Saving most of your stipend

[archphd]

Hi everyone

 

I decided to start a blog about how to save most of your hD stipend, focus on savings in a roth IRA, couponing, and paying off loans (all on your stipend!!).

 

Please see my blog at: http://fancycheapside.blogspot.com/

 

I'd appreciate the look! There's only two posts so far, but I feel like there should be a blog like this.

[Chasely]

Just so you know, if your stipend is part of a fellowship, it might not be "earned" income for tax purposes, and therefore would be unavailable for contributions into a Roth IRA. 

Chances are, if you don't pay social security or medicare taxes, you don't have "earned" income.

 

I'll also note that the amount of stipend depends a lot on your area of study. My stipend in engineering may be 50% higher than someone in say, history.

[raneck]

If income is reported on a w-2, it is earned income, otherwise you are out of luck.

2012 IRS Pub 590, pg 7

"Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2."

Edited August 27, 2013 by raneck

[juilletmercredi]

I think saving most of your stipend is likely not going to happen, unless you are living with someone who is covering most of your living expenses.

[TakeruK]

I agree with juilletmercredi -- my current goal is to be able to save ~10% of my stipend and contribute it to a Canadian Tax Free Savings account. I don't know where I will be retiring (but probably Canada), so I am not putting money in an IRA (or the Canadian equivalent) yet. The GIC term deposit interest rates in the tax free savings account just barely staves off inflation and when I have a "real job", I plan to use all of my RRSP (Canadian IRA?) contribution room as a tax shelter when I make real taxable income. I think the money I save from the tax shelter in the future will be worth the potential interest lost while I'm in grad school / post-doc (the interest rates are pretty crappy now anyways). Also, I will be able to claim every dollar spent on tuition while in the US (tuition waiver counts as money I spent since for Canadian tax purposes, it is considered income, but not luckily not taxed!) as tax credits when I move back to Canada! So, if all goes according to plan, I might not be able to save up a ton of money while in the US for school, but I should be able to save a modest chunk of my future income due to the tax credits

Edited August 28, 2013 by TakeruK

[mrmalawi]

I don't want to turn this into a an investment discussion but if you aren't able to tax shelter the funds in an IRA or similar vehicle abroad you could still put the money into a common brokerage account and get into a target date mutual fund which have low fees or similarly you could simply buy the market in a broad market ETF and a broad bond ETF.  You'd still have to pay taxes on the earned income but chances are you would offset that by capital appreciation and dividends.  As you said, interest rates suck right now and unless you need the money now (which it doesn't appear that you do since you were going to put it into an IRA) putting it away in a passive investment could be a good idea. 

[TakeruK]

I don't want to turn this into a an investment discussion but if you aren't able to tax shelter the funds in an IRA or similar vehicle abroad you could still put the money into a common brokerage account and get into a target date mutual fund which have low fees or similarly you could simply buy the market in a broad market ETF and a broad bond ETF.  You'd still have to pay taxes on the earned income but chances are you would offset that by capital appreciation and dividends.  As you said, interest rates suck right now and unless you need the money now (which it doesn't appear that you do since you were going to put it into an IRA) putting it away in a passive investment could be a good idea. 

 

This is a good point! Actually I can buy mutual funds with my Canadian Tax Free Savings Account and all income earned from those funds would also be tax-free in Canada. I guess "Tax Free Savings Account" is a bit of a misnomer because it is not limited to a traditional savings account at a bank, but instead, it refers to an account where we can buy mutual funds, GICs, RRSPs etc from and not pay taxes on the income earned.

 

My only worry with mutual funds is that I am unsure how I feel about the fact that mutual funds are not guaranteed. I understand that there are strategies / options that result in lower risk portfolios but I currently do not understand them yet. I'm mostly talking about the savings that we left in Canada when we moved south, which is not a huge amount. They are currently in a GIC (Guaranteed Investment Certificate) term deposit and the current difference between GIC interest rate and expected low-risk mutual funds performance isn't very much. So, even if we doubled the interest, the actual money difference is not very big. Still, this is something I plan to figure out soon (after quals, before graduation) and make better use of our savings!

[raneck]

Evolving Personal Finance http://www.evolvingpf.com/ is another good blog for grad student finances.

[mrmalawi]

Oh bother, I opened up another can of worms. 

 

http://www.bogleheads.org/ <---great, low-cost mutual funds.

 

Meeting with a fee only financial adviser could be a good move too.

 

Good luck!