Retirement Savings Question

[crayon3448]

I will freely admit that although I handle day to day finances for my family, I have very limited knowledge about the ins and outs of retirement plans, so here's my question:

I never contributed to the retirement plan for the job I worked after college, however the employers put money in an account for me, totaling a little less than 6K. I have an 8K student loan which we pay $200 on every month and the interest rate is not that bad. DH and I have no cc debt, no car payments, just our mortgage. We contribute money into DH's retirement plan (I SAH with DD). Would it make sense to take the 6K and pay off the loan faster? Or should I leave it in the retirement account? I know I will be hit with a penalty if I take it now, but it seems like such a small amount of money to save and it's tempting to be virtually debt free. We're looking at another 3 years to pay off the loan right now (as long as our financial situation stays the same) vs 1 year with the extra money.

 

[jperrot1]

I say leave the money in the account and don't take it out. I think Suzie O. would say the same. When you retire, you'll be happy you left it in there.

 

[Cheshire Figment]

1. The money will be fully taxable when you take it out.

2. It might move you to a higher bracket.

3. In addition to its being taxable, there will be an additional 10% penalty tax on the withdrawal.

4. If you leave it (or roll it over to a regular IRA) it will continue to grow tax-free until your retirement and could actually be over a hundred thousand dollars by the time you retire.

5. And the interest on the student loans is deductible on your taxes.

 

[beansmom]

don't touch it!

i would suggest reading Dave Ramsey's 'Total Money Makeover' book and if possible attending his Financial Peace University. You will not only learn the HOWs of financial success but the whys.

 

[StitchesGr8Fan]

After fees and taxes you would probably only get about $4000 from the stuff I've read. To me, that's not worth it.
However, perhaps you've talked to as accountant or retirement person who has given you different information.

 

[TarrahA]

I'm an accountant - listen to Chesire! If you can, move that 6k in with your husbands retirement if its an IRA. If not, leave it alone. The tax paid if you take it out is going to be alot more than the remaining interest owed on that student loan, which is deductible as Chesire stated. If anything, try to pay above your normal note each month to speed up your payoff, but don't touch retirement money to do so!

 

[Jeff_G]

You don't list the interest rate on your college loan, but lets say its 8%. After taxes and penalty you are basically asking should I take out a 40% loan to pay off an 8% loan.

The answer is NO!!!!!

Remember you can get a loan for college, house repairs, cars, but no one will loan you money to retire on...

 

[MrsPete]

You're receiving good advice here: Don't touch it. Here's what'll happen:

1. You take the 6K out of your retirement.

2. You're taxed on it, so you only get about half the money -- about 3K.

3. At tax time next year, this'll be added to your income, so next year you'll be taxed on your yearly earnings plus 6K. Remember, you only received 3K. Bad deal, especially since you'll be paying unearned income tax on the 6K.


In contrast, if you let that money sit for 30 years (even at a piddly 4%, even if you never add another penny), you'll have $26,507.98.

 

[chris31997]

I would roll it straight(DO NOT bring the money into checking account. Have it move from work into the ROTH) into a ROTH IRA and then figure out how to contribute to that. With DH working you both can contribute up to 5500 into one(one for him and one for you) a year

 

[tvguy]

Not only should it go into retirement, you should already have your own retirement savings, and add to it yearly.

You never know what could happen in the future that could impact your access to your husband's retirement savings.

 

[johnsontrio]

I'm an accountant - listen to Chesire! If you can, move that 6k in with your husbands retirement if its an IRA. If not, leave it alone. The tax paid if you take it out is going to be alot more than the remaining interest owed on that student loan, which is deductible as Chesire stated. If anything, try to pay above your normal note each month to speed up your payoff, but don't touch retirement money to do so!

I am just curious as to why this advice? Even though I have been married 22 years, I am careful to keep my retirement money separate from DH's. You never know what might happen. All the stories about spouses that remarry and the new spouse gets money that the previous spouse thought would one day go to the children, etc... Why can't she roll it over into an IRA for herself?

 

[beansmom]

I am just curious as to why this advice? Even though I have been married 22 years, I am careful to keep my retirement money separate from DH's. You never know what might happen. All the stories about spouses that remarry and the new spouse gets money that the previous spouse thought would one day go to the children, etc... Why can't she roll it over into an IRA for herself?

really? 22 years and you don't trust your wife? I would divorce you, frankly.

ETA: Marriage is a joining of two people, not a business deal. so, if you get seriously ill and can't afford your care, does that mean your wife doesn't have to pay for it? she should just leave you to fend for yourself? Just like raising children, marital finances are a JOINT effort.

And imo, a previous spouse has no claim on anything from their ex and children should be taught to depend upon themselves for their live. Nobody 'owes' anybody anything after death. That's what wrong with the world...people always expecting someone else to take care of them--student loans, parents paying for college, social security. My mama said 'your helping hands are at the end of your own two arms'.

 

[lost*in*cyberspace]

I am just curious as to why this advice? Even though I have been married 22 years, I am careful to keep my retirement money separate from DH's. You never know what might happen. All the stories about spouses that remarry and the new spouse gets money that the previous spouse thought would one day go to the children, etc... Why can't she roll it over into an IRA for herself?

If you get divorced, retirement accounts will be covered in your property settlement. One spouse won't walk away with everything, unless the other has a terrible divorce attorney! If your ex chooses to give his/her share of the money to the new spouse, that's his/her choice.

 

[manning]

After fees and taxes you would probably only get about $4000 from the stuff I've read. To me, that's not worth it.
However, perhaps you've talked to as accountant or retirement person who has given you different information.

You beat me to it.......YES LISTEN TO CHESIRE !!!!!

 

[johnsontrio]

really? 22 years and you don't trust your wife? I would divorce you, frankly.

ETA: Marriage is a joining of two people, not a business deal. so, if you get seriously ill and can't afford your care, does that mean your wife doesn't have to pay for it? she should just leave you to fend for yourself? Just like raising children, marital finances are a JOINT effort.

And imo, a previous spouse has no claim on anything from their ex and children should be taught to depend upon themselves for their live. Nobody 'owes' anybody anything after death. That's what wrong with the world...people always expecting someone else to take care of them--student loans, parents paying for college, social security. My mama said 'your helping hands are at the end of your own two arms'.

To begin with, I am a woman. I have my own retirement accounts separate from my husband's. I am a few years his senior so I had a considerable amount of money invested prior to marrying. My concern wouldn't be with the financial fallout from a divorce, but the fallout after a widowed spouse remarries and now there is a new spouse getting involved in money that was intended for the children of the first marriage. For example, if I were to pass away and my husband remarries, I would want my DD to benefit from my financial assets, not any children that his new wife might have.

My family money has been carefully designated to go to my sister and I and our children, not our spouses or their spouses. We consider this basic financial planning for women.

None of this has anything to do with medical care of those still living. I am not relying on family money, nor is my DD. But why should my assets go to someone that I don't even know?

 

[beansmom]

yeah, sorry about that male/female mix up but be that as it may...

when you get a divorce, the judge will divide all marital assets and once that is done, you can re-direct your assets by changing beneficiaries on them and writing a new will.

 

[TarrahA]

Beansmom has it right, to my knowledge. From what I know of divorce law in most states, your retirement account is subject to the same rules as any other asset - anything obtained/accrued after the marriage is joint property, anything prior (including your retirement balance on the day before you sign your marriage license), is yours alone. The judge will distribute rights to them accordingly, whether its in a divorce or estate settlement in the case of death. The only way to make sure your property, money included, goes to any one specific person is to name them as the beneficiary and also create a will. Otherwise, your spouse is entitled to anything you accrue while married. So to answer your question as to why I'd suggest rolling in with her husbands is b/c he probably has a substantially larger balance, which the compounding interest gained each year on that with an additional 6k would be alot more than just the 6k if it were sitting alone, since she doesn't have a retirement account of her own already. And since it was pre-marriage money, she has a right to it (and 50% of what he's contributed since they married), so there shouldn't be any harm in rolling it in. That's my thought process. I'm not even close to a lawyer by any means though, could be wrong. But if so, my business law classes from college failed me (can't say why we covered divorce litigation in a business class, that might be why, lol)

 

[cassandrap83]

I would roll it straight(DO NOT bring the money into checking account. Have it move from work into the ROTH) into a ROTH IRA and then figure out how to contribute to that. With DH working you both can contribute up to 5500 into one(one for him and one for you) a year

Two things are wrong here:

#1 She has to have earned income to contribute to a ROTH
#2 If she rolled it into a ROTH it would be fully taxable

 

[Texas Crude]

I will freely admit that although I handle day to day finances for my family, I have very limited knowledge about the ins and outs of retirement plans, so here's my question:

I never contributed to the retirement plan for the job I worked after college, however the employers put money in an account for me, totaling a little less than 6K. I have an 8K student loan which we pay $200 on every month and the interest rate is not that bad. DH and I have no cc debt, no car payments, just our mortgage. We contribute money into DH's retirement plan (I SAH with DD). Would it make sense to take the 6K and pay off the loan faster? Or should I leave it in the retirement account? I know I will be hit with a penalty if I take it now, but it seems like such a small amount of money to save and it's tempting to be virtually debt free. We're looking at another 3 years to pay off the loan right now (as long as our financial situation stays the same) vs 1 year with the extra money.

Don't touch it. Without knowing the specifics of the plan (pre-tax, after-tax, etc) or what your tax rate is I can't say exactly, but by the time you take the early withdrawal penalty AND pay income taxes on it, you're looking to lose probably $1500+ of the $6k. Put another way, you'd be losing 25% of the value to save ~6% in interest (per year)? Throw in the fact that student loan debt is tax deductible and it makes an even stronger case for leaving your savings alone.

If it were a high interest credit card it'd be one thing. But student loans? Nothing to worry about.