Announcement

Collapse
No announcement yet.

MD/PhD student with stipend: pay loans or invest in Roth?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • MD/PhD student with stipend: pay loans or invest in Roth?

    Hello all,

    I am a single, first-year medical student in an MD-PhD program. It takes around 8 years to complete the program, starting with completing the first 2 years of medical school, then spending 3-5 years as a graduate student completing a PhD, then finishing the last 2 years of medical school. Tuition and fees for both medical and graduate school are covered by scholarship, and in addition to that I receive a living stipend. For the medical school years, my stipend is untaxed, as it is technically considered a scholarship. During the graduate school years I will be paid more like an employee and my stipend will be taxed.

    I currently have about $700/month leftover after all living expenses are accounted for and would like to start investing, either in a low-fee Roth IRA or by paying back my student loans from undergrad, which total to about $30,000. One of my loans (~$7000) has a 6.8% interest rate, while the rest of them average out to about 4.3%. I was considering paying back my 6.8% interest loan over the course of this school year and then starting a Roth IRA through Vanguard or another low-fee company afterwards, but I can't help but think that in my unusual position it might be better to invest in a Roth now, when I don't have any taxable income, and then start paying back my student loans after I can (potentially) use the interest paid on them as a tax deduction (although since they would technically still be on deferral I might not get that).

    Any thoughts on which strategy would be better? High interest loan, then Roth? Roth all the way through? Roth, then loans during grad school? Any advice appreciated!

  • #2
    I don't think you can fund an IRA if you do not have earned income. So that is out for you until then. I'd pay off that 6.8% interest loan first.

    Also, the student loan interest deduction only applies to the first $2500 of interest I believe and phases out pretty quickly so it usually does not help most people with attending's paycheck. It might help a little during your PhD stipend years, but likely your bracket will be so low that it won't make a significant difference for you. Another option is to open a taxable account until you can do an IRA. Not sure that is the best in your situation but it is certainly possible.

    Comment


    • #3
      Oops, didn't realize that about opening an IRA. I did work full-time this year up until I started school, though, so I have some taxable income for the year from that. Does that mean I could start a Roth IRA and invest up to the amount I earned (or $5500, whichever is less) in that?

      Comment


      • #4
        I think I'd:

        1. Set up and emergency fund. (new commuter bike, unexpected funeral flights someplace, etc)

        2. Take 75 to 100% of the cash and pay back the 7k @6.8% student loans.

        3. The math probably says pay off the loans. The emotional side says less debt is better too. But if you want to start learning more about finances, starting a taxable account (w/ the 25%), putting in $100/month into low cost funds @ vanguard would certainly teach you something, and help set some good habits.

        4. Can you do an HSA? If so, this is a great place to fund some retirement.

        5. Do a roth once you have income. If you have a side gig now, I'd say study harder, if you still have a side gig, start a roth.

        closing thoughts:

        1. Congrats. Sounds like a great start.

        2. Given you'll be in the same place for such a long time, and because your residency is a touch more likely (no data, just my observations of colleagues) to be in the same place where you are living now... You could consider buying a place, with roommates, and renting it to them for the next 7-10+ years. You'll be in that town for a while. Some may disagree, but it's something to at least think about, as it'll help you form better decisions about your own financial picture, risk tolerance, future plans, lifestyle, etc. A good mental exercise at least.

        3. and an IPS too.

         

        Comment


        • #5




          Oops, didn’t realize that about opening an IRA. I did work full-time this year up until I started school, though, so I have some taxable income for the year from that. Does that mean I could start a Roth IRA and invest up to the amount I earned (or $5500, whichever is less) in that?
          Click to expand...


          You have until tax day (April 2018) to start, and fund a Roth for any income you earned in 2017. Kind of a nice longer ~16 month window. Ideally, if you fund a roth every year, you don't always wait, you fund it asap in January, to take more advantage of growth over time,  etc etc. Easy to open, link to a checking account, and fund.

          Comment

          Working...
          X