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I am 38 years old and am in my last term before graduating. I am wondering if it would be wise to withdraw from my 401k to pay off my student loans since the current CARES act waives the 10% fee.

Currently, I have 63k in federal student loans at an average interest rate of 5.05%. At my current job, I have around 125k in my Vanguard 401k.

Last edited by Eric7Giants
Original Post

Hi @Eric7Giants! First off, congrats on being so close to graduating!

You can only take a CARES Act withdrawal if you were impacted by COVID-19. For example, if you had major medical expenses because you had the virus, or if you lost your job or income as the result of the crisis.

Even if you would qualify, I wouldn't recommend taking money out of your 401(k) unless you're experiencing a crisis, which it doesn't sound like you are here, because you'll be missing out on compounding and the returns you can expect from your 401(k) are probably higher than 5.05%. Also, if you withdraw your retirement money early, you'll still owe taxes on it, though under the CARES Act, you can spread it out over three years.

If you get an employer match, what you might want to do is only contribute what you need to in order to get the full match and then put any extra money toward your student loans. If you're able to make more money after you graduate (either because your salary increases or if you have time to take on additional work because you're no longer in school), throw every extra cent toward those student loans.

Good luck to you! What are you studying?

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