Student Loan Payoff or Roth IRA

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Topic Author
sccshortstop
Posts: 7
Joined: Wed Jan 15, 2014 9:29 pm

Student Loan Payoff or Roth IRA

Post by sccshortstop »

First year resident in pediatrics with a $ 300,000 student loan debt in a direct consolidation loan. I am in a pay as you earn repayment plan that requires no payment for a least one year. Employed at a public hospital and make $48,000 as a first year resident. Approved for the Public Service Loan Forgiveness program and plan to continue that for the ten year requirement for the program. July 1, 2013 started residency and will have about $24,000 for the tax year and would like thoughts on starting the Roth IRA with the maximum allowed and continue while I qualify.

Any comments are appreciated!
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JamesSFO
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Joined: Thu Apr 26, 2012 10:16 pm

Re: Student Loan Payoff or Roth IRA

Post by JamesSFO »

How much emergency fund do you have? The Roth can serve as a starter emergency fund potentially...
Topic Author
sccshortstop
Posts: 7
Joined: Wed Jan 15, 2014 9:29 pm

Re: Student Loan Payoff or Roth IRA

Post by sccshortstop »

Would still have at least $10,000 for any emergency. Parents told me when I started my undergraduate degrees that once I completed Med school ( also got my MBA while in Med school as well) that they would get me a new car, which they did. No expenses other than living expenses is about $1,500 a month. Let me say this as well, my parents are by no means well off, actually the low end of middle income but they would also be available if push comes to shove. I am very self dependent and have paid off all my undergraduate loans myself I did this by working while a undergrad and taking a year off to do a research project for the university hospital which was a full time paid position. Just trying to add any additional information that may give a picture of my individual situation.

Thanks for your response!
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mbk734
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Joined: Tue Jan 21, 2014 1:14 pm

Re: Student Loan Payoff or Roth IRA

Post by mbk734 »

The Roth is very valuable considering that as a doctor your income may exceed the limit for contributing more to a Roth after your residency. I would max out the Roth while you are young as it will grow exponentially. On the other hand, you are probably eager to be debt free, but having debt can be a good thing if you have a reasonable fixed interest rate. Also, if inflation increases, you are essentially paying back cheaper dollars.
Last edited by mbk734 on Fri Feb 07, 2014 9:23 am, edited 1 time in total.
You can't stop the waves, but you can learn to surf
jimbojones
Posts: 128
Joined: Sat Feb 18, 2012 6:53 pm

Re: Student Loan Payoff or Roth IRA

Post by jimbojones »

Loan forgiveness after 10 years is a very attractive option! Can you give us an estimated salary chart from years 1-10? Or go to the studentloan.gov site and estimate your future minimum payment using their repayment estimator. Using minimum payments, I'd surprised if you paid back more than $100K. Anything else to the loan would be wasted money. Just don't forget to thank the taxpayers for your bailout!
Topic Author
sccshortstop
Posts: 7
Joined: Wed Jan 15, 2014 9:29 pm

Re: Student Loan Payoff or Roth IRA

Post by sccshortstop »

Thanks so much for your thoughts. I would guess ( unless I do a fellowship after 3rd year) I should make from $125,000-$150,000 for the 4-10th years. Maybe a little more if I go the fellowship route and would work 5-10th years. Those salaries would be low working in a public service hospital setting, however that is the purpose of using PSLF. I am sure that I would pay more than $100,000 of the loan back but ( I think the public is getting a good deal in PSLF as well because so many new doctors are heading for the exits in the public hospital setting for more lucrative contracts. Most like more to follow with the obamacare mess.

Thanks and I welcome any other insights!!
jimbojones
Posts: 128
Joined: Sat Feb 18, 2012 6:53 pm

Re: Student Loan Payoff or Roth IRA

Post by jimbojones »

Obviously this is a simplified example, but walk with me through this. Under Pay As You Earn, your minimum payment is based off your prior year's AGI. So for 2014, it's $0. For 2015, it uses your 2014 income which you estimated at $24,000. I used the PAYE calculator on studentloan.gov to get the minimum payment for each year.

Year PYIncome MinPayment

2014 $0 $0
2015 $24000 $56/mth
2016 $48000 $256/mth
2017 $48000 $256/mth
2018 $150000 $1106/mth
2019 same
2020 same
2021 same
2022 same
2023 same

Total payments: $86,448

And everything else is forgiven! You won't pay down a dollar of principal in this scenario. Don't pay a dollar more to your loans than you have to.

There are other factors that will impact this total (loan interest rate, state of residence, family size, income vs AGI differences, etc), but it won't change the conclusion.

If you have free cash flow right now, a Roth IRA is a great place for it.
Topic Author
sccshortstop
Posts: 7
Joined: Wed Jan 15, 2014 9:29 pm

Re: Student Loan Payoff or Roth IRA

Post by sccshortstop »

Thank you but i should clarify the salary now and hopefully then.
2013 income $24000 000000
2014 $49000 256-----745 from $3072 to $8940
2015 $49500 256-----745 $3072 to $8940
2016 $125000 898----2366 from $10776 to $28392
2017 $150000 1106---2893 from $13272 to $34716 per year
2018 same
2019 same
2020 same
2021 same
2022 same
2023 same

total seem to be anywhere from $109842 up to $289284

Never the less I choose to go the PSLA route and how ever it works out that is ok.

I thank you so much and as stated I most likely go to the Roth unless something changes

Blessings!
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