Mortgage rates may be declining, which puts new homebuyers in a better position than just a year ago (tinyurl.com/5ykwr6cx).

The 30-year fixed-interest rate mortgage hit a high of 7.79% in late October 2023; now, we're seeing this type of mortgage at an average of 6.38% (forecast for the fourth quarter of 2024).

If you bought a home last year, it's probably too soon to think about refinancing, but have you considered the benefit of making extra payments to lower your interest amount and shorten the term of your loan?

The good news is that mortgage amortization calculators are available online, so you can test making extra payments to see the benefits that can result.

Thanks to the mathematics of compounding, you don't have to make big sacrifices to make a significant impact on your debt.

Here is an example, using an online mortgage amortization calculator (in this case, I'm using one found at calculator.net -- tinyurl.com/2a6ec225).

Say you have a 30-year fixed-interest mortgage at 5.5% with a balance of $250,000. Your regular payments would be $1,419.47. In 30 years (Oct. 1, 2054), you will have made 360 payments of $1,419.47 for a total of $511,010. Of that amount, you would have repaid the $250,000 loan and paid the bank interest of $261,010.

What if you added just $100 extra to that monthly mortgage payment each month, making it $1,519.47? You would pay off your $250,000 debt four years and five months earlier, saving yourself $44,877 in interest payments.

Of course, the more you add as an extra payment, the bigger your savings.

If you were able to make an extra payment of $500 a month ($1,419.47 plus $500), you would save 13 years and five months of payments and $129,580 in interest payments. Your total interest payments would be reduced from $261,010 to $131,430.

Another alternative is to make occasional payments. Say you receive an annual bonus check each January. For the next three years, each January, you pay an extra $10,000 to the bank. That cuts approximately $90,000 off your interest payments and saves you seven years off your loan, so that your loan would be fully paid by October 2047, using the Extra Payments Calculator provided by Freddie Mac (tinyurl.com/3h477rxa).

But, if you wait to use those $10,000 bonus payments until January 2034, 2035 and 2036, your savings will be about one-half less -- only $48,860, saving you four years and seven months instead of seven years in the earlier example, illustrating the time value of money.

You will probably find a good prepayment calculator at your bank's website. If not, you can call your bank to ask them to illustrate some prepayment options for you considering your particular loan.

Worth considering? Absolutely. Lowering your personal debt is the name of the game in today's financial marketplace. Making small sacrifices today can reap huge savings over the long term.

Who shouldn't make extra payments? Someone with high-interest-bearing consumer debt. If you are carrying credit card debt at high interest rates, pay that off first. Then tackle your mortgage.

Who else? If by chance you are not contributing to your 401(k) plan at work even though it has a match (I hope that's not you), it's better to put extra cash at work there first. If you think you don't have extra cash for your 401(k), but you get a tax refund check from Uncle Sam every year, send me an email at readers@juliejason.com. I'll show you how to claim that extra money (your match) without reducing your take-home pay.

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There is a big change looming for the federal estate tax exemption after 2025 unless new legislation emerges -- a topic we discussed in this column in 2022. We are two years closer, and the time to plan (and potentially act) is now if you are a high-net-worth individual. What we're talking about here affects people who are in the lofty reaches of wealth, affecting likely only 1% of the population.

For deaths occurring in 2024, estates worth less than $13.6 million pass to heirs free of federal estate taxes. Estates worth more are taxable.

That exemption amount will drop dramatically in 2026, but there may be some ways to avoid or lessen the impact.

First, some background: The Tax Cuts and Jobs Act (TCJA) of 2017 brought a large increase in the estate exclusion amount -- from $5.49 million per person in tax year 2017 to $11.18 million in tax year 2018 (tinyurl.com/4h5yu88y). Yearly inflation adjustments have increased the exemption amount to the current 2024 level of $13.61 million. As of this writing, the exclusion amount for 2025 has not been announced.

However, the TCJA was not designed to be permanent. In 2026, the exclusion amount "is due to revert to its pre-2018 level," quoting the IRS Estate and Gift Tax FAQs (tinyurl.com/yc4ahmva).

The inflation-adjusted exemption for 2026 will, "barring action by Congress ... revert to approximately $7 million per individual, adjusted for inflation," according to the Northern Trust Institute report "Are You Prepared for Sunsetting Estate Tax Exemptions?" (tinyurl.com/49tskp8j). The Northern Trust Institute is a research center.

In other words, an estate that is fully exempt from federal estate taxes in 2025 can be subject to federal estate taxes in 2026. If you are in that situation (an estate worth $7 million or more), it's time to do some serious planning to see if there is a way to take advantage of the current exemption of over $13 million before it disappears.

What sort of planning? That usually calls for wealth transfer (gifting) considerations to reduce the size of the estate.

More background: The federal gift tax exemption has a relationship with the federal estate tax exclusion.

"The federal gift tax exemption is unified with the federal estate tax exemption, meaning that ... individual[s] can use part of lifetime gift tax exemption to make taxable gifts during their lifetime and the remaining portion to shelter their estate from federal estate tax after they pass away," according to the law firm Husch Blackwell LLP in "Understanding the 2026 Changes to the Estate, Gift, and Generation-Skipping Tax Exemptions" (tinyurl.com/u2sv3w76). "Whenever a portion of the federal gift tax exemption is used, the amount must be reported to the IRS on a Form 709 (Gift Tax Return) the following year."

A natural question is whether wealth transfer in advance of 2026 will cause you to lose the benefit of current exclusion amounts if the threshold decreases after 2025. The answer is no.

According to the IRS Estate and Gift Tax FAQs: "[P]eople planning to make large gifts between 2018 and 2025 can do so without being concerned that they will lose the tax benefit of the higher exclusion level once it decreases."

If you are examining your estate plan, what should you be considering with 2026 not that far away?

For starters, don't wait. Wealth transfer planning takes time and attention from your estate planning lawyer, working together with your money manager and accountant. It makes sense to begin soon to be ahead of the actual change in the law that takes effect in 2026.

Second, be prepared. If you are a high-net-worth individual, with 2026 just around the bend, have your money manager prepare you for meeting with your attorney. The attorney should already have your trusts and estate planning documents and knowledge of your family structure. Your money manager should prepare separate net-worth statements for you and your spouse, a list of your holdings and titling of assets, cash flow assumptions to plan for current and projected living expenses and a history of charitable gifting. That will save you and your lawyer some time and effort and open up planning opportunities.

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Last week's column drew a comment from a 401(k) millionaire, having started his 401(k) participation right away -- "from day one."

He offered some advice to those who aren't convinced about the benefits of impactful participation: "Sacrifice if necessary but just do it. The future passes at warp speed, and before you know it, retirement ... is upon you." Thank you, J.H. This is good advice indeed.

With that advice in mind, let's look at mistakes that can keep you from achieving millionaire status, starting with the biggest mistake we touched on last week.

Most 401(k)s do provide matching contributions. If your plan is in the minority, use these data points from Plan Sponsor Council of America's 66th annual survey to ask for a change. The survey of 687 plans confirmed that only 20.6% of plans did NOT offer matching contributions. Instead, 13.8% offered non-matching contributions, and 6.8% offered no contributions of any type (tinyurl.com/yhucastw).

Not getting your full share of the company match is Mistake No. 1. Say your 401(k) is set up to match your contribution dollar for dollar up to 6% of compensation, but you are only contributing enough to trigger a 1% match. Explore your reasons. Sometimes, it's just something you haven't thought of checking on after you signed up for the 401(k). Get your contribution up to 6%.

Mistake No. 2: Cashing out of your 401(k) when you change jobs.

The U.S. Treasury would love for you to take every penny out of your 401(k) when you change jobs for one very good reason: more tax revenue. It's surprising but true that some 401(k) participants who cash out are not aware that withdrawals are taxed as income. Not only do you pay taxes on the withdrawal, but you may also pay a penalty for early withdrawals (before age 55 for a 401(k)).

What should you do instead of cashing out? Generally, you can leave the 401(k) with your old employer, move it to your new employer's plan (if transfers are permitted) or set up a rollover IRA working with your financial adviser. If you don't have an adviser, try your local bank or a national firm such as Vanguard or Fidelity. (I have no connection with either firm.)

Mistake No. 3: Borrowing from the 401(k) to make consumer purchases.

This is a biggie. Just about every 401(k) plan has a loan feature (82.9%, according to the Plan Sponsor Council of America survey).

While loan provisions may be a blessing in the case of emergencies, they should not be used for consumer purchases. "Should you borrow or take an early distribution from 401(k)?" an article by Merrill, discusses the considerations and risks involved (tinyurl.com/ytdm44dd).

Mistake No. 4: Defaulting on a loan.

If you do have to take out a loan, you need to know about timing, repayment and default.

Timing: According to an IRS resource (tinyurl.com/44z6wx7e), most loans have to be repaid within five years, unless the loan is used to buy a primary residence. Check your plan. What happens if you can't meet the timing?

Repayment: How do you repay the loan (usually payroll deductions), and what happens if you quit?

Default: Before you borrow, find out how a default is handled (for example, if you quit while a loan is outstanding). Usually, your 401(k) balance is used to pay the outstanding loan. When that happens, you will need to pay taxes on the withdrawal, along with a potential tax penalty.

Do your homework before taking out a loan, and include your tax adviser in the conversation.

These common mistakes highlight the importance of being informed. As part of my advocacy for financial literacy education, I created and fund the 401(k) Champion Competition. (Full disclosure: I am NOT in the 401(k) business.) This year's competition launched Sept. 9, and I encourage all 401(k) participants to apply now. Champions have the ability to help others learn about how 401(k)s work and contribute to retirement security. Visit 401kchampion.com.

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