HSAs -- Not Just For Healthcare

HSAs are a good tax-free way of saving. The money put into these plans are deducted from taxable earned income. Also, the growth from investing this money is tax-free. Unlike your traditional IRA and non-Roth 401(k) accounts, withdrawals are also tax-free when used for medical expenses, so it is a really tax-efficient way to accumulate money.

Roth Plans

A Roth IRA or Roth 401(k) (if your employer offers this option) is a very attractive option, particularly if you are young or your income is otherwise low. Contributions to a Roth plan do not get a tax deduction at the time of contribution, but as long as you meet the withdrawal rules, the money that you put in the plan, plus the growth and income, are never taxed again!

Credit Cards, Again?

They're Back!

Many of you are starting to get a slew of credit card offers, again.  If you are carrying balances with a high interest rate, now is a good time to look around.  I have seen several 0% interest balance transfer offers, and even one of those offers has NO FEES. 

I need to make one important point here ... if you take one of these offers, use it as an opportunity to pay down debt, NOT as an excuse to expand your debt.  High interest rates make it hard to reduce your balance; 0% interest gives you a chance to make some real progress.

Credit Card Problems?

Debtsmart.com is a good website for advice about debt and credit cards. Check it out for information about managing debt, improving your credit score, etc.


www.debtsmart.com

401(k)

Are you missing out on your company's best benefits?

Many people are. If your employer offers a 401(k) retirement plan, and you are not taking advantage of it, it's time to pay attention. 401(k)s are tax-deferred savings plans, and many, if not most employers put a matching amount into your accunt for you. You may even qualify for a saver's credit on your tax return, meaning that the IRS may refund up to 50% of your contribution at tax time.

2009 Stimulus Package

A lot of people have been asking about 2009 stimulus money. As you recall most people received a check (or direct deposit) last summer as part of the Bush stimulus package. For 2009, you will not be seeing in that format. For working folks, stimulus money will be received through reduced payroll tax withholdings. For social security recipients, you should have received additional money ($250 in most cases) by now. So ... that's your 2009 stimulus money.

Retirement Money and Early Withdrawals

Hopefully, many of you have accumulated money in your pension and/or 401(k) plans. What happens to this money if/when you leave the company? If you are laid off, it will be tempting to cash out. However, it is important to understand that there will be very negative consequences for doing so.


The key consideration is that this money is supposed to be for your retirement. By taking the money out of a retirement account, you are depleting your nest egg. In addition, there are very negative tax consequences for cashing out prior to the age of 59 ½. First, the money that you take will be considered taxable income. That doesn’t necessarily seem so bad; however, this additional lump sum of income within one tax year could push you into a higher tax bracket. In addition, the additional income could cause you to lose certain tax credits that you would otherwise qualify for, such as earned income credit, child tax credit, etc. Making a withdrawal will also disqualify you from receiving the saver’s credit. In addition, the IRS will assess a 10% penalty for making an early withdrawal from a retirement plan. The overall impact of this can be devastating. Many people assume that they will not have a problem at tax time, because they asked their employer to take out the taxes at the time that they made the withdrawal. However, if you make that selection, your employer will only take 20%, while the impact on your tax return can be substantially higher than that. For example, I completed a tax return for a client who made a $1200 withdrawal from her 401(k) account. After assessing the impact due to additional income tax, lost credits, and penalties, the client incurred an additional $800 in taxes! Therefore, 67% of the withdrawal went to the IRS!