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Strategies to pay for medical school

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  • Strategies to pay for medical school

    I am getting ready to start my last year of post-baccalaureate classes with the goal of applying to medical schools in the summer of 2018. Assuming that I am admitted to a medical school, I am looking for some advice for how I can best prepare for paying for medical schools. I currently work as a teacher and have the ability to max 403b, 457, pension, and a Roth IRA. if I stay at my current savings rate for the next two years, I should have roughly 180k in tax advantaged accounts and another 50k in my taxable accounts/savings. My current asset allocation is 55/45 equities to bonds. The rationale for investing in the 403/457 is that, if I use those funds for tuition, I would withdraw them when my income is lower at a lower tax bracket (roughly 10% savings). My question is, does it seem reasonable to pay for medical school with retirement savings or should I consider other strategies?

  • #2
    What is your age?  If you cash out of your tax protected accounts prior to 59.5 your will incur  a 10% penalty plus income tax.  So in your case student loans make more sense.  Hopefully you have low living expenses and no other debt.  Go to the cheapest school you get accepted to is good advice too.


    • #3
      Hey hatton1,

      Thanks for the reply. With a 457 account I withdraw funds penalty free after separating from service. With the 403, I believe once it is transferred to an IRA it can be used for qualified educational expenses without penalty. I'll take another look though. Currently my age is 26.


      • #4
        You are young enough for med school to make sense.  I have only ever dealt with a 401k and Ira.  If the money can continue to grow tax free it still makes sense to take out loans.


        • #5
          Hey hatton1,

          i had not considered letting the money continue to grow but I think I will. As far as going to the least expensive school possible, is there any concern that this may impact future job prospects?


          • #6
            You will find that most docs only care about where you did your residency.


            • #7
              It would be great to let it grow as much as possible. Med school and residency is long and you'll be busy, then one day you can wake up and see what all that time has done to the account.


              • #8
                In terms of expense of the school, the best value for money by far is your in-state medical school. Going to a decent state medical school and being a strong student will not hurt your probability of a competitive residency compared to going to a private med school and being a strong student.

                The only med schools that would make me worry about future job prospects would be US-foreign med schools and brand-new schools. These grads are often shut out of highly competitive residency tracks (ortho, neurosurg, derm etc) simply because there are too many qualified US grads for those programs already and there's no reason to take a risk that someone isn't able to hack it. You can still go to those schools and be a fine doctor, but there will be some limitations on speciality and residency.

                In terms of withdrawing from retirement accounts to pay for med school, you should not worry about penalties because higher education is a qualified expense. I would use taxable accounts then the 457 money before loans. After that, it depends on your appetite for risk. Reducing the loan balance by withdrawing from a 401k provides a guaranteed return equal to the loan interest rate. The higher the rates you are charged, the better an idea it is to raid the 401k. Personally if I was offered a 10 year guarantee of 6.3% return in my 401k I would take it (ie spend down the 401k instead of taking out loans), but a lot depends on the terms of the loans you are offered.


                • #9
                  I forgot to mention that expense and competitiveness for state medical schools varied widely. I had several friends in my med school class who were California natives but because of the extreme competition for slots elected to spend a year living and working in my home state to establish residency because the odds of acceptance were much higher and the fees lower. As always, it pays to do your homework.


                  • #10
                    Hey pulmdoc,

                    thank you so much for responding. I would like to apply as an in state resident to medical schools but in my current state I do not qualify as a resident until I have lived in the state for 7 years, which would be 3 years from now. I have considered moving elsewhere to establish residency but this would push back my timeline 1 year and would not start medical school till I'm 30. I haven't decided whether or not establishing residency elsewhere makes sense given the extra year.


                    • #11
                      In this situation I would take loans, do Roth conversions on any tax-deferred money during med school, let the tax-free money ride and then live like a resident for 2-5 years after residency until the loans were gone.

                      If you have interest in military service you may want to look into HPSP.

                      PSLF may also be an option, but that date is 20 years away for you, so it could change quite a bit between now and then.
                      Helping those who wear the white coat get a fair shake on Wall Street since 2011


                      • #12
                        Thread is a little all over the place...

                        Yeah pay for it yourself if you can.  Many accounts have exceptions to penalties for qualified education expenses.  Do the research or consult a professional.

                        Also student loans are there for a reason.  Don't kill yourself when you can take a little loan and pay it off quickly after graduation.

                        Go to cheapest US MD school you can go to.  Avoid international, Caribbean, or D.O. schools.  The latter will make you a doctor but are objectively less valuable since it'll be a lot harder getting the job you want.

                        But first of all, study for and get a great score on the MCAT, and make sure you have good grades in all of the prerequisite science classes like organic chem, bio, physics and whatnot.   


                        • #13
                          Hey WhiteCoatInvestor,


                          thank you you so much for that suggestion, I had not previously considered doing a Roth conversion during school. I think it makes a lot of sense given the structure of the funds that I have, and the long term benefits of tax free growth.


                          given the advice above regarding minimizing the cost of school, I think I am going to hold off on applying to schools for an additional year to gain residency in a state where my partner (veterinarian) has better job prospects. At the moment, despite working for four years, I do not have residency for the purposes of medical school admissions in the state I currently live.