Advice on opening a Roth IRA, digging out of debt, and US Saving Bonds rules

Q: I am 46 years old and single. I have not started a retirement plan but would like to start a Roth IRA. What is the best help available that won't cost me an arm and a leg?
B.J.D., via e-mail

A: There are plenty of options that won't cost you that dearly, says Rita Cheng, a certified financial planner in Bethesda, Md. Many mutual-fund and financial-management companies allow clients to open an IRA with a minimum initial investment of $1,000. Consider, Fidelity, T. Rowe Price, Oppenheimer Funds, etc. You can then contribute to your account on a monthly basis using direct deposit from your paycheck. You often can contribute as little as $50 or $100 per month.

"I really like this strategy because you don't have to stop and think about writing checks or mailing them," says Ms. Cheng. This method also accomplishes an important investing strategy called dollar cost averaging, where you contribute the same amount periodically over time and smooth out the effect of swings in the stock market.

Cheng challenges you to increase your savings every year, and compares systematic saving and investing to strength training. "At first, you're thinking, 'How can I save $50 to $100 per month?' Just like strength training, what was uncomfortable becomes comfortable or normal to you."

Finally, she recommends that you consider using a lifestyle fund. This type of fund will invest in a diversified mix of stocks and bonds based on such factors as your age, risk tolerance, and when you plan to make withdrawals. This way, you only need to purchase one mutual fund, she says.

Q: I have some $30,000 in credit-card debts and pay quite a bit of interest every month. I'd like to consolidate these so I just pay one monthly sum and also pay less interest as some of the rates are pretty steep. I don't have a mortgage so I don't have a home equity line of credit.
A.A., via e-mail

A: Here's a four-step game plan presented by Bobbie Monroe, a certified financial planner in Atlanta:

1. Make a list of your card balances and the interest rates you're charged on each card.

2. Pay off the card with the highest interest rate first. Make the minimum monthly payments on the others and put every penny possible toward the one with the highest rate. Then concentrate your payments on the card with the second highest interest rate. Then move to number three, etc.

3. During this period, you may receive a "pre-approved" credit-card offer at a low introductory rate. You may choose to get that card and then transfer to it one of the current, high interest balances. This would save money in interest charges and it's OK by Mr. Munroe, with this caveat: Be sure you're aware of the card provisions for the period after the introductory period. "You don't want to end up with an even higher interest charge if the card is not paid by the end of the introductory period," he says.

4. Once the cards are paid off, declare them off limits and don't use them for any new purchases. Give cash a chance.

Finally, and most important: Review the circumstances and choices that created this problem. Be honest with yourself and make changes to ensure that this won't happen again, he says.

Q: I purchased EE bonds in the '80s and '90s and understood that they could be traded in for I bonds with no tax due (except the interest payments on I bonds). I understand that now they cannot. Can the government sell you bonds with certain rules and then change the rules?
C.A.B., Jr., Metairie, La.

A: You have Series I Savings Bonds confused with Series HH Bonds, which only could be purchased through a conversion. But they were discontinued in August 2004. Tom Adams, author of "Savings Bond Advisor," says that I Bonds, or "inflation bonds," pay a base interest rate plus the current inflation rate. Like your EE Bonds, they pay interest for 30 years with the interest added to the value of the bond rather than being paid to you.

With I and EE bonds you don't have to pay income tax on the interest until you cash the bond or it reaches the end of its 30-year life. So, for example, one of your bonds issued in 1990 will pay tax-deferred interest until 2020.

Mr. Adams says that the Treasury can't change the rules on US Savings Bonds after they have been issued. For example, your EE bonds have different rules for setting their interest rate than today's EE bonds. Because of that, your EE bonds pay a higher rate than the EE bonds issued today.

Likewise, all HH bonds that were issued before the series was discontinued are still paying interest under the rules in effect when they were issued. But there's no law that keeps the Treasury from introducing new products or discontinuing old ones, he says.

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