A Roth IRA is a popular way to save for retirement. It acts like a savings account, but generates a much higher profit and is designed to compound and grow for many years until the owner reaches retirement age. The profit that is earned is reinvested in the Roth IRA account until it matures to a set date (when the person wants to retire).

Money contributed to a Roth IRA is done on an after-tax basis. This means that you won’t have to pay taxes on the earnings when you want to withdraw from the account. In comparison, a 401(k) retirement account receives contributions before taxes are paid, so you have to pay taxes on them when you withdraw funds.

Roth IRAs also offer more flexibility than a 401k because you can withdraw the funds without the huge penalties before retirement (if you meet their criteria), where as withdrawals from a 401k before retirement results in high penalties and income tax implications.

Roth IRAs do not require that you begin withdrawing your money by a certain age. You are able to keep contributing to it for as long as you want to. Even if you have no intention of ever withdrawing the money, your beneficiaries will inherit it with no penalties attached to the money. They are able to keep the Roth IRA to let it keep collecting interest, or withdraw the funds – tax free.

There are some restrictions on Roth IRAs though. If you are single and make more than $110,000 per year, or if you are married and file taxes jointly, and earn more than $160,000 per year (or more), you’re not able to contribute to a Roth IRA. This doesn’t mean you can’t save for retirement, there are many other options available for you to set up a retirement fund too, just not with a Roth IRA. On the other end, if you only make $3,000 per year, you are only able to contribute (at most) $3,000 per year to a Roth IRA. For everyone else, you are able to contribute a set amount (determined by age) annually.

Depending on your financial situation, a Roth IRA may be a great single, or additional retirement plan for your future. It is always best to get started saving money for retirement right away, and with compounding interest it will only help you save more if you start sooner. If you work at a place that matches or gives a percent on a 401(k) plan, it is always advised to do that too, who doesn’t like free money from their employer?

If you have lost your job or are looking for a change, don’t forget about the 401k account you have with your current employer. You are still entitled to take the funds with you when you leave a job but you need to manage the account the right way to get the maximum gain.

Many people make the mistake of taking the money out of the account. They end up paying much in penalties for early withdrawal and deplete their own accounts for retirement unnecessarily because they don’t know what else to do. So what should you do with the money you’ve been stocking away?

Rolling Over Your 401k
In order to keep the money you have in your retirement account, you can opt to rollover the funds into another account without having to pay taxes or penalties on the amount. You can choose from a number of options for rolling over your 401k account including your new employer’s 401k plan, IRAs, Roth IRAs, and Mutual Funds.

How to Rollover the Funds

Contact Old Provider
Check with your old 401k provider for eligibility rules. You’ll want to make sure there are no fees or requirements involved with rolling over your funds into a new account. You also need to make sure that your status is listed as a terminated employee because funds can not be released unless you are terminated. Sometimes an employer will fail to update the provider so knowing upfront that all is in order will help make the rollover process smoother.
 
Contact New Provider
You’ll need to contact the new provider of the account to find out the protocol for rolling over your money. Even if you are not rolling your money into another employee-sponsored account, there will still be paperwork to submit so you’ll need to know the rules of the new provider. Ask for the information you will need to give to your old provider to initiate the transfer of funds.

Fill Out the Forms
Your 401k provider should send you the paperwork necessary. Once you receive the documents fill them out completely and return them to your provider. Some providers will only require documentation from the new provider and you won’t have to do anything. You will also need to submit paperwork to the new provider. The key to a successful rollover is to fill out forms completely the first time to prevent delays. Provide accurate information about where the money is to be transferred.

Make Sure You Follow Up
Follow up by phone to find out the status of the transfer if you have not received correspondence from the provider within a few weeks. Never assume the money was transferred as scheduled. It is smart to confirm the funds are where they are supposed to be. It can be easy to forget about money that you virtually never see so check with the new provider to verify the money transfer has been completed.

If you have been struggling to keep up with your debt repayments and are considering a debt settlement to improve your financial situation, you should understand the potential affects to your FICO credit score.

What is a Debt Settlement?

A debt settlement allows you to pay less than the total amount owed on an account. This will help you get out of debt faster and make it possible to keep up with your living expenses. Typically with a debt settlement, if a creditor agrees to ‘settle’ and accept less than owed, you need to have the amount ready to send in a lump sum. Once the amount is sent, the account should then be closed and no further action can be taken from the creditor to collect the remaining amount of the debt.

What About Your Credit Score?

If you’re considering a debt settlement, chances are good that you’ve already experienced a drop in your credit score. Only people who are having extreme difficulty keeping up with their payments and living expenses should even consider a debt settlement. While it’s better than filing for bankruptcy, a debt settlement will be reported to the credit bureaus, show up on your credit report as a negative notation, and will cause your credit score to drop considerably – by as much as 125 points.

Debt settlements remain on your credit report for 7 years after the original delinquency date of the debt. You will have trouble obtaining credit while this remains on your report.

On the plus side, however, if a settlement makes it possible for you to begin paying your other debts and expenses on time, every time, where as you couldn’t before the settlement, you can quickly begin increasing your credit score by making on time payments on the remaining debts you still have after the settlement.

Debt Settlement and Income Taxes

What many people don’t realize is that debt settlements may also affect your income taxes. When you file your income taxes after a debt settlement, you are required to pay income tax on the difference between what you owed and what you actually paid as “income”, with a few exceptions to the rule. If you owed $16,000 but settled the debt for $8,000 – at income tax time you have to report the other $8,000 as income and pay taxes on that amount unless you meet criteria for the exceptions. This is something you will want to look into before agreeing to settle your debts.

If you’ve discovered you no longer qualify for traditional credit cards due to a low credit score, there are some other credit card options you might want to consider to start rebuilding your credit:

Prepaid Credit Option

Some companies issue prepaid credit cards and report your payments to the credit bureaus. The prepaid nature of the cards makes it possible for people with poor or bad credit scores to qualify; and the fact that some will report to the credit bureaus means you have the opportunity to begin rebuilding your credit again.
Since you’ve prepaid, there are no interest charges on purchases and no billing statements to worry about. Most prepaid cards have fees, however. From an opening fee (around $10) to monthly maintenance fees (usually another $9.99 a month) to per-transaction fees and fees when you add money to your card – the prepaid cards can end up costing you a fortune.

If your goal is to rebuild credit, make sure you choose a prepaid card that reports to credit bureaus otherwise you’re paying a lot of fees for no benefit. A prepaid card with the Mastercard or Visa logo can come in handy if you need to rent a car or reserve a hotel or flight and you don’t have any other credit card options available to you.

Secured Credit Card Options

A secured credit card is a step up from the prepaid card. They almost always report your payments to the credit bureaus and can work in your favor to rebuilding your credit. Basically, you make a deposit to the issuing bank (around $500 usually). Your credit line will usually start out at the amount of your deposit, but with on time payments they will often increase your credit line.

Credit Union Credit Card Options

If your score is in the fair or better range, you might check with a local credit union before exploring other options. Credit unions are less likely to charge the high fees and penalties that traditional credit cards charge, have lower or no annual fees and longer grace periods for making payments. If you qualify for credit union membership, you should look into opening an account with them (savings or checking) and then consider them for your credit or loan needs, too.

You can find credit unions by visiting www.creditunion.coop or calling (800)358-5710.