Financial Aid / what would you do with $20k?

[GustavH]

I'm going to be a P1 in the Fall and I just received my financial aid offer from my school. I've been lurking on here for a bit and I know that some of you are more financially savvy than I am, so I'm hoping to get some advice.

I received the max amount for Unsubsidized loans ($33k) plus a $5k pharmacy grant. This is enough to cover the cost of tuition and fees, but I still need about $17k for living expenses (this is according to the "student budget", which seems reasonable considering the high cost of living in SF).

I have $20k saved up from working, which is the extent of my savings. I don't have any credit card debt or student loans currently, so no debt to pay down. My question is, should I use all of my savings to pay for the next year? Or should I apply for a Grad Plus loan to cover the remainder and put my savings to better use? I doubt I'll be able to find a 7.8% return on any investment that I make with my savings, but I'm scared to use it all and not have any "emergency money". Or should I do some combo of the two?

Also, I have a sizable 401k which is 100% vested. I'm curious if anyone has any experience borrowing from their 401k? I'd have to look into the interest rate and the term of the loan, but if it's lower than the interest from federal loans, is this something I should consider doing?

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[Sparda29]

I'm going to be a P1 in the Fall and I just received my financial aid offer from my school. I've been lurking on here for a bit and I know that some of you are more financially savvy than I am, so I'm hoping to get some advice.

I received the max amount for Unsubsidized loans ($33k) plus a $5k pharmacy grant. This is enough to cover the cost of tuition and fees, but I still need about $17k for living expenses (this is according to the "student budget", which seems reasonable considering the high cost of living in SF).

I have $20k saved up from working, which is the extent of my savings. I don't have any credit card debt or student loans currently, so no debt to pay down. My question is, should I use all of my savings to pay for the next year? Or should I apply for a Grad Plus loan to cover the remainder and put my savings to better use? I doubt I'll be able to find a 7.8% return on any investment that I make with my savings, but I'm scared to use it all and not have any "emergency money". Or should I do some combo of the two?

Also, I have a sizable 401k which is 100% vested. I'm curious if anyone has any experience borrowing from their 401k? I'd have to look into the interest rate and the term of the loan, but if it's lower than the interest from federal loans, is this something I should consider doing?

I'd do a combination. Always good to have some emergency money.

 

[xiphoid2010]

I would ask your school about the process of changing the accepted loan amount during a school year, so you can figure out how long it takes to get more loan money during an emergency. Keep at least enough liquid asset on hand to tie you over 1 semester.

If you are leaving your old job, I recommend you roll your 401k over to a traditional IRA... Then convert it over to a Roth IRA in portions annually during pharmacy school.. You will pay no or little tax on it. It's like getting 28% more money for free.. And it can serve as a last ditch emergency fund.

 

[BMBiology]

I would use at least $15 K for living cost. You are still young. You are not going to need a lot of money for emergency. It is not like you have a mortgage to pay.

How much is your 401k? How much money do you think you will make in 2012? Are you planning to work while you are in school?

 

[GustavH]

Sorry I was on vacation and just getting internet access now..

I would use at least $15 K for living cost. You are still young. You are not going to need a lot of money for emergency. It is not like you have a mortgage to pay.

How much is your 401k? How much money do you think you will make in 2012? Are you planning to work while you are in school?

My 401k is $50,000. So far this year I have made $41k. I will likely try to work while in school if I can find an internship, hopefully around 8-10 hours a week plus weekends.

I would ask your school about the process of changing the accepted loan amount during a school year, so you can figure out how long it takes to get more loan money during an emergency. Keep at least enough liquid asset on hand to tie you over 1 semester.

If you are leaving your old job, I recommend you roll your 401k over to a traditional IRA... Then convert it over to a Roth IRA in portions annually during pharmacy school.. You will pay no or little tax on it. It's like getting 28% more money for free.. And it can serve as a last ditch emergency fund.

I have a Roth 401k (a small percentage of it is traditional 401k, but the majority is Roth). What would be the advantage of converting to an IRA?

Thanks everyone for your advice!

 

[xiphoid2010]

I have a Roth 401k (a small percentage of it is traditional 401k, but the majority is Roth). What would be the advantage of converting to an IRA?

Thanks everyone for your advice!

Not so much on the Roth portion, but on the traditional portion. The standard deduction + life time learning credit basically allows you to conver ~$20-25k to Roth IRA ANNUALLy tax free. If you dont convert, when you withdraw from traditional 401k, it will be taxed at 28% or what ever the tax bracket it is when you retire. So by converting that to a ROth IRA now, its really like getting 28% free money (more if you have state income tax) But I don't know if you can covert straight from a 401k without rolling over first.

Even on the Roth 401k, while you don't gain on avoiding taxes, you will gain access to where you want to put your money. No longer will you be limited to the firm and funds your company offers, you can go with any firm and buy any funds.

 

[pezdispenser]

I'm not really addressing your circumstances specifically, but whenever I have large amounts of spare cash, I put it in the Vanguard Short-Term Bond Index Fund. The return (dividends + capital gains) is around 2.3% right now, which is a bit better than online savings accounts or CDs. The fund unit price is fairly stable right now (+/- 0.7% over the past year). It is not like the stock market. But be aware that once the Fed starts raising interest rates, the unit price will trend down.