We are having a good April! Earlier this week I revealed that we refinanced our house. We also sent over some of our savings in order to max out our Roth IRAs for 2011. It’s the first time have maxed out our Roths. I felt pretty proud of myself.
Roth IRAs allow you to save $5,000 per person. The money that you contribute is taxed now (so just money out of your checking account) but grows tax free. When we retire we can withdraw the money from our IRAs and pay no tax at all. So the growth is never taxed. Pretty cool!
We debated for a long time whether we should put that money into our Roths or send it as extra payments to the mortgage on the rental property. That’s actually where we got the money. Each month our rental property has positive cash flow and I just let it build up in a separate savings account. At the end of the year I was going to send whatever was in there to the mortgage to help get it paid off asap.
Well, we decided to send it to our Roths. It’s better use of the money for tax purposes. In the Roths we get the tax advantages of the Roth which we do not get in the rental property. Also, the interest paid on the mortgage is tax-deductible so we save a little money there. And when I say a little money I mean a LITTLE money. We pay like $80 less in taxes by keeping that mortgage hanging around. Paying extra $10,000 towards that debt would end up costing us like $5 a year in taxes. Not exactly material information here.
If I keep up the good work and continue to max our Roths for the next 17 years I should have over $500,000 in our Roths when my husband hits 65. So I’ll keep socking away our money in hopes of someday retiring. Of course, half a million isn’t going to be enough… but it’s a start.