help me decide if i should use roth funds for grad school

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gthupman
Posts: 3
Joined: Wed May 20, 2020 9:18 pm

help me decide if i should use roth funds for grad school

Post by gthupman » Wed May 20, 2020 9:37 pm

hello all!
I'm new to the forum but have been lurking and reading here for years.

In august I will be starting PA school and am contemplating using some Roth IRA funds to pay for it.

As I understand it; I am able to withdraw the contributions to my Roth (opened in 2016) without penalty, some ~22,000$. I have estimated that my expenses will average 2000$ a month (slightly elevated for some cushion); so this combined with some other funds I have put away should get me through 12 of the 27 months that school lasts. The funds are invested 70/30 in VT and FXNAX.

If I don't use my money and decide to borrow funds for my living expenses, the funds are dispersed 3 times (at the beginning of fall, spring and summer semesters) and begin to accrue interest immediately. The first 6,834$ borrowed each semester will be at 4.03% and any funds after that will be at 5.03%. It should also be mentioned that this interest does not capitalize until 6 months after graduation. Tuition for each semester is 14,125$, so some of the tuition and then all money borrowed for living expenses will accrue interest at 5.03%. If I borrow the 24k$, It will accrue ~2700$ during the length of the whole program; essentially saving me the 2700$ by using my money. Obviously this money will continue to accrue and capitalize once I enter repayment, but I haven't continued those calculations here. For my 24,000$ to break even with the loan interest, it would have to grow at ~6% in the market for those 2.5 years, and even more for those years thereafter. In addition, these current interest rates are the lowest that they have been in decades (they were 6.08 and 7.08 last year), so it is very possible they could return to higher levels for 2021-2022.

I've said all of this to ask your guidance on what to do in this situation. My options boil down to doing nothing and leaving my money in the market, withdrawing the 22k$ in July and using it for the 2020-2021 school year, or withdrawing in 2021 (essentially betting that interest rates will be higher next year) and using it for 2021-2022. For these options I must also consider that if I wait until 2021, the money borrowed for 2020 will have an extra 365 days to accrue interest (~1250$).

Also, it should be mentioned that I have no children, no spouse, no other debt or obligations, and approx. 6000k$ in savings. Upon graduation, my expected and realistic income in my area is 100-130k.

Thanks for any insight! happy to be a part of this forum

New Providence
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Re: help me decide if i should use roth funds for grad school

Post by New Providence » Thu May 21, 2020 6:06 pm

Roth IRA is a retirement account. For retirement.

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cheese_breath
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Re: help me decide if i should use roth funds for grad school

Post by cheese_breath » Thu May 21, 2020 6:14 pm

gthupman wrote:
Wed May 20, 2020 9:37 pm

Also, it should be mentioned that I have no children, no spouse, no other debt or obligations, and approx. 6000k$ in savings. Upon graduation, my expected and realistic income in my area is 100-130k.
I assume you mean $6,000 not $6,000K.
The surest way to know the future is when it becomes the past.

petulant
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Re: help me decide if i should use roth funds for grad school

Post by petulant » Thu May 21, 2020 6:18 pm

As a PA you will be a secure credit risk for a refinance, or you will have the opportunity to work for a nonprofit employer that qualifies for PSLF. While I don't know what interest rates will be in a couple years, it will either be lower than the federal loans, or the federal loans will be a deal. So my advice is to take out loans, weight a nonprofit employer, and if not then refinance to pay off loans aggressively. In the meantime, continue to live frugally and manage the money well.

Quaestner
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Re: help me decide if i should use roth funds for grad school

Post by Quaestner » Thu May 21, 2020 7:17 pm

petulant makes good points.

What if you decrease your stocks in the Roth to something more conservative, and view it as a bit of an emergency fund? It sounds like your job prospects are good, but ... crazy times. Perhaps I'm to conservative. If I was in your shoes, I'd be tempted to keep the Roth and dial down the stocks until I was hired. Maybe putting less effort into optimizing your finances will help you sleep and study better?

Topic Author
gthupman
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Joined: Wed May 20, 2020 9:18 pm

Re: help me decide if i should use roth funds for grad school

Post by gthupman » Thu May 21, 2020 9:22 pm

cheese_breath wrote:
Thu May 21, 2020 6:14 pm
gthupman wrote:
Wed May 20, 2020 9:37 pm

Also, it should be mentioned that I have no children, no spouse, no other debt or obligations, and approx. 6000k$ in savings. Upon graduation, my expected and realistic income in my area is 100-130k.
I assume you mean $6,000 not $6,000K.
yes 6,000

Topic Author
gthupman
Posts: 3
Joined: Wed May 20, 2020 9:18 pm

Re: help me decide if i should use roth funds for grad school

Post by gthupman » Thu May 21, 2020 9:23 pm

petulant wrote:
Thu May 21, 2020 6:18 pm
As a PA you will be a secure credit risk for a refinance, or you will have the opportunity to work for a nonprofit employer that qualifies for PSLF. While I don't know what interest rates will be in a couple years, it will either be lower than the federal loans, or the federal loans will be a deal. So my advice is to take out loans, weight a nonprofit employer, and if not then refinance to pay off loans aggressively. In the meantime, continue to live frugally and manage the money well.
thanks for the insight, that makes perfect sense

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