Do you have trouble keeping track of withdrawals from your checking or savings accounts? Do you not want to ever have to worry about whether you might overdraft from your checking account? Then you may want to consider building a “cash cushion” into your finances. A cash cushion is an account limit that you set for yourself and use to protect yourself from overdrafting or incurring insufficient fund fees. That amount can be anything your are comfortable with. For some it may be $200 dollars, while for others it may be $1,000. Basically, when your account hits that number, you know you’ve reached your balance for that account. This may require rethinking some expenses or exploring your budget. If you are young and living paycheck to paycheck, having a cash cushion can be a great way to practice budgeting as well as give you some breathing room with your finances. If you are nearing retirement, a cash cushion can provide a bit of a security blanket and allow you peace of mind regarding checking and savings accounts. It should be noted, however, that a cash cushion is not an emergency fund. The amount you set aside as your cushion is not intended to keep you afloat during a difficult financial period and should not be viewed as such. It is really just a safety measure for your bank accounts that will allow you to avoid costly fees and penalties.
Congress could be making come changes to retirement plans that could have some big impacts on how you save for retirement. The “Family Savings Act of 2018” (H.R. 6757) is a proposed piece of legislation that could change age restrictions on making IRA contributions, whether you have to take a required minimum distribution (RMD), where you save, and adds new exceptions to the 10% early distribution penalty. I’v mentioned a few of these in past posts, but today I am going to focus on the potential new way to save. The proposed legislation introduces a new tax-advantaged account to the tax code, called a Universal Savings Account. Such accounts would grow in a manner similar to that of a Roth IRA, that is, tax free, but would have fewer restrictions. One restriction–which could be a big one–is that annual contributions for Universal Savings Accounts would be limited to $2,500. As more becomes known and discussed regarding these accounts, they may become an important part of the retirement saving process. This legislation may be worth keeping an eye on as it moves through Congress and I will certainly discuss it in the future as more becomes known.