Max out tax advantaged space or use taxable investments to prepare for no PSLF?

[Queue]

So my wife has agreed to let me invest an additional 1k/month. I'm looking for some advice as to the best course of action. We are currently investing the following:

My Spousal Roth IRA: $5500/year

Wife's Roth TSP: $5827.20/year

Wife does not have a Roth IRA, nor do we have any additional work-related tax advantaged space. Since she's a military doc, we are attempting to use PSLF. Only about 14 months in so far. We have no idea if we will continue to stay in the military. So what's the best way to use this extra money? My ideas are:

1. Max out wife's Roth TSP.

2. Open up Roth IRA for wife and max, then put the rest into Roth TSP.

3. Open up Roth IRA for wife and max, then put the rest into taxable account (for use in case of PSLF implosion)

4. Put all into a taxable account.

Her student debt is at 216k. My gut says we need to be maxing out our tax advantaged space before we think about a taxable account, but does having that money available in a taxable account in case PSLF doesn't work change things? I read a few threads about this topic that have been posted here and on bogleheads, but it looked like posters of those threads were already maxing out their tax advantaged space, so I couldn't really draw a good conclusion for our situation.

[hightower]

Difficult to fully judge your situation without more info...what kind of income do you have now and expect to have moving forward?  Student debt interest rates? Other debt? Current balances of savings, retirement accounts. How old are you guys?

My initial reaction is to say use the extra money to pay down that debt.  216k is a lot of student loan debt.  But, I see you're hoping for PSLF.  There are different opinions out there on this.  Mine is personally to just get rid of the debt now, but others would disagree.

You definitely are not in a position to be contributing to a taxable account yet though IMO.  I think if not going towards student loans, you should put it towards tax advantaged space.  See the recent POF article on this subject: https://www.physicianonfire.com/maxed-retirement-accounts/

[Queue]

hightower wrote:

Difficult to fully judge your situation without more info

Click to expand...

Income is roughly 85k. It will rise a bit over the next few years due to time in grade. Until we decide if she will stay in the military or not, no significant raise will happen for at least 3-5 years. The student loan interest rate is 5.75%. Only other debt is a personal loan from my dad. That's down to about 12k now. We're both 28. We started consistently investing last April and have about 15k between the Roth IRA and Roth TSP.

I'd love to start tackling the student loans, but with only 85k a year it will be hard to make any real dent. I still have hope that PSLF will be available for us after another 106 payments, so would hate to lose the opportunity of having over 200k forgiven, especially given that our AGI is so low. Our student loan payment on REPAYE is only $80/month.

I'd just like to a avoid the situation where 9 years from now we have a healthy 6 figure amount in our tax advantaged retirement accounts, but no cash to pay off the student loans if PSLF does fall through. But even that might still be better than not maxing out that tax advantaged space in the first place. I'm just not sure.

[Zaphod]

Interesting scenario. As far as the tax advantaged space, given you are at a low income the taxes arent bad and you could reasonably be in a higher bracket than now when drawing on your retirement funds. That along with the great idea to have a side fund for pslf makes taxable a pretty attractive option.

This is more strategic than tax based for you guys given PSLF which makes sense.

Probably something you'll want to run the numbers and scenarios for but sounds reasonable. I would reframe it not as investing vs. paying down this debt, but building up a side account that is a proxy for paying down the debt just in case PSLF goes away. Thats entirely different and reasonable.