Jewish World Review Feb. 22, 2001 / 29 Shevat, 5761
Go get a(nother) job; Change a traditional IRA to a Roth IRA?
DEAR BRUCE: My husband and I have credit card debt in the amount of $16,000. Our income is approximately $70,000 a year combined. I am contributing 10 percent of my income to a 401(k), and my husband is not contributing to his program.
Should I stop my contribution and use this money on our credit cards? The interest rates on the cards average 13 percent. I have been trying to pay them down for years, but the balances just won't go away. The only retirement fund that we have is my 401(k) in the amount of $200,000. We are 49 and 47 years old. -- R.W., via e-mail
DEAR R.W.: It seems to me that you guys are going to have to attack this from another front, and that is to increase your income. That would mean some kind of a part-time job for one or both of you. While this is not an attractive solution for people in their late 40s, if you don't take some cost-cutting measures at home, you are going to be paying into your 60s on this debt. You got yourself in -- perhaps foolishly, perhaps not -- but the only way to get out is to cut your expenses and, more importantly and practically, you will need to increase your income.
DEAR BRUCE: My husband is 40 and I am 35, and with our combined incomes, we make about $50,000 a year. We have credit card debt totaling about $16,000.
We own a condominium, which we purchased in 1995 for $207,000. Its market value now is about $140,000, and we owe $176,000; so we are upside down (on our loan). We would like to sell the condo and are willing to refinance whatever balance remains. The bank is willing to let us do this. Should we sell or wait for the real estate market to improve? - Minnie, via e-mail
DEAR MINNIE: You guys are technically bankrupt. You owe a great deal more than you have. On $50,000 a year, you are going to take a long, long time pulling yourself out. What you didn't indicate is where you would live if you did sell your home and paid off the deficit. I assume that you are living in the condo now.
In my opinion, selling it is not the way to go. You have to live someplace. The first thing that you need to do is to work on that credit card debt. You are a textbook example of the fact that real estate not only goes up, but it does go down. So many people of your generation are not persuaded of this until it happens to them.
DEAR BRUCE: At age 51, does it make any sense to change a traditional IRA to a Roth IRA? I'm single with no children and probably won't be buying a house in the future. -- R.H., via e-mail
DEAR R.H.: In the absence of knowing how much money you are earning and your tax bracket, it's very difficult to make a judgment about this. The likelihood is that unless you are making very little money (and as a consequence moving the money from the traditional to the Roth IRA does not create a substantial tax burden), you are better to stay where you are. If you were 25 years younger, I would look at it differently. It would make sense, even at your age, to change to a Roth IRA if no tax increase
Send your questions to JWR contributor Bruce Williams by clicking here. (Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.) Interested in buying or selling a house? Let Bruce Williams' "House Smart" be your guide. (Sales of the book help fund JWR).
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