Thou Shalt Save! October 13, 2009

Jon Hanson is a new guest blogger for It’s Your Money.

Uncle Sam wants you! To have an IRA! Proposed in President Obama’s 2010 budget is a provision for automatic enrollment of employees in IRA’s for employers that do not offer traditional 401K plans.

The good:

• It encourages savings, and even though you can opt out,few will. Jennifer Monnin of Nationwide Insurance, at an October 2008 National Savings Forum I attended in D. C. for America Saves, says 95 percent of Nationwide employees do not opt out of their auto 401K.
• Cutting edge employers could add educational opportunities to the program and increase employee loyalty and stability. Employees with a financial plan and goals are less stressed and more productive.
• Employers with less than 10 employees would be exempt and employees that earn under $5,000 a year would not be counted, according to Stephen Miller of SHRM.

The bad:

• The matching contribution by the government is simply forced redistribution of taxpayers’ money. I would like to see the match be voluntary and by the employer.
• If you do not initiate the savings, will you learn anything?
• It could be a burden on employers: more burden, less jobs.

The New York Times offered this explanation of the government matching funds, “For households that earn under $65,000, the federal government will match savings up to $1,000 a year with a 50 percent tax credit. So if you saved $500, you would get $250 dropped directly into your I.R.A. This tax credit is refundable, which means you would get it regardless of how much you pay in federal taxes each year. The credit would phase out between $65,000 and $85,000 of household income or half of that if you are single.”

It takes legislation to bring it to reality: Read more: Automatic IRA Act of 2007 not final versions (S. �1141 �& H.R �2167). Other: CFED, Brookings, Heritage

Jon Hanson is the author Good Debt, Bad Debt and Gooddebt.com

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Debit Cards are the New Cash Cow for Banks September 10, 2009

The Credit Card Act that took effect this year, coupled with the recession, has created a void where many fees have been collected in the past. What pays banks more than penalty fees on credit cards? You may be surprised to learn that it is overdraft fees on debit cards.

Debit cards have been marketed as similar to an ATM. When the money is gone, you can’t make a transaction. However, since most are now endorsed by Visa, banks are covering transactions, and charging large fees when the transaction occurs on a negative account.

What does this mean to you? Even if you don’t have the funds to cover a transaction, it may still be approved. In which case, be prepared for your bank to charge you $20 or more for that transaction. Those fees can easily add up to more than is possible to cover. If you, or someone you know, is in this situation, contact your financial institution. You may have to opt out of the provided overdraft protection. But it’s worth it.

Debit cards are becoming more and more like a checkbook. Which is why it is more important now than ever, to reconcile those accounts on a regular basis. In this age of electronics, many people are relying heavily on bank balances as an indicator of funds available. Make sure to keep your own check register, or log of what you have spent, so that you don’t fall victim to one of these fees.

For more about the debate in Washington, Click Here to read the New York Times article published this week.