Q I retired in 1999 and moved from Minnesota to Oregon. My wife and I have a 15-year, $110,000 mortgage, at 7 percent, on our new house. That is essentially our only debt. We have tax-deferred accounts and non-tax-deferred accounts with several brokerage firms. We plan to pay off the mortgage in four to five years, depending on stock-market performance. Which type of accounts should we use to do this?
A.G., via e-mail
A Before deciding, you should first "treat this as a tax-planning issue, to see whether paying off your mortgage outweighs any benefits you might get from your current income stream or from the mortgage deduction," says Pat Schipper, a consultant with Prism Financial Group in Overland Park, Kan.
If you do decide to pay off the mortgage, "use the taxable accounts," she says. Reason: You are already paying taxes on the taxable accounts. If you tap into the tax-deferred accounts, you would wind up paying taxes on both types of accounts.
Also, seek to use earnings, rather than drawing down principal. You might also come out ahead by consulting a financial planner about which specific taxable accounts you should withdraw your dollars from, Ms. Schipper says.
Q Last week you ran a letter from a reader who was penalized for not signing up with Medicare at age 65. My sister has the same problem. She lives in California, is age 69, and has been delaying retirement because of her mistake in not signing up for Medicare when she turned 65. What can she do, if anything, to avoid being penalized?
C.P., via e-mail
A She should call Social Security at 800-772-1213 to discuss the matter.
If she has been paying premiums for health insurance since turning 65, she will presumably not be penalized. If she has not, she will likely face higher Medicare premiums.
She should call her state welfare or social services office to see if they will help her offset these additional charges.
Incidentally, a spokesman for Social Security points out that seeking Social Security pension benefits and signing up for Medicare are separate issues, although your sister can do both at the same time.
She also could sign up for Medicare now and continue to work if she wants.
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