Author Topic: IRA vs 401K vs Student Loans  (Read 1883 times)

ahiahi

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IRA vs 401K vs Student Loans
« on: December 18, 2013, 08:33:53 AM »
After a week of googling, I am now thoroughly confused and could use some help with what to do with my income in 2014. 2013 was a bit tight with a new house and way too much travel, but I expect to have ~$20,000 to work with after living expenses and taxes in 2014. I am self-employed (1099, sole-proprietor) and should clear somewhere between $70k and $85k next year. I am married with a 2 year old son if that affects my taxes in some way.

Retirement accounts:
etrade Rollover IRA: ~$20k
trowe price SEP-IRA: ~$20k
(I know this is pitiful for a 30 year old programmer, but I spent most of my 20s in grad school or working for nonprofits)

Debts:
student loans: $22k at 6.5%
mortgage: $148k at 3.25%, $1400/month thanks to high property taxes.

I basically have two questions.
1) Do I pay down debt or throw money at my retirement account(s)?
At 3.25% I know the mortgage principle isn't worth paying down, but the student loans are pretty obnoxious. A guaranteed 6.5% return is nice, but I'm thinking the combined tax deduction of student loan interest and retirement contributions gets me a better return.
 
2) Which retirement account should I use?
The etrade account is mostly individual stocks ("danger will robinson!"), while the troweprice is a couple of crappy funds. I have been looking at opening an account with Vanguard as I have seen recommended round here. To complicate matters, the Vanguard website recommends a Solo 401k for me as it should have the highest contribution limits.

Thanks for your help.

ncornilsen

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Re: IRA vs 401K vs Student Loans
« Reply #1 on: December 18, 2013, 09:21:06 AM »
Pay that 6.5% debt first.  The flexibility that you get from not having that monthly payment is worth more than the small tax advantage student loan debt affords you... plus the return rate is guaranteed.

-Nick


ahiahi

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Re: IRA vs 401K vs Student Loans
« Reply #2 on: December 18, 2013, 10:33:48 AM »
Pay that 6.5% debt first.  The flexibility that you get from not having that monthly payment is worth more than the small tax advantage student loan debt affords you... plus the return rate is guaranteed.

-Nick

I understand that the student loan interest deduction isn't worth much, but paying off the student loan means I pay ~$7k more in taxes because I can't get the IRA/401k deduction. I think.