Too Aggressive With My Roth IRA Contributions?

[Tyler Daly]

For context, a quick background.

I’m 23 years old, just graduated from college, making 45k a year (going to be relatively open here about finances because I want the most accurate feedback)

I have about 60k in student loans that I’ll have to start paying back in December. No credit card debt, rent of 600/month with my roommate and soon-to-be real estate investing partner, and very low expenses otherwise.

At 16, my dad opened a Roth IRA account for me, and today, the account is worth 4 times the amount it was worth when it started, well ahead of the average "double every 7 years" rule of thumb. Needless to say, I'm a firm believer in contributing as much as you can as early as possible to see that money compound every several years.

That being said, my roommate and I are "on the clock" with our investment plans. We just signed a 1 year lease that drops to a month to month agreement September of 2020 (a benefit to us if come a year from now, our perfect property isn't on the market). Therefore, we are trying to aggressively save as much as possible between now and then to have a sufficient down payment (hopefully 3.5% with a FHA so long as we can qualify) and enough to cover closing costs and some reserve money for any unexpected circumstances.

With student loan payments on the horizon, I've been contributing about $500 a month to my Roth IRA in anticipation of having to cut back dramatically in 3 months.

My question is this: should I keep investing into my Roth IRA during my student loan repayment/saving for our first property or will losing a year to a year and a half of contributing really hurt me that much in the long run?

Thanks in advance for taking the time to read through this and provide your thoughtful input! It’s gonna make a young, hungry entrepreneur very happy :)

[Mac F.]

@Tyler Daly, I would pencil out and run numbers on six scenarios:

1. Stop retirement contributions, work like crazy, eliminate student loan debt, save up personal reserves, resume retirement investing, save enough for down payment on duplex, buy duplex.

2. Continue retirement contributions, work like crazy, eliminate student loan debt, save up personal reserves, save enough for down payment on duplex, buy duplex.

3. Stop retirement contributions, work like crazy, make minimum student loan debt payments, save up personal reserves, save enough for down payment on duplex, buy duplex, resume retirement investing.

4. Continue retirement contributions, work like crazy, make minimum student loan debt payments, save up personal reserves, save enough for down payment on duplex, buy duplex.

5. Stop retirement contributions, work 40 hours, make minimum student loan debt payments, save up personal reserves, save enough for down payment on duplex, buy duplex, resume retirement investing.

6. Continue retirement contributions, work 40 hours, make minimum student loan debt payments, save up personal reserves, save enough for down payment on duplex, buy duplex.

Five and six are the worst options.  Temporarily stopping retirement contributions gets you to owning property faster and won't have a huge impact on your total portfolio at 59.5.  Estimate your rate of return in your Roth at either 8 or 10%-- no higher. 

My personal preference is option one-- relative to the other options, it won't cost you many months and will put you in a better position to invest if you decide to go it alone (either your partner or you could meet someone and decide to move, for example).