Your Best Strategy for Winning the Credit Card Game: Refuse to Play

Question: I received a notice from my credit card company entitled “Change in Terms to Card Member Agreement.” The major change listed was an increase of the interest rate for purchases to approximately 19%. In consideration of the Federal Reserve Board’s repeated reduction of short-term rates, I was expecting short-term borrowing rates to decline. Aside from corporate greed, what justification is there for credit card companies to change their rules in the middle of the game? I guess nobody makes money “the old-fashioned way” anymore!

Answer: In the middle of what game, exactly?

The rules on your credit card are always subject to change. Your issuer can alter almost everything, from your grace period to your interest rate, with just a little advance notice. That’s why smart consumers must remain ever vigilant when carrying a balance on their credit cards.

You were smart enough, of course, to scrutinize the document your issuer sent you, and you caught the change. Now is the time to shop around for a better rate, which you should be able to find pretty easily if you have good credit.

Then you should pay down your debt as soon as possible. The only way to win the credit card interest game is not to play it. Don’t charge more than you can pay off in a month, and you’ll drastically cut down on the ways a credit card company can profit from you.

Moving IRA Money to Roth IRA

Question: I am the owner of a standard IRA. I am retired, so have no earned income. Is it possible to move small increments of IRA money to a Roth IRA each year? I know I will have to pay taxes on the withdrawal, but don’t intend to need these funds for many years, and would like to have the earnings tax-free when I do need the funds.

Answer: You need to have earned income--wages, salary, tips, self-employment income--to make new contributions to a Roth IRA. But you don’t have to have earned income to convert your traditional IRA to a Roth, as long as your modified adjusted gross income is less than $100,000. (Your modified adjusted gross income probably is the same as your adjusted gross income; for more details, check out IRS Publication 590 or https://www.roth ira.com.)

So that answers the question of whether you can convert your IRA to a Roth. Whether you should or not depends on your situation.

As you note, you’ll have to pay taxes on any amount converted to a Roth. Whether that cost is offset by the tax-free income you’ll receive later depends on your current and future tax brackets, how long you live and how much the money grows between the time you convert and the time you withdraw from the Roth.

For working folks who expect to be in the same or higher tax bracket at retirement, a conversion can make sense. (For a detailed explanation of why, check out that Roth IRA Web site.) For retired folks, the equation is a bit more iffy. It might be best to have a professional tax preparer run a few scenarios for you to make sure the tax bill you incur will be worth it.

‘Exploiting’ the Tax Code

Question: I love the blunt way you tell people when they are trying to be crooks. It is no excuse, but I think one explanation is there are so many legal ways to reduce income and estate taxes many people are simply hoping to uncover another one. My thesis is there are far too many tax dodges on the books--and far, far too many persons making very big incomes by exploiting them for others.

Answer: There’s no shame in using perfectly acceptable and ethical means of reducing one’s taxes. Many tax breaks are constructed to encourage behavior Congress (and, by extension, society) wants to promote. The tax deduction on your mortgage interest payments, for example, was put there to encourage people to buy homes, which in turn helps stabilize communities. The tax-favored status of your retirement fund is designed to help you be self-supporting in your later years. It would be odd indeed to tell people to forgo these breaks lest they be “exploiting” the tax code.

What you’re probably referring to, however, are people who cook up tax schemes whose only purpose is tax savings. Some of this country’s biggest accounting firms have been doing just that, much to the government’s chagrin. The IRS has been squashing some of these complicated corporate and personal tax schemes, but the agency knows there is far more tax-dodging going on than it can possibly stop.

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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at liz.pulliam@la times.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.