Roth IRA during school

[dentite24]

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Hello SDNers,

What is your take on contributing to a Roth IRA during dental school?
I will be starting school this fall, and have made around $2,000 this year, and was thinking about putting that in an IRA. The return on mutual funds will be 8-9%, higher than the interest on my loans, so I would make money in the end... Probably won't have a job my first two years, so I won't be able to contribute next year. But, my 3rd and 4th years and residency I could contribute a few thousand dollars each year.

What do y'all think?

 

[NITRAS]

Most dental and medical students don't have an earned income, the also are mostly broke, which means that any money they invest is effectively borrowed money. I believe it is poor idea to invest with borrowed or leveraged funds.

For now, you can back door Roth when you make over the income limits if you don't have traditional (or pretax) IRAs. Having a pot of money will help you when you graduate as you are going to have expenses.

 

[dentite24]

not worth it in my opinion

also 8-9% seems inflated because right now the market is doing really well but taking into account economic cycles, a few years later it will probably average out to about 5-6%

further, 6-7% on multiple 100k loans is different than 10% on couple k's of no-load mutual funds

I should only have less debt than most, about 150,000 in loans total, only about 100,000 as unsub. Over the span of 40 years of a mutual fund the average should be about 8-9% though, which by the time I retire would surely out-weigh the few years I have interest acrewed on 5-6% loans, right?

 

[Typical Average Student]

I had made some money tutoring during my first 2 years of dental school, contributing to my Roth IRA during that time was stupid since I found myself needing that money for living/food, and without it, I found myself borrowing more money with loans. In the end, you'll make a very small amount and it isn't worth the effort and added interest on loans... unless you're bringing in crazy amounts of money during dental school....

 

[bilbany12]

I started a Roth IRA before dental school with a few hundred 🙂 Definitely not a bad idea.
Like the person above me said, you might have better use for the money during school for everyday expenses. Sometimes things pop up, you never know. The returns on my Roth are actually still in the negatives I have less money in it now than I started with.

Plus, even if you have positive returns, 5% or so really isn't that much money..

All in all, I'm still glad I have it set up. It's one less thing I have to worry about later!

 

[danchoi03]

I started my Roth IRA before I started dental school. I had the account for 5 years so I have decent amount of money in there. I no longer contribute money into the account because the money is used toward school and expenses. However, my account still grows slowly due to dividend stocks that I invested several years earlier. Those dividends increase 2-4 % yearly and I use those dividends to buy extra shares.

I agree with the above posts, that you shouldn't invest money that you loan. Only invest money that you earned.

 

[Nelson16]

Awesome question! I asked something similar on DT when I opened up my Roth a year ago. Instead of putting it in my IRA account, I was using my extra income to put towards interest payments, but - like you said - if the market's giving you more bang for your buck then that's a little counter-intuitive. Instead, I decided to throw that cash into a money market so I can pull it out without any penalties. I know its painful watching that 5.5k cap go to waste each year, but for me, the piece of mind having that money available is worth it.

 

[Incis0r]

I started a Roth IRA before dental school with a few hundred 🙂 Definitely not a bad idea.
Like the person above me said, you might have better use for the money during school for everyday expenses. Sometimes things pop up, you never know. The returns on my Roth are actually still in the negatives I have less money in it now than I started with.

Plus, even if you have positive returns, 5% or so really isn't that much money..

All in all, I'm still glad I have it set up. It's one less thing I have to worry about later!

Hmm what are you invested in? You should be getting better returns than that.

 

[bilbany12]

Hmm what are you invested in? You should be getting better returns than that.

I know. I just started with individual stocks to open an account and get it started. I'm moving to index funds after I graduate.

 

[Incis0r]

I know. I just started with individual stocks to open an account and get it started. I'm moving to index funds after I graduate.

Fair enough. I'm the opposite way: I started off and still hold 100% of my portfolio in index funds, but sometimes I think I'm being too conservative with sticking to index funds and maybe it might be a good idea to play around with individual stocks.

 

[Str82th]

I wish I fully funded my IRA during dental school, each year, even using student loan money. I know, I know, that sounds insane. However, you can never get back the time value of money. I intend to have my retirement accounts far far longer than I have my debt accounts, so in the long term, early investment would have paid off much more.

 

[bilbany12]

Fair enough. I'm the opposite way: I started off and still hold 100% of my portfolio in index funds, but sometimes I think I'm being too conservative with sticking to index funds and maybe it might be a good idea to play around with individual stocks.

Now I know index funds are designed to withstand market fluctuations..but do you ever worry about what a market crash would do to your portfolio? I'm interested in using an index fund for a majority of my large savings once I'm in practice, but I was wondering about that.

 

[blcopp]

Now I know index funds are designed to withstand market fluctuations..but do you ever worry about what a market crash would do to your portfolio? I'm interested in using an index fund for a majority of my large savings once I'm in practice, but I was wondering about that.

You're young enough to where it wouldn't matter. The 2008 crash only took a few years to recover. Just buy and hold. If you want to help limit any losses, add in some bonds (specifically treasuries) or Google "stocks to own during a crash or bear market". Stocks like waste management, Walmart, Johnson and Johnson to name a few.

 

[Incis0r]

Now I know index funds are designed to withstand market fluctuations..but do you ever worry about what a market crash would do to your portfolio? I'm interested in using an index fund for a majority of my large savings once I'm in practice, but I was wondering about that.

Don't fear a crash - if a market crash happened, I personally would immediately push more money into the market - because the shares would be much cheaper and you'd effectively be picking them up at big discounts. Then, when the market recovers (eventually it will recover), you will have enjoyed a nice return on your investment.

My mindset is similar to that of @blcopp - I am in it for the long-haul.

Something that may help you: look into Vanguard's target retirement funds(I'm a big believer in Vanguard and think they are the best company to trust with my retirement, but that's a different story). Those funds grant you a diversified exposure to international stocks, domestic stocks, bonds, etc. And the best part is that they will automatically shift your portfolio to a less risky profile with more bonds as you age, so that in the event of a crash 5-10 years before your retirement, you will be less vulnerable and will not lose your entire portfolio.

 

[BeaverLover]

Just don't get screwed over with a high expense ratio like me