Does it make sense for parents to pull out of their retirement to help pay loans?

[drbw]

Hi everyone,

My parents just offered to help pay for my loans by taking money out of their retirement accounts. One year out, I graduated with about 370k in student loans with my average interest around 6.5%. Income is around 200k and I am currently still on paye right now. My question is does it make sense to accept money from my parents, who are already retired and just enjoying life, to help pay for some of my loans if they pull out money from their retirement accounts (which they will get taxed on)? Does riding out the paye make more sense? Sorry for the confusion but I do plan to pay my parents back.

Thanks

[Panscan]

Well I guess that depends on how much money they have and if they need it but not sure why you can't pay off your own loans...

[Lordosis]

It definitely makes sense for you.  Probably not for them.

[Peds]

drbw wrote:

Hi everyone,

My parents just offered to help pay for my loans by taking money out of their retirement accounts. One year out, I graduated with about 370k in student loans with my average interest around 6.5%. Income is around 200k and I am currently still on paye right now. My question is does it make sense to accept money from my parents to help pay for loans if they pull out money from their retirement accounts (which they will get taxed on)? Does riding out the paye make more sense?

Thanks

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you are not specifying where this "retirement" money is.

if taxable, they can give you 15k/person/year and move on. ive never asked our parents for this.

and i would never ask my parents to take larger RMDs/pull from Roth accounts to pay off my loans.

 

so more important, what is your loan plan currently? how much do you owe, how long have you been doing paye, income 200K....

 

[SerrateAndDominate]

It really doesn’t. If it’s from a taxable account, then they are paying higher tax rates than your interest rate, which doesn’t make sense. If it’s Roth, then their post-tax money was at whatever percentage then growing tax free. Sure most loan payments are with post-tax dollars that can’t be deducted. Just trying to rationalize why it’s a bad deal for your parents. Plus taking from Roth is hurting any compounding in that account.

If you’re in PAYE as an attending, I hope you’re at a non-profit. Otherwise that interest rate sucks.

Personally, I’d thank your parents for the gesture but pay off your own loans

[IlliniGopher]

Regardless of if they can or cannot (worse if they cannot) — just suck it up and do it yourself. You’ll feel like you have achieved something. I finished $400K of my own and my wife’s $300K will be done next summer (hers all in Canada).

Granted, the older generation’s tuition was what we pay in books and houses cost what cars do now — having your folks bail you out is why our generation gets crapped on. I am 34 and a parent (context).

[CordMcNally]

Without knowing more details about your parent's situation, I don't think it makes sense.

[wideopenspaces]

This would be pretty messed up to accept unless they are multi millionaires in poor health. . . Or something like that. So we need more details. Certainty this is something you can pay yourself if you live like a resident for a few years. I'd refinance and aggressively pay off.

[hightower]

If they are offering to help you, there is nothing wrong with accepting that help.

If they have plenty of money to do this with, that's fine for them.

Do they want you to pay them back? Interest free loan kind of situation? We need more info if you want us to analyze how much sense it makes.

[dennis]

Accept their money to pay your loans only if you guarantee that when they run out of money in retirement you have them move in with you and you will support them. It's only fair.

[EntrepreneurMD]

Wow, is this average educational debt these days?

You should probably pay the majority of your loans yourself - you have far more earnings years ahead of you. However, there is nothing wrong with accepting gifts from you parents so long as it doesn't materially put their retirement at risk. I got the impression from your post that they are still working, but I may be wrong. If they're still working, this will likely delay their retirement if they unload a large sum. So if you accept make sure they know your gratitude for the sacrifice they made.

You have to be smart about it. It appears your parents don't have too much free cash. If they are/will be heavily dependent on their retirement accounts for annual expenses, you need to be really sensitive about this. If they have good jobs, a side gig, and/or real estate investments generating revenues, that takes some retirement risk off the table for them. Do you have any siblings that they may also need to help? Also a consideration.

You can also accept money from them as a 0 or low interest rate loan and pay them back on a monthly basis, wiping out the high 6.5% burden. It can be some kind of hybrid between gifts and loans.

Despite my 7 figure income, my semi-retired 70+ year old parents absolutely refuse to let me pay for dinner every time we go out to eat. I am forever grateful for the value they put on our relationship. I make it up by having them come with us on vacation and paying for them (as much as they allow me, also a challenge!).

Bottom line is it's not about the loans, but the power of your relationship with them. With or without their help, put it in your mind that you are talented, capable, and wise and will be fine with thoughtful planning.

[VagabondMD]

No

[JBME]

count me in the maybe camp. On the one hand, you'll feel more accomplished if you do this yourself. On the other hand, from a math standpoint for you only, yes it makes sense for them to help. If they are offering, sure why not?

I am assuming, btw, that they are properly prepared for retirement. Are they at least in their 60s and have at least 25x worth of 1 year of expenses in their retirement accounts? If they pay back your student loans, will they still have at least 25x worth of 1 year of expenses? If yes, then I say yes. If they don't, know.

A middle ground as someone suggested above is just have them gift you $15-30k/yr. They won't have to fill out additional tax forms then. You just need to be honest and make sure it goes right into paying off the student loan with the highest interest rate. One parent can gift you $15k and the other parent can gift another $30k. If they do it this way then you still have skin in the game by paying off more yourself while each year their help makes a serious dent in your loans too.

[wonka31]

The fact that they have to pull it out of retirement savings as opposed to taxable, etc. suggests that they aren't sleeping on a bed of $100 bills. I'd say no, but OP needs to respond if he/she wants more educated responses.

[Nysoz]

EntrepreneurMD wrote:

Wow, is this average educational debt these days?

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Looks like OP is a dentist. I hear their education is more expensive than physician on average. Also a lot of them have to take out loans to build or buy a practice afterwards. I hear a lot of dentists can be $1M in debt first few years out.