Saving for MBA or Putting Money into ROTH/401k

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cherepakha
Posts: 2
Joined: Wed Jul 11, 2018 11:46 am

Saving for MBA or Putting Money into ROTH/401k

Post by cherepakha » Wed Jul 11, 2018 11:55 am

Hi All,

New here and wanted to get some advice on how to go forward with my money allocation. I recently paid off all of my student loans and will have around $2k each month to either put into a 401k (or Roth IRA) or put in a savings account. Here comes my confusion, I'm planning on going to business school in the next 2 years and can't decide if I should save for that or put money into my retirement accounts.

A few notes to help with and advice that someone might have for me:
- currently 28
- have $21k in a profit sharing plan (Vanguard target fund) but no other retirement savings
- work does not match 401k
- no other assets, basically went to zero once I paid off my student loans

Thanks in advance for all your help.

misscourtneyk
Posts: 38
Joined: Mon Dec 19, 2016 11:42 am
Location: The Great South

Re: Saving for MBA or Putting Money into ROTH/401k

Post by misscourtneyk » Wed Jul 11, 2018 3:09 pm

There is a lot you don't say about your situation, but I am hoping I can help since I am 27 and just finished my MBA, so a similar situation. Will your employer pay for graduate school? Is it advantageous to your career? Many employers offer tuition assistance programs at no additional cost to you, usually with a provision that you remain with the company for X amount of time after finishing the degree. That is how I paid for my MBA. My company offered $5K a year in tuition assistance, and we didn't have to repay it.

I personally would put that money into a Roth IRA or your 401K for the next 2 years. You should be fully funding a Roth IRA anyway at this point. Time is our most powerful asset as young people....a Roth IRA is a huge help in that area. You say you aren't going to school for 2 years - when you actually start your master's program, you will probably find (as I and many others did) that the most you can manage while working full time is 1-2 classes per semester...which at a state university will only run you $2-4K for the semester (again, making assumptions that you aren't going to Harvard or something expensive). If you do really have $2K a month to set aside right now (which is great), it seems that you could "pay as you go" for your MBA when you get to that point in 2 years without any advance savings right now.

Based on the limited info you gave, I would load up that Roth IRA and 401K. The one thing I have learned is that the dollars we save in our 20s are worth so much more than the money saved later on....I would start that ball rolling NOW.

:sharebeer

ManicNest
Posts: 1
Joined: Wed Jul 11, 2018 3:11 pm

Re: Saving for MBA or Putting Money into ROTH/401k

Post by ManicNest » Wed Jul 11, 2018 3:19 pm

I would put it in the Roth.

You may be able to get your employer to pay for the MBA (obviously ideal) but just make sure you are looking at it from an ROI (both time and money) perspective. There are a couple colleagues I have who got their MBA without so much as a single percent pay bump to show for it. They paid on their own dime and are still working the same job for the same wage. Another friend of mine is attending an Ivy league program and his take is that the benefit comes from the connections much more than the actual classes. His work is paying for it, so he gets the benefit of an infinite ROI.

I'm sure you have thought this through, but just make sure you are getting an MBA for more than just the 3 letters after your name.

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gunn_show
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Joined: Wed Jun 06, 2007 3:02 pm

Re: Saving for MBA or Putting Money into ROTH/401k

Post by gunn_show » Wed Jul 11, 2018 4:24 pm

ManicNest wrote:
Wed Jul 11, 2018 3:19 pm
I would put it in the Roth.

I'm sure you have thought this through, but just make sure you are getting an MBA for more than just the 3 letters after your name.
this and this, although you didn't ask our opinion on the second piece

with nearly zero net worth and retirement savings, you need to get that big ball of wax rolling now, not in 5-7 years when you finish b-school

what is your current income / income trajectory leading up to and during b-school? meaning, can you just cash flow school expenses when it comes time? are you planning on attending local state U (cash flow possible) or HBS (not so much)? Big differences in level of school and their costs and requirements. Personally I paid cash every semester for b-school, but I went to local State U and was early 30s with low six figure sales exec income and no other major expenses. I think that is the optimal path, but you may not fit the same bill. Fill us in on more of your current job / income status and that will help.
"The best life hack of all is to just put the work in and never give up." Bas Rutten

z06ray
Posts: 106
Joined: Tue Jul 09, 2013 11:24 pm

Re: Saving for MBA or Putting Money into ROTH/401k

Post by z06ray » Wed Jul 11, 2018 6:44 pm

misscourtneyk wrote:
Wed Jul 11, 2018 3:09 pm
There is a lot you don't say about your situation, but I am hoping I can help since I am 27 and just finished my MBA, so a similar situation. Will your employer pay for graduate school? Is it advantageous to your career? Many employers offer tuition assistance programs at no additional cost to you, usually with a provision that you remain with the company for X amount of time after finishing the degree. That is how I paid for my MBA. My company offered $5K a year in tuition assistance, and we didn't have to repay it.

I personally would put that money into a Roth IRA or your 401K for the next 2 years. You should be fully funding a Roth IRA anyway at this point. Time is our most powerful asset as young people....a Roth IRA is a huge help in that area. You say you aren't going to school for 2 years - when you actually start your master's program, you will probably find (as I and many others did) that the most you can manage while working full time is 1-2 classes per semester...which at a state university will only run you $2-4K for the semester (again, making assumptions that you aren't going to Harvard or something expensive). If you do really have $2K a month to set aside right now (which is great), it seems that you could "pay as you go" for your MBA when you get to that point in 2 years without any advance savings right now.

Based on the limited info you gave, I would load up that Roth IRA and 401K. The one thing I have learned is that the dollars we save in our 20s are worth so much more than the money saved later on....I would start that ball rolling NOW.

:sharebeer
I agree with much of this. Also similar age (28) and currently in my last class for my MBA. I think we need more info. I will say that I wouldn’t forgo crucial saving time right now for a promotion that MAY happen. That being said, I started my MBA When I graduated undergrad and really didn’t know what I wanted to be. I suppose it was good though despite paying the first couple classes out of pocket and taking over a year long break. It opened doors in my situation to first getting a good co-op and ultimately a great job where my company now pays the bill. Good luck!

cherepakha
Posts: 2
Joined: Wed Jul 11, 2018 11:46 am

Re: Saving for MBA or Putting Money into ROTH/401k

Post by cherepakha » Wed Jul 11, 2018 8:29 pm

misscourtneyk wrote:
Wed Jul 11, 2018 3:09 pm
There is a lot you don't say about your situation, but I am hoping I can help since I am 27 and just finished my MBA, so a similar situation. Will your employer pay for graduate school? Is it advantageous to your career? Many employers offer tuition assistance programs at no additional cost to you, usually with a provision that you remain with the company for X amount of time after finishing the degree. That is how I paid for my MBA. My company offered $5K a year in tuition assistance, and we didn't have to repay it.

I personally would put that money into a Roth IRA or your 401K for the next 2 years. You should be fully funding a Roth IRA anyway at this point. Time is our most powerful asset as young people....a Roth IRA is a huge help in that area. You say you aren't going to school for 2 years - when you actually start your master's program, you will probably find (as I and many others did) that the most you can manage while working full time is 1-2 classes per semester...which at a state university will only run you $2-4K for the semester (again, making assumptions that you aren't going to Harvard or something expensive). If you do really have $2K a month to set aside right now (which is great), it seems that you could "pay as you go" for your MBA when you get to that point in 2 years without any advance savings right now.

Based on the limited info you gave, I would load up that Roth IRA and 401K. The one thing I have learned is that the dollars we save in our 20s are worth so much more than the money saved later on....I would start that ball rolling NOW.

:sharebeer
Thanks for the detailed response! Unfortunately, my employer will not be paying for my MBA. I would be going full time and on my own dime. I currently work at a law firm and the original plan was to be a paralegal for 2 years and move onto law school. However, by working at the law firm, I realized this just isn't a life that I would want... So 7 years and one move to the accounting department later, I've realized I would love to work as a consultant (specializing in crisis management, Deloitte has something that appeals to this) but I would need to get an MBA. The caveat being, I would not attend school unless it was in the top 15, I just can't justify the cost otherwise. I currently make $60k and there is no career trajectory, I'm literally in the billing department and killing myself over it everyday. So I would be using the MBA as a career changer. I think I will start putting that extra $2k into a Roth IRA for sure, but would you recommend putting some in the 401k as well? If you have any other advice, critiques, I would happy to hear them! Thank you, also congrats on getting the MBA!

misscourtneyk
Posts: 38
Joined: Mon Dec 19, 2016 11:42 am
Location: The Great South

Re: Saving for MBA or Putting Money into ROTH/401k

Post by misscourtneyk » Thu Jul 12, 2018 6:21 pm

As others have said, be careful about going after an MBA that may have no real effect on your current salary. Are their other career options that you can pursue without an MBA? I’ve seen so many people go back into debt or spend all their spare cash for a higher degree that doesn’t get them a dime. Meanwhile, they lost years of compounding interest toward retirement. While I did get mine because it was free, I saw no real salary increase once I got it. Do some searches on this forum about the power of investing early....the difference between the money you save now and the money you save 10 years from now is HUGE.

From your post it sounds like you are 28 with no retirement savings, which is a way bigger problem than not having an MBA. I would fully fund that Roth IRA ($5500) and then sink the rest in your 401K (assuming you have some emergency savings already). Even tho your employer doesn’t match, it is still a tax advantaged account. You need to get that ball rolling NOW. Search for an employer that will pay for a higher degree...or research other career options that don’t require a grad degree. At some point your years of work experience will help you more in getting a higher salary than an MBA.

What about your current living situation? Are you in a high cost of living area? Married? Kids? It only gets harder to set aside money for retirement....the fact that you have $2000 a month to set aside right now is GOLD and I would take advantage of it as much as you can to start your retirement nest egg and save for other goals (house, etc).

misscourtneyk
Posts: 38
Joined: Mon Dec 19, 2016 11:42 am
Location: The Great South

Re: Saving for MBA or Putting Money into ROTH/401k

Post by misscourtneyk » Thu Jul 12, 2018 6:25 pm

cherepakha wrote:
Wed Jul 11, 2018 8:29 pm

So I would be using the MBA as a career changer.
You don’t need an MBA in order to change careers! It sounds like you have over 7 years of experience in a professional firm! Start looking now - You might be surprised at what is out there.

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