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Max out the retirement accounts or tackle student debt....

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  • Max out the retirement accounts or tackle student debt....

    Hey folks. I keep going back and forth between paying off debt aggressively, investing in my retirement accounts aggressively (can contribute up to 95K annually with current employer plans available to me), or taking a more balanced approach. Would appreciate any suggestions regarding my situation:

    Federal loan debt – ~325k (in REPAYE, at 0% right now, will be at 5.85 once CARES expires, plan to refinance in next few months)
    Income ~250k (just graduated residency, 1st year attending)
    Retirement accounts ~56k (mix of Roth, 405 and 403), 100% stock allocation in S&P500, and an index that follows the Rusell 3000 TF index (employer plan)
    HYSA ~70K ( I know, way more than needed for an emergency fund, but planning to siphon 20-30K to buy an investment property with my brother, who will be living in and managing the property while he goes through dental school - hoping this will generate some cash flow and equity over next 4-5 years)
    Retirement accounts available to me 403, 457, Roth-IRA w/ option to backdoor up to 57K
    Expenses - 1800 rent and ~1500 in credit card monthly
    Current average savings rate (40-50% of gross income, mainly b/c I am not making student loan payments)
    No credit card or other debt
    Minimal assets
    Still living like a resident
    Getting taxed to oblivion in CA (planning to move in next few years)

    My dilemma is…. do I try to contribute aggressively (currently contributing 40-50% of my gross income) to my retirement accounts given my relatively privileged position to have access to so many vehicles for tax-free growth (thank you academia??), because I have a lot of catching up to do for all the debt I accrued in my 20s, and my loans are at 0% interest rate (not for long). Alternatively, do I maximize my monthly student loan payments to be debt-free in ~5-years? (my partner is also a high-income professional and we could viably live mostly off of her income while I pay off my loans aggressively) . Or maybe a 50/50% split would be better? I don't plan to be in academia forever and will likely leave my current institution in the next few years. Any input would be greatly appreciated! Thank you so much.

  • #2
    Do both and moonlight/up your income. You have no business investing in real estate with a massively negative net worth. Put 50k towards loans yesterday.

    95k tax free drops taxable income massively (assuming you’ve done your numbers right). That leaves over 150 for taxes, living and loans (not counting partners income) with 275 in loans. Live frugally and put every extra dime earned for the next 2-3 years toward the loans and knock them out.

    And if you’re underpaid and planning on leaving already, I’d move up that timeline. And consider leaving CA.


    • #3
      I hate to waste tax advantaged space. If it was me, I would fill up tax advantaged accounts and only then would I throw excess cash at the debt. With your savings rate, you can still knock out the debt quickly, especially if your income rises or you do some moonlighting.

      Also, if I had $300k in debt, I would strongly prefer to pay down debt rather than get involved in a residential real estate deal with family... Not sure if you are doing this as a favor to your brother or as an investment, but if you view it as an investment I'd save yourself the headache and pay down debt instead


      • #4
        Max out all available tax advantaged accounts. Work more. Start paying down student loan once the 0% interest goes away. Tell your brother that he's on is own.


        • #5
          what do you mean partner?
          if your girlfriend going to support you while you pay off your debt and save for yourself?
          if that's the case then might be time to start ring shopping.
          i have zero issue with any cohabitation, certainly no moral/religious objection to it, but i think when you get in a situation where you live together and make financial decisions together you have reached a clear point where it's time to paint or get off the ladder.
          there is a potentially ethically compromising situation here, if partner wants to be married and you aren't in total agreement then i don't think you can allow them to help you work through your financial plan, that would be an unethical use of another person. sorry getting old and crusty here.


          • #6
            don't do that real estate deal. you only do those once you are debt-free (except primary home mortgage, which you don't have) and maxing out your retirement space. I would max out those retirement accounts, though I'm not sure based on the accounts you listed how you get $95k. But I do see $82.5k of space in what you listed, so I'd max that and pay the rest to debt.

            again, skip the deal. if you're feeling charitable and can do it in a sensitive way, tell your broth not to do that real estate deal either. It's the same as buying a house during medical school or residency. Terrible idea! stay away