Is paying loans too fast a bad thing?

[djk3]

Question to throw out there:

I am graduating residency in 2 months (29yrs old) and starting 1099 earnings in July for about $400K annual salary.  My wife makes approx $60K.  I refinanced my loans with DRB last year and have been paying very very aggressively during my last year of residency (while maxing out a SEP and wifes 401k) and am down to $128k at 3.5% fixed.   I have a friend who paid off his $200k in 15 months.  I'd like to pay out 10-13k per month after July and get the loan knocked out in 10 months, but I will likely only have funds to max out my SEP as well.  Would I be better off just making a little over the minimum payment (say $4000) and paying it off in the 3.5 years while putting the other funds to retirement accounts/other investments or should I just take the hit on one year of retirement/investing and pay off the loan in a year?  I feel like paying it off fast would be a huge burden off our backs but am also disciplined enough to do it slower if that is the better long term plan.  Any thoughts and any suggestions for other places to put that extra $ each month or should I just pay into the loan like crazy?

 

[The White Coat Investor]

Good job. Doesn't matter much, but if you can't get your retirement accounts maxed out then it's probably okay to slow down a little given the great job you've been doing so far. Sure you want to do a SEP instead of an individual 401(k)?

[jfoxcpacfp]

djk3 wrote:

Question to throw out there:

I am graduating residency in 2 months (29yrs old) and starting 1099 earnings in July for about $400K annual salary.  My wife makes approx $60K.  I refinanced my loans with DRB last year and have been paying very very aggressively during my last year of residency (while maxing out a SEP and wifes 401k) and am down to $128k at 3.5% fixed.   I have a friend who paid off his $200k in 15 months.  I’d like to pay out 10-13k per month after July and get the loan knocked out in 10 months, but I will likely only have funds to max out my SEP as well.  Would I be better off just making a little over the minimum payment (say $4000) and paying it off in the 3.5 years while putting the other funds to retirement accounts/other investments or should I just take the hit on one year of retirement/investing and pay off the loan in a year?  I feel like paying it off fast would be a huge burden off our backs but am also disciplined enough to do it slower if that is the better long term plan.  Any thoughts and any suggestions for other places to put that extra $ each month or should I just pay into the loan like crazy?

 

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I would not recommend sacrificing the retirement contribution space in favor of paying down debt at 3.5%. Get your other ducks in a row (emergency fund, savings for big ticket items over the next 5 years, proper amount of insurance coverage all around) then max out...SEP? Why not SOLO-k? Don't you want to include back-door Roth contributions in your annual retirement plans?

[litovskyassetmanagement]

djk3 wrote:

Question to throw out there:

I am graduating residency in 2 months (29yrs old) and starting 1099 earnings in July for about $400K annual salary.  My wife makes approx $60K.  I refinanced my loans with DRB last year and have been paying very very aggressively during my last year of residency (while maxing out a SEP and wifes 401k) and am down to $128k at 3.5% fixed.   I have a friend who paid off his $200k in 15 months.  I’d like to pay out 10-13k per month after July and get the loan knocked out in 10 months, but I will likely only have funds to max out my SEP as well.  Would I be better off just making a little over the minimum payment (say $4000) and paying it off in the 3.5 years while putting the other funds to retirement accounts/other investments or should I just take the hit on one year of retirement/investing and pay off the loan in a year?  I feel like paying it off fast would be a huge burden off our backs but am also disciplined enough to do it slower if that is the better long term plan.  Any thoughts and any suggestions for other places to put that extra $ each month or should I just pay into the loan like crazy?

 

Click to expand...

This article might give you some ideas:

http://www.dentaltown.com/Dentaltown/Article.aspx?i=396&aid=5466

[Darkroominvestor]

Pardon my ignorance but given his income level of 400k, why would a solo 401k be better than an SEP ira...aren't the income limits the same and tax sheltered space?

[jfoxcpacfp]

Darkroominvestor wrote:

Pardon my ignorance but given his income level of 400k, why would a solo 401k be better than an SEP ira…aren’t the income limits the same and tax sheltered space?

Click to expand...

Yes, and that's the point. Having $$ in a 401k means he can contribute to a back-door Roth IRA. If he has a SEP or personal IRA, he would pay tax at conversion. You're pardoned ;-)