Original MDTAXES Forum

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Apr 26, 2009 - 6:46AM

Re: budget, loan repayment, taxes

Sounds like you are really planning ahead.

I agree that it might not make sense to purchase a home if you aren't sure how long you will be living where you are currently living. We've had a lot of clients who made a lot of money earlier this decade even though they only owned their home for a few years. More recently, however, we have many clients who had to move from Boston who were stuck selling a home for a loss, or renting it out because they can't even sell it.

Ultimately, once you know where you will be living for a long period of time, you definitely want to own where you live. Home ownership is a great tax shelter and an important part of a solid financial plan.

That being said, maxing out your contributions to your employer's 403b plan is the only other major tax break available to you. At $190k of salary, you'll save 33 cents in federal taxes for each dollar you contribute. Since you need every dollar to pay down your student loan debt, I don't think you are in a position to opt for the Roth version of the 403b plan, since you'll be giving up a current year tax break.

For your student loans, I think you need to take a look at each loan, and put together a list that shows the interest rate of each loan, and whether the loan has been cosigned. You then probably want to begin to knock off the loans one at a time - starting with the cosigned ones at the highest rates. Keep paying the minimum for all the other loans while you pay any available money towards the one loan you have targeted to pay off.

I'm not sure you need to pay off all $190k of loans within 5 years. Maybe just get rid of the cosigned loans and the loans with the higher interest rates, and leave yourself with a couple of loans with a low interest rate and an affordable monthly payment.

My wife Susan Schwartz can help you formulate a plan. Feel free to give her a call at 800-471-0045 if you'd like her assistance. Susan is a CFP who is not licensed to sell any products. So all she can offer is her objective advice for a reasonable hourly fee.

Zip Code: 01801