Most of my loans are federal, but I also have around $10,000 in private student loans.
Is that even possible?
-A.
Dear A.,
Its possible to use your 401(k) to pay off student loans.
For starters, a $55,000 distribution wouldnt translate to a $55,000 reduction in your debt.
The rules for Roth 401(k) distributions are a tad complicated.
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Only your contributions, plus their earnings, go into an after-tax Roth account.
For example, suppose you took a $50,000 distribution.
Then there are the lost gains.
The longer your money has to compound, the less you have to save overall.
Imagine if you left that $55,000 invested and never contributed an extra cent.
In 30 years, youd have about $550,000, assuming 8% annual returns.
But at the end of 25 years, youd only have about $375,000.
No Interest Til Almost 2027?
Or is the bigger problem that your salary doesnt go far enough where you live?
As a result, you have feweroptions for relief.
But location isnt a factor in the discretionary income calculation unless you live in Alaska or Hawaii.
Did you know?
Yes, the program has been rife with troubles, but those arebeing corrected, albeit slowly.
As companies fight to attract workers,student loan repayment assistanceis becoming a popular benefit.
That may be a benefit thats worth prioritizing in your next job search.
In the meantime, keep doing what youre doing by taking advantage of the pause on federal loan payments.
I get why this is such a huge source of stress for you right now.
But I also think things will gradually get easier.
Youre still early in your career, so you could expect your income to rise over time.
Hopefully, the jaw-dropping cost of living increases weve seen recently will level off at some point.
But just dont take money out of your retirement funds unless youre truly out of options.
The payoff for sacrificing now will be worth it later on.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
Send your tricky money questions to[email protected].
