Saving to Inve$t

2010 US Economic Outlook - Strong Growth Expected as Recession Fades

andy@savingtoinvest.com (Andy) — Tue, 29 Dec 2009 18:17:00 +0000

Entering 2009, global financial markets seemed to be mired in doom and gloom. With the collapse of many venerable financial institutions, it looked like another great depression was in store. However from March 2009, stock markets began to rise from their lows despite higher unemployment and tight credit markets. Many stock market pundits predicted this as just a summer bear market rally, but have been proved very wrong as the Dow and other stock market indexes soared over 50%. Despite the large rally though, there is still a long way to go before Americans investment and retirement accounts recover. The good news is that it seems that most economists are predicting that 2010 will be a good year for the economy and markets building on gains in 2009. Only time will tell what eventuates, but the outlook entering 2010 definitely seems much better than it was entering 2009

According to a Bloomberg News survey, Dean Maki of Barclays Capital and the most-accurate forecaster over the year, predicts that domestic economy will expand 3.5% in 2010. This will be driven by the rebound in stocks and rising incomes, which will prompt Americans to raise consumption levels. Faced with dwindling inventories and growing demand, companies will then soon become confident the expansion will be sustained. This will mean more jobs and hence more consumption. So the vicious downward spiral that ground the economy down will reverse course and instead work in boosting the economy again. Maki predicts that the unemployment rate will fall to an average of 9% by the end of 2010. Faster growth will also push Treasury (and TIPs) yields higher, to around 4.5%, and help the dollar strengthen as the Fed raises interest rates.

"We don't believe this time is different from all other business cycles," said Maki. "The consensus view that growth will stay subdued all through next year -- there's no parallel to that in modern U.S. history." Maki's forecast for 2010 is among the highest of the 58 economists in a Bloomberg News survey this month. He is more optimistic than Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, who was No. 1 among forecasters of GDP during the 12 months through June 2009. Hatzius, 41, estimates the economy will expand 2.4 percent in 2010, and his 2.5 percent first-quarter growth forecast is half the pace Maki anticipates. Ed McKelvey, who works with Hatzius, said the Goldman team forecasts "subpar growth" next year because "employers will be reluctant to hire" and households will exhibit "a bias toward higher saving." Budget difficulties at state and local governments and credit constraints will also restrain the economy, he said. Neal Soss, 60, chief economist at Credit Suisse in New York, was the second most-accurate forecaster of GDP over the first three quarters of 2009. He projects the economy will grow 3.3 percent next year. John Lonski, 58, chief economist at Moody's Capital Markets Group in New York, was No. 3. He sees a 2.7 percent expansion.

It looks like the pendulum that is the economy, is now swinging back in the positive direction, with more optimism than pessimism now becoming evident. Stock markets will still be volatile in 2010, but if forecasts hold true we could see stock markets up by 10% to 20% next year. Like most everyday investors and consumers, I am still taking a cautious approach in 2010. I have become less conservative in my 401K investment mix, yet I am still making sure that I have sufficient emergency funds available if needed. However, you must invest in market and make your savings work for you. Sitting on the sidelines flush with cash can mean you miss out on potentially strong capital gains while you lose your savings in a rising inflation and taxation environment.

Look out for an upcoming article, in which I will look at where and what assets to invest in 2010. So I encourage you to subscribe (free) via Email or RSS to get it delivered directly to you.

Year End Tax Considerations in a Rising Government Spending and Tax Rates Environment

andy@savingtoinvest.com (Andy) — Sat, 26 Dec 2009 20:52:00 +0000

I recently received a timely article about future tax implications given the large amounts of government spending and contracting corporate and consumer tax base. All this means is that tax considerations should play a much more central role in people's thinking as they're making critical financial decisions. At the end of 2010, several cornerstones of the federal tax legislation of 2001 and 2003 — specifically, those reducing tax rates on income, capital gains and dividends — are set to expire. Meanwhile, with U.S. government debt soaring as the result of stimulus spending to rescue the economy, many economists believe there's a good chance that tax rates could rise, perhaps even before your 2009 filing. With higher rates a real possibility, you may need to rethink the way you do year-end tax planning, and these are four ways of potentially maximizing tax efficiency, for next April and beyond.

1. Accelerate income; postpone deductions. Traditionally, the sensible move for most taxpayers has been to take deductions as soon as possible while seeking to delay some taxable income till the following year. However, you may want to consider reversing that formula, accelerating income into 2009 so that it may be taxed at lower rates. A similar strategy might be employed on the deduction side. If you were planning large charitable contributions in December, for example, you could postpone them a month on the premise that if tax rates rise, the value of philanthropic donations as a means of offsetting income will be greater.

Get your refund fast. Do your taxes the easy way with TurboTax. Start Now.

2. Take capital gains now. This may also be a good time to rethink your strategy regarding capital gains. The current maximum rate on long-term gains is 15%, but it could soon rise. You might therefore decide to sell an appreciated asset this year in order to secure the current low rate. Because any 2010 tax hikes wouldn't likely be passed until the tail end of 2009, it would be wise to decide as late in the year as possible whether to employ strategies for accelerating income, postponing deductions or taking capital gains.

3. Maximize retirement-plan contributions. You should also consider your retirement accounts in any assessment of your tax strategy. When rates rise, tax-deductible contributions and tax-deferred investment growth can become more valuable. But although it's true that tax deductions will be worth even more if tax rates move higher, there's no need to postpone them; it still makes sense to continue making the maximum retirement-plan contribution each year. Self-employed taxpayers in particular can set aside substantial sums annually in Keogh or simplified employee pension (SEP) accounts, with contribution limits of $49,000 for 2009. Taxes on those funds will be deferred until they are withdrawn during retirement.

4. Consider a Roth IRA conversion. Starting in 2010, the IRS is lifting the income restriction on conversions from traditional IRAs and eligible employer-sponsored retirement plan assets to Roths. The income limit has been $100,000 a year for individuals. You'll owe income tax on the value of the assets in the conversion, less any nondeductible contributions you made to the plan. But the taxes will be lower now if your traditional IRA has been hit by market losses, as most have. And taxpayers who convert to a Roth in 2010 will be able to spread their tax liability for the conversion over the following two years. The question is whether converting an existing I.R.A., the proceeds of which are taxed when distributed, into a tax-free Roth I.R.A. makes sense.

If you have a large amount of capital invested in a retirement plan, moving that money to a Roth IRA could potentially enable you to pass it along to your heirs, who will receive tax-free income throughout their lifetime. Roth IRA conversions do, however, have a "five-year clock" which prevents clients from accessing retirement funds too early. The rules are pretty simple: The account holder must have a Roth IRA account for at least five years. This five-year rule applies to each contribution or conversion, so it is important to keep track of which assets are converted and when.

Although contributions to a Roth are not deductible, investment earnings and withdrawals during retirement are not taxed, and unlike a traditional IRA, a Roth requires no mandatory distributions.

What makes these year-end retirement account strategies even more potentially attractive is that they may provide benefits even if tax rates don't rise anytime soon. And a well-funded retirement plan - along with the possible conversion to a Roth IRA - is likely to prove to be a sound investment for decades to come, whichever way the tax winds

Health Care Reform Bill Impacts - Employer Fines and Employee Subsidies - Big Business to Small Business

andy@savingtoinvest.com (Andy) — Thu, 24 Dec 2009 15:23:00 +0000

The WSJ had a very poignant graphic showing how employers and workers could be affected under the recently approved Senate health care bill which requires all citizens and legal residents to purchase a health insurance policy

Companies would face fines as high as $750 per worker if even one employee seeks federal help to buy a policy. Yet paying the fine could be more cost effective for companies and their low income workers, than subsidizing employee health insurance. Federal subsidies will be available to people purchasing medical coverage through the state-based insurance exchanges, which are expected to be up and running by 2014.

Under the Senate health care bill, most businesses with fewer than 50 workers will be exempt from penalties if they don't offer employee coverage. Democrats say a package of tax credits within the Senate bill will reduce costs for small businesses. Small businesses that qualify would get a 25% tax credit to help pay for employee coverage. The legislation would also allow small businesses to band together to seek coverage at costs similar to those of much larger companies.

Under the proposed health care plan, a large portion of these workers could end up getting their insurance through the government insurance, simply because it is more cost efficient for the company to pay the fine rather than provide the health care subsidy. So imagine the impact on the already ballooning US deficit if half these workers move under some form of government sponsored insurance.

Other key financial aspects of the Senate Health Care bill:

- It is estimated to cost $848 billion over a 10 year period, but lawmakers say it would be fully offset by new taxes and revenues and would actually reduce the deficit by $130 billion over the same period. Notably, the bill would create a government-run insurance plan (a.k.a the public option) to compete with private insurers, but individual states would be able to choose whether or not to offer it to their residents

- Beginning in 2014, most individuals will be required to maintain minimum essential coverage or pay a penalty of $95 in 2014, $350 in 2015, $750 in 2016 and indexed thereafter; for those under 18, the penalty will be one-half the amount for adults. There are some exceptions to this requirement.

- Federal subsidies will be available to help people afford coverage. The subsidies will be available for people with incomes up to 400 percent of the poverty level, about $88,200 for a family of four. The poverty levels for 2009 is $22,050 a year for a family of four and $10,830 for an individual.

- Millions of people, with income up to 133 percent of poverty, will be newly eligible for Medicaid, the health program for the poor. Currently many states set eligibility requirements well below that level of poverty.

- By requiring everyone to obtain insurance, hospitals will have fewer cases of uncompensated care. Many people without insurance seek care at hospital emergency centers because they do not turn away patients. When patients are unable to pay, hospitals make up those losses by charging more to those with insurance. Democrats say that pushes premiums higher by about $1,100 a year.

- Extend dependant coverage up to age 26. This will probably raise insurance premiums for families.

- A qualified health plan will be offered through the new American Health Benefit Exchange, which must provide essential health benefits that include cost sharing limits. No out-of-pocket requirements can exceed those in Health Savings Accounts, and deductibles in the small group market cannot exceed $2,000 for an individual and $4,000 for a family. Coverage will be offered at four levels with actuarial values defining how much the insurer pays: Platinum – 90%; Gold – 80%; Silver – 70%; and Bronze – 60%.

I will provide more details as more details emerge from debates and bills on health care reform. So I encourage you to subscribe (free) via Email or RSS to get the latest updates on this credit

Tax Tips and Rules Around Charitable Donations and Charity Contributions

andy@savingtoinvest.com (Andy) — Wed, 23 Dec 2009 03:49:00 +0000

Giving is good. It’s even better if it doesn’t cost you in terms of taxes. So make sure you can maximize your giving and minimize your taxes by following the following IRS rules and guidelines when it comes to giving to charity:

· Contributions are deductible in the year they are made. Thus, donations charged to a credit card before the end of the year count for that year only. This is true even if the credit card bill isn’t paid until the subsequent year. Also, checks count for the year they are written as long as they are mailed and clear in the same year

· Clothing and household items (non-monetary) donated to charity generally must be in good used condition or better (i.e. not torn or extremely faded) to qualify as a charitable donation. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a - qualified appraisal of the item with the return. One thing most tax payer’s forget is that qualified charitable household items include furniture, furnishings, electronics, appliances and linens. So rather than throwing away your tube TV or old couch, consider donating it. Take a picture, document it’s condition and keep the receipt (if you still have it). Also you can search for companies in your local area that pick up these items and can provide you with the relevant tax receipts or forms

· To deduct any charitable donation of money (cash, check, credit or payroll deduction), regardless of amount, a taxpayer must have a bank record or a written communication from the charity (normally a receipt or tax invoice) showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity

· Check that the organization you are donating to is qualified as a charitable organization under IRS guidelines (see publication 78 or use the online search at irs.gov). If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value

· The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the you by the organization and attached to the donor’s tax return.

· Claiming charitable donations: For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2009 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction. If the amount of a taxpayer’s deduction for all non-cash contributions is over $500, form 8283 must be submitted with the tax return.

· IRA contributions. Under a special provision, currently scheduled to expire at the end of 2009, older owners of individual retirement accounts (IRAs) have a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible. To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer. See IRS publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Keep giving, because the more you give the more you get!

The Best Job Prospects and Employment Professions in the Next Decade

andy@savingtoinvest.com (Andy) — Sun, 20 Dec 2009 01:37:00 +0000

There is no doubt that the nation is going through one its toughest employment periods in a long time. With unemployment rates close to 20% across many regions, it's tough for current job seekers and new graduates trying to get into the workforce. This is why it is even more important to arm yourself with the skills now or study in a relevant program to ensure that you are more employable in future growth industries and professions. To do this, look at a recent release by the Bureau of Labor Statistics, showing the projected employment growth in the 2008–18 period. As you can see from the graphic, employment growth is concentrated in the service-providing sector, continuing a long-term shift from the goods-producing sector of the economy.

More than half of the new jobs will be in professional and related occupations and service occupations. In addition, occupations where a college degree or award is usually required are expected to account for one-third of total job openings during the projection period.

The good news in terms of job opportunities is that openings from replacement needs—those which occur when workers who retire or otherwise leave their occupations need to be replaced—are projected to be more than double the number of openings due to economic growth. The projected growth for the 2008-18 period is larger than the increase of 10.4 million over the 1998-2008 period, or 7.4 percent. Industries projected to have the most employment growth are in professional and business services: management, scientific, and technical consulting; computer systems design; and employment services. Altogether, these 3 industries are expected to add 2.1 million jobs. Four of the top 10 gainers are in health care and social assistance industries. Employment in offices of physicians, home health care, services for the elderly and persons with disabilities, and nursing care facilities is expected to grow by 2.0 million.

Of the flip side, of the ten industries with the largest projected employment declines, 4 are in the manufacturing sector and 2 each are within retail trade and information. The largest decline among the detailed industries is expected to be in department stores, with a loss of 159,000 jobs, followed by manufacturers of semiconductors (-146,000) and motor vehicle parts (-101,000).

The diversity of the labor force is also expected to markedly increase by 2018 as a result of higher population growth among minorities. Higher birth rates and increased immigration, along with higher labor force participation rates by Hispanics and Asians—the share of the labor force held by minorities is projected to increase significantly. Whites will remain the largest race group in the labor force in 2018 (79.4 percent) despite growing by just 5.5 percent between 2008 and 2018. The number of Asians in the labor force is projected to increase by 29.8 percent and the number of blacks by 14.1 percent. In 2018, Asians are projected to comprise 5.6 percent of the labor force and blacks to make up 12.1 percent.

While the above is based on historical statistics and a number of assumptions, it is not surprising to see the industries that are expected to grow (and decline). The lesson from this though is that you should focus, whether you are already working, graduating or thinking of what to do, on where the jobs will be. A degree looks like a must and if you focus on information technology and health care industries your job prospects should be much than those who don’t. Browse and apply for jobs in the above industries now at monster.com

How to Find and Lower the Cost of Your Auto Insurance

andy@savingtoinvest.com (Andy) — Thu, 17 Dec 2009 20:50:00 +0000

There are two main costs associated with car insurance:

The Premium: The amount of money you pay the insurer for insurance cover during the life of the policy. The insurance premium can vary widely among insurance providers, which is why experts strongly recommend getting several quotes before committing to a policy. In fact, even for the same provider you are likely to get quotes that change on a daily basis.

The Deductible: You generally choose your desired deductible when purchasing the insurance policy, and is the amount you have to contribute if you make an insurance claim. It can range from $0 to $1000 and generally the higher your deductible the lower your premium, and vice-versa.

Companies hire actuaries to figure out what to charge people and the cost of your insurance premium is based on a number of factors. Some of which (like where you live and how old you are) you have little control over but there are a number of other variables which you can control that have a big bearing on your cost of insurance. Because there are so many factors that go into figuring out a person’s insurance premium, there is sufficient variety amongst insurance providers to make it worthwhile to shop around for the best deal and the best cover for you. Here are some of the variable factor’s the insurance companies use when figuring your premium:

• Whether your car is insured for agreed value or market value. If you choose an agreed value which is less than the market value, you may get a significantly lower premium

• Type of car - age, make, model & body style. In general, a more expensive or faster car will cost more to insure, simply because owners of those vehicles tend to drive faster

• Previous claims (or no claim discount). Don’t try and hide these – all the companies have access to each other’s and local/state accident databases

• Where you live. Insurance companies base their analysis down to the street where you live. Also if you have moved recently, you may get a cheaper insurance premium, particularly if you have moved to a "safer" area

• Whether the car is parked on the street or in a garage. A garage is considered safer, so generally the insurance is lower

• Any modifications or accessories (e.g. spoilers or large speakers)

• Whether you own the car or have a loan. Some companies also look at your credit history and FICO score

• The deductible you agree to pay. The higher the deductible the lower your premium since you bear more of the initial costs before the insurance company has to pay

• Your driving record. The better your record, the lower your insurance. If you have a clean record for 5 or more years, you should be able to get the best rates in the market

• The number of additional drivers, and especially those under the age of 25.

How to Find the Best Insurance

I tend to start with insurance portals like Esurance or Insure me, because they search across a number of providers, but I have also found that if I go to specific insurance provider sites like GEICO or Allstate (see my comparison of these 2 providers) you can find certain exclusive deals not available elsewhere. That’s why it's a good idea to review your auto insurance cover when it comes time to renew. Normally I get a couple of competitor rates quotes when my policy is due for renewal and then call the representative of my current insurance provider to see if they can match the lower price. Most of them have a +/- 10% discretion, so you can normally get a decent deal this way (and stay with your current provider), particularly if you have a good driving record. If they cannot match it, I go with the cheaper company.

No matter which insurance provider you go with, there are number of things you can do that will lower the cost of your car insurance. Use the list above as a guide when shopping around for auto insurance and to see where you can improve your "car profile" to the insurance providers. I know that by simply stating in my online quote request form that I parked my car in a garage and had an alarm system (factory) installed, I got $200 dollars off my insurance over 6 months! Not bad for about 30 minutes of online work.

Do you have any other tips on lowering the cost of your insurance? If so, leave a comment to share.

2009 Federal Income Tax Guide Features All The Stimulus Recovery Tax Break Details; Which Can Help People Save When Filing Returns in 2010

andy@savingtoinvest.com (Andy) — Sun, 13 Dec 2009 20:06:00 +0000

Publication #17 from the IRS, Your Federal Income Tax, is one of the most important tax booklets issued by the IRS each year. It features details on taking advantage of new tax-saving opportunities, such as the making work pay credit for most workers, American opportunity credit for parents and college students, energy credits for homeowners going green, first-time home buyer credit, sales or excise tax deduction for new car buyers, and the expanded child tax credit. Off course, most people don’t have the time or the interest in going through all the 308 pages in the publication. Luckily for you, I’ll be doing that over the next few weeks and will point out the most useful tax breaks that 95% of us can take advantage off. Links to more details will also be provided, so do subscribe (free) via Email or RSS to get the latest posts and other useful personal finance information.

In this article, I’ll cover some of the tax items that were new in 2009 and may well have a very positive impact when filing your tax return in 2010. In particular I will focus on the economic recovery tax credits and deductions most Americans received under the President's $787 billion economic stimulus package. The good news is that the Economic recovery payments you received are not taxable for federal income tax purposes, but it could have impacts on your overall tax situation and deductions in 2010 since the credits are part of your gross income.

Making work pay credit. If you have earned income from work, you may be able to take this credit. It is 6.2% of your earned income but cannot be more than $400 ($800 if married filing jointly). See this post for details on the making work pay credit and how it has been extended into next year.

Government retiree credit. You may be able to take this $250 credit if you get a government pension or annuity, but it reduces any making work pay credit. This SSI credit has been extended into 2010 as well, to offset the lack of a COLA increase. The Making working Pay $400/$800 credit is being paid by the IRS (via adjusted withholding tables for employers), while the $250 social security payment is being paid out by the SSA

Cash for clunkers. A $3,500 or $4,500 voucher or payment made for such a voucher under the CARS “cash for clunkers” program to buy or lease a new fuel-efficient automobile is not taxable for federal income tax purposes. This widely successful program was heavily used and was rumored to have single handedly saved the US auto industry from total collapse over the summer. The $3 billion Cash for Clunkers program was shut down at the end of August and you should have got your rebate from the dealer when buying the car.

2009 and 2010 First-time home buyer credit. The credit increases to as much as $8,000 ($4,000 if married filing separately) for homes bought after 2008 and before May 1, 2010 (before July 1, 2010, if you entered into a written binding contract before May 1, 2010). You can choose to claim the credit on your 2009 return for a home you bought in 2010 that qualifies for the credit. You generally must repay any credit you claimed on your 2008 return if you sold your home in 2009 or the home stopped being your main home during 2009. For more information on these changes and other changes when the credit was extended into 2010, see 2010 Extension of $8,000 First Plus New $6500 Existing Home Buyer Tax Credit From the 2009 Stimulus Package and Increase in Income Limits

Unemployment compensation. You do not have to pay tax on unemployment compensation up to $2,400 per person for the year. Amounts over $2,400 are still taxable.

American opportunity education credit. The maximum Hope education credit was increased to $2,500 and is available for 2009 and 2010. The increased credit has been renamed the American opportunity credit and part of it is refundable. This new education tax credit (a modification of the Hope credit). The maximum credit per student is $2,500 (100% of the first $2,000 and 25% of the next $2,000 of qualified education expenses). The credit is available for the first 4 years of post secondary education, and 40% of the credit is refundable for most taxpayers. For 2009, the amount of your credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You cannot claim a credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).

Deduction for motor vehicle taxes. If you bought a new motor vehicle in 2009 after February 16, you may be able to deduct any state or local sales or excise taxes on the purchase. In states without a sales tax, you may be able to deduct certain other taxes or fees instead. Take the deduction on Schedule A (Form 1040) if you are itemizing deductions and are not electing to deduct state and local general sales taxes. If you are not itemizing deductions, these taxes increase your standard deduction as figured on Schedule L (Form 1040A or 1040).

Tax on child's investment income. The amount of taxable investment income a child can have without it being subject to tax at the parent's rate has increased to $1,900. This tax free income should encourage all parents to teach their kids to invest and take advantage of any tax free income.

Alternative minimum tax (AMT) exemption amount increased. The AMT exemption amount is increased to $46,700 ($70,950 if married filing jointly or a qualifying widow(er); $35,475 if married filing separately).

Standard mileage rates. For 2009, the standard mileage rate for the cost of operating your car for business use is 55 cents per mile. See this article, 2010 vs. 2009 Standard Mileage Rate Tax Deduction Breakdown & Rules for more details and 2010 rates.

Retirement savings plans. Traditional IRA income limits. You may be able to take an IRA deduction if you were covered by a retirement plan and your modified AGI is less than $65,000 ($109,000, if you are married filing jointly or a qualifying widow(er). If your spouse was covered by a retirement plan, but you were not, you may be able to take an IRA deduction if your modified AGI is less than $176,000.

Roth IRA income limit. You may be able to make a Roth IRA contribution if your modified AGI is less than $120,000 ($176,000, if you are married filing jointly or a qualifying widow(er). Retirement savings contributions credit. The AGI limit for claiming this credit is increased to $27,750 ($41,625 if head of household; $55,500 if married filing jointly). For IRA purposes, your compensation includes any military differential pay you receive from your employer while you are serving on active duty for a period of more than 30 days.

Elective salary deferrals. The maximum amount you can defer under all plans is generally limited to $16,500 ($11,500 if you have only SIMPLE plans; $19,500 for section 403(b) plans if you qualify for the 15-year rule). The catch-up contribution limit for individuals age 50 or older at the end of the year is increased to $5,500.

Certain amounts increased. Some tax items that are indexed for inflation increased for 2009. Standard deduction. The standard deduction for taxpayers who do not itemize deductions on Schedule A (Form 1040) has increased. The amount depends on your filing status. You are allowed a $3,650 deduction for each exemption to which you are entitled. However, you will lose part of your exemption amount if you have high income. Some of your itemized deductions may be limited if your adjusted gross income is more than $166,800 ($83,400 if you are married filing separately). The maximum wages subject to social security tax (6.2%) increased to $106,800. All wages are subject to Medicare tax (1.45%).

COBRA subsidy. The 65% subsidy for payment of COBRA health care coverage continuation premiums is not taxable and cannot take this credit in your 2009 tax return. The subsidy is provided to an assistance-eligible individual only in the form of reduced COBRA premiums. That is, the assistance-eligible individual only has to pay 35% of the premium in order to receive COBRA coverage. The employer is reimbursed for the remaining 65% through a credit on its payroll tax returns.

Home mortgage principal reductions. Any Pay-for-Performance Success Payments that reduce the principal balance of your home mortgage under the Home Affordable Modification Program are not taxable.

Limit on exclusion of gain on sale of main home. Generally, gain from the sale of your main home is no longer excludable from income if it is allocable to periods after 2008 when neither you nor your spouse (or your former spouse) used the property as a main home. For details on this see, Taxes and Gains I Can Exclude When Selling My Home.

To get Publication 17, go to www.irs.gov and enter “17” in the search box in the upper right corner of the home page. Those who do not have access to the Internet can call 1-800-TAX-FORM (829-3676) to request a free copy from the IRS. Printed copies will be available in January 2010 (alternatively you also find hard copies at most local libraries and state department offices).

A Second 2010 Economic Stimulus in President Obama's New Job Programs Focusing on Small Business, Infrastructure and Home Energy Efficiency

andy@savingtoinvest.com (Andy) — Tue, 08 Dec 2009 15:14:00 +0000

President Obama has announced three proposals intended to turn around the nation’s ailing job market and spur employment growth, including strengthening investments to small businesses who are finding it hard to get loans in tight credit markets, upgrading infrastructure across the nation and promoting home-energy efficiency projects.

“Having finally moved into positive territory when it comes to economic growth, our biggest challenge now is making sure that job growth matches up with economic growth,” Obama told reporters at the White House yesterday. “The president is not going to unveil the silver-bullet idea” that will bring back the more than 7.2 million jobs that have been lost since the start of the recession, White house press secretary Gibbs said. On the White House blog, called today’s speech a “stepping stone” and that it “will not represent the totality of our plans for continued economic recovery.”

The president also will call for increasing the investment in infrastructure through building and modernizing highways, railways, bridges and tunnels. He also will propose a new program that provides rebates for consumers who retrofit their homes to become more energy efficient. This is in addition to the existing $1500 energy rebate and cash for appliances program

The president also will call for using some of the $200 billion in Troubled Asset Relief Program to help pay down the $1.4 trillion budget deficit. One week after taking his economic message on the road, Mr. Obama is in Washington on Tuesday, offering an outline for his plan for Congress to help boost the job market next year.

The president will argue that using some of the TARP money to help unlock credit for small businesses is in line with the original intent of the program, which was passed in October 2008 to avoid a collapse of the banking system. Republicans in Congress disagree, saying that using the bailout funds would amount to a second economic stimulus.

“Using bailout funds for another spending spree would violate both current law and our pledge to return every dollar to the taxpayers,” said Senator Mitch McConnell of Kentucky, the Republican leader. “Americans’ patience is running awfully thin with politicians who promise jobs, but deliver only more debt.”“TARP was not sold to the American people as a revolving slush fund,” said Representative Randy Neugebauer of Texas, the No. 2 Republican on the House Financial Services Committee. In a letter to Treasury Secretary Timothy Geithner, Neugebauer and 102 other House Republicans said the program should be allowed to expire at the end of the year and unused or repaid money should be returned to taxpayers.

The above initiatives are Mr. Obama’s latest effort to draw attention to the economy and fend off critics who say that a double dip recession could result next year. I'll provide more updates on the initiatives when available, which you keep up to date with by subscribing (free) via Email or RSS to get the latest news.

More on the Stimulus Programs:
$800/$400 Making Working Pay Tax Credit
2010 Extension of $8,000 New Home Buyer Credit
Tax Breaks in Obama's $15 billion Small Business Plan
Key Dates for Stimulus Payments
New Car Stimulus Deduction

Life Insurance Reality Check – Do you have enough?

andy@savingtoinvest.com (Andy) — Mon, 07 Dec 2009 02:31:00 +0000

Life insurance is an important component of your financial planning. If you have a young family, it could actually be the most important element of their security. A lot of people do not have affordable life insurance yet. Among those who already have life insurance, a vast majority does not have enough coverage. Could you be one of them?

What kind of insurance is best?

Life insurance policies come in two basic variants – whole life and term life insurance. Whole life insurance offers death benefits plus cash value, on account of which premiums are higher. On the other hand term insurance is affordable because it only concentrates on death benefits for which you pay cheaper premiums. When you are young with a lifetime of loans, expenses and mortgage payments to be paid, children’s’ education and upbringing to look after, you must consider the more affordable term life insurance. Since a term life policy can help you focus on just the death benefits, it makes sense to understand it better, and work out the best coverage amount possible. Click here to get a free life insurance quote

What kind of expenses and financial needs should a term life policy cover?

On the event of your death, the death benefit of your term life insurance policy should be able to have your family pay off your funeral expenses and invest the rest so that they can lead a comfortable life much like the one you provide for them now.

Funeral expenses can work out to be as high as $5,000-$12,000 currently, so that’s why you will need to factor that in to your life insurance planning
Next, your death benefit should replace your current income, so that your family can carry on with life without having to make major lifestyle changes. Remember to take into account inflation and rising costs.
Thirdly, factor in your debts – unpaid mortgage, credit cards and loans could eat into the death benefit amount, leaving your family with very little to take care of other expenses.
If you were to die, your family would surely have additional expenses to replace the services you used to take care of yourself. If you handle the accounts on your own, or take care of the plumbing yourself, your family may need to hire the services of an accountant, or a plumber. If your spouse is currently a stay at home parent, your family may need the services of a nanny in case he or she decides to start working to supplement their income. It’s the little details that will help you work out your family’s expense requirements better.
If your kids are young, a part of the death benefit will have to be invested to pay for their college education.
Consider any hidden income that you may be currently earning, but which would be lost at death. Examples are your perks, your employer’s contributions to your 401(k) plan, health insurance and your retirement fund contributions. Too many people overlook factoring this into their calculations while in actuality they could easily add up to $10,000-$12,000.

Get Instant Life Insurance Quotes!

How to calculate the coverage amount

There are conflicting views on how to arrive at the perfect coverage amount for your life. Here’s an alarming statistic. The average American has about $170,000 in life insurance coverage. That seems like a lot, but it is only about four times of the average annual income in the U.S. So it’s going to tide your family over for four years, but remember that you’re going to be dead a lot longer than four years. So how do you calculate the ideal coverage amount?

The rule of thumb in the insurance industry says that your coverage should be 10 to 20 times your annual income. However, like we discussed earlier, annual income is not the only factor that should be considered when determining your needs. How much term life insurance you need is a highly individual figure. But if you know exactly what your death benefits should help pay for, then you definitely won’t make the mistake of under-insuring yourself. So the long and short of the ‘how much is enough’ dilemma is that the death benefit you provide your family should be more than your net worth. Use the help of online Life Insurance Tools such as a Life Insurance Needs Calculator to help you arrive at an accurate coverage for your personal situation. Then you can apply for term life insurance quotes.

How often should your policy be reviewed?

If you already own a term insurance policy, that’s not enough reason to think that you have enough death benefit. If you have failed to consider the expenses and the loss of income sources that may follow your death, you will need to review your policy.

Even if you have taken everything into consideration, experts recommend that you review your policy whenever there is a life changing event such as the arrival of a baby, taking in an additional family member, changing jobs, looking after ailing parents, or the loss of a spouse. These events will increase your expenditure.

In times of recession the value your investments drastically dip, while your life insurance benefits remain the same. If you were to die in the next two years, your investments would have accrued a lower income than expected due to the present economic crunch. Have you factored this into your life insurance plan? You may need to review your term policy especially during economic downturns.

Conclusion

The best way to review your term insurance policy or work out the death benefits on a fresh term life policy is to consult with an unbiased insurance advisor, preferably one who represents a large number of life insurance companies. The advisor will ask you in-depth questions on your finances and help you arrive at term life quotes that are just right for your family’s needs.

This was guest post from Denise Mancini of Accuquote. Her previous guest post on Protecting Your Mortgage and Other Assets with Term Life Insurance and 6 Factors that Can Increase Your Life Insurance Premium Rates are also a worthwhile read if you want more on this topic.

Shop and Compare multiple Life Insurance quotes for free.

2010 vs. 2009 Standard Mileage Rate Tax Deduction Breakdown & Rules

andy@savingtoinvest.com (Andy) — Fri, 04 Dec 2009 05:29:00 +0000

The IRS today issued the 2010 standard mileage rates used to calculate the tax deductible costs of operating an automobile for business, charitable, medical or moving purposes. Given all the new car stimulus deductions and credits, many folks and business would be claiming some of these deductions when filing their 2009 tax returns. The new rates for business, medical and moving purposes are slightly lower than last year’s, which reflect generally lower transportation costs compared to a year ago (lower gas prices). Also, don’t forget that, a taxpayer is not allowed to deduct any portion of the cost of operating an automobile attributable to personal use.

Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 50 cents per mile for business miles driven (vs. 55 cents in 2009)

• 16.5 cents per mile driven for medical or moving purposes (vs. 24 cents per driven mile in 2009)

• 14 cents per mile driven in service of charitable organizations (the same as 2009)

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study.

A taxpayer may deduct the ordinary and necessary expenses the taxpayer pays or incurs during the taxable year in carrying on any trade or business. For example, I claim my transportation expenses when going to see a client or visit a place to do some research. An employee or self-employed individual may deduct the cost of operating an automobile to the extent that it is used in a trade or business. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. IRS Procedure 2009-54, contains additional details regarding the standard mileage rates.

Intuit Online Payroll - 30 day FREE trial + lock in the discounted rate of $9.99/month for the first 2 months

Can You Sue the Credit Rating Agencies - Equifax, Experian, and TransUnion - For Mistakes With Your Credit Report and FICO Score

andy@savingtoinvest.com (Andy) — Thu, 03 Dec 2009 05:03:00 +0000

Read an interesting article in the NY times, discussing states that are suing the various corporate credit rating agencies like Standard & Poor's and Fitch, because of the losses they bore from securities they rated as AAA. They argue that these "incorrect" ratings have cost them millions now and into the future, and that these agencies be held liable for not doing their due diligence when coming up with their ratings. This got me to thinking, "can we sue the consumer credit rating agencies if they mistakes which cost us the ability to get a home loan or car?"

Already facing a spate of private lawsuits, the legal troubles of the country's largest credit rating agencies when the attorney general of Ohio sued Moody's Investors Service, Standard & Poor's and Fitch, claiming that they had cost state retirement and pension funds some $457 million by approving high-risk Wall Street securities that went bust in the financial collapse. The case could test whether the agencies' ratings are constitutionally protected as a form of free speech.

The lawsuit asserts that Moody's, Standard & Poor's and Fitch were in league with the banks and other issuers, helping to create an assortment of exotic financial instruments that led to a disastrous bubble in the housing market. "We believe that the credit rating agencies, in exchange for fees, departed from their objective, neutral role as arbiters," the attorney general, Richard Cordray, said at a news conference. "At minimum, they were aiding and abetting misconduct by issuers."

The litigation adds to a growing stack of lawsuits against the three largest credit rating agencies, which together command an 85 percent share of the market. Since the credit crisis began last year, dozens of investors have sought to recover billions of dollars from worthless or nearly worthless bonds on which the rating agencies had conferred their highest grades. And more litigation is likely. As part of a broader financial reform, Congress is considering provisions that make it easier for plaintiffs to sue rating agencies. And the Ohio attorney general's action raises the possibility of similar filings from other states.
To date, however, the rating agencies are undefeated in court, and aside from one modest settlement in a case 10 years ago, no one has forced them to hand over any money. Moody's, S.& P. and Fitch have successfully argued that their ratings are essentially opinions about the future, and therefore subject to First Amendment protections identical to those of journalists.

But that was before billions of dollars in triple-A rated bonds went bad in the financial crisis that started last year, and before Congress extracted a number of internal e-mail messages from the companies, suggesting that employees were aware they were giving their blessing to bonds that were all but doomed. In one of those messages, an S.& P. analyst said that a deal "could be structured by cows and we'd rate it." Recent cases, like the suit filed Friday, are founded on the premise that the companies were aware that investments they said were sturdy were dangerously unsafe. And if analysts knew that they were overstating the quality of the products they rated, and did so because it was a path to profits, the ratings could forfeit First Amendment protections, legal experts say.

Avoid the three credit rating bureaus and get your FICO credit score directly from the source

I know a little bit about the challenges of dealing with the credit bureaus from a six month experience a close friend had trying to clean his credit record. During that time, he lost the house he wanted to purchase because he couldn't get financing, and for almost 6 months he couldn't get any new credit. He was finally able to clear up his credit report but I remember him being so frustrated during the whole process, that if it was a regular vendor he was dealing with he probably would have taken them to court for carelessness (or uncaring-ness, a new term he came up with!). I helped him research how he could clear his credit record and what options he had, but it was still a lengthy process mainly because he didn't initially know his rights and failed to follow up with written notices.

Under the Fair Credit Reporting Act, consumers do actually have the right to sue the consumer reporting agencies - Equifax, Experian, and TransUnion - in state and federal court for violations of the act. But litigation can be an expensive process, particularly if you lose. So before you consider legal action make sure you try the following steps first :

- Under the act, consumers also have a right to review their credit report and to have incorrect information corrected (you are entitled to get a free credit report from all the agencies once a year). If you find an error on your report, you should notify the credit bureau in writing immediately. The bureau is responsible for investigating and for changing or removing any incorrect data. The source of the error must then notify all consumer reporting agencies where they sent information. If you are not satisfied with the correction, you have the right to add a brief statement (100 words or less) about the issue to your credit report. The statement should be a clarification, not an explanation, of credit problems.

- If your credit application is turned down because of an error on your report, the lender is required to provide you with the name and address of the credit bureau that issued the report. Then, you have 30 days to request a free copy from the bureau. The bureaus must disclose to you all information in the report, its source, and who has recently received the report. You have the right to have the credit bureau re-issue corrected reports to lenders who received reports within the last six months, or to employers who received one in the past two years.

- The Fair Credit Billing Act provides for the prompt correction of errors on open-end credit accounts (department store credit accounts, for example) and protects consumers' credit ratings while they are settling disputes. Under this law, if a consumer is disputing a charge, creditors cannot report the consumer's account as delinquent. This applies to open-end credit instruments, such as credit cards, revolving charge accounts, and overdraft checking. Consumers who question an item are responsible for notifying the creditor in writing within 60 days of receiving the bill. The creditor must acknowledge the notice within 30 days and may not do anything to damage the consumer's credit rating while the item is in dispute.

- You can also lodge complaints and concerns about credit bureaus and credit practices via the Federal Trade Commission (ftc.com). They cannot directly resolve individual consumer complaints, but they can provide a good basis if you do decide to take legal action down the road.

At the end of the day, the best thing is to regularly monitor your credit score and reports, and to promptly notify agencies (in writing) of any potential issues before hand. While you can sue the agencies, it is unlikely you will get much from them, as proven by past law suits against their corporate brethren. It's probably much cheaper to signing up for a credit watch or monitoring service, if you are concerned about your credit or need to ensure it is accurate.

Choosing a High Interest Savings Account Over My Low Yielding Money Market Account For My Short Term Cash-Emergency Savings

andy@savingtoinvest.com (Andy) — Fri, 27 Nov 2009 21:56:00 +0000

I have been using my Vanguard money market account as a place to save part of my emergency (short-term) funds, and when checking it recently I saw that the rate had fallen to a miserly 0.13%! This was the lowest I had seen the rate since opening the account a few years ago, and with most high yield savings accounts providing at least 1%, or more than 6 times the money market account average, I decided it's time to move all my money back to a high yield savings account. I already have HSBC and ING accounts, but there are a number of new and updated offerings out there and as long as the institution is FDIC insured, it's best to get an account with the highest yield. You shouldn't have to pay any account or maintenance fees either. Here's a short-list of recommended savings accounts:

HSBC has historically offered a significantly higher APY than most of its competitors, has no additional fees and no minimum to get its top rates. But what made me choose HSBC a while back was it's global backing (it is the world's largest bank) and physical branch access. This can be useful for folks who prefer to deal with issues face to face, get cash out faster or who deposit a lot of checks.

ING Direct has a very simple and easy to use interface, which along with its strong brand makes it amongst the most popular accounts in the market place. The new electric orange account combines their competitive APY offering along with checking and ATM features that put in direct competition with the established banks, that offer little or no interest on their checking accounts. If you want a steady and simple high interest account, then ING Direct is the one for you.

Everbank pays out higher-than-average interest rates on most of it's savings and money market accounts and pledges to be amongst the top 5% of all providers (which is clearly demonstrated by their recent rates). The minimum opening deposit is $1,500, but after that there's no minimum balance. A bonus for new accounts provides a special interest rate on checking for the first year, and a competitive yield on their IRA, CD and money-market savings accounts.

Ally Bank (formerly GMAC Bank) is a relatively new player in the high interest savings account space, and is providing some strong competition to the market leaders like ING Direct and HSBC Direct. Their offering is quite standard relative to the leading providers but the feature I liked best was that they calculate and compound interest daily, rather than monthly or quarterly like some other big banks. The more often interest is compounded, the faster it grows. They also have the leading Certificate of Deposit (CD) offering which is good for longer term savers that like to use laddering.

ETRADE, not only offers a very competitive brokerage service, but also a top notch savings account with a straight forward multi-function user interface. Having a combined savings, brokerage and IRA account also make things very easy to manage from an administrative standpoint. This savings account is great for those who want a one-stop shop for all their financial activities.

Conclusion: I would suggest you check out the various offerings above to see their latest rates (APY) on offer and if there are any special promotions. Then pick the one you feel that best suits your saving, spending and investment needs. With saving interest rates falling across most money market funds, online high yield savings accounts can provide the best investment to park your short-term cash savings.

Related:
~ How and Why to Buy Treasury Inflation-Protected Securities (TIPS)
~ What NOT to Do With Your 401K and IRA Retirement Plans
~ Breaking Down and Improving your FICO Credit Score
~ FDIC Going Broke and Why Bank Fees will Keep Rising
~ Why Even High-Income Earners Are Not That Far From The Edge of Poverty

Golden Nations : Which Countries Hold The Most Gold Reserves

andy@savingtoinvest.com (Andy) — Wed, 25 Nov 2009 02:49:00 +0000

With gold prices soaring, it seems that even central banks around can't get enough of the yellow metal. Recent figures still show the US atop the list, but other nation's are rapidly catching up. After all, every central bank (and the International Monetary Fund) with a large holding of American debt is worried about capital losses if the dollar continues to weaken. Gold offers reassurance and with the 2008 financial crisis still fresh in the minds of many money managers, few want to get caught in the ongoing US dollar devaluation. Another interesting analysis was in a wikipedia entry which showed trends in gold reserves/prices against other key measures like national debt and the US dollar until 2008.

If you use 2009-2010 data most figures would be higher, but the trend remains clear: gold prices seem to be just as correlated to the rising US debt, as to the falling US dollar. Given that the national debt is much more likely to get higher, thanks to two wars and all the stimulus spending, gold prices will also head higher if this correlation holds true. If you factor in higher inflation and underlying fundamentals, gold seems to have many more reasons to go higher than lower.

There are many ways to invest in gold and with all the factors driving it's price up it may be worth considering in your portfolio as a good diversification strategy or even a future growth play!

Should I Buy an Extended Warranty : Worth It or a Waste of Money?

andy@savingtoinvest.com (Andy) — Sun, 22 Nov 2009 03:41:00 +0000

If you’ve bought an appliance or electronic gadget in the last few years, the sales person has probably tried to sell you an extended warranty or insurance plan. Often they justify it as a relatively small purchase, and isn’t the peace of mind worth? Unfortunately, many of us are sucked in and end up buying the unnecessary and over-priced extended warranty, without ever using it. The merchant/retailer are the ones who really gain because they end up making a lot from the commission on selling you the warranty and take on no risk if the product doesn’t work (the manufacturer generally bears that). In fact given the extremely competitive electronics market, in some cases, retailers make more of a profit selling the warranty than they do selling the actual appliance or gadget!

What’s worse is that you may have to jump through hoops to actually take advantage of the warranty. For example, most extended warranties require you to mail or take the gadget/appliance to a specific repairer (and not the store you bought it from) and in many cases only refund you the “current” cost of the product - rather than when you bought it. Which in the world of electronics and gadgets could mean a significant drop in just a few months. I firmly believe that additional or extended warranties for most electronic and small appliances are a waste of money and basically overpriced insurance. In the long run, you'll do better taking on the risks of product damage myself. What’s more is that with a number of credit cards (like my Platinum American Express) you actually automatically get an extended warranty by buying the product on their card. So in addition to a standard 1 yr warranty or buyer protection on most electronic items, you can get an extra one for free. I got my Amex card before buying my big-screen TV and the annual fee was cheaper than the card's annual fee! This is a feature that most folks don’t realize and so fail to take advantage of.

Now, there are some cases when an extended warranty may be worth it. After all getting a warranty is like buying insurance and you should get it if the potential loss from a defective item would be severe. Here's the rule I would use for when to determine if I should buy an extended warranty: If the cost of replacing the item is very expensive and vital to your family or work/business, you should cough up the cash for the extended warranty. For example, if you're starting your own business and buy a $5,000 server or specialized equipment that your business cannot run without, you should cough up the cash for the extended warranty. Also, I would read the warranty terms very, very carefully, especially the process and time frame to inspect and replace defective goods.

But, if someone tries to sell you an extended warranty for a consumer discretionary item like a Laptop, Netbook or iPod, you shouldn't buy it: It's a risk you can afford to take and most of the time you'll come out ahead by not buying the warranty. Besides most discretionary gadgets and appliances nowadays come with a standard manufacture warranty (1 year in most cases) and are not that expensive to replace, so buying an extended warranty is simply not worth it.

So don’t caught up in the should or shouldn’t I debate for getting an extended warranty. Simply put, If you can afford the risk of having to buy a new one, skip the warranty. If you can't, buy it.

401k Cash-Out For Loans vs. Hardship Withdrawals - Penalties and Taxes

andy@savingtoinvest.com (Andy) — Fri, 20 Nov 2009 03:53:00 +0000

Despite a more stable economy, many Americans are still finding it hard to make ends meet and find that they are having to tap one of their most important and final saving vehicles – their company sponsored 401k or 403b (tax advantaged) retirement plans. There are 3 ways that cash can be taken out from a 401K account: A regular 401k loan, hardship or non-financial hardship withdrawal. Each is explained below with the applicable provisions.

401(k) Loan

The primary benefits of 401k loans is that the proceeds are not subject to taxes or the ten-percent penalty fee except in the event of default and no credit check is required to qualify. It is up to your employer and plan administrator (like Vanguard, Fidelity for larger corporate plans) to determine the minimum (normally $1,000) and maximum (up to 50% of balance) loan amounts. The government does not set guidelines or restrictions on the uses for 401k loans. The 401k loan must be paid back over the subsequent five years with the exception of home purchases, which are eligible for a longer time horizon. If you are married, your spouse will need to consent to the loan as well.

401k Loan Interest Expense - Even though you’re borrowing from yourself, you still have to pay interest on the loan amount. Most plans set the standard interest rate at prime plus an additional one or two percent. The benefit to your retirement account is that you will eventually get this money back in the form of qualified disbursements at or near retirement, and the interest you pay back into your 401k plan is tax-deductible.

The biggest disadvantage of taking out a 401k loan is that it will disrupt the dollar cost averaging process. This has the potential to significantly lower long-term results. Another consideration is employment stability; if an employee quits or is terminated, the 401k loan must be repaid in full, normally within sixty days. Should the plan participant fail to meet the deadline, a default would be declared and penalty-fees and taxes assessed.

Hardship withdrawal

If you cannot take out a 401k loan, you may still be able to get a hardship withdrawal from your plan. Many 401k plans allow employees to make a hardship withdrawal because of immediate and heavy financial needs, but the IRS has strict guidelines as to what the funds can be used for. To qualify for a hardship withdrawal, you must demonstrate (with supporting evidence) to your plan's administrator that the withdrawal is necessary due to an immediate and severe financial need which cannot be funded elsewhere. You must also confirm that the loan does not exceed the amount of the need (i.e. cannot borrow extra) and you have already obtained all distributable or non-taxable loans available under your 401k plan. If these conditions are met, the funds can be withdrawn and used for one of the following purposes:

- Costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments). Certain expenses relating to the repair of damage to the employee's principal residence can also be justification for the withdrawal. Also, the new home buyer credit can still be claimed after the house is purchased.

- Expenses for medical care previously incurred by the employee, the employee's spouse, or any dependents of the employee or necessary for these persons to obtain medical care.

- Payment of tuition, related educational fees, and room and board expenses, for the next 12 months of post-secondary education for the employee, or the employee's spouse, children or dependents.

- Payment necessary to prevent the eviction of the employee from the employee's principal residence or foreclosure on the mortgage on that residence.

- Burial or funeral expenses

All 401k hardship withdrawals are subject to taxes and the ten-percent penalty. This means that a $10,000 withdrawal can result in not only significantly less cash in your pocket (possibly as little as $6,500 or $7,500 if you are in a high income tax bracket), but causes you to forgo forever the tax-deferred growth that could have been generated by those assets. 401k hardship withdrawal proceeds cannot be returned to the account once the disbursement has been made, and in most cases you're not permitted to contribute to your plan for six months after the withdrawal. The IRS also requires that the amount withdrawn be reported as gross income.

Non-Financial Hardship 401k Withdrawal

Although the investor must still pay taxes on non-financial hardship withdrawals, the ten-percent penalty fee is waived. There are five ways to qualify:

1. You become totally and permanently disabled

2. Your medical debts exceed 7.5 percent of your adjusted gross income

3. A court of law has ordered you to give the funds to your divorced spouse, a child, or a dependent

4. You are permanently laid off, terminated, quit, or retire early in the same year you turn 55 or later

5. You are permanently laid off, terminated, quit, or retired and have established a payment schedule of regular withdrawals in equal amounts of the rest of your expected natural life. Once the first withdrawal has been made, the investor is required to continue taking them for five years or until he/she reaches the age of 59 1/2, whichever is longer.

If you do need money from your 401K account, then a loan is preferable to a 401k hardship withdrawal because you start paying it straight back and incurs no penalties. As soon as your financial situation is more stable you should start contributing back into your 401K plan, which is the most tax efficient investment over the long term. Remember, your 401k is meant to provide retirement income,and should be a last-resort source of cash for expenses before then.

You can also withdraw funds early from an IRA and in many cases is more cost effective. For example, an IRA has a lifetime withdrawal exemption of $10,000 for a house with no strings attached. I’ll cover the IRA early withdrawal criteria and rules in an upcoming post, which you can get directly sent to you if you subscribe (free) via Email or RSS.

References : IRS, About.com

Taxes and Gains I Can Exclude When Selling My Home

andy@savingtoinvest.com (Andy) — Tue, 17 Nov 2009 05:26:00 +0000

Following my recent post on Tips for Selling your Home, I received a reader email asking me to clarify the tax consequences of selling their home and what the potential liability/capital gain implications would be. Based on what the IRS says, here are the key tax facts to keep in mind around figuring your gains. taxes and exclusions on the sale of your home:

Amount of Taxes You Can Exclude. When you have gain from the sale of your home, you may be able to exclude up to $250,000 of the gain from your income (single filers). Taxpayers filing a joint return, the exclusion amount is $500,000. However, to claim the exclusion you need to meet the ownership and use test. The ownership test requires you to have owned the home for at least two years during the five year period ending on the date of the sale (the 2 years do not need to be consecutive). The use test requires you to prove that you have lived in the house and used it as your primary (main) residence for at least two years during the five year period ending on the date of the sale. This 2-out-of-5 year ownership and use test rule mean that you can only exclude your residential selling profits only once every two years (this is to prevent flippers from taking advantage of this tax provision).

Partial Exclusion. As with most tax deductions and credits, partial criteria also apply. If you lived in your home less than 24 months, you may still be able to exclude a portion of the gain. Exceptions are allowed if you sold your house because the location of your job changed, because of health concerns, or for some other unforeseen circumstance (e.g. natural disasters). But you will need to prove this if you are ever audited by the IRS. You calculate your partial exclusion based on the amount of time you actually lived in your home.

Reporting Requirements and Capital Gains. If you meet the ownership and use test and are able to exclude all of the gains up to $250,000/$500,000 from the sale of your home, you do not need to report the sale on your federal income tax return. However if you have gain which cannot be excluded, it is taxable and must be reported on your tax return using Schedule D as a capital gain. If you owned your home for one year or less, the gain is reported as a short-term capital gain. If your owned your home for more than one year, the gain is reported as a long-term capital gain.

Calculating Your Homes Adjusted Cost Basis: When figuring how much you have profited or lost from you home when selling you need to first work our the (adjusted) cost basis you can use in your taxes (this is different from the purchase price). Just like calculating capital gains on stocks, the adjusted cost basis for your house includes the purchase price, plus purchase costs (title, legal fees), improvements made during your stay (like a new bathroom), Selling costs (title & escrow fees, real estate agent commissions, etc.) and depreciation. Refer to the IRS guide for a listing of allowable costs.

When you include all these costs your cost basis will be at least 10 to 25% higher than the price you paid for your home - which benefits you when calculating your taxable gain or exclusion. So your final profit/gain on the house is calculated as Selling Price minus Cost Basis

Deducting a loss. You cannot deduct a loss from the sale of your home. However, under new rules if you short sale your home you may not have to pay taxes on the lower sale price or forgiven loan. Normally, mortgage debt owed to a financial institution that is cancelled or forgiven (e.g. in a short sale) is taxable. However, under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers generally can exclude income from the discharge of debt on their principal residence or mortgage restructuring. As an example suppose you borrow $300,000 to purchase a home and default on the loan after paying back $50,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $250,000, which generally is taxable income to you. However, under the new forgiveness debt relief act, you will not have to pay tax on this amount

Rules for multiple homes. If you have more than one home, you may only exclude gain from the sale of your main home and must pay tax on the gain resulting from the sale of any other home. Your main home is generally the one you live in most of the time.

An Example of Figuring the Gains and Taxes on your Home

David and his wife, Amy, bought a house in July 2002 for $290,000. Closing costs and other fees were $7,000. While they lived in their home time they replaced the roof and finished their basement for a total cost of $15,000. During the 5 years they owned the house, David and Amy moved overseas on a work assignment for one year, and rented out their home in that period. They sold the home in August 2009 for $470,000. Based on the above, here is how you would calculate their gain and potential tax liability from selling their home:

Purchase Cost = $290,000
Closing Costs = $7,000
Home Improvements (basement, bathroom) = $15,000

Cost Basis for the House: $312,000
Sale Price : $470,000

Profit/Gain on the house : $158,000

Tax Implications : Despite having left the house for 1 year, David and Amy meet both the ownership and use test. Because they file as a married couple their allowable exclusion is $500,000, which means that they owe no taxes on the sale of their home. To have any tax liability there home sale price would have had to have been over $812,000!

For more information and details on all the rules around selling a house see IRS Publication 523, Selling Your Home.

Related

~ 2010 Tax Brackets and Standard Deduction Changes
~ New 401k Contribution Limits for 2010
~ Updates & Taxes on the 2009-2010 Economic Stimulus Credits and Payments

Weekly Wrap - Cheaper Online Stock Trading and My New Costco-Amex Card

andy@savingtoinvest.com (Andy) — Sun, 15 Nov 2009 16:34:00 +0000

I recently completed the application process and got started trading with my OptionsHouse broking account (bought CAT Shares), and so far has been a very smooth trading experience. The reason I switched trading from my current brokers – E*trade and Zecco (with whom I will continue to maintain accounts) – to this relatively new online broker, is simply for the cost. They offer flat $2.95 stock trades and $9.95 all in option trades (with no minimums!), and using this special new customer promotion I got 100 free trades, which means that for the next few months my trading is all free. Signing up with them was pretty straight forward (give yourself about 20 to 30 mins) and a day or so later they FedEx you the final forms to sign and return in their pre-paid envelope. If all the paperwork is good, you should then have your full account access in a couple of days.

The best thing is that as soon as you sign up online you get a virtual account, that you can try their trading platform with (using virtual money off course). This is a good way to get an idea or their trading platform before committing any funds and also a good way for new investors to learn about trading. As you can see their online trading platform is great and for an ultra low discount broker their available research was excellent. I also had to use their live online help feature to confirm a fund transfer and found it really easy to use, and unlike a lot of helpdesk's they were able to answer my questions. If you are looking for an alternate or cheaper broker - they are definitely worth trying.

Getting Rewarded For My Costco Shopping

After moving to my new home, one store I have been visiting a lot is Costco (equivalent to Sams Club or BJ's wholesale clubs). Have never shopped there much before buying a house, I now seem to be there every other weekend and despite their low prices (which they can do because of their volume sales and in-store brands) I have probably spent over $5000 with them in under 3 months! And with the upcoming holiday season I can see myself shopping there even more. So when I found out about their expanded and upgraded no fee Amex-Costco card, I quickly signed up for it. You can earn 3% cash back for annual gasoline purchases, 3% cash back for restaurants, 2% cash back for travel, and 1% everywhere else. If I am going to spend money there, I might as well get back as much cash back/benefits as possible. Even without the Costco related benefits this card has a decent rewards program, which is hard to find following all the new credit card regulations. A final thing – make a list when you go shopping. It may not lower how much your essential spending, but at least it will reduce the amount of impulse shopping at these big warehouse stores.

I participated in the carnival of personal finance @ the Canadian Finance blog this week, and also liked these articles I came across over the last few days:

~ Travel Hacking for Noobs: How We Save Hundreds on Airfare, Get Free Accommodation, & Make Money while Overseas @ Man vs Debt
~ How to Spend Smarter This Holiday Season @ Consumerism Commentary
~ Increased efficiency – Good for earnings, Bad for workers @ Keep My Dollar
~ Is Saving for Old People? @ The Simple Dollar

Have a Good Week Folks!

Past Weekly/Weekend Updates:
~ Weekend Review: Dude - Where's My Stimulus Jobs Gone?
~ Weekly Wrap: Jobs, Housing to Buying Gold in a Low Dollar Environment
~ Moving Words on Living Life in a Presidential Eulogy

What NOT to Do With Your 401K and IRA Retirement Plans

andy@savingtoinvest.com (Andy) — Fri, 13 Nov 2009 04:04:00 +0000

No doubt everyone who has a company sponsored retirement account (401K, 403b) or self managed plan (IRA, Roth IRA) has read about all the right things to do like regular investing, diversification and choosing low fee funds. However, it is just as important to consider what NOT to do with your retirement accounts so that you avoid the various pitfalls and traps ahead of you, and to ensure you have enough in retirement.

1. Do NOT Borrow from your plan. A plan loan may be a convenient way to pay for a big expense—but it is not free money. You have to pay back the principal plus interest to your plan account—usually within 5 years. Loans also reduce the amount of money that's available to compound and grow. Worse, if you leave your employer before you have repaid the loan, you may be forced to repay it quickly. If you cannot, the outstanding balance is considered a taxable distribution. If you are under age 59½, you have to pay a 10% early withdrawal penalty as well. Consider the following example: Jack, who had $50,000 in his 401(k) plan account, took a $25,000 loan for a new sports car. A month later, he left his job and had to cash out of the plan. After the required 20% withholding and automatic loan repayment, Jack, who is 45 years old, received a check for only $15,000. He had to pay income taxes on that sum plus a 10% early withdrawal penalty. He was left with less than $10,000, a new car, and no retirement savings. Make sure you explore all of your borrowing options before taking a loan from your retirement account. With interest rates so low a personal bank or credit card loan may be cheaper – especially if the need is only for the short term.

2. Do NOT Contribute only as much as your company match. If your company offers a match, it is important to take full advantage of it. But contributing just enough to get the company match may not be enough. A good goal is to contribute a minimum of 9% to 12% of your income to your retirement plan, which would include any employer contributions. Ideally, higher-income workers should consider contributing 12% to 15%, including employer contributions, to maintain their current standard of living in retirement.

3. Do NOT Chase hot-performing funds. It is a mistake to chase hot performance. Just because gold or any other investment is performing well now does not mean that it will in the future. Instead, select a diversified mix of stocks, bonds, and short-term reserves that's right for you—then stick with it for the long term.

4. Do NOT Avoid risk. There's a risk to devoting a large portion of your retirement savings to short-term reserves—the risk of inflation. Inflation eats away at your investment return, giving your bucks less "bang" over time. How you invest should always be based on how long you can keep the money invested and your tolerance for taking risk. While a short-term reserve fund does offer stability, these investments do not offer much opportunity for growth. Stocks and bonds, in comparison, have historically had higher average annual returns over long periods of time, with stocks offering the greatest long-term return potential. If all, or most, of your assets are invested in a short-term reserve fund, such as a money market, you may want to consider reinvesting some of this money in stocks and bonds. No matter how conservative a long-term investor you are, consider allocating a portion of your savings to stocks to help defend your portfolio from inflation's ravages.

5. Do NOT Cash out of your plan if you leave your employer. You may be able to cash out, but you'd take on a potentially large tax liability. You would owe ordinary income tax on the distribution plus a 10% premature distribution penalty if you were under age 59½. Instead, Consider a direct rollover into a low cost IRA account (Get 100 Commission Free Trades in an E*TRADE IRA) or into your new employers 401K plan.

6. Do NOT Try to "time" the market. It's impossible to predict with any consistency the market's ups and downs and how they'll affect your account. By frequently transferring money in and out of the market, you'll likely miss out on some growth potential and increase the fund's expenses. Leave market timing to the portfolio managers. They get paid to make informed decisions about buying and selling the securities within the fund.

Reference Source: Vanguard

Simple Tips and Ideas on What to Do Before and While You Sell Your Home

andy@savingtoinvest.com (Andy) — Wed, 11 Nov 2009 15:08:00 +0000

Government incentives like the new home buyer credit and a weak economy definitely make this a buyer’s market. However thanks in large part to all the home buyer and mortgage assistance programs, people are still buying houses. But the key for any seller is to make their home stand out to prospective buyers, which involves having a good sales strategy before and while selling the house. Here are simple, but often over-looked, tips that make the difference between selling your home at the price you want or taking the only price you can get.

Prior to Listing Your Home : Prepare the Right Way

Hire a real estate agent: It may be tempting to list your home on your own to avoid paying a sales commission, but selling your own home is a full-time job itself. A real estate professional represents the best opportunity to earn the maximum amount from your home’s sale. An agent will recommend the best listing price, market your home effectively and show your home to buyers. An agent also recognizes what buyers are looking for in a new home

Get your home inspected. You are required to disclose any problems with your property to prospective buyers. Failure to do so will lead to further complications, even if you weren’t aware of the flaws ahead of time. Hire a professional inspector to identify and document any problems with your property. Also, make sure your home has a clean bill of health from termites.

Make repairs ahead of time. A long list of necessary repairs is a major put-off for most buyers, who may decide to move on rather than deal with the headache of fixing up the home. Do as many repairs yourself as possible, then hire a contractor to complete the rest. If you decide not to make major repairs beforehand, hire a reputable professional to provide cost estimates that you can show to any interested buyers to put their minds at ease.

Showcase your home. Curb appeal and first impressions are valuable assets when selling your home. Clear unnecessary items from your yard and maintain the landscape to welcome visitors. Keep the interior of your home clutter-free to maximize your home’s livable space.

Price it right. The original asking price of your home has a huge impact on the ultimate sales price. If you price it too high, buyers will look for better values and your home will remain on the market longer. The longer your home is on the market, the less desirable it becomes to buyers—even if you eventually lower your asking price— because most buyers will avoid a home that others are avoiding. Conversely, pricing your home too low may result in a quicker transaction but will yield you less money in the end

While Your Home is Listed : Make It Attractive to Buyers

Clean. Clean. Clean. A tidy home is a loved home. Wipe fingerprints and other smudges from glass, mirrors and other shiny surfaces. Wax and polish your hardwood and tile floors and vacuum your carpets often. Keep your oven, stove and kitchen counters clean and free of clutter.

Clean up the yard. Make sure your landscape is well maintained to increase curb appeal. A more conservative yard is often a better showcase for your home, so be generous with your trimming and pruning. Pare down bushes and trees that block windows. Pull weeds out of your flowerbeds, lawn and sidewalk cracks. Repair minor asphalt and walkway cracks if necessary. If your home has gutters on the roof, clean and clear them frequently.

Let there be light. Natural light is the best light to cast your home in. Replace faded and heavy curtains with sheer ones or install blinds. Opening the shades when showing your house will also make your home seem larger. Temporarily replace energy-efficient fluorescent lights with high-wattage incandescent bulbs to give your home a warmer glow. Make sure darker rooms are well lit. Display lightly scented potpourri or candles to give a fresh and homely aroma around the house.

Add a few little touches. Replace worn or outdated doorknobs, doormats, cabinet handles and light switches. Buy fresh new towels for the bathrooms, but don’t use them (keep the towels you use out of sight in a cabinet). Place flowers in windows that are walked by often. Display a seasonal decoration, such as a wreath or wood ornament. Buy new pillows for sofas and replace torn window screens

This was an edited guest post by Sherri Krohl of McEnearney Associates, Inc. You can contact her for a free consultation @ 703-850-6461. See her previous post - 10 Deadly Mistakes Buyers Make When Purchasing a Home and How to Avoid Them - for more home buying and selling information.

Weekly Wrap: Jobs, Housing to Buying Gold in a Low Dollar Environment

andy@savingtoinvest.com (Andy) — Sun, 08 Nov 2009 21:03:00 +0000

America now has a 10.2% unemployment rate. Ouch. Even though this was expected it was still a shock to see double digit figures, espically when it looked like the economy was on the mend. For many workers in the current generation, this is a definitely an alarming top line figure. What's worse is that the real unemployment rate (which includes part-timers and the like) is probably even higher. I foresee unemployment reaching 11% mid next year and I hope the economic recovery we are seeing right now stays the course so that more jobs get created.

If you are one of the 10.2% unemployed Americans, there was at least some relief this week with an extension of unemployment benefits (which are now up to 99 weeks in some states). While it won't solve your longer term problems, it will at least provide some respite over the holiday season. For new home buyers there was also good news with the expected extension of the $8,000 home buyer credit. The credit was also expanded to existing home buyers who want a new place ($6,500 credit now available) and income qualification limits were raised. Unfortunately for me and others who bought a house this year, the updated income provisions are not retroactive and only for homes purchased after November 9th. However, I do that think that in the broader scheme of things, the home buyer credit extension is good for the US economy despite it adding to the deficit.

Another question I get asked a lot, and is the subject of some of my more popular posts, is what's going to happen with the US dollar and "Should I invest in Gold?" With a falling US dollar which is correlated with rising gold prices (now well past $1000 an Ounce), my advice is to have some exposure to these trends which don't look like going away but to make sure you still diversify your portfolio. If you want to profit from a falling US dollar then invest in big US multinationals and foreign country ETF's (I like Brazil based ETF's now, which I will cover in an upcoming post). You can also try your hand at currency trading - sign up free for a practice eToro account - but be aware that this is a time consuming and high risk/return strategy. There are many ways to invest in Gold as outlined in this article, but the best way for most non-professional investors is to invest via an ETF.

In another update to a previous post on buying a Mac or PC for my next laptop, I just saw some of the upcoming (Black Friday like) deals where Dell and HP laptops with Windows 7 are going for less than $400. This is about one third the price of a Mac, which makes buying a PC very cost-compelling. What's more netboooks (mini-laptops) are retailing for less than $200! This holiday season is going to be a great time to buy Electronics - just check out some of the Amazon or Best Buy deals on right now!

Carnivals and Festivals I participated in over the last couple of weeks:
- Carnival of Personal Finance Edition #227 @ Fabulously Broke (belated mention!)
- Carnival of Personal Finance #229: candy edition @ Centsible Life
- Carnival of Money Hackers #89 – My Favourite Coffee Edition @ The Financial Blogger

Other goods reads from around the blogosphere
- A simple explanation of HSA vs FSA @ PT Money
- Why are you asking about my salary again? @ Budgets are Sexy
- What’s The Average Credit Card Debt In America? @ Amateur Asset Allocator
- Are you preparing for the worst? @ GLBL
- A Second Stock Market Crash in 2010-2011? @ Money Energy
- Don’t Be Tempted By The Glitter Of Gold @ The Dough Roller

Approved! Extra Unemployment Benefits and Home Buyer Tax Credit Extension into 2010

andy@savingtoinvest.com (Andy) — Thu, 05 Nov 2009 02:55:00 +0000

Congress and now the President have approved a $45 billion plan to expand a tax credit for first-time home buyers, extend jobless benefits and provide tax refunds to money-losing companies. The bill (H.R.3548) will be funded from the $787 billion stimulus originally approved in Feb 2009.

Unemployment Benefits Extension

The government is proposing to spend $2.4 billion to extend unemployment benefits for between 14 to 20 weeks, enough to cover the upcoming holiday season. States with the highest unemployment would get the highest unemployment benefits. The extension will benefit nearly 1 million out-of-work people who will run out of benefits by the end of the year. If HR3548 passes with the proposed amendments unemployed workers would generally get the following additional benefits:

- 14 weeks extra for everyone in any US state (up from the 13 initially proposed by the house in the unemployment compensation Extension act, S. 1699)
- An additional 6 weeks, for a total of 20 weeks, for those in states with unemployment at or over 8.5% (3 month average)

With enactment, the jobless in the hardest-hit states could receive up to 99 weeks of benefits, which average about $300 a week

Extended Home Buyer Credit

The $8,000 home buyers’ tax credit enacted earlier this year and slated to expire on November 30th 2009, will now continue until April 30 and contain the following new provisions.

- First-time home buyers who close before April 1 would get the full $8,000, and the credit’s value would be reduced by $2,000 in each successive quarter until expiring at the end of the year.

- The plan would extend the credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement.

- Current Homeowners looking for a new home could also qualify for a $6,500 credit if they have lived in their existing primary residence for at least five years

- The home buyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law.

- Tax Credit Exclusions: Homes that cost more than $800,000 aren’t eligible for the credit and you must be over 18 years old to claim the credit. Those who sell their new home or stop using it as their main residence within three years would have to repay the credit.

Shop and Compare multiple Home Insurance quotes for free.

The Treasury Department estimates that more than 1.4 million Americans have taken advantage of the home buyer credit at a cost so far of about $10 billion. Democrat leaders say expanding the credit to those who already own homes would help create jobs because “the move-up buyer is more inclined and capable of buying that furniture, maybe building a porch, putting a garage on, a new roof” and making the “kinds of investments I think is going to be a job-creator across the country.” Republicans, called the tax credit a waste of money, saying studies show that most of those claiming the break would have bought homes anyway.

Goldman Sachs Group Inc. said in a research note yesterday that the credit probably spurred 200,000 home sales that otherwise wouldn’t have occurred. Extending the credit to people who own homes wouldn’t reduce the excess housing blamed for the slump because “every buyer taking advantage of the move-up credit would necessarily be a seller,” Goldman Sachs said. It said the plan may increase housing prices by 1 percent because “sellers are likely to incorporate a fraction of the credit amount in their sale prices.”

The senate approved legislation also would expand provisions in the stimulus package allowing companies to apply their losses to previous years’ income, thereby reducing their tax bills and allowing them to claim refunds. Banks and other institutions receiving assistance from the Treasury Department’s TARP program wouldn’t be eligible.

Lawmakers are still considering whether to extend several other elements of the stimulus package, including subsidies to help the jobless buy health insurance and increased funds for food stamps. Obama has also called for sending seniors $250 checks because they won’t get a cost-of-living increase next year in their Social Security checks. I will provide updates on these and progress of the above bill through Congress, and encourage you to subscribe (free) via Email or RSS to get the latest news.

References : Bloomberg

Related:
~ FHA vs Conventional Home Loan - Comparing the Difference
~ Should I Refinance my Mortgage and Do I Qualify
~ Top ten myths about buying a franchise

A Statistical Economic Recovery - Is America's Recession Really Over?

andy@savingtoinvest.com (Andy) — Tue, 03 Nov 2009 03:16:00 +0000

As Mark Twain once said, "There are three kinds of lies: lies, damned lies, and statistics." To me, this nicely sums up recent economic figures that suggest America has escaped the clutches of another great depression and is on the way to a sustained recovery. Government reports say that GDP rose at an annualized rate of 3.5% in the third quarter compared with the second. This was the first increase since the second quarter of 2008. However, as GDP grew consumers grew more skeptical as indicated by a fall in the consumer confidence index. A poll in The Economist found that 35% of respondents think the economy is getting worse; just 28% think it is getting better. Unemployment is still rising, and even a White House adviser, Christina Romer, predicts it will remain “severely elevated” throughout next year.

A lot of the third-quarter GDP growth was the result of temporary government stimulus like the cash for clunkers and new home buyer tax credits (which were recently extended into 2010). Consumer spending grew by 3.4%, the best since early 2007, largely because people were buying new cars in July and August under the CARS and new car tax deduction programs. Sales have since fallen back. Residential construction leapt by 23.4%, the first advance since the end of 2005, helped by an $8,000 tax credit for buyers of new homes. But new-home sales dipped by 3.6% in September, as the deadline to qualify for the credit loomed. Of course the statistics the government and Obama administration officials discuss are the positive ones.

Similarly, the Obama administration released the most detailed information yet on the jobs created by the stimulus. Of the 640,239 jobs recipients claimed to have created or saved so far, officials said, more than half — 325,000 — were in education. Most were teachers’ jobs that states said were saved when stimulus money averted a need for layoffs. Yet many have cited the high unemployment figure, at 9.8 percent, as proof of the failure of the stimulus, which they voted overwhelmingly opposed. This is countered by supporters of expanding the stimulus programs, who say that these payments helped avert a second Great Depression.

Many polls and anecdotal evidence show that most Americans are more worried about the economy more than anything else. After all it hits closer to home than any other macro issue. To appease this, it is likely the Obama will keep the stimulus spigots flowing - case in point, another $250 social security stimulus in 2010. Other programs would extend health insurance and unemployment-insurance benefits by 14-20 weeks for some jobless workers, while providing more food stamps to many struggling families. These measures are ones taken in a struggling economy and not in a robust one.

It’s still too early to tell if growth in the third quarter reflects the dynamics of a genuine recovery. Until housing and unemployment show a sustained recovery (3 or more quarters), it’s premature to say that the country and the world are out the dark economic woods. While more stimulus are probably needed to keep economic growth moving along this year, they will add to an already dangerously high deficit. The upcoming Federal reserve meeting will provide an interesting gauge of where officials think the economy is headed (look for a big stock market reaction on that day), but I hope that lessons learnt over the last couple of years are heeded. Statistics tend to provide a partial picture and as we have seen in the past can vary sharply from one quarter to another. From a personal perspective, I think it is worth taking a few more risks as a long term investor, but still keep up a conservative approach to managing your day-to-day finances and career.

Five Things To Look For in Getting Low-Cost Auto Insurance Rates

andy@savingtoinvest.com (Andy) — Fri, 30 Oct 2009 04:23:00 +0000

Low cost auto insurance rates are available everywhere, as companies cater to people trying to cut costs wherever they can. Unfortunately, not all insurance companies are the same, and low insurance rates can turn into a future mess if you do not know what to look for or what to avoid. It is a good practice to perform extensive research on the particular policy you desire and research the consumer protection laws of the state in which you live. Also, consider these 5 steps when researching low insurance rates:

1. Privacy is number one – Identity theft is becoming one of the fastest growing crimes in the US, and most of the cases can be prevented with some extra caution. Your social security number is not needed until you are ready to buy a policy. By that time, you should be familiar with the company and its representatives. Never give your credit card number or bank account details over the phone. The company should send the appropriate paperwork in the mail.

2. Research the company and make sure they are licensed – If the company is reputable, they should have a web presence. Examine their website for anything misleading and research the web as well to see if there are any complaints or evidence of scams from consumers. Each state has its own insurance department which lists all of the companies licensed to do business in that state. Give them a call or visit their website, and if the company is not on that list, do not give them your business.

3. Get all costs upfront and be slow to sign – The last thing you need is to find out there are hidden fees you were not aware of. Find out all of the fees and out of pocket costs of your policies beforehand so you can compare them with others. Never sign a blank form, or a form with a lot of blank space in between the copy and your signature.

4. Know the insurance laws in your state – Insurance companies may try to give you a policy with many options to drive up the cost, yet they may in fact be optional. Make sure you do your proper research on the required elements in your state..

5. Review in detail all sections of the policies when comparing – Two policies may look the same, yet small differences may be present. Check the deductible; this is often the biggest mistake made by new car insurance customers. The deductible is the amount you will pay up front before the insurance company pays money towards your claim. The lower the deductible, the higher your rates. Make sure you compare policies with the same deductibles and coverage options.

Comparing low cost insurance rates does not have to be difficult; it just requires some time and research. Just use common sense. For example, if the rate is too cheap, it should raise a red flag. This may be an indication of hidden fees which you will pay for later. Seek out the help of experts and, if possible, speak to them in person. This will help to ease the mystery concerning who you are actually speaking to.

If you follow these tips, and do your research, there will be much fewer unanswered questions. You will also be secure in knowing that you found a reputable company providing cost-effective insurance that you can rely on for many years.

This is an edited guest post from Shayna Adler of netQuote, an online insurance portal.

Related:
~ Breaking Down and Improving your FICO Credit Score
~ Are you using these 10 online financial security measures?
~ Is GEICO really the Cheapest for Auto Insurance
~ New Car (up to $49,500) Sales Tax Deduction in 2010 tax filing

No Increase, but Congress to Extend $8000 First-time Home Buyer Tax Credit into 2010 and Make Available to More Home Buyers and Owners

andy@savingtoinvest.com (Andy) — Thu, 29 Oct 2009 00:49:00 +0000

[Updated Nov] - See this post for details on the home buyer credit extenstion approval and new provisions: 2010 First-Time Homebuyer Tax Credit Extension Approved and Expanded to Existing Home Owners. New Provisions Not Retroactive
______
A number of would-be home buyers and the real estate industry are anxiously wondering if Congress will extend the $8000 new home buyer credit expiring on Nov. 30. I have been covering this credit in a few other posts, and today news reports say that Senate leaders have tentatively agreed to a plan (bill) to extend, but gradually reduce the $8,000 first home buyer tax credit through 2010. Senate Majority Leader Harry Reid of Nevada and Senate Finance Committee Chairman Max Baucus of Montana, both Democrats, may seek to add the home buyers extension to legislation extending unemployment benefits and small business tax breaks that may be debated as early as this week, according to Regan Lachapelle, an aide to Reid.

The proposed (democrat sponsored) bill to extend the credit contains the following new provisions: (see this post for details on the existing home buyer tax credit)

- First-time home buyers who close before April 1 would get the full $8,000, and the credit’s value would be reduced by $2,000 in each successive quarter until expiring at the end of the year.

- The plan would extend the credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement.

- Homeowners buying a new property could qualify for a $6,500 credit if they have lived in their previous residence for five years

- The home buyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law.

Shop and Compare multiple Home Insurance quotes for free.

More than 1.2 million borrowers have claimed almost $8.5 billion of the $13.6 billion set aside for “first-time” home buyer tax credits this year. The program is aimed at easing the worst housing slump since the Great Depression and has been credited with boosting the economy and stock markets over summer.

Lawmakers are under pressure from real estate agents, mortgage brokers and home builders to extend the $8,000 credit before it expires Nov. 30. However, they are also facing pressure from governance groups and recent IRS reports claiming widespread fraud around claims for this lucrative credit. The IRS has identified 73,799 claims totaling almost $504 million that may not be from first-time home buyers. They also found that 582 taxpayers under 18 years old and ineligible to buy a home claimed almost $4 million in credits.

The terms for extending the home buyer tax credit are still being negotiated in Congress and I will continue to update this article If you haven't already, I encourage you to subscribe for free via Email (A confirmation email is sent to avoid spammers) or RSS to get the latest news.

Related housing and Stimulus posts:
~ $800/$400 Making Working Pay Tax Credit
~ Key Dates for Stimulus Payments
~ New 401k and IRA Contribution Limits for 2010
~ Getting the 2009 and 2010 $250 Social Security Payment
~ 10 Deadly Mistakes Buyers Make When Purchasing a Home and How to Avoid Them

Best Choice Residential Plans for just $14.95!

Retirement 401k and IRA Accounts - Have You Rebalanced and Reallocated based on Changing Market Conditions and Contribution Limits?

andy@savingtoinvest.com (Andy) — Tue, 27 Oct 2009 04:04:00 +0000

I recently checked my Vanguard 401K account and was very pleased to see that it was up 20% in the last quarter! Still well down from high, before the great credit crisis of Autumn 2008, but at least it's moving in the right direction now. However, my return could have been even greater had I re-balanced a bit earlier on because In response to the financial downturn, I had shifted my portfolio to a Stocks/Bond mix of 60%/40%, a conservative mix based on my age and not very diversified. Unfortunately as the market rebounded in summer I didn't update my asset allocation in time due to the fact that I was tired of seeing the red on my 401K statements and was wary of another market swoon. If I had gone with a 80/20% mix, my return would have been nearer 30% or higher!

Ah well, live and learn I guess. So last week, I did change my portfolio mix to be more diverse and in line with my age, but also upped my contribution to the maximum allowed limit (see the 2010 401K and IRA maximums). If this is the beginning of a stock market boom, I definitely want to dollar cost average and boost my returns over the next 5 to 10 years.

Like me, most people have enjoyed a nice jump in their 401k, IRA and other retirement accounts as the stock market recovered over the last 6 months,. In fact according to the WSJ, despite the biggest and broadest decline in financial markets in a generation, the median 401(k) retirement account at Vanguard Group on Sept. 30, 2009, was up 7% from where it was two years earlier, when the market was near its all-time high. In the last 6 months, the average account is up 18%. This recovery in retirement accounts was aided by the fact that many kept up their regular contributions and so actually got a big boost from the benefit of dollar cost averaging into quality stocks at generational lows. Thus, when the market came roaring back, those cheap purchases scored bigger gains, reducing overall losses. So an investor who put $10,000 into a balanced portfolio in September 2007 and then didn't add another penny was down 27% at the end of February and had $8,943 at the end of September, a loss of 10.6%. The investor who put in an additional $200 a month was down about 26% at the end of February, but only 6% at the end of September.

Lessons Learned and Next Steps. Continued regular savings matter a lot. Most people agree that, given enough time, 401(k) accounts can recover from market losses. What's impossible, however, is building more savings if you don't save enough to begin with. If you have continued contributing to your retirement account throughout the stock-market debacle—and even better, if your employer continues to match your contributions—your account probably has more in total dollars than you expected. Younger people, who have smaller balances to begin with, will see a bigger impact from their regular savings. Contributing with every paycheck, as you do in a 401(k) account, isn't necessarily the most-profitable or sexiest way to invest, but it's a good discipline that helps smooth out the impact of buying in when the market is at high and low points. This has been underscored over the last two years for anyone who kept contributing to their 401K or IRA accounts.

In uncertain times, diversification is also a good strategy. Stocks still have a ways to go, and the economy is still wobbly, particularly with unemployment high and real estate markets shaky. Prices could tumble again with a streak of bad news. Therefore it is important to diversify your holdings and regularly (every quarter at least) review your retirement accounts and ensure they are in line with your retirement goals.

Also, don't forget catch up contribution limits for those 50+ has also increased. If you are age 50 or older and your employer allows it, you are also be eligible to make "catch-up 401k and IRA contributions" in addition to your regular retirement plan limits. These catch up contribution limits have also increased to a total of $5,500 which brings the 2009/2010 maximum 401K contribution limit to $22,000 for those over 50. For all those people who feel that they do not have enough of a retirement nest egg, this higher contribution gives them a great tax free opportunity to catch up.

Continuing to save regularly in a diverse mix of investments will keep you moving toward your retirement target (more on figuring this number in an upcoming post)and set you up for bigger gains when economic growth kicks in - and it will - and the stock market really takes off. If you haven't got a retirement (IRA) account, open one up now via E*Trade and get 100 free trades!

Related 401K and IRA Posts:
~ 2010 Tax Brackets and Standard Deduction Changes
~ New Roth IRA Conversion Rules and Contribution Limits
~ Where to Invest $50,000 - Stocks, Gold or Real Estate
~ Gold Price Outlook - A Golden Investment in 2009 and beyond
~ Making the Move: Vanguard Money Market to ING Direct
~ How and Why to Buy Treasury Inflation-Protected Securities (TIPS)