Should I pay off my student loan faster or invest that money in a IRA?

I'm paying off a 34K student loan for 20 years@3.5%.My dad says that because of that low int. rate I should put that extra $ into a Trad.IRA.If I contribute 4000 per year I get Back approx. 1000 on state and fed returns every year.If my IRA averages 4.5% or better for 20 years is it smarter to follow dads advice or just pay the student loan as fast as possible?

I think your dad is giving you good advice. That is a pretty low interest rate on your loans and if you put money into an IRA your annualized returns over the next 20 years should be well above 3.5%.

Another option to consider is to open a Rother IRA instead of a Traditional IRA. In a Traditional IRA you get the tax break now, but you have to pay ordinary income tax on your withdrawls in retirement. If you go with the Roth IRA, you don't get a tax break now, but all of your withdrawls in retirement will be tax free. This is a good option if you expect to be in a higher tax bracket in the future than you are in right now. Also, I think they raised the contribution limit to $5000 in 2008 for IRA's (you can contribute no more than the limit between the 2 plans).

Depending on how much extra money you are talking about you might be able to do contribute to the IRA and extra money to the student loan. I think maxing out the IRA makes more finanical sense, but there is a certain peace of mind that comes wtih paying off debt. I would try and max out the IRA first and then contribute a little extra to the loans (if you have extra income).

I hope this helps.