financial education

Fact checked by Suzanne Kvilhaug

Year after year, you’ve diligently put money in a 401(k) plan for your retirement. Scammers and thieves want that money. Here are the types of scams they are using to steal your 401(k) money and how to protect yourself.

Key Takeaways

• Scammers are targeting your 401(k) plan. Don’t let them steal your retirement savings.
• Protect yourself by using two-factor authentication when accessing your 401(k) plan online. Use complicated passwords, and don’t use the same password for more than one financial account.
• Monitor notifications regarding your 401k) plan. Watch out for scam emails, phone calls, and text messages. Block suspicious text messages and phone calls.
• Only do a 401(k) rollover with a trusted financial institution.

Online 401(k) Scams

Thieves are targeting 401(k) accounts in a number of ways, including online scams. If your login has been swiped, you are vulnerable.

“This has even begun to manifest in high-volume ‘bot attacks’ where criminals are using an automated script and thousands of stolen logins to attempt to identify and compromise victims’ accounts,” says Al Pascual, Chief Executive Officer and Co-founder of Scamnetic.

Phony Investments

Another way thieves are ripping off consumers is by tricking them into putting their 401(k) money into sham investments. The investments aren’t real, but the scam is.

“(Scammers) mislead consumers who have access to a self-directed 401(k) into investing in things like commodities or FX through fake online platforms,” Pascual says. “These platforms have a convincing look and feel, and as the victims watch their investments grow, they are encouraged to invest even more, but when the victim tries to withdraw funds, they are faced with requests for fees and taxes that are really just attempts to steal even more money.”

Phone and Text Scams

Thieves pretend to be financial advisors and deceive 401(k) investors with phone calls and text messages. It is all a ruse to get investors’ personal information, which they use to get into 401(k) accounts.

“Scammers pose as financial advisors or retirement plan representatives and trick innocent individuals into sharing their login credentials, giving up personal information over the phone, or misleading them to malicious phishing links in text messages,” says Clayton LiaBraaten, Senior Executive Advisor of Truecaller.

Scams Through Robocalls

Scammers will attempt to reel in unsuspecting 401(k) investors with robocalls using artificial intelligence (AI) and voice impersonations.

“Another scam is robocalls, even though the FTC reports a decline in this space, AI is opening the door for deepfakes and voice impersonations that make the scams more intricate and harder for people to detect,” LiaBraaten says.

401(k) Rollover Scams

A 401(k) rollover scam is another way thieves are swiping money out of 401(k) accounts. They encourage investors to move their money into a self-directed individual retirement account (IRA) and then convince investors to buy wildly overpriced gold coins.

In a 401(k) rollover scam, thieves also target investors who use paper checks in their rollovers.

“401(k) rollovers still happen using old-fashioned paper checks,” says James Lee, Founder of StratFI. “This creates another source of vulnerability—your mailbox. These checks can be intercepted, endorsed with a forged signature, and fraudulently paid out to someone else.”

401(k) Loan and Withdrawal Scams

One trick is for scammers to persuade a 401(k) investor to make withdrawals or take loans from their account and give it to the scammer.

“And even if they don’t have a self-directed 401(k), scammers have no scruples and are happy to convince their victims to make withdrawals or take loans from their accounts—whether that be in association with an investment scam, a romance scam, a tax scam, or any other,” Pascual says.

Some thieves may be associated with the 401(k) plan itself, but outside scammers are the bigger threat.

“Investment cons are as old as time and can occasionally involve insiders. That said, the far more common threat is from career criminals who are targeting accounts to compromise and investors to mislead,” Pascual says.

How to Protect Yourself from 401(k) Scams

There are several easy steps you can take to guard against 401(k) scams, beginning with additional security measures on your online account.

“Consumers should take advantage of security controls on their accounts, such as two-factor authentication, to reduce the risk of criminals using stolen credentials,” Pascual says.

Here are some additional ways to keep close tabs on your 401(k) account.

“Use complex passwords, and do not reuse passwords for multiple accounts,” says John Wilson, Senior Fellow of Threat Research at Fortra. “Leverage notifications to stay aware of account activity. Scrutinize any request regardless of communication channel. Be aware that scams can be conducted via email, phone, and SMS. Regularly review your account and verify any suspicious activity.”

Block suspicious phone calls and text messages that discuss your 401(k) account.

“The best defense is to stop the scams before they reach you,” LiaBraaten says. “This would require a proactive approach (using) tools to detect and block suspicious calls and texts. Services that identify fraudulent or high-risk numbers, based on large databases and patterns of scam activity, can go a long way to safeguard you from being exposed to fraudsters.”

Step in and help older investors manage their 401(k) accounts. “Older investors should consider adding trusted contacts to their accounts. These are individuals—such as close family members or caregivers—who are notified whenever there is high-risk activity. This can help more quickly detect if an account is compromised, or if the older investor is unwittingly scammed,” Pascual says.

Before attempting to roll over money from a 401(k) plan, stay steps ahead of scammers by following these three tips.

“Consult with a fiduciary such as a fee-only financial planner about the pros and cons of your rollover options. Only roll over your 401(k) to a known financial institution. Keep an eye out for your rollover check in the mail,” Lee says.

If you are not sure whether an email, text, or phone call regarding your 401(k) account is legitimate, reach out to your plan advisor and ask if they sent it or made the call. If you suspect a scam, you can report it to the Federal Trade Commission (FTC).

The Bottom Line

Thieves are after the money in your 401(k) plan. They use online scams and rollover scams, and they con 401(k) investors by text messages and phone calls. They will swipe a 401(k) rollover check from an investor’s mailbox and trick people with fake investments. They convince unsuspecting investors to make loans and withdrawals from their 401(k) accounts and give the money to the thieves.

To protect yourself from 401(k) scams, be on the alert. Watch out for scam emails, text messages, and phone calls. Keep track of all notifications regarding your 401(k) account. Report any suspicious activity to the FTC.

Reviewed by Somer Anderson
Fact checked by Suzanne Kvilhaug

Mergers vs. Acquisitions: An Overview

Mergers and acquisitions are two of the most misunderstood words in the business world. Both terms often refer to the joining of two companies, but there are key differences involved in when to use them.

A merger occurs when two separate entities combine forces to create a new, joint organization. Meanwhile, an acquisition refers to the takeover of one entity by another.

The more common distinction to differentiating a deal is whether the purchase is friendly (merger) or hostile (acquisition).

Mergers and acquisitions may be completed to expand a company’s reach or gain market share in an attempt to create shareholder value.

Key Takeaways

• A merger occurs when two separate entities combine forces to create a new, joint organization.
• An acquisition refers to the takeover of one entity by another.
• The two terms have become increasingly blended and used in conjunction with one another.

Mergers

A merger requires two companies to consolidate into a new entity with a new ownership and management structure (typically with members of each firm). Mergers require no cash to complete but dilute each company’s individual power.

Though mergers might be seen as friendly in comparison to acquisitions, in practice, friendly mergers of equals do not take place very frequently. It’s uncommon that two companies would benefit from combining forces with two different CEOs agreeing to give up some authority to realize those benefits. When this does happen, the stocks of both companies are surrendered, and new stocks are issued under the name of the new business identity.

Typically, mergers are done to reduce operational costs, expand into new markets, and boost revenue and profits. Mergers are usually voluntary and involve companies that are roughly the same size and scope.

Important

Due to the negative connotation, many acquiring companies refer to an acquisition as a merger even when it is clearly not.

Acquisitions

In an acquisition, a new company does not emerge. Instead, the smaller company is often consumed and ceases to exist, with its assets becoming part of the larger company.

Acquisitions, sometimes called takeovers, generally carry a more negative connotation than mergers. As a result, acquiring companies may refer to an acquisition as a merger even though it’s clearly a takeover.

An acquisition takes place when one company takes over all of the operational management decisions of another company.

Acquisitions require large amounts of cash.

Companies may acquire another company to purchase their supplier and improve economies of scale—which lowers the costs per unit as production increases. Companies might look to improve their market share, reduce costs, and expand into new product lines. Companies engage in acquisitions to obtain the technologies of the target company, which can help save years of capital investment costs and research and development.

Examples of Mergers and Acquisitions

Although there have been numerous mergers and acquisitions, below are two of the most notable ones over the years.

Merger: Exxon and Mobil 

Exxon Corp. and Mobil Corp. completed their merger in November 1999 following approval from the Federal Trade Commission (FTC). Exxon and Mobil were the top two oil producers, respectively, in the industry prior to the merger.

The merger resulted in a major restructuring of the combined entity, which included selling more than 2,400 gas stations across the United States. The joint entity trades under the name Exxon Mobil Corp. (XOM) on the New York Stock Exchange (NYSE).

Acquisition: AT&T Buys Time Warner

On June 15, 2018, AT&T Inc. (T) completed its acquisition of Time Warner Inc., according to AT&T’s website. However, due to intervention by the U.S. government to block the deal, the acquisition went to the courts. In February 2019, an appeals court cleared AT&T’s takeover of Time Warner.

The $42.5 billion acquisition realized cost savings for the combined entity of $1.5 billion and revenue synergies of $1 billion. On May 17, 2021, AT&T announced that it would spin off its WarnerMedia business and merge it with Discovery.

Explain Mergers and Acquisitions Like I’m Five

A merger is when two companies come together to form a new company. An acquisition is when one company takes over another. In the business world, the two words are often used together to discuss the combining of two groups because the groups share strategic goals such as growth and cost savings.

What Was the Largest Merger in History?

The largest merger in history is America Online and Time Warner, in 2000.

What Was the Largest Acquisition in History?

The largest acquisition in history is the takeover of Mannesmann AG by Vodafone Group in 1999.

Why Is It Called Merger and Acquisition (M&A)?

A merger is an agreement that unites two existing companies into one new company. An acquisition is a transaction in which one company purchases most or all of another company’s shares to gain control of that company.

Since mergers are so uncommon and takeovers are viewed in a negative light, the two terms have become increasingly blended and used in conjunction with one another. Contemporary corporate restructurings are usually referred to as merger and acquisition (M&A) transactions rather than simply a merger or acquisition. The practical differences between the two terms are slowly being eroded by the new definition of M&A deals.

The Bottom Line

“Mergers” and “acquisitions” are terms that often refer to the joining of two companies, but there are key differences involved in when to use them. In a merger, two separate entities combine forces to create a new, joint organization. In an acquisition, one entity takes over another.

Reviewed by Robert C. Kelly
Fact checked by Suzanne Kvilhaug

The price/earnings-to-growth ratio, or PEG ratio, is a stock valuation metric that combines a company’s price-to-earnings (P/E) ratio with its earnings growth rate over a set period. Unlike the P/E ratio, which focuses only on current earnings, the PEG ratio provides a broader perspective by factoring in future growth expectations.

Investors and analysts widely use the PEG ratio to assess an investment’s overall performance and potential risk.

In theory, a PEG ratio of 1.0 indicates that the market value of the stock is aligned with its projected earnings growth. A ratio above 1.0 suggests the stock may be overvalued, while a ratio below 1.0 is generally considered favorable, indicating that the stock may be undervalued.

Key Takeaways

• The price/earnings-to-growth ratio, or PEG ratio, is a valuation metric that factors in both price and expected earnings growth.
• A PEG ratio under 1.0 may indicate an undervalued stock, potentially signaling a buying opportunity.
• A PEG ratio above 1.0 may suggest the stock is overvalued.
• The PEG ratio is more comprehensive than the P/E ratio because it includes growth forecasts.
• Always be mindful of the time frame used for growth projections when interpreting the PEG ratio.

PEG Ratio vs. P/E Ratio

The price-to-earnings (P/E) ratio gives analysts a good fundamental indication of what investors are currently paying for a stock in relation to the company’s earnings. However, the P/E ratio doesn’t account for future growth potential. The PEG ratio represents a fuller—and hopefully—more accurate valuation measure than the standard P/E ratio.

The PEG ratio builds upon the P/E ratio by factoring growth into the equation. Factoring in future growth adds an important element to stock valuation since equity investments represent a financial interest in a company’s future earnings.

Important

The PEG ratio will differ if you use trailing P/E versus forward P/E. Be consistent and aware of which version of P/E is used.

Calculating the PEG Ratio

To calculate a stock’s PEG ratio you must first figure out its P/E ratio. The P/E ratio is calculated by dividing the per-share market value by its per-share earnings. From here, the formula for the PEG ratio is simple:

$begin{aligned} &text{PEG}=frac{text{P/E}}{text{EGR}}\ &textbf{where:}\ &text{EGR = Earnings growth rate over five years}\ end{aligned}$​PEG=EGRP/E​where:EGR = Earnings growth rate over five years​

Where:

• P/E is the price-to-earnings ratio (market price per share divided by earnings per share).
• EGR is the earnings growth rate over a specified period (typically 5 years).

While you can use different periods for the growth rate, it’s important to note that projections farther out in time tend to be less accurate.

Example of the PEG Ratio

If you’re choosing between two stocks from companies in the same industry, then you may want to look at their PEG ratios to make your decision. For example, the stock of Company Y may trade for a price that’s 15 times its earnings, while Company Z’s stock may trade for 18 times its earnings. If you simply look at the P/E ratio, then Company Y may seem like the more appealing option.

However, Company Y has a projected five-year earnings growth rate of 12% per year while Company Z’s earnings have a projected growth rate of 19% per year for the same period. Here’s what their PEG ratio calculations would look like:

$begin{aligned} &text{Company Y PEG = 15/12$​Company Y PEG = 15/12% = 1.25Company Z PEG = 18/19% = 0.95​

This shows that when you take possible growth into account, Company Z could be the better option because it’s actually trading for a discount compared to its value.

Other Factors to Consider

The PEG ratio doesn’t take into account other factors that can help determine a company’s value. For example, the PEG doesn’t look at the amount of cash a company keeps on its balance sheet, which could add value if it’s a large amount.

Other factors analysts consider when evaluating stocks include the price-to-book ratio (P/B) ratio. This can help them determine if a stock is genuinely undervalued or if the growth estimates used to calculate the PEG ratio are simply inaccurate. To calculate the P/B ratio, divide the stock’s price per share by its book value per share.

Is a High or Low PEG Ratio Better?

In general, a low PEG ratio is preferred, especially if it’s below 1.0. A PEG below 1.0 suggests that the stock is undervalued relative to its expected growth. On the other hand, a high PEG ratio (above 1.0) indicates that the stock may be overvalued, with its price not adequately supported by projected earnings growth.

What Does a Negative PEG Ratio Mean?

A negative PEG ratio can occur when the P/E ratio is negative (usually because the company is losing money) or if the growth rate is negative. Either scenario suggests that the company is struggling financially or is expected to have declining earnings, making it a less favorable investment.

What Are Some Limitations of the PEG Ratio?

Getting an accurate PEG ratio depends highly on what factors are used in the calculations. Investors may find that PEG ratios are inaccurate if they use historical growth rates, especially if future ones may deviate from the past. In order to make sure the calculations remain distinct, the terms “forward” and “trailing” PEG are often used.

The Bottom Line

The PEG ratio is a valuable metric for assessing a company’s stock price in relation to its expected earnings growth. It offers a more complete picture than the P/E ratio, which only looks at current earnings without considering future potential. A PEG ratio below 1.0 is typically seen as an indication of an undervalued stock, while a ratio above 1.0 could signal overvaluation.

However, like all financial metrics, the PEG ratio should not be used in isolation. It’s best to consider it alongside other valuation measures and factors to gain a well-rounded understanding of a stock’s investment potential.

Reviewed by Eric Estevez
Fact checked by Kirsten Rohrs Schmitt

Over the last 100 years, there have been several large stock market crashes that have plagued the American financial system. For example, during the Great Depression of 1929, stock prices dropped to 10% of their previous highs and during the crash of 1987, the market fell more than 20% in one day. 

Key Takeaways

• Stock markets tend to go up. This is due to economic growth and continued profits by corporations.
• Sometimes, however, the economy turns or an asset bubble pops—in which case, markets crash.
• Investors who experience a crash can lose money if they sell their positions, instead of waiting it out for a rise.
• Those who have purchased stock on margin may be forced to liquidate at a loss due to margin calls.

Selling After a Crash

Due to the way stocks are traded, investors can lose quite a bit of money if they don’t understand how fluctuating share prices affect their wealth. In the simplest sense, investors buy shares at a certain price and can then sell the shares to realize capital gains. However, if dwindling investor interest and a decline in the perceived value of the stock results in a dramatic drop in the stock price, the investor will not realize a gain.

For example, suppose an investor buys 1,000 shares in a company for a total of $1,000. Due to a stock market crash, the price of the shares drops 75%. As a result, the investor’s position falls from 1,000 shares worth $1,000 to 1,000 shares worth $250. In this case, if the investor sells the position, they will incur a net loss of $750. However, if the investor doesn’t panic and leaves the money in the investment, there’s a good chance they will eventually recoup the loss when the market rebounds.

Important

While stock markets have historically gone up over time, they also experience bear markets and crashes where investors can and have lost money.

Buying on Margin

Another way an investor can lose large amounts of money in a stock market crash is by buying on margin. In this investment strategy, investors borrow money to make a profit. More specifically, an investor pools their own money along with a very large amount of borrowed money to make a profit on small gains in the stock market. Once the investor sells the position and repays the loan and interest, a small profit will remain.

For example, if an investor borrows $999 from the bank at 5% interest and combines it with $1 of their own savings, that investor will have $1,000 available for investment purposes. If that money is invested in a stock that yields a 6% return, the investor will receive a total of $1,060. After repaying the loan (with interest), about $11 will be left over as profit. Based on the investor’s personal investment of $1, this would represent a return of more than 1,000%.

This strategy certainly works if the market goes up, but if the market crashes, the investor will be in a lot of trouble. For example, if the value of the $1,000 investment drops to $100, the investor will not only lose the dollar they contributed personally but will also owe more than $950 to the bank (that’s $950 owed on an initial $1.00 investment by the investor).

Margin and The Depression

In the years leading up to the Great Depression, many investors took advantage of this strategy by taking large margin positions. However, when the depression hit, these investors worsened their overall financial situation because they lost everything they owned and owed large amounts of money. Because lending institutions could not get money back from investors, many banks had to declare bankruptcy. To prevent such events from occurring again, the Securities and Exchange Commission created regulations that prevent investors from taking large positions on margin.

By taking the long-term view when the market realizes a loss and thinking long and hard before buying on margin, an investor can minimize the amount of money they lose in a stock market crash.

The Bottom Line

While stock price shifts are more about changing perceptions of value rather than money physically moving from point A to point B, they do mean the perceived value of an investor’s stock changes. It means other investors aren’t willing to pay as much as they were before should the investor wish to sell it. However, that value drop may not be permanent and may rebound if the investor holds on to their investment, taking a long-term view.

Reviewed by Marguerita Cheng
Fact checked by Vikki Velasquez

The RMD Penalty Hit

If you’re at least 73 years old and have a traditional tax-advantaged retirement account, the Internal Revenue Service (IRS) requires that you withdraw a minimum amount of money every year and pay the taxes owed on the money.

This required minimum distribution (RMD) is necessary if you have a traditional individual retirement account (IRA), a SEP IRA, a SIMPLE IRA, a company-sponsored 401(k) account, or a 403(b) account. Withdrawals are not required for money in a Roth account rather than a traditional account.

There are serious consequences for failing to take the required minimum distribution (RMD): A penalty of 25% of the amount that should have been withdrawn plus any income taxes owed on that amount.

The penalty may be reduced to 10% or waived entirely if you take prompt action.

Note: A “traditional” account contains money that was not taxed at the time it was paid into the account. The alternative, a Roth account, contains money that was taxed at the time it was paid in and, therefore, no further taxes are owed. All are “tax-advantaged” accounts because the IRS gives their owners a tax break to encourage them to save money for retirement.

Key Takeaways

• If an RMD deadline is missed, the account owner will owe the IRS a 25% excise tax on the shortfall, plus the income taxes due on the withdrawal.
• The penalty may be reduced to 10% or waived entirely if you can show that the shortfall was due to a “reasonable error” and that you are taking steps to remedy it.
• When requesting a penalty waiver, file Form 5329.

Important

If you have a retirement account, the account custodian should notify you by January 1st of the amount you must withdraw during the year. The IRS also supplies worksheets that can be used to calculate the amount to withdraw, which is based on your age.

How the RMD Penalty Works

The purpose of the RMD is clear: The government has deferred taxes on some of your income for many years, and now it wants some of that money.

The amount you owe is determined by your age. You must withdraw money the year you reach 73 and every year thereafter. The IRS supplies worksheets to determine how much you must withdraw for the year.

If you fail to withdraw the RMD by the applicable deadline, the IRS can charge you a penalty of 25% of the amount you should have withdrawn, plus the income taxes that would be due on that amount.

You will, of course, owe the income taxes if you withdraw the money on schedule.

However, if the failure is “timely corrected within two years,” according to the IRS, the penalty is reduced from 25% to 10%. In some cases, the penalty may be waived.

Here are the steps you should take if you’re facing a possible RMD penalty.

Step 1: Request a Waiver

If you feel that you missed the deadline due to a reasonable error, you may ask the IRS to waive the 25% excise tax by filing IRS Form 5329 and attaching a letter of explanation for the waiver.

When requesting a waiver, do not pay the excise tax immediately. Instead, follow the instructions for requesting a waiver in the Instructions for Form 5329. If the IRS does not honor your waiver request, you will be notified.

Step 2: Pay the Excise Tax

If you don’t qualify for a waiver, you must pay the excise tax. The amount owed must be calculated and reported on IRS Form 5329 and IRS Form 1040 and filed with your federal tax return for the year in which the RMD shortfall occurred.

If you are not required to file your taxes with IRS Form 1040, you may file Form 5329 by itself and pay the excise tax owed. The IRS website offers instructions for Form 5329. (Only people whose income is less than the standard deduction don’t need to file a Form 1040.)

Complete the form with the requested information, and enclose your check or money order made payable to the United States Treasury. On the check or money order, write your Social Security number, the current tax year, and “Form 5329.” (Check the IRS website for other payment options.)

Step 3: If You Inherited the Account

People who inherit retirement accounts must take RMDs, following IRS rules based on the type of beneficiary. Beneficiaries are also subject to the 25% excise tax if they miss their RMD deadline.

If you are a designated beneficiary who inherited a retirement account from an owner who died in 2019 or earlier, and the person’s death occurred before their required beginning date (RBD), you are required to take annual beneficiary RMDs over your life expectancy, starting the year after the owner’s death.

There is one instance in which a beneficiary can get an automatic waiver of the excise tax. Some beneficiaries (who are not surviving spouses or dependents of the deceased) might be subject to the five-year rule instead.

Under the five-year rule, you don’t need to take distributions for the first four years but you must withdraw the entire balance by the end of the fifth year.

The five-year rule was increased to 10 years under provisions of the SECURE Act of 2019. Most SECURE Act provisions have since expired. IRS FAQs updated on Dec. 10, 2024, indicate that the five-year rule now applies.

If you are uncertain which rules apply to you, check with your IRA custodian or plan trustee.

How to Use the 5-Year Rule

While the excise penalty will generally apply if you do not withdraw the RMD amount on time, the penalty may be waived if you switch from the life expectancy rule to the five-year rule and withdraw the full balance of the account by Dec. 31 of the fifth year following the year when the retirement account owner died.

Let’s look at the following example:

In 2018, John, age 63, inherited an IRA from his husband Ron, who died at age 65. Since Ron died before his RBD, John has two options for distributing the IRA balance:

1. John can distribute the assets over his own life expectancy. For most IRA plan documents, this is the default option and is consistent with the provisions of RMD regulations.
2. John can distribute the assets by December 31 of the fifth year following the year when Ron died.

John chooses the life-expectancy option. The RMD for 2019 is $10,000, but John fails to withdraw any amount by December 31, 2019. If John wants to continue using the life-expectancy method, then he will have to pay the IRS an excise tax of $5,000 (the tax was 50% in the years before 2023) and must file Form 5329.

He may request a waiver if he feels the failure is due to a reasonable error. However, John will receive an automatic waiver of the penalty if he withdraws the account balance by Dec. 31, 2024, the fifth RMD year following the year his husband died, plus an extra year’s extension (because 2020 isn’t counted due to the CARES Act).

How Is a Required Minimum Distribution Calculated?

The annual RMD is determined by dividing the retirement account’s prior year-end fair market value by a life expectancy factor published by the IRS.

Can an Account Holder Withdraw More Than the RMD?

Account holders can and often do take more than the RMD each year, commonly during retirement. The IRS has no problem with this as long as you pay the taxes due.

What If I Have Multiple Retirement Accounts?

It depends on the type of account.

An IRA owner must calculate the RMD separately for each IRA but can withdraw the total amount from one or more of the IRAs. Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract but can take the total amount from one or more of the 403(b) accounts.

However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans, have to be taken separately from each of those accounts.

RMDs for inherited accounts cannot be combined with RMDs for accounts you hold as owner.

The Bottom Line

Missing your RMD deadline can be costly. To ensure it doesn’t happen, make sure your distribution occurs by the deadline. You can arrange with your account custodian for automatic withdrawals on a predetermined date. Submit your withdrawal requests well before the deadline, and check your statements to ensure that the correct amount was distributed.

Reviewed by Eric Estevez

Most 401(k)s allow you to borrow up to 50% of the funds vested in the account or $50,000, whichever is less, for up to five years. Because the funds are not withdrawn, only borrowed, the loan is tax-free. You then repay the loan gradually through payroll deductions, including both the principal and interest. But dipping into the savings in your 401(k) plan is a bad idea, according to most financial advisors. But that doesn’t deter nearly one in three account owners from raiding their funds early for one reason or another.

Here are eight reasons advisors believe 401(k) loans are a bad idea.

Key Takeaways

• Most 401(k) plans allow you to borrow up to 50% of your vested funds for up to five years, at low interest rates, and you’re paying that interest to yourself.
• Before borrowing, consider that you’ll have to repay the loan with after-tax dollars, and you could lose earnings on the money while it’s out of the account.
• Should you lose your job, you’ll have to repay the loan more rapidly or, failing that, pay taxes on the money you withdrew.

1. Repayment Will Cost You More Than Your Original Contributions

The leading advantage of a 401(k) loan—that you’re borrowing from yourself for a pittance—looks dubious once you realize how you’ll have to repay the money.

The funds you’re borrowing were contributed to the 401(k) on a pre-tax basis (if it’s a traditional 401(k) account rather than a Roth account). But you’ll have to repay the loan with after-tax money, which means you’ll be taxed again on that money when you begin taking distributions.

Say you’re paying an effective tax rate of 17%. Every $1 you earn to repay your loan leaves you with only $0.83 for that purpose. The rest goes to income tax. Put another way, making your fund whole again would require roughly one-sixth more work than the original contribution.

2. The Low Interest Rate Overlooks Opportunity Costs

When you borrow money from your account, it won’t be earning any returns until it’s repaid. Those missed earnings need to be balanced against the supposed break you’re getting for lending yourself money at a low interest rate.

“It is common to assume that a 401(k) loan is effectively cost-free since the interest is paid back into the participant’s own 401(k) account,” says James B. Twining, CFP, CEO and founder of Financial Plan Inc., in Bellingham, Wash. However, Twining points out that “there is an ‘opportunity’ cost, equal to the lost growth on the borrowed funds. If a 401(k) account has a total return of 8% for a year in which funds have been borrowed, the cost on that loan is effectively 8%. [That’s] an expensive loan.”

3. You May Contribute Less to the Fund While You Have the Loan

Some plans have a provision that prohibits you from making additional contributions until the loan balance is repaid. Even if your plan doesn’t stipulate this, you may be unable to afford to make contributions while you’re repaying the loan.

Such a freeze will deprive the account of money that should, in the long run, multiply many times in value through compound earnings. Most calculations suggest that your money will double, on average, every seven years while invested. The gap will be wider still if your skipped contributions lead to missed matches by your employer.

4. If Your Financial Situation Deteriorates, You Could Lose Even More Money

The drawbacks above assume you’ll be able to make the scheduled payments to your fund on time and without undue hardship. In fact, the vast majority—88.9%—are able to do just that, according to Bank of America’s Participant Pulse survey of retirement accounts.

However, should you be unable to repay the loan, the financial implications go from bad to worse. If you default on a 401(k) loan, the loan is converted to a withdrawal. Unless you qualify for a hardship withdrawal, the outstanding loan balance will be subject, at minimum, to taxation at your current income tax rate. If you’re under the age of 59½, you’ll also be assessed a 10% early withdrawal penalty on the amount you’ve borrowed.

5. A Job Loss or Departure Accelerates the Repayment Clock

Many plans require you to pay off any loans in full if you quit or lose your job. If you can’t pay it off within the period specified by the plan, your remaining balance may be used to pay off the loan. Also, the loan will be considered a distribution, and you’ll be hit with income taxes and a 10% early distribution penalty if you’re not 59½.

You may be able to roll the offset amount (the amount you’ve borrowed) into an eligible plan to avoid taxes, but this ability depends on whether the new plan allows it and whether you’ve taken all other appropriate actions.

In any case, the presence of a loan you’d have trouble repaying early could handcuff you to your current job or force you to pass up a better opportunity.

6. You’ll Lose a Financial Cushion

Your 401(k) balance may one day represent the last possible weapon to stave off financial disaster. If you exercise the nuclear option and press the button, that money won’t be there if a true emergency strikes.

7. A Loan May Encourage Poor Financial Practices

Borrowing from your future should encourage you to examine how you got to this point in your finances. The need to borrow from savings can be a red flag, a warning that you are living beyond your means and need to consider changes to your lifestyle.

When you can’t find an alternate way to fund your lifestyle (other than by taking money from your future), it’s time to re-evaluate your spending habits. That includes creating, or adjusting, your budget and making an orderly plan to clear any accumulated debts.

8. You’re Unlikely to Repay the Loan Quickly

Advisers warn against having high confidence that you’ll repay a loan from your 401(k) in a timely way—that is, in fewer than the five years you’re usually allowed to take out the funds. “People think that they will make up a withdrawal later, but it pretty much never happens,” says Chris Chen, CFP, wealth strategist, Insight Financial Strategists LLC, Newton, Mass.

Note

One exception to the five-year rule is if the loan is for your primary residence. And, some plans include an exception that allows the account owner to borrow up to $10,000 even if 50% of the vested funds equals less than $10,000.

Why Shouldn’t You Take a 401(k) Loan?

Generally, you’re robbing your future self and tying yourself to your current job. You risk a hefty tax bill if you don’t repay the loan within the specified time. A 401(k) loan should be an option only in a true emergency.

Is It Worth Taking a 401(k) Loan to Pay Off a Debt?

Many people have used their 401(k)s to pay off a debt, but whether you should depends on the size of the debt, your financial circumstances, whether you anticipate keeping your job, and many other factors. It might be a better option to consolidate your debts under one instrument and work on paying them down.

Why Do Some Employers Not Allow 401(k) Loans?

Some employers might not want the additional administrative workload loans bring, or they might believe they are looking out for their employees’ future.

The Bottom Line

Taking a loan from your 401(k) is not a good idea, short of a dire emergency. But that doesn’t stop some account holders. According to data from the Transamerica Center for Retirement Studies, 33% of plan holders withdraw money outright from their account, often using hardship provisions.

Still, borrowing from your 401(k), most financial advisors say, goes against almost every time-tested principle of long-term investing.

Fact checked by Kirsten Rohrs Schmitt
Reviewed by David Kindness

Selling a small business is a complex venture that can succeed or fail depending on the reason for the sale, its timing, the strength of your business, and its structure.

The seven key steps below can help you build a solid plan, find a buyer, and negotiate a transaction. If you’re successful, the final step is to manage the profits from the sale of your business.

Key Takeaways

• Be prepared to communicate the reasons you’re selling and the reasons a buyer should take on the business.
• Prepare the business for sale, making any improvements needed to present it at its best.
• Get a business valuation and, if necessary, hire a broker to handle the sale.
• Prepare the financial and operational documents potential buyers will want to see.
• Launch the search for a buyer.
• Once you’ve got your profits, work with a financial professional to decide the best ways to invest the proceeds.

1. Identify Your Reasons for Selling

You’ve decided to sell your business. Why? That’s one of the first questions a potential buyer will ask, and you must be able to articulate a reason.

Owners commonly sell their businesses for any of the following reasons:

• Retirement
• A partnership dispute
• Illness or death
• Exhaustion
• Boredom

If you’re selling the business when it is not profitable, it will be harder to attract buyers. You must consider whether your business can attract buyers, its state of readiness, and your timing.

What Makes Your Business an Attractive Opportunity?

Your reason for selling presumably clarifies that you’re not trying to escape a bad situation. Potential buyers will also want to know why they should be interested. Various attributes can make your business attractive to buyers, including:

• Increasing profits
• Consistent income figures
• Appealing profit margins
• A strong customer base
• A major contract that lasts for several more years

2. Prepare the Business for Sale

Few buyers will be interested in a business that is in shambles.

Once you’ve decided to sell, prepare for the sale as early as possible, preferably a year or two ahead of time. The preparation will help you improve your financial records, business structure, and customer base to make the business more profitable and a transaction more attractive.

These improvements will also ease the transition for the buyer and keep the business running smoothly. 

Selling a business involves legwork, discussions, and, often, drawn-out negotiations. Virtual meetings on Zoom or Google Meet can help you keep in contact with potential buyers.

3. Get a Business Valuation

Determine the value of your business to make sure you don’t price it too high or too low. You can do this by hiring a business appraiser to provide you with a valuation.

An appraiser will draw up a detailed explanation of the business’ worth. The appraisal document can guide your listing price and give it credibility.

You can also back up your listing price using some key metrics. Consider evaluating your company by determining its market capitalization, earnings multipliers, or book value.

4. Hire a Broker

Selling the business yourself saves you the cost of a broker’s commission. It’s the common sense route when the sale is to a trusted family member or current employee.

If it’s not, a broker can free up time for you to keep the business running and get the highest price. Brokers need to maximize their commissions.

Discuss expectations and marketing approaches with the broker and maintain constant communication about their progress or lack of it. 

Important

If you need a relatively quick turnaround, hire a business broker to speed up the proceedings and keep things on track.

5. Prepare the Necessary Documents

Financial

Gather your financial statements detailing assets, liabilities, and income as well as tax returns dating back three to four years. Review them with an accountant. Dig up any other relevant paperwork such as your current lease.

You’ll also need to develop a list of equipment that’s being sold with the business. Create a list of contacts related to sales transactions and supplies.

Make copies of these documents to distribute to potential buyers.

Operational

Your information packet should provide a summary describing how the business is conducted, an up-to-date operating manual, and information about employees and their roles.

You’ll also want to make sure the business is presentable. Any areas of the business or equipment that are broken or run down should be fixed or replaced before meeting solid prospects. 

6. Launch Your Search for a Buyer

A business sale can take anywhere from a few months to years. This includes the time you take to prepare for the sale all the way to the closing, according to SCORE, a nonprofit association for entrepreneurs and partners of the Small Business Administration (SBA).

Finding the right buyer can be a challenge. Plan for ongoing advertising to attract more potential buyers. Once you have some parties interested in your business, here’s how to keep the process moving along:

• Have two to three potential buyers in the pipeline just in case the initial deal falters.
• Stay in contact with potential buyers.
• Find out whether the potential buyer pre-qualifies for financing before giving out information about your business.
• If you plan to finance the sale, work out the details with an accountant or lawyer so you can reach an agreement with the buyer.
• Allow some room to negotiate, but stand firm on a price that is reasonable and reflects the company’s future worth.
• Put all agreements in writing. Potential buyers should sign a confidentiality agreement to protect your information.
• Try to get the signed purchase agreement into escrow.

You may encounter the following documents after the sale:

• The bill of sale, which transfers the business assets to the buyer
• An assignment of a lease
• A security agreement, which has a seller retain a lien on the business

Note

A business broker may charge about 10% of the sale price for businesses under $1 million. While that may seem steep, bear in mind that the broker may be able to negotiate a better deal than you can get on your own.

7. Handle the Profits

Now that you’ve sold your business, it’s time to figure out what to do with the profit that you’ve made. The first instinct may be to go on a spending spree, but that probably isn’t the best decision.

Here are a few things you may want to consider:

• Take some time—at least a few months—before spending the profits from the sale.
• Create a plan outlining your financial goals; focus on long-term benefits, such as getting out of debt and saving for retirement.
• Speak with a financial professional to determine how you should invest the money so that you can meet your short- and long-term goals.
• Consult with a tax professional to learn about the tax consequences associated with the sale and your sudden wealth.

How Do I Sell a Franchise Business?

You’ll need to work in conjunction with your franchiser, as they have some say over the sale. The new buyer will need to sign a franchise agreement with the franchiser.

A variety of fees and rules are associated with owning or selling a franchise. These can be found in the FTC’s compliance guide. 

Can I Sell a Small Business Without a Broker?

Many people would like to avoid the average 10% commission that a business broker can charge. But the expense may be negligible compared to the risks of selling on your own.

If you decide to go it alone, prioritize selling to a buyer you know, make use of the advice of experienced, retired owners and executives, and use all the internet resources available, such as those offered by the Small Business Administration, or the National Federation of Independent Business (NFIB).

How Can I Sell My Share of a Business?

Selling your share of a business to your partners is a common ownership transfer method, particularly for small businesses. Have an agreement in place with your partners ahead of the sale to help smooth the transition. This can increase the likelihood that all parties involved benefit.

What Does it Cost to Sell a Small Business?

If you go through a business broker and your business is valued at under $1 million, the broker’s commission is about 10% to 12%. Other fees that can crop up include attorney fees, marketing fees, and the costs of making any cosmetic or more substantial upgrades to make your business more attractive to buyers. Other fees may come up if you are transferring a lease to the new owner of your business.

The Bottom Line

Selling a business is time-consuming and, for many people, an emotional venture. A solid reason for selling or the existence of a hot market can ease the burden. So can the help of professionals, such as a business broker.

You might be able to obtain free counseling from organizations such as SCORE. Your local Chamber of Commerce may offer relevant seminars and workshops.

When all is said and done, the large sum of money in your bank account and your newfound free time can make the potentially grueling process worthwhile.

Contributions to a traditional 401(k), but not a Roth 401(k), reduce your taxable income

Reviewed by Eric Estevez
Fact checked by Suzanne Kvilhaug

Contributions to traditional and Roth 401(k)s are not tax-deductible. Your employer will have already lowered your taxable income by the amount of your contributions to a traditional 401(k), and Roth 401(k) contributions are made after you pay taxes.

Key Takeaways

• Contributions to traditional 401(k)s or other qualified retirement plans are made with pre-tax dollars and aren’t included in your taxable income.
• If you have a Roth 401(k), contributions are made with post-tax dollars and cannot be deducted.
• Your employer will report your taxable income as part of your W-2; there is no need to track or manually deduct your 401(k) contribution from your annual wages.
• In 2025, the 401(k) maximum individual contribution amount allowable is $23,500 (up from $23,000 in 2024). There is also an allowable $7,500 catch-up contribution for individuals 50 years or older.

How 401(k) Contributions Lower Taxes

Because contributions to traditional 401(k) plans shrink your taxable income, your taxes for the year should be reduced by the contributed amount multiplied by your marginal tax rate, as per your tax bracket. 

The higher your income, and thus your tax bracket, the more significant the tax savings from contributing to a plan. For example, take a single earner who makes $208,000 a year and also contributes $5,000 annually to a plan. They were in the 32% tax bracket for 2024. Therefore, their tax saving from the contribution is $5,000 multiplied by 32%, or $1,600.

Note, however, that if you choose the Roth 401(k) option, your contributions won’t reduce your taxable income. Instead, your contributions are made with post-tax income. However, during retirement, as long as you’ve had the account for five years, distributions aren’t taxed.

There are limits to how much you can contribute to such a plan. For 2025, the annual limit is $23,500 (up from $23,000 in 2024). Those age 50 or older can make an additional catch-up contribution of $7,500.

Important

You may find you’ll pay fewer taxes on your retirement funds when it comes time to make withdrawals because working years are often the highest earning years.

Distributions From a 401(k)

Of course, you don’t escape paying taxes forever on your traditional 401(k) contributions—only until you withdraw them from the plan. When you do so, you must pay income tax on the withdrawals at your applicable tax rate at that time. If you withdraw funds when you’re younger than 59½ and don’t qualify for a hardship withdrawal, you’ll likely pay an early withdrawal penalty of 10% of the amount as well.

However, chances are you’ll pay less to withdraw funds from the plan in retirement than you did when you made the contributions. That’s because your income (and tax rate) are likely to have dropped by then, compared to your working years.

Tax Considerations

Any investment income the contributions may have earned in the years between the contribution and its distribution can also be withdrawn. Earnings and contributions are taxed at the same income tax rate.

You might consider maximizing your contributions to a retirement account as a better investment strategy than directing money to a regular brokerage account. Why? Skipping paying tax on your account contributions allows you to have more capital working on your behalf during the years leading up to retirement.

For example, a person in the 22% tax bracket with 20 years until they retire might either contribute a pre-tax $400 a month to a 401(k) plan or divert the same amount of earnings to a brokerage account. The latter option would yield a monthly contribution of $312 after paying a 22% tax.

The extra $88 per month from the 401(k) option not only increases contributions but further expands the nest egg by having a larger balance on which earnings can compound over decades. The difference between the scenarios could be significant over the long run.

Other Ways to Reduce Taxable Income

Although contributing to tax-advantaged retirement accounts is one of the best ways to reduce your taxable income, you also have other options.

Health Savings Account (HSA)

Health savings accounts (HSAs) are tax-advantaged accounts that are allowed for individuals with high-deductible health plans (HDHPs). HSAs are meant to be used for medical expenses, such as dental and prescription drugs. Contributions are made to the account tax-free. Earnings and distributions that are used for qualified medical expenses are also tax-free.

Flexible Spending Account (FSA)

Flexible spending accounts (FSAs) are another tax-advantaged account. Employers establish these accounts for employees. Contributions are made tax-free. Account withdrawals, when used for medical and dental services, are also tax-free.

Other Retirement Accounts

Other retirement vehicles may also be deductible. For example, contributions to traditional individual retirement accounts (IRAs) can also be deducted from your individual federal income tax amount. Similar to a 401(k), Roth IRAs are not deductible but instead have longer-term tax benefits.

Can I Claim 401(k) Contributions on My Taxes?

You can’t claim your contributions because they are deducted from your income by your employer, so you are not taxed on them.

How Much Does Contributing to a 401(k) Reduce Taxes?

It depends on how much you contribute and your tax bracket. The money you contribute is not counted towards your income, so it automatically reduces your tax burden by the amount you contribute.

Do I Get a Tax Credit for 401(k) Contributions?

You might get a tax credit (called a saver’s credit) on your contributions if you meet certain requirements, such as being 18 or older, not being claimed on another’s return as a dependent, and not being a student.

The Bottom Line

Traditional 401(k) contributions are automatically deducted from your taxable income. You’ll have to pay taxes on the rest of your earnings, but you’ll receive immediate, upfront tax benefits. On the other hand, Roth 401(k) contributions are not deductible but instead provide long-term tax benefits.

Reviewed by Robert C. Kelly
Fact checked by David Rubin

Four key economic concepts consumers should understand are scarcity, supply and demand, costs and benefits, and incentives. These economic forces influence our purchasing decisions and impact every moment of our lives.

Key Takeaways

• Four key economic concepts—scarcity, supply and demand, costs and benefits, and incentives—explain many human decisions.
• Scarcity is a fundamental economic problem in a world with limited resources.
• Scarcity drives supply and demand, which in turn drive prices.
• Economic incentives drive changes in producer and consumer behaviors.

Scarcity

Everyone has an understanding of scarcity, whether they are aware of it or not, because everyone has experienced the effects of scarcity. Scarcity explains a basic economic problem: the world has limited resources and seemingly unlimited needs. This reality forces people to make decisions about allocating resources in the most efficient way possible so that as many of their highest priorities as possible are met.

For example, there is only so much wheat grown every year. Some people want bread, and some would prefer beer. Only so much of a given good can be made because of the scarcity of wheat. How do we decide how much wheat should be made for bread and beer? Generally, decisions are made using measured supply, expected demand, and past consumption data.

Note

Scarcity also drives trade, because a company, country, or person might have resources another doesn’t.

Supply and Demand

Market systems are generally driven by supply and demand. Regarding beer, if reports indicate people want to buy more beer this year than last year, there will likely be more demand than supply. If economic theory holds true and supply remains the same, prices would likely increase. Producers would need to ramp up production to meet the estimated demand.

Once supply meets or exceeds demand, prices would drop (as long as all other economic factors remained the same).

Although this is an overly simplified example, the relationship between supply and demand helps to explain why prices can rise and fall. The toilet paper shortage during the COVID-19 pandemic is an excellent example of supply, demand, and prices—toilet paper prices rose primarily due to consumer panic-buying.

Costs and Benefits

The concept of costs and benefits is related to the theory of rational choice (and rational expectations) that economics is based on. When economists say that people behave rationally, they mean that people try to maximize the ratio of the benefits to the costs in their purchasing decisions.

If demand for beer is high, breweries will hire more employees to make more beer, but only if the price of beer and the amount of beer they are selling justify the additional costs of their salary and the materials needed to brew more beer. Similarly, the consumer will buy the best beer they can afford to purchase, but not, perhaps, the best-tasting beer in the store.

Although economics assumes that people are generally rational, many of the decisions that humans make are actually very emotional and do not maximize our own benefit. For example, the field of advertising preys on the tendency of humans to act non-rationally. Commercials try to activate the emotional centers of our brain and fool us into overestimating the benefits of a given item.

Everything Is in the Incentives

If you’re a parent, boss, teacher, or anyone with the responsibility of supervision, you’ve probably been in the situation of offering an incentive to increase the likelihood of a particular outcome.

Economic incentives occur when producers are encouraged to supply the goods and services consumers want. When consumer demand for a good increases, the market price of the good rises (ceteris paribus), and producers are incentivized to produce more of the good because they can receive a higher price (until a certain point, where they experience diminishing returns).

On the other hand, when the increasing scarcity of raw materials or inputs for a given good drives costs up, producers might cut back on supply. The price they charge for the good would rise because demand remained the same, and consumers are incentivized to reduce consumption of that good.

Economics Is the Dismal Science

Scarcity underpins all of economics, which is one interpretation of why economics is sometimes called the dismal science. Humans are constantly making choices that are determined by their costs and benefits. On a personal level, scarcity means we must make choices based on the incentives we are given. On a market level, the impact of millions of people making choices manipulates the forces of supply and demand.

What Are the Economic Concepts of Consumers?

Consumer theory attempts to explain how people choose to spend their money based on how much they can spend and the prices of goods and services.

What Are Economic Factors for Consumers?

There are many economic factors that affect consumers, such as employment, wages, prices, and inflation.

What Are the 4 Basic Economic Activities for Consumers?

The four basic economic activities are production, distribution, consumption, and resource management.

The Bottom Line

Four economic concepts that are important to know are the relationship between scarcity, supply and demand, cost and benefit, and economic incentives. Scarcity drives supply and demand, which drive prices, which influence the decisions consumers make based on the costs and benefits of purchasing a good.

Reviewed by Erika Rasure
Fact checked by Betsy Petrick

Target Corporation’s Circle Card program is a leading loyalty program among retailers in the United States. The program is accessible to everyone and is integrated seamlessly into customers’ payment methods.

With lower barriers to entry than other loyalty programs, Target tries to build a relationship with its customers and can personalize the promotions and advertising offered to the consumer with this card.

Target’s Circle Card comes in three forms: a Mastercard credit card, a debit card, and a reloadable card. The debit card is linked to customers’ existing checking accounts. The reloadable card can be spent not only at Target, but anywhere that Visa is accepted. The Mastercard credit card can be used anywhere that accepts Mastercard, and has additional rewards on some purchases outside of Target.

Key Takeaways

• All Target cards can be used at Target stores (brick-and-mortar and online).
• The Target Circle Card comes with 5% off purchases and free two-day shipping.
• The Target debit card is linked to your checking account.
• If you regularly shop at Target, the perks of a Circle Card may be worth the high rates.

Features of the Target Circle Card

All Target cards offer 5% off purchases every day at in-store and online locations and free two-day shipping on most items. Users also have an extended return facility giving them 30 extra days to return products to Target or Target.com. However, RedCard extended returns do not apply to the following:

• Target Optical purchases
• Non-returnable items
• Contract mobile phones
• Online purchases of Supplemental Nutrition Assistance Program (SNAP) eligible
  items using both Electronic Benefits Transfer (EBT) and a RedCard for
  payment.

The Target RedCard has a late payment fee of up to $41 and a return payment fee of up to $30. Customers looking to combine the benefits of the RedCard with a more traditional credit card can sign up for a Mastercard Incorporated RedCard through TD Bank, USA.

What’s in It for Target?

Most companies use loyalty programs to collect customer data in addition to building loyalty among patrons. Target’s data collection system is thorough.

Every purchase, email, or phone call is tracked, and data is applied to algorithms for marketing and planning purposes. By collecting data, the company can personalize deals and discounts for its shoppers.

Important

You should pay off your credit card balance every month to avoid high interest charges.

How Can I Get a Target RedCard?

You can get a Target RedCard by applying online for one. The RedCard credit application is on the Target.com website. You must verify your employment and income and review the terms.

You may be approved to shop online instantly, or you may have to wait for seven to 10 days to get your card, depending on whether Target approves you automatically.

The website isn’t 100% clear on how long it may take to be approved for either RedCard if you are not automatically approved. If you are not approved it may be due to red flags on your credit report or a low credit score.

Like any credit card, you have to meet certain requirements to be approved for a new credit card. If you apply and are not instantly approved, you may get a notice that your file is “in review.”

Is the Target RedCard a Credit Card?

Yes. Target offers a RedCard credit card issued by TD Bank USA. The RedCard brand also has two other options: an in-store credit card and a debit card.

Where Can I Use My Target RedCard?

You can use a Target RedCard Mastercard credit card anywhere that takes Mastercard, and you can use your Target RedCard charge card or Target debit card at Target stores or on Target.com.

How Do I Pay My Target RedCard?

You can pay your Target RedCard charge card online. In the case of the Target RedCard debit card, the money comes immediately out of your checking account when you use it.

How Long Does It Take for the Target RedCard to Post to My Account?

Your Target RedCard may be added immediately to your account at Target if you are automatically approved.

How Do I Close My Target RedCard?

You can call Target’s toll-free number or close it via mail.

The Bottom Line

Target’s RedCard can be used for both in-store and online ordering for user convenience. Once a customer is signed up, Target begins to collect data from that individual’s profile. The program is appealing to shoppers because it provides generous discounts and community donations.

However, users should be aware of the high interest rate and the late payment fees, which could cause debt to mount if the balance is not paid off each month.