About $30K on credit cards @ 4% for life, ($600 mo). Should I increase my 401K, at 3% now with no matching, invest in a roth ira or pay down card? I am 48 years old. Household income around $110K. Would like to reduce tax on income.
2007-02-20 08:05:37 · 5 answers · asked by coachmoon 1 in Business & Finance ➔ Personal Finance
Talk to a tax accountant or financial planner. They should be able to help you save your taxes.
4% is a great rate for credit card debt. There's no reason to pay that off aggressively. A savings account at ing direct offers a higher rate than that.
Max out your 401k, that will save you the most on taxes.
(People who are telling you to pay off your debt are totally wrong.
Say you have $1000. You have debt at %4 and can easily make the payments on it.
Your options:
a. pay off $1000 worth of debt. (your interest will go down $40 per year... ) so +40
b. invest at %5. You gain +50, and can pay off the interest leaving you with an extra $10.
)
2007-02-20 08:16:05 · answer #1 · answered by Vegan 7 · 0⤊ 0⤋
Because you stated the importance of reducing your current tax liability I would suggest you increase your 401k contribution significantly as this will immediately lower your taxable income in direct proportion to the amount of your contributions. A roth ira is a great retirment product and because it is possible that you may end up in a higher tax bracket at retirment it would be proudent to diversify your tax situation a little by putting some into a roth but the tradeoff of course is that contributions are made after tax so it won't reduce your current tax liability. The credit card debt is somewhat concerning only because of the amount in relation to your income but at 4% as long as it's fixed for life I wouldn't prioritize it. Make sure you don't miss a payment though, I would bet that rate skyrockets with a missed payment so don't make a mistake on that one.
2007-02-20 16:31:05 · answer #2 · answered by SmittyJ 3 · 0⤊ 0⤋
I say put your priority on the credit card. Just because you currently have a rate of 4% does not mean that it will always be 4%. Also, you do not mention the various fees that come with it. However, I say put something in the 401k even if the employer is not matching. That tax deferred growth is good. Plus, talk to someone and see if you can get some better return. You can get better returns from money market accounts and CDs (although not tax deferred). Talk to your financial advisor and figure out what is holding your growth back on the 401k.
2007-02-20 16:13:07 · answer #3 · answered by A.Mercer 7 · 0⤊ 2⤋
Pay down your debt first. You are throwing away money in interest charges that you could be using to invest in other things.
2007-02-20 16:08:38 · answer #4 · answered by CctbOh 5 · 0⤊ 2⤋
Pay off your cards.
2007-02-20 16:08:58 · answer #5 · answered by Anonymous · 0⤊ 2⤋