[Nancy DeFauw – SUM180 Team]

Chelsea, your motivation to get those loans paid off is great. Good for you! Consolidating both types of student loans with a reputable bank might offer some benefits such as simplified payments and potentially, a better interest rate. On the other hand, federal loans provide more protections for their borrowers, so, before you decide to consolidate, you’ll want to weigh whether those additional protections are worth the hassle of making separate payments.

If you want to go ahead, the first step is to find a reputable bank you’re comfortable working with and see what they can offer (ask friends and family for banks they do business with). Since you’re interested in paying them off faster, you’ll want to compare interest rates to see if you can lower yours. Extending the term, while it lowers your payments, will result in you paying more interest over time. And be sure to steer clear of companies charging high upfront fees to help you consolidate your student loans or claim to be “approved” or “exclusive” servicers to special programs.

If you have multiple federal loans, you might want to consider consolidating those with the Education Department as a first step. No matter how bureaucratic the process may feel, it can simplify your payments and make you eligible for more repayment programs. Information is available at https://studentaid.ed.gov. The technology has come a long way – you can create an account, electronically link your tax return to your account and the system will recommend the lowest cost plan you qualify for.

Good luck and keep us posted on how you’re doing?

[Nancy DeFauw – SUM180 Team]

Real estate, especially when it’s generating rental income for you, can help you a) diversify your investments and b) provide you additional non-work related income (good insurance in case something happens on the work front). In general, when you look at your whole investment picture, real estate should be about 25% of the total. Your home is included in that 25% as well, so if you are thinking about investing in a rental property, you’ll want to consider your overall allocation. Carla Dearing wrote a really thorough response the other day – you can find it here: https://community.sum180.com/forums/topic/is-property-considered-a-good-investment/

 

[Nancy DeFauw – SUM180 Team]

Hi Kelly, there isn’t a minimum you have to earn to set up a SEP, but there are some rules about who is eligible to participate. First, the SEP -IRA plan is set up by an employer for its employees (including yourself if you’re the business owner and an employee). Contributions are made by the employer on your behalf and generally, employees are eligible to participate if you are at least 21 years old, will make $600 in 2016, and have worked for that employer in 3 of the last 5 years.

Like other retirement plans, there’s the employer contribution and then your personal contribution to consider. The employer contribution can be up to 25% of compensation (or $53,000, whichever you hit first). The individual contribution is capped at $5,500 if you’re under 50; $6,500 if you’re 50+. It’s important to know that the IRS limits your contributions to *all* IRAs to that level..so you have to add up your contributions across IRAs to make sure you don’t overcontribute.

If you’re self-employed but not an “employee” for tax purposes, there are other options to consider, too – like a solo 401k. Let us know how you’re doing as you weigh the options and if we can answer any other questions. And congrats on taking this important step for yourself!

[Nancy DeFauw – SUM180 Team]

Hi Anne,

Great question and strong work you’ve done to be in this position!

The key difference, as you probably know, between the Roth-IRA and the 401k is how and when things get taxed. With the Roth, you make your contribution after you’ve already paid taxes on the earnings, but you won’t pay taxes when you withdraw the funds at retirement. For the 401k, you don’t pay taxes now on contributions but withdrawals will be taxed. For most people, their tax rate at retirement is less than during their working years (because income is lower) so being taxed on the “other end” is a good decision. Additionally, making a 401k contribution actually serves to lower your tax rate now because those contributions reduce your taxable income. Lastly, upping a 401k contribution, which comes out of paycheck on an automatic withdrawal, allows you to set it up once and forget about it. When it comes to saving, putting it on autopilot is always a good strategy.

So, I would say to max out the 401k and if you still have funds leftover, go ahead and put whatever is left in the Roth.

Good luck and keep up posted on how you’re doing!

[Nancy DeFauw – SUM180 Team]

What a really diverse set of choices! A friends’ parents have recently settled in Sarasota and love it.