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Paying off Student Loans versus starting a Roth IRA

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    Paying off Student Loans versus starting a Roth IRA

    Hi, all. I'm back! Looking for some more advice. I have about 41K left to pay on my student loans, but at a much lower Interest Rate (3.25%). They are Federal Loans, and I consolidated them years ago (34K Stafford Sub, $6,600K Unsub). I'm currently on an IBR status with my loans, BUT I have been paying on them regardless, not having a full-time job. The goal for this year is to knock out the unsub loan amount as much as I can. However, should I also save the 1K to start a Roth IRA this year? I should also be back in school within the year to finish my Doctorate... probably in the fall. I'll be glad when that is done. I have about $5,200 in a Traditional IRA saved, mostly from a rollover 401K from a past job, and about 7K savings, which I'd rather not touch. What should I do, with time on my side? Again, I'm 36 yrs old, single, and with no kids. Thanks.

    #2
    Originally posted by musicprofessional View Post
    Hi, all. I'm back! Looking for some more advice. I have about 41K left to pay on my student loans, but at a much lower Interest Rate (3.25%). They are Federal Loans, and I consolidated them years ago (34K Stafford Sub, $6,600K Unsub). I'm currently on an IBR status with my loans, BUT I have been paying on them regardless, not having a full-time job. The goal for this year is to knock out the unsub loan amount as much as I can. However, should I also save the 1K to start a Roth IRA this year? I should also be back in school within the year to finish my Doctorate... probably in the fall. I'll be glad when that is done. I have about $5,200 in a Traditional IRA saved, mostly from a rollover 401K from a past job, and about 7K savings, which I'd rather not touch. What should I do, with time on my side? Again, I'm 36 yrs old, single, and with no kids. Thanks.
    So you have a decent sized debt at a very low cost (and tax deductible).

    But you're 36, and only have $5,200 saved towards your retirement. That's a severe weakness in your current situation. By your age, in general, you would want to have .75-1.5x your pretax salary saved up towards retirement.

    I would be paying the minimums on those SLs and attempting to save what I could.

    I really hope that your degrees help you get a job that allows you to save a high percentage of your income towards retirement. Cause you'll be playing catch-up for a while.

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      #3
      Thank you for your posting. This is exactly the stuff that I need to hear, and I need to find someone to help me figure out a budget, so I can catch up in the retirement dept, until I know where my profession is going to take me. Either, teaching public school, college or something else and performing on the side. I am currently working, but not full-time....but, there is some cash flow. My expenses are fairly low at the moment...so mainly, it's the student loan, and general living expenses. I may need to get another vehicle soon, but I'd rather not think about that at the moment. That's a big expense. I have the 7K in savings, and I'm wondering if I just should set up the Roth, and start socking away some of that saved money in the Roth, then put a small monthly set amount into the Traditional, since I really can't touch that money without penalty (for the most part). With the Roth, I can borrow from the principal in 5 yrs if I want to down payment on a house...if that days ever comes. I figure once I'm somewhat settled in a full-time job again, I can really start saving towards both the IRA's, and seeing what retirement plan(s) would be available at a potential, future job. What other things should I be thinking about right now?
      Last edited by musicprofessional; 04-21-2012, 01:45 PM.

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        #4
        Originally posted by musicprofessional View Post
        With the Roth, I can borrow from the principal in 5 yrs if I want to down payment on a house...if that days ever comes. I figure once I'm somewhat settled in a full-time job again, I can really start saving towards both the IRA's, and seeing what retirement plan(s) would be available at a potential, future job. What other things should I be thinking about right now?
        IMO one thing you SHOULDN'T be thinking about is the fact that you can withdrawl money from the Roth for a downpayment. You're already currently behind on your retirement savings and taking that money out (even for a house) wouldn't help matters any. So I'd suggest getting the thought of taking any money out of any retirement funds out of your head.
        The easiest thing of all is to deceive one's self; for what a man wishes, he generally believes to be true.
        - Demosthenes

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          #5
          Originally posted by musicprofessional View Post
          I'm wondering if I just should set up the Roth, and start socking away some of that saved money in the Roth, then put a small monthly set amount into the Traditional, since I really can't touch that money without penalty (for the most part). With the Roth, I can borrow from the principal in 5 yrs if I want to down payment on a house...if that days ever comes. I figure once I'm somewhat settled in a full-time job again, I can really start saving towards both the IRA's, and seeing what retirement plan(s) would be available at a potential, future job. What other things should I be thinking about right now?
          I would just keep the 7k in savings until you have finished school. Once you have a stable income, you can reconsider your priorities(emergency fund, retirement, then consumption funds). I would put retirement in front of your student loan(early payoff) being it has a low interest rate.

          Comment


            #6
            Originally posted by musicprofessional View Post
            Thank you for your posting. This is exactly the stuff that I need to hear, and I need to find someone to help me figure out a budget
            I'd recommend checking out SavingAdvice.com I hear you can post your budget there and have people from all over the world help you out.
            I may need to get another vehicle soon, but I'd rather not think about that at the moment. That's a big expense.
            I agree, that is a big expense. It should be something you plan for as part of your budget and goals. You should be saving for retirement in addition to saving for a car.

            Retirement is also a pretty big expense.

            With the Roth, I can borrow from the principal in 5 yrs if I want to down payment on a house...if that days ever comes.
            Umm, no. You cannot "borrow" from your principal - you withdraw it. Borrowing implies that you can just put it back when you're done, but you can't. You permanently reduce your tax advantage by withdrawing the principal.

            Say by that point you have $20k of principal. Would you rather have that $20k generating tax-free gains for retirement? Or taxable gains? Which helps you get to retirement faster?

            What other things should I be thinking about right now?
            1. How much money will it actually take to retire the way I want to?
            2. When do I have the time to post my full budget for analysis? (create its own thread)
            3. What will happen after you graduate?
            4. Are there any positions you could take upon graduation that offer student loan forgiveness programs?
            5. Which will be more expensive: a car? A home? Or 20-30 years without any income?

            And I agree with Maat that even though you're far behind, you still need to keep an adequate EF on hand.

            Comment


              #7
              Thank you all for the postings. I think the best thing for me right now is to work with what I have....and, like most of you have already said, really start thinking about how much I want, and need for retirement, so I can live the way I want to live when that time arrives. It's hard to think about this: How much DO I need to have saved up at 70-75 yrs old?!?!?! Without saying the old stand-by 'comfortably.' That's different for everyone, and doesn't realistically answer the question. Not sure how to anwser that one. I am a teacher type, so I don't plan on retiring anytime soon. I think, once a teacher, always a teacher.
              Some good news today: I was able to see up my Roth IRA this morning. Horray! The bad part of the news that I didn't expect to hear, (but glad I asked)...I can only contribute 5K altogether. Not each. That, I didn't know. So....as of now, I have about $3,500 left that I can contribute to both IRA's for 2012. Needless to say, I'll be sitting down to figure out how much I want to put in monthly, so I can max my contribution into the ROTH. My tax bracket is still rather low, so I won't need the tax break come tax season putting money into the Rollover IRA. I plan to continue working this summer: Just taking any summer job, retaining as many students over the summer, and save the rest. Once I max out my allowable into the Roth IRA, where else could I be putting money? It will probably be for the 'car fund.' But, just thinking of some other investment options...or EF.
              I'm also glad one of you mentioned the loan forgiveness thing. I've been working on that one for awhile. One option is to see I can into an Armed Forces Reserve program, and see if I can can play as a musician and get a partial student loan payment plan, or some kind of bonus. Probably, the Army. I'd like to get in a a band member, but that may be hard with my age, and current regulations in place. The other one may be the public loan forgiveness thing, but that's hard to get. I do teach pat-time at a Community College, but not sure how many hours I need to be working to qualify for that with my lender. Tried asking about that last year with them, but didn't get anywhere. May have to try again. Or, see if there are other options are out there for me. I'm currently in repayment with my student loans, but in an IBR status (Income Based Repayment Plan) with them. I wonder if that factor may screw things up.
              Last edited by musicprofessional; 04-23-2012, 12:55 PM.

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                #8
                I can relate to your question. I have about $45k in federal student loans and I want to pay them off as fast as I can. I also want to max out my retirement savings too. Save as much as you can for retirement whether it's contributing to a 401(k) up to the employer's match or putting $5k in an IRA. The earlier you start the better. You cannot get the time back that you miss putting money towards your retirement. I maxed out my Roth and try and pay as much as I can towards my student loans even if it's $20 extra.

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                  #9
                  Hi all. Hope you're hae a nice summer. This summer has been extremely slow in the work dept, but I'm being frugal, saving what I make and continuing to put that money into my Roth IRA. As of now, I'm about half way for my allowable contribution for the 2012. The intent is to max that out the reamining part of the year, and going forward. Right now, I have 7K towards my IRA's, and I'm wondering how many years I should keep continuing to do this, so I can catch up...I'm guessing probably until I secure full-time employment and see what employment retirement plans are available for me. You can't get time back at age 36. I should be done with most of my Doctorate this year, and the plan is to either teach public school, go into the Navy Reserves and teach school or something comparable, or secure employment as a teacher in an International School...probably in SE Asia...the money is good and it would be a two year contract. The car issue is still lurking, and I've been shopping around for something cheap with small payments.

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