Pay off $17k student loan or max out 401k this year?

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wbadbada
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Pay off $17k student loan or max out 401k this year?

Post by wbadbada » Wed Jul 31, 2019 8:55 pm

Just landed a new job at a tech startup. I'm trying to decide if I should pay off my federal student loan ($17k @ 3.8% fixed) or max out 401k with 4% match for the remainder of this year.

I'm leaning more towards paying off my loan while doing the 401k match since startups can be unstable. I could also pursue both, but my loan would take longer to pay off.

Any thoughts?

RonSwanson1776
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Re: Pay off $17k student loan or max out 401k this year?

Post by RonSwanson1776 » Wed Jul 31, 2019 9:08 pm

If I were you I would contribute enough to get the match and then pay off the debt. Good luck!

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Re: Pay off $17k student loan or max out 401k this year?

Post by mcraepat9 » Wed Jul 31, 2019 9:09 pm

wbadbada wrote:
Wed Jul 31, 2019 8:55 pm
Just landed a new job at a tech startup. I'm trying to decide if I should pay off my federal student loan ($17k @ 3.8% fixed) or max out 401k with 4% match for the remainder of this year.

I'm leaning more towards paying off my loan while doing the 401k match since startups can be unstable. I could also pursue both, but my loan would take longer to pay off.

Any thoughts?
Are you 100% vested in the match once you contribute? What does the underlined language mean in terms of your decisionmaking path for this?
Amateur investors are not cool-headed logicians.

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tnbison
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Re: Pay off $17k student loan or max out 401k this year?

Post by tnbison » Wed Jul 31, 2019 9:12 pm

You'll be fine either way as long as you already have an emergency fund. Personally, I carry student loans with interest of 3.25%(10+ years into my profession) and a mortgage with 4.25%. I have no intention on paying either off ahead of time. Although I could pay off both, I value the liquidity when the interest rates are as close as they are to a savings account.


lakpr
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Re: Pay off $17k student loan or max out 401k this year?

Post by lakpr » Wed Jul 31, 2019 9:21 pm

I would NEVER forego maxing out the 401k in favor of paying off a low interest student loan debt. So it takes a bit more time to pay off, so be it. 401k space once lost can never be claimed back.

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Re: Pay off $17k student loan or max out 401k this year?

Post by jello_nailer » Wed Jul 31, 2019 9:36 pm

lakpr wrote:
Wed Jul 31, 2019 9:21 pm
I would NEVER forego maxing out the 401k in favor of paying off a low interest student loan debt. So it takes a bit more time to pay off, so be it. 401k space once lost can never be claimed back.
This ^, plus the liquidity comment above^^, gets my vote for carrying the low cost student loan debt.

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Watty
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Re: Pay off $17k student loan or max out 401k this year?

Post by Watty » Wed Jul 31, 2019 9:45 pm

What are your federal and state tax brackets?

Are you able to deduct the interest on the student loan?

GCD
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Re: Pay off $17k student loan or max out 401k this year?

Post by GCD » Wed Jul 31, 2019 9:55 pm

Always max the retirement contribution. Preferably do both at the same time. Your best bet is to do both.

The way you should approach life is pay off debt AND save for financial independence (not necessarily retirement) and let the remainder of your money dictate your lifestyle. Your savings and debt elimination should dictate your lifestyle. It shouldn't be you lead the life you want and get around to saving and paying off debt with whatever is left over.
Last edited by GCD on Thu Aug 01, 2019 2:18 pm, edited 1 time in total.

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Re: Pay off $17k student loan or max out 401k this year?

Post by GCD » Wed Jul 31, 2019 9:59 pm

Watty wrote:
Wed Jul 31, 2019 9:45 pm
What are your federal and state tax brackets?

Are you able to deduct the interest on the student loan?
Who cares? I think you are overcomplicating this. OP sounds young. Get it done.

I don't mean to come off antagonistic. I just think that sometimes on here there is a lot of slicing and dicing of miniscule things. Maybe these issues could save a few bucks if played out over a decade, but there is the whole thing of being debt free and moving ahead. I admit I may be overly enamored with being debt free even if a minimalist lifestyle is required.

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Nate79
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Re: Pay off $17k student loan or max out 401k this year?

Post by Nate79 » Wed Jul 31, 2019 10:05 pm

Take the match then pay it off asap. Keep budget super tight. Don't know your income but the debt is barely anything. What are we talking about here, a few months?

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Watty
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Re: Pay off $17k student loan or max out 401k this year?

Post by Watty » Wed Jul 31, 2019 11:04 pm

GCD wrote:
Wed Jul 31, 2019 9:59 pm
Maybe these issues could save a few bucks if played out over a decade, but there is the whole thing of being debt free and moving ahead.
It is not that simple. The OP seems to have a good amount of disposable income if they could max out a 401k in the five months that are left in this year.

It may be possible that they could;

1) Max out the 401k contributions for 2019 over the next five months. Until them make the minimum student loan payments.

2) In January cut the 401k contribution back to just get the 4% match, and direct the rest of the money towards paying off the student loans.

I would guess that the student loans might be paid off by next summer if he or she does that.

3) When the student loans are paid off then direct all the money back towards the 401k so that they could max out the 2020 contributions by the end of next year.

Knowing what tax bracket they are in would help determine if that was worthwhile or not.

mortfree
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Re: Pay off $17k student loan or max out 401k this year?

Post by mortfree » Thu Aug 01, 2019 2:28 am

Congrats on only having 17k in student loan debt and recognizing the opportunity to pay it off or Max 401k at 19k this year.

I would focus on the 401k this year, then when you have a full year of working in 2020 try to do both the loan payoff and max 401k, if possible.

You did leave out an important detail - salary and expenses.

Good luck.

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Re: Pay off $17k student loan or max out 401k this year?

Post by jakehefty17 » Thu Aug 01, 2019 6:07 am

I'd lean to maxing out the 401k, since the student loan is relatively low interest and possibly tax deductible interest. Theoretically your 401k should earn you more than the loan would cost you.

Do whatever feels better. Either option is good.
"The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence." -Charles Bukowski

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Re: Pay off $17k student loan or max out 401k this year?

Post by DVMResident » Thu Aug 01, 2019 6:25 am

Both are directionally correct. You can’t go wrong which is why you’re getting conflicting advice.

I’d lean towards the 401(k) as you can’t get the space back. If you are just starting your career and if you already have this much saving capacity, you can deal with the loans later but the tax advantaged space will never come back.

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ruralavalon
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Re: Pay off $17k student loan or max out 401k this year?

Post by ruralavalon » Thu Aug 01, 2019 11:23 am

wbadbada wrote:
Wed Jul 31, 2019 8:55 pm
Just landed a new job at a tech startup. I'm trying to decide if I should pay off my federal student loan ($17k @ 3.8% fixed) or max out 401k with 4% match for the remainder of this year.

I'm leaning more towards paying off my loan while doing the 401k match since startups can be unstable. I could also pursue both, but my loan would take longer to pay off.

Any thoughts?
Either would be good. $17k is not very much, and 3.8% fixed is not very high.

The annual contribution limit is a use-it-or-lose-it deal, once you pass it up its gone forever.

On the other hand being debt free is great.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

jackalope
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Re: Pay off $17k student loan or max out 401k this year?

Post by jackalope » Thu Aug 01, 2019 11:37 am

I don't think anybody else has mentioned this. Student dept is already a big campaign issue for the 2020 election with a number of candidates proposing plans to reduce the amount. The likelihood of someone getting elected and then getting one of these plans through congress? Pretty low. But stranger things have happened in recent US elections.

I would max out your 401k, and keep the loan for a few more years. The student loan interest rate is low and you should pull in more than the loan rate with a balanced portfolio in your 401K. And if luck would have it, the loan might even be eliminated in a few years if one of the student dept plans actually made it through congress.

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Re: Pay off $17k student loan or max out 401k this year?

Post by Flyer24 » Thu Aug 01, 2019 11:52 am

jackalope wrote:
Thu Aug 01, 2019 11:37 am
I don't think anybody else has mentioned this. Student dept is already a big campaign issue for the 2020 election with a number of candidates proposing plans to reduce the amount. The likelihood of someone getting elected and then getting one of these plans through congress? Pretty low. But stranger things have happened in recent US elections.

I would max out your 401k, and keep the loan for a few more years. The student loan interest rate is low and you should pull in more than the loan rate with a balanced portfolio in your 401K. And if luck would have it, the loan might even be eliminated in a few years if one of the student dept plans actually made it through congress.
That’s because the forum rules say not to discuss political items or possible future bills. All we can go by is what we have in place at the moment.

petulant
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Re: Pay off $17k student loan or max out 401k this year?

Post by petulant » Thu Aug 01, 2019 12:02 pm

This is not a large loan and you are close to being debt free with many more years of work ahead of you. My advice is to pay off the loan ASAP and then you won't have to worry about this question any more. Neither answer is wrong.

Buckeye Chuck
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Re: Pay off $17k student loan or max out 401k this year?

Post by Buckeye Chuck » Thu Aug 01, 2019 12:12 pm

I have a loan for a new roof. I could have liquidated investments. Instead I will max out my 457 and Roth IRA first. I will pause other investments and pay off the loan asap. I can't go back in time and make up the lost contributions to retirement accounts if I miss them.

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Re: Pay off $17k student loan or max out 401k this year?

Post by Meg77 » Thu Aug 01, 2019 12:18 pm

These aren't your only two options. Assuming you have no other debt, have adequate life/health/disability insurance, and have no pressing short term financial goals that would otherwise require debt, I would:

1. Contribute enough to get your 401k match.
2. Max a Roth IRA (you can make backdoor Roth contributions if your income is too high)
3. Max an HSA (presuming your health plan allows you to qualify for one)
4. Save 3 months expenses in cash.
5. At this point deliberate about whether to prepay the student loan or go back and max the 401k or add to savings until you have 6 months in expenses (due to the unstable nature of your industry). I might just knock out the student loan if it could be done within a year; otherwise I might split the difference. Be putting 15% or 20% toward retirement at minimum and then hammer the debt and then add to savings, if it were me. But your health and other circumstances (family obligations etc) might change up the order of operations.
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Re: Pay off $17k student loan or max out 401k this year?

Post by jackalope » Thu Aug 01, 2019 3:07 pm

Flyer24 wrote:
Thu Aug 01, 2019 11:52 am
jackalope wrote:
Thu Aug 01, 2019 11:37 am
I don't think anybody else has mentioned this. Student dept is already a big campaign issue for the 2020 election with a number of candidates proposing plans to reduce the amount. The likelihood of someone getting elected and then getting one of these plans through congress? Pretty low. But stranger things have happened in recent US elections.

I would max out your 401k, and keep the loan for a few more years. The student loan interest rate is low and you should pull in more than the loan rate with a balanced portfolio in your 401K. And if luck would have it, the loan might even be eliminated in a few years if one of the student dept plans actually made it through congress.
That’s because the forum rules say not to discuss political items or possible future bills. All we can go by is what we have in place at the moment.
My Bad! I understand the reasoning, but that certainly limits very relevant discussions about risk.

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Re: Pay off $17k student loan or max out 401k this year?

Post by grabiner » Thu Aug 01, 2019 7:25 pm

Given the relatively low rate (3.8%, which is 2.96% after-tax if you deduct the interest in a 22% bracket), I would recommend maxing out a Roth IRA and a low-cost 401(k). You can earn almost as much on a bond fund in your IRA or 401(k), and you gain the permanent benefit of having more tax-deferred space.

You also write, "since startups can be unstable". This suggests keeping your Roth IRA in a low-risk bond fund so that you can use it as part of an emergency fund if the startup folds.
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Re: Pay off $17k student loan or max out 401k this year?

Post by mariezzz » Thu Aug 01, 2019 7:36 pm

Keep in mind that pre-tax 401k contributions reduce your taxable income -- how valuable that is depends on which tax bracket those contributions would be taxed at - but likely, at least 12% bracket.

I'd suggest living really frugally so you can max out 401k contributions and pay some extra on the loans. 3.8% interest is not pocket change, but many have higher interest rates. (I don't necessarily agree with the suggestion to max out a Roth IRA unless you consider that your emergency fund - but you could contribute something, esp. if you don't have a Roth IRA already.)

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3wood
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Re: Pay off $17k student loan or max out 401k this year?

Post by 3wood » Thu Aug 01, 2019 8:12 pm

$17k after 30 years with 7% interest will be about $130k. Is paying off your student loans worth working an extra year?

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Re: Pay off $17k student loan or max out 401k this year?

Post by grabiner » Thu Aug 01, 2019 8:20 pm

3wood wrote:
Thu Aug 01, 2019 8:12 pm
$17k after 30 years with 7% interest will be about $130k. Is paying off your student loans worth working an extra year?
The benefit is much less than this. If you pay off the loan this year, you will be able to invest more money in future years, because you won't be making loan payments. In addition, the 7% return requires taking a lot of risk, while the benefit from paying off the loan is guaranteed. To get a fair comparison, consider paying off the loan, and moving an equal amount from bonds to stock in your 401(k), versus not paying off the loan and investing the money in the 401(k).

The one reason I still recommend paying off the loan is the benefit of getting the money into the 401(k). If you don't max out your 401(k) this year because you pay off the loan, then next year, you will probably have more to invest, and will have to make taxable investments because the 401(k) is maxed out. Thus, by paying off the loan this year, you lose the benefit of tax deferral on money you could have invested, and that is a loss which compounds for years. I would pay down the loan in preference to making a taxable investment.
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Re: Pay off $17k student loan or max out 401k this year?

Post by alter » Thu Aug 01, 2019 8:27 pm

Max the 401k, without question. You will likely earn more in investments than the student loan interest rate, not to mention the taxes you will save. Each dollar invested into the 401k is only costing you around $.75 (or so), which is then free to compound tax-free your entire career. If the interest rate on that student loan goes up, it might be a different story but 3.8% is very low.
Last edited by alter on Thu Aug 01, 2019 8:30 pm, edited 1 time in total.

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Re: Pay off $17k student loan or max out 401k this year?

Post by Dottie57 » Thu Aug 01, 2019 8:27 pm

Pay off the debt, then start maxing out 401k. Great feeling to be debt free.

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Re: Pay off $17k student loan or max out 401k this year?

Post by 3wood » Thu Aug 01, 2019 8:28 pm

grabiner wrote:
Thu Aug 01, 2019 8:20 pm
3wood wrote:
Thu Aug 01, 2019 8:12 pm
$17k after 30 years with 7% interest will be about $130k. Is paying off your student loans worth working an extra year?
The benefit is much less than this. If you pay off the loan this year, you will be able to invest more money in future years, because you won't be making loan payments. In addition, the 7% return requires taking a lot of risk, while the benefit from paying off the loan is guaranteed. To get a fair comparison, consider paying off the loan, and moving an equal amount from bonds to stock in your 401(k), versus not paying off the loan and investing the money in the 401(k).

The one reason I still recommend paying off the loan is the benefit of getting the money into the 401(k). If you don't max out your 401(k) this year because you pay off the loan, then next year, you will probably have more to invest, and will have to make taxable investments because the 401(k) is maxed out. Thus, by paying off the loan this year, you lose the benefit of tax deferral on money you could have invested, and that is a loss which compounds for years. I would pay down the loan in preference to making a taxable investment.
Thinking all that money saved on loan payments will find themselves in the 401k is a huge assumption. Making one decision that will fund your future vs making dozens is very different. Maybe he is that disciplined, maybe not. Investing it now means he doesn't have to find out.

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Re: Pay off $17k student loan or max out 401k this year?

Post by basspond » Thu Aug 01, 2019 9:00 pm

Have a schedule to pay off the loan in under 2 years while getting the match.

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BL
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Re: Pay off $17k student loan or max out 401k this year?

Post by BL » Fri Aug 02, 2019 12:00 am

Meg77 wrote:
Thu Aug 01, 2019 12:18 pm
These aren't your only two options. Assuming you have no other debt, have adequate life/health/disability insurance, and have no pressing short term financial goals that would otherwise require debt, I would:

1. Contribute enough to get your 401k match.
2. Max a Roth IRA (you can make backdoor Roth contributions if your income is too high)
3. Max an HSA (presuming your health plan allows you to qualify for one)
4. Save 3 months expenses in cash.
5. At this point deliberate about whether to prepay the student loan or go back and max the 401k or add to savings until you have 6 months in expenses (due to the unstable nature of your industry). I might just knock out the student loan if it could be done within a year; otherwise I might split the difference. Be putting 15% or 20% toward retirement at minimum and then hammer the debt and then add to savings, if it were me. But your health and other circumstances (family obligations etc) might change up the order of operations.
+1
I might put Roth in bonds or even Money Market funds until a larger emergency fund is built up, since contributions, not earnings, can be withdrawn with no penalty if you really do have an emergency. This holds the 2019 space in Roth IRA that you can change to equities once you don't need it as a back-up emergency fund. You do have until next April to get the contribution in to the Roth IRA.

The pay-off vs. a very low-cost 401k is somewhat a toss-up, maybe some of each if you can't decide.

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Re: Pay off $17k student loan or max out 401k this year?

Post by Wings5 » Fri Aug 02, 2019 12:24 am

First off, congrats on recognizing the opportunity you have!

We were in this boat years ago, but had other debt, too. We maxed out our 401k contributions first, then paid the loans off with any excess we had. If you're still on the fence, you can always split your student loan payments and 401k contributions.

Good luck!

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Re: Pay off $17k student loan or max out 401k this year?

Post by usagi » Fri Aug 02, 2019 12:33 am

Max the 401K...Roth if you can...and contribute to a ROTH IRA, if you have to get a part time job yo pay off the loan do so. Getting an early starts in investing pay huge dividends (literally) later on. Doing ht above will also force you to moderate your lifestyle this allowing you to arrive at a sustainable withdraw rate relative to your lifestyle earlier than your average bear.

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Re: Pay off $17k student loan or max out 401k this year?

Post by j0nnyg1984 » Fri Aug 02, 2019 4:51 am

RonSwanson1776 wrote:
Wed Jul 31, 2019 9:08 pm
If I were you I would contribute enough to get the match and then pay off the debt. Good luck!
Yep. This is what I would do, too.

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Re: Pay off $17k student loan or max out 401k this year?

Post by tea_pirate » Fri Aug 02, 2019 7:07 am

I was in a similar position with low interest student loans. In fact I still have $8k kicking around at 3.7% interest. Remember that if you're eligible for the student loan interest deduction, your true interest rate is below 3%.

I decided to max my 401k and Roth IRA before paying extra towards student loans. It's now August and I will max my Roth IRA this month, so for the rest of the year any extra cash will go towards the loans instead of investing in a taxable brokerage.

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Re: Pay off $17k student loan or max out 401k this year?

Post by nolesrule » Fri Aug 02, 2019 7:53 am

If you have the income to max out a 401k or pay off the loans in less than half a year, you have the income to max out the 401k this year and next year max out the 401k and pay off the loans.

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Re: Pay off $17k student loan or max out 401k this year?

Post by cusetownusa » Fri Aug 02, 2019 9:02 am

lakpr wrote:
Wed Jul 31, 2019 9:21 pm
I would NEVER forego maxing out the 401k in favor of paying off a low interest student loan debt. So it takes a bit more time to pay off, so be it. 401k space once lost can never be claimed back.
This...and this is coming from a guy that made the mistake of aggressively paying off my student loans instead of maxing out my 401k. I wish I knew then what I know now.

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Re: Pay off $17k student loan or max out 401k this year?

Post by zlandar » Fri Aug 02, 2019 10:01 am

cusetownusa wrote:
Fri Aug 02, 2019 9:02 am
lakpr wrote:
Wed Jul 31, 2019 9:21 pm
I would NEVER forego maxing out the 401k in favor of paying off a low interest student loan debt. So it takes a bit more time to pay off, so be it. 401k space once lost can never be claimed back.
This...and this is coming from a guy that made the mistake of aggressively paying off my student loans instead of maxing out my 401k. I wish I knew then what I know now.
Either choice (max 401k or get the 401k match and use the remainder to pay down the loan) is fine IMO.

There is a psychological benefit in ridding yourself of a loan that follows you like stink even through bankruptcy.

While the odds favor the money outperforming in a 401k vs paying off the loan it's not a slam-dunk. The ROI in the 401k would have to be ~5% when you factor in taxes.

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Re: Pay off $17k student loan or max out 401k this year?

Post by FlameChemist » Fri Aug 02, 2019 10:09 am

I think this comes down to a personal choice about how you view the debt. Psychologically for me, I needed to get rid of that number (~50k for me) before I could mentally move on in my life. I made sure to get employer match, then paid the debt down in 2 years and by 25 was debt free.

For such a short time frame (~1 year to pay down your debt) I'd say your returns could be variable in the market, it may or may not turn out in your favor. making payments on the debt at least provides savings equal to that of the interest rate for that time frame.
"Being lucky seems to be your greatest tactic."

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Re: Pay off $17k student loan or max out 401k this year?

Post by lakpr » Fri Aug 02, 2019 10:11 am

zlandar wrote:
Fri Aug 02, 2019 10:01 am
While the odds favor the money outperforming in a 401k vs paying off the loan it's not a slam-dunk. The ROI in the 401k would have to be ~5% when you factor in taxes.
This is incorrect. Student loan interest is an above-the-line deduction, so the after-tax interest you pay on student loan is reduced by your marginal tax rate. Similarly gains in a 401k are also reduced by the marginal tax rates when you withdraw (ignoring penalties). In other words, the marginal tax rate does not enter into picture. 401k investments have to only out-perform the nominal 3.8% interest rate.

If the student loans were of 7% and above like the Parent PLUS loans, it could be argued that it's not a slam dunk. With 3.8%, definitely 401k wins hands down.

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Re: Pay off $17k student loan or max out 401k this year?

Post by FlameChemist » Fri Aug 02, 2019 10:28 am

lakpr wrote:
Fri Aug 02, 2019 10:11 am
zlandar wrote:
Fri Aug 02, 2019 10:01 am
While the odds favor the money outperforming in a 401k vs paying off the loan it's not a slam-dunk. The ROI in the 401k would have to be ~5% when you factor in taxes.
This is incorrect. Student loan interest is an above-the-line deduction, so the after-tax interest you pay on student loan is reduced by your marginal tax rate. Similarly gains in a 401k are also reduced by the marginal tax rates when you withdraw (ignoring penalties). In other words, the marginal tax rate does not enter into picture. 401k investments have to only out-perform the nominal 3.8% interest rate.

If the student loans were of 7% and above like the Parent PLUS loans, it could be argued that it's not a slam dunk. With 3.8%, definitely 401k wins hands down.

Return of S&P for 2018 (jan 1- dec 31): -6.59%. returns definitely not guaranteed, especially in short runs.
"Being lucky seems to be your greatest tactic."

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Re: Pay off $17k student loan or max out 401k this year?

Post by lakpr » Fri Aug 02, 2019 10:49 am

FlameChemist wrote:
Fri Aug 02, 2019 10:28 am
lakpr wrote:
Fri Aug 02, 2019 10:11 am
zlandar wrote:
Fri Aug 02, 2019 10:01 am
While the odds favor the money outperforming in a 401k vs paying off the loan it's not a slam-dunk. The ROI in the 401k would have to be ~5% when you factor in taxes.
This is incorrect. Student loan interest is an above-the-line deduction, so the after-tax interest you pay on student loan is reduced by your marginal tax rate. Similarly gains in a 401k are also reduced by the marginal tax rates when you withdraw (ignoring penalties). In other words, the marginal tax rate does not enter into picture. 401k investments have to only out-perform the nominal 3.8% interest rate.

If the student loans were of 7% and above like the Parent PLUS loans, it could be argued that it's not a slam dunk. With 3.8%, definitely 401k wins hands down.
Return of S&P for 2018 (jan 1- dec 31): -6.59%. returns definitely not guaranteed, especially in short runs.
That is, and should be, understood. I was specifically referring to zlandar's contention that 3.8% APR on the student loans is equivalent to approximately 5% after factoring in taxes. The point of my post above that you quoted, is that the tax rates need not be factored in; they apply equally to both student loan interest and the 401k earnings.

GT99
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Re: Pay off $17k student loan or max out 401k this year?

Post by GT99 » Fri Aug 02, 2019 10:50 am

Meg77 wrote:
Thu Aug 01, 2019 12:18 pm
These aren't your only two options. Assuming you have no other debt, have adequate life/health/disability insurance, and have no pressing short term financial goals that would otherwise require debt, I would:

1. Contribute enough to get your 401k match.
2. Max a Roth IRA (you can make backdoor Roth contributions if your income is too high)
3. Max an HSA (presuming your health plan allows you to qualify for one)
4. Save 3 months expenses in cash.
5. At this point deliberate about whether to prepay the student loan or go back and max the 401k or add to savings until you have 6 months in expenses (due to the unstable nature of your industry). I might just knock out the student loan if it could be done within a year; otherwise I might split the difference. Be putting 15% or 20% toward retirement at minimum and then hammer the debt and then add to savings, if it were me. But your health and other circumstances (family obligations etc) might change up the order of operations.
I agree with 1-4 here. But when you get to 5, maxing the 401k seems like a no brainer. The tax benefit is >>> 3.8% interest cost.

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Psyayeayeduck
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Re: Pay off $17k student loan or max out 401k this year?

Post by Psyayeayeduck » Fri Aug 02, 2019 11:20 am

furwut wrote:
Wed Jul 31, 2019 9:12 pm
Paying down loans versus investing
I'm very surprised that there is no mention of how incredibly tough it is to get student loans discharged via bankruptcy if the unfortunate event happens. That, in itself, is a very strong contender in paying student loans off (assuming one meets an employer's match in pre-tax space).

lakpr
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Re: Pay off $17k student loan or max out 401k this year?

Post by lakpr » Fri Aug 02, 2019 11:23 am

Psyayeayeduck wrote:
Fri Aug 02, 2019 11:20 am
furwut wrote:
Wed Jul 31, 2019 9:12 pm
Paying down loans versus investing
I'm very surprised that there is no mention of how incredibly tough it is to get student loans discharged via bankruptcy if the unfortunate event happens. That, in itself, is a very strong contender in paying student loans off (assuming one meets an employer's match in pre-tax space).
Right, but it's not something that cannot wait for one more year. the balance is only $17k, and the interest rate is only 3.8% ...

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Psyayeayeduck
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Re: Pay off $17k student loan or max out 401k this year?

Post by Psyayeayeduck » Fri Aug 02, 2019 11:29 am

lakpr wrote:
Fri Aug 02, 2019 11:23 am
Psyayeayeduck wrote:
Fri Aug 02, 2019 11:20 am
furwut wrote:
Wed Jul 31, 2019 9:12 pm
Paying down loans versus investing
I'm very surprised that there is no mention of how incredibly tough it is to get student loans discharged via bankruptcy if the unfortunate event happens. That, in itself, is a very strong contender in paying student loans off (assuming one meets an employer's match in pre-tax space).
Right, but it's not something that cannot wait for one more year. the balance is only $17k, and the interest rate is only 3.8% ...

Saying "only $17k" and "only 3.8%" doesn't dismiss my point though.

Quantumfizz
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Re: Pay off $17k student loan or max out 401k this year?

Post by Quantumfizz » Fri Aug 02, 2019 11:41 am

max the 401k and use the tax savings on that vs. not getting the tax break to pay some toward the student loans. E.g. effective tax rate * 17,000 = portion paid toward loans. Win win.

lakpr
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Re: Pay off $17k student loan or max out 401k this year?

Post by lakpr » Fri Aug 02, 2019 12:29 pm

Psyayeayeduck wrote:
Fri Aug 02, 2019 11:29 am
lakpr wrote:
Fri Aug 02, 2019 11:23 am
Psyayeayeduck wrote:
Fri Aug 02, 2019 11:20 am
furwut wrote:
Wed Jul 31, 2019 9:12 pm
Paying down loans versus investing
I'm very surprised that there is no mention of how incredibly tough it is to get student loans discharged via bankruptcy if the unfortunate event happens. That, in itself, is a very strong contender in paying student loans off (assuming one meets an employer's match in pre-tax space).
Right, but it's not something that cannot wait for one more year. the balance is only $17k, and the interest rate is only 3.8% ...
Saying "only $17k" and "only 3.8%" doesn't dismiss my point though.
Nobody dismissed it. We are saying repayment of the student loan can wait one more year.

The OP just landed a job, and it looks like he can only spare $19k or so, and hence asking if that money should go to student loan or set the 401k contributions such that it will be maxed out this year. Given the way the OP posed this question (the title of this thread), maxing out 401k is the clearest winner and I offered that viewpoint in the posts above.

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Psyayeayeduck
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Re: Pay off $17k student loan or max out 401k this year?

Post by Psyayeayeduck » Mon Aug 05, 2019 6:54 am

lakpr wrote:
Fri Aug 02, 2019 12:29 pm
Psyayeayeduck wrote:
Fri Aug 02, 2019 11:29 am
lakpr wrote:
Fri Aug 02, 2019 11:23 am
Psyayeayeduck wrote:
Fri Aug 02, 2019 11:20 am
furwut wrote:
Wed Jul 31, 2019 9:12 pm
Paying down loans versus investing
I'm very surprised that there is no mention of how incredibly tough it is to get student loans discharged via bankruptcy if the unfortunate event happens. That, in itself, is a very strong contender in paying student loans off (assuming one meets an employer's match in pre-tax space).
Right, but it's not something that cannot wait for one more year. the balance is only $17k, and the interest rate is only 3.8% ...
Saying "only $17k" and "only 3.8%" doesn't dismiss my point though.
Nobody dismissed it. We are saying repayment of the student loan can wait one more year.

The OP just landed a job, and it looks like he can only spare $19k or so, and hence asking if that money should go to student loan or set the 401k contributions such that it will be maxed out this year. Given the way the OP posed this question (the title of this thread), maxing out 401k is the clearest winner and I offered that viewpoint in the posts above.
You completely dismissed it when you used "only" in your response. It comes from the same lexicon that people use to justify their purchases over time because they think they deserved it. "It's only $3 at Starbucks for coffee. I can afford it."

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