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Should I Take Money Out of My 401k or Roth IRA to Pay My Student Loans? – Seapar

“Dear Paul,

Annual Gross Income: 66,000
401k balance: 16,000
Roth IRA balance: 6,000
Savings: 5,500
Stock: 1,500

Grad Student Loans: (72) payments left of one $520 combined payment per month on total $32,500 balance on the following (so, $5,000 interest would be paid over the life of the loan at this payment rate).

Loan 1 Direct Unsub $5,500 balance, Interest rate 2.11%

Loan 2 Direct Unsub $5,500 balance, Interest rate 6.55%

Loan 3 Direct Unsub $7,000 balance, Interest rate 2.11%

Loan 4 Direct Unsub $7,000 balance, Interest rate 6.55%

Loan 5 Direct Grad $6,500 balance, Interest rate 7.65%

Spoke with representative 11/14. Currently paying $133 in interest every 30 days ($4.40 in interest every day)

Switching to Extended fixed repayment plan: $422 per month for 74 more payments = $31,000 total? How is that possible?

Switching to Graduated repayment plan: 379 for 24 months + 493 for 24 months + 641 for 24 months + 833 for 2 months = $38,000 total or $5,500 interest over life of loan

Undergrad Student Loan: (92) payments left of $140 per month on $11,200 balance, Interest rate 3.5% (so $1,680 interest would be paid over life of loan at this payment rate). Spoke with representative 11/14. Income Sensitive Repayment Plan would mean a higher payment per month. Graduated Repayment Plan would mean $80 per month payments to be increased every two years by about $30, and would only lead to a $400 increase in interest paid…

I am currently in student loan repayment and wanted to investigate my repayment options so that I can get out of debt as intelligently as possible, and save for purchasing a home.
I am wondering whether I should take money out of my savings and/or 401K and/or Roth IRA in order to pay some of the higher interest student loans off, OR if I should lower my student loan payments in order to contribute more to my savings/retirement accounts now.

Seapar”

Dear Seapar,

Your number one objective should be the retirement of the higher interest rate debt (even though, by historical standards your high rates are not that high) before you save a penny.

Stop contributing to your 401k and Roth IRAs and make debt repayment the focus of your monthly budgeting. You should be able to pay everything off within 2-4 years; then move forward with your savings plans.

Should I Take Money Out of My 401k or Roth IRA to Pay My Student Loans?   SeaparMr. Bennett is a Certified Financial Planner™ professional (CFP®), Chartered Financial Consultant (ChFC®), Accredited Investment Fiduciary™ (AIF®) and Managing Partner of c5 Wealth Management, LLC. He holds a Master of Science in Finance (MSF) with Honors from Indiana University – Kelley School of Business and a BA from the University of Florida. He is currently pursuing his PhD in Economics from SMC University. Mr. Bennett has completed the Advest Institute’s advanced program on portfolio analytics and behavioral finance at Harvard University.

He was recently recognized by Washingtonian Magazine as a Top Financial Advisor and Kiplinger’s Personal Finance Magazine, the Journal of Accountancy and the American Bar Association Journal as Who’s Who of Virginia Certified Financial Planner™ professionals. In addition, he has also been recently selected by the Consumers’ Research Council of America as one of “America’s Best Financial Planners”. He is a current contributor to the Rydex Advisor Benchmarking Index. He is quoted often in the press, has been featured on CNNRadio.com and has contributed to various publications such as U.S. News and World Report, Boomerater.com, Advisor Today, Dow Jones News, Financial Advisor Magazine, Financial Planning Magazine, Investment News, The Washington Business Journal and The Washington Times.

If you have a questions about investing, financial planning, retirement, entrepreneurship, executive benefits and insurance (life, disability, long-term care, etc.) you’d like for Paul to answer, just use the online form. The help is free.

Should I Take Money Out of My 401k or Roth IRA to Pay My Student Loans? - Seapar by

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