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Pay off loans vs. IRA cont.

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  • Pay off loans vs. IRA cont.

    Given the turmoil in the markets recently and with rate hikes on the horizon, it seems like there is due to be a large market correction in the near future.

    I worked as a 1099 for the second half of 2021 and have about 50k saved I was planning to contribute to a SEP IRA, but given the outlook for the market right now, anyone think it would be wiser to just take that money as income instead, pay taxes and then use the rest to put towards student loans while they're still at 0%? I currently have a little over 500k of student loan debt (aka Indentured servant)

  • #2
    There already has been a decent correction, 10% ish. If investing long term, that's a good as drop as any IMO

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    • #3
      Sorry, I meant to say crash (50%+), not just correction. If you follow or read Ray Dalio's books on managing debt crises, we are on a frighteningly similar trajectory of the events leading up to the Great Depression in the late 1920's, early 1930's.

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      • #4
        Ray Dalio can suck it

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        • #5
          What's your student loan plan? Refinancing or taxable IDR forgiveness(20-25 yr)?
          Helping student loan borrowers manage their student loans. StudentLoanAdvice.com. [email protected]

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          • #6
            Originally posted by Andrew StudentLoanAdvice View Post
            What's your student loan plan? Refinancing or taxable IDR forgiveness(20-25 yr)?
            So I was in the income based repayment plan before covid hit because I was in residency then and it was all I could afford. I've been enjoying the 0% interest since then and am still in the same plan to utilize that benefit. However, my new job is a 1099 IC and won't qualify for PSLF. I plan to try and continue making large payments before the 0% interest runs out. Hoping that they extend again; if not, then I'll refinance in April for a lower rate since it would jump back up to 6.88%.

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            • #7
              Originally posted by NewRad123 View Post
              Sorry, I meant to say crash (50%+), not just correction. If you follow or read Ray Dalio's books on managing debt crises, we are on a frighteningly similar trajectory of the events leading up to the Great Depression in the late 1920's, early 1930's.
              Trying to predict the future and using it to influence your investment decisions is a losers game. If you wanted to put more money toward loans than retirement that’s totally reasonable, but right now the thought process behind that decision is concerning

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              • #8
                Making decisions under flawed premises is less than ideal. I bet you’d wish you could buy at today’s prices in 25 years.

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                • #9
                  Don’t know what your tax rate is nor your income nor your plan for the $500k debt. Don’t have a clue about your savings rate or any idea what interest rates will be or what the market will do.
                  I do know you have a concern about the size of the debt. The only solution is to pay it with after tax money. The sooner the better. $500k is sizable.
                  With 1099 income, I have no clue what you will be offered. Find that out and decide if you need it for Efund, lower debt, or retirement.
                  Not on potential returns, crashes, interest rates, or inflation. Make choices on facts and your goals. Which is better? Lower debt or more retirement?
                  Personally I’d work on the $500k debt and get that under control.

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                  • #10
                    Originally posted by Turf Doc View Post

                    If you wanted to put more money toward loans than retirement that’s totally reasonable, but right now the thought process behind that decision is concerning
                    I think that only is reasonable for money over and above the basic 20% of gross compensation saved towards retirement.

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                    • #11
                      Originally posted by Hank View Post

                      I think that only is reasonable for money over and above the basic 20% of gross compensation saved towards retirement.
                      I agree that's where id start, but if someone was just gonna get the match and then throw 70% of their money at their loans until theyre gone (for example), it might not be ideal, but as wci always says the main thing is how much money youre putting toward building wealth. That person is going to do well either way

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                      • #12
                        Originally posted by Turf Doc View Post

                        I agree that's where id start, but if someone was just gonna get the match and then throw 70% of their money at their loans until theyre gone (for example), it might not be ideal, but as wci always says the main thing is how much money youre putting toward building wealth. That person is going to do well either way
                        Needs a plan for $500k of debt. That is enough debt that it can spiral out of control. That is not saying pay it off ASAP. It needs a plan that allows 20% retirement. Until that happens it’s a problem.

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                        • #13
                          I dont think you can predict this very well, but if it does happen , I would more worry about excessive job losses and health insurances losses , and no one being able to afford xrays and healthcare costs

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                          • #14
                            Elephant in the room.... why a SEP?

                            1) open solo401k
                            2) Max solo401k
                            3) pay taxes
                            4) pay for housing and food
                            5) whatever is left goes to loans

                            Invest at least 20%. Refinance the loans to whatever fixed rate makes a comfortable payment over 5-10 years. Stick to the plan. All investments include risk of loss (even the safe ones).

                            Opportunity cost and all that.

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                            • #15
                              Sorry for the absence, but thanks for all the good advice. My guess is that I'll be making around 50k/mo pre-tax this year and my wife and I live far far below our means. For this year and here on out I plan to max out retirement contributions and then pay off the loans aggressively. I was just wondering about 2021 being an odd year because of the 0% interest.

                              I only did SEP for this year because I was sole proprietor in 2021. Not incorporating into S-corp until this year because I will be moving to another state and my current state (MA) has an additional corporate tax rate of 8%. Once I move later this year (before July), I will form the S-corp and open/switch to solo401k.

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