Car Allowance Rebate System (CARS)

The Cash For Clunkers program starts July 1st and ends November 1st 2009, or whenever funds run out, whichever happens first. Eligible cars (clunkers) can be traded in for a voucher redeemable toward the purchase of a new, more fuel efficient vehicle. Vouchers are worth either $3,500 or $4,500, depending on several factors, including the difference in fuel efficiency between the old and new vehicles.

This chart shows a graphical representation of how the vouchers will be valued:

How to Redeem a Cash for Clunkers Voucher

Before you can redeem a Car Allowance Rebate System (CARS) voucher, you must first determine if you have a Cash for Clunkers eligible trade-in. Only cars that are between 10 and 25 years old with a combined mpg rating of 18mpg or less qualify for the Cash For Clunkers program.

Avoid scams! Be aware that there are multiple Cash For Clunkers scams, so be sure that you do not give personal information away on any websites, or send any money. The program is FREE to use and you will not have to pay anyone to register or join.

Step 1 – mile per gallon eligibility requirements. Determine if your vehicle is eligible. Go to the official Car Allowance Rebate System (CARS) website set up by the government: http://cars.gov. Here you can look up the combined mpg rating for your car. You will need to contact the National Highway Traffic Safety Administration (NHTSA) if your car is not listed.

Step 2 – ownership, driveability, and insurance criteria. To qualify for the CARS program, you must have had the vehicle under ownership and insurance for the previous 12 months, and the car must be roadworthy and driveable.

Step 3 – trade in your vehicle. once you pass the first two steps, you can now trade in your vehilce. You should note that you do not need a physical “voucher” befre you visit your dealership. The dealerships are equipped to handle the required paperwork necessary to receive the $3,500 to $4,500 voucher. And they will be more than willing to help you apply for the voucher becuase you need to purchase a new vehicle in order to redeem the voucher.

Additional Cash For Clunkers Information

• Vehicles must be between 10 and 25 years old.
• No physical voucher is required – dealerships will handle the required paperwork.
• You must purchase or lease a new vehicle to redeem the Cash for Clunkers voucher. Leases must be for at least 5 years.
• Used car purchases are not eligible at this time.
• Trade-in vehicles must get a combined 18mgp or less as determined by the official government site – FuelEconomy.gov. There are no exceptions at this time.
• You must have had the vehicle registered and insured in your name for the previous year to qualify.
• Trade-in vehicles will be destroyed, so make sure your trade-in value is less than the value of the CARS voucher, or you will be losing money on the deal.
• Car must be in drivable condition when it is traded in.

Here is additional information about the Cash for Clunkers program:

• Common Questions About The Cash For Clunkers Program.
• Cash for Clunkers Bill Details: CARS Program.
• CARS or Cash for Clunkers.
• Cash for Clunkers Program.
• Cash for Clunkers – Car Allowance and Rebate System.

Dave Ramsey’s Baby Steps

The purpose of Dave Ramsey’s 7 Baby Steps is to provide a step by step guide to help people get out of debt and achieve financial freedom. As you read through the steps, you will notice that they methodically help people improve their finances by making the commitment to stop using debt to fund their lifestyle, build an emergency fund to handle any unexpected expenses (and not rely on debt to do it!), eliminate all debt, then begin saving and investing for a bright future.

Dave Ramsey’s 7 Baby Steps are as follows:

• Step 0: No More Debt!
• Step 1: $1,000 to start an Emergency Fund.
• Step 2: Pay off all debt using the Debt Snowball.
• Step 3: 3 to 6 months of expenses in savings.
• Step 4: Invest 15% of household income into Roth IRAs and pre-tax retirement.
• Step 5: College funding for children.
• Step 6: Pay off home early.
• Step 7: Build wealth and give! (Invest in mutual funds and real estate).

Why follow Dave Ramsey’s Baby Steps?

Dave Ramsey’s Baby Steps are a proven system to get out of debt and achieve financial freedom. The first steps focus on the main point of the program – to get out of debt. Being debt free is only the first step to financial freedom. Along with debt elimination, Dave Ramsey advocates making an emergency fund to avoid using debt in the future, saving and investing, and finally, sharing your wealth with others.

Like all financial programs, there are prros and cons to following each step as written. The key is to examine the principles of the program and determine which steps meet your needs and apply them accordingly. It is also important to note that Dave Ramsey encourages his audience to work on Steps 4-7 at the same time if they feel that is the right thing to do for their personal situation.

Understanding the  Car Allowance Rebate System (CARS)

Here is how the Car Allowance Rebate System (CARS) works: Consumers need to turn in an old vehicle to receive a $3500 to $4500 voucher that can only be used on a new car. The voucher has no cash value and cannot be transferred to another individual. The car will be destroyed, so it is important to note that trade-in values should be less than the voucher amount, or it will not be worth trading the car in for the voucher. Here is some more information about the Cash for Clunkers Bill:

• Only purchase or lease of new vehicles qualify.
• Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in.
• You don’t need a voucher, dealers will apply a credit at purchase.
• Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.

Beware of Cash For Clunkers Scams

Thieves and con artists are already taking advantage of the confusion surrounding the Cash for Clunkers Bill. It is important to understand how the Cash for Clunkers Bill works to avoid the scams that are already taking place. For official Cash for Clunkers information, visit the official site at http://www.cars.gov/, or the Frequently Asked Questions.

To avoid Cash for Clunkers scams you should also follow these tips:

• Do not give your personal information on websites. The Cash For Clunkers vouchers can only be processed by authorized dealerships. Do not submit information for a voucher online.
• Do not pay to process a voucher. Dealerships will process the vouchers for free.
• Look at previous economic stimulus scams for examples of what to avoid. There were how to avoid Stimulus Check and Government Grant Fraud.
• Use online safety tips. Here are some tips to avoid identity theft, and some more tips on preventing identity theft.

If it sounds too good to be true – it probably is. Common scams include:

• Websites alleging to “pre-authorize” applications.
• Websites offering to give you cash for your voucher (vouchers are non-transferable).
• Websites that state they are the “official” Cash for Clunkers or Car Allowance Rebate System (CARS) website. The official site is http://www.cars.gov/.

The best bet is to visit the official site before giving away any information.

Roth TSP plan may be several years off

The House recently approved a measure that will make the Roth TSP a reality for military and government Thrift Savings Plan holders, but it appears as though it may still take a couple years to toll the Roth TSP plan out to participating members, even if a bill is signed into law. The reason for the delay is that it will take TSP officials, military pay officials, and other federal agencies time to make the necessary changes in the payroll and accounting systems.

Additionally, a change such as adding a Roth option is a substantial enough change that the TSP Board will want to ensure that people are informed about the Roth option and will need to offer enough information to TSP participants to make sure they can make an informed decision regarding whether or not the Roth option would be better for them, or whether they should stick with the traditional offering.

Which is better – Roth or Traditional? The Roth and Traditional TSP plans would function in a similar manner as Roth and Traditional IRAs. I recommend reading on the pros and cons of investing in the IRAs to get a better idea of how it would differ with the TSP. Both options are good, but one may be better for you than the other, depending on your current and potential future income, and your current and potential future tax levels. You should make your decision based on those and other factors.

Disabled military veterans currently receiving VA Disability Benefits are eligible to receive a one-time $250 Economic-Recovery Check from the US government. This is part of the American Recovery and Reinvestment Act that President Obama signed into law this past February.

Who is eligible for the $250 Stimulus Payment?

The $250 government stimulus check is for:

• Retirees, disabled individuals and Supplemental Security Income (SSI) recipients receiving benefits from the Social Security Administration.
• Disabled veterans receiving benefits from the U.S. Department of Veterans Affairs.
• Railroad Retirement beneficiaries.

This is a one time check that will be sent out in 2009. As of this writing, there are no plans to make this check available in 2010 or beyond.

VA Disability Beneficiaries stimulus check information

If you receive disability benefits from the VA, you will be among the thousands of individuals receiving this $250 stimulus check. Here is the information you need to know:

• You will receive a one time $250 check.
• You will receive the payment in the same method you receive your regular disability payment (direct deposit or physical check).
• Your $250 stimulus payment will not be included in your regular VA disability payment.
• The $250 stimulus check is not considered taxable income.
• The $250 stimulus check will not affect your disability rating or benefits.
• Your check may be used to offset debts owed to federal or state agencies (back taxes, child support, etc.).
• You can only receive one $250 stimulus payment, even if you are eligible for more than one payment, such as from Social Security, Supplemental Security Income (SSI)m or the Railroad Retirement Board. If you receive more than one check you will need to return it, or it will be taken from your account at a later date.
• The stimulus check should show up in your bank account as an electronic transfer from the “US Treasury 220 VA ERP.”

When will you receive your $250 stimulus check?

Disabled veterans should receive their payment by July 10, 2009. If you do not receive it by then, you should contact the Veterans Affairs Administration by e-mail, letter, or phone. Be sure to include your VA file number (usually SSN) when you contact them. Here is the contact information:

• Internet: https://iris.va.gov
• Phone: 1-800-827-1000, or 1-800-829-4833 (TDD)
• Mail: Department of Veterans Affairs, 1240 E 9th St, Cleveland OH, 44199

For more information about the $250 stimulus payment, check out the following websites:

• $250 Social Security And SSI 2009 Stimulus Check Information.

Both college savings plans offer tax advantages and may be good options depending on your needs. This article offers a comparison between both plans:  529 College Savings Plans vs. Coverdell ESAs.

The 529 College Savings Plan offers a more flexible plan for many people, so I thought I would share some of the tax advantages of saving for your child’s college education with a 529 College Savings Plan.

Tax Advantages of the 529 Plan

There are several major advantages to using a 529 College Savings Plan as a college savings vehicle.

• Tax exempt earnings. 529 earnings grow free from federal income tax as long as your withdrawals are used to pay for college expenses.
• Tax exempt withdrawals. Withdrawals from a 529 Savings plan are exempt from income taxes when used for qualified higher education expenses.
• Tax deductions and/or credits. Some states offer a state tax deduction or credit for contributions made to9 a 529 Savings Plan. Here is a list of states that offer this benefit.

Tax Disadvantages of a 529 Savings Plan

If you decide to make withdrawals from your 529 Savings Plan for something other than higher education expenses, you may be hit with penalties and taxes. In fact, the penalties are similar to the early withdrawal penalties for retirement fund. Any accumulated earnings are taxed, and you must pay an additional 10% penalty on your earnings.

Check with your 529 plan for more details

This article only includes a brief overview of the advantages and disadvantages of 529 plans. For more information, I recommend checking with the IRS or your individual plan.

Recommended articles about 529 plans:

• Our Son Just Turned One, Starting College Tomorrow.
• How to open a 529 college savings plan for your children.
• 529 Plan and College Savings: Should We Contribute?
• College Savings and Investing With 529 Plan and ESA.

Each state can offer their own 529 college savings plan and there may be differences among plans offered.

Here is a recent reader question about where to invest money:

Hi, I am 68 yrs. old. I just came into some money and I need to put it somewhere safe; I don’t want to tie it up in a stock portfolio. Is there something that I can do to make a little money and still have access to it without going through paperwork to get it? I had thought about buying a condo with a couple people, and renting it out, but maybe there is something that I have not thought of, that some financial wizard can come up with. I need to make some decisions soon. I don’t mind investing it if can have ready access to it. Hope to get as many ideas and advice as possible. Thank you in advance, Kelley.

Short Term Investing

Hello Kelley, thanks for contacting me. The key with short term investing is realizing that you might need the money in a few years, so you want to avoid too much risk. Here are a few ideas for short term investing.

Avoid stocks and real estate. Since you are already at/near retirement age, you probably don’t want to put much money into stocks because of their volatility. Over short time periods the stock market can be wildly unpredictable and the last thing you want happening is having your portfolio down 30% when you need to withdraw the money.

If you need access to the money, you don’t want to tie it up into real estate, especially with other investors. Real estate investing with partners can be a tricky proposition because someone may wish to sell their equity, while others may want to keep renting out the property. You would also have to consider vacancies, maintenance, condo fees, and other situations that may arise.

Since you may need the money relatively soon, you should look into guaranteed investments.

CDs and savings accounts are guaranteed investments. As long as your bank is backed by the FDIC, then your Certificate of Deposit (CD) or savings account is a guaranteed investment and will not lose money. If you are investing for the short term and have a good idea when you will need the money, then a CD is not a bad way to go.

Choosing a CD ladders or savings accounts for short term investments

If you need full liquidity (access to the money at any given time), then I would recommend a high yield savings account, even though they may earn less interest than a CD. Savings accounts will never lose money and you should have unlimited access to your money.

If you want to earn more interest than most savings accounts and anticipate only needing some of the money at any given time, then I would recommend building a CD ladder. CD ladders will give you access to your money on a regular schedule – either annually or monthly, depending on how you set up the CD ladders.

The example used in the article above is a 5 year CD ladder, but you could just as easily build a 12 month CD ladder, ensuring you have access to your funds once a month instead of once a year. The other benefit of CD ladders is that if you have to break the CD, you only pay a couple months interest, which usually isn’t a big deal, and certainly isn’t as bad as losing a large portion of your principle as can happen in the stock markets, or having your money tied up in real estate.

As always, check with a professional financial planner before making any long term investing decisions.

Double Cashback Bonus or Double Miles from Discover

Discover is offering automatic Double Cashback Bonus or Double Miles for all purchases up to $1,000 that are made on military installations worldwide.

• This includes purchases at any of the following locations on base: Commissary, Exchange (BX/PX, NEX, MCX), Shopette/Convenience Store, Exchange catalog, Exchange online store and Exchange Gas/Service Station.
• You will continue to earn up to 1% Cashback Bonus or 1 Mile for each dollar you spend, as applicable, on all other purchases including purchases at U.S. Military Bases in excess of $1,000 during the promotion period..
• Your promotional reward will be applied within 8 weeks..
• Cardmembers can now donate their rewards to Operation Homefront – an organization providing critical assistance to military families in need..
• Visit the Discover military appreciation website for more information.

Discover also has an article about Money Saving Tips for Military Families.

Apply for a Discover Card Now

Don’t have a Discover Card to take advantage of this offer? Here are some current Discover Card offers:

• $50 Cash bonus: Discover More Card – 1% cash back on everything.
• Gas Rewards Card: Discover Open Road (5% cash back on gas).
• Best travel card: Miles by Discover.
• Best student credit card: Discover Student.

Remember to spend wisely and pay your bills on time!

Home Depot and Lowe’s Military Discount Eligibility

The 10% military discount is available to: Active-duty military members, National Guard and Reserve members, retirees, honorably discharged veterans and immediate family members of all those groups are eligible. Customers requesting a discount must be able to show a valid military ID card or other proof of military service (a DD Form 214 or VFW membership may qualify).

Here are some more details about the offer:

Lowe’s discount:

• Available Thursday, May 21 through Monday, May 25.
• Good for purchases up to $5,000 (max discount of $500).
• Offer is good for in-store purchases only and it does not apply to online sales, previous sales, purchase of services or gift cards.

Home Depot discount:

• Available Thursday, May 21 through  Wednesday, May 27.
• Good for purchases up to $2,000 (max discount of $200 maximum).
• Offer is good for in-store purchases only and it does not apply to online sales, previous sales, purchase of services or gift cards.

Here are some more military discounts, and other money saving deals.

The benefits of a Roth option for the TSP

Many military members start off their career in lower tax brackets because they often receive a large portion of their income as non-taxable military benefits. This allows military members to put away a lot of money that was taxed at a comparatively low rate – potentially lower than they would be subject to in retirement years. This can be a great way to save for retirement and practice tax planning at the same time.

Roth vs. Traditional. Here is a comparison between Roth and Traditional IRAs, which covers some of the pros and cons of investing with pre-tax and post-tax money, and how the distributions work.

Other proposals for the Thrift Savings Plan

Survivor benefits. Another change on the line is a survivor benefit change that would allow spouses of deceased TSP holders maintain the TSP accounts after their spouse passes away. Currently, surviving spouses or heirs must transfer the assets from the TSP account within 60 days of the member’s death. The funds must be transferred to an IRA, or be subject to early withdrawal penalties.

Mutual fund option. Another proposal would allow TSP participants to invest money held in their TSP account in private-sector mutual funds. This option will negate one of the best benefits of the Thrift Savings Plan, which is the extremely low cost ratios of the funds. It is very possible this section of the proposal will not pass.

The Thrift Savings Plan is improving

It’s good to see that government officials are working to improve one of the best financial benefits available to military members.