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Is there any significance to it being a 2016 Roth IRA, other than losing a year of earning potential if I waited until 2017?
I had planned on not opening a Roth IRA and was going to use my employer's 401k plan instead because they match 50% of contributions up to 6%.
Well you should most definitely do both. Because you don't have a large emergency fund right now, use the Roth IRA as a savings account of sorts. You lose the ability to fund it for 2016 in April.
Typically student loans are around 6% interest rate. That means the invest have to make 8% in a taxable account to break even. No investment can guarantee 8% returns.
Then you have to figure out what your time is worth, what your headache, labor, and research is worth.
For me it's better to pay off a 6% student loan account than the hassle of making 9% investment.
If your rate is 4.5%, then it will need to gain 7% in a taxable account to even deal with it.
This IMO is a common fallacy and a fools way of thinking about investment returns and interest.
First and foremost I agree if you have a very large % debt outstanding it's probably better to pay that off first. IMO that would be >10%-20% range on a fairly large balance.
Second keep in mind the length of time that $5,500 will be invested. At a paltry 7% average return on that $5,500, over 40 years (when the OP turns 65) that $5,500 would have grown to $82,000 tax free (Roth IRA) without adding anything to it. Will the OP pay almost $80,000 in interest in the payment of his (relatively) low loan amounts? Hardly.
This is why it's so crucially important to stuff as much money as you can away early on in ones career, especially into the low contribution limit retirement accounts such as IRAs.
It's conceivable that if people start to fully fund Roth IRAs when they start working at the age of 16, they could secure their retirement by just contributing the annual $5,500 limit. Which is crazy to think about. No more playing catch up. If only I could have gone back in time.
Keep in mind that student loan interest is a tax write-off with a limit of $2,500 per year. You're rates are very low so I don't think you'd have anything higher, but if you do maybe consider paying down enough so that you're under that threshold and getting the full writeoff.
Other than that, I'd say build an emergency fund then start investing like crazy.
I paid cash for my first house not long after graduating from college with nearly 50K in debt. You can't eat a paid off student loan, and you can't stay warm and dry with a paid off student loan. I say invest in something that provides for you FIRST. I had nowhere to go since I've been on my own since 18 as such I made sure I always have a place to live.
The route I chose was to pay them off ASAP. I actually had an investment that did really well and I was able to use that money to pay for it in full. I would rather have a guaranteed 6.8% interest than the risk that money in the stock market. I also made too much money for the Student Loan interest to be a write-off.
Now that it's paid off I have built an emergency fund and since bought a condo. In my opinion, getting rid of debt is my first priority. Student loan debt is not forgivable in bankruptcy so that plays a huge role in my decision to tackle it first. Depending on how stable your career is, you might consider paying it off sooner rather than waiting. I had no threats towards my job.
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