Going to let the forum decide for me.

**ktmarvels** · 04-01-2010, 03:17 AM

My initial instinct is to say no. It doesn't really make sense to go into debt to pay for retirement. However, what is the interest rate on what you'd be borrowing from? How quickly would you be able to pay off that $5000? Have you been investing in the Roth previous to it? Generally I'd say missing one year, or delaying by one year probably isn't going to hurt you too much.

The easiest way I've found to be able to put money away to the roth is put some in each month, that way you aren't scrambling at the last minute to try and get it funded. Although I know other people who do things like put any Christmas bonuses or tax refunds into the account. None of this will work for your 2009 contribution though because it ends in a couple weeks, but may help make sure your 2010 contribution is there.

**maat55** · 04-01-2010, 03:41 AM

Go get a second/part-time job and invest all those funds. Do not borrow to invest.

**disneysteve** · 04-01-2010, 04:27 AM

What is the rate on the line of credit and how quickly can you pay it back?

Generally, I'd say not to borrow to invest but if you can repay it over a few months, it might not be such a bad idea.

**disneysteve** · 04-01-2010, 04:29 AM

Originally posted by ktmarvels View Post

The easiest way I've found to be able to put money away to the roth is put some in each month, that way you aren't scrambling at the last minute to try and get it funded.

The reason many people don't do this is because their income is variable for some reason and they aren't sure until they actually sit down and do their taxes how much they will be eligible to contribute or if they'll be eligible at all.

**Merch** · 04-01-2010, 05:03 AM

I would argue that people don't adjust the returns for risk. In this case, you are looking at an annual stock market return of say 9% and your line of credit may be 6% (for argument sake). It looks on the surface you are making 3% return If you look at taxes of 20% on investments , the return shrinks to 7.2%. But in my opinion this is a false comparison. The debt is basically risk free, you have to pay it off. So, you should compare it to a similar investment – apples to apples, which would be a treasury earning 2%-4%.

So with this logic, I think you are better off not taking the credit line and foregoing retirement just for the year. If it really bothers you, I like the idea of a part time job to use for retirement funding.

**Broken Arrow** · 04-01-2010, 05:20 AM

Hey, welcome back Merch!

I like your answer here, but on the other hand, it would really be a shame to lose an entire year's worth of contributions. So, perhaps we can slim that choice down to finding a way to contribute whatever you can, without borrowing.

**LivingAlmostLarge** · 04-01-2010, 05:24 AM

What's the interest rate you are borrowing at?

**wincrasher** · 04-01-2010, 05:55 AM

I'd say that it's safe to assume you have no EF right now either. If you did, it might be good to borrow from that for a few months.

Taking out a loan for an investment when you don't have any other savings is pretty risky.

**disneysteve** · 04-01-2010, 06:28 AM

Originally posted by wincrasher View Post

I'd say that it's safe to assume you have no EF right now either.

Good point. Is this true, Scanner? If you have no EF in place, you've got no business investing.

**jIM_Ohio** · 04-01-2010, 06:39 AM

Originally posted by Scanner View Post

. . .since I am probably not of right mind going through a painful divorce.

Tough financial year for me. had to move out and pay household support. I don't have money to put into my Roth IRA this year. I do have a line of credit I could borrow $5000 to invest for my retirement for.

I know the conventional wisdom - the interest on the debt won't outperform the interest gained on the retirement over hte long haul. Most people are not comfortable with the idea. Being an eternal contrarian though, I am not too adverse to the idea.

However, I'll be the first to admit I don't have the clearest head this year so I'll let the old standby's at the forum I have come to admire make my decision for me.

So. . .

A. Do I just not set aside anything for retirement

or

B. Do I borrow $1000-5000 for my Roth IRA for Tax year 2009?

If you're going to let the board decide, give us more information...

1) What is financial outlook next 5 years...
income wise, expenses wise, big expenses (kids college??)
does it look stable, or uncertain?

2) what is timeframe to pay the LOC back? If less than 6 months, even with #1 not looking rosy, I would say yes.

3) What does retirement account look like as % of current expenses? If you remove housing from expenses, what does it look like?

For example if expenses are 40k and housing is 10k of that, is retirement account 12X expenses without housing and 6X with housing?

4) How much longer do you see yourself working?

**jIM_Ohio** · 04-01-2010, 06:42 AM

Originally posted by Merch View Post

I would argue that people don't adjust the returns for risk. In this case, you are looking at an annual stock market return of say 9% and your line of credit may be 6% (for argument sake). It looks on the surface you are making 3% return If you look at taxes of 20% on investments , the return shrinks to 7.2%. But in my opinion this is a false comparison. The debt is basically risk free, you have to pay it off. So, you should compare it to a similar investment – apples to apples, which would be a treasury earning 2%-4%.

So with this logic, I think you are better off not taking the credit line and foregoing retirement just for the year. If it really bothers you, I like the idea of a part time job to use for retirement funding.

Using this logic, no one should ever invest until a mortgage is paid in full.

I barely followed your logic
and some of it is flat out wrong

taxes on investments? If money is going to into Roth, then that 20% you tacked on does not exist
and if you are calculating taxes, you would need to include (possibly) the tax deduction on the interest you borrowed (whether its a HELOC or borrowing money to invest, that interest is deductible).

**creditcardfree** · 04-01-2010, 07:50 AM

I'd like to know what your ability to fund the Roth for 2010 is. Can you borrow for 2009, pay it back AND fund retirement for 2010? If not, just skip a year and focus on funding for 2010. Of course, more information would be helpful.

**kork13** · 04-01-2010, 09:26 AM

As many people have already mentioned, it depends significantly upon the interest rate. Personally, I was able to get a $30k personal loan at only 1% interest when I graduated college. I invested about $20k of that (the rest went to buying a car) and consider it a great decision.

If the interest rate is below 3% or so, I would do it without a second thought. 4-6%, I might consider it, depending on your estimation of how well you think the market will do, and how you plan to invest it. Above that, I'd say no way. If you're going to borrow for investments, you need as close to a guaranteed positive return as is possible.

It's not optimal, but as wincrasher brought up, borrowing from your EF would probably be the "best" option, unless you have access to a low-rate (<3%) loan.

**Merch** · 04-01-2010, 10:13 AM

@BA – Thanks. It's been awile.

@Jim – First of all you are correct. I forgot he was taking about a Roth. Your point about the mortgage is not correct. The logic would be I have a fully paid off house, should I get a mortgage and invest that money. My answer would be the same that you shouldn't

Most people do not adjust for risk and that was the point I was trying to make.

Going to let the forum decide for me.