OK, I was wrapping up my taxes this morning and had a thought.
If you didn't contribute to your retirement to the max and still had the opportunity (you have until 4/15/08 to contribute for 2007), would you do something like this.
You're eligible to contribute the max ($4000 or $5000 if you're over 50) to a Traditional IRA.
You don't have the cash available but you do have a line of credit through your home or something.
Would you borrow from your line-of-credit to put the money into an IRA?
I was thinking it was a good idea. Here's why.
If you don't take the IRA, that $4000 is sitting in your income section and is taxed at let's say 20%. Well, you just paid (gave away) $800 in taxes that you'll never see again.
If you borrowed the money and got the IRA and took the deduction, your taxes go down by that $800.
You now have to pay interest on the $4K borrowed but interest rates are relatively low and if you don't drag it out, you probably wouldn't pay more than $100 in interest.
Well, the interest made by your $4000 IRA investment would probably come darn close to what you paid in interest to borrow the money.
You take that $800 saved in taxes and immediately apply it to the loan so you're already down to $3200.
So, in theory, although you had to borrow it, it's well worth it as long as you don't let that $4K borrowed take forever to pay back...
If you didn't contribute to your retirement to the max and still had the opportunity (you have until 4/15/08 to contribute for 2007), would you do something like this.
You're eligible to contribute the max ($4000 or $5000 if you're over 50) to a Traditional IRA.
You don't have the cash available but you do have a line of credit through your home or something.
Would you borrow from your line-of-credit to put the money into an IRA?
I was thinking it was a good idea. Here's why.
If you don't take the IRA, that $4000 is sitting in your income section and is taxed at let's say 20%. Well, you just paid (gave away) $800 in taxes that you'll never see again.
If you borrowed the money and got the IRA and took the deduction, your taxes go down by that $800.
You now have to pay interest on the $4K borrowed but interest rates are relatively low and if you don't drag it out, you probably wouldn't pay more than $100 in interest.
Well, the interest made by your $4000 IRA investment would probably come darn close to what you paid in interest to borrow the money.
You take that $800 saved in taxes and immediately apply it to the loan so you're already down to $3200.
So, in theory, although you had to borrow it, it's well worth it as long as you don't let that $4K borrowed take forever to pay back...