Continue 401K contribution or not?

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Continue 401K contribution or not?

Postby Gemini » Sun Dec 16, 2012 10:54 pm

A little background - Just finished school and now have a 6 figure job, BUT tons of loans. Currently, student loans at around 300K with some absurd rates (i.e. about 30K at 11% and about a 100K at 9%), and a car loan at 1.49%. Have an e-fund saved and am throwing everything I can at the high interest rates. My current gig does not match 401K - I started work this August and have 17K in this years 401k. I will be going to do a fellowship upcoming July at which point my income will drop significantly or five times less.

Should I continue to contribute to the 401K until this June or just forget it and put that money towards the high interest loans as my income will be dropping significantly very soon?
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Re: Continue 401K contribution or not?

Postby Watty » Sun Dec 16, 2012 11:16 pm

Without knowing your tax brackets there is not enough information to say.

If you can get the 30K loan paid off though that would not only get rid of your highest interest rate loan but if would eliminate a required monthly payment.
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Re: Continue 401K contribution or not?

Postby BL » Mon Dec 17, 2012 12:09 am

I would get that 30k paid off ASAP, and follow that with working on the next one which is still higher than you could expect with many investments. With your income, it should not take long to pay this off and then start saving for retirement, assuming you don't increase your spending very much until they are paid off.
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Re: Continue 401K contribution or not?

Postby Calm Man » Mon Dec 17, 2012 12:25 pm

OP, I was in a similar situation about 30 years ago but the amount was less (probably the same in real dollars) and there weren't 401Ks at the time. Especially given that there is no match, if you are anything like me, there is nothing wrong with going full bore and getting rid of all of the debt ASAP. It is unlikely investment returns will outpace high interest costs. Even if they do, the loans were a noose around my neck until I paid them off. And once I did, I never borrowed a nickel from anybody ever again.
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Re: Continue 401K contribution or not?

Postby linuxuser » Mon Dec 17, 2012 3:48 pm

The question to ask yourself about whether to save or pay off the $30K is "where else can I get a guaranteed 11% return?".
I personally don't know of any place.
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Re: Continue 401K contribution or not?

Postby Gemini » Sun Dec 30, 2012 12:04 pm

Thanks for the replies.

I will defer 401 and focus on paying off the high interest loans.
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