2. at 4.5% interest and the interest being above the line tax deductible paying off student loans early at all seems silly to me.
3. paying down a 2% interest car loan i wouldnt do
Yikes , I'm planning on doing both of the above. Any logic behind not doing it if one has the money sitting around?
The interests are low but if I remove those expenses then I can save/invest that money more quickly.
this is a counter productive thought that people dont approach the correct way. the money you have sitting around now could be 100% invested. and based on historic returns getting more money in sooner is better than getting the same in over time.
so you have 20k in loans and 20k in cash. that 20k could pay off the loans yes and free up what was going towards the loans to invest. BUT if you're loans are low interest rates less than what the market returns then investing that 20k now is going to come out ahead more frequently than not. this also assumes you're maxing all tax advantaged space as well and the comparison is only against money going into taxable accounts. Here is a pretty good what and Why that MDM put together. on the order you should invest/ payoff debts.
the 10 year is sitting at ~2.4% right now for reference.
WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to your 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.
WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.*
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between.
See Credits can make Traditional better than Roth for lower incomes and other posts in that thread about some exceptions to the rule.
See Traditional versus Roth - Bogleheads for even more details and exceptions.
The 'Calculations' tab in the Case Study Spreadsheet can show marginal rates for savings or withdrawals.
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial