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

[q-school]

does it make sense?  depends on how rich they are but generally no.  there are many strategies to pulling out of retirement plans.  not everyone agrees on the optimal strategy.  even if everyone here agreed, that does not mean there is a universal strategy that is applied to everyone.

should they do it?  probably not.

lots of times parents do what they want anyways, even if it drives the kids crazy. 

 

 

[fatlittlepig]

Time to put on your big boy pants and take some responsibility for your future.

[spiritrider]

Put me in the maybe camp with strings. I think it might be ok to let them do this under the these facts and circumstances:

• They have more than enough to have a comfortable retirement. Or you sign a promissory note to pay them back at the Applicable Federal Rate (AFR) currently ~= 3% for min/long-term.


• Only if it they limit the amount/year such that it doesn't put  them in a much higher tax bracket. E.g. 2% - 3% higher ok, 8% - 10% higher not ok.


• If these are gifts and you have siblings, this is taken into account for inheritance purposes.

Personally, I think that this should be limited to 50% of the current balance. That still gives you some significant skin in the game. You have more than enough income to manage the other half.

[fatlittlepig]

You’re in a bad spot I get it. Why don’t you move in with your parents, save and discharge the debt rather than raiding their retirement.

[L]

How old are they? Are they old enough it's not an early withdrawal, 10% penalty? Or does that not apply.

[drbw]

Thanks for all the replys! My parents are already retired and just enjoying life. They basically live a modest life and just travel with their free time. They always offer to help me pay for some of my loans but I most often tell them no since I just want to tackle it myself. But I just want to see if it makes sense for my parents to help pay some of it by taking out of their retirement since they get taxed, and I will just pay them back instead of the government? Does it save money in the long run?

[drbw]

I can pay off my loans, just wanted to see if it saved money this way by just paying my parents instead of the government

[Zaphod]

drbw wrote:

Thanks for all the replys! My parents are already retired and just enjoying life. They basically live a modest life and just travel with their free time. They always offer to help me pay my loans but I most often tell them no since I just want to tackle it myself. But I just want to see if it makes sense for my parents to help pay by taking out of their retirement since they get taxed, and I will just pay them back instead of the government? Does it save money in the long run?

Click to expand...

It saves you, but may cost them. Whether that matters totally depends on how much they have, want and need. If they have a ton for example and simply want to do it for you, no big deal, its a cost they want to bear. I'd make sure they understood it however. If they just think theyre doing the right thing, etc...and dont have a ton of excess...maybe not so great an idea.

It really really depends.

[SerrateAndDominate]

Sounds like you need to refinance ASAP if you aren’t at a non-profit

[Brains428]

Probably not. It depends on how insistent they are. Have you tried to refinance, yet?

If they want to help, maybe take a 15k gift annually until you pay it off. I wouldn't take that sum if you plan on doing minimum payments or buying a 80k car.

 

[drbw]

I have not tried to refinance yet. I stayed on paye since I was not sure of how much I would make since I get paid on % of what I do, wanted to get a good idea before I refinanced. However, now that I have a good idea, I  want to refinance but was thinking about refinancing after my parents helped me a little if I decide to go that route. They said they will can give 100K to which will cause the tax % to jump 2% more. They weren't planning to pay the whole thing, just help out a little. Either way I am paying the government/bank or I am paying my parents.

[Craigy]

Sounds like some of the above are bitter that they didn't have parents to help them out of their own debt.    :lol:

With close to $400k in debt I think you need to take any and all avenues to payment.  Free money is free money, unless of course it isn't.

Ask yourself:

• Are mom and dad a class act?  Or will you be indebted to them forever?


• Are mom and dad going to accumulate more wealth than you?


• Do mom and dad need the money they're giving you for something else?


• Are mom and dad giving similar money to others (siblings? charities?)?  By refusing are you not getting your fair share?


• Do mom and dad waste money, carry credit card debt, have a QVC addiction?


• Why didn't they just help pay for school in the first place?


• Will you be faced with some tremendous guilt, self inflicted or from other parties?


• Can you get over that guilt?  :lol:

 

 

[drbw]

My family is really close! They don't even want me to pay them back but I know I will. They already paid for both my siblings, who have no loans anymore. I was just hard headed and refused to let them help me out before because I thought that was a tremendous amount of money. But now it is coming down to what is a better decision financially and what will save the most money for the family. My family will never ask me to pay them back but I will anyways. The main thing that worries me is since they get taxed on the money they take from retirement, I just can't decide if getting hit with tax would be better than just riding out the interest. Is there a way to minimize the amount of tax? I see many are saying to do it in 15k increments annually, but my parents want to do 100k.

[Anne]

Another thing to consider is some (not all) student loans are structured to be discharged in the case of your death or permanent disability but the loan to ma and pa won't be. You can mitigate this by taking out extra life/disability insurance to cover that but should still be a consideration.

[Craigy]

drbw wrote:

My family is really close! They don’t even want me to pay them back but I know I will. They already paid for both my siblings, who have no loans anymore. I was just hard headed and refused to let them help me out before because I thought that was a tremendous amount of money. But now it is coming down to what is a better decision financially and what will save the most money for the family. My family will never ask me to pay them back but I will anyways. The main thing that worries me is since they get taxed on the money they take from retirement, I just can’t decide if getting hit with tax would be better than just riding out the interest. Is there a way to minimize the amount of tax? I see many are saying to do it in 15k increments annually, but my parents want to do 100k.

Click to expand...

Ok that makes the question easy enough:

How much did your sibs get?  That's how much you should be happy to take, guilt-free.

The tax question is a good one for their CPA.