Next steps? PhD student w/ almost no tax-advantaged space

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middistancerunner
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Next steps? PhD student w/ almost no tax-advantaged space

Post by middistancerunner » Fri Jan 02, 2015 6:31 pm

I recently started investing for retirement (in April 2014) and until now I have focused on filling up my Roth IRA for 2013 and 2014. I just met that goal yesterday! Unfortunately, I am a PhD student, which means I have both a low income and almost no tax advantaged space. While in 2013/2014 administrative details have meant that I have had earned income and thus can at least contribute to a Roth, in 2015 I may have under $1000 in earned income that qualifies for a Roth. I'm currently saving almost half of my income, so I'm not sure what to do with the remaining savings beyond sticking them in a high-yield savings account. So I'm considering opening a taxable brokerage account and am seeking advice on that, or any other ideas given my situation.

Overview

Emergency funds: 6 months
Debt: Absolutely none
Tax filing status: Single
Marginal tax rate (federal): 15%. Note that I only pay federal income tax, not social security or medicare.
Marginal tax rate (state): 5.25%
State of residence: MA
Age: 29
Desired Asset Allocation: 80% stocks, 20% bonds
Desired International Allocation: 20-30%

Current Retirement Assets

Roth IRA at Vanguard
100% Vanguard LifeStrategy Growth Fund Investor Shares (VASGX, ER=.17%)

Defined-benefit pension plan from prior employer (pre-tax), with cash value
Cash value accumulates interest each year according to the following formula: 75% weighting given to the Barclays Capital Aggregate Bond Index and a 25% weighting given to the Russell 3000 Index. Rates are bounded between 0 and 15% per year. Has done very well over the past years, given it is a riskless investment, but I cannot add additional contributions. I ignore this fund when thinking about my allocations below, because it's small and weird and I can't add to it.

Total portfolio: between $10,000 and $20,000

New contributions

$458.33 to Roth IRA for first 2-4 months of 2015, depending on earned income
~$1000 per month available in total to save/invest

Available funds

No restrictions (no 401k) - would probably prefer to keep my accounts at Vanguard. Relevant funds for the purposes of this post are:

Vanguard LifeStrategy Growth Fund Investor Shares (VASGX, ER=0.17%)

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX, ER=0.05%)
Vanguard Total Stock Market Index Fund Investor Shares (VTSMX, ER=0.17%)

Vanguard Total International Stock ETF (VXUS, ER=0.14%)

Vanguard Total Bond Market ETF (BND, ER=0.08%)
Vanguard Total Bond Market Index Fund Investor Shares (VBMFX, ER=0.20%)

Questions on how to proceed

-My current thought is that I should open up a taxable brokerage account at Vanguard and proceed basically as I have been in terms of investing 80/20. As such, I have to consider tax efficiency/placement issues for the first time.

To do this I'd have to put $3000 in a money market fund to start (due to the account opening minimum). I'd leave that in cash, and then on a monthly basis purchase ETFs out of that with $500-$1000, depending on how much I have first been able to contribute to the Roth.

I'm thinking I'd use the taxable account to buy international stocks (Vanguard Total International Stock ETF, VXUS) and bonds (Vanguard Total Bond Market ETF, BND). After a few months I'd convert my Roth to Vanguard Total Stock Market (VTSAX), except for $3000 in Vanguard Total Bond Market (VBMFX). Hopefully I'd have enough to meet the bond fund minimum and also buy admiral shares of VTSAX. I'd then use additional contributions to both Roth and Taxable accounts to rebalance back to 80/20 overall.

TL;DR - Under this plan, I'd hold domestic stocks in Roth, bonds in both Roth and taxable, and international stocks in taxable. Does this make sense?

-A completely different option would be to simply use my extra $500-$1000 per month to put into I-Bonds. I could convert the Roth to 100% total stock market, so it would take me a few months or perhaps half the year to have purchased enough bonds to get to 80/20. I don't know what I would do after that - maybe open a taxable brokerage account then. It's hard to get excited about this plan because of current interest rates - it seems more appealing to leave the money in Ally at 1%, where it is liquid.

-I could just not bother with any of this right now, just put what I can into a Roth and the rest into savings, and wait until my income rises (dramatically, likely at least 4X my current income) in 1.5 years, and I know more about my future.

-I know these are all really small amounts by the standards of this forum, but I hope you all can provide some wisdom. :happy My main concern is getting myself set up well now when I don't have much money, so that I don't mess things up for future-me. I'm not sure how to plan for the dramatic increase in anticipated income, and my future tax situation. Any advice on that point is very welcome.

livesoft
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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by livesoft » Fri Jan 02, 2015 6:41 pm

If your income is low, then you do not have to consider tax efficiency in a taxable account. Just use a LifeStrategy like you would use in your Roth. When the value gets up to $50K or so, come back and ask some questions.

And even if the value gets to $50K, you will probably want to use it for vacations, a vehicle, future retirement plan contributions, wedding, home purchase, etc.

I like to think of my early accounts and funds when I was a graduate student to be like the early leaves and branches of a sapling oak tree. You know how trees grow, right? None of those old leaves and branches last more than a season or a few years. OTOH, your Roth IRA is part of the roots of that portfolio tree and will be there through thick and thin.
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dodecahedron
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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by dodecahedron » Fri Jan 02, 2015 6:53 pm

You have three semesters to go? You could invest some money in Colorado's 529 plan for some of your fixed income allocation.

The Colorado 529 plan has a stable value fund from MetLife which is paying 3.09% guaranteed through the end of 2015 and you can make withdrawals of your contributions and earnings tax free to pay for your living expenses during the remainder of your graduate studies. (If you are living on campus, that would be the room and board fees you pay to the university. If you are living off campus, your tax free withdrawal is limited to the amount of money that your university's financial budget estimates for housing and food for an offcampus grad student or the amount you actually pay, whichever is less.)

I assume you are not paying tuition (since most PhD students are supported by tax free tuition stipends) but if by any chance you do have to pay any part of your tuition or *required* enrollment fees, then those could also be funded from your 529.

You do not want to OVER fund your 529, since amounts beyond what you need for the qualifying education expenses described above will incur a penalty (except that, of course, you could hold onto the excess and change the beneficiary to your future children or any other close relative you might care to help out in the future.)

Your 529 is full liquid and far more accessible and flexible than an ibond. And as long as you don't put in an amount that grows to more than your allowable education expenses, your distributions will be tax free. Operationally, this means that you invest the money now, and if you want you can leave it to grow all year at 3.09%. In early December, figure out how much your allowable eligible living expenses for 2015 were and withdraw that amount to reimburse yourself for those expenses. Leave the rest in to grow until the end of 2016 if you like and at the end of 2016 you make a similar calculation of your eligible living expenses during grad school and reimburse yourself for that. (In a budget pinch, you can reimburse yourself earlier in the year, but then you lose the benefit of later months of tax free growth at 3.09%)

middistancerunner
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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by middistancerunner » Fri Jan 02, 2015 7:13 pm

dodecahedron wrote:You have three semesters to go? You could invest some money in Colorado's 529 plan for some of your fixed income allocation.

The Colorado 529 plan has a stable value fund from MetLife which is paying 3.09% guaranteed through the end of 2015 and you can make withdrawals of your contributions and earnings tax free to pay for your living expenses during the remainder of your graduate studies. (If you are living on campus, that would be the room and board fees you pay to the university. If you are living off campus, your tax free withdrawal is limited to the amount of money that your university's financial budget estimates for housing and food for an offcampus grad student or the amount you actually pay, whichever is less.)

I assume you are not paying tuition (since most PhD students are supported by tax free tuition stipends) but if by any chance you do have to pay any part of your tuition or *required* enrollment fees, then those could also be funded from your 529.

You do not want to OVER fund your 529, since amounts beyond what you need for the qualifying education expenses described above will incur a penalty (except that, of course, you could hold onto the excess and change the beneficiary to your future children or any other close relative you might care to help out in the future.)

Your 529 is full liquid and far more accessible and flexible than an ibond. And as long as you don't put in an amount that grows to more than your allowable education expenses, your distributions will be tax free.
Huh! This is super interesting. Thank you! I hadn't thought of this and will have to do some more reading to figure out whether it is worth it. Fortunately, as you guessed, I'm at the point in my life where the university pays me to go to school, not vice-versa :D. I actually do not have any housing costs at all (university-provided and free in exchange for some academically-oriented mentorship of undergrads) but obviously do still eat and have a small ancillary school fee (~$300 per year). Apparently my university estimates it costs me a little under $5k per academic year to eat, so I could feasibly put in $5000 (or a bit more if I can count summer).

aznkaz
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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by aznkaz » Fri Jan 02, 2015 7:27 pm

I would double check to make sure you don't have access to a 403b. I'm in grad school with a TA appointment and I can contribute to a 403b. If you have a fellowship I don't think you would have access to one.

middistancerunner
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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by middistancerunner » Fri Jan 02, 2015 7:30 pm

aznkaz wrote:I would double check to make sure you don't have access to a 403b. I'm in grad school with a TA appointment and I can contribute to a 403b. If you have a fellowship I don't think you would have access to one.
No, definitely have looked into this. Sadly we aren't eligible for any of the retirement plans, even if we have an RA or TA appointment.

blastoff
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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by blastoff » Fri Jan 02, 2015 9:43 pm

First - everyone here needs to know silly this policy is. It is a real problem. Grad students and post-docs NEED to be paid earned income, but often are not. It is possible to have a situation where being awarded "prestigious" research fellowship or grant from Uncle Sam actually costs the recipient money in the form of removing access to tax-advantaged space.

Actual advice:
- You will almost certainly not be eligible for the "real" retirement plan with university match. However, you may have access to tax advantaged space via 403/457 if you do have earned income. Make sure you have inquired about the correct thing.
- Start a taxable account, as you suggested. With such low income, you get free federal capital gains (up to 15% bracket). You'll likely have to pay state tax, but federal is still free. I would open a taxable account, keep saving, tax harvest gains at end of each year, and graduate with no capital gains as you have upped the basis by selling/re-buying. Make sense?
- You could consider getting a side job with earned income.
- Is this all for "retirement"? You might also want to consider future house payment, car, that may be 5 or so years off? This might effect your allocation? Just make sure you have considered this.
- In the broader picture, grad school pay is peanuts. It is good that you are saving (a lot even!), unlike many. But remember that this period is an investment in yourself, and your future. Don't be financially stupid, but don't kill yourself to save an extra $325.... that is chump change relative to whether you get another two papers out, graduate sooner, and get a "real job" paying real money sooner. Do awesome at school, and save money and live well within your means, but I wouldn't sweat tax efficiency at this point...

Best of luck.

middistancerunner
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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by middistancerunner » Sat Jan 03, 2015 1:20 pm

blastoff wrote:First - everyone here needs to know silly this policy is. It is a real problem. Grad students and post-docs NEED to be paid earned income, but often are not. It is possible to have a situation where being awarded "prestigious" research fellowship or grant from Uncle Sam actually costs the recipient money in the form of removing access to tax-advantaged space.
Agreed, and this is indeed my situation. I can't complain too much though as in my case it is in fact in effect a better financial deal (no TA/RA obligations during years I'm paid by the fellowship, which has monetary value in the form of opportunity to build human capital...) I can't imagine being in this situation as a post-doc, though, and having financial purgatory continue indefinitely. Yikes.
Actual advice:
- You will almost certainly not be eligible for the "real" retirement plan with university match. However, you may have access to tax advantaged space via 403/457 if you do have earned income. Make sure you have inquired about the correct thing.
Unfortunately, we are explicitly excluded (graduate students in general, and people with TA/RA funding explicitly as well). We also are explicitly excluded from things like dental insurance :( And my university is hardly poor.
- Start a taxable account, as you suggested. With such low income, you get free federal capital gains (up to 15% bracket). You'll likely have to pay state tax, but federal is still free. I would open a taxable account, keep saving, tax harvest gains at end of each year, and graduate with no capital gains as you have upped the basis by selling/re-buying. Make sense?
Thanks for this. It had not occurred to me that I should take advantage of my low bracket to tax gains harvest while I can, though it makes perfect sense now that you say it :)
- In the broader picture, grad school pay is peanuts. It is good that you are saving (a lot even!), unlike many. But remember that this period is an investment in yourself, and your future. Don't be financially stupid, but don't kill yourself to save an extra $325.... that is chump change relative to whether you get another two papers out, graduate sooner, and get a "real job" paying real money sooner. Do awesome at school, and save money and live well within your means, but I wouldn't sweat tax efficiency at this point...
This is what I feel I need to keep reminding myself. I realize given my particular context none of what I am doing financially right now will matter much. So I'm trying to use this period as a learning period to set myself up well, but not go overboard. I do feel I've learned a lot of habits (much better command of where my money is going) that I'm happy to have learned now rather than later. I'm hopeful I'll be able to avoid a high-earner paycheck-to-paycheck situation, which is something that I might have fallen into if I'd started earning a lot of money a few years ago.
- Is this all for "retirement"? You might also want to consider future house payment, car, that may be 5 or so years off? This might effect your allocation? Just make sure you have considered this.
I struggle with answering this question, but it definitely is relevant. Presumably there will be something big that I need money for in the nearer term. But my wants/aspirations are somewhat minimal - I aspire to never own a car (such a pain) and I have severe reservations about owning my residence versus renting. What I do want (travel, kids) I should be able to cash-flow with a higher income. So I'm not totally sure what I would want money for sooner, though it seems logical that I would want it for something.

Thanks for the detailed and insightful comment!

blastoff
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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by blastoff » Sat Jan 03, 2015 1:30 pm

With respect to grad school pay and savings:
To be clear... I think it's still very important to live below your means, and save a decent percentage. It is possible to save a respectable amount in grad school so long as you have fairly low rent and don't buy new cars. However, my point is that you shouldn't handicap yourself unnecessarily. Saving 30-40% of your income is really good, especially with such little pay in the first place! If you can save 45% then great, but don't save the extra 5% if that winds up costing you job performance. e.g. Say you could live another 2 miles away and that would save a little rent but the time on the bus and getting to and from would really cost you a lot of productivity... probably not worth it.

With respect to harvesting gains:
Make sure they are LONG term.

Glad anything I said may have helped.

middistancerunner
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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by middistancerunner » Sat Jan 03, 2015 1:41 pm

blastoff wrote:With respect to grad school pay and savings:
To be clear... I think it's still very important to live below your means, and save a decent percentage. It is possible to save a respectable amount in grad school so long as you have fairly low rent and don't buy new cars. However, my point is that you shouldn't handicap yourself unnecessarily. Saving 30-40% of your income is really good, especially with such little pay in the first place! If you can save 45% then great, but don't save the extra 5% if that winds up costing you job performance. e.g. Say you could live another 2 miles away and that would save a little rent but the time on the bus and getting to and from would really cost you a lot of productivity... probably not worth it.

Glad anything I said may have helped.
Got it. Yes, I agree wholeheartedly. Thank you!

With respect to your edit:
blastoff wrote: With respect to harvesting gains:
Make sure they are LONG term.
Good point. Does that mean I've screwed up by waiting to open the account until this year? If I only have 2015 when I'm in a very low bracket (in theory, 2016 will possibly be a mixture of low and high income) and long term gains are greater than one year of gains.... that seems tricky.

DVMResident
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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by DVMResident » Sat Jan 03, 2015 2:04 pm

Good advice thus far. Want to make a couple points:

-Stipends are not tax free, though after deduction and Lifetime Learning credits, tax lability can be very low, even near zero.

-IRA contributions can only come from earned income. Stipends are generally not earned income. You will know if your stipend is earned or unearned by the way it's reported: earned will be reported on a W-2 while unearned will be reported on a 1098T. It is possible to have a mix. I received both earned and unearned (earns salary in the summer months), which allowed for IRA contributions. Being married may also give you access via spousal contributions.

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dodecahedron
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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by dodecahedron » Sat Jan 03, 2015 2:21 pm

middistancerunner wrote:
blastoff wrote:With respect to grad school pay and savings:
To be clear... I think it's still very important to live below your means, and save a decent percentage. It is possible to save a respectable amount in grad school so long as you have fairly low rent and don't buy new cars. However, my point is that you shouldn't handicap yourself unnecessarily. Saving 30-40% of your income is really good, especially with such little pay in the first place! If you can save 45% then great, but don't save the extra 5% if that winds up costing you job performance. e.g. Say you could live another 2 miles away and that would save a little rent but the time on the bus and getting to and from would really cost you a lot of productivity... probably not worth it.

Glad anything I said may have helped.
Got it. Yes, I agree wholeheartedly. Thank you!

With respect to your edit:
blastoff wrote: With respect to harvesting gains:
Make sure they are LONG term.
Good point. Does that mean I've screwed up by waiting to open the account until this year? If I only have 2015 when I'm in a very low bracket (in theory, 2016 will possibly be a mixture of low and high income) and long term gains are greater than one year of gains.... that seems tricky.
Well, even though it may be too late for tax gain harvesting in 2015, at least any qualified dividends you receive on your equity investments held in your taxable account will be taxed at a zero federal tax rate in 2015, so all is not completely lost. And you might have tax loss harvesting opportunities in the future when your income is higher.

Don't let the perfect be the enemy of good. The most important thing is that you clearly have frugal living and savings habits. *That* is going to pay dividends (tax free!) throughout your whole life.

You are way ahead of the game as far as I am concerned. When my late husband and I finished our PhDs 35 years ago, we had pretty close to zero in savings of any sort and certainly zero in tax advantaged. Tax advantaged plans weren't even on our radar screen until after we finished our PhDs. The 403b in our first jobs as assistant professors had only high expense annuities from VALIC available. (Ugh!) Tax rates were high, inflation was high, and IRAs were not available to us at the time. We were focused on saving for a down payment on a home (good move in those inflationary days) and didn't get around to starting to think seriously about retirement until after we bought our home (5 years after our PhD.) By then, fortunately, we had better 403b and IRA options available to us.

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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by epilnk » Sat Jan 03, 2015 10:55 pm

Don't worry about it. Your income is presumably low enough that the advantage of tax advantaged space is minimal. Focus on tax efficiency for now. Max your Roth and put the spillover into TSM or TI.

I had to postpone grad school for financial reasons, so couldn't save at all (other than e-fund) from my first post-college job. Then came grad school and a postdoc which meant my tax advantaged accounts were pocket change sized until I was 35, married to a guy not far ahead of me. Then we both went to work for a start up that paid a real salary but had no 401k plan. Eventually the company started one but with no match. Later the husband moved to a job with real benefits but I stayed home with the kids, so just the IRA for me. You get the picture. Tax deferred never caught up to our savings.

Currently 15-20% of our portfolio is tax advantaged, in our mid 50s, but we are well ahead of our retirement goals. I have been very happy with the performance of our "Taxable Ted" portfolio, in which the bond portion is half tax deferred and half muni. Sure, it would be better to have more tax deferred space, but it's hardly a tragedy. I'm not paying 401k fees on the equity portion (TSM, TI, and tax managed small cap), taxes are not bad at all, and during the downturn of 2008 I learned a lot about the joys of tax loss harvesting, which definitely took a lot of the sting out of the equity crash.

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Re: Next steps? PhD student w/ almost no tax-advantaged spac

Post by Caduceus » Sun Jan 04, 2015 3:11 am

If your income is going to be high, you will probably end up maxing out tax-advantaged space and saving in taxable accounts as well, so why not just open up a taxable account at Vanguard (where you already have your investments)?

It seems like you'll only lose Roth space for this year. Some possibilities would be to do paid internships over the summer that would count as earned income, take one of those "sitting" jobs one or two nights a week that schools tend to have for students that also allow you to get your own work done (might increase your Roth space by $1,000), or even set up your own Solo Roth 401(k) plan and do side work during the summer (this depends obviously on whether you are paid by your school in the summer, and the rules stipulating if you can work outside of graduate study if you receive funding.) Different departments and even different students within the same department might be funded differently.

My own vote would be to focus on graduating as quickly as you can, start a taxable account, and if "losing" the Roth space really matters so much to you, work 4-5 hours a week at some school job that would probably bump up your Roth contribution limit in total to about $2,500.

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Re: Next steps? PhD student w/ almost no tax-advantaged space

Post by ps56k » Fri May 08, 2015 5:06 pm

Our son is following the PhD path and is receiving about $30k for TA + Research.

Our problem is that I still have about $30k left in his Illinois BrightStart 529 plan.
Since he's not really a student anymore, I'm currently stuck with the $30k...
SO - will have to just sit on it... no other siblings...

He has a Schwab brokerage account,
and this year I also created a Vanguard Roth IRA - Target Date of 20xx -
since he had the full $5,500 earned income threshold last year.

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dodecahedron
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Re: Next steps? PhD student w/ almost no tax-advantaged space

Post by dodecahedron » Fri May 08, 2015 5:15 pm

ps56k wrote:Our son is following the PhD path and is receiving about $30k for TA + Research.

Our problem is that I still have about $30k left in his Illinois BrightStart 529 plan.
Since he's not really a student anymore, I'm currently stuck with the $30k...
SO - will have to just sit on it... no other siblings...
You have lots of options:

1) What do you mean he is not really a student any more? PhD students (or more generally anyone pursuing a graduate degree) are certainly students. You can distribute the money to your son tax and penalty free in amounts that do not exceed his room & board expenses (if he lives offcampus, as most grad students do, check with the financial aid office about the amount officially budgeted for such expenses.) If your son needs any textbooks or other required supplies and equipment for his course of student not covered by the TAX-FREE funds in his fellowship, you can also distribute those amounts tax and penalty free.

2) You or your spouse could always go back to school yourself (like me--I already have a PhD from 40 years ago, but I am enjoying part-time grad studies in a different field in my 60s).

3) Someday your son may give you grandchildren and you can switch the beneficiary designation to them.

4) If you have siblings, nieces, or nephews, you could also switch the beneficiary designations to them as well.

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ps56k
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Re: Next steps? PhD student w/ almost no tax-advantaged space

Post by ps56k » Fri May 08, 2015 5:38 pm

#1 - I seem to recall the qual for using the QTIP was that he had to be at least a 1/2 time student...
hmmmmm.... maybe the qual is for getting the "deduction" -
I'm just interested in getting the money out of the 529.
He has a couple of classes, but no tuition costs - no billing statement.

#2 - going back for anything... nah - been there - relaxing now

#3 - yes, know about the options - just lacking the girl -

#4 - yes- know about the switching to other family members....
but already fighting over real estate left by wife's parents from years ago...
Florida villa, Chicago downtown condos, rental warehouse, parents home, etc -
Last edited by ps56k on Fri May 08, 2015 5:56 pm, edited 1 time in total.

bcjb
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Re: Next steps? PhD student w/ almost no tax-advantaged space

Post by bcjb » Fri May 08, 2015 5:42 pm

I can certainly empathize, and I agree that stipends should be treated as regular earned income. The additional problem is that most PhDs, unlike most MDs, don't transition from their decade-long 'apprenticeship' to a job with truly spectacular earnings. So the decade or so (counting post-docs) of lost social security earnings, retirement savings, etc. really matters. Fortunately, you seem to be doing quite well, given the circumstances. (We had the additional problem of being foreign and unaware of Roth IRAs etc.) As far as advice goes, I think you should just focus on finishing up. You don't have much time left, and you're better off concentrating on getting the best possible job after graduation. That's a good professional strategy but also the one that will pay off most financially.
Last edited by bcjb on Wed May 13, 2015 8:40 am, edited 1 time in total.

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ps56k
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Re: Next steps? PhD student w/ almost no tax-advantaged space

Post by ps56k » Fri May 08, 2015 5:58 pm

bcjb wrote:I can certainly empathize, and I agree that stipends should be treated as regular earned income.
Our son received a W-2 for his PhD income via TA + Research -

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Re: Next steps? PhD student w/ almost no tax-advantaged space

Post by Afty » Fri May 08, 2015 7:14 pm

bcjb wrote:I think you should just focus on finishing up. You don't have much time left, and you're better off concentrating on getting the best possible job after graduation. That's a good professional strategy but also the one that will pay off most financially.
I was thinking the same thing. If you only have 1.5 years left, I don't think it's worth expending a lot of effort trying to optimize this. I would continue to put as much as you can into the Roth and open a taxable account with Lifestrategy Growth for what's left.

Some back-of-the-envelope calculations:

You're saving $12k/yr for 1.5 years = $18k
20% bonds * $18k = $3600
Vanguard Total Bond Market SEC Yield = 1.82% * $3600 * 1.5 = $98 in interest

So you're paying income tax on less than $98 of interest until you graduate, so maybe $30 of income tax.

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