Laura, if I understand your question, you want to know if using retirement money vs loans for grad school. Or are you continuing to work while in school. If the latter, yes your analysis is correct, if the former, let me know so that I can better address the question.
Debbie, here's a question from Alex
thenotsogreatone From the web:
Bobbie, here's the next question for you from Ken
If the back door doesn't work, this is from the web:
This really boils down to the treatment of “excess contributions.” The bottom line here is that you will owe a tax penalty if you don’t correct your excess contribution. In fact, if you fail to correct your excess contribution, you’re required to pay a penalty tax of 6% for each year that the problem remains uncorrected.
So how do you fix the problem? Simple. If you’ve made an excess contribution, you can avoid the 6% penalty by taking the money back out of your Roth IRA. More specifically, you can avoid the penalty if:
(1) You receive a distribution from the IRA on or before the due date of your tax return for the contribution year, and
(2) The distribution includes the amound of the excess contribution and the net income attributable to that contribution.
In other words, you need to withdraw the contribution and the earnings. Taxes will still be due on the earnings — they’re earned income, after all — and these earnings will be subject to an early withdrawal penalty if you’re under 59 1/2 (unless an exception applies).
starting to save, look at your company, do they have a retirement plan? If they have a 401k, see if yuor employer matches. If so, id contribute up to where the employer fully matches, as this is free money to you. But only do so if you can comfortable afford it. If no company plan, look into opening a roth IRA.
Fantastic. Thanks, Jamie.
Ooh, while Debbie answers I have to congratulate Alex for this question. So many people try to get thoughtful advice from an account on April 10th when they are too busy or AFTER year end when it is too late.
Jamie, here's a question from nicky ronny
An excellant question. We talk with our client's accountants towards the end of the year, usually in November. We communicate any changes in our client's income, deductions, capital gains or other issues. Being proactive saves surprises for April. One can't expect an accountant to do everything needed in the planning arena during tax season.
Thanks, Rich. Time for one more question?
Cor, id keep some of this savings in cash for an emergency fund in case unexpected expenses come up. Then you can look into either opening up an IRA or brokerage account (look at Vanguard), and investing in some mutual funds.
Dan, that's a tough situation that many are finding themselves in. I would pay close attention to the political dialogue that is occurring to see if you are provided any options for grace. Loan providers are under water right now because so many are unable to pay. Federally subsidized loans can be negotiated and I imagine that you've already been down this path but if you haven't, it's worth considering. You might be able to defer or get a lower interest rate which will help the payments. I think you will need to make your own goals and pay back as much and as quickly as you are able.
Good to know, Debbie. Here's an interesting question from John
Alright Rich, here you go. DG in SF
Matt, here's one from Chris
Bobbie, here you go. From Dan M
DG, one piece of advice that we use in our firm for situations with unknown outcomes is to...make half a mistake.
Hi Nicky --- I may be missing a part of your question. I like fixed rate loans for the reason you state. I would try and refinance the loan now (assuming you are not moving soon). The cost of refinancing, $1,500 +/- where I am is well worth getting an at the moment low firxed rate loan. If you don't qualify for refinancing today without a co-signer that should stop the refinancing, but may not work for you or the co-signer. Jamie
K, I signing out. This has been a lot of fun, but I've got to go!!! Jamie
Thanks so much for all your help, Jamie!
DG, sorry thats out of my area. Id talk to your bankruptcy lawyer to see if these are considered assets during your recent bankruptcy.
I need to run, thank you though. That was fun and a great service!!
Dan, with a traditional IRA you would get to deduct your contribution from your taxable income (this does have some rules re how much income do you make AND if you have a retirement plan available at work). Now with a ROTH you don't get to deduct the contribution but the investment grows tax free forever (or until they change the law). Another advantage of a ROTH is that you can go take out your contributions (but not your earnings) with no tax or penalty if you have an emergency. But you would do that as a last resort as you want the money to grow tax free as long as possible (I tell clients this should be the last money they spend in their lives). So given the advantages of the ROTH, I think it makes the most sense for most people. This assumes you do not have a company retirement plan with an employer match.
No problem, Rich. Thanks so much!
We still have over 50 questions in the queue. I apologize to all of you whose questions we will not be able to get to today. The good news is we host one of these chats with NAPFA on the third Thursday of every month. The next one will be held on July 19.
We'll finish up with a few more questions for Bobbie, Matt and Debbie
I'll take one or two more
John, since my daughter just got married, I am aware of the costs associated with it. But, also the complete joy of having a beautiful day. I would continue paying the loans for now and not "skimp" on your wedding but plan on paying them down when you are in a position to do so. Don't put your wedding on credit cards, do only what you and your family can afford. Have a beautiful wedding day.
Matt, here's one from Phil.
And Debbie, one from DBruce
