The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: khotte on January 18, 2015, 05:56:25 PM
-
I have ~$9,500 left on my student loans @ 6.55%. I'm on track to have them paid off by the end of April. However, I'm debating holding off on paying on them for a couple of months so I can fund my traditional IRA ($5500) for 2014.
Thoughts and advice? Thanks!
-
You can't get the 2014 contribution back. If it only delays eliminating the student loan by a couple of months, I'd do it.
-
Yeah, I think it makes sense to do the IRA.
-
Get rid of the debt... are you crazy?
-
Do the IRA!
-
Don't miss the 2014 IRA! You cannot get it back.
-
IRA for the win.
-
IRA, but why not a Roth and never pay tax on the earnings? Do you make too much?
-
IRA, but why not a Roth and never pay tax on the earnings? Do you make too much?
So consensus seems to be fund the IRA, but now it's between an Traditional and Roth. SaintMichael, I'm in the 25% tax bracket making me eligible for either a Traditional or Roth.
-
If you can legitimately get the debt paid off in the next six months, do the IRA.
By the way, either answer is a good one
-
I would suggest the ROTH because the 5500 is capped every year for your age group so if you dont put it in ROTH then you miss a year of funds you can put into it.
-
IRA, but why not a Roth and never pay tax on the earnings? Do you make too much?
Why not a traditional and never pay tax on the earnings or contributions?
http://www.madfientist.com/traditional-ira-vs-roth-ira/
Advice from the normals out there who slave away until 65=Roth
Advice from most of the early retirement community=Traditional
-
IRA, but why not a Roth and never pay tax on the earnings? Do you make too much?
Why not a traditional and never pay tax on the earnings or contributions?
http://www.madfientist.com/traditional-ira-vs-roth-ira/
Advice from the normals out there who slave away until 65=Roth
Advice from most of the early retirement community=Traditional
As the quintessential question goes, it all depends on Marginal tax rate now vs Effective tax rate in retirement. I am very strongly on the "almost all mustachians should be using a traditional over a Roth" side of things. This is because your marginal rate is now 25% and even if your retirement income is the same as your pre-retirement income, your effective rate will be much less (like 15%). I've argued this a ton of times but here are the only reasons you should think about a Roth:
1. You expect your retirement income to be SIGNIFICANTLY higher than your pre-retirement income (applies to almost no one on this site)
2. You expect tax rates to increase significantly between now and when you retire.
3. Your income is too high for a Traditional IRA (Roth limits are much higher)
4. You have some need to withdraw your contributions before retirement age. e.g. You are using your Roth account as your Emergency Fund, you are trying to collect the 5 years of living expenses needed to prime a Roth Conversion Ladder or, you need the ability to withdraw the funds to keep you emotionally happy despite the lower expected returns in most cases (like how people choose to pay off Mortgages with low interest rates despite the stock market being a better bet because it is an emotional decision).
If the 4 reasons above don't apply to you, then you should do a traditional IRA instead of a Roth.