My New Choice

With the days before we should all have filed our income taxes dwindling away, I am about to undertake something rather ambitious: discuss some tax breaks and exemptions.

The reason I say “ambitious” is because the income tax code is a whopping 1.3 million words long, and that makes it twice as long as Tolstoy’s massive tome “War & Peace” (just a bit of interesting trivia I thought I’d share).

Now there are literally thousands of tax breaks, so I am going to discuss a few breaks that are the most likely to apply to you and your tax situation. And it is our right – and perhaps our duty to ourselves – to do as much as possible to limit our tax liability through appropriate use of the available tax breaks and exemptions.

You can choose to pay fewer taxes by managing your finances in a way to minimize your taxes. It is possible to itemize deductions including expenses for health care, state and local taxes, personal property taxes (such as car registration fees), mortgage interest, gifts to charity, job-related expenses, tax preparation fees, and investment-related expenses. Throughout the year, keep track of all your itemized expenses so at the end of the year you have a clear idea what you can claim as exemptions.

With proper record keeping, you may find that you can take advantage of tax breaks/credits for things such as college expenses, saving for retirement, or for adopting children.

Here are 5 tax breaks that you may be able to take advantage of this year if you have not already done so:

Mortgage Exemptions

A new tax break in 2007 allows you to deduct your mortgage insurance premiums, in addition to any mortgage interest that you pay, on your 2007 tax return – assuming of course that you itemize your deductions and that your mortgage insurance policy went into effect after December 31, 2006.

Another tax break related to mortgages is the mortgage debt forgiveness, which means that if you had mortgage debt canceled/forgiven by your lender you will no longer have to pay income taxes on that amount.

IRA Deductions

In the past few weeks we have been talking a lot about IRAs, so you may know that while you cannot claim exemption for your contributions to a Roth IRA, you can for your contributions to a Traditional IRA (up to $4000 in 2007 and an additional $1000 if you are over 50).

You have until April 15th, 2008 to fund your 2007 IRA contributions so it is not too late to take advantage of any associated exemptions when you file your taxes.

The Energy Policy Act of 2005

Consumers who purchase and install specific products, such as energy-efficient windows, insulation, doors, roofs, cooling and solar heating equipment in the home can receive a tax credit.

The amount of the credit and maximum value will depend on the energy-efficient improvement. As an example, you can receive up to $200 for installing energy-efficient windows in your home.

Dependents and Child Care

You are entitled to a $3,400 exemption per child against your taxable income for dependent children. Your child, even if he or she is over 18 and earning a pay check can entitle you to claim them as dependent, so long as you cover more than 50% of their expenses. The dependent must live in your home for more than half the year and be under the age of 19, or under 24 if a full-time student.

If you have to pay for child care or care of an elderly dependent while you are at work, you can claim deductions for payments you make beyond any amount that you already set aside in a flexible spending account. The maximum credit you may receive is a 35% credit on up to $3,000 in expenses for one dependent or $6,000 for two or more, with the amount of the credit decreasing based on your income.

Higher Education

You may be able to deduct certain higher education expenses even if you don’t itemize your deductions. Depending on your income, you may qualify to take a deduction on up to $4,000 in tuition and fees with the amount reducing to $2,000 as your income increases.

Be sure to evaluate all of the recent changes to the tax code as you prepare your taxes this year, as you may be able to take advantage of these tax breaks to save yourself some money.

IRAs in general, and the Roth IRA in particular, is a vast subject and many books have been written on it.

With these recent posts, I am trying to simplify this complicated issue and I hope that you are able to benefit from this attempt to clarify matters connected to Roth IRAs.

If you have been following my earlier posts, you probably have a fair idea of what a Roth IRA is and the general rules that govern it.

Since the Traditional IRA has been around for a longer time, people are more familiar with that, and a natural question would be what is the difference between a Traditional IRA and a Roth IRA?

This is what we will look at today.

Tax Deduction

The eligibility for a tax deduction is the first and most significant distinction between a Traditional IRA and a Roth IRA. Contributions made to a Traditional IRA are tax deductible while those made to a Roth IRA are not.

Thus when you are contributing to a Traditional IRA you are able to get a tax deduction which benefits you by reducing the cost of the contribution itself. By contrast, Roth IRA contributions are made from income that has already been taxed so you don’t enjoy any deductions when you make contributions.

Tax benefits in a Roth IRA accrue only when a person actually attains retirement age, as an early withdrawal of anything other than your contributions will trigger penalties and taxes.

As an example, if you make a contribution of $2000 a year to a Traditional IRA, then that two thousand is deducted from the total amount of taxable income. So if your annual income is $60,000 and you make a contribution of $2000, you then pay income tax on only $58,000. If you make that same contribution to a Roth IRA, you will pay tax on the full amount of $60,000 but when you eventually withdraw the amount and the money that principal earned in the intervening years will be yours tax free!

Taxes on IRA earnings

Whereas in a Traditional IRA, you pay taxes as and when you make withdrawals, in a Roth IRA, such withdrawals of the principal and earnings accrued thereon are wholly tax free so long as you follow the rules and regulations governing withdrawals from your Roth IRA. In fact with a Roth IRA, you can withdraw your principal contributions anytime, without any penalty.

The same is not true for the Traditional IRA because every withdrawal requires tax to be paid on it.

Mandatory Distribution / Withdrawal Age

With the Traditional IRA, mandatory withdrawals begin at age 59 and a half and these withdrawals are required to be continued until the age of 70 and a half.

The benefit of the Roth IRA is that it does not have this mandatory distribution age, and is therefore more flexible and adaptable to your own personal requirements.

Income Restrictions

There are no income limitations with a Traditional IRA, therefore anyone can make contributions. The Roth IRA requires that you fall within certain specified income brackets to make contributions.

If you plan on living a long and healthy life, and hopefully we all do, a Roth IRA seems to have several benefits so a person who actually reaches retirement age can enjoy tax free withdrawals in his or her twilight years.

What do you think? Have you given any thought to how you are going to plan for your retirement? Have you evaluated whether the Traditional IRA or the Roth IRA is best for your circumstances?

Let me know your thoughts.

As promised in my earlier post, we are going to look at the rules that govern the Roth IRA today. I had read this article some time back and the following text really stuck in my memory:

If a 25-year-old contributes $5,000 each year until she retires and makes an average annual return of 8% on her investment, she’ll have $1.4 million saved by the time she retires at age 65. And the money is all hers — she won’t have to give the IRS a cent of it if she waits until retirement to cash out.

This sounded really good, but it is worth remembering that there are no guarantees of earning 8% annually.

I decided to do some spade work and see how the Roth IRA really works and what the rules are that govern it. There are quite a few eligibility criteria that determine whether you can or cannot enjoy the benefits of a Roth IRA. While there are a lot of upshots, there are some limitations as well.

Distribution/Withdrawal Rule

Like I said in my earlier post, contributions made to your Roth IRA are not tax deductible and if you wait until after the date you reach the age 59 and a half, you don’t pay anything back in way of tax when you take out the money. This is also subject to your having had your savings in your Roth account for a minimum of 5 years. Early withdrawals are generally subject to a 10 % tax. There are, however several exceptions to this rule of 10% tax on withdrawal: this includes certain disabilities, higher education expenses, or if you are a first time homeowner, etc.

The Phase-Out Rule

You qualify to contribute to your Roth account if you fall within certain income brackets. If you are single, and earn less than $99,000 (the sum for married persons filing jointly is $156,000 in this instance) a year, you can make the maximum contribution. Then the amount you may contribute reduces, or is phased out as your income increases. If you earn more than $114,000 (or $166,000 if married and filing jointly) a year, then the permissible contribution becomes zero, i.e. phased out. These limits are increased by $2000 ($3000 if married and filing jointly) for the year 2008. So this is the phase out rule of the Roth IRA. If however your income rises above the amounts mentioned above, your balance in the Roth account remains sheltered from tax.

Maximum Contribution Rule

There is a ceiling on how much money you can deposit into your Roth account each year. You can deposit up to $4000 for the year 2007 and $5000 for the year 2008. If however you are above 50 years of age, then under the catch-up provision you can contribute an additional one thousand a year ($5000 and $6000 for the respective years of 2007 and 2008). Beyond 2007 this limit will be revised subject to the inflation index.

Eligibility Rule

There is no age limit or minimum required age to make a Roth contribution, any child with earned income can make it and a person can do so even over the age of 70 and a half, provided they have an earned income.

Stay tuned for more on the Roth IRA in upcoming posts.

Have you ever asked yourself the following questions:

What is a Roth IRA? How does a Roth IRA work? What are the Roth IRA rules?

If so you need to stay tuned, as over the next few weeks we will explore Roth IRAs in more depth.

Today we will begin with an overview just to get you started in the right direction.

An IRA, which stands for Individual Retirement Arrangement – although many people refer to it as an Individual Retirement Account as well – is not just about planning for your ultimate retirement in the dim and distant future. It is also about a safe and effective means of attaining financial stability and having a sound fall-back in place, should you need it in a crisis.

And remember, crisis will not wait until your retirement to strike!

If you have been keeping track of previous posts here – such as 7 Steps to Save You Money, 9 Tips to LBYM, How to Trim Your Budget, and The Right Approach to Credit Cards – you are probably on your way to being debt free or perhaps already there!

So the next step is to find a safe haven for your hard earned dollars; your income that has already been taxed – which is where the Roth IRA comes into play. It is true that contributions made to the Roth IRA are not tax-deductible, but that is pretty much the only downside. This is because what you then withdraw (of your contributions only unless it is a qualified distribution) from the account is tax free!

That is the one great plus about the Roth IRA in particular. It is flexible and far less hide-bound than Traditional IRAs.

The Roth IRA, described by many experts as a “gift from Uncle Sam” works like this: You open an account (many banks, credit unions and even mutual fund companies offer you this facility) with any institution that suits your requirements. Be sure to check for eligibility, initial minimum investment etc. as each institution may be different.

Since you have many options as to where you can invest your Roth IRA, such as stocks, bonds, mutual funds, certificates of deposit, or even real estate, you need to choose accordingly. Once you have made your initial contribution to your new Roth IRA, subject to the maximum Roth IRA contribution limits, you are ready to begin investing.

Then you watch your little nest egg grow, providing you with financial stability and a wonderful sense of security!

Are you worried about identity theft?

Have you been taking any steps to help reduce your risk of being a victim of identity theft?

Ask anyone that has been victimized by this serious crime and they will tell you the trouble it can cause. Not only can your credit be destroyed but it will likely cost you a considerable amount of time and money as you try to repair the damage.

Identity theft prevention should be on your mind and the good news is that there are very easy steps that you can take right now to safeguard your information.

• Shred financial documents and anything with personal information. You can purchase a shredder for under $100.00 at the local office supply store and shred everything before disposing of it in the garbage. Another option is to save all of these documents in a box and then take them to a company or service to shred. Your local town may offer an special event once or twice a year where you can bring your documents to be shredded for no charge.
  
  
• Don’t give out your personal information on the phone, through the mail, or over the Internet unless you know who you are talking with. One of the common scams that catch people is when someone calls and pretends to be from your bank or credit card. They sound legitimate and ask you to provide your personal information in order to verify your account. Unless you have initiated the conversation, don’t share your personal information.
  
  
• Protect your Social Security number. At one time many people had their SSN on their personal checks, which obviously is not recommended. Don’t carry your SSN card with you either, as if you lose your purse or wallet your identity will immediately be at risk.
  
  
• Never click on links in an unsolicited email. As discussed in the tips to protect yourself from phishing scams, be skeptical of any email that you receive and type in the web address directly rather than click on the link.
  
  
• Use obscure passwords. It is scary to think of how many people use passwords such as “password” or “secret”. Avoid using common information such as your birth date, name, address, or your maiden name. While it might seem inconvenient to use a password like “tD3bQ2qm28K”, it will be much harder for someone to crack.
  
  
• Keep your personal information secure, even in your home. Many people think they are safe within their home, leaving information out on the table or desk. When you think of the people that might come through your house – repairmen, cleaning people, roommates, and even neighbors or friends, you never know who might be desperate and steal your information.
  
  

As you can see, none of these tips are overly difficult to follow but can really go a long way towards helping you prevent identity theft.

Identity theft is something that you want to be proactive with preventing rather than reactive after it has happened.

Source: FTC.gov

While I would like to believe that the majority of the people in this country are actively planning and saving for their retirement years, unfortunately the numbers tell a different story.

Whether you find yourself in the group that has a solid plan in place for your retirement years or the group that is scratching their head wondering why you need to save anything when you have Social Security – or maybe somewhere in between – NewRetirement.com is a site dedicated to helping you find the information you need to plan for a secure retirement.

There are two key areas of the site that will likely be the area that you spend the most time – Retirement Planning Information and Retirement Calculator.

Retirement Planning Information
The Retirement Planning Information section contains a long list of topics that will be relevant to many people that are attempting to get a grasp on their retirement.

The type of information that you will find in this area includes information on reverse mortgages, annuities, debt consolidation, retirement risks, and more. The information appears to be well-balanced overall and provides both the pros and cons of certain retirement strategies. However, there are some topics that could use a little more discussion on the negative side such as annuities – which are rarely the best option for many people.

There is plenty of information to keep you busy reading for quite some time.

Retirement Calculator
One of the prominent features that you will see as you first visit the site is the free retirement calculator that is offered.

The calculator is intended to give you an idea of how long your money will last in retirement.

It only takes a few minutes to enter the required data, although it might take a little longer depending on how familiar you are with your current savings and income expectations.

There is a handy graph that will update as you enter your information that displays how long your retirement funds will last.

The type of information that you will be asked to enter includes your birth date and expected retirement age, current income and expenses, estimated retirement income, assets and debts.

For your current retirement assets, the calculator uses an assumption that your assets will grow at a rate of 5% per year – including the value of your house – from now through your retirement. There is much debate on whether you should use the value of your home in your retirement planning and it might be too aggressive to assume your property will appreciate at a rate of 5% every year.

Once you enter all of the information, you will see the updated graph as well as a handful of suggestions on additional steps that you can take to secure your retirement.

While completing the calculator for my own planning, I used very little in terms of estimated retirement income as there is no guarantee that social security will provide anything and the likelihood of having a pension are very slim. Therefore the calculator indicated that the retirement expenses were far too high for my retirement income – as my retirement plan relies solely on my savings.

The calculator can be a very handy tool if you do not currently have a clear picture of your retirement or if you would like to examine how various changes can impact the security of your retirement years.

Areas For Improvement
As beneficial as the Retirement Planning Information and the Retirement Calculator can be in your retirement planning, the Answers and Retirement News sections are lacking real substance.

The idea behind Answers – where you can ask a question for your peers and experts to answer – is quite solid, but it falls short due to a lack of participation. There are quite a few questions without any answers at all and many sections haven’t had any interaction for months. The lack of activity is a little disappointing and will likely result in many people passing right by – which it seems is what most people have been doing.

The Retirement News section provides a variety of news sources that display relevant information. However, with the wealth of knowledge that is available on the news feeds it seems like NewRetirement is just scratching the surface.

My NewRetirement
The site offers the ability for you to create an account, which will be required if you plan to participate in the Answers or would like to save your retirement calculation data.

Given the earlier comments about the Answers section, it appears the only real benefit of creating an account is to save your results from the retirement calculator. Considering how streamlined it is to enter the calculator data, you might prefer to opt against creating an account – as I have done.

NewRetirement Blogs
Tucked away at the very bottom of the page is a link to the NewRetirement blog. While the blog appears to still be very new – it only contains eight posts – it would be nice to see this displayed in a more prominent location throughout the site.

The blog would appear to be a better solution than the Answers section, as reader participation might be higher within a blog as there is a given topic to direct the conversation.

Closing Thoughts
There are a few areas of the site that can use some attention and it would be nice to see a concerted effort to get the community more involved and active. And even though it is free to sign up for a NewRetirement account, it would be nice to see a little more value provided to account holders.

Overall NewRetirement.com appears to have a good deal of information that can help even the seasoned pro learn a little more about their retirement plan. In addition, the retirement calculator is fun to play with and can help you understand whether you are on the right path or if you need to ramp up your efforts.

Head on over to NewRetirement.com to see if your future is secure.

Disclaimer
This post has been a paid review and contains my thoughts on the positive and negative aspects of the site or service in question. With the intent of providing information that is valuable to my readers, if you object to this post please let me know.

Shopping online presents a great opportunity for good deals and comparison shopping, but it can often be time consuming and confusing.

Fortunately, there are simple Firefox add-ons that can make your online shopping experience a little easier.

Whether you want to know where to get the best deals on electronics, compare prices, or limit the amount of time you’re allowed to spend shopping, there’s an add-on out there for you.

Check out these five extensions that were designed for frugal online shoppers like you.

1. Pronto Shopping Messenger – This add-on is a great way to effortlessly comparison shop online. Pronto draws from over 60,000 merchants to look for the best price on millions of items sold online. Moreover, downloading the add-on can also provide you with exclusive coupons.

2. Biet-O-Zilla – Biet-O-Zilla is a must for every eBay addict. It links to your eBay account to let you make last minute bids even if you’re not on the eBay site. You’ll also be able to easily track your watched items.

3. Buy It Online – Buy It Online uses Google Product Search to help you find the best bargains on the web. If you see something you’d like on a website, but aren’t sure where you can pick it up online, simply highlight the product name, and the add-on will generate a list of sites that offer the product.

4. Ultimate Pricechecker – Ultimate Pricechecker is a utility that goes through the namesake website to find the best prices on any item you’re interested in, drawing results from eBay, Amazon, Shopping.com, and Shopzilla.com. The utility will open a new tab for each site, giving you the price of what you’d like to purchase at hundreds of stores so you know you are getting the best deal out there.

5. FareFirst – FareFirst is an important tool for getting the cheapest rates for online travel. You simply select the type of flight you’re interested in, and FareFirst can help you monitor the prices for these flights. Fares are updated regularly and are subject to a rating system. The more stars a flight has, the better the deal you’re getting.

About the Guest Blogger:

Heather Johnson is a freelance business, finance and credit writer, as well as a regular contributor for BusinessCreditCards.com a site for comparing business credit card offers. She welcomes questions, comments, and freelancing job inquiries at her email address heatherjohnson2323@gmail.com

While this should not come as any surprise due to the recent rate decrease by the Federal Reserve, HSBC Direct has officially adjusted their Online Savings Account interest rate to 3.80% APY.

This is a far cry from the 6.00% APY that was being offered last year at this time on all new deposits but is understandable given the current conditions.

Even with this decrease, HSBC Direct is still offering a more competitive rate than ING Direct – who decreased their rate to 3.65% APY just last week.

However, be wary of transferring all of your funds over to a new bank that may still have a slightly higher interest rate.

As you can see with the timing between the rate adjustment from ING Direct and HSBC Direct, some banks will delay their adjustment in order to encourage new deposits. Just remember that the rates on online savings accounts are variable and subject to change at any time.

If you’re looking for something with slightly more stability in terms of the interest rate, you might want to consider setting up laddered certificates.