Jewish World Review July 28, 2000 /25 Tamuz, 5760
Hold onto a mortgage under 7 percent
DEAR BRUCE: I am currently contributing the maximum on my gross income in my company's 401(k) and am also paying an average of $400 per month on the principal on my mortgage. The interest rate is 6.625 percent.
I know that you are against paying off a mortgage early, but I want to be debt-free before I am 48 years old. I earn $35,000 a year. What do you think of my plan? -- Wise Planner, via e-mail
DEAR WISE PLANNER: You bet your life I don't agree with you. Why in heaven's name would anyone give away a sub-7-percent dollar any earlier than was absolutely necessary? What possible difference does it make if you owe on your home but have an equal or greater amount in some other investment? The answer is that there is no difference other than in your head.
With a reasonably sound portfolio, you could most certainly outperform the 6.6-percent interest that you are paying. While taxes right now are not an important issue for you, they may be some time in the future should your income increase.
DEAR BRUCE: When someone retires, he then has to pay income tax on his 401(k), correct? Do you also have to pay capital gains taxes? -- L.W., via e-mail
DEAR L.W.: When your money comes out of your 401(k), the entire account is treated as ordinary income and, depending on your tax bracket, the amount of taxes will vary. Since you will have already paid the regular income taxes, there are no capital gains.
DEAR BRUCE: I have been offered a position with an start-up Internet firm. They are scratching for capital, so I know dollars are hard to come by, but I believe the firm is going to take off like a rocket. I know specifics are impossible, but I don't want to give away the farm when I negotiate my salary. -- D.P., via e-mail
DEAR D.P.: If you really believe that this company is going to take off "like a rocket" and they are a bit short on the cash side, get enough to live on. Beyond that, ask for a ton of options. If the company does take off, the options are where the real money
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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