| Using IRA money to payoff student loan |
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tazz2crazy
First Time Poster
Cash: $ 0.25
Posts: 1
Joined: 10 Jan 2005
Location: TN
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| Using IRA money to payoff student loan |
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Hi,
I currently have a $13,000 student loan that I'm paying $180/mo on and it's scheduled to be paid off in another 12yrs. I recently left a company that I had worked for and I'm rolling over my 401K to an IRA account.
I really want to get from under the student loan so I thought I could withdraw enough money from the IRA to pay off the loan. I do understand the early withdrawl taxes and penalty fees. I figured that in the long run the amount I would save in the loan intrest would offset the money that I would be loosing in withdrawing money from my IRA account. I also figured that I could pay back my IRA in less time that I would be paying off my student loan.
My question is would it be a wise decision to pay off this student loan with my IRA money.
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Mon Jan 10, 2005 9:04 pm |
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BlankenshipFP
Money Talk Advisor
Cash: $ 79.56
Posts: 390
Joined: 05 Oct 2004
Location: Illinois
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Hello, tazz2crazy.
In general, it is not a good idea to withdraw retirement money for any purpose other than an emergency - or retirement.
What is the rate on your student loans? If they are fairly recent, I suspect that the rate is pretty low. Assuming it's somewhere south of 5%, there's no reason to pull money out of the stock market, with a "rule of thumb" potential gain rate of 8% or more in order to pay off a balance that is only costing you 5% or less.
If you're really really concerned about the loans, pay extra on them, out of current income. I would suggest maxing out your retirement deferral options before you pay extra, though.
Hope this helps -
Jim Blankenship, CFP�, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Tue Jan 11, 2005 1:00 pm |
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lowbrow
Contributing Member
Cash: $ 5.25
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Joined: 08 Feb 2005
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I'll just add to this thread to keep things clean. I have a similar situation as the poster above but I'll lay out my numbers and see if you think anything different.
When my student loans got consolidated, I wasnt watching what was going on and I got locked into a high interest loan (8%). I now owe about 44k on it. My payments are $388 a month with about $300 of that going towards interest each month. So you can see that this is a ugly situation.
I have about 25k in my 401k. I could get a loan for half of that to put towards my student loan. The 401k loan has a percentage rate of 6.25% but that is being paid to yourself <good>. But when you are paying the loan back those are post tax dollars. So you pay that 12.5k back (plus the interest) and eventually pull that money out at retirement and you've now been taxed twice on the same dollars <bad>.
Is this a losing proposition?
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Tue Feb 08, 2005 9:14 pm |
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maurivildrose
Contributing Member
Cash: $ 0.85
Posts: 26
Joined: 08 Feb 2005
Location: LIVING IN PARADISE..!! Finally..
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| CAREFULLLL |
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My Friend..
is not a good idea to withdraw retirement money for any purpose other than an emergencies..
Paying Your LOAN wil not make u poor but using ur Retirement FUNDS will hurt you worst when u are Old tired and probably sick,, then that $18o usd will be very more useful than now..
Why not trying to. Start some easy small legal business maybe with a Friend and get that $180 probably $500 usd xtras form somewhere else??
Lemonade Kiosk?? LOL No my friend keep ur FUTURE Vision.. this wll be better..
What is the rate on your student loans? Rate must be low.. THIS is just a Student LOAN dont exchange it for ur Future!!
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Tue Feb 08, 2005 10:02 pm |
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lowbrow
Contributing Member
Cash: $ 5.25
Posts: 25
Joined: 08 Feb 2005
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The student loan is at 8%. Not a good rate at all. 
I've thought about going back to school just so I can get another school loan so I can reconsolidate... although that probably wouldnt work either. Oy-vey!
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Tue Feb 08, 2005 10:05 pm |
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maurivildrose
Contributing Member
Cash: $ 0.85
Posts: 26
Joined: 08 Feb 2005
Location: LIVING IN PARADISE..!! Finally..
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| mm in that case |
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Man there r times in life when u just can not GO ALONE with ur problems and inquires this one of the reasoons cause this FORUM exist,,
but also we re limitated here too..
LOOK 4 Some Good professional advice.
Be sure ur case is not unic in any manner.. htere are thousend of Students and non students worried in the same matter..
This would be my advice Ur case got to be managed CAREFULLY by a Professional.
Look in the Yellow pages in ur city or call ur OLD University for advice..
they will ahve lot of Contact INFO::
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Wed Feb 09, 2005 2:15 am |
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BlankenshipFP
Money Talk Advisor
Cash: $ 79.56
Posts: 390
Joined: 05 Oct 2004
Location: Illinois
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Hey, lowbrow -
I think you'd be better off to take on a second job and use that money to pre-pay your student loans, than to raid your retirement plan.
Another option - do you own your home? If so, you could use home equity (at a much lower rate) to pay off the student loans.
The option of going back to school sounds a little shaky, but you could talk that one over with a banker just to get their opinion as to whether it would work. It's a possibility.
Hope this helps -
Jim Blankenship, CFP�, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Wed Feb 09, 2005 12:59 pm |
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lowbrow
Contributing Member
Cash: $ 5.25
Posts: 25
Joined: 08 Feb 2005
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Thanks guys.
I dont own my home.. lost that recently in a divorce. My current job involves random travel and would make a 2nd job difficult.
Perhaps I'll look into starting some internet income somehow. Sell russian dolls or something.
I'll defionately be seeking the advise of professionals.
Danke.
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Wed Feb 09, 2005 4:50 pm |
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