college savings plans

6 Ways to Get Paid for Saving Money

Julie Rains — Wed, 06 Mar 2013 11:36:33 +0000

You can make money by saving money, apart from interest, dividends, and investment earnings. These methods deliver bonuses in ways you may not have recognized as getting paid to save. (See also: The 5 Best Online Savings Accounts)

1. Claim the Saver's Credit

This money comes from the federal government via the IRS. Through the Retirement Savings Contributions Credit (aka Saver's Credit), you can get up to $1,000 (or $2,000 if married filing jointly) if you contribute to a qualified retirement account and meet certain requirements, which most notably include income limits.

You can't make more than $28,750 in modified adjusted gross income ($43,125 if head of household or $57,500 if married filing jointly) to be eligible. At those income levels, you may not have a lot of extra cash to sock away for retirement, but if you do save, you'll get a nice bonus. Use Form 8880 to calculate and claim your credit.

2. Win Prizes and Rewards for Saving Money

You can earn rewards and may be able to win prizes by tracking your savings with a couple of online services.

SaveUp helps you to monitor savings and debt payoff, and gives you the opportunity to play for prizes that range from a $100 gift card to a $2 million jackpot. The site also dispenses rewards in the form of promotional offers.
SmartyPig gives you a place to save money for specific purposes such as a summer trip to the beach or new flooring for your house. When you have accumulated the dollars, you can redeem your savings by 1) transferring money to your checking account, 2) loading money to a prepaid debit card, or 3) receiving a gift card from certain retailers. While option #1 doesn't give you extra cash, you'll get 1% more if you take your savings on the debit card and a bonus of up to 11% if you choose a gift card.

3. Earn Bonuses for Setting Aside Money in Savings Accounts

Many banks and credit unions have cash incentives for customers who commit to saving. For example, BBVA Compass matches a percentage of transfers from a checking account to a savings account; you can earn up to $250 per year through the Build My Savings program. Bank of America also contributes up to $250 through its Keep the Change program. Citizens Bank has a CollegeSaver savings account that gives a one-time $1,000 bonus when your child reaches 18 if you make minimum monthly deposits.

4. Get Cash for Opening and Funding an Investment Account

Brokerage firms offer incentives for opening and funding an investment account. To get rewards, you typically have to make a hefty deposit. For example, to earn $200, you'll need to put $50,000 in a new account with Charles Schwab (but you can earn $100 on a deposit of just $10,000 if you are an AARP member).

However, your bank, credit union, or other financial institution may offer more accessible deals. For example, ShareBuilder is offering a $50 bonus to open and fund an IRA with $5,000.

5. Snag Your Company's Match

You can make extra money courtesy of your employer if you contribute to a qualified retirement plan and your employer matches contributions. Review plan documents to verify that a match is available. Set aside the percentage of your pay that harvests the maximum payout from your employer.

6. Take Tax Deductions

The federal government and most state governments give you a bonus (in the form or lower taxes) for your contributions to traditional retirement accounts (such as traditional 401ks or IRAs) and Health Savings Accounts (HSAs).

There are restrictions for tax deductions, generally based on earnings and the amount of deductible for the high-deductible health plan linked to the HSA. But if you qualify for tax deductions and put money in these accounts, you can lower your tax liability and increase your cash inflow, either from a larger refund or smaller tax payment.

Even though interest rates are low and rewards for saving are often small (even in a high-yield CD) or uncertain in investment accounts, there are ways to get cash bonuses that boost your bottom line.

How have you made money by saving money?

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This article is from Julie Rains of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Is Six Figures Really That Much?

Catherine Shaffer — Wed, 13 Feb 2008 16:08:48 +0000

There's a fascinating discussion going on over at Free Money Finance about families who are struggling to get by on six figure incomes. The overall tone of the discussion is wincingly critical. And I can understand why. For a very long time, the term "six figure" income was used to indicate that someone was very well-off. But the buying power of a six figure income has been eroded quite a bit by inflation, since my childhood, when only basketball stars and corporate CEO's made six figure incomes. Nowadays, six figures is still above average, but its buying power in terms of lifestyle may have eroded even more than the value of a dollar, as those of us within striking distance of six figures have learned to our regret.

My husband and I earned $96,000 from our respective jobs last year. This is our best year, yet. But this year, like every year, we are looking at that number and wondering where it all went. We aren't profligate spenders. We're both lifelong tightwads who live in a modest 1300 square foot home and drive two older vehicles. One is ten years old, the other five years old. We send our child (he's in the "middle" between the two cars in age) to public schools, and we buy most of our clothes either on extreme clearance or at resale shops. When we make a major purchase, we do research and look for great deals.

Are we struggling? Far from it. We contribute to retirement accounts, give to charity, enjoy one or two modest vacations per year, and have made good progress paying down some debts from previous, leaner years. We are not living paycheck to paycheck. But barely...

See, this six figure lifestyle isn't all it's cracked up to be. My minivan has a rust hole all the way through one of its doors. And right now I am wearing a sweater that is fraying at the cuff. Where is my Mercedes Benz? And why can't I afford to shop at The Gap or Eddie Bauer for all our clothes?

If the American dream is living in a nice house in the suburbs (3 bedrooms, 2 baths, finished basement rec room with "man cave," swimming pool in the back yard), driving two newer cars, taking family vacations to the Grand Canyon, having a "date night" once per week, cell phones for each family member, flat screen TVs, buying your clothes, furniture, and appliances brand new--well, I'm sorry but $100,000 year doesn't cover it. Not even close.

If I have to shop garage sales, clip coupons, and rinse out ziploc bags to afford my modest, working-class lifestyle on just under 100 grand, how the heck would I be able to send two children to college? This is the stuff of nightmares. We are working hard right now to pay off old debts (we are almost done), to build up emergency savings, and try to get a tiny bit ahead. But it's hard. Every time we think we're making progress, we get knocked back by something like a major car repair, a leaky roof, a sidewalk assessment, or a $4000 veterinary bill (yes, that actually happened to us). I'm just hoping that between whatever we can scrape together for a college fund, and what we can earn when the time comes, that we can keep up with those bills. Maybe by 2018, colleges and the government will no longer consider families that earn $100,000 to be "rich," and will make some financial aid available. I'm not betting on it.

Here are some amusing suggestions from FMF's comment thread:

Move to the inner city for less expensive housing.

Get rid of your cable TV and/or premium channels.

Move to another area of the country.

Drive cheaper cars.

These are all perfectly reasonable suggestions for cutting your costs, but why should someone who is making six figures have to live in the ghetto and drive old cars? And if premium cable television is not intended for six figure households, then who is it for--those who make $1,000,000/year or more? If new cars aren't for middle class Americans with average or above average incomes, then why are all those commercials showing up on my favorite TV shows?

Something has changed since the 1970's when Mike Brady was able to support his wife, six kids, the dog and the housekeeper on a single income in relative style and comfort. Instead of criticizing people in the upper income brackets because they can't afford their lifestyles, maybe we should take another look at our expectations. Why are we all getting poorer? What is a realistic middle class lifestyle? Do we even know anymore?

This article is from Catherine Shaffer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

529 Plans for College Expenses: What’s Cool and What’s Quirky

Julie Rains — Thu, 13 Sep 2007 17:59:31 +0000

529 plans for college expenses are very cool but extremely quirky. Cool federal-tax benefits, which were temporary and set to expire in just a few years, have been made permanent by The Pension Protection Act of 2006 (USA). The quirkiness and murkiness remains, however, but is made much clearer by the kind folks at Kiplinger.com, who have provided me (and anyone with an Internet connection) with some great resources, discussed here but awaiting your further perusal, beginning with these articles on saving for college and 529 college-savings plans.

What are 529 plans? They are college savings programs created by individual states as authorized by Section 529 of the Internal Revenue Code. There are two kinds of 529s: prepaid tuition plans and college savings plans.

States sponsor programs and most outsource investment services to third-party firms such as Vanguard or T. Rowe Price. (The outsourcing of investment plans with pre-designed portfolios was a source of confusion and annoyance for me when I first started investigating these programs but the concept is similar to how employers offer 401(k) plans with multiple but finite investment plans that are designed and serviced by outside entities.)

The original intent for Section 529 rule, from what I can glean, was to provide a mechanism to prepay tomorrow’s tuition at today’s rates. Locking in tuition rates at a state-supported college or university (using a prepaid plan), though attractive, is not widely available. According to Kiplinger’s 529 plan locator, only 18 states have prepaid plans (prepaid contracts or prepaid units / guaranteed savings) and, of those, only 5 have "program benefits backed by the full faith and credit of the state” with an additional 5 having other types of guarantees (according to one of the "compare by questions" sections on Kiplinger's site, September 12, 2007).

If you are considering a private college or university, however, there is a prepaid program: Independent 529 Plan sponsored by Tuition Plan Consortium LLC and managed by TIAA-CREF Tuition Financing Inc. According to the plan’s website, contracts with private colleges and universities specify that units bought at a discount today must be honored tomorrow. You can visit its website to view participating institutions.

Though the prepaid programs may not be available for your state or desired institution of higher learning, there are tax benefits that should place investigating, selecting, and funding a 529 Plan on a parents’ to-do list. Before you decide on which program to select, here’s what’s cool and what’s quirky:

Cool

Contributions may be state-tax deductible.

Earnings (e.g., capital gains, interest, and dividends) grow tax deferred.

Withdrawals for qualifying educational expenses (tuition, fees, and living expenses of students) are not subject to federal income tax.

529s are treated as parental assets for financial aid purposes.

Grandparents (and others) can fund 529 plans with no impact on the student’s financial aid status.

If one child doesn’t need any or all of the money, funds can be moved to other 529 accounts; Kiplinger has supplied a list of approved transfers here.

Most 529 plans allow you to use funds for expenses at nearly any U.S. college or university.

Quirky

Individual states contract with third parties to manage programs. These firms offer investment options and pre-designed portfolios, some of which are age-based so that the stock/bond ratio converts from heavily weighted with stocks to heavily weighted with bonds as the beneficiary/student gets older and ready to use the money for college.

Some options are offered only through brokers; others are available for direct purchase. You can find either type using Kiplinger's plan locator.

You can choose a plan sponsored by your state or you can invest in a plan sponsored by another state, though you will most likely forgo certain benefits (such as state income tax deductions) if you go with an out-of-state plan.

Contributions are not federal-tax deductible and gifts are subject to federal gift taxes.

State income tax benefits differ widely and contribution limits vary by state.

There may be account maintenance fees (flat fees) and service charges (usually % of assets).

You can change plans but usually just once a year.

The real value of the 529 Plan is that withdrawals for qualified educational expenses can be made free of federal income taxes. Remember to make sure that withdrawals don’t exceed qualified expenses as any excess amounts will result in unearned income to the beneficiary (student). And if the money is not used for college, then earnings are taxed at your regular income rate plus 10%, according to The New Math of Paying for College.

Now, that you've decided (most likely) to open a 529, which one should you choose? Kiplinger has state-by-state recommendations with rationale for its recommendations that I found useful.

Here are factors to consider in selecting a plan (each will impact your college cash flow in some way):

Availability of pre-paid plans in your home state or for your desired college/university;

State income tax benefits;

Account maintenance fees and service charges;

Potential investment returns.

Though the 529 plans may not offer significant immediate benefits to all U.S. parents, investing now could yield great advantages to your tax bill and cash flow later. As state offerings (investment plans) change, you'll be wise to evaluate plans now and review your choices every year but the time (and money) invested should be worth it.

This article is from Julie Rains of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: