No. Definitely not.
Agreed, given the low rates on OP's loans.
Not even if the interest rate is 20%.
Might not go that far. ;) Here's why.
Assume
- $10K loan at 20% paid in 3 years,
- $10K in a Roth
- Investments pay 2% in dividends and 5% growth
- $371.64/mo after-tax cash flow available
- Dividends and capital gains taxed at 15% in taxable accounts.
Scenario 1:
- No other Roth funding is available: if the loan is being paid with the $371.64/mo, no more goes into the Roth.
a) Keep the $10K in the Roth. After 3 years, the loan is paid and there is $12,329 in the Roth.
b) Withdraw the $10K and pay the loan immediately. Replenish the Roth with $371.64/mo. After 3 years, the loan is paid and there is $14,926 in the Roth.
Withdrawing from the Roth and paying the loan is better.
Scenario 2:
- Other Roth funding is available: the $371.64/mo either pays the loan or goes into taxable investments.
a) Keep the $10K in the Roth. After 3 years, the loan is paid, there is $12,329 in the Roth, and $0 in taxable.
b) Pay the loan immediately. Invest taxably with $371.64/mo. After 3 years, the loan is paid, $0 in Roth, and $14,855 in taxable ($14,690 after tax if withdrawn).
Now the question becomes, how long must one wait until the tax free growth in the Roth overtakes the taxable account?
Starting with $12,329 in the Roth, and $14,690 in taxable, it takes ~26 years. That's a rather long payback period, so I'd probably still vote to withdraw and pay, but it's at least debatable.