Investment/Financial Plan Advice

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ynotyese.7
Posts: 7
Joined: Wed Sep 05, 2018 5:46 pm

Investment/Financial Plan Advice

Post by ynotyese.7 » Wed Sep 05, 2018 6:06 pm

I am 23 yrs old and currently a grad student getting a master's degree in the helping professions, receiving a stipend (It is not earned income. I will not be receiving a W2 and it is not taxed). Luckily I have not accrued any student debt, and have saved upwards of 45K in my saving account. I have been reading about personal finance for the past 7 months and really need to get moving. I am working on a few things but have some questions that I need to assess before moving forward. I am in the helping professions and want to be realistic, knowing I may not make the must luxurious salary, and think being smart with my money can help me have flexibility and some independence in my life!! I don't want to let my career prospects get in my way of achieving financial independence/ sustainability! I am not sure where I will be living or working in the next year after graduating and even have the option of being funded for a PhD but being proactive with my finances wont hurt.
Here is where I am at...

-Moving money from Wells Fargo to Ally bank: checking and savings to increase interest
-Looking to open a Roth IRA with (Vanguard, Schwab, Fidelity?? I still don't know which to choose!): But, am currently on a stipend that does not count as "earned income" I do not get taxed when I receive it, but will pay taxes on it during tax season. I did have a job until May of 2018 and was thinking of contributing the $5500 limit from that. I asked Vanguard and Fidelity about this and they said it would be fine, but I know they would be happy to take my money and would like some objective advice. I would contribute to some index funds, I have only a general understanding of investing.
-Considering opening a taxable account to invest some more money. Index funds as well? I am trying to save at least 50%, as much as possible, of my stipend to contribute to my savings.

What advice would you have, or looking back what would you have done if you were in this situation?
Any suggestions would be most appreciated!! Thank you in advance.
Last edited by ynotyese.7 on Wed Sep 12, 2018 7:36 am, edited 1 time in total.

JoeRetire
Posts: 1496
Joined: Tue Jan 16, 2018 2:44 pm

Re: Investment/Financial Plan Advice

Post by JoeRetire » Wed Sep 05, 2018 6:59 pm

ynotyese.7 wrote:
Wed Sep 05, 2018 6:06 pm
Luckily I have not accrued any student debt
Congratulations!
How did you manage that?
I don't want to let my career prospects get in my way of achieving financial independence/ sustainability!
At your age, focusing on maximizing your career prospects should serve you best.
-Moving money from Wells Fargo to Ally bank: checking and savings to increase interest
-Looking to open a Roth IRA with (Vanguard, Schwab, Fidelity?? I still don't know which to choose!): But, am currently on a stipend that does not count as "earned income". I did have a job until May of 2018 and was thinking of contributing the $5500 limit from that. I asked Vanguard and Fidelity about this and they said it would be fine, but I know they would be happy to take my money and would like some objective advice. I would contribute to some index funds, I have only a general understanding of investing.
-Considering opening a taxable account to invest some more money. Index funds as well? I am trying to save at least 50%, as much as possible, of my stipend to contribute to my savings.
Sounds great!
At a young age, establishing great savings habits is key - far more so than worrying about the specifics of investing.

Once you are employed, hopefully you'll have access to a company-sponsored retirement plan with a company match. Make sure you take advantage of that. And consider just putting your money in a target date fund with a low fee, at least until you have learned more about investing.

You are off to a great start. I'm sure you'll do well!

megabad
Posts: 507
Joined: Fri Jun 01, 2018 4:00 pm

Re: Investment/Financial Plan Advice

Post by megabad » Thu Sep 06, 2018 2:50 pm

ynotyese.7 wrote:
Wed Sep 05, 2018 6:06 pm
-Moving money from Wells Fargo to Ally bank: checking and savings to increase interest Sounds good to me.
-Looking to open a Roth IRA with (Vanguard, Schwab, Fidelity?? I still don't know which to choose!): But, am currently on a stipend that does not count as "earned income". I did have a job until May of 2018 and was thinking of contributing the $5500 limit from that. I asked Vanguard and Fidelity about this and they said it would be fine, but I know they would be happy to take my money and would like some objective advice. I would contribute to some index funds, I have only a general understanding of investing. Any of the 3 custodians you mentioned are fine and provide a selection of low cost index funds. If you have over $5500 in earned income from your other job this year (I assume it was a W2 job), I would definitely contribute $5500 to your Roth IRA this year.
-Considering opening a taxable account to invest some more money. Index funds as well? I am trying to save at least 50%, as much as possible, of my stipend to contribute to my savings. Assuming you do not need the money soon, this sounds good to me. If you need some of the money when you graduate (ie. if you need a car or if you want to buy a house) than I might keep some or all of it in the savings account since you are likely only a year away from graduation.

What advice would you have, or looking back what would you have done if you were in this situation?
Devote 110% to the job search (start ASAP if you have not already). You are very blessed to be coming out in the current economic environment (assuming you are coming out soon and the economy is stable short term), but it is very important where you start your career for both happiness and financial prospects. Become an expert at interviewing if you are not already. These are things that I wish I had devoted more time to years ago.
Any suggestions would be most appreciated!! Thank you in advance.

billfromct
Posts: 720
Joined: Tue Dec 03, 2013 9:05 am

Re: Investment/Financial Plan Advice

Post by billfromct » Thu Sep 06, 2018 4:25 pm

Are you sure the stipend is not taxable income?

My daughter goes to grad school, gets a stipend/salary (I think she was told it was a stipend to cover her living expenses), pays Federal & state income taxes on the stipend/income. She gets a W-2 from the university & the money paid to her is reported in box 1, as "Wages, tips, other comp." The university also withholds SS & Medicare taxes. She also does research for the university so maybe they consider the "stipend" payment for her research activity.

She is able to fund a Roth IRA since she has "earned income" listed in Box 1 "wages, tips, other comp." of the W2 she receives.

I believe that stipends are considered taxable income.

Do you get the "stipend" monthly or all at once at the beginning on the semester?

Check your pay stub to see if Federal & state taxes are withheld & if SS and Medicare is taken out.

I'm not a tax expert, just a dad looking at his daughter's W2 from the university where she goes to grad school.

bill
Last edited by billfromct on Thu Sep 06, 2018 4:29 pm, edited 1 time in total.

SelfEmployed123
Posts: 164
Joined: Sun Apr 15, 2018 8:57 pm

Re: Investment/Financial Plan Advice

Post by SelfEmployed123 » Thu Sep 06, 2018 4:27 pm

ynotyese.7 wrote:
Wed Sep 05, 2018 6:06 pm
I am 23 yrs old and currently a grad student getting a master's degree in the helping professions, receiving a stipend. Luckily I have not accrued any student debt, and have saved upwards of 45K in my saving account. I have been reading about personal finance for the past 7 months and really need to get moving. I am working on a few things but have some questions that I need to assess before moving forward. I am in the helping professions and want to be realistic, knowing I may not make the must luxurious salary, and think being smart with my money can help me have flexibility and some independence in my life!! I don't want to let my career prospects get in my way of achieving financial independence/ sustainability! I am not sure where I will be living or working in the next year after graduating and even have the option of being funded for a PhD but being proactive with my finances wont hurt.
Here is where I am at...

-Moving money from Wells Fargo to Ally bank: checking and savings to increase interest
-Looking to open a Roth IRA with (Vanguard, Schwab, Fidelity?? I still don't know which to choose!): But, am currently on a stipend that does not count as "earned income". I did have a job until May of 2018 and was thinking of contributing the $5500 limit from that. I asked Vanguard and Fidelity about this and they said it would be fine, but I know they would be happy to take my money and would like some objective advice. I would contribute to some index funds, I have only a general understanding of investing.
-Considering opening a taxable account to invest some more money. Index funds as well? I am trying to save at least 50%, as much as possible, of my stipend to contribute to my savings.

What advice would you have, or looking back what would you have done if you were in this situation?
Any suggestions would be most appreciated!! Thank you in advance.
Wow! You are getting started early. Good for you! Moving your 45k into a high yield savings account is a great idea. There is no reason you shouldn't be earning 1.5% or more on that sum. What is your plan for that money? If you are going to open a taxable brokerage account, the general recommendation is do not invest in stocks if you need the money less than 5 years from now. Be prepared that if you invest your holdings may go up and down significantly in value in the short term. I'd recommend you read JL Collin's Stock Series for more: https://jlcollinsnh.com/stock-series/

As for your Roth, I would recommend Vanguard. They have a great line of funds. There are lots of Vanguard fans on this forum for various reasons. Vanguard was the first firm to create the index fund back in the 1970s. Also, Vanguard is the only firm owned by shareholders instead of separate investors. This structure is unique in the industry and eliminates a major source of conflict of interest (which is rampant in the investing world).. If you are not sure whether to invest in index funds, I recommend you read the Three Fund Portfolio by Taylor Larimore: https://www.amazon.com/Bogleheads-Guide ... 1119487331. The various Bogleheads wikis are also very helpful. No reason you can't learn this stuff yourself.

As for your work in the helping professions, I am a psychologist in private practice. Please feel free to message me if you have any questions.

megabad
Posts: 507
Joined: Fri Jun 01, 2018 4:00 pm

Re: Investment/Financial Plan Advice

Post by megabad » Thu Sep 06, 2018 5:05 pm

billfromct wrote:
Thu Sep 06, 2018 4:25 pm
Are you sure the stipend is not taxable income?

My daughter goes to grad school, gets a stipend/salary (I think she was told it was a stipend to cover her living expenses), pays Federal & state income taxes on the stipend/income. She gets a W-2 from the university & the money paid to her is reported in box 1, as "Wages, tips, other comp." The university also withholds SS & Medicare taxes. She also does research for the university so maybe they consider the "stipend" payment for her research activity.

She is able to fund a Roth IRA since she has "earned income" listed in Box 1 "wages, tips, other comp." of the W2 she receives.

I believe that stipends are considered taxable income.

Do you get the "stipend" monthly or all at once at the beginning on the semester?

Check your pay stub to see if Federal & state taxes are withheld & if SS and Medicare is taken out.

I'm not a tax expert, just a dad looking at his daughter's W2 from the university where she goes to grad school.

bill
Just to note, while OP should indeed check if there is a W2 and make sure, many graduate fellowships are not considered W2 income. This is a separate issue altogether from paying income taxes on said fellowships/stipends. So to clarify, Roth IRA eligibility in this case may have little to do with actual "taxable" income. This issue can be confusing especially given the fact that there was proposed legislation that would have fixed this graduate student issue.

ynotyese.7
Posts: 7
Joined: Wed Sep 05, 2018 5:46 pm

Re: Investment/Financial Plan Advice

Post by ynotyese.7 » Wed Sep 12, 2018 7:41 am

billfromct wrote:
Thu Sep 06, 2018 4:25 pm
Are you sure the stipend is not taxable income?

My daughter goes to grad school, gets a stipend/salary (I think she was told it was a stipend to cover her living expenses), pays Federal & state income taxes on the stipend/income. She gets a W-2 from the university & the money paid to her is reported in box 1, as "Wages, tips, other comp." The university also withholds SS & Medicare taxes. She also does research for the university so maybe they consider the "stipend" payment for her research activity.

She is able to fund a Roth IRA since she has "earned income" listed in Box 1 "wages, tips, other comp." of the W2 she receives.

I believe that stipends are considered taxable income.

Do you get the "stipend" monthly or all at once at the beginning on the semester?

Check your pay stub to see if Federal & state taxes are withheld & if SS and Medicare is taken out.

I'm not a tax expert, just a dad looking at his daughter's W2 from the university where she goes to grad school.

bill
Bill,
I will not be receiving a W2 so it is not considered earned income. From what I know, I will be taxed on it but not until I file my taxes. This is not a research assistanship, although I do receive it monthly. I also reviewed the pay stub and it does not show that any taxes were withheld.

ynotyese.7
Posts: 7
Joined: Wed Sep 05, 2018 5:46 pm

Re: Investment/Financial Plan Advice

Post by ynotyese.7 » Wed Sep 12, 2018 5:46 pm

megabad wrote:
Thu Sep 06, 2018 5:05 pm
billfromct wrote:
Thu Sep 06, 2018 4:25 pm
Are you sure the stipend is not taxable income?

My daughter goes to grad school, gets a stipend/salary (I think she was told it was a stipend to cover her living expenses), pays Federal & state income taxes on the stipend/income. She gets a W-2 from the university & the money paid to her is reported in box 1, as "Wages, tips, other comp." The university also withholds SS & Medicare taxes. She also does research for the university so maybe they consider the "stipend" payment for her research activity.

She is able to fund a Roth IRA since she has "earned income" listed in Box 1 "wages, tips, other comp." of the W2 she receives.

I believe that stipends are considered taxable income.

Do you get the "stipend" monthly or all at once at the beginning on the semester?

Check your pay stub to see if Federal & state taxes are withheld & if SS and Medicare is taken out.

I'm not a tax expert, just a dad looking at his daughter's W2 from the university where she goes to grad school.

bill
Just to note, while OP should indeed check if there is a W2 and make sure, many graduate fellowships are not considered W2 income. This is a separate issue altogether from paying income taxes on said fellowships/stipends. So to clarify, Roth IRA eligibility in this case may have little to do with actual "taxable" income. This issue can be confusing especially given the fact that there was proposed legislation that would have fixed this graduate student issue.
Correct, I will not be receiving a W2

ynotyese.7
Posts: 7
Joined: Wed Sep 05, 2018 5:46 pm

Re: Investment/Financial Plan Advice

Post by ynotyese.7 » Wed Sep 12, 2018 5:49 pm

megabad wrote:
Thu Sep 06, 2018 2:50 pm
ynotyese.7 wrote:
Wed Sep 05, 2018 6:06 pm
-Moving money from Wells Fargo to Ally bank: checking and savings to increase interest Sounds good to me.
-Looking to open a Roth IRA with (Vanguard, Schwab, Fidelity?? I still don't know which to choose!): But, am currently on a stipend that does not count as "earned income". I did have a job until May of 2018 and was thinking of contributing the $5500 limit from that. I asked Vanguard and Fidelity about this and they said it would be fine, but I know they would be happy to take my money and would like some objective advice. I would contribute to some index funds, I have only a general understanding of investing. Any of the 3 custodians you mentioned are fine and provide a selection of low cost index funds. If you have over $5500 in earned income from your other job this year (I assume it was a W2 job), I would definitely contribute $5500 to your Roth IRA this year.
-Considering opening a taxable account to invest some more money. Index funds as well? I am trying to save at least 50%, as much as possible, of my stipend to contribute to my savings. Assuming you do not need the money soon, this sounds good to me. If you need some of the money when you graduate (ie. if you need a car or if you want to buy a house) than I might keep some or all of it in the savings account since you are likely only a year away from graduation.

What advice would you have, or looking back what would you have done if you were in this situation?
Devote 110% to the job search (start ASAP if you have not already). You are very blessed to be coming out in the current economic environment (assuming you are coming out soon and the economy is stable short term), but it is very important where you start your career for both happiness and financial prospects. Become an expert at interviewing if you are not already. These are things that I wish I had devoted more time to years ago.
Any suggestions would be most appreciated!! Thank you in advance.
Thank you for the suggestions, I will have to go back and see how much I would need to set aside to keep in a savings account and what I can put in a taxable investment account. I am definitely going to think and work hard to increase my career prospects!

ynotyese.7
Posts: 7
Joined: Wed Sep 05, 2018 5:46 pm

Re: Investment/Financial Plan Advice

Post by ynotyese.7 » Wed Sep 12, 2018 5:53 pm

SelfEmployed123 wrote:
Thu Sep 06, 2018 4:27 pm
ynotyese.7 wrote:
Wed Sep 05, 2018 6:06 pm
I am 23 yrs old and currently a grad student getting a master's degree in the helping professions, receiving a stipend. Luckily I have not accrued any student debt, and have saved upwards of 45K in my saving account. I have been reading about personal finance for the past 7 months and really need to get moving. I am working on a few things but have some questions that I need to assess before moving forward. I am in the helping professions and want to be realistic, knowing I may not make the must luxurious salary, and think being smart with my money can help me have flexibility and some independence in my life!! I don't want to let my career prospects get in my way of achieving financial independence/ sustainability! I am not sure where I will be living or working in the next year after graduating and even have the option of being funded for a PhD but being proactive with my finances wont hurt.
Here is where I am at...

-Moving money from Wells Fargo to Ally bank: checking and savings to increase interest
-Looking to open a Roth IRA with (Vanguard, Schwab, Fidelity?? I still don't know which to choose!): But, am currently on a stipend that does not count as "earned income". I did have a job until May of 2018 and was thinking of contributing the $5500 limit from that. I asked Vanguard and Fidelity about this and they said it would be fine, but I know they would be happy to take my money and would like some objective advice. I would contribute to some index funds, I have only a general understanding of investing.
-Considering opening a taxable account to invest some more money. Index funds as well? I am trying to save at least 50%, as much as possible, of my stipend to contribute to my savings.

What advice would you have, or looking back what would you have done if you were in this situation?
Any suggestions would be most appreciated!! Thank you in advance.
Wow! You are getting started early. Good for you! Moving your 45k into a high yield savings account is a great idea. There is no reason you shouldn't be earning 1.5% or more on that sum. What is your plan for that money? If you are going to open a taxable brokerage account, the general recommendation is do not invest in stocks if you need the money less than 5 years from now. Be prepared that if you invest your holdings may go up and down significantly in value in the short term. I'd recommend you read JL Collin's Stock Series for more: https://jlcollinsnh.com/stock-series/

As for your Roth, I would recommend Vanguard. They have a great line of funds. There are lots of Vanguard fans on this forum for various reasons. Vanguard was the first firm to create the index fund back in the 1970s. Also, Vanguard is the only firm owned by shareholders instead of separate investors. This structure is unique in the industry and eliminates a major source of conflict of interest (which is rampant in the investing world).. If you are not sure whether to invest in index funds, I recommend you read the Three Fund Portfolio by Taylor Larimore: https://www.amazon.com/Bogleheads-Guide ... 1119487331. The various Bogleheads wikis are also very helpful. No reason you can't learn this stuff yourself.

As for your work in the helping professions, I am a psychologist in private practice. Please feel free to message me if you have any questions.
Thank you for your suggestions. I plan on keeping most of the money in the savings account for purchases I plan on making within 5 years and investing the rest in the Roth and in the taxable investment account. I will be rolling over money from a retirement account from a previous employer, that is made up of pretax contributions. Would you happen to know if I should put the money in a tradional Roth first and then moving it into a Roth or would rolling it over into a Roth right away be fine?

ynotyese.7
Posts: 7
Joined: Wed Sep 05, 2018 5:46 pm

Re: Investment/Financial Plan Advice

Post by ynotyese.7 » Wed Sep 12, 2018 5:55 pm

JoeRetire wrote:
Wed Sep 05, 2018 6:59 pm
ynotyese.7 wrote:
Wed Sep 05, 2018 6:06 pm
Luckily I have not accrued any student debt
Congratulations!
How did you manage that?
I don't want to let my career prospects get in my way of achieving financial independence/ sustainability!
At your age, focusing on maximizing your career prospects should serve you best.
-Moving money from Wells Fargo to Ally bank: checking and savings to increase interest
-Looking to open a Roth IRA with (Vanguard, Schwab, Fidelity?? I still don't know which to choose!): But, am currently on a stipend that does not count as "earned income". I did have a job until May of 2018 and was thinking of contributing the $5500 limit from that. I asked Vanguard and Fidelity about this and they said it would be fine, but I know they would be happy to take my money and would like some objective advice. I would contribute to some index funds, I have only a general understanding of investing.
-Considering opening a taxable account to invest some more money. Index funds as well? I am trying to save at least 50%, as much as possible, of my stipend to contribute to my savings.
Sounds great!
At a young age, establishing great savings habits is key - far more so than worrying about the specifics of investing.

Once you are employed, hopefully you'll have access to a company-sponsored retirement plan with a company match. Make sure you take advantage of that. And consider just putting your money in a target date fund with a low fee, at least until you have learned more about investing.

You are off to a great start. I'm sure you'll do well!
Thank you!

dknightd
Posts: 703
Joined: Wed Mar 07, 2018 11:57 am

Re: Investment/Financial Plan Advice

Post by dknightd » Wed Sep 12, 2018 6:15 pm

This is jogging old brain cells, and may not be completely correct, since times have changed since then.
Shortly after I graduated I was informed by Social Security that my income during graduate school was not required to pay SS taxes on. I elected to take a refund for those 6 years of payments. At the time it was a good chunk of money to me. Now it turns out I have 6 years of no SS income. In my case it does not matter much, I'm passed the second bend in the SS benefits calculation, but it might be something for you to keep in mind.
Back in the old days there was no Roth. If there had been, and I was qualified to contribute I would have. Double check you are qualified. Do it if you are. The nice thing about a Roth is you can take your contributions out if you need to.
You have $45k in after tax accounts. That is great! You basically have probably more than a year of expenses in the bank! When I was a student I tried to keep a savings account for unforeseen expenses. I don't know how many months it would have covered, but it was never empty. When I thought I had more in my savings accounts than I needed I dabbled in mutual funds. Some made money, some lost money, on average I think I came out ahead.
I did not think much about retirement when I was 23. It seemed so far away. At it is for you. I got serious about it after I got out of school. You are on a good path. Congratulations.
Edit: As long as you keep spending less than you earn you are on a path to a happy life, at least financially.
Last edited by dknightd on Wed Sep 12, 2018 6:20 pm, edited 1 time in total.

SelfEmployed123
Posts: 164
Joined: Sun Apr 15, 2018 8:57 pm

Re: Investment/Financial Plan Advice

Post by SelfEmployed123 » Wed Sep 12, 2018 6:19 pm

ynotyese.7 wrote:
Wed Sep 12, 2018 5:53 pm
Thank you for your suggestions. I plan on keeping most of the money in the savings account for purchases I plan on making within 5 years and investing the rest in the Roth and in the taxable investment account. I will be rolling over money from a retirement account from a previous employer, that is made up of pretax contributions. Would you happen to know if I should put the money in a tradional Roth first and then moving it into a Roth or would rolling it over into a Roth right away be fine?
Either way should be fine. If you roll it over to a traditional IRA first, you will still have the option to do the Roth. Or, if you are certain you want to do a Roth conversion, roll it over into a Roth. Just make sure to budget for the tax bill you will be paying for that contribution. Odds are your tax bracket is low since you are a grad student, so it's a great time to do a Roth conversion. If you are unsure, see this for more: https://www.bogleheads.org/wiki/Traditional_versus_Roth

Edit: Depending on where you are rolling it over from, if you roll over directly to a Roth your brokerage will offer to withhold a percentage of the balance for taxes. Just make sure if you are rolling over to a traditional IRA you do not have anything withheld for taxes.

ynotyese.7
Posts: 7
Joined: Wed Sep 05, 2018 5:46 pm

Re: Investment/Financial Plan Advice

Post by ynotyese.7 » Thu Sep 13, 2018 11:03 am

SelfEmployed123 wrote:
Wed Sep 12, 2018 6:19 pm
ynotyese.7 wrote:
Wed Sep 12, 2018 5:53 pm
Thank you for your suggestions. I plan on keeping most of the money in the savings account for purchases I plan on making within 5 years and investing the rest in the Roth and in the taxable investment account. I will be rolling over money from a retirement account from a previous employer, that is made up of pretax contributions. Would you happen to know if I should put the money in a tradional Roth first and then moving it into a Roth or would rolling it over into a Roth right away be fine?
Either way should be fine. If you roll it over to a traditional IRA first, you will still have the option to do the Roth. Or, if you are certain you want to do a Roth conversion, roll it over into a Roth. Just make sure to budget for the tax bill you will be paying for that contribution. Odds are your tax bracket is low since you are a grad student, so it's a great time to do a Roth conversion. If you are unsure, see this for more: https://www.bogleheads.org/wiki/Traditional_versus_Roth

Edit: Depending on where you are rolling it over from, if you roll over directly to a Roth your brokerage will offer to withhold a percentage of the balance for taxes. Just make sure if you are rolling over to a traditional IRA you do not have anything withheld for taxes.
Got it. I will make sure to look into that! Thank you!

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