Received an extra windfall of 5k (tax return+ lower than budgeted expenses). Should I use it to pay off a quarter of my student loans (20k at 4.75%) or start an IRA?

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As you have probably realized based on people’s responses that there is no objectively right or wrong answer in this (aside from buying the Jacuzzi as mention led by “Experienced Assurance Staff 1”.) By paying down the student loan debt you will experience much lower risk and less financial stress. However putting that money in an IRA and letting it grow for the next 30+ years will net you much higher returns than paying down your debts early. The answer should come down to your own personal risk/return portfolio. Personally I would put it in the IRA. Goodluck!

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Haha I apologize for putting down your idea 😜

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Can’t you do both? Open up an ira with 2.5k and use the other 2.5k to pay some of the loan?

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Jacuzzi

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Loan

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Always pay off debt first. Save for retirement second.

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Don’t get me wrong. I totally agree with paying off your debt before investing (outside your 401k) but after that, I would definitely invest it and let your wealth build through compound interest rather than having it sit somewhere collecting hardly any interest. I mean you worked hard for that money. Don’t let it go to waste because of inflation.

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Nose beers to get you through busy season

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Ira, that’s a really low interest rate and you’ll get tax benefits from opening a traditional ira as well as deducting student loan interest

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Agree with the comment above, are all your pins in that interest? If so simple math will show that your ira will pat higher in the long run, I personally looked at each loan individually and ran the numbers. Paid those off where the return was lower than interest paid.

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7% average market return or 4.75% loan? Do the IRA

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Past performance is not indicative of future results.

Numbers mean nothing. This all comes down to OP’s risk tolerance and maturity.

We could have 40% crash next year. And if OP is mature enough to not withdraw or change allocations drastically when the $5,000 is showing $3,000, then do the IRA.

That $5,000 will easily be over $20,000 in 20+ years, but I’ve seen coworkers try to time the market and withdraw/change allocations at the worst time.

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Put it in SPY index fund

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Roth IRA. Let that money grow at 7-8% tax free for the next 30 years.

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Or you could make 7-8% on those tax dollars too?🤦‍♂️

Loan

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Do both. 4K to loan 1k to IRA

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Loan

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IRA

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I agree with GT1^ all the answers are right based on your personal preference. At this point where we are waiting for a recession, believe it or not one is due soon. I would not put in IRA for sure. If IRA is your preference I would wait for market to tank and then invest in IRA. These are all right options and depends on you and how you feel comfortable. Good luck 👍

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IRA if you think you’ll phase out later in life. I presume you will. Roth IRA. Stock market pays 8% on the long haul. Post tax most def 4.75%+. You won’t regret pushing it all into a Roth. Max the Roth every year until you can’t.

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Dave Ramsey says loan

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Dave Ramsey has good tips about getting out of debt but I don’t agree with his investing advice

The only question you need to ask yourself....would you go and get a loan to fund an IRA? It’s essentially the same thing

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Loan
Guaranteed implicit return in the future of 4.75%

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Ira

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