Much thanks to Steve for this article, where Gov. O’Malley actually details the new tax brackets under his proposal. The current state income tax is 4.75% per person, to give you a point of reference, and so the new tax brackets would make it more of a progressive (more you earn, the more you pay) similar to the federal income tax. The brackets are:

Marriage penalty, a feature seen with the federal income tax, now gets to be introduced with the state if this get passed. The marriage penalty is the fact that you have to pay more tax as a married couple than if you were two single filers, something that I think makes absolutely no sense (it only makes sense to the people writing the checks drawing from the account our extra taxes go into).

Breakeven point at $165,000 for singles, $218,000 for married. Under the new plan, you would pay approximately $7,832.50 in taxes under the new plan and $7,837.50 under the existing tax structure as a Single. For all you married folks out there, at $218,000 combined income you’d be paying $10,351.25 under the new scheme and $10,355 under the existing tax structure. Those over the breakeven point will pay more and those underneath it would be paying less in terms of taxes. (please check my math!)

One of the other proposals that seems to bother people a lot is the introduction of slot machines. I don’t see the harm in that, especially all the revenue it would generate, but I haven’t looked into it in great detail. Ultimately, it’s just opening up a new revenue stream that the state can then spend irresponsibly.

What do you all think of this? Bear in mind that in Maryland we also have county taxes and those are around 3%, so before anyone claims we have low taxes, take those into account too.

Ever notice that tons of personal finance sites talk about Roth IRAs all the time but rarely talk about Traditional IRAs? I think part of the reason is that the Roth IRA is newer so there’s far less literature on it and because it’s sexier – forty years of tax free appreciation and then no tax on disbursement? That’s pretty hot. The downside is that some people can’t contribute to the Roth so they’re stuck with the Traditional route, something that isn’t discussed as much.

About Traditional IRAs

The Traditional IRA is much like the Roth IRA except contributions are tax deductible unless your employer offers a retirement plan. This means you get tax savings immediately since your income will be reduced by the amount of your contribution. It’s very much like a 401k from a tax perspective, which explains why the deductibility rules are structured the way they are. If your employer offers a 401k, Keogh, SEP-IRA, etc; then the deduction is limited. The rules are a little complicated so I direct you to a past article I wrote about IRS income phaseouts (specifically IRA contributions) with respect to contribution limits and deductibility.

From there, the Traditional IRA grows tax free much like a Roth IRA. However, whenever you start taking disbursements, those earnings are then taxed at your marginal tax rate. You are also required to take minimum disbursements once you hit the age of 70½, which is something you are not required to do with a Roth IRA. If you don’t take the required minimum distributions then you will be penalized (you will always want to take these distributions).

Finally one last distinction worth noting with respect to Traditional and Roth IRAs; if you make an early withdrawal on your Traditional IRA, you will have to pay taxes plus a 10% penalty. With a Roth, you can withdraw them contributions at anytime (since you’ve already paid taxes on it).

So, why a Traditional IRA and not a Roth? There are two reasons:

• Income restrictions. If you have too much income, you will be prohibited from contributing to a Roth IRA, this is the main reason why folks choose Traditional over Roth (or rather they settle, because they never had the choice).
• Tax law concerns. The government can always decide to tax Roth IRA disbursements, which means you’d be doubly taxed. This is less of a concern but still one that bears mentioning since it could always happen.

Traditional IRA Conversion

Another considering for those thinking about Traditional IRAs is that if you have a modified adjusted gross income in excess of $100,000, you currently cannot convert your Traditional IRA to a Roth IRA. However, in 2010 and 2011, that prohibition will be lifted so anyone can do the conversion. When you convert all or part of your Traditional IRA, you pay taxes immediately on the funds converted if you haven’t done so already.

I have a very interesting question from a reader this week, John basically described his personal finance snapshot and asked me whether I thought he needed a credit card:

I have a question regarding credit cards. I am a 25 yr old college graduate, I am an actor and work in online advertising. Now I am unique among most of my peers in that 1. I was able to go to a great school and come out in 4 years with out a single student loan and thus no debt. 2. I own a co-op in NYC.



Now I have accomplished this by saving and working hard and also help from my family, but most importantly I have done this with out a credit card. You may be having the same reaction all my other friends seem to have when I disclose this information, “How the hell do you not have a credit card?!?!?!?!” And the only answer I have is that my family also told me it was better to simply save and buy the things I want with the money I have, not use a credit card with money I “might” have and get into debt.



But now I am starting to wonder, have been living in a little financial fantasy world? Do I really need a credit card?

Now, can you guess my response?

I actually wouldn’t react that way, I think a credit card is just like any other tool. If you don’t need a hammer, why get a hammer right? I think that credit cards are great if you can use them responsibly because when you spend money you can get cashback. That cashback, at a minimum 1%, is great but that might not be a good reason if you don’t think you can be responsible with it, you know?



Since you already own a co-op, I think the other main benefit of a credit card, building a credit history, is irrelevant because your
co-op (if you have a mortgage) will handle that.



The only other reason left is whether you have enough cash on hand to deal with sudden emergencies, if so then forget the credit card, you don’t need one.

If I were John though, I’d probably get a card just to have a card for emergencies. You don’t have to use it ever but John seems responsible enough to only pull it out in emergency situations.

What do you all think?

You know how everyone in the stock market was ecstatic when the Fed cut interest rates by half a percent? Well, one of the results of that was the fall in the value of the dollar against other currencies; which meant everyone who is paid in US dollars took a pay cut this week. Remember when people would joke that your dollar was worth more in Canada because of the exchange rate? Right now the two are dead even… who’s laughing now? As RFK once said… “Like it or not, we live in interesting times…”

• It’s Day 20 and this tip from NCN isn’t so much a money saver but a mind saver – put all your manuals into a single binder.
• MBH talks about the financial sites he visits.
• FMF is away but a guest post from Staged 4 More talks about how to start a business.
• Do you know the difference between a financial adviser and stock brokers? If not, read Flexo’s post as he explains the difference.
• JLP got himself an iPAQ and brings himself closer to paperless!
• Nickel talked about a dilemma he had a while back when he found $1100, luckily he did the right thing and returned it to the lost and found (albeit things could’ve gone badly) and it eventually made it back to its rightful owner. Having an extra $1,100 would be nice for anyone but sticking to your values (especially in the face of such sums) is far more important.
• JD wrote about two tip related scenarios and one about “stealing”. First, I was absolutely stunned that someone would take someone else’s tip off the table. I talked with JD about it and he thought the third scenario involving theft was more interesting.
• Lazy Man says something about Match.com’s crappy promotion where they’ll give you more of the same if things don’t work out. I agree with him, why not offer a money back guarantee?
• Ben talks about how to quit your job in six not so easy steps.
• Golbguru talks about the highest savings rates.
• GenX writes about transfering assets upon death.
• Rent or buy? SVB hits up this topic.
• Mattel tells China they’re sorry about the too-wide recall.
• Is your safe waterproof?
• What are the tax implications of canceling debt?

I can’t remember a raising of taxes in my recent adult memory, which has spanned about half a decade, so watching what comes of Maryland Governor O’Malley’s attempt to raise Maryland taxes is going to be entertaining for me on a number of levels. First, it’ll affect me in an appreciable way since I live in Maryland so I can analyze it. Second, since I’m more engaged in the political process, it’ll be interesting to see what sort of political fall out will come of this. Third, it’s just fun when something this basic, taxes, gets played with in the political arena.

While the details are still trickling out… here’s what has been brought up in a bunch of news sources…

Progressive Tax

Currently Maryland has a flat tax of 4.75%, thanks to a 1997 law, but O’Malley has been talking about making the tax progressive (meaning it would have brackets, like the federal income tax). It’s unclear who would have to pay more in the new system, since the details haven’t been released, but anywhere from $150k to $200k household income would be the turning point. The progressive tax wouldn’t be a real killer for those with high incomes anyway (even if the nominal value is larger). Also, this is a bad thing for small businesses that pass through earnings to their owners, like mine, and might make some move to another state. (I’ve been considering it)

Sales Tax Increase from 5% to 6%

O’Malley is coupling a sales tax increase with a property tax decease (not yet explained) which shifts a the tax burden a little bit. Since non-Maryland residents spend money in Maryland and non-Maryland residents don’t pay property taxes, by decreasing property tax and increasing sales tax, you’re pushing some of the burden onto visitors (strictly speaking in theory). Now, this also has the negative effect of shifting the burden from the affluent (more expensive houses) onto the less affluent (less expensive houses). This shift from affluent to less affluent is lessened by the fact that Maryland doesn’t tax food, so it’s not as bad as some people are screaming.

Also, O’Malley wanted to extend the sales tax to include a bunch of other things like health club memberships, tanning salons, spa services, and real estate management services. Clearly those businesses are pissed… plus they’re going to be taxed more!

Property Tax Decrease

Cutting 3 cents per $100 in assessed value over the course of three years, or .03% over three years. My honest opinion? A waste of time. I’d save around $50 a year, big whoopee.

Raising Corporate Tax

O’Malley is looking to increase the tax from 7% to 8%, which is estimated to dump around 2,000 jobs in the area. That’s what happens when you immediately increases expenses… jobs get cut in the short term.

Excise and Excise-ish Taxes

Double the cigarette tax and increase the car titling tax are two more pieces of the puzzle.

Exciting stuff!

Caitlin Pickavance’s parents have spent approximately $12,825 on their daughter to make her a more competitive applicant when she applies for colleges and universities this year. The twelve grand have gone to things such as a private college coach, tutors, prep classes, and two trips abroad: a good-will mission to Belize and summer classes at the University of Salamanca in Spain ($7,000, the bulk of the spending). Now, most people would say that spending close to $13k just to make your child more competitive is ridiculous (that’s why it’s a story on CNN Money), but I say why not?

When it comes down to it, what’s the reason why you earn money in the first place right? You go to work so that you can provide for you and your family. Whether that’s a fancy new car or summer classes at the University of Salamanca in Spain, ultimately you’re doing something for someone that you love. In this particular case, I’d argue that spending the $7k for classes is better than a lot of things you could do with that money.

As for preparation, we’re a competitive society (every society is a competitive society, socialism is dead and hippies smell) and any leg up you can give someone in your family on the competition (everyone else) is one that you try to get. One could easily argue that you don’t need to spend thousands in order to do well (the only SAT prep I had was a $25 Real SATs book, but don’t ask what my score was, I turned out alright ) but some people do need that course to help turn on the light bulb, and it’s okay to spend that money.

I’m a cash back type of credit card rewards guy; when I get my rewards, I convert them into cash, statement credits, or college loan payment certificates because in almost all occasions, converting reward points into a reward is a losing proposition for me. Sometimes the conversion rate is unfavorable, sometimes the product is over-priced (over-pointed?), but in nearly all cases the conversion doesn’t work out for the customer and that’s on purpose. However, today I spent a little time playing around with American Express’ Membership Rewards site and decided to see what the most expensive and likely coolest reward was (It’s a chef coming to teach you and seven friends some culinary delights!). After that, I hit up all the other reward programs to see what they had too and my results are below.

American Express: Personal Chef for Two

In the Dining section, the two choices you have in the 50,000 to 100,000 point range (100 points ≈ $1) is a “Two for Dinner” and “Chop, Dice & Slice.” With a Two for Dinner (75k), a personal chef will prepare dinner for two including a floral centerpiece and wine to complement your meal. All shopping, prep, and cleanup is provided. With Chop, Dice & Slice, a chef will turn your kitchen into a culinary school for you and seven friends. It includes all ingredients and instructional materials. Those were the two coolest but not the most expensive. The most expensive comes in at 400,000 points (Work and Wellness) where two wellness experts come into your office or your home for eight hours.

Citi: Sea Ray 340 Sundancer

From the Department of Ridiculous comes a reward worth 33,206,700 ThankYou reward points (100 points ≈ $1), it’s a freaking Sea Ray 340 Sundancer. A used 2004 Sea Ray 340 Sundancer on eBay is listed at $129k. There are all sorts of other high point products out there such as paintings, jewelry, and the like but nothing comes close to the 33M points needed for a boat. Makes you wonder how many redemptions they get…

Discover: Just Gift Cards

Discover’s program is pretty much strictly cashback or a little bonus if you get a gift card from one of their selected partners. There aren’t any experiences or products, just some gift cards. Nothing interesting to report (i.e. boring).

Capital One: Hot Spring Sovereign Spa

Unfortunately to view the rewards for Capital One’s program you have to register and all that jazz… I thought it was no hassle!? Oh well, I couldn’t register because I don’t have a CapOne account so anyone know what the coolest CapOne reward is”

Thanks to Paid Twice we now know the most expensive and coolest reward. Number one is a Hot Spring Sovereign Spa that seats six for a mere 1,692,000 miles. It’s a pretty cool hot tub with 1 Moto-Massage jet, 2 Soothing Seven jets, 2 JetStream jets, 2 Rotary hydromassage jets, 2 directional Hydromassage jets, 14 directional Precision jets, and a partridge in a pear tree. I’m with Paid Twice though on the coolest, a 3-Night Napa Valley, CA Golf or Spa Option package For Two for 540,000 Miles.

Chase Rewards+

Unfortunately again, Chase is the same way; without a card with the Chase Rewards+ program, you can’t see what sorts of rewards you can get. I have a Chase card but it’s not in the rewards program so I’ve been denied access.

If anyone has a CapOne or Chase card in their reward programs, mind telling me what the coolest reward or their most expensive reward is? I’m was pretty surprised to see a freaking boat for Citi but AMEX’s experiences were pretty sweet too. None of the other three programs I could view contained experiential type stuff that was as custom, though both AMEX and Citi had a sort of “request your own reward” feature where they’d quote you some point value. Anyone else know of any cool rewards?

Today’s ten minute tip comes straight out of Seinfeld and the Costanza wallet, which is basically what most guy’s wallets look like after a few days or a few weeks of life. If you’re like me, you stick all your receipts in your wallet, despite the fact that they’re pretty much useless unless you’re getting reimbursed; and eventually these useless slips of paper seem to take over your wallet. If you have more receipts than you have actually bills of US currency… you have to clean out your wallet or your purse.

All kidding aside, in addition to just general cleaning, you should revisit which cards you have in your wallet or purse and think about whether you really need to be carrying them all the time. This is most important for credit cards or other cards that you use very infrequently and would be a pain in the butt to replace. I’ve lost my wallet before so, speaking from experience, I know that recovering everything is a huge pain. While credit cards are easy to cancel and replace, why have to go through the exercise if you hardly use the card at all? Why force yourself to remember which cards you have in your wallet when you can shelve it from your daily pack? I believe the same goes for anything else that might be important.

So, clean out and reorganize your wallet or purse Costanza!

(Photo: shareski)