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October 31, 2008

The Advantages of Having a Paypal Account

Just about everyone who uses the internet regularly has heard of PayPal.com. Used as a way to send or receive money by email, PayPal.com has become one of the most popular ways to purchase auction items, receive payments, and much more. Used in many countries in addition to the United States, PayPal.com is safe, secure and convenient, and they even offer a credit card for you to use like any other credit card. You don't have to use it strictly for auction purchases, but for anything that you choose. Besides the fact that PayPal.com offers a convenient credit card to it's account holders, there are many other advantages of having a PayPal account, and if you don't already have an account you may very well want to sign up for one.

One positive thing about PayPal is that there is no credit check of any sort in order to open an account. All you need is a valid email address and you're on your way sending and receiving money without a hassle. Because of the fact that there is no credit check, it's a great way for those with credit too derogatory to obtain a bank account to get a free debit card. You must maintain your PayPal account for a certain period of time before being able to apply for a debit card, but it's not a lengthy period of time. After the required period of time has passed, you'll be able to receive your debit card with a MasterCard logo on it in less than a week. You can then use your PayPal debit card wherever MasterCard is accepted, and you can add money to the account by sending a money order, wire transfer or by receiving direct payments from businesses and individuals.

Most people who sell items on Ebay or Amazon prefer to be paid by PayPal, due to the ease and almost guarantee of receiving payments. Although it isn't a requirement to have a PayPal account in order to make purchases from Ebay or Amazon, you may be limited on Ebay as to which items you can purchase. Some sellers choose to only receive payments this way, so if you find an item that you are interested in purchasing and you don't have a PayPal account, it may be in your best interest to open one. Signup is a quick and simple process, only taking a few minutes. You can sign up using one email address or several; the choice is yours.

One negative thing about PayPal.com is that there are fees involved with using their service. Whenever you receive a payment, PayPal takes a small percentage of it, which is how they're able to offer such a wonderful service to so many people. You can reduce the amount of the fees that you pay by upgrading to a business account. You don't have to necessarily own a business in order to have this type of account, but all you have to do is add a bank account or credit card to your PayPal account and allow them to verify it, and then you're accessed so much to receive funds.

Paypal.com is a great website, and if you do a great deal of work for individuals online, it's a great way to receive payments. By having a PayPal account, you can link your credit card and checking account directly to the PayPal account, and this makes transferring funds in between accounts a cinch. Many businesses such as Virgin Mobile and numerous others are now offering PayPal as a way of making payments. Even for businesses that don't accept PayPal as a form a payment, the website now offers a special plug-in that can be used in such instances, making it unnecessary for you to withdraw money from your account and find another way to pay your bills. So if you're looking for a convenient and simple way to receive and send cash online, you could without doubt benefit from having a PayPal account.

October 27, 2008

10 Ways to Cut Costs During a Recession

There is no doubt about it, a recession is a difficult time for everyone, and it can be tough to find ways to scrape buy. However, there are many ways that individuals can cut back during a recession to make ends meet. By cutting back on a few non-essential expenses, or renegotiating the terms of some of your bills, you can save yourself hundreds if not thousands of dollars during this financially troubling time.

1) Stop Buying Bottled Water

Bottled water is an extravagance, but not a necessity. If you are hurting for money during a recession, then consider eliminating bottled water from your home. Instead, look into purchasing an inexpensive water filter for your kitchen faucet that will make your tap water taste just as good.

2) Walk or Take the Bus

Walking or taking the bus whenever you can, could save you hundreds of dollars in gas a year. If you live close to the store or your office, consider getting some exercise instead of burning gas. If you have to drive to work, the store, or your children's school, try to set up a carpool with others who need to go as well.

3) Utilize Coupons and Store Discounts

Most people do not use coupons on a regular basis. However, you can shave 50% or more off of your weekly food bill, by learning how to use coupons and store discounts to your advantage. There are many forums online dedicated to the use of coupons, where you can learn the in's and out's, of becoming a coupon pro.

4) Eat Out Less

The costs of eating out are rising, and it is becoming more of a luxury than a weekly treat. Skip a trip or two to the restaurant, and splurge on a slightly more expensive meal that you can make from home. The food will taste just as good, but will not be marked up to restaurant prices.

5) Buy Clothing From Outlet Stores

There are outlet stores available for almost every name brand of clothing that exists, and many of the outlet stores even have websites for convenient shopping at home. These outlet stores have the same name brand clothing of the regular stores, but without the high price tag. Locate an outlet store and shop there instead, to save even more money during a recession.

6) Read Newspapers and Magazines Online

Magazine and newspaper subscriptions can be pricey, but if you investigate, many of those same publications have online websites. On these websites all or part of a newspaper or magazine can usually be viewed for free, or at a fraction of the cost of home delivery.

7) Renegotiate With Creditors or Lenders

Many consumers have no idea that you are able to negotiate with lenders and creditors. During a recession, the bargaining usually works to your favor, as companies would rather have someone pay less then not at all. Call your credit card companies, car and mortgage loan institutions, and any other creditors you may have, and ask them for a lower percentage rate, or a settlement amount for current debts.

8) Do it Yourself

From laundry to car repair, there are many services that you may currently outsource, that could be done by yourself to save money. For instance, instead of paying a company to paint the inside of your home, you could buy the necessary materials and do it yourself. Skipping that $5 drive thru car wash, and detailing your own car, could add up to big savings in a year's time too.

9) Go For Cheap Entertainment

Even during a recession, it is possible to have fun and still save money. Look into dollar movie locations near you, or ask if a movie theater has special rates for movies on a Saturday morning. Often theaters offer specials, and even free concessions on certain days and times.

Museums and state parks are usually free or cost only a few dollars, and can provide your family with hours of fun on each visit. Take advantage of free community events, and your family can have a good time while supporting the community.

10) Switch Your Insurance

Call your car, home, and life insurance companies, and try to negotiate a lower policy price. This works especially well if your rate has recently gone up during a renewal. Get free quotes from other insurance companies, and if they offer you a lower rate for the same benefits, switch your insurance to save hundreds.

A recession doesn't have to be a devastating time. If you do your research, and make wise financial decisions, then you can come through a recession unscathed. Cutting costs on just a few expenses can help keep money in your pocket when you need it most.

October 24, 2008

Reinvigorating Your Small Business

In a tough economy, you may be discouraged by how much your small business suffers. If you depend on consumer spending for your livelihood, it can be hard to weather the storms of the volatile financial markets. It helps to look down the road to better times. Here are five tips for reinvigorating your small business.

1. Housekeeping. Whether you've been neglecting the bookkeeping or the physical upkeep of your business, doing the housekeeping is a good way to pass the time during slow business periods.

2. Research. This is a great time to investigate new products or services and future opportunities for growing your business. If time is aplenty, you can lay the foundation for future expansion. If you need training or licensing for your future business, you can work on getting these credentials during the slow economy.

3. Policies and Procedures. You can devote time to improving your internal operating procedures so that your employees will be better trained when business starts to boom again. Involving your employees in this process will give them a bigger stake in the future of your business.

4. Vacation. If business is slow, it might be a good time to take some time off. You can refresh yourself personally so when you return you will be renewed and ready to reinvigorate your company.

5. Competitors. Another type of research involves getting to know your competitors in the same or similar markets. What are they doing right and wrong? How can you improve your company based on what you learn from other companies?

Your small business is a precious commodity. Whether your business will weather the volatile economy depends upon your financial management skills and resourcefulness during this period. Being creative and productive will help you to keep your small business fresh and poised for growth when the economy rebounds.

October 22, 2008

Avoiding High Bank Fees

Although having a checking is often very useful, at times the associated fees can really add up. Even if you never overdraw your account, there are still many other fees related to having a checking account. Just because most banks and credit unions charge various fees for different reasons is no reason why you should have to pay them. Sure, some fees are unavoidable, but fortunately, most fees are avoidable. So if you're tired of paying astronomical bank fees, then the following tips may greatly assist you in retaining more money in your bank account, therefore paying less to your bank.

Balance That Book

Balancing your checkbook may seem like a hassle at times, especially when you're busy, but it's actually quite helpful when it comes to avoiding fees from your financial institution. By balancing your checkbook meticulously, you will always know exactly how much money you have available, as well as how much has been spent. You will also know which bills have been paid, and which haven't, which will assist you in figuring out who needs to be paid what. Balancing your checkbook doesn't have to be difficult, and if you're serious about keeping track of your spending, it's an absolute necessity, because there's no way that you can effectively manage your money by "guessing" how much money you will have left after spending.

Much-needed Protection

You don't have to have good credit in order to have some type of overdraft protection on your checking account. It's always a good idea to have overdraft protection because anything can happen at anytime. You could forget that you wrote a certain check, have an unexpectedly larger bill electronically withdrawn from your account, or any number of other problems could occur. One option for overdraft protection is to apply for a small line of credit to be connected to your checking account. If you choose not to apply for a line of credit or aren't approved, another option is to have a savings account connected to your checking account. Most banks will charge a fee if it's necessary for them to withdraw money from your savings account in order to pay a check or other transaction, but these fees are usually only a fraction of normal overdraft fees. There may be other options for you when it comes to overdraft protection, but you need to contact your particular bank or credit union.

Maintaining a Big Balance

Many banks and credit unions will charge you a monthly fee unless you maintain a certain amount of money in your account. A way to avoid being charged these monthly maintenance fees is to either ensure that the expected amount of money is available, or choose another type of checking account. Many banks either offer totally free checking accounts, or will not charge you any fees as long as you receive payments into the account through direct deposit. It's important that you double-check the amount that needs to be maintained as well as the fees, because if you're not careful, these fees could possibly cause your account to become overdrawn.

Automatic's Not Always Better

Many consumers appreciate the option of being able to pay certain bills by "easy pay" or automatic electronic withdrawal that is offered by many companies. This method of payment is an easy, worry-free way to make sure all your bills are paid on-time, but isn't always foolproof. Electronic payments have been known to be inaccurate, and many consumers have been double-charged, charged a wrong amount, or even charged too often. Not only can these types of mistakes cause your account to become overdrawn, but if certain payments are returned by your bank for insufficient funds, you'll be charged a fee by the bank as well as the company that the payment was intended for. You definitely don't want such a mistake to occur, so it's wise to be careful which companies you sign up for automatic payments with. A safer option would be to save your debit card or checking account on file with the companies of your choice, and when you're ready to pay you can either go online or call to make a payment.

Having a checking account should be a convenience for you, not a hassle that is costing you a great deal of money. If you find that you're being charged an extremely high amount of fees with your current bank, there is always a way to eliminate them. If you realize that you can't eliminate the fees then you can always choose another financial institution to bank with. Perhaps choosing a neighborhood credit union would be a less expensive option for you, but if not, ensuring that their overdraft fees aren't outrageous is a good idea, just in case you make a mistake one day. If you do happen to overdraw your account, many financial institutions will be more than happy to reverse the charges, provided you contact customer service, either by phone or in person.

October 17, 2008

How to Reduce Moving Expenses

Expenses from moving, whether in-state or out of state can really add up quickly. After paying the first month's rent and security deposit or down payment to purchase a home, many people are left with very little money to pay for anything else. If you will be moving soon and don't have a very large budget, there is no reason to think that moving will be impossible. Making your total move as inexpensive as possible is very feasible as long as you plan ahead of time. Of course sometimes it's not possible to plan ahead of time, but if you're purchasing a home, chances are there will be at least a few weeks wait before the actual closing. In cases like this, it's easy to plan, save, and plan some more in order to keep your moving costs to an absolute minimum.

If at all possible, try setting aside extra money for things like utility and cable deposits. While some areas don't require deposits to connect gas, electric and water service for new customers, many areas do, so it's imperative that you contact the utility companies in your new area as soon as possible in order to find out how much, if any deposit is needed. The same thing applies to cable and satellite TV as well. Depending on your new cable or satellite provider, you may be required to pay a small deposit, or even the first month of service in advance. If your credit is good, though, many cable and satellite providers will install your service absolutely free. Of course you'll need to contact the provider of your choice in order to find out their policies. It's also a good idea to ask about specials, as you could end up paying a substantially less amount for the same service, even if it's only temporary.

If you don't have the full amount to pay for move-in costs, there are many ways to move in for little or no cash. If you check thoroughly and ask around, you may be able to locate a house that needs various repairs. Many landlords who either don't have the time or the money to complete the repairs themselves will allow you to rent a house for practically nothing if you agree to make the necessary repairs yourself. Of course after all the repairs are completed you'll have to begin paying rent, but hopefully by this time you'll be able to pay the rent with no problem. If you're very lucky, you could even find a landlord willing to allow you to rent-to-own with such an arrangement.

Instead of purchasing boxes from a moving company, which can really become expensive if you have lots of things to pack, you can visit your local retail or grocery store and request boxes. These types of stores usually restock their shelves either early in the morning or late at night, when there aren't as many customers expected to be in the store. Visiting the store of your choice during one of these times is a good idea, and you can usually get all the boxes that you need absolutely free. The boxes will most likely be broken down, so you'll have to make sure that you have plenty of tape, but the cost of tape is certainly a lot cheaper than buying numerous boxes from a moving store. In addition, if you check Craigslist.com, you can often find ads from individuals giving away their used moving boxes for free.

Of course whenever you move, you have to consider how you'll get your things to your new house or apartment. Professional moving companies can be quite expensive, so if you're on a tight budget you may want to consider other options. Hiring a small, local company would definitely be a less expensive option. You can find these types of moving companies by checking for ads in your local newspaper or either on Craigslist.com. Another option is to ask for assistance from a couple of friends and move the items yourself. If you don't have a great deal of things, this would certainly be the most cost effective way to move. Depending on how much you have to move, if you have a large enough vehicle, you can make several trips and move everything even without renting a moving truck.

There is no reason to think that you need $5000 in order to move. As long as you plan as far ahead of time in advance and check around for lower prices, you can move for $500 or less. If your new utility and cable companies don't require deposits and you or a friend have a vehicle large enough to move all of your belongings, then the only thing that you'll have to pay are the move-in costs for the home or apartment. And if you're resourceful enough, you can even avoid all or most of those fees. Many apartment complexes offer various specials in order to attract new tenants. You could possibly nab a nice, luxury apartment within your price range for less than $200 in move-in costs. Of course in order to take advantage of such a special you have to have good credit, but even if you don't, there are still other specials that you can take advantage of, provided you find them.

October 15, 2008

Year-End Tax Planning Strategies

As year-end rapidly approaches, it's a good time to take a look at your tax situation. You still have time to take action that could reduce your income tax liability for 2008. Once you have an idea of where you stand for 2008 with your income tax situation, you can evaluate some tax planning strategies that may reduce your income tax burden in 2008. Here are some tips to consider:

Sell stocks with losses to offset capital gains. If you have capital gain income but are holding stocks with losses, consider selling those stocks to offset the capital gains. Excess losses may be used to offset up to $3,000 of ordinary income, and the unused portion can be carried forward until utilized.

Contribute the maximum amount to your 401(k) plan. Take a look at your financial situation, making sure you are contributing as much as possible to your 401(k) plan. Unless you have a Roth 401(k), contributions are made from pretax dollars. The maximum contribution to a 401(k) plan in 2008 is $15,500, plus individuals age 50 and over can make an additional catch-up contribution of $5,000, if permitted by the plan.

Decide which type of IRA to contribute to and then do so as soon as possible. Although you have until April 15, 2009, to make your 2008 contribution, contribute as soon as possible to allow your funds to compound tax deferred or tax free for a longer time. The maximum IRA contribution in 2008 is $5,000, with an additional $1,000 catch-up contribution for individuals age 50 or older.

Replace loans that generate personal interest with mortgage loans or home-equity loans. Personal interest cannot be deducted on your tax return, while mortgage interest and home-equity loan interest can, as long as the mortgage does not exceed $1,000,000 and the home-equity loan does not exceed $100,000.

Determine whether you should bunch income or expenses for 2008. Depending on your overall tax situation, it may make sense to accelerate or defer income and expenses. Some deductions that can be accelerated or deferred include payment of property taxes, estimated state taxes, medical expenses, and charitable contributions. Income that can typically be deferred includes self-employment income and year-end bonuses or commissions.

Donate appreciated stock held over a year to a charitable organization. You can deduct the stock's fair market value as a charitable contribution without paying the capital gains tax on the sale.

Sell assets on the installment basis. You can use this method to sell certain capital assets, particularly real estate, which will typically allow you to recognize the gain as the installments are collected, rather than in total in the year of sale. You may also want to consider a like-kind, or Section 1031, exchange, which allows you to defer any taxes.

Consider transferring appreciated assets to children. If the children are in the 10% or 15% tax bracket, they can sell the asset and pay no capital gains taxes in 2008. These transfers can be made as part of your annual tax-free gifts, with a maximum tax-free transfer of $12,000 in 2008 ($24,000 if the gift is split with your spouse). However, be aware that the "kiddie tax" rules changed last year, raising the age limit for application of the "kiddie tax" to all children under age 19 (previously under age 18) and to students under age 24. The "kiddie tax" refers to the manner in which unearned income is taxed for children. In 2008, the first $900 of unearned income is tax free, the second $900 is taxed at the child's marginal tax rate, and any remaining unearned income is taxed at the parents' marginal tax rate. Once the individual exceeds the age limits, all unearned income is taxed at his/her marginal tax rate.

Familiarize yourself with all types of income tax deductions, exemptions, and credits. There are a wide variety available, and you should be aware of any that apply to you. For example, many tax benefits exist for higher-education expenses, including Coverdell education savings accounts (ESAs), Section 529 plans, and the Hope Scholarship and Lifetime Learning credits. Each has different eligibility criteria, so you need to be familiar with all of them to determine which will work best in your situation.

Consider your long-term planning needs. In addition to lowering income taxes for 2008, you also want to find strategies to lower taxes in future years. Thus, it is a good time to review your entire tax situation to see if other changes are warranted. For instance, you may want to invest more in municipal bonds, whose interest income is generally exempt from federal, and sometimes state and local, income taxes.

October 13, 2008

Prepare your Spouse to Handle the Family Finances

In many families, one spouse takes primary responsibility for the family's finances, doing everything from paying bills to making investment decisions to reviewing insurance policies. If that spouse dies first, the other spouse may have difficulty taking over these tasks. Thus, as the primary money matters person in your marriage, one of your most important financial duties is to prepare your spouse to handle the family's finances. Some strategies to consider include:

Maintain good records. Financial records should be well organized, located in one central place, and contain only pertinent information. Old or outdated information may confuse your spouse.

Prepare written instructions. These instructions should cover everything from insurance policies to investments to company benefits to monthly bills, so nothing is overlooked. Also list all your assets, why you own them, and where important documents are kept. Update these instructions at least annually.

Discuss your finances with your spouse. Go over your written instructions, explaining your rationale for major financial decisions. Your death may necessitate changes in investment allocations, insurance policies, and other financial matters, so encourage your spouse to explore all options before making decisions.

Involve your spouse in the family's finances now. Your spouse can start by paying monthly bills, balancing the checkbook, or reviewing credit card charges. Increase his/her involvement as confidence builds.

Line up professionals for your spouse. Even if your spouse assumes some financial duties, there may be areas he/she will never feel comfortable handling. Identify those areas, find knowledgeable professionals who can help, and introduce your spouse to them now.

These strategies can help smooth the transition if your spouse needs to take over the family's finances.

October 10, 2008

How to Accelerate Your Retirement Savings

Don't just give up on your retirement goals if you find you've entered middle age with little to no retirement savings. Sure, it may be harder to reach your retirement goals than if you had started in your 20s or 30s, but here are some strategies to consider:

Reanalyze your retirement goals. First, thoroughly analyze your situation, calculating how much you need for retirement, what income sources will be available, how much you have saved, and how much you need to save annually to reach your goals. If you can't save that amount, it may be time to change your goals. Consider postponing retirement for a few years so you have more time to accumulate savings as well as delay withdrawals from those savings. Think about working after retirement on at least a part-time basis. Even a modest amount of income after retirement can substantially reduce the amount you need to save for retirement. Look at lowering your expectations, possibly traveling less or moving to a less expensive city or to a smaller home.

Contribute the maximum to your 401(k) plan. Your contributions, up to a maximum of $15,500 in 2008, are deducted from your current-year gross income. If you are age 50 or older, your plan may allow an additional $5,000 catch-up contribution, bringing your maximum contribution to $20,500. Find out if your employer offers a Roth 401(k) option. Even though you won't get a current-year tax deduction for your contributions, qualified withdrawals can be taken free of income taxes. If your employer matches contributions, you are essentially losing money when you don't contribute enough to receive the maximum matching contribution. Matching contributions can help significantly with your retirement savings. For example, assume your employer matches 50 cents on every dollar you contribute, up to a maximum of 6% of your pay. If you earn $75,000 and contribute 6% of your pay, you would contribute $4,500, and your employer would put in an additional $2,250.

Look into individual retirement accounts (IRAs). In 2008, you can contribute a maximum of $5,000 to an IRA, plus an additional $1,000 catch-up contribution if you are age 50 or older. Even if you participate in a company-sponsored retirement plan, you can make contributions to an IRA, provided your adjusted gross income does not exceed certain limits. Starting in 2010, everyone can convert from a traditional IRA to a Roth IRA, regardless of their income. Thus, if you aren't eligible to contribute to a deductible or Roth IRA, you may want to contribute to a nondeductible IRA, which can be converted to a Roth IRA in 2010.

Reduce your preretirement expenses. Typically, you'll want a retirement lifestyle similar to your lifestyle before retirement. Become a big saver now and you enjoy two advantages. First, you save significant sums for your retirement. Second, you will be living on much less than you're earning, so you'll need less for retirement. For instance, if you live on 100% of your income, you'll have nothing left to save toward retirement. At retirement, you'll probably need close to 100% of your income to continue your current lifestyle. With saving 10% of your income, you're living on 90% of your income. At retirement, you'll probably be able to maintain your standard of living with 90% of your current income.

Move to a smaller home. As part of your efforts to reduce your preretirement lifestyle, consider selling your home and moving to a smaller one, especially if you have significant equity in your home. If you've lived in your home for at least two of the previous five years, you can exclude $250,000 of gain if you are a single taxpayer and $500,000 of gain if you are married filing jointly. At a minimum, this strategy will reduce your living expenses so you can save more. If you have significant equity in your home, you may be able to use some of the proceeds for savings.

Substantially increase your savings as you approach retirement. Typically, your last years of employment are your peak earning years. Instead of increasing your lifestyle as your pay increases, save all pay raises. Anytime you pay off a major bill, such as an auto loan or a child's college tuition, take the money that was going toward that bill and put it in your retirement savings.

Restructure your debt. Check whether refinancing will reduce your monthly mortgage payment. Find less costly options for consumer debts, including credit cards with high interest rates. Systematically pay down your debts. And most important -- don't incur any new debt. If you can't pay cash for something, don't buy it.

October 8, 2008

The Economic Hardship Deferment - Avoid Defaulting on Federal Student Loans

In a troubled economy, working Americans are struggling to meet basic expenses. Affording repayment of federal student loans is challenging because housing, food, and energy costs continue to inflate while real earning power decreases.

When you're in deep financial trouble and have become or are about to become more than 90 days delinquent on repaying your federal educational loans, you are in danger of defaulting. To avoid having this situation ruin your credit, read this brief discussion of why you should contact your lender to see if your circumstances qualify you for the federal economic hardship program. If you qualify, the federal government will pay the interest on your subsidized loans while in deferment.

Many education loan borrowers think that if they are employed full-time they must repay their student loans. However, the federal government provides an economic hardship deferment option for people whose payments would equal more than 20% of their gross monthly income. If you take the time to request this paperwork from your educational lender, read through and complete the worksheets, and return the signed form to your lender, the financial institution may be able to grant you relief from your payments.

Why is this deferment available? Just because you are employed full-time does not mean that you are earning enough to repay your student loans according to federal guidelines. Just like any other federal program, this program is intended to allow you to pay basic expenses without undue hardship from education debts.

Instead of ignoring those collection calls from your educational lenders, go to their website or give them a call and request deferment paperwork. If you do not qualify, your lender may have other options like forbearance to relieve your situation. The two-page worksheet to determine if you qualify based on your income status is truly worth 30 minutes of your time. Find out about your options today for peace of mind tomorrow.

October 6, 2008

Tax Consequences Between a Roth 40l(k) Plan and IRA versus Traditional Plans

Should you pay income taxes now, so you can withdraw funds after retirement tax free? Or are you better off delaying income taxes until after retirement? This is the basic decision when choosing between a traditional deductible individual retirement account (IRA) and a Roth IRA, or between a 401(k) plan and a Roth 401(k) plan. With the Roth options, you are paying taxes now so you can take qualified distributions income-tax free. With the traditional IRA and 401(k) plan, you are delaying taxes until distributions are taken.

The standard advice is to consider whether your tax bracket will be higher or lower in retirement. If you are likely to be in a higher tax bracket, you'll usually benefit from the Roth options, because you are paying taxes at a lower rate now. If you're likely to be in a lower tax bracket, you may benefit more from the traditional IRA and 401(k) plan, because you'll pay taxes at a lower rate after retirement.

Most people naturally assume that their tax rate will be lower in retirement, since their income will typically be lower. That assumes that income tax rates will stay constant over that time period, even though tax rates are at historically low levels. However, many believe that income tax rates have no where to go but up.

Thus, it may be prudent to use tax diversification for your portfolio. Tax diversification attempts to protect your portfolio against tax rate fluctuations. It is a concept similar to asset allocation, where you protect your portfolio against price fluctuations. With tax diversification, you invest in a number of investment vehicles with different tax ramifications. For instance, you might invest in a Roth IRA, where qualified distributions can be taken with no tax consequences; a 401(k) plan, where you save taxes now and pay ordinary income taxes of up to 35% on qualified distributions; and taxable accounts, where the capital gains tax of a maximum of 15% must be paid on sales of appreciated investments. Thus, during retirement, you can monitor your tax situation and withdraw money from the assets that make the most sense in any particular year.

October 3, 2008

Smoking Cessation Products: Totally Worth it or Totally Wasteful?

Everyone knows that smoking is an extremely bad habit with many possible health risks. Unfortunately, many Americans smoke at least a couple cigarettes on a regular basis. Some claim that smoking helps calm their nerves, others say it helps curb their appetites and keep their weight in check, but whatever the reason people smoke, most desire to quit. It isn't always quite so easy to quit, though, and although some are able to easily give up their habit, others struggle greatly. Fortunately, there are many products that can aid you in your quest to stop smoking, but the question is, do these products really help or will you just be throwing away your money?

There are often times in a person's life when quitting a smoking habit is easier than expected. These times include a family member being allergic to the smoke, being diagnosed with a smoking-related health problem, or learning that you are pregnant. In these situations, many people are able to quit cold-turkey, with very few side effects. Unfortunately, smoking is highly addictive, and usually isn't so easy to quit. Even the realization that cigarettes are expensive doesn't always help a person quit easily. It sometimes takes many months of an active program in order to completely give up a smoking habit. This is why lots of smokers conclude that they need help quitting.

Many people swear by the many stop-smoking products, while others feel they are a waste of hard-earned money. If you are a heavy smoker, the cost of over-the-counter smoking cessation products can really add up. To keep costs down, you may want to limit how much you use, if at all possible. After the first week of use, it's a good idea to take an assessment to determine if the product is even working. If it isn't, you can either give it a while longer or try another, possibly less expensive product. Another way to keep costs down is to shop around for your desired smoking cessation product. If you have determined that a certain product is working, or if you're looking to purchase a product for the first time, you should check the prices at all stores that sell the particular item to locate the lowest possible price.

There are certain times when a product that usually would have been successful in helping you stop smoking may not be as effective. This is especially true during high stress times in your life. Perhaps it would be more economical for you to refrain from purchasing smoking cessation products during such times. Stress is extremely powerful, and can cause you to easily slip-up. Many smokers can't handle high amounts of stress and often resort to smoking as a way of coping. If the stressful period isn't expected to last too long, you would definitely want to wait until this time has subsided before buying products to help you stop smoking. If the stressful time is expected to last indefinitely, in order to be more successful, you may need to find some alternate ways of relieving stress before beginning a smoking cessation program.

Obviously everyone's chemical makeup is different, meaning certain products will work successfully for some people and not others. As long as you have the motivation, willpower and dedication, just about any product that you choose to assist you in your stop-smoking endeavors will help to some degree. As to exactly how much help is provided, this totally depends on you and how your body responds. If you've spent a great deal of money on smoking cessation products yet haven't had any luck, it may be time to involve your physician. There are several medications that can be prescribed for you that may be able to better assist you in quitting your bad habit, or at least greatly lessen the amount that you smoke. This way, you can feel better supported, and your wallet shouldn't be affected as much, especially if you have insurance to help cover the cost of prescriptions.

October 1, 2008

Consider a Roth IRA at Any Age

Even if you're retired, you should consider contributing to a Roth individual retirement account (IRA), provided you have some earned income. In 2008, single taxpayers with modified adjusted gross income (AGI) less than $101,000 and married taxpayers filing jointly with modified AGI less than $159,000 are eligible to make a nondeductible contribution to a Roth IRA. Contributions are phased out for married couples filing jointly with modified AGI between $159,000 and $169,000 and for single taxpayers with modified AGI between $101,000 and $116,000. In 2008, the maximum annual contribution is the lesser of $5,000 or earned income. Individuals age 50 and older can make an additional $1,000 catch-up contribution. Pension, investment, and rental income are not considered earned income.

Roth IRAs are a flexible way to save for retirement. Contributions are withdrawn at any time with no tax consequences. Earnings and capital gains can be withdrawn on a tax-free basis if a qualified distribution is made:

• at least five years after your first contribution, and

• you have attained age 59 ½ or due to death, disability, or to pay up to $10,000 of first-time home buyer expenses.

Other characteristics of a Roth IRA may make it an attractive investment for retirees:

• You can make contributions as long as you have earned income, no matter how old you are. With traditional deductible IRAs, you must stop making contributions when you reach age 70 ½.

• Mandatory withdrawals after age 70 ½ are not required. You can take out as much or as little as you want, whenever you want, after age 59 ½. If you don't need the money, the balance can continue to grow on a tax-free basis.

• Qualified distributions from Roth IRAs are not included in AGI. Thus, these distributions will not affect income taxation of your Social Security benefits.

• Roth IRAs can provide a tax-advantaged way to accumulate assets for heirs. Both traditional and Roth IRAs are subject to estate taxes. However, the beneficiaries of a traditional IRA must also pay income taxes on the proceeds, while beneficiaries of a Roth IRA receive qualified amounts income-tax free.

With all of the advantages, retirees with earned income should definitely take a look at Roth IRAs.


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