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Okay this might be a dumb question but here it goes.

Does it at all make sense to invest in a Roth IRA contributing the max by taking out a loan? So say I take out a $6k loan at the beginning of the year each January, then I pay it back throughout the year. Until the next year rolls around then I do the same thing by having the loan length be only 1 year.

Hypothetical 5 Year 6k contribution each year

Hypothetical 5 year 500$ a month contribution

I would still have to take into consideration on how much of % the loan would be and subtract it, but by my calculations it looks like the 6k each year would be better in the long run. I believe I am missing something or have not thought it all through. What am I missing?

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  • 7
    Why not contribute to Roth IRA through the year, instead of repaying the loan?
    – void_ptr
    Commented Jun 3, 2019 at 19:55
  • 4
    Beware that the two tests you ran did not contribute the same amount, one is 36k the other is 30k.
    – Ben Voigt
    Commented Jun 3, 2019 at 23:40
  • A balance transfer from a couple of credit cards will cost less than a personal loan. ~3% vs 6%.
    – Navin
    Commented Jun 4, 2019 at 4:55

1 Answer 1

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  1. That calculator presumes that the stock market will increase every month. It doesn't.
  2. I would still have to take into consideration on how much of % the loan would be and subtract it. But you haven't. A 6% rate on personal loans isn't out of the question, and it might be higher.

Instead of hypothetical growth numbers, use real statistics for the past two years, and add in the cost of the loan. Remember to deduct the interest costs from the $6,000 before calculating.

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