Student Loan -> Roth

[Marshac]

So i've been accepted into medical school and will start this August- my question is this- Once I graduate and finish as a resident, it's highly probable that my wife and I will be above the income limits for contributing to a Roth account. Tuition at my school is $40k/year, and the COA is $65k- meaning that I can borrow an additional $25k/year. Would it be worthwhile to borrow money @ 8% in order to continue funding my Roth account while I'm still able to, or would this be a losing proposition? My gut reaction is to go forward and do it, but I wanted to run it past you guys first

 

[LOL!]

In the long run, that Roth is not going to mean much because of all your other expected income. I wouldn't borrow money at 8% to do that. I might borrow at 5% or less though to do it if I could pay it off within a year or two.

And you do know that you can't contribute to a Roth without the earned income to cover it, right? But that income could come from your wife anyways.

Now here's a sacrilegious option if your wife has a 401(k): Max it out as much as possible, but then borrow from it to fund a Roth. The rates for 401(k) loans are around 4% and you are paying the interest back to yourself. The cost would be loan origination fees of $100 or less and the extra tax you would pay on the interest you paid yourself.

 

[Marshac]

Now here's a sacrilegious option if your wife has a 401(k): Max it out as much as possible, but then borrow from it to fund a Roth. The rates for 401(k) loans are around 4% and you are paying the interest back to yourself. The cost would be loan origination fees of $100 or less and the extra tax you would pay on the interest you paid yourself.

She does, although I don't believe her plan administrator offers loans in order to keep costs down- i'm not 100% on that though. Additionally, since I want to go into family practice, there is a high probability of at least partial loan forgiveness later on.

My only concern about using a pre-tax retirement vehicle later on is future tax rates... i'm not too optimistic about them, especially with this populist 'soak the rich' nonsense.

 

[sailor]

Don't borrow man,
you can do it a different way (but check when current law expires)
Every year contribute to after-tax (Non deductible) Traditional IRA.
And then do TIRA->ROTH conversion. Nowadays there is no MAGI limit on ROTH conversions, but there is on contributions.


Conga rats on being accepted to a med school.
sailor