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Targeted radiopharmaceuticals has caught the eye of big pharma.
The therapy delivers radiation directly into tumors by attaching a radioactive particle to a targeting molecule.
RBC Capital Markets sees a $25 billion market opportunity for the space.

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Big pharma is betting billions on an up-and-coming class of cancer treatments that some on Wall Street are calling a “massive opportunity.”
It’s called targeted radiopharmaceutical therapy. It essentially delivers radiation directly into tumors by attaching a radioactive particle to a targeting molecule.

RBC Capital Markets sees a $25 billion market opportunity for the space.
“We believe TRT development is still in its early stages, and next-generation technologies that enable improvements in therapeutic potency and address a wider range of cancer targets have the potential to drive value creation in the space,” analyst Gregory Renza, M.D., wrote in a February note.
Four acquisitions in the space were announced in just the last several months. The latest was by Novartis, which already has two targeted radiotherapies on the market. Pluvicto treats a certain type of advanced prostate cancer, while Lutathera targets neuroendocrine tumors.
Pluvicto, which faced some now-resolved supply constraints in 2023, is nearing blockbuster status, bringing in $980 million in sales in 2023. By 2028, the two drugs combined are expected to generate $5 billion in revenue, Renza said.

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Novartis’ one-year performance

A market leader with ‘an aggressive strategy’

Earlier this month, Novartis said it entered into an agreement to acquire Mariana Oncology for $1 billion. The preclinical-stage company is focused on developing radiopharmaceutical programs, also known as radioligand therapies, that treat breast, prostate and lung cancers. One candidate, known as MC-339, is being researched for small-cell lung cancer.

“They’re clearly the market leader in this space with an aggressive strategy, both successfully commercializing their products, expanding the market opportunities for those products, and having a pipeline behind that,” said Oppenheimer analyst Jeff Jones. “Acquiring Mariana … gives them even greater discovery capabilities.”
Shares are up about 1% year to date. The average analyst rating is hold, with 8% upside to the average analyst price target, according to FactSet.

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Novartis’ success has lit a fire under its competitors. Piper Sandler analyst Edward Tenthoff characterizes it as “FOMO,” or the fear of missing out.
“I think that’s what’s happening, and big pharma is accumulating capabilities in this new modality,” he said.
Eli Lilly, which has benefited from the excitement in the GLP-1 space with its diabetes drug Mounjaro and weight-loss treatment Zepbound, completed its $1.4 billion acquisition of radiopharmaceutical company Point Biopharma in December.
Just before the deal closed, Point Biopharma’s targeted radiation drug, known as PNT2002, met its primary endpoint in a phase three trial for metastatic castration-resistant prostate cancer.
In addition, earlier this week Eli Lilly announced it will pay Aktis Oncology $60 million to use its novel miniprotein technology platform to generate anticancer radiopharmaceuticals.
Eli Lilly has an average analyst rating of overweight and 8.3% upside to the average analyst price target, according to FactSet. Shares have already run up nearly 38% so far in 2024.
“Obviously, investors are very focused on obesity right now, I believe, but we think with their acquisition, they have opportunities certainly on the supply side, which is one of the challenges facing radiopharma companies,” said investor Dan Lyons, a portfolio manager and research analyst at Janus Henderson Investors.
Bristol-Myers Squibb has also joined the fray, completing its $4.1 billion acquisition of RayzeBio in February. The company now has RayzeBio’s pipeline, including its late-stage targeted radiopharma therapy, RYZ101, for gastroenteropancreatic neuroendocrine tumors. It is also in a phase one trial for small-cell lung cancer.
The deal’s announcement in December came shortly after Bristol-Myers Squibb said it would spend $14 billion to buy out schizophrenia drug developer Karuna Therapeutics. At the time, William Blair analyst Matt Phipps said the deals show Bristol’s urgency to bring in more products, since some of its older therapies are set to lose their patent protections later this decade.
Shares of the big pharma company have been on a losing streak, down more than 18% year to date. It has an average analyst rating of hold, according to FactSet.
Last, in March, AstraZeneca announced plans to purchase clinical-stage biopharmaceutical company Fusion Pharmaceuticals for $2.4 billion. Fusion currently has a phase two clinical trial underway for a potential new treatment, called FPI-2265, for patients with metastatic castration-resistant prostate cancer.

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AstraZeneca’s one-year performance

AstraZeneca shares have an average analyst rating of overweight and nearly 6% upside to the average analyst price target, according to FactSet.
“All these companies had manufacturing presence, more or less, built out or are in the process of building out and becoming operational very soon on a commercial scale,” said Jefferies analyst Andrew Tsai. “They’ve got that locked down, and I think that’s, in part, what big pharma wanted.”
There are also some smaller publicly traded biopharma companies still standing, although not many.
In addition, there are several private companies in the space that have been attracting private investors, especially of late. Innovative radiopharmaceutical drugs nabbed $518 million in venture financing last year, a whopping 722% increase from the $63 million they received in 2017, according to GlobalData’s Pharma Intelligence Center Deals Database.
Both those public and private names could be ripe for an acquisition at some point, said Janus Henderson’s Lyons.
“There are several large pharma companies that don’t yet have radiopharma programs that may be interested in this space,” he said. “In addition, I think some of the players that already have programs will be interested in finding additional targets and pipeline programs to augment their portfolio.”

‘Massive opportunity’

Everyone, including big pharma, is working on either improving on existing treatments or looking to expand into attacking different cancer tumors.
Novartis, for instance, got FDA approval in April for Lutathera for pediatric patients. It also said last month that it will file for a label expansion for Pluvicto in earlier treatment of prostate cancer.
“There’s a clear path and strategy by Novartis to expand the market opportunity for those two products,” Jones said.
Then there are companies that are developing therapies against those same targets. Some, like Bristol’s RayzeBio, are turning to using an alpha emitter such as actinium instead of the beta emitter lutetium used by Pluvicto and Lutathera.
“These alpha [emitters] have a much stronger punch and are very localized, literally, to a cell length,” said Piper Sandler’s Tenthoff.

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Bristol-Myers Squibb’s one-year performance

Radiopharmaceuticals are also being looked at to use in conjunction with other treatments, such as immunotherapy.
Depending on the outcome of current and future clinical trials, the therapy could also eventually be used to treat any cancer, including ovarian, breast or brain, he said.
“Anywhere where radiation therapy is used, but not necessarily in a targeted approach, makes a lot of sense because these are radiosensitive tumors,” Tenthoff said.
Companies can also use the decades of research they’ve already done in the field to identify new opportunities, Jones said.
“You can really leverage all the work we’ve done in cancer over the last 30 to 40 years to identify targets on cancer cells that are not expressed, or much more highly expressed on cancer cells versus normal cells —and really, any of those are an opportunity for targeted radiotherapy,” he said.
“I see the massive opportunity for targeted radiotherapies,” he added. “We have two products today, two targets and you have essentially the entire universe of cancer research and cancer targeting.” More

Jeffrey Sonnenfeld, Yale School of Management
Scott Mlyn | CNBC

As this year’s proxy season draws to a close, defeat after defeat for activist investors in proxy fights this year – most prominently at Disney and Norfolk Southern – raises the question: Are activist investors increasingly getting de-activated, losing their credibility and power? These self-styled “activist investors” are distinct from the original activists who helped catalyze needed governance reforms two decades back.
Whether today’s activist investors contribute any genuine economic value is open for debate. Their own track records suggest the answer has been a resounding “no.” We revealed previously during a misguided campaign against Salesforce, that practically every major activist fund dramatically trails the returns of passive stock market indexes such as the S&P 500 and the Dow Jones Industrial Average, over virtually every and any time period while Salesforce’s value soared.

It is no wonder investors are becoming increasingly wary in allocating toward activist funds, if not withdrawing their money altogether. Assets under management have slid in recent years, reversing a decades-long growth trend.
Even many activists themselves acknowledge that activism itself will need to evolve to deliver more value, as Nelson Peltz’s son-in-law and former Trian partner Ed Garden said on CNBC in October.

Today’s activists find themselves under siege on not only their value proposition and credibility, but their entire purpose. Many of today’s activist investors are a far cry from the original, heroic crusaders for shareholder value who pioneered the activism space decades ago. The genuine, original activist investors include Ralph Whitworth of Relational Investors, John Biggs of TIAA, John Bogle of Vanguard, Ira Millstein of Weil Gotshal, as well as Institutional Shareholder Services’ co-founders Nell Minow and Bob Monks. They were at the forefront of a virtuous and necessary movement in corporate governance, bringing accountability, transparency and shareholder value to the forefront while exposing and ending rampant corporate misconduct, cronyism and excess. 
But over past two decades, the noble mission and language of these genuine investor activists was hijacked by the notorious “greenmailers” of that era – that is, parties that snap up shares and threaten a takeover in a bid to force the company to buy back shares at a higher price. This is why the original activists such as Nell Minow and Harvard’s Stephen Davis so often part ways in many of today’s activist campaigns.
Today’s activist campaigns will occasionally expose genuine misconduct and mismanagement –  such as Carl Icahn’s campaign against Chesapeake Energy’s Aubrey McClendon, who was ultimately indicted. Far more often, however, activist plans nowadays seem to consist of stripping target companies down to the studs, breaking healthy companies into parts, cutting corners on necessary capex and other short-term financial engineering, all to the long-term detriment of the companies and shareholders they are supposed to be helping.

No wonder shareholders are rejecting the approach of these profiteering activists, seemingly understanding that they bring more trouble than they are worth. We found that across the last five years at publicly traded companies with a market cap greater than $10 billion dollars, activist investors have substantively lost every single proxy fight they initiated, including at Disney and Norfolk Southern this year, and failed to oust even a single incumbent CEO – despite spending tens if not hundreds of millions of dollars on each fight.
This streak of defeats for activists in proxy fights has many commentators wondering whether there is even any point to these engagements. As author and former investment banker Bill Cohan wrote in the FT, “I, for one, increasingly have no idea what the point of proxy fights is anymore. They are wildly expensive. They are extremely divisive. They go on for too long. Isn’t it obvious by now that proxy fights have outlived their usefulness?”
Considering their evident inability to buy victory at the ballot box, more activists are bludgeoning their target companies into preemptive settlements, often highly favorable to the activists short of a change in CEO, including at companies such as Macy’s, Match, Etsy, Alight, JetBlue and Elanco. In fact, more than half of companies defuse proxy fights through negotiated settlements today, whereas only 17% of boards caved into activists in offering preemptive costly settlements 20 years ago. But some argue the pressure activists bring to bear in pushing for settlements amounts to little more than glorified greenmailing under a different name, with activists receiving preferential treatment and cutting the line past far larger shareholders thanks to their bullying.  
Meanwhile, the credibility of the cottage industry of proxy firms profiteering from the drama of activists’ campaigns is imploding even more than that the activists themselves. Leading business voices such as JPMorgan CEO Jamie Dimon are openly questioning the credibility of proxy advisors such as ISS and Glass Lewis, whose recommendations used to shape many proxy fights: “It is increasingly clear that proxy advisors have undue influence…. many companies would argue that their information is frequently not balanced, not representative of the full view, and not accurate,” wrote Dimon in his shareholder letter this year.
Indeed, in the highest-profile proxy fights this year, including Disney and Norfolk Southern, proxy advisors overwhelmingly favored the activists over management, but all ended up with egg on their faces when shareholders resoundingly rejected their recommendations. 
Ironically, these proxy advisors were originally created in the 1980s alongside peer shareholder rights groups such as the Council of Institutional Investors, the United Shareholders Association and the Investor Responsibility Research Center to protect workers and investors from greenmailers. However, since then, these proxy advisory firms have traded hands between a rotating cast of conflicted foreign buyers and private equity firms. ISS alone traded hands over a half-dozen times in the last roughly three decades. One wonders how ISS can be evaluating long-term value for shareholders when their own governance shows that their ownership has a shorter shelf life than a can of tomatoes. 
Of course, not all activist investors are alike. Some, like Mason Morfit’s ValueAct, prize constructive relations with management and eschew proxy fights, while recognizing that corporate America is surely not free of misconduct, waste and excess. However, given the failing financial performance of many of today’s activist investors, their losing streak in proxy fights and increasing public rejection of their bullying tactics, the credibility and value of activist investors writ large is increasingly imperiled. We must always be on guard for deception and greed masquerading as nobility.
Jeffrey Sonnenfeld is the Lester Crown Professor in the Practice of Management at Yale University. Steven Tian is the research director at Yale’s Chief Executive Leadership Institute. More

Increasingly, high school students are questioning the value of college.
A new Pew Research Center analysis finds that job opportunities and wages are improving for workers without a bachelor’s degree.
Still, earning a four-year degree is almost always worthwhile, other research shows.

Outcomes for workers without a degree are improving

In fact, young adults without a college degree are doing better than they have in years, according to Pew’s analysis of government data.
Their earnings mostly trended lower since the mid-1970s, largely due to increased automation and a shift away from manufacturing and unionization. Then things turned a corner roughly a decade ago, when unemployment fell nationwide and opportunities increased for workers between the ages of 25 and 34, according to Fry.

“Labor markets have been really tight, and this has particularly benefited less-educated workers,” he said.
Since then, circumstances — and earnings — have continued to rise for workers with just a high school diploma or some college. Today, “they are clearly better off than they were 10 years ago,” Fry said.

Improving job opportunities for “new-collar” workers without a degree continues to drive more students away from college. “The societal choice presented to these would-be students — earn ‘decent money’ now or invest in a degree — is still heavily colored by labor shortages,” said Hafeez Lakhani, founder and president of Lakhani Coaching in New York.

There’s still a ‘wage premium’ for college grads

However, earnings for young adults with a bachelor’s degree have also trended up over the same time period, leaving the so-called “college wage premium” intact, Pew found.
According to the New York Fed’s latest reading, annual wages for recent college graduates — those between the ages of 22 and 27 — are 67% higher than for those with just a high school diploma.
“The rewards of getting a bachelor’s degree have not deteriorated,” Fry said.

College is worth it, studies show

Getting a diploma is almost always worth it in the long run, many reports show.
Bachelor’s degree holders generally earn 75% more than those with just a high school diploma — and the higher the level of educational attainment, the larger the payoff, according to “The College Payoff,” a report from the Georgetown University Center on Education and the Workforce.
Finishing college puts workers on track to earn a median of $2.8 million over their lifetimes, compared with $1.6 million if they only had a high school diploma, Georgetown’s report found. 

Adults with at least a bachelor’s degree report higher financial well-being than adults with lower levels of education, according to a Federal Reserve study on economic well-being of U.S. households. College graduates are also more likely to report receiving a raise and benefiting from more hybrid or remote work opportunities than workers at other education levels.

‘I have more students than I have seats’

Still, the rising cost of college and ballooning student loan balances have played a large role in changing views about higher education. 
More than half, or 53%, of high school students are open to an alternative path, and nearly 60% believe they can be successful without a degree, according to a study by ECMC Group.
At Virginia’s Fairfax County Public Schools Adult and Community Education, which focuses on career and technical training, “I have more students than I have seats,” said Paul Steiner, the program’s administrator.

And yet “there is still a little bit of apprehension in terms of students who want to pursue skilled trades,” Steiner said.
In part, there is a bias against vocational school that has been difficult to overcome, he said, “especially if mom and dad went to college.”
“That being said, more students are thinking twice about the opportunities that are available through an apprenticeship or career training focused on credentialing versus a four-year path that would require student debt,” Steiner said.
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The IRS has extended the Free File program through 2029, continuing its partnership with a coalition of private tax software companies.
IRS Free File remains open for 2023 returns through the Oct. 15 federal tax extension deadline.
Meanwhile, the IRS is weighing future plans for Direct File, a free filing pilot directly with the agency.

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The IRS has extended the Free File program through 2029, continuing its partnership with a coalition of private tax software companies that allow most Americans to file federal taxes for free.
This season, Free File processed 2.9 million returns through May 11, a 7.3% increase compared to the same period last year, according to the IRS.

“Free File has been an important partner with the IRS for more than two decades and helped tens of millions of taxpayers,” Ken Corbin, chief of IRS taxpayer services, said in a statement Wednesday. “This extension will continue that relationship into the future.”
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“This multi-year agreement will also provide certainty for private-sector partners to help with their future Free File planning,” Corbin added.
IRS Free File remains open through the Oct. 15 federal tax extension deadline.
You can use Free File for 2023 returns with an adjusted gross income of $79,000 or less, which is up from $73,000 in 2022. Fillable Forms are also still available for all income levels.  

The future of IRS Direct File

The news comes roughly one month after the agency unveiled numbers for its Direct File pilot program, which provided a free filing option directly with the IRS for certain taxpayers in 12 states.
More than 140,000 taxpayers successfully filed returns using IRS Direct File this tax season, and the program saved filers an estimated $5.6 million in tax preparation fees for federal returns.
The agency expects to decide on the future of Direct File later this spring after input from a “wide variety of stakeholders,” IRS Commissioner Danny Werfel told reporters on a press call in April.

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The Biden administration said on Wednesday that it would forgive $7.7 billion in student debt for more than 160,000 borrowers, its latest effort to reduce the burden of education debt on households.
The relief is a result of the U.S. Department of Education’s improvements to its income-driven repayment plans and Public Service Loan Forgiveness program.

U.S. President Joe Biden delivers remarks regarding student loan debt forgiveness in the Roosevelt Room of the White House on Wednesday August 24, 2022.
Demetrius Freeman | The Washington Post | Getty Images

The Biden administration said on Wednesday that it would forgive $7.7 billion in student loans for more than 160,000 borrowers, its latest effort to reduce the burden of education debt on households.
The relief is a result of the U.S. Department of Education’s improvements to its income-driven repayment plans and Public Service Loan Forgiveness program.

“The Biden-Harris Administration remains persistent about our efforts to bring student debt relief to millions more across the country,” said Education Secretary Miguel Cardona in a statement.
Wednesday’s loan forgiveness includes $5.2 billion for 66,900 borrowers pursuing Public Service Loan Forgiveness, and $1.9 billion for 39,200 people enrolled in income-driven repayment plans.
Another $613 million will go to 54,300 borrowers under the Biden administration’s new income-driven repayment option, known as the Saving on a Valuable Education, or SAVE, plan. That option leads to student loan forgiveness after 10 years for those who originally borrowed $12,000 or less.

Forgiveness total reaches $167 billion

After the Supreme Court struck down President Joe Biden’s sweeping student debt cancellation plan last summer, the White House has been exploring its existing authority to reduce borrowers’ balances. One area it has found fruitful: the Education Department’s already established but hard to access loan forgiveness options.

Including Wednesday’s round of relief, the Biden administration has so far excused the debt of 4.75 million borrowers, totaling $167 billion in aid. Much of that total comes from expanding the reach of and making fixes to these programs.

Historically, borrowers found these aid options were hard if not impossible to navigate, and many complained they weren’t receiving the relief to which they were entitled, consumer advocates say.
For example, income-driven repayment plans lead to loan erasure after a certain period, but the Education Department often didn’t have a proper accounting of borrowers’ timeline, reports found. The department said in 2022 it would review these accounts.
Have you recently gotten your student debt forgiven? If you’re willing to share your experience for an upcoming story, please email me at: [email protected]

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A new Congressional proposal, the 401Kids Savings Act, would create savings accounts for children starting from birth.
As states implement similar programs, Congressional lawmakers are divided as to whether a national program makes sense.

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An unequal distribution of wealth in the U.S. can make it so some children are behind from birth.
Now lawmakers are considering whether federal children’s savings accounts can help.

One proposal — the 401Kids Savings Act — would create savings accounts for all newborns. Low- and moderate- income families would receive federal contributions if their modified adjusted gross incomes falls under certain thresholds. Children in households that qualify for the earned income tax credit would receive additional aid. All families would be eligible to contribute up to $2,500 per year.
By the time some children turn 18 — particularly a qualifying low-income newborn born to a single parent — up to $53,000 may be accumulated for their benefit, according to the proposal.
Children’s savings accounts are currently available statewide in seven states — California, Illinois, Maine, Nebraska, Nevada, Pennsylvania and Rhode Island.
At the end of last year, there were 121 children’s savings account programs in 39 states serving 5.8 million children.
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The programs are aimed at helping to reduce unequal wealth distribution among American child households, which research shows is prevalent among Black and Hispanic households as compared to white households.
“All the evidence from existing programs shows that money not only unlocks opportunities for kids, it’s a smart investment that goes right back into the economy down the road,” Sen. Ron Wyden, D-Oregon, and chairman of the Senate Finance Committee, said at a Tuesday hearing.
However, implementing a federal program may come with significant costs to taxpayers, said Sen. Mike Crapo, R-Idaho, who is the ranking member on the committee.
“Expanding options to save is a worthy goal, but we must do so in a way that does not exacerbate already out-of-control government spending, or create another unsustainable government program,” Crapo said.

State child savings accounts show promise

Even without federal funding, children’s savings accounts have shown the ability to help families build wealth, William Elliott, a professor of social work at the University of Michigan, testified on Tuesday.
Existing programs provide small initial deposits ranging from $5 to $1,000, he said.
In the SEED for Oklahoma Kids experiment, which deposited $1,000 on behalf randomly selected newborn participants including low-income and Black families, the average child now has about $4,373 in their account at age 14.
“Even when family savings are minimal, significant assets accumulate in these types of accounts,” Elliott said.
The money doesn’t just help improve financial preparedness for college, he said. It has also been shown to help children’s early social emotional development, math and reading scores and increase the likelihood they will eventually enroll in college.

In Maine, the Alfond Scholarship Foundation has provided all babies born in the state with a $500 grant towards either college or future training.
To date, the foundation has invested about $78 million on behalf of 156,000 children, according to Colleen Quint, president and CEO of the Alfond Scholarship Foundation.
Families have contributed about three times that amount, or about $236 million, she said. They have also received about $29 million in matching grants from the state.
The total invested — about $344 million — grew to $477 million in the market as of the end of April, according to Quint.
Early data shows the $500 investment families receive has an outsized impact on their aspirations, savings behaviors and engagement around education, she said.
A federal program would help give residents of all states the same opportunity.
“We don’t have to imagine what a national platform would look like,” Quint said. “We can see it happening now.”

Concerns about inflation, tax implications

Critics of the children’s savings plans point out the government already deployed massive amounts of stimulus money during the pandemic, which hasn’t meaningfully boosted long-term savings.
“Savings rates are again near historic lows,” Adam Michel, director of tax policy studies at the Cato Institute, said at the hearing.
“In this case, checks from the government fueled more inflation than they did wealth building,” he said.

Other approaches may better help to address wealth inequities for young children.
Reforming the tax code can help prevent double taxation on wages when they are earned, as well as interest that accumulates on saving, Michel said. While that disincentive has been reduced for 401(k)s and 529 plans, they still come with restrictions on how the money may be used that may discourage low- and middle-income individuals from using them.
The 401Kids proposal calls for children to only have access to the funds once they turn 18. The money would have to be used for education, training, a home purchase or to start a business. The funds could also be rolled over to a Roth individual retirement account or ABLE account for children with disabilities.
Universal savings accounts, which may allow for more flexibility in uses for the money, may be a better solution, some experts said.
“Universal savings account have a benefit that they do not discourage savings for those who are concerned that the conditions for withdrawal … would stop them from addressing an emergency in their family,” said Veronique de Rugy, senior research fellow at The Mercatus Center. More

Nearly one-third of aspiring homebuyers plan to pull money from their 401(k) plan to help cover the cost, according to the Real Financial Progress Index by BMO Financial Group.
Millennials and Gen Zers are more likely than older workers to say they will pull from retirement accounts to buy a home.
While a 401(k) loan might be a better option, doing so entails its own set of risks, experts say.

Some young retirement savers say they might raid their 401(k) accounts to buy a home. Doing so, however, could be to their detriment, experts warn.
Nearly one-third (30%) of aspiring homeowners say they plan to withdraw funds from their 401(k) plan to fund a purchase, according to the Real Financial Progress Index by BMO Financial Group. BMO polled 2,505 U.S. adults this spring.

Millennials and Generation Z are more likely than older generations to say they will pull out money from their 401(k), BMO found, at 31% and 34%, respectively. To compare, only 25% of Generation X homebuyers and 16% of baby boomers plan to withdraw retirement funds for a home purchase.
“You really, really, really, really shouldn’t be taking out your retirement for a house,” said Stacy Francis, a certified financial planner and president and CEO of Francis Financial in New York City.
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Generally, early withdrawals from retirement accounts can trigger taxes and a 10% penalty, unless the account owner meets a listed exception. For both individual retirement accounts and 401(k)s, qualifying first-time homebuyers may be able to take up to $10,000 penalty-free. With Roth IRAs, owners can withdraw their post-tax contributions at any time without penalty.
Still, “it’s much better to have those dollars working for you,” said Francis, a member of the CNBC Financial Advisor Council.

While a 401(k) loan might be a better option to meet necessary payments for a home purchase, doing so entails its own set of financial risks, experts say.

‘Significant financial consequences’ for withdrawals

More savers tapped into their retirement savings last year, which experts say shows that some households were facing financial distress. In 2023, 3.6% of savers took out hardship withdrawals, up from 2.8% in 2022, according to Vanguard’s How America Saves 2024 preview.
But making withdrawals from your 401(k) plan can have “significant financial consequences,” said Tom Parrish, head of lending at BMO. Not only will you be denting your funds set aside for retirement, early withdrawals can also often subject you to associated penalty fees and taxes, he said.

“There’s a reason there’s limitations to these accounts. They’re in your favor,” said Clifford Cornell, a certified financial planner and an associate financial advisor at Bone Fide Wealth in New York.
For example, a 30-year-old worker who left $10,000 in their 401(k) instead of withdrawing it could end up with nearly $77,000 more for retirement at age 65, assuming average annual returns of 6%.

The pros and cons of 401(k) loans

While experts say taking out a loan against your 401(k) is generally a bad idea, it can be a more palatable option for the down payment or part of closing costs of a home, versus a withdrawal.
Federal law allows workers to borrow up to 50% of their 401(k) account balance or $50,000, whichever is less, without penalty as long as the loan is repaid within five years.
“The key thing is to ensure that you pay that back over that period of time,” Parrish said.
However, if you leave your company — whether you’re laid off or find a new job — most employers will require your outstanding balance be repaid more quickly.

Another risk is that you overstretch on your home budget. Purchasing a home entails long-term, real commitments, said Francis. Not only are buyers responsible for down payment, moving and closing costs, they then also have ongoing payments for the mortgage, real estate taxes and maintenance costs to consider.
“It’s going to be a very expensive thing for you to do,” she said. If “any little domino falls the wrong way,” you might not be able to pay neither the 401(k) loan nor the mortgage, putting yourself in a “real deep financial hole,” Francis said.

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Many homeowners are sitting on low-interest-rate mortgages and could face the decision of whether to sell or rent out their property when it’s time to move.
Roughly 6 in 10 existing fixed-rate U.S. mortgage holders had an interest rate below 4% during the fourth quarter of 2023.
The average 30-year fixed-rate mortgage was around 7% in May.
You should weigh affordability, hassle and possible tax breaks before renting out your property.

A “For Rent” sign is posted near a home in Houston, Texas, on Feb. 7, 2022.
Brandon Bell | Getty Images

Many Americans are sitting on low-interest-rate mortgages and could face a decision when it is time to move: sell or rent out their existing property. That choice could be tricky, especially for those eager to buy another home.
Roughly 6 in 10 existing fixed-rate U.S. mortgage holders had an interest rate below 4% during the fourth quarter of 2023, according to the latest figures from the Federal Housing Finance Agency. By comparison, the average 30-year fixed-rate mortgage was around 7% in May.

However, renting out your old home while buying another “gets very, very complicated, which is why most people don’t do it,” said Keith Gumbinger, vice president of mortgage website HSH.
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Homeownership has become increasingly unaffordable amid higher interest rates and soaring home values. That makes qualifying for a second mortgage harder, especially without tapping equity from your original property, Gumbinger said.
The typical down payment for first-time homebuyers was 8% in 2023, compared to 19% for repeat buyers, based on transactions from July 2022 to June 2023, according to a survey from the National Association of Realtors.
Plus, if you are using rental income to qualify for the second mortgage, lenders typically only consider 75% of your proceeds, Gumbinger said.

Renting out your home isn’t ‘easy money’

You also need to consider whether you have the time or desire to manage a rental property, said certified financial planner Kashif Ahmed, president of American Private Wealth in Bedford, Massachusetts.
“Be careful about wanting to be a landlord,” he said. “It’s not the panacea you think it is.”

Be careful about wanting to be a landlord. It’s not the panacea you think it is.

Kashif Ahmed
President of American Private Wealth

Ahmed, who owns rental property in Austin, Texas, warned that some first-time landlords do not consider the costs of ongoing maintenance, lower rents or vacancies, among other expenses.
Plus, you will typically pay about 25% more for insurance as a landlord compared to your standard homeowners policy, according to the Insurance Information Institute.
“It’s not easy money” after factoring in the stress and added costs, Ahmed said.

The capital gains tax break is a ‘huge factor’

If your original home has significant equity, you will also need to consider the capital gains exemption for primary residences.
Married couples filing together can earn up to $500,000 on the sale without owing capital gains taxes and single filers can make $250,000.
But there are strict IRS rules to qualify.
Renting your home starts the clock for the “residence test,” which says the home must be your primary residence for 24 months of the five years before the sale. The 24 months do not need to be consecutive.
“It’s a huge factor,” said CFP David Flores Wilson, managing partner at Sincerus Advisory in New York. “Those numbers go into projections.”
Of course, the choice to sell your first home or rent it out ultimately hinges on your financial plan, and cash flow changes can affect retirement and other goals, he said.

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