Wednesday, February 12, 2014

Student Loans vs. 401k Contribution vs. Roth IRA

all 11 comments
[–]FacelessBureaucrat 4 points  ago
Definitely prioritize knocking out that 6.8% loan, although I wouldn't worry about the 1.75% one unless the rate changes.
Are you sure you need to spend $10k on a ring? There are many good financial and moral reasons for going with a gem other than a diamond for an engagement ring - talk to your fiancee and make sure you know what she really cares about. She may prefer putting that money toward a house. (The ring I gave mine is a blue sapphire with white sapphires, cost about $1100.) Look into Moissanite and other alternatives for rings that look as good as diamonds for a fraction of the cost and without the nasty child-slavery implications.
[–]buckets_of_ducats 4 points  ago
The diamond business is brutal and disgusting and you only have to be careless/mugged once to be out an amount that could buy a decent used car. I can't second that critique enough. That amount of money could be worth over $50,000 by the time you retire if it was in a retirement account.
[–]_pf_account_[S] 3 points  ago
Thanks for the reply!
You're right, knocking out the 6.8% ones would definitely be better. I was just thinking about the interest on the 1.75% one now but I doubt I'll be able to get rid of the 6.8% ones before they start accumulating interest. Thanks for opening my eyes to that.
As for the ring, no, I'm not sure. It's just a goal. I haven't been shopping yet and I know she would never let me spend more than that. It's a conversation we'll need to have but the value is just a placeholder for now. We would prefer to spend the money on traveling.
[–]duhhhh 3 points  ago
I'd drop back to 6% on the 401k. Take the extra $ and use it to knock out that 6.8% loan before it starts costing you. Once you have that out of the way, build an emergency fund of $9500 in savings. Then add $5500 more into the Roth IRA (can also be used for dire emergencies also). Then worry about paying more than the minimum on the 1.75% loan. Then build up another $5k+ in the savings emergency fund.
Talk to your girlfriend about the ring. She may be fine with two weeks pay and Moissanite instead of two months pay and diamond if it means you can buy a house together sooner. The whole two months pay is DeBeers marketing. They are an evil cartel.
[–]_pf_account_[S] 1 point  ago
Thanks for the insight. I have never had multiple financial goals to work towards before. Just a single CC bill each month.
[–]ForOldNassau 2 points  ago
Why is your Roth IRA losing money monthly?
[–]_pf_account_[S] 1 point  ago
That's a question I can't answer at the moment. Maybe because of how it's invested? I was 18 when I started it they put me on the most aggressive plan because I'm low risk at that point. I contributed about $50 per month while I worked through undergrad. Last statement I had lost $75.
[–]ForOldNassau 3 points  ago
Last statement I had lost $75
There's your problem--just because you lost $75 last statement doesn't mean it's losing money monthly, just that it lost money in the last statement period, which isn't incredibly surprising, given the market correction a few weeks ago.
[–]_pf_account_[S] 1 point  ago
I understand now. I believe a one-time withdrawal for education is allowed without any additional penalties. Would it be dumb to liquidate the Roth IRA at this time to cover some of the student loans?
[–]FacelessBureaucrat 3 points  ago
You can withdraw your contributions at any time, but you can't ever get that space back (unless you repay it within 60 days), so I'd be careful about withdrawing any if you have any other way of paying down those loans.
[–]_pf_account_[S] 1 point  ago
I guess the best plan at the moment would be to sit on the Roth IRA and re-evaluate where I stand with the loans when the 6.8% interest becomes active.