Pay student loans with retirement money
Heavily considering using retirement funds (401(k)/Roth) to tackle student loans:
Options
- A: Pay off all student loans
- B: Pay off all loans above 5.5% interest
- C: Reduce balance to $12k, bringing average interest down to 3.92%
Current situation
12 student loans, $48k total balance, 5.42% average interest
- $90k old traditional 401(k)
- $11k current 401(k)
- $30k Roth IRA
- $8k in CDs
- Late 30s
- Income: $66k
I'm considering withdrawing about $38k from retirement accounts. I don't love the idea, but with a mortgage and what I see as a limited earning window, it seems more useful to reduce debt now than keep carrying it and hope for loan forgiveness. I don't necessarily need to pay everything off at once, I could eliminate the higher-interest loans first and tackle another group the following year. With mortgage interest and other deductions, I also don't expect the tax impact to be as severe as some assume.
FAQ
"Just use income to pay the loans."
My income isn't high enough to make a significant dent in them.
"Refinance."
Unless someone knows of refinance rates around 1–2%, I don't see much benefit.
"Let the investments grow."
I'm not expecting to become a millionaire, half-millionaire, or even quarter-millionaire from these accounts.
"Get aggressive, live below your means, live off beans and rice"
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