Author Topic: Pay off 403B Loan or Start 457 Contributions  (Read 3240 times)

vulgar_girl

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Pay off 403B Loan or Start 457 Contributions
« on: March 02, 2015, 04:44:48 PM »
Okay, I am ready for the facepunches...

So, I have been using the ever popular snowball method to pay down all of my high interest debt and will have everything but the following paid off by the end of 2015 (yay!):

403b - approx $5,200 @ 4.25%
Scooter - approx $1,280 @ 4.49%
Car - approx $6,231 @ 2.99%

Originally my plan was to pay everything off except the car by July 2016 and be done with it.  But, of course I want to start growing my mustache!  I am now considering starting contributions to my 457 in Jan 2016, and throwing my bonus and "extra" paychecks at the 403b and Scooter until they are paid off in October 2016.  This would enable me to drop down into the 15% Fed bracket as well.  The 457 would get the equivalent of $345 after tax dollars per month.  What do you guys think?

darkcait

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Re: Pay off 403B Loan or Start 457 Contributions
« Reply #1 on: March 02, 2015, 06:34:41 PM »
What is your income, and what are the amounts and interest rates of your other loans? We had a lot of success paying off our loans smallest amounts to largest. You could likely get rid of that scooter loan very quickly and free up some cash to pay for the others. Are you currently investing for retirement? I would delay the 457 until you get these loans taken care of. Can you sell either the car or the scooter instead of paying them off?

MDM

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Re: Pay off 403B Loan or Start 457 Contributions
« Reply #2 on: March 02, 2015, 09:03:26 PM »
Or start contributing to the 457 now, at least until you drop from the 25% to 15% bracket.

We're missing parts of the picture, so take this (and any other) suggestion with the appropriate amount of salt....

vulgar_girl

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Re: Pay off 403B Loan or Start 457 Contributions
« Reply #3 on: March 02, 2015, 09:10:27 PM »
Thanks for the reply.  So I could wipe out that Scooter loan pretty easily, but my plan is to hit the high interest debt first.  Besides what is listed already I have another debt of approx $6,000 at 11.5%, but that will be paid of at the end of the year.  I don't want to get rid of my scooter as it is my commute vehicle when I can't bike or when I have to go to different project sites around the city.  The car is a newer Honda Civic which probably last me for a good long while and I want to keep it.  I guess I am struggling to decide how to rank the 403b loan.  It is effectively  costing me around 11-12% since I am paying 4% + the loss of 7% gains (est.) right?  But the idea of lowering my tax bracket and stashing before tax dollars seems to make a lot more sense.  It could be that I am overthinking it and it wouldn't make a huge difference either way.

I am not currently investing anything into my retirement accounts except for 8% into my pension until I kill this debt.

Retired To Win

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Re: Pay off 403B Loan or Start 457 Contributions
« Reply #4 on: March 03, 2015, 06:22:59 AM »
... the idea of lowering my tax bracket and stashing before tax dollars seems to make a lot more sense.  It could be that I am overthinking it and it wouldn't make a huge difference either way.


In my opinion, lowering your tax bracket is a big deal.  I would nail that down first.  Second, I would pay off the 403b loan because, as you wrote, you're missing out on the tax-free investment growth you would be getting from the amount of the 403b loan if that amount were actually in the 403b.

Good luck.

ShoulderThingThatGoesUp

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Re: Pay off 403B Loan or Start 457 Contributions
« Reply #5 on: March 03, 2015, 06:54:27 AM »
It helps to think of pretax contributions as having an immediate return of the tax bracket that income would otherwise be in.

rocksinmyhead

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Re: Pay off 403B Loan or Start 457 Contributions
« Reply #6 on: March 03, 2015, 07:00:57 AM »
It helps to think of pretax contributions as having an immediate return of the tax bracket that income would otherwise be in.

yes, exactly. this is the reasoning that (thanks to this forum!) convinced me to start maxing out my 401K even when I still had student loan debt.

vulgar_girl

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Re: Pay off 403B Loan or Start 457 Contributions
« Reply #7 on: March 03, 2015, 10:48:19 AM »
Thanks for all of your advice.  I have switched my priorities and will be paying off the 403b next while also contributing to my 457 (albeit a small amount until the 403b is paid off).  After the new year, I will have all of my retirement dollars back where they should be and will up my 457 contributions accordingly.