117/132 Using My Roth IRA to Pay Down My Student Loan

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 In order to speed up the process of paying off my student loan I have cashed out part of my Roth IRA. Last year, I considered using my Roth IRA to pay down my student loan, but decided against it since I wasn’t sure I would be able to continue paying large amounts towards my student loan. Now that I have a stable source of income I decided to go ahead and use some of the money from my Roth IRA to pay down my student loan.

I know some people will think it wasn’t a smart move, but I will share my reasoning in deciding to use the IRA proceeds to pay my student loan.  Since I took the money out of my Roth IRA I will not owe any tax or early distribution penalty on the money I took from my IRA. The amount I took out was less than the contributions I had made to the IRA.  Since a return of contributions from a Roth IRA is not taxable this distribution will not subject me to additional tax. The benefit of using the IRA distribution is that it will reduce my student loan balance enough that I will owe less monthly interest on my student loans. Since I’m paying 6.8% interest on my student loan I am effectively getting a 6.8% return on the IRA distribution.  I think that is a reasonable return.

Using retirement savings to pay a student loan can leave you short of money for retirement. I took out $9500 from my Roth IRA which I don’t think will have that big of an impact on my retirement. I’ll be turning 50 this year so it isn’t like the $9500 has decades to compound before I retire. Of course, it could also be argued that at my age with my meager retirement savings I need to be saving every dollar possible for retirement. That being said, I still  feel that having the student loan paid off sooner will be more beneficial to me than keeping the $9500 in the IRA.

I do have a plan to beef up my retirement savings this year as well.  Sometime around late August/early September I will become eligible to contribute to my employer 401k plan. My company allows me to contribute 100% of earnings to the 401k plan and that is what I plan to do. There is a limit of $24,000 that can be contributed to the 401k in a year.  That limit won’t be reached since I’ll be starting my contributions late in the year.  I’m guessing I’ll still get about $20,000 into my 401k though.  That will make up for the $9500 taken out of my Roth and then some. The 401k money will be pre-tax which will also save me some money on taxes this year.

The drawback to contributing that much to my 401k is that I won’t have enough money to make any payments on my student loan during that time period.  In 2018 I will reset my 401k percentage to one that is sustainable for that year which will allow me to continue making payments on my student loan.  What I can save in my 401k in 2018 will depend on whether I’m able to refinance my student loan and what my required monthly student loan payments will be.  For 2017 saving the maximum I’m able to in my 401k is what I think will be best for my finances in the long run even if it means it will take a little longer to pay off my student loan.  What do you think is the best move when deciding whether to save for retirement or pay off the student loan?

 

April 2017 Net Worth Update

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penniesIn order to keep track of my financial progress or lack of progress I have decided to calculate my net worth a few times a year.

My net worth as of 04/2/2017 is as follows.

Assets
Cash – $9995
IRA – $25,679
Roth IRA – $11,035
Solo 401k – $1078
Car/Stuff – $3800

Liabilities
Student Loan – $122,490
Credit Card – $9000

Net Worth = $-79,903

My net worth improved by almost $1000 last month. I’m okay with that increase. It is nice to see a 7 instead of an 8 at the beginning of my net worth. It makes it seem like I’m at least making progress. At that rate my net worth would get to $0 in 80 months. I hope I can do it faster than that. I decreased my liabilities by almost $3000, but my investments declined a bit leaving me with just a $1000 improvement in net worth for the month.  I hope I’ll do better this month. I’ll continue to aggressively pay down my student loan. If my investments at least hold steady it should be a good month.

I’ve been using Personal Capital (affiliate link) to help track my net worth. It keeps track of all of my financial accounts and my student loan making it pretty easy to calculate my net worth each month. It is free to sign up. If you would like to sign up I’d appreciate you using my link. All blog income, including affiliate income, goes to paying down my student loan.

Personal Capital

March Income – $4113.49

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Here is a breakdown of my income for March.

Qapital $15
Interest $5.82
Bank Bonus $93
Amazon FBA $45.80
Cash Back $32.36
Job $3921.51
Total $4113.49

March’s income was really good. That was mainly (okay, entirely) the result of having three paydays in March. It was a good thing I made a lot at my job because my alternative sources of income produced very little in March.  I didn’t make any online income. My Amazon income was tiny due to not having a lot of stock and selling some of the remaining slow-moving products at a loss.  Although I’d like to see my alternative sources of income do better, I am mainly focused on my job right now. Since it produces a better and guaranteed return on my investment of time it makes sense to concentrate my energy there. Once I start my sabbatical at the end of this month I’ll work on producing more income from my alternative sources of income.  To pay off my student loan as quickly as I’d like I need to make a lot of money from my job and from my alternative sources of income.

If any of you have suggestions on how to make money on the side I’d love to hear them.

March Expenses – $1547.53

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Here is a breakdown of my expenses for March.

Household $451.08
Entertainment $18
Transportation $261.57
Food $130.54
Travel $471.81
Phone $24.60
Health $189.93
Total $1547.53

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March was an okay month for expenses. I paid for six months of car insurance which raised my transportation expenses. I also had a lot of travel expenses. Some of that was for my upcoming Europe trip, but most of it will be used for a future, not yet planned trip.  I think I’ll get a lot of value for the money spent. Since I’m supposed to be concentrating on my paying my student loans I shouldn’t be spending so much on travel.  The trip to Europe might be a once in a lifetime trip and I’ll be getting a lot of travel for the money spent so I don’t feel too bad about it.

I’ve decided to list my student loan expense separately since it will throw off my monthly numbers. In March I paid $10,077.96 towards my student loan. Of that amount $7000 of that total was from a credit card balance transfer which will have to be paid back over the next year. That leaves $3077.96 that I paid in cash for the month. I consider that great progress on paying my student loan. I won’t be able to keep up that rate for long.

I have to get my car inspected this month and I plan to have some other work done on it while it is in the shop so I’ll probably have a high transportation expense this month.  I don’t think I’ll spend much on travel this month so that category should go down quite a bit. Everything else will probably stay about the same.

How was your month?

Pay Student Loan with Credit Card – Plastiq Referral Bonus

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It sucks to send money to pay my student loan knowing that all I will get for it is a little less debt. One of the ways I try to get a tiny bit back for paying my student loan is to pay my student loan with my credit card. This allows me to earn credit card rewards and/or meet the spending requirements for a credit card sign-up bonus.

It is no longer possible to pay my student loan directly with a credit card.  It is possible to pay my student loan indirectly using a service called Plastiq. Through their website I can make payments on my student loan using my credit card. The drawback is that there is a 2.5% fee for using a credit card which makes using the service a poor deal for me in most circumstances. Fortunately, they have promos that allow you to earn fee-free dollars. I signed up for a referral promo earlier this month and earned 400 fee-free dollars. That allowed me to make $400 of payments to my student loan without paying a fee.

This promo is still going on and now that I’m a member I can refer members as well. If you sign up through my referral link I will earn 800 fee-free dollars and you will earn 400 fee-free dollars after making your first payment of at least $20 between March 14, 2017, 12:00 a.m. EDT and April 18, 2017, 11:59 p.m. EDT.

Note that after you sign up that it will only say you have $200 fee-free dollars, but after you make the payment of $20 or more it will change to saying you have $400 fee-free dollars. It can take a day or so after you make your payment for the fee-free dollar amount to change.

I’ve made three payments using Plastiq so far and the process went smoothly.  The payments did take about ten days to post which is a little slow, but I can live with it.  If you have any questions please ask. I hope you will use my referral link so I can make some more fee-free payments to my student loan.