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by I recently opened two Roth IRAs (one for me, one for my wife) at Fidelity. Although I will roll a good deal into mine (from a 401k with a previous employer), according to a Fidelity agent, both funds are still considered at ground zero as far as contributions are concerned. This means we are able to put $4,000 in each account still this year (i.e., before January 1, 2008) without penalty.
The complicating factor is we also are buying a house on which we will likely close at the end of January 2008. We have enough money saved to make a handy down payment on the house, but I wonder if I shouldn’t use some of it to max out the Roth IRAs this year. Although I previously stated Roth IRAs are the first priority, that was comparing retirement options. How does the #1 retirement choice compare to other, non-retirement financial dealings – like paying off a house?
The $8,000 difference in down payment will have an effect on the monthly mortgage payment, but that isn’t of concern as we plan to pay extra, anyway. The catch for me is less money down means paying more interest over the life of the loan, resulting in a few more months of payments before mortgage-payment-freedom.
Then again, less money into the Roth IRA means less interest earned over the life of the fund – and that life will probably last significantly longer than my mortgage payments no matter what the down payment is. Given this, I’m leaning heavily towards maxing out the Roth IRAs this year. Is there anything I’m missing?
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Go with the Roth by biffjo :: NR0 :: Show
I just went through this…
IF putting the extra $8K down helps you avoid PMI, put it towards the mortgage down payment, otherwise, the smart move is to max out the Roth. Why put the $8K into a black hole (i.e. some bank) when it can be earning you money.
Additionally, an extra $8K for a down payment only saves you what, ~$60 per month in mortgage payment. This is all psychological. You will earn much more, big picture, by maxing out the Roth. Don’t forget, mortgage interest is a tax write off as well.
Good luck
where do you get more, pay more? by Anonymous :: NR0 :: Show
what are the interest payments like? if your mortgage is 5% but you only make 4% on your 401 then put it in the mortgage. If your 401 gives you more than the mortgage put it in the 401.
As my father always says, Borrowed money is the most expensive money. Paying off debt quicker leaves more money for saving. Not spending it in the first place is the cheapest. (I would probably wait a little bit long to buy a place anyway – depending on where you live. Foreclosures are so high, that you might be able to snap a cheaper house. The market has not bottomed out yet. – Or so I am told)
Anyway, why would you listen to a complete stranger on the internet?
go to fool.com for some more sound advice…. (-:
And good luck!