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Author: FoolishBull One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75384  
Subject: Re: Opening Roth IRA while in debt Date: 1/21/2005 1:59 AM
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Sounds like you are on a good plan with the 401k plan.

IMO, the most important thing is to continue with the 401k contributions- especially up to the point the employer will match.

Then I would try to put down $3,000 for the 2004 ROTH IRA before the April deadline. Investing in tax sheltered retirement funds right now should take top priority due to the compound interest principle that is further magnified by the fact that investments will compound tax free.

The ROTH IRA contribution might be particularly attractive for you right now since you mentioned you are considering changing jobs. Once you change your job, you will have to wait another year before you can contribute to your new employer 401k plan. This will obviously free up additional money that can go to other places but will reduce your capability of continuing your 401k plan. If his happens, you should make sure you fund the ROTH IRA with the extra money that would have gone into the 401k and use the remaining money to pay off credit card debt.

I'd transfer the credit card debt to a card with less than 5% interest - preferably 0%. If you transfer to a 0% card, save in a savings account each month the amount necessary to make a lump payment to pay off the card before the 0% promotional period ends.

Your job situation should dictate your efund strategy. If you think there is a relatively high probability of losing your job and if you think finding a new job may be difficult, you may need a substantial efund. If this is the case, I would establish the efund before paying off the low interest rate credit card (that you will be rolling over). On the other hand, if you have a relatively secure job, I would have a much smaller fund and focus on the credit cards.

I also believe you should be making minimum payments on your car loan until the loan is paid off in three years. That rate is very low and I would be focusing on the credit cards or increasing my 401k contributions before accelerating payment of the car loan.

I imagine the 1% for the employer stock purchase plan gives you a better purchase price for the stock. If that's the case I'd continue with that program. However, be careful not to amass a relatively large quantity of stock from your company - you should try to diversify. Diversify after the stock vests so you may sell without penalty.

Just thoughts.

FoolishBull

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