Author Topic: Tax Return, Max out Roth IRA or pay off CC?  (Read 2425 times)

wealthviahealth

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Tax Return, Max out Roth IRA or pay off CC?
« on: April 01, 2015, 08:35:48 AM »
Just heard back on my tax return and its interesting in that the amount is enough to either
A) Max out my contributions to my Roth IRA for 2014 or
B) Pay off my CC which has been on a 0% interest promo and will be until this August.


Maxing out my IRA was a goal I set for this year so it would feel great to check that off the list.
I also have the thought that I can never get back that missed investment opportunity if I don't.

The pro's for me for for paying of the CC is that it will relieve that very SMALL amount of anxiety I have
about carrying that 0% debt and I wont have to worry about paying it come August. This will also have a guaranteed.
impact toward my net worth goal since there is no question of how the markets will play out after my investment.

What would you suggest in this situation?
( info about me incase it plays a factor- Im 27 and have a steady job and comfortable savings)




johnny847

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Re: Tax Return, Max out Roth IRA or pay off CC?
« Reply #1 on: April 01, 2015, 08:54:54 AM »
From a strictly mathematical perspective, you should fund the Roth IRA so long as you can fully pay off the CC by August.

Of course, this requires you to be reasonably certain that you can pay it off by August.

BUT, you can always pull out contributions from a Roth IRA tax and penalty free at any time. Meaning you can just fund the Roth, and if you come up a bit short in paying off your CC by August, just withdraw from the Roth.

This also assumes that whatever you invest the Roth money in won't lose a significant amount of value by August. If you want to be super safe, just park it in a money market fund until August, and then if you don't need it just switch it to an investment that you actually wanted.
The more confident you are that you'll be able to pay off this CC by August, the riskier an investment you can make in the Roth.

EDIT: But also, what tax bracket are you in? Does using a Roth actually make sense?

27y/oTennesseeRetiree

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Re: Tax Return, Max out Roth IRA or pay off CC?
« Reply #2 on: April 01, 2015, 09:35:49 AM »
I would fund the Roth, and I wouldn't touch the money under any circumstances.

I would also start looking for another 0% interest credit card with 0% on balance transfers and no transfer fee. Navy Federal Credit Union had one in October that gave me 15 more months at 0% interest at zero cost to me.

I have a debt emergency. I know that, but this has let me concentrate on paying off my much higher interest student loan debt.

It sounds like you are withholding too much for tax purposes. You may want to adjust your withholding so that each paycheck is slightly larger. Between now and the end of August, based on last years vague numbers it should account for 40% of your credit card debt or so.

Good luck...

MDM

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Re: Tax Return, Max out Roth IRA or pay off CC?
« Reply #3 on: April 01, 2015, 12:49:40 PM »
...have a steady job and comfortable savings
Comfortable enough to take the savings and pay off the credit card, then use the steady job to replenish the savings?  If so, then put the refund into the 2014 Roth.  Also do as 27y/oTR suggests and adjust your withholding to get higher cash flow during the year.

dunhamjr

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Re: Tax Return, Max out Roth IRA or pay off CC?
« Reply #4 on: April 01, 2015, 01:02:20 PM »
if you have a plan in place to pay off that 0% CC by August anyways, i would not stress.

put the money into the roth.  and follow your CC payment plan.

that 0% item is 'free' money for now.  you might as well put the money into the roth where it can start working for you, instead of paying off that free loan.

 

Wow, a phone plan for fifteen bucks!