Roth IRA Vs Debt Reduction
Our situation today demands us to choose between Roth IRA and paying our parents back.
There are a couple of posts on this. Far less than I expected.
1) Get Rich Slowly discusses his options in “Real-Life Choices: Retirement Savings vs. Debt Reduction”. Decides to put it in Roth IRA.
2) A 21-year old contemplating between retirement and debt reduction – “401k + IRA Vs. Debt”. A lot of different people with a lot of different advice.
3) OmniNerd has a post Home Down Payment vs Roth IRA.
We just started our 401k investment. And we are not funding it to the max this year since we are slightly low on cash flow at this point. But we are committed to funding it fully next year. We will not be eligible for Roth IRA next year. On the other hand, our parents are nearing retirement. They would have taken some money from their retirement savings to loan us part of the down payment. When it’s a decision between funding our retirement and funding our parent’s retirement, I am sure you all agree with me that we should pay back our parents. So that’s what we are going to do.
The underlying consideration here is, does it make sense to defer from a low tax bracket today to what is most certainly going to be a higher tax bracket tomorrow. While the ROTH takes its lumps on the nose (taxed today) it is limited in how much you can fund. I think there a much better strategies going forward and are described in a book called “The 3 Secret Pillars of Wealth.”
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If you can’t fund a Roth, you may fund a non-deductible IRA, and in 2010 convert it to a Roth when the income cap is off. It would be a shame to lose these extra two years of Roth money.
JOE
Joe,
Unfortunately, Roth isn’t happening in our lives this year. We need to pay back our parents. For us this is more important than Roth at this point. Next year, we won’t qualify. Thanks for your suggestions.
– unequivocal
There is a great book on this topic, called “It’s Your IRA”. It is an excellent resource for those wanting to learn more about investing in Roth and Traditional IRAs. It is available through Amazon or you can go to http://www.ItsYourIRA.com for a preview or more details. It is definitely worth a look.
Would you be interested in being a guest author on http://getprequalified.com? We would be interested in having more articles on this topic. We don’t have anything like this on the site now. Let me know if you have any questions.
Debt Free Dave