“I have the 40 credits needed to draw Social Security.” (Photo subject is a model.) – Getty/iStockphoto
I am 50 years old and for the majority of my life I have worked construction and manual-labor jobs. In 2012, at the age of 38, I went back to school and got an associate’s degree in computer networking.
I had almost finished my bachelor’s degree in software development when circumstances forced me to leave school. I now have a decent job earning $45,000 a year doing tech support for a good, fast-growing company.
Due to a lot of factors — not the least of which has been the disdain by companies for the source of my associate’s degree, an online for-profit college in the Southwest — I spent a long time looking for a position in network administration.
Unfortunately, the 401(k) at work does not offer employer matching. Would I be better off taking 10% of my checks and putting them into a Roth IRA or just using the 401(k) from work? I have nothing saved for retirement, but I have the 40 credits needed to draw Social Security.
I currently have $36,000 in student-loan debt in forbearance in the SAVE program and I have filed a borrower’s defense application due to the fact that my alma mater lied about having a job-placement program. My aim is to be able to retire relatively comfortably on my Social Security and retirement income.
What’s my best move here?
Still in the Game
Related: ‘I feel we’ve failed’: My son wants me to take out a $150,000 student loan so he can attend an out-of-state college. Is that fair?
Despite paying more money to attend for-profit colleges, research has shown that students from for-profit schools are 11% less likely to be employed than students from nonprofit schools. – MarketWatch illustration
You nailed the three pillars of success: education, education, education.
Given your salary of $45,000 and the fact that you do not have an employer match, you are probably better off taking advantage of the fact that you are in a relatively low income-tax bracket and contribute to a Roth IRA. Your salary will increase as your career advances.
Martin Schamis, a certified financial planner with Janney Montgomery Scott in Philadelphia, agrees that tax-free growth is a good outcome for you at this point in your career, and you will be glad of that when it comes time to make withdrawals.
“Given your income and the amount you’re looking to set aside,” Schamis says, “the differences in contribution limits between a Roth IRA and a 401(k) won’t come into play since you’re able to save up to $8,000 this year into a Roth, including your catch-up contribution for being over 50.
“That makes the Roth a very attractive option,” he adds. “However, one additional factor to consider given your situation with your student-loan debt and your alma mater is the additional creditor protection provided by a 401(k) over a Roth or traditional IRA.”
The reason: A 401(k) is more secure from creditors than a Roth IRA in the event of a lawsuit or bankruptcy, he notes. Your 401(k) or other employer-based retirement plans may be federally protected in a lawsuit, while IRAs are protected by the states.
“Employer-based retirement plans that are covered under the Employee Retirement Income Security Act (ERISA) — including most 401(k), 403(b) and profit-sharing plans — are protected from seizure by federal law,” according to Experian EXPGF.
“If you are sued for defaulting on credit-card bills, for example, your creditors may not go after your retirement funds regardless of which state you live in,” it says. However, ERISA-qualified retirement funds may be tapped if you owe taxes, child support, alimony or money in a divorce.
Remember: Contributions to a Roth IRA can be withdrawn without a penalty at any time, whereas most withdrawals from a 401(k) will come with a 10% penalty, in addition to the income tax you will need to pay, if you withdraw before the age of 59½.
Sure, some of the world’s richest people did not complete their college education (Meta founder Mark Zuckerberg left Harvard before graduating), while others stayed until they got their degree (like Tesla TSLA Chief Executive Elon Musk and Amazon AMZN founder Jeff Bezos).
But a college education is one of the best ways to acquire the right skills to increase your salary and enter a career where you can earn six figures. What’s less talked about: networking and the social advantage of getting to know other people entering similar fields.
Some career advisers estimate that 70% or more jobs are not even advertised on public forums and are, instead, filled through networking. You did an incredible thing by taking time to go to college, but I’m sorry it was a for-profit college that did not live up to its promise.
Despite paying more money to attend for-profit colleges, research has shown that students from for-profit schools are 11% less likely to be employed than students from nonprofit schools. And these schools are expected to receive less regulatory pressure under a Trump administration.
For all of the above reasons, I’m sorry that — in the face of the financial and practical challenges of going back to school — your alma mater did not fulfill its duty of care. And I’m equally sorry prospective employers may have cast your résumé aside as a result.
But you are clearly someone who does not give up easily: You have applied for student-loan forbearance and you have your eyes on a horizon where you plan to have enough money saved for a comfortable and, I hope, happy retirement.
Related: ‘I have zero regrets’: I’m 84 and estranged from my two adult sons. My 48-year-old wife will get my seven-figure estate. Is that selfish?
The Moneyist regrets he cannot reply to questions individually.
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