My father passed in 2008. He left me approx $50,000 from his 401k account. I’m able to leave the money in the account for 3-5 years. At that time, I’m considering using that money to pay down my $109,000 student loan consolidated debt. Will the tax liabilities be worth it? My current gross income is $54,000. I have $19k credit card debt & $36,000 mortgage & $20k in my own retirement fund.
Should I use the inherited 401k to pay down $109,000 student debt or to increase my retirement fund? I don’t qualify for any known forgiveness programs.
You’d need to talk to a tax adviser to plan the tax consequences of such a withdrawal. But of the after tax money it would probably make more sense to pay off the credit card debt if it is at a higher interest and then put at least $2,000 or more into a savings account to build up an emergency fund for yourself. It’s the one thing you didn’t mention you had. And without an emergency fund, surprise expenses will wind up on expensive credit cards again.
Then with the remaining money one option would be to divide it up into thirds. Put 1/3 into your retirement account, pay down student loans with 1/3 and then go blow 1/3 and have some fun with it. Life is meant to be lived at some point.