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How should I make the best use of $15,000?

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  • How should I make the best use of $15,000?

    I recently received $15,000 from the will of a loved one after their passing. I want to ensure that this money is used in a wise manner with regard to my student loans/future financial stability. I am a fourth-year medical student, and student loans are at the forefront of my financial priorities. After talking to my school's financial advisor, he advised that I use a portion to pay off the accrued interest portion of my student loans (~$8,000). He said that paying that portion of my loans first would be the most impactful use of my funds as the accrued interest may capitalize with the principal in the future.

    What would you do? Should I pay off the accrued interest and put the rest in a Roth IRA? Should I put the rest in investments? My scope of financial literacy is very limited. As a student paying for medical school on their own, I would love your input on how I can best use this recent inheritance in a financially wise manner for the long run.

  • #2
    Buy a boat!!! (I’m kidding)

    you can’t do a Roth IRA. You need earned income for that.

    how much student loan do you have/anticipate having and what do you plan on doing?

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    • #3
      Need more information such as loan amount and rate. 4th year student such as just now starting 4th year? I’d keep some for an emergency fund and depends on further details what I’d do with the rest.

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      • #4
        If you are finishing 4th year now and about to start residency I’d put $6k in a Roth IRA and the rest I’d hold onto for an emergency fund. But yeah need more info on your situation.

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        • #5
          I like the idea of accrued interest and roth IRA for the full amount for the first 6 months when you start residency.

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          • #6
            Are you going to have at least $6k earned income this year? If so, I agree with your counselor. If not, you won’t be able to contribute to a Roth, as already mentioned and an e-fund might be the next best use.
            Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              Thank you so much for your quick responses! Your advice is incredibly helpful. I plan on having around $260,000 in student loans when I finish medical school. I am applying for general surgery residencies with the intention of completing a fellowship. My only income this year in addition to my student loans is this $15,000 I recently received. Should I focus on bringing my accrued interest to $0 before I finish medical school and use the remaining amount in a Roth IRA? I plan on putting a portion of my resident salary into a Roth IRA, so I figured I could start a year early by depositing a portion of my remaining inheritance into the Roth IRA (~$300 a month) to maximize the amount I can use for retirement later in life if I start early.

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              • #8
                The $15k does not count as earned income. In fact, it is not taxable income at all. Unless you are starting residency in the fall or get other work, you will not qualify to contribute to a Roth this year. You MUST have earned income at least equal to the amount you contribute (up to $6k).
                Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                • #9
                  It sounds like you're just starting 4th year and it doesn't sound like you'll have any earned income. You need earned income to contribute to a Roth. Keep some for an emergency fund, pay down your accrued interest, and keep $6k for your Roth next year when you have earned income.

                  Edit: jfoxcpacfp beat me to it.

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                  • #10
                    7500 lottery tickets.

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                    • #11
                      Thank you for the advice. I do have another question, would it be best to put the remaining amount in an emergency fund or should I subtract it from the loans I will accept this year from federal student loans and owe that much less in student loans in my principal?

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                      • #12
                        I would make sure you have an emergency fund.

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                        • #13
                          You will have expenses for interviews. Also, if you want to enjoy your time off near end of med school for a trip (which I recommend), you can spend it on that too.

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                          • #14
                            If you do gen surg plus fellowship you probably should look at PSLF. Some gen surg fellowships essentially require a year or two of research. You do 5 categorical years, 2 research and 2 fellowship and you’re at 9 of 10 already. I’m no expert, but I might spend a couple hundred bucks on a student loan advisor now to set it up.

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                            • #15
                              1. Pay off interest so it doesn't capitalize 2. Set up on emergency fund so you aren't screwed when your car dies or you are stuck for two nights in some random place on the interview trail. 3. Plan for PSLF and keep good records of everything you pay etc over the course of residency (make sure that when you are sent out for your research years (ideally you stay in house and it isn't an issue) that you end up in a training situation that will count towards PSLF).

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