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What other retirement funds do you have? I’m thinking you should roll that into a Roth IRA

1.9% is low interest rate.

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Stats: Current Lump Sum: $15,500 Remaining Car Note: $13,000 ($510/month until April 2026 at 1.9%. Results in roughly $500 of interest) Age: Late 20s Salary: $90-100k Married to a future high earner ($250-300k/yr) with a $200k in student loans.

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IF I had to take the lump sum, I would throw it in a high-yield savings account or probably a CD. You’d come out ahead doing that IMO.

Paying off the loan just locks your $ away with no means to access it without taking out another loan or selling vehicle. 1.9% interest is almost nothing.

If you dont need the $ in next 3-5 years you are better off investing it for long term. Ideally, if you can rollover into an IRA and let it grow by investing it for 30-40 years.

If you are gonna get hit with tax/penalty for cashing out pension thats all the more reason to rollover if possible. If Roth IRA rollover of the entire amount is gonna trigger too much tax spread it out over several years of Roth conversions. Pay the tax on conversion from out of pocket not from rollover funds because otherwise the amount you draw for taxes will be subject to penalty as an early withdrawal.

HYSA isnt the best answer here.
OP is in 20s with decades to grow retirement investments and ride out any market corrections along the way. Long term 8-10% growth in an S&P 500 index fund is historically typical. Why dump into a HYSA to get 5% guaranteed now just to have to pull it out when rates eventually drop then invest in equities at likely higher price?

If OP needed $ might be different but $15k invested in stock market now has real potential to grow over 3+ decades. Why advise a 20 something to be so conservative unless they need the $ in next few years for house down payment etc?

If you take out your lump sum now, you'll pay ordinary income tax plus a 10% penalty. I'd guess roughly $5,000...

If you convert to a Roth you'll pay the ordinary income tax.

There's no way I do either of these.

Roll to an IRA and decide how much you're willing to pay in tax each year to convert? Yes. But I certainly don't do something that's going to cost me more in taxes and penalties alone than the interest I'll pay over the course of the loan... Don't even bother calculating opportunity costs. Then the numbers are outlandishly silly.

Best to roll the lump sum into a taxable IRA. Then approximate all of your income for the whole year (2024). Also look at the 2024 tax year rates/brackets/standard deduction, etc (these are available now). Then figure out your approximate income taxes that you will pay for tax year 2024. Based on all of this information and your calculations/projections for 2024, then figure out how much Traditional IRA amount you want to convert to Roth to keep under the next 2024 tax bracket you see. Plan to maximize investing in Roth/Traditional IRAs and/or 401K accounts every year, plus an HSA account if available. Go ahead and get used to having less spendable money now and pay yourself (into these retirement accounts) every year. You'll get used to it, and you will be glad you did this 30 plus years from now. Let these accounts compound growth allow you to retire comfortably some day. Otherwise you likely will be retiring later than you hope for, unless you are lucky (huge inheritance, etc.). Strive to achieve and maintain a split of Roth versus taxable retirement accounts. The 80% Roth/20% Taxable split that I used is working out great for me. Depending on your situation approaching retirement you might want a different split. The more wealthy your retirement accounts become based on your investments in them over time, it likely makes more sense to have a higher Roth percentage the larger the accounts are.

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HYSA isnt the best answer here. OP is in 20s with decades to grow retirement investments and ride out any market corrections along the way. Long term 8-10% growth in an S&P 500 index fund is historically typical. Why dump into a HYSA to get 5% guaranteed now just to have to pull it out when rates eventually drop then invest in equities at likely higher price?

If OP needed $ might be different but $15k invested in stock market now has real potential to grow over 3+ decades. Why advise a 20 something to be so conservative unless they need the $ in next few years for house down payment etc?

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I do agree with you. My previous answer was predicated on it sounding like the OP wanted to use the 15k to pay off the vehicle loan.

The next most conservative option IMO after simply paying off the loan, is to put the 15k in a CD and earn interest while he continues to make payments until loan is paid-off.

That’s all.

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Roll to an IRA and decide how much you're willing to pay in tax each year to convert? Yes. But I certainly don't do something that's going to cost me more in taxes and penalties alone than the interest I'll pay over the course of the loan…

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Exactly. Taxes aside, just the penalty whack itself exceeds the interest rate on the auto loan. What he’s calling his “current lump sum” is far from what he’d get if cashing out.

From what he’s said, his income and other debt situation is golden. He’s got a couple of years left on a 1.9% loan. My advice to him: keep looking at current market loan rates, keep paying it and keep smiling.

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If he's in the 22% or higher tax bracket now, Roth may not be better than traditional. The reason is that when he retires, the first $94K of his income if he's still married will be in the 12% or below bracket. To get that much income he'd have to save $2 million in an IRA. In a Roth he could be paying 22%+ today to save 12% or less down the road.

Of course, tax brackets can change and a mix of both is best because of the flexibility advantages of the Roth, and since he will be in a much higher bracket in the future when that $250K earner hits her potential, it isn't horrible to load up on Roth now, but strictly by the math he may be better off doing traditional tax deferred.

It's not always just about the math though.

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I would agree and also add to consider the state you live or work in. If you live in a state with a state tax, they likely don't tax retirement funds in retirement (I know MS doesn't). So, you would avoid both state and federal now, and only pay federal later. Now, if you live in a state like TX, the Roth may make more sense, as you don't pay anything to state now. So, the benefit of tax deferral is less. TX is the typically example of pay me now versus pay me later, and the guess of which federal tax bracket will be higher. In the state like MS, you have the additional factor of paying state income tax that also would go away in retirement.