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2018 Federal Income Tax Brackets

The IRS has released the 2018 tax rates. Here they are by income and tax filing status. We also cover exemption amounts and standard deduction.

2018 tax rates

Ah, fall has arrived. You know, the time of year when the leaves change colors, the days get shorter . . . and the IRS releases next year’s tax brackets.

This year is no different. Last week, Uncle Sam let us know how much we can expect to pay in taxes next year, based on our income.

It’s important to remember that these numbers are not the ones you’ll be using to prepare your taxes this coming spring. (If you need a refresher, those numbers can be found on the 2017 bracket page.)

Instead, these 2018 brackets are for the taxes you can expect to pay on any income that you earn in 2018. This means that you’ll use these numbers for the taxes that you prepare in the spring of 2019. Let’s take a look and see what’s new.

Updated Tax Rates

The new brackets below outline the taxes that you can expect to pay from January through December of 2018, which you’ll then file in spring 2019. You can use them to adjust your withholdings and plan your finances next year (especially if you’re a contract employee or freelancer and need to pay quarterly taxes).

2018 Marginal Rates

As you can expect, bracket limits have been bumped for the year. The limits haven’t risen all that much, though, so your impact won’t be too significant.

Here’s a look at the chart:

2018 Tax Brackets

Here are the tax brackets in more detail.

Married Filing Jointly and Surviving Spouses

Taxable Income Taxes
Up to $19,050 10% of taxable income
Over $19,050 but not over $77,400 $1,905 plus 15% of excess over $19,050
Over $77,400 but not over $156,150 $10,657.50 plus 25% of the excess over $77,400
Over $156,150 but not over $237,950 $30,345 plus 28% of the excess over $156,150
Over $237,950 but not over $424,950 $53,249 plus 33% of the excess over $237,950
Over $424,950 but not over $480,050 $114,959 plus 35% of the excess over $424,950
Over $480,050 $134,244 plus 39.6% of the excess over $480,050

Heads of Households

Taxable Income Taxes
Up to $13,600 10% of taxable income
Over $13,600 but not over $51,850 $1,360 plus 15% of excess over $13,600
Over $51,850 but not over $133,850 $7,097.50 plus 25% of the excess over $51,850
Over $133,850 but not over $216,700 $27,597.50 plus 28% of the excess over $133,850
Over $216,700 but not over $424,950 $50,795.50 plus 33% of the excess over $216,700
Over $424,950 but not over $453,350 $119,518 plus 35% of the excess over $424,950
Over $453,350 $129,458 plus 39.6% of the excess over $453,350

Unmaried Individuals (other than Surviving Spouses and Heads of Households:

Taxable Income Taxes
Up to $9,525 10% of taxable income
Over $9,525 but not over $38,700 $952.50 plus 15% of excess over $9,525
Over $38,700 but not over $93,700 $5,328.75 plus 25% of the excess over $38,700
Over $93,700 but not over $195,450 $19,078.75 plus 28% of the excess over $93,700
Over $195,450 but not over $424,950 $47,568.75 plus 33% of the excess over $195,450
Over $424,950 but not over $426,700 $123,303.75 plus 35% of the excess over $424,950
Over $426,700 $123,916.25 plus 39.6% of the excess over $426,700

Married Individuals Filing Separately:

Taxable Income Taxes
Up to $9,525 10% of taxable income
Over $9,525 but not over $38,700 $952.50 plus 15% of excess over $9,525
Over $38,700 but not over $78,075 $5,328.75 plus 25% of the excess over $38,700
Over $78,075 but not over $118,975 $15,172.50 plus 28% of the excess over $78,075
Over $118,975 but not over $212,475 $26,624.50 plus 33% of the excess over $118,975
Over $212,475 but not over $240,025 $57,479.50 plus 35% of the excess over $212,475
Over $240,025 $67,122 plus 39.6% of the excess over $240,025

The most important thing to remember about these numbers is that they could still change if tax reform actually happens. If it doesn’t, however, you can count on the numbers above for 2018.

Standard Deduction

Another slight increase comes in the form of the standard deduction. But again, this isn’t a significant bump.

For 2018, single taxpayers and those who are married but filing separately can take a standard deduction of $6,500 (an increase from last year’s $6,350). Heads of household can take $9,550 (up from $9,350) and married couples filing jointly can take $13,000 (up from $12,700).

If you’re blind or older than 65, you can take an additional standard deduction of $1,300. If you’re unmarried, this additional deduction is $1,600.

This means that you can decrease the amount of income on which you pay taxes by this standard deduction. So, if you made $50,000 last year and are single, the standard deduction will decrease your taxable income down to $43,500.

Personal Exemption

After two years at $4,050, the personal exemption has increased to $4,150 for 2018. And just like the standard deduction above, the personal exemption means that you can earn even more money without owing income taxes on it.

However, the personal exemptions phase out beginning with a certain level of income. This means that if you make too much money, you won’t be able to take the full personal exemption on your earned income. This threshold begins at $266,700 for single filers, $160,000 for married filing separately, $320,000 for married filing jointly, and $293,550 for heads of household.

How to Calculate Your Taxes

While most of us simply plug our W-2 into TurboTax and let the computer do the thinking for us, it’s still important to at least know how tax brackets work.

For the sake of our example, let’s assume that you’re a single filer with an earned income of $110,650, and you don’t have any dependents. Take your income and subtract both your standard deduction and personal exemption, and you’re left with $100,000 in taxable income.

Now, apply your marginal tax rates.

Based on your first $9,525 of income, you’ll own 10% (for a total of $952.50 in taxes). For income dollars $9,526 through $38,700, you’ll owe 15% (for another $4,376.25). Then, for income dollars $38,701 through $93,700, you’ll pay 25% in taxes (adding up to another $13,750). This means that for your first $93,700 in income, you’ll pay a total of $19,078.75 in income taxes.

Now take the income left over ($6,300) and apply the next marginal tax rate of 28%. This will add another $1,764 to your tax bill. That means that for the year, you will pay a total of $20,842.75 in taxes on your total $110,650 earned.

For that level of income, your marginal tax rate ranged from 10% to 28%; however, your effective tax rate comes out to only 20.84% of your taxable income ($100,000). If you count it against your entire earned income ($110,650), though, you’re paying only 18.84% in taxes for the year.

You should also note that investment income can sometimes be taxed separately from, and at a lower interest rate than, earned income.

It’s interesting to look at these newly-released brackets, knowing that there’s a chance for tax reform. This would, of course, change everything shown here. If this happens, we will be sure to update you right away!

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I’ve banked with Ally Bank for years, opening both a savings account and CD. In this Ally Bank review, we’ll look at rates, fees and account types.

Ally Bank Review

Just over ten years ago, General Motors was having trouble remaining in business. Its subsidiary that provided customers financing for automotive purchases, GMAC, converted to a bank holding company. The goal was to take advantage of the Troubled Asset Relief Program (TARP).

In return, it received $5 billion from taxpayers through the government. By this time, GMAC Bank, a division of GMAC, already offered retail banking. Its products included savings accounts, certificates of deposit, and money market accounts.

In an attempt to distance itself from the faltering GM brand, GMAC Bank re-branded itself as Ally Bank. It focused on offering a high-yield interest product. And it began actively seeking new customers and depositors. Later, the bank’s parent company, GMAC, also re-branded itself to become known as Ally Financial. Today, Ally Bank offers some of the most competitive banking products around.

Opening an Account with Ally Bank

Here are my experiences from the Ally Bank account opening process. As I visited the website to begin my application, Ally Bank warned me that I would need my driver’s license (or an alternate state or military identification number) in addition to my Social Security Number to proceed.

Like some other banks, Ally performs a credit check to verify identity. But they may also reject your application if they see you as a credit risk. However, getting rejected because of your credit history is unusual. But since this bank was once a financing company and then a bank holding company, this strategy may become more prevalent.

It look less than two seconds once I submitted my application for Ally Bank to inform me my application was approved. Once inside this virtual gate, I was able to choose whether I wanted to receive paper or electronic statements. I always choose electronic to cut down on paper waste. I wish more services would offer this option from the beginning.

Here’s another great feature: I can create as many separate savings accounts, with their own account names and numbers, as I want. At this point in the initial set-up, I could also add money market accounts and certificates of deposit.

I set up two separate savings accounts, both to be funded electronically from my Citizens Bank checking account. Like configuring linked accounts at any other bank, I will be required to verify two small deposits to ensure I am the owner of the linked account. Options for a one-time initial deposit or a recurring automatic savings plan are available.

Ally Bank then required me to create my security settings for viewing my account information and activity online. The bank has combined most of the security features that have become commonplace over the past few years. I created a username and a strong password, including mixed case letters and numbers.

Then I selected some secret code words and an image I can expect to see each time I log in. I also chose three security questions and answers. Ally provides the option to register the computer you use for accessing the website. This avoids repeated security questions at each online session.

If Ally Bank does not recognize the computer you are using to log into your account, they will send you an email with a single-use password to further confirm your identity. I have not seen this feature implemented anywhere else.

Using the Ally Bank Savings Account

Once logged in, I was impressed with the clean look of the interface.

You can transfer among your Ally accounts and two and from other accounts for free. But keep in mind, for money market and savings accounts there is a limit of six withdrawals per period, due to government regulations.

Ally Bank charges no account maintenance fees and requires no minimum balance. If you exceed the six withdrawals mentioned above, Ally will charge a $10 fee. Cashier’s checks and wires carry an additional cost. A returned deposit item, if a check you send bounces or if you don’t have funds in an external account to cover a transfer, will cost $25.00

The bank is also drawing attention to their 24-hour customer service availability and the plain language used throughout their website. I have not yet worked with Ally’s customer service, but I will be sure to report any future frustrations.

Ally Bank Products

High Yield Savings–This is the best product Ally has to offer in my opinion. The current APY is a robust 1.20%. Ally routinely ranks in the top 1% of all banks in terms of two very important factors: interest rate and customer service.

Interest Checking–It’s not easy to find a high yield online checking account these days. Ally tries their best, God bless ’em. For balances less than $15,000, Ally offers a 0.10% APY. And for balances greater than $15,000, the APY is a much more respectable 0.60%. Either way, Ally charges no monthly maintenance fees, which is rare today when looking for a high quality checking account.

CD’s–If you don’t mind losing a little liquidity for a higher interest rate, a CD is a great option for better returns. Ally has a wide variety of CD options, including high yield CD’s, a raise your rate CD, and a no penalty CD. The no penalty CD is perhaps their best offer, providing a 1.50% APY on balances of more than $25,000.

Money Market–Money Markets have always puzzled me. You see the interest rates above for CD’s and checking. And then you check the Ally Money Market account, and it earns a 0.90% APY on all balances. What would possess someone to open a money market account vs. a savings account? The Ally Money Market account does provide a debit card and the use of checks if needed. But you’re sacrificing a lot of interest for a touch of convenience.

Ally Invest–Ally recently purchased the online discount broker TradeKing and absorbed its business. Now, you can not only open a deposit account, but an investing account with Ally Bank. Trades are charged at a flat rate of $4.95, and options contracts run you $0.65 per.

Is Ally an Ally of Your Personal Finances?

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Opening my account with Ally Bank was painless and quick, and I like how the website operates so far. After my initial deposit transfers, I will have a better idea of how quickly funds are available and can be transferred back to external accounts. I will return with more information at that time.

The main question I have moving forward is how long Ally Bank will be able to maintain their position as one of the highest among high-yield savings accounts. Banks have long used high interest rates to lure new customers, only to drop the rates when they become confident in their position as leader.

The American Bankers Association (ABA) sent a letter on May 27, 2009 to the FDIC requesting that Ally Bank be forced to lower their deposit interest rates, citing the bank’s unfair competitive advantage. It is unfortunate that the ABA would take this stance with savers forced to settle for interest rates that will not reach the rate of inflation going forward. The ABA has since removed the letter from the organization’s website, and I would suspect top tier interest rates so long as Ally is in business.

If you are interested, apply for an Ally Bank savings account here and let me know about your experience by commenting below.

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Is Betterment a smart way to invest your money? Our detailed Betterment review gives you everything you need to make a sound investing decision.

Betterment Review

Betterment is a different type of brokerage. Most discount brokerages want to get customers to trade as frequently as possible. But Betterment is looking to be your asset manager.

Currently, the brokerage is offering an incentive for new customers. But the way they do business is a bit different than most brokerages you may be familiar with. This uniqueness is evident as early as the account sign-up process.

When you apply for an account with a typical discount brokerage, the application asks about income, net worth, and investment experience. Betterment asks about the goals and purposes of your investments. The service encourages each new account holder to designate a main account goal, like retirement, a major purchase, or a vacation. Betterment will also ask how many years you expect to take to reach that target or the age at which you’d like to achieve a goal.

What is Betterment All About?

The core philosophy for investing with Betterment is the asset allocation. This is the type of simplicity that I’ve seen with 401(k) accounts. These retirement investments often try to take an important concept of investing–asset allocation–and make it simple. This way, busy employees can simply submit a risk profile, and the investment will use this information to determine their ideal mix of stocks and bonds. Betterment takes this concept further, making the process incredibly simple.

Fees

Because of this simplicity, Betterment’s fees can be lower than other forms of investing. Although you could have a free account with a discount brokerage and never pay a transaction fee, you may still be subject to fees built into the investments, like expense ratios or front-end load fees. Betterment’s approach is to charge a percentage of your account’s value–or assets under management. This is the custom among professional asset managers who generally work with high-net worth clients.

This fee depends on how much you invest with Betterment. For small accounts (money deposited under $100,000), the fee is 0.25%. For large accounts (money deposited over $100,000), the fee grows to 0.40%. These fees are higher, and in some cases significantly higher, than investing in low-cost index mutual funds with Vanguard, for example.

Investment Management

With Vanguard investing, you’re mostly on your own. You alone decide your asset allocation, and many investors do not consider asset allocation at all. Betterment can be more expensive, but they are also providing a service that, depending on your needs and interests, may be worth the extra cost. At the same time, it’s less expensive than having a dedicated asset manager while offering many of the same features.

You’d have to be a hands-off individual to like the type of service offered by Betterment. You don’t choose your own investments like you would with a typical full-service or discount brokerage. Betterment chooses the investments for you, and their selections are based on a mix of index exchange-traded funds (ETFs). Betterment reinforces the idea that individual investors should not try to beat the market. For the most part, investors fail when they try. And their investments would have fared better had they remained diversified across a broad selection of investments and refrained from changing their risk profile.

Betterment Investments

Betterment‘s investments include baskets. Each basket represents exposure to a type of assets. To help an investment portfolio match a risk profile, the portfolio could include a combination including a stock market basket and a treasury bond basket. Betterment will rearrange the balance between the different stock index ETFs as it sees fit, but investors control the relationship between stocks and treasury bonds through the risk profile.

The treasury bond basket is split evenly between two investments, TIP: iShares Barclays TIPS Bond Fund and SHY: iShares Barclays 1-3 Year Treasury Bond Fund. The stock market basket includes these investments:

  • (VTI) Vanguard Total Stock Market
  • (VTV) Vanguard US Large-Cap Value Index ETF
  • (VOE) Vanguard US Mid-Cap Value Index ETF
  • (VBR) Vanguard US Small-Cap Value Index ETF
  • (VEA) Vanguard FTSE Developed Market Index ETF
  • (VWO) Vanguard FTSE Emerging Index ETF

Betterment IRAs

Previously Betterment’s investing plans were limited to the form of a standard brokerage account. But the service now offers IRAs. You can now use the government-designated accounts for saving for retirement through Betterment’s service. Some of the benefits of owning a Betterment IRA are:

  • IRA fees are a fraction of a standard 401(k) provider
  • You choose your personal risk strategy
  • Betterment regularly rebalances your portfolio

Opening a Betterment Account

Opening my account at Betterment was easy, and they approved my account right away. Like any new financial account accepting electronic deposits from other banks, I needed to confirm my ownership of the linked account through the familiar process of verifying test deposits. I’m waiting for my external checking account to receive the test deposits so I can begin investing with Betterment.

Betterment is a fairly new player in the word of finance. This is an industry where the major companies have been around for a century or more. But Betterment protects your assets just like any other major investment firm. Betterment is a Registered Investment Advisor with the Securities and Exchange Commission and is regulated by FINRA and the SEC. Accounts are insured by SIPC up to $500,000 per owner.

This doesn’t protect investors from having their investments lose value, but it does protect the value if the brokerage were to fail. If Betterment were to go bankrupt or to go into receivership, the insurance coverage would allow you to access your account.

Why Use Betterment?

For the micro-manager, Betterment might not be the perfect way to invest. It’s also not the appropriate service for someone who wants to trade their investments frequently or delve into investing in individual companies. Betterment’s services may be right for investors with the opportunity to save for their future outside of retirement accounts who want the simplicity of diversified investments, risk-based asset allocation, and a buy-and-hold-and-rebalance investing philosophy.

Their published returns are nothing to scoff at, and their fee structure works especially well for smaller investors who are looking to avoid day to day interaction.

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It’s the only card that pays you 3% cash back on every purchase the first year. And with no annual fee. The details are in our Discover it Miles review.

Discover it Miles review

Some time ago, Discover made the conscious decision to re-brand its entire line of credit cards. Previously known as “More” credit cards, Discover decided to go even shorter. Discover “it” is now the brand name and it encompasses credit card categories like cash back, balance transfer, student, and travel.

The travel version of the Discover it brand comes in the form of the Discover it® Miles. A somewhat nondescript, blue credit card with all of your personal information on the back, the Discover it® Miles packs one heck of a punch for its cardholders. From triple miles, to enhanced security features and no fees of any kind, this credit card gets high marks for just about everything.

Here’s a full look at what the Discover it® Miles has to offer.

Discover it® Miles Rewards Program–3% Cash Back

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For the first year you’re a Discover it® Miles cardholders, you’ll earn 3 miles per dollar spent. You see, Discover’s usual rewards rate on this travel rewards card is 1.5%. For the first year, however, Discover doubles all of the miles you’ve earned.  On your anniversary date, Discover will do a “Miles Dump”. All of the miles you’ve earned for the first year will appear again on that day. So if you earned 50,000 miles the first year, you’ll see another 50,000 show up on day 366.

Miles can be redeemed in the following ways:

  • Credit to your account for travel purchases made within the last 180 days
  • Electronic deposit into an account you designate
  • Pay with miles at merchants through Discover.com/paywithmiles

In all scenarios, the value of your Miles is one mile = one penny. There are no transfer options for miles, so in effect, this card acts as a cash back rewards card. Discover simply puts the moniker “miles” on it and BAM, you think travel rewards.

Miles never expire so long as your account is open and not used for any illegal transactions. You will not earn any miles for balance transfers, cash advances, or illegal transactions. If you close your account with Discover and have a miles balance, they’ll automatically credit your account for the rewards you’ve earned.

Feel Secure with the Discover it® Miles

Unlike many other credit cards, the Discover it puts a lot of focus on credit security. From free FICO scores to credit freezes, here’s a look at what the Discover it® Miles has to offer to protect your credit profile:

  • Free social security number alerts
  • Free FICO score every month
  • The ability to freeze your Discover account is seconds.
  • Free credit account alerts
  • Free overnight shipping to replace any lost or stolen credit card

Discover is now offering free social security number alerts. Anytime your social security number pops up on a risky website which Discover monitors (thousands), they’ll let you know. You also have the ability to freeze your account at a moment’s notice. A quick click of the mouse and no one will be able to use your card to make purchases.

Your FICO score will also be available every month you receive your Discover statement, either by mail or online. The score can always be visible when you log into your Discover it® Miles account, but it only updates once a month.

Discover it® Miles APR and Pricing Details

New cardholders will receive a 0% intro APR on purchases for a full 14 months. Once that intro rate expires, the ongoing APR becomes 11.99% – 23.99% variable. The other interest rates and fees you need to be aware of if applying:

  • 25.99% APR for cash advances
  • $10 or 5% cash advance fee
  • 3% balance transfer fee

Discover also boasts one of the great perks of owning a Discover it® credit card. The first time you miss a scheduled payment, no fee is charged. When you go over your credit limit, no fee is charged. Discover also won’t raise your APR to the penalty level if you are a habitually late payer. No pay-by-phone fees or foreign transaction fees to speak of. And last but not least, no annual fee.

All of this is to say if Discover charges you a fee outside of interest, you must have done something pretty awful!

How Much Can You Earn

We got out our calculator to see just how much money you might earn with this card. According to the most recent Consumer Expenditure Survey conducted by the Bureau of Labor Statistics, the average family spends $63,784.

Not all of this could be charged to a credit card. For example, 11% of this total is paid in taxes. And you can’t typically pay your mortgage and certain other debt with a credit card.

We’ve assumed, however, that you can put 50% of your spending in the Discover it® Miles card. This would include food, clothing, travel, entertainment, and many monthly bills.

Now to the math. Half of $63,784 gets us to $31,892 charged to the card. At a 3% reward rate the first year, you would earn $956.76 in rewards. Earning almost $1,000 in year one for using a credit card is one of the best deals we’ve found.

When to Take Advantage of the Discover it® Miles

Whether you’re in need of a cash back credit card or travel rewards credit card, the Discover it® Miles can help. During the first 12 months, getting an effective rate of three miles for every single dollar you spend is unmatched. When you consider that the first 14 months of purchasing are interest free, there’s really no better option available for everyday spending.

And perhaps the best feature of the Discover it® Miles is that it comes to you fee free. I’m always annoyed when I miss a payment date by a single day, and a $35 fee shows up. Chase, Citi, Capital One … they all take advantage of the late payment fee. But Discover let’s it slide, and let’s it slide often.

No annual fee, no interest early on and triple miles for every dollar spent for the first full year. What more can a credit card provide?

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A Review of the SFGI Direct Savings Account

by Michael Pruser

In our SFGI Direct savings account review, we were frankly surprised at the high rates offered by this bank many have never heard of. It beats almost all existing online banks. Here are the details. If you haven’t considered an online savings account before, here’s why you should now. Below we review the SFGI Direct […]

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Traditional and Roth IRA Contribution Limits for 2018

by Rob Berger

The IRS just released IRA contribution limits for 2018. Unfortunately, the limits didn’t change from 2017. The ROTH IRA income limits, however, did change. Here are the details. You have more time than you might think to contribute to your traditional and Roth IRAs. Rather than an end-of-year deadline, you have until you file your […]

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Synchrony Bank Review and Interest Rates

by Adam Luehrs

We’ve reviewed countless banks. Our review of Synchrony Bank led to one inescapable conclusion–Synchrony bank offers some of the highest interest rates on savings products. Coupled with low fees, it’s an excellent choice for savers. The main reason why people use Synchrony Bank is its ability to deliver higher-than-average interest rates. Of course, the nice […]

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The Best Investments for a Teenager

by Luke Landes

It’s never too early to start investing. In fact, we wish high school students invested even a little. So here are some tips on how to invest as a teenager. It doesn’t hurt to start talking to even young kids about investing. But when they’re teenagers, the can–and should–get hands-on experience. Like many other kids […]

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Amboy Direct eSavings Account $50 Bonus Review

by Adam Luehrs

Amboy Direct offers an eSavings account with a competitive rate and a $50 bonus. Get all of the details in our Amboy Direct review. There’s a chance to get a cash bonus of $50 if you’re planning to open a new interest-earning bank account. Amboy Direct is offering a limited-time bonus for new customers of […]

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Today’s Best Bank Deals, Promotions, and Bonuses

by Stephanie Colestock

Get the best bank bonuses, promos and deals with this regularly updated list of bank signup promotions. When opening a bank account, there are a few things you should be looking for: low (or no) fees, the highest interest rates possible, and promotional bonus offers. With the latter, you can often score free money without […]

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