| Contribute to Roth IRA or Pay Down Mortgage? |
|
|
|
|
|
DivietoDiSosta
New Member
Cash: $ 0.70
Posts: 3
Joined: 26 Feb 2013
Location: NJ
|
| Contribute to Roth IRA or Pay Down Mortgage? |
 |
|
Hello~
I received a $5000 bonus, and I'm trying to decide whether to put it into my Roth IRA or use it toward the principal on my mortgage.
Some information:
Me
- Adjusted Gross Income $70,800 in 2012
- Filing as single
- $20,000 in cash emergency savings
Roth IRA
- Contributed the max every year for 2008-2011
- Made no contributions for 2012
- Earned about 9% return in 2012
Mortgage
- Rate fixed at 3.5%
- Balance $383,540
- Last monthly payment was 35% principal, 65% interest
- $5000 would be 8 months worth of principal payments
What would you do?
Thanks.
|
Tue Feb 26, 2013 3:24 pm |
|
|
littleroc02us
Moderator
Cash: $ 384.35
Posts: 1891
Joined: 09 Feb 2009
|
What's glaring at me the most is that your mortgage payment is aproximately 36% of your income. That's pretty high and doesn't leave a lot of disposable income. IMO, I'd put the cash towards your mortgage. Also, is there a way you could use some of the cash from your emergency fund or is that your comfort level leaving 20k in?
Risk comes from not knowing what you're doing. (Warren Buffet)
|
|
Tue Feb 26, 2013 7:55 pm |
|
|
gilbertholdings
Contributing Member
Cash: $ 6.80
Posts: 33
Joined: 04 Mar 2013
|
i'd definitely put it in a roth. your mortgage rate is pretty low, and who know's what will happen in the future. what if you lose your job, have a medical problem, etc. and you get forclosed on. Any additional money you put towards that will be lost, but often times, ira accounts are protected in bankrupty so you at least have a chance of keeping the money. Also, you can always contribute towards your mortgage, but once you lose out for the year on your roth, you can't go back and contribute for past years.
|
|
Mon Mar 04, 2013 5:58 pm |
|
|
oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
|
I would keep the mortgage and invest the $5000. But you might want to pick a better investment, a 9% return is low for 2012, general market iindices returned 14% to 15%. You must have quite a few bonds or CDs? Or unless you are near retirement?
If the $383,000 3.5% note is a fixed-rate 30 year loan, that could be golden - rates will almost certainly be higher than that during the next 30-yr period. Yes, 65% of your $1722 loan payment is interest, that is 3.5% of $383,000.
|
|
Mon Mar 04, 2013 8:29 pm |
|
|
smk
Preferred Member
Cash: $ 37.05
Posts: 183
Joined: 12 Dec 2012
|
what you should do really depends upon the totality of your situation. you don't have a lot of information up there so i don't know how anyone could say. for instance your age would be a critical factor.
i would suggest you put your data into a good financial planning software program (tipster of esplanner come to mind) and run some scenarios both way. see how comfortable you are with the outcome.
Steve Kanney, CFA
http://www.integratedfinancialny.com/index.html
Any comments made are designed to help you make your own decisions and do not consititute investment advice.
|
|
Tue Mar 05, 2013 9:20 pm |
|
|
|
