Putting Aside Money For Grad School? 8
CapsaicinBoy asks: "Like many geeks, I'm just about to leave academia for a very lucrative position in the private sector. The thing is, I am planning of going back for my doctorate in few years. Hence my question: What is the best way to put aside money for future educational expenses? The IRS guidelines for Educational IRA's appear to be tailored for parents. I'd really like to find a way to put aside pre-tax dollars now for the lean years in future."
Re:Roth IRA (Score:1)
What do you need the money for? (Score:2)
If you've been accepted into just about any Ph.D. program in an engineering/CS school, your tuition is getting paid, and they're giving you money to live on (albeit not as much as you'd get at your lucrative start-up).
It sounds to me like what you want is a suggestion for "how to save money to maintain (some) lifestyle", not "how to save money to afford to attend graduate school." (Although, if you're that set on a particular lifestyle, the two may be synonomous.)
With "lifestyle maintenance" as an objective, here's my advice: A Roth IRA is a great deal for a retirement account, but you can only put $2000 per year in it. If you're planning on going back to graduate school soon -- when you're still current on the research -- that's not going to be enough, and it's not going to grow enough. If you're used to academia, you won't have any problem living on $30k/year and saving $50k, especially if you're single and have no kids. (That's assuming a fairly lean -- by industry standards -- salary.) Put that $50k in an index fund, or even a money market account. Be sure to check the penalties for early withdrawal. (That sounds pretty obscene, no?)
Good luck with the company, and if you're interested in databases, allow me to suggest an excellent program [wisc.edu] for your return to academia. (I may be a little biased, though.)
best,
~wog
An IRA won't work if your job is too lucrative (Score:2)
If you are hell-bent on robbing Peter to pay Paul and you want to raid your retirement, if you can set up a 401k with your employer because I believe (check this out to make sure) that you can withdrawl penalty-free for education with those too. However, the smart thing to do is to set up your IRA/401k now with your current job and contribute the maximum you are allowed and don't touch it until you are ready to retire. Remember the 8th wonder of the world: compounding interest!!! You'd be surprised how much difference there is starting your retirement savings in your early 20s vs. your early 30s.
If you are already saving for retirement and you are trying to save for grad school, good for you. If you are planning on going to grad school in a relatively short period of time (five years or so), then I doubt in terms of growth it makes a whole lot of difference where you put your money. The safe thing is in CDs or bonds because at least you know what you'll be getting.
Forget expenses... (Score:1)
(Speaking of which, credit-card interest is often very low for grad students--you fit the lender's "about to get in deep financial trouble, so entice with low-rate cards" profile. If you are careful, you can use this leverage to your advantage.)
Roth IRA (Score:2)
Re:Roth IRA (Score:2)
it's not hard (Score:1)
Now, suppose you get paid $75,000 (though your options can increase that number dramatically - go ORCL!). Subtract taxes - you're left with something like $50,000 (not sure, but all estimates here are rough; I don't think you can realistically avoid any significant amount from being taxed; all the 401k's and IRA's are very small per year, but accumulate over time). Subtract $20,000 for various expenses (housing, car, food, etc.) - so you're left with $30,000. Invest somewhere, and assuming this investment goes well you can have almost $10,000 per year extra in grad. school.... Which is nice.... If you also work during the summers while in grad. school, you can double that amount...
The real problem is that even during that one year you get really accustomed to the fucking-rich-yuppie (well, compared to grad. school anyway) lifestyle, and your expenses and desires go up, up, up... I don't know yet how hard it will be to go back to a more moderate lifestyle, but I think that with all the extra cash (see above) it shouldn't be a problem
Anyway, good luck (and maybe you'll join a great start-up and will retire by the time you go to grad. school)
my painful experience with Roth IRAs (Score:1)
In other words, to withdraw your earnings penalty free to use for first home, education, etc. you need to hold the account for the five year mark. Any money that you **put in** can be withdrawn.
So with all the hullaboo about the Roth being flexible, most of its advocates didn't mention that if you opened the account in 1998 you would have to wait to 2003 to get your earnings for "qualified purposes".