This restaurant tries to help you out with the suggested tip amount for your meal on the receipt. Too bad, isn’t correct…

Illustration by: ivan petrov

Everyone knows that having good credit is essential to survive in this day and age. If you don’t have it you may get turned down for essential credit or if you are approved you may have to pay an inflated interest rate because to the lender you are a bad credit risk. So, what can you do to improve it and keep it healthy?

If you have had to file bankruptcy or perhaps you have a repossession on your credit report and it has been a while, try to obtain a secured credit card through a bank or Credit Union. Although it is very limiting and normally they charge a higher interest rate, at least being secured it will be easier to acquire. This will help you by rebuilding your credibility, just be sure that the company does report to the three major credit bureaus.

Try to get an infinity card; it is typically a Visa or MasterCard and in addition to the emblem it also has a logo of the company that issued the card all of which shows that it is indeed a real credit card. Although you will most often you have a very low balance available it is normally supplemented with some type of benefit such as points towards merchandise or frequent flyer miles.

Keep all of your revolving debt low to the actual available credit by keeping approximately 75 to 80% of the credit still available; in other words, when you do get a card do not go out and start charging it all the way, use it as little as possible because it is capable of increasing your score dramatically.

About a year after a bankruptcy or other major set back try to buy property. Property is a sound investment and with your debt to income ratio being lower mortgage companies see it as much less of a risk and perhaps you will not have such a high interest rate. If you are not able to purchase property then maintain a good rental history. By having at least 12 months history and paying utilities on time it is easier to qualify for a loan or any type of credit. Once this has been established you will have a much better chance of getting approved for a property (or something similar) loan the next time you apply.

The Roth IRA was created in 1997 and created quite a bit of excitement; however 2010 just may be its most exciting year yet. While many of the contribution limits and the basic rules are the same one thing that is changing is the Roth IRA conversion. Of course, another constant of the Roth IRA is that tax free money awaits you when you hit retirement. Here are a few of the major rules of the 2010 Roth IRA:

Photo by: Thomas Picard

1. The contribution limits have stayed at the same levels as they were in 2009; in 2009 if you were 49 and under the contribution was $5,000 and if you were 50 and over it was $6,000. That amount is still the same in 2010.

2.  2010 is the year for the big conversion; while this is the actual year that you can convert you can actually defer the claimed income until 2011 and 2012. Since the IRS expects that many people will take advantage of this they created a provision on how taxes are to be paid. You will have an option of being able to claim half of the conversion amount as income in 2011 and the other half to be claimed in 2012. Remember that this is only for 2010, after that all taxes will have to be paid in full the next year.

3.  There was a small increase in phase-out limits; those that were on the outside looking in on the Roth IRA’s really did not get a lot of help when it comes to the phase-out limits. Those filing single gained no improvement and joint filers only received an increase of $1,000 at both the top and bottom ranges.

4.  There were people that want to take advantage of this IRA for a while but were unable to because of surpassed phase-out limits which resulted in them settling for a pre-tax substitute found in the traditional IRA. The main problem with the traditional IRA (of course other than having to pay retirement taxes) is that after reaching income limits you would not get a tax deduction for contributing to the IRA, but you still get the tax deferred growth. If you are what is considered an active participant, meaning you make annual additions or accrue a benefit, in a company’s plan and if you make more than $109,000 when filing married joint returns or $65,000 filing single in 2009 then you are disqualified from being able to have the full deduction, which leaves you with a nondeductible IRA.

Originally there was nothing appealing about the nondeductible IRA, but it has now become a popular way for the higher wage earners to get into the Roth IRA; through a back door so to speak. By contributing to the nondeductible IRA in 2009 it can be now be converted to the Roth IRA in 2010.

Let’s face it, you can feel overwhelmed with the amount of paperwork that you generate and how much of it you may need to retain. Exactly how long should you hang on to those tax returns, bank statements, 401k records, etc.?

Photo by: Christophe Libert

When it comes to brokerage statements most of the experts claim that you can get rid of the old one when you get a new one, but many people prefer to keep at least 6 months worth of them. Normally your broker keeps a record as well and can produce old ones if necessary; however, you definitely want to hold onto the one that you receive in December (or your annual statement).

Tax returns are something that many people want to hold on to indefinitely, especially if they own a business. However, the IRS guidelines say that you should keep supporting documents on items such as deductions or income until the limitations on that return runs out. The time limit is the length of time that you can amend your return in order to claim a refund or credit, or the leng

th that the IRS is able to assess additional taxes.

Most CPA’s say that 3 to 7 years is fairly standard but they still advise that you keep them forever. The reason for this is that while most audits only go back 3 years if you are ever convicted of a tax felony then that opens the door for you to be audited throughout your entire tax history. Of course the best way to keep this from happening is to not commit tax fraud.

It is recommended that you keep your bank statements for 3 years; this is in support of the IRS audit procedure. The IRS has long accepted electronic paperwork and most banks have this available as well, but, it is always a good idea to have a paper back-up.

For life insurance policies, you first of all want to keep them locked up in a safe place and experts claim that you should keep the policy not just for the entire policy life but add an additional three years to that in case there are any problems that arise in the future, which happens surprisingly often.

Finally, when you are done with all of that paperwork and are weeding out what you no longer need, do not just throw it away. Identity theft is very real and very costly and damaging to the victim, so be sure to shred those important papers as one way of deterring identity thieves. If you own a business you may want to contact a company that specializes in coming to your location and destroying any sensitive information that you may have

on paper.

Photo by: Vangelis Thomaidis

You may have heard about the Roth IRA, but you may not be entirely clear on what it is; the Roth IRA is an Individual Retirement Account providing tax free growth. It is quite possibly one of the simplest and possibly one of the most effective, of the sheltered accounts available.

Rather than getting taxed twice, or more, like you would with a regular tax investment type account with a Roth IRA you will be taxed one time only. This is basically how the Roth IRA works in comparison with others:

Accounts Taxed Regularly

• After you pay income tax you make a contribution of post-tax dollars.
• The principal is possibly subject to taxes on both capital gains and dividends while it grows.
• When you withdraw you will pay capital gains tax.

Deductible IRA

• You receive a tax deduction that will essentially allow you to deposit what is considered pre-tax dollars.
• The principal is tax free growth.
• Income tax is paid on the whole amount that you withdraw.

Roth IRA

• You will pay income tax then make the contribution using post tax dollars.
• The principal is considered tax free growth.
• There are no further taxes when you withdraw.

The advantage of using a Roth IRA rather than the regularly taxed type of account is evident; you will pay income tax in the beginning but by using a Roth IRA you are through with paying taxes, while with the other regular account it is just beginning.

The Roth IRA advantage over the deductible IRA is almost as evident:

• The Roth IRA is simple – there is no type of special reporting that has to be done to the IRS, while the deductible IRA must have a reported deduction on the 1040 form anytime you have a contribution and on a withdrawal you have to report the whole withdrawal as taxable income.
• If you think that tax may rise in the future then Roth IRA is an advantage since you pay now instead of later.
• A Roth IRA is flexible since you take care of the taxing obligations in the beginning you will likely face far fewer restrictions at a later time.

Keep in mind that the Roth IRA is meant to be used as a retirement account; meaning that you may impose penalties if you withdraw too early. A good rule of thumb is to not make any kind of a withdrawal for five years after the first contribution or until you reach the age of 59 1/2, whichever one is later.

Photo by: Christian Ferrari

Be sure to have a recent copy of your credit report from all three of the major bureaus, Experian, Equifax and Trans Union so that you can keep track of your credit and check it over carefully to be sure that everything is accurate. If something is incorrect, especially if it is not in your favor then file a dispute; the credit bureau will contact the creditor and they have 30 days to respond with proof or it will be removed from your report. Many times it takes the creditors much longer to respond which works in your favor in case it actually is accurate but they do not respond in time then the negative mark gets removed anyway.

Keep in mind that approximately 30% of a credit score is based on credit balances. So, try to keep the existing balances below 45% of the limit that is available on the card. This also means that you should not max out even one card and then pay it with another since all of your cards and balances will be looked at and this is one thing that many lenders are on the lookout for.

Some companies do not report your available high credit and this can be harmful, as the lenders have no way of knowing your credit limit. Ask the company to add it to the report or consider no longer doing business with the company. Since around 35% of the score is your current payment history you need to make sure that no matter what you do be sure to make the payment always within the 30 days because over 30 reflects a delinquent payment.

Approximately 15% of the score is made up of your past credit history; if you have any older accounts that were paid on time, closed or open, do not have them removed from your report. It shows the lenders you are capable of making payments on time. And, longer credit histories also raise your score so that is another good reason to keep them on your report.

Try to maintain a good sound “mix” of credit being reported. For example, perhaps 3 to 5 credit cards, possibly an installment (for a car) and perhaps a mortgage loan rating. It shows the lenders that you are living within your means and do not seem to be over-doing it with credit.