Increase 401k contribution or ramp up student loans pmt?

[ZachM]

I am currently investing 5% in my company 401k which is matched dollar for dollar on the first 3% and then .50 on the dollar for the next 2%... I have roughly $5,500 in student loans that I had planned on paying atleast 500 a month this year to go ahead and get them knocked out, however since they are subsidized student loans with really low interest rate, I was thinking I could get more out of the situation in the long run by upping my 401k investments to atleast 10% from 5 every month.. I realized a 9.75% return on my contributions with the employee match on top. Any insight I would appreciate. Thanks.

[Wino]

I am currently investing 5% in my company 401k which is matched dollar for dollar on the first 3% and then .50 on the dollar for the next 2%... I have roughly $5,500 in student loans that I had planned on paying atleast 500 a month this year to go ahead and get them knocked out, however since they are subsidized student loans with really low interest rate, I was thinking I could get more out of the situation in the long run by upping my 401k investments to atleast 10% from 5 every month.. I realized a 9.75% return on my contributions with the employee match on top. Any insight I would appreciate. Thanks.

You are maxing out the real return (the "matching" bold text) on your 401K. Anything over that is speculation (the other bold text). You may have heard the quote "past performance is not an indicator of future results."

The real cost of the loan, no matter how low, is still a known and tangible cost. Pay off the loan exactly the way you are going. In 1 year, you can do what you want, though I suggest you divert the $500 into a Roth, and then do whatever you want (including a non-employer IRA, if you like) with any other money.

ENRON folks left all of their money in company stock in their employer's fund. There's no reason you shouldn't go to Vanguard or Fidelity for your non-employer investments.

[ZachM]

The 9.75% was over a mixture of stocks and bonds that our company teams up with BlackRock investments with. I am actually not able to buy into our company stock until this March.

[Wino]

ENRON was merely an example. You have no guaranteed return from any of them.

[bjl584]

I am currently investing 5% in my company 401k which is matched dollar for dollar on the first 3% and then .50 on the dollar for the next 2%... I have roughly $5,500 in student loans that I had planned on paying atleast 500 a month this year to go ahead and get them knocked out, however since they are subsidized student loans with really low interest rate, I was thinking I could get more out of the situation in the long run by upping my 401k investments to atleast 10% from 5 every month.. I realized a 9.75% return on my contributions with the employee match on top. Any insight I would appreciate. Thanks.

I'd say that we need more info. What do the rest of your finances look like? What are your plans for the next few years? Buy a car, a house, etc.?

Given the info you provided I'd be fine with hanging onto the debts for longer and increasing the 401K contributions. My answer may change based on additional info that you provide.

[ZachM]

Bring home pay of $2,500 monthly average.
Apt rent with all utilities is $580/mo.
Gas- $300/mo
Food-$300/mo
Vehicle ins-$47.00/mo
Student loans- $101.50/mo
Wknd/play money-$300/mo

I would like to purchase a reasonably priced vehicle within the next year, as my 02 Chevy may not make it. No further large purchases are in my near future as I'm only in the 2nd year of my career out of college and still have some relocating/moving up the ladder to do.

Thanks for the input.

[creditcardfree]

Here's another thought: It doesn't have to be one or the other. You could increase 401k to 7.5% and still work on the student loans...only a bit slower.