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Pay off loans or tax deffered annuity?

Discussion in 'Pharmacy' started by MdBrndPhrmcst, Dec 6, 2008.

  1. MdBrndPhrmcst

    MdBrndPhrmcst Keeping it real....
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    For any of you financial wizards out there.. wanted to get your thoughts on what I should do with my money...

    My company offers a tax deffered annuity I can place up to $15,000 a year into mutual funds pre tax. However as we know market isn't great right now.

    My company doesn't offer any 401K (it offers a 403b in which they contribute ~5,000 per year but that doesn't kick in until after 2 years of service)

    I have about $75,000 in loans (interest 3.8%)

    Think I should be putting my money into the annuity or just pay off loans?
     
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  3. Old Timer

    Old Timer SDN Advisor
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    Here is the basic law of finance 101 If you are carrying debt at X% you pay off the debt of you believe the return on your investment will be less than X% and you invest your money if your believe your return will be more than X%.
     
  4. suprachica79

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    I would kill to only owe $75k at 3.8% my god. Where in the world did you get that low of an interest rate? lol
     
  5. FruitFly

    Moderator Emeritus 5+ Year Member

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    A TDA's always a pretty good idea... Pay off those loand little by little. They're low enough and you have a great rate. Don't pay it all in one swoop. Contribute the max to ur TDA and establish a savings. :thumbup:
     
  6. suprachica79

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    Can someone explain what a TDA actually is? Im pretty good with basic finances but these are some new terms for me.
     
  7. MdBrndPhrmcst

    MdBrndPhrmcst Keeping it real....
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    I couple years ago the rates were real low (I think) like 1.9%. I consolidated those along with the ones I owed right after I graduated and that was the amount. I know alot of people are much worst off.. but many of my instate friends are much better off!!!:mad:

    A TDA is when they take a certain % out of each of your pay check pre tax and put it into a mutual fund/savings account. So the good thing about it is you aren't taxed on the money that is taken out (so if you get 2500 a pay check but then put 500 into a the annuity account you only get taxed on the 2000.) Of course you'll pay the taxes when your 59 1/2 and start taking the money out.

    I just wish they didn't make the paper work for signing up for these so damn complicated.
     
  8. confettiflyer

    confettiflyer Did you just say something?
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    A TDA sounds like a normal 401k/403b to me.

    $75k @ 3.8%? Don't even bother making this a priority to pay off.

    Build a "6 months of expenses" emergency account in a high yield savings account (ie ING or something).
    Pay off credit cards/other higher interest debt.
    Contribute to your 403b (do they match from day 1 and not vest until year 2? or is it just a straight $5k/yr employer contrib starting year 2?).
    Hedge your bets and open a Roth IRA.


    I'd maximally contribute to an aggressive portfolio given the market now....it's a great time to buy equities. If you don't know too much, just throw it into a targeted retirement account and let it sit.
     
  9. MdBrndPhrmcst

    MdBrndPhrmcst Keeping it real....
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    6 months expenses account? hmmm that'll take awhile...

    The TDA its not a 403b I think, for the TDA there is no matching.. you can just put money in.

    After 2 years that is when the 403b kicks in, and they put in $5,000 without any contributions from you.

    Roth IRA may not be feasible I may be grossing too much :D .. I think I might start a traditional one.

    Invest in equities? what does that mean? like mutal funds? sorry i'm pretty ******ed about money matters....
     
  10. aboveliquidice

    aboveliquidice No sacrifice - No victory
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    I have heard this before... I dont know if you need to be that extreme. I have heard from my family's finacial planner that having 3 months worth of TOTAL EXPENSES is sufficient. If your lifestyle has you spending 4K per month - then you really should have 12K in a high yield savings account - with instant access available.

    I also agree that if you can pull more than 3.8% investing / saving = it would be a waste of money to pay down those school loans...

    ~above~
     
  11. confettiflyer

    confettiflyer Did you just say something?
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    Haha oh yeah forgot about grossing too much to qualify for a Roth. I forgot for a hot second that pharmacists make pretty decent $$.

    As for living expenses... yeah, I've seen 3 and 6 months as the general advice. Given market conditions, I'd opt for 6 months. Given the choice between paying down a 3.8% loan and socking money away into savings, I'd rather fill it to 6 months. Shoot, you can probably get a better rate than 3.8% for savings. After 3 months of expenses, it's all probably personal preference anyway.

    And yes...when I say invest in equities, I mean mutual funds/stocks/etc... So contribute to your 403b, get your log-in information, and set your incoming money to invest in a targeted fund. They're usually named "Future Fund 2050" or "Target 2050" or something.
     
  12. MdBrndPhrmcst

    MdBrndPhrmcst Keeping it real....
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    [Given the choice between paying down a 3.8% loan and socking money away into savings, I'd rather fill it to 6 months. Shoot, you can probably get a better rate than 3.8% for savings.

    I you can find a savings account with relatively good liquidity that yeild better than 3.9% please let me know!! Bank of America tops out at like 2.8% and ING is around 3%. Thats why I was leaning towards paying off my loans instead..

    Thanks for your advice..
     
  13. Old Timer

    Old Timer SDN Advisor
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    Look at these one year CD's
    or these three year CD's
     
  14. confettiflyer

    confettiflyer Did you just say something?
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    Look up "CD Laddering" to get a good yield and better liquidity.

    Besides, if you pay off your loans and "something" were to happen, you won't have cash to tap into (you'll have to tap a credit card instead, at interest rates >10% on avg). Even if you stick $10k @ 3% or whatever with ING, consider that extra .8% the cost of an emergency fund.

    If you have any questions or want to send me details that you don't want to post, PM me, I'll be glad to help :thumbup:
     

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