Student Loans vs Investing....specific situation

[dermres120]

I know many people have posted on this in the past and I also read WCI's article on investing vs student loan payments but I was not sure if that is still applicable in the current situation and financial environment. My specific case:

 

-Currently in intern year and will start dermatology residency next year (will finish residency in 3.5 years)

-Married and I currently make $60,000 and wife makes $120,000

-No plan for PSLF (have 100,000 in loans) and I refinanced my loans last year

-Wife and I are both currently paying 3.3% variable interest on our loans with 10 year repayment plan with total loan balance of around $290,000 between both of us

-Have the ability to invest in 401k(wife), 403b(me), 457b(me), and roth IRAs

 

My question is which of two scenarios I should choose to pursue while in residency

 

Scenario 1:

-Max out all retirement accounts

-Pay student loans at standard 10 year repayment payments

 

Scenario 2:

-Max out roth IRA

-Contribute for match in 401k and 403b

-Apply all extra money to pay down student loans quicker

 

After I am done with residency I should be able to afford to max out all retirement accounts and also pay down loans quickly but this is mostly a concern while in residency. Any advice you can offer would be greatly appreciated.

 

[hightower]

IMHO, definitely max out all retirement accounts now.  I'm assuming you're both still relatively young which means you have time on your side.  That interest rate is super low and less than most people's mortgages so I wouldn't worry about it for a few years.  I would max out all retirement accounts and start taking advantage of the tax savings and compounding/growth.  You will be glad you did 4 years from now when you have a couple hundred thousand already in retirement accounts and you start making the big bucks.  Then, when you start working as an attending, you can continue to save at your current rate and use all the extra income to kill your debt super quick.  With your wife's salary and a derm attending salary you'll be debt free in a few years time easily.

You didn't mention your current savings, but if you don't have an emergency fund, build that up first (3-6 months of living expenses).

The only way I would say to go with scenario 2 is if your variable rate starts to rise and goes above 4.5 or 5%.  Then, it would probably make more sense to start chipping away at the loans sooner.  If that happens, just cut back on contributions to your retirement accounts and redirect it towards loans.

[dermres120]

Thanks Hightower, I was pretty sure what I was doing was correct but nice to get the confirmation and what I was really looking for, which you touched on, was the 4-5% where it would start making sense to pay the loans down faster.

We do have an emergency fund setup through a savings account with ally where we have $15,000 which is about 3 months of expenses for us.

Based on our situation would you recommend Roth 401k contributions or pretax? Based on our income I estimate we will be in the 28% tax bracket (maybe about $5-10,000 of income will be taxed at that rate).

[hightower]

I'll let some of the more knowledgable guys on here comment on the 401k vs 403b/457b.  I'm not as familiar with when those are advantageous.  My hunch is that it would be better to do the 401k and back door Roth's.