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Health Savings Accounts are an excellent way to build a second retirement account. These tax-favored accounts, which have only been available since January of 2004, can be opened by anyone with a qualifying high-deductible health insurance plan. Once you open an HSA account, you can place tax-deductible contributions into it, which grow tax-deferred like an IRA. You may withdraw money tax-free to pay for medical expenses at any time.

The biggest reason more people don’t retire before age 65 is lack of health insurance, and many Americans reach age 65 woefully unprepared for the medical expenses they’ll face once they do retire. One of the most important long-term reasons for establishing an HSA is to build up some money for medical expenses incurred during retirement.

Fidelity Investments reports that the average couple retiring in 2006 will need 190,000 to cover medical expenses during retirement. This assumes life expectancies of 15 years for the husband and 20 years for the wife.

HSAs are, without exception, the best way to build up money to pay for medical expenses during retirement. You should not contribute any money to your traditional IRA, 401 (k), or any other savings account until you have maximized your contribution to your HSA. This is because only health savings accounts allow you to make withdrawals tax-free to pay for medical expenses. You can take these distributions anytime before or after age 65.

Your HSA contributions won’t affect your IRA limits — 3,000 per year or 3,600 for those over 55. It’s just another tax-deferred way to save for retirement, with the added advantage being that you can withdraw funds tax-free if they are used to pay for medical expenses.

For early retirees who are healthy, a health savings account can also be a smart option to help lower their health insurance costs while they wait for their Medicare coverage. The older someone is, the more they can save with an HSA plan. For many people in their 50′s and 60′s who are not yet eligible for Medicare, HSAs are by far the most affordable option.

Any money you deposit in your health savings account is 100% tax-deductible, and the money in the account grows tax-deferred like an IRA. For 2006, the maximum contribution for a single person is the lesser amount of your deductible or 2,700. In other words, if your deductible is 3,000, you can contribute a maximum of 2,700; if your deductible is 2,000, then that is the maximum. For families, maximum is the lesser of 5,450 or the deductible.

If you’re 55 and older, you can put in an extra 700 catch-up contribution in 2006, 800 in 2007, 900 in 2008, and an additional 1,000 from 2009 onward. The contribution limit is indexed to the Consumer Price Index (CPI), so it will increase at the rate of inflation each year.

How much you accumulate in your HSA will depend on how much you contribute each year, the number of years you contribute, the investment return you get, and how long you go before withdrawing money from the account. If you regularly fund your HSA, and are fortunate enough to be healthy and not use a lot of medical care, a substantial amount of wealth can build up in your account.

Health savings accounts are self-directed, meaning that you have almost total control over where you invest your funds. There are numerous banks that can act as your HSA administrator. Some offer only savings accounts, while others offer mutual funds or access to a full-service brokerage where you may place your money in stocks, bonds, mutual funds, or any number of investment vehicles.

One of the biggest advantages of retirement accounts like HSAs are that the funds are allowed to grow without being taxed each year. This can dramatically increase your return. For example, if you are in the 33% tax bracket, you would need a 15% return on a taxable investment to match a tax-deferred yield of only 10%.

As another example, if you are in a 33% tax bracket and were to invest 5,450 each year in a taxable investment that yielded a 15% return, you would have 312,149 after 20 years. If you put that same money in a tax-deferred investment vehicle like an HSA, you would have 558,317 – over 240,000 more.

Because catch-up contributions are allowed only for people age 55 and older, if one or both of you are under age 55 you should establish your HSA in the older spouse’s name. This will allow you to capitalize on the expanded HSA contribution limits for people in this age range and maximize your HSA contributions. Once that person turns 65 and is no longer eligible to contribute to their HSA, you can open another health savings account in the younger spouse’s name.

Strategies to Maximize your HSA Account Growth

If your objective is to maximize the growth of your HSA in order to build up additional funds for your retirement, there are three important strategies you should implement.

Strategy #1: place your money in mutual funds or other investments that have growth potential. Though this is riskier than placing your money in an FDIC-insured savings account, it is the only way to really take advantage of the tax-deferred growth opportunity that an HSA provides.

Strategy #2: delay withdrawals from your account as long as possible. Though you may withdraw money from your HSA tax-free at any time to pay for qualified medical expenses, you do have the option of leaving the money in the HSA so that it continues to grow tax-free. As long as you save your receipts, you can make medical withdrawals from your account tax-free at any future date to reimburse yourself for medical expenses incurred today.

As an example, let’s say a 45 year old couple places 5,450 per year in their HSA over a period of 20 years, they have 2,000 per year in qualified medical expenses, and they get a 12% return on their investments. If they withdraw the 2,000 from their HSA each year, they’ll have a net contribution of 3,450 per year into their account, and they’ll have 248,581 in their account when they begin their retirement years.

If on the other hand they delay withdrawing that money, they will have 392,686 in their account at age 65. If they choose they can withdraw the 40,000 to reimburse themselves tax-free for the medical expenses incurred during that 20 year period, and still have 352,686 in their account – over 100,000 more than if they had withdrawn the money each year.

Strategy #3: make the maximum allowable deposit to your HSA at the beginning of each year. Even though you are allowed until April 15 of the following year to make deposits to your HSA, you should take advantage of the tax-free growth in your account by funding it as soon as possible. The extra interest you can earn by contributing to your account on January 1 of each year rather than the next April 15 can amount to over 40,000 in a 20 year period, and over 100,000 in 30 years.

Using Your HSA to Pay for Medical Expenses during Retirement

When you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or “Medigap” policy.

Though Medicare will pay for the majority of health expenses during retirement, there many be expenses that Medicare will not cover. Nursing home expenses, un-conventional treatments for terminal illnesses, and proactive health screenings are all examples of medical expenses that will not be paid for by Medicare, but that you can pay for from your HSA.

Long-term care is assistance with the activities of daily living, such as dressing, bathing, or feeding yourself. It can be provided in your home, a retirement community, or a nursing home. Long-term care expenses can be paid for using funds from your HSA, and long-term care insurance can even be paid for from the HSA up to the following maximum annual amounts:

- Age 40 or under: 260
- Age 41 to 50: 490
- Age 51 to 60: 980
- Age 61 to 70: 2,600
- Age 71 or over: 3,250

To establish a health savings account, you must first own an HSA-qualified high deductible health insurance plan. Compare HSA plans side by side to determine the best value to meet your needs. Once you have your high deductible health insurance plan in place, you can open your Health Savings Account with the financial institution of your choice.

Having a credit card is very convenient since carrying a lot of cash becomes unneccesary and you might even have a hard time leaving your credit card at home. But with its advantages comes also its disadvantages. Since you can always buy things without carrying cash around, you are always tempted to buy something that you come across. If you have excellent control on your finances then good for you. If you have a hard time managing your credit card, then these pointers can help you.

Get organized

First thing’s first, obtain your credit card records to have a better idea of your spendings. Be sure to double check the records for errors and ensure its accuracy. A good example would be to find out if you have outstanding debts that should not be there as well as the accuracy of the listing of your former and present address.

Evaluate your credit card

Go over your recent credit card records and look at the interest rates. Some credit card companies have promos wherein they offer lower interest rates for a period of time and this promo may already be over yet you have no idea and are already paying at a higher interest rate. Also take note of the membership fee which they charge annually since some have very high membership fees. Consider cancelling this if you are not using it frequently.

Pay on time

It is important to pay your bills on time since it can have a negative effect on your credit record or rating. You will also be able to avoid getting charged because of not paying on time. Try asking the credit card company to remove the overdue charge if you have forgotten to pay it on time for the first time.

Manage your debts

If you see that you have more debt than what is comfortable, think ahead and plan out how you will repay it or at least reduce your debt. Devise a way to pay more than what is required of you so that you will have a reduced payment schedule. Prioritize the card that has the highest interest rate. Do not bring your credit card always when you go around since temptations abound.

Don’t bite more than you can chew

As the saying “don’t bite more than you can chew” goes, do not spend more than you can afford. True, a beautiful gold bracelet may be enjoyable to wear but its price tag may mean paying a lot for the next months. If you are bent to save money when using your credit card, unnecessary items like jewelry and the like should be at the bottom of your considerations.

You know you need to be saving money but you never seem to have enough at the end of the month or worse, you are further in debt.

Living below your means is more a matter of self-discipline. A few adjustments here and there could be all it takes to have the necessary funds available for saving and investing.

Some mutual funds can be opened up for as little as 200 with minimum contributions around 50.

Heres a list of ways to save money by spending less.

*Open up bank accounts that have little or no service fees. Keep a cushion to avoid accidental bounced checks. These can eat you alive. Be sure to maintain your minimum balance to avoid service charges.

*Try to avoid banks that charge you a transaction fee for using their debit cards. If you have no choice, plan how much money you will need in a given period and then withdraw it all at once to avoid too many transaction fees.

*Compare credit cards. Look for the ones that have little or no annual fees. Its not too hard to find those with no annual fee.

*Avoid specialty store charge cards as they often have interest rates six or seven points higher than major credit cards.

*Never choose a card based solely on incentives or reward programs. These include auto reward points and air travel miles. These cards may lead you to spend more money over time than you can afford.

*Most importantly, avoid unnecessary interest charges by paying off the complete monthly balance. You can avoid hundreds of pounds in interest expenses on an annual basis.

*When you buy a car, consider buying one that is one to three years old. A one-year old car will be about 20% to 30% less than a new car. A three-year old car is a good buy because it could be around half the price of a new car. A car depreciates the most in its first three years. After that the depreciation levels off and it will lose less of its value.

*Another good saving when buying a used car is you will pay less for the insurance.

*When going on vacation, consider staying in your home state instead of long distance trips or even international travel. It’s often cheaper to travel within your own borders, that way, you avoid visa and passport costs, border hassles, currency exchanges, tropical shots, medication, and additional health insurance. Frequently, people travel thousands of miles to see sights not nearly as spectacular as what’s next door.

*You should consider off-season vacations. Travel at a time when everyone else is at work or school, and the staff will actually be glad to see you. You may also save 50% or more on the usual travel expenses.

*Avoid large cities and tourist traps; you’ll save a ton by avoiding these places, where you pay more to eat, drink, sleep, and travel. If you do decide to visit a big city, consider accommodations in a smaller town close by.

*If you have a lot of credit card debt at high rates, look into consolidating your debt at a lower rate.

*Refrain from making impulse purchases. Exercise self-discipline.

*Refinance your mortgage or debt at a lower rate.

*Refinance your car loan at a lower rate.

*Shop around for cheaper car insurance rates. There can be a big difference.

*Lower your phone bill by using self-control on long distance calling.

*Use a phone card for long distance or international calls.

*Use coupons when you shop.

*Don’t buy things just because they are on sale.

*Wait for things to go on sale before buying them. Keep a record of when things go on sale. Some items will seasonally go on sale. Ask stores when certain things will go on sale.

*Buy generic, or non-name brand merchandise. Most times the quality is just as good.

*Stop smoking. This habit is extremely expensive.

*Contribute the maximum each year to your 401K or to an IRA.

*Remember, paying down debt is also a way to save money. If you can make extra payments on your mortgage or go for a 15 year mortgage instead of a 30 year mortgage. The savings are enormous.

*Reduce the number of times you eat out. Oftentimes eating out at a restaurant involves paying a lot of money for over-priced and over-sized meals. For healthy meals and to save money, eat at home.

*Watch videos or DVDs at home instead of going to the movies. Pop your own popcorn instead of paying a lot for theater popcorn.

*Evaluate your entertainment and recreational activities. Many are very expensive to participate in. There are many others that are just as fun and entertaining that are at the fraction of the cost.

*Don’t try to compete with your friends and neighbors. Sometimes, an apparent prosperous lifestyle can be an illusion. Those illusions come with a lot of debt. Its much better to have peace of mind.

Be alert. There are always ways to save money. Soon you will yourself with money you never knew you had. The key is to put that money to work for you instead of spending it.

Create Tax Savings And Transfer Wealth To Your Child With A Roth IRA

Parents must give serious thought to protecting their family through estate tax planning. While life insurance and trusts should be a part of every plan, Roth IRAs can be a simple tool for passing money to your child on a tax-free basis.

Roth IRA

First, we need a quick summary of the Roth IRA. A Roth IRA is an after-tax retirement vehicle that produces huge tax savings because all tax distributions are tax-free. That statement can a bit confusing, so lets break it down. The downside of a Roth IRA is the fact that contributions are not tax deductible as with traditional IRAs or 401(k)s. The upside of a Roth IRA, however, is that all distributions are tax-free once the person reaches the age of 59. So how can you use a Roth IRA to pass money to your child?

Opening A Roth IRA For Your Child

One of the biggest keys to retirement planning is time. The more years you spend saving money for retirement, the more you should have when that blessed day arrives. Imagine if you had started saving for retirement when you were 16. How much bigger would your retirement nest egg be? What if you purchased Microsoft stock in 1990 and watched it split eight times? Okay, that was painful example if you missed that opportunity. Nonetheless, why not do for your child what you didnt do for yourself?

The fundamental goal of estate planning is to pass as much of your estate as possible to your family on a tax-free basis. You can transfer relatively small amounts of money to your child now. If you have a 16 year-old child with a Roth IRA, you can contribute 4,000 in 2005. That 4,000 is going to grow tax-free for 43 years and be worth quite a bit. A ten percent return would result in the account growing to roughly 200,000 and the full amount would be distributed tax-free. There are other practical advantages to opening a Roth IRA for your child.

As a parent, it is vital that you teach your child the value of money. Opening a Roth IRA gives you the opportunity to sit down and teach your child the value of saving and investing, instead of yelling at them to clean their room. While a parental lecture on the need to save money would typically meet with glassy eyes and yawns, your childs attitude will undoubtedly change when you are talking about their money.

Work and Maturity Issues

Before you rush out to open a Roth IRA for your child, you must determine if your child is eligible to open an account. To open an account, your son or daughter must be working at least part time for an employer that reports their wages to the IRS. Hiring your child to take out the trash each week is not going to cut it, nor will this strategy work for your 5 year-old. Many teenagers, however, have summer jobs that should suffice for IRS consideration. To avoid any trouble, you should consult with your tax advisor.

A more sublime issue concerns the maturity level of your child. Keep in mind that the Roth IRA will be opened in their name. Your son or daughter will have the legal right to do what they will with the account. It is strongly suggested that you clearly explain the consequences of taking money out of the account [taxes, penalties, being cut out of the will, forced to eat healthy food, grounded for life, etc.] but the decision lies with them. As difficult as it is, try to be objective in evaluating how you child will react to knowing the money is sitting in an account. If you have doubts, you should probably investigate other tax saving strategies.

Opening a Roth IRA for your child can be a very effective means of transferring wealth to your child and teaching important life lessons. If your child exercises restraint, your relatively small contribution to their Roth IRA can grow into a sizeable tax-free nest egg.