pay back loan or invest the money?
03-26-2004 | 07:48 AM
#1
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Joined: Dec 2001
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From: NJ
pay back loan or invest the money?
Guys, I am always confused about this issue.
I have some money that I dont need. I can either throw them into repaying part of my student loan, or I can invest it or leave it in the bank.
Now my student loan has a variable rate and its at 5% right now. So I don't think it makes sense to have my money staying in the bank making 2% when I could pay back part of the loan and not loose that 3%. But interest for student loans are tax deductable. My question is, at the end, is it better to throw the money into paying back part of the loan and get a less tax deductable or to keep it in the bank/invest it and loose/pay out of my pocket the 3% difference in interest and get the tax deductable?
I have some money that I dont need. I can either throw them into repaying part of my student loan, or I can invest it or leave it in the bank.
Now my student loan has a variable rate and its at 5% right now. So I don't think it makes sense to have my money staying in the bank making 2% when I could pay back part of the loan and not loose that 3%. But interest for student loans are tax deductable. My question is, at the end, is it better to throw the money into paying back part of the loan and get a less tax deductable or to keep it in the bank/invest it and loose/pay out of my pocket the 3% difference in interest and get the tax deductable?
03-26-2004 | 09:49 AM
#2
Where is my super sauce?
Joined: Apr 2002
Posts: 5,813
Likes: 1
From: Tick-Tock Tech
Interest to student loans are barely tax deductible. I have not been able to deduct student loan interest in years. If you make more then $40K/year (I think about that number) then you cannot deduct.
If you have the cash, I'd pay it out. But otherwise, the loan is a good rate and you're not really hurting yourself by keeping it. Another option is that you can decrease your total by paying off some of the principle now. Make sure your bank knows that you intend to pay principle (they may have a form), or else they'll just assume any extra payments are to interest.
If you have the cash, I'd pay it out. But otherwise, the loan is a good rate and you're not really hurting yourself by keeping it. Another option is that you can decrease your total by paying off some of the principle now. Make sure your bank knows that you intend to pay principle (they may have a form), or else they'll just assume any extra payments are to interest.
03-26-2004 | 12:55 PM
#4
has Gloryhole Girls in
Joined: Mar 2001
Posts: 11,473
Likes: 1
From: Ballston Lake, NY
Originally posted by Slimey
Interest to student loans are barely tax deductible. I have not been able to deduct student loan interest in years. If you make more then $40K/year (I think about that number) then you cannot deduct.
If you have the cash, I'd pay it out. But otherwise, the loan is a good rate and you're not really hurting yourself by keeping it. Another option is that you can decrease your total by paying off some of the principle now. Make sure your bank knows that you intend to pay principle (they may have a form), or else they'll just assume any extra payments are to interest.
Interest to student loans are barely tax deductible. I have not been able to deduct student loan interest in years. If you make more then $40K/year (I think about that number) then you cannot deduct.
If you have the cash, I'd pay it out. But otherwise, the loan is a good rate and you're not really hurting yourself by keeping it. Another option is that you can decrease your total by paying off some of the principle now. Make sure your bank knows that you intend to pay principle (they may have a form), or else they'll just assume any extra payments are to interest.
03-26-2004 | 01:10 PM
#5
Outnumbered at home
Joined: Jan 2001
Posts: 5,334
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From: MD
Pay it off. Remember if they are deductible that is still only reducing your 5% opportunity cost by maybe 28% or whatever tax bracket you are in. If you have the money pay it off, or start sending extra money.
03-26-2004 | 02:12 PM
#7
Suzuka Master
Joined: Jun 2003
Posts: 8,333
Likes: 0
From: SoCal
Originally posted by Slimey
Interest to student loans are barely tax deductible. I have not been able to deduct student loan interest in years. If you make more then $40K/year (I think about that number) then you cannot deduct.
If you have the cash, I'd pay it out. But otherwise, the loan is a good rate and you're not really hurting yourself by keeping it. Another option is that you can decrease your total by paying off some of the principle now. Make sure your bank knows that you intend to pay principle (they may have a form), or else they'll just assume any extra payments are to interest.
Interest to student loans are barely tax deductible. I have not been able to deduct student loan interest in years. If you make more then $40K/year (I think about that number) then you cannot deduct.
If you have the cash, I'd pay it out. But otherwise, the loan is a good rate and you're not really hurting yourself by keeping it. Another option is that you can decrease your total by paying off some of the principle now. Make sure your bank knows that you intend to pay principle (they may have a form), or else they'll just assume any extra payments are to interest.
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03-26-2004 | 03:24 PM
#8
Where is my super sauce?
Joined: Apr 2002
Posts: 5,813
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From: Tick-Tock Tech
Originally posted by GTKrockeTT
i believe that if your income is $50K or less, you can claim the full deduction. anywhere between $50-60K is a percentage. $60K+...you're phased out completely.
i believe that if your income is $50K or less, you can claim the full deduction. anywhere between $50-60K is a percentage. $60K+...you're phased out completely.
03-26-2004 | 03:54 PM
#10
has Gloryhole Girls in
Joined: Mar 2001
Posts: 11,473
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From: Ballston Lake, NY
Originally posted by GTKrockeTT
i believe that if your income is $50K or less, you can claim the full deduction. anywhere between $50-60K is a percentage. $60K+...you're phased out completely.
i believe that if your income is $50K or less, you can claim the full deduction. anywhere between $50-60K is a percentage. $60K+...you're phased out completely.
03-26-2004 | 04:05 PM
#11
has Gloryhole Girls in
Joined: Mar 2001
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From: Ballston Lake, NY
Originally posted by phil2
Well that is bs because i make alot more than 65k and somehow my accountant manages to write it off
Well that is bs because i make alot more than 65k and somehow my accountant manages to write it off
I am paid 3/4 of my income 1099 and1/4 w-2 therefore my adjusted gross income is basically only my w-2 since its all accounted for by expenses........
Student Loan Interest Deduction
You may be able to deduct up to $2,500 of the interest you paid on student loans on your federal individual income tax return. The requirement that you can only deduct interest paid during the first 60 months that interest payments are required has been eliminated.
Income Limits
Beginning in 2002, the amount of your student loan interest deduction will be phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $50,000 and $65,000 ($100,000 and $130,000 if you file a joint return). You will not be able to take a student loan interest deduction if your MAGI is $65,000 or more ($130,000 or more if you file a joint return).
Eligibility
You are eligible to take the interest deduction if you paid interest on a student loan for you, your spouse, or a person who was your dependent. An eligible student is a student who was enrolled at least half-time in a program that led to a degree, certificate, or other recognized educational credential.
Qualified Expenditures
Qualified expenditures are the total cost of attending an eligible educational institution, including graduate school, including tuition and fees, room and board, books, supplies, and equipment, and other necessary expenses such as transportation. You must reduce the qualified expenses by the amount of any tax-free educational assistance you received.
Eligible Educational Institutions
Eligible educational institutions are any college, university, vocational school, or other post-secondary educational institution eligible to participate in student aid programs administered by the United States Department of Education.
For additional information on the Student Loan Interest Deduction, see Internal Revenue Service
You may be able to deduct up to $2,500 of the interest you paid on student loans on your federal individual income tax return. The requirement that you can only deduct interest paid during the first 60 months that interest payments are required has been eliminated.
Income Limits
Beginning in 2002, the amount of your student loan interest deduction will be phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $50,000 and $65,000 ($100,000 and $130,000 if you file a joint return). You will not be able to take a student loan interest deduction if your MAGI is $65,000 or more ($130,000 or more if you file a joint return).
Eligibility
You are eligible to take the interest deduction if you paid interest on a student loan for you, your spouse, or a person who was your dependent. An eligible student is a student who was enrolled at least half-time in a program that led to a degree, certificate, or other recognized educational credential.
Qualified Expenditures
Qualified expenditures are the total cost of attending an eligible educational institution, including graduate school, including tuition and fees, room and board, books, supplies, and equipment, and other necessary expenses such as transportation. You must reduce the qualified expenses by the amount of any tax-free educational assistance you received.
Eligible Educational Institutions
Eligible educational institutions are any college, university, vocational school, or other post-secondary educational institution eligible to participate in student aid programs administered by the United States Department of Education.
For additional information on the Student Loan Interest Deduction, see Internal Revenue Service
03-26-2004 | 07:45 PM
#12
Where is my super sauce?
Joined: Apr 2002
Posts: 5,813
Likes: 1
From: Tick-Tock Tech
A $2500 max deduction is laughable...that seems like a very low ceiling on student loan interest deductions, especially considering what many students take out nowadays for college & graduate education.
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