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Pay off low rate refinanced loans or taxable IRA?

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  • Pay off low rate refinanced loans or taxable IRA?

    Hi,

    I am attending making good income. I have 72,000 student loan debt refinanced at 2.95%. No other debt.

    Question is should I pay off my debt as quickly as possible? Or should I be investing extra income into taxable investment account? 529 for kids?

    I already plan to max out the employer 401k and Roth IRA. Question is what to do with left over income - pay off loans quickly or taxable investment account? My hesitation in paying off the debt quickly is the rate is currently low and may be advantageous to keep this relatively cheap debt around longer.

    Thanks for your advice.

  • #2
    If I were a new(I'm assuming you are)attending with a very good income with my only debt being 72k in student loans I would max out pretax retirement options and knock those loans out in a year. Just be done with them and be debt free.

    Comment


    • #3
      without knowing more details, one cannot responsibly offer you advice.

      Do you have an emergency fund? is your job stable? Are you buying a house anytime soon? Do you already have kids and how old are they? How old are you?

      etc

      Comment


      • #4
        Whats your age? This is the most important part of the question. When you're at the beginning of your career its more advantageous to invest and start a nest egg as soon as possible to lock in long term compounding. If towards the end of your career thats not as powerful a device.

        Other things that matter are job security, whether you have any plans to move or start your own practice, etc...all things that might sway you towards loan payoff and ability to be nimble.

        Comment


        • #5
          First, make sure you are comfortable with your emergency fund. I'd also contribute to a 529 plan if you get a state tax credit.

          After that, it's a personal decision. It's probably mathematically advantageous to keep the loans at sub-3% and invest in a taxable account instead. Despite that, if I was you I'd just pay off the debt. The psychological benefit of being debt free would be worth it to me.

          Really, both are good options. Either you'll be debt free or you'll have a healthier investment account. I wouldn't lose too much sleep over it regardless of which you choose.

          Comment


          • #6




            Hi,

            I am attending making good income. I have 72,000 student loan debt refinanced at 2.95%. No other debt.

            Question is should I pay off my debt as quickly as possible? Or should I be investing extra income into taxable investment account? 529 for kids?

            I already plan to max out the employer 401k and Roth IRA. Question is what to do with left over income – pay off loans quickly or taxable investment account? My hesitation in paying off the debt quickly is the rate is currently low and may be advantageous to keep this relatively cheap debt around longer.

            Thanks for your advice.
            Click to expand...


            How long do you want to be in debt? If the answer is as short a period of time as possible, then pay off debt instead of investing in taxable. If the answer is 5 years, then figure out what it takes to pay the debt off in five years, pay that toward it, and invest the rest. If the answer is "I love debt and want to maximally leverage it to boost my investing returns" then pay the minimum and invest the rest.

            There really is no wrong answer here, but there probably is a right answer for you. In my experience, doctors really appreciate being done with student loans within 5 years of being out of residency, no matter what the interest rate is.
            Helping those who wear the white coat get a fair shake on Wall Street since 2011

            Comment


            • #7
              Right now have about 90k in cash and expecting to receive a bonus this year of around 130k, which will net out to 65k after taxes. Wife and I have about 200k for a down payment on a house already. I’m 33 and she is 32. One child who is 19 months old.

              So question is after maxing our 401k and 529, should the remainder of money be put into taxable investment account, keep as cash or pay down/off the debt?

              Thanks for the advice.

              Comment


              • #8




                Right now have about 90k in cash and expecting to receive a bonus this year of around 130k, which will net out to 65k after taxes. Wife and I have about 200k for a down payment on a house already. I’m 33 and she is 32. One child who is 19 months old.

                So question is after maxing our 401k and 529, should the remainder of money be put into taxable investment account, keep as cash or pay down/off the debt?

                Thanks for the advice.
                Click to expand...


                Your student loans are essentially paid off already, its just a question of where balances are on the ledger and your long term goals. You're very young and a boost into investments will be long term more beneficial at this time. However, given you have a certain amount of savings built up and all this 'extra' coming in, its again a question of where to hold the balances if any. WCI's suggestion of picking a time frame makes great sense.

                Otoh, you have 200k saved up for a house down payment, and 72k in student loans. This becomes very simple. I'd pay the student loan with your mortgage fund and transfer it to mortgage debt instead which is by any way measured much preferred as a form of debt.

                After you've built up a reasonable emergency fund, I wouldnt hold cash much above that. Open the taxable for that.

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                • #9
                  I would put in taxable at that low rate. 90k in cash seems like a lot. I'd lower that, or re-explore my expenses (assuming that's what the 90k is based on).

                  Comment


                  • #10
                    I'd pay them off. Today. Yes, there is some potential to play the numbers game, but there is potential value in having cashflow.

                    There is also value in simplicity. And your time. Being done with another recurring monthly hassle is worth something too.

                    Comment


                    • #11




                      Right now have about 90k in cash and expecting to receive a bonus this year of around 130k, which will net out to 65k after taxes. Wife and I have about 200k for a down payment on a house already. I’m 33 and she is 32. One child who is 19 months old.

                      So question is after maxing our 401k and 529, should the remainder of money be put into taxable investment account, keep as cash or pay down/off the debt?

                      Thanks for the advice.
                      Click to expand...


                      None of that information really changes my thoughts. When do you want to be out of student loan debt? That's the main question you need to answer.

                      What I would probably do is take $72K of that $90K in cash you have and send it to the lender on Monday.
                      Helping those who wear the white coat get a fair shake on Wall Street since 2011

                      Comment


                      • #12
                        What does it mean to max out a 529?

                        Comment


                        • #13
                          26k per year - 13k for each parent for one 529 for one child

                          Comment


                          • #14
                            If you’re talking about the annual gift limit, it’s been $14,000 per year since 2014. Also, your spouse can give another $14K per year, so it’s $28K per year.

                            Comment


                            • #15




                              If you’re talking about the annual gift limit, it’s been $14,000 per year since 2014. Also, your spouse can give another $14K per year, so it’s $28K per year.
                              Click to expand...


                              They're discussing annual max for a 529 plan.


                              26k per year – 13k for each parent for one 529 for one child
                              Click to expand...


                              I thought the max was state dependent?

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