Did you know that an IRA can be used for something more than just retirement? That’s right – it sure can! There is a retirement account that is known as an educational IRA, which is better known now as an ESA – Educational Savings Account. An ESA allows for you to set aside money that can be used in the future for education expenses for your children. An ESA works very similar to a Roth IRA, so if you are familiar with the process of that type of retirement account then you will have a pretty good understanding of an educational IRA.

One of the best things about an educational IRA is that funds can be withdrawn at any time for your children’s expenses for their education and when you withdraw these funds, it is completely tax-free and free from any penalty. However, there is a penalty if you withdraw from the ESA early. Tax deductions cannot be taken from an educational IRA by you nor is the child the account for permitted to do so. This of course is based off the fact that the money is being used for educational expenses.

Now there are some restrictions when it comes to an educational IRA including income restrictions. Your modified adjusted gross income cannot exceed certain predetermined limits. In addition, in order to open an ESA, your child may not have received any type of contribution within that same year for a prepaid state tuition program.

The educational IRA cannot accept funding for the beneficiary after they reach the age of 18 per tax law; therefore, you can fund the ESA for your child up to the day prior to his or her 18th birthday. Moreover, if the funds are not withdrawn by the age of 30 of the beneficiary, certain tax penalties may apply.

Since 2002 when changes to the ESA were made, qualified educational expenses no longer only included college expenses but also included educational expenses related to grades K-12.

There is no limitation on the amount of children that you open an ESA for; however, only the maximum allowable funding is allowed for each child per year, which is $2,000. (Please check into the allowable amount as the amount could change with time.)

The amount specified above may change after 2010, as will some other benefits of the ESA unless the Congress votes to keep the current ESA benefits and requirements. Otherwise, the contribution amount will drop $1,500 to $500 and expenses from grades K-12 will no longer be qualified expenses.

Remember, before opening an educational IRA, or ESA, be sure to read all the terms first. There are requirements that have to be met on a yearly basis when making contributions as well as the year that the beneficiary of the account plans to withdraw the funds that have been contributed.

As always, before deciding with any kind of plan, do thorough research first. Make sure you know what you are getting into and that you won’t regret it later. Educational IRA’s are a great thing for your children’s educational expenses.

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How to Spend Less Money: Financial Budgeting

So you want to save more money? Well the solution is fairly self explanatory considering that all saving money really means that you are spending less money. Despite the fact that many of us will make the excuse that they “just can’t save any money” it’s mostly because they spend their money unnecessarily on things like entertainment, going out to dinner or buying stuff you simply don’t need. Do you have to purchase brand name clothing just because that is what everyone is wearing or that is what is always being advertised? Do you need that excessive cell phone plan even though you never burn up all your minutes? Do you need to have 500 channels with your cable or satellite TV account?

Believe it or not, many individuals today thrive on keeping up with the Joneses. They have to have the perfect house in the perfect neighborhood, drive the perfect automobile or SUV, have the perfect clothing, and so on. Whenever there is a financial crisis like the one we are coming out of we realize that most of our financial troubles could have been largely avoided just from spending less money and using some common sense and setting up a financial budget

Financial Budgeting

Unfortunately, most people today don’t have a clue about financial budgeting and living within their means. Additionally, they have been brainwashed to believe that unless they spend money to maintain a certain appearance or lifestyle, that they will be viewed in a poor light or not accepted by those people around them for budgeting and cutting back expenses. Actually, being frivolous with your money and having poor spending habits is what makes you look bad, not how much stuff you can accumulate.

Here is a tip for saving money as well as spending less and not experiencing a financial crisis because you’re always spending money foolishly. Set up a financial budget and cut the unnecessary spending. You want to take into consideration that which is necessary and you need to consider every expense you have… everything! When we are setting up financial budgets you need to first start with the certain critical life aspects such as keeping a roof over your head, keeping the air conditioning or heat running (depending on where you live and the time of the year) keeping the lights on, putting food on your table. After that you can focus your budgeting plan on paying all your regular monthly expenses that are less important.

When setting up a budget plan, look at what EVERY item spending money on that comes after your necessities listed above, then ask yourself the following questions:

• Do you need a cell phone plan that results in leftover minutes every month because you can’t possibly use them all?
• Do you need to have 500 cable or satellite channels when you never watch 80 to 90% of them anyway?
• Can’t you just walk to the corner market that is a block or two away instead of burning fuel by driving your vehicle?
• Is it necessary that you purchase some overpriced latte drink at some coffee shop like Starbucks every day of the week?

The bottom line is that you need to exhibit some common sense when it comes to saving money and you need to start taking steps toward saving money and paying off credit card debt and other unnecessary debt. Most importantly, if you haven’t started planning out your financial future, you better get started on a financial budget and get your financial life in order. No matter how much money you make and how many bills you have setting up a financial budget will put your mind at ease and help you focus on something better than saving money and paying bills.

© How to Spend Less Money: Financial Budgeting

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How Do Savings Bonds Work? Savings Bonds Basics

With the state of the economy, more investors have started looking to savings bonds as a safe haven for their money. In reality, no place is safe these days. However, bonds are the best option. So how do savings bonds work exactly?

The reason savings bonds are safer and have less risk associated with them, is that they are debt obligations of the US government. They also have a market rate of return that is compounded semi annually, and accrued monthly during the life of the bond. Bonds are backed the US Treasury, and are closely monitored by the Bureau of Public Debt, which makes them risk free.

So exactly what are the advantages of buying savings bonds? Here are a few of the main ones:

Savings bonds have a competitive interest rate. Of course, depending on the bond, there are some that are adjusted for inflation while other bonds have a discount with a maturity date of 17 years. Another advantage is the monthly interest accrual. A bond’s interest payments accrue every month and are compounded twice a year which results in a faster growth in your investment.

US savings bonds have deferred and tax exempt benefits. The interest that is earned on bonds is exempt from all local and state taxes. Federal taxes are deferred, and only paid upon maturity of the bond. This is a great advantage to investors who are in a higher tax bracket, or in regions with a higher local and state tax. In addition, if the bond is used to pay for any educational expenses of the bondholder, their spouse, or a child, the interest can be exempt from federal taxes.

Bonds can be purchased in many different amounts from $10 upwards to $10,000. Keep in mind that the US government has a limit on the amount of savings bonds that can be purchased in a year. Currently, any individual can purchase up to $15,000 in savings bonds each year.

It’s very easy to buy savings bond. You can buy them at any bank with a credit card, and also on the website of the Bureau of Public Debt. Bonds can be redeemed at any bank with the proper identification even if the bond does not belong to you.

Savings Bonds cannot be redeemed under six months. Keep in mind that even if you redeem one after six months, you may have to pay penalties. Bonds are usually held at least five years before they are redeemed.

How Do Savings Bonds Work? Savings Bonds Basics

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