Problem: I recently refinanced my house, lowering my payment by $250 per month. What should I do with the extra money?

        Strategy: Pay down debt or max out retirement accounts.

        Kevin Walsh, a certified financial planner at Niehaus Financial Services, says you'd be missing a golden opportunity to cash in a second time if you simply spend this money or take on additional debt.

        Consider someone in the 27-percent federal tax bracket. If this person is able to itemize deductions, a 6 percent mortgage rate really costs only 4.38 percent due to the deductible interest. If this same person has credit cards or other debts that are not tax deductible at rates higher than 4.38 percent, he would be better off to use the extra $250 a month to pay down these other debts.

        If there are no other debts and you are eligible, funding a Roth IRA is a great move. To qualify, you must have earned income and your adjusted gross income must be under $110,000 for a single filer or $160,000 for a joint tax filer. In 2002, the contribution limit is $3,000, exactly the sum of 12 monthly payments of $250.

        In a Roth IRA, any earnings grow completely tax free provided you are over age 59 1/2 when you withdraw the money and the Roth IRA is at least 5 years old. Investing $3,000 a year at a 6 percent rate of return for 15 years is worth $69,828. That's $24,828 of earnings that are tax-free. Your rate of return will vary depending on the investment vehicle you choose, such as certificates of deposit, stocks or mutual funds.

        You can also tap the principal in your Roth IRA prior to age 59 1/2 without penalty. This may be attractive to working parents trying to save for both retirement and a child's college education.

        Readers: Consider Savvy Strategies as general information only and seek the help of professionals because circumstances might vary.

        Planners: Share your unique tips with Enquirer readers. Send your Savvy Strategies to Amy Higgins, 312 Elm St., Cincinnati 45202 or e-mail ahiggins@enquirer.com.

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