Hey all,
I've been reading up on retirement program loans and wanted to run something past all of you. I know that in general, taking a loan from your retirement accounts is bad because it reduces your time in the market and places your retirement financial security at risk. However, I was thinking about a specific circumstance where taking out the loan could be beneficial and want your input.
I'm a pgy2, my fiancé is a pgy1. Due to various savings from pre med school life and a generous and unexpected inheritance, we basically have enough to live on each year while throwing most of our own salaries into retirement accounts. As long as we continue down this path without any dramatic changes, I expect we could both end residency with ~80k in our 403b accounts, which would be fantastic. However, we do have a combined ~200k loan burden. Planning on repaye (our agi is minimal after pretax account contributions) during residency while refinancing after. What I'm considering however is each of us taking a 403b loan of ~50k towards the end of my fourth and final year of residency to just knock out about half of those loans. Then between the two of us (and as long as we don't dramatically alter our quality of living when I become an attending) we should probably be able to pay off the rest of the student loans plus repay the 403b loans (with prime+1% interest) within a couple years. This would just give us a way to take a big chunk out of those loans quickly even though we're obviously switching it for a different one rather than completely obliviating it right away...
Is that a reasonable reason to use a 403b loan? Obviously, there are times when this could hurt -- i.e. Happening to take a loan at the bottom of a market (which we just then wouldn't do) and buying back in high -- but if something like that can be avoided, would this plan make sense?
Thank you for the input!
PS - I did read that there is a "double tax hit" for paying back after tax money into the pre tax account, but wouldn't that after tax money be used to pay off loans and therefore isn't it basically the same amount anyway?
I've been reading up on retirement program loans and wanted to run something past all of you. I know that in general, taking a loan from your retirement accounts is bad because it reduces your time in the market and places your retirement financial security at risk. However, I was thinking about a specific circumstance where taking out the loan could be beneficial and want your input.
I'm a pgy2, my fiancé is a pgy1. Due to various savings from pre med school life and a generous and unexpected inheritance, we basically have enough to live on each year while throwing most of our own salaries into retirement accounts. As long as we continue down this path without any dramatic changes, I expect we could both end residency with ~80k in our 403b accounts, which would be fantastic. However, we do have a combined ~200k loan burden. Planning on repaye (our agi is minimal after pretax account contributions) during residency while refinancing after. What I'm considering however is each of us taking a 403b loan of ~50k towards the end of my fourth and final year of residency to just knock out about half of those loans. Then between the two of us (and as long as we don't dramatically alter our quality of living when I become an attending) we should probably be able to pay off the rest of the student loans plus repay the 403b loans (with prime+1% interest) within a couple years. This would just give us a way to take a big chunk out of those loans quickly even though we're obviously switching it for a different one rather than completely obliviating it right away...
Is that a reasonable reason to use a 403b loan? Obviously, there are times when this could hurt -- i.e. Happening to take a loan at the bottom of a market (which we just then wouldn't do) and buying back in high -- but if something like that can be avoided, would this plan make sense?
Thank you for the input!
PS - I did read that there is a "double tax hit" for paying back after tax money into the pre tax account, but wouldn't that after tax money be used to pay off loans and therefore isn't it basically the same amount anyway?
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