MD/PhD Finances: taxes, loans, renting?

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voojagig

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Hey everyone! I posted a thread a while back on MD/PhD's and kids which spurred a lot of great and very diverse comments, so I thought I'd bring up another topic which is of general (as well as my own personal) interest -- FINANCES.

An MD/PhD stipend is different from a paycheck in that you get it in larger chunks (at Columbia, for example, Summer, Fall, Spring) and taxes are not deducted. That means that you have to pay estimated quarterly federal taxes (discussed elsewhere), and I assume that would also apply to local income taxes (state, and NYC, though the amount might be small enough that you could just file in April without penalty). You save a little on taxes because you don't get Social Security (or the other minor payroll taxes) deducted. Very nice.

Some other financial things are a bit confusing. Is the MD/PhD student eligible for any loans if he/she needs more to live on? If these loans were classified as "educational" that would be great because payment would be deferred until graduation (i.e., the better part of a DECADE). Double points if they're subsidized (Stafford), but I think you're only eligible for the Stafford loans when your scholarship is less than the "Cost of Attendance". Does anyone have experience getting supplemental loans while attending an MD/PhD? This could be helpful if the MD/PhD student is part of a family and would rather take on the debt him/herself (because of the length of deferment) instead of the other member(s) doing so.

Does anyone have any stories about renting an apartment as an MD/PhD student? In some hot markets (like NYC), there's a pretty high income requirement not to need a guarantor, but many people get their parents to sign as guarantors.

Is there any other financial advice that current MudFuds would like to impart to the younger padawans? Discuss! And thanks for any info!

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An MD/PhD stipend is different from a paycheck in that you get it in larger chunks (at Columbia, for example, Summer, Fall, Spring) and taxes are not deducted. That means that you have to pay estimated quarterly federal taxes (discussed elsewhere), and I assume that would also apply to local income taxes (state, and NYC, though the amount might be small enough that you could just file in April without penalty). You save a little on taxes because you don't get Social Security (or the other minor payroll taxes) deducted. Very nice.

The tax situation is location dependent. In PA grad students/MSTPs are exempt from state income taxes. The Philly tax is only paid during the grad school years and is only half of the normal city tax. Your assessment of the federal situation seems correct.

Is the MD/PhD student eligible for any loans if he/she needs more to live on?

This is school dependent. Technically, no. My understanding is since we receive enough in stipend to cover living expenses beyond the school's usual "budget", we're not eligble for more. However, some schools will still give you loans. Stafford sub loans go up to $8,500/year if you're at one of these schools. If this is a big deal for you to decide, you should talk to the loan office as soon as possible. I wondered this same thing when I was deciding on schools and the MD/PhD directors were clueless about it.

As for renting, I've done it in Philly a few times. My income has been enough. You just have to get a letter from the program in some cases saying you have a stable income. In NYC alot of people live in student housing, so I don't know what it's like trying to rent an apartment that's more than say 50% of your monthly income. I know alot of MD/PhDs who still get family assistance anyway, so I imagine they'd have no problems getting co-signers.
 
The tax situation is location dependent. In PA grad students/MSTPs are exempt from state income taxes. The Philly tax is only paid during the grad school years and is only half of the normal city tax. Your assessment of the federal situation seems correct.

Are not MSTP grants are often considered federally-funded training grants? Would that not keep them from falling under the auspices of strict income?
 
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Are not MSTP grants are often considered federally-funded training grants? Would that not keep them from falling under the auspices of strict income?

I'm not sure what you mean. Of course, I'm not a tax professional. I came to my understanding of the situation through conversations with my program and my own reading of the tax literature.

But even from that I'm not sure what your question means. What's "Strict income"?

http://www.irs.gov/publications/p970/ch01.html -- Some info.
 
I'm not sure what you mean. Of course, I'm not a tax professional. I came to my understanding of the situation through conversations with my program and my own reading of the tax literature.

But even from that I'm not sure what your question means. What's "Strict income"?

http://www.irs.gov/publications/p970/ch01.html -- Some info.

One's money comes (at least nominally) from the federal government as part of grant toward education. That money is employed to keep one afloat (basic living expenses) during a long (7+) years and rigorous academic program that is otherwise subsized in full by the feds because of a stipulated need for physician-scientists within the country. Thus, my argument (though likely to fail) is that 100% of all the money that I have received in a given year has gone toward educational and basic living expenses accounted for by a federal grant. It is not "income" as much as it is federal sponsorship in the absence of other sources of intake.

I've received training grants and fellowships in the past (though not as much as an MSTP stipend), not a penny of which counted toward "taxable income," if you will.

I'm only curious -- I think it's worth talking to a specialist about, in any case, as it's been on my mind for several years now. Perhaps the program office at the individual institutions may also be able to provide some guidance.

BTW -- that is a great link that you've provided that fleshes out some details, particularly with an eye toward the above-captioned "basic living expenses."
 
The tax situation is location dependent. In PA grad students/MSTPs are exempt from state income taxes. The Philly tax is only paid during the grad school years and is only half of the normal city tax. Your assessment of the federal situation seems correct.

Really? How do you file to become exempt from state and Philly income taxes?
 
Really? How do you file to become exempt from state and Philly income taxes?

You simply are exempt from PA state income tax if it's fellowship income. I looked this up years ago. If you can't find it let me know and I can try to find it again. As for Philadelphia income tax, I'm not sure exactly how it works.

See: http://www.med.upenn.edu/bgs/documents/2006ALLTaxInfo_CD.pdf

Somehow your local tax ends up being taken at half the usual rate when you start grad school here. I read somewhere this was some sort of compromise arranged years ago about fellowship income with the city. Whether you should have been paying that when getting the fellowship money outside of graduate school I'm unsure.

As for the federal tax discussion, all income beyond your tuition and fees is income and is taxed as such. Just because no taxes are withheld does not mean you shouldn't be paying on it. Also, just because it's the government that's paying you out of a grant, it doesn't mean you don't have to pay taxes on the income. There's tons of examples of this. Just be glad you don't have to pay "self-employment" tax. That being said, alot of students probably aren't paying anything since it's usually not withheld. Why all of a sudden grad school starts withholding the fellowship income when you hit grad school I also don't understand.

This whole thing is kind of nebulous. I'm just trying to make some kind of sense out of it. Unfortunately, it's one of these taboo topics that most people don't want to discuss.
 
First of all, yes, MSTP fellowships are federally taxed as income, just as graduate fellowships. The one exception is that most MSTPs do not have to perform any services (eg. they don't have to be TAs). That has implications because it is not compensated income. This means that you will have to pay an excise tax to contribute to a Individual Retirement Account (IRA) unless your fellowship is reported on a W-2. Also as stated above because taxes are not withheld by the school or the program, MSTP students need to pay estimated taxes on a quarterly basis.

Summary of Taxes for MSTPs - A Good Starting Point
http://www.mstp.washington.edu/StudentsAlumni/StudentGuide/taxesmstp.html

"Tax Benefits for Education" (see pages 4 - 6)
http://www.irs.gov/pub/irs-pdf/p970.pdf

"Individual Retirement Accounts" (see lower right of page 8)
http://www.irs.gov/pub/irs-pdf/p970.pdf

"Tax Withholding and Estimated Tax"
http://www.irs.gov/pub/irs-pdf/p505.pdf

Before 1985, fellowships were not considerable taxable. Since 1985 they are, so if you have parents that went to graduate school they may be surprised to learn that you have to pay taxes. Tuition and educational expenses are deductible from your taxable income, but for most people tuition has already been taken out (you don't owe the medical school any tuition). Books do count as educational expenses, but these usually do not exceed the standard deduction ($5150 in 2006 for single people) so it is usually not worth it to itemize.

Room and board, "basic living expenses", are not deductible and are taxable. Any compensation you get to cover that is taxable income. So any money that you have received from a summer fellowship (REU, HHMI, SURF) was also taxable.

Depending on which city you are in it may be financially advisable to buy a condo rather than rent. There are many things to consider. Renting is a lot easier since if anything goes wrong the owner must fix it. Owning a condo means that you have fix everything. Also you have responsible for paying property taxes and possible HomeOwner's Association Fees (HOA). If you have an extra bedroom though, you can rent it out (such to incoming MSTP fellows) and that might cover your mortgage and property tax.

If you can put some of your money away into savings. Right now banks are offering some very nice interest rates. HSBC Direct ( http://www.hsbcdirect.com) has a 6.00% APR offer going on new accounts. Citibank has some nice CDs at 5.00% with low minimum deposits of $500.

Also I would highly recommend getting a rewards credit card so that you can skim some money off hosting applicant dinners. 1% cash back on a $500 for 20 people gets you a nice $5 of free money. Credit cards are also handy when you need to buy a bunch of books in a short period of time. Believe me., it's not worth it to skimp on books. Get it earlier and get it cheap online.

For people new to finances, check out http://www.bankrate.com/

You may not have much money as a MSTP, but you should manage what you have well.
 
If you can put some of your money away into savings. Right now banks are offering some very nice interest rates. HSBC Direct ( http://www.hsbcdirect.com) has a 6.00% APR offer going on new accounts. Citibank has some nice CDs at 5.00% with low minimum deposits of $500.

HSBC Direct's high interest rate ends on April 30th. Comparable savings accounts exist with high interest rates:
http://www.fatwallet.com/t/52/437553/
Some have account opening bonuses. I got $250 from Bank of America and $200 from Citibank for opening online savings and checking accounts, which is far more than you would get with interest.

Also I would highly recommend getting a rewards credit card so that you can skim some money off hosting applicant dinners. 1% cash back on a $500 for 20 people gets you a nice $5 of free money. Credit cards are also handy when you need to buy a bunch of books in a short period of time. Believe me., it's not worth it to skimp on books. Get it earlier and get it cheap online.

Use mtvU from Citibank. 5 points per dollar (equivalent to 5% discount) spent on restaurants and bookstores (and anything from Amazon, I've heard). Also get $20 for 4.0GPA per semester. Use your points to pay off your student loans.

Charge everything. Use the grace period as a free float for money in a high-yield savings account.

I do all my banking through Citi online now - instantaneous transfer to and from high-yield savings account, plus points for having a bunch of services.

BTW, not that I condone cheating, but H&R Block claims that fellowships aren't taxable, and they're willing to put their money behind it if you get audited.
 
As for the federal tax discussion, all income beyond your tuition and fees is income and is taxed as such. Just because no taxes are withheld does not mean you shouldn't be paying on it. Also, just because it's the government that's paying you out of a grant, it doesn't mean you don't have to pay taxes on the income. There's tons of examples of this. Just be glad you don't have to pay "self-employment" tax. That being said, alot of students probably aren't paying anything since it's usually not withheld. Why all of a sudden grad school starts withholding the fellowship income when you hit grad school I also don't understand.

This whole thing is kind of nebulous. I'm just trying to make some kind of sense out of it. Unfortunately, it's one of these taboo topics that most people don't want to discuss.

The answer to this is that once you're put under your mentor's R01, you count as a compensated employee, and you get a W2. Training grants or fellowships imply you're not being compensated for "work".

Flipside is that I can contribute to my Roth IRA, which will give me tax-sheltered benefits which will far exceed taxes paid now.
 
BTW, not that I condone cheating, but H&R Block claims that fellowships aren't taxable, and they're willing to put their money behind it if you get audited.

Hmm... that's interesting. Jackson Hewitt just got in some big trouble for encouraging its clients to cheat:
http://www.nytimes.com/2007/04/10/business/10jackson.html

Not saying your in trouble Doctor&Geek, that's just very interesting.

The tax code really is not as cryptic as people make it out to be. If you're a medical scientist you should have no problem doing publication cross referencing to find the answers. I think I pointed out the relevant documents above.

There is also a more concise plain English explanation from the IRS:
http://www.irs.gov/individuals/students/article/0,,id=96674,00.html

IRS said:
Taxable Scholarships and Fellowships

If you received a scholarship or fellowship, all or part of it may be taxable, even if you did not receive a Form W-2. Generally, the entire amount is taxable if you are not a candidate for a degree.

If you are a candidate for a degree, you generally can exclude from income that part of the grant used for:

* Tuition and fees required for enrollment or attendance, or
* Fees, books, supplies, and equipment required for your courses.

You cannot exclude from income any part of the grant used for other purposes, such as room and board.

A scholarship generally is an amount paid for the benefit of a student at an educational institution to aid in the pursuit of studies. The student may be in either a graduate or an undergraduate program.

A fellowship grant generally is an amount paid for the benefit of an individual to aid in the pursuit of study or research.
 
Flipside is that I can contribute to my Roth IRA, which will give me tax-sheltered benefits which will far exceed taxes paid now.

That brings up another issue: Traditional IRA vs Roth IRA

I think the consensus opinion is that for us a Roth IRA is much better. The difference between the two is that with a traditional IRA you are taxed on the money when you withdraw it during retirement, while with a Roth IRA you are taxed on the money when you deposit it now but you pay no tax when you withdraw it for retirement.

The idea is that we make so little money now and are thus in much lower tax bracket. When we become doctor doctors we will making much more money (hopefully) and will be in a higher tax bracket. So it's better to pay tax now at the lower tax bracket than later at the higher tax bracket.

By the way, in case it is not clear, the entire point of an IRA is that you do not have to pay tax on interest accrued on the money. Therefore your IRAs can grow much faster than normally taxed investments (savings accounts, mutual funds).
 
Room and board, "basic living expenses", are not deductible and are taxable. Any compensation you get to cover that is taxable income. So any money that you have received from a summer fellowship (REU, HHMI, SURF) was also taxable.


Money received from an undergrad summer fellowship is only taxable if one exceeds the minimum, right? Aren't most summer fellowship stipends meager enough that - if an undergraduate has no other income aside from parental contributions - no taxes are necessary? (This is what my parents CPA has told me in the last two years; although I ended up paying anyways and receiving it all back.)
 
That brings up another issue: Traditional IRA vs Roth IRA

I think the consensus opinion is that for us a Roth IRA is much better. The difference between the two is that with a traditional IRA you are taxed on the money when you withdraw it during retirement, while with a Roth IRA you are taxed on the money when you deposit it now but you pay no tax when you withdraw it for retirement.

The idea is that we make so little money now and are thus in much lower tax bracket. When we become doctor doctors we will making much more money (hopefully) and will be in a higher tax bracket. So it's better to pay tax now at the lower tax bracket than later at the higher tax bracket.

By the way, in case it is not clear, the entire point of an IRA is that you do not have to pay tax on interest accrued on the money. Therefore your IRAs can grow much faster than normally taxed investments (savings accounts, mutual funds).

This brings up another issue - aren't there supposed to be penalty-free Traditional to Roth IRA conversion up until 2008 or something like that? If so, deduct your contributions in a traditional, then convert to Roth later to avoid tax on your earnings.
 
Money received from an undergrad summer fellowship is only taxable if one exceeds the minimum, right? Aren't most summer fellowship stipends meager enough that - if an undergraduate has no other income aside from parental contributions - no taxes are necessary? (This is what my parents CPA has told me in the last two years; although I ended up paying anyways and receiving it all back.)

I am not a tax professional or a CPA, so trust your CPA.

If you look through form 1040 and take a look at all the possible deductions and credits, then there is a sort of minimum. For a single unmarried person, you get a standard deduction of around $5000. This year it is $5350. Also you can get an excemption for yourself if your parents do not count you as a dependent. That's another $3000. You take these deductions and exceptions away from your total income to get your taxable income.

The kicker though is that usually with summer fellowshpis and stipends you don't have any money withheld. This means you technically should should pay estimated tax on it. If you fail to pay estimated tax on it, then there is potential penalty. I failed to realize this while I was in undergrad, so the IRS would always right me back telling me that I owe some more money.

In reality, the IRS is probably not going to care so much if you owe less than $100 in taxes. Don't sweat it.
 
Thanks for the info. I think I'll just file to be safe, and presumably get it all back, as before.


I am not a tax professional or a CPA, so trust your CPA.

If you look through form 1040 and take a look at all the possible deductions and credits, then there is a sort of minimum. For a single unmarried person, you get a standard deduction of around $5000. This year it is $5350. Also you can get an excemption for yourself if your parents do not count you as a dependent. That's another $3000. You take these deductions and exceptions away from your total income to get your taxable income.

The kicker though is that usually with summer fellowshpis and stipends you don't have any money withheld. This means you technically should should pay estimated tax on it. If you fail to pay estimated tax on it, then there is potential penalty. I failed to realize this while I was in undergrad, so the IRS would always right me back telling me that I owe some more money.

In reality, the IRS is probably not going to care so much if you owe less than $100 in taxes. Don't sweat it.
 
I am an international student and don't have a potential co-signer in the US. Does anyone know what I can do to get a loan when I'll need one?
my bank refused to lend me a penny without a US citizen as a co-signer for the loan.
 
Thanks for the info. I think I'll just file to be safe, and presumably get it all back, as before.

What do you mean by "get it all back"?

Either you mean that you actually still owe no taxes or you mean that you have had taxes withheld.

If you have had money withheld for taxes, and you think that you do not owe any taxes then you should definitely file! The government has your money, and you need to file to get your money back.
 
I am an international student and don't have a potential co-signer in the US. Does anyone know what I can do to get a loan when I'll need one?
my bank refused to lend me a penny without a US citizen as a co-signer for the loan.

Umm... I'm not sure what context this is coming up in. If you are a MD/PhD international student in the US then you usually still get a stipend.

Ok, so let's say you know that, but you still need a loan. Typically banks differentiate between a personal loan or a loan to buy a condo or a car. They would typically be more amicable to lending money for the latter situation since they could always repossess the condo or car should you default on your payments.

Some schools may offer loans themselves. You might also be able to get the school to help you out somehow in negotiating with the bank.
 
Thanks hawkeey. I didn't know banks differentiated between loans for car etc. and personal loans. Since I wouldn't be able to finance a car or an apartment with just an MD/PhD stipend, that's what I'd need loans for in the future.
 
What do you mean by "get it all back"?

Either you mean that you actually still owe no taxes or you mean that you have had taxes withheld.

If you have had money withheld for taxes, and you think that you do not owe any taxes then you should definitely file! The government has your money, and you need to file to get your money back.

No, I mean that when I have filed in the past, I payed a meager amount and they sent it all back a few months later.
 
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