February 13, 2012

Two of my favorite financial products are Series I U.S. Savings Bonds and Health Savings Accounts.  Savings Bonds have been around a long time.  Today I love the Series I bond for its nice rate in a low rate world, 3.06% for six months.  I also like that interest is tax deferred and the rate is inflation adjusted every six months.  These attributes make Series I Savings Bonds a wonderful emergency fund cash stash.

Starting in January 2012, U.S. Savings Bonds are sold electronically via www.treasurydirect.gov.   Also starting in January, the limit on electronic purchases per person per year went up to $10,000 from $5,000.

Health Savings Accounts are a newer tool and must be associated with a High Deductible Health Plan.  People with a high deductible health plan who open a Health Savings Account have a tool to pay for medical expenses with pre-tax dollars even if they don’t qualify for the 7.5% limit on Schedule A.  This makes an HSA a great opportunity for taxpayers, especially those in the Alternative Minimum Tax zone.  In 2012, the deductible limits are $3,100 for an individual and $6,250 for a family.

Things get better with an HSA – if it’s not used, it stays and becomes a secondary savings account earmarked for medical expenses.  In retirement, an HSA instead of taxable IRA withdrawals can pay for medical expenses.

High Deductible Health Plans are not for everyone, and the rules governing management of a Health Savings Account are exacting.   An HSA, however, offers useful tax savings and retirement planning opportunities especially for upper bracket taxpayers.

In 2012 many savers are worried about low interest rates on their savings accounts.  U.S. Series I Savings Bonds and Health Savings Account are two tools that offer ways to maximize cash savings when used appropriately.

February 2012

I am glad to see the Presidential primary election focus on income tax rates.  It creates a teachable moment for U.S. taxpayers and I will also jump into the discussion!

Many taxpayers concentrate on one line of their income tax return – the refund line.  While it’s always pleasant or even thrilling to see that refund amount, it’s not the whole story about paying a lot or a little in taxes.  Usually, a refund means the taxpayer overpaid tax throughout the year.

This tax season, I advise you to take a closer look at your Adjusted Gross Income.  This line is well before your Taxable Income.  It’s an amount that drives a lot of different tax savings steps.  AGI determines how much of medical expenses or job-related expenses can be deducted to lower your overall tax rate.  It determines whether you can deduct education expenses or how much of a child tax credit is allowed.  It determines whether an IRA contribution is deductible.

Whatever your tax rate is now, 15% or 25% or something else, your goal for 2012 should be to bring it down.  One place to start is figuring out if you can reduce Adjusted Gross Income by taking advantage of the tax savings steps available to you.