Monday, May 08, 2006

Tax-savvy retirement saving

Don't put your retirement accounts on autopilot. Put a plan in motion for tax-smart investing.

Can you hear the waves lapping onto the sandy shore or the ping of a tennis ball across the net as you zone out dreaming of retirement? It's important to have dreams, for sure. It's also wise to have a plan in place for funding the golden days ahead so that Uncle Sam doesn't get more than his fair share of your hard work.

Merge retirement accounts for cash and clout
Almost 17 percent of American workers have five or more separate retirement accounts, which costs them time, money and bargaining power.

Can I write off retirement plan fees?
A reader did the smart thing by rolling over his company retirement plan when he left the firm. But our tax expert says his choice of where to put his pension money doesn't do him much tax or financial good.

Reporting your retirement plan rollover
When you changed jobs, you took your company retirement plan with you. Here's how to report that to the IRS.

Retirement savings credit
With this tax break, the money you put away for your golden years could cut your current tax bill.

Taking a retirement tax break before retiring
The retirement savings contribution tax credit gets you immediate tax benefits, long before you need your nest egg. Our expert explains how to claim it.

Monday, May 01, 2006

Why home equity loans are popular

Home equity loans and lines of credit have become increasingly common since the mid-1980s as property values have soared and homeowners have learned about managing personal debt. Among the reasons for this surge in popularity: attractive interest rates and tax deductibility.

Equity rates
Because home equity loans and credit lines are secured by one's personal residence, lenders consider them almost as secure as primary mortgages. While equity rates generally are higher than rates on primary mortgages, they usually have lower rates than credit cards and auto loans.

Average rates for home equity loans and lines of credit are available from Bankrate.com's current rates of 4,000 financial institutions around the country.

Tax deductibility
Way back in the disco era, most interest on consumer debt was tax-deductible. That was good news for people who got auto loans in the '80s for Pintos and Fieros equipped with the latest eight-track stereo technology. But it was a bad deal for the federal government, which, by the mid-1980s, was hip deep in budget deficits. To reduce the need to raise income tax rates, Congress and President Reagan yanked the tax deduction for consumer interest. Except for mortgage debt. The deduction for mortgage interest remained. That goes for home equity debt up to $100,000.

Another route
While home equity debt has grown in popularity, getting an equity loan or line of credit isn't the only way to extract cash from one's castle. There is also the "cash-out refinance." For a cash-out refi to make sense, mortgage rates have to have dropped, and property values must have risen. This was the case for millions of homeowners in the early years of the 21st century, and cash-out refis were legion.

With a cash-out refi, you refinance the primary mortgage for more than the outstanding balance. Let's say you bought a house for $100,000 a few years ago, and now you owe $70,000. But the home has doubled in value over the years, so it's worth $200,000. You could do a cash-out refi of $150,000. You would pay off the $70,000 outstanding mortgage and take $80,000 in cash. Of course, you could only do this if you could afford payments on a $150,000 mortgage. You can also compare mortgage refi rates to home equity rates. Enter your ZIP code below to start the rate search process.

So far, you have learned what equity is and that there are two kinds of equity debt: home equity loans and home equity lines of credit, or HELOCs. Equity loans are provided in a lump sum, and they are paid off in equal monthly installments over a set period. Home equity lines of credit have revolving balances and work like a credit card.

Rates for equity debt tend to be relatively low, and the interest payments are tax-deductible. There is another way to extract cash from a home's equity, and that's the cash-out refinance, which shares the same rate and tax advantages that equity loans and credit lines have.