Having laid my soal bare on two previous occasions, and been rewarded with several answers,(some quite helpfull, despite their arrogant and condecending in tone)I come again to place my ego on the block and get some advice. With the smelly plastic albatross of credit card debt hanging about my neck,(aprox. 20K)and with the mantra of " pay off the plastic first " droaning in my head while I attempt to downgrade my life style and delete the waste in my budget I sense another monster lurking in the wings. THE IRS. Our joint income (wife and self)has been in the mid 80K to mid 90K range over the last several years, and we have been fourced to file short form because we've had no deductions. The suggestions to start IRA's fell on stubbornly unFoolish ears. We were having too much fun being neuvo middle class. About six months ago we purchased our first home, cashing in my wife's 401K for the down and closing costs. Two months ago I became eligable for a 403B plan and I signed up for the max contribution with a 40% match by the employer, but due to the time frame this will not impact my taxible gross income very much this year. Now comes the question, (thanks for wading through the preamble).Should we open IRA's with $2K each to decreese our taxible income to minimize Uncle Sugar's bite or just use the money to to help the smelly plastic debt? I expect to have to pay the feds at least $2000 as things are now. I won't be going to H&R Block for the short form this year. I've found a CPA that I trust, but I want some Foolish opinions.
I'm sorry you've gotten condescending and/or arrogant replies here. Sometimes the internet doesn't carry harsh messages well - sometimes the message really was too harsh(thus arrogant/condescending).Anyway - my opinion is to pay off the plastic first.I understand doing the 401k thing - I did that when I had some plastic as well - but it probably wasn't the BEST thing to do.1. debt2. emergency fund3. investThat's the theory here. And I'm sticking to it :)Best of luck! With incomes like that - 20k shouldn't take too long! I've seen some posts on the CC board that talk of 60K in CC debt and I don't think the income was that high.Helter
trystero wrote:Having laid my soal bare on two previous occasions, and been rewarded with several answers,(some quite helpfull, despite their arrogant and condecending in tone)Gosh, I hope that wasn't my replies you were referring to, I sure didn't mean to come off that way, and if I did I humbly apologize. I just feel strongly about the way to right your ship because I've been there.I've found a CPA that I trust, but I want some Foolish opinions.Once again, you need to ask your CPA these questions, once he has your total financial picture, he can point you in the right direction, and maybe take some of the bite out of those taxes.This is my opinion(along with quite a few others), but I would do nothing until your credit debt is settled. Once you get there it's a whole new ballgame.Hang in there trystero.ES
trystero,Congratulations on getting started! Put my vote next to all the others:1) Take the free money. Put just enough into 401k's to get the full company match. But don't let this stop you from aggresive debt reduction.2) Pay off the credit card debt first, especially if it has a double digit interest rate (doesn't it always?) If you are looking at multi-year payoff's, consider debt consolidation--it might be worthwhile.3) Then build your safety cushion and start maxing out those 401k's and IRA's. Do review your decisions with your CPA. Developing a relationship with a good CPA is a life-time investment. To minimize his time, write it all down carefully before you meet. Even if you don't know bean-speak it will help.Stay the course, it's worth the effort.cheers,GW
TRYSTERO At the risk of sounding condesending, I think you can figure this one out. What is your incremental tax rate? The highest rate you pay on the last $ you earn. 38%? OK putting in 2,000 in an IRA will save you 38% of 2,000 or $760. What is the annual interest rate you are paying on your plastic, 18%? Putting 2000 on that saves 360 in a year. Which is greater $760 or 360? Take the action that gives you the largest return. Chuck
Definitely agree with an earlier post: 1--plastic 2--emergency fund 3--investPlant that tree (#3) now and watch it grow but first you must prepare the soil (#1 & 2).JLC
Mr O NEILSo in spite of the pay off the plastic litany, I have heard so far, your saying (correct me if I'm wrong), that by putting $2000 in an IRA for me and $2000 in an IRA for my wife I'll save the 38% in taxes on that money or $1520. while throwing the $4000 at the credit card debt would only save me, 18% of $4000, or $720in interest on the debt. So I'm really saving $800and ending up with two $2000 tax sheltered stock portfolios. where's the down side?(feel free to be condecending I think I'm learning something here)
First, if you are in a business that requires written communication, LEARN TO SPELL! That alone may help move you up the financial ladder. OK, now the direct answer to your question. Unless you can be assured of earning the 18 to 21% you're paying on your plastic, get rid of that high priced debt (think of it as EARNING 18-21%!) Then take a set percentage (6-10%)our of your GROSS income and have it invested directly into good mutual funds or individual stocks. If you never see it, you'll learn to live without it (hey, why do you think the governments withhold - if you had to write out a check for those taxes, you'ld scream. Withhold for YOURSELF and you'll learn to live on the remainder. Good luck!
I can't type very well either, but that hasen't proven to be a detriment in my 21 year years of operating the life support equipment during open heart surgery. My patients still seem to wake up without brain dammage even If I misspell a word or two now and then when I forget to use the spell checker. Thanks for your opinion. And have a nice day.
I am sorry, Mr. Trystero, if it seems we have been picking on you. I think most of us try to point you in the right direction, but leave it to you to make your own choices. The idea is to make you aware of what is possible and hopefully help you make good decisions.Have you ever considered doing your own taxes? Get the instructions and look them over. Your taxes don't sound very complicated. For $10, you can probably get a book that would answer any questions. You can probably do them yourself in an afternoon and save yourself some $$. Plus when you know what is on the forms, you will know what can be deducted in the future.
TRYSTERO I am guessing at your tax rates and at your plastic rates. You need to get the correct rates. Look at your tax return for last year and the instructions for calculation. That should help you determine your incremental rate.You are correct in what I was suggesting. I'm glad you responded to my message because after thinking about it more I believe I omitted discussing other factors.First, I was assuming that you would still pay off your debt. With earnings of close to 100,000 with no kids, (I assume) you should be able to squeeze out an additional $2,000 per month for about a year. I agree with other posts, this should be your top priority. This investment will return a gaurenteed 18% or so return with no risk. This is an investment too good to miss.Second, Rember that the $720 you would save by paying off your credit card will continue each year while the tax saving is only for one year. So if you cannot pay off the debt in about a year and make your IRA contribution, then you probably will be better off paying off the debt. But if you can do both or if the IRA contribution won't delay paying off the debt by more than a year, then invest in the IRA. These are the factors to consider. As others have said, you need to decide for yourself. But give paying off the debt as soon as possible a very high priority. Chuck
trystero,Isn't it nice to see so many trying to help? That's why this is my favorite web site.I've seen some number crunching, and advice to do your own tax's.There is allot of advice flying at you right now but the sound financial move is to follow my and GrayWulff's advice and let your CPA handle this. At least for this tax year or until you get a handle on things. Your CPA will crunch the numbers for you and you can be confident with what you are doing. And as GrayWulff's said have everything down on paper and organized when you go. It saves the CPA time and you money. It's the Foolish thing to do.Take care.ES
TRYSTERO wrote in past ... "Should we open IRA's with $2K each to decreese our taxible income to minimize Uncle Sugar's bite or just use the money to to help the smelly plastic debt? ... You have gotten some good advice! I again suggest that you establish the priority of :1) pay off the plastic (18% with NO risk), 2) Max out the match on 401(k) and/or 403(b), 3) Go for the IRAs, 4) Go for the Roth IRAs, 5)Max out the 401(k) and 403(b), Set up an "emergency fund" for about a year's living expenses, 5) Open a "taxable" account and invest in the S&P 500 Index, and then add the F4 with any extra! Let the CPA do your taxes this year, but I suggest that you get some books and software to do it in the future. With "hands on" experience you WILL understand what these Fools are tell you! My $.02 worth! Dick
TRYSTERO I have read all the responses and still stick with my advice. The key is what your incremental tax rate is and what your credit card rate is and how fast you will pay off your credit cards if you also start the IRA's.One other piece of advice I want to add.Given your income and your credit card balance, I wonder if you and/or your wife have trouble saying no to purchases. If you cannot find the disipline to pay the amount you purchase each month, then cut the credit cards in half and return them to the credit card bank and ask that they close your account Do not apply for any new cards!Chuck
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