FOOL’S SCHOOL

Answer: Probably not. With a traditional IRA, you’ll be taxed on the withdrawal at your ordinary income tax rate, and you’ll face a 10 percent early withdrawal fee, too, if you’re younger than 591⁄ In addition, the sum you withdraw will boost your taxable income, potentially moving you into a higher tax bracket, such as from 25 percent to 33 percent. Another consideration is that by wiping out your mortgage debt, you’ll lose the deductibility of your mortgage-interest payments. Think also of your mortgage rate versus the growth rate you expect for your IRA holdings. If your mortgage rate is 5 percent, paying any of it off early essentially “earns” you 5 percent. If your alternative is 8 percent that you aim to earn on your IRA stocks, you’re not coming out ahead. Cashing out a retirement account also means that money won’t be able to grow for you over time (tax-free, in the case of a Roth IRA). Do the math for your particular situation, but consider keeping your IRA and trying to make extra payments on your mortgage when you can. Just a few each year can shave years off the loan and save you thousands in interest payments.

Question: What does “Nasdaq” refer to?

Answer: Created in 1971 as the National Association of Securities Dealers Automated Quotations (NASDAQ), it’s now the largest electronic stock market in America, where shares of about 3,200 companies are traded. It boasts more companies and, on average, more trades per day than any other U.S. market. Learn more at nasdaq.com.

Too many of us are much more focused on whether to buy a certain stock than on when we should sell it. That’s a mistake, because profits are reaped only when you sell, and holding onto a stinker for too long can hurt you. So when should you sell? Well, don’t sell just because a stock or the market is falling, or you’ve heard rumors or someone tells you to sell. Do consider selling:

» If you don’t know exactly how the company makes its money.

» If you can’t remember why you bought it.

» If the reason you bought a stock is no longer valid. Maybe it’s no longer growing briskly.

» If it has persistent troubling characteristics, such as shrinking profit margins.

» If a stock has become significantly overvalued relative to what you think it’s worth. Consider the tax consequences, though.