Author Topic: Cash Out Small Retirement to Pay Debt?  (Read 2352 times)

randymarsh

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Cash Out Small Retirement to Pay Debt?
« on: July 19, 2013, 12:11:49 PM »
I held a student job my campus that had me pay into a public employee retirement fund instead of social security. I recently left that job and now I'm wondering what I should do with the account. I believe I have 4 options:

1. Completely cash out. The total value is ~$1,600 and I get my contributions + 20% of what the school paid. I'd get ~$900 - taxes.

This could be the best option because I have a decent amount of student loan debt at 7.9% and I've been throwing as much money as I can this summer towards accrued interest. An extra $700-$800 would really accelerate this and I could start paying down principal in just another month or 2.

2. Rollover to an IRA. Defers taxes, but I'm probably in the lowest bracket I'll ever be in.

3. Rollover to my existing Roth IRA. Still have to pay taxes, but this would be nice bump. Currently contributing $100 a month.

4. Leave it there. Not touching it has the pro of keeping me vested. If I take any type of public sector position in the future, I'll already have 12 months of service/20%. It's a definite possibility I could do public sector work, but not a guarantee like if I were going to teach. I'd like working in my university's IT department for example. Unfortunately, a $5 monthly fee is charged since my balance is under $5,000 and I'm no longer contributing.

Using it as a loan payment is the best option according to the math, but I'd like to hear if anyone else has an opinion.

Rural

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Re: Cash Out Small Retirement to Pay Debt?
« Reply #1 on: July 19, 2013, 07:20:50 PM »
As someone who's just about to pay through the nose to buy back time I had in a similar job in college (a long time ago, never thought I'd work public service in this state) I was all ready to put on my caps lock and tell you to leave it there. Then I got the the $5 fee you would have to pay. Gah. Roll it over.

Edit: wait, is this a defined-benefit pension? If so, the fee / money you have in the system don't matter nearly as much as the time in the system. In that case, I'd calculate the odds you'll end up working in that system as best you can and decide based on that.
« Last Edit: July 19, 2013, 07:23:06 PM by Rural »

randymarsh

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Re: Cash Out Small Retirement to Pay Debt?
« Reply #2 on: July 19, 2013, 09:34:58 PM »
Edit: wait, is this a defined-benefit pension? If so, the fee / money you have in the system don't matter nearly as much as the time in the system. In that case, I'd calculate the odds you'll end up working in that system as best you can and decide based on that.

It could have been a pension, but I chose what they call the "member directed" plan which functions very similar to a 401k. I have a variety of investments to choose from and the same % of pay contributed as would be if I chose the pension. Then 20% of the employer contribution vests every 12 months of service.

Rural

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Re: Cash Out Small Retirement to Pay Debt?
« Reply #3 on: July 19, 2013, 09:51:06 PM »
Edit: wait, is this a defined-benefit pension? If so, the fee / money you have in the system don't matter nearly as much as the time in the system. In that case, I'd calculate the odds you'll end up working in that system as best you can and decide based on that.

It could have been a pension, but I chose what they call the "member directed" plan which functions very similar to a 401k. I have a variety of investments to choose from and the same % of pay contributed as would be if I chose the pension. Then 20% of the employer contribution vests every 12 months of service.

In that case, I'd roll it over.