401k during gap year?

[moneyq1]

Hi guys,

My company matches 50% of my contributions to our401k plan. Right now I have 3% deductions, and I'm wondering if I should keep this for the duration of my gap year (or maybe increase/lower it?).

Will this investment actually make a difference after my career in medicine? Or should I lower my contributions and make better use of my money right now..

Just wondering how these retirement accounts work for a career in medicine.

Thanks

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[slopes23]

Personally I wouldn't put it in a 401k and I would save it myself so I have some money for when I am a poor medical student with no income.food for thought.

 

[moneyq1]

Personally I wouldn't put it in a 401k and I would save it myself so I have some money for when I am a poor medical student with no income.food for thought.

Yeah, that's what I've been thinking. I just wanted to see if people think it's worth it to put away money for retirement at this point in my medical career. It's so hard to think about retirement it'll be another 5 years before I have a paying job as a resident. I'll be a poor medical student in the meantime.

I know people say if your company matches a 401k then it's the smart thing to do (free money)... but I don't know if it's worth losing $ off my paycheck prior to med school next August?

 

[slopes23]

Yeah, that's what I've been thinking. I just wanted to see if people think it's worth it to put away money for retirement at this point in my medical career. It's so hard to think about retirement it'll be another 5 years before I have a paying job as a resident. I'll be a poor medical student in the meantime.

I know people say if your company matches a 401k then it's the smart thing to do (free money)... but I don't know if it's worth losing $ off my paycheck prior to med school next August?

Probably not worth it this early in your career, assuming you do in fact go to med school. The money you are putting in there probably isn't that much (prob less then 10k?) although i dont know your situation. With the salary you figure to be making later on + or - 10k will have no impact on your quality of life come retirement. In the mean time with either just saving it yourself and using it as needed or investing in the stock market to make some money on your money but have access to it whenever 10k will definitely affect your quality of life during med school. To put a number on it, if it were me I wouldn't go into a 401k pre med school unless i was making over like 60-70k and i would make sure that i mapped out my expenses during school and allocate some rainy day money and just life money to see how much I could afford.

Thats just me though YMMV

 

[Nena01]

Probably not worth it this early in your career, assuming you do in fact go to med school. The money you are putting in there probably isn't that much (prob less then 10k?) although i dont know your situation. With the salary you figure to be making later on + or - 10k will have no impact on your quality of life come retirement. In the mean time with either just saving it yourself and using it as needed or investing in the stock market to make some money on your money but have access to it whenever 10k will definitely affect your quality of life during med school. To put a number on it, if it were me I wouldn't go into a 401k pre med school unless i was making over like 60-70k and i would make sure that i mapped out my expenses during school and allocate some rainy day money and just life money to see how much I could afford.

Thats just me though YMMV

Agreed!

 

[repititionition]

OP, ask people who have no experience with these things and you'll get advice commensurate with that experience.

It is common to believe that since 401k's/IRAs are called retirement savings vehicles that the money in them must be withdrawn in retirement. This is completely false. In fact, headed in to grad school, they are essentially the best place to put money.

MAX OUT YOUR 401K - at LEAST to your company match. Ideally contribute as much as you can stomach for cash flow needs right now. You'll have to convert to an IRA when you separate from your employer, but IRAs are one of the greatest ways to save money for medical school expenses - scholastic or personal.

Here is why you should be socking money in to your 401k now, regardless of when you want it back out:

-You don't pay taxes on this money on it's way in to the 401k, reducing your taxable income this year (while you have income to be taxed)

-You get free money from your employer

-This saved money is shielded from the FAFSA when in a 401k/IRA, so you will lower your visible assets and thus expected contribution in M1 - and potentially beyond (poor alternative: save it in a taxable account like others here have suggested and enjoy the school simply reclaiming it from you in the form of increased expected contribution). Need Access will see it, if you applied to any schools that use it, but the rest of the benefits I mention here still apply.

-Once enrolled in school, you can withdraw nearly ANY AMOUNT of this money from the 401k without early withdrawal penalty as long as you can tie the amount withdrawn to a qualified educational expense (and since tuition, room and board (food) are all qualified expenses, you're pretty much good to go on any reasonable annual withdrawal, even if it doesn't -wink- pay for rent or groceries)

The principal disadvantage is that you can't get at this money without penalty (10% at least) before you're enrolled in school, so you wouldn't have it available for things like moving expenses, first month's rent or security deposit, etc.

SDN has much good advice, but is not the place you want to go for financial counseling.

http://www.irs.gov/publications/p970/ch09.html

Note that stafford loans (which finance the majority of med-ed) are not one of the classes of loans that reduce your ability to withdraw as mentioned in the IRS publication.

 

[kyamh]

I have a 401k and while it's always great to get free money, the amount that I would be putting in is much more valuable to me as money I can use today for medical school application/travel expenses and things like rent/loan payments/food than that amount (even with lifetime interest) will be worth to me when I retire. I think that posters who have voiced opinions strongly supporting contributing to the 401k are either making a lot more than I am, or are not faced with pressing financial difficulties such as paying for all the application stuff plus living expenses without parental help.

 

[circulus vitios]

-This saved money is shielded from the FAFSA when in a 401k/IRA, so you will lower your visible assets and thus expected contribution in M1 - and potentially beyond (poor alternative: save it in a taxable account like others here have suggested and enjoy the school simply reclaiming it from you in the form of increased expected contribution).

This isn't true. 401k balance isn't reported on FAFSA, but the contributions are reported. It's not shielding anything.

 

[repititionition]

This isn't true. 401k balance isn't reported on FAFSA, but the contributions are reported. It's not shielding anything.

sooooo.... the -balance- is shielded from FAFSA.

Income is income, wether it is diverted tax-free to a 401k, or not. The FAFSA wishes to capture all income, so they need to figure out if you've diverted any. Thus they ask for contributions.

But my point remains - the money in a 401k or IRA is not "visible" as an asset counted when determining EFC. The reason this is better in the long run is because while your income will (presumably) go to zero in future years, taxable savings would appear on subsequent year FAFSAs, and money saved in an IRA will not.

Also, dude, I love contrarians, and your entire SDN presence is built around that identity, but I hope you either a) get a major tuneup before school or b) have a completely different in-person communication dynamic.

 

[repititionition]

I have a 401k and while it's always great to get free money, the amount that I would be putting in is much more valuable to me as money I can use today for medical school application/travel expenses and things like rent/loan payments/food than that amount (even with lifetime interest) will be worth to me when I retire. I think that posters who have voiced opinions strongly supporting contributing to the 401k are either making a lot more than I am, or are not faced with pressing financial difficulties such as paying for all the application stuff plus living expenses without parental help.

I addressed both these points when I advocated for a hefty 401k contribution.

1) Tax-advantaged accounts aren't just for retirement.

2) If you need it between now and school, don't contribute (as much).

 

[SpartanWolverine]

I agree with most of what repititionition says.

I took three gap-years and socked away as much as I could in a 401(k) and 403(b) (2% per paycheck into 401(k) to get matching 8% from employer, and 15% into 403(b)). In this way, I have saved ~25% of my income for various medical school expenses. Personally, I could not have saved this amount without an auto-withdrawal. Believe me, I am not making big dollars, and the application process nearly wiped me out... but this year has been a great one in the stock market and has FAR outstripped savings rates (currently I'm getting ~0.85% with my savings account and netted over 15% return on my investments).

However, it's also very important to know the stipulations of your account (is there a vesting schedule, are there early withdrawal penalties, etc.). Your company probably offers the account through a company such as Fidelity or Tiaa-Cref, so you can likely meet with one of their advisors for free.

I think it's never too early to start saving money, and every penny counts. Thankfully for 401(k) and 403(b) accounts, education expenses are generally penalty-free withdrawals and you will end up earning far more on your principal than you otherwise would. IMO, If your employer matches 50%, put in as much as you can to take advantage of that and still live comfortably. I recommend ~6 months of living expenses in cash or cash alternatives -- I personally have a Betterment investment account (which allows for a diversified portfolio without any withdrawal penalties) as well as a traditional savings account.

Of course, what works for me may not work for you.

 

[moneyq1]

OP, ask people who have no experience with these things and you'll get advice commensurate with that experience.

It is common to believe that since 401k's/IRAs are called retirement savings vehicles that the money in them must be withdrawn in retirement. This is completely false. In fact, headed in to grad school, they are essentially the best place to put money.

MAX OUT YOUR 401K - at LEAST to your company match. Ideally contribute as much as you can stomach for cash flow needs right now. You'll have to convert to an IRA when you separate from your employer, but IRAs are one of the greatest ways to save money for medical school expenses - scholastic or personal.

Here is why you should be socking money in to your 401k now, regardless of when you want it back out:

-You don't pay taxes on this money on it's way in to the 401k, reducing your taxable income this year (while you have income to be taxed)

-You get free money from your employer

-This saved money is shielded from the FAFSA when in a 401k/IRA, so you will lower your visible assets and thus expected contribution in M1 - and potentially beyond (poor alternative: save it in a taxable account like others here have suggested and enjoy the school simply reclaiming it from you in the form of increased expected contribution). Need Access will see it, if you applied to any schools that use it, but the rest of the benefits I mention here still apply.

-Once enrolled in school, you can withdraw nearly ANY AMOUNT of this money from the 401k without early withdrawal penalty as long as you can tie the amount withdrawn to a qualified educational expense (and since tuition, room and board (food) are all qualified expenses, you're pretty much good to go on any reasonable annual withdrawal, even if it doesn't -wink- pay for rent or groceries)

The principal disadvantage is that you can't get at this money without penalty (10% at least) before you're enrolled in school, so you wouldn't have it available for things like moving expenses, first month's rent or security deposit, etc.

SDN has much good advice, but is not the place you want to go for financial counseling.

http://www.irs.gov/publications/p970/ch09.html

Note that stafford loans (which finance the majority of med-ed) are not one of the classes of loans that reduce your ability to withdraw as mentioned in the IRS publication.

Thanks so much for this advice!

I am planning to read up on the difference between 401k and IRA accounts, since I'm very ignorant of these topics. However, I truly appreciate your thoughts. Is the conversion from 401k to IRA always required when leaving a job?

My company will match up to 3% (if I contribute 6%). I currently make roughly $2900 per month before taxes. Assuming I increase my contributions to 6%, then over the next 7 months I could expect to put ~$1800 into the 401k account. I'll be starting medical school next August, do you think there would be a "best" time to withdraw this money from the IRA account? Immediately first year, or wait til later (assuming it would grow)?

What you said makes a lot of sense and it made me think about my savings. After my expenses, I have about $1000 per month that I could save, I was planning to put it in a savings account for emergency/medical school expenses. However, these savings (which will add up to about 10k by August) will certainly be seen on my FAFSA and I know it will affect my need-based financial aid.

Would you have any advice for what I shoud do with these savings? Is it possible to put them into the IRA account (I could increase my 401k contributions) and withdraw later in medical school? I'm planning on filling out the FAFSA application sometime in January, so I only have about 3k in savings to report right now.

 

[moneyq1]

I agree with most of what repititionition says.

I took three gap-years and socked away as much as I could in a 401(k) and 403(b) (2% per paycheck into 401(k) to get matching 8% from employer, and 15% into 403(b)). In this way, I have saved ~25% of my income for various medical school expenses. Personally, I could not have saved this amount without an auto-withdrawal. Believe me, I am not making big dollars, and the application process nearly wiped me out... but this year has been a great one in the stock market and has FAR outstripped savings rates (currently I'm getting ~0.85% with my savings account and netted over 15% return on my investments).

However, it's also very important to know the stipulations of your account (is there a vesting schedule, are there early withdrawal penalties, etc.). Your company probably offers the account through a company such as Fidelity or Tiaa-Cref, so you can likely meet with one of their advisors for free.

I think it's never too early to start saving money, and every penny counts. Thankfully for 401(k) and 403(b) accounts, education expenses are generally penalty-free withdrawals and you will end up earning far more on your principal than you otherwise would. IMO, If your employer matches 50%, put in as much as you can to take advantage of that and still live comfortably. I recommend ~6 months of living expenses in cash or cash alternatives -- I personally have a Betterment investment account (which allows for a diversified portfolio without any withdrawal penalties) as well as a traditional savings account.

Of course, what works for me may not work for you.

Thanks, this is good advice. My company works with TransAmerica. I actually just looked at the vesting schedule and it doesn't look good for me. Their contributions are 50% vested after 1 year and 100% vested after 2 years . Problem is I will complete my first year on August 19th 2014, and I was planning to only work through July..med school starts in August! So inconvenient

 

[SpartanWolverine]

Thanks, this is good advice. My company works with TransAmerica. I actually just looked at the vesting schedule and it doesn't look good for me. Their contributions are 50% vested after 1 year and 100% vested after 2 years . Problem is I will complete my first year on August 19th 2014, and I was planning to only work through July..med school starts in August! So inconvenient

So it's a graded vesting schedule... yuck. I take that to mean you would not receive any match at all unless you worked through August 19. That is inconvenient.

I'm not a financial expert or advisor, but it certainly sounds a little bit less appealing now. I personally don't know much about FAFSA and shielding and whatnot... but the lack of a match would be certainly be a factor in my decision-making process. Since you'd be in for the short term, you wouldn't have much flexibility to wait out poor market conditions, and your chances of a noticeable gain would probably not be so great.

Still, maybe you could meet with someone from your company HR department or TransAmerica to see if they have any advice.

 

[blahblahblagh]

which kind of IRA is advisable to put money in for school? also once we're enrolled in school, is it relatively easy (and expeditious) to take out money for living expenses associated with school (housing, food)?

 

[moneyq1]

So it's a graded vesting schedule... yuck. I take that to mean you would not receive any match at all unless you worked through August 19. That is inconvenient.

I'm not a financial expert or advisor, but it certainly sounds a little bit less appealing now. I personally don't know much about FAFSA and shielding and whatnot... but the lack of a match would be certainly be a factor in my decision-making process. Since you'd be in for the short term, you wouldn't have much flexibility to wait out poor market conditions, and your chances of a noticeable gain would probably not be so great.

Still, maybe you could meet with someone from your company HR department or TransAmerica to see if they have any advice.

Yeah that's what it looks like. I'll certainly try to talk to someone and see what they advise, maybe they can make an exception for the 1 year thing? Doubt it lol. Would you have any other investment advice for the money I'm saving monthly? My original plan was letting it sit in my savings account until med school starts... but perhaps there's a smarter option ?

 

[SpartanWolverine]

Yeah that's what it looks like. I'll certainly try to talk to someone and see what they advise, maybe they can make an exception for the 1 year thing? Doubt it lol. Would you have any other investment advice for the money I'm saving monthly? My original plan was letting it sit in my savings account until med school starts... but perhaps there's a smarter option ?

Yeah, they might be able to. You never know unless you ask!

Mmmm... I put a chunk of cash into an account at betterment.com. I thought it was a good way for me to keep my hands off of it, invest, and not micro-manage my funds (I was playing around a bit too much buying and selling single stocks). The nice thing is that you can withdraw at any time, and their management fees are pretty low (0.35% yearly if you deposit at least $100/month, and if you have > $10k invested it's only 0.25% yearly). So far I've only had a 2.5% return since April, but that's still better than < 1.0% in a savings account, right? Of course there's always the possibility of losing principal, but they make it pretty easy to match your risk tolerance with a customizable asset allocation slider. Since mine is an "emergency" fund, I personally chose 60% stock / 40% bonds.

 

[zacharyw]

which kind of IRA is advisable to put money in for school? also once we're enrolled in school, is it relatively easy (and expeditious) to take out money for living expenses associated with school (housing, food)?

If there is employer matching, 401k/403b. If there is any money left over, make contributions to Roth IRA. IRS rule says that you can contribute on top of your 401k, but you can't claim pre-tax exemption on both. So Roth IRA would be the better choice in this instance since you have to contribute after tax dollars to this plan (and the withdraw won't be taxed as regular income, whereas 401k, 403b, and traditional IRA will).

If 401k isn't an option, or employer doesn't have a matching contribution (which is the only reason you'd want to contribute to a 401k anyways, as it doesn't allow you to invest in as many things as an IRA), Roth IRA is the better option to go. Assuming you aren't making a lot during your gap year, your tax liability is almost zero. Your post-tax contribution is almost like your pre-tax contribution because of the low tax liability, and you get the added benefit of no taxation when withdrawing. I doubled my money in a Roth IRA in the past couple of month because of investing in a bankrupt company, and this would probably not have been possible had I contributed to a 401k.

Use traditional IRA if you believe future tax rate will be much lower than current tax rate. It would be a gamble as you'd have to pay income tax on the amount you withdraw.

Yeah, they might be able to. You never know unless you ask!

Mmmm... I put a chunk of cash into an account at betterment.com. I thought it was a good way for me to keep my hands off of it, invest, and not micro-manage my funds (I was playing around a bit too much buying and selling single stocks). The nice thing is that you can withdraw at any time, and their management fees are pretty low (0.35% yearly if you deposit at least $100/month, and if you have > $10k invested it's only 0.25% yearly). So far I've only had a 2.5% return since April, but that's still better than < 1.0% in a savings account, right? Of course there's always the possibility of losing principal, but they make it pretty easy to match your risk tolerance with a customizable asset allocation slider. Since mine is an "emergency" fund, I personally chose 60% stock / 40% bonds.

60/40 stock bond mix and you've gotten only 2.5%? Yikes... Maybe switch to an indexed fund of NASDAQ (basically, NASDAQ goes up, so does your money), which would've gotten you ~25%.

 

[repititionition]

If there is employer matching, 401k/403b. If there is any money left over, make contributions to Roth IRA. IRS rule says that you can contribute on top of your 401k, but you can't claim pre-tax exemption on both. So Roth IRA would be the better choice in this instance since you have to contribute after tax dollars to this plan (and the withdraw won't be taxed as regular income, whereas 401k, 403b, and traditional IRA will).

If 401k isn't an option, or employer doesn't have a matching contribution (which is the only reason you'd want to contribute to a 401k anyways, as it doesn't allow you to invest in as many things as an IRA), Roth IRA is the better option to go. Assuming you aren't making a lot during your gap year, your tax liability is almost zero. Your post-tax contribution is almost like your pre-tax contribution because of the low tax liability, and you get the added benefit of no taxation when withdrawing. I doubled my money in a Roth IRA in the past couple of month because of investing in a bankrupt company, and this would probably not have been possible had I contributed to a 401k.

Use traditional IRA if you believe future tax rate will be much lower than current tax rate. It would be a gamble as you'd have to pay income tax on the amount you withdraw.

This is essentially the same advice I'd give, so I won't repeat it.

As for asset allocation, with this time horizon (6 months to 4 years), I'd be parking all or nearly all of it in a money-market fund within a Roth IRA. There is no point in putting capital at risk in this situation. Nobody can call a market top, but tech valuations right now are giving me that old-fashioned "bubble" feeling. Related: I just got an email inviting me to sign up for grocery delivery from Amazon (think kozmo.com). That was my sign to start selling.

Even more specifically, I'd suggest using Vanguard for your Roth - the fees are lowest, and in this situation that's really the variable you're chasing.

 

[SpartanWolverine]

60/40 stock bond mix and you've gotten only 2.5%? Yikes... Maybe switch to an indexed fund of NASDAQ (basically, NASDAQ goes up, so does your money), which would've gotten you ~25%.

Well you have to realize that return was not off of a lump sum put in x months ago (as I auto-deposit a small amount weekly). My 15% YTD returns from my 401(k) and 403(b) are more representative of the market, as a larger proportion of that money was there before the market gains.

 

[Bacchus]

whitecoatinvestor.com

 

[repititionition]

which kind of IRA is advisable to put money in for school? also once we're enrolled in school, is it relatively easy (and expeditious) to take out money for living expenses associated with school (housing, food)?

For most applicants/students a traditional IRA will work best - you pay taxes on the way out rather than on the way in (meaning you're eventually taxed at your broke student rate rather than your current working rate). The tax benefits of a Roth also don't kick in until the account has been funded for 5 years.

And as my first post detailed extensively, it is very easy to get at this money while in school.

 

[slopes23]

This is essentially the same advice I'd give, so I won't repeat it.

As for asset allocation, with this time horizon (6 months to 4 years), I'd be parking all or nearly all of it in a money-market fund within a Roth IRA. There is no point in putting capital at risk in this situation. Nobody can call a market top, but tech valuations right now are giving me that old-fashioned "bubble" feeling. Related: I just got an email inviting me to sign up for grocery delivery from Amazon (think kozmo.com). That was my sign to start selling.

Even more specifically, I'd suggest using Vanguard for your Roth - the fees are lowest, and in this situation that's really the variable you're chasing.

Just thought I would point out a small caveat in what you said. Anywhere that is bolded is meant to denote that you have no idea what you are talking about. Just so those who don't know much about investing don't get confused.

 

[slopes23]

OP, ask people who have no experience with these things and you'll get advice commensurate with that experience.

It is common to believe that since 401k's/IRAs are called retirement savings vehicles that the money in them must be withdrawn in retirement. This is completely false. In fact, headed in to grad school, they are essentially the best place to put money.

MAX OUT YOUR 401K - at LEAST to your company match. Ideally contribute as much as you can stomach for cash flow needs right now. You'll have to convert to an IRA when you separate from your employer, but IRAs are one of the greatest ways to save money for medical school expenses - scholastic or personal.

Here is why you should be socking money in to your 401k now, regardless of when you want it back out:

-You don't pay taxes on this money on it's way in to the 401k, reducing your taxable income this year (while you have income to be taxed)

-You get free money from your employer

-This saved money is shielded from the FAFSA when in a 401k/IRA, so you will lower your visible assets and thus expected contribution in M1 - and potentially beyond (poor alternative: save it in a taxable account like others here have suggested and enjoy the school simply reclaiming it from you in the form of increased expected contribution). Need Access will see it, if you applied to any schools that use it, but the rest of the benefits I mention here still apply.

-Once enrolled in school, you can withdraw nearly ANY AMOUNT of this money from the 401k without early withdrawal penalty as long as you can tie the amount withdrawn to a qualified educational expense (and since tuition, room and board (food) are all qualified expenses, you're pretty much good to go on any reasonable annual withdrawal, even if it doesn't -wink- pay for rent or groceries)

The principal disadvantage is that you can't get at this money without penalty (10% at least) before you're enrolled in school, so you wouldn't have it available for things like moving expenses, first month's rent or security deposit, etc.

SDN has much good advice, but is not the place you want to go for financial counseling.

http://www.irs.gov/publications/p970/ch09.html

Note that stafford loans (which finance the majority of med-ed) are not one of the classes of loans that reduce your ability to withdraw as mentioned in the IRS publication.

Based on your some of the things you have said in this thread, I would imagine that you fall into this category. Notice the assumption that you expect everyone to make here is that you do have experience with these things so we should trust you. Although there is nothing explicitly to back up this assumption (you never actually go into what expertise or experience you have in this).

How do you get to the money in your 401k with out penalties once you graduate from medical school? Are you automatically rich once you become a resident and don't need it? It's also a lot more hassle to go through each withdraw one by one and justify how it's a school related expense. Not to mention with your little "wink" tactic you are committing fraud. But you know, I guess I'll have to take you at your word.

 

[zacharyw]

Just thought I would point out a small caveat in what you said. Anywhere that is bolded is meant to denote that you have no idea what you are talking about. Just so those who don't know much about investing don't get confused.

Based on your some of the things you have said in this thread, I would imagine that you fall into this category. Notice the assumption that you expect everyone to make here is that you do have experience with these things so we should trust you. Although there is nothing explicitly to back up this assumption (you never actually go into what expertise or experience you have in this)

Says the person who have nothing to back up his own statement. How hypocritical. You're asking others to assume that YOU know what you're talking about and that they should believe you, even though you never elaborated your expertise. repititionition at least made some thoughtful comments that are true after some research on the internet of my own, so I tend to want to believe what he said over you, who managed nothing but posting personal attack on this forum.

No one is asking you to trust him. Most people hopefully would do some research before investing with their money, and he's merely making few suggestions that can easily be confirmed with simple google searches (good ones that I didn't even know about before reading this thread).

How do you get to the money in your 401k with out penalties once you graduate from medical school? Are you automatically rich once you become a resident and don't need it? It's also a lot more hassle to go through each withdraw one by one and justify how it's a school related expense. Not to mention with your little "wink" tactic you are committing fraud. But you know, I guess I'll have to take you at your word.

He never said you can access that money after you graduate. He was saying that you can use the IRA to pay for your medical school tuition. If you think it's too much hassle to file the paperwork so that you can invest tax free, well that's your own personal problem. Plus with tuition around 50k and IRA/401k that will most likely below that, it will be in 1 transaction. I don't see the hassle that you're describing.

What "wink" tactic/committing fraud? The money in IRA is shielded from FAFSA part? Find me the SEC/IRS regulation or USC section saying that it is illegal and I will believe you, but before then, I'll just assume you're talking out of your behind.

 

[slopes23]

Says the person who have nothing to back up his own statement. You're asking others to assume that YOU know what you're talking about and that they should believe you, even though you never elaborated your expertise. repititionition at least made some thoughtful comments that are true after some research on the internet of my own, so I tend to want to believe what he said over you, who managed nothing but posting personal attack on this forum.

No one is asking you to trust him. Most people hopefully would do some research before investing with their money, and he's merely making few suggestions (good ones that I didn't even know about before reading this thread).



He never said you can access that money after you graduate. He was saying that you can use the IRA to pay for your medical school tuition. If you think it's too much hassle to file the paperwork so that you can invest tax free, well that's your own personal problem. Plus with tuition around 50k and IRA/401k that will most likely below that, it will be in 1 transaction. I don't see the hassle that you're describing.

What "wink" tactic/committing fraud? The money in IRA is shielded from FAFSA part? Find me the SEC/IRS regulation or USC section saying that it is illegal and I will believe you, but before then, I'll just assume you're talking out of your behind.

If you had done some proper research then you would realize what he is saying is either false, or not your best option depending on which part you are talking about. I will happily address each of your concerns one by one.

First, I don't claim to have any true expertise in the field other then turning down a FT job at Morgan Stanley as a Financial Advisor last June because I decided I did in fact want to go to medical school. Regardless I was merely pointing out that he used the fact that supposedly no one else has expertise, and left you to assume that he did have expertise so you should go with what he says. Second

Next, putting money in a 401k or even a Roth IRA is barely scratching the surface of investing.

If you use that money to pay for tuition then you are going to have less "life" money during medical school because your loans will be for that much less. And that wink I was referring to had nothing to do with FAFSA shielding. It had to do with "Once enrolled in school, you can withdraw nearly ANY AMOUNT of this money from the 401k without early withdrawal penalty as long as you can tie the amount withdrawn to a qualified educational expense (and since tuition, room and board (food) are all qualified expenses, you're pretty much good to go on any reasonable annual withdrawal, even if it doesn't -wink- pay for rent or groceries)"

It's important to note that you wont be able to touch the money after you graduate medical school for the same reasoning I gave in my very first post. When you retire the amount you can put in there right now will make no difference in your retirement quality of life due to your expected income over your lifetime as a physician. However, during medical school, residency, and early years of being a doctor overall that money can make a big difference in quality of life. You still are poor during Residency, so wouldn't you prefer to use that money when it will actually make a difference in your life? You can use that money to put a down payment on a house, going out for dinner or drinks to stay sane, or any possible expense you can think of that you may have during residency etc. And if you read a little bit you can even put that money to work in the stock market and make some pretty decent income with out decreasing you base. There are much better ways over substantially growing your base right now which will then have a ripple effect on your retirement later on if thats such a big deal to you. The two big ones are, buying a house (obviously after you graduate medical school), or stock market.

The notion that right now is not the time to be risking any capital is so wrong that it's baffling. Ask any financial planner and they will tell you basic strategy is to be most aggressive when you are young and tone it down as your get older and increase your financial responsibilities and need less beta (volatility) in your income.

Lastly, his whole rant on investing in Amazon, and the whole tech market giving him that" old-fashioned feeling of "bubble" is the part that is most laughable and absurd. I'll pick that one apart for you piece by piece as well. Here is his post for your reference

"As for asset allocation, with this time horizon (6 months to 4 years), I'd be parking all or nearly all of it in a money-market fund within a Roth IRA. There is no point in putting capital at risk in this situation. Nobody can call a market top, but tech valuations right now are giving me that old-fashioned "bubble" feeling. Related: I just got an email inviting me to sign up for grocery delivery from Amazon (think kozmo.com). That was my sign to start selling."

For the part about time horizon - 4 years is a long time horizon for investing, and it has nothing to do with whether or not you should be in the stock market or not. If you want to be more aggressive (as you should be) you play the short term investment game which can range anywhere from a day, to several months of holding onto a specific stock. If you prefer to be a little more conservative then you buy stocks with the outlook of holding 6months+ and do not pay much attention to any single days peaks and valley's as that's not part of your strategy.

No point in risking capital right now - again I addressed that earlier, right now is THE time to be risking capital. Again because you are young enough to be able to recover from any potential losses with relative ease, and the losses will not be that great relatively. Where as any gains would significantly benefit you. Financial planning 101

Nobody can call a market top huh? Yet what does he do immediately after, he starts calling one. Not only that, he calls it arbitrarily. Don't believe me? Well let me ask you this, what exactly is that " old-fashioned "bubble" feeling" anyways? Sounds like a smooth line supported in non-sense. What does a bubble feel like? How long have you been investing to really be attune to this "feeling" if it in fact exists (which of course it doesn't). While we are on that topic what do you know about tech valuations, or valuations period? Because from what it sounds like, it seems like you value a company based on it's stock price which by itself is ridiculous. First you look at whether or not that sector is cyclical or secular, and which you want to be depending on where the economy is (cyclical when you are in a bull market, and secular when a bear. We are in a bull market right now, so cyclical is where the big gains are, and tech is overall cyclical. The most simple and basic ways to value a single company are by it's Earnings per Share (EPS) multiple, and looking at their Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) as a way to look at the companies cash flow. Looking at company earnings report to see where they are growing and lagging, and what their guidance for future quarters is. Looking at what specific sectors that company is involved in (if there are more then one) and what multiples it's peers are currently valued at and if there is a discrepancy -- figuring out why and coming to a conclusion if its justified or not. And it only gets more complicated from there when you start looking at Discounted Cash Flow (DCF) models in which there are several methods to come up with different forecasting models of the same thing and you need to understand Generally Accepted Accounting Principles (GAAP) to create. But of course, because the wind hit him on his backside at a 15 degree angle he has that old fashioned bubble feeling. I'll have you know that if you look at just the very first and most basic data point of valuing a company which again is it's EPS, you would see that currently the tech sector along with all of the other sectors overall are at historical norms, which indicates you are not at bubble levels. Which means the stock prices in that sector are going up because they are showing strong earnings, and have strong guidance overall for the future. This raises the stock price but keeps the multiple unchanged. This is not me saying I am an expert and have the expertise to call a bubble or create a DCF, but I do have the expertise to look at EPS, EBITDA, and Earnings reports, and most importantly the ability to recognize when someone doesn't know the basic principles of investing and is making stuff up.

Lastly, and this is the point that really made me want to make sure everyone was clear that this guy had no idea what he was talking about was that he just got an email from amazon about a new product launch, and that was his impetus to sell. This is so ridiculous I barely know where to start to take it a part. First off you should never buy or sell a company based on a single advertising e-mail you got. Secondly, if there is anything that could possibly be taken away from that type of email it's that Amazon is continuing to grow it's distribution and logistics network while already being the largest of its kind in the world, and is trying to take it to the next step with same day delivery. This is a positive thing, because it allows Amazon to have the flexibility to pivot and adapt to new trends and dominate the market a lot faster then a brick and mortar store can which is why so many brick and mortar stores are now trying to play catch up with Amazon because they realize they are losing market share every quarter. Third, all of these things are priced into the stock way before you got that email. Amazon has been talking about this for a while, and by the time they finally launched it, this news was super old and was already taken into account by much more complicated models like DCF valuations etc which is what Bulge Bracket (BB) banks, Middle Market (MM) banks, and Boutique banks all use when investing, and it's immediate release has no bearing on where the stock is heading in the near future.

So yeah, I think with all the above, I will reaffirm my position that he has no clue what he is talking about, and falls into the same category he was trying to put others into.

 

[zacharyw]

If you use that money to pay for tuition then you are going to have less "life" money during medical school because your loans will be for that much less. And that wink I was referring to had nothing to do with FAFSA shielding. It had to do with "Once enrolled in school, you can withdraw nearly ANY AMOUNT of this money from the 401k without early withdrawal penalty as long as you can tie the amount withdrawn to a qualified educational expense (and since tuition, room and board (food) are all qualified expenses, you're pretty much good to go on any reasonable annual withdrawal, even if it doesn't -wink- pay for rent or groceries)"

Most med schools' COA are overestimates (unless you have a family) so for my own situation, my loan won't be for that much less, my loan cap will still be high enough for life money. Therefore IRA for my situation is still worth it when I can invest tax free and spend it on my tuition later on. This is especially true when I can invest in stock market with my IRA (which you allude to as the better investing option). Even as a resident, you make enough that you shouldn't be living in a destitute situation.

I see your point on his investment advice, and I disagree with it as well, especially since I've taken significant risk by investing in Facebook, american airline, pharmaceutical mutual fund, netflix, etc and all have earned me near ~100% return for the past year. (And apple, which lost me ~40%)

But, you said that right now is the time where we can afford to risk our money because we can wait to recover. Not true when you want to withdraw it for med school within the next couple of years. It also has to do with one's comfort level with risk. I'm investing in risky companies only because I don't mind skipping the withdraw if I lose a lot in the next few years.

Most of it is an opinion and personal preference, I just didn't find it appropriate for you to attack someone.

 

[slopes23]

Most med schools' COA are overestimates (unless you have a family) so for my own situation, my loan won't be for that much less, my loan cap will still be high enough for life money. Therefore IRA for my situation is still worth it when I can invest tax free and spend it on my tuition later on. This is especially true when I can invest in stock market with my IRA (which you allude to as the better investing option). Even as a resident, you make enough that you shouldn't be living in a destitute situation.

I see your point on his investment advice, and I disagree with it as well, especially since I've taken significant risk by investing in Facebook, american airline, pharmaceutical mutual fund, netflix, etc and all have earned me near ~100% return for the past year. (And apple, which lost me ~40%)

But, you said that right now is the time where we can afford to risk our money because we can wait to recover. Not true when you want to withdraw it for med school within the next couple of years. It also has to do with one's comfort level with risk. I'm investing in risky companies only because I don't mind skipping the withdraw if I lose a lot in the next few years.

Most of it is an opinion and personal preference, I just didn't find it appropriate for you to attack someone.

Obviously as a resident you will not be living in a destitute situation. That's not the point. The point is your a putting money away where you can't touch it past medical school for no reason. Im not saying you will be on the streets as a resident, but having that extra money can really go a long ways towards increasing your quality of life during those earlier years, through med school and beyond. And you although you can invest in the stock market with your IRA, it usually follows an index or bonds depending on what you select which makes it overall a super conservative investment overall. My point is not just that you will find yourself with out access to that money after medical school, but it is also that with just a little bit of research you can invest the money yourself and make a much better ROI relative to what you get out of a 401k.

To your last point about risk, it should all be a calculated risk. With the amount of money you are investing at this stage in your life, ad relatively big loss in % of that investment doesn't translate to a huge dollar amount. Even if you don't invest much in the stock market I know I personally do not want to have money tied up in a 401k right after medical school.

You may have found the post inappropriate, but I found much of what he said disingenuous and misleading, not to mention that on top of that he indirectly called me out and said that I was the one who didn't know what he was talking about. So I personally found it appropriate to set the record straight. This way when you put money into your 401k and are trying to buy a house after you graduate or anything you aren't like damn, I wish I could get at that 401k money so I could make my monthly payments lower or not being able to go out for drinks, dinner, being house poor. There are a plethora of things where that money could be put to relatively better use.

 

[zacharyw]

Not true... I been buying individual company stock with my IRA for the past six months.

 

[knv2u]

The key question in my mind would be: How will this affect my financial aid package if at all? Some schools may differ in their treatment of it for institutional aid; I am also unsure how this would affect federal financial aid. You should address your question to a financial aid counselor or the individual schools of interest.

 

[phunky]

I was in the same situation, and I decided not to save for retirement. In terms of marginal value, that money is worth a lot more to my poor ass now than it will be in the future, regardless of ROI.

 

[zacharyw]

The key question in my mind would be: How will this affect my financial aid package if at all? Some schools may differ in their treatment of it for institutional aid; I am also unsure how this would affect federal financial aid. You should address your question to a financial aid counselor or the individual schools of interest.

Everyone can get federal financial aid (stafford loans) since it is unsubsidized. Institutional aid is so different between schools it is hard to generalize.

 

[CounselortoMD]

OP, ask people who have no experience with these things and you'll get advice commensurate with that experience.

It is common to believe that since 401k's/IRAs are called retirement savings vehicles that the money in them must be withdrawn in retirement. This is completely false. In fact, headed in to grad school, they are essentially the best place to put money.

MAX OUT YOUR 401K - at LEAST to your company match. Ideally contribute as much as you can stomach for cash flow needs right now. You'll have to convert to an IRA when you separate from your employer, but IRAs are one of the greatest ways to save money for medical school expenses - scholastic or personal.

Here is why you should be socking money in to your 401k now, regardless of when you want it back out:

-You don't pay taxes on this money on it's way in to the 401k, reducing your taxable income this year (while you have income to be taxed)

-You get free money from your employer

-This saved money is shielded from the FAFSA when in a 401k/IRA, so you will lower your visible assets and thus expected contribution in M1 - and potentially beyond (poor alternative: save it in a taxable account like others here have suggested and enjoy the school simply reclaiming it from you in the form of increased expected contribution). Need Access will see it, if you applied to any schools that use it, but the rest of the benefits I mention here still apply.

-Once enrolled in school, you can withdraw nearly ANY AMOUNT of this money from the 401k without early withdrawal penalty as long as you can tie the amount withdrawn to a qualified educational expense (and since tuition, room and board (food) are all qualified expenses, you're pretty much good to go on any reasonable annual withdrawal, even if it doesn't -wink- pay for rent or groceries)

The principal disadvantage is that you can't get at this money without penalty (10% at least) before you're enrolled in school, so you wouldn't have it available for things like moving expenses, first month's rent or security deposit, etc.

SDN has much good advice, but is not the place you want to go for financial counseling.

http://www.irs.gov/publications/p970/ch09.html

Note that stafford loans (which finance the majority of med-ed) are not one of the classes of loans that reduce your ability to withdraw as mentioned in the IRS publication.

 

[CounselortoMD]

OP, ask people who have no experience with these things and you'll get advice commensurate with that experience.

It is common to believe that since 401k's/IRAs are called retirement savings vehicles that the money in them must be withdrawn in retirement. This is completely false. In fact, headed in to grad school, they are essentially the best place to put money.

MAX OUT YOUR 401K - at LEAST to your company match. Ideally contribute as much as you can stomach for cash flow needs right now. You'll have to convert to an IRA when you separate from your employer, but IRAs are one of the greatest ways to save money for medical school expenses - scholastic or personal.

Here is why you should be socking money in to your 401k now, regardless of when you want it back out:

-You don't pay taxes on this money on it's way in to the 401k, reducing your taxable income this year (while you have income to be taxed)

-You get free money from your employer

-This saved money is shielded from the FAFSA when in a 401k/IRA, so you will lower your visible assets and thus expected contribution in M1 - and potentially beyond (poor alternative: save it in a taxable account like others here have suggested and enjoy the school simply reclaiming it from you in the form of increased expected contribution). Need Access will see it, if you applied to any schools that use it, but the rest of the benefits I mention here still apply.

-Once enrolled in school, you can withdraw nearly ANY AMOUNT of this money from the 401k without early withdrawal penalty as long as you can tie the amount withdrawn to a qualified educational expense (and since tuition, room and board (food) are all qualified expenses, you're pretty much good to go on any reasonable annual withdrawal, even if it doesn't -wink- pay for rent or groceries)

The principal disadvantage is that you can't get at this money without penalty (10% at least) before you're enrolled in school, so you wouldn't have it available for things like moving expenses, first month's rent or security deposit, etc.

SDN has much good advice, but is not the place you want to go for financial counseling.

http://www.irs.gov/publications/p970/ch09.html

Note that stafford loans (which finance the majority of med-ed) are not one of the classes of loans that reduce your ability to withdraw as mentioned in the IRS publication.

You took all of the words right out of my mouth!! During a gap year, it is an excellent idea to contribute into a 401k (at least up to the employer matching threshold).