Use IRA to pay Student Loan?

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jerrysmith
Posts: 44
Joined: Sat Feb 16, 2019 2:20 pm

Use IRA to pay Student Loan?

Post by jerrysmith »

Hello everyone. I'm new to the board. I've been reading posts as well as all of Mr. Bogle's (rip) books. I have a question for you all.

Married and both my wife and I work in jobs that have a state pension.
She is pretty deep into hers with 17-18 years of service and will likely do 25-30.

I'm relatively new at 2 years but have zero intentions of leaving without a minimum of 10 years to be vested but the full 20 is in my sights.

Having said all that. I have an IRA where I've rolled all my 401ks from previous jobs. I have pretty substantial student debt and my consumer debt is manageable. In about 2 years I'll have the student loan paid down enough that cashing out my IRA, including the penalty and tax hit there would be enough to pay off my student loan leaving me debt free with exception of my manageable mortgage and a 0% apr car loan.
Mid 40s, 2 kids etc.

Given our pensions and ages would it be advisable to cash out the IRA and use my newly freed up income for savings etc?
Or should I stay the course and just try to pay down the loans as I go?

Thanks for any advice and sorry for the stream of consciousness!

Jerry
123
Posts: 7119
Joined: Fri Oct 12, 2012 3:55 pm

Re: Use IRA to pay Student Loan?

Post by 123 »

The immediate tax hit for cashing in IRA funds can be 40 - 50% depending on your income, so you may not get what you think you will. I would not advise cashing in an IRA because the tax deferred space of the account cannot be recovered. Tax deferred investment space is given out year-by-year and cannot be recovered once given up.
The closest helping hand is at the end of your own arm.
mhalley
Posts: 8875
Joined: Tue Nov 20, 2007 6:02 am

Re: Use IRA to pay Student Loan?

Post by mhalley »

As a general rule of thumb, retirement accounts should never be used to pay down debts. Occasionally if debt is onerous decreasing contributions might be wise, but it is very very rare for cashing out retirement accounts to be worthwhile.
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