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Quitting job to start med school and I have a fully vested pension...

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  • Quitting job to start med school and I have a fully vested pension...

    Hey everyone. I'm new to this forum but I was directed here from the reddit forums and do have the WCI book. Anyway, I have a financial question and I'm hoping someone here has a suggestion or two for what I should do.

    Next month I am quitting a job that I've held for just over 5 years. My company included a pension and 401K in my benefits package when I was hired and I need to decide what to do with these investments. I had planned to leave them until retirement. Sure, I won't be able to add anything more to them but if they sit untouched for the next 30 years the should compound a substantial amount, right? Well that was my plan but recently I've wondered if this is the smartest decision when I'm going to be taking out thousands in student loans to get through medical school. What is the better option here? Should I leave my 401K and Pension and take on thousands in student loans (with an 8% interest rate) or should I cash out my 5 year pension and 401K sums to decrease my total loan debt and lessen the interest on that debt upfront?? Does it make any difference at all??

  • #2
    I was in a similar boat, but kept my money in my pension and 457 plans- it allowed for compounded interest, but a key factor was that I can still re-balance within the plans (just couldnt/still cant contribute anymore) , and they offered great funds.  You would have to consider what the plan fees are, what your investment options are (good vanguard type funds or funds with expense ratios near 1%), what your plan's options are upon termination (probably the most important bit of info) prior to coming to a decision. Cashing out now helps minimize the amount of loans you will need to take out but you will also face penalties and taxes, so it's not as beneficial as you think.  Plus with all the possible repayment options, like forgiveness programs or privately refinancing once youre an attending to a lower rate (im currently at 1.95 and was at 3% for the past 2 years) you may actually come out ahead keeping your money in retirement accounts instead of cashing them out.  It may be worth having an accountant run the numbers in your specific situation.

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    • #3
      @DrBrae, the high interest rate of 8% makes this an anguishing decision. Any money withdrawn from a qualified retirement account will be subject to income taxes and a penalty. ? 10% ? After years of training, you will be behind in retirement savings; your 5-year account will mitigate this savings gap.
      On the other hand, 8% interest rate is brutal, but may be offset by PAYE or REPAY.

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      • #4
        i would leave them.

        what about all the savings you have from the past 5 years?

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        • #5
          It might help if you could post the details on the pension. How much is it worth now, cashed out, how much will it be worth at age 65, and how stable is the company.

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          • #6
            Will you be working during med school? Are you married? If you can take out enough to stay in the 10% tax bracket, it might make sense, but I tend to agree with the other advice to leave it alone, especially if there is a chance you might go for PSLF. otoh, pensions don't necessarily have great long-term returns. What is the projected payout on the pension?
            Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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