Archive for Jul, 2012

Car Headlight Restorer a Great Value

I’m a car guy, and since I like to keep my car nice it has always driven me crazy that the xenon headlight lense covers were no longer crystal clear, but yellow and brown. They didn’t shine as bright either, since the aged plastic filtered the light.

I drive a 1999 Toyota vehicle with over 285,000 miles on it, I don’t have a name for it, but I do call it my baby, and it still looks great. I believe it is smart financially to maintain a car well for a long time and extract as many miles out it as possible. I plan to keep this car for many more years. When I keep it clean I seem to appreciate it and treat it better too. Funny, I swear it drives better right after it has been washed I’m not kidding, I’m thinking that ‘my baby’ has a soul and just appreciates being treated right.

No matter how well I cleaned this car, since the headlight lenses looked so bad, it just never looked clean. I’ve tried some headlight restorer products over the years, but none of them worked well so I was skeptical. While at the auto parts store picking up a headlight bulb for my wife’s van, I got into a discussion about the various products for restoring headlights. It seems the manufacturers have gotten much better, which is a good idea since so many cars have the clear lenses over their xenon or halogen bulbs. In the old days, cars only had ‘sealed beam’ headlights and the whole unit was one big light bulb that had the headlight lense built-in.

The sales person recommended several products, but he said the auto detailer guys would mainly buy the 3M kits, so that is what I tried, and the results were amazing, restoring the finish to 90% show room luster. This is the after picture, I wish I had a before picture to show you, but it was very dirty looking.

Not only am I glad that the car looks a lot better, I will be able to see a lot better at night, and during rain, snow and fog. I bought my car for 9,300 in 2005, and have had very little maintenance and repairs and the $25 was a good investment. I am grateful for the great 3m product, and it was easy to use. The kit consisted of an electric drill bit attachment, three different grits of sand paper, and a buffer and rubbing compound. I followed the directions and it worked great. The hour and half process just consists of removing a slight layer of plastic and polishing it clean. Now my wife wants me to do her car. Guess what I am going to do this Saturday morning?

Myths and Facts About the Gold Standard

If you didn’t catch the article in Saturday’s Wall Street Journal “The Myths and Facts About the Gold Standard” and the intermingling of politics and economics interests you then you might want to. The Gold Standard is a monetary policy that basis the value of currency a country issues on the value of gold that it holds in its reserve. The United States stores its Gold reserves with 4,578 metric tons near Fort Knox Kentucky and another 7,000 metric tons at the Federal Reserve Bank of New York. Some of that is held for other countries and banks. Gold hasn’t been the only standard for backing currency, as silver too played a role. Richard Nixon de-linked gold and US currency in 1971, following decades of national and international economic pressure.

Some believe that linking currency and metals would restore our country’s economics. There have been many books written about this subject, and it has been a topic for debate on the radio and in Christian circles since the 1980′s. Would going back to linking currency to metals solve all of our economic problems, would it be the decisive answer as some profess?  I’ve listened to some of the rhetoric however I’ve never bought into it, perhaps because it seems too simplistic, or their arguments claim or indicate some kind of conspiracy. Maybe economics and monetary policy needs a dosage of simplicity, since complexity seemed to help fuel the Great Recession. When it comes to finances sometimes ‘wisdom of the ages’ can teach us some things and provide some economic solutions, perhaps a hybrid approach:

“While many people believe the United States should adopt a gold standard to guard against inflation or deflation, and stabilize the economy, there are several reasons why this reform would not work. However, there is a modern adaptation of the gold standard that could achieve a stable price level and avoid the many disruptions brought upon the economy by monetary instability.” read more at the above link

IRA Withdrawal Rules

Traditional IRAs which I wrote about a few days ago are good for supplementing ones retirement, providing current tax deductions, and growing tax-deferred until retirement. However, when someone wants to use the money for retirement or other needs they should be conscious of the rules and limitations to avoid tax penalties. Let me say at the outset that planning for IRA distributions can be tricky so obtaining advice from a qualified financial expert would be a good idea. Roth IRA withdrawals work a little different, and covered them in a separate article.

If the owner wishes to withdraw money from their traditional tax-deductible IRA, all of the monies received are taxed at income tax rates, unless they make a special arrangement to donate them to a qualify charity. If they pull any funds out of the IRA account before their age of 59½ they will have to pay an additional 10% tax penalty, there are exceptions and I will cover them in a moment).

Money can be left in the IRA, so the owner is not forced to take it out, but they must begin making ‘Required Minimum Distributions (RMD)’ by April 1st of the year following the year they reach 70 ½. Failure to withdraw the RMD has a 50% tax ramification on the amount that should have been taken out. The RMD calculation considers all of money held in deductible IRAs, qualified plans, 403b and several other types of accounts.

The tax penalty for early withdrawal prior to the age of 59½ is punitive, encouraging people to leave the money in until they are older and retired. There are a few ways to avoid the penalty:

  • First time home purchase
  • Qualified education expenses
  • Death or disability
  • Unreimbursed medical expenses
  • Health insurance if you’re unemployed
  • 72t withdrawals

72t withdrawal regulations permit IRA holders to take out some or all of their accounts balances and avoid the 10% penalty if  substantially equal periodic payments are withdrawn, over a minimum of 5 years or until age 591/2, whichever is longer. The rules are a little complicated and there are 3 different methods; the amortized method of level payments based on life expectancy and an assumed interest rate, similarly the annuitization method using the annuitant’s and beneficiary’s age and an interest rate, and the RMD method of dividing the account balance by the life expectancy each year.

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2012 Roth IRA Review and Contribution Limits

The old or traditional Individual Retirement Accounts or IRAs came on the investment scene with the enactment of the Employee Retirement Security Act (ERISA) in 1974. These individual retirement plans provided a reduction in taxable income, the IRS doesn’t tax the growth on the monies while they are accumulating, however upon withdrawal, all amounts disbursed are taxed at income tax rates.

Roth IRAs came on the scene as a result of the Tax Payer Relief Act of 1997, and like traditional IRAs, Roth’s accumulate without tax on their gain, interest or dividends that investments held in the account might have. However unlike traditional tax-deductible IRAs, Roth IRAs are not tax-deductible and money withdrawn from Roth IRAs after the age of 591/2 are not taxed, (a later article will discuss early withdrawal penalties as well as exception to the rules).

2012 Roth IRA Contribution Limits

  • $5,000
  • Additional $1,000 if over age 50
  • IRA Roth Contribution amount is limited based upon income, from IRS.gov

Roth IRAs have been attractive to both those in low and high tax brackets planning for retirement; on one hand those in very low brackets realize very little tax savings if they invested in a regular tax-deductible IRA, and would appreciate a large tax-free accumulation until retirement, and tax-free income when they retire. Those in very high tax brackets, might indeed save a few thousand dollars on their tax returns if they invested in a tax-deductible IRA, yet if they were investing say for 20 or 30 years or longer, because they are now young, when they reach retirement the total tax savings they might have enjoy could pale in comparison to a large hundreds of thousand dollar or million dollar account, and would prefer tax-free access a Roth IRA would afford. Of course it is always good to talk to a tax advisor first before making a financial decision like this.

 

Traditional IRA Review and 2012 Contribution Limits

Individual Retirement Accounts or IRAs came on the investment scene with the enactment of the Employee Retirement Security Act (ERISA) in 1974. These individual retirement plans provided a reduction in taxable income, but contribution maximums were only $1,500 per year then. To further enhance IRAs, the IRS doesn’t tax the growth on the monies while they are accumulating, however upon withdrawal, all amounts disbursed are taxed at income tax rates, (a later article will discuss early withdrawal penalties as well as exception to the rules).

They were not entirely popular in the 1970′s since ERISA restricted contributions to only those that didn’t have an employer-provided retirement plan, or also known as a qualified plan. In 1981 the Economic Recovery Act removed that restriction and increased contribution maximums to $2,000, regardless how much money someone earned. In 1986 the Tax Reform Act limited or eliminated altogether the tax deduction, if someone had a qualified plan and had incomes over certain amounts. In the 1980′s sales of IRAs took off, and millions of people opened IRA accounts at their bank or credit union, insurance company, and investment firm and the investment landscape hasn’t been the same since.

There have been new IRAs such as  the Roth and Education ones, since the 1980′s and various tweaks to them, but except for changes to contribution amounts, and income limitations, the basics of IRAs remain the same since then.

As a review…

  • Contributions to IRAs reduce taxable income
  • The amount of the contribution that someone can deduct from their income depends upon their income, if they have a qualified plan at work
  • Individuals can still contribute to IRAs even if they are not able to deduct contributions, and they still maintain tax deferred growth

2012 Contribution Limits

  • $5,000
  • Additional $1,000 if over age 50
  • IRA deduction if covered by a retirement at work from IRS.gov:

  • IRA deduction if spouse is covered by a retirement plan at work:

Capital One Credit Card Woes

The credit card industry, within the last few years, has come under closer oversight and regulation. Dave Ramsey in his Financial Peace University class lessons of Dumping Debt and Credit Sharks in Suits has been particularly critical of the bad behavior and sometimes illegal practices of credit card companies.

Just last week Capital One Financial Corporation agree to pay $210 million to settle allegations that they allowed its call-center contractors to pressure customers to purchase add-on products that they didn’t understand, need, want or would qualify for. Credit One will begin refunding customers who purchased the products after August 2010. The have stopped selling them. Other banks are expected to face similar scrutiny.

This was one of the first actions by the newly formed Consumer Financial Protection Bureau (CFPB) of the Obama administration, headed by former Ohio Attorney General Richard Codray. The CFPB reports that Capital One is one of the biggest source of credit card company consumer complaints.

The credit card industry probably feels that they are over-regulated, but they have had much free rein for decades, abusing and taking advantage of consumers, to their [billion dollar] profit. I welcome the CFPB’s aggressive stance towards credit card companies, as well as the Credit Card Reform Act of 2009- they are both a great start to combating abuses of that industry that have gone on for far too long.

Higher Bank Yields

Interest rates continue to plummet for borrowers, with mortgage rates dropping below 4% for 30 year fixed, and less than 3% for shorter term mortgages like 15 year plans. Conversely investors continue to see interest rates drop for their investments and savings accounts. For conservative investors and those wanting to put emergency savings in a FDIC insured accounts, it is common to earn less than 1%, making these accounts loose purchasing power due to inflation. A few days ago the Wall Street Journal had a good article about banks and credit unions that are paying much better rates than those in my neighborhood, and may be worth considering.

Future of the Federal Estate Tax

The Federal Estate Tax is the tax paid on assets that transfer at death.

The current top rate is 35%, but it could increase to 55%, reverting to the 2001 tax rules if Congress doesn’t continue the lowering of tax of the Bush Administration. The current tax only applies to estates of $5,000,000 or larger, but the prior law applied to estates of $1,000,000 and larger.

Analysts believe the future of estate taxes will probably go one of three ways: 1) let the Bush tax cuts expire to help balance the budget, thereby reverting to system that had a top rate of 55% and began taxing estates of $1,000,000 or more 2) compromise, perhaps with a top rate of 45% and an exemption amount of $3.5 million. 3) continue the tax cuts and leave the exemption and rates where they are today.

What should they do depends upon your political and economic beliefs. Those who lean more to the right favor low or no tax, stating that estate tax is arbitrary and confiscatory redistribution of wealth, and have negative ramifications to business growth. Those on the left feel that funds are needed to help balance budgets, and redistribution helps prevent large amounts of wealth (and power) gradually ending up in fewer hands, recalling a few hundred years ago of America’s monopolies. Perhaps there is room for compromise here, I favor a law that penalizes fewer small businesses and farms, yet considers some of the thoughts contained in the “Gospel of Wealth” by Andrew Carnegie. Carnegie argues the tension created by having an estate tax, has social philanthropic benefits and satisfies the concerns of those in both ends of the spectrum.

Before You Bargain Hunt

Before You Bargain Hunt, Consider This…
Everyone is looking for a way to save money. Companies are taking advantage of this by promoting their best “bargains” to the fullest and people are scouring thrift shops for a used version of anything they need. However, not all bargains are created equal. There are some things that you should definitely not skimp on. In these special cases, paying a little more for the real deal is usually the best decision.

Bedding
First of all, never buy used bedding. Not only do you not want to sleep on somebody else’s mattress that’s been collecting their dead skin cells for years, but these days bed bugs could be hitching a ride into your home as well. Always, always buy new when it comes to bedding. You’re probably also not going to want to buy discount bedding either. Our sleep is important to our body and mind function. The last thing you need to do is sacrifice the health of your back for a few bucks. For the sake of your cleanliness and back, buy new, good quality bedding and get your savings elsewhere.

Baby Items
It’s okay to buy used baby clothes or even toys. However, items such as car seats and cribs should not be taken for granted. Always purchase these items new and find a good quality brand to invest in. The safety of your child is at stake. There are so many recalls on cribs, citing failed safety standards, why would you put your child at risk?

Tires
These round pieces of rubber are standing between you and the road. There’s no way of knowing if a used tire has suffered damage from an accident or a careless driver. At the same time, discount tires don’t offer the same dependability as trusted, quality brands. For your safety, be willing to shell out a little bit more cash for your tires to ensure dependability.

Computers
Some electronics are okay to buy used. However, used computers are better left alone. You never know how a person before you treated that computer. They are very fragile electronic devices that require proper care and maintenance. If your computer was dropped or had something spilled on it, you’re out of luck. If you are prepared to pay a little more for a brand new, decent computer, you will have a machine that will last you much longer, as long as you take proper care of it. Make your money count.

Safety Gear
Anything that has an intended purpose of keeping you safe is something you shouldn’t be saving money on. Helmets, for example, whether you ride a motorcycle or a bicycle, you want a quality material standing between your head and the pavement. Used helmets can be broken or tampered with and cheap helmets can lack safety rating and dependability. When it comes to your safety, it’s worth the extra cash.

The old saying, “you get what you pay for” applies to most things. While it might be okay to save money on a kitchen table or a night stand, there are certain items that you are better off paying full price for. As hard as it may be for hard-core thrift shoppers, taking the item into consideration before grabbing that great bargain is always a good idea.

Steve Henning writes about frugality, finance, and cheap travel insurance.

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