Education


Budgeting: Back-to-School

Ah, back-to-school time: the smell of newly-sharpened pencils, fresh crayons, and flowing cash. If that third one's got you down, take a look at these tips for creating - and sticking to! - a back-to-school budget.

Start early, and take time to get ready.
It doesn't take much to turn the school's supply list into a full-on shopping list. But you can do better than that.

Before you buy even one notebook, estimate how much you can afford to spend overall and what the costs are likely to be. Don't leave anything out! It's better to know ahead of time if things will be tight. (Keep reading for a bunch of creative ways to handle a shortage.)

Give some thought to what you'll do with any extra money in the budget. Will the kids get something special from their mile-long wishlists? Or will the surplus be added back into the household budget?

Think ahead to find the best deals. Be on the lookout for the big back-to-school sales and go early! Even the big stores can sell out at the last minute.

How realistic is your budget? Try our back-to-school calculator to find out!

Get the kids involved.
And not just with the shopping. Have them join in as you prepare: They'll learn great lessons about budgeting, finding a good deal, and the difference between wants and needs.

Younger children can help cut coupons (with safety scissors, natch). And older kids can compare costs and tally them up. You might even put them in charge of looking for deals to stay under budget.

Be willing to compromise on a few things.
Sure, kids will want to have the same cool stuff their friends do. If your budget has the room, you can help them learn to prioritize.

Talk to them about how choosing a more expensive item means they'll have to go cheap on another item, and give them a chance to think their choices through. If they have money of their own, you might ask them to help fund that special lunchbox or name-brand backpack.

Get creative to slash the shopping bill.
There's a good chance school clothes are the biggest chunk of your back-to-school budget. But who says they have to be brand new? Trade clothes with other families, or hit the thrift stores and garage sales. If school uniforms are required, check whether the school has a trading or discount program.

Buying online? Play it smart! Order together with enough friends to get free shipping. Or buy bulk packs of supplies to share. You might also find a steal on eBay or Craigslist.

Learn from the experience.
Make your savvy back-to-school approach an annual tradition. Keep track of this year's expenses to help figure out the budget next year. Keep notes about what you discover, like where the best thrift stores are and when the store shelves start to empty. They'll come in handy a year from now.

Practice these smart shopping habits each year, and by the time the kids graduate, you'll have saved a bundle. And they'll be much more prepared for the real world
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Five "Social" Ways to Get Tax Information You Need

If you use your smartphone to work smarter or you prefer social media resources over hard copy documents, check out the ways the Internal Revenue Service delivers the latest information on tax changes, initiatives, products and services through social media.
1. IRS2Go – A smartphone application to interact with the IRS using your mobile device. The mobile application can help you get your refund status and tax updates. IRS2Go is available for the iPhone or iTouch and the Android.

2. YouTube – The IRS has video channels on YouTube with short, informative videos on various tax-related topics. The videos are in English, American Sign Language, and a variety of foreign languages.

3. Twitter – IRS tweets include tax-related announcements, news for tax professionals, and updates for job seekers. Follow @IRSnews.

4. Audio files for Podcasts – These short audio recordings provide useful information on one tax-related topic per podcast. The audio files are available on iTunes or through the Multimedia Center on IRS.gov (along with their transcripts).

5. Widgets – These tools, which can be placed on websites, blogs, or social media networks, direct others to IRS.gov for information. The widgets feature the latest tax initiatives and programs and can be found on Marketing Express, the marketing site that allows IRS partners and tax preparers to customize their IRS communications products.

To find links to all of IRS’s social media tools, visit www.irs.gov and click on “IRS New Media.”


Think twice before tapping retirement plans
By Jason Alderman

Before the housing crisis, it wasn't uncommon for people to raid their home-equity piggybanks to pay off bills. Plummeting home values and tougher lending standards helped curb that practice, leading some people to engage in a far more disturbing habit: borrowing or withdrawing money from their retirement accounts to cope with financial hardship.

There may be times when a loan or withdrawal from an IRA or 401(k) plan is your best or only option, but you should be aware of the possible impacts to your taxes and long-term savings objectives before raiding your nest egg:

401(k) loans. Many 401(k) plans let participants borrow from their account to buy a home, pay education or medical expenses, or prevent eviction or mortgage default. Generally, you may be allowed to borrow up to half your vested balance up to a maximum of $50,000 – or less if you have other outstanding 401(k) loans.

Loans usually must be repaid within five years, although the deadline may be extended if it's used to purchase your primary residence.

Potential drawbacks to 401(k) loans include:

If you leave your job, even involuntarily, you must pay off the loan immediately (usually within 30 to 90 days) or you'll owe income tax on the remainder – as well as a 10 percent early distribution penalty if you're under age 59 ½.
You might be tempted to reduce your monthly 401(k) contribution, thereby significantly reducing your potential long-term savings.

401(k) plan and IRA withdrawals. Many 401(k) plans allow hardship withdrawals to pay for certain medical or higher education expenses, funerals, buying or repairing your home or to prevent eviction or foreclosure. You'll owe income tax on the withdrawal – and often the 10 percent penalty as well.

Unlike employer plans, with traditional IRAs you're allowed to withdraw from your account at any time for any reason. However, you'll pay income tax on the withdrawal – and often the 10 percent penalty as well.

With Roth IRAs, you can withdraw contributions at any time, since they've already been taxed. However, if you withdraw interest earnings before 59 ½, you'll likely face that 10 percent penalty.

Further tax implications. With 401(k) and traditional IRA withdrawals, the money is added to your taxable income, which could bump you into a higher tax bracket or even jeopardize certain tax credits, deductions and exemptions tied to your adjusted gross income (AGI). All told, you could end up paying half or more of your withdrawal in taxes, penalties and lost or reduced tax benefits.

Losing compound earnings. Finally, if you borrow or withdraw your retirement savings, you'll lose out on the power of compounding, where interest earned on your savings is reinvested and in turn generates more earnings. You'll lose out on any gains those funds would have earned for you, which over a couple of decades could add up to tens or hundreds of thousands of dollars in lost income.

Bottom line: Think long and hard before tapping your retirement savings for anything other than retirement itself. If that's your only recourse, be sure to consult a financial professional about the tax implications.



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This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation


Your Card Options at a Glance...

While cash and checks are still with us, more options are opening to consumers to use plastic cards, whether credit, debit, or a combination. Here are some things to know about your choices...and your protection.

Credit Card
- Allows you to borrow money at an established interest rate subject to terms and conditions of the issuer.

Debit Card
 - Allows you to purchase products without cash; money is deducted directly from your account.

Credit/Debit Card - Combination cards permit various transactions; e.g., credit charges and debit use such as use at an ATM or cash back at Point-of-Sale (POS) merchant terminals.

Pre-Paid Cards
- Money is deducted directly from your account; amount available depends upon the amount that has been pre-paid to the account; can often be recharged (i.e., additional funds added to the pre-payment amount).

Gift Cards
- Works like a pre-paid card, in that the amount available is determined in advance. Usually cannot be recharged. Cards can be proprietary to specific merchants or bank-issued cards accepted by most merchants.

Which Option should I choose?
Some experts advise that you use the debit card for everyday, small purchases, such as for groceries, at the gas station or dry cleaners. For larger purchases or those made over the Internet of by phone, credit cards might offer broaded protection. For instance, you can contest a credit card charge for a productt and not have to pay until the dispute is settled. With a debit transaction, the vendor has your money during the dispute period.


Avoid These 5 Financial Mistakes
Many of us are resolving to get our finances on track and keep them there in 2011. Don't let these common mistakes undermine your good intentions:
  • Not setting financial goals: If you can set some clear goals, it's much easier to take positive steps.
  • Spending more than you earn: Easy credit made this a temptation in the past. Avoid impulse spending, and learn the art of bargin shopping.
  • Paying unnecessart fees: There is simply no reason to pay a monthly checking account fee, an annual credit card fees. Take advantage of our free services instead.
  • Letting your emergency fund slide: If you don't have a cushion of cash, you might resort to expensive payday loans or other expensive choices. Make your emergency fund a top priority.
  • Ignoring your credit score: Do you know what's in your credit history? Visit www.annualcreditreport.com and in minutes you can carefully review your records.

Get the Most Out of Your Gift Cards
By Jason Alderman
If someone gave you a $50 bill, you probably wouldn't just stick it in a drawer and forget it. But that's essentially what happens to billions of dollars worth of gift cards each year – people either lose or forget about them, or never use up their balances.

Here's how gift cards work. There are two basic types:
• Retail gift cards, used to buy goods or services at a single merchant or affiliated group of merchants.
• Network-branded gift cards, issued by a bank and carrying the logo of a payment card network (like Visa, MasterCard or American Express) and can be used at any location accepting cards from that network.

Account information is stored in the card's magnetic strip. If you're not sure of the remaining balance, ask the merchant to scan the card, call the toll-free number on the card or verify it on the card issuer's website provided. Some store-branded cards can be reloaded; and most can be replaced if lost or stolen – although you may have to provide proof of purchase and pay a replacement fee.

The 2009 Credit Card Accountability, Responsibility and Disclosure Act changed laws governing gift cards sold on or after August 22, 2010. It requires that:
• Money loaded on gift cards must not expire for at least five years from date of purchase or after funds were last reloaded.
• If the card expires but the underlying funds have not, you can request a free replacement card.
• Inactivity, account maintenance and service fees may not be charged until after 12 months of inactivity; after that, only one such fee may be deducted from the balance each month. (Fees for activation or lost/stolen card replacement are exempt.)
• Fees must be clearly disclosed on the card or its packaging.

Here are a few tips to get the most out of your gift cards:
• Use them quickly; the longer you wait, the more likely you are to forget or misplace them.
• Treat them like cash; and write down the account and toll-free numbers to report lost or stolen cards.
• Ask if the retailer will honor the card for online purchases, if that's your preferred shopping method.
• Be sure to use up the entire account balance, or ask if a cash refund is available. You may be able to use multiple cards for a single purchase – say you have several low-balance Starbucks cards.

If you don't care for a particular retailer, consider trading gift cards with friends. Or check out some of the websites that have sprung up where you can buy, sell or swap certain kinds of gift cards, such as CardHub (www.cardhub.com), Plastic Jungle (www.plasticjungle.com), and Swapagift.com (www.swapagift.com). Just make sure you understand any transaction or registration fees or commissions that may be charged.

A few additional safeguards:
• If you have a retail gift card and the company goes out of business, you may forfeit the balance.
• Be cautious when trading cards with strangers. For example, if using a third-party exchange site, ask about their verification policies and check with the Better Business Bureau (www.bbb.org) for complaints.
• Avoid unsolicited offers for free cards that sound too good to be true. By following spam links you could jeopardize your personal information.

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This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.

 



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