403b question; recently accepted

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NBLogical

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Currently have $7024.38 in my 403b account (401k equivalent, just for non-profit orgs).
According to https://www.dinkytown.net/java/RetirementWithdrawal.html withdrawing the full amount would result in having around $4865.
Fed income tax rate = 15% bracket
State income tax = 5.75%
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- As a newly accepted student, I am trying to plan for my deposit ($2000), moving expenses, and emergency funds/cash-on-hand. There is also the potential that I may need to make a second $2k deposit.
- I plan on using FAFSA for tuition and the full COA.
- I have NOT filed my taxes yet and am unsure if I will receive a tax refund. I will be filing soon which may add to my emergency fund/cash to pay deposits. If I receive a tax refund, it will be used towards deposits and/or moving expenses. However, I am preparing in case I do not receive a tax refund or may even need to owe taxes. Last year, I received a tax refund.
- I currently have around $500 saved. My 1st deposit is due Feb. 28th. I plan on using a credit card for the transaction and will pay it off before the due date. The 2nd deposit may be due March 30th, if I am accepted to the second school.


Question 1: Would withdrawing be a smart and/or feasible option in terms of paying my deposits and having immediate funds for moving/emergency? My thoughts tell me it's not smart, but feasible as I have no other real savings/savings accounts.

Question 2: Should I stop my monthly contributions? Stopping would net me an additional ~$1541 pre-tax from next paycheck at the end of Feb to end of June. I would stop working at the end of June. July would be a "free" month to move as classes start end of July to beginning of Aug.

Question/statement 3: I can borrow funds from family members and current girlfriend, but am unsure if I would be able to pay them back. I have a tight budget and am able to save, but the amount saved may not be enough as I only work until the end of June. After receiving FAFSA money for the full cost of attendance for the fall semester and tuition has been taken out/paid for, could I use the leftover money to pay the family members back? I believe FAFSA gives you a direct deposit to your checking account.

Statement 4: I am open to the idea of taking out a private loan, but am hesitant to do so. I have no private loans, but do have federal loans ($35k) from undergrad. I have a credit score above 700 hovering around 730, have a clean and up-to-date credit report, and am confident I can receive a private loan if needed. I am hesitant in that I may not be able to pay it back immediately.


Thank you for your time and insight!

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Edits:
1. Employer does match.
2. Private loan would be for $4000 for deposit and expenses prior to starting school this upcoming fall. Obviously better to forgo the interest from the bank and borrow from family, but I was wondering if this is my absolute last resort option.

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1. Not a good idea to cash out a retirement account. If I were in your shoes, 24 with a job and transitioning to M1 year but don't have cash for the deposits, I'd use the credit card but pretend the 403(b) doesn't exist. Roll the 403(b) into a Vanguard Rollover IRA after you quit this summer and then convert the Rollover IRA to a Roth IRA in 2017 since you'll have less income or no income as a med student, so the Roth conversion could be tax-free.

2. If there's no 403(b) match, it may give you some extra cash to reduce or stop your contributions altogether. This will help pay off any credit cards from your $2000 or $4000 in deposits as well as help pay for moving expenses and build up your emergency fund.

3. FAFSA is just the application but any excess financial aid will be disbursed directly from your school's financial aid office to you. Yes, you could use the excess to pay back family assuming all tuition, rent, fees, books, etc are covered first and you won't starve.

4. Private student loans are a last resort. Find out if federal student loans will meet your full COA first.
 
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I agree that you need to leave that retirement money alone. By all means stop contributing (but it you get matching fund that may not be the best route) but don't take that hit. Live frugally and then you can use leftover loans to pay off your credit card or pay back family (and see if there are any cost saving measures you can implement now if you aren't already at max frugality.
 
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1. Not a good idea to cash out a retirement account. If I were in your shoes, 24 with a job and transitioning to M1 year but don't have cash for the deposits, I'd use the credit card but pretend the 403(b) doesn't exist. Roll the 403(b) into a Vanguard Rollover IRA after you quit this summer and then convert the Rollover IRA to a Roth IRA in 2017 since you'll have less income or no income as a med student, so the Roth conversion could be tax-free.

2. If there's no 403(b) match, it may give you some extra cash to reduce or stop your contributions altogether. This will help pay off any credit cards from your $2000 or $4000 in deposits as well as help pay for moving expenses and build up your emergency fund.

3. FAFSA is just the application but any excess financial aid will be disbursed directly from your school's financial aid office to you. Yes, you could use the excess to pay back family assuming all tuition, rent, fees, books, etc are covered first and you won't starve.

4. Private student loans are a last resort. Find out if federal student loans will meet your full COA first.
1. Lots of new terms I get to learn. Thanks for the advice though. I didn't know such options existed. I will have to do my homework on this.

2. Forgot to add. Employer does a 50% match of what I contribute. I contribute $4100 and employer puts in $2050 for the year. Not sure what I've contributed so far for this year. Does this change your answer on stopping the contributions?
I've also never had a credit card balance as I pay off in full once the statement closes. If you know, how would this affect my chances at receiving a PLUS loan if I carried a balance and missed a payment? I know that carrying a balance and making the minimum payment would not adversely affect my credit history.

3. Thanks, it's nice to hear that this is an option overall.

4. Sorry, let me clarify. I am hesitant in taking out a private loan of around $4000 for the deposit and moving expenses/emergency funds. I plan on using federal loans to cover the full CoA and applying for Grad PLUS loans. Grad PLUS loans are based on credit history and are able to be borrowed up until the CoA minus any other financial assistance received. I know taking out a private loan of $4000 is less feasible than borrowing from family/girlfriend since there is no interest. I'm wondering if this is a feasible and absolute last resort option. I'm assuming withdrawing from the 403b is off the table and isn't even considered an option.
 
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I agree that you need to leave that retirement money alone. By all means stop contributing (but it you get matching fund that may not be the best route) but don't take that hit. Live frugally and then you can use leftover loans to pay off your credit card or pay back family (and see if there are any cost saving measures you can implement now if you aren't already at max frugality.
Thanks for the input. I think I will take your and the previous posters advice and leave the 403b money alone.
I forgot to mention that my employer does match. Should I still stop contributing or continue? In my opinion, I think it would be better for me to stop contributing since if I can't pay my finances now for medical school, what good is my retirement account to me now/at this point? After finishing medical school, I can continue working on my retirement account(s).

As for the frugality part, I do watch my spending and balance my checkbook every couple of days. I follow every penny and have expenses such as food, gas, rent/housing, and student loan bills. I am not sure if there are any other areas that I may be able to cut from.

For credit cards, do you know if missing a payment would jeopardize my chances at receiving a PLUS loan? I know that carrying a credit card balance, but making a minimum payment would not affect my credit history or affect my chances. I plan on paying at least the minimum payment if I were to charge everything to a card, but want to know the consequences of missing a payment in general.

All seriousness aside, I think PB&J sandwiches will have to become my new best friend!
 
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I also forgot to add that I will have some medical expenses and car insurance expense in the future as well.
Car insurance payment will be due around June and approximately $200. Medical expenses will be partially covered by an HSA account but I will have to pay at least an additional $200. Yay for wisdom teeth extractions, right? Don't want these bothering me during the school year.
Aside from these 2 big expenses, I can't think of any other big ones.
 
2. Forgot to add. Employer does a 50% match of what I contribute. I contribute $4100 and employer puts in $2050 for the year. Not sure what I've contributed so far for this year. Does this change your answer on stopping the contributions?
A) It possibly changes my answer, depending on if you get to actually "keep" your match when you separate. What's the vesting schedule? In other words, the best employers have "immediate" vesting where the company match is immediately yours even if you were the leave the company. Other employers might say, "You're vested 20% per year," so after 1 year of service, 20% of the match you get to keep if you quit, 40% with 2 years of service, etc.

B) Usually it's not unlimited, meaning your employer matches 50% up to a certain amount, say 5%. So if you contribute 5% to your 403(b), your employer matches 50% of 5% = 2.5%. Happen to know the limit?

My point is, contribute enough up to the match since that's free money, but nothing more.
 
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A) It possibly changes my answer, depending on if you get to actually "keep" your match when you separate. What's the vesting schedule? In other words, the best employers have "immediate" vesting where the company match is immediately yours even if you were the leave the company. Other employers might say, "You're vested 20% per year," so after 1 year of service, 20% of the match you get to keep if you quit, 40% with 2 years of service, etc.

B) Usually it's not unlimited, meaning your employer matches 50% up to a certain amount, say 5%. So if you contribute 5% to your 403(b), your employer matches 50% of 5% = 2.5%. Happen to know the limit?

My point is, contribute enough up to the match since that's free money, but nothing more.
100% vested immediate.

Employee matches up to 5% of my salary or 50% of what I contribute, which is 10% my salary.

I am currently contributing only until the match so 10% of my salary (41k).
Do you think I should still contribute? My estimate of $1541 would net me ~$770 from the employer. I am willing to drop this though if it seems like a feasible option. I'd like to minimize how much I borrow from my family or from a bank (if needed). I'd also not like to carry a credit card balance. However I just opened up a cap one quicksilver card. I may qualify for 0% interest for the first year of having the card. This would give me the option of using the Visa card and not have to deal with interest. I'm unsure of this or the lingo since I've just been paying the card off in full.
Also not sure if visa is accepted. I don't have any other type of card so I'd have to use my girlfriends MasterCard which I'm not sure if she's in that "0 interest the first year" window.
Parents have no credit card due to bad credit.
 
do not take anything out of your retirement fund. don't stop contributing, since the employer match is free money.

you will be using that credit card a lot during med school. I would use it for all expenses, and just pay it off with the excess student loan money.
 
I think the math works out where still contributing is better even if you pay credit card interest for a while. Does your family or girlfriend happen to need a big ticket item that you could put on your credit card and they give you the money for (that way you can use that for your deposit and not worry about owing them later). Or ate there living expense you could put on it and carry a balance for a bit to use the money for the deposit (if it is truly 0%). If it isn't 0% or the rate expires soon might be worth it to get a new card with an introductory rate.
 
do not take anything out of your retirement fund. don't stop contributing, since the employer match is free money.

you will be using that credit card a lot during med school. I would use it for all expenses, and just pay it off with the excess student loan money.

I think the math works out where still contributing is better even if you pay credit card interest for a while. Does your family or girlfriend happen to need a big ticket item that you could put on your credit card and they give you the money for (that way you can use that for your deposit and not worry about owing them later). Or ate there living expense you could put on it and carry a balance for a bit to use the money for the deposit (if it is truly 0%). If it isn't 0% or the rate expires soon might be worth it to get a new card with an introductory rate.

1. Will leave 403b alone and further look into rolling it over into an IRA.
2. Will keep contributing since I am able to receive a 0% APR on the VISA. 0% APR promo is good until 04/04/2016 so I at least have some time. Not sure when FAFSA would disburse the money, but I'm guessing it's around August. 5 months (April to Aug) of interest is better than 7 months (Feb to Aug). I would repay/zero the balance after receiving money from FAFSA.
3. As for the mastercard, I don't think that has a 0% APR promo right now, but my girlfriend has enough savings to pay it off immediately. I would then most likely pay her back over time. It seems like the interest accrued would be less than the $750 I would receive from employee matching. I didn't even think about the opportunity cost in this case.
4. I may try to open up a new credit card, but I'm not sure if I would receive it in time. I'm not sure how balance transferring works, but I assume I would transfer the balance to the new card with the 0% APR promo to avoid accrued interest later than 04/04/2016. If someone could verify, that would be great.
5. I think I will have to charge my VISA or girlfriends Mastercard. Visa would carry the balance until I could pay it off or have family/girlfriend pay it off and pay them back once I receive money from FAFSA, if not earlier. MC would be paid off immediately and I would pay back with the same method.

Overall, seems like the consensus is to leave the 403b and contributions with employee matching + 100% vested both alone. Charge deposits and expenses to the card and have family pay it off and pay them back or pay off once I receive money from FAFSA.
Wish I had a deferred acceptance! Then I would just work for another year and be able to save more money without having to spend some on traveling for interviews.
 
Your assumption on number 4 is correct (balance transfer fee of 3% usually but beats regular interest charges). Takes at most a few weeks to get a new credit card i think (do it before you quit working so you don't have to lie about income)
 
Your assumption on number 4 is correct (balance transfer fee of 3% usually but beats regular interest charges). Takes at most a few weeks to get a new credit card i think (do it before you quit working so you don't have to lie about income)
Thank you for the info! I'll be sure to double check for any balance transfer fees and make sure that the new card has a 0% APR promo attached with it as well.
It's a relief that I have until April to do this.

I must say, I thought it was confusing having 2 credit cards when balancing my checkbook/budget. Adding a third should be exciting.
At least it gives me a good reason to apply for a new credit card. I'll have to research a bit more and maybe look into getting a travel reward-based credit card.
 
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before putting it on a card, call and ask the school to work with you on the amount of the deposit......they don't need it, it's just to make sure you really want to be there. Maybe they'll take a smaller amount or a written promise
 
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before putting it on a card, call and ask the school to work with you on the amount of the deposit......they don't need it, it's just to make sure you really want to be there. Maybe they'll take a smaller amount or a written promise
I like the idea. May not hurt to ask but I'm sure I fall into the category of beggars can't be choosers..
 
Don't borrow money from your girlfriend. Just don't.

Also, to reiterate it again, you don't get money from FAFSA. FAFSA is just the application that gets forwarded to your school's financial aid department and they determine the mix of loans you qualify for.
 
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Don't borrow money from your girlfriend. Just don't.

Also, to reiterate it again, you don't get money from FAFSA. FAFSA is just the application that gets forwarded to your school's financial aid department and they determine the mix of loans you qualify for.
Sorry, I meant to state that I was going through family first then if needed, go to my girlfriend.
Yes, I know it may create tension as well. I know an alternative to this may just be borrowing from a bank. I think family may be able to help out though but if they don't, I'll have to weigh my options and go from there.
Id like to hear your opinion on why not though.

Thanks for the clarification. I'm just lazy and group that whole process as "fafsa".
 
Sorry, I meant to state that I was going through family first then if needed, go to my girlfriend.
Yes, I know it may create tension as well. I know an alternative to this may just be borrowing from a bank. I think family may be able to help out though but if they don't, I'll have to weigh my options and go from there.
Id like to hear your opinion on why not though.

Thanks for the clarification. I'm just lazy and group that whole process as "fafsa".

From the lender's side, you shouldn't lend money to people that you expect to get repaid. People forget, or don't really care, and you stress over it to the point that it poisons the relationship.

In your case, borrowing from a girlfriend will change your relationship--you aren't just boyfriend and girlfriend hanging out anymore. Now, she's the owner of a debt you owe her. If you go out, she'll wonder why you aren't paying ("you do owe me money, you know"). If you buy something she doesn't approve of, it will turn into "but you owe me money, couldn't you have paid me back instead of buying that?" If she gets stressed for money, she'll start wondering why she lent you the money in the first place. Tension is created and continues to fester. If you break up, either because of the money or for some other reason, then how do you manage the payback?

It's generally not a good idea to borrow money from people you know anyway, but parents are far better than non-family. And when you get to the other side of the coin, give a gift, rather than a loan. Hopefully you will be in a position to do so.
 
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DO NOT take this money out. You will regret it for the rest of your life literally, I know I do. The hits are immense and you miss out on all that long term growth. You'll make it without it. Pro tip, forget its even there and do not look at it again until you roll it over when youre in practice.
 
While I agree that it's usually best to leave money in a 401k, and you certainly don't want to get into the habit of taking money out, either as a loan or permanently, if taking the money out is better than the alternatives, then you should do it.

Look at the total costs and your alternatives. First of all, if you will have to pay a 10% penalty. Then, you'll have to pay taxes. Finally, you lose the growth on your money.

If you can borrow the money on a 0% credit card, or from your parents until next year, when your income will be zero, and then withdraw the money, then there will be no taxes due. That will also negate the loss of money in your account for the future, because you will already have gotten a return on your money due to the tax arbitrage.

What is the money invested in? If it's in a money market, it's not earning much, so withdrawing it won't hurt future growth. If it's in an index fund (and it should be) , it becomes a tougher call.

It comes down to what your alternatives are. For example, you'll more than make up for that 10% penalty with one year of savings on a private loan. The truth is, there's not a huge amount of money at stake here, and if taking out that money next year when taxes are low will make your life easier, then it's ok to do it. Just don't do it in the future except for dire emergencies.

If you do keep the money in the 403b, then when you're a student, in the zero tax bracket, you should roll the 403b into a Roth IRA if you can. That would be the best outcome.

I agree that you should try to avoid borrowing from any private party, especially a girlfriend, if you possibly can.
 
I'd leave the money in, then convert it to a Roth tax-free while in med school. Stop contributions now and save that money for moving and other med school expenses.
 
From the lender's side, you shouldn't lend money to people that you expect to get repaid. People forget, or don't really care, and you stress over it to the point that it poisons the relationship.

In your case, borrowing from a girlfriend will change your relationship--you aren't just boyfriend and girlfriend hanging out anymore. Now, she's the owner of a debt you owe her. If you go out, she'll wonder why you aren't paying ("you do owe me money, you know"). If you buy something she doesn't approve of, it will turn into "but you owe me money, couldn't you have paid me back instead of buying that?" If she gets stressed for money, she'll start wondering why she lent you the money in the first place. Tension is created and continues to fester. If you break up, either because of the money or for some other reason, then how do you manage the payback?

It's generally not a good idea to borrow money from people you know anyway, but parents are far better than non-family. And when you get to the other side of the coin, give a gift, rather than a loan. Hopefully you will be in a position to do so.
Thanks for the additional insight! I didn't think about how it could change the way we both look at the relationship in terms of debtor and payee.
 
DO NOT take this money out. You will regret it for the rest of your life literally, I know I do. The hits are immense and you miss out on all that long term growth. You'll make it without it. Pro tip, forget its even there and do not look at it again until you roll it over when youre in practice.
Money will stay in. Thanks for the reassurance!

While I agree that it's usually best to leave money in a 401k, and you certainly don't want to get into the habit of taking money out, either as a loan or permanently, if taking the money out is better than the alternatives, then you should do it.

Look at the total costs and your alternatives. First of all, if you will have to pay a 10% penalty. Then, you'll have to pay taxes. Finally, you lose the growth on your money.

If you can borrow the money on a 0% credit card, or from your parents until next year, when your income will be zero, and then withdraw the money, then there will be no taxes due. That will also negate the loss of money in your account for the future, because you will already have gotten a return on your money due to the tax arbitrage.

What is the money invested in? If it's in a money market, it's not earning much, so withdrawing it won't hurt future growth. If it's in an index fund (and it should be) , it becomes a tougher call.

It comes down to what your alternatives are. For example, you'll more than make up for that 10% penalty with one year of savings on a private loan. The truth is, there's not a huge amount of money at stake here, and if taking out that money next year when taxes are low will make your life easier, then it's ok to do it. Just don't do it in the future except for dire emergencies.

If you do keep the money in the 403b, then when you're a student, in the zero tax bracket, you should roll the 403b into a Roth IRA if you can. That would be the best outcome.

I agree that you should try to avoid borrowing from any private party, especially a girlfriend, if you possibly can.
My next plan of action is to leave the money, charge my visa, apply for a new card WITH a 0% APR (thinking about a travel card such as SW Chase card for future travel in years 3-4), transfer balance from old card to new card before 04/04/2016, have parents pay off if I can't pay it off after starting school, pay them back from financial aids money received in the fall and/or spring semester.

The 403b is in a Vanguard (?). Not sure if this means the money is in a money market or an index fund or something else.

I will be rolling the 403b into a Roth IRA after starting school.

General question for all: it seems like withdrawals are much more serious than I thought. What are some reasons you would withdraw? Would funeral costs (if life insurance doesn't cover it or no life insurance at all), serious law cases (thanks Gone Girl), and life or death situations be the most qualifying reasons?
 
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I'd leave the money in, then convert it to a Roth tax-free while in med school. Stop contributions now and save that money for moving and other med school expenses.
I've been dying to get your book! Thanks for the reply.
Money will stay in and will be converted to a Roth IRA after starting school.

If I were to charge my visa, apply for a new card, transfer the balance to the new card (which would have a 0% apr), and pay off with financial aid money in the fall and or spring semester, would this be a better option than stopping my contributions which gets an employer 5% total salary match? Total contributions would be around $1300-$1500 from Feb to end of June which means the employer would contribute $650-750 (50% of my contribution).
It seems like any interest rate accrued would be less than the employers contributions. My interest rate would be around 20-24% though. I guess after 2 months the interest rate may exceed the employers match if I'm thinking about this correctly. However, this may not matter if I have the balance on a 0% APR card. I am also unsure of how much I will need for lab tests/doctors visits pre-matriculation, moving expenses, and rent (which may or may not include first and last month's rent due AND a deposit).
Would you still recommend I stop my contributions?

Separate question: what would be some qualifying reasons to withdraw from a 403b/Roth Ira?
 
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The 403b is in a Vanguard (?). Not sure if this means the money is in a money market or an index fund or something else

Vanguard is a great company to work with. When you're ready to roll the money into an IRA, just call them and they will walk you through the steps you need to take. You'll probably have to fill out forms, which you'll be able to find on their website.

As for what your money is invested in, think of it this way: you can have a checking account, savings account, or bank CD at any bank.
Similarly, you can have a variety of different types of accounts with any investment company, such as Vanguard, depending on your needs. Also, what you choose to invest in inside each of these accounts ( stocks, bonds, a mixture, money market fund ) is entirely up to you.

I suggest that you choose one of two options for the money you have with Vanguard, regardless of which type of account you have for now. The least controversial choice would be a target date fund, based on your planned retirement age. ( Personally, I prefer less money in bonds, so I would suggest choosing a later retirement date, perhaps using your age 75 or even 80. )
However, the target date funds have slightly higher costs ( expense ratio) than my personal preference, which would be the Total Market Index Fund. (VTSMX). That has lower expense ratios and is more aggressive, but it won't give you any foreign stocks or real estate funds (REITS) but I don't like those anyway ( for reasons that I think are good, but many/most would disagree with me). Then, when you can, add money to your retirement accounts when you are able to (based on financial circumstances and what the rules allow ) and buy more of your preferred investments, but never sell. Sometime over the next 10 or 20 years, learn more about finance and at that point you can modify your investment choices according to your preferences.
 
Money will stay in and will be converted to a Roth IRA after starting school.
Reminder re: timing of the Roth conversion. Since you'll have worked for half of 2016 and made some income, it'd be better to wait until 2017 before doing the Roth IRA conversion so it'll be well within the $10,000+ standard deduction + exemption limit and then some, making it a safer tax-free move. If you do it in 2016 it'll be added to the income you've already made this year so far. If there's "too much" in it you could convert what's left in 2018 if you wanna squeeze every tax-free penny.
 
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Vanguard is a great company to work with. When you're ready to roll the money into an IRA, just call them and they will walk you through the steps you need to take. You'll probably have to fill out forms, which you'll be able to find on their website.

As for what your money is invested in, think of it this way: you can have a checking account, savings account, or bank CD at any bank.
Similarly, you can have a variety of different types of accounts with any investment company, such as Vanguard, depending on your needs. Also, what you choose to invest in inside each of these accounts ( stocks, bonds, a mixture, money market fund ) is entirely up to you.

I suggest that you choose one of two options for the money you have with Vanguard, regardless of which type of account you have for now. The least controversial choice would be a target date fund, based on your planned retirement age. ( Personally, I prefer less money in bonds, so I would suggest choosing a later retirement date, perhaps using your age 75 or even 80. )
However, the target date funds have slightly higher costs ( expense ratio) than my personal preference, which would be the Total Market Index Fund. (VTSMX). That has lower expense ratios and is more aggressive, but it won't give you any foreign stocks or real estate funds (REITS) but I don't like those anyway ( for reasons that I think are good, but many/most would disagree with me). Then, when you can, add money to your retirement accounts when you are able to (based on financial circumstances and what the rules allow ) and buy more of your preferred investments, but never sell. Sometime over the next 10 or 20 years, learn more about finance and at that point you can modify your investment choices according to your preferences.
Thanks for all the info! I clearly have some reading to do.
I'll follow your advice and call vanguard and go from there. I'll roll it over in 2017 per @Stroganoff post. I'm assuming the money can stay in vanguard until then but I'll double check and call them to inform them of my situation.
 
@The White Coat Investor would love to hear your reasoning for stopping contributions to my 403b which has an employer match. Other posters recommended I continue contributing up to the match.
My current plan is to charge the deposit(s) to a credit card, pay it off or have family pay it off before 04/2016 to take advantage of the 0% APR promo, charge traveling/moving expenses to another credit card, and pay that off via financial aid package disembursement. I would use any remaining financial aid package to pay family back or pay them back from spring semesters FA package.
 
Thanks for all the info! I clearly have some reading to do.
I'll follow your advice and call vanguard and go from there. I'll roll it over in 2017 per @Stroganoff post. I'm assuming the money can stay in vanguard until then but I'll double check and call them to inform them of my situation.

It needs to stay there in the 403b until you leave the company. You should probably just let it sit in the company 403b until 2017. That's when you'll convert it into a Roth IRA that you own directly. It will be with Vanguard the whole time, just moving to different types of accounts.
 
It needs to stay there in the 403b until you leave the company. You should probably just let it sit in the company 403b until 2017. That's when you'll convert it into a Roth IRA that you own directly. It will be with Vanguard the whole time, just moving to different types of accounts.
Awesome thanks!
Novice question but after converting it to a Roth IRA, that money is tax exempt in that I don't pay taxes on it when withdrawing (in retirement), since I've already paid taxes on it when depositing it into the 403b, correct?
 
Awesome thanks!
Novice question but after converting it to a Roth IRA, that money is tax exempt in that I don't pay taxes on it when withdrawing (in retirement), since I've already paid taxes on it when depositing it into the 403b, correct?

Not quite. When you put it into a 403b ( or 401k, or traditional IRA) you didn't pay tax, so when you take it out, you will have to pay income tax.
So when you roll your 403b into the Roth IRA, the money you're rolling over will count as income in that year, and you will have to pay income tax on that $8,000 . However, you will do this in a year when you're a student all year, and since you will have zero income for that year, when you take the money out of the 403b that $8,000 will be your only income. After taking the usual standard deduction,, you will have zero income, and so the tax due on that $8,000 will be zero. By "paying" the zero income tax that's due, you will have converted an IRA to a Roth without paying any tax at all.

That's why we are recommending that you convert the 403b to a Roth as a student. If you left it in a 403b, then when you took it out in retirement, you would have to pay tax on it at the rate that's due then, probably around 20%. By converting it in a year when you have no other income, you can convert it when you will owe zero tax. Now it will grow completely tax free, probably doubling every 10 years or so, so when you take this money out at age 75, the $8,000 will have grown to about $256,000. Since you converted it to a Roth, you won't end up paying 20% of that money in taxes. That's the good news. The bad news is that because of inflation, that money will probably only be worth around $64,000 in today's dollars.

Was that clearer? If not, ask again.
 
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Not quite. When you put it into a 403b ( or 401k, or traditional IRA) you didn't pay tax, so when you take it out, you will have to pay income tax.
So when you roll your 403b into the Roth IRA, the money you're rolling over will count as income in that year, and you will have to pay income tax on that $8,000 . However, you will do this in a year when you're a student all year, and since you will have zero income for that year, when you take the money out of the 403b that $8,000 will be your only income. After taking the usual standard deduction,, you will have zero income, and so the tax due on that $8,000 will be zero. By "paying" the zero income tax that's due, you will have converted an IRA to a Roth without paying any tax at all.

That's why we are recommending that you convert the 403b to a Roth as a student. If you left it in a 403b, then when you took it out in retirement, you would have to pay tax on it at the rate that's due then, probably around 20%. By converting it in a year when you have no other income, you can convert it when you will owe zero tax. Now it will grow completely tax free, probably doubling every 10 years or so, so when you take this money out at age 75, the $8,000 will have grown to about $256,000. Since you converted it to a Roth, you won't end up paying 20% of that money in taxes. That's the good news. The bad news is that because of inflation, that money will probably only be worth around $64,000 in today's dollars.

Was that clearer? If not, ask again.
Yes this was crystal clear. Thanks so much for your explanation. I actually want to print this out and mail it to myself for the 2018 year lol.
I actually confused myself in that I thought my contributions to the 403b were taxed first then added. But this is how a Roth IRA works, not 403b.
403b -> contribute/add to account-> pay tax on this later
Roth IRA -> pay tax on this first -> remaining added to account
I also know that the Roth IRA is more favorable than a 403b as the tax bracket one would be in later would most likely be higher, due to salary increases as you get older.

I'm planning to get the white coat investors book but I didn't even think about the option of what you stated. Sucks about the inflation part though.
Also checking on my account today, it has a net loss of 9.3% which doesn't seem like the normal. I remember this may have something to do with an incident in China (?) in previous months but am not sure.
Again, this whole field is new for me so I still have much to learn. I'm glad it is exciting to learn about this stuff though. Thanks again for the clear walk through!


@The White Coat Investor Do you mind stating your reasoning as to why I should stop contributing to the 403b with employer match? I'm still open to this option and would love to hear your thoughts. Thanks!
 
I also know that the Roth IRA is more favorable than a 403b as the tax bracket one would be in later would most likely be higher, due to salary increases as you get older.

The Roth is more favorable if your tax bracket is lower now than it will be in retirement. The regular IRA or 401k etc is better if your tax bracket will be lower in retirement.

For most physicians, your tax bracket in retirement will be around 15%-20%. So, if you have a choice, when you are in a lower tax bracket than you will be in retirement, you should go with a Roth. This is the case when you are a student or a resident.
If you are in a higher tax bracket than you will be in retirement, as will generally be the case when you are at your peak earning years as an attending, you go with the 401k and traditional IRA, because you will be paying the tax when you are retired, and your bracket will be lower.

If you're on the edge, go with the Roth.

Also checking on my account today, it has a net loss of 9.3% which doesn't seem like the normal. I remember this may have something to do with an incident in China (?) in previous months but am not sure.

Crucial point here: The markets go up and they go down. Over the long term, they go up, because the population grows and efficiency increases, and inflation continues. There's often no good reason as to why they go down in the short term. People always invent reasons as to why, but often there's no good reason at all. People like finding logic in random patterns. That's why we have astrology.

A 10% drop is called a correction. A 20% drop is called a bear market. Those are arbitrary definitions, and the significance is nothing. ( A bull market is when it's going up ). These happen all the time. It's completely normal. It doesn't mean anything at all.

The important thing for you to do when these things happen is to do nothing, because you never know when they will suddenly go back up again. When stocks go down, they are on sale. Keep buying. When they go up, keep buying. That's all you need to know for now. You just keep doing that, on a regular schedule. In the meantime, you can read some more. You have 20 or 30 years before you need to know any more than that.
 
The Roth is more favorable if your tax bracket is lower now than it will be in retirement. The regular IRA or 401k etc is better if your tax bracket will be lower in retirement.

For most physicians, your tax bracket in retirement will be around 15%-20%. So, if you have a choice, when you are in a lower tax bracket than you will be in retirement, you should go with a Roth. This is the case when you are a student or a resident.
If you are in a higher tax bracket than you will be in retirement, as will generally be the case when you are at your peak earning years as an attending, you go with the 401k and traditional IRA, because you will be paying the tax when you are retired, and your bracket will be lower.

If you're on the edge, go with the Roth.



Crucial point here: The markets go up and they go down. Over the long term, they go up, because the population grows and efficiency increases, and inflation continues. There's often no good reason as to why they go down in the short term. People always invent reasons as to why, but often there's no good reason at all. People like finding logic in random patterns. That's why we have astrology.

A 10% drop is called a correction. A 20% drop is called a bear market. Those are arbitrary definitions, and the significance is nothing. ( A bull market is when it's going up ). These happen all the time. It's completely normal. It doesn't mean anything at all.

The important thing for you to do when these things happen is to do nothing, because you never know when they will suddenly go back up again. When stocks go down, they are on sale. Keep buying. When they go up, keep buying. That's all you need to know for now. You just keep doing that, on a regular schedule. In the meantime, you can read some more. You have 20 or 30 years before you need to know any more than that.
Ah, yes this makes sense. I'm not too familiar with how retirement works in detail, so I will have to read up on that.

I have lots to learn but am glad where I'm at now. I know Dave Ramsey and Suze Orman are great resources. Any other resources I should be aware of?
 
Dave Ramsey is said to be good for getting people out of debt. However, his investing advice is terrible. He makes his money on commissions that he gets for referring people to his recommended brokers, advisers, etc. If you follow his investment advice it will probably cost you most of your investment potential.

Suze Orman is good for very general financial advice, but she is only so-so on investing. But you would do ok following most of what she suggests.

It's hard to believe that there are so many books and talk shows telling people the same thing:
Spend less than you earn. Save at least 20% of your gross or 1/3 of your after tax income.
Of course, pay off your credit card each month.
Have a 6 month emergency fund in a checking or savings account.
Beyond that: invest in index funds or target date funds. Put as much of those savings as possible into retirement accounts.
Be your own financial adviser: Advisers can cost half of your eventual net worth in fees and commissions.
Have term life insurance if you have dependents.
Get an individual specialty specific disability insurance policy.
Get an umbrella liability policy.
Have health insurance.

Don't spend too much on a house. Don't buy a house until you have been in your job for at least several years and you're sure you will stay there. Most of the time, renting is as good or better financial move than buying, so don't be in a rush to buy a house.

The key to understanding investing: look up : the" Law of 72" , and "the 4% Rule".

That's about it.
 
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@The White Coat Investor would love to hear your reasoning for stopping contributions to my 403b which has an employer match. Other posters recommended I continue contributing up to the match.
My current plan is to charge the deposit(s) to a credit card, pay it off or have family pay it off before 04/2016 to take advantage of the 0% APR promo, charge traveling/moving expenses to another credit card, and pay that off via financial aid package disembursement. I would use any remaining financial aid package to pay family back or pay them back from spring semesters FA package.

I must have missed the fact there was a match. I agree. Get the match.
 
Update for anyone that's interested:
- I continued my contributions to my 403b with the employer match (100% vested) and did not withdraw any funds.
- I will keep the money in the 403b (currently at around $9k) until 2017 when I won't have any income for the year to roll it over into a Roth IRA to avoid paying tax on the amount.
- I have been saving/planning my budget before my financial aid disbursement hits which is expected to be around end of July. Expenses are higher than income, so I'll have to find other ways to trim current expenses, decrease future expenses, increase income, or potentially borrow funds.
- Currently utilizing 4 credit cards (paying off each month) for expenses. Did not apply for a balance transfer card.

Questions:
1. Do I need to roll my 403b into a Vanguard Rollover IRA then to a Roth IRA or could I just roll the 403b into a Roth IRA in 2017? I'm assuming it depends on Vanguard as well.
2. Do student loans not qualify as income?
3. I plan on rolling over the 403b to a Roth IRA in June 2017 (during summer break) so I don't have to worry about it during the school year. Any other concerns I should be aware of? Since income taxes follow a calendar year, would rolling over in Jan 2017 (during winter break) be feasible as well?
4. Any advice regarding how to prepare/plan for travel costs in the future? I'm currently planning to use Chase's rewards program (Chase Sapphire Preferred and Chase Freedom cards) to book potential free travel for residency interviews during 3rd year. Obviously, I will be saving as much as I can from the financial aid disbursement throughout the year, but wanted to know if there are any other cost-saving measures that would help. My parents do not make enough income to help me financially and I do not have any/much savings, besides the 403b.
5. When and how do students find the time and money to plan for a wedding? I'm currently looking to get engaged the summer between first and second year and then have the wedding during the spring semester of fourth year but before intern year starts.
 
For number 2 student loans aren't considered income.
For number 5 that is probably a decent time for it. As for money if you parents can't pay for it (mine luckily did) you are just going to have to make it a budget affair (courthouse and after party at your house or something)
 
1. Do I need to roll my 403b into a Vanguard Rollover IRA then to a Roth IRA or could I just roll the 403b into a Roth IRA in 2017? I'm assuming it depends on Vanguard as well.

I'm not sure. I would call Vanguard and ask them. However, doing it in two step by first going into a Rollover IRA first and then to a Roth is not a big deal.

2. Do student loans not qualify as income?

No, it's a loan, not income.

3. If you don't have income that year, then that's the time to do it.

4. Have your fiance or parents deal with it. You're too busy to be bothered. As for money, just do it cheap/elope if parents won't pay. Weddings can be very expensive and you don't need a fancy expensive wedding to prove that you're married. You'll have a spouse to commemorate the wedding, possibly / eventually kids as well.
 
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