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Question:


I'm expecting a pretty solid tax return this year. I'm debating whether I should place this money in my Roth IRA or double up my mortgage payments. I'm 43. Any suggestions on which to prioritize?
-MamaMia


Answer:


You say you expect a "pretty solid tax return." I'll assume you mean you'll be getting a big refund. Are the Roth and the mortgage your only choices? You could also put some or all of the money into a traditional IRA and get a big current tax break, as long as you aren't in a plan at work or, if you are, your income is below the threshold at which the allowable tax deduction begins to shrink. You could also pay down your credit cards or any other debt you have. That would be better than applying the money to the mortgage because the interest rates on other debt are bound to be higher.
 
Given the two options you present, you could always go half and half, but if you're in an all-or-none kind of mood, then the Roth may be the better choice, as long as your mortgage is at a very low fixed rate. The returns that you're likely to get from the markets stand a good chance of exceeding the rate you're paying on the mortgage, plus you get two tax breaks - one on the mortgage interest you pay, the other on the investment gains you make in the Roth.
-Conrad de Aenlle



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