Last Minute 4/14 Roth IRA Contribution?

[MBAVisionary]

Quick snapshot:
31 years old
$19k in student loans @ 4.25% - want this paid off by August 2016
$14.5k car loans @ 0%
8k 401k
2252 - Roth IRA
$1463 credit card debt

I just got a bonus check direct deposited into my account. Also payday is 4/15. I have a 0 balance $1000 line of credit that I could pull from and pay back tomorrow between my paycheck and another check I have. Would probably pay pennies in interest for the time it actually has a balance.

Is it dumb to focus on putting more money in my Roth at the last possible minute for Tax Year 2014? Or should I continue doing my debt snowball and just focus on maximizing it in the future. I have less than $1k in emergency fund money set aside right now.

In 34 years when I plan to retire that $1k today will be worth $7,652 assuming a 6% average rate of return. All the interest tax free. Not factoring risk into the equation though. What should I do?

Most of my Roth IRA is in a betterment account 90 % stocks / 10% bonds. Quite frankly it's way underfunded for my age. Advice welcome!

 

[karluk]

As a general rule, you will find support on this forum both for paying off debt first and investing first. But I think that your situation - 31 years old with a negative net worth - tilts the decision towards paying off debt first. It's nice to have a goal to pay off your student loans by August of next year, but it's up to you to turn that goal into reality. Making impulsive last minute decisions to divert your money to a different purpose, however laudable in itself, is just distracting you.

 

[pb4uski]

If your income is low enough that you qualify for the Retirement Savings Contribution Credit for 2014 then making a retirement contribution to maximize the credit might make sense for you.

Otherwise, generally you want to contribute enough to the 401k to optimize any match, attack any high-interest credit card debt first, then the student loan debt given the 4.25%. Obviously, no need to hurry to pay off the 0% car loan.

Whether tax-deferred (401k or deductible IRA) or tax-free Roth retirement savings is preferable for you depends on you current tax bracket compared to your tax bracket in retirement.

 

[TimSF]

Wasn't the 2014 Roth IRA deadline 12/31/14? I thought only tIRA contributions could be made until 4/15.

 

[pixelville]

What is your federal and state marginal tax rate i.e for an additional $100 in ordinary income, how many additional $ will you pay in federal tax and state tax? Do you expect your tax rates to be much higher over the years and in retirement? Based on your income, do you expect to become ineligible for Roth soon? All these are considerations, in addition to 401k Match and tax credits, when deciding whether to contribute to Roth, 401k, etc.
In the low tax brackets, you may not be getting as much advantage in 401k.
What is the rate on your credit card debt?

As others have pointed out, tackling your higher interest debts first may make more sense and then worry about Roth.

 

[pixelville]

Wasn't the 2014 Roth IRA deadline 12/31/14? I thought only tIRA contributions could be made until 4/15.

No, tax filing deadline applies to contributions for IRA, Roth, HSAs

 

[MBAVisionary]

If your income is low enough that you qualify for the Retirement Savings Contribution Credit for 2014 then making a retirement contribution to maximize the credit might make sense for you.

Otherwise, generally you want to contribute enough to the 401k to optimize any match, attack any high-interest credit card debt first, then the student loan debt given the 4.25%. Obviously, no need to hurry to pay off the 0% car loan.

Whether tax-deferred (401k or deductible IRA) or tax-free Roth retirement savings is preferable for you depends on you current tax bracket compared to your tax bracket in retirement.

Income is 55k so 25% tax rate. Also make too much for that credit.

 

[MBAVisionary]

As a general rule, you will find support on this forum both for paying off debt first and investing first. But I think that your situation - 31 years old with a negative net worth - tilts the decision towards paying off debt first. It's nice to have a goal to pay off your student loans by August of next year, but it's up to you to turn that goal into reality. Making impulsive last minute decisions to divert your money to a different purpose, however laudable in itself, is just distracting you.

Good point about the negative net worth. I sink a ton of money proportionally to my income into paying debts down each month. I want to be free of it all.

Currently I contribute $400/mo to my Roth IRA and 280 to 401k company matches 140. Maybe I'm trying to do too many things at once?

 

[MBAVisionary]

I'm currently yielding about 4% growth in my betterment account since October 2014. Kind of feel like by not contributing as much as possible I'm missing out on my compounding years. On the other hand it's doubtful I will make enough in my investments in the next two years by investing more to offset the interest that accrues the longer I wait.

About $800 in interest with current balance. If I lost my job tomorrow I could pull money out of retirement to pay for bills but I'd rather have bills be a fraction of what they are instead. So that would kind of defeat the point of putting more away now.

 

[karluk]

Currently I contribute $400/mo to my Roth IRA and 280 to 401k company matches 140. Maybe I'm trying to do too many things at once?

Assuming you actually succeed in paying off your student loans by next summer, I think you have hit on a reasonable mixture of saving for your future while liquidating your debt. I would continue doing what you've been doing. My earlier post was directed solely at this last minute plan to throw additional money into your Roth IRA, which I don't think fits in very well with your rather aggressive debt repayment strategy. Part of the reward of making a financial plan is to see it through to the end and experience the satisfaction of knowing that this debt, which has been hanging over your head for most of your adult life, has been eliminated on schedule.

 

[MBAVisionary]

Thanks for your replies all. I'm going to cut my Roth contributions down to $100/mo and put the $300/mo savings toward student loans. Over the next 14 months that will equate to $4,200 in "extra" money to apply toward my $19k student loan balance. That's about a fifth of what I owe. That combined with an extra $5k coming to me in the coming 3 months or so and my income will allow me to put s big dent in this debt.

I am close to getting a promotion at my job which would boost my salary / bonuses. Not counting that chicken until it's hatched though.

 

[pixelville]

Good decision to cut down on Roth contributions. With 25% Fed tax bracket, you might be better off not contributing to Roth and increase 401k contribution instead.
Once you have paid off debt, maxed 401k, then contribute to Roth.
As a general rule, a lot of people on this board convert IRA to Roth upto the top of 15% bracket but not in the 25% bracket. Of course, exceptions exist.

Don't forget to get a deduction on taxes for Student Loan Interest (line 33, form 1040)!

 

[Animorph]

The one nice thing about the Roth in this case is that you can withdraw your contributions penalty free. So you can give it a try and if you end up needing the cash it should be available. With tax form paperwork I'm sure.