Contribute to Roth IRA or Pay Down Mortgage?

**DaveInPgh** · 02-26-2013, 08:06 AM

Definitely fund the Roth

**JoeP** · 02-26-2013, 08:40 AM

Any other debt? Car loan, credit card, student loans?

**DivietoDiSosta** · 02-26-2013, 08:42 AM

No, no other debt.

**bjl584** · 02-26-2013, 09:33 AM

Fund the Roth fully for 2012.

**DivietoDiSosta** · 02-26-2013, 09:34 AM

Thanks.
Can you explain WHY the Roth IRA is the better choice?

**kapesq** · 02-26-2013, 09:44 AM

Roth

I agree the money should go into your Roth.
The Roth IRA gives you a tax advantage.
Plus there's a chance that you will earn more than the 3 percent that is guaranteed on your mortgage.
There is a chance that you will not stay in your home for the life of the mortgage.
From your finances it seems that you probably just hate to have a debt over your head and the thought of paying that interest is eating you up inside. But remember, the interest you pay on your mortgage also gives you a tax advantage.
The hope is that you money will generate an amount of interest high than 3 percent in your Roth, so that's why you should always fund the government allowed amount there when possible.
I would also suggest boosting your savings before you rush to pay off your mortgage.

**JoeP** · 02-26-2013, 10:00 AM

Personally, I'd put it into a dedicated fund for my next car. And if another bonus like that came my way, I'd put it in that fund as well. Something intensely satisfying having a huge down payment or even the full amount available toward the next car.

Then when the time comes to buy your next car, you (or whomever) probably won't have to ask something along the lines of, "Should I borrow against my Roth, take from my emergency fund, or get a HELOC for the down payment to go along with my car loan?"

Just my 2c.

**Petunia 100** · 02-26-2013, 10:02 AM

I'd do the Roth, too. Your money should grow at a better rate than 3.5%, tax free. There is no guarantee, but the odds are certainly well in your favor over the long-term. Since you are single and paying 13k per year in mortgage interest, you are receiving a tax advantage for the mortgage interest to boot.

Remember, if you get to a point where you want to pay off your mortgage, or pay down a chunk and refi or recast, or whatever, you can always withdraw your Roth contributions (not earnings) with no penalty. (I keep that in the back of my mind. If I reach retirement with more in my Roth than I need and still have a mortgage, I will pull out a chunk to use towards it. In the meantime, I expect to earn more in my Roth than I am paying on my mortgage.)

**kork13** · 02-26-2013, 12:01 PM

With no other debts, then I'd definitely say go for the Roth. And as BJL stated, have it labeled as a 2012 contribution (you're able to do that until April 15). That way you have the flexibility to still contribute another $5500 for the 2013 year.

The reasoning for Roth over mortgage?
1) Your mortgage rate is low, and tax-deductible, so effectively even lower.
2) Investing in the Roth, even in just a basic S&P 500 index fund, will realistically earn you at least a 7-8% return (historical average... Some years lower (2008 lost 30%-ish), some years higher (2012 gained 15%-ish).
3) Not contributing to your Roth is an opportunity lost. You can pay down your mortgage anytime and with any amount of money, but Roth IRA's are strictly limited to $5000 per year (for 2012... Now $5500 for 2013), and you only have that year to contribute to it (plus Jan-Apr of the following year... but you get the point).

**DivietoDiSosta** · 03-01-2013, 05:07 AM

Thanks to everyone who replied!
The choice seems clear to me now.

Contribute to Roth IRA or Pay Down Mortgage?