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Letter to the editor

Extra income is great for saving

Tax-free income such as inheritance and insurance payments or untaxed windfalls of any kind such as gifts would seem to be the ideal source of funds for deposit in Roth IRA accounts. Is this realistic thinking?

By Helen Huntley, Times Personal Finance Editor
Published October 28, 2007

You asked

Tax-free income such as inheritance and insurance payments or untaxed windfalls of any kind such as gifts would seem to be the ideal source of funds for deposit in Roth IRA accounts. Is this realistic thinking?

Any extra income is great for saving because you can set it aside without putting a crimp in your normal lifestyle. Although it's nice if the income is tax-free, that's certainly not a requirement. If you get a taxable windfall such as a bonus at work, just save the amount you'll have left after tax.

I recently retired at 58. My only debt is a $65,000 mortgage. My mother just passed away and left her home worth $200,000 no mortgage to her five children in a trust. It is rented for $1,000 per month. I have a chance to be bought out by my brothers and sisters. I would use this money to pay down my mortgage. Would being closer to being debt free be a good decision, vs. remaining one-fifth owner of a rental house?

Being one-fifth owner of a rental house is fraught with peril. As long as it's a reasonable price, I'd take the buyout offer. Keep in mind that rent is not all profit. There will be insurance, taxes and repairs. In addition, whichever sibling does the work of managing the property deserves compensation.

The decision of whether to pay down your mortgage is a separate issue. What's best depends on the return you would earn on your investment alternatives. Paying off your house by the time you retire or early in retirement is a conservative approach that gives many people peace of mind.

Next week's question

Do you have a budget? Do you follow it? Tell us about your experience.

To ask a question, make a comment or answer the Money Question of Week, e-mail hhuntley@sptimes.com or write Helen Huntley, P.O. Box 1121, St. Petersburg, FL 33731. Visit her MoneyTalk blog (blogs.tampabay.com/money) for more money information.

[Last modified October 26, 2007, 20:55:32]