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From: wetcw@pyuxa.UUCP (T C Wheeler)
Newsgroups: net.invest
Subject: Re: Mortgage Pre-payment vs IRA
Message-ID: <654@pyuxa.UUCP>
Date: Tue, 27-Mar-84 13:24:29 EST
Article-I.D.: pyuxa.654
Posted: Tue Mar 27 13:24:29 1984
Date-Received: Wed, 28-Mar-84 01:53:22 EST
References: <940@ihuxm.UUCP>
Organization: Bell Communications Research, Piscataway N.J.
Lines: 33

This to the line

There are two VERY good reasons why you do not want to pre-pay
your mortgage instead of investing in an IRA.  First, your interest
payments to your mortgage are tax deductible.  Pre-pay your
mortgage and you lose a hefty deduction.  Second, an investment
in an IRA is also deducted from your GROSS income.  Not taking
advantage of this deduction will increase your taxes.  Remember,
you do not pay taxes on an IRA's income until after you begin to
take that money out of the IRA.  Thus, an investment in an IRA
is probably the best deal us little folk will come across in
our lifetimes.  Pre-paying a mortgage may sound good because
you won't have as much tp pay out every month, but, in the long
run, your tax bite will eat up your money.  

Look at it this way, mortgage=12.5%.  IRA investment=9.5%
Difference=3.0%.  You pay no taxes on the 9.5%, yet you get to
deduct the 12.5% from your income.  You are effectively out only
3.0% on your payments, yet it helps reduce your taxes.  Now,
depending on your tax bracket, you could be making money here.

As your income increases, the offsetting advantages of an IRA
and mortgage payments vs. taxes will become more apparent.  Go
for the IRA.  Cutting off 2000 or 4000(if married and wife works)
is a big chunk that you do not have to pay taxes on.  When you
begin to take money out of the IRA, you will probably be making
less money or retired so that you will be in a lower tax bracket,
thus will not have to pay the full frieght on the money you saved.
Remember, you only pay taxes on that amount that you take out
of an IRA.  The rest is still untaxed.

T. C. Wheeler