Financial Advice- Roth IRA or pay student loans

Off Topic
1

Hello,

I recently graduated college with about 14,500 total in student loans. I have a Stafford loan, which is about 4500 dollars, and the rest is a private loan, about 10 grand.

Both loans are in their grace period until November. I know the private loan has a variable interest rate which hovers between 2.9 and 3.2 percent. I’m unsure about the Stafford loan’s interest rate. Anyways, I’d like to pay these loans off quickly. I’d also like to open a Roth IRA and contribute $5,500 per year until I retire.

I earn around 58,000 per year, and I could pay off my loans entirely this year before January 1st, 2014 but I wouldn’t be able to contribute to my Roth IRA until next year. Since I began my job in June, I’ll earn around 28K this year.

I’m also in desperate need of a newer vehicle, as my toyota corrolla is about to shit the bed. I’m looking to purchase a vehicle for around 20K this year or the next, so its an anticipated expense that’s coming up fast.

So is it better to pay some interest on the loans and contribute to the Roth IRA? I don’t want to miss a year of the effect that compounding has on a Roth IRA, but I don’t want to lose money paying interest on student loans either.

Could anyone provide some insight on what’s best to do? I appreciate your help!

2

Hey buddy first off GREAT idea to open a Roth IRA. Two points I wanted to chime in with:

I “think” you will still be able to pay off your 2013 Roth all the way up until April 15 of 2014. That way you pay off all your student loans and then fill your IRA with what you can from January to April. It may not be 5500$ but it’ll be something.

  1. ever consider leasing a car? You can get em with no downpayment and just make small monthly payments may help just so that your not throwing down another huge lump or money. Either way good luck
3

I’d forget the car, drive it into the ground and pay off the loans. No one is going to be as protective/conscious about your money like you are but I’d ask my parents/respected older person for their advice.

4

Find your nearest Ric Edelman associate and go talk to him or her.

5

Contribute to the Roth and take the little extra time to pay off your loans. Put the car off or buy a cheaper used one this time around. I work in the retirement plan industry.

6

[quote]csulli wrote:
Contribute to the Roth and take the little extra time to pay off your loans. Put the car off or buy a cheaper used one this time around. I work in the retirement plan industry.[/quote]

Not to insult you but your industry is a farce. The average investor will pay more in admin fees over the lifetime of the plan than get back in gains.

OP pay off your loans. If you want to put a small amount of money away that you cant touch or cant even anticipate a market down turn right before retirement have fun. If not educate yourself on investing and work to build cashflow right from the start.

7

[quote]Patrick2 wrote:
Hey buddy first off GREAT idea to open a Roth IRA. Two points I wanted to chime in with:

I “think” you will still be able to pay off your 2013 Roth all the way up until April 15 of 2014. That way you pay off all your student loans and then fill your IRA with what you can from January to April. It may not be 5500$ but it’ll be something.

  1. ever consider leasing a car? You can get em with no downpayment and just make small monthly payments may help just so that your not throwing down another huge lump or money. Either way good luck [/quote]

Leasing a car is one of the most irresponsible financial decisions you can make at a young age.

8

Does your company have a 401(k) or 403(b) plan? Do they match your contributions? Are you contributing?
Do you anticipate the Roth will earn more than you will pay in interest?
Do you understand the difference between a traditional IRA vs. a Roth?

Personal opinion, pay your debt first. Yes compounding interest is awesome, but it also works against you. The faster you can pay a loan off the better, imo. I would contribute at least the minimum amount to max out your companies retirement match (often 6%). A Roth is nice, but imo it should come after:
*Rainy day fund is established
*Debts are paid (with the exception of a home loan and possibly a car)
*401(k) is maxed out
*Roth IRA

I say this because whenever you have debt you have less mobility with your money. You have to pay at least the minimum on the debt, but if you have no debt you can decide to contribute to your Roth, car fund, vacation, etc… You have more financial freedom sans debts. You also have to be conscious of the cost of the interest. If your Roth produces an average of 5% over its lifetime, but your interest rate is 6%, that to me is a loss.

As far as the car goes, I would put money aside for a used/certified pre-owned and ride out your current car until it dies. Hopefully you can pay for at least half of your “new” car in cash and take out a small loan at a reasonable rate.

9

[quote]Waittz wrote:

Not to insult you but your industry is a farce. [/quote]

“Not to insult you” and then call him a farce? Sheesh…

10

Hey OP…don’t ask for financial advice from people you don’t know on the internet…how do you know csulli works in the retirement plan industry ? (no offense to csulli…just trying to say anyone can claim to be anything on the internet)…buy or lease, pay off debt or invest are all debatable as to what is better…you need to find out what works best for you…your individual situation is most likely more complicated than you could explain via this forum…

I have 3 sons…I took each one of them to meet with my financial adviser who happens to be with Ric Edelman…you may not like him, but I do…I have no affiliation with him, but have taken my time to provide you with 2 offices in Florida in an effort to help you…call the office nearest to you and schedule a visit…

Florida Offices

Boca Raton, FL
7900 Glades Road
Suite 310
Boca Raton, FL 33434
888-752-6742
Directions to Boca Raton office »
Make appointment at this location »

Miami, FL
18851 NE 29th Avenue
Suite 501
Aventura, FL 33180-2825
888-752-6742
Directions to Miami office »
Make appointment at this location »

11

[quote]Waittz wrote:

[quote]csulli wrote:
Contribute to the Roth and take the little extra time to pay off your loans. Put the car off or buy a cheaper used one this time around. I work in the retirement plan industry.[/quote]

Not to insult you but your industry is a farce. The average investor will pay more in admin fees over the lifetime of the plan than get back in gains.
[/quote]
I’m a third party 401(k) plan administrator. You probably don’t know what that is, but we work with small to mid size businesses showing business owners how to get the absolute most bang for their buck, how to help make their employees retirement ready, and keeping their plan in compliance with the DOL and the IRS (trust me when I say that compliance part is no small feat lol).

For a couple grand in annual fees they end up retiring with millions as opposed to practically nothing. You were probably thinking that I did something different; “retirement industry” is vague.

12

[quote]csulli wrote:

[quote]Waittz wrote:

[quote]csulli wrote:
Contribute to the Roth and take the little extra time to pay off your loans. Put the car off or buy a cheaper used one this time around. I work in the retirement plan industry.[/quote]

Not to insult you but your industry is a farce. The average investor will pay more in admin fees over the lifetime of the plan than get back in gains.
[/quote]
I’m a third party 401(k) plan administrator. You probably don’t know what that is, but we work with small to mid size businesses showing business owners how to get the absolute most bang for their buck, how to help make their employees retirement ready, and keeping their plan in compliance with the DOL and the IRS (trust me when I say that compliance part is no small feat lol).

For a couple grand in annual fees they end up retiring with millions as opposed to practically nothing. You were probably thinking that I did something different; “retirement industry” is vague.[/quote]
This job sounds interesting, what kind of post high school certification/school did you have to do?

13

[quote]24Animal7 wrote:
Hello,

I recently graduated college with about 14,500 total in student loans. I have a Stafford loan, which is about 4500 dollars, and the rest is a private loan, about 10 grand.

Both loans are in their grace period until November. I know the private loan has a variable interest rate which hovers between 2.9 and 3.2 percent. I’m unsure about the Stafford loan’s interest rate. Anyways, I’d like to pay these loans off quickly. I’d also like to open a Roth IRA and contribute $5,500 per year until I retire.

I earn around 58,000 per year, and I could pay off my loans entirely this year before January 1st, 2014 but I wouldn’t be able to contribute to my Roth IRA until next year. Since I began my job in June, I’ll earn around 28K this year.

I’m also in desperate need of a newer vehicle, as my toyota corrolla is about to shit the bed. I’m looking to purchase a vehicle for around 20K this year or the next, so its an anticipated expense that’s coming up fast.

So is it better to pay some interest on the loans and contribute to the Roth IRA? I don’t want to miss a year of the effect that compounding has on a Roth IRA, but I don’t want to lose money paying interest on student loans either.

Could anyone provide some insight on what’s best to do? I appreciate your help!
[/quote]

It really depends on the rate of return you expect to make.

I guess the question is, would you borrow money to put it into your Roth IRA? Because that is, effectively what you are doing.

If you’re getting matched, by all means do it. If not, it really depends.

14

[quote]chobbs wrote:
This job sounds interesting, what kind of post high school certification/school did you have to do?[/quote]
A college degree was a requisite to get me in the door. Past that there is a certification, but that’s something you’d do after getting the job. In fact you have to be in the job for 2 years before you can get it.

So basically a college degree lol. Business or finance would be good. My degree was in statistics. One of our best employees was a math major. But as long as you have a college degree that’s good. Hardly anybody ends up in a job very related to their degree these days; just gotta get that piece of paper lol.

15

[quote]csulli wrote:

[quote]chobbs wrote:
This job sounds interesting, what kind of post high school certification/school did you have to do?[/quote]
A college degree was a requisite to get me in the door. Past that there is a certification, but that’s something you’d do after getting the job. In fact you have to be in the job for 2 years before you can get it.

So basically a college degree lol. Business or finance would be good. My degree was in statistics. One of our best employees was a math major. But as long as you have a college degree that’s good. Hardly anybody ends up in a job very related to their degree these days; just gotta get that piece of paper lol.[/quote]
Damn I feel ya…one year down 3 more to go!

16

I am an investment rep for a large insurance and investment company in the US and a strong believer in Dave Ramsey’s principals. If I were in you position I would in this order:

  1. $1000.00 emergency fund (if you already have it skip to #2)
  2. Figure out your monthly cash flow and budget immediately. You dont want to squander your income now. Figure out the minimum you need to live.
  3. Once you have step 3 completed put the rest of your disposable income on debt.
  4. Expand you emergency fund to 3 months expenses.
  5. If you really want a newer car (Brand new cars are for millionaires, they are the only ones who can afford the 50% in deprecation as soon as you drive it off the lot) figure out a how quickly you can save for it if you split what you were paying on debt between a Retirement and buying a car.

Live tight now so you dont have to later.

17

[quote]JCMPG wrote:
I am an investment rep for a large insurance and investment company in the US and a strong believer in Dave Ramsey’s principals. If I were in you position I would in this order:

  1. $1000.00 emergency fund (if you already have it skip to #2)
  2. Figure out your monthly cash flow and budget immediately. You dont want to squander your income now. Figure out the minimum you need to live.
  3. Once you have step 3 completed put the rest of your disposable income on debt.
  4. Expand you emergency fund to 3 months expenses.
  5. If you really want a newer car (Brand new cars are for millionaires, they are the only ones who can afford the 50% in deprecation as soon as you drive it off the lot) figure out a how quickly you can save for it if you split what you were paying on debt between a Retirement and buying a car.

Live tight now so you dont have to later.[/quote]

I second this wholeheartedly. You are in a very strong position to build a LOT of wealth. You can not do this if you have student loan, car, or other consumer debt. Once the debt is gone you are free to invest however you want, but in the meantime I would drive your car until it dies while putting a few hundred dollars a month aside to pay for a replacement in cash.

I would advise you not to spend 20k on a car at this point and please don’t lease a car.

18

[quote]CroatianRage wrote:

[quote]JCMPG wrote:
I am an investment rep for a large insurance and investment company in the US and a strong believer in Dave Ramsey’s principals. If I were in you position I would in this order:

  1. $1000.00 emergency fund (if you already have it skip to #2)
  2. Figure out your monthly cash flow and budget immediately. You dont want to squander your income now. Figure out the minimum you need to live.
  3. Once you have step 3 completed put the rest of your disposable income on debt.
  4. Expand you emergency fund to 3 months expenses.
  5. If you really want a newer car (Brand new cars are for millionaires, they are the only ones who can afford the 50% in deprecation as soon as you drive it off the lot) figure out a how quickly you can save for it if you split what you were paying on debt between a Retirement and buying a car.

Live tight now so you dont have to later.[/quote]

I second this wholeheartedly. You are in a very strong position to build a LOT of wealth. You can not do this if you have student loan, car, or other consumer debt. Once the debt is gone you are free to invest however you want, but in the meantime I would drive your car until it dies while putting a few hundred dollars a month aside to pay for a replacement in cash.

I would advise you not to spend 20k on a car at this point and please don’t lease a car.
[/quote]

I back these guys for what they say. Get to broke as quickly as possible. Broke = 0 net worth. Right now you are sub broke. Sub Broke = negative net worth.

19

[quote]CroatianRage wrote:

[quote]JCMPG wrote:
I am an investment rep for a large insurance and investment company in the US and a strong believer in Dave Ramsey’s principals. If I were in you position I would in this order:

  1. $1000.00 emergency fund (if you already have it skip to #2)
  2. Figure out your monthly cash flow and budget immediately. You dont want to squander your income now. Figure out the minimum you need to live.
  3. Once you have step 3 completed put the rest of your disposable income on debt.
  4. Expand you emergency fund to 3 months expenses.
  5. If you really want a newer car (Brand new cars are for millionaires, they are the only ones who can afford the 50% in deprecation as soon as you drive it off the lot) figure out a how quickly you can save for it if you split what you were paying on debt between a Retirement and buying a car.

Live tight now so you dont have to later.[/quote]

I second this wholeheartedly. You are in a very strong position to build a LOT of wealth. You can not do this if you have student loan, car, or other consumer debt. Once the debt is gone you are free to invest however you want, but in the meantime I would drive your car until it dies while putting a few hundred dollars a month aside to pay for a replacement in cash.

I would advise you not to spend 20k on a car at this point and please don’t lease a car.
[/quote]

I agree. The single thing that can make the rest of your life incredibly difficult is debt. You want to avoid debt at all cost. Get those loans paid off ASAP.

Also, buy a car off of craigslist. You have to be a serious idiot to buy a new car. You can buy some really nice stuff for $5-10k.

20

[quote]Ripsaw3689 wrote:

[quote]CroatianRage wrote:

[quote]JCMPG wrote:
I am an investment rep for a large insurance and investment company in the US and a strong believer in Dave Ramsey’s principals. If I were in you position I would in this order:

  1. $1000.00 emergency fund (if you already have it skip to #2)
  2. Figure out your monthly cash flow and budget immediately. You dont want to squander your income now. Figure out the minimum you need to live.
  3. Once you have step 3 completed put the rest of your disposable income on debt.
  4. Expand you emergency fund to 3 months expenses.
  5. If you really want a newer car (Brand new cars are for millionaires, they are the only ones who can afford the 50% in deprecation as soon as you drive it off the lot) figure out a how quickly you can save for it if you split what you were paying on debt between a Retirement and buying a car.

Live tight now so you dont have to later.[/quote]

I second this wholeheartedly. You are in a very strong position to build a LOT of wealth. You can not do this if you have student loan, car, or other consumer debt. Once the debt is gone you are free to invest however you want, but in the meantime I would drive your car until it dies while putting a few hundred dollars a month aside to pay for a replacement in cash.

I would advise you not to spend 20k on a car at this point and please don’t lease a car.
[/quote]

I agree. The single thing that can make the rest of your life incredibly difficult is debt. You want to avoid debt at all cost. Get those loans paid off ASAP.

Also, buy a car off of craigslist. You have to be a serious idiot to buy a new car. You can buy some really nice stuff for $5-10k.
[/quote]

Thanks for the advice here guys, lots of of great information and ideas.

I think I may hold off on the Roth IRA for another year, I’m only 22 years old and I do have a 401K at work that I am matching with my employer. I think that if I hold out on contributing to a Roth IRA for another year or so I’ll be able to pay off my student debt and begin saving money for a better vehicle. And I would never lease a vehicle either, I usually find my cars for sale from private independent mechanics.