Investing, Stock Market and Retirement Planning Thread

Defence21
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Investing, Stock Market and Retirement Planning Thread

Postby Defence21 » Mon Jul 26, 2021 11:17 am

I'm looking for some advice here...

My wife is in over her head with college loan debt -- around $60k in private loans. Not worried about the federal stuff, as her interest is low and has the possibility for relief. We also have around $7k in credit card debt.

My 403B has $112k, and I'm 38. We're seriously considering cashing in around $80k to pay off both of these debts, while leaving around $13k to cover the early withdrawal penalty and increased owed taxes.

At the end of the day, we're paying around $800 monthly for these two debts, and so the money saved could be used to increase my 403B contributions, increase mortgage payments, and increase car payments. Right now I feel this is a no brainer, even with an $8k penalty and increased taxes.

Has anyone done this? I would appreciate hearing others' thoughts on this.

mac5155
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Investing, Stock Market and Retirement Planning Thread

Postby mac5155 » Mon Jul 26, 2021 11:21 am

Something something compounding interest...

robbiestoupe
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Postby robbiestoupe » Mon Jul 26, 2021 11:24 am

I'm looking for some advice here...

My wife is in over her head with college loan debt -- around $60k in private loans. Not worried about the federal stuff, as her interest is low and has the possibility for relief. We also have around $7k in credit card debt.

My 403B has $112k, and I'm 38. We're seriously considering cashing in around $80k to pay off both of these debts, while leaving around $13k to cover the early withdrawal penalty and increased owed taxes.

At the end of the day, we're paying around $800 monthly for these two debts, and so the money saved could be used to increase my 403B contributions, increase mortgage payments, and increase car payments. Right now I feel this is a no brainer, even with an $8k penalty and increased taxes.

Has anyone done this? I would appreciate hearing others' thoughts on this.
What's the hurry on paying off the loans? If you can afford it, pay more towards the principal every month. If there are multiple loans, pay off the ones with the higher interest rate first - including the car loan. I'm guessing the highest loan is the cc debt, so go after that first. And you're mortgage is most likely the lowest, so do that last. Especially since your home is appreciating.

Using your 403B now robs you later on down the road. It'll be much harder to catch up to where you are now, as you're not gaining interest on that $80k you're going to take out.

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Postby NTP66 » Mon Jul 26, 2021 11:29 am

I agree with robbie. That would be an absolute last move situation for me, and only during a crisis, like if you both lost your jobs and were out of work for a long time, etc. And even then, there are probably other debt relief options before I touched the 403b.

Defence21
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Investing, Stock Market and Retirement Planning Thread

Postby Defence21 » Mon Jul 26, 2021 11:42 am

I'm looking for some advice here...

My wife is in over her head with college loan debt -- around $60k in private loans. Not worried about the federal stuff, as her interest is low and has the possibility for relief. We also have around $7k in credit card debt.

My 403B has $112k, and I'm 38. We're seriously considering cashing in around $80k to pay off both of these debts, while leaving around $13k to cover the early withdrawal penalty and increased owed taxes.

At the end of the day, we're paying around $800 monthly for these two debts, and so the money saved could be used to increase my 403B contributions, increase mortgage payments, and increase car payments. Right now I feel this is a no brainer, even with an $8k penalty and increased taxes.

Has anyone done this? I would appreciate hearing others' thoughts on this.
What's the hurry on paying off the loans? If you can afford it, pay more towards the principal every month. If there are multiple loans, pay off the ones with the higher interest rate first - including the car loan. I'm guessing the highest loan is the cc debt, so go after that first. And you're mortgage is most likely the lowest, so do that last. Especially since your home is appreciating.

Using your 403B now robs you later on down the road. It'll be much harder to catch up to where you are now, as you're not gaining interest on that $80k you're going to take out.
That's the thing. Right now, we're making minimum payments on everything, because that's what we can afford. In addition to her private loans, she's at around 45k in federal loans, I have $10k of student loans, and we have a mortgage at $150k. We get by quite fine -- but we don't have any extra money to pay down any of these loans -- or in the case of her private loans, MAYBE paying enough to cover interest. As a result, we're facing 20ish years of college loan repayment.

We'd like to start saving money, as we're going to need a new roof in the next 5 or so years, and we want to put money back for our two daughters to go to college. We're in our financial mess because my in-laws not only didn't help out with my wife's schooling, but refused to co-sign her loans. She started out with interest rates in the 20s, and the loans grew fast.
Last edited by Defence21 on Mon Jul 26, 2021 11:50 am, edited 1 time in total.

Defence21
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Postby Defence21 » Mon Jul 26, 2021 11:44 am

I agree with robbie. That would be an absolute last move situation for me, and only during a crisis, like if you both lost your jobs and were out of work for a long time, etc. And even then, there are probably other debt relief options before I touched the 403b.
We're definitely not going to make this decision until we have turned over every stone and explored all options. This is definitely helping.

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Postby Beveridge » Mon Jul 26, 2021 11:47 am

The only time you cash out retirement is to avoid bankruptcy. Short of that, don't touch retirement.

Stop retirement contributions, sell things, find ways to increase income.

450k federal loans...is she a doctor??

Defence21
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Postby Defence21 » Mon Jul 26, 2021 11:50 am

The only time you cash out retirement is to avoid bankruptcy. Short of that, don't touch retirement.

Stop retirement contributions, sell things, find ways to increase income.

450k federal loans...is she a doctor??
Typo -- $45k. She's between $105k and $110k in total college debt. She's an OT.

King Colby
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Postby King Colby » Mon Jul 26, 2021 11:53 am

Have you looked into consolidating/refinancing the loans? Even the federal loans, companies like earnest can drop the rate by a point or two with good credit.

I don't think retirement liquidation should be totally off the table. You need to basically do an analysis of how much the loan costs you vs retirement fund opportunity cost. It could be that the interest accrual outpaces the growth, even with penalties/taxes included. Depends just how bad the rates are.

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Postby dodint » Mon Jul 26, 2021 11:58 am

Never, ever, refinance a federal loan with a private loan. You're unlikely to get a better rate and you will lose a ton of protections.

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Postby Beveridge » Mon Jul 26, 2021 11:58 am

Ok... My heart stopped a little...

I would stop retirement contributions temporarily to have more money to throw at the loans. I would sell anything that I could (extra things with motors, furniture you don't need, etc). Find ways to pick up income even if that means a weekend job. Find money in the budget (less eating out, no vacations, etc) to cut and apply to the loans.

Clear up credit card debt, then go after the college loans smallest to largest. As one thing gets paid off, roll the amount you were paying towards it and apply it to the next. It will be a sacrifice now, but it will be worth it to get out from under all of that.

robbiestoupe
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Investing, Stock Market and Retirement Planning Thread

Postby robbiestoupe » Mon Jul 26, 2021 12:01 pm

The only time you cash out retirement is to avoid bankruptcy. Short of that, don't touch retirement.

Stop retirement contributions, sell things, find ways to increase income.

450k federal loans...is she a doctor??
Typo -- $45k. She's between $105k and $110k in total college debt. She's an OT.
Been there, done that. I paid off my $16k in student loans in 13 months. 9 years later, I married into $130k in student loans (PT). We paid it off in about 7 years, but we didn't have kids right away so that allowed us to put extra towards the principal.

We started by setting a strict budget and stuck to it. Part of the budget was allowing us to pay more towards the principal, so see if you can do that too.

Defence21
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Investing, Stock Market and Retirement Planning Thread

Postby Defence21 » Mon Jul 26, 2021 12:05 pm

Have you looked into consolidating/refinancing the loans? Even the federal loans, companies like earnest can drop the rate by a point or two with good credit.

I don't think retirement liquidation should be totally off the table. You need to basically do an analysis of how much the loan costs you vs retirement fund opportunity cost. It could be that the interest accrual outpaces the growth, even with penalties/taxes included. Depends just how bad the rates are.
She's consolidated into two loans: federal and private. She's gotten the federal loans to a very reasonable interest rate, while privates are still in the 10% range.

To others who say sell stuff/stop vacations -- that's what we are trying to avoid. It is more important to us to provide our children with a yearly vacation. The memories are worth much more than the money spent. As for selling stuff, we frankly don't have anything extra to sell. And anything we do sell wouldn't be enough to make any kind of serious dent in our loan.

Long and short of it is that we live just fine as we are right now. We would like to get to the point, though, where we are saving money for our kids' college funds and for rainy day funds. It's to improve our quality of life now, as you don't know what tomorrow will bring. The reason this came up is because our neighbor -- a perfectly healthy 35-year-old -- was diagnosed with a rare blood cancer recently. Her and her family's lives were flipped upside down, as her chances of survival are slim. Additionally, one of my wife's colleagues recently died in a car accident at a young age. Point being: is it worth saving for tomorrow if you aren't assured tomorrow exists?

MrKennethTKangaroo
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Postby MrKennethTKangaroo » Mon Jul 26, 2021 12:43 pm

keep in mind that if you cash out $80k, you'll need to set aside more than $13k in tax. Assuming you are in the 12% or 22% tax bracket, that $80,000 will be taxed at $9,600 or $17,600. Plus another $8,000 for your 10% penalty. So you'll need at least $17,600 if you are in the 12% tax bracket or $25,600 in the 22% tax bracket.

Setting aside $13k and having to pay $17.6K is no joke. $4,600 is a lot of money, particularly if every disposable cent you have is going toward student loan debt.

Defence21
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Postby Defence21 » Mon Jul 26, 2021 1:00 pm

keep in mind that if you cash out $80k, you'll need to set aside more than $13k in tax. Assuming you are in the 12% or 22% tax bracket, that $80,000 will be taxed at $9,600 or $17,600. Plus another $8,000 for your 10% penalty. So you'll need at least $17,600 if you are in the 12% tax bracket or $25,600 in the 22% tax bracket.

Setting aside $13k and having to pay $17.6K is no joke. $4,600 is a lot of money, particularly if every disposable cent you have is going toward student loan debt.
This really puts it into perspective. We're in the 22%, but the cash out of retirement would put us in 24%.

mac5155
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Postby mac5155 » Mon Jul 26, 2021 1:41 pm

keep in mind that if you cash out $80k, you'll need to set aside more than $13k in tax. Assuming you are in the 12% or 22% tax bracket, that $80,000 will be taxed at $9,600 or $17,600. Plus another $8,000 for your 10% penalty. So you'll need at least $17,600 if you are in the 12% tax bracket or $25,600 in the 22% tax bracket.

Setting aside $13k and having to pay $17.6K is no joke. $4,600 is a lot of money, particularly if every disposable cent you have is going toward student loan debt.
This really puts it into perspective. We're in the 22%, but the cash out of retirement would put us in 24%.
Another thought, is the penalty of withdraw and tax more than the total interest paid on the loans?

MrKennethTKangaroo
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Postby MrKennethTKangaroo » Mon Jul 26, 2021 1:52 pm

keep in mind that if you cash out $80k, you'll need to set aside more than $13k in tax. Assuming you are in the 12% or 22% tax bracket, that $80,000 will be taxed at $9,600 or $17,600. Plus another $8,000 for your 10% penalty. So you'll need at least $17,600 if you are in the 12% tax bracket or $25,600 in the 22% tax bracket.

Setting aside $13k and having to pay $17.6K is no joke. $4,600 is a lot of money, particularly if every disposable cent you have is going toward student loan debt.
This really puts it into perspective. We're in the 22%, but the cash out of retirement would put us in 24%.
Keep in mind that if you get bumped into the 24% tax bracket, that doesn't mean the whole thing gets taxed at 24%, just the portion that puts you into the 24%. So your total tax burden would be more than $25,600 but not $27,200.

Either way, not a gr8 idea.

MrKennethTKangaroo
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Postby MrKennethTKangaroo » Mon Jul 26, 2021 1:53 pm

How much equity do you have in your house? Have you refinanced recently? Any interest in leveraging up your house to pay off some of this crap?

Defence21
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Postby Defence21 » Mon Jul 26, 2021 2:02 pm

How much equity do you have in your house? Have you refinanced recently? Any interest in leveraging up your house to pay off some of this crap?
I'm really glad I posed the question, as it's becoming clear that this is not a great idea.

We just refinanced our house this spring, taking advantage of lower interest rates. We saved roughly $100 per month and have put the totality of that into monthly credit card payments. Our current plan is paying off smallest debts first, then working our way to larger debts, while snowballing the money. So once we pay off our credit card debt, we'll take the money allotted to that and put it toward the next smallest loan, and so on and so forth.

I think we have roughly $30k in equity in our house; though I wonder if that might increase drastically given the current housing market. It seems to be a strong seller's market, which I would assume would increase the value of our home via appraisal.

Thanks for the assistance to you, and everyone -- this has really helped me think it through!

King Colby
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Postby King Colby » Mon Jul 26, 2021 2:11 pm

The snowball approach is good and makes you feel more accomplished, but you actually save more money by targeting highest interest loans first.

NTP66
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Postby NTP66 » Mon Jul 26, 2021 5:00 pm

I should have thrown much more money at Apple when I had the chance. It's up over $20/s since I bought in.

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Postby NTP66 » Tue Jul 27, 2021 10:34 am

**** hell, I'm getting bled this week.

MWB
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Postby MWB » Tue Jul 27, 2021 11:03 am

keep in mind that if you cash out $80k, you'll need to set aside more than $13k in tax. Assuming you are in the 12% or 22% tax bracket, that $80,000 will be taxed at $9,600 or $17,600. Plus another $8,000 for your 10% penalty. So you'll need at least $17,600 if you are in the 12% tax bracket or $25,600 in the 22% tax bracket.

Setting aside $13k and having to pay $17.6K is no joke. $4,600 is a lot of money, particularly if every disposable cent you have is going toward student loan debt.
Would the penalty need to be paid for paying off a student loan? I did this to help pay for part of my daughter's college expense, and that was a qualified expense. Not sure if it's the same for loan repayment.

In my situation, I had money in an IRA from when I retired from PA. I did pull it out to pay for college and a down payment on a house, but that wasn't my sole retirement source.

MrKennethTKangaroo
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Postby MrKennethTKangaroo » Tue Jul 27, 2021 11:37 am

keep in mind that if you cash out $80k, you'll need to set aside more than $13k in tax. Assuming you are in the 12% or 22% tax bracket, that $80,000 will be taxed at $9,600 or $17,600. Plus another $8,000 for your 10% penalty. So you'll need at least $17,600 if you are in the 12% tax bracket or $25,600 in the 22% tax bracket.

Setting aside $13k and having to pay $17.6K is no joke. $4,600 is a lot of money, particularly if every disposable cent you have is going toward student loan debt.
Would the penalty need to be paid for paying off a student loan? I did this to help pay for part of my daughter's college expense, and that was a qualified expense. Not sure if it's the same for loan repayment.

In my situation, I had money in an IRA from when I retired from PA. I did pull it out to pay for college and a down payment on a house, but that wasn't my sole retirement source.
Good question. Based on my 5 minutes of research, no, paying off a student loan doesnt count as a qualified education expense.

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Postby MWB » Tue Jul 27, 2021 11:51 am

That was really the deciding factor for me, knowing I didn’t have to pay that penalty.

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