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Opening your own credit card can be a challenge when you’re first starting out or if you have damaged credit. In both scenarios, the issuer takes on a fair amount of risk. With no credit history to check, they won’t know what kind of borrower you are. If you have bad credit, it will be hard to have confidence that you will treat this account well when you have faltered in the past. For this reason, you may be wondering if a co-signer who has good credit can come to the rescue.

Here is what a co-signer can do, what the downsides to this arrangement are, and what your options are when you want to have a credit card of your own. In fact, surprisingly few issuers allow co-signers. But if you look hard, you may find one.

What is a co-signer?

When you open a credit card account, there is typically one person on the contract. You. In that scenario, the contract is between you and the issuer. As the cardholder, you are the person who is completely responsible for managing the account. If you falter and the account goes delinquent—or if you run up a large debt that pushes the credit utilization ratio out of whack—only you will suffer the credit rating consequences. And if the account goes very delinquent, the issuer can either sue you for damages or send the debt to collections. And if the collection agency isn’t repaid, it can file a lawsuit as well.

A co-signer acts as the other account owner and can be your gateway to an account when you can’t qualify on your own. That’s the good part. Accepting a co-signer, however, means your behavior will affect not just your credit rating, but theirs.

Because the issuer used your co-signer’s credit rating and financial information to grant the card, paying the bills is both of your responsibilities—equally. You don’t share the account 50/50. If you were supposed to pay the balance and don’t, the issuer has the right to go after your co-signer for complete payment. Meanwhile, both of your credit histories and credit scores will be negatively affected because the issuer will report the activity on your respective credit reports.

Be aware, though, if someone co-signs on the account for you, you will be the primary account holder. As such, your name will be on the statement and bill. In some situations, you will also be the only person who can use the card to make charges.

Which major credit card issuers allow co-signers?

If you want to work with a major credit card issuer with the assistance of a co-signer, you’re currently out of luck. While this used to be a common option, none of the biggest card issuers allow co-signers at this time.

The main exception to this rule is for student credit cards, where a credit-worthy adult will sign the application with the student who is enrolled in college.

Instead, major credit card issuers have switched to letting people piggyback on other peoples’ accounts as authorized users. As an authorized user, you have no legal responsibility for the account, but you will have a credit card of your own that you can use to make charges. The account will show up on your credit report as well as on the account owner’s report. In fact, it can be a great way to create or re-create a credit file, since you would bear no responsibility except for managing it according to the account owner’s rules.

What are your alternatives?

If you want a credit card where you as well as another person is an owner and don’t mind straying from the major credit card issuers, your options expand. Here are some avenues to explore:

Small banks

Smaller, regional banks often have more flexible underwriting requirements than the major credit card issuers. Look for those in your area that cater to your community.

PNC Bank, which is headquartered in Pittsburgh, Pennsylvania, for example, offers co-signed credit cards to qualified customers. Although this bank doesn’t have branches in every state, anyone can apply.

Credit unions

Credit unions are nonprofit financial institutions that are similar to banks, and many issue credit cards. When you become a member, you are a stakeholder. As such, credit unions tend to be much more forgiving for first-time credit card applicants as well as for members who are trying to rebuild after credit challenges.

BCU Credit Union, headquartered in Fremont, California, allows members to open co-signed credit cards.

Joint account

Similar to co-signed accounts, joint accounts do not have a primary owner. Rather, both people would have equal access to the card as well as having their names on the account statements. Joint owners can be added to the account after it’s been opened.

There aren’t many major issuers that offer joint accounts, though U.S. Bank does.

Alternatives to Co-Signed Accounts

Secured credit cards

For people who have a difficult time opening a credit card, because the issuer perceives them to be too much of a risk, secured cards can come to the rescue. The money you put down as collateral guarantees the credit line. Since the issuer can collect the money that is owed in the event the account goes delinquent, they are much easier to obtain. An advantage of secured cards is that you can work with a major issuer, too, such as with Capital One.

Credit cards for no credit

And then there are credit card accounts that are specifically created for people who have no credit history. There are plenty to choose from.

TIME Stamp: Having a co-signer is possible, but it isn’t the only way to obtain a credit card

Whether you’re just starting out in the world of credit or beginning again, a credit card in your name is usually a good idea. With it, you can develop a positive credit history when you pay on time and keep the debt low, and enjoy all the benefits associated with these products. Over time your credit scores will rise, and your options for other credit cards will increase.

Frequently asked questions (FAQs)

Do secured credit cards show up on credit reports?

Most secured credit cards are reported to the three major credit bureaus, but it pays to check first.

How long does it take to build credit with a credit card?

An account that you have in your name will show up on your credit report as soon as it is opened. With at least six months worth of on-time payments, your score will steadily rise.

Should I close my starter credit card before getting another credit card?

It is best for your credit score to keep older accounts active. This is because the length of your credit history can account for anywhere from 15% to 20% of your overall credit score, so it is important to maintain good relationships with your creditors.

Imagine if your mortgage lender paid you instead of you paying your lender. With a reverse mortgage, that’s exactly what happens. However, you don’t just get free money each month. There are some important caveats to be aware of with reverse mortgages, and these loans are only available to select borrowers.

If you’re considering a reverse mortgage, here’s how they work, the types available, and their pros and cons.

How does a reverse mortgage work?

A reverse mortgage draws funds from your home equity and pays you in regular installments. These payments are tax free and can supplement your retirement income if your savings are limited. However, reverse mortgage payments result in a loss of home equity. Also, most reverse mortgages need to be repaid in full once the borrower dies, sells their home, or leaves it permanently.

Reverse mortgages are available to borrowers age 62 and older who have significant equity in their homes. According to Rocket Mortgage (which at the moment is not offering its reverse mortgage product), you typically need at least 50% equity to qualify for this type of loan, though requirements may vary by lender.

Types of reverse mortgages

There are a few types of reverse mortgages. The most common option is a loan insured by the Federal Housing Administration (FHA). Here’s what to know about each type.

Federally insured

Home equity conversion mortgages (HECMs) are reverse mortgages insured by the FHA. These loans use your home as collateral, like a traditional mortgage, and you receive tax-free payments from your lender each month. Payments are disbursed as a lump sum, line of credit, or a combination of the two, depending on your preference. You can use the funds for any purpose, including home maintenance and living expenses.

Several eligibility requirements apply for borrowers and properties, and you’ll pay high up-front fees, closing costs, and mortgage insurance premiums. You’ll also be required to speak with an HECM counselor before you apply. If you decide to move forward, you’ll work with a lender approved by the U.S. Department of Housing and Urban Development (HUD) to secure your loan.

HECMs are federally insured and have protections if your balance exceeds your home’s market value when you or your heirs need to repay the loan.

Single purpose

Single-purpose reverse mortgages are loans available through some state and local governments. As their name suggests, these loans can only be used for the purpose defined in the loan agreement. For instance, a homeowner might use funds from a single-purpose loan to maintain their property.

Single-purpose reverse mortgages may not be widely available, and your income may need to fall under a certain amount to qualify. The loans aren’t federally insured, so they don’t have the same protections you’d get with an HECM.

Proprietary

If your home’s market value exceeds a certain amount, you may qualify for a proprietary reverse mortgage. Lenders generally only offer this type of loan to borrowers with significant equity in a relatively expensive home. Unlike HECMs, these loans aren’t federally insured, so there are no protections in place.

Reverse mortgage pros and cons

Advantages of a reverse mortgage

Can supplement your retirement income

A reverse mortgage could supplement your income if your retirement savings are limited, helping to preserve them.

Payments aren’t taxed

Payments you receive with a reverse mortgage aren’t subject to taxes, as the Internal Revenue Service (IRS) doesn’t classify them as income. Instead, these funds are classified as “loan proceeds.”

May let you age in place

A reverse mortgage could help you stay in your home, allowing you to make accommodations that allow you to age in place. For instance, you could use the funds to improve your home’s accessibility or add features that make it safer.

Built-in protections for heirs (with HECMs)

HECM borrowers get built-in protections for heirs if they die. If your loan balance exceeds the market value of your home when your heirs need to sell, they’ll only need to repay 95% of the home’s appraised value. Any remaining balance will be repaid to the lender by the FHA. However, if your heirs want to keep your home, they’ll need to repay the loan in full using their savings or another source of funds.

Disadvantages of a reverse mortgage

Fees and closing costs apply

Whether you opt for an HECM or another type of reverse mortgage, fees and closing costs will likely apply. Depending on your home’s value, the lender, and other factors, these could be quite high. With an HECM you’ll also need to pay mortgage insurance premiums.

Borrower required to live in the home

If you take out a reverse mortgage, you must live in your home. If you need to leave your home permanently, you will need to repay the loan in full. However, if you move into an assisted living facility for more than 12 months or have a co-borrower or Eligible Non-Borrowing Spouse remain in the home, you may not have to pay back the loan immediately.

May impact eligibility for other programs

The monthly payments you receive from your reverse mortgage could increase your income and impact your eligibility for means-tested government programs, such as Medicaid. It should not affect your Social Security or Medicare payments.

Home equity decreases

Reverse mortgage payments are made against your home equity, which increases your loan balance and reduces the amount of equity you have in your home. This reduces the profit you receive if you sell and, potentially, the amount your heirs receive if you die.

Other home expenses still apply

While you don’t need to make regular payments on a reverse mortgage, you’ll still need to pay your property taxes, homeowners insurance premiums, homeowners’ association dues and fees, and other expenses associated with your home. Lenders also require that you keep up with home repairs and maintenance as a condition of reverse mortgages.

What are reverse mortgage requirements?

The eligibility criteria for a reverse mortgage may vary depending on the type of loan you get. For HECMs, the most common reverse mortgage option, requirements are as follows:

Borrower requirements

• Be 62 or older.
• Have significant equity in your home or own it outright.
• Occupy it as your primary residence.
• Be current on any federal debt payments.
• Have adequate savings or income to cover other home expenses.
• Participate in an educational session with a HUD counselor.

Property requirements

• Owner-occupied single-family or 2 to 4 unit multifamily.
• Condominium that meets HUD requirements.
• Manufactured home that meets HUD requirements.

Costs of a reverse mortgage

Fees and closing costs for reverse mortgages may also vary depending on your lender, but costs for HECMs are as follows:

• Mortgage insurance. You’ll pay 2% of your total loan as an up-front mortgage insurance payment, plus premiums totaling 0.5% of the balance over the life of your loan.
• Origination fees. You’ll also pay an origination fee to your lender, which is capped at $6,000 but may be less, depending on your home’s value.
• Loan servicing fees. A monthly loan servicing fee of up to $35 also applies.
• Closing costs. You’ll also pay closing costs with a reverse mortgage, just as you would with a traditional mortgage. These costs may amount to 2% to 6% of the total loan.

Reverse mortgage example

Let’s say you are 62 years old, owe $25,000 on your existing mortgage, and own a home valued at $600,000. If you apply for a reverse mortgage with a 5% interest rate, you could receive a lump-sum payment of $154,700, a line of credit of $66,300, or a monthly payout of $737 (figures arrived at using MoneyGeek’s reverse mortgage calculator). Borrowing amounts may vary depending on your lender and situation.

Is a reverse mortgage right for you?

A reverse mortgage may be right for you if you have limited retirement savings and plan to live in your home for several years. The proceeds you receive from your loan could help you afford home maintenance or everyday living expenses. Before deciding on a reverse mortgage, it’s essential to understand the drawbacks of these loans.

Alternatives to a reverse mortgage

Homeowners with significant equity, sufficient income, and decent credit may want to consider these alternatives to a reverse mortgage. Remember that fees or closing costs will likely apply with the following options.

Home equity loans and home equity lines of credit (HELOC)

These two loan types use your home equity as collateral.

Home equity loan

A home equity loan provides a lump-sum payment. You can generally borrow up to 80% of your home equity and use the loan proceeds for home improvements or another large expense. Monthly payments are required on the amount you borrow, and your loan will typically have a fixed interest rate.

Home equity line of credit (HELOC)

A HELOC lets you access a line of credit, which can be useful if you aren’t sure exactly how much you need to borrow for a renovation or other expenses. It comes with a draw period, during which you can borrow against the line of credit, and a repayment period.

Once you enter repayment, you’ll need to pay back the amount you’ve borrowed with interest, and your HELOC will typically have a variable interest rate.

Cash-out refinance

With a cash-out refinance, you replace your existing mortgage loan with a larger one. The new mortgage is used to pay off the balance on your old one, and you receive the difference in cash. This type of refinance effectively converts your home equity into cash, which you can use as needed for home projects or other large expenses. A warning: Your new mortgage’s monthly payments may be larger than those on your old one.

TIME Stamp: A reverse mortgage can be a source of retirement income, but it isn’t for everyone

Reverse mortgages can help supplement your retirement savings, but these loans aren’t free from drawbacks and risks. They often come with high fees, and reverse mortgage balances need to be repaid in full if you leave your home permanently or sell it. A home equity loan, HELOC, or cash-out refinance may be a better alternative to a reverse mortgage for many. If you’re considering a reverse mortgage, weigh the pros and cons and ask a HUD counselor for more information.

Frequently asked questions (FAQs)

When do you have to repay a reverse mortgage?

A reverse mortgage must be paid in full if you sell your home or leave it permanently. Your heirs will need to repay it if you die, either by selling your home or, if they don’t want to sell, using another funding source.

Can you refinance a reverse mortgage?

It’s possible to refinance a reverse mortgage if you meet the borrowing criteria set forth by your preferred lender. For instance, you might opt to refinance if the market value of your home has increased significantly since you obtained your existing reverse mortgage.

How do you avoid reverse mortgage foreclosure?

You must keep paying your property taxes, homeowners insurance premiums, and homeowners association fees while maintaining your home in good physical condition to avoid reverse mortgage foreclosure.

How do I find a reverse mortgage lender?

As federally insured HECM reverse mortgages are the most common option, searching the HUD’s lender list is the easiest way to find a reverse mortgage lender. This search tool will provide a list of HUD-approved lenders offering these loans.

How can you avoid reverse mortgage scams?

To avoid reverse mortgage scams, be sure you fully understand this type of loan and work with a trusted lender. If you have questions or concerns, speak with a HUD counselor, a financial advisor, or an attorney before moving forward with a loan or providing any sensitive information to a potential lender.

A Roth IRA is a type of individual retirement account (IRA) that allows retirement savers to contribute money on an after-tax basis. Money grows tax-free inside of the account and can be withdrawn tax-free if certain requirements are met.

Looking for financial advice regarding your retirement accounts? Consult with Empower’s team of experts

How does a Roth IRA work?

Contributions are made to a Roth IRA with after-tax dollars. There is no upfront tax break; however if certain requirements are met, the money can be withdrawn tax-free. While the money is in the Roth IRA it grows tax-free.

Check out some of the articles on the Empower (formerly Personal Capital) site for more on the workings of a Roth IRA.

Roth IRA contribution rules and limits

There are annual contribution limits for both traditional and Roth IRAs. The annual limit is combined across all IRA accounts and types, which means if you have one of each account type, you still cannot contribute more than the annual contribution limits.

The IRA contribution limits for 2023 and 2024 are:

Contributions for a given tax year can be made up to the tax filing date, with no extensions. Contributions for the 2023 tax year can be made up to April 15, 2024 and contributions for the 2024 tax year up to April 15, 2025.

In order to contribute to a Roth IRA, your income must be under the income limits for the year.

Who qualifies for a Roth IRA?

In order to be able to contribute to any type of IRA, including a Roth IRA you need to have earned income from employment or self-employment. Interest or investment income and pension income doesn’t count.

The income limits to be able to contribute to a Roth IRA are based on a taxpayer’s modified adjusted gross income (AGI). The income limits for 2023 and 2024 are:

Spousal Roth IRA

In the case of a married couple, a spousal Roth IRA can be opened for a non-working spouse. The couple must file as “married filing jointly” to qualify.

In this case, a married couple could each contribute the maximum to a Roth IRA if so desired. For 2024 this would be $7,000 each, plus an additional $1,000 if either or both are 50 or over. The working spouse must have earned income and each spouse may not contribute more than that earned income amount. The income limitations outlined above will also apply.

Rollovers

Another way to fund a Roth IRA is to roll over a Roth 401(k), Roth 403(b) or other type of Roth account from a workplace retirement plan. This is most often done in association with someone who is leaving that employer to switch jobs, because they are retiring or due to being terminated from employment.

You will want to coordinate the rollover between the IRA custodian who will be receiving the funds and the plan that you are rolling the money over from. There are no income or contribution limits associated with this type of rollover, and there should not be any tax implications.

Roth conversions

A Roth IRA conversion allows you to convert assets held in a traditional IRA, a traditional 401(k) or similar workplace retirement account to a Roth IRA. Taxes will be due on some or all of the amount converted. The advantage here is that this allows the account holder to convert a higher amount than the annual IRA contribution limits. It also allows those who earn too much to contribute to a Roth IRA to still fund a Roth IRA.

Backdoor Roth IRAs

A backdoor Roth IRA involves contributing to a traditional IRA on an after-tax basis and then converting that money to a Roth IRA. This is a way for high earners who cannot contribute directly to a Roth IRA to still fund an account. The amount of the conversion may be tax-free or subject to taxes based on the pro-rata rule. This rule says that the conversion will be taxed based on the ratio of tax-free contributions to pre-tax contributions and account earnings across all traditional IRAs.

Mega backdoor Roth

If offered by your employer, you may be able to make after-tax contributions over and above the annual employee contribution limit for a 401(k). You can then convert this money to a Roth 401(k) option within the plan or to a Roth IRA upon leaving the company, or during your employment if your company allows this. This is another way for those who are ineligible to contribute to a Roth IRA to still fund one.

Roth IRA pros and cons

There are both pros and cons to a Roth IRA. Some of the pros include:

• The ability to withdraw money tax-free if certain requirements are met.
• No required minimum distributions must be taken.
• Money grows tax-free inside of the Roth IRA.
• Money in inherited Roth IRAs can be withdrawn tax-free if the account owner meets the five-year rule prior to their death.

Roth IRA cons include:

• Contributions are made with after-tax funds, there is no upfront tax break.
• The ability to contribute can be limited or eliminated if your income is too high.

How to open a Roth IRA

Roth IRA accounts can be opened at traditional brokerage firms like Fidelity, Schwab, Vanguard, Empower and others. You can then invest your account in most or all of the investments offered by the firm such as stocks, bonds, ETFs and mutual funds.

Many banks and credit unions offer Roth IRAs, but your investment choices may be limited there. Robo advisors also generally offer Roth IRAs, you would invest based on the strategy suggested by the Robo’s investment algorithm.

You will generally have to complete any required form(s) for the financial institution at which you are looking to open the Roth IRA. You will be required to supply certain information about yourself. Whether or not required upon opening the account, you will want to name beneficiaries of the account as soon as possible.

Withdrawals (a.k.a. qualified and non-qualified distributions)

Withdrawals from a Roth IRA are tax-free as long as they meet the criteria for a qualified withdrawal. Note that you can withdraw your original contributions to a Roth IRA tax and penalty-free at any time.

Qualified distributions

Qualified withdrawals from a Roth IRA are tax-free and there are no penalties. In order for the withdrawal to be classified as a qualified distribution, the five-year rule on the account must be met. This rule says that at least five years must have elapsed since the first contribution to the account. Additionally, any Roth IRA conversions have their own five-year rule.

In addition to meeting the five-year rule requirement, the withdrawal must meet at least one of these conditions:

• The Roth IRA account holder is at least age 59½.
• The distribution is due to the disability of the account holder.
• The distribution is made to the beneficiaries of the Roth IRA after the account holder’s death.
• Or it meets the requirements listed under the first time home buyer exemption for the account holder or a member of their immediate family.

Non-qualified distributions

Non-qualified Roth IRA distributions are those that do not meet the criteria to be classified as a qualified distribution. Non-qualified distributions may be subject to taxes and a 10% penalty. Note that any amount of the distribution attributable to the amount originally contributed to the Roth IRA will not be taxed or subject to penalties.

For those who are over 59 ½, distributions that have not met the five-year rule will be subject to taxes but not a 10% penalty.

For those who are under age 59 ½, withdrawals will be subject to both taxes and a 10% penalty. There are some exceptions that will eliminate the 10% penalty, but not the taxes on earnings in the account:

• The distribution is due to the disability of the account holder.
• You receive the distribution as the beneficiary of a deceased account owner.
• The distribution meets the requirements listed under the first time home buyer exemption for the account holder or a member of their immediate family.
• The distribution is taken as a series of substantially equal periodic payments.
• The distribution is taken to cover unreimbursed medical expenses in excess of 10% of your adjusted gross income (AGI).
• To pay medical insurance premiums if you are unemployed.
• To cover qualified higher educational expenses.
• The distribution is used to cover an IRS levy.
• The distribution is for a qualified military reservist.

Roth IRA vs. traditional IRA

There are several key differences to know between a Roth IRA and a traditional IRA account.

Contributions to a Roth IRA are made with after-tax dollars, in other words this is money that you have already paid taxes on. By contrast contributions to a traditional IRA are made with pre-tax dollars offering an upfront tax break. Note in some cases traditional IRA contributions are made on an after tax basis.

Withdrawals from a Roth IRA are made tax-free if the requirements for a qualified distribution are met. Withdrawals from a traditional IRA are generally taxed at the taxpayer’s ordinary income tax rate, with the exception of any funds tied to after-tax contributions.

Another key difference is that Roth IRAs are not subject to required minimum distributions while traditional IRAs are.

The ability to contribute to a Roth IRA can be limited or prohibited if your income is too high. There are income limitations on the ability to contribute to a traditional IRA on a pre-tax basis for those who are covered by a workplace retirement plan, like a 401(k). However, you can always contribute up to the annual contribution limits to a traditional IRA on an after-tax basis.

Frequently asked questions (FAQs)

How much do you need to open a Roth IRA?

There is no minimum required to open a Roth IRA account, unless the custodian (brokerage firm, financial institution or robo advisor) has their own requirement to open the account. If opening a new Roth IRA you will want to check with the custodian regarding any minimums or other new account requirements.

Can you withdraw money from a Roth IRA?

Money can be withdrawn from a Roth IRA at any time. Your contributions to the account will not be subject to taxes or penalties. Beyond that, the rules for qualified and non-qualified distributions outlined above will apply.

Do you pay taxes on a Roth IRA?

Your contributions to the account will not be subject to taxes or penalties. Beyond that, the rules for qualified and non-qualified distributions outlined above will apply.

What is better: a Roth 401(k) or a Roth IRA?

Both types of accounts have merit. With a Roth 401(k) there are no income restrictions on your ability to contribute as with a Roth IRA. Also the annual contribution limits on a Roth 401(k) are higher.

The main downside to a Roth 401(k) can be the quality of the investments offered in the plan. You will generally have more investment flexibility with a Roth IRA.