401K to the match, max out Roth, then?

[asmom]

Here's the situation:

student loan balance: $9286 @ 4.25%
home equity loan balance: ~$33,000 @ 6.375%
no cc's, auto loan, or personal loans.

401K: currently putting in 3.5% salary to get maximum 1.5% match
Roth: now maxing out annually
EF: 6 months of expenses. I would like to get up to at least one year's salary but that's going to take another 3-4 years.

After all bills, 401K and Roth contributions, I have an average of ~ $1.5K per month left over. Should I now go back and increase my 401K contributions or what??? Pay off remaining loans? Everybody always says you should only increase up to the match. So what to do after that?

I'm 39, retirement is very anemic due to all the years that I was a SAHM/prn nurse when my kids were small.

Your gentle guidance is appreciated.

[red92s]

I'd pay off the student loans by the middle of next year, then start chipping away at the equity line. Maybe bump up the 401(K) a bit after you pay off the student loans.

[Daylily]

What is your tax situation like? You don't mention a mortgage so I'm not sure if you can deduct mortgage interest. I'm the same age as you and I can no longer deduct mortgage interest because I don't have enough to itemize. My only tax break is the 401k, so I put the full 16,500 limit into my 401k.

[creditcardfree]

It's great that you are saving. My question is what percentage of your gross income are you saving for retirement. You would want to save at least 10%, but maybe up to 15%.

I do think paying off your debt is important, too. It might feel like you are making progress if you pay off the student loans first, but really you are probably paying more in interest to the home equity loan.

Advisors say to contribute up to match, so that you aren't throwing away "free" money. It is fine to contribute more!! Nothing wrong with that especially since you are already maxing out your 401K.

[bjl584]

I'd start paying off your debts with your extra money. Rule of thumb is to start with the debt that has the highest interest rate. I'm not sure what your tax situation is so far as being able to deduct interst on your loans, but that is something that you will need to consider if it applies to your situation.

[feh]

Originally Posted by creditcardfree

Advisors say to contribute up to match, so that you aren't throwing away "free" money. It is fine to contribute more!! Nothing wrong with that especially since you are already maxing out your 401K.

+1

Contributing up to the match is the minimum you should be contributing. 10-15% is preferred.

[disneysteve]

Originally Posted by feh

Contributing up to the match is the minimum you should be contributing. 10-15% is preferred.

That's 15% to retirement total. It doesn't need to be 15% to 401k and maxing a Roth (though that would be even better).

Personally, I always considered accelerated debt repayment to be the fixed income portion of my asset allocation. Instead of investing in bonds, for example, you are "investing" in the guaranteed 6.375% return from prepaying your HEL.

[creditcardfree]

Originally Posted by disneysteve

That's 15% to retirement total. It doesn't need to be 15% to 401k and maxing a Roth (though that would be even better).

Personally, I always considered accelerated debt repayment to be the fixed income portion of my asset allocation. Instead of investing in bonds, for example, you are "investing" in the guaranteed 6.375% return from prepaying your HEL.

Agreed on the retirement total. Steve, I had never thought about debt repayment that way before...but it makes sense!

[asmom]

Originally Posted by Daylily

What is your tax situation like? You don't mention a mortgage so I'm not sure if you can deduct mortgage interest. I'm the same age as you and I can no longer deduct mortgage interest because I don't have enough to itemize. My only tax break is the 401k, so I put the full 16,500 limit into my 401k.

My husband pays the mortgage and we are able to deduct mortgage interest for both loans. However we can use any additional tax advantage we can find.

[asmom]

Originally Posted by creditcardfree

It's great that you are saving. My question is what percentage of your gross income are you saving for retirement. You would want to save at least 10%, but maybe up to 15%.

I do think paying off your debt is important, too. It might feel like you are making progress if you pay off the student loans first, but really you are probably paying more in interest to the home equity loan.

Advisors say to contribute up to match, so that you aren't throwing away "free" money. It is fine to contribute more!! Nothing wrong with that especially since you are already maxing out your 401K.

401K + retirement = about 10% to retirement. That might be okay if I wasn't so far behind. Thanks for the explanation. It always seemed to me that people were suggesting that putting more than the match in a 401K was a waste.

Originally Posted by bjl584

I'd start paying off your debts with your extra money. Rule of thumb is to start with the debt that has the highest interest rate. I'm not sure what your tax situation is so far as being able to deduct interst on your loans, but that is something that you will need to consider if it applies to your situation.

I desperately want to pay off those debts but I keep going back and forth because I have so little in retirement. You've given me food for thought.

Originally Posted by feh

+1

Contributing up to the match is the minimum you should be contributing. 10-15% is preferred.

Originally Posted by disneysteve

That's 15% to retirement total. It doesn't need to be 15% to 401k and maxing a Roth (though that would be even better).

Personally, I always considered accelerated debt repayment to be the fixed income portion of my asset allocation. Instead of investing in bonds, for example, you are "investing" in the guaranteed 6.375% return from prepaying your HEL.

I feel the same way about the guaranteed return, but I just wasn't sure if I was in a position to do that with so little in retirement.

[AtlantaLife&Health]

Invest in cash value dividend paying life insurance from a company like New York Life. their dividends are consistently around 6-7% annualy. Go check their annual reports. You can fund the policy (dump additional money into it), thus earn more money on your investment dollars. It's safe. Many people don't know the living benefits of life insurance. Many fortune 500 companies invest in COLI (Company Owned Life Insurance). They earn those dividends each and every year. Look into it. Ask an adviser in your area.