue,” there are certain non-retirement goals — perhaps saving for a down payment on a house a few years down the road — for which taxable accounts make more sense, Benz said.

Using an asset location strategy can raise annual after-tax returns by 0.14 to 0.41 percentage points for conservative investors (who invest more in bonds) in the mid to high income tax brackets, according to recent research by Charles Schwab.

“A retired couple with a $2 million portfolio [$1 million in a taxable account and $1 million in a tax advantaged account] could potentially see a reduction in tax drag that equates to an additional $2,800 to $8,200 per year depending on their tax bracket,” Hayden Adams, a certified public accountant, certified financial planner, and director of tax and wealth management at the Schwab Center for Financial Research, wrote of the findings.

Tax inefficient assets — which are better suited to retirement accounts — are ones that “generate regular taxable events,” Adams wrote.

Here are some examples, according to experts:

Bonds and bond funds. Bond income is generally taxed at ordinary income tax rates, instead of preferential capital-gains rates. (There are exceptions, like municipal bonds.)

Actively managed investment funds. These generally have higher turnover due to frequent buying and selling of securities within the fund. They therefore tend to generate more taxable distributions than index funds, and those distributions are shared among all fund shareholders.

Real estate investment trusts. REITs must distribute at least 90% of their income to shareholders, Adams wrote.

Short-term holdings. The profit on investments held for a year or less are taxed at short-term capital gains rates, for which the preferential tax rates for “long term” capital gains don’t apply.

Target-date funds. These and other funds that aim for a target asset allocation are a “bad bet” for taxable accounts, Benz said. They often hold tax inefficient assets like bonds and may need to sell appreciated securities to maintain their target allocation, she said.

About 90% of the potential additional after-tax return from asset location comes from two moves: switching to municipal bonds (instead of taxable bonds) in taxable accounts, and switching to index stock funds in taxable accounts and active stock funds in tax-advantaged accounts, Adams wrote.

Investors with municipal bonds or municipal money market funds avoid federal income tax on their distributions.

Exchange-traded funds also distribute capital gains to investors much less often than mutual funds, and may therefore make sense in taxable accounts, experts said.

Personal Finance

Here’s how workers feel about return-to-office mandates

Published

2 hours ago

January 23, 2025

Business Finance News

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Many workers hate the prospect of returning to the office five days a week — so much so that they’d quit their jobs if told to come in full-time.

To that point, 46% of workers who currently work from home at least sometimes would be somewhat or very unlikely to stay at their job if their employer scrapped remote work, according to a recent poll by Pew Research Center.

Yet, employers have reined in remote work.

About 75% of workers were required to be in the office a certain number of days per week or month as of October 2024, up from 63% in February 2023, Pew found.

“There’s a certain creeping up” of return-to-office policies, said Kim Parker, director of social trends research at the Pew Research Center.

Coffee badging: A workplace trend that's annoying employers

Companies like Amazon, AT&T, Boeing, Dell Technologies, JPMorgan Chase, UPS and The Washington Post have called at least some employees back to the office five days a week. President Donald Trump signed an executive action on Monday calling federal employees back to their desks “as soon as practicable.”

Similar to the Pew survey, a poll conducted by Bamboo HR found that 28% of workers would consider quitting due to a return-to-office mandate.

The data “underscores how comfortable people have become with this arrangement, and how it really fits in with their lifestyle,” Parker said.

Workers consistently cite a better work-life balance as a “huge benefit” of remote work, Parker said.

Indeed, they see the financial value of hybrid work as being equivalent to an 8% raise, according to research by Nick Bloom, an economics professor at Stanford University who studies workplace management.

Economists say remote work is here to stay

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Many economists think that the higher prevalence of remote work, relative to the pre-pandemic era, has become an entrenched feature of the U.S. labor market.

“Remote work is not going away,” Bloom previously told CNBC.

That’s largely because it boost profits for companies: Workers quit less often, meaning employers save money on recruiting and other functions tied to attrition, Bloom said. Meanwhile, data shows that productivity doesn’t suffer in hybrid work arrangements, he said.

More than 60% of paid, full workdays were done remotely in early 2020, during the Covid-19 pandemic — up from less than 10% before the pandemic, according to WFH Research, a project run jointly by researchers from MIT, Stanford, the University of Chicago and Instituto Tecnológico Autónomo de México.

That share has fallen by more than half. However, it has leveled out between 25% and 30% for about two years, according to WFH Research data.

Remote workers less productive than when in office, says ManpowerGroup CEO

About 31% of employers reduced remote work opportunities in 2024, down from 43% in 2023, according to according to a ZipRecruiter survey. Yet, another 33% expanded remote work, up from 32% the prior year.

Companies that imposed RTO mandates have annual rates of employee turnover that are 13% higher than those that have become “more supportive” of remote work, ZipRecruiter said.

“The ability to work from anywhere remains a top priority for many professionals,” according to a 2024 poll by consulting firm Korn Ferry of 10,000 workers in the U.S., U.K., Brazil, Middle East, Australia and India.

Companies may want workers to quit

Some businesses force workers back to the office precisely because they want workers to quit, experts said. It’s a stealthy way of reducing headcount without having explicit layoffs, they said.

“Requiring federal employees to come to the office five days a week would result in a wave of voluntary terminations that we welcome,” Elon Musk and Vivek Ramaswamy, who Trump tapped to lead a new Department of Government Efficiency, wrote in a November op-ed. (Ramaswamy has since bowed out of that role.)

Of course, there are also tradeoffs to remote work for businesses and workers.

About 59% of employers cite concerns that remote work harms company culture, according to ZipRecruiter.

About half of workers — 53% — who work from home at least part-time say it “hurts” their ability to feel connected with co-workers, Pew found in a 2023 poll.

“It’s the one big downside we’ve seen consistently,” Parker said.

“That seems to be a tradeoff: You get the work-life balance but lose some connectivity with coworkers,” Parker said.

Even if workers quit, they may not be able to find a job.

The labor market remains strong, with low unemployment and low levels of layoffs, meaning workers have good job security, according to economists. However, companies have also pulled back on hiring, making it a challenging environment for job seekers.

Personal Finance

Recruiters weigh in if LinkedIn’s ‘open to work’ feature helps or hurts

Published

2 hours ago

January 23, 2025

Business Finance News

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By now, you’ve probably seen the green badges splashed all over LinkedIn, advertising that person is #opentowork.

Whether unemployed and actively seeking a new position, or quiet quitting in their current role, more people are choosing to make their job-seeking status known on the career site.

Globally, more than 220 million people currently have turned on the “open to work” feature, either privately or publicly, according to LinkedIn. That’s a 35% increase from around the same time last year, the company said, which showcases the challenging job market.

Linkedin Open To Work badge

Source: Linkedin

LinkedIn rolled out its “open to work” option in 2020. People can decide if they want to more discreetly signal their status to recruiters only, or to everyone with a public green badge on their profile.

But is it always a smart move? Some recruiters are torn.

“There’s been such a massive debate on LinkedIn about the ‘open to work’ badge, with a mix of employers and recruiters firmly entrenched on both sides,” said Tatiana Becker, founder of NIAH Recruiting.

‘Avoid the green banner’

Debra Boggs, founder and CEO of D&S Executive Career Management, has concerns about the green “open to work” badge or banner for those who make their job seeking status available to all.

“You are bringing the focus to your employment status and away from your unique value in the market and qualifications for the role,” Boggs said.

Meanwhile, Boggs said, “many recruiters and hiring managers feel that it makes a job seeker look desperate, which is not an attractive quality when looking for a stand-out leader to run a function or a business.”

For entry-level and mid-level job seekers, she suggest they use the “open to work” option that only recruiters can see.

“That way, when recruiters are looking for qualified candidates, you are still signaling to them that you are actively searching, but it’s not considered a red flag,” Boggs said.

But for everyone, she said: “Avoid the green banner” that all can see.

Old-fashioned to see the green badge ‘as a red flag’

Yet Becker sees no shame in signaling your job status to the world. “I say: Put the badge on,” she said.

In the past, being a job hopper was “looked down upon,” Becker said. But that changed when millions of people lost their employment during the Covid pandemic through no fault of their own, and later, with the waves of layoffs that followed the over-hiring boom, she said.

“It’s old fashioned and biased to see the ‘open to work’ badge as a red flag,” Becker said.

Plus, Becker said, why turn down the help? The badge lets companies and recruiters more easily identify who is looking for a job, she said.

Indeed, using the “open to work feature” doubles someone’s chances of getting a recruiter to message them, according to LinkedIn. Those who flash the green badge under the public option can up that likelihood by 40%, the company said.

“I think there are far more desperate practices on LinkedIn,” said Tiffany Dyba, a recruitment consultant.

So where does all this leave you?

“Do what you feel is best for you,” Dyba said. “It sounds trite, but I really don’t think there is a right or wrong to the ‘open to work.'”

Personal Finance

How to know if a rental listing is a scam, fraud experts say

Published

6 hours ago

January 23, 2025

Business Finance News

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It’s exciting to find a new place to rent in your neighborhood or in a new city. That is, of course, unless you get duped.

In so-called rental listing scams, scammers will make up listings that aren’t available for rent or simply do not exist in order to fraudulently take your money, according to the Federal Trade Commission. Scammers will often ask for payments like an application fee, a security deposit, the first month’s rent or a mix of such charges.

“Once the payment is sent, the [so-called] landlord or listing person … disappears,” said John Breyault, vice president of public policy, telecommunications and fraud at the National Consumers League, a consumer advocacy group.

Potential tenants lose cash to rental scams

It’s not uncommon for individuals to fall victim to fraudulent rental listings, experts say.

About 9,521 real estate fraud complaints were filed in 2023, resulting in more than $145 million in losses, according to the latest Internet Crime Report by the Federal Bureau of Investigation. Those figures are down from 11,727 victims and more than $396 million in losses in 2022.

The agency defined real estate fraud as a loss of funds from a real estate investment or fraud involving a rental or timeshare property.

While it’s convenient to look for a new rental online, experts urge future renters to be cautious, as you may lose hundreds to thousands of dollars if not careful.

For example: Let’s say you fall for a scam that asked for a security deposit — which is often the equivalent to a month’s rent — the first month’s rent upfront, or both. Nationwide, the median monthly rent was $1,373 in December, according to Apartment List.

A separate report by Rently, a leasing automation platform, found that 62% of respondents who experienced a rental scam lost more than $500, with 48% losing more than $1,000. A smaller share, 8%, were duped out of more than $5,000, according to the report.

The survey polled 500 U.S. adults in November who have rented an apartment, condo or house over the past five years and have either experienced or are aware of rental scams and fraud.

If you need a new place to rent this year, here are some things to watch for to determine if a rental listing is a scam and what to do, according to experts.

4 red flags to watch out for

While it’s a common tactic for different kinds of scams, rental listing scammers will try and create a sense of urgency to get you to pay the money immediately, Breyault said.

To work around this issue, experts urge renters to carve out ample time for their search. Doing so can help reduce that sense of urgency.

Rental scams can also fester in housing markets with high competition and low supply, or after natural disasters take place.

“Fraud tends to follow the news and tends to follow natural disasters in many ways,” Breyault said. “Particularly if there is suddenly an increase in the number of people who are in need of housing.”

1. Unsolicited messages about a rental

Personal information like cell phone numbers and emails are readily available on the dark web given the amount of data breaches in recent years, said Tracy Kitten Goldberg, director of fraud and cybersecurity at Javelin Strategy and Research.

If you receive an unsolicited message about an apartment that is available for rent, for example, “that would be a red flag,” she said.

“Especially if you have not contacted anyone,” whether you get a text or an cold call, she added.

Experts say if you’re contacted via text message or a phone call for a rental listing, look at the phone number’s area code. If it’s outside your area, be careful.

If you get an email, take a look at the sender’s address. Does the address contain multiple characters like a mix of letters, numbers and varied punctuation marks or symbols? Or is it coming from a personal account like a Gmail or Yahoo, but poses as a company email? If the answer to either is “yes,” delete it right away, Kitten Goldberg said.

2. Unusual forms of payment required

If the so-called landlord or listing agent requests you to pay an application fee or the first month’s rent through a wire transfer, a gift card or through cryptocurrency, that is “a huge red flag,” Breyault said.

Also be wary if they request a payment through payment apps like Apple Pay, CashApp, PayPal and Zelle, per the Federal Trade Commission.

“What all of those payment methods have in common is that the money goes from you to the recipient nearly instantaneously,” Breyault said. The transactions are often irreversible, even if you determine that it was a fraudulent payment.

Federal laws regarding compensation under fraudulent losses often don’t apply to such transactions, he said. Therefore, if you’re met with these payment options from the so-called listing agent or landlord, stop the application process in its tracks.

3. Refusing to meet or show the property in person

“You should always meet these people face-to-face before you fill out any kind of paperwork,” Kitten Goldberg said, as well as tour the property.

If a landlord or listing agent makes up excuses about why they can’t meet you in person or why you can’t see the rental property in person, that alone should be a red flag, Breyault said.

If you’re out of town or moving to a new city and do not have the ability to vet the apartment yourself, request a virtual tour of the space, experts say. If possible, ask a friend or relative to visit the property for you.

“That’s really the litmus test to find out if an apartment is for real or not,” Breyault said.

4. Unusually low asking price

If a rental listing is “priced unusually low” compared to similar properties in an area, be careful, Breyault said.

“The reason scammers put listings like that up is because they know that it will attract a lot of eyeballs and potential victims,” he said.

Make sure to compare the listing price to others in your city or area of interest, and be wary of offer that may be too good to be true, Breyault said.

“Do bargains exist? Absolutely, but so do a lot of scams,” Breyault said.