Don't stop putting money into IRA

DEAR BRUCE: I'm a 54-year-old female. I deposit yearly to my IRA account. At what age do you suggest a person stop depositing into her/his IRA account? — Kyle, via e-mail

DEAR KYLE: There is no magic age where you should stop depositing into your IRA. As long as you're able to, I would continue to make those deposits. You are still a relatively young person. You've got somewhere in the neighborhood of 10 or more years to stay on the payroll, and that extra money in your retirement account can make the difference between living OK and living very comfortably. If you are finding that there are things you would like at this age but simply cannot afford, you might wish to reduce your payments, taking into account the effect it will have on your retirement.

DEAR BRUCE: My home mortgage is $347,147 with an interest rate of 5.875 percent. Payments are $2,545.85 and due on the 15th of the month, which I pay on time. My parents make an extra $500 payment, specifying "to principal only" on the first of every month. The mortgage company acknowledges receipt of this extra payment on the first but does not credit this extra payment to "principal" until the 15th of the month when the regular payment is due. This does not seem fair, as we are given no credit for the interest portion of the loan. Can you explain and advise us on the proper course to follow? — J.H., via e-mail

DEAR J.H.: You mentioned that your mortgage is $347,000 plus with almost a 6 percent interest rate. If your credit is good, your income is sufficient and your equity is sufficient, I would be looking at trying to refinance instead of worrying about the $500. Other things being equal and if you meet the criteria I have just mentioned, you should be looking at somewhere around 4 percent, perhaps a little higher. That would mean very substantial savings. As to the 15-day period, I don't think this is worth going to war about. If you are concerned that the bank is receiving undue reward, have your parents make the payment. I don't see where this is worth fighting about, but the refi is a very, very distinct possibility, and now we are talking about big bucks. Very close to a third in savings. I'd get on that in a hurry.

DEAR BRUCE: I am 63 and retired from Kentucky state government in 2008. I have $175,000 in a deferred comp program with the state. I started this as a tax shelter, and now that I'm retired, I wanted to know the best way to start taking it out. I originally had it split up in different stocks, bonds etc, but when a certain president was elected a few years ago, I moved it to an interest-bearing system. I received about $1,400 a quarter in interest, but I know when I take it out, it will cost me at least 20 percent taxes. Before I retired, I also split my savings into a 401(k) and a 457, because when I retired, I rolled over about $20,000 into the fund from my annual leave and comp time. I don't actually need the money. I have two properties, have a good retirement and Social Security, have no credit card problems, and my wife is an RN and still works. I know I have to take it out when I turn 70, and I didn't know if I should take it out in small increments or just bite the tax bullet and take it all out? — Johnny, via e-mail

DEAR JOHNNY: Congratulations on you prudence. You have made some good decisions in the past, and clearly you have lived well within your income. There are many people who cannot say that. That observed, there is no way anyone can tell you what the better way to go without sitting down and looking at all of your income deductions, etc., as well as taking into account your immediate and long-range plans. One example: Some people will tell you to bite the bullet because it's very possible that our government, in its "wisdom," may raise the tax rates. Not necessarily, but it could happen. The point is that until you take all these variables into account with your unique circumstances (all of our circumstances are unique to ourselves), there is no way to make the best decision. An accountant that specializes in tax matters is the only way to go in my opinion.

Send your questions to: Smart Money, P.O. Box 2095, Elfers, FL 34680. E-mail to: Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.

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