Author Topic: Advice Needed - Goals vs. Math (IRA contribution vs. Debt Payoff)  (Read 388 times)

lexde

  • Pencil Stache
  • ****
  • Posts: 649
  • Age: 28
Hi everyone! To make this very brief, I am wondering: Should I max out my Roth IRA for 2017, or put that money toward my 6% student loans?

My biggest goal is to become debt-free by 12/31/18. I knocked out 27K of student loans in 2017 putting me at positive NW (finally) and I have about 25K to go before I'm in the clear. Paying off my loans will be a huge psychological plus for me and will be a huge burden off of my shoulders. But I know I should probably max out my IRA first if we are just looking at the math, right? I don't know that I will be able to be totally debt free by the end of this year if I contribute all of my Roth, and I will have to dip into my eFund (easy to replenish) to max it out before the deadline.

I just wanted to get some objective opinions on this since I am leaning heavily toward debt reduction.

If it matters, I am already contributing 5% to my 401(k) and am contributing $1,600.00/mo (about 40% of my take home) to my HSA in Jan/Feb to max it out quickly and throw it in VTSAX to grow tax-free.

MDM

  • Walrus Stache
  • *******
  • Posts: 7419
Re: Advice Needed - Goals vs. Math (IRA contribution vs. Debt Payoff)
« Reply #1 on: January 13, 2018, 02:44:12 PM »
It's a close call.  I'd lean toward an IRA (either traditional or Roth, depending on circumstances), especially if the SL interest is deductible for you, but it wouldn't be totally unreasonable to pay the SL.

See Investment Order for more details.

lexde

  • Pencil Stache
  • ****
  • Posts: 649
  • Age: 28
Re: Advice Needed - Goals vs. Math (IRA contribution vs. Debt Payoff)
« Reply #2 on: January 13, 2018, 05:27:28 PM »
It's a close call.  I'd lean toward an IRA (either traditional or Roth, depending on circumstances), especially if the SL interest is deductible for you, but it wouldn't be totally unreasonable to pay the SL.

See Investment Order for more details.

Thanks!

COEE

  • Bristles
  • ***
  • Posts: 336
Re: Advice Needed - Goals vs. Math (IRA contribution vs. Debt Payoff)
« Reply #3 on: January 13, 2018, 08:03:35 PM »
Congrats on paying off so much last year!  And good luck finishing it off this year!

Some of our loans were over 6%  A couple were less.  I have no regrets having killed them several years ago.  Do it you won't be sorry!

I would keep contributing to the 401k if you're getting any kind of match.  If not, stopping the contributions will only help you get out of your loans that much faster (6 months?). 

There is a lot of math that you can also do to see which is mathematically better (assuming continued market returns) and that's a viable thing to do as well, but I personally like not owing other people money and having one less bill I have to pay every month.  You're so close.  Just finish them off. 

What option would help you sleep better at night?

Dexterous

  • Stubble
  • **
  • Posts: 202
  • Age: 31
Re: Advice Needed - Goals vs. Math (IRA contribution vs. Debt Payoff)
« Reply #4 on: January 16, 2018, 03:30:55 AM »
The math is close enough for either option in my opinion, therefore, I'd pay the debt due to its extra psychological benefit.

FireryFIRE

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: Advice Needed - Goals vs. Math (IRA contribution vs. Debt Payoff)
« Reply #5 on: January 18, 2018, 01:41:18 PM »
I'm in the same spot! I need $3,000 more to fully fund my IRA for 2017 but still have 30K to pay off my student loans.

What I do every year is save my IRA/SL potential money in a savings account and use that to fund any gaps in my monthly SL payment goal and also take an automatic $200/monthly contribution to my IRA (which is why after 12 months I'm still $3,000 short). Then come the end of March, I make the decision to fund IRA or put toward SL.

I'm not going to be able to pay off my student loans this year but $3K could reduce payoff by 2 months. Comparing a 2 month reduction in payoff vs fully funding an IRA which I wont be able to do again for that year, it makes more sense to me to fund my IRA. Even though it just makes me more angry at those stupid student loans.

I think it depends on the person. I hate hate hate my SL but I try and remind myself that I have time to pay them off. I wont have the time to fund my IRA again for 2017 In your case, I would see how much earlier you could pay off your loans with that lump payment. If it's only a few months, you might lean more towards the IRA. Especially if you think you'll run into the same problem next year (meaning will you be able to fund IRA for 2018 with this aggressive payoff schedule?)

Also, consider refinancing your loan. I split mine between 2 lender who each offered a $500 sign up bonus. I got a lowe r rate and put and extra $1K to my loans. It helped me make the IRA decision. Good luch

koshtra

  • Bristles
  • ***
  • Posts: 270
  • Location: Portland, Oregon, USA
  • massage therapist, database guy, worder
    • Mole
Re: Advice Needed - Goals vs. Math (IRA contribution vs. Debt Payoff)
« Reply #6 on: January 18, 2018, 02:24:54 PM »
It's almost never a bad idea to pay off debt that's 5% or more. It might be a bit less than you'd earn on the market -- but debt payoff is an absolutely guaranteed return. It's not just five percent you're "making," it's a guaranteed five percent. And that is pretty sweet.

So if you're more motivated by paying off the debt, then go for it, for sure.