David McPherson Answers Your Money Questions

Overall, you have the right idea about contributing more to a 401(k) plan, but you'll be in an even deeper hole if you pay off the mortgage using what's left of your retirement account.

Rebecca, from Prairie Village, Kan., asked: "I am 56 years old and make $56,000 a year. I have lost quite a bit of my 401(k). How much should I be putting into it each month? My employer puts in 8 percent."

McPherson answered: Rebecca, at 56, I would try to put as much as humanly possible into your 401(k) plan, particularly if your employer is matching your contributions up to 8 percent of your salary. That's quite a generous match.

If you put in 8 percent of your salary and your employer matches that dollar for dollar, that's an immediate 100 percent rate of return on your investment. There's no other way to generate that kind of return. Also, keep in mind, the shares you're buying now through your 401(k) contributions are being bought at depressed prices. That's all the more reason to keep contributing.

For 2008, a 56-year-old employee can contribute up to $20,500 to a 401(k) plan and next year that will go up to $22,000, the IRS recently announced.

If you can contribute anywhere near that amount, I'd give it some serious thought.

Cindy, from Weaverville, Calif.: How long are money market accounts insured? Is there a maximum amount? Where is the safest place to put money when using a SEP or a 401(k)?

McPherson answered: Cindy,When asking about money market account insurance, I assume you're talking about the guarantee program for money market mutual funds announced by the U.S. Treasury in September when the current financial crisis began to unfold.

The guarantee program is scheduled to be in place until Dec. 19, but the Treasury Department has the option of extending it. There is no limit on the amount guaranteed. However, the guarantee only applies to funds invested in a given fund as of Sept. 19 when the program was first announced. Additional fund shares bought since then do not qualify for the guarantee.

One last qualifier: The decision on whether to participate in the guarantee program rested with the fund companies that operate money market mutual funds. Check with the company that operates your money market fund to see if it chose to participate and pay the associated cost.

Lizeth from Fresno, Calif., asked: "I have a 80 percent-20 percent home loan with a balloon payment on my 20 percent loan. I want to know if there is anything I can do get my loans into one. My house payment is $2,300 a month. My 80 percent is a 30-year fixed rate at 6.8 percent. My 20 percent is 15-year with a 8.2 percent rate. I have two different loan companies, Countrywide and American Serving. How do I get both loans in one?

McPherson answered: Lizeth, I would contact both lenders that issued your existing loans to see what your options are. What you want to do is to refinance into a single consolidated loan. In the current loan market, you could have a tough time, depending upon the value of your home, your income, your credit record and other issues.

I would also begin contacting other established mortgage lenders in your area to explore your options. It's unclear to me when your balloon payment is due. Sounds like it might be a ways away, but I would get started on this now. It could take a fair bit of effort on your part, Good luck.

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