Skip to main content
No. of Recommendations: 1
Hi all-

I'm 31 years old and plan to work until I'm 65 or so. I'm trying to figure out how to invest for retirement. Here's my current situation:

I have about $8,000 in a Roth IRA that I converted from a traditional IRA two years ago but have not added to since. I have about $1,200 in a recently-instituted SEP IRA at work that receives monthly deposits equal to 6% of my pay (all company funds). Finally, when I started working here 2 years ago (before they instituted the SEP IRA) I began tiny paycheck withdrawals into a 403(b) (we're a nonprofit company). The 403(b) has about $1,200 in it as well. All three of these investments are in Vanguard's LifeStrategy Growth fund (VASGX).

I don't plan to use the money for anything before retirement.

The SEP is free money and I can't add to it on my own, so no problem there. My question is, should I be doing the automatic paycheck withdrawals into the 403(b) or the Roth? I gross about $37,000 right now and in a few years I will begin a new career as a marriage counselor, so I don't have grand expectations for high future earnings, but I can't really say what tax bracket I'll be in at retirement (and who knows what they'll look like in 35 years anyway?). Is it wise to fund both? I tend to like things nice and tidy (witness the VASGX choice), with fewer things to keep track of, but if there's a financial advantage to funding both, I'll go with it.

I also have about $8,000 in Medtronic (MDT) stock (used to work there). I've been trying to decide if I should leave it there, or sell some to diversify into other stocks, or sell enough to plunk the maximum allowable into an IRA before December 31st and then again in 2004.

I think the maximum Roth contribution is $3,000. Can I fully fund that and also add to the 403(b)? Or is it $3,000 total between the two? And I'm assuming the SEP IRA doesn't count against that total, right? Remember, it's all employer funds, if that matters.

I guess I should add that I have no appreciable credit card debt, but I do have a significant student loan of about $26,000 at about 7% interest. I'll be taking out another student loan as I head back to school next semester, and I was thinking of taking the maximum they'll give me (which will probably leave me with at least $5,000 extra) and pay off a chunk of the first loan, since the new loan will have a considerably lower interest rate (~3%, I believe). Anyway, should I consider throwing the Medtronic stock at the old student loan as well? One piece of my hesitation is the tax hit that I'd take. My cost basis was/is very low compared to the stock's current (and very steady) price.

I'd love to hear what you Fools have to say!

Thanks, and be well.

-Guy
Print the post Back To Top
No. of Recommendations: 1

As far as I understand it, the 403b, SEP IRA and the ROTH are totally independent, and don't intersect with each other. (if anything intersected, I would think it would be the SEP and the 403b, but you should wait for someone to reply who really knows the inns and outs of this question) I would max out both as much as possible. Someone here should answer this question: Is it possible for you to transfer the stock directly into the ROTH, so you don't have to take the tax hit on it, and then convert it once it is inside? I doubt you can, but it is worth investigating.

In terms of one being better than the other- I don't think there is a huge difference really. However, I would max out both, if possible, because any money saved is going to help you out substantially.


I would definitely roll the old loan with the high interest rate into a new one with a lower interest rate if you go back to school. If you don't go back to school, is it possible to refinance it anyway? It seems like an excessive interest rate for an educational loan.

For your MDT stock, I would diversify it.. it is a huge amount of your savings at the moment. However, considering that you will have to pay capital gains on a lot of it... it makes it more complex.



My personal inclination would be to have you delay school a year, and live extremely frugally and try to knock your debts down for that one year. When you do go to school, keep your costs very low, so you don't keep increasing your debt. I am a little concerned because I have had friends who continually roll into new careers after schooling, thinking the next one will be it, and it just turns into an endless series of increasing debts. not that you will do this! But you should reflect carefully on what is motivating you..

good luck
Print the post Back To Top
No. of Recommendations: 1
Guy, you do not mention if that 8k you have in stock is all you have in savings. If that's the case I would sell some of it for a cash reserve and maybe hang tight on to the rest since you are taking on more debt for school.
Print the post Back To Top
No. of Recommendations: 0
I would definitely roll the old loan with the high interest rate into a new one with a lower interest rate if you go back to school. If you don't go back to school, is it possible to refinance it anyway? It seems like an excessive interest rate for an educational loan.

The old loan is a consolidation loan; it once was three separate loans. The interest rate is the weighted average of the three individual loans. I don't know how to refinance an educational loan. I've looked around the Web for that kind of information but have never found anything useful. Believe it or not, those were the going rates when I went to school in the late '90s. It seems excessive by today's standards, I agree.

For your MDT stock, I would diversify it.. it is a huge amount of your savings at the moment. However, considering that you will have to pay capital gains on a lot of it... it makes it more complex.

Yep, it's the major chunk of my savings, but I am beginning to sock some savings away each paycheck. Thanks for weighing in on the stock diversification issue.

Print the post Back To Top
No. of Recommendations: 0
Guy, you do not mention if that 8k you have in stock is all you have in savings. If that's the case I would sell some of it for a cash reserve and maybe hang tight on to the rest since you are taking on more debt for school.

An option I hadn't considered. I haven't felt the need to do this before because the money is pretty quick and easy to obtain. I'm curious to see if there is strong agreement form the rest of the board. Thanks for the suggestion.
Print the post Back To Top
No. of Recommendations: 0
"The old loan is a consolidation loan; it once was three separate loans. The interest rate is the weighted average of the three individual loans. I don't know how to refinance an educational loan. I've looked around the Web for that kind of information but have never found anything useful."

You basically cannot refinance educational loans. You can consoliate and lock in your variable rate ones, that's about it. That's the drawback to those government backed Stafford loans. I don't know why, but I think it is to protect lenders from having to worry about someone making a deal on the interest rate and everyone flocking to the company. You can switch companies, but the interest rates remain the same. The good sides is that you can get them in the first place, they are deferable under many situations (especially if you got them after 1993), and if you ever really can't pay them, they can't take stuff away from you (but it will effect your enrollment in a lot of government plans).

The only other choice would be to take out private loans to pay off the government backed ones, but I don't know what kind of interest rate you can get on loans with essentially no collateral.

There is something ironic about having to take out loans at a high interest rate to get an education because the economy is rocking, and then having to pay back that high interest rate when the economy is down.

I did manage to get the interest rate on mine down from over 8% to 6.25% when I consolidated. I wish I could have held off longer, but I just couldn't do it.

Print the post Back To Top
No. of Recommendations: 0
You basically cannot refinance educational loans. You can consoliate and lock in your variable rate ones, that's about it.

That's what I figured.

There is something ironic about having to take out loans at a high interest rate to get an education because the economy is rocking, and then having to pay back that high interest rate when the economy is down.


Yep. Doesn't sit real well, but I guess there's nothing to be done about it. Thanks.
Print the post Back To Top