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USE INHERITED IRA TO PAY OFF STUDENT LOANS?

By Terry Savage on August 06, 2022 | College Savings / Student Loans

Hello Terry
I received an inherited IRA from my step-father. After taking the required minimum distribution the first year, which I used to pay off debt, and using $4000 to purchase a teardrop camper, I have about $35,000 remaining. I also owe about $30,000 for a parent loan for my daughter’s college education. My question is should I pay off the student loan or use the remaining money in a different way? I am semi-retired, my income will be very low when I quit working, and I have meager assets beyond my social security income.

Terry Says

Those parental student loans are going to stick with you no matter what happens — although at some point you could switch to an income-based repayment plan to lower the monthly cost. Interesting that you were tempted to buy a camper before considering paying down the student loans!
Any minute the government will announce either an extension of payment deferral which is scheduled to end on September 1st. If there is no loan forgiveness offered at that point, yes — go ahead and pay off the loan balance if you have the cash from your windfall. Just remember, that withdrawal will be taxable so have them withhold at least 25% for taxes.

Then, with that monthly payment burden gone, start saving MORE money outside a retirement plan or in a ROTH IRA — so you’ll have something to live on beyond SS when you can’t work any more. And don’t stop working — ever! — until absolutely necessary.

money

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