Traditional IRA vs. Roth IRA - Which is Better?

To open a Roth IRA or Traditional IRA, that is the question. Both IRAs are great ways to save, but each offers different advantages with potentially large financial consequences. The biggest difference between the Roth and Traditional IRA is in the way the government treats the taxes.

 

If you earn $50,000 and put $2,000 in a Traditional IRA, you can deduct the $2,000 from your income taxes. This means you only have to taxes on $48,000 to the IRS. When you reach the age of 59 1/2, you can begin withdrawing the money, but you have to pay taxes on any capital gains, interest, dividends, etc., that were earned over the years.

 

If you put the same $2,000 in a Roth IRA, you do not get the income tax deduction. At retirement age, you are able to withdraw the money 100 percent tax-free. If you need the money, you can withdraw it at any time, however you will pay a 10 percent penalty on any income earned. In most cases the Roth IRA is the way to go.

 

There are eight exemptions to avoid a penalty for early withdrawal.

1. Permanent disability of the IRA owner.
2. Death of the IRA owner.
3. If you are seriously ill or injured and require prolonged or expensive medical care, Uncle Sam will waive the early withdrawal fee on the condition the expenses are in excess of 7.5 percent of your adjusted gross income.
4. Withdrawals are used to pay for a first-time home purchase.
5. Certain higher education costs for you, your spouse, children or grandchildren can be withdrawn penalty-free. However, you may still owe federal income tax, so you should check the IRS tax code.
6. The money is used to pay back taxes to the IRS after a levy has been placed against the IRA.
7. If you are out of a job and have been paid unemployment for more than 12 weeks, you can use the money to pay medical insurance premiums.
8. You reach the retirement age of 59 ½. 

There is one catch to these qualifying exemptions; the holder of an IRA is subject to a five year waiting period (measured in tax, not calendar, years). An investor could not, for example, deposit $3,000 in their IRA this year and withdrawal it next year penalty-free even if it would otherwise qualify as an exemption.

The following is a quick summary of each IRA.

Traditional IRAs

• Tax deductible contributions (depending on income level).
• Withdraws begin at age 59 1/2 and are mandatory by 70 1/2.
• Taxes are paid on earnings when withdrawn from the IRA.
• Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.).
• Available to everyone; no income restrictions.
• All funds withdrawn (including principal contributions) before 59 1/2 are subject to a 10% penalty (subject to exception).
• Roth IRA Profile
• Contributions are not tax deductible.
• No mandatory distribution age.
• All earnings and principal are 100% tax free if rules and regulations are followed.
• Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.).
• Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).

Both IRAs can be opened through a bank or brokerage house. Opening fees differ, but are dramatically less than other types of investment accounts.

When’s the Right Time to Refinance Your Home?

You may hear news reports that banks aren’t lending right now, but that really isn’t true. There are plenty of homeowners taking advantage of the low interest rates currently offered to refinance their homes. Is it something you should consider?

You should always compare advertised rates at any bank. If you can lower your mortgage by at least half a point, it may be time to refinance your home mortgage. If you can reduce it by two points, then it is almost assuredly time. Also, if you currently have an adjustable mortgage interest rate that is a half to two points above the fixed current rates, the time might be right to refinance your home mortgage into a fixed rate. PyraMax has an easy-to-use calculator on its website that may help you decide what to do.

Make sure you speak to a loan officer who can confirm the lender’s advertised rate. Ask to have the advertised loan rate mailed or emailed to you for your records.

Randy Reese, a mortgage loan officer at PyraMax Bank, says you should also take a look at your unpaid balance. Do you have enough money to close? If the closing costs are going to cost more than what you can pay back in a year, maybe re-financing now isn’t the right time. The typical closing cost is $1,200 and some larger banks charge at much as $1,650. If you can save as much as $1,500 a year in mortgage payments by refinancing, maybe now is the time.

And lastly, consider how long you plan to be in your home. If you think you will be living there a long time and your interest rates are a little high, you may want to refinance.

One of the biggest advantages to coming to a community bank like PyraMax is that you can typically get answers to your questions right away, the fees are lower, and you get local servicing. And even if the bank is local, banks like PyraMax can broker mortgages to larger banks or financing companies, which gives you more flexibility with lenders.

You could win $2,500 in October just by using automatic bill pay.

Have you paid your bills yet this month?
Pay 3 bills using online bill pay and you could win $2,500.

Here’s a really good reason to get into online banking. You could win $2,500 during the month of October. Every checking account product at PyraMax Bank offers free online banking, which includes automatic “bill pay.” You can set up your account for the bank to pay your monthly bills or you can do it yourself using your online checking account. During the month of October, if you use automatic “bill pay” to pay three bills, you will be entered in the $2,500 drawing. After that, every bill you pay using "bill pay" up to 25 will get you another entry into the drawing. We’ll even provide the stamps and envelopes if you need the check mailed, for free.

This drawing is available at all of our banks. There is second drawing for $100 at each of our nine locations. This offer is good Oct. 1 through Oct. 31. Best of luck to everyone!

For full contest rules and information please go to: http://www.fallintomoneysweeps.com/pyramaxbank/

Automate Your Budget

Check out the below article on 'How To Fix 7 Common Budgeting Mistakes' and let PyraMax Bank help you with Number 6 - Failing To Automate. We can help automate your finances. It will save you time, money and improve your over all budgeting skills.

How to Fix 7 Common Budgeting Mistakes

By DR  US News - Money Posted: August 26, 2010

Budgets can be a great tool to help you achieve your financial goals. But if you approach budgeting the wrong way, it can lead to frustration, stress, and even more spending. So to help you stay on track, we’ve identified seven costly mistakes people make when trying to manage their monthly budget, along with a few suggestions on ways to avoid these mistakes.

1. Picking the wrong tools: As an initial matter, it’s important to start with the right budgeting tools. There are no one-size-fits-all solutions. For some, the best tools may be a pad of paper and a pencil. For others it could be a spreadsheet or personal finance software. And there are even online alternatives such as Mint.com. The key is to find what works best for you and stick with it.

2. Trying to track everything: There is absolutely no need to track every dime you spend. For most of us, we over spend in just a few categories. So pick the areas that cause you the most trouble, and track just those categories. It will make budgeting a lot easier and less time-consuming. The key is to ask this question—how will tracking my spending in this area help me better manage my money? If you can’t answer that question for a certain category of expense, there is probably no need to track it.

3. Setting unreasonable goals: Similar to dieting, we can kill a budget if we set unreasonable goals. We need to allow room in our budget for fun and for unforeseen expenses. If part of your budget is paying down debt, make sure you are realistic about how much you can pay on the debt each month. If we set unreasonable goals, we are much more likely to give up when we don’t reach them.

4. Failing to plan for periodic expenses: Annual or semi-annual bills can wreck a budget. Whether it’s life or car insurance, taxes, or gifts, it’s best to plan for these expenses on a monthly basis. One easy way to do this is add up the annual cost of these periodic expenses, divide be 12, and save that amount each month. When the bill comes in, you’ll have the money saved in advance to pay for it.

5. Failing to plan for emergencies: An unexpected expense can bring down a budget quickly. Whether it’s a car or home repair, or perhaps a medical expense, emergencies can throw us deep into debt if we are not prepared. While we can’t prepare for every financial situation, building up an emergency fund can help us handle many unexpected expenses. On a monthly basis, set aside money in a high interest savings account, to build your emergency fund.
[Visit the U.S. News Personal Finance site for more insight and money management tips.]

6. Failing to Automate: Automating your finances can go a long way to helping you plan and budget. Whether it’s paying bills automatically from your checking account or automating your retirement investments, automation makes life easier. As part of automating, consider paying recurring monthly bills and expenses with a credit card. By using a card, tracking these expenses is automatic. And if you use one of several of the best cash back credit cards, you get the added benefit of pocketing some extra cash each month. The key, of course, is to make sure you pay off the credit card bill in full each month.
7. Giving up: This last mistake is the most costly. If you are trying to budget and manage your money, you will make mistakes. You’ll buy something you later regret buying. Or you’ll forget about a periodic expense until the bill comes in. Mistakes happen. The key is to persevere. And to do that, it’s helpful if you recognize up front that you will have set backs. By expecting them from the start, you’ll be more prepared to deal with them when they arise.

DR is the founder of the popular personal finance blog, the Dough Roller and credit card review site, Credit Card Offers IQ.

Wisconsin Banker Feature Article – ‘Going Mobile’

August 3rd, 2010 - Published in Wisconsin Banker

Going Mobile
Community banks investing in on-the-go customers
By Becky Nelson

Mobile banking may not yet be a high priority for current and potential customers, but savvy community bankers are preparing for it to happen.

Today about one-fourth, or 27 percent, of community banks offer mobile banking services, with many planning to introduce or expand the service in the next 18 months, according to a national survey by Banc Investment Group.
“Many community banks are full steam ahead in the evaluation phase, with a lot of community banks having deployed a mobile solution already. There’s very strong interest currently – I would say urgent interest in some cases, even in the current environment,” said Amy Wilkinson, a product manager for Fiserv Mobile Solutions.

As people increasingly access the Internet using smartphones – more than 50 percent of cell phone users are expected to have them by 2015 – the potential for banks to pique the public’s interest in mobile banking will only continue to grow.

An estimated 58 percent of Americans used a mobile device for non-voice activities such as texting, e-mailing, taking pictures or capturing video, or looking for directions, according to the Pew Internet & American Life Project Survey in late 2007.

“Community bankers across the country view mobile banking as a must-have to meet both retail and commercial demand,” said Chris Nichols, CEO of Banc Investment Group, in a news article. “Banks that already have a mobile platform have a temporary competitive advantage that will narrow as more banks offer the service.”

In Wisconsin, as elsewhere, banks vary widely in the pace at which they are offering mobile banking options to their customers.

PyraMax Bank in Milwaukee, with close to $500 million in assets, launched a mobile banking pilot program two years ago and has steadily enhanced its offerings. Bank of Sun Prairie, a $311 million bank near Madison, introduced mobile banking earlier this year and is focusing on adding users.

Aiming Younger

Three years ago, PyraMax Bank took a closer look at its demographics and found the average age of its customers was 58. When the mutual savings bank decided to shift its focus and try to attract more 20- to 40-year-olds, “we noticed that almost all of them were carrying cell phones,” said Karen Murphy, senior vice president – retail banking.

“We needed to make it easier for the individual sitting in the parking lot, watching their kids at soccer practice from their car, to do their banking,” Murphy said.

A short time later, the bank agreed to participate in a pilot for their core processor’s mobile banking product, which relied upon a secure ATM line to conduct mobile transactions. The four-month program was “slightly successful,” Murphy said.

Because the technology was still in its infancy, the company had to negotiate agreements with each cellular carrier in order to offer the service to that carrier’s customers. As a result, many of PyraMax’s customers initially could not use the service.

That soon changed when the bank began offering customers a mobile browser-based service.

Now, any customer with Internet access on his or her phone could check balances, transfer funds and more. In May, PyraMax introduced a branded iPhone application, available to download online.
A new account – meChecking – offers customers freebies and deals on concert tickets and iTunes downloads along with free online banking, bill payment and of course, mobile banking.

Adoption has increased significantly in 2010, Murphy said. In the first year and a half, about 100 customers used mobile banking; now close to 500 do.

For Bank of Sun Prairie, the age of its current money between accounts; or perform other transactions available via online banking. The adoption rate has “not been as fast as we hoped, but we’re slowly gaining some new users every month,” said Deb Krebs, marketing manager.

Nationally, the adoption rate was 2 percent in 2007; 7 percent in 2008; and 11 percent in 2009, according to Mercatus Advisory Group in Bank Technology News.

A New Channel

The top 200 banks in the nation, defined by asset size, have already invested in mobile banking – and the top 50 are “pushing the envelope compared to what mobile banking and payments have been defined as,” said Calvin Grimes, Fiserv mobile product manager.

Now, many of them are moving to their next phase. “Some of the earlier products that were available in the mobile space were limited in their channels,” Fiserv’s Wilkinson explained. “Now many of those that already had a solution in place are re-evaluating to consider offering all three channels.”

The three major types of mobile banking that dominate right now are expected to continue through at least 2013, according to Juniper Research.

They are:
• Message-based mobile banking, which uses text (SMS) messages to alert customers of account activity.

• Mobile browsers, which allow users to view an abbreviated version of the bank’s online banking site and conduct certain transactions.

• Downloadable applications, which are often tailored to each specific kind of smartphone and offer the ability to view account balances, transfer funds and pay bills.

Nearly 90 percent of community banks that offer mobile banking are considering an enhancement to their existing platform, the Banc Investment Group survey found, such as adding smartphone apps for the iPhone, BlackBerry and Android.

“Financial institutions really need to understand that No. 1, mobile is a separate channel. It’s not Online 2.0, and you do need to think about it differently,” Grimes said. “Think about consumers that aren’t online bankers today. Those are the consumers that are walking around with a mobile device even though they may not have easy access to a PC, which is maybe a barrier for them using the online channel.”

When online banking and bill pay were introduced, consumers were worried about security and value – the same issues that concern customers about mobile banking. Banks need to devote adequate resources to marketing to address these issues, Grimes continued.

Finally, bankers should not assume that mobile banking is all about reaching the Gen Y crowd, Grimes said.

“The economy over the last couple years has definitely increased the amount of time and amount of effort consumers spend looking at their finances. This is a tool to help you monitor your finances while you’re out on the go,” he said. “Maybe you’re shopping, and you want to know, ‘Do I have enough money to make this a debit transaction or do I need to pull out my credit card?’ ”

Or, as Jim Bruene wrote on the NetBanker blog: “If you are still unconvinced that mobile will overtake online for banking tasks, here’s a thought: Consider how often you go online now to check the local weather. A waste of time – right? – when all you have to do is press a button on your smartphone. The same near-instant response will happen for basic banking info.”

Nelson is a freelance writer for the Wisconsin Bankers Association.

Don't Become a Foreclosure Scam Victim!

Unfortunately there are always people out there who are ready to take advantage of someone in a bad situation. During these tough financial times there are even more opportunities for people to fall victim. Companies claiming to help people avoid foreclosure actually get people to sign over their home. These home rescue scams are increasingly on the rise. Homeowners that are struggling to pay their mortgage or are anxious to sell their homes are often victims.

There is help available for dealing with foreclosure and other financial problems. Always try to work with the original lender or a reputable organization. Avoid taking help from an unsolicited source with out doing research to make sure they are legitimate.

The best way to avoid mortgage fraud is to recognize and understand the signs.
Be suspicious if a company or person:

• Offers to rent your house to you so you can buy it back over time
• Charges an up-front fee before providing any services
• Offers to fill out paperwork for you or uses forms that contain blank spaces "to be filled in later"
• Wants you to transfer the deed to your house
• Pressures you to sign paperwork you haven’t had a chance to read thoroughly or that you don’t understand.
• Encourages you to borrow more than the value of your home

Some common scams that homeowners fall victim to are:

Rent your own home scam:
In this scam the rip-off artist offers a solution that will allow the homeowner to remain living in their home. The homeowner will be required to surrender the title to their house but they will be able to stay there as a renter. Often times there will be a promise of very low rent with the commitment of selling the house back to the original homeowner in the future. The rent is usually set at an amount that the homeowner can’t afford and they are then evicted from their home. In the end, the homeowner loses the house and any equity that may have existed is gone.

Help with a price:
In this case the “rescuer” offers his services to help the homeowner avoid foreclosure. For a large upfront fee the scammer offers to represent the homeowner to the lender and handle the financial arrangements. Unfortunately the scammer doesn’t follow through but they do pocket the money.

The NEW loan scam:

In this scam, the homeowner is offered a new loan that is supposed to solve all of their financial problems. When the homeowner signs the documents for this NEW loan they are actually giving ownership of the home to the rip-off artist. In the end, the homeowner still owes for the mortgage but they no longer own their home.

When it comes to your home and any finances always be careful and cautious.

Like the old saying goes…If it seems too good to be true, it probably is.

Additional information and help:
HUD - Foreclosure Avoidance Counseling
The Federal Reserve Board - 5 Tips for Avoiding Foreclosure Scams
The Federal Trade Commission - Foreclosure Rescue Scams