Investing/Retirement while in grad school?

[Creffecreve]

Do any graduate students contribute money to IRAs or any other form of investment while in school? I really would like to start saving money now, but since I'm going straight to grad school from undergrad, and a lot of the options out there seem to be for people with income, I don't know where to start. Any ideas/suggestions?

[anthropologygeek]

Can you afford to? If you can then sure but most stipends are barely enough to live on.

[TakeruK]

I'm Canadian but we have similar programs. I chose to put my savings towards other more fluid forms of long term savings instead. There is a "tax free savings account" where you can put up to something like $5000 per year into it and all income derived from these accounts are non taxable. So I do this with my savings. If I was smarter, I could invest the money using this account and not pay capital gain taxes. 

 

However, a percentage of employment earned income (in Canada, this is TA and RA income but not fellowships) goes towards our Registered Retirement Savings Plan (RRSP) contribution per year, and any money put into this account that is under this cap gives you a tax break. Unused cap amounts are carried forward so I am purposely saving this cap until I make more money to end up in a higher tax bracket and then I will move money from my other savings into my retirement savings account in order to take advantage of the tax break I'll get for contributing to my retirement.

 

So, to answer your question, yes, I was able to save money and invest it during my MSc program. My PhD program has complications of my spouse not being able to work in the US so we haven't saved much money here (yet). However, I did not put it towards IRA-like programs because it makes more sense to put the money in a tax-free savings account first and then move them to Retirement savings programs later to take advantage of tax breaks.

[Igotnothin]

Great idea to start saving what you can as soon as possible. I am not aware of any American universities that offer retirement plans for graduate students, but there are other good options. An easy solution is to open a Roth IRA and contribute weekly or monthly towards an annual maximum of $5,500. You might consider the basic S&P 500 index fund from Vanguard (ticker VFINX). You can open an account through Vanguard and set up automatic investment through a checking account. One catch is that you typically need $1,000 or $3,000 initial investment for Vanguard's funds. It's $3,000 for VFINX, but $1,000 for other funds like the target 2050 retirement fund, VFIFX. You'll want to read up on Roth IRA's a bit first, but they seem to be a natural choice for grad students like us.

 

Another reason why applicants SHOULD consider the stipend when you choosing a grad school... $25k vs. $20k may be the difference between 0 investments and maximizing your Roth IRA

[raneck]

Be careful with IRA contributions, as those require you to have "earned income," which your stipend/fellowship may not count as. The rule of thumb is that if your pay is not reported in box 2 of a w-2 form, it is not earned income.

I currently have a Roth IRA through Vanguard.

Here's a helpful article for grad students looking at retirement investing:

http://www.evolvingpf.com/2012/03/earned-income/

Edited April 27, 2014 by raneck

[Creffecreve]

Thanks, everyone!

 

raneck: yes, I feel like most options I've looked at so far require earned income. 

I also looked at saving accounts with online banks that have a higher rate of interest, and that is a potential option.

 

The problem is that in addition to being a graduate student, I am also an international student (but I do have a SSN). So I am not even eligible for a lot of these options!

 

 

Can you afford to? If you can then sure but most stipends are barely enough to live on.

 

I think I should be able to save. My stipend is generous as stipends go, and I think I've been managing fine during my undergrad years. So yes, I'd like to start investing, instead of letting the money just lie in my account.

 

I just need to figure out how!

[danieleWrites]

Take it from an old lady. (Oldish, at least.) Start investing for retirement as soon as possible. Check with a bank you trust to see if they have IRAs that don't require significant contributions to start (like the IRAs invested in mutual funds or stocks might), and start sticking in 50 bucks a month. If you can't afford it some months (summers with no job? Ah!), you don't have to put money in.

The key here is to find out what IRA products are available with banking and/or investment firms you have reason to trust. Ask family friends and relatives who they IRA up with for names. Buying an IRA product is just like buying a car. You comparison shop.

[_ginger_]

If being an international student is a barrier to an IRA (it may be, I don't know), you should know that Vanguard (and others, I'm sure, but Vanguard has low fees) will allow you to open a "general purpose" investment account. You'll still need a minimum of $1000 to open it, and once you do that you can invest in a variety of mutual fund options, including some which are tailored towards young people aiming for retirement, such as the target 2050 retirement fund. Going this route will allow you to put money away towards retirement without some of the legal loopholes that might be associated with a formal IRA. The tradeoff is that you won't get the tax benefits of an IRA.

Edited May 15, 2014 by _ginger_

[TakeruK]

For international students, if you are not planning to stay in the US forever, I would recommend also/first looking into similar plans in your home country. For example, in my case, it makes way more sense for me to not actually contribute to a IRA/RRSP type plan until I return to Canada and can use it as a tax shelter. 

[raneck]

I use an online bank for cash holdings, since it gives a better rate than my brick and mortar local bank (0.9% vs. 0.35%). It can take a few days to ACH money back and forth, so I keep some extra cash in the local bank for emergencies. Time to access money is pretty much the only concern with online banks (so longs as they are FDIC).

[Amelorn]

Given the shoestring nature of grad student stipends, a standard brokerage account with a firm such as fidelity, schwab, e-trade etc will offer full trading as well as the ability to liquidate quickly in case life throws a (financial) curveball.  Further, if you have access to a firm's brick-and-mortar location, brokerage accounts with the firms I listed function like ordinary bank accounts: debit cards, credit cards, checking, bill-pay, etc.  Incidentally, if you are planning on travel, these accounts' debit cards are superb for foreign currency cash withdrawals.  

 

The tax benefits of holding money in an IRA account just aren't substantial enough when you're earning practically no earned income anyway.  The withdrawal penalties will sting if something goes wrong.  

 

Of course, if you have access to an unusual windfall (gifts, trust fund, inheritance), then my advice would be different.

 

Disclaimer: I am a Fidelity customer and (US citizen) overseas grad student.

[raneck]

Roth IRAs allow you to withdraw contributions without penalty.