Hi folks,
I'm an attorney who was previously PSLF track. Due to that, and especially during the COVID interest rate pause, I stashed away what would have gone to student loans on a 10 year payment plan away in a brokerage. I cashed some out to put $40k down on a house but otherwise, the account has become something of a retirement account so that I can retire a little earlier. Now, though, I've left my government job and am making a lot more money, and I'm wondering if it makes more sense to pay my loans by liquidating long term investments in my brokerage account, or if I should just pay them down aggressively while continuing to save a bit less money in my brokerage, especially when receiving bonuses.
I'm 34, married (spouse works), two young children in daycare.
Base salary: $200k
Anticipated bonus/additional income: $40k
Brokerage value: $110k
Retirement accounts: $250k
Current student loan payment: $1800/mo (9 year payoff horizon)
Student loan interest rates ranging from 5% to 6.75%, total amount owed $149k.
Thoughts? Anything else I should be considering here?
Cashing out brokerage to pay my student loans – thoughts?
byu/Morning-Chub inpersonalfinance
Posted by Morning-Chub
3 Comments
debt or invest: https://www.bogleheads.org/wiki/Paying_down_loans_versus_investing https://reddit.com/r/personalfinance/comments/16jcmnh/_/k0qox0x/?context=1 https://reddit.com/r/personalfinance/comments/zssug0/_/j1ddljd/?context=1
What is the cap gains hit on selling out? I would look at that first. Second, are you doing better than 5-6.75% annually (not average, but actual annual returns) on your investments? If so, then it doesn’t make sense to cash out to pay off at a loss.
If you’re beating the loan % with investments, Use the bonus to take out a chunk of the loan each year and slowly pay off the loan with your investment returns.
Do you have a 529 plan in your name? One that has been around for say 10-15 years? If so, you could put money there, wait 5 years allowing it to grow and then you can use that to help pay down the loan amount. Still a tax hit (unlike brokerage, if you have LTCG the tax hit is only 15%)
Daycare is only going to be for a few years. Once that ends, reallocate the amount you are putting towards that to pay off the loan – if anything is left over. I have 3 kids, so I know how much you are paying for that!
Make sure to factor the tax consequences of a sale into whatever decision you make, as you’ll have to pay capital gains tax (short or long term depending on ownership window) on any profit.
If you have some winners and some losers you can use losses to offset some or all of the gains, and potentially carry over losses into future years if you don’t have the profits to swallow all the losses in the same tax year.