TL;DR: Isn't the value of getting additional money into a tax-sheltered account vastly higher than an extra few years of interest payments on student loans?
Usually when the topic of retirement contributions vs. student loan pay down comes up, people say that you should pay down student loans when their interest rate approaches the expected rate of return of the stock market. But isn't that ignoring the massive value of getting more money into tax-advantaged accounts at a young age?
I am asking from the position of a young professional who will likely be able to max out all available tax-advantaged investment opportunities in the first year or two of full-time work. The specific situation is whether one should contribute $5.5k to a Roth IRA in the last year of law school with a $100k job lined up, but the question applies more broadly. Shouldn't one pay down student loans early only once all tax-sheltered investment opportunities are gone?
So to be concrete: would you pay $100 to get an extra $1000 into a Roth IRA in your 20s if you were out of other tax-advantaged investment options? For me, that's a no-brainer since Roth IRA savings are worth much more than taxable savings over a 40-year horizon. If you would pay that $100, then you should contribute to a Roth IRA before paying down even a 10% student loan. That's far from conventional wisdom here.
You even have the principle of a Roth IRA to take out in a pinch.
What am I missing?
Submitted July 26, 2017 at 11:37AM by Pour_Spelling http://ift.tt/2eNRa9F
