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PSLF vs 401k

Total Posts: 1

Joined 2016-08-16

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If you are paying student loans through the PSLF and trying to make your payments as low as possible. Doesn’t it make sense to put all of you money in your 401k as if you don’t the money gets used to pay student loans? What would be the dollar for dollar calculation for money saved by investing in your 401k as opposed to paying higher student loan payments for the year?

Total Posts: 1

Joined 2016-11-11

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By definition, you can’t have a 401(k) and qualify for PSLF because that is a private sector retirement plan.  You may have a 403(b) which is the equivalent for all nonprofit jobs.

Yes, contributing to a tax deferred retirement savings account will lower your adjusted gross income (AGI) and thus your student loan payments if on an IBR plan.  You have a yearly limit of 18,000 (if under age 55), but it is a great idea to invest in your retirement!

CM

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Total Posts: 7

Joined 2015-09-02

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Im doing this AND maxing my HSA through my High deductible insurance at work(we have a really low HD-2000ind and 4000fam, and my work gives us $850/1750 respectively for ind/fam).

Total Posts: 1

Joined 2016-12-06

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Hey Mbeja L,

I think the answer to your question of whether it is better to max out your 403(b) account depends on what you may need to live off of bc short term you will have less spending money a year, but for a better retirement nest egg.

However, for the sake of the math on what you would save I believe it would be as simple as the following example:

Calculate your “discretionary income” defined by the plan you are in, which I believe is based on number of people in family and then 150% of the poverty guideline, which I think is state specific. So, let’s say that your specific discretionary income came to $25,000 and you were required to pay 10% of the difference between your AGI and discretionary income a year based on your repayment plan.

Let’s say your AGI is $50,000 a year, that would be $50,000 minus $25,000 = $25,000 x 10% = $2500/yr = $208/month

So, for every amount you lower your AGI you would therefore lower your yearly payment by 10% of that amount.

For example, if your AGI after investing $10k in your 403(b) was $40,000 this would lead to, $40,000 - $25,000 x 10% = $1500/yr = $125/month
Of course like I started off by saying you would lose access to some of your money though $10,000 x marginal tax bracket. So, if you were single and making $50k, thats a tax bracket of 25%. So, 75% of actual money out of hand for the time being (which is greater than 10% saved via decreasing loan payments), so it would be more money out of pocket short term but IMO if you can afford to live off the lower income then def worth it, because it is like an extra 10% on putting money in a 403(b)

% x $10,000 invested in 403(b) = $2,500 saved in taxes
$10,000 x 10% = $1000 saved in yearly loan payments
$3,500 saved total in long run
$7,500 (money out of pocket into 403(b) - $1000 (saved in yearly payments)= $6,500 tied up a year (less to live on) by investing in 403(b)


Hope this helps! Please check my logic/math bc thats how it makes sense to me!

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Total Posts: 4

Joined 2022-10-25

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Thanks for advice!