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Tax Reform 2019 Explained

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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As the 2019 tax deadline approaches, many Americans will feel the impact of last year’s tax tax reform for the first time. It was the most sweeping rewrite of the tax code in more than three decades, after all.

Of importance to most tax filers is the fact that the new tax law altered the federal income tax brackets, doubled the standard deduction and changed many other tax credits and deductions.

The bill, originally known as The Tax Cuts and Jobs Act, didn’t have an easy journey. It was first introduced in the House of Representatives in November 2017, and was signed into law by President Donald Trump on Dec. 22, 2017 after vigorous debate and multiple versions of the bill made their way through both the House and Senate.

With all the developments since then, you may have forgotten about these sweeping tax changes until now. But as you get ready to file your tax return this year, you should prepare for some of the changes that could affect you.

What’s changing— and what isn’t

The majority of the new tax law’s changes went into effect Jan. 1, 2018, which means people filing their 2018 taxes in 2019 will need to take these changes into consideration.

Read on or jump ahead to read about the rules you’re most interested in:

529 college savings plans

A 529 college savings plan is a tax-advantaged savings account designed to encourage saving for qualified future higher-education costs, such as tuition, fees and room and board. Your money is invested and grows tax free.

Old Rule

New Rule (Effective Jan. 1, 2018)

Previously, 529 plan savings could only be used on qualified higher education expenses.

New Rule (Effective Jan. 1, 2018)

In a major victory for wealthier families, you can now use 529 savings for private K-12 schooling.

Tax benefits are now extended to eligible education expenses for an elementary or secondary public, private, or religious school.

The new rules allow you to withdraw up to $10,000 a year per student (child) for education costs.

ACA individual mandate

The individual mandate was a key provision of the Affordable Care Act that required non-exempt U.S. citizens and noncitizens who lawfully reside in the country to have health insurance.

Old Rule

New Rule (Effective Jan. 1, 2019)

Consumers who did not qualify for an exemption and chose not to purchase insurance faced a range of tax penalties, depending on income.

New Rule (Effective Jan. 1, 2019)

The individual mandate is out.

Starting Jan. 1, 2019, consumers who do not purchase health insurance will no longer face penalties.

GOP lawmakers argue that the measure will decrease spending on the tax subsidies it offers to balance out the cost of premiums for millions of Obamacare enrollees.

However, without the mandate, experts caution that fewer healthy and young people will sign up for health coverage through the insurance marketplace, which will likely lead to increases in premium costs for those who remain the marketplace and could even induce some insurers to drop out of the market altogether. It’s a big blow to supporters of the long-embattled health care law.

Alimony

Old Rule

New Rule (Effective Jan. 1, 2019)

The individual paying alimony or maintenance payments can deduct payments from their income. The person receiving the payments includes them as income.

New Rule (Effective Jan. 1, 2019)

The person making alimony or maintenance payments does not get to deduct them, and the recipient does not claim the payments as income. This goes into effect for any divorce or separation agreement signed or modified on or after Jan. 1, 2019.

Alternative minimum tax

The individual alternative minimum tax, or AMT, often imposed on higher-income families, especially those with children, who live in high-tax states — but not necessarily the ultra rich. It requires many households or individuals to calculate their tax due under the AMT rules alongside the rules for regular income tax. They have to pay the higher amount. Whether or not a someone pays AMT depends on their alternative minimum taxable income (AMTI). AMTI is determined through a series of assessments of a taxpayer’s income and assets — the explanation of calculating AMTI takes up two pages in the tax bill, so we’re not getting into the details here.

Old Rule

New Rule (Effective Jan. 1, 2018)

The exemption amount is $84,500 for married joint-filing couples, $54,300 for single filers and $42,250 for married couples filing separately.

The AMT exemption begins to phase out at $120,700 for singles, $160,900 for married couples filing jointly and $80,450 for married couples filing separately.

New Rule (Effective Jan. 1, 2018)

The AMT is here to stay but fewer households will have to face it.

Under the new rules, which are in effect from Jan. 1, 2018 through Dec. 31, 2025, married couples filing jointly will be exempt from the alternative minimum tax starting at $109,400. Exemption starts at $70,300 for all other taxpayers (other than estates and trusts).

The exemption phase-out thresholds will rise to $1,000,000 for married couples filing jointly, and $500,000 for all other taxpayers.

Bicycle commuting

Old Rule

New Rule (Effective Jan. 1, 2018)

Taxpayers can exclude up to $20 a month of qualified bicycle commuting reimbursements from their gross income. That includes payments from employers for things like a bicycle purchase, bike maintenance or storage. Workers can claim the exclusion in any month they regularly use a bicycle to commute to work and do not receive other transit benefits.

New Rule (Effective Jan. 1, 2018)

The exclusion is suspended through 2025.

Child tax credit

Old Rule

New Rule (Effective Jan. 1, 2018)

The current child tax credit is $1,000 per child under the age of 17.

The credit is reduced by $50 for each $1,000 a taxpayer earns over certain thresholds. The phase-out thresholds start at a modified adjusted gross income (AGI) over $75,000 for single individuals and heads of household, $110,000 for married couples filing jointly and $55,000 for married couples filing separately.

New Rule (Effective Jan. 1, 2018)

The child tax credit doubles to $2,000 per qualifying child. Up to $1,400 of the child tax credit can be received as refundable credit (meaning it can go toward a tax refund). The new rule also includes a $500 nonrefundable credit per dependent other than a qualifying child.

The credit begins to phase out at an AGI over $200,000 — for married couples, the phase-out starts at an AGI over $400,000.

This rule is in effect through 2025.

Corporate taxes

Old Rule

New Rule (Effective Jan. 1, 2018)

Under a four-step graduated rate structure, the current top corporate tax rate is 35 percent on taxable income greater than $10 million.

New Rule (Effective Jan. 1, 2018)

Permanently cuts the top corporate tax rate to 21 percent.

Estate taxes

The estate tax, aka the “Death Tax” is a tax levied on significantly large estates that are passed down to heirs.

Old Rule

New Rule (Effective Jan. 1, 2018)

Estates up to $5.49 million in value were exempt from the tax.

The top tax rate was 40 percent.

New Rule (Effective Jan. 1, 2018)

Doubles the exemption for the estate tax.

Now, estates up to $11.2 million are exempt from the tax.

Gains made on home sales

Old Rule

New Rule (Effective Jan. 1, 2018)

Homeowners can exclude up to $250,000 (or $500,000, if married filing jointly) of gains made when selling their primary residence, as long as they owned and primarily lived in the home for at least two of the five years before the sale. The exclusion can be claimed only once in a two-year period.

New Rule (Effective Jan. 1, 2018)

Homeowners can still exclude gains up to $250,000 (or $500,000 if married filing jointly) when they sell their primary residence, but they have to have lived there longer. People who sell their homes after Dec. 31, 2017 now have to use the home as their primary residence for five of the eight years before the sale in order to claim the exclusion. It can only be claimed once in a five-year period.

The new rule expires on Dec. 31, 2025.

Medical expenses

Old Rule

New Rule

Taxpayers were previously allowed to deduct out-of-pocket medical expenses that exceed 10 percent of their adjusted gross income or 7.5 percent if they or their spouse were 65 or older.

New Rule

The threshold for all taxpayers to claim an itemized deduction for medical expenses is lowered to 7.5 percent of a filer’s adjusted gross income.

The change applies to taxable years from Dec. 31, 2016 to Jan. 1, 2019.

Miscellaneous tax deductions

Taxpayers can take the miscellaneous tax deduction if the items total more than 2 percent of their adjusted gross income. The amount that’s deductible is the amount that exceeds the 2 percent threshold. These are some of the major changes coming to the miscellaneous tax deduction.

Old Rule

New Rule (Effective Jan. 1, 2018)

Tax preparation: Taxpayers can today claim an itemized deduction of the amount of money they pay for tax-related expenses, like the person who prepares their taxes or any software purchased pr fees paid to fee to file forms electronically.

Work-related expenses: Under current law, workers can deduct unreimbursed business expense as an itemized deduction, like the cost of a home office, job-search costs, professional license fees and more.

Investment fees: Taxpayers can currently deduct fees paid to advisors and brokers to manage their money.

New Rule (Effective Jan. 1, 2018)

Tax preparation: Taxpayers may not claim tax-preparation expenses as an itemized deduction through 2025.

Work-related expenses: The bill suspends work-related expenses as an itemized deduction through 2025.

Investment fees: Under the new rules, the investment fee deduction is suspended until 2025.

Mortgage and home equity loan interest deduction

Old Rule

New Rule (Effective Jan. 1, 2018)

Currently homeowners are allowed to deduct interest paid on mortgages valued up to $1 million on a taxpayer’s principal residence and one other qualified residence.

They can also deduct interest paid on a home equity loan or home equity line of credit no greater than $100,000. These are itemized deductions.

New Rule (Effective Jan. 1, 2018)

New homeowners can include mortgage interest paid on up to $750,000 of principal value on a new home in their itemized deductions.

The old, $1 million caps continues to apply to current homeowners (those who took out their mortgages on or before Dec. 15, 2017), as well as refinancing on mortgages taken out on or before Dec. 15, 2017, as long as new mortgage amount does not exceed the amount of debt being refinanced.

Homeowners CAN deduct interest paid on a home equity line of credit or home equity loan, so long as the loan was used to buy, build or substantially improve your home.

These changes are set to expire after 2025.

Moving expenses

Old Rule

New Rule (Effective Jan. 1, 2018)

Current law allows taxpayers to deduct moving expenses as long as the move is of a certain distance from the taxpayer’s previous home and the job in the new location is full-time.

New Rule (Effective Jan. 1, 2018)

The new tax bill suspends the moving expense deduction through 2025. Until then, taxpayers are not permitted to deduct moving expenses.

Moving-related deductions and exclusions remain in place for members of the military.

Pass-through businesses

Pass-through businesses are generally small businesses (also some big firms) that don’t pay the corporate income tax. Instead, the owners report the corporate profits as their own income and pay taxes based on the individual tax rates along with their regular personal income tax.

Some of the common types of pass-through businesses are partnerships, LLCs (limited liability companies), S corporations and sole proprietorships.

Old Rule

New Rule (Effective Jan. 1, 2018)

All pass-through business owners’ income was previously subject to regular personal income tax.

New Rule (Effective Jan. 1, 2018)

Under the new laws, pass-through business owners can deduct up to 20 percent of their qualified business income from a partnership, S corporation or sole proprietorship.

Individuals earning $157,500 and married couples earning $315,000 are eligible for the fullest deduction.

Personal casualty or theft

Old Rule

New Rule (Effective Jan. 1, 2018)

Under current tax law individuals can deduct uninsured losses above $100 when property is lost to a fire, shipwreck, flood, storm, earthquake or other natural disaster. The deduction is allowed as long as the total loss amounts to greater than 10 percent of the taxpayer’s adjusted gross income.

New Rule (Effective Jan. 1, 2018)

The new tax bill only allows taxpayers to claim the deduction if the loss occurred during a federally declared disaster, through 2025.

Personal exemptions

Old Rule

New Rule (Effective Jan. 1, 2018)

Taxpayers can reduce their adjusted gross income by claiming personal exemptions — generally for the taxpayer, their spouse and their dependents.

Taxpayers could deduct $4,050 per exemption in 2017, though the deduction is phased out for taxpayers earning more than certain AGI thresholds. The phase out begins at an AGI over $313,800 for married couples filing jointly, $287,650 for heads of household, $156,900 for married couples filing separately and $261,500 for all other taxpayers.

New Rule (Effective Jan. 1, 2018)

Personal exemptions have been suspended through 2025.

Standard deductions

Old Rule

New Rule (Effective Jan. 1, 2018)

Taxpayers who do not itemize can claim the current standard deduction of $6,350 for single individuals, $9,350 for heads of household or $12,700 for married couples filing jointly

New Rule (Effective Jan. 1, 2018)

Standard deductions for all nearly double under the new rules.

Individuals see standard deductions rise to $12,000; forlim heads of household, it rises to $18,000; and for married couples filing jointly the standard deduction increases to $24,000.

State and local tax (SALT) deduction

Old Rule

New Rule (Effective Jan. 1, 2018)

Taxpayers may include state and local property, income and sales taxes as itemized deductions.

New Rule (Effective Jan. 1, 2018)

Taxpayers are limited to claiming an itemized deduction of $10,000 in combined state and local income, sales and property taxes, starting in 2018 through 2025.

Taxpayers cannot get around these limits by prepaying 2018 state and local income taxes while it is still 2017. The bill says nothing about prepaying 2018 property taxes.

Student loan debt discharge

Old Rule

New Rule (Effective Jan. 1, 2018)

Currently, student loan debt discharged due to death or disability is taxed as income.

New Rule (Effective Jan. 1, 2018)

Under the new tax bill, student loan debt discharged due to death or disability after Dec. 31, 2017, will not be taxed as income. The rule lasts through 2025.

Tax brackets and income taxes

Old Rule

New Rule (Effective Jan. 1, 2018)

There are currently seven tax brackets.

The rate on the highest earners is 39.6 percent for taxpayers earning above $418,400 for individuals and $470,700 for married couples filing taxes jointly.

New Rule (Effective Jan. 1, 2018)

The new rules retain seven tax brackets, but the brackets have been modified to lower most individual income tax rates. The new brackets expire in 2027.

Top income earners — above $500,000 for individuals and above $600,000 for married couples filing jointly — falls from 39.6 percent to 37 percent.

The majority of individual income tax changes would be temporary, expiring after Dec.
31, 2025.

2017 Tax Brackets

New Tax Brackets (Effective Jan. 1, 2018)

Single Individuals

Taxable Income

Tax Bracket

Taxable Income

Tax Bracket

$9,325 or less

10%

$9,525 or less

10%

$9,326-$37,950

15%

$9,526-$38,700

12%

$37,951-$91,900

25%

$38,701-$82,500

22%

$91,901-$191,650

28%

$82,501-$157,500

24%

$191,651-$416,700

33%

$157,501-$200,000

32%

$416,701-$418,400

35%

$200,001-$500,000

35%

Over $418,400

39.60%

Over $500,000

37%

Married Individuals Filing Joint Returns and Surviving Spouses

Taxable Income

Tax Bracket

Taxable Income

Tax Bracket

$18,650 or less

10%

$19,050 or less

10%

$18,651-$75,900

15%

$19,051-$77,400

12%

$75,901-$153,100

25%

$77,401-$165,000

22%

$153,101-$233,350

28%

$165,001-$315,000

24%

$233,351-$416,700

33%

$315,001-$400,000

32%

$416,701-$470,700

35%

$400,001-$600,000

35%

Over $470,700

39.60%

Over $600,000

37%

Heads of Households

Taxable Income

Tax Bracket

Taxable Income

Tax Bracket

$13,350 or less

10%

$13,600 or less

10%

$13,351-$50,800

15%

$13,601-$51,800

12%

$50,801-$131,200

25%

$51,801-$82,500

22%

$131,201-$212,500

28%

$82,501-$157,500

24%

$212,501-$416,700

33%

$157,501-$200,000

32%

$416,701-$444,550

35%

$200,001-$500,000

35%

Over $444,550

39.60%

Over $500,000

37%

Married Individuals Filing Separate Returns

Taxable Income

Tax Bracket

Taxable Income

Tax Bracket

$9,325 or less

10%

Not over $9,525

10%

$9,326-$37,950

15%

$9,525-$38,700

12%

$37,951-$76,550

25%

$38,701-$82,500

22%

$76,551-$116,675

28%

$82,501-$157,500

24%

$116,676- $208,350

33%

$157,501-$200,000

32%

$208,351-$235,350

35%

$200,001-$300,000

35%

Over $235,350

39.60%

Over $300,000

37%

Tax deductions that won’t be changing

Teacher deduction

Teachers can deduct up to $250 for unreimbursed expenses for classroom supplies or school materials from their taxable income.

Electric cars

Electric car owners who bought a vehicle after 2010 may be given tax credit of up to $7,500, depending on the battery capacity.

Adoption assistance

Adoptive parents are allowed a tax credit and employer-provided benefits up to $13,570 per eligible child in 2017.

Student loan interest deduction

Student loan borrowers may deduct up to $2,500 on the interest paid for student loans every year.

FAQ: Tax filing tips for 2019

Taxes for tax year 2018 are due to the IRS by April 15, 2019.  Some filers may face an unwelcome surprise this year if they end up owing more taxes than usual, while others may receive a nice refund they weren’t expecting.

What if I owe taxes due to tax reform?

You might have been overpaying or underpaying on your taxes in 2018, which could mean a tax bill or bigger-than-expected tax refund this time around.

To avoid confusion, consult a tax professional and consider adjusting your allowances on your W-4.

If you end up owing taxes, you’ll need to pay your bill by April 15th or contact the IRS to sign up for a payment plan. Late payments will result in penalties and additional fees.

When can I expect my tax refund?

The IRS typically sends out tax refunds within 21 days of receiving your filing. It can take longer in some occasions, depending on your situation. If you file your return electronically, you can check the status of your refund after 24 hours from filing, through the IRS’ Where’s My Refund? tool. If you mail in your return, you can check the status four weeks after mailing. You can also use your smartphone to download the IRS2Go app to check your refund status.

How should I spend my tax refund?

It’s certainly tempting to use the money to book your next much-deserved vacation. But treating yourself isn’t necessarily the best way to spend your tax refund. Instead, consider stashing it away inside a savings vehicle and forgetting you even had extra cash to spend. An easy option is to boost your emergency savings by depositing your refund in a high-yield online savings account. That will grow your refund efficiently over time and can save you some financial grief in the future. Here are some of the best savings accounts with high rates:

Institution
APY
Minimum Account Balance to Earn APY
Citizens Access
Online Savings Account from Citizens Access

0.25%

$0.01

LEARN MORE Secured

on Citizens Access’s secure website

Member FDIC

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We'll receive a referral fee if you click here. This does not impact our rankings or recommendations
Synchrony Bank
High Yield Savings from Synchrony Bank

2.25%

$0

LEARN MORE Secured

on Synchrony Bank’s secure website

Member FDIC

Advertiser Disclosure.

We'll receive a referral fee if you click here. This does not impact our rankings or recommendations
A savings account can be easily accessed in case you need the funds in a pinch, unlike with a high-rate certificate of deposit. A CD works better if you need to save towards a longer-term goal, like making a down payment on a house in a few years. Once you make your deposit into a CD, it grows undisturbed for the length of its term. In exchange for leaving your deposit untouched with the bank, you get to grow your CD funds at high interest rates, resulting in some solid savings growth when the term ends. Here are some of the best one-year CD rates:

Institution
APY
Minimum Account Balance to Earn APY
Synchrony Bank
12 Month CD from Synchrony Bank

2.70%

$2000

LEARN MORE Secured

on Synchrony Bank’s secure website

Member FDIC

Ally Bank
High Yield 12-Month CD from Ally Bank

2.55%

$0

LEARN MORE Secured

on Ally Bank’s secure website

Member FDIC

Advertiser Disclosure.

We'll receive a referral fee if you click here. This does not impact our rankings or recommendations.

Other options include using your refund to expand your investment portfolio or placing the funds in an IRA. Investing your refund can be a riskier way to grow your money since your returns depend on the market instead of an APY. And of course, saving in an IRA is a smart way to invest in your retirement future. The IRS even allows you to split your refund between multiple accounts when you sign up for direct deposit. This makes it easy for you to save your refund in various ways.

Brittney Laryea and Shen Lu contributed to this article. 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Lauren Perez
Lauren Perez |

Lauren Perez is a writer at MagnifyMoney. You can email Lauren here

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How Fed Rate Hikes Change Borrowing and Savings Rates

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Since late 2015, the Federal Reserve has raised the upper limit of its target federal funds rate by 2.25 percentage points, from 0.25% in December 2015, to 2.50% in 2019.

The Fed is no longer expected to raise rates. Now, the question is whether the Fed will cut the federal funds rate sometime this summer. The market is increasingly confident that at least one rate cut will occur this calendar year.

MagnifyMoney analyzed Federal Reserve rate data to illustrate how the rates consumers pay for loans and earn on deposits have changed since the Fed started raising them two and a half years ago.

  • Credit card borrowers are currently paying $113 billion in interest annually, up $34 billion from the annual $79 billion they paid prior to the first Federal Reserve interest rate hike in December 2015, making introductory 0% APR deals all the more attractive.
  • Meanwhile, depositors earned significantly more from savings accounts. In the 12 months ending in June 2018, depositors earned $26.8 billion in interest on their savings accounts, up $16.8 billion from the $10 billion they earned in 2015.
  • According to our analysis, credit card rates are most sensitive to changes in the federal funds rate, almost directly matching the rate change with a 3 percentage point increase since December 2015. Credit card rates will continue to rise in line with the Fed’s rate increases, and if the Fed raises them again, the average household that carries credit card debt month to month will pay over $150 in extra interest per year compared with before the Fed rate hikes began. MagnifyMoney estimates 122 million Americans carry credit card debt month to month.
  • Student loan and auto loan rates have also risen  — but by less than half as much as credit card rates — in part because they are long-term forms of lending that are less reliant on the short-term federal funds rate. Federal student loan rates are set based on the 10-year Treasury note rate each May.
  • Savers at big banks have seen little change, with the average savings and CD account passing through only a fraction of the rate increase. However, that masks a big opportunity for savers who shop around and move deposits to online banks. Online banks have aggressively raised rates, and now often offer rates of more than 2%, versus just 1% in 2015. That’s over 20 times what typical accounts pay.

In addition, MagnifyMoney also looked at the impact on consumer rates the last time the Fed reduced rates in 2007.

 

Generally, unsecured loans like credit cards and personal loans are more rate-change sensitive than secured loans like autos and home mortgage rates, no matter the direction of the rate change. However, savings products like Certificates of Deposit are a stark exception. Even after 3 years of fed funds rate increases, CD rates generally languished at rock-bottom rates until very recently, and then only increased modestly, relative to other financial products. Compare that to 2007, when it was the product most sensitive to interest rate cuts.

 

Let’s take a closer look at how the Fed rate hike impacts different financial products:

Credit cards

Most credit cards have a rate that’s directly based on the prime rate, for example, the prime rate plus 9.99%. As a result, card rates tend to move almost immediately in line with Fed rate changes. In the current cycle, the rates on all credit card accounts tracked by the Federal Reserve have increased 3 points, even more than the Fed’s increase of 2.25 points.

That said, consumers can still find attractive introductory rate offers.

For example, 0% balance transfer offers have continued to have long terms even as the Fed hiked rates, with offers still available for nearly two years at 0%.

Credit card issuers make up for the rate hike with the automatic rise in variable back-end rates, as well as the increasing spread between the prime rate and what consumers pay on new accounts. They can also increase other fees, like late payment fees or balance transfer fees to keep long 0% deals viable.

The Federal Reserve tends to hike up interest rates gradually over time. And people in credit card debt will barely notice the rate increase in their monthly statement. When rates are increased by 0.25%, the monthly minimum due on a credit card will increase $2 for every $10,000 of debt.
The danger of such a small increase in the monthly payment is complacency. Remember that by paying the minimum due, you could be in debt for more than 20 years.

Rates are expected to keep rising, so it makes sense for consumers to lock in a low rate today. The best ways to lock in lower rates are by leveraging long 0% balance transfer deals or by consolidating into fixed rate personal loans.

Savings accounts

On average, savings account rates haven’t changed much since the Fed started raising rates. That’s largely because big banks with the biggest deposits and large branch networks have less incentive to offer higher rates, and this skews national data on rates earned because most savers don’t shop around to find higher rates at online banks and credit unions.

Consumers who shop around can find much higher savings account rates than three years ago, and shopping around for a better rate on your deposits is one of the best ways to make the Fed’s rate hikes work in your favor.

Back in 2015, it was rare to see savings accounts pay 1% interest.

Today, many online banks are competing for deposits by offering savings account rates in excess of 2%, flowing through about half of the Fed’s rate hike into increased rates for depositors. These rates will continue to rise as the Fed hikes rates. The increases are already apparent in the data. Depositors are currently earning more than $26 billion in interest on their savings accounts annually, versus $10 billion in 2015.

CDs

CD rates have moved faster than savings rates, up 0.41 points for 12-month CDs since the Fed started raising rates. That’s in part because they are a more competitive product that forces consumers to rate shop when they expire at the end of their 6-month, 12-month or longer term.

But that rate rise doesn’t fully reflect what some smaller banks are passing through, as the banks with the largest deposits have been slow to raise rates.

The rates on 1- and 2-year CDs at online banks have been increasing rapidly, and are now well over 2%, reflecting much of the Fed’s rate increases since 2015.

The rates on 5-year CDs have also finally begun to increase, with some banks offering 60-month CDs with rates above 3.50%. As a result, the rate curve has been steepening.

Still, a reasonable strategy would be to invest in short-term (1- and 2-year) CDs. If competition on the short end continues, you can get the benefit in a year on renewal.

Student loans

Federal student loan rates are set based on a May auction of 10-year Treasury notes, plus a defined add-on to the rate. Today, rates for new undergraduate Stafford loans stand at 5.05%, up from 4.30% before the federal funds target rate began to rise.

Since student loan rates are determined by the 10-year Treasury rate, rather than a short-term rate, they are less directly related to changes in the federal funds rate than some shorter-term forms of borrowing like credit cards. Instead, future market views of inflation and economic growth play a role. Federal student loan rates are capped at 8.25% for undergraduates and 9.5% for graduate students.

For private refinancing options, rates depend on secondary markets that tend to follow longer-term rates, rather than the current federal funds rate, but in general, a rising rate environment could mean less attractive refinancing options.

Personal loans

Personal loan rates tend to be driven by many factors, including an individual lender’s view of the lifetime value of a customer, funding availability and credit appetite. Most personal loans offer fixed rates, and in a rising rate environment overall, we expect these rates will go up, making new loans more expensive, so consumers on the fence should consider shopping for a good rate sooner rather than later. Since the end of 2015, rates on 2-year personal loans tracked by the Federal Reserve have increased by 0.61 basis points.

Auto loans

Prime consumers who shop around for an auto loan can still find very low rates, especially when manufacturers are offering special financing deals to move certain car models.

But the overall rates across the credit spectrum have gone up since the Fed raised rates, in part due to the rate hikes and because of recent greater than expected delinquencies in some parts of the auto lending market.

Mortgages

Since the Fed started raising rates in late 2015, the average 30-year fixed mortgage rate has increased from approximately 3.90% to 4.34% as of Dec. 20, 2018. The mortgage market tends to follow trends in longer term bond markets, like the 10-year Treasury, since mortgages are a longer-term form of borrowing. That shields them from the impact of Fed rate hikes, and it’s not unusual for mortgage rates to decline during some periods when the Fed is raising rates.

What can consumers do

Rates are only going to go up. That means life is going to get more expensive for debtors, and more rewarding for savers.

If you are in debt, now is the time to lock in the lowest rate possible. There are still plenty of options at this point in the credit cycle for people to lock in lower interest rates.

If you are a saver, ignore your traditional bank and look online. Take advantage of online savings accounts and CDs to earn 20 times the rate of typical big bank rates.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at [email protected]

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How to Pay for Transition-Related Expenses Without Going Broke

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Once a trans person has accepted their gender identity and decided to begin transitioning, it’s an exciting and liberating time. Everyone’s transition looks different, and each person may choose varying interventions. But as soon as someone starts looking at the costs, which could include doctor appointments, bloodwork, hormones, legal name and gender marker changes, a whole new wardrobe and potentially, surgeries, the costs can skyrocket quickly.

This is an especially tough pill to swallow for the trans community, which already faces significant financial disadvantages compared to the general population, according to the National Center for Transgender Equality. As revealed in their 2015 report, this is because many trans people face unsupportive families and suffer from discrimination with employment and housing, which results in financial distress and homelessness at higher rates than cisgender people.

“In the trans community, we see the highest amount of unemployment and housing insecurity,” said Emmett Schelling, executive director of Transgender Education Network of Texas. “Most trans people can’t save money because they’re worried about their day-to-day survival.” This makes it difficult to find money for binders, electrolysis or other transition-related needs when just getting by can be a struggle.

While there are some transition-related expenses that are difficult to avoid, many can be reduced or wiped out with the help of certain resources and strategies. Here’s how to save on several of the most common expenses.

How much does it cost to medically transition?

Not every trans person desires hormone therapy or surgeries. But for those who do, the costs can be high and vary greatly depending on the provider and whether you have health insurance that covers it.

For some ballpark figures, below are the costs of some of the most common transition-related surgeries at The Philadelphia Center for Transgender Surgery, including hospital and anesthesia costs. Note that this clinic and others provide a discount when multiple surgeries are done at once.

For trans women seeking hair removal, electrolysis and laser hair removal are used because they’re the most permanent methods. However, costs may vary drastically, since the number of sessions required to achieve results is unique to each individual and the amount providers charge can differ significantly.

Male-to-female confirmation surgeries and procedures

Breast augmentation

$9,000

Vaginoplasty

$25,600

Rhinoplasty

$9,000

Thyroid cartilage reduction (trachea shave)

$5,400

Female-to-male confirmation surgeries and procedures

Basic chest masculinization

$7,800

Phalloplasty

$24,900

How to finance your transition

Apply for grants

If you want a surgery or procedure that’s still beyond what you can afford, consider applying for a grant. There are several specifically for people who need assistance while transitioning.

“There are a few different nonprofit organizations out there that provide financial assistance for people seeking gender affirming surgery or electrolysis or binders,” said Ryan Sallans, a transgender author, public speaker and diversity trainer. He is also a volunteer vice president of The Jim Collins Foundation, which has an annual grant cycle that awards financial grants for gender-affirming surgery to a limited number of applicants. They offer one type of grant that pays for 100% of surgical fees.

“It makes us a unique organization,” Sallans added. “Being able to tell people that 100% of surgical fees are covered is completely life changing, because a lot of people aren’t able to even put down $1,000 or $2,000 for a surgery.”

Through a legacy donation by a trans woman, they also have a grant available that provides 50% of funding and requires the individual to put down the other 50%. “I actually really love that grant — sadly it’ll be gone in two years — because there are many people who may have most of the money,” he said. “They just don’t have that last piece.”

According to Sallans said each year, they typically receive 400 to 500 applications, and in the past, they were only able to award one to three grants annually. For the last two years in a row, they’ve been able to provide three grants that covered surgeries at 100% and two that covered 50%. The amount they can give out each year depends on how much they’re able to fundraise.

The nonprofit Point of Pride also started offering surgical grants for the trans community a few years ago, and they’ve given out more than $103,000 total in grants. They also have a program to help with the costs of electrolysis for permanent hair removal.

Get creative with fundraising

If you’re struggling to piece together enough money for transition-related expenses, you may turn to credit cards or a loan. But rather than getting into debt, consider fundraising first. Many trans people turn to GoFundMe, Schelling said, which allows them to raise money from their friends and family.

Some people also organize fundraisers; for example, working with local LGBTQ bars to have a percent of one night’s proceeds go toward their surgery. Schelling said he’s seen people in Texas do “plate sales,” where they hold an event and make food, like homemade enchiladas, and sell plates of it to raise money for their surgery. If you get creative with fundraising, he said, and combine it with any savings you do have, you can meet your goals a lot faster.

Explore your insurance

If you have health insurance, read your policy carefully to determine what types of transition-related care is and isn’t covered. If you’re not able to figure it out, call your insurer or ask your job’s human resources team to help you understand your coverage.

Be aware that under the Affordable Care Act, health insurers and medical providers are not allowed to discriminate against you because you’re trans. While this doesn’t mean they have to cover every procedure, an insurer cannot categorically exclude transition-related care, and providers aren’t allowed to deny you care simply because you’re trans — though unfortunately it sometimes still happens.

If you have faced discrimination from an insurer or medical professional, you can file a complaint with the U.S. Department of Health and Human Services. If you need assistance, contact The Transgender Law Center Legal Helpline or call (415) 865-0176 x306.

If you’re on Medicare, know that transition-related care that’s deemed “medically necessary” is supposed to be covered. However, attempts to get surgeries covered by Medicare are not always successful, so ask your doctor about their history with the program and whether or not previous claims have been accepted.

Consider borrowing to help cover the costs

If you’re not able to pay for transition-related costs with savings, you might be able to finance them with one of these options.

Credit cards. Credit cards offer an easy way to borrow funds. Your credit limit might not be enough to pay for an entire major surgery, but it could cover smaller procedures or miscellaneous costs. If your credit card’s interest rate is high, many credit cards offer 0% interest rates for a year or longer, giving you time to make a dent in your debt. If you go that route, just make sure that if you carry a balance, you can handle the payments once the regular APR kicks in. Also keep a lookout for annual fees, and be aware that carrying a high balance can hurt your credit score since it increases your credit utilization ratio.

Personal loans. Another option to pay for transition-related costs or surgery is taking out a personal loan, which gives a lump sum that’s then repaid with interest in fixed payments. You can take out a personal loan from a traditional financial institution, like a bank or a credit union, or from an online lender. Personal loans are typically available anywhere from $1,000 to $50,000, and interest rates vary significantly depending on credit history.

Medical financing. There are also certain financing options specifically for medical expenses. One is CareCredit, a medical credit card accepted by some healthcare providers. CareCredit often offers 0% interest for certain time periods, but if you don’t pay off your balance by the end of that predetermined “promotional period,” you will owe interest retroactively, and at a very high rate. CareCredit should only be used if you know you can pay off your balance in full before interest kicks in. Another option is Prosper — the company known for peer-to-peer lending also offers a special type of healthcare loan in partnership with some doctors. If your doctor uses their system and you’re approved, you can get a loan for up to $35,000 with no retroactive interest.

Find extra work

Another way to help pay for transition-related expenses is to supplement your income. Consider turning to the gig economy, where you can give rides, deliver groceries, charge scooters and a number of other flexible jobs.

Schelling said he’s even encountered many trans people who work at Starbucks for several years. This offers a unique opportunity, he said, since it not only brings supplemental income, but Starbucks also offers extremely trans-inclusive health insurance, even to part-time employees.

3 ways to save on transition-related expenses

Find free clothing

Some trans people slowly start building their new wardrobe over time, but others don’t start purchasing attire that matches their gender identity until they begin socially transitioning. This can get expensive quickly — not to mention, many transitioning people are uncomfortable shopping in public, Schelling said.

One way to get around this is to participate in or start a clothing swap with other members of the trans community. Some organizations put these together, but if there’s nothing in your area, try to organize one yourself. Have everyone bring some clothes they no longer wear, and swap them with those who are now looking for those types of clothes. People can also bring shoes, jewelry, bags, makeup and other items they no longer need.

“In the city next to me, there was a group of trans people who were doing that,” Sallans noted. “They were collecting binders and clothes and giving it out to people when they had a social group meeting or peer support meeting.” Beyond the immediate need, he added that it also helps build a sense of community.

If a clothing swap isn’t an option for you, consider visiting local thrift stores or online marketplaces like Thredup or Poshmark to find gently used clothes at a huge discount.

Schelling added that some organizations and businesses offer free chest binders for trans people who can’t afford one. For example, Point of Pride offers a free binder program.

Look for LGBTQ-friendly healthcare

Many trans people seek out hormone replacement therapy, but if you don’t have health insurance, accessing HRT and any other basic healthcare needs can be extremely expensive. Fortunately, more and more LGBT-focused clinics are currently opening up around the nation, according to Sallans.

“There are different non-profit organizations that can subsidize costs, whether you need access to hormone therapy or general prevention care, like reproductive and sexuality care,” he said. Planned Parenthood is one such organization, he also noted; while not every location offers hormone replacement therapy, many do.

There are also individual clinics, like Kind Clinic in Austin, Texas, that focus specifically on healthcare for the LGBTQ+ community and offer discounted services.

Schelling’s organization has also observed the increase in clinics that offer trans healthcare.

“A lot of times, the upside is there’s access to competent medical care, and some of those clinics assist you with the costs of your medications,” he said. “The downside is that usually there’s a limited amount of days or evenings these clinics are open, so once people find out, the wait list can be two to three months out.” However, he noted that if you’re looking for hormone therapy, once you have your initial blood work completed, you typically only have to go in every few months.

Access free or discounted legal assistance

If you want to legally change your name and/or gender marker, you’ll have to go through your legal system to get new IDs. “Having people who are knowledgeable in this process is extremely important since it can be extremely overwhelming and expensive,” Sallans said. While using a lawyer for this is optimal, especially since laws vary by state, it can be expensive. Sallans said he did his all himself, which was much cheaper, but it was also very daunting.

Across the country, there are law clinics that offer free legal services for name and gender marker changes. For example, in San Antonio, Texas, the local LGBTQ center, The Pride Center, provides free legal gender and name changes through a legal clinic with a local law school. If there’s a law school near where you live, find out if there are any law clinics or programs available to help.

Some individual lawyers also offer free or discounted services for transr members of their community who have these legal needs. If you’re not sure where to start, and your city has an LGBTQ chamber of commerce, see if any lawyers are members. If there are any LGBTQ publications in your city, see if any lawyers advertise in them. Sallans says some nonprofits also offer these legal services for free in various areas.

Transitioning can be an expensive endeavor, but there is an ever-increasing number of resources and organizations available to help make the process more within reach.

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Emily Starbuck Gerson
Emily Starbuck Gerson |

Emily Starbuck Gerson is a writer at MagnifyMoney. You can email Emily here

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