Max out 401K OR Pay off Federal Student Loan

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floridaguy
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Joined: Thu Apr 20, 2017 7:28 pm

Max out 401K OR Pay off Federal Student Loan

Postby floridaguy » Thu Apr 20, 2017 7:40 pm

Situation:

Age: 38
Salary: $110K
Cash: $56K
Fed Student Loan: $62K fixed at 3%
401K balance: $72K, $10K contribution/deduction annually
Pension: $18k

Currently, rent free living for next couple of months but considering home purchase or apartment rental.

Would you:
1) Go after Student Loan and try and kill it asap OR
2) Sit on the savings and max out 401K to $18,000/maybe fund Roth IRA
3) Do something else

Thank you.

Goal33
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Re: Max out 401K OR Pay off Federal Student Loan

Postby Goal33 » Thu Apr 20, 2017 7:48 pm

If you're living rent free you should be able to do both, but I'd go for the 401k and roth personally.
A man with one watch always knows what time it is; a man with two watches is never sure.

DSInvestor
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Re: Max out 401K OR Pay off Federal Student Loan

Postby DSInvestor » Thu Apr 20, 2017 7:52 pm

I suggest maxing out Traditional 401k, Roth IRA and attacking the student loans.

Finance-MD
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Re: Max out 401K OR Pay off Federal Student Loan

Postby Finance-MD » Thu Apr 20, 2017 8:08 pm

I would recommend same as above 2.
Student loan debt at 3% is barely above inflation.
Also, in case of premature death, retirement accounts can be passed down in your estate; student loans just disappear. Every dollar that goes goes to student loans is a dollar permanently gone. You can always tap into retirement accounts should there be an unplanned call for capital, which make those dollars more 'liquid.'

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neurosphere
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Re: Max out 401K OR Pay off Federal Student Loan

Postby neurosphere » Thu Apr 20, 2017 8:32 pm

DSInvestor wrote:I suggest maxing out Traditional 401k, Roth IRA and attacking the student loans.


I agree, max out 401k, backdoor Roth (if eligible i.e. no significant traditional IRA balances) and then get rid of the student loans.
-- Real name: Sotirios Keros. If you have to ask "Is a Target Retirement fund right for me?", the answer is yes.

remomnyc
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Re: Max out 401K OR Pay off Federal Student Loan

Postby remomnyc » Thu Apr 20, 2017 9:48 pm

Same: 401k, Roth (if eligible), then student loan. Don't forget that the tax deferred space disappears each year, so you need to fill it each year you have the chance.

JGoneRiding
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Re: Max out 401K OR Pay off Federal Student Loan

Postby JGoneRiding » Thu Apr 20, 2017 10:17 pm

Goal33 wrote:If you're living rent free you should be able to do both, but I'd go for the 401k and roth personally.



This thought 100%, I wouldn't not max with 56k sitting in cash and an only 3% int rate but start trying to do both!

JGoneRiding
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Re: Max out 401K OR Pay off Federal Student Loan

Postby JGoneRiding » Thu Apr 20, 2017 10:20 pm

neurosphere wrote:
DSInvestor wrote:I suggest maxing out Traditional 401k, Roth IRA and attacking the student loans.


I agree, max out 401k, backdoor Roth (if eligible i.e. no significant traditional IRA balances) and then get rid of the student loans.



He doesn't need to backdoor, his income is low enough to qualify for Roth directly, especially after he does the 401k.

floridaguy
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Re: Max out 401K OR Pay off Federal Student Loan

Postby floridaguy » Fri Apr 21, 2017 5:52 am

Thank you all for taking the time.

I may have only be living rent free for 2-3 more months and am considering home purchase (10% down with SOFI to avoid PMI).

Would that affect any of your near term (2-3 month) strategies you mentioned or would you stay the same course? I was thinking I should possibly be saving more cash due to the 10% down payment coming out of my cash savings.

Dottie57
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Re: Max out 401K OR Pay off Federal Student Loan

Postby Dottie57 » Fri Apr 21, 2017 6:20 am

floridaguy wrote:Thank you all for taking the time.

I may have only be living rent free for 2-3 more months and am considering home purchase (10% down with SOFI to avoid PMI).

Would that affect any of your near term (2-3 month) strategies you mentioned or would you stay the same course? I was thinking I should possibly be saving more cash due to the 10% down payment coming out of my cash savings.



You will need cash.

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neurosphere
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Re: Max out 401K OR Pay off Federal Student Loan

Postby neurosphere » Fri Apr 21, 2017 8:17 am

JGoneRiding wrote:
neurosphere wrote:
DSInvestor wrote:I suggest maxing out Traditional 401k, Roth IRA and attacking the student loans.


I agree, max out 401k, backdoor Roth (if eligible i.e. no significant traditional IRA balances) and then get rid of the student loans.



He doesn't need to backdoor, his income is low enough to qualify for Roth directly, especially after he does the 401k.


Agreed. No backdoor Roth needed. Sometimes I gets so used to mentioning the backdoor Roth when someone is near the income limit of (especially when it's early in the year) in case their income goes up unexpectedly during the year due to a bonus or job change.

JGoneRiding
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Re: Max out 401K OR Pay off Federal Student Loan

Postby JGoneRiding » Sat Apr 22, 2017 11:13 am

neurosphere wrote:
JGoneRiding wrote:
neurosphere wrote:
DSInvestor wrote:I suggest maxing out Traditional 401k, Roth IRA and attacking the student loans.


I agree, max out 401k, backdoor Roth (if eligible i.e. no significant traditional IRA balances) and then get rid of the student loans.



He doesn't need to backdoor, his income is low enough to qualify for Roth directly, especially after he does the 401k.


Agreed. No backdoor Roth needed. Sometimes I gets so used to mentioning the backdoor Roth when someone is near the income limit of (especially when it's early in the year) in case their income goes up unexpectedly during the year due to a bonus or job change.


Totally understand, I only commented so others didn't think that was necessary at this income but he is close. If he had a big jump and didn't do enough 401k it would be a problem.

Op definitely fill up the roth while you are eligible. It might not last long!

I would knock out the sl and then buy the house, but maybe I suggest that cause I wish I had done it that way when I could have. 10 yrs later I still have the hated sl.


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