YourFinanceQuestions.com

If you’re like me, you might receive one or two credit card offers in the mail every day.  These annoying letters attempt to entice consumers to sign up for them with promises of a 0% APR for six months, sporting goods, or bonus airline miles.  While some people might enjoy receiving these mailings, the majority of people that get them do not.  In addition to creating more trash that needs to be thrown out, these credit card offers also increase the risk of identity theft.  Although it may appear to be overkill, shredding these pre-approved credit card offers is highly recommended, as it makes it harder for potential thieves to acquire your personal information.

If you are sick of these mailings there is help.  Under the Fair Credit Reporting Act (FCRA), a person is able to opt out of receiving these mailings.  In order to do this, one has to go to a website and enter some personal information.  The website is www.optoutprescreen.com and it works in conjunction with four consumer credit reporting companies (TransUnion, Equifax, Innovis, and Experian).  It will take up to a few months to completely stop receiving credit card offers, but the amount of junk mail one receives from credit card companies will be reduced significantly.

I recently acquired a little over a thousand dollars. I’ve been constantly hearing about Roth IRA’s and how they’re a really good option. What’s the difference between putting your money there versus putting it in a savings account? Should I even put my money in a Roth IRA? Thanks for your help. – Ryan, 22, Potomac, MD

Ryan,
Roth IRAs offer an attractive investment opportunity. The major benefit of Roth IRAs is that they offer an investor tax-free growth and withdrawals for all the contributions to, and gains in, the account. The major drawback is that every dollar contributed to a Roth IRA is after-tax and contributions are not tax deductible. The general rule is that if an investor is in a low tax bracket, a Roth IRA makes sense because there is the potential that in the future the investor will be in a higher tax bracket. On the opposite end, if a person is in a high tax bracket, they are probably better off investing in a traditional IRA because their contributions will reduce their taxable income.

There are a few differences between a Roth IRA and a savings account. With a Roth IRA, an investor can only contribute up to $5,000 in 2008 whereas savings accounts have no limit. In your situation, you have $1,000 so this presumably is not an issue. The major difference between the two is that the Roth IRA will offer you tax-free growth of your money, while you will get taxed on all interest earned from a savings account. The length of time you plan on not needing to access the $1,000 is the most important factor in your decision. Early non-qualified distributions (See IRS Publication 590 for all of the specifics) are taxed at 10%. Therefore, if you are absolutely sure that you will not need the $1,000 in the near future, I would recommend putting it into a Roth IRA. Otherwise, you are better off putting it into the savings account.

I am a 29 year old that recently switched jobs. I was wondering what I should do with my former employer’s 401(k)? Should I roll over into an IRA, and what are the benefits of rolling over?
- William, Pennsylvania

In nearly every circumstance I would recommend rolling over an old 401(k) into an individual retirement account (IRA). The reason being is because you have a lot more control over where you invest your money. Most 401(k)’s limit the number of investment options a plan participant can put their money in. Also, the mutual funds that many 401(k) plans offer are often loaded with high expense ratios and other hidden costs. As an individual investor, you have practically an unlimited amount of options. Unless your former employer’s 401(k) offers you attractive options that are not available to you outside of the plan, I would recommend rolling it over into an IRA at Vanguard (www.vanguard.com) or Fidelity (www.fidelity.com). Vanguard offers low-cost index mutual funds that outperform many of its actively managed peers. Fidelity offers a variety of mutual funds including similar low-cost index fund and it also has a brokerage where an investor can purchase individual stocks. As an added bonus, many mutual fund companies will handle the 401(k) rollover for you at no charge.