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The Dependent care Flexible Spending Account (Dependent care FSA) can be opened to pay for expenses to care for your dependents that live with you while you are at work. This can be used for the kids who are under the age of 13 and can also be used for children of any age who are physically or mentally handicapped and can not take care of themselves. Also this can be used for adult day care for dependents who are senior citizen, such as your parents and grandparents. The most common expenses that can be claimed are Child care, kids Pre-School & day camps. Kindergarten fees at a private school are not allowed, but care for after school expenses can be claimed.

Dependent care FSA Contribution limit

The current contribution limit for Dependent care FSA is $5000 per year. Note this amount is per household. If both parents are contributing to the Dependent care FSA their combined contributions should not exceed the $5000 limit for that year. Anything above $5000 would be taxed during the tax time. If you are married, both you and your wife must earn income to claim the Dependent care FSA, if not the amount would be taxed during the tax time.

How to withdraw the Dependent care FSA funds?

You would need to complete a reimbursement form provided by plan administrator and submit the receipts from the care provider. Some of the plan administrators accept the signature from the care provider in lieu of a receipt. Unlike Medical FSA, dependent care FSA is not a pre-funded account. So the plan administrator would reimburse you the money only when they receive the money from your paycheck.

In most cases the last date to claim your Dependent care Flexible Spending account funds is March 15th of the following year. After this date any money remaining in your account will be forfeited.

Note that if only one spouse is working then you are not qualified to contribute to Dependent care FSA. Only exception is that your spouse is physically incapable (disabled) of taking self-care.

The Medical Flexible spending account is the most popular type of FSA is used to pay for medical expenses not paid by any insurance; the most common expenses would be co-payments at doctors and hospitals, prescription drug costs, insurance deductibles and coinsurance. Starting January 1, 2011 participants of Medical FSA will not be able to claim expenses for over-the-counter drugs and medicines without a doctor’s prescription.

Medical FSA Contribution limit

Currently employers can offer any maximum annual election for their employees, but the recent health care reform (Patient Protection and Affordable Care Act) amended the rules that starting January 1st, 2013 employer sponsored Cafeteria Plans should not allow employees to choose an annual election of more than $2500.

How to withdraw the Medical FSA funds?

Different plan administrators adopt different methods of reimbursement, but in each case you have to substantiate your claims with valid receipts.

Lately a large portion of plan administrators are offering the debit cards to the Medical FSA participants, so that you can use the card at any pharmacy or at a participating health care provider. Since Medical FSA is a pre-funded plan, you can start using your debit card right away instead of waiting until the end of the year or money deducted from your pay check.

If debit card is not an option for you, you would need to follow your plan administrator’s procedures to claim the funds. This is usually completing a reimbursement form and submits it to your plan administrator along with the receipts.

In most cases the last date to claim your Medical Flexible Spending account funds is March 15th of the following year. After this date any money remaining in your account will be forfeited.

It is always advised to keep all your co-pay and other medical receipts until you claim all your funds from your Medical FSA.

A flexible spending account (FSA) is a tax advantaged employer sponsored cafeteria plan. A flexible spending account allows an employee to contribute a portion of his or her wages to pay for their family’s medical expenses or dependent care expenses based on the rules established in the cafeteria plan. Funds deducted from an employee’s pay check into an FSA are not subjected to any payroll taxes, which would result in substantial payroll and other tax savings (may get you eligible for Child tax credit and Saver’s credit ).

Types of flexible spending accounts (FSA)

Even though provisions for other types of FSAs, most employers sponsored FSA plans offer the following two distinct flexible spending accounts;

• Medical Flexible Spending Account (aka Medical FSA)
• Dependent care Flexible Spending Account (Dependent care FSA)

The above mentioned two FSAs work independently and contribution to one account does not affect the contribution to another type of FSA. Contributions from one FSA account to the other cannot be transferred.

FSA plans are calendar year based which runs from January 1st to December 31st. The funds can be claimed with in the grace period, which is March 15th of the following year. With one exception that is separation from the employer. In that case if you don’t continue your COBRA benefits, you can only claim the funds for the employment at that particular employer.

For example if you worked only for the portion of the year (lets say January – September) and contributed $3000 to the plan, you can only submit the claims incurred from January through September for the funds you contributed to the account.

Advantages and Disadvantage of FSAs

The main advantage of flexible spending accounts is their tax advantage.

The main disadvantage is it works on a use it or lose it manner. Any funds which are not claimed at the end of the plan year will be forfeited.

People who has at least two kids and family’s annual income is less than 35k or less it might be appropriate for them to take the Child Care credit rather than contributing to a dependent care FSA. For more information on whether to contribute to Dependent care FSA or Child care credit click here.

Planning for your retirement is more than just deciding how to spend your money. The choices you make now may allow you to provide for your family’s needs even after your death.  Here are the helpful tips to plan:

Keep your family informed

Be sure your spouse, domestic partner or another responsible person knows what to do if something were happen to you, including:

• Where to find wills, health  care proxies and powers of attorney
• Where to find life insurance policies, investment accounts, IRAs, retirement plans, property deeds, annuties, savings bonds, pension plans, etc.
• Details about any investments
• Which assets to use first
• Where to go for help if they have questions

Create a Will

A will can help your heirs avoid probate court costs. It’s a good idea to review your will every few years or when you experience a significant life change or financial change.

Check your beneficiaries today

Choosing a beneficiary means you control who receives your benefits from your plan account if you die before your account is fully paid out.

The retirement plans rely on the most recently filed and properly completed copy of your beneficiary designation. If you haven’t kept this information up-to-date, your remaining account balance could pass to beneficaries who may no longer be appropriate. It is important to know that other documents, such as your will, do not override your beneficiary designation. You should also carefully select contingent beneficiaries in the event your primary beneficiaries pre-decese you. It is good to include all requested information regarding your beneficiaries and avoid the use of any nicknames.

Saver’s Credit

You can get an income tax credit of up to $1000 for a single tax payer or up to $2000 if married filing a joint tax return by contributing to a qualified retitement plan ( 401(k), 403(b) etc.).

Eligibility Criteria

In order to be eligible for the saver’s credit the following conditions must be satisfied.

An individual must be of at least 18 years old by the end of the tax year. The individual must not be a Full-Time student. No one claim you as a dependent.

The saver’s credit is a non-refundable credit, which means Saver’s credit can increase your refund or reduces taxes you owed. However it will not reduce your tax liability below $0.

Amount of Credit

The amount of credit will depend on your contributions to a qualifying retirement plan and your adjust gross income. The maximum contrbution amount you can use for Saver’s credit calculation is $2000.

The following table shows the allowable credit for 2011.

An example:

Consider a 35 year-old, single indvidual who makes $14,500 a year and has contributed $2000 towards his retirement plan. He could get a tax credit of $1000.

Important note:

If you are eligible to claim Saver’s credit on your 2010 tax return, consider on how much more you may be able to contribute and get the maximum allowable Saver’s credit. Afteall this is a free money that uncle Sam contributing to your retirement.

The internal revenue service has announced the 2011 contribution limitation
for retirement plans. All the 2010 contribution limitations remain unchanged
for the year 2011.

Investing for your retirement is one of the best resolutions you can have, because it will help you during the period where you need more financial help. Traditional IRA and Roth IRA are some of the vehicles that you can consider for your retirement savings. For more options for your retirement please look at the articles in our retirement section.

The core difference between traditional IRA and Roth IRA is its tax treatment. Depending on your personal tax situation and other retirement contributions you may be eligible for one other. In some situations you will not be eligible to claim any of them.

In its simple terms Traditional IRA will allow you to contribute before the tax determined on your earnings. This would give you an instant tax advantage. You will have to pay the taxes on your contributions and as well as earning on your contributions when you withdraw the money.

Roth IRA will allow you to contribute after the tax has been paid on your earnings. This will not give you an instant tax advantage. But the earnings on contributions are tax exempt. For some families who have kids, own home and other itemized deductions might already in a lower tax bracket and where as in their retirement age they may not have all these deductions to take and might be in higher tax bracket during the retirement. For those kinds of people it would be good to consider a Roth IRA.

Contributions to Traditional IRA and Roth IRA are limited by contributions to other employer sponsored retirement plans like 401(k), 403(b) etc. and your personal income as well.

Which IRA is better?

Advantages of Traditional IRA

• Instant tax advantage by reducing the taxable income, which may also decrease your taxable income to a lower tax bracket.
• Money grows tax deferred until you withdraw the money.
• Income in retirement years would be low and hence you will be in a lower tax bracket

Disadvantages of Traditional IRA

• You may be in higher tax bracket when you withdraw the money.
• Traditional IRAs are subjected to a minimum distribution rule (RMD). The RMD requires Traditional IRA owners to take a minimum distribution every year starting at age 70. Otherwise they would be ended up paying 50% penalty.

Advantages of Roth IRA

• Do not have to pay any taxes on principal and earnings.
• There is no required minimum distribution for Roth IRA.

Disadvantages of Roth IRA

• No instant tax advantage.
• You may be paying excessive tax at the current tax rate.
• Not everyone is eligible to participate in Roth IRA due to income limits.

For both Traditional and Roth IRAs they will impose early withdrawal penalties (currently an additional 10% tax) if you withdraw the before the retirement age (currently 59 ½ years).

IRA Contribution Limits:

IRA contribution limits are modified some years various political and inflationary related matters. Search in this site for the current year’s IRA contribution limits.

To qulify for social security benefits you need to earn social security credits. You earn these credits over the years when you work in a job and pay social security taxes.

You will earn the credits based on the amount of your earnings for the year that you worked. Social Security Administration (SSA) will use your work history to determine your eligibility for retirement or disability benefits or your family’s eligibility for survivors benefits when you die.

In 2008, you receive one credit for each $1,050 of earnings, up to the maximum of four credits per year. You can receive more than four credits in given year, no matter how much earned after $4200 for year 2008.

Each year SSA adjusts the amount of earnings needed for credits goes up slightly as average earnings levels increase. The credits you earn remain on your Social Security record even if you change jobs or have no earnings for a while.

To get your social security benefits you must earn 40 credits if you born after 1929. That means you should be having atleast 10 years work experience with adequate social security elgible earnings.

You can combine several of your student or parent loans into a single student loan debt consolidation. You can consolidate your federal student loans too, but make sure that you do not consolidate both your federal student loans and private student loans into a single student loan debt consolidation program. Just as other debt consolidation loans, you must make your student loan debt consolidation payments to a single lender, who further disburses to your old creditors.

To go for debt consolidation of your student loans, your minimum balance should be $5,000, and you must either be in the six month grace period after your studies, or are already repaying your student loan.

Before selecting your student loan debt consolidation option, review all the advantages and the disadvantages:

• Through debt consolidation you make your student loan payments to a single lender.

• Depending on the balance of your loan amount, your consolidated student loan has an extended repayment term from 10 to 30 years.

• When negotiating with your bank or financial institutions, ensure that your phased repayment plan allows you to easily meet your monthly payments and have a good credit rating, at the same time.

• The rate of interest for student loan debt consolidation is capped at 8.25 percent for federal student loans.

• Once the rate is fixed you cannot take advantage if the interest rates fall in future.

• There are no fees charged for student loan debt consolidation.

• Once approved, you cannot undo your debt consolidation of your student loans as they have already repaid in full to your previous creditors, and they no longer exist.

You can still obtain debt consolidation for your over due, or unfulfilled, student loans if you negotiate a satisfactory repayment plan with your bank, or debt consolidation lender. Married couples, too, can consolidate their individual student loans together. This is regardless of how much each owns before consolidation, and must now agree to pay the consolidated amount.

Social security is calculated based on your income during the 35 years period in which you earned the most. Your earnings will be indexed to account for changes in the average wages since the year in which you earned the money. Then SSA(Social security administration) will use a predefined formula to calculate your basic benefit, or “Primary Insurance Amount”(PIA). If you don’t have earnings for 35 years, some years with no earnings will be used to determine the average amount.