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Old 05-06-2017, 08:31 AM
 
490 posts, read 833,824 times
Reputation: 244

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Hi, I had like $4,022 in a minimum pension fund from my previous employer. Fidelity was managing it. Because the balance was below $5,000, the default action by Fidelity unless the account holder specifies a different action is to rollover into an IRA. It's been in this rollover IRA for about 1.5 years.

Recently, I read somewhere that there is an early withdrawal penalty EXCEPTION/WAIVER if you are using the balance to pay off student loans.

I have about $2K in student loans @ 5.25%, and another $7K or so @ 2.2%. So I'd like to pay off all of the $2K loan @ 5.25% and the remaining amount (after federal tax owed) I'd like to apply towards paying down the $7K loan @ 2.2%.

This should help make a good dent in my remaining student loan balance, so I may pay them off faster.

My other option is maybe to roll that $4,022 rollover IRA balance into my current employer's 401K if they allow it, or put it in some index fund. Assuming I get an annual rate of return of say 6%, would it be best to pursue this option instead?

I'd like to pay off the student loans ASAP because I would possibly like to buy a house in about a year (or at least be positioned to be able to if I decide to). If I can pay off a good amount of my student loans by then, and also finish paying off my car loan ($4400 left), it would enable me to qualify for a higher home mortgage amount.

Questions:

1. I don't really have an accountant or tax attorney. Is there any way I can confirm that if using a rollover IRA to pay off student loans, you can be excused from paying an early withdrawal penalty? If I can avoid that penalty, I would have about $3K (after federal taxes) to use to pay off student loans.

2. Would you do the pay off or invest the funds because annual rate of return could be higher than the student loan interest rates of 5.25% and 2.2%?

Thanks in Advance!
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Old 05-06-2017, 04:42 PM
 
Location: Florida
6,595 posts, read 7,266,564 times
Reputation: 8107
Look at IRA: Can I Use Retirement Savings To Pay Student Loan?
#2 no
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