A helpful tool to repair your credit after filing for bankruptcy

Q: Can you offer any suggestions on how to repair your credit rating after filing for a personal bankruptcy?
R.F.P., via e-mail

A: Jordan E. Goodman, a nationally recognized expert on personal finances and author of "Everyone's Money Book," offers this simple postbankruptcy maneuver: a secured credit card. You put up $500 or $1,000 and in return you'll get a line of credit worth as much. After 18 months of paying on time, you can graduate to an unsecured card.

Mr. Goodman suggests that during this period you carefully monitor your credit report and score to see if you're making progress in rebuilding your credit. His favorite website for this is www.guardmycredit.com, which goes to the Equifax Creditwatch system.

Goodman has put a list of the best secured cards on his Credit Card Optimizer Kit at www.moneyanswers.com.

Q: I haven't deducted contributions to my IRA in the past as I understood this was not allowed if I participated in a retirement plan at my place of employment. I am now retired. As I no longer contribute to the employer-run plan, does the IRS still consider me to be a "participant" and still not eligible to deduct my IRA contributions?
C.B., Lansing, Mich.

A: You have to meet certain conditions to contribute to an IRA after retiring, says Joyce S. Mills, a certified financial planner in Boston. First, you have to have what is called income, which includes wages, salaries, commissions, tips, self-employed income, bonuses, and alimony.

Income that would not be considered earned for IRA purposes includes Social Security, pension and annuity payments, and investment income.

In addition, to make a contribution to a traditional IRA, you must be under age 70-1/2 in the year you make the contribution. You can always make contributions to a nondeductible IRA (contributions are after-tax and growth is tax-deferred). But Ms. Mills says a Roth IRA is usually preferable if you can meet its income requirements, since its growth and later withdrawals are tax free. And a Roth doesn't have that 70-1/2 age limit.

By the way, Mills notes that when you were working, you might have been able to contribute to an IRA, even though you participated in a pension plan at work. Coverage by a pension plan limits the income you can receive and still be eligible to contribute to a traditional, deductible IRA. For information on that, as well as rules on Roths and IRAs in general, see IRS Publication 590, located on the Internal Revenue Service website (www.irs.gov).

Q: I bought a home last summer and now have a 30-year fixed-rate mortgage. Should I use a recent increase in my income to accelerate my mortgage payments or to boost my 401(k) contributions? Retirement is about 10 years down the road.
D.F., via e-mail

A: Many people feel more comfortable knowing that they have no mortgage hanging over them. Likewise, they like to feel financially secure about their retirement. The key here involves where your increased income will best serve you, says Kevin Gahagan, a certified financial planner in San Francisco.

You need to understand how much money you'll need at retirement to be confident of having a comfortable

lifestyle through those years. You'll want to consider variables such as how much you plan to save, inflation's future impact, the rate of return you'll earn on your investments, and last - though hardly least - how long you'll live.

Conversely, if your retirement planning includes ongoing mortgage payments as a part of your budget, how much you need for retirement may be less of a concern.

Assuming your retirement-investments portfolio includes a meaningful allocation to stocks or stock mutual funds, Mr. Gahagan says it's likely that you could withdraw 3-4 percent of your savings yearly and have your withdrawals keep pace with inflation. Carefully managed, this withdrawal rate can probably be sustained over your lifetime.

So in considering your mortgage question, you need to understand how much savings you need to cover your retirement costs. You also need to account for Social Security and pension benefits you'll receive.

If you're in good shape with regard to your current savings practices, accelerating your mortgage repayment may add to your peace of mind while also reducing the total amount of interest you pay over the life of your loan.

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