Let's say you've been regularly buying shares in a booming tech company over the past few years, but now you want to start taking some of those profits, perhaps to rebalance your portfolio. Your brokerage makes it easy-peasy: Just choose the number of shares you want to unload and click the "sell" button. Now you can celebrate your investing win!

You may not realize it, but the IRS might be celebrating, too. That's because investors can end up paying more of their gains in taxes than they have to if they aren't smart about choosing which of their shares to sell based on a factor known as cost basis.

Rather than being solely about what you make, "investing is about what you keep," explains Nilay Gandhi, a certified financial planner with Vanguard Personal Advisor. "Choosing the right cost basis method helps you keep more money in your pocket."

In concept, cost basis is simple: It's the price you paid for an investment. It isn't a worry for transactions made in tax-protected accounts, such as IRAs. Money withdrawn from those accounts is typically taxed at ordinary income rates. Whenever you sell shares held in a taxable account, however, your cost basis determines the size of your gain or loss, as well as your capital gains tax liability. The process can get tricky if you have been steadily buying shares of the same companies or funds over time.

Because prices go up and down, you paid a different price each time you made a purchase. Each separate purchase of a security in a single transaction is called a tax lot. So when it comes time to sell some of your holdings, the size of your tax-reportable gain (or loss) will depend on which lots you sell.

If you sell lots purchased more than a year ago for a profit, you could pay anywhere from no tax to 20% in federal long-term capital gains tax, depending on your tax bracket. (You might owe more to your state if it taxes capital gains.)

Selling lots you purchased within the past year for a profit could incur short-term federal capital gains tax of up to 37%, as well as possible state tax. In addition, any gain, whether short term or long term, could boost your income enough to expose you to other taxes or costs – such as the federal net investment income tax of 3.8%. Losses, on the other hand, can be used to offset gains and reduce your tax bill.

Unless you change your brokerage's default settings, whenever you sell part of a holding, most major brokerages will typically either sell the oldest lots first or report your average overall cost to the IRS. That's an okay start, but most brokerages offer other options that can reduce your taxes even more, says Allan Roth, a Colorado-based certified public accountant and financial adviser.

Choose your cost basis options wisely

Roth's preferred method is to select which lots to sell himself so that he can exactly tailor his gains or losses to that year's tax situation. To do that, you must go into your brokerage's account settings and switch the cost basis default to the fully personalized option, which goes by slightly different names at different brokerages, such as "specified lots" at Charles Schwab, "specific shares" at Fidelity and "specific identification" at Vanguard.

Before any sale, decide exactly which lots will give you the optimal combination of gains and losses, and only then direct the brokerage to sell your chosen lots.

How cost basis is calculated

For investors who don't want to spend time on such precise machinations, brokerages offer several other automatic cost basis methods that advisers say can help reduce tax liabilities. To make sure you are taking advantage of the option that's best for you, log in to your brokerage account and check (and possibly change) your cost basis default setting before you make any sale, Roth stresses.

"The IRS doesn't allow do-overs," he says. There are more than a dozen cost basis methods. Here are five of the most popular and useful options, listed alphabetically:

Average. This method, which averages all your purchase prices of the same investment, is typically reserved for mutual funds. It's the default fund option at some major brokerages, including Fidelity and Vanguard. The IRS does not allow you to use it for most stock sales. The average method is one of the simpler methods and can be a reasonable option for longtime fund investors who expect their capital gains, income and tax rates to remain stable.

First In, First Out (FIFO). This method automatically sells the oldest lots first. It is the default option for all holdings on E*Trade, Robinhood and many other brokerages, and it is the default option for stocks and exchange-traded funds at Fidelity, Schwab and Vanguard.

In a generally rising market, FIFO makes it more likely that any capital gains will be long term. Josh Trubow, a certified financial planner in Waltham, Massachusetts, notes that this option doesn't guarantee the lowest tax bill, but it can be a reasonable choice for investors wishing to donate highly appreciated stock.

It can also work for investors whose income – after the gains are added – keeps them in a low capital gains bracket. For example, for 2024, married couples filing jointly who have taxable income below $94,050 pay no federal long-term capital gains taxes. It may also make sense to take gains now if you think your tax rate will be higher in the future, Trubow adds.

Highest In, First Out (HIFO). This strategy sells the lots that you paid the most for. That can be advantageous for anyone trying to limit their capital gains and maximize their tax losses, says Vanguard's Gandhi. But, he warns, this method does not take into account the date you made the purchase. If using this method results in selling for a profit some shares bought within the past 12 months, you could face higher short-term capital gains rates.

Lowest Cost, First Out (LOFO). This method sells the investments with the biggest gains first. Like HIFO, LOFO does not take into account the date of the purchase, so it may expose users to liabilities for short-term capital gains tax. And like FIFO, it can be a reasonable option for those designating appreciated shares to donate, or for those currently in low tax brackets or who expect their tax rates to be higher in future years.

Tax-optimized. Most major brokerages offer at least one sophisticated automatic cost basis option that takes into account both timing and returns to avoid short-term capital gains taxes and maximize tax losses. E*Trade calls its version "Minimum Tax Impact," Fidelity's version is "Tax-sensitive," Schwab's is called "Tax Lot Optimizer," and Vanguard's is "Minimum Tax."

Roth, who works with clients who use a few major platforms, says he hasn't noticed significant differences in the results of the different tax-optimized methods at the brokerages. Although he still prefers designing his cost bases himself, he says the brokerages' automatic tax-minimizing options are a good compromise.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Learning about options trading is not a quick and easy task. There are many moving parts when it comes to these derivatives.

It's important to have a solid understanding of the basics before including them in your portfolio. One critical aspect to wrap your head around is the options Greeks.

Because options are derivatives, a standard contract is based on 100 shares of the underlying stock.

"Options prices are quoted on a per-share basis – so a call option quoted at 75 cents will actually cost $75 to buy (75 cents per share x 100 shares per contract)," writes Kiplinger contributor Elizabeth Volk in her feature "What Are Options?".

However, options prices are not static. Indeed, they fluctuate throughout the lifetime of the contract due to a laundry list of variables.

That list includes the price of the underlying stock and the time left until the contract's expiration as well as scheduled events like corporate earnings announcements and central bank decisions on interest rates.

Investors can use the Greeks to measure risk affecting an option's price.

These five metrics – delta, gamma, theta, vega and rho – fluctuate both independently and in conjunction to determine the premium, or price, of an option in real time.

Let's take a closer look at each of the options Greeks and explain how they're used in options trading.

Options Greeks: Delta

Delta is often referred to as the compass of options, providing insights into the directional risk inherent in your investments.

In simpler terms, delta is used to measure how much the price of an option contract is expected to move for each $1 move in the underlying security.

Delta ranges from 0 to 1 for call options and 0 to negative 1 (-1) for put options. This number represents the change in an option's price due to a $1 change in price of the underlying stock.

Let's say a call option's delta is 0.40 and the underlying stock is trading at $10.00. If the stock price rises to $11, the option's price will increase by 40 cents. Conversely, if the stock price falls to $9, the option's price will decrease by 40 cents.

The higher the delta, say 0.75, the more closely the option's price will track the movement of the underlying asset. In the same vein, a lower delta, say 0.25, tends to indicate a more subdued response to shifts in the asset's price.

Delta is arguably the most important of the options Greeks as it directly shapes the directional risk associated with your investments. For investors, it is an invaluable tool for assessing the probability of your option reaching profitability.

A higher delta suggests a greater likelihood of an option being in-the-money at expiration.

Options Greeks: Gamma

Gamma accentuates the impact of changes in delta over time. If delta is considered the "speed" in which an option's price changes, gamma can be considered the "acceleration."

In other words, gamma measures the rate of change in an option's delta based on a $1 change in price of the underlying stock.

Gamma ranges from 0 to 1.0 for options that are bought to open, or long options. The metric ranges from 0 to negative 1 (-1) for options that are sold to open, or short options.

A higher gamma indicates that the option's delta is more responsive to fluctuations in the underlying stock's price, while a lower gamma suggests a more gradual change in delta.

Market participants can use gamma to determine the potential volatility in an option's price.

Options Greeks: Theta

"By definition, options are contracts that entitle the holder to buy or sell shares of the underlying asset at a specific price by a specific date," writes Volk in her feature on options trading.

In short, once the option reaches its expiration date, it's worthless.

Theta is the Greek used to measure the erosion of an option's value as it approaches expiration. We're talking about the "time decay" of an option, or how much value an option will lose each day as its expiration approaches.

In most cases, theta will be expressed as a negative value.

Options nearing their expiration dates exhibit higher theta values as the impact of this Greek intensifies as the option approaches its expiry date.

Investors should remain vigilant to the effects of theta. It poses challenges for option buyers who anticipate selling their contracts to close ahead of expiration and are hoping the option's price is higher than what they paid.

At the same time, theta represents an advantage for option sellers who collect their premium up front and are anticipating the option expiring worthless.

Options Greeks: Vega

Vega is an indicator of how an option's value will react to variations in market volatility. Some might compare it to a seatbelt light on an airplane, something to look for when you prepare for turbulence.

A higher vega suggests your option's value is more sensitive to fluctuations in market volatility. Conversely, a lower Vega implies that your option exhibits greater stability in the face of market turbulence.

Say, for instance, that an option's price is $2, implied volatility is at 20 and vega is 0.10. If implied volatility moves to 22, vega is now 0.20 (volatility change of 2 times vega of 0.10). The option's price, incorporating the change in vega, is now $2.20.

On the other hand, if volatility drops to 18, the new vega is -0.20 and the option's price is $1.80 ($2.00 minus 0.20).

Vega tends to be highest when the option's strike price is near the underlying stock's price, as well as when there is more time to expiration.

Options traders can use vega to determine how potential market volatility could impact their options positions.

Options Greeks: Rho

The last options Greeks is rho, and it measures how an option's price responds to shifts in interest rates.

A higher rho implies that your option's value is significantly influenced by changes in interest rates,

A lower rho suggests that your option's value remains relatively stable in response to variations in interest rates.

For investors, it's important to stay abreast of economic developments and central bank policies and track rho when interest rates are in flux.

FAQs on options Greeks

Can you focus exclusively on delta while overlooking the other Greeks? While delta occupies a central role in option's trading, each Greek offers unique insights.

Neglecting any of them may expose you to unforeseen risks. It is advisable to consider all the Greeks in your investment decisions.

How are these options Greeks calculated? Manual calculations for the options Greeks are tedious and unnecessary. Most options trading platforms provide real-time Greek values for your investments.

Focus on understanding their implications rather than engaging in intricate calculations.

Are certain Greeks of greater significance for options sellers? Certainly. Theta holds particular relevance for options sellers.

It signifies the favorable impact of time decay, enabling sellers to capitalize on options losing value over time.

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You have to learn to walk before you can run: The same principle applies to investors who want to know how to trade futures.

Before trading these derivatives securities, eager beginners should understand what futures are, how they work and why both professional and experienced retail investors use them.

According to Statista, the number of futures contracts traded globally grew by 142% from 12.13 billion in 2013 to 29.32 billion in 2022.

The options market has grown even faster – options contracts traded increased from 9.42 billion to 54.53 billion from 2013 to 2022 – as investors' appetite for speculation and risk has increased significantly.

To illustrate the fundamental aspects of futures trading, we'll focus on their use with equity securities.

However, investors also use futures for commodities, currency, cryptocurrency and fixed-income trading and investing. Indeed, Treasury futures are among the most traded contracts.

But let's start with what's probably most familiar to you, equity futures.

What are equity futures?

Equity futures are derivative contracts between a buyer and a seller.

The buyer agrees to buy a stock at a specified future date for a set price. The seller agrees to sell that same stock to the buyer based on the terms of the derivative contract.

Two-sided trades like these are carried out by the billions daily on futures exchanges such as the Chicago Mercantile Exchange (CME).

It's important to note that the buyer and the seller must meet the terms of their contract. The buyer must buy and the seller must sell.

There is no walking away from your bet, unlike with call and put options, which allow the contract holder to let them expire worthless without a forced settlement. It's a big reason why options have become so popular recently.

The origin of futures in the U.S., according to CME Group's Trader's Guide to Futures, traces to the mid-19th century.

Farmers would sell their crops for immediate delivery at the spot or cash price, or they would agree to deliver the product at a future date. These forward contracts were private agreements between buyers and sellers.

Forward contracts are used mainly by institutional investors today because of their unregulated nature.

How do futures work? 

Six components of a futures trade are essential to understand. They are contract size, contract value, tick size, price limits, mark-to-market and margin call.

Here, we dive into each, using the Nasdaq-100 E-Mini futures contract as a real-world example.

Contract size: Every asset traded as a futures contract has a standardized size.

A Nasdaq-100 E-Mini futures contract is $20 times the index's price.

Contract value: This refers to the notional or total value of the underlying asset in a contract. If the Nasdaq-100 trades at $15,000, a single futures contract's notional value is $300,000 ($15,000 times $20).

It's important to understand that the notional value is much higher than the price at which the Nasdaq-100 E-Mini futures contract can be bought or sold.

Using leverage, an investor pays $15,000, or 1/20th of the contract's notional value of $300,000.

Tick size: The tick size is one of the contract specifications set by futures exchanges. It tells you how much you've made or lost on your futures contract at a given time.

The minimum tick size for the Nasdaq-100 E-Mini futures contract is 0.25 point, or $5 per contract (0.25 times $20).

To understand the math, assume that the Nasdaq-100 E-Mini loses 150 points in a single day.

Based on the Nasdaq-100 trading at $15,000, 150 points divided by a minimum tick of 0.25 points equals 600 ticks. If you multiply that by $5 per contract, your loss is approximately $3,000.

An easier way to calculate this is to multiply the contract size of $300,000 by 1%.

Price limits: Some futures exchanges apply limits on daily price fluctuations. This restricts the amount the price of a contract can move in either direction.

These restrictions are put in place to reduce volatility. The CME has price limits of 7%, 13% and 20% on the Nasdaq-100 E-Mini futures contracts.

When prices hit 7% and 13%, up or down, from the previous day's volume-weighted average price (VWAP), trading is halted for 15 minutes to help the market reset.

If they hit 20% in either direction, trading closes for the day.

Mark-to-market: At the end of each trading day, the CME and other futures exchanges set a settlement price for each contract based on the day's closing price range.

A profit is credited to your trading account at your broker. Conversely, a loss is debited.

The exchanges do this to ensure traders have enough capital in their accounts to meet the daily margin requirements or performance bonds.

It's an act of good faith by both the buyer and seller of the futures contract that you will honor the position.

The Nasdaq-100 E-Mini futures contract's margin is approximately 6% of the notional or contract value.

When you consider that you're not buying actual assets but derivatives of those assets, the mark-to-market process is the most sensible way to handle these bets.

Margin call: You've probably seen movies where a margin call appears in the dialog. This happens when the value of your account falls below a certain level set by your broker as part of opening your futures trading account.

Should you fail to rectify the shortfall, your broker could suspend your trading privileges or shut down the account entirely.

Why are futures traded?

To understand why futures are traded, we first need to establish who trades them.

There are generally two types of traders, hedgers and speculators. The former use futures to hedge their price risk. The latter are merely placing bets on the future direction of an asset's price.

An example of a hedger would be a portfolio manager who invests their client's assets in some of the stocks in the Nasdaq-100.

While they believe the stocks bought will move higher, they can hedge their position by selling Nasdaq-100 E-Mini futures contracts to reduce the effect of any stocks in their portfolio potentially retreating in price.

An example of a speculator would be a professional or individual trader who believes the Nasdaq-100 will rise or fall in price in the future.

If they're bullish, they buy Nasdaq-100 E-Mini futures contracts. Conversely, if they're bearish, they sell them.

Now that you know who uses futures contracts, it's time to answer why they do.

It comes down to one word: leverage.

In the example of the Nasdaq-100, if you have $100,000 cash to invest in the Nasdaq-100, you might buy shares of equal value in the Invesco NASDAQ 100 ETF (QQQM).

If you use your margin account to buy the ETF, based on two-to-one leverage, your cash outlay drops to $50,000 to buy $100,000 of QQQM.

Now, here's where leverage and futures contracts make sense.

To capture the same $100,000 in the Nasdaq-100, you could buy one Nasdaq-100 E-Mini future for $15,000 (based on the price in our example above, not the actual market price at this exact moment).

However, it would give you $300,000 in notional value, three times the amount by cash alone or through your margin account at your broker, for significantly less of an outlay in actual cash.

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Investors are constantly searching for the best strategies and tools to optimize returns while safeguarding their portfolios.

One such tool that has gained prominence in the investor community is the stop-limit order. But what is a stop-limit order and how can investors use it?

At its core, a stop-limit order allows investors to set specific price parameters for buying or selling securities. This tool comprises two critical components:

The stop price, which acts as the activation point, or the trigger. When the market price of the stock reaches or exceeds this level that is predetermined by the investor, the stop-limit order is initiated.

Following the activation of the stop price, the limit order dictates the price that the trade will be executed, whether that be buying or selling a stock.

The order will only be filled if the market price aligns with or exceeds the limit price.

How does a stop-limit order work?

Those are certainly a lot of words to digest, so here's an example of how a stop-limit order works.

Consider a scenario where you, as an investor, hold shares in stock XYZ that are currently valued at $100 per share.

You have a positive outlook about the stock's upside potential, but knowing how much risk is involved in the market, you would also like to mitigate risk.

This is where the stop-limit order comes into play. Here's how it plays out in our example.

Setting the stop price: As an investor, you establish a stop price of $95. When the share price of XYZ reaches or falls below this level ($95), your stop-limit order becomes active.

Setting the limit price: To ensure you execute a trade at a favorable level, you define a limit price of $90, the minimum price you'll accept to sell the shares.

This means that once your stop price at $95 is triggered, your XYZ shares will only be sold if the market price reaches $90.

Here's are some scenarios on how this could play out:

If the market price of XYZ descends to $95 or below, your stop-limit order becomes active. Your order to sell your shares at $90 is placed in the market.

This strategic approach allows you to avoid selling your shares at a larger potential loss if the stock's price experiences a sudden drop because shares will not be sold unless they are trading at your limit price.

Conversely, it also means you might retain your shares if the market price fails to reach the $90 threshold, which keeps you from prematurely closing your position.

Why investors use stop-limit orders

Now that you have a firm understanding of how a stop-limit order works, let's explore the advantages of incorporating stop-limit orders into your investment strategy.

Risk management: Stop-limit orders are a valuable tool for effective risk management.

By establishing a stop price, you create a protective measure against potential losses.

Precision and control: Stop-limit orders enable investors to execute trades with precision.

By specifying the exact price at which you want to buy or sell a security, you can ensure your orders are carried out at favorable terms.

Emotion regulation: Investment decisions can be influenced by emotions, and this can lead to impulsive actions during market fluctuations.

Stop-limit orders allow for disciplined investing.

Continuous vigilance: Stop-limit orders operate ceaselessly.

Whether you are actively monitoring the market or not, stop-limit orders will trigger when the specified conditions are met.

Customization: Stop-limit orders give investors flexibility to tailor their investing strategies to better align with both long- and short-term goals.

FAQs about stop-limit orders

Can stop-limit orders be used for both buying and selling stocks? Absolutely.

Stop-limit orders can be applied to both buying and selling securities, offering versatility for managing investment portfolios.

What are the risks of using stop-limit orders? While stop-limit orders allow for risk management, there is a possibility that they may not be executed if the market price does not reach the specified limit.

Balancing the desire for a competitive limit price with the need to protect investments is essential.

Can I use stop-limit orders on all types of securities? Stop-limit orders can be applied to a broad range of securities, including stocks and options.

They may be especially advantageous for assets with higher price volatility, such as penny stocks. In calmer markets, the stop price may not be triggered, rendering the order inactive.

Can I modify my stop-limit order? Indeed. Investors have the flexibility to modify or cancel their stop-limit orders at any point before execution.

It's important to be aware of specific rules and time frames established by brokerage platforms.

How do I know which stop and limit prices to use? Determining suitable stop and limit prices requires careful consideration of market conditions as well as your own investing goals and risk tolerance.

Striking the right balance between safeguarding investments and optimizing the likelihood of order execution is paramount.

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When it comes to investment tools and strategies, few are as valuable and versatile as covered calls. But what is a covered call?

Here, we take a closer look at covered calls, including the pros, cons and potential applications of the lower-risk options strategy.

What is a covered call?

A covered call strategy is rooted in the idea of optimizing the returns on your investment holdings by combining stock ownership with the strategic sale of call options against those already-owned shares.

Let's break this down for a clearer perspective:

Owning the stock (the "covered" part): Consider a scenario where you hold a substantial position in a stable and promising company, referred to here as "ABC Corporation." You harbor a positive outlook on the company's prospects, yet you'd like to augment the stock returns.

Selling call options (the "call" component): This is the core of covered calls. By selling a call option on your ABC Corporation shares, you are effectively granting another investor the right (though not the obligation) to purchase your shares at a predetermined price, known as the "strike price," within a specified time frame, known as the "expiration date."

The motivation behind the call buyer purchasing the options lies in their belief that ABC Corporation's stock is poised for growth, and they are hoping to pick up the shares at a discount.

Meanwhile, as the seller, you collect the premium which you can keep as income. By doing so, however, you are committing to part with your shares at the strike price – and forfeit the right to participate in any additional upside in stock – should the shares be trading above that level at expiration.

How do covered calls work?

The phrase "covered call" derives from the fact that you possess the shares you are offering in the options contract.

In essence, your existing stock holdings "cover" the contractual obligations assumed when selling the call options.

This ensures that you are not exposed to undue risk in the event of substantial stock price increases.

What are the pros of covered calls?

Now that we've laid the foundation of what a covered call is, let's delve into pros of this options strategy.

Income augmentation. The covered call strategy facilitates the generation of immediate income through the premium received from selling the call options. The option seller keeps this premium regardless of whether the option is ultimately exercised.

Enhanced portfolio returns. Should the stock price be below the strike price at the option's expiration, the calls will not be exercised. Investors can then retain both the premium collected and the underlying shares, further enhancing the investment's overall return potential.

Risk mitigation. Incorporating covered calls within a portfolio allows investors to mitigate risk. The premium received from selling the call options serves as a cushion against potential stock price declines, thereby minimizing downside exposure.

Consistent income stream. For investors seeking a dependable income stream, the covered call strategy offers a structured approach. Regularly selling call options on existing holdings can create a consistent source of income, transforming investments into income-generating assets.

Frequently asked questions about covered calls

Is the covered call strategy suitable for conservative investors? Absolutely. Covered calls provide an avenue for conservative investors to generate additional income from existing investments while maintaining a degree of risk management.

What happens if the stock price exceeds the strike price? This is the biggest risk associated with the covered call strategy. Should the stock price be above the strike price at the option's expiration, investors may be required to sell their shares at the predetermined strike price. This means potentially missing out on substantial gains, though the premium collected remains intact.

Can I repurchase the call options I sold? Indeed, investors have the option to buy back the call options they initially sold. This action, known as "buying to close," allows investors to retain ownership of their shares.

What if I lack sufficient shares to fulfill my obligations? Many brokerages won't allow "naked" selling of calls - that is selling call options without owning at least 100 shares per options contract. Selling naked call options often requires a significant amount of margin, as investors may need to acquire shares in the open market to fulfill their commitments.

The bottom line on covered calls

Covered calls are a potent tool for investors seeking to optimize portfolio returns while mitigating risks.

Armed with a comprehensive understanding of this approach, investors are poised to capitalize on the income-generating potential and the downside protection it offers.

With knowledge as their guide, investors can strategically incorporate covered calls into their investment strategy, paving the way for more robust and secure financial growth.

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In the world of investing, options trading can often appear as a complex puzzle. One of the puzzle pieces that frequently demands attention is the concept of "intrinsic value" in options. 

This article is designed to provide you with a clear, concise understanding of intrinsic value in options, including what it is and how it is used.

What is intrinsic value?

Let's start by addressing the core question: What exactly constitutes intrinsic value in options trading?

Intrinsic value in a nutshell represents the concrete, real-world worth of an option at any given point. It is calculated as the difference between the prevailing market price of the underlying asset and the option's predetermined strike price.

How is intrinsic value calculated?

Calculating intrinsic value is a straightforward process, but one that differs slightly between call options and put options.

For call options: If the market price of the underlying asset surpasses the option's strike price, the intrinsic value is defined as the numerical difference between these two figures. 

As an example, let's say the share price of a stock is currently at $20 and the strike price of the option is 15. The intrinsic value of that option would be $5 (20 - 15). Essentially, intrinsic value reflects the gain you would realize by exercising the option immediately.

For put options: The intrinsic value for put options is also equal to the difference between the share price and the strike price, only it is calculated by subtracting the latter from the former if the market price of the underlying asset falls below the option's strike price. 

For example, if a stock is currently trading at $15 and the strike price of the option is 20, then the intrinsic value would be $5 (20-15). In this scenario, the intrinsic value signifies the profit you would secure by exercising the option at that moment in time.

What's the difference between intrinsic and extrinsic value?

Now that we have defined intrinsic value, let's shift our focus to the complementary component – extrinsic value.

Extrinsic value measures the speculative premium that is priced into an option in anticipation of the potential future movement of the underlying asset. It's akin to wagering on market fluctuations.

Extrinsic value is dynamic and changes with market volatility and the passage of time. As the option's expiration date approaches, time value steadily diminishes, leaving intrinsic value as the primary factor in determining an option's price.

How to use intrinsic value

Timing is paramount. Exercising an option with intrinsic value warrants precise timing. The objective is to act when the intrinsic value is at its peak. However, it is imperative to factor in transaction costs and capital gains tax implications in order to make informed decisions.

Vigilance in market monitoring. Staying attuned to market trends and closely monitoring the performance of the underlying asset is pivotal. A thorough understanding of market dynamics empowers informed decision-making regarding your options.

Diversify your portfolio. In the realm of investing, diversification is a prudent strategy. Spreading investments across an array of options mitigates risk and optimizes the potential for capitalizing on intrinsic value.

Frequently asked questions about intrinsic value

Is intrinsic value a constant attribute of all options? No, intrinsic value is not a characteristic of every option. Its presence or absence depends on the relationship between the prevailing market price of the underlying asset and the specific strike price associated with the option.

How can you leverage intrinsic value effectively? One way to make the most out of intrinsic value is by exercising the option when it exhibits a positive intrinsic value. This action enables the option buyer to purchase (in the case of calls) or sell (in the case of puts) the underlying asset at a more favorable price than where it is currently trading on the market.

Does intrinsic value ever hold a negative value? Intrinsic value is invariably either positive or zero. It never assumes a negative value. This is because intrinsic value denotes the immediate profit achievable by exercising the option.

Can intrinsic value fluctuate over time? Indeed, intrinsic value is subject to change as it closely tracks the changes in the market price of the underlying asset. Because the two are connected, movement in the asset's value influences the intrinsic value of the associated option.

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There are many key factors investors must consider when it comes to options trading. One of the most important is the open interest of an option. But what is open interest in options trading?

Defined as the number of open call or put option contracts for a particular stock, open interest provides investors with a gauge of market sentiment. Here, we will take a closer look at the nuances of open interest and the impact they can have on investment decisions.

What is open interest in options trading?

Unlike trading volume, which accounts for the total number of contracts bought and sold in a given day, open interest is the number of contracts that are currently in circulation for a particular stock, commodity or any other underlying asset. This can show investors how popular and liquid an asset might be vs using trading volume. 

More importantly, it shows the number of options contracts that have been opened and not closed, expired or exercised at a specific strike. This can be used as a dynamic measure of investor interest in specific assets, and work as an essential tool for prudent investors. 

How do you use open interest in options trading?

To truly grasp the significance of open interest, we must take a closer look at how it works in options trading.

Why open interest rises: As traders and investors initiate new long positions – or sellers open new short positions – in an amount greater than the number of options contracts closed, expired or exercised at that strike in a given trading day, open interest will rise.  

Why open interest falls: When holders of options – either buyers or sellers – close out more positions than were opened at that strike in a given trading day, open interest will fall.

Generally speaking, increasing open interest means new money is coming into the market, while decreasing open interest represents money moving out of the market.

The true value of open interest becomes evident when exploring its impact on investment strategies.

For instance, high open interest, which is when there are a notable number of contracts open at a specific strike, can serve as a barometer of market sentiment. Specifically, it can indicate widespread interest in an asset. Additionally, while open interest doesn't reveal whether those options were bought or sold, it does mean that speculators are watching that particular price level on the underlying asset. And depending on the number of contracts open, this heightened interest can lead to increased trading activity and potential price swings into expiration.

Another way to use open interest in options trading is to view it as a guide to finding the most liquid, or heavily traded, options. High open interest leads to tighter bid-ask spreads, reducing transaction costs and facilitating smoother trades.

Liquidity is crucial in the world of investing. When options are highly liquid, it means there are plenty of buyers and sellers willing to trade. As a result, bid-ask spreads tighten, making it easier and more cost-effective to enter and exit positions.

FAQs about open interest

Can open interest predict market movements? The short answer is no. While open interest provides invaluable insights into market sentiment, it does not possess predictive capabilities. It is best used in conjunction with other indicators to make well-informed investment decisions.

Does higher open interest always indicate better investment opportunities? Not necessarily. While high open interest signifies market interest, it can also lead to increased competition and narrower profit margins for investors. A balanced evaluation of various indicators is essential. 

Remember, open interest includes option sellers. A high amount of open interest could mean there are larger short positions against the particular option.

How frequently does open interest change? Once per day, before the market opens. Unlike volume, which is updated throughout the day as options contracts change hands between buyers and sellers, open interest figures are only updated after all trades for that specific day are processed. This processing takes place overnight, and the data becomes available the next morning. It provides a comprehensive look at the total number of outstanding option contracts.

The bottom line on open interest 

While open interest isn't viewed as a barometer of price movement, it is a useful indicator of market interest in a particular option. This is key for market participants seeking out highly liquid options to trade or include in their portfolios.

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Options trading has surged in popularity in recent years. With this increasing visibility, new market participants might wonder whether they must make a choice between stocks vs options.

Knowing the terms of the debate can significantly shape your financial journey.

While the decision ultimately rests with you and what makes the most sense for your investing needs and goals, it's imperative to understand differences between stocks vs options so you can make an informed and strategic decision.

Stocks are still more widely known and better than options. Generally, trading a stock means that you are trading a portion of an ownership interest in a company, in a straightforward way.

An option, on the other hand, is an intricate financial instrument that grants the holder of the contract the right, but not the obligation, to buy or sell an asset at a predetermined price within a specified time frame.

Let's take a look at stocks vs options — keeping in mind it's not always an "either or" situation. You can also do both.

The case for buying stocks instead of options

Stocks can give investors a steady path to long-term growth.

For many buy-and-hold investors, putting their money into stocks is akin to nurturing a young sapling, with the promise of witnessing it grow into a mighty oak over time.

While short-term volatility may present challenges, historical data supports the notion of consistent growth over extended periods. A patient approach is often rewarded with fruitful returns.

And, compared to options, stocks carry lower inherent risks and can provide stability for investors seeking consistent and gradual returns.

Although many of the best long-term investment stocks might not dazzle with rapid gains, they are dependable sources of steady returns.

When we buy stock, we become a stakeholder in the company. That grants us the privilege to participate in crucial decision-making processes.

Shareholders may also receive dividends, providing an opportunity to generate passive income. This is a particularly appealing feature for retirement planning.

The case for buying options instead of stocks 

The allure of options rests in their potential to generate substantial gains, like a captivating high-stakes game.

This potential reward is equally matched by the risk of significant losses. To navigate this terrain successfully, investors must possess a profound understanding of market dynamics and a keen ability to manage risk.

Given the high-risk nature of options trading, it's imperative to know just what options are before trading them in your portfolio.

For one, options are contracts. And they come with an expiration date, demanding astute decision-making with an emphasis on timing.

As the clock ticks, the value of the options may erode, making prompt action essential to limit risk and capitalize on opportunities. There is no expiration date on a stock position.

Options also open the door to myriad strategic possibilities.

Investors can either buy, sell or short stocks, but vehicles such as call options and put options allow for a more diverse approach to the market, including with strategies such as covered calls, protective puts and straddles.

In addition to utilizing these strategies for directional speculation, options can be used to generate income, acquire shares at a predetermined price and hedge against existing positions.

Should you trade options as a beginner?

For new investors, it is prudent to commence their journey with stocks, allowing them to gain a fundamental understanding of market intricacies without exposing themselves to the heightened risks associated with options.

For those interested in dipping their toes into options trading, lower-risk strategies such as selling covered calls against a position you currently own or buying call or put options are a good place to start.

Is it more profitable to trade stocks or options?

Indeed, options possess the capacity to bring in big percentage gains thanks to leverage.

Because each option contract represents control of 100 shares of the underlying asset, they can be bought at a fraction of what it would cost to buy those shares outright.

This means the percentage gain on a winning options trade can be much larger than a return on a long stock position.

However, investors must exercise caution, as this leverage amplifies both gains and losses.

Those looking for steady returns would be wise to focus their efforts on sturdy blue chip stocks or Dow Jones stocks that are well-established and known for their defensive characteristics.

The bottom line on stocks vs options

As astute investors, our choice between stocks vs options demands a prudent assessment of our risk tolerance, investment objectives and comprehension of market dynamics.

For those willing to embrace the thrill of risk and armed with market prowess, options may hold the key to potential gains.

Conversely, investors seeking steadfast growth and ownership privileges may find their match in stocks.

It is crucial to recognize that both options and stocks possess unique attributes and intricacies.

Many seasoned investors adopt a balanced approach, combining both options and stocks in their portfolios to strike a harmonious equilibrium of risk and reward.

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As discerning investors, maximizing returns on our investment strategies is of paramount importance.

Among the myriad tools at our disposal, a limit order stands out as a potent instrument that can significantly impact our trading outcomes.

In this article, we'll explore the concept of limit orders and unravel their mechanics and strategic benefits.

By delving into the precise world of limit orders, we equip ourselves with the knowledge to make informed decisions and achieve our investment goals with utmost control.

How does a limit order work?

At its core, a limit order is a command investors issue to their brokers specifying the precise price at which they are willing to buy or sell a particular stock.

This mechanism allows market participants to exercise strict control over their trading decisions and to reduce uncertainties associated with market fluctuations.

There are two types of limit orders: buy limit orders and sell limit orders.

Buy limit orders allow investors to purchase stocks at lower prices. By setting the desired purchase price below the current market value, investors can seize opportunities to acquire stocks at the price they want.

This disciplined approach helps optimize entry points and enhances the potential for favorable returns.

Conversely, sell limit orders are a strategic asset for investors seeking to secure profits at predetermined price levels. By setting the selling price above the stock's current market value, investors can ideally safeguard their gains and avoid the pitfalls of unexpected downturns.

This proactive strategy ensures that profitable positions are closed at opportune moments, promoting capital preservation.

What are the advantages of limit orders?

Discerning investors recognize the significance of incorporating limit orders into their trading practices.

Some key advantages include:

• Precision execution: A limit order empowers investors to execute trades with precision, ensuring that they buy or sell securities at predetermined price levels. This accuracy reduces the risk of overpaying for assets or selling at undervalued prices.
• Emotional discipline: Emotional biases can cloud rational judgment, leading to impulsive trading decisions. A limit order can act as a shield against such emotional turbulence, as trading executions are driven solely by predefined criteria.
• Enhanced control: By setting specific price points, market participants maintain a high level of control over their investing decisions. Limit orders enable them to remain committed to their investment strategies and goals without being influenced by market fluctuations.
• Protection against volatility: The stock market's unpredictable nature poses risks to investors. A limit order provides a safeguard against sudden price swings, as trades are executed only when the market aligns with investors' predetermined price targets.

FAQs about limit orders

Are limit orders available during off-market hours? Yes, investors can place limit orders at any time, even when the market is closed. However, the orders will not be executed until the market resumes trading.

Do limit orders guarantee execution at the specified price? While limit orders increase the likelihood of execution at the desired price, they are subject to market conditions. If the stock does not reach the specified price, the order may not be executed.

Can I modify or cancel a limit order after it is placed? Absolutely. Investors retain the flexibility to modify or cancel limit orders before they are executed, allowing them to adapt to changing market conditions.

Are limit orders applicable to all types of securities? Yes, limit orders can be utilized for various securities, including stocks, options and exchange-traded funds (ETFs).

The bottom line on limit orders

In the realm of investments, a limit order stands as a powerful ally for discerning investors seeking to optimize their strategies.

With the ability to execute trades with precision, maintain emotional discipline and enhance control, limit orders offer strategic advantages in navigating the dynamic landscape of the stock market.

By using limit orders, investors are able to make calculated decisions, mitigate risks and maximize returns.

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Day trading presents an intriguing opportunity for astute investors seeking to explore new avenues in the financial markets.

And a new rule change recently approved by the Financial Industry Regulatory Authority (FINRA) and awaiting final ratification by the Securities and Exchange Commission (SEC) could make it easier for all investors to participate in day trading.

Unlike the traditional "buy-and-hold" investment approach, day trading involves the buying and selling of securities within the same trading day, capitalizing on short-term price fluctuations. 

Let's take a look at what day trading is, including its fundamental principles and potential risks.

What is day trading? 

Day trading is a technique in which investors execute trades on different securities, such as stocks, currencies and options, within the same trading day.

The primary objective is to capitalize on intraday price movements and profit from short-term market volatility. 

Day traders employ a proactive and nimble approach, seeking to exit their positions before the trading day concludes to minimize overnight risks.

How does day trading work?

To gain insight into the mechanics of day trading, let us explore its key aspects:

Research and analysis: Successful day traders begin their day by conducting thorough market research and analysis.

They scrutinize market trends, news and technical indicators to identify potential trade opportunities.

Crafting a targeted portfolio: Armed with comprehensive research, day traders will curate a watchlist of potential trades with favorable risk-reward profiles.

The next step is to identify specific entry and exit points.

Capital allocation and risk management: Similar to long-term investing techniques, prudent day traders adhere to strict capital allocation and risk management principles.

Each trade is carefully calibrated to safeguard their money while optimizing potential returns.

Sophisticated trading platforms: Day traders rely on advanced trading platforms that offer real-time data, sophisticated charting tools and seamless order execution capabilities.

These resources are essential for successful day trading.

Execution and monitoring: As the session starts, day traders will execute their pre-planned trades.

They diligently monitor their positions throughout the day, making timely decisions based on market developments.

Adopting proven strategies: Seasoned day traders employ a range of strategies.

They use momentum trading, breakout trading, scalping, reversal trading and news- or event-based trading to capitalize on varying market conditions.

Closing positions: Before the session ends, day traders will exit all their positions, ensuring they do not carry any into the next trading session.

That's how they mitigate potential overnight risks.

What are some benefits to day trading? 

Day trading, with its dynamic nature and potential for swift gains, holds several benefits for market participants:

• Short-term profit potential: Day trading offers the possibility of realizing profits within a single trading session, providing investors with opportunities to compound returns quickly.
• Strategic decision-making: Successful day traders must exhibit strategic acumen, as they continuously evaluate market data and make informed decisions in real-time.
• Enhanced market awareness: The constant monitoring and analysis required in day trading foster a deeper understanding of market dynamics, which can help folks in their overall investment journey.
• Complement long-term strategies: For some investors, day trading can complement their long-term investment goals, allowing them to diversify their portfolio and capitalize on short-term market inefficiencies.

What are some day trading strategies?

To navigate the complexities of day trading, market participants might use the following strategies:

• Momentum trading: Day traders look to ride the wave of rapidly moving assets by capitalizing on price trends that exhibit strong momentum.
• Breakout trading: Day traders identify key levels of support and resistance and enter trades when the price breaks out of these levels, indicating potential significant price movements.
• Scalping: Scalpers aim to make small, frequent profits from multiple trades during the day, taking advantage of minor price fluctuations.
• Reversal trading: Contrarian traders look for signs of a trend reversal and enter positions that go against the prevailing market sentiment.
• News- or event-based trading: Day traders look to seize opportunities presented by significant news events that can cause price volatility.

FAQs about day trading

Is day trading suitable for everyone? No. Simply put, day trading is extremely risky, and requires substantial market knowledge and a high tolerance for risk and potential losses.

As such, it is not suitable for all folks, especially those with a long-term investment horizon. 

Is day trading risky? This cannot be said enough: Day trading involves significant risks. These include sudden market reversals, excessive trading costs, emotional stress and the potential for major losses.

Market participants must carefully consider these risks before engaging in day trading.

How much money is needed to start day trading? The amount of capital required for day trading varies based on individual strategies and risk tolerance. Most brokerages require a minimum of $25,000 to day trade in order to avoid the "pattern day trader" rule, but a new FINRA rule would eliminate this restriction.

Make sure to check with your broker to see what their specific requirements are for day traders.

Is day trading "easy"? While some folks achieve success in day trading, sustained profitability is challenging.

Successful day trading requires continuous adaptation to market conditions, disciplined execution and sound risk management.

The bottom line

Day trading presents an avenue for savvy traders to explore short-term market dynamics and capitalize on intraday price movements.

However, it is crucial to acknowledge that day trading is a high-risk endeavor that demands astute decision-making, strict risk management and a thorough understanding of market intricacies. 

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If you've ever idly wondered who was on the other side of your most recent stock or options transaction, the answer is reassuringly dull: It was most likely a professional market maker whose full-time job is to be the anonymous investor on the other end of your every trade. But what is a market maker?

"Market maker" is the broad term used to describe the parties, whether firms or individuals, whose primary function is to keep markets running in a smooth and orderly manner. Their role is to be the buyer to your seller, or the seller to your buyer. 

Even for relatively unpopular or lightly traded assets, market makers are in place to provide liquidity and, in a very literal sense, "make the market" by buying and selling inventory to meet whatever demand may exist.

What does a market maker do?

On a practical level, market makers achieve this by continuously quoting buy and sell prices on the assets they hold in their inventory. Registered market makers are obligated to fill orders from their own inventory within range of these quoted prices, providing a certain level of both immediacy and transparency to these transactions. 

The highest price a buyer is willing to pay for a security is known as the "bid," while the lowest price a seller is willing to accept is the "ask." Typically, the bid price will be lower than the ask price, and the difference between the two is known as the "bid/ask spread."

Prices are set by market makers based on supply and demand. Stocks like Apple (AAPL) that are in greater demand among traders and investors tend to have higher daily volume, which generally translates into narrower bid/ask spreads. On the other hand, an asset that's lightly traded with thinner daily volume levels is likely to have wider bid/ask spreads.

How do market makers make money?

Regardless of an individual asset's popularity, market makers provide liquidity to meet whatever level of investor demand might exist. In return for providing this essential function, market makers are able to profit by capturing the spreads between bid and ask prices. 

While the bid/ask spread may be relatively small on highly liquid securities – sometimes as tight as one penny – bear in mind that market makers will pass a far greater volume through their books than the average investor. Meanwhile, less active and relatively illiquid assets will yield wider spreads and comparatively greater "passive profits" for the market maker.

Additionally, market makers can profit from their role as liquidity providers during periods of increased volatility for stocks. When there's a large buy or sell imbalance, market makers can pick up greater amounts of inventory to help absorb the increased volatility, then gradually unload that inventory at more favorable prices as market conditions permit.

Notably, the New York Stock Exchange (NYSE) uses "designated market makers" (DMMs) to help facilitate orderly opening and closing auctions. DMMs have higher capitalization requirements than traditional market makers, and are unique in that they typically specialize in specific stocks, rather than making markets for a wide variety of names. In fact, this role was previously known as a "specialist." 

Some of the well-known firms that act as market makers include Goldman Sachs (GS), Credit Suisse, Citadel Securities, and TD Securities – though not all brokerage firms or investment banks act as market makers.

Finally, while quite a few urban legends and cautionary trading tales would suggest that market makers are actively manipulating stock and options prices in a specific effort to foil retail traders, that's certainly not the assignment. For what it's worth, the activities of registered market makers are regulated by both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

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Before we get into the nuts and bolts of options trading, it's critical to start with a basic definition of options. These derivatives are contracts that allow the holder to buy or sell shares of the underlying asset at a specific price by a specific date.

However, many active options traders never plan to touch the underlying shares themselves. Instead, they buy and sell options – sometimes in various combinations known as "spreads" – with the intent of profiting from changes in the premiums, or prices, of the option contracts.

In fact, while the well-timed purchase of a call option would grant the holder the right to buy those shares at a discount to market prices, the impressive fungibility of options means there are actually strategies better-suited to acquiring stock than a straightforward call purchase. One example of this is the cash-secured put.

How does options trading work?

Traders looking to capture a quick directional move in the underlying stock would be best suited to straightforward call and put buying strategies. In this scenario, the trader would "buy to open" a call or put contract, and then "sell to close" the contract once the profit target or stop-loss was triggered.

Equally important is to understand the various factors that can impact the price of an option as compared to its underlying asset. Three primary components that impact an option's price, or premium, are:

1. The share price of the underlying asset
2. Time until the option's expiration
3. Implied volatility (IV)

Other factors, like dividends and interest rates, also play a role – though in many short-term and day-trading options strategies, these have very little impact.

First, the share price of the underlying asset determines the so-called "moneyness" of the option. Options can be in-the-money, at-the-money or out-of-the-money, depending upon their strike price's relationship to the underlying asset's price. Only in-the-money options (call strike is greater than the current stock price or put strike is greater than the current stock price) carry what's known as intrinsic value, which is all the value the contract has left at expiration.

Extrinsic value, more broadly known as time value, includes the amount of time until expiration – whether that's two hours or two years. Time value decays at a nonlinear pace that accelerates as expiration draws closer, eventually zeroing out as the contract expires.

Implied volatility (IV) is perhaps the hardest to quantify, but it's critical to understand for options traders. IV reflects the amount of price movement the stock is expected to realize over the option's life span. This metric can occasionally spark drastic changes in an option's price single-handedly – particularly around known events, such as earnings reports and product launches.

So in order to win at this kind of speculative options trading, the trader must successfully anticipate the underlying asset's direction – and that price forecast has to play out prior to the contract's expiration date. Additionally, the magnitude of the move has to outstrip what the options market priced in via implied volatility.

Is options trading better than stocks?

While there may be a few additional degrees of difficulty relative to stock trading, the reward for options traders is leverage. Each option contract offers control of 100 shares for just a fraction of what it would cost to buy those shares outright, which means the percentage gains on a winning options trade can be relatively massive compared to a corresponding stock trade.

Traders who prefer higher probability outcomes can take up the selling end of the transaction, which generally flips the risk/reward equation into the investor's favor.

For example, an investor anticipating relatively flat price action might opt to collect the premium on a trade upfront by "selling to open" a call or put option near the asset's current price, and then "buying to close" the contract close to expiration, once its value has eroded almost completely.

The usage of "sell to open" and "buy to close" verbiage can be confusing for those new to options trading, so it's important to be clear on the investing jargon before entering those first trade orders.

Bought and sold options – both calls and puts – can also be combined in multiple different ways to create strategies known as "spreads." A wide variety of spreads exist, and they're tailored to capitalize on nearly every imaginable chart scenario – high volatility to low volatility, explosive price action to negligible price movement, and some designed to capitalize on the simple passage of time.

Just as with equity options, calls and puts on indexes and exchange-traded funds (ETFs) can be used to speculate on directional moves. Some of the best ETFs for options traders, such as the Invesco QQQ Trust (QQQ) and the SPDR S&P 500 ETF Trust (SPY), list contracts that expire every day of the week – making them popular targets for day traders.

How do I start trading options? 

Unlike traditional stock trading, brokerage firms require clients to meet various levels of approval before they're permitted to trade options. Depending upon the investor's experience, account size, trading goals and various other factors, options clearance can range from the lowest risk level (covered calls and cash-secured puts) to the highest risk level (selling "naked," or uncovered, calls and naked puts).

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It's not an easy task to identify the best options trading platforms among a seemingly endless number of choices.

As an investor, getting your selection right is vital: The best options trading platforms can help you maximize your investment potential.

We'll take a deep dive into five of the best options trading platforms, including distinct features and potential drawbacks.

We'll examine pros and cons so you can identify the one most suitable for your objectives and confidently embark on a rewarding journey into the world of call options and put options.

Here are five of the best options trading platforms for investors.

Robinhood

Pros:

• A comprehensive range of investment options: Robinhood offers a diverse array of investment choices, providing ample opportunities for portfolio diversification.
• User-friendly interface: The platform's intuitive layout makes it accessible to investors of all experience levels, including beginners.
• Educational resources: Access a wealth of educational materials to enhance your understanding of the markets and improve your investing acumen.

Cons:

• Limited analytical tools: Robinhood's tools for profit-and-loss modeling and detailing Greeks for complex, multi-leg strategies are less robust compared to other platforms.
• Payment for order flow: Robinhood relies on payment for order flow (PFOF), which can lead to wider bid/ask spreads and less favorable executions for options trades.

InteractiveBrokers  

Pros:

• Versatility and global market access: InteractiveBrokers caters to investors with diverse needs, offering advanced analytical tools and access to global markets.
• Robust research: Gain access to in-depth market research and analysis, enabling you to make informed investment decisions.
• Professional-grade platform: Ideal for seasoned investors seeking advanced features and tools.

Cons:

• Learning curve: The platform's extensive features might require a learning curve, especially for investors new to the world of options trading.

Webull

Pros:

• Seamless experience: Webull offers a smooth and user-friendly platform, suitable for investors of all levels.
• Paper trading: Practice risk-free with Webull's paper trading feature, allowing you to refine your strategies before committing real funds.
• Advanced charting: Benefit from advanced charting tools for technical analysis and trend identification.

Cons:

• Customer support: Some users have reported limited customer support options, potentially affecting timely resolution of issues.
• Educational resources: While Webull offers educational materials, they might not be as comprehensive as other platforms, especially for in-depth research.

Thinkorswim (by Charles Schwab) 

Pros:

• Advanced tools: Thinkorswim stands out with its advanced charting, technical analysis and customizable trading strategies, empowering investors with sophisticated tools.
• Extensive research: Access a wealth of research tools and data for thorough analysis and market insights.
• Professional-grade platform: Ideal for seasoned investors seeking robust features and tools.

Cons:

• Learning curve: The platform's advanced features might require time and effort to fully grasp, especially for investors transitioning to more complex trading strategies.
• Complexity for novices: Beginners might find the platform overwhelming due to its professional-grade tools and extensive capabilities.

Tastytrade 

Pros:

• Built for retail traders: Created by the same team that developed TD Ameritrade's thinkorswim platform, tastytrade (formerly tastyworks) was designed specifically with retail traders in mind.
• User-friendly commission structure: Tastytrade doesn't charge commission for closing positions (only opening positions) and caps fees at $10 per leg for any options trade, no matter the size of the trade. This results in a truly competitive fee structure.
• Fundamental analysis: Although tastytrade is all about option strategies, it includes a fundamental analysis tab on both its desktop and its browser platforms.
• Focus on trading rather than investing: Tastytrade offers robust option analytics and tools for traders, allowing for relatively pain-free position creation and trade management.

Cons:

• Focus on trading rather than investing: This is both a pro and a con. Investors may feel underwhelmed, as there are limited investment choices.

FAQs about the best options trading platforms 

• Are these platforms suitable for both stock and options trading? Absolutely! All mentioned platforms support both stock and options trading, offering comprehensive investment options.
• Do these platforms offer mobile trading options? Yes! Each platform provides mobile trading apps, enabling you to stay connected to the markets and execute trades on the go.
• Are commission fees applicable for all trades? While some platforms offer commission-free trades, others might charge fees for certain types of transactions. It's essential to review the fee structure of each platform.

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Options are part of an asset class known as "derivatives," which means they perform based on the movement of an underlying asset.

For purposes of our discussion, we'll focus on equity, index and exchange-traded fund (ETF) options, which are among the most actively traded of these vehicles.

Formally, options are contracts between two parties that give buyers the right but not the obligation to purchase or sell a predetermined number of shares of an underlying asset at a specific price on or before a specific expiration date. 

What are options?

Generally speaking, investors who expect the underlying asset to rise would buy a call option, which gains value as the associated shares increase in value.

Call options allow the holder to buy shares of the underlying asset at the price stated on the contract (the "strike price") on or before the contract's expiration date, provided the stock trades above that price.

Investors who expect a stock to decline would buy a put option, which gains value as the underlying share price falls. 

Holders of put options enjoy the right to sell shares at a contract's strike price on or before its expiration date, so long as the price of the underlying stock declines.

How are options priced?

Most standard options contracts are based on 100 shares of an underlying stock, which is crucial to know. Options prices are quoted on a per-share basis, so a call option quoted at 75 cents will actually cost $75 to buy (75 cents per share multiplied by 100 shares per contract).

Occasionally, corporate events such as acquisitions, mergers, divestments, stock splits and other scenarios can result in adjustments to options contracts based on the underlying equity.

Depending upon the nature of the adjustment, the underlying asset and/or the strike price may be changed to reflect the new value of the options contracts. Nonstandard options will be indicated by an updated symbol within the stock's options chains.

How do options work?

The purchase or sale price fixed in an options contract is called the "strike price." Strike prices vary based on the price, trading range, share volume and popularity among options traders of the underlying stock.

Options strike prices may be listed as tight as 50 cents or as wide as $5 to $10 depending on liquidity and demand for specific contracts.

Similarly, a more heavily traded and liquid stock will have a wider variety of expiration dates to consider.

While a less actively traded stock may have only a few monthly options expiration dates listed at one time, the most popular stocks and ETFs will have weekly or even daily options expiration series available to trade.

There are a few potential outcomes for the buyer of the options contract. The options contract can be sold to close – for a profit or a loss – at any time prior to expiration. This closing transaction, once filled, ends the trade and any related terms of the options contract.

Alternatively, the buyer might choose to exercise an in-the-money option.

A call is "in the money" when the price of the underlying stock is above the strike price of the options contract. A put is in the money when the price of the underlying stock is below the strike price of the options contract. 

An in-the-money call or an in-the-money put can be exercised at any time up to expiration under the terms of the options contract.

The call option holder has the right to buy 100 shares of the underlying stock at the strike price, and the put option holder has the right to sell 100 shares of the underlying stock at the strike price.

Many options contracts are never exercised and are either closed out prior to expiration or simply left to expire worthless. But brokerages may automatically exercise in-the-money options at expiration, so it's important for investors to actively manage their puts and calls.

How do investors use options?

Investors can use call options and put options to speculate on directional moves for the price of the underlying stock.

And both types of options can be sold against existing stock or cash positions to generate income or to acquire additional shares at favorable prices. 

Options can also be used to hedge equity or ETF holdings and manage risk within a broader portfolio. Options strategies that rise in value when the value of underlying assets fall can help mitigate potential losses.

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• What Is the VIX?

The Cboe Volatility Index – frequently referred to by its ticker symbol, "the VIX" — is a real-time measure of implied volatility on the benchmark S&P 500 Index (SPX). Not only is the VIX used as a quick gauge of short-term investor sentiment, it's also the basis of many active investing strategies, from portfolio hedging to directional speculation.

First introduced by the Chicago Board Options Exchange (Cboe) in 1993, the initial version of the VIX reflected a rolling 30-day calculation of at-the-money implied volatility (IV) on S&P 100 Index (OEX) options. This calculation is no longer widely used or tracked, but the "old VIX" is still available under the ticker symbol VXO.

The current version of the VIX, which has been in popular use since 2003, offers a more comprehensive look at options IV by considering a range of near-the-money call and put strikes on the broader S&P 500.

Specifically, intraday VIX quotes are calculated from a basket of short-term SPX options that are weighted to maintain a constant average maturity of 30 days.

What does the VIX tell us?

Generally speaking, implied volatility is expected to rise during times of heightened fear or uncertainty regarding the short-term direction of the market, whereas lower IV is correlated with investor complacency and positive price action for equities.

Since the VIX is a fairly straightforward measure of implied volatility on one of the most widely tracked U.S. equity benchmarks, a relatively higher VIX is said to indicate elevated fear among investors, while a relatively lower VIX suggests greater calm among market participants.

As such, many analysts and market watchers track the VIX as a contemporaneous indicator of investor sentiment, and it's often referred to casually as the "fear gauge."

How can I trade the VIX?

The real-time VIX values quoted in the financial media (aka the "spot" or "cash" VIX) should be regarded as statistics. The reality is the VIX has no publicly listed shares and cannot be traded directly in the same way as a company's stock.

That said, there are plenty of VIX derivatives and VIX-linked exchange-traded products available for those looking to add long or short volatility exposure to their portfolios.

Given the differing factors driving the day-to-day action in each index, the VIX and the SPX are generally expected to maintain an inverse correlation with one another. This historical relationship, alongside the well-publicized VIX highs that accompanied stock market crashes in 2008 and 2020, has driven investor interest in long VIX exposure as a "hedge" of sorts to offset a portfolio that's top-heavy on large-cap equities.

The Cboe lists options contracts that derive their value from short-term VIX futures, and call options on VIX can be used to hedge equity portfolios in the expectation that VIX and stocks will continue to diverge over time. VIX calls and puts can also be used to bet on directional moves in the index itself, though traders should be aware of the unique expiry and settlement rules pertaining to VIX options.

In addition to VIX options, various VIX-based exchange-traded products (ETPs) exist that track the price action of the index itself and/or some combination of its futures — whether directly, inversely or in a leveraged manner. Some of the more popular and active of these include the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX), the ProShares Ultra VIX Short-Term Futures ETF (UVXY) and the Short VIX Short-Term Futures ETF (SVXY).

That said, many VIX-based products may be suboptimal for the goals of casual investors due to structural concerns with the roll of underlying futures contracts, increased risk associated with leveraged and inverse ETPs, and more.

As with any investing vehicles, traders should carefully consider the stated goals, suggested holding periods and liquidity of these instruments.

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Welcome to the world of put options, where experienced investors unlock opportunities beyond simply buying and selling stocks and exchange-traded funds.

In this comprehensive guide, we'll explain the concept, mechanics and benefits of put options.

At the most basic level, put options serve as a financial safety net, safeguarding investments from potential downturns.

Let's delve into the core essence of put options with a focus on their investor-centric advantages.

What is a put option?

A put option is a financial contract granting the buyer the right (but not the obligation) to sell an underlying asset at a predetermined price, known as the strike price, within a specified period.

Picture it as an insurance policy for your investments, offering flexibility to sell assets at a fixed price, even during market declines. Additionally, put options allow for portfolio protection amidst market uncertainty.

Similar to call options, put options derive their value from an underlying asset, such as stocks, bonds, commodities or currencies. Prudent asset selection influences a put option's worth.

The true strength of put options shines during bearish market conditions. As an investor, when you hold a pessimistic outlook on an asset's future price, put options act as an effective hedge.

In other words, investors can capitalize on anticipated asset price declines with put options, reducing potential losses and maintaining portfolio stability.

How do put options work?

Comprehending the mechanics of put options empowers strategic decision-making from investors.

The dynamics between buyers and sellers:

Put options involve two primary participants: the buyer and the seller (also known as the writer), each with distinct objectives.

Buyers pay a premium to acquire put options, while sellers receive the premium as compensation for potentially purchasing the underlying asset if the option is exercised.

The role of the strike price:

A critical element of a put option, the strike price, determines the price at which the buyer can sell underlying assets upon exercising the option.

It is crucial to note that the strike price remains fixed from the inception of the option until its expiration.

Investors can employ predetermined exit strategies with strike prices, optimizing portfolio adjustments.

Timing the expiration date:

Every put option has an expiration date, which is when the contract expires and the option becomes null and void. This expiration date accentuates the importance of prudent timing when trading put options, as it serves as the buyer's decision deadline.

As such, it is critical that investors are mindful of timing in order to maximize a put option's effectiveness.

Why would someone buy a put option? 

Put options offer an array of advantages to investors, making them an essential tool for managing risk and preserving capital. Let's explore these benefits concisely.

Hedging against market volatility:

• Put options excel as a hedge against market volatility, acting as an insurance policy during uncertain or downward market trends.
• Investors can safeguard portfolios from significant losses with put options, ensuring financial stability.

Flexibility in bearish market conditions:

• While traditional investments may falter during downtrends, including bear markets, put options offer a distinct advantage in that they gain in value when the underlying asset's price declines.
• This allows investors to profit from falling asset prices by leveraging put options, strategically navigating market fluctuations.

Preservation of capital:

• Capital preservation is paramount for investors, and put options offer a valuable buffer against substantial losses.
• Protect your hard-earned capital with put options during unforeseen market downturns.

FAQs about put options

• Are put options suitable for all investors, regardless of experience? Put options are accessible to all investors, yet their complexity necessitates a thorough understanding before implementation. As such, investors should prioritize comprehensive research and guidance from financial experts.
• How can I determine the most appropriate strike price for my put option? Optimal strike price selection involves careful analysis of market conditions aligned with your investment objectives. Investors should consult financial experts and conduct research to make informed decisions before buying put options.
• What happens if the underlying asset's share price surpasses the put option's strike price at expiration? In such a scenario, the put option expires without value, resulting in the loss of the premium paid. However, the appreciation of the underlying asset may offset this loss.

The bottom line on put options

Incorporating put options into an investment strategy allows market participants to mitigate risk, diversify their portfolio and limit losses in downturns.

Put options are a valuable tool within your investment arsenal. Strive for diversification and prudent risk management to ensure resilience during market uncertainty.

One final note: Options trading is not for the faint of heart, so it's imperative that investors exercise caution, conduct thorough research and seek professional advice when venturing into this corner of the market.

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Welcome to the world of call options, where experienced investors unlock opportunities beyond simply buying and selling stocks and exchange-traded funds.

In this comprehensive guide, we'll explore the mechanics, advantages and strategies associated with call options.

By understanding these key aspects, investors can learn how to leverage call options to amplify returns.

What is a call option?

Let's begin by understanding the basics of call options.

Call options are a type of derivative, meaning they get their value from the underlying asset, whether that be stocks, bonds, commodities or currencies.

A call option is a financial contract that grants the buyer the right, but not the obligation, to purchase 100 shares of an underlying stock at a predetermined price within a specified period.

How does a call option work? 

To grasp the mechanics of call options, let's delve into the essential elements that make up these financial instruments:

Buyer and seller dynamics:

The buyer of a call option pays a premium to acquire the right to purchase the underlying asset in the future.

The seller, also known as the writer, receives the premium and assumes the obligation to sell the underlying asset if the buyer decides to exercise their option.

Strike price – the predetermined value:

The strike price is the pre-agreed price at which the buyer can purchase the underlying asset upon exercising the call option.

It is crucial to note that the strike price remains fixed from the inception of the option until its expiration.

Expiration date – why timing is key:

Each call option has an expiration date, marking the deadline for the buyer to exercise their option.

After the expiration date, the call option becomes null and void, losing its value.

Intrinsic value and time value:

The intrinsic value of a call option is the difference between the current price of the underlying asset and the strike price. If the underlying asset's price exceeds the strike price, the call option holds intrinsic value.

Time value accounts for various factors such as market volatility, time remaining until expiration, and interest rates. It represents the additional value of the option beyond its intrinsic value.

Why would you buy call options?

Call options offer a range of advantages that can enhance an investor's strategy. Here are the key benefits to consider:

Risk mitigation and upside potential:

• Call options allow investors to limit their risk exposure to the premium paid upfront.
• Simultaneously, call options provide the potential for unlimited profits if the underlying asset's price rises significantly. This feature enables investors to participate in upward market movements while managing downside risk.

Amplify returns with less capital:

• With call options, investors can control a larger number of shares of the underlying asset with a smaller upfront investment.
• Instead of purchasing a substantial quantity of shares directly, investors can magnify returns by investing a fraction of the amount as a premium for call options.

Portfolio diversification:

• Call options offer an avenue to diversify an investment portfolio without significant capital outlay.
• By investing in call options for different underlying assets, investors can spread their risk and potentially benefit from multiple market opportunities.

Hedge against market volatility:

• Call options can act as a valuable tool for hedging against market volatility.
• For instance, if an investor is short a particular stock, they can hedge their short position with long call options – so if the short position goes against them, losses are mitigated by the increased value of the held call options.

FAQs about call options 

• Are call options suitable for all types of investors? Call options can be suitable for investors with varying degrees of experience. However, it's crucial to thoroughly educate oneself and understand the associated risks before engaging in options trading.
• Can call options be sold before expiration? Yes, call options can be bought and sold at any time before their expiration. This flexibility allows investors to seize market opportunities, lock in profits or cut losses if market conditions change.
• Can call options be exercised without owning the underlying asset? Indeed, call options can be exercised without owning the underlying asset. Investors can purchase the asset at the strike price and immediately sell it at the market price to realize a profit.
• What happens if the underlying asset's price does not reach the strike price? If the underlying asset's price remains below the strike price, it is generally not advantageous to exercise the call option. In such cases, investors may choose to let the option expire, limiting their loss to the premium initially paid.

The bottom line on call options

Incorporating call options into an investment strategy allows market participants to mitigate risk, diversify their portfolio and amplify the potential for returns.

However, options trading is not for the faint of heart, so it is imperative that investors exercise caution, conduct thorough research and seek professional advice when venturing into this corner of the market.

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Equity compensation can be an extremely useful tool when it comes to building wealth. And just like any other tool you may use, you can learn how to leverage it to build something great — or you can mishandle it and end up with a poor outcome.

Some employers offer equity compensation in addition to regular paychecks or bonuses as part of the total compensation package for key, valuable employees. This is one way companies incentivize top performers to keep performing well, since employees are able to share in the success of the business as a whole. It can also act as a means for the company to retain talent (since most equity comp comes with a vesting schedule, meaning the employee must remain with the company for a set period of time before they can claim the equity they earned).

There are many types of equity compensation that you could receive: Incentive stock options, non-qualified stock options and restricted stock units are some of the most common forms of equity. You might also be able to participate in an ESPP, or employee stock purchase plan, as part of your compensation package.

One of the biggest issues that most people don’t take into consideration when they receive some form of equity compensation is concentration risk. Whenever you hold a large amount of a single stock position, you increase your concentration risk and therefore the overall risk inherent in your investment portfolio. This can become especially problematic if you hold a lot of stock from a single company that also happens to pay your salary.

The rule of thumb I provide to my clients is to keep their exposure to any single stock position to no more than 5% of their liquid net worth. There are exceptions, of course, but in general, this provides a good guideline to use. Unfortunately, people struggle to stick to this rule for a number of reasons, ranging from feeling loyal to their company to simply failing to understand that regardless of how they feel about concentration risk, they actually can’t afford to take it.

To help you take on the right amount of risk (concentrated or otherwise), here’s what you need to think through if you have equity compensation.

Whether You Hold Company Shares or Not Shouldn’t Be About the Company Itself

When it comes to equity compensation (or any single stock position, for that matter), it’s often tough to separate short-term circumstances from the bigger, broader, long-term perspective. But it is critical to do that, so you can make decisions that make sense in the context of your entire financial plan. That means you have to think through the choices with this specific aspect of your finances that will allow for the best probability to grow — and maintain — your entire net worth and investment portfolio as a whole.

When I advise my clients to reduce their exposure to their company stock through equity compensation, that recommendation has little to do with their company itself (and how anyone feels about the company) and whatever might be happening right now, and everything to do with concentration risk.

That’s often hard to hear, because clients often feel loyal to their employers. They may feel shedding company stock is a betrayal of a business they feel passionately about. Or, because they do work for the company, from their perspective the value can only go up because things are going great. And that might be true: Your company could very well be poised to explode in growth and therefore value. As the company’s value rises, you, as an employee who holds equity, could benefit from that success, too.

There is no denying that equity compensation is one way to exponentially grow wealth. And yet … when you have a significant amount of money tied up in one company, putting your feelings over your financial plan is a massive risk to take.

Here’s the bottom line that most people miss in this debate: There is a difference between “generating the most money possible” and “generating the level of wealth you need to reach your stated goals and desires.”

When You Can’t Actually Afford to Take Risks (Even If You’re Emotionally Able to Handle It)

The difference is the risk you take. Generating the most money possible requires that you take more risks than generating a sufficient amount of wealth to meet your goals and live the way you want.

Taking on more risk is fine if losing your money is something you can afford to do. In this case, “afford” means losing what you have tied up in the riskier position and having enough wealth elsewhere that the loss does not affect your ability to meet your goals and live the way you want.

So ask yourself: If you lost the investment you had in your company through a concentrated position created by your equity compensation — and potentially your income along with it — would it be a severe blow to your ability to reach your goals and afford your lifestyle now and in the future?

Remember too that there is a difference between risk tolerance, or how you feel about risk, and risk capacity, which is your actual ability to take risks without putting yourself in a position that you cannot recover from.

When you find yourself in a situation where the downside risk could devastate your ability to be financially successful, it doesn’t matter how you feel about the investment. It’s a bit of a moot point about how well it could do because it’s not something you can afford to do, if you cannot adequately recover from realizing a loss.

Consider the Recent Case of Uber

This isn’t just hypothetical. This can and does happen in the real world, and we just witnessed it with Uber in the spring of 2020. Because of the COVID-19 pandemic, stock prices dropped and Uber laid off thousands of workers. If the employees with equity compensation packages were included in those layoffs, they just lost their incomes and a lot of investment portfolio value.

If this happened to you, how financially devastated would you be by this outcome?

This is just one example — and that’s not to say this is what will happen to everyone who has equity compensation and holds more than 5% of their liquid net worth in their employer’s stock. We have no idea how individual company performance will be in the future, for better or worse.

And that is exactly why the focus on diversification is so important, because it protects against an unknown and a risk that you couldn’t truly afford to take if the loss of both your income and a huge portion of your net worth would mean not being able to meet your short- or long-term goals.

Keep the Focus on Your Goals, Not the Hopes of a Home Run

None of this is to say equity compensation is a bad thing — it certainly isn’t! It’s truly a great opportunity for you as an employee to add to your wealth-building firepower. But you must understand how to manage this benefit wisely. For most people, that means keeping a careful eye on the concentration risk that it can introduce into your portfolio if you begin building up large amounts of a single stock (especially when that single stock is tied to the company that also writes your paychecks).

If your goal is to increase your probability of a successful outcome — which, for most people, means having money for your long-term goals and an ability to fund your lifestyle without running out of money in your lifetime — then seek to set up a systematic, unemotional investment plan that divests away from concentrated stock positions and into a diversified portfolio.

While the potential for home runs and having your company be the next Apple is a much sexier-sounding strategy, it might not be one that is best for you to pursue. Even if a diversified portfolio ended up providing you with less money than holding stock in your company if it exponentially increased in value over time, that’s OK … and that’s probably the hardest thing to understand about all of this.

Remember, the point is not to end up with the most money possible. You don’t need your investment portfolio to consistently outperform. What you need is a reliable way to earn enough of a return to achieve your goals without taking on excessive risk. In this case, excessive risk is the downside potential of a company doing poorly, trailing returns of a diversified portfolio, or failing altogether.

Managing risk isn’t always sexy. But doing so is critical because it helps you avoid risks that you can’t actually afford to take, or recover from — and it certainly is a smart way to ensure you’re financially successful over time.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Question: My wife and I plan to retire at age 55. Our main concern is what to do about health care until we are eligible for Medicare. What are our options?

Answer: As early retirees, you'll have several options for health insurance coverage until you qualify for Medicare at age 65. The biggest challenge is finding affordable health insurance coverage.

For example, most early retirees can keep their coverage for up to 18 months under COBRA, the federal law that requires companies with 20 or more employees to let workers remain on their health plan.) But under COBRA you'll have to pay the full premium. Keeping coverage under COBRA can make sense for retirees who need to fill a short gap or if you're undergoing treatment and other policies don't cover your current doctors or providers.

Many early retirees buy health insurance through their state's health care exchange (for links to your state's site, visit healthcare.gov). The policies can be pricey, but insurers can't deny you coverage or charge you more because you have a pre-existing condition. And many retirees qualify for tax credits to help cover the cost of the premiums. To be eligible for a subsidy, your income cannot exceed 400% of the federal poverty level ($49,960 for an individual, $67,640 for a couple and $103,000 for a family of four in 2020).

As you get closer to retirement, estimate what your income will be after you stop collecting a paycheck and use the Health Insurance Marketplace Calculator at kff.org to estimate the subsidy you'll receive. If your household income is slightly over the threshold, there are several strategies that you can use to qualify for a subsidy. You may, for example, reduce the amount that you withdraw from tax-deferred retirement accounts, tapping other assets such as a Roth 401(k) or Roth IRA instead. And contributions to a health savings account or health or dependent-care flexible spending account can help reduce your modified adjusted gross income, which is used in the subsidy calculations.

You can also buy a policy directly from an insurer or through a health insurance agent (see nahu.org). Off-exchange policies are not eligible for tax credits, but some insurers offer off-exchange policies with different premiums, cost-sharing or provider networks than their on-exchange versions. These plans tend to be more expensive than those sold on the public marketplace but can be a good option if you don't qualify for a subsidy and are looking for specific plan features.

One option often overlooked: health sharing plans, sometimes known as health sharing ministries. Members of these groups, who typically share a religious faith, pay a monthly fee that goes toward paying members' medical bills. The cost is usually much lower than traditional health insurance premiums, but these arrangements are not insurance and generally do not cover pre-existing conditions.

An inherited 401(k) can be a lasting legacy, but the windfall needs to be handled carefully to maximize the inheritance and minimize taxes. Your relationship to the deceased and the 401(k) plan’s own rules affect your options for managing the money. It’s critical to understand the rules, because “if you make a mistake, it’s hard to reverse,” says Rob Williams, vice president of financial planning for the Schwab Center for Financial Research. Step carefully, and you can avoid pitfalls of inheriting a 401(k).

Here are six key questions 401(k) heirs should ask.

A 401(k) heir’s first step: Contact the plan sponsor or company benefits department to sort out what options are available to heirs for that particular plan. Some companies, for example, may allow heirs to keep the money in the plan and take beneficiary required distributions from it, while others may only allow an heir to take the money out in a lump sum. The rules depend on the 401(k) plan document written by the company. “Every company can limit what rules apply,” says Christine Russell, senior manager of retirement and annuities for TD Ameritrade.

Ask for a copy of the plan document, and “tell the employer not to liquidate until given directions,” says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

A spouse is automatically the sole beneficiary of the 401(k), unless he or she has given consent for other beneficiaries to be named, says Luscombe. And surviving spouses have more flexibility than nonspouse heirs on how they can handle the money.

Namely, spouses can choose to take the money as if they originally owned it, and all the rules for original owners will apply to the inherited money. A surviving spouse, for instance, could roll the money into her own 401(k) plan, if her plan allows money to be rolled in, says Gil Charney, director of the Tax Institute at H&R Block. Or the spouse could transfer the 401(k) money to her own IRA; nonspouses can’t do that. In some cases, a surviving spouse might want to remain a named beneficiary. Beneficiaries who are younger than age 59½, for instance, don’t pay the 10% penalty on early withdrawals.

Determine whether the deceased had reached his or her required beginning date, or RBD, which is the date that owners must start taking required minimum distributions. The RBD for 401(k)s depends on whether the account owner was still working at the company. If the account owner had retired before age 70½ or was working at a different company, the RBD for the 401(k) is the April 1 after the owner turns age 70½. If the decedent was beyond that age and had not yet taken his required distribution for the year, heirs need to take that final distribution before the end of the year.

But if the decedent was still working at the company at his death and didn’t own 5% or more of the company, then he did not reach his RBD—even if he was, say, age 74. His RBD would have been the April 1 of the year following the year he retired. In this case, heirs don’t need to take a final RMD for the deceased.

Whether the deceased reached the RBD can also affect a beneficiary’s distribution options. Generally, if the account owner dies before his RBD, the beneficiary has the option to take all the money out within five years or stretch required minimum distributions over his own life expectancy; if the owner dies after his RBD, the nonspouse heir could stretch RMDs over his own life expectancy or the deceased’s life expectancy, whichever is longer. The heir needs to consult the plan’s rules to see what options the plan will allow.

If a 401(k) plan allows heirs to keep the money in the plan, consider the pros and cons of doing so. In the 401(k), you might have access to lower-cost institutional shares or investment options—such as stable-value funds—that are not available outside of employer plans. But a plan might charge for setting up a distribution schedule or tack on a distribution fee each time money is withdrawn, says Russell. To keep the tax-deferred shelter, designated beneficiaries must start taking required minimum distributions by the end of the year following the year of the death.

Nonspouse beneficiaries need to ask the plan sponsor whether they are allowed to roll the 401(k) money directly into an inherited IRA. “It’s plan specific,” says Williams. “Some employers won’t allow you to roll over to an inherited IRA.”

If a plan does allow a direct transfer to an inherited IRA, make sure the inherited IRA is clearly titled with the name of the deceased participant and the name of the beneficiary. “If not, the whole process is tainted and the money could become taxable,” says Charney.

A rollover gives nonspouse beneficiaries all the options available to any IRA heir. Under current rules, that includes the ability to stretch required distributions over a beneficiary’s own life expectancy—which is “typically the most tax-efficient strategy,” says Eric Bronnenkant, the head of tax at Betterment for Business. The less you take out, the smaller your tax bill will be and the more money that can stay in the account to grow tax deferred.

The IRS allows 401(k) heirs to convert the money directly into an inherited Roth IRA. (Traditional IRA heirs must keep the same tax treatment for the inherited account.)

If you make that direct transfer from a traditional 401(k) into an inherited Roth IRA, you’ll owe ordinary income tax on the amount converted. If the 401(k) is large, that tax bill could be hefty. Think twice about it, says Russell. Paying a tax bill upfront on a Roth conversion of your own account can make sense because as the original owner you can preserve the money in the Roth and let it grow tax-free without ever having to touch it. But heirs with inherited Roth IRAs must still take required distributions, so paying an upfront tax bill may make less sense, she says.

Heirs will benefit from the tax-free treatment of money in a Roth 401(k) just as the original owner would have. So it’s important to be clear whether you are inheriting a traditional 401(k) or a Roth 401(k)—an account type that is increasingly common. If you inherit a Roth 401(k) and want to roll the money out of the plan, transfer the money directly into an inherited Roth IRA. You’ll have to take RMDs from the inherited Roth account, but the distributions are typically tax-free.

TAKE THE QUIZ: What Do You Know About Estate Planning, Wills and Trusts?

Question: I heard that the new tax law changed the amount of time I have after leaving my job to pay back a 401(k) loan. What are the rules now for borrowing from your 401(k)?

Answer: The new tax law changed the deadline for repayment after you leave your job starting in 2018. In the past, you generally had only 60 days to repay the loan or else you’d have to pay income taxes on the money as if it was a withdrawal (and a 10% early-withdrawal penalty if you left your job before age 55).

But under the Tax Cuts and Jobs Act, you don’t have to pay taxes or the penalty if you repay the loan by the due date of your tax return for the year when you leave your job (including extensions). For example, if you leave your job in 2019, you’d have until April 15, 2020, to repay the loan (or October 15, 2020, if you file an extension). However, taking advantage of this extended time frame to repay could lead to complications if you’d like to roll over your 401(k) balance to a new employer’s plan, says Michael Weddell, director of retirement at benefits consultant Willis Towers Watson.

You can generally borrow up to half of your 401(k) balance, but no more than $50,000. Most plans charge the prime rate plus 1 percentage point for the loan, which as of mid February would add up to 6.50%. You generally have five years to pay back the loan while you’re still working for that employer or longer if the 401(k) loan is to buy your primary residence. Most plans give employees 10 to 15 years to repay a loan for a primary residence, although some plans have deadlines as short as five years or as long as 30 years, says Weddell.

If you do take a 401(k) loan, try to keep contributing to your 401(k) while you’re paying back the loan so you can continue to receive any employer match and to minimize the hit to your long-term savings. You borrow your own money and pay the interest back into your account. But you will lose the opportunity for investment gains on the borrowed money while it’s out of the account. Just because you had to take a loan, Weddell says, is no reason to give up on saving for retirement and earning an employer match.

Everyone is looking forward to 2019 if only because 2018 has been so ugly. But investors will have to mentally sturdy themselves: Before we can talk about the best investments to make in 2019, we have to quickly explore what has gone wrong in 2018.

The year started with a bang. The Standard & Poor’s 500-stock index returned nearly 6% that month following an epic 2017 that saw the index pop by 22%. But after that, it got rocky. Stocks stumbled in the first quarter, rallied for most of the second and third quarters, then rolled over and died again in October. It hasn’t gotten better since, and investors have had plenty to digest the whole way.

“Since January, I’ve talked about investors pricing the equity market for perfection,” writes Rodney Johnson in the November issue of The Cornerstone Report. “Unburdened by the tax man, corporations have booked exceptional gains throughout 2018, regularly posting earnings 20% or more above what they earned in 2017. But now it looks like the good times are coming to an end.”

Much of the massive gain in 2017 was likely powered by investors looking forward to the profit windfall following the corporate tax cuts at the end of last year. But that’s a year in the past. Going forward, we’ll be comparing post-tax-cut profits to post-tax-cut profits as opposed to higher post-cut to lower pre-cut. Meanwhile, stock prices are still priced for perfection. At 2 times sales, the S&P 500’s price-to-sales ratio is sitting near all-time highs, and the cyclically adjusted price-to-earnings ratio, or “CAPE,” of 29.6 is priced at a level consistent with market tops.

Fortunately, the new year provides an opportunity to wipe the slate clean. So what might we expect in the new year? Today, we’ll cover five of the best investments you can make in 2019, come what may in the stock market.

The stock market may have a hard time getting traction in 2019, or it may shoot higher from here after its 2018 breather. We all have our opinions as to what Mr. Market might do, of course. But none of us actually know until it happens.

One thing we can all be certain of? The IRS is letting us sock back a little more cash free of current-year income taxes.

The contribution limits for 401(k) plans, 403(b) plans and most other employer-sponsored retirement plans will be rising from $18,500 to $19,000. If you’re 50 or older, you can continue to make an additional $6,000 in “catch up” contributions, bringing the total to $25,000. These numbers include only salary deferral; any employer matching or profit sharing is icing on the cake.

If you’re self-employed and contribute to a SEP IRA or individual 401(k), you can save a little more as well. The limits on these plans is being raised from $55,000 to $56,000.

Let’s put some numbers to it. If you’re married filing jointly with your spouse and your combined incomes amount to $168,401 to $321,450, you’re in the 24% tax bracket. So, if the two of you contribute $19,000 apiece to your 401(k) plans, that’s $38,000 in savings safely deferred from the tax man. At the 24% bracket, that’s $9,120 in tax savings.

If you’re worried about the market, no problem. You can keep the funds in your 401(k) plan’s stable value or money market option. But be sure you stuff as much as you can into the plan because the tax savings alone make it worthwhile.

U.S. stocks may or may not have a good 2019. We can only wait and see. In any given year, guessing the direction of the market is a crapshoot. We also know that, over the very long-term, stocks historically have returned about 7% per year after inflation.

It’s over a more intermediate-term horizon that things look dicey. You can make a reasonable estimate of stock returns over a seven- to 10-year period based on valuations, and it’s not pretty.

As an example, consider the cyclically adjusted price-to-earnings ratio (CAPE). At a recent level of 29.6, this implies annual losses of about 1.7% over the next eight years based on historical precedent.

Jeremy Grantham, co-founder of GMO – a Boston-based money manager with about $70 billion under management – slices the numbers a little differently. And based on his firm’s proprietary asset-class forecast, the next seven years look lean. Grantham projects annual losses of 5.2% on U.S. large-cap stocks, losses of 2.1% on U.S. small-cap stocks and flat returns in U.S. bonds.

In fact, Grantham is projecting flat or negative returns in every major asset class but two: emerging-market stocks and emerging-market bonds. GMO forecasts EM stocks and bonds to return 3.2% and 2.2% per year, respectively, over the next seven years. That’s not get-rich-quick money, but it’s a positive return in a global market priced to disappoint.

It’s easy to understand Grantham’s enthusiasm. Over the past five years – a period that has seen the U.S. market rise by nearly 45% – the iShares MSCI Emerging Markets ETF (EEM) is actually down by about 3%.

The short-term outlook for emerging markets is cloudy, particularly with Chinese growth slowing. And you should never put a large chunk of your portfolio in something as volatile as emerging market stocks. But given the outlook on the sector, it might make sense to have at least a modest piece of your portfolio invested in emerging-market stocks, mutual funds or exchange-traded funds.

SEE ALSO: 5 Best Emerging-Markets Funds for the Long Haul

Along the same lines, consider tilting your portfolio toward value stocks.

The past decade has been all about tech stocks, and specifically big data and social media companies such as the “FAANG” stocks – Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Google parent Alphabet (GOOGL).

But this is more exception than rule.

Over time, growth stocks have generally tracked the broader market. Value stocks have outperformed.

Dimensional Fund Advisors (DFA) ran the numbers for the 90-year period between 1926 and 2016 and found that large-cap growth stocks returned about 9.6% per year, a little better than the S&P 500’s 10.3%. Large-cap value stocks, by comparison, returned a whopping 12.5%.

These small amounts make a huge difference over time thanks to compounding. By DFA’s estimates, a dollar invested in large-cap growth stocks in 1926 was worth $3,382 by the end of 2016. That same dollar invested in the S&P 500 was worth $6,031. And invested in large-cap value stocks, it was more than double that amount, at $13,591.

Consider more recent experience. Growth stocks have outperformed value stocks by a wide margin since 2009, but value outstripped growth by a wider margin between 2000-08. The pendulum naturally swings from a value bias to a growth bias and back again. There’s no fixed time limit that says when the pendulum must swing, but the recent outperformance by growth stocks is one of the longest in history.

So, rather than buy the dip in tech stocks, consider looking to value stocks in the energy, financial and materials sectors instead.

It’s difficult to beat the stock market as a long-term wealth generator. At roughly 7% annualized returns after inflation, the market has historically doubled your inflation-adjusted wealth every 10 years. No other major asset class has come close.

Still, you shouldn’t put all of your money in the stock market.

To start, there is no guarantee that the future will look like the past. The stock market as an investment destination for the masses is a relatively new concept that really only goes back to the 1950s, or perhaps the 1920s if you want to be generous. You can’t credibly say that the market “always” rises with time because, frankly, we’re writing history as we go.

Bonds have a longer track record, but bonds are also priced to deliver very modest returns in the years ahead. Adjusted for inflation, the 3% yield on the 10-year Treasury looks a lot more like a 1% yield.

Investors should consider alternative strategies as a way to diversify while not sacrificing returns.

“Alternative” can mean different things to different investors, but for our purposes here we’re taking it to mean something other than traditional stocks and bonds. Alternatives could include commodities, precious metals and even cryptocurrencies like Bitcoin. But more than exotic assets, an alternative strategy can simply use existing, standard assets in a different way.

“The vast majority of options contracts expire worthless,” explains Mario Randholm, founder of Randholm & Company, a firm specializing in quantitative strategies. “So, a conservative strategy of selling out-of-the-money put and call options and profiting from the natural “theta,” or time decay, of options is a proven long-term strategy. You have to be prudent and have risk management in place, as the strategy can be risky. But if done conservatively, it is a consistent strategy with low correlation to the stock market.”

That’s a more advanced way to skin the cat. But the key is to keep your eyes open for alternatives with stock-like returns that don’t necessarily move with the stock market.

When I was about to finish college and start my first real job, my mother’s financial advisor, Daniel, gave me some remarkably good advice that I was far too immature to take at the time. He told me that the stock market was a good place to park your savings, but that the biggest investment I should make was in my career. “Get to work and advance your career because that is what will pay your bills.”

I didn’t want to hear it. It was the late 1990s, and I planned to get rich in the stock market. I’d make millions before I turned 30!

Needless to say, it didn’t quite work out like that. Stock prices collapsed in an epic bear market in 2000, and I learned some valuable lessons in the process. Chief among those lessons was the need for humility and for a decent work ethic. I learned to roll up my sleeves and get to work, and I’m enjoying those benefits today, 20 years later.

The hunt for quick riches in the market is alive and well, whether it’s Bitcoin, marijuana stocks or the FAANGs that have struck investors’ fancies. There’s nothing wrong with speculating in any of these things. Who knows? It’s entirely possible that you could strike it rich. Just don’t let speculation become your main focus.

Nothing in life is a “sure thing,” but busting your butt is the surest way I know to make something of yourself in America circa 2019. This isn’t advocating being a corporate schmuck; no one cried for Willie Loman in the Death of a Salesman. But with the skills, experience and contacts you can make by building your career, you put yourself in the best possible position to succeed.

Investors are keen to the fact that real estate generates diverse investment benefits. At the same time, it requires oversight and hard work. Income is the first benefit that comes to mind, but equally valuable are the tax-shielding benefits it offers, such as depreciation and expense deductions, capital returns at a refinance, or deferring capital gains via a 1031 exchange.

As an investor, you should be prudent to evaluate all costs and benefits a piece of real estate provides, with the goal of maximizing total returns, while minimizing risk and headaches. When you focus only on some components of investment real estate, you can miss the bigger picture — and bigger opportunities.

For example, owning a rental home until you’ve paid off the mortgage may seem ideal when you’re receiving steady rental income from tenants. But this strategy may prevent you from taking advantage of other profitable opportunities. What if instead you refinanced, purchased a second property to multiply returns from two assets, and sell or exchange that property for something that better meets your financial and lifestyle goals?

Many investors hold property for far too long because they’re overwhelmed by the sale or exchange process. But holding onto the property too long puts you at risk if your financial circumstances change and you’re not able to properly manage and maintain the investment. Even if your finances don’t change, holding onto the property puts you at risk if the property value becomes static or the depreciation can no longer be maximized.

Should You Reinvest by Utilizing a 1031 Exchange?

If you want to move away from day-to-day, hands-on property management, or want to leverage tax benefits of greater depreciation, higher tax-deductible expenses, or are looking for a better asset in a more desirable market, then it’s time to consider the benefits of a 1031 exchange. The 1031 exchange allows equity from one real estate investment to roll into another, while deferring capital gains taxes. And it’s often one of the best methods for building wealth over time.

As a quick overview, the 1031 exchange can accurately be considered a “rollover,” as sale proceeds from a sold property are rolled over into a purchased property to postpone capital gains tax. The purchased property is often referred to as a “replacement,” and generally meets exchange requirements if it is (1) like-kind investment real estate titled in the same manner as the sold property; (2) identified within 45 days and purchased within 180 days of closing the sold property; (3) of equal or greater value than the sold property and purchased using all proceeds from the sold property; and (4) purchased through a third-party exchange facilitator.

Recently, I worked with an investor who sold a 16-unit multifamily building that he had owned for 30 years. At the time of sale, the property was free and clear. Every few years — over three decades — he contemplated selling the property but was afraid of the 1031 exchange process. If he had exchanged and rolled his equity a few times, his equity today would likely be worth $4 million instead of $2 million.

Tax Benefits Come with Strings Attached

The motivation to use a 1031 exchange can be substantial. This is because investor capital that otherwise would be paid as capital gains tax is rolled over as part of the down payment into a replacement property. This provides greater investment benefits than the sold property.

Many investors buy real estate in a 1031 to defer taxes, but given the time pressure they frequently purchase a property they don’t necessarily want. For example, you may not have the time to complete thorough market research, so you may succumb to pressure and impulsively buy a bad investment just to avoid paying the taxes. Buying a bad piece of real estate, either because of its location, market or poor fit for your lifestyle, could cost more than the capital gains taxes in the first place.

An example of poor exchange planning could go something like this: With $500,000 in proceeds from your sale, you choose to exchange and defer $150,000 in taxes. Your last option for a replacement property is a strip mall center with low-quality tenants in a market that is declining. You could potentially lose more than $150,000 re-tenanting or making costly building renovations. In the end, you’d have been better off paying the required taxes while taking the time to do your homework and more wisely invest the $350,000.

The Bottom Line

No one can predict with absolute certainty how a 1031 investment will shake out, but doing the obvious homework on regional market metrics, and solid due diligence on the building itself, may help you avoid a costly investment.

If you do decide to swap till you drop, start talking to brokers and sponsors of real estate investments the second you make the decision to sell. A good broker can help you cast a wider net to find a better product. Sponsors generally have institutional-grade properties and frequently structure acquisitions to qualify for 1031 treatment.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The options are very different if you are buying insurance on your own. After a tumultuous few years -- when many insurers stopped selling individual health insurance or repeatedly boosted premiums by double digits -- the market is turning around. More insurers are selling individual policies again or expanding into new counties and states, and now fewer areas are left with only one insurance option.

"It hit bottom last year, when we had a lot of exits from big insurers," says Katherine Hempstead, senior policy adviser with the Robert Wood Johnson Foundation, which studies the health insurance market. "But the carriers who stayed in the market have figured out how to make money and develop different provider networks, and they understand the customer better." For example, many counties in Ohio and Pennsylvania had only one insurer in 2018, but more areas will have two or three insurers selling individual coverage in 2019, she says.

Paul and Nancy Melquist of Shore­view, Minn., started buying their own coverage in 2017, after Paul retired at age 58 from a career in the defense industry. Because the Melquists don't have many regular medical expenses, they chose the plan that had the lowest premium but also a $6,600 deductible for each person. Even so, the Melquists paid $1,250 per month in premiums. Their only medical expense for the year ended up being their annual physicals. "We paid $15,000 for two physicals, which was not a satisfying financial transaction," Paul says. They did contribute money to an HSA. Their premiums went down slightly in 2018, to about $1,165 per month, and they're hoping they'll have some lower-cost options for 2019.

The average rise in premiums for individual policies is expected to slow in 2019, to about 5% -- and average premiums are even going down in a few states, such as Tennessee, says Hempstead. You may have more insurers to choose from and more low-cost options during open enrollment this year, which runs from November 1 to December 15 (although a few states have extended the deadline).

Strategies for people with higher incomes. People who earn too much to qualify for a subsidy to purchase a policy on a state exchange may face sticker shock -- especially if they're in their fifties or early sixties and have to pay up to three times what a younger person might pay. You qualify for a subsidy if your income is below 400% of the federal poverty level (which is $48,560 for singles, $65,840 for couples and $100,400 for a family of four). In that case, you should generally buy insurance on your state's health insurance exchange; go to www.healthcare.gov for links.

Policies are still pricey, but fortunately, most buyers have more options in 2019 than before. The best strategy is to "leave no stone unturned when it comes to evaluating all of the plans available in your zip code," says Bernard Health's McCostlin. You can shop for policies on your state exchange even if you don't get a subsidy. Or you can go through a Web broker, such as eHealthInsurance.com, or buy directly from the insurer. You can also work with a health insurance agent (find one in your area at www.nahu.org).

It's best to buy coverage through your state's health insurance exchange if there's any chance that your income could qualify you for a subsidy. But you may have some options off the exchange that aren't eligible for a subsidy but still meet the Affordable Care Act standards (which specify 10 essential health benefits, no maximum coverage limit and no preexisting-condition exclusions). Some insurers may offer off-exchange policies with different premiums, cost-sharing or provider networks than their on-exchange versions.

It's particularly important to look at off-exchange options if you're interested in a silver-level policy. The plans sold on the state insurance exchanges fall into four different levels based on the amount of coverage they provide, with bronze policies generally having the highest deductibles (and lowest premiums), silver policies providing slightly lower deductibles and co-payments, and gold and platinum providing even more coverage.

Most insurers continue to "silver load" their premiums -- that is, they charge a lot more for silver plans on the exchanges now that the government no longer reimburses them for cost-sharing subsidies, which help pay deductibles and co-payments for lower-income people. But a few insurers, including Kaiser Permanente, offer an off-exchange version of the silver plan with a much lower premium.

If you're retiring early or leaving your job, check out the cost of con­tinuing your current coverage under COBRA, a federal law that lets you keep your employer's coverage for up to 18 months after you leave your job. You have to pay the employer's and employee's share of the costs, but that could be your best deal, says Wayne Sakamoto, a health insurance agent in Naples, Fla.

The federal penalty for not having insurance will disappear in 2019 (although some states have their own penalty), and new rules are expanding some types of coverage that don't meet the ACA standards. Such policies may have lower premiums, but they also shift more risk to you. "I would look at these alternative options very cautiously. It's very much a buyer-beware market," says Sabrina Corlette, research professor at the Georgetown University Center on Health Insurance Reforms.

For example, starting in October, insurers may offer short-term plans that last for up to 12 months (short-term plans had been limited to three months) and may be renewed for up to three years at the insurer's discretion. "But the insurer can look at your health status and decide whether or not to renew it," says Corlette. Some states have imposed stricter rules.

The premiums for short-term policies can be a lot less than they are for ACA-compliant policies, but they don't have to cover the ACA's 10 essential health benefits (such as maternity care), and they can exclude preexisting conditions or reject you because of your health. Short-term policies generally don't cover prescription drugs, but they may provide a drug discount card, says Paul Rooney, of eHealthInsurance.com, which sells both short-term and ACA-compliant policies. They can also have annual or lifetime caps on coverage, such as $500,000 or $1 million, says Sakamoto, who generally only recommends them for a few months.

Strategies to qualify for the subsidy. If your income is close to the cutoff, you may be able to lower your income to qualify for a subsidy. Contributions to a 401(k), a health savings account, or a health care or dependent care flexible spending account can help reduce your modified adjusted gross income, which is used in the subsidy calculation. Early retirees -- who pay some of the steepest premiums without a subsidy -- often have flexibility to reduce withdrawals from tax-deferred retirement savings.

Leanne and Carl Bryson have been buying health insurance on their own since Carl retired from Apple four years ago, at age 59. When the Sacramento couple looked at eHealthInsurance.com to compare rates for policies with and without a subsidy, they decided it was worthwhile to tighten their belts to qualify for the subsidy until they are old enough for Medicare. They are withdrawing less money from their 401(k)s and IRAs in order to keep their modified adjusted gross income below the $65,840 cutoff. They also cut back on travel and gifts to their grandkids.

Even with the subsidy, their coverage was becoming unaffordable. The full price for their policy was set to rise to $3,200 per month in 2018, which would still cost them $1,800 with the subsidy. They went back to eHealthInsurance.com during open enrollment last fall and looked into alternatives. "In California, we're lucky that we have a lot of options, but they can be pricey," Leanne says. The couple switched to an HMO that cost them $850 per month after the subsidy, in exchange for a smaller provider network.

Use the calculators at www.healthcare.gov to compare the after-subsidy costs of policies you're shopping for. Estimate your income carefully. If you end up earning more than the cutoff, you'll have to pay back the subsidy when you file your taxes; if you earn less, you’ll get extra money back at tax time.

In addition to comparing post-subsidy premiums, estimate your out-of-pocket costs for the type of care you use and prescription drugs you take, and compare the plan's maximum out-of-pocket spending limits and provider networks. Don't assume your doctors will still be covered by the plan's network in 2019. "In our survey, 36% of carriers said they're planning to restrict their networks next year," says Rooney, of eHealthInsurance.com, which has a provider search tool to look up which plans your doctors belong to.

You may be able to lower your premiums by switching to a plan with a smaller network, but you'll have to pay a lot more if you go out of network -- and a growing number of plans don't provide out-of-network coverage at all, except for emergencies. Check to see whether the hospitals you want to use are still included.

Ross Volpe, 34, a professional disc jockey who lives in Arlington, Va., has income from a variety of sources: DJ gigs (he just won a national competition), private lessons, and teaching classes and camps at the Beat Refinery in Bethesda, Md. Even though he qualifies for a subsidy, his share of the premiums after the subsidy have still increased steadily every year -- from $45 per month for a CareFirst Blue Cross Blue Shield PPO plan in 2014, to $212 per month in 2017. His premiums were about to go up to $320 per month in 2018 -- after a $200 subsidy. "I couldn't do that anymore," he says. He shopped around for other options during open enrollment last year and found a Kaiser Permanente HMO plan that cost him just $60 per month with the subsidy.

When shopping for coverage, he looked not only at the premiums but also at the deductibles, co-payments and the insurer. A few plans with lower premiums were with companies he didn't know and had much higher deductibles and co-payments.

Volpe picked a silver plan because of the balance between cost and coverage. He has to use a limited provider network with Kaiser, but he doesn't go the doctor much, and he had Kaiser insurance when he was a kid, so he was used to it. "It's in the building I went to when growing up," he says.

There's an added bonus for picking a silver plan if you earn less than 250% of the federal poverty level ($30,350 for singles, $41,150 for a couple and $62,750 for a family of four). Below that income level, you qualify for an additional "cost-sharing subsidy," which helps reduce your deductible and co-payments -- but only for silver policies. The cost-sharing "might drop the deductible to $200 per year, more like a gold or platinum policy," says Karen Pollitz, senior fellow with the Kaiser Family Foundation. The typical silver plan has a deductible of about $3,500 per person, she says.

Even though the federal government stopped reimbursing insurers for providing this cost-sharing subsidy, insurers are still required to offer it to consumers. As a result, many insurers increased their premiums for silver-level policies a lot more than they did for the other levels in 2018 and are expected to do so again in 2019. But higher silver premiums mean that policyholders get a larger subsidy, so most people getting a subsidy haven't been affected by the increase. The size of the subsidy is based on the silver plan premiums, but you can use the subsidy on any type of plan. "It significantly increased the number of people who were eligible for zero-premium bronze plans," says Pollitz.

What States Are Doing

As the federal government rolls back sections of the Affordable Care Act, the type of coverage you can buy and how much it will cost are increasingly determined by where you live. Some states have introduced legislation to bolster their insurance marketplace, while others have embraced Congress's moves to weaken the ACA. For a better sense of the trends playing out around the country, consider how the health insurance marketplace is changing in these four states.

California. The state has worked with insurers to maintain as much stability in its individual health insurance marketplace as possible, says Rabah Kamal, a policy analyst with the Kaiser Family Foundation. State lawmakers are currently considering a bill to limit the sale of short-term insurance policies and association health plans that lack robust consumer protections. Blue Shield of California and Kaiser Permanente control the largest slice of the market, but most shoppers have other options, with 11 companies selling policies on the exchange. Still, people in some rural areas of northern California have a slimmer menu -- or in some cases, a single plan. Premiums for policies on the exchange are expected to rise by less than 9% on average for 2019.

Iowa. The Hawkeye State has used changes at the federal level as an opportunity to weaken the ACA and deregulate its individual health insurance marketplace, says Sabrina Corlette, research professor at the Georgetown University Center on Health Insurance Reforms. The state has given the green light to a controversial Iowa Farm Bureau Federation plan to sell policies that don't comply with ACA regulations. The plans offer limited benefits, do not meet benchmarks required by the ACA, and can deny coverage to people with preexisting conditions or charge premiums based on a person's health.

Those who buy their own health insurance in Iowa will have three choices of carriers for 2019, after having only one option this year. After sitting out 2018, WellMark Blue Cross and Blue Shield will return to the individual marketplace for 2019. Medica continues to offer individual coverage and will expand its coverage to include a broader network of health care providers. Premiums, after increasing 57% last year, are expected to remain flat or decrease up to 5%.

Minnesota. After large rate decreases in 2018, people who buy health insurance from the state's individual marketplace will likely see premiums fall an additional 3% to 12% for 2019. What's driving the decrease? The state's reinsurance program, which pays insurers who sell plans to people with high medical costs. But that program is scheduled to expire at the end of 2019, which would cause rates to spike again. All four of the state's carriers that sell insurance on the exchange primarily offer narrow-network plans, but two companies, UCare and Medica, have plans with a broader network of providers.

New Jersey. Before the Affordable Care Act, New Jersey had among the most robust insurance regulations in the country, but the state largely rejected the ACA in recent years, says Corlette. Now, with a new governor at the helm, the state has added a state-level mandate requiring residents to have health insurance or pay a penalty (after the penalty to enforce the individual insurance mandate was repealed at the federal level). In 2019, the state will charge residents without health insurance 2.5% of their annual household income, or a per-person fee of up to $2,085, whichever is higher.

Question: How do I use the Medicare Plan Finder tool to compare Medicare Advantage plans? What should I look at when choosing a plan?

Answer: The Plan Finder tool at Medicare.gov is the best way to compare all of the Medicare Advantage plans in your area. These plans provide medical and drug coverage from a private insurer, and are an alternative to signing up for traditional Medicare along with a medigap and a Part D prescription-drug policy. (You still have to pay the Medicare Part B premiums, and you'll usually have a monthly premium for the Medicare Advantage plan, too.)

The Plan Finder provides personalized information about the total costs you would pay over the year for your drugs and your average out-of-pocket costs based on your general health condition. It also provides details about the plans. The tool currently has information about the 2018 plans, which can help people who are enrolling in Medicare now. Starting around October 1, it will have information about the 2019 plans, which you can sign up for during the annual open-enrollment period, which runs from October 15 to December 7, 2018.

Start at the Plan Finder main page, where you can personalize your search by entering your Medicare number. You can also do a general search by using your zip code. Answer some questions about the type of Medicare plan you have now. (Note that the Medicare Advantage plans are called "Medicare Health Plans" in this tool.) Then click on "yes" when it asks if you would like to add your drugs.

Enter the names of your medications, dosages and frequency. Next, you'll be given the option to select local pharmacies, which is important now that many plans have preferred pharmacies that charge lower co-payments than other in-network pharmacies. The default is a list of the closest pharmacies to your zip code, but you can use the drop-down menu at the top to expand the list and show pharmacies that are farther away. You can choose up to two pharmacies at a time. Then click on "continue to plan results."

You'll then see a summary page listing the number of Part D prescription-drug plans in your area, the number of Medicare Health Plans (Medicare Advantage) with drug coverage, and the number of those without drug coverage. Most people shopping for Medicare Advantage plans will be looking for plans with drug coverage. You're given several options on the left side to refine your search, such as capping your monthly premium, but it's generally best to keep the search more general at this point. However, you may want to change the health status from the default "good" to "poor" or "excellent" to adjust the tool's estimates of your out-of-pocket costs based on your general medical needs.

Click on "Medicare Health Plans with drug coverage" to see the Medicare Advantage plans in your area. You'll see a list of the plans along with information about their coverage and costs, including the estimated annual costs for your medications (and whether either of the pharmacies you listed is a preferred pharmacy under the plan); the monthly premium; deductibles and co-payments; the maximum out-of-pocket spending limit for in-network and out-of-network care; whether the plan includes some dental, vision or hearing coverage; whether all of your drugs are in the plan's formulary (which means that the plan covers your drugs); and if there are restrictions on your drugs, such as "prior authorization," which requires your doctor to provide additional information upfront on why you need a medication, or "step therapy," which requires that you try a less-expensive drug first, if possible.

The most important information is in the fifth column—"estimated annual health and drug costs"—which adds up the premiums, deductibles and the cost of your drugs as well as an estimate of your co-payments for average medical needs based on your health status.

Customer service can make a significant difference with Medicare Advantage plans, so it's also important to look at Medicare.gov's star rating for each plan in the sixth column. The rating assesses the plans on several factors, such as health plan responsiveness and care, member complaints, appeals, drug-plan customer service and managing chronic conditions. The top rating is 5 stars, which very few plans receive, but many good plans receive 4 or 4.5 stars.

You can then choose up to three plans to compare in detail. Click on the "health & drug plan benefits" tab to see details about coverage in different categories, such as inpatient and outpatient hospital coverage, cost-sharing for doctors' visits, preventive care, emergency care and supplemental benefits (such as hearing and dental services).

Because the cost can be higher for out-of-network services, it's also important to make sure your favorite doctors and hospitals are included. You'll usually need to ask the plan directly, and several insurers have web tools that let you look up providers. Some insurers have several plans in an area with different networks, so be sure to ask about the specific plan you're interested in. In-network providers can change from year to year, so it's important to find out if your doctors will still be included – even if you've been happy with your current plan.

If you'd like personalized help with your search, contact your State Health Insurance Assistance Program (SHIP). You can find local contacts by calling Medicare at 800-633-4227 or at www.shiptacenter.org. During open enrollment, the SHIP programs often have seminars in addition to offering personalized assistance.

Pension decisions aren’t clear-cut, and they can have serious consequences for you and your family.

Take some clients of mine, for example. The husband, age 65, wanted the highest monthly payout he could get, so he chose a 100% single life option of $2,100 per month. With that type of payout, the payments would end when he died. The joint life option he could have chosen would have paid only $1,800 per month. But although the payments were lower, his wife would have received the same amount once he passed away (and keep her quality of life).

A year and a half later, he was diagnosed with terminal cancer.

If you’re contemplating retirement, it’s in your best interest to be proactive and research the different benefit payout scenarios available to you. According to the Employee Benefit Research Institute, only 2% of employees participate in a pension as of 2014 (compared to 28% in 1979). If you’re one of the fortunate, you could receive a stable, consistent amount of income per month for your entire life as well as a spouse’s.

On the other hand, several employers offer a lump sum option instead of lifetime payments, which might be a wiser option for some retirees (more on that in a bit).

Some people choose to take a lump sum and roll it into an IRA, managing the investments on their own terms. Others may take a lump sum and use it to buy an annuity held within an IRA. They receive a lifetime of guaranteed payments, similar to the lifetime payments that a pension could offer, but with more flexibility and control since you can choose from a plethora of companies. Of course, before going that route, you’d want to compare how much lifetime income the annuity you could buy from an insurer would compare to the lifetime income from your employer's pension.

4 Areas to Consider When Making Your Choice

To determine which path to take — whether you opt to take a lump sum and invest it yourself in an IRA or decide to take lifetime payments, either through your employer’s pension or by taking a lump sum and buying your own annuity instead — here are a few considerations to guide you:

• What is the overall financial strength of the company providing you guarantees? Annuities and bonds are rated through large credit-rating agencies, such as Standard & Poor's, Moody's, and Fitch Group. Ratings range from “AAA” (highest grade) all the way to “C” or “D” (considered junk). Weigh the ratings for the company your pension plan uses against those of the companies available to you on the open market if you were to take a lump sum and buy an annuity on your own.
• What is your health (and your spouse’s health) currently?
• How does the option you’re considering help your spouse or other heirs? For annuities and pension lifetime payouts, for example, typically, you'll get higher payouts with a life-only option. However, your payments would stop when you die, and your spouse would get nothing. Your payments would be lower if you opt to have them continue for your spouse, but spousal payouts are important for many married couples.
• What are the potential tax implications (e.g., will your Social Security benefits become taxable?) with a guaranteed income stream?

Lump sum considerations

There are several reasons why people might opt for a lump sum. If you can foresee a shorter retirement due to illness, it may suit you to manage a lump sum on your own, vs. taking a guaranteed lifetime income over a diminished lifespan. If you’re not married, then you should consider an IRA instead of a pension since there is more flexibility to pass the remainder to another family member or a charity.

In addition, if you’re confident in your nest egg and just want more control, a lump sum could be for you. For example, I have a 62-year-old client who is single and well-prepared for retirement. His benefit statement shows that at age 65 he could get a $1,200-per-month benefit, or he could take a lump sum of about $165,000. He is choosing the lump sum, because although the lifetime payout amount could be significantly higher over time, he doesn’t need the income and would rather have more flexibility and manage when he takes withdrawals.

On the other hand, a lump sum transfer to an IRA most likely will come with market risks, depending on what you do with it and who you choose to manage it. Considering the recent stock market fluctuations, managing a portfolio might not be a great idea. Not to mention that choosing this option can jeopardize a spouse’s lifetime benefit in comparison to other plan options.

Thoughts on annuities

If your main concern is a reliable income stream, then you may be better suited for the lifetime payments, whether from your company’s pension plan or by taking a lump sum and buying your own annuity. Certain annuities (e.g., fixed, fixed-indexed and immediate annuities) give retirees the opportunity to relax and not stress over daily market instabilities, and benefits can pass to a chosen spouse or heir. The main concern is their ability to keep pace with inflation.

Here’s how one client of mine came to his decision to buy an annuity. This man, who is married, has a pension through his employer with a single life option of $1,560 per month, a joint life option of $1,236 per month and a lump sum option of $250,000. His objective is to not only pass the same monthly benefit to his wife but potentially leave a remainder benefit to either his children or grandchildren. By transferring the $250,000 lump sum to an IRA and purchasing his own annuity, it will provide $1,004 per month ($232 per month less than his employer’s pension), but after he and his wife both pass away, their children or grandchildren will receive the remainder of their accumulated value. This scenario provides flexibility and possibly a benefit for their heirs.

As you can see, there are many moving parts to consider, and sometimes getting creative by involving other financial vehicles, such as life insurance, can increase your options or avoid future problems. For example, if couples want to go with a 100% single life option, they also could purchase a life insurance policy for the difference. Had my client who later discovered he had terminal cancer opted for this, his wife would’ve received a $150,000 death benefit.

In conclusion

So, the bottom line is that a suitable candidate for a lump sum would be someone who has all their income needs met for retirement and who wants to effectively plan for lower taxes in the future. On the other hand, a likely candidate to take the lifetime payments of a pension would be someone who will need the income to supplement Social Security or who anticipates the lifetime payout being higher vs. transferring and self-managing it.

The advice from a competent financial adviser will help you properly assess if a lump sum option is the right fit. Don’t forget to evaluate your goals, health, heirs, tax consequences and the plan for the unexpected.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

There's a new world order when it comes to claiming Social Security benefits. In late 2015, Congress axed two popular strategies that helped couples maximize benefits. But all's not lost. It's just time to turn to Plan B.

Married couples can still make the most of basic Social Security benefits, especially by coordinating the timing of their claims. The first step is for both spouses to get their projected monthly income estimates from the Social Security Administration. Once they see how their benefits compare, they can take the next steps to maximize household income.

Depending on their ages, some couples may be able to use the "file and suspend" and "restricted application" strategies. Both strategies enable the higher earner to postpone benefits and earn lucrative delayed credits -- while the couple can take advantage of the spousal benefit and boost the survivor benefit.

Those age 66 or older by May 1, 2016, can "file and suspend" a retirement benefit by April 30, 2016. By filing for and immediately suspending the higher earner's benefit, the lower-earning spouse can claim a spousal benefit while the higher earner delays taking his benefit up until age 70.

Seniors age 62 or older by January 1, 2016, can file a "restricted application" for spousal benefits only. At full retirement age, this beneficiary can apply for a spousal benefit, while allowing his own benefit to accrue delayed retirement credits. (A caveat: If you already filed and suspended your benefit, you cannot file a restricted application.)

People age 61 or younger as of January 1, 2016, are not eligible to use either strategy. (For details on using these strategies if you qualify, read Big Changes Ahead for Claiming Social Security.)

If you are no longer eligible, experts say the best strategy continues to be having the higher earner delay until age 70. By doing this, the couple can boost the survivor benefit as well as the lifetime inflation-adjusted income stream. A worker's benefit earns 8% in delayed retirement credits for each year the beneficiary delays past full retirement age up to age 70. "Ideally, the person with the higher benefit should wait the longest," says Gail Buckner, a vice-president at Franklin Templeton Investments. "Where else can you get a guaranteed 8% return?"

And a surviving spouse can get 100% of that boosted benefit if she claims it at her full retirement age or later. "Delaying Social Security as long as possible is one of the best ways to ensure a stream of income for the surviving spouse," says Scott Thoma, retirement strategist at Edward Jones.

One-earner couples may lose the most under the new rules, says William Reichenstein, a professor of finance at Baylor University, in Waco, Tex., and a principal of consulting firm Social Security Solutions. Consider the file-and-suspend strategy under the old law. Say both spouses were full retirement age at 66. The higher earner who wanted to delay could file for his own benefit, and the spouse who did not qualify for benefits based on her own earnings record could then file for a spousal benefit of up to half of the worker's benefit. The higher earner would then suspend up until age 70.

Now this higher earner will soon no longer be able to file and suspend in order for the lower earner to claim a spousal benefit. If the higher earner wants to delay until 70, his wife will have to wait to claim her spousal benefit until he files at that age.

With the new regimen, the cumulative lifetime benefits of these one-earner couples would be higher if they did not wait until 70 to apply, says Reichenstein. These couples may be better off collecting a couple of years earlier.

Couples have more flexibility when the lower earner qualifies for even a small benefit of her own. In that case, the "lower earner may want to take a benefit earlier" -- even as early as age 62 -- and bring some extra income into the house, while the higher earner waits until 70 to collect, Reichenstein says. Run the income numbers at different claiming ages before deciding when the lower earner should claim.

Equal-earner couples will need to reassess their plans, too. The nixed strategies helped many couples apply for a spousal benefit while both spouses earned delayed retirement credits. Now, if both spouses want to delay, they will get no benefits until age 70.

Equal-earner couples may want to consider starting the lower of the two benefits sooner. "Even with equal earners, chances are one spouse's benefit will be higher," says Judith Ward, senior financial planner for T. Rowe Price. Starting the lower benefit would "provide some income in the sixties," she says, while the higher earner delays.

Filling the Income Gap

If you had planned to use at least one of the strategies and would like to delay, take a look at options to fill that income gap. First, says Lynn Nolan, director of retirement planning services at Penn Mutual Life Insurance Co., rerun your Social Security calculations under the new rules. "See what the shortfall will be," she says.

One option may be to work longer than you planned. With the maximum spousal benefit currently at about $1,320 a month, even a part-time job could help fill that gap, says Sarah Koth, a Social Security expert on the Voya Financial Advisors Advanced Planning Team.

You could consider tapping your retirement accounts early. Besides getting extra cash now, taking taxable distributions from your IRA or 401(k) can reduce your future account balance and required minimum distributions, which start at age 70 1/2. Smaller RMDs mean a smaller tax tab.

Also think about tapping your home equity with a reverse mortgage line of credit. Any remaining unused balance in the line of credit will grow at the same rate as the interest rate on the loan.

Tapping cash value in a life insurance policy or taking a loan against your policy, Nolan says, could make up for the Social Security shortfall. Your death benefits would be reduced, however.

Those still several years from retirement should max out retirement account contributions. In 2016, workers age 50 and older can stash up to $24,000 in a 401(k) and up to $6,500 in an IRA. Putting in more money now will give you a larger nest egg to tap if you want to quit working before taking Social Security at age 70.

And remember you'll earn delayed retirement credits for each month you wait to collect past full retirement age. "If something changes, you could turn on the income at age 68 or 69," says Mike Lynch, vice-president of strategic markets for Hartford Funds. Your benefit will still be boosted by the delayed credits you earned up to that point.

Q: My husband just retired, and now we need to make a decision on which pension option we should take. He can take a higher monthly check, which will stop upon his death. Or if we want to go the “survivor’s benefit” route, he can take a reduced amount now (about $500 less per month) so I can continue to receive payments should my husband die first.

Also, I think I should add that we have enough other savings and investments, and our home is paid for, so I could probably live without his pension. At this point we’re thinking of having him take the single life option (as he’s in great health), but we’re worried we are overlooking something. Do you think this is a mistake?

A: The decision regarding which pension option your husband takes may be the largest financial decision the two of you will ever make. A lifetime pension could be worth hundreds of thousands of dollars in benefits.

For those fortunate enough to retire with a pension these days, there are typically several options that a retiree can choose from. A single life pension, which will cease upon the retiree’s death; a reduced pension, which will continue payments after death (either for a spouse’s lifetime or for a specific period of time); or a lump-sum pension, which is offered by about half of all companies.

Here are some factors that should be considered when faced with these options:

Health: What’s the life expectancy of the spouse moving into retirement? Pension plans don’t check out the health of each retiree in the same way a life insurance company would. Instead, they base their calculations on averages. If a retiree is in fabulous health, has longevity in the family and believes his or her life expectancy is excellent, that would tip the scales in favor of the single life pension. On the other hand, if his or her health is poor, the option that provides the maximum benefit to the survivor would be more attractive.

If the pension is quite large, it may be worthwhile to have a physical to see if there are any unknown health issues prior to opting out of the survivor’s benefit.

Income need: Will the survivor be in need of income if and when the retiree dies? Obviously, if a spouse is dependent upon the continuation of that monthly income (should the pensioner pass away first), electing options that will provide income to the survivor is vitally important.

In many households, a spouse would be devastated financially if a partner’s pension ceased upon death. But this isn’t the case for all households, and it sounds like it’s not the case in your situation. If there is no “need” for the continuation of a pension, deciding which option is best is a little more difficult.

Other considerations: Sometimes there are situations where a spouse has the need for only a short period of time, but not for the remainder of his or her life. For example, if there is a mortgage that will be paid off in, say, six years, then maybe it’s not necessary to pay for a full survivor’s benefit, yet it still could be important to have the pension paid out for a specified number of years (if this option is provided by the company).

When a person takes a reduced pension (in order to provide financial benefits after death), it is really a form of life insurance. For example, if a retiree has the option of receiving $1,000 per month without any survivor’s benefits, or receiving $900 per month with a survivor’s pension, that $100 monthly cost is really an insurance payment.

Sometimes life insurance agents will encourage retirees to take the maximum, single life pension, and then purchase life insurance from an insurance company. But this financial maneuver, sometimes called "pension max," rarely works out very well. For one thing, forgone pension benefits (when one opts for a survivor’s pension) aren’t taxable.

As stated in my earlier example, the $100 monthly “cost” is not subject to income tax. But if a retiree chooses to receive the higher, single life pension, and chooses to take the higher monthly payout, that extra $100 would be taxable, which actually leaves less money to pay for that life insurance policy.

Secondly, from my experience, most people do not have enough insurance coverage to adequately replace the pension. The cost of life insurance is often cheap when a retiree is young, but the cost can be downright prohibitive in later years.

Given your situation, at this point, it’s really a personal decision. Because you won’t be reliant upon your husband’s pension (if he were to die young), you don’t “need” to choose a lesser benefit in order to provide a survivor’s pension.

Obviously, it would be terrible thing if your husband were to die prematurely, but the sting of losing his pension might be bad, as well. For you, in this particular instance, there is no absolute “right answer.” The only time we will know precisely which approach would have been best is after you have both passed away.

Scott Hanson, CFP, answers your questions on a variety of topics and also co-hosts a weekly call-in radio program. Visit MoneyMatters.com to ask a question or to hear his show. Follow him on Twitter at @scotthansoncfp.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Years ago, parents used passbook savings accounts to teach their children about the magic of compound interest. Unless your goal is to teach your son what happens when the Fed lowers interest rates to zero, you’ll want to find other ways to invest the money.

First, though, you’ll need to set up a custodial account under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA). Brokerage firms and mutual fund companies can provide you with the forms you need. An adult must be appointed custodian, a role that you or your spouse can assume. Once your child reaches the age of majority, usually 18 or 21, he will get full control of the account. If he decides to cash it out and buy a Harley, there’s nothing you can do about it.

You can invest an UTMA/UGMA in just about anything—stocks, mutual funds, exchange-traded funds—as long as you meet the financial institution’s investment minimum. Consider a total stock market index fund, which invests in virtually all publicly traded U.S. companies, suggests Rose Swanger, a certified financial planner in Knoxville, Tenn. TD Ameritrade offers custodial accounts with no investment minimum and hundreds of no-transaction-fee funds. Online stock trades cost just $9.99. Charles Schwab’s custodial account has an investment minimum of $100, and Schwab charges $8.95 to buy and sell stocks online. It also offers a large slate of no-transaction-fee funds.

Watch out for taxes. If your child proves to be an adept investor (or receives a lot more gift money), you could end up paying the “kiddie tax.” Under kiddie-tax rules, the first $1,050 of interest, dividends and capital gains from the account is tax-free; the next $1,050 is taxed at the child’s rate. Earnings above $2,100 are taxed at the parents’ rate. Consider this an opportunity to teach your child about the impact of taxes on investment returns—and the importance of tax-efficient investing. You can minimize the kiddie tax, for example, by avoiding short-term gains, which are taxed at your ordinary income rate. Hold investments for more than a year and you’ll pay long-term capital gains rates—typically 0% to 15%.

Impact on financial aid. When it is time to apply for college, an UTMA/UGMA account will reduce your child’s eligibility for financial aid. The federal financial aid formula counts 20% of a child’s assets (and that includes custodial accounts) when considering how much a family can afford to contribute toward college costs, versus a maximum of 5.64% of parents’ assets.

To avoid that problem, you could invest the money in a custodial 529 college-savings plan. Custodial 529 plans are considered a parental asset under the financial aid formula. If you already have an UTMA/ UGMA, you can convert it to a custodial 529 plan. Because 529 plans accept only cash, you’ll have to sell the investments in the account first. If you have a lot of investment gains, you can lower the tax hit by stretching the conversion over several years, says Joe Hurley, founder of SavingforCollege.com. Once the money is in the 529 plan, gains are tax-free, as long as the money is used for qualified educational expenses.

One possible sticking point: Parents can change beneficiaries in their own 529 plans, but a custodial 529 plan must remain in your child’s name. When your child reaches the age of majority, he will gain control of the account.

For aging baby boomers, planning for long-term-care costs becomes more pressing every day. But the insurance that helps cover those costs is surging in price, while the benefits are becoming skimpier.

As costs rise, health care experts are engaging in a fierce debate about whether the coverage is worth the years of premiums. Even when people do go into a nursing home, those bills may not be as enormous as many people believe. Half of men and nearly 40% of women who use nursing-home care never have a stay exceeding three months, according to a recent study by the Center for Retirement Research at Boston College.

The overall cost of new long-term-care coverage has jumped roughly 9% over the past year, according to the American Association for Long-Term Care Insurance, a trade group. A married couple both age 60 can expect to pay $2,170 per year for $328,000 worth of coverage, up from $1,980 last year. Adding inflation protection, which helps the coverage keep up with the rising cost of care, would boost the premium even more.

Meanwhile, the most comprehensive benefits -- such as lifetime coverage and 5% compound inflation protection -- are now out of reach of most consumers because insurers have either stopped offering the benefits or made them unaffordable. So consumers must decide whether limited coverage is better than none at all.

New data may guide their decision. Although many consumers have traditionally thought of long-term-care policies as coverage for the catastrophic scenario of a years-long nursing-home stay, about half of new claims are for in-home care, says Bonnie Burns, policy specialist at California Health Advocates. And, she says, the common perception that a person in long-term care progresses from her home to an assisted-living facility to a nursing home "is really not proving to be true" in many cases.

Although some patients with dementia could spend many years in a nursing home, they tend to be the exception. The Center for Retirement Research found that men who need nursing-home care will spend less than 11 months in care, on average, while women will spend about 17 months. Such figures, combined with the rising cost of insurance, could point many middle-income consumers in one direction: to buy a scaled-back policy that would pay enough benefits to cover a short stay in a facility or a few hours of home care a day. Many people "may be overbuying their coverage," says Michael Kitces, director of research at Pinnacle Advisory Group, in Columbia, Md. "Most people don't have the long claims period we fear."

Wealthier people -- those with financial assets of perhaps $2.5 million or more -- may decide to forgo insurance. This affluent group can cover care costs -- and given the relative rarity of long nursing-home stays, their heirs will generally be better off if they don't purchase insurance, says Anthony Webb, senior research economist at the Center for Retirement Research.

People with more limited assets shouldn't purchase long-term-care coverage if the premiums are not well within their budget. "If you're not comfortable that you can continue the premiums indefinitely, you shouldn't be buying," says Claude Thau, a long-term-care insurance consultant in Overland Park, Kan.

Most people fall somewhere in the middle: They're willing to spend a certain amount of their personal savings on long-term care but also could benefit from a more limited policy and other strategies to fill in the gaps. Bonnie Belza, 61, a technical writer in Scottsdale, Ariz., bought a policy in her late thirties, after seeing her grandmother spend seven years in a nursing home. The policy has a daily benefit of about $190, but it doesn't have any automatic inflation protection, so Belza envisions using some of her savings to help pay the bills. She's also thinking about downsizing or retrofitting her house so that she can receive care at home. "The next time I fix a bathroom, there are going to be handles put on the wall," she says. The long-term-care policy is just "part of the overall strategy."

Assess your risk. To find the right policy, first determine the type of risk you're trying to cover. Consider your health, hereditary conditions and longevity in your family, availability of family caregivers, and personal preferences.

If you want to remain at home and have family members who can provide some care, for example, you may want to buy a policy with a relatively low benefit level. With the national median rate for a home health aide at $20 an hour, the policy could provide enough to cover the cost of an aide for 2.5 hours a day to give relatives a break. A married couple age 60 and 65, for example, would together pay about $1,500 a year for a three-year policy that provides a $1,500 monthly benefit with 3% compound inflation protection, Thau says. The $1,500 monthly benefit would cover 75 hours of home care a month.

Too often, Thau says, financial advisers discuss only higher benefit levels that would cover the cost of assisted living or a nursing-home stay. "You can get a small policy that can be wondrous" in terms of allowing you to remain at home without overburdening family caregivers, he says.

A policy that would cover most of the bills at a facility costs considerably more. Genworth, for example, currently charges a healthy 55-year-old married couple more than $6,700 a year for a three-year policy with a $150 daily benefit and 5% compound inflation protection. And today, that policy would cover only 60% to 70% of nursing-home costs -- the national median rate for a semi-private room is $220 a day, while a private room costs $250 a day, according to Genworth.

You could use this richer benefit to cover home health costs. But the $150 would cover just 7.5 hours a day for a home health aide.

To find the cost of home care, adult day health care, assisted-living facilities and nursing homes in your community, go to www.genworth.com/costofcare.

Cut the cost. Once you've considered the type of risk you'd like to cover, ask yourself, "how much of that risk can you transfer to the insurance company, and how much can you tolerate on your own?" Burns says. The first step is to choose a deductible, also known as the "elimination period," which is the number of days between the time you become eligible for benefits and the time the insurer starts paying.

Many policies offer a 90-day elimination period, but prepare to spend $22,500 out of pocket for nursing-home care until benefits kick in. The longer your elimination period, the lower your premium will be. A 90-day elimination period costs about 40% less than a zero-day deductible, says James Glickman, president of LifeCare Assurance, a long-term-care reinsurer in Woodland Hills, Cal.

Choosing a shorter benefit period will also cut your cost. A benefit period of three to five years "will cover the vast majority" of long-term-care needs, says Dawn Helwig, a principal at actuarial and consulting firm Milliman. Consumers "shouldn't feel like they have to buy the Cadillac policy," she says.

One of the most effective -- and controversial -- ways to reduce costs is to choose a lower level of inflation protection. The 55-year-old couple above, for example, could cut their annual Genworth premium roughly 60%, to $2,718, simply by switching to 3% compound inflation protection instead of 5%. And an increasing number of Genworth customers are choosing even cheaper options such as 2% or zero inflation protection, says Chris Conklin, the company's senior vice-president for product design.

Some financial advisers fear that inflation protection of 3% or less won't keep up with rising long-term-care costs. But depending on your budget and the type of risk you're trying to cover, more limited inflation protection may make sense. The national median hourly rate for a home aide has grown only 1% annually over the past five years, according to Genworth, compared with a 4% five-year annual growth rate for a private room in a nursing home. Of course, inflation could pick up in the future when you need care.

When comparing options, consider the impact of various levels of inflation protection on the size of your benefit at the time you're likely to use care. A 60-year-old couple, for example, can together pay $2,170 a year for a policy with a $150 daily benefit, three-year benefit period, 90-day elimination period and no inflation protection. That benefit is worth about $164,000 per person -- and has the same total value at any age. Or they can pay $3,930 a year for the same policy with 3% annual inflation protection, and the value of their benefit will grow to $325,000 per person at age 80, for example, and $365,000 per person at age 85, according to the American Association for Long-Term Care Insurance.

Another approach: Choose a policy with a "future purchase option," which has no automatic inflation adjustment, lets you pay a lower premium today and gives you the option of boosting coverage down the road. Such a policy would cost the 60-year-old couple above $2,239 a year, according to the association. "There's a lower cost going in, and that allows some flexibility to manage inflation over time," says Kamilah Williams-Kemp, vice-president of long-term care at Northwestern Mutual. But Burns warns that the future-purchase option can be "a dangerous concept." When adding inflation adjustments in future years, "you're paying more based on your age, and at some point you price yourself out," she says.

Buy early. People who determine that they want a policy have good reason to buy sooner rather than later -- ideally while in their fifties. Premiums will climb with each year you age. The 60-year-old couple above, who would pay $3,930 for the policy with 3% inflation protection, will pay $6,177 if they wait until 65 to buy.

Buying while still in good health has become more important as insurers tighten underwriting standards. Some companies have added blood-test requirements and started scrutinizing family health history for conditions such as heart disease and dementia. One-fourth of applicants age 60 to 69 are rejected, and 44% of those age 70 to 79 are denied coverage, according to the long-term-care association. Most companies won't issue policies to people over 75, says Jesse Slome, the association's executive director.

Married couples should consider a "shared care" rider, which allows couples to share benefits. If a husband and wife each have a three-year benefit period, for example, and the wife develops dementia and uses up three years of care, she can dip into her husband's benefits.

Single women face major challenges in the long-term-care insurance market. Because women live longer than men, insurers in recent years have begun charging single women higher premiums than single men -- often about 50% more. If possible, single women interested in coverage should purchase it through an employer, because unisex pricing is still available in the employer market. You can keep the policy when you leave your job.

Determine affordability. Premiums have been rising sharply in recent years because many assumptions insurers made when pricing policies in years past turned out to be wrong. Fewer people have dropped these policies than expected, and insurers have faced more claims than anticipated. At the same time, a long period of ultra-low interest rates has left insurers with lower investment earnings than they projected.

Insurers are allowed to raise premiums even after you buy the policy, so consumers must factor future premium increases into their budget. "People are buying policies today that won't pay off for 30 or 40 years, and there are so many unknowns," Genworth's Conklin says. "People should expect that rate increases are more normal than abnormal."

Some consumers seeking to avoid the risk of premium increases have gravitated toward hybrid products combining long-term-care insurance with life insurance. You typically pay a single upfront premium for a cash-value life insurance policy that will pay benefits early if you need long-term care or provide your heirs a death benefit if you don't need care.

But some advisers warn that this can be a very costly way of getting long-term-care coverage because consumers give up the opportunity to get market growth rates on a large lump sum of money. If you put $200,000 into a hybrid product and interest rates go from today's near-zero levels to 6%, Kitces says, the product is actually costing you $12,000 a year -- and "it's the most expensive long-term-care insurance policy in the history of long-term-care insurance."

Forgoing coverage can also be a costly decision, in terms of quality of life. People who know they have to cover their own long-term-care costs sometimes won't spend money on travel and other frills during retirement, Thau says. Those who choose to self-insure may even be reluctant to get the care they need. "I've seen people terrified of running out of money, so they never get the necessary care," Slome says.

People who feel strongly about getting the type of care they want may find long-term-care coverage well worth the price. Donna McCullough, 70, bought a policy at age 51 after her mother, who had broken a hip and entered a facility for physical therapy, was diagnosed with Parkinson's. The owner of a paralegal company in Columbia, S.C., McCullough decided that if she needed care, she'd like it to be in a good assisted-living facility. She's wary of having her choices restricted by relying on Medicaid. "I'd rather have a little freedom," she says. And as a divorcee with no children, "I don't really want to be cared for at home," McCullough says. "I'm too social for that."

The world of new-car shoppers is divided into two camps: those who buy and those who lease. Buyers like the peace of mind of owning their vehicle and knowing that if they pay cash or keep the car past the loan payoff date, they’ll likely come out ahead financially. Yes, you’re on the hook for repairs after the warranty expires, but repairs are likely to cost less each year than car payments.

Take Our Quiz: Should You Buy or Lease Your Next Car?

Lessees love the flexibility to trade up frequently to a brand-new set of wheels. More than one-fourth of new-car transactions in 2014 were leases, and the percentage is rising. Matt Jones, of Edmunds.com, says part of the reason is a new mentality among shoppers. “You have a new generation that isn’t as invested in the idea of personal ownership.”

The case for leasing. If you always have a car payment—because you trade in your cars often or you tend to finance with long-term loans—then leasing is a good choice. Because you’re paying for a car’s depreciation only over the term of the lease, your payments are lower than if you financed the entire cost. The majority of leases are written for three years, so a leased vehicle is almost always under warranty.

Suppose you buy a 2015 Chevrolet Malibu 1LT for $24,560 with a five-year loan and 10% down. With Chevy’s 2.9% financing offer, your payments will be $396 a month. Now suppose you get the itch to buy a new car after three years. If you trade in the Malibu, you will likely get about 50% of the sticker price, or $12,280, according to Kelley Blue Book’s estimated resale value. After you pay off the loan, your total out-of-pocket cost will be about $13,290.

However, you can lease the same Malibu for $179 a month for three years with $1,209 down. Your cost will be about $8,650 over three years, including the fees leasing companies impose—a front-end acquisition fee ($600 to $800) and a back-end disposition fee (about $350). Leasing leaves you more than $4,600 richer. The scales tip back in favor of buying when a vehicle has higher-than-average resale values, because you’ll get more when you trade it in.

Leasing does come with strings attached. Excess wear and tear will cost you, although leasing companies usually don’t charge for scratches or a less-than-pristine interior. Plus, mileage is typically capped at 12,000 to 15,000 miles per year, and you’ll pay about 20 cents per extra mile at the end of the lease. You can negotiate a high-mileage lease—up to 30,000 miles per year—but you’ll pay extra for the increased depreciation.

Keep in mind, however, that when you buy a car, high mileage, customization, and dents and dings also drag down its value. The money comes out of your pocket when you sell. Also, if you decide to trade in a vehicle, you may get less than you anticipated if its value suddenly drops—as SUV values did when gas spiked to $4 a gallon in 2008 and owners dumped them en masse.

If you want to get out of a lease, there are ways to do it without paying an early-termination fee. A dealer may contact you for a “pull-ahead program,” which lets you return your car to the dealer and lease a new car, often at more-favorable terms. (Dealers sell your previous car as a certified pre-owned vehicle.) Or you could sell the car yourself and walk away from your lease with a check in your hand if your vehicle is worth more than the purchase price written into the lease (see our story Cash Out Your Lease on Your Car).

LeaseTrader.com and SwapALease.com match lessees who want to exit early with shoppers looking to pick up a short-term lease (cost for the service: $100 to $350). Because the remainder of the lease payments will be made, you won’t pay an early-termination fee.

Ask Jessica a question at janderson@kiplinger.com, or follow her on Facebook.

You're eligible for a survivor benefit based on your deceased spouse's earnings. You can claim this benefit as early as age 60, or 50 if you're totally disabled. The amount is based on your late spouse's benefit when he or she died. If your spouse died before claiming Social Security, the benefit will be based on 100% of the amount due at your late spouse's full retirement age.

Most widows receive a higher payment by claiming their husband's monthly benefit instead of their own, according to the Center for Retirement Research at Boston College. And the age a husband chooses to start collecting his own benefit can have a significant impact on the widow's ultimate survivor benefit. Just as the husband's payout grows 76% by delaying from age 62 to age 70, so does the widow's survivor benefit. "I don't think there's enough emphasis on how important that survivor benefit is, especially for women, because women tend to live longer than men," says Judith Ward, a certified financial planner for T. Rowe Price.

In order for you to receive 100% of your late spouse's benefit, you must wait until your full retirement age to claim it. Otherwise, it will be reduced by a certain amount for each month you file your claim before your full retirement age. Remarriage won't affect survivor benefits as long as you're 60 or older when you remarry.

Don't ignore your own benefits, though. If you expect to live a long time, it might make sense to take survivor benefits, even if they're smaller than your own, so your own benefits can continue to grow. Once you reach age 70, you can switch to your own benefit, which will have been enhanced by the delayed-retirement credits.

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Tax season is just about over. You've trimmed your tax tab by taking as many tax write-offs as you could. Warning: Your job is not over yet.

When it comes to minimizing your tax bill, your annual tax return is just a short-term tactic. You can save more money over the long term if you engage in strategies to boost your after-tax investment returns. "Taxes are the biggest drag on returns," says Rande Spiegelman, vice-president of financial planning at Charles Schwab.

You can't eliminate all investment-related taxes, of course, but studies show that you can extend the life of your retirement nest egg by improving the "tax efficiency" of your investing.

It's a strategy that many investors overlook, says David Blanchett, the head of retirement research at Morningstar. "It's easy for an investor to figure out whether a mutual fund outperformed an index," he says. "But most people don't think about how taxes affect their long-term portfolio." And like limiting investment fees, managing the tax bite is one of the few areas that you can control. "It's almost a free lunch," he says.

The strategy is based on the fact that different kinds of investments are taxed differently. Also, earnings from the same investment are taxed differently depending on whether it is in a taxable brokerage account, tax-deferred IRA or 401(k), or tax-free Roth. The goal is to put the right investments in the right accounts to maximize after-tax returns. The order in which you withdraw from the various accounts also helps or hurts your overall results.

The most basic rule of thumb is to place stocks in a taxable account and bonds in your IRA. (We'll get to the intricacies and the exceptions later.) During retirement, you withdraw from accounts in this order: taxable, traditional IRA and Roth.

To demonstrate the advantage of tax-efficient investing, Blanchett and Morningstar colleague Paul Kaplan created nine hypothetical portfolios, all with an allocation of 40% stocks and 60% bonds—a reasonable allocation for someone approaching or in the early years of retirement. The account balances for a 401(k) and taxable account were equal. At one end of the spectrum, an investor pursued a rule-of thumb strategy—placing the stocks in the taxable account and most of the bonds in the 401(k), and then tapping the taxable account before withdrawing from the 401(k). With an inefficient portfolio, the 401(k) held stocks, and the investor withdrew from the retirement account first. In a "split" portfolio, stocks and bonds were placed equally in both accounts, which were tapped simultaneously.

The tax-efficient portfolio generated 3.23% more in after-tax annual income during retirement than the split portfolio, the researchers found. Blanchett used the split portfolio to compare with the "efficient portfolio" because he assumed that typical investors would more likely spread different types of investments and income across accounts—but not tax efficiently.

A big caveat: You should not worry about tax efficiency if nearly all of your money is in a tax-favored IRA or 401(k). The objective of employing strategies to boost tax-efficiency is to reduce taxes generated in your taxable account. If, say, 90% of your retirement stash is in tax-deferred accounts, place the most-efficient 10% of your assets in the taxable account and don't worry about the rest. And don't skimp on stowing away money into your retirement account in order to play the tax-efficiency game. Place as much money as you're allowed in your IRA or 401(k), where your investments will grow tax deferred for years.

First choose a well-diversified portfolio based on solid investments and your risk tolerance. Then you can play the tax-efficiency card to the extent possible based on your specific situation. "You hear a lot of people saying, 'Never let the tax tail wag the dog,' " says Tom Roseen, head of research services at investment research firm Lipper. That's true, he says, but, "on the flip side, if you're surrendering two percentage points a year to Uncle Sam, keeping a good eye on after-tax returns and on asset location is hugely important."

Even a "seemingly small tax drag" can have a big impact on an investment's long-term growth, Roseen says. To illustrate, he looked at the before- and after-tax performance of taxable fixed-income funds for the ten years that ended December 31, 2012. The before-tax annual performance averaged 5.44% a year.

If $10,000 of fixed-income investments had been placed in an IRA at an annual return averaging 5.44% a year, the investment would have grown to $48,933 after 30 years. If the same investments had been placed in a taxable account, Roseen figures that taxes on capital gains and other distributions would have consumed 1.76 percentage points—for an average after-tax performance of 3.67% a year. After 30 years, the taxable account would have held $29,527.

How much of the IRA's apparent advantage would be lost to taxes upon withdrawal would depend on the investor's marginal tax rate. If the investor's tax rate is 25%, the IRA would still be more than $7,000 ahead after the full $48,933 was withdrawn.

You can get even more flexibility if you open a Roth IRA. You can convert part of your traditional IRA or, if you're still working, funnel money into a Roth 401(k). If you choose the conversion route, take care that the income from the switch does not bump you into a higher tax bracket. And opening a Roth may only make sense if you expect to be in the same or a higher tax bracket down the road.

Location, Location, Location

Once you settle on asset allocation, turn your attention to asset location. To the extent possible, figure out which holdings are most tax-efficient and most tax-inefficient. It's the least-efficient ones that should go into a tax-sheltered account.

Facing new, higher rates on ordinary income and capital gains, wealthier taxpayers have the most to gain by pursuing a tax-efficient investment strategy, says Maria Bruno, a senior investment analyst at Vanguard. "When tax rates rise on individuals with higher income, or when you're in a higher bracket, asset location is all the more important because of how the accounts are taxed," Bruno says.

With a taxable account, you pay ordinary income tax of up to 39.6% on interest payments and up to 20% on qualified dividends and long-term capital gains. Higher-income investors also now pay a new 3.8% surtax on certain investment income. With a traditional IRA, you pay ordinary income tax on all withdrawals (assuming you've made no nondeductible contributions), while all withdrawals from a Roth are tax free.

A brokerage account is the best place to hold any tax-exempt municipal bonds you own—why waste the tax break in a tax-favored IRA? (And muni-bond interest earned inside an IRA will be fully taxed when it's withdrawn.) Assuming you have room, perhaps your taxable account will include a large-company index fund that you intend to hold for a long time—you pay the tax-favored capital-gains tax on profits and you'll incur most of that only when you sell. Holding stocks in an IRA converts those long-term gains into ordinary income, which is taxed at a higher rate when you withdraw. Stash living-expense money in a bank account, or Bruno suggests, use tax-exempt municipal money-market funds for your short-term needs.

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Place investments that generate the most taxable income in a traditional IRA. This includes real estate investment trusts and most taxable bonds and bond funds, especially high-yield bonds and inflation-protected securities. Interest on these assets—and inflation adjustments in the case of inflation-protected securities—would be taxed at ordinary income-tax rates each year if they were held in a taxable account. "They kick out a lot of annual income," Bruno says. Individual stocks that you intend to hold less than a year also may be better off in an IRA; in a taxable account, you would pay short-term capital-gains taxes, at your ordinary income-tax rate, if you sell within a year. You'll pay ordinary income rates on the money when it comes out of the IRA, too, but you'll enjoy tax-deferred compounding until that time.

The rules of thumb—stocks in taxable accounts and bonds in tax-favored accounts—don't always apply. For mutual funds, you need to consider the "turnover rate." Even if you lose money on a fund, you'll pay long- and short-term capital-gains tax on distributions each year if the fund is held in a taxable account. That occurs when a fund manager sells—or turns over—holdings for more than their purchase price. You also will pay tax on interest on any bonds held in a fund.

Index funds and exchange-traded funds that follow a broad benchmark, such as a fund that tracks Standard & Poor's 500-stock index or a broad international-fund index, have low turnover rates. Trading in these funds is limited so they generate little in capital gains and the dividends tend to be low. The relatively low annual tax liability makes such funds better candidates for a taxable account than a tax shelter. Actively managed funds tend to have higher turnover "so they probably should go to the tax shelter," Roseen says.

But not all index funds cry out to be in a taxable account. Some narrower index funds and ETFs, such as those that follow a sector or an individual country, may have considerable turnover and could be better off in an IRA. Small-company stock index funds also tend to be inefficient because fund managers may need to buy and sell holdings more often. And bond index funds tend to generate taxable distributions.

To check the fund's turnover rate, go to Morningstar.com, plug in the fund's symbol, and click on the "Tax" tab. The Vanguard 500 Index fund, for instance, has 3% turnover, which means it tends to hold stocks indefinitely. Many actively managed funds that invest in large U.S. companies have turnover rates of 50% or more, meaning that half of the stocks are sold and replaced within a year. Compare a fund's turnover rate to those of its peers.

Also look at the fund's performance, particularly its tax-adjusted return. Lipper, which is owned by Thomson Reuters, a business information company, offers two tools to help you judge a fund's after-tax return and its tax efficiency. Go to www.reuters.com, place your cursor on the "Money" tab, and click "Fund Screener" from the menu. At the bottom of the page (at "view overview page for"), plug in the fund's symbol or name.

By clicking on "Lipper Leader Ratings," you can see the fund's tax-efficiency rating—5 is the best. By clicking on the "Performance" tab, take a look at "after-tax preliquidation" and how it compares with the "SEC performance." The difference is the amount of the return you will pay per share in taxes on capital gains, dividends and interest income.

These measures can help you figure out the best home for a particular fund or choose a fund for a taxable account. If you're looking at two funds with the same returns, Roseen says, "but one is more tax efficient than the other, that is the fund I would choose for a taxable account."

The asset's returns also could be as important as the tax rate in deciding where to place an asset. Generally, for example, Roth accounts should hold investments with the potential for the highest return, such as growth stock funds. In a Roth, you don't need to take minimum distributions and investments grow tax free.

Michael Kitces, director of research at Pinnacle Advisory Group, in Columbia, Md., believes location matters more for high-return investments than for low-return assets. The goal of placing assets inside a retirement account "is to take advantage of tax-deferred compounding returns," he says. If returns are low, he says, "there simply isn't much to compound in the first place." That's the case for many bonds, particularly low-yielding government bonds.

Kitces says that with bond interest rates so low it may not matter where you place the bonds if you have other tax-inefficient assets that have higher returns—and you have a small IRA. The idea is to set priorities for placing your most inefficient and efficient assets.

He offers this example: Say you have a $90,000 taxable account and a $10,000 IRA. Your investments are split equally among bonds; cash; a high-turnover, high-return stock fund; and a high-return index fund. The first priority would be to put the most inefficient asset—$10,000 of the stock fund—into the IRA. The bonds would go into the taxable account, Kitces says, "not because we prioritized them there, but because we prioritized something else in the IRA first."

Your priorities would change if you had a $10,000 taxable account and a $90,000 IRA. Your most-efficient asset—$10,000 of the index fund—would go into the taxable account, "where it benefits most," Kitces says. The rest would go into the IRA.

Beyond choosing the best account for each investment, other moves can hold down Uncle Sam's take of your investment profits. If you're about to sell a stock in a taxable account, Spiegelman says, pay attention to the holding period. If you bought it nearly 12 months ago, hold on to it a year and a day, to avoid the short-term capital-gains tax. But if you'd have to wait six months to move into long-term gain territory, go ahead and sell, he says. It's better to pay the taxman than risk a loss in the market.

When you rebalance your portfolio, do as much as possible inside your IRA, where transactions have no tax consequence. For example, if your stock portfolio is now above your target allocation relative to bonds, Spiegelman says, "the first place to go is your tax-advantaged accounts. You can sell some stocks without incurring taxable capital gains."

Baby boomers are facing a dilemma: At a time when long-term-care insurers are shrinking coverage, more boomers than ever are recognizing the need to protect their retirement savings from potentially devastating costs. Big players have withdrawn from the market, and those that remain are scaling back benefits, tightening eligibility and hiking premiums, especially for women.

Still, individuals in their fifties and sixties who want coverage do have some options. They can engage in strategies—from sharing benefits with spouses to reducing inflation protection—that can help them cover part of their costs in the future while keeping premiums manageable.

As boomers help their aging parents, many are experiencing firsthand the overwhelming costs of long-term care. And they want to protect their own children from these crushing responsibilities if they end up needing care themselves. "People who have had a personal experience either with a family member or a friend's parent are saying this could be an issue down the road," says Leonard Wright, a certified public accountant in San Diego, Cal.

Indeed, the costs can be exorbitant. The median rate for a private nursing-home room is $230 a day, or $84,000 a year, according to an annual report by insurer Genworth. (Find the cost of care in your community at www.genworth.com/costofcare.) The median cost of a home health aide is $19 an hour. A stay in an assisted-living facility costs a median $3,450 a month.

Stephanie Lee, a certified financial planner at East Rock Financial Services, in San Francisco, where the annual median cost of a private nursing-home room is more than $200,000, says she raises the issue with every client. She explains that they should either buy insurance or set aside savings to cover expenses.

Couples who do not want to pay premiums for care they may never need should reserve $200,000 to $400,000 or more to cover potential care, Lee says. The amount "depends on what return they can expect on their investments, the inflation rate of long-term care for the area, and the length, type and timing of care they anticipate."

To decide on which route to take, Lee first looks at the amount of care that the couple wants to cover—say, three years in a nursing home. Then she looks at the amount of guaranteed income—Social Security and pension benefits—that could cover long-term-care costs as well as other expenses. The couple would either need enough savings or long-term-care insurance to fill in the gap. "They may decide that spending $2,500 per year on premiums for 30 years is preferable to setting aside $300,000 for care," she says.

In her calculations, Lee usually assumes that the first spouse who becomes ill will need home health care for three years, while the other spouse will need nursing-home care for three years. She also discusses the possibility of moving to a less-expensive community.

Becky Snow, 58, of Las Vegas, has experience with the high cost of care. Her father was diagnosed with Alzheimer's disease seven years ago. He lived with her for three months and then moved to a nursing home. "I took over everything because he couldn't do any of that himself," Snow says. "He was single, and I knew nothing about his financial situation."

Her father's pension didn't cover the full nursing-home tab. "We had to gradually sell off everything he owned to pay for his care," she says.

After he died two years ago, at 79, Snow started to think about what would happen if she needed care. She was divorced in 2012. She asked her 33-year-old daughter, a paramedic, to handle medical decisions if she needed help, and told her 27-year-old son that he would be in charge of her finances. "I wanted to make sure my son knew my financial situation so he could step in and not be in the dark like I was," she says.

Snow bought a Northwestern Mutual long-term-care insurance policy in 2013 and used her father’s experience as a guide when choosing how much coverage to get. She calculated the income she'd get from Social Security and other sources and how much she could afford to pay from savings. She bought a policy that will pay a daily benefit large enough to cover the balance. Because her father, like many Alzheimer's patients, needed care for five years, she bought a six-year benefit period as an extra cushion. "I hope I never have to use it, but I need to be prepared," she says.

Buying a policy is an increasingly tough decision as insurers impose higher premiums, especially on women. Features once standard are now very expensive or have been replaced with skimpier alternatives.

Women pay more. Becky Snow bought her policy just before most insurers started to charge women higher premiums than men. Genworth, the largest long-term-care insurer, announced the change about a year ago, followed by big players John Hancock, Transamerica and Mutual of Omaha. Most other companies have already moved or are expected to move to gender-distinct pricing in the next year. The reason: Women generate more long-term-care claims than men, and their claims tend to be more expensive, says Beth Ludden, vice-president of long-term care at Genworth. They are often their husbands' caregivers, but they may later need to pay for long-term care for themselves.

Many single women now pay about 50% more than single men, says Claude Thau, a long-term-care insurance consultant in Overland Park, Kan. Regulators in some states have not yet approved the changes for some insurers. (Genworth, for now, still offers unisex rates in California.) "I told my female clients that they should consider locking this in before [more insurers] switch to gender-based pricing," Lee says.

Get price quotes from several insurers. Women should also check out any policies offered by their employer because they may still use unisex rates.

One way that a married woman can save money is to buy with a spouse. Most insurers offer discounts of about 30% to couples, Thau says. Genworth, for example, charges a 55-year-old man in the best health category $2,190 a year for a policy with a $150 daily benefit that rises 5% compounded per year, a 90-day waiting period and a three-year benefit period. That policy would cost a woman $2,966 a year. But with the discount, each spouse would pay $1,854.

Couples can hedge their bets with shared benefits. For example, if each spouse gets a three-year shared-benefit policy, they have six years in coverage between the two of them. Spouses can split the coverage any way they want. Sharing benefits tends to boost premiums by about 15%—but women could end up with more than half of the coverage if they provide caregiving to an ill husband.

Women also should consider hybrid policies. John Ryan, a Greenwood Village, Colo., specialist in long-term-care insurance, recommends that single women compare the cost of traditional long-term-care insurance with a policy that combines long-term care and life insurance. "I've never been a real fan of combo policies, but with the new higher rates for women, the combos are looking a little better for them," Ryan says. Women tend to pay less than men for life insurance so that brings down the costs.

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With a combination policy, you usually pay a lump sum. If you don't need long-term care, your beneficiaries will receive a death benefit that is worth about 1.5 times your initial investment. If you need long-term care, the insurer will pay out about four times the initial investment. Any long-term-care benefits you use will reduce the death benefit.

For example, if a 60-year-old single woman invests $100,000 in a Lincoln Financial MoneyGuard combo policy, she would get $6,374 in monthly long-term-care benefits for six years, totaling $458,913. If she dies before needing care, her heirs would get $152,971.

This is not the type of policy to buy if you want to leave heirs a large death benefit. But unlike a traditional long-term-care policy, heirs do get some money if you never need care.

Eligibility tightens. Besides controlling risk by raising rates for women, insurers are rejecting more applicants who have medical conditions—both women and men. Lee says she recommends that her clients buy coverage "before they have any major health issues." A study by the American Association for Long-Term Care Insurance found that 12% of applicants below age 50 were rejected, as were 17% of those 50 to 59; 25% of those 60 to 69; and 44% of those in their seventies.

Also, the older you are when you purchase a policy, the higher the premium. According to the association, a 55-year-old couple who buys a policy with a $150 daily benefit, three-year benefit period and a 3% compound inflation adjustment will pay an average annual premium of $3,275, while a 65-year-old couple will pay $5,940.

Health requirements vary by company, so it pays to shop around. Long-term-care insurance specialists can help. "They'll know which insurer will give them the greatest opportunity to get a preferred or standard rate," says Mike Skiens, president of Master Care Solutions, in Portland, Ore., who works with about eight long-term-care insurers. "We can do a prequalification of that person's health and ask the insurer about the rating class" before a client applies.

You can find long-term-care specialists at www.aaltci.org. You may also want to contact a few large insurers, such as Northwestern Mutual and New York Life, which only work with their own agents.

If you've been rejected in the past, you may be able to get coverage later if your health improves, even if you had something significant like cancer surgery. "After a couple of years, once they've been symptom free, we can often issue policies," says Steve Sperka, vice-president of long-term care at Northwestern Mutual.

Benefits are cut. In the past, most policies boosted benefits by 5% compounded each year for inflation. But those promises turned out to be more expensive than insurers had expected. Now insurers are also offering cheaper policies that raise coverage by 3% a year or by changes in the consumer price index.

A healthy 55-year-old man who buys a Genworth policy with 5% compound inflation protection would pay $2,190 a year for a $150 daily benefit for three years. The same policy with a 3% adjustment would cost $1,267 a year.

Ask the insurer to compare the pools of money that would be available when you turn 85 under each policy. (The pool is the daily benefit amount times the benefit period.) With the Genworth policy, both policies start off with a pool of $164,250. In 30 years, the 85-year-old who bought the 5% policy would have a benefit pool of $676,075, compared with the $387,066 pool for the 3% policy. That means that the extra $27,690 in premiums that the policyholder paid for the 5% policy over 30 years leveraged $289,009 more in benefits than the 3% policy.

More insurers also are offering "future purchase options." These policies charge a lower premium for a daily benefit but do not raise benefits automatically each year. Instead, you have the option to increase coverage every year or every few years by paying a higher premium, which would be based on your health when you bought the policy.

This option could be a good deal for buyers who can't afford the bigger premiums for inflation protection early on—maybe you have several more years of mortgage payments. However, the premium increase will be based in part on your age when you add on the inflation protection—perhaps boosting your annual premium beyond what you would have paid if you locked in earlier.

You also could cut costs by cutting back on the benefit period. Most insurers eliminated lifetime benefits and hiked rates for a five- or six-year benefit period. But you can still cover most of the risk by buying a shorter benefit period. Northwestern Mutual's Sperka says a three-year benefit period can cost about 30% less than a six-year period. Most long-term-care claims are for care that lasts fewer than three years.

Strategies to pay premiums. You can now pay premiums with tax-free rollovers from cash-value life insurance policies or deferred annuities. With life insurance, you can transfer dividends or part or all of the cash value. With a deferred annuity, you transfer cash that's been built up, but the annuity can't be in an IRA.

Another option: If you have a health savings account, you can use that money tax free for a portion of long-term-care premiums. The annual amount is based on your age ($1,400 from 50 to 60; $3,720 from 60 to 70; $4,660 if older than 70).

Most long-term-care insurers have raised rates at least once for current policyholders. Rate hikes announced by John Hancock and Genworth a few years ago are going into effect in some states (policyholders in most other states already pay the higher rates). New York Life recently announced that it will raise rates for some current policyholders for the first time in 25 years, with an average increase of 16% primarily for people with policies issued from 1997 to 2011.

You're usually given several options if you can't afford the new premiums. Ryan first recommends reducing your benefit period from ten years or lifetime down to five or seven years (or three years for men). His second choice is to lower the monthly benefit, and the third is to change the inflation adjustment from 5% down to 3% compounded.

Don't drop the policy. You'll lose the coverage you paid for, just as you're getting closer to the age when you will need care. If you change your mind later, a new policy will cost a lot more than your current one, even if you're still healthy.

Haven't yet filed for Social Security? Create a personalized strategy to maximize your lifetime income from Social Security. Order Kiplinger's Social Security Solutions today.

You intended to delay Social Security benefits until age 70, but at 68 you need the money and apply for benefits. Surprise: The Social Security Administration offers you a lump sum payment that's worth six months of benefits. Sounds nice, but accepting the money has consequences.

Here's how the offer works. If you delay applying for your benefit until after your full retirement age (66 for those applying now), you earn delayed retirement credits of 8% a year. When you finally apply, you can accept a monthly benefit that includes all the delayed credits. Or you can accept a lump sum worth six months of retroactive benefits—but your monthly benefit will shrink to the amount you would have received if you had applied six months earlier. "You are giving up delayed retirement credits," says Marc Kiner, co-founder of Premier Social Security Consulting, in Sharonville, Ohio.

Say you would have received $2,320 a month at 68. You opt for a lump sum worth six months of benefits. Your monthly lifetime benefit will be worth what you would have received at age 67 and 6 months, or $2,240. Your lump sum will be $13,440—six months of that $2,240 benefit. If you apply at age 66 and three months, the lump sum will be worth three months of benefits.

Singles who are suddenly diagnosed with a terminal illness should take the lump sum and the smaller benefit. The lump sum could go to an heir, while the monthly benefit will end at the beneficiary's death.

But a higher-earning spouse faced with a suddenly shortened life expectancy should probably reject the lump sum. The survivor benefit will equal 100% of the higher earner's benefit at his or her death. If the surviving spouse has a long life expectancy, the boosted survivor benefit can more than make up for the relinquished lump sum.

Ensure a Larger Cash Reserve

In some cases, a lump sum can exceed six months in back benefits. Say you're full retirement age and you decide to delay your benefit. You can file for your benefit and then immediately suspend it, which lets your benefit grow until you reach 70. If you need a wad of cash earlier, say, at age 69, you can request a lump sum of up to three years. "You can go back and undo the decision" to delay, says William Reichenstein, a principal of Social Security Solutions. (Kiplinger's has partnered with the firm; go to kiplinger.socialsecuritysolutions.com for a customized report to maximize your benefits.)

Consider a beneficiary who filed and suspended. At 69, he is diagnosed with a terminal illness and files for a lump sum to pay medical bills. If his full retirement age benefit was $2,000, that pot of cash is worth $72,000. If he hadn't filed and suspended, the lump sum would be limited to six months of benefits, or $14,400, with a monthly lifetime benefit of $2,400.

However, if the beneficiary takes the larger lump sum worth $72,000, his lifetime monthly benefit will return to the smaller amount of $2,000—and so will the survivor benefit, if he's married.

If you want even more flexibility, you can file and suspend more than once. Say you file and suspend your benefit of $2,000 at age 66. At 67, you need money for an emergency. You can request a lump sum payout of one year's worth of benefits, or $24,000. You can then continue to delay your monthly benefit. You will lose the delayed retirement credit of 8% you earned for that first year, returning your benefit to $2,000 a month. But if you then continue to delay taking your benefit until age 70, you can earn three years of delayed retirement credits, boosting your benefit to $2,480.

One caveat: By filing and suspending, you cannot file a "restricted application" for spousal benefits, says Elaine Floyd, director of retirement and life planning for Horsesmouth, a New York–based adviser training company. A higher earner who files a restricted application can receive spousal benefits while delaying his benefits. "A person had better be sure he does not want to receive spousal benefits from age 66 to 70 before filing on his own record," she says.

Haven't yet filed for Social Security? Create a personalized strategy to maximize your lifetime income from Social Security. Order Kiplinger’s Social Security Solutions today.

Couples who qualify for an employer pension need to make a big decision before they retire. Should a retiree take a life-only annuity, which provides the highest monthly payout but ends when the pensioner dies? Or choose a joint-and-survivor benefit, which offers a lower payout but one that continues after the retiree dies for as long as the spouse is alive?

If the employee due the pension is likely to die first, the joint pension is usually the best route. But some insurance agents may try to steer you to a strategy known as "pension maximization." It works like this: Take the higher life-only payout and use all or part of the extra income to buy life insurance. If you die first, your pension ends but your spouse will get a death benefit that supposedly will be enough to generate at least the same income she would have received under the joint pension. If she dies first, you cancel the insurance and continue to take the higher payout.

However, this strategy may not work out as planned. It’s essential to examine the numbers closely before you sign away your rights to a joint pension. "If the goal is to have steady income for life, why jump through all these hoops?" says Rebecca Davis, legal director of the Pension Rights Center.

Mark Maurer, president of Low Load Insurance Services in Tampa, Fla., develops "pension max" strategies for clients of fee-only certified financial planners. He says that just 20% of the clients he reviews do better with pension max than with the joint-pension option.

Maurer offers an illustration of one plan he developed for a 61-year-old man and his 59-year-old wife. The husband's pension offered a choice of a monthly $4,356 life-only payout or a 100% joint benefit, which would pay $3,557 as long as one of the spouses lived.

Under pension max, the worker chooses the life-only benefit with its extra $799 a month. He uses $660 a month to pay premiums on three life insurance policies—a 10-year $200,000 term policy, a 20-year $200,000 term policy and a $370,000 universal life policy. He qualifies for low rates because he is healthy. "This won't work unless the client is a better-than-average healthy non-smoker," Maurer says.

Protecting the Surviving Spouse

A big issue for pension max plans: If the husband dies, will the death benefit be big enough? "You really want to see if the wife would be able to use the death benefit to buy a guaranteed fixed annuity that is greater than what she would get with the joint pension," says Steve Vernon, president of Rest-of-Life Communications, a consulting firm in Oxnard, Cal. He says he's "skeptical" that these plans work in the survivor's favor.

In Maurer's example, if the husband dies after 22 years, the 81-year-old wife could use the tax-free $370,000 death benefit to buy a fixed-payout annuity. At today's rates, the annuity would pay out $3,388 a month, according to ImmediateAnnuities.com. That's lower than the joint pension's $3,557.

But Maurer notes that with the pension, payments would be fully taxable and, at the 15% rate, would leave the widow with just $3,023 of after-tax spending money. With the annuity, most of each payout would be tax-free return of investment so, according to Maurer, the widow would have more spendable cash.

However, Vernon says that pension max plans are often based on assumptions that may not pan out. He has seen plans that provide just a 20-year term life insurance policy on the worker's life. If the husband lives longer, "he will have to buy term life insurance in his eighties, and that will be phenomenally expensive," he says. Some strategies use insurance with death benefits that grow based on market assumptions. If the market grows at a lower rate, the death benefit could be too low to cover the survivor's expenses.

Also, pension max plans often don't account for taxes. In Maurer's example, the couple must pay tax on the $4,356 payout, squeezing the after-tax cash on hand to cover the insurance premiums.

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Leasing often gets a bad rap. And no wonder: Its confusing terms sound like fodder for a course in high finance, and dealers have been known to slip bad deals past confused car buyers who simply wanted low monthly payments.

About 30% of new-car transactions are leases, but I'm convinced that more people should be leasing. As manufacturers figured out that the cash rebates they offered were hurting resale values, and as the credit spigot began to flow freely again, carmakers shifted incentives from rebates to low-interest financing and leases. If you know what you're looking for and negotiate smartly, you can save money by leasing and disprove the five myths below.

1. Leasing is a bad deal. In general, if you keep a car well past the day the loan is paid off (or if you pay cash to begin with), you'll save money by buying. But if you trade in your car before the loan is paid off, the value of the trade-in is unlikely to cover the remaining balance on the loan. And if you shop -- and negotiate -- as hard for a lease deal as you would for a purchase, you can come out ahead by leasing.

Say you negotiate to buy a 2013 Nissan Altima 2.5 S (sticker price: $23,365) for invoice price -- $21,403 -- with 10% down and a five-year loan at 2.9%. But after three years you decide you want a new car. If you trade in the Altima, you will likely get about 46% of the sticker price, or $10,621 (the resale value after three years, according to the Kelley Blue Book). Then you'll have to pay off the loan. Figure your total out-of-pocket cost will be $9,525.

But if you lease that new Altima for three years, your monthly payments will be $179 with a $1,820 down payment (Nissan has been offering subsidized leases on the 2013 Altima). When you turn in the car at the end of the lease, you'll just walk away (unless you go over your mileage allotment or have unusual wear and tear). Total out-of-pocket cost: $8,264. In this case, leasing would leave you $1,261 richer.

In most states, you pay taxes only on the actual lease payments, so leasing can put you even further ahead (see number 3 below). Plus, you typically don't have to bring cash to the table for a lease.

2. It's nearly impossible to negotiate a good lease. Almost every facet of a lease is negotiable. But first you need to understand the jargon:

Capitalized cost. In the leasing universe, this is the vehicle price. You should haggle over this figure just as hard as you would haggle over the price if you were buying.

Money factor. The lower this number, the better (you have to multiply it by 2,400 to get an estimate of the interest rate). Dealers are sometimes reluctant to reveal the money factor, so be persistent.

Residual value. This is the value of the car or truck at the end of the lease.

An inflated residual value lowers your monthly payments, but it can also handcuff you. A more realistic residual value will make it easier to sell the lease, trade your vehicle in the middle of the lease or buy the vehicle at the end of the lease, says Tarry Shebesta, president of LeaseCompare.com.

Shop for your lease at the dealer, banks and credit unions, focusing on the money factor and the residual value. (No matter who writes your lease, you’ll have to haggle with the dealer over the capitalized cost.) You can also go to LeaseCompare.com to comparison shop and apply for a lease. Or check out LeaseWise. For $350, the service will shop at least five dealers in your area.

3. Only businesses get a tax break. Tax laws allow businesses to deduct monthly leasing payments as an expense.

But individuals get a tax break, too. In most states, you pay sales tax only on the monthly payments, not the vehicle price. In the Altima example above, you'd owe taxes on about $8,264 in payments rather than the $21,403 vehicle price. (Arkansas, Illinois, Maryland, Oklahoma, Texas and Virginia charge sales tax on the entire price.)

4. You will have to pay hefty fees when you turn in the car. The typical annual allotment of 10,000 to 15,000 miles is stingy, and the 20- to 25-cents-per-mile penalty for exceeding the limit seems daunting. But if you buy a car, you're also penalized for higher-than-average mileage when you trade it in.

You may be able to negotiate a higher mileage limit in exchange for a higher monthly payment and still save money.

5. If you want out early, you're stuck. Several fee-based Web sites, including LeaseTrader.com and Swapalease, match people who want to get out of a lease early with those who want to assume a short-term lease. At LeaseTrader.com, you pay a fee of $90 to post your vehicle and $250 to complete the transfer of the lease.

Most employees who leave a company roll their 401(k) assets to an IRA. But that simple move could cost you a lot of money if you're not careful.

Case in point: After three decades with a railroad company, Ron Blake, 58, of Shawnee, Kan., decided last fall that he would retire in early 2013. He hired financial planner Dan Weeks, of Sound Stewardship, in Overland Park, Kan., to help with the transition. Weeks found that nearly three-fourths of Blake's 401(k) was held in employer stock that had grown by more than 700%. "Red lights start flashing when you see that," Weeks says.

Instead of transferring all the assets to an IRA, Weeks advised Blake to move his appreciated company stock to a taxable brokerage account. Such a maneuver allowed Blake to take advantage of the lower long-term capital-gains tax rate. If Blake had moved the entire account to an IRA, "the company stock would have been taxed at my ordinary income tax rate when distributed," says Blake. By using the strategy, Weeks projects that Blake will save $100,000 in taxes.

Stashing company retirement plan money into an IRA may well be the best course for most people. Before you transfer 401(k) assets, however, you need to examine all the choices, and see which one will grow your nest egg the most.

A recent report by the U.S. Government Accountability Office found that 401(k) service providers tend to encourage participants to use the IRA option even when they don't know much about a caller's financial situation. In many cases, the IRAs are run by the same providers that operate the 401(k)s. "Plan participants are often subject to biased information and aggressive marketing of IRAs" when seeking advice, the GAO noted.

Departing employees usually have four options for their 401(k): Take the money in a lump sum, leave the money in the employer's 401(k), roll the money to an IRA, or if the employee has a new job, move the money into the new employer's 401(k).

Taking a lump sum is usually the worst choice. The money will no longer grow tax-deferred. And you'll pay ordinary income tax on the lump sum, which when added to your taxable income may push you into a higher tax bracket. If you're younger than 55 when you leave a job, you'll pay an early-withdrawal penalty.

You don't pay taxes if you move 401(k) money to an IRA or a new 401(k). Be sure to ask the 401(k) custodian to move the money directly from your 401(k) to the other retirement account. If the employer cuts you a check, it's required to withhold 20% of the money for taxes. If you don't make up the difference when you deposit the money into the new retirement plan, the IRS will consider that 20% as a taxable distribution. Any money that's not put back into a retirement account within 60 days will become taxable.

The decision to keep the money in a 401(k) rather than moving it to an IRA hinges on investment options and fees. If you're thinking of staying put, make sure the options in your 401(k) provide sufficient diversification and are low cost. Some 401(k) investments that you may like could be closed to new investors outside of the 401(k) or cost more in an IRA because of a difference in share class.

Also, find out what account fees the IRA charges, and ask your company about the administrative fees you pay for the 401(k). Check Brightscope.com to see how the 401(k) compares with other employer plans.

Two other factors may call for keeping a 401(k). A 401(k) plan has stronger creditor protection than an IRA. And a 401(k) plan generally allows you to borrow from the account—IRAs don't.

If you keep your old 401(k), you "have the same rights in terms of managing your money," says Andrew McIlhenny, executive vice-president with Firstrust Financial Resources, in Philadelphia. But you will be subject to the plan's rules, which may, for example, restrict the frequency of withdrawals. Figure out how the rules will affect you after you leave the company.

An IRA rollover has several advantages. Primarily, the investing world is your oyster. "An employer's 401(k) gives you a finite menu. With an IRA, you can do whatever you want," says McIlhenny. When selecting a custodian, you can compare fees and look for low-cost investments, such as index funds. If you rebalance frequently, check out the trading costs.

Consolidating money into an IRA may help investors keep better track of retirement savings. "They want it all in one place," says Constance Stone, president of Stepping Stone Financial, in Chagrin Falls, Ohio. Managing one account makes it easier when it comes to asset allocation, rebalancing and even keeping beneficiary forms current.

An IRA rollover can simplify required minimum distributions. With traditional IRAs, you must calculate an RMD for each account you own, but you can take the total from just one IRA. With old 401(k)s, you must calculate each RMD separately and then withdraw an RMD from each 401(k).

Tax-Saving Rollover Strategies

Departing employees at age 55 or older can withdraw money from the company's 401(k) without paying the 10% early-withdrawal penalty. If you think you'll need access to some money before 59 1/2, you may be able to leave some in the 401(k) to tap penalty free and roll the rest into an IRA. (IRAs have an early-withdrawal penalty before 59 1/2.)

Like Blake, if you hold appreciated company stock in your 401(k), you can employ a tax-saving strategy known as "net unrealized appreciation." Here's how it works: Say you have $100,000 of employer stock in your 401(k), with an original "cost basis" of $20,000 and $80,000 of net unrealized appreciation. You move the company stock to a taxable account and owe ordinary income tax—of up to 39.6%—on the $20,000. As you sell shares from the taxable account, you will owe tax on the appreciation at the long-term capital-gains rate of up to 20%. Blake comes out ahead because his projected income tax rate in retirement is expected to be higher than the capital-gains rate, says Weeks.

Also, if Blake had moved all of his stock to an IRA, his RMDs would have been large. Because Blake has a pension and doesn't need RMDs to live on, reducing the RMDs was a plus, Weeks says.

If you roll your 401(k) to a Roth IRA, you can create a tax-free pot of money. You'll pay income tax on the rollover amount, but the money will grow tax free and won't be subject to RMDs.

Haven't yet filed for Social Security? Create a personalized strategy to maximize your lifetime income from Social Security. Order Kiplinger's Social Security Solutions today.

To get 6% in a world where safe investments pay 1% or less requires accepting significant risk. Although a few corporate and foreign bonds pay 6% or better, many of today's best bets for high yield trade on exchanges like stocks, putting you in the often gut-churning position of watching their share prices whip around like a roller coaster. They include master limited partnerships, mortgage-owning real estate investment trusts and business development companies (see our glossary for explanations of how they work).

Becca Followill, head of stock research at U.S. Capital Advisors, a Houston investment firm, thinks MLPs are a great idea for superior income. Her favorite is Targa Resources Partners (NGLS, $46, 6.0%), a Houston-based operation that has a finger in every aspect of the production, storage and sale of natural gas. Followill expects its distribution rate to rise by an average of 11% annually over the next several years.

Morningstar’s Pikelny likes four closed-end funds offered by BlackRock. All invest in junk bonds and take on a moderate amount of debt to boost their payouts. The funds have many of the same holdings and similar yields, so Pikelny considers them virtually interchangeable: BlackRock Corporate High Yield (COY, $8, 7.6%); BlackRock Corporate High Yield III (CYE, $8, 7.9%); BlackRock Corporate High Yield V (HYV, $13, 8.2%); and BlackRock Corporate High Yield VI (HYT, $13, 8.1%). All recently traded at close to net asset value. Pikelny suggests buying the one trading at the biggest discount to NAV (or at the smallest premium).

The Morningstar analyst also favors AllianceBernstein Global High Income (AWF, $16, 7.7%). The fund, which takes on a modest amount of debt, invests in corporate bonds and U.S. and foreign government bonds. Top holdings include bonds issued by Brazil and Argentina, but more than 70% of assets are in corporate junk bonds.

If you’re in a high tax bracket, consider a closed-end fund that owns municipal bonds. Nearly all such funds use borrowed money to boost income. One that doesn’t is Nuveen Municipal Value Fund (NUV, $10, 4.4%), which mostly buys high-quality, long-term bonds. Although at first glance the fund’s yield seems to disqualify it from this group, you really need to look at its taxable-equivalent yield—what someone would have to earn from a taxable bond to equal the yield of a tax-free bond. In this case, 4.4% is the equivalent of a 6.1% taxable yield for someone in the 28% federal tax bracket and 7.3% for an investor in the top 39.6% bracket.

For those who can stand more risk, UBS analyst Sangeeta Marfatia favors BlackRock MuniYield Quality (MQY, $17, 5.7%), which also buys long-term, high-grade munis. But unlike the Nuveen fund, this one uses borrowed money to boost income. A 5.7% tax-free yield is equivalent to 7.9% taxable for someone in the 28% bracket and 9.4% for a top-bracket investor.

If you want more diversification, check out PowerShares CEF Income Composite (PCEF, $26, 7.4%). It’s an exchange-traded fund that owns dozens of taxable, income-producing closed-end funds. Most of its holdings borrow money, though the ETF itself does not.

Especially now, when it can be socially acceptable to change your name to whatever you'd like — I'm looking at you, Mr. Ron Artest, er, I mean, Mr. Metta World Peace — whether or not you take your beloved's surname, in full or in part, can be a challenging issue.

Here are five paths you might consider when it comes to changing your name after marriage:

1. Keep your given name.

Your easiest option is to do nothing at all. I have chosen to abide by the law of inertia and keep the last name given to me at birth. And my post-wedding days blissfully lacked name-changing paperwork and fees and trips to the local DMV and Social Security offices.

Another benefit: If you've built a name for yourself professionally, you'll want to maintain that "brand name." As a writer, my byline is crucial to my career. A potential new employer can easily Google "Stacy Rapacon" and find an index of my past work. But if I were to apply for a new job as "Stacy Hodas," taking my husband's last name, an online search would not yield the same portfolio of results. My colleague Kim Lankford, author of the popular Ask Kim column, had similar reasons for keeping her name after marriage: "I was in the midst of establishing myself professionally and didn't want to start all over again with a new byline and new identity for work," she says. "I couldn't imagine having everything I'd done to that point kind of disappear because I had a new name."

So it goes with any job hinging on a bit of name recognition. Genevieve Gramatica, a tennis instructor from Columbia, Md., is following in her father's footsteps. Mr. Gramatica has established a well-reputed, eponymous tennis academy in New Jersey, and Genevieve is "continuing the Gramatica name tennis-wise here in Maryland," she says. "I can't do that with a sudden name change just because I got married."

2. Take your spouse's name.

The most traditional name-game routine is for a newlywed wife to take her husband's last name. To follow this path, you should first request a certified copy of your marriage certificate from your state's Department of Health. Danielle Tate, founder of MissNowMrs.com — a Web site that assists people who'd like to change their names after marriage — recommends obtaining two or three certified copies so you can process different forms simultaneously, if possible. But keep in mind, you'll pay a fee, which varies by state, for each copy that you request. For example, in New York state, you'll pay $30 per copy (plus another $15 per copy for priority handling or if you pay online); in Maryland and Virginia, you'll pay $12 per copy (members of the armed forces are exempt from this fee).

Next, you'll need to apply for a new Social Security card, which is free (yay!). To do so, fill out Form SS-5 and mail it or bring it to any Social Security office, along with certified copies of your ID and marriage certificate. If your wedding was more than two years ago, you may need to provide additional documents. The agency will return everything you give them. You can expect your new card in one to two weeks. For more information, call Social Security at 800-772-1213 or visit www.socialsecurity.gov.

Be sure to notify your employer about your name change so that your income is reported to your Social Security number and your tax refund will be on time.

Next up: get a new driver's license. Bonus: you can update your voter registration at the same time. But before you head to the DMV (I know, you're in such a rush to visit that glorious institution), check your state rules. Where you live will determine when exactly you can apply for a new license, as well as how much you'll pay for it. For example, in Alaska, a new license costs $15, and you'll need to get it done within 30 days of changing your name with your new Social Security in hand when you apply. In Florida, the cost is $25, and you have to wait at least 48 hours after filing for a new Social Security card before you can apply for a new license. In Maryland, you can apply for a new license, which will cost you $30, before or at the same time as applying for a new Social Security card.

If a newlywed husband wants to take his wife's name, Tate says, only eight states — California, Georgia, Hawaii, Iowa, Louisiana, Massachusetts, North Carolina and New York — will allow him to follow the standard married name-change procedures. Everywhere else, the man would have to undergo a legal name change, which requires petitioning for a court order and running ads in local papers notifying the public of the change, and can cost $100 to $400 total. Same-sex couples may be similarly put upon in states that do not allow or recognize gay marriages or civil unions.

Another document you'll want to update is your passport. But, says Tate, "keep your travel plans in mind." If you've already booked an upcoming trip — like, say, your honeymoon — under your maiden name, you'll need a matching ID to fly, so you may want to wait until you return to change your passport (or even your license). Once you're ready, you'll need to fill out the appropriate form and mail it to the address listed on the form, along with your current, valid U.S. passport, a certified copy of your marriage certificate and a new passport photo. If your current passport is less than a year old, complete Form DS-5504 and your new book will be free; otherwise, you'll need to submit Form DS-82 and pay $110. Your new passport should arrive in four to six weeks, unless you request expedited service, in which case it will arrive in two to three weeks and cost an extra $60.

If you decide to change your name, be sure to notify your employer, clients, industry sources, vendors and other important professional contacts. You might also update your resume, CV and any online professional profiles, such as on LinkedIn, to include a "formerly known as" line with your past names (you know, like Prince, fka… a pretty drawing).

Others you'll want to notify about a name change:

• the U.S. Postal Service

• professional agencies with which you're affiliated or licensed (for example, my nurse practitioner friend had to get a new NP license and change her registration with the Drug Enforcement Agency after she got married and changed her name)

• your banks and other lenders

• utilities providers

• medical professionals

• insurers

• brokerages

Sound overwhelming? I agree (hence my inertia). But if you still want to go ahead with the change, you can get some help from Tate's MissNowMrs.com or similar services, such as BridalNameChange.com, NameChangeExpress.com and NameChangeKit.com. At MissNowMrs.com, name-change assistance costs $29.95 and, Tate says, can save you the 13 hours people spend on average completing this whole process.

3. Take your spouse's name legally, but keep your given name professionally.

A couple of female editors at Kiplinger's have followed this route for the best of both worlds — keeping with tradition in their personal lives and maintaining their professional brands. Still, "having dual names has led to some confusion over the years because I've always had dual identities," says Kiplinger's Personal Finance editor Janet Bodnar. "Even now, some of our friends who know my professional name aren't quite sure how to address me."

4. Make your given surname your middle name and take your spouse's last name.

Tate says this option is "a very popular trend right now." Guess my mom's a bit ahead of her time: In the Philippines, taking your husband's surname and replacing your middle name with your maiden name was common practice when she got married more than 40 years ago. She has since gone by Cynthia Salgado Rapacon.

Twenty years ago, another senior editor at Kiplinger's also became a trendsetter and took the name Anne Kates Smith. She had originally planned to keep her name, but an incident at her former company changed her mind: One day, the office received a call from a school seeking the mother of a child whose last name was unfamiliar to Smith's colleagues, and nobody could track down the appropriate parent to speak with the school. "I thought to myself, 'If I ever have kids, I want everyone in the family to have the same family name,' " says Smith. Of course, you'd have to drop your given middle name. Says Smith, "I've often wondered if my Mom is disappointed about that."

Keep in mind: changing your middle name may cost you extra. Some states — California, New Jersey, New York, Ohio, Pennsylvania and Washington — will not recognize this change in the standard married name-change process. If you live in one of these states, you'll have to get a legal name change and pay those additional, associated expenses mentioned above in option two.

5. Create a new last name.

Hyphenating your last name with your spouse's last name is common. And, like options three and four here, it offers a happy compromise. For example, when Andrea Sittig-Rolf, author of Revolutionize, Revitalize & Rev Your Resume, got married, she had already started her business, Sittig Inc., so she couldn't very well drop her company's name. But her husband wanted her to take his name. So, they decided to meet in the middle — with a hyphen.

Another method: As is done to so many celebrity couples by the media, my husband and I have unofficially blended our names. He is David Hodas and I am Stacy Rapacon; together, we've dubbed ourselves the Hodacons. We've only jokingly discussed legally taking this moniker (though we seriously agree, it is awesome). But I was surprised to hear from a few friends and colleagues that they know people who did officially create some kind of hybrid name. I've even come across couples who came up with something even more original and totally unrelated to either of their given names. Of course, any new name would require a legal name change, along with all the associated trouble and costs.

If you’re entitled to a pension from a former employer, don't be surprised if you receive a letter offering you a lump sum payout. New rules that will take full effect next year allow plan administrators to calculate lifetime benefits assuming higher interest rates than were previously used. Plan sponsors have eagerly anticipated the rule changes, which allow them to offer smaller lump sum payouts. Some sponsors anxious to trim their pension obligations are expected to offer lump sums to vested former employees as well as current workers on the verge of retirement. (Employees who continue to work for a company that offers a pension are not eligible for a payout until they leave or retire.)

Even pension programs that have not offered lump sums in the past may amend their plans to take advantage of the new rules, says Philip Waldeck, senior vice-president of Pension Risk Management Solutions at Prudential Insurance. “Former employees are a hassle to track,” says Waldeck. Plus, the Pension Benefit Guaranty Corp., which protects workers’ benefits when employers declare bankruptcy, is expected to raise the insurance premiums that employers must pay for each plan participant. Paying out a lump sum removes a worker from the plan roster and reduces an employer’s future insurance costs. Plans must be at least 80% funded to offer lump sum payouts.

The rule changes make the termination of the plan an important consideration for sponsors who have already “frozen” their plans, says Evan Inglis, chief actuary at Vanguard. More than half of all private pension plans in the U.S. are either frozen (meaning workers retain benefits they have accrued but no longer earn more) or are closed to new employees, according to a Government Accountability Office report.

To terminate a pension plan, employers must be more than fully funded in order to cover the cost of payouts to participants who choose lump sums and the cost of annuities for employees who select lifetime monthly checks. Under the new rules, the annuity option is more expensive than a lump sum payout for employers, and that makes closing a plan more attractive for well-funded plan sponsors. The higher the interest rate, the cheaper it is to offer a lump sum, so some employers may wait until interest rates rise still further before deciding to terminate their plans.

Weighing your options. If you’re faced with deciding whether to take a lump sum, take your time. Once you’ve made up your mind, there’s no going back. Research shows that when given a choice between a lump sum and an annuity, about 70% of pension plan participants choose the wad of cash. But in the wake of the recent market meltdown, says Inglis, “individuals are less confident about managing money, and there is a greater desire for guaranteed income.” Plus, a lump sum payout may not include subsidized benefits that employers offer older workers as an incentive to retire early. Inglis speculates that only about half of employees who are offered a lump sum will take it.

Even if you are presented with a lump sum offer, a monthly annuity payable at your normal retirement age is always an option, says Rebecca Davis, of the Pension Rights Center, in Washington, D.C., and with an annuity you won't have to worry about how to invest your money or whether you will outlive your savings. However, you will face one potential risk: inflation. Most private pensions offer fixed payments for life, which means your monthly benefit will lose buying power over time. Even at a modest 3% rate of annual inflation, your purchasing power could be cut in half after 24 years; if inflation picks up, fixed payments will be even less attractive.

That makes managing a large payout on your own attractive, as long as you’re a skilled investor or you hire a financial adviser. Ann Sylvestro, a director with Horizon Blue Cross Blue Shield of New Jersey, decided to accelerate her retirement date and take a lump sum now to avoid the risk of a smaller payout in 2012. She and her husband, Anthony Granato, who is semi-retired after selling his auto-repair business, spent several years working with financial planner Doug Lockwood, of Harbor Lights Financial Group, in Manasquan, N.J., to prepare for this moment.

“The lump sum gives us the opportunity to better control our lifestyles,” says Sylvestro, 65. “If we were living on my fixed annuity payments, we would not have the ability to take additional income in years in which we want to travel or live a little better.” Says Lockwood, “A lump sum gives you the ability to control your income stream -- and your income taxes -- and also allows you to leave a legacy. But it's difficult to manage on your own.”

Help from the pros. Two major financial institutions -- Vanguard and Fidelity Investments -- are gearing up for the potential onslaught of pension-payout offers by offering free help to participants in the plans they administer. Such guidance may be crucial to individuals whose lump sum payouts are too small to satisfy the minimum asset requirements of many independent financial advisers. “This kind of counsel from a professional planner may mean the difference between jeopardizing their retirement security and helping to protect it," says Inglis.

Vanguard’s new Pension Reinvestment Services offers participants free phone access to certified financial planners, who do not receive commission on products they recommend, to guide them through their choices and explain the consequences of their decisions. For example, if you decide to forgo a monthly pension benefit, you may roll over the lump sum to an IRA or to your current employer’s 401(k) plan with no immediate tax consequences.

Future withdrawals will be taxed at your ordinary income tax rates. But if you decide to take the money and run, your employer is required to withhold 20% of the payout for federal income taxes, plus an additional 10% in early-withdrawal penalties if you are younger than 55 in the year you leave your job.

Fidelity’s new Collect Your Pension service includes online educational materials, a video on how to take a pension payout, and links to pension calculators and a retirement income planning tool. Gerald Foster of Seattle retired from Lafarge, a cement manufacturer, in June. He used Fidelity’s new online service and phone-based advice to decide how to collect his pension and to complete all the paperwork. A self-described computer nerd, Foster said the Web site was clearly laid out, and the phone counselor was helpful and knowledgeable.

Foster, 59, chose a partial lump sum distribution -- which he will use to pay down his mortgage -- and a $500-a-month benefit, which will supplement a pension he has from a previous employer. But before he could collect the lump sum, he had to supply a divorce decree to prove he did not have a spouse entitled to pension benefits. Normally, if a married employee selects a lump sum, the spouse must sign a document waiving the spouse’s right to a survivor benefit.

Married employees are always offered the choice of an annuity based solely on their own life or an annuity with a smaller monthly benefit that continues paying until the second spouse dies. In some cases, the surviving spouse is entitled to the full pension benefit; in other cases, the benefit may be just half of what the worker received. "It might make sense for a married couple to choose the single-life benefit and to purchase life insurance to provide for the surviving spouse tax-free,” says Robert Russell, a retirement income specialist and president of Russell & Co., a financial-planning firm in Fairborn, Ohio. That's just one example of the questions you need to ask a financial adviser before you sign off on a pension payout.