Facebook Chat on Whether to Use 401k Money to Payoff Student Loans

Student-Loans

Here is the text from a recent Facebook chat I had with a friend about whether or not to take money out of her 401k to pay off her student loans:

Her:
If I withdrew money from my 401k to pay off student loans, does that result in double taxation?
TaxAssurances:
There’s a tax on the 401k as income and the 10% penalty for taking it out to early.
TaxAssurances:
Also, with the student loan you lose out on the future deductibility.
Her:
That will happen this year as result of my raise.
TaxAssurances:
Then it’s a cash flow/total savings debate.
Her:
I was thinking about it because we are approaching > $250 combined income and reduction in mortgage interest deduction.
TaxAssurances:
understand. It all comes to your overall comfort level. How much you have saved versus using the money now to get rid of the student loan debt. Are you comfortable for emergencies and general savings.
Her:
It will put me in no debt status…which means more cash flow for savings. I’m not worried about retirement because I plan to work until my brain stops.
TaxAssurances:
Seems like you thought it out….your husband on board?
Her:
Nope
TaxAssurances:
Talk it out.
Chat Conversation End

This chat goes to some of the issues and concerns surrounding the decision to take a lump sum and pay off student loans. Each circumstance is different but ultimately it comes down to what works best of all.

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Author: TaxAssurances, LLC

Chex Balances is the blogsite of TaxAssurances, LLC, an independent financial services firm that provides expert advice and solutions in Accounting and Insurance. The site provides insightful and useful information around the reader's financial life. Information that helps them understand and navigate the financial details of everyday living.

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