This Week in Your Wallet: A PSA for HSAs (and ARMs)

This Week In Your Wallet:
A PSA for HSAs (and ARMs)

“Fun size is subjective,” wrote The WaPo’s Laura Reiley in a piece about the smaller size of many of this year’s Halloween treats — making me laugh out loud at the same moment I was hoping they weren’t coming for my beloved Twizzlers.

But here’s the really-not-funny thing. Shrinkflation – where you pay the same amount (or more) for less — isn’t just for breakfast cereals or laundry detergent anymore. For some earners next year, including many who get raises, their gross incomes may be higher but the chunk taken out for certain taxes likely will be, too. Certain deductions could take a bigger bite of your paycheck in 2023, writes Ann Carrns.

“Employees contribute to Social Security via a payroll tax of 6.2% of their income, up to a limit. (Employers pay an equal share.) That limit adjusts each year based on increases in average wages,” she explains. “For 2023, the maximum earnings subject to the tax will rise almost 9 percent, to $160,200 from $147,000 this year, so more income will be taxed. The maximum Social Security tax next year will be $9,932, up from $9,114 this year.”

There’s more. People who earn above $200,000 and households with incomes higher than $250,000 will have to pay an extra Medicare tax of 0.9% on pay reported above that point — and note, the thresholds for the additional Medicare tax aren’t adjusted for inflation, so more people pay the extra tax each year. Remember when your economics professor (or your mother) told you there was no such thing as a free lunch? For now, plan to keep an eye on how your income is shaping up for 2023, and if you’re worried you might be in a position to owe money come tax time, take a few minutes to adjust your withholding.

And Now for Some Good News…

There really are two sides to every story, even when it comes to taxes. We learned this week that predictions for the IRS raising tax brackets and standard deductions to keep up with inflation were pretty much on the money. The 7% rise will be “the largest automatic adjustment to the standard deduction since core features of the tax system were first indexed to inflation in 1985,” writes Richard Rubin for the WSJ. Congress has significantly expanded the deduction beyond those automatic changes, most recently in the 2017 tax law, when it was nearly doubled.”

The positive impact of the changing brackets will be felt as early as January, Rubin notes, and will show up as lower tax withholding from paychecks, which could create larger take-home pay (for many) early in 2023.

Interest Rates Flirt With 7%, Demand Drops for Mortgages

If you’re looking to buy or sell a home or spend your free time Zillowing just because, (it’s a thing) you have likely noticed the once white-hot real estate market is finally simmering down in many cities. Properties are staying on the market longer, price reductions are popping up more frequently, and people are resisting the temptation to pay above asking for a mediocre mid-century modern. The reason? Mortgage rates near 7% — ouch — explains CNBC’s Diana Olick. “The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 6.94% from 6.81% … for loans with a 20% down payment. That is the highest rate since 2002.”

That explains why people are suddenly paying more attention to adjustable rate mortgages, commonly called an ARM, particularly hybrid ARMS. These are fixed for the first 3, 5, 7 or 10 years before the first adjustment period. If you know (or suspect) that you’re either going to move, or believe that you’ll have a chance to refi before that adjustment period hits, they can be a money saver. Pro-tip: Just be sure to shop around and compare rates before you settle on a lender — and include consumer-friendly credit unions and small banks in your search. Research shows that people who seek multiple offers end up paying less. Make it easy on yourself and check out sites such as Nerdwallet or Bankrate that compare rates of dozens of lenders in real time.

A PSA for HSAs

Regular readers of our newsletter know I think Health Savings Accounts (HSAs) have a lot of benefits that go under used. You can open one if you have a qualifying high deductible health insurance policy. And while, yes, they save you about 25% on any medical expense you flow through them in real time — they can also be a great place to save and invest for medical expenses and retirement. With benefit renewal season ramping up next week, now is a great time to explore this excellent primer on Health Savings Accounts by the Wall Street Journal’s Laura Saunders. The article offers a convenient question-and-answer format that delves into reader queries covering everything from your ability to contribute to a young adult's separate HSA account (if they are under 26) to how to pay for your spouse's medical expenses with an HSA account only in your name.

How 3 Women Are Finding Financial Success

The majority of Americans — 65% — say that money is a significant source of stress for them, according to a new study from the APA. But at HerMoney, we know it doesn’t have to be that way. There’s a path for all of us to walk that can help us become educated, empowered, and ready to take on whatever financial challenges life throws at us. This week, we spotlight three women in the HerMoney community who are making lasting changes — and some incredible improvements — in their financial lives, via our FinanceFixx Program. One participant says: “I have finally been able to start paying down my debt, because I now have a clearer picture of where my money is going — and where my money is coming from.” We love to hear it. And we’d love to see YOU there with us on your own empowering financial journey. Our next class starts November 3rd, and we have a few spots left — including one with your name on it :)

Have a great week!

Jean

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