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Retirement & Taxes

Monday, Dec 14, 2009

Question: My husband is a PA public school employee who will soon be retiring. He will be receiving approximately $50,000.00 of taxable (20%) contributions from his retirement account. My husband is 58 and I am 55. My question is, should we roll it over into an already existing tax shelter for a later time when we’ll be in a lower tax bracket or should we use it to pay off (along with $18,000 from our savings) one of our two morgages?

Answer: I confess that I do not quite follow all of your facts in your message. I think what you are saying is that upon retirement, your spouse will receive a $50K contribution from his employer that is taxes at a rate of 20%, and you are wondering if you should take the distribution now less 20% in taxes, or all of the
distribution and roll it into a IRA-like account.

If my paraphrasing of your question is accurate, then the answer is a no-brainer. I really dislike the idea of depleting your retirement account to zero your mortgage. Find a good investment counselor and put your retirement account to work for you. If your retirement counselor cannot create a greater return on your investments than the interest rate
on your mortgage, then you are better off paying-off your mortgage.

If your investments can earn you 7 percent and you are paying 5 percent on your mortgage, then you are money ahead hanging onto your mortgage and your savings and retirement account. If my hypothetical numbers are reversed, then get rid of the mortgage.

I hope this information helps you Find. Learn. Save.

Best,
Bill
www.bills.com

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