IRAs

[stairway2seven]

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hey everyone, not sure if this is appropriate for the med student forum...or even sdn in general but i'll give it a shot

I'm an incoming MS1 at an expensive private school so I've been thinking (stressing) about finances recently and how best to manage my student debt/prepare for the future

Specifically I am wondering about IRAs. Do many of you have IRAs set up? If you do, I assume they are Roth IRAs due to the taxing that occurs when you deposit rather than withdraw (unsurprisingly I am at a significantly lower tax bracket than I expect to be as a physician.) Please correct me if this is not the obvious correct IRA choice.

Is it worth it to set one up instead of using the money to slightly reduce the loans I take out?

Thanks

 

[Schwifty]

Ok, this could be an extremely long and complicated topic to discuss, but overall ya you could put some money into a Roth IRA because you are currently in a low tax bracket. However, once you become a physician you can't contribute to it anymore, assuming you make over $137,000 and file taxes alone, or make over $203,000 and file jointly with a spouse (these numbers will change in the future). With that big salary you are going to have, and deepening on if you are employed or self employed, there will be other savings mechanism to use like a 401k, SEP IRA, or SIMPLE IRA. I personally do not have any form or IRA, most of my saving is in CD's, high interest savings accounts, and some invested a couple Vangaurd ETF's. I do this to keep my saving liquid or close to it, so I can access it quickly. One final point, with the high interest on loans, you can almost assume that for every dollar you take out now, you will have to pay 2 dollars back, so I would use the money and save on loans, or just keep the cash in savings for a rainy day. (disclaimer, I am not a financial advisor, but I have experience and have worked in financial planning)

 

[CJhooper123]

If you don't have to borrow, don't. 6.7% and 7.7% are no joke with regards to federal loans. If your interested in short-term options (aka trying to figure out your true budget M1/1st semester) consider a high APY savings account or money market account.

 

[Moko]

What you're describing is a Roth IRA (putting post-tax dollars into the account). Of note, there are backdoor Roth's (and even mega-backdoor Roth's) for folks who make more the income limit. The White Coat Investor website has instructions on how to do it (and how to best manage your finances and debt). Check it out

 

[futuremdforme]

So for a Roth you can't withdraw the money for 5 years after setting it up. So it won't help you.

 

[NITRAS]

If you had the extra money both for school and for IRAs I’d go ROTH. Since you don’t have the money for both....just keep it. You’ll need the money for school. You are a much better investment than an IRA right now.

 

[Dantrolene FC]

I’m a current med student who contributes to a Roth IRA every year.

Don’t forget you have to have income to do an IRA. By income, I mean earned income that you file either a 1099 or W-2. Most med students won’t have any income, except for maybe their 1st year if you had a job before med school starts.

If you don’t have income, they make you withdraw your contribution and penalize you 10% per year until you withdraw it out.

 

[BunnyMan17]

That med school interest is no joke, I will defer to someone that crunches the numbers but I'm pretty sure you'd be better off taking less loans or paying off what you can before it starts to accumulate interest.
If you still decide to open a Roth IRA, vanguard has almost no fees and their ETFs perform well. My program is a tad different so I opened one as soon as I payed off my undergrad debt and I am pleased with the performance thus far.

 

[Hippocrates II]

Are you married with a spouse who has income? Or do you plan on working in school? You will need income to contribute to an IRA. I max out my ROTH every year because those investments will be gold come retirement, but this is only feasible and logical if you can contribute without taking out loans.

 

[Angus Avagadro]

Dont borrow money to fund an IRA unless your IRA can make more than the interest on your loan. The stock market was flat for 10 yrs after the last crash., which would make your 7% student loan rather onerous during that period. Debt is tyranny. You get up every day to pay someone else. Be debt averse and pay it back quickly when you must borrow.You will have much more money in your pocket in the end. Remember, Congress can tax your Roth with a stroke of a pen. I heard congressional leaders mention a One Time surcharge on all IRAs in the past.

 

[b52bomber]

You cannot borrow money to fund an IRA because you need to have income to fund an IRA.

 

[Angus Avagadro]

You cannot borrow money to fund an IRA because you need to have income to fund an IRA.
[/QUOTE
True. That was not what I said. If OP funded an IRA with income, and then used student loans for school, OP in essence would be borrowing money to fund the IRA . Better to use the money for school and have smaller debt. Unless you can .make more than your student loan interest rate in your IRA. The Stock Market has a lifetime average of around 7%

 

[stairway2seven]

I do have income now so I could contribute to an IRA but since I cannot confidently say I will have an income over my med school years, I guess it doesn't make sense to start contributing when I can save the money for cost of living.

I have enough saved up to cover ~1.5 years of living expenses which is the reason I considered using some of it to contribute to an IRA. It seems like the better idea is just to use it to cover as much of my 1st year tuition as possible.

I guess it'll have to wait until I'm a resident. Thanks for all your input everyone!

 

[Dantrolene FC]

I do have income now so I could contribute to an IRA but since I cannot confidently say I will have an income over my med school years, I guess it doesn't make sense to start contributing when I can save the money for cost of living.

I have enough saved up to cover ~1.5 years of living expenses which is the reason I considered using some of it to contribute to an IRA. It seems like the better idea is just to use it to cover as much of my 1st year tuition as possible.

I guess it'll have to wait until I'm a resident. Thanks for all your input everyone!

It’s good that you’re thinking about finances and retirement. You’re way ahead of your classmates.

I would suggest you read white coat investor if you don’t already.

Home | White Coat Investor

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[Moko]

It’s good that you’re thinking about finances and retirement. You’re way ahead of your classmates.

I would suggest you read white coat investor if you don’t already.

Home | White Coat Investor

Sick of feeling like you're being taken advantage of by the financial services industry just because you have a high income? Wondering what to do with your student loans or how to get a mortgage? Not sure how to buy disability insurance or how to invest your money? Here's a site written for...

www.whitecoatinvestor.com

It's shocking what financial advisors get away with charging for information that's freely found on the internet. Minimal time commitment to learn the basics and get started.

 

[Snoopy2006]

1. Minimize debt first

2. You can only open a Roth IRA if you or a spouse have an income stream

3. Some misinformation in this thread. The stock market was not flat for 10 years after the last crash. The opposite is true, we've had the longest bull run in history.

If you don't have an income stream, open a Roth IRA as soon as you start residency. All residents should have one and should contribute $6k a year. You can start with investing in Vanguards Target Retirement Funds while you learn about asset allocation and how to divvy up your investments yourself.

Edit: just saw your last post. I agree. I would use the next 4 years to learn more about finances and then start the ira once you start residency

 

[Angus Avagadro]

1. Minimize debt first

2. You can only open a Roth IRA if you or a spouse have an income stream

3. Some misinformation in this thread. The stock market was not flat for 10 years after the last crash. The opposite is true, we've had the longest bull run in history. View attachment 268359

If you don't have an income stream, open a Roth IRA as soon as you start residency. All residents should have one and should contribute $6k a year. You can start with investing in Vanguards Target Retirement Funds while you learn about asset allocation and how to divvy up your investments yourself.

Edit: just saw your last post. I agree. I would use the next 4 years to learn more about finances and then start the ira once you start residency

As an older investor,I should have been a little more accurate in my comment about the last 10 yrs. Your chart doesnt tell the whole story, at least for me.The s and p index low in 2008 was around 750. The year before , 2007, the high was around 1500. Took till around 2013 to reach 1500 again. So over 6 years to reach the former level, or the break even point for the 2008 crash. Using the rule of 72s, divide 72 by the rate of return for your investments, and you will get the number of years for your investment to double. The average rate of return for the S and P is around 7%. So the average would be a little over 10 yrs to double your investment. It took nearly 7 years for my investments to return to the pre crash level. This is what I meant by my investments being flat. Meaning I lost the opportunity for my investments to double during that period. This through off my retirement planning schedule.