THE FINANCIAL CONNECTION
Q&A WITH SUZE ORMAN
Are your investments properly packed?
My IRA funds will mature soon. Is it bet- live in Washington state, but have a second
ter to put the money into an annuity Ihouse in Oregon with a mortgage of $1,300
where I can continue to gain interest and per month. It’s in a depressed area and I am
take up to 10 percent out each year as re- having trouble keeping it rented. I feel like
quired by the Internal Revenue Service? I am throwing money away. Do I dare allow
Gene Oakie this second house to be foreclosed?
via e-mail Mary
“suitcase” you use to invest for your retire- on rental income to make the mortgage payment. What you put in that suitcase is up to ments, you need to be extra sure you are in a
you. It can be stocks or bonds or mutual viable rental market. Ideally, you would have
funds. If your IRA is invested in bonds or a had an emergency housing fund handy to
bank CD, those investments may indeed cover the mortgage costs for the slow times.
mature. That just means it’s time to reinvest Don’t jump straight into foreclosure. Suze Orman
the money. That drastic step is when you have fallen
Moving your IRA to an annuity is unnecessary and expensive. Here’s an explanation. You have learned a painful lesson of
IRAs don’t mature. An IRA is simply the investment real estate. If you will be relying
You can choose more bonds or another behind on your mortgage payments and your
CD, or whatever. But you don’t have to do lender forces you to sell so they can get at
anything to the suitcase itself. You are just least some of their money back. Aforeclosure
making a change with what is packed in it. is going to make a mess of your FICO credit
Perhaps what is confusing you is that once score, which means you are going to be stuck
you reach 70, the IRS requires that you start paying higher interest rates for any loans and
making periodic withdrawals from your IRA. credit cards for several years.
THE COSTCO CONNECTION
Suze Orman’s latest book, The Money
Book for the Young, Fabulous and Broke,
will be available later this month at most
Costco warehouses and at costco.com.
The technical jargon is that you must start For example, if you have a bad FICO
required minimum distributions by April 1 score, the monthly payment on a $150,000
after the year you turn 701/2. If you don’t start 30-year fixed mortgage can be $364 more a the credit-card balance. Normally I don’t rec-
the withdrawals, you’ll get hit with a 50 per- month than if you had a strong score. ommend this move. But if you can’t make the
cent tax on the money the IRS says you Try to sell the house yourself and just paymentsyou willlosethehouse. Thenagain,
should have taken out, but didn’t. break even. Or, if you can’t sell it for what if you file for bankruptcy you would lose
But just because you must start taking dis- you paid, think about making up the differ- it anyway.
tributions doesn’t mean you need to move ence with some extra cash of your own. If refinancing is not an option, you need
your IRA. You can leave it right where it is. Spending a few thousands dollars today to to consider filing for bankruptcy. This will be a
If you have been happy with the earnings on make good with the lender is smarter than big demerit on your credit reports for the next
your investment, don’t change a thing. having the lender foreclose on the property 10 years—the interest rate on any loans and
And don’t listen to anyone who tells you and messing up your FICO score for as long cards you get will be astronomical. But at
an annuity is necessary. It isn’t. as 10 years. least you will start with a clean slate. If you do
own a home, you will have to sell it and use
Qy husband and I are in our mid-50s any proceeds to settle your debts. If your retire-
&AMand we owe $50,000 (or $1,200 per ment money is in a 401(k) or 403(b), that
month) in credit-card debt. The only sav- $26,000 will not be part of the bankruptcy.
ings we have is $26,000 in a retirement But opt for bankruptcy only if you have
account. Should we continue to pay as much the resolve to make a fresh start. Bankruptcy is
as we can on the credit-card balances each a serious step—you are reneging on your finan-
month, or put some money aside to estab- cial obligations. The only way to make good
lish some savings? on that failure is to become more protective of
Betsy Jackson your money. That means no more spending
Buchanan County, Virginia that you can’t afford.
Any extra cash you have after paying the
You have accumulated $1,000 of credit- bills is to go straight into retirement savings. If
card debt for almost every year of your life, your combined income is below $150,000 you
and the way you’re going it could take you should both open Roth IRAaccounts. C
just as long to pay it off. It sounds like your
debt load exceeds your income—and that’s a Suze Orman is the author of four consecutive
sign that you are essentially bankrupt. Filing New York Times bestsellers and also hosts
for bankruptcy could be your “best worst” shows on CNBC-TV and the QVC network. She
option. But let’s see if there’s a better one. can be contacted at
Ask Suze Orman
Send your personal
finance questions to:
Q&A with Suze Orman
The Costco Connection
P.O. Box 34088
Seattle, WA 98124-1088
Or fax to (425) 313-6718 or e-mail
email@example.com. Please include
“Suze Orman Q&A” in the subject line.
Suze will answer selected questions
in this bimonthly column. She
regrets that unpublished questions
cannot be answered individually.
If you own your home and are sitting on
a bunch of equity, I would suggest refinancing and using the extra money to pay down