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Generate Additional Income

We all could use some extra cash. If you're looking for ways to create additional revenue streams, read through these articles to see how you might create a strategy that helps you achieve your financial goals.

Generate Additional Income

You don't have to do anything and yet you get a large check in the mail. Sounds like a great deal doesn't it? In fact, it may sound so great that you do it every year; you have more taxes withheld from your paycheck than you need to, resulting in a refund check for the amount you overpaid. You may do it because:

  • It’s a forced savings account because you can’t access the money
  • You use the money to pay off debts accumulated during the year
  • You use the money to treat yourself for a year of hard work

On top of that, it just feels good to get a big check in the mail – even though it is actually your own money. But this endorphin rush often masks a sad truth: getting a large refund means missing opportunities to move closer to your goals and better yourself financially throughout the year.

If you put $200 dollars per month on a credit card with 20% interest and then made the minimum payments each month until getting a $2,400 tax refund, you would pay $2,725 over the course of a year to get $2,400 worth of goods and services. If you had instead gotten no tax return and received more money in take-home pay each month, you would have an extra $325 to put toward an emergency fund, a down payment on a new home, a treat, or any other financial goal you may have.

Using tax overpayment as a savings system may help you set aside money for a later date, but this is money you cannot access even if you need it for an emergency since the federal government prevents withdrawing it early. If the idea behind tax overpayment is to treat yourself, you would reap even more of a reward by opening up a savings account or a CD so the money can gain interest and you’ll have even more money to put toward your goal.

Since we know overpaying taxes is not the best way to go, how do you figure out what you should have taken out of each paycheck? After all, having too much taken out isn’t the only potential problem. If you underpay, you could end up with a big unexpected tax bill with penalties tacked on.

How much should you be withholding?

The more allowances you claim, the less money from your paycheck goes to taxes, and vice versa. If you get a large tax return, you should consider increasing your allowances. You can use the IRS’s withholding calculator to figure out the right number of allowances for you.

How do you adjust your allowances?

You can find the W-4 form on the IRS’s website. Once you have completed the form, give it to your employer or your HR department for processing. To find out your state tax withholdings rules and regulations, contact your state’s tax agency.

Is this a “fix it and forget it” kind of thing?

Not necessarily. If you have a significant life change like getting a raise, changing your marital status, or buying a house, you will want to visit the IRS’s website again to check any effect to your tax liability. A tax professional can help you with any specific questions you may have on your tax situation.

The bottom line

You may have conditioned yourself to look forward to the excitement of a large tax refund check in the mail each spring. However, with more money from each paycheck going into interest-bearing accounts, you actually have the ability to reach your goals faster by not getting that tax refund. Combining your extra money each month with a sound budget will have you moving toward your financial dreams in a much more effective way.

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Many 401(k) and 403 (b) participants have discovered a "hidden" benefit to their tax deferred retirement account: you can borrow from it. However, while there are some great advantages to doing so, exercise prudence and understand the subject carefully - there are also some potentially serious disadvantages.

The Advantages

  • You have access to potentially large quantities of cash. Most plans offer loans against contributions of up to half of your vested balance (with a $50,000 limit).
  • Interest rates for loan plans can be very competitive. They are typically the prime rate plus one or two percentage points - much lower than the rates for the average credit card or unsecured loan.
  • There are no restrictions for how you spend the money. It can be used to assist in everything from a financial emergency to a down payment on a home.
  • Obtaining a plan loan is convenient and easy - some requiring only a phone call, others filling out a short loan form.
  • There is no credit requirement for the loan.
  • The typical loan repayment term of five years fits most consumers' needs.
  • If you use the plan loan to buy a primary residence, the loan may be secured with the home. Under that circumstance, the interest would be tax-deductible.

The Disadvantages

  • Under most plans, if you leave your job (whether you are laid off, fired, or if you quit), the remaining balance of the loan will be due immediately. That may be the time when you can least afford to pay it back.
  • If you are unable to repay the loan, the IRS will consider it a "deemed distribution." You will be taxed on the earnings, and if you are younger than age 59 ½, you will also be penalized 10% for an early withdrawal.
  • Obtaining a plan loan can be too easy - if you have spending issues, they may remain unresolved and your retirement savings jeopardized.
  • The low interest rate for borrowing against your plan may be misleading. If you borrow money from your plan at 6.75% interest, but the money you pulled out of the account had been earning 15%, then 15% is the real cost of your loan.
  • You will lose all future compounding interest on the lost earnings for the amount you have borrowed.
  • You could be hit with double taxation. The interest you pay yourself on the loan comes from money that has already been taxed. But the assets in your plan count as untaxed earnings. That means you will pay taxes on that money again in retirement when you make withdrawals from the plan.
  • There may be fees for obtaining the plan loan - a one-time fee, maintenance fee, or a combination of the two.

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Withdrawing money from a retirement plan before retirement is something that many people consider at some point. The circumstances in which it is allowed are limited. And even if you can do it, it may not be a good idea. Few people want to work until the day they die, and saving enough for retirement takes time and dedication. When you withdraw early, you are not just losing the amount you take out, but you are also losing all of the earnings it would have brought you over time. However, you may be in a position where you feel that you have no other way to avert financial disaster. The information below discussed the rules on withdrawing from different types of retirement funds.


Once you reach 59½ , you can take withdrawals from these accounts penalty-free, regardless of whether you are working (although plan administrators can elect to not allow current employees to take withdrawals). You must pay regular income taxes on withdrawals.

Penalty-free withdrawals before 59½ are allowed under the following circumstances:

  • If you are “separated from service” (through permanent layoff, termination, quitting, or retiring) after turning 55 or older
  • If you are separated from service and elect to receive “substantially equal periodic payments” (withdrawals of equal amount based on life expectancy – they must last for at least 5 years or until age 59½, whichever is later)
  • If you are permanently disabled
  • If you die and the funds are distributed to your beneficiary
  • If you have unreimbursed medical expenses that exceed 7.5% of your adjusted gross income
  • If you are required by a court order to hand over money from the account to an ex-spouse or dependent

Hardship withdrawals are permitted in limited situations of immediate and severe financial need if you cannot obtain the money from elsewhere. A penalty of 10% of the withdrawal amount is assessed. Acceptable expenses the funds can be used for include:

  • Qualified unreimbursed medical expenses for you or your immediate family
  • Qualified higher education expenses for you or your immediate family
  • The purchase of a primary residence
  • Payments necessary to prevent eviction from or foreclosure of your primary residence
  • Qualified repairs of damage to your primary residence
  • Funeral expenses

You can also cash out your retirement plan when you leave your job, regardless of your financial circumstances, but you will have to pay the 10% penalty unless you meet one of the non-penalty conditions.

Note: The above information only describes the rules set by the IRS. Employers are not required to allow their employees to take withdrawals. Contact your plan administrator for the specific terms governing your 401(k) or 403(b).

Traditional Individual Retirement Account (IRA)

Like with 401(k)s and 403(b)s, you can make withdrawals penalty free once you reach 59½. Regular income taxes are assessed on all withdrawals.

A withdrawal before age 59½ is considered an early distribution and subject to a 10% penalty unless the money is used for one of the following:

  • First-time home purchase (up to $10,000)
  • Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income
  • Medical insurance if you are unemployed and received unemployment insurance for at least 12 weeks
  • Qualified higher education costs
  • Satisfaction of a levy by the IRS

Also, a penalty is not assessed if you:

  • Die and the funds are distributed to your beneficiary
  • Are permanently disabled
  • Are receiving distributions in the form of substantially equal periodic payments
  • Are rolling over the funds to another IRA

Roth IRA

No ordinary income taxes or penalty is assessed on qualified distributions. In order for a distribution to be qualified, it must meet two conditions:

  • It is made at least five years after the year in which you first established a Roth IRA. (However, for withdrawals of funds that come from a conversion/rollover of a traditional IRA or employer-sponsored plan to a Roth IRA, it is five years from the conversion, even if you established a Roth IRA before that.)
  • You have a qualifying reason for the distribution: you are at least 59½, permanently disabled, or using the funds to purchase your first home (can take out a maximum of $10,000), or the proceeds are distributed to your beneficiary after your death.

How other withdrawals are treated depends on what you are withdrawing. According to the IRS’s ordering rules, withdrawals first must be taken from your regular contributions, then, if that is exhausted, conversion contributions, then earnings.

Regardless of the circumstance, you do not have to pay income taxes or a penalty on distributions that are a return of your regular contributions.

You do not have to pay income taxes or a penalty on conversion contributions withdrawn after the five-year mark. For withdrawals before then, no regular income taxes are owed, but you have to pay a 10% penalty unless you meet either one of the criteria for a qualifying reason or one of the following exceptions:

  • The funds are used to pay for unreimbursed medical expenses exceeding 7.5% of your gross income
  • The funds are used to pay for medical insurance if you are unemployed and received unemployment insurance for at least 12 weeks
  • The funds are used to pay for higher education costs
  • The distribution is part of a series of substantially equal periodic payments
  • The distribution is due to a levy by the IRS
  • The distribution is a qualified, reservist, disaster recovery assistance, or recovery assistance distribution

Non-qualified withdrawals of earnings are subject to a 10% penalty and regular income taxes unless one of the qualifying reasons or exceptions is met. In this case, the penalty is waived but not the income taxes.

LEAP | Rules for Early Withdrawal From a Retirement Fund

* This publication is only intended to be used for general informational purposes. Consult a tax professional for personal advice.

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Flip through the cable channels these days and you’re bound to see shows about people who have turned a hobby into a business. Whether it’s making cupcakes, being a personal organizer/declutterer, or "picking" antiques, these jobs all became moneymakers after starting as fun activities. While you may not get your own TV show, there’s no reason why you can’t create a financially successful venture out of what you love to do.

Think Expansively

If you are attracted to the idea of turning a passion into a business, think not just of a typical definition of “hobby,” but of all your skills. One way to investigate this is to think of what your friends or family typically ask you for help with that they don’t like to do or don’t know how to do. Or what you like to do that others might find tedious, like party-planning or troubleshooting computer problems. Making a list of these types of strengths can help you identify marketable talents.

Will it Stay Fun?

What you don’t want to do is take an enjoyable activity in your life and turn it into drudgery. This is one reason why it’s important that you:

Don't Quit Your Day Job

There’s nothing wrong with starting out small. By easing into your potential business, you avoid blowing a lot of money early and you give yourself time to assess the viability of your gambit in a measured way.

Find a "Focus Group"

Wondering if there is a market for your wares? Get exposure the old-fashioned way by displaying your offerings in public. For example, if you are a photographer, think about purchasing a booth at a festival or fair to show off your work. Or donate your goods or services as part of a non-profit event. Online marketing is important, but pounding the pavement can help get the word-of-mouth rolling.

Research the Market/Competition

Business school professors talk a lot of "relevant differentiation." Put more simply, you need to figure out what is going to set apart your business. It's very hard to succeed in establishing a personal business these days just by offering the lowest prices, so look for what you can offer customers that others can't.

Wear Your Fun Hat AND Your Business Hat

Even though the activities associated with your enterprise can feel more like a pastime, you need to avoid letting your expenses and time swerve into unproductive efforts. Keep records of your hours, your costs and your sales to judge how to optimize your resources.

Really Reach Out With Your Outreach

One of the huge advantages you have now in starting a business is the dramatic leveling of the playing field that has happened because of the internet. Whether it is through your own web page or via Etsy, Craiglist or Facebook, it is vital to use as many outlets as possible to reach potential customers. One method a lot of hobby-to-business entrepreneurs have enjoyed success with is positioning themselves as an expert in their chosen field. This can be done by authoring how-to articles on sites like or, or by creating a blog about your topic of expertise.

Reputation Matters

In this computer age word gets around fast, good or bad. Set yourself apart by providing exemplary service. If you aren't feeling motivated to provide great customer care, maybe your chosen endeavor isn't meant to be a business.

Know the Tax Consequences

It’s never a good idea to try to "hide" any income you are making. Consult with a tax professional for advice on how to best report your expenses and profits. Also ask about the best strategies for eventually picking a legal entity for your business.

Always Keep Learning and Evolving

The best way to limit your business is to only think short-term. Tastes change, as do ways of doing business. If you are not staying up on the latest trends in your field and looking for ways to capitalize on them, you will eventually fall behind the competition.

The old saying advises to "do what you love and you'll never work another day in your life." While even the most fun careers will sometimes feel like work, creating a business you truly love can help you create your most fulfilling life possible.

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The landscape of earning extra income has changed dramatically over the past decade. Not only are there many more ways to find added money, but a bevy of new ways to make that cash. To take advantage of these opportunities, it helps to start thinking about how the available techniques mesh with your skills and desires.

Start by making a list of your skills and expertise, taking a broad view to include anything that could potentially be useful to others. Many times people find that just by doing the things they enjoy, they inadvertently develop skills that can be turned in moneymakers. For example, if you are good at finding information on the internet, include that. Great at throwing parties? Put that on the list.

If you are struggling to come up with ideas, just make a list of everything you have done with your free time over the last month. Once you have your list completed, start thinking about how each of those things could get you paid. Try a few out and you just might find that you get to earn extra cash by doing something you would have been doing anyway!

To get your creative juices flowing in your quest for a “side gig,” here are some common ways that folks earn a little something extra:

  • Hire out your unique skills on a freelance basis
  • Get tutor jobs
  • House or pet-sit
  • Do some babysitting
  • Pick up seasonal/holiday work
  • Sell items on auction websites
  • Have a yard sale
  • Take on a renter
  • Sell gold jewelry or other gold items
  • Do marketing company surveys or participate in focus groups
  • Take part in research studies at hospitals or universities
  • Have your car wrapped in an advertisement
  • Become a mystery shopper
  • If you speak another language, sign up with a translation service
  • Deliver newspapers or phone books
  • Create a blog on a favorite topic and make money off advertising
  • Recycle scrap metal or take in bottles and cans for refunds
  • Start a dog-walking service
  • Line up odd jobs at Mturk, Gigwalk or in the gigs section at Craigslist
  • Start a business transferring old film, pictures or video in digital formats
  • Become a topic expert at About
  • Rent out parking, storage or “studio” space
  • Use photography skills to sell stock images or offer event or portrait services
  • Sell unused gift cards online
  • Go to Volition for a list of companies that will pay you to perform online tasks for them
  • Sell your crafts at Etsy
  • Inquire at a local temp agency about positions that fit your schedule
  • Make money recycling empty printer ink cartridges for others
  • Become a sales rep for a company that sells cosmetics, vitamins or other products
  • Perform surveys at online sites that pay people to do so
  • Offer a scrapbooking service
  • Perform car washing/maintenance services
  • Become a telephone interviewer for companies that conduct research surveys
  • Host foreign exchange students
  • Sell clothes to a consignment shop
  • Provide gardening services or sell fruits or vegetables from your own garden
  • Offer up your large truck or van as a rental for moving or hauling
  • Supply personal tech support for those learning modern technologies
  • Use the equipment or tools you already own to provide services like snow blowing, painting, power washing or garden tilling

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