Think Your Way to Wealth

2013 401k and Traditional and Roth IRA Limits

RC — Wed, 31 Oct 2012 14:53:07 +0000

Several weeks ago, the IRS released pension plan limits for 2013, which sets the limits one can contribute to a 401(k), 403(b), and other retirement savings plans, as well as individual retirement account (IRA) limitations for traditional and Roth IRAs.

2013 401k limits

The maximum contribution limit for a 401k, 403(b), 457(b), or Government Thrift Savings Plan is increasing by $500 to $17,500. If you are 50 years old or older, you can contribute an additional $5,500 in 2013.

Traditional and Roth IRA s

With a traditional IRA contributions are tax deductible and the withdrawals made from a traditional IRA during retirement are taxable. For a Roth IRA contributions are made with after tax money, and the proceeds can be withdrawn tax free after reaching age 59 1/2. Due to the ever present talk of tax rates increasing in the future, many people find the Roth IRA more attractive, particularly if they are already contributing to a tax-deferred plan such as a 401k or a 403b.

2011 Traditional and Roth IRA limits

The maximum contribution limit for a Traditional IRA or a Roth IRA is also changing for 2013, increasing $500 to $5,500. The IRA contribution limits are increased in increments of $500 based on inflation, so if inflation has not increased enough, there would be no change in the contribution limit. If you are 50 years old or older, you can contribute an additional $1,000 in 2013, for a total of $6,500. Note that you can contribute to both a Traditional IRA or a Roth IRA in the same year, but the total for both cannot exceed the $5,500 maximum contribution limit ($6,500 for 50 yrs old and older).

Income Phase outs based on Adjusted Gross Income (AGI) for 2013 Traditional and Roth IRAs

The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $59,000 and $69,000, up from $58,000 to $68,000 in 2012. For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $95,000 to $115,000, up $3000 from 2012. For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $178,000 and $188,000, up $5,000 from 2012.
The AGI phase-out range for taxpayers making contributions to a Roth IRA is $178,000 to 188,000 for married couples filing jointly, up $5000 from 2012. For singles and heads of household, the income phase-out range is $112,000 to $127,000, up $2,000 from 2012.

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I Bond Rate for May 2012 through October 2012- 2.20 %

RC — Tue, 15 May 2012 15:36:25 +0000

May 2012- I Bond Earnings Rate 2.20 %, Fixed Rate 0.0 %

I bond rates were lowered again for the 6 month period of May 2012 to November 2012, which is reflected in the 6 month offering period for I bonds, with a semi-annual inflation rate of 1.10%, and an overall return of 2.20% for the next 6 months. This is a decrease from the previous 6 month period which had a total return of 3.06%. The fixed rate component, which is added to the inflation rate, is again 0.0%. (The fixed rate portion has remained at 0% since November 2012.

I bonds must be held for at least 1 year. But if you buy them at the end of the month, you get credit for the whole month, effectively making it a minimum of 11 month holding period. If you cash I bonds in before 5 years, you lose 3 months’ worth of interest. The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 2.20 % earnings rate for I bonds bought from May 2012 through October 2012 will apply for their first six months after issue. The earnings rate combines a 0.0% fixed rate of return with the 1.10% semi-annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).

The fixed rate applies for the 30-year life of I bonds purchased during this six-month period, but since it is 0.0, it doesn’t really come into play for this 6 month offering period.

Here’s how the composite rate for I bonds issued May 2012 – October 2012 was set:

Fixed rate = 0.00%

Semiannual inflation rate = 1.10%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]

Composite rate = [0.0000 + (2 x 0.0110) + ( 0.0000 x 0.0110)]

Composite rate = [0.0000 + 0.0220+ 0.0000000]

Composite rate = 0.0220

Composite rate = 2.20%

Since I bonds are tax-deferred, they can be a useful option to diversify your tax liabilities as part of your overall investment strategy.

As I have mentioned before, I bonds are also tax free if used for education, so they can be part of your education savings plan as well.

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ING DIRECT Black Friday Sale 2011- $107 Bonus plus More!

RC — Fri, 25 Nov 2011 15:55:26 +0000

As usual, ING DIRECT has some great deals for Black Friday with free money offers for you!

Here are the details on the three great deals:

$107 Electric Orange account opening bonus
- Open Electric Orange November 25th – 27th and make a total of 5 purchases (either signature or PIN-based) using your Electric Orange Card or Person2Person Payments (or any combination of the two) within 45 days.
- Your $107 bonus will be automatically deposited into your account on day 50.
- Bonus only available for new Electric Orange checking. Only one bonus will be provided per household.
$27 Kids Savings Account opening bonus
- Open a Kids Savings Account November 25th – 27th and we’ll put a $27 bonus into your new account. Only available when you open a new account with at least one new Customer (either you or the kiddo must be a new Customer to ING DIRECT).
- $27 bonus starts earning interest upon account opening, and is available for withdrawal after 30 days.
- There’s no minimum deposit amount required. 0.90% Variable Annual Percentage Yield effective as of 10/21/2011.
$32 MONEY account opening bonus
- Open MONEY November 25th – 27th and make 1 Card transaction (either signature, PIN-based or with PayPassTM) using your MONEY Card within 30 days we’ll put a $32 bonus into your new account. (Keep in mind, the teen gets the Card.)
- Your $32 bonus will be automatically deposited into your account on day 35.
- There’s no minimum deposit amount required. 0.25% Variable Annual Percentage Yield effective as of 7/13/2011.

The sale will last 3 days only! Friday , Nov 25, 12:01am ET – Sunday, Nov 27, 11:59pm ET

Just use one of the links-either above or below, and you’ll be on your way to free money!

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Obama Proposes Changes to Home Affordable Refinance Program (HARP)- Will It Help?

RC — Tue, 25 Oct 2011 17:22:35 +0000

The federal government announced changes to the Home Affordable Refinance Program (HARP) on Monday, hoping to allow more homeowners who are underwater on their mortgages to qualify for the program, and by re-financing and potentially reducing their monthly payments, making it easier for them to make their payments and assisting with possible cash flow problems.

The program, originally started in 2009, was supposed to help upwards of 5 to 10 million homeowners who are upside down on their mortgages refinance and take advantage of lower interest rates that are being offered for mortgages these days. This would allow them to continue paying and stay current on their mortgage while freeing up some desperately needed cash for many homeowners who are struggling in today’s economy.

The changes announced on Monday are supposed to allow some homeowners who are currently ineligible for the existing HARP program to qualify- it includes the reduction of some of the fees associated with the program, as well as an elimination of the loan to value (LTV) restrictions previously in place as part of the HARP program.

What was/will be changed in the HARP program?

A cap which limited those who qualified to those who owed no more than 125% of the value of their home will be lifted.
Some fees for closing, title insurance, and other costs will be eliminated, lowering the amount of fees and expenses those hoping to qualify for the program will have to pay.

How do you know if you qualify for HARP?

Your mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac, and must have been sold to one of those agencies on or before May 31, 2009.
Loan To Value Ratio (LTV) must be greater than 80%- i.e., your mortgage must be at least 80% of the value of your home, and, as mentioned above, there is no longer an upper limit of 125% LTV.
Mortgages that were refinanced over the last two and a half years aren’t eligible.
Homeowners must also be current on their mortgage. One late payment within six months, or more than one in the last year would mean disqualification.

Will This Help Many Homeowners?

It certainly will let some who currently do not qualify become qualified for the program so it will help, but how many is probably anyone’s guess at this point. Keep in mind, also, that this is a voluntary program for banks & lenders, so there is nothing that forces a bank to allow a homeowner to refinance, even if all of the conditions above are met.

As you can see from the requirement that only one late payment in 6 months is allowed in order to qualify, this program is still geared towards homeowners who are currently able to keep up with their mortgages and continue to make payments, even if they are underwater or “upside down” on their current mortgages.

By refinancing at a lower interest rate, homeowners will be able to reduce their monthly payment which in effect reduces the total amount they will pay over the life of the loan as well. Obviously, for someone underwater on their mortgage, the longer they plan on staying in the house, the better off they are, as over time the house will likely increase in value (although no one knows at this point how fast or slowly that will occur), and as they make payments over the years their remaining mortgage debt amount gets less and less, both of which increase the equity they have in the house vs. what the original purchase price was.

Hopefully, this will allow some of those people who are “hanging on” so to speak a little relief, which is definitely a good thing.

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Groupon $20 for $40 at the Body Shop

RC — Mon, 24 Oct 2011 19:35:29 +0000

Groupon, the local and national deal site, is having another $20 for $40 at the Body Shop physical store locations. They ran this deal back in April, and it was great for Mother’s Day, so grab it again to get a head start and save 50% on some of your Christmas shopping-now is a great time to start.

This offer expires at midnight, tomorrow, 10/25/11, so be sure to grab it before then in order to take advantage of the offer.
If you haven’t signed up with Groupon, sign up 1st using my Groupon referral link and I’ll get a few Groupon bucks- you can refer your own friends for credit to your account after you sign up also.

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2012 Social Security Benefits Increase to be 3.6%

RC — Wed, 19 Oct 2011 17:21:18 +0000

The government announced this morning that social security recipients, who number approximately 55 million Americans, will get a 3.6% cost of living adjustment, or COLA, starting in January 2012. 8 million Americans who receive Supplemental Security Income (SSI) will receive a 3.6% increase as well.

This will be the first COLA since 2009, when the increase was a rather large 5.8%. There were no increases in the COLA for 2009 and 2010, since the measured inflation rate during the weakened economy was too low to bring it above the rate measured in 2008 which was used for the 2009 increase. These were the 1^st two years without an increase since automatic increases based on inflation were adopted in 1975.

Many people, particularly the elderly living on fixed incomes, have complained and struggled over the last two years, that while food, medical, and other costs have risen, their social security payments have not. In addition, it is expected that medicare premiums will increase next year, wiping out some of the SS increase for many.

Monthly social security payments average just under $1100 per month, so a 3.6% increase would mean the average payment would increase about $39 per month, or appx. $468 per year.

For the maximum monthly payment, currently $2366 per month, the increase would amount to approximately $85 per month, or $1020 per year.

On a related and interesting note, the amount of salary or wages subject to the social security tax will rise by the same percentage next year, from the current $106,800 to $110,100, according to the social security administration. For those subject to the increased threshold, this would mean an increase of appx. $225 according to my quick calculations.

Since the social security payroll tax cut for 2011 has yet to be extended for 2012, the increase in the amount subject to the ss tax as well as the potential for paying the 2% that was cut in 2011 could mean decent increase for some.

President Obama originally included an extension of the 2% SS payroll tax cut through 2012 in his jobs bill proposal which was DOA a few weeks back, however; he plans to continue pushing individual parts, including the payroll tax cut extension in 2012 as individual pieces. I’ll be sure to discuss if anything is announced in the near future, so stay tuned.

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Will Closing Your Checking Account and Switching Banks Hurt Your Credit Score?

RC — Tue, 18 Oct 2011 17:13:04 +0000

With new debit card fees being implemented or proposed by several large banks in the last few weeks, many people have decided they have “had enough”, and are looking for alternatives with less fees, such as credit unions or online checking accounts like ING DIRECT Electric Orange℠ checking or Ally Bank’s Ally Interest Checking Account, many of which have very low fees or no fees whatsoever.

Probably due to this recent activity, I’ve heard of several people asking whether or not closing their bank accounts will hurt their credit score.

The short and sweet answer is No.

Simply closing your checking account will have no effect on your credit score whatsoever- this information is generally not provided to the credit bureaus, which monitor revolving credit lines, such as credit cards or loans like a car or house loan.

Information on your checking account or savings accounts are handled by Chexsystems , which in a way operates how we think the credit bureaus do. For example, if you bounce a bunch of checks and don’t pay the bank back, this information will be reported by the financial institution (i.e., bank), and the Chexsystems report may prevent you from being able to open another account in the future- they keep the information on file for five years, according to their website.

Open an Interest Checking Account from Ally Bank today!

The longer version is still no, but, for example, you have both a checking account and a credit card with Bank of America or some other large bank, and want to close your credit card account with them as well, the fact that you are closing one of your credit lines in the form of a credit card will likely have a negative effect on your credit score, how much depends on your overall credit history and how long you’ve had that credit card, as well as other factors.

If you have a short history with not many credit items and you close your oldest card, it could hurt more than if you have a longer, broader history and the card you are closing is relatively new. You can read more in my article on why your credit is important and how to improve it.

To recap, as long as you close your checking or bank account properly you should be fine. Make sure you don’t just pull all of the money out and end up overdrafting something you set on auto payment or some similar scenario- this could have a negative impact on your Chexsystems report, which could cause problems with opening a new bank account in the future. Closing a credit card you may have with a bank will have a varying effect on your credit score, but it will depend on many other factors as noted above, be sure to think if that really matters to you before you close a credit card.

ING DIRECT Electric Orange℠ checking. No fees. No Minimums. Earn Interest. And earn a $50 bonus when you open!

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2011 Income Tax Extension Filing Deadline Oct 17th, 2011

RC — Fri, 14 Oct 2011 19:09:41 +0000

Just a quick reminder, if you filed for a tax extension back in April using form 4868, your tax return is due this coming Monday, October 17th. (since the 15th is a Saturday).

If you estimated your taxes and sent a payment when you filed your extension, be sure to also note that in the correct place on your return, so you get credit for the payment.

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Citi Checking Bonus- Get $100 for Opening New Citibank Checking Account

RC — Wed, 05 Oct 2011 17:07:45 +0000

Update 2/14/12-The original offer has been updated with Citi Checking offering $100 for opening a new account and following the required steps outlined below.

Citi Checking, offered by Citibank, is currently offering $100 to those who sign up for a new checking account between now and December 31,2012.

Here’s how the offer works:

1.) To qualify for the cash rewards, customers must open a new checking account in the Citigold or Citibank Account Package by 12/31/12.

2.) Within 45 days after account opening, fund the account with $1,000.

3.) Within 45 days after account opening, the customer must also complete 1 direct deposit and 1 electronic bill payment for 2 consecutive months.

As with any offer, make sure you read all of the terms and conditions required, such as monthly account fees, and minimum balances required to avoid be charges those fees.

This offer is good up until the end of the year, but act now if you are interested !.

For more details and to sign up for a Citibank checking account, go to the following link below:

Citi Checking $100 Bonus offer.

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How Not To Solve Your Personal Debt Problems….

RC — Tue, 16 Aug 2011 20:15:09 +0000

Sometimes, you can learn the right way to do something by watching someone else (or a group of people) do it the wrong way. In light of the recent debate, fighting, and arguing over raising the U.S. “debt ceiling“, here are a few ways on how “not” to go about solving your personal debt problems.

Tackle the problem directly…don’t compromise with or try to fool yourself, your spouse,or others…trading cuts in spending in one place or category for increased spending somewhere else….
Don’t wait to start getting out of debt until the last minute..things will come up…they always do…
Don’t plan on getting out of debt by cutting your spending by 15-20% of your total debt….over the next 10 years…..That is not really going to make much of a dent. You need to plan it out to complete, i.e., until all of your debt is gone.
Don’t plan on getting out of debt by cutting spending only…sometimes, you need to increase your income as well…doing both will get you out of debt the fastest.
And finally…don’t try to get out of debt by increasing the amount of money you are borrowing…while it might seem like it makes sense to politicians, it really doesn’t make much sense at all….

You and I, regular people that is, don’t have the same luxury as politicians- we can’t keep deferring debt problems or issues for the future, or future generations. The only way to fix your debt problems is to evaluate them, address them, and take steps to eliminate your debt.

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The Little Known Psychology of Delayed Gratification

RC — Tue, 10 May 2011 10:55:00 +0000

In the age of high-speed Internet, fast food chains and non-stop transcontinental travel, it’s easy to fall into the thinking that everything can and must happen in the blink of an eye. You want to set up a business on your own? Click click and click—your website is up and running, you have an e-newsletter ready to be sent to your mailing list and your servers are in high gear, waiting for site traffic to pick up.

These days, we think in terms of seconds and minutes, not days or months or years. We want everything instantly because we think we are entitled to it. As entrepreneurs, we fret and fidget at the slow trickle of sales and site visitors over a week-long period. As customers, we tap our foot impatiently whenever the pizza guy is late by a couple of minutes.

The sad but hard truth is that not everything can be hurried along, even with all the fancy technological gadgets and the cool new toys we use to make our everyday lives more convenient. Success, happiness, and achievements don’t happen in an instant. You have to spend time, money and effort to turn things your way and make something of yourself.

On that note, it’s important to remember that get-rich-quick schemes rarely ever succeed. If you hang in there long enough and hard enough, you just might see your dreams coming true one by one. This is called delayed gratification.

The marshmallow experiment

Psychologists were able to verify the concept of delaying self-gratification with a simple test: they put a marshmallow in front of a kid and told her to wait until they came back so she can have two marshmallows instead of just one. If the kid rang the bell to call for the tester before he’s back in the room, she can eat the marshmallow in front of her, but the other one will be forfeited.

Sounds simple enough, right? Delaying self-gratification is the idea of giving up one thing now in order to gain something better in the future. The psychological test outline above illustrated how important it is for people to hold out just a little if they wanted a bigger prize.

But this is much easier said than done. After all, why wait for another marshmallow when you already have sitting on a plate right in front of you?

This kiddie test didn’t just demonstrate how kids behave when they are tempted. Later on the psychologist followed up on the lives, careers and school habits of the children who were included in the experiment. He found out that the kids who were able to wait for the second marshmallow were generally better off emotionally, mentally and psychologically than those who settled for just one marshmallow.

The secret to success

The whole idea behind delayed gratification is that you can ultimately get what you want if you only wait long enough and work hard enough for it.

Nothing substantial comes cheap and quick. Those overnight dot com millionaires among us are the exception, not the general rule. It’s not so bad to get inspired by people who built up their wealth through fast and foolproof methods, but you have to remember that there’s no instant formula to instant success.

Scratch that—there’s something you can do to guarantee your success, but not the instant way. If you can delay gratification now and still keep working for what you want to happen, your efforts will eventually pay off. Consider the marshmallow your reward for patience and perseverance, and the victory tastes even sweeter.

Delayed gratification builds your character and makes you a more powerful force. Keeping a lid on your impulses shapes you into a better person and gives you time to rethink your options. Translated in business terms, you don’t always have to implement the first strategy that comes to mind, or grab the first client who walks in your door. With time, you can come up with an even better solution to your current business troubles, or you can close the deal with a far more important customer.

It’s all a matter of timing and willingness to look beyond what’s happening now. The marshmallow test doesn’t just gauge a person’s self-control, but also his vision and dedication. If you really want that other treat bad enough, you must bide your time until you can lay your hand on both marshmallows. With every knee-jerk reaction or impulsive decision you shy away from, you save yourself the trouble of patching things up when they go wrong later on.

This is a guest post from Ally, who is part of the team that manages Australian Credit Cards, a blog that covers topics on the psychology of personal finance. Before joining ACC, she was a Media Planner with McCann Worldgroup Philippines, Inc., with award-winning executions, including the Levi’s 501 “Live Unbuttoned” global campaign.

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I Bond Rate for May 2011 through October 2011- 4.60 %

RC — Tue, 03 May 2011 00:51:33 +0000

May 2011- I Bond Earnings Rate 4.60 %, Fixed Rate 0.0 %

The I Word, or inflation has finally reared its ugly head according to the CPI, which is reflected in the 6 month offering period for I bonds, with a semi-annual inflation rate of 2.30%, and an overall return of 4.60% for at least 6 months. The fixed portion of the i bond is again at 0.0%. I bonds are now more attractive for those looking for a decent interest rate and inflation protection as an investment. I bonds for the last 6 months only paid 0.74%, so this represents quite an increase.

I bonds must be held for at least 1 year. But if you buy them at the end of the month, you get credit for the whole month, effectively making it a minimum of 11 month holding period. If you cash I bonds in before 5 years, you lose 3 months’ worth of interest. But at the current rate of 4.60%, losing 3 months interest would still net you appx. 3.45% after a year, better than you can get just about anywhere else I know of at the moment.

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 4.60 % earnings rate for I bonds bought from May 2011 through October 2011 will apply for their first six months after issue. The earnings rate combines a 0.0% fixed rate of return with the 2.30% semi-annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).

The fixed rate applies for the 30-year life of I bonds purchased during this six-month period, but since it is 0.0, it doesn’t really come into play for this 6 month offering period.

Here’s how the composite rate for I bonds issued May 2011 – October 2011 was set:

Fixed rate = 0.00%

Semiannual inflation rate = 2.30%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]

Composite rate = [0.0000 + (2 x 0.0230) + ( 0.0000 x 0.0230)]

Composite rate = [0.0000 + 0.0460+ 0.0000000]

Composite rate = 0.0460

Composite rate = 4.60%

Since I bonds are tax-deferred, they can be a useful option to diversify your tax liabilities as part of your overall investment strategy. I bonds are also tax free if used for education, so they can be part of your education savings plan as well.

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