<p>Or you put your money into a broad index ETF or mutual fund Roth, with a company such as Vanguard that has low fees, and get a much higher return. And never pay taxes on it.</p>
<p>Our friend has invested a small amount of money, starting about 16-17 years ago. Has gotten a rate of return over those years, about 18%. The 20K we gave him is now worth approx. 300K. In 20 years at that rate, should be worth 7.7 million. Tax free. I realize those are extraordinary returns, but he’s managed to do this for a long time. Even if it’s much lower, it’s still a lot of money. Tax free. There is no better deal than the Roth, especially if you invest it aggressively.</p>
<p>Look at the rate of returns of some popular Vanguard index funds. Even if you only get 10% (and that is very reasonable, look at their past histories)…in 40 years if you put nothing else into it, it’s worth 452K. Tax free. Isn’t that better than paying off a low interest rate loan that you probably barely notice the payments for?</p>
<p>I’d dump the student loan debt and just get it out of your life…and then begin funding Roth 401Ks.</p>
<p>You might find that for retirement purposes that you want some different pots of money – some in regular IRA/401K, some in Roth’s and some in non-retirement accounts. Depending on how well funded your regular IRA/401Ks are, you might want to have more in accounts that don’t have minimum required distributions.</p>
<p>You need to change your investments immediately. Most of my investments have annual fees of about 0.4%. The highest is 0.8% but that fee also includes overall portfolio management fees. A reasonable net return would be still greater than 6%. That is the figure I use for my retirement planning calculators. Of course for the past several years returns have been twice that amount. Those periods make up for the lean years when funds drop or fail to grow.</p>
<p>The consensus advice seems to be to pay off the debt. Somehow that should make the OP feel good and enjoy the benefits of debt-free living. What makes me feel good is to have my money working for me and getting the best possible, low risk returns. In any case the difference between paying off debt and maximizing returns is not a lot. The difference is only a couple of percent or $200/year.</p>
<p>^^Agree. I can’t imagine paying 4% for any investment advisor, unless they had the most incredible return ever. Even our friend, who has done very well, only charges 0.75% for active management.</p>
<p>Thanks for all of the responses. It is interesting to see the range of opinions. </p>
<p>For better (mostly, I guess) and worse, we are not eligible to fund a Roth. We do have an emergency fund (although not the next car purchase).</p>
<p>I think we probably will increase the 401(k) contributions. I asked H more about the emotional aspects of paying off the student loans, and he is “just annoyed” at still having the loans but said it really would not give him any deep emotional satisfaction to pay them off. I do understand people who are emotionally invested in being “debt free” but for some reason we are pretty neutral about that. We have no intention of giving up credit cards (although I can’t recall the last time we didn’t pay the balance in full - probably about ten years ago when we charged an engine replacement). And it looks like we are keeping the 3% interest student loans for a few more years. (The 3% is actually from the government, thanks to consolidating Stafford loans.)</p>
<p>Not to steer you towards something you don’t want to do, but regardless of your income, you can fund a Roth. You just have to do it via a “back door” Roth, there are some conditions. I started a thread on this awhile ago. But getting an upfront tax break via another vehicle is good also.</p>