Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Discontinue Roth contributions to pay off mortgage?
Old 11-07-2014, 07:16 PM   #1
Recycles dryer sheets
 
Join Date: May 2012
Posts: 89
Discontinue Roth contributions to pay off mortgage?

I did search the forum to see if this question had been asked, but couldn't find anything that matched our situation. We owe about $37K on our rental home that will be our residence next September when DH retires. The mortgage rate is 5 1/8%. I tried to refinance a while ago, but nobody was interested in such a small loan and a HELOC didn't work out either. We currently rent an apartment in another state from our two rentals (one paid off, which will continue being a rental).

We're funding DH's Roth and my spousal Roth to the max plus a 401(k) that does not have a match. We believe we'll be in a lower tax bracket when retired so the 401(k) works to reduce taxes now. With savings and throwing the Roth money at the mortgage, we could pay it off by the time we move into the house. I just don't know if that's a good idea or not. Any thoughts? Thank you.
__________________

__________________
PawPrint53 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-07-2014, 07:44 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,362
If your taxes will be lower during retirement, a traditional 401k (or IRA) now will give you more tax savings than will their Roth versions.
__________________

__________________
GrayHare is offline   Reply With Quote
Old 11-08-2014, 11:37 AM   #3
Recycles dryer sheets
 
Join Date: May 2012
Posts: 89
Thank you. We are funding the 401(k). I just didn't know if we should focus all our $ on paying off the mortgage instead of also funding the Roth.
__________________
PawPrint53 is offline   Reply With Quote
Old 11-08-2014, 12:30 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,914
My return on my Roth exceeds the interest rate you are paying on that house. Personally I wouldn't use the Roth to pay off that loan.
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Old 11-09-2014, 07:36 AM   #5
Recycles dryer sheets
Aeowyn's Avatar
 
Join Date: Jan 2011
Location: Scotts Hill, TN
Posts: 105
I can see merits of both.

But when given the choice between A and B, I often choose something else.

It certainly would be a good feeling to retire and not have to worry about debt. But I also really like the Roth for the tax free growth and the opportunity for substantial growth (depending on how invested). But based on how I invest, that growth is definitely not guaranteed. So when I compare my "risk adjusted" return on my retirement accounts to the guaranteed return you'd get by paying off the mortgage then don't seem so far apart.

I don't think you are making a mistake which ever way you go.

But I would try to do them both. If you are both going to be retired, you won't be able to contribute to a retirement plan in the future. I would fund the Roth and then cut back on "life style" and/or work overtime if available - basically do everything I could to also get the mortgage paid off before next September.

If there is a balance remaining in September, I would just wait until the following January (next tax year) and pull a lump sum out of the 401K to pay off the balance.
__________________
Quit my J.O.B to become a farmer/rancher - December 2011
Now working part time from home on contract to support prior employer.
Aeowyn is offline   Reply With Quote
Old 11-09-2014, 07:06 PM   #6
Recycles dryer sheets
 
Join Date: May 2012
Posts: 89
Thank you for the thoughtful responses. I appreciate the guidance.
__________________
PawPrint53 is offline   Reply With Quote
Old 11-09-2014, 07:16 PM   #7
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,705
Continue to fund the Roth until you can't. When earned income stops, you won't be able to fund the Roth in the following year.

What you can do with the mortgage is put additional money towards the principal each month, and pay the loan off much quicker.
__________________
target2019 is offline   Reply With Quote
Old 11-10-2014, 10:47 PM   #8
Thinks s/he gets paid by the post
Sunset's Avatar
 
Join Date: Jul 2014
Location: Chicago
Posts: 4,727
The interest you pay on the rental mortgage is a deductible expense, so its real cost is about 3/4 of the stated interest, so it costs you 3.84%
I feel you will over the long term do much better than that by continuing to fund the ROTH.
Once you move into the house, then of course unless you itemize like crazy, you are paying the full 5.12%. At that point I would pay it off with savings (after tax savings).

However a $37K mortgage is pretty small, so if you think you won't have the 37K in a regular savings/brokerage account to pay it off, I would question the idea of retirement.
__________________
Sunset is offline   Reply With Quote
Old 11-11-2014, 10:20 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,914
If they have had the Roth over 5 years from the date of first funding they can withdraw $ from it to pay off the mortgage. The risk, of course, is that the market could turn sour in the next 10 months.
__________________

__________________
Duck bjorn.
Brat is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
What would you do - pay off student loan or pay down mortgage? bank5 FIRE and Money 27 07-27-2009 06:30 PM
Why Pay off the mortgage? Shabber FIRE and Money 163 11-06-2007 07:25 PM
Pay off or carry mortgage? runnerr FIRE and Money 15 01-14-2006 09:52 AM
pay off mortgage tednvon FIRE and Money 61 05-09-2005 04:04 PM
Pay off mortgage early ? renferme FIRE and Money 75 02-07-2004 02:17 AM

 

 
All times are GMT -6. The time now is 04:21 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.