Airline tickets are getting more and more expensive these days. A few years ago, I could a round-trip to China in September for something like $800. But now, the cost is 50% more for flying even in the off-peak season and more than doubled in the summer. And this doesn’t just happen to international flights. For domestic flights, ticket prices are also increasing slowly but steadily over the years. There are a couple of reasons I can think of that have caused ticket prices to go up. First, we can obviously blame higher oil price. Since crude oil broker the $100 a barrel mark the first time a few years ago, airliners have added surcharges to offset rising fuel prices. Second, there are less airlines now than before due to consolidation in the industry. Delta and Northwest have merged; Continental and United have joined together; and US Airways has bought American Airlines. Obviously, less flyers always means less competition and higher ticket prices. Finally, we have this long economic recession that has forces people and business to cut back travel.

One way to somewhat ease the pain of high airline tickets is to get a credit card for the airline that you usually fly with and use the card for shopping. That can earn you cash back that can be used to redeem for free flights or hotel stays. These days, many such cards also give a big incentive to new card members, usually more than enough to get a round-trip domestic flight for free. Even though I don’t travel much, that’s what I did a while ago when I applied for the the Citi® Platinum Select®/AAdvantage® Visa Signature® Card.

The Citi® Platinum Select®/AAdvantage® Visa Signature® Card is specifically for travelers who usually fly with American Airlines. If AA is your main carrier, then getting this card does make sense because it will let you earn AA frequent flyer miles that can be used for American Airlines tickets and if you accumulate enough miles, you can redeem them for free tickets.

The main benefit of the Citi® Platinum Select®/AAdvantage® Visa Signature® Card is that it allows you to earn miles from using the card for your everyday purchases, from groceries to gas. Basically, you can earn earn one mile for every dollar spent on the card. There’s no restriction on where you can or can’t earn miles. Everywhere you use the card to pay for your purchases, you earn miles towards free flight. The rewards program of the  Citi® Platinum Select®/AAdvantage® Visa Signature® Card plain, so it may not look very exciting, but every mile adds up, right? If you are considering of getting the card, there’s another good reason for doing so: 30,000 bonus miles. That’s right. If you become a new cardholder, you are eligible to receive 30,000 bonus miles after making $1,000 in purchases within 3 months of becoming a member. But there’s more. You can also receive a $100 American Airlines Flight Discount every cardmembership year with qualifying purchases and cardmembership renewal. Using the AAdvantage Visa Card, you are able to earn double miles on eligible American Airlines purchases.

The spending limit for the bonus miles may look high, but since you have four months to complete the requirement, it shouldn’t be a big problem because many other cards which offer similar incentive usually give three months instead to meet the limit.

The AA miles earned from this card never expire (you can go to aa.com website to track your miles), and there’s no limit on the number of miles you can earn per year. If you decide to redeem your miles, you can actually earn 10% o the miles your redeemed back, up to 10,000 AAdvantage miles each calendar year. That’s pretty awesome, isn’t’ it? After becoming a cardholder, you first eligible checked bag is free for you and up to 4 traveling companions. How much does a checked bag cost these days? Something like $30? So this card can save your some serious money if you fly with your family members or friends and you use your AAdvantage Card on those checked bags.

This card  does have an annual membership fee at $95. The good news is the fee is waived for the first year. Considering the bonus miles you are going to receive and other benefits, the membership fee isn’t that bad comparing with similar airline credit cards from other banks.

Original Post on www.thesunsfinancialdiary.com

Special Promotional Offers

• Free 401(K) Fee Analyzer
• Scottrade 3 Commission Free Trades
• Citi Dividend Select Platinum Card $100 Bonus
• Citibank Checking Account $300 Gift Card Promotion

In the past, when it was time to enroll our medical insurance plan, we always selected the option with the least amount of premium and usually it was the HMO plan. For us, the decision was rather easy to make: Both of us are in good health and the only time of the year that we actually needed to see a doctor was the annual physical. And the kids, they also have their annual checkup and once in a while, they may need antibioc for infection, and that’s it. Since we don’t see doctors a lot and none of us is on any kind of medicine, we want to lower our premium, even though it may mean some restrictions on how we could choose a doctor if needed.

Starting this year, however, my employer changed the way health insurance plans were offered in order to reduce costs and “let employees actively manage their health and their health care costs” as the my employer put it. Instead of giving us several options with different premiums, the only health plan we could use in 2013 is a plan from Cigna Health that comes with a Health Savings Account (HSA), which is also quite new to us since we never have used a HSA account before.

What is an HSA Account?

If you are not familiar with HSAs, here are some highlights of what they are and how they work:

• Health Savings Accounts (HSAs) are tax-advantaged medical savigns accounts that were created in 2003 for individuals to contribute pre-tax dolloars to cover part of the cost of a high-deductible health plan.
• To set up a HSA account, you must participate in a high-deductible health plan (HDHP). For 2013, the minimum deductible is $1,250 for self-only coverage and $2,500 for family. 
• The IRS has established pre-tax contribution limit to a HSA account at $3,250 for a self-only HDHP plan and $6,450 for a family plan.
• Contributions to an HSA account can be used to pay for qualified medical expenses without paying taxes during the year before reaching the deductible limit. There will be a 20% tax penalty on distributions from an HSA that are not used for qualified medical expense.
• An HSA account is independent to your employment and money in the account is yours that you can take it with you after the termination of employment. Unlike Flexible Spending Accounts (FSAs), leftover money in an HSA account is rolled over to the next year and can be used to cover future medical expenses.
• Earnings from contributions to an HSA account will grow tax-free, just like an IRA account, and after the age of 65, there will be no penalty for withdrawal from an HSA account for whatever uses and only income tax will be paid for the distribution, again just like an IRA account.

Benefits of an HSA Account

Since I didn’t have any other choices in terms of health insurance, I had to go with an HDHP with an HSA account. But after doing my research, I came to the conclusion that an HSA is actually a better choice for us for several reasons:

• Comparing to the traditional health insurance plan I had last year, we saved about $2,000 in premium by switching to an HDHP with an HSA account.
• Even though the new health plan has a $3,000 annual deductible for the whole family, I don’t expect we can reach that limit, barring any kind of emergency, since we mostly use heath insurance for preventive care and that is 100% covered by the insurance.
• Even if we reach the deductible limit, there’s a still a out-of-pocket maximum. 
• My employer contributed $1,200 seed money into the HSA account, which is free money for us and effectively reduces our deductible. 
• We can contribute up to $5,250 before-tax money (2013 contirbution limit $6,450 minus $1,200 employer contirbution) into the HSA account, which lowers our current tax bill.

Of course, the tax-free contribution to and tax-free growth of assets in an HSA is one of the most appealing reasons for us given our low medical expenses. Whatever we have in an HSA account now can be used later for medical care when we need it or even retirement

HealthEquity HSA Account

In our case, we didn’t have the freedom to choose which HSA administrator to use for our HSA account. The one that is provided by my employer is HealthEquity. For the health care part, we received a HealthEquity debit card that we can use to pay for our medical expenses. Even though any expense before reaching the $3,000 deductible limit is our responsibility, we are advised by our employer and HealthEquity that we should not pay those expense up front, except for co-pay which is a fixed amount for every visit. Instead, we should ask the health provider to bill the insurance company and we pay the bill after receiving it from the insurance since the negotiated price between the insurance and the provider is usually lower than the up front cost of service, as we were told.

As for the investment part, HealthEquity actually has a few nice, low cost funds to choose from.

• American Funds Growth Fund of America (GFAFX)
• American Funds American Balanced (BALFX)
• Baron Small Cap Fund (BSCFX)
• Dodge & Cox Income Fund (DODIX)
• Dodge & Cox International Stock Fund (DODFX)
• Dreyfus Smallcap Stock Index (DISSX)
• Dreyfus Appreciation Fund (DGAGX) 
• Fidelity Blue Chip Value (FBCVX)
• Fidelity Capital Appreciation (FDCAX)
• Harding Loevner Emerging Markets (HLEMX)
• Laudus International MarketMasters (SWOIX)
• T. Rowe Price Equity Income Fund (PRFDX) 
• Vanguard Large Cap Index Signal (VLCSX)

The one that I selected is Dodge & Cox International Stock Fund (DODFX). I knew this fund pretty well, having own it in a non-retirement account for years. Since right now the investment portfolio in the HSA account is rather small, I don’t see the reason to diversify just yet because I want to grow the account fast, even though it means more volatility.

Original Post on www.thesunsfinancialdiary.com

Special Promotional Offers

• Free 401(K) Fee Analyzer
• Scottrade 3 Commission Free Trades
• Citi Dividend Select Platinum Card $100 Bonus
• Citibank Checking Account $300 Gift Card Promotion

You may soon see a new fee on your credit card purchase receipt, if haven’t seen already, thanks to a $6 billion settlement reached last July between major credit card issuers and merchants.

The proposed settlement was the result of an antitrust lawsuit filed against credit card transaction processors Visa, MasterCard, and other nine major banks for fixing credit card processing fees. As we know, every time we use a credit card to pay for our purchase, a certain amount of fee, the so-called swipe fee, is paid to banks and Visa and MasterCard for processing the transaction. As a consumer, I enjoy the convenience of being able to pay my purchases with plastics, but for merchants that accepting credit card payment, the swipe fee, usually ranging from 1.5 to 3 percent of the total transaction amount, is an additional cost that erodes their profits.

The settlement won preliminary court approval in November 2012 and, as part of the settlement, Visa, MasterCard and other major issuers, such as JPMorgan Chase and Bank of America, agree to reduce the credit card swipe fees, but only for the period of the eight months. This means that at the end of the eight-month period, which was late January, the temporary reduction no longer exists and swipe fee returns to the previous level. The settlement also gives retailers the option to add a surcharge to offset the 1.5% to 3% swipe fee to the price paid by consumers. Before the lawsuit and the subsequent settlement, credit card payment processing companies actually prohibit merchants from charging their customers more for using credit cards to pay for the purchases. But under the settlement, that ban is removed, freeing merchants to add a surcharge to the retail price and pass the additional cost on to us, the consumer.

While the possibility is there for retailers to add the surcharge, they do have to do it in a way that we know the price we pay now consist of the surcharge in they choose to do so. The merchants are required to state clearly at the entrance of their store or on their website that they are now charging the surcharge, which also must appear on the receipt.

I am a credit card person and always prefer to pay with credit cards than any other payment methods. However, I don’t like the idea of retailers passing the additional fee to me. If I see a store has a notice on its door that says it is adding a 3% surcharge to the price due to this settlement, I will just walk away and refuse to shop there, even if the surcharge is supposed to protect the merchant from credit card companies. It’s a competitive economic environment and I am pretty sure I can get the same product from somewhere else that doesn’t charge the extra.

BTW, if you are living in one of these ten states, California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas, then you don’t have to worry about this new fee because it is still banned.

Original Post on www.thesunsfinancialdiary.com

Special Promotional Offers

• Free 401(K) Fee Analyzer
• Scottrade 3 Commission Free Trades
• Citi Dividend Select Platinum Card $100 Bonus
• Citibank Checking Account $300 Gift Card Promotion

A few years ago, my wife’s employer started to offer Roth 401(K) together with the traditional, pre-tax 401(K) plan. At that time we decided to continue funding the pre-tax 401(K) account and not contribute to the Roth account for the same reason I used to not covert existing Traditional IRA accounts into Roth. As you know, the biggest difference between a Roth 401(K) account and a Traditional 401(K) account is the former is funded with after-tax money while the latter is usually pre-tax up to a limit set by the IRA (the contribution limit for 401(K) is $17,500 in 2013). This means that, like Roth IRA, earnings in Roth 401(K) will also be tax free, as long as the distribution is made at least 5 years after the first contribution and the owner of the account is at least 59.5 years old.

The biggest advantage of a Roth 401(K) is that earnings will not be taxed, which is also precisely the reason I decided to convert our new Traditional IRA accounts into Roth. But what has prevented us from contributing to Roth 401(K) when it became available was the consideration of whether to pay taxes now or in the future. This is not an issue when choosing between Traditional IRA and Roth IRA because we can only make after-tax contributions. It makes no difference on our current tax situation whether to Traditional or to Roth. However, since earnings in Roth IRA are also not taxed in the future either, the choice is quite obvious. In the case of Roth and Traditional 401(K), tax comes into play as the former is post-tax and the latter is pre-tax. By contributing into pre-tax 401(K) plans, we can lower our current Adjusted Gross Income (AGI) by $35,000 per year if we max out, which we will do, and that will in turn reduce our tax liability. If on the other hand, we choose Roth 401(K), then our tax bill will go up. Even though the increased income may not be enough to push us into the next tax bracket, we will pay more taxes now for sure, in exchange for not paying taxes late in the future. The debate is whether to pay taxes now or in the future.

There’s obviously no way for us to know what the tax rates will be likely 20 or 30 years from now, so our deliberation was based entirely on assumptions. As I mentioned earlier, at the time when we retire, our sources of income will mainly come from 1) Social Security; 2) 401(K)s; 3) IRAs; and 4) other savings in non-retirement accounts. Except distributions from Roth IRAs, which accounts for only a small portion of our retirement savings, distributions from other sources will be taxed as regular income later. Even though we have been saving quite aggressively, my guess is that when we retire, our income will be lower than our salaries, which, hopefully, will continue to grow as long as we work. If this will be the case, then it makes sense to defer paying taxes to a later time by contributing pre-tax dollars to Traditional 401(K), especially that now we are able to fund Roth IRAs.

While the consideration of taxes is valid for us, Roth 401(K) is still quite attractive for 1) tax free distributions will give us more flexibility in the future (after-tax dollars are better than pre-tax dollars?); 2) Roth 401(K) can be rolled over into Roth IRA upon termination of employment, but not the Traditional 401(K).
This year, my employer switched from its self-managed 401(K) plan to the plan managed by Fidelity and one new feature came with the switch is Roth 401(K). As a part of the changes I made in 2013 on how we invest, I decided to also contribute to Roth 401(K). I didn’t make the full switch from Traditional to Roth 401(K), but only a third of the total amount allowed this year. That will exceed the Roth IRA limit. By participating in both Roth and Traditional 401(K), I won’t increase our taxable income too much now and get the benefit of tax free distributions in the future.

Are you also using Roth 401(K)? Yes or no, what are your reasons of using or not using it?

Original Post on www.thesunsfinancialdiary.com

Special Promotional Offers

• Free 401(K) Fee Analyzer
• Scottrade 3 Commission Free Trades
• Citi Dividend Select Platinum Card $100 Bonus
• Citibank Checking Account $300 Gift Card Promotion

I mentioned in my previous post that I have made some changes to how we invest our money this year and one of them was starting to contribute to Roth IRA accounts again, though we don’t qualify to make direct contributions.

The advantage of Roth IRA over Traditional IRA has been discussed extensively, such as tax free withdrawal and no required minimum distributions after the age of 70.5, etc. We have been making non-deductible contributions for years, first to Roth IRA accounts, then to Traditional after we reached the income limit that prohibits us from adding new money into the accounts (you don’t have to know everything before opening an IRA account). Even though there was always the opportunity to do a one-time conversion from Traditional to Roth in the past, we never took that step because our IRA accounts were still relatively small, thus the benefit of the conversion was rather small if we could only keep contributing to Traditional. Then, in 2009 a new law opened the door to convert existing Traditional IRA accounts into Roth regardless the income. Furthermore, it also makes it possible for people like us who are not eligible to make Roth contributions to actually continue funding their Roth accounts through conversion, year after year, until Congress decides to shut that door again.

When the conversion first became available in 2010, I looked into the idea, but decided not to convert for our existing accounts. From what I read about the pros and cons of IRA conversion, the two determining factors are now and future tax rates and source of funds to pay for the taxes resulted from the conversion. Since the Traditional to Roth conversion is considered distribution, which is a taxable event, taxes are due at the time of the conversion for deductible Traditional contributions and for all the earnings from the conversion. The argument was that if one has to use funds from the IRA account to pay for the tax bill, then it doesn’t make too much sense to convert, especially if the IRA is large. For us, since our accounts are quite small and our contributions were all after tax, we will be only responsible for the taxes on the earnings, thus the tax bill isn’t really the biggest concern. My decision was mainly based on the assumption that our marginal tax rates at the time when we retire will be lower than the rates we are taxed right now.

Related: Should You Convert Your IRA to Roth?

For the tax rates, the comparison seems to be quite simple to make. Currently, our incomes are our wages, which are taxed at much higher rate. Because none of us has pension, the sources of income in our retirement will mostly come from Social Security, if it’s still there, and from savings that we set aside right now, 401(K)s, IRAs, and savings outside tax-deferred retirement accounts. For 401(K)s, since contributions were all made pre-tax, any withdrawal in the future, including both the contributions and gains, will be taxed. For IRAs and other savings, however, only the earnings will be taxed because of after-tax contributions. So looking at our situations, it doesn’t seem to be difficult to come to the conclusion that our tax rate in retirement will most likely be lower than our current income tax rate, even though nothing is certain. Based on this, I chose not to convert our existing Traditional IRA accounts, which also include 401(K)s rolled over after previous jobs, which could result in taxes on earnings and pre-tax contributions to those 401(K) plans at the current tax rate.

Related: How to Open An IRA Account

However, I still like Roth IRAs more than Traditional IRAs for the 100% tax free withdrawal after 59.5 years old, especially since we are making after tax contributions right now any way. The only problem is to find a way to fund the accounts, which turned out to be quite simple. In the past, I always made small monthly contributions to the IRA accounts throughout the year. But for 2013, I chose to fund the Traditional IRA accounts at once then convert them into Roth immediately before any earnings or gains occur. With both our Traditional and Roth accounts at Vanguard, the process was rather easy. Here is what I did:

• Open new Traditional IRA accounts at Vanguard and fund them to the maximum amount allowed ($5,500 for 2013)
• The Vanguard mutual fund for the new accounts is the Prime Money Market fund, not any other mutual funds
• After a day or two, the new accounts with the new money will be available, then I will do the conversions to Roth, even before the money is settled in the new Traditional accounts.

Converting a Traditional IRA to a Roth, called Exchange, is also straightforward at Vanguard, a few mouse clicks and it is done. To do the conversion after logging into the account, select Buy & Sell from the top of the screen, then click Exchange Vanguard Funds and follow the steps to complete the conversion.

The process is very simple, taking only a few minutes to complete. Of course, the conversion can be done at any time of the year. The reason I chose to convert right after the contributions are made is that by doing so, there’s no earning generated, thus no tax needs to be paid for the conversion.

I plan to do this every year as long as the law is still in place

Original Post on www.thesunsfinancialdiary.com

Special Promotional Offers

• Free 401(K) Fee Analyzer
• Scottrade 3 Commission Free Trades
• Citi Dividend Select Platinum Card $100 Bonus
• Citibank Checking Account $300 Gift Card Promotion