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Putting Aside Money For Grad School?

Posted by Cliff on from the saving-those-hard-earnings dept.

CapsaicinBoy asks: "Like many geeks, I'm just about to leave academia for a very lucrative position in the private sector. The thing is, I am planning of going back for my doctorate in few years. Hence my question: What is the best way to put aside money for future educational expenses? The IRS guidelines for Educational IRA's appear to be tailored for parents. I'd really like to find a way to put aside pre-tax dollars now for the lean years in future."

4 of 8 comments (clear)

  1. What do you need the money for? by woggo · · Score: 2

    If you've been accepted into just about any Ph.D. program in an engineering/CS school, your tuition is getting paid, and they're giving you money to live on (albeit not as much as you'd get at your lucrative start-up).

    It sounds to me like what you want is a suggestion for "how to save money to maintain (some) lifestyle", not "how to save money to afford to attend graduate school." (Although, if you're that set on a particular lifestyle, the two may be synonomous.)

    With "lifestyle maintenance" as an objective, here's my advice: A Roth IRA is a great deal for a retirement account, but you can only put $2000 per year in it. If you're planning on going back to graduate school soon -- when you're still current on the research -- that's not going to be enough, and it's not going to grow enough. If you're used to academia, you won't have any problem living on $30k/year and saving $50k, especially if you're single and have no kids. (That's assuming a fairly lean -- by industry standards -- salary.) Put that $50k in an index fund, or even a money market account. Be sure to check the penalties for early withdrawal. (That sounds pretty obscene, no?)

    • Here is a page at fidelity.com describing how to invest for growth.
    • Here is "Vanguard University."
    • Vanguard's recommended links
    Sure, there are other mutual fund companies -- this is just to get you started.

    Good luck with the company, and if you're interested in databases, allow me to suggest an excellent program for your return to academia. (I may be a little biased, though.)

    best,
    ~wog

  2. An IRA won't work if your job is too lucrative by hubie · · Score: 2
    You didn't mention how lucrative your job is, but the tax deductable part of an IRA contribution declines with your gross adjusted salary.

    If you are hell-bent on robbing Peter to pay Paul and you want to raid your retirement, if you can set up a 401k with your employer because I believe (check this out to make sure) that you can withdrawl penalty-free for education with those too. However, the smart thing to do is to set up your IRA/401k now with your current job and contribute the maximum you are allowed and don't touch it until you are ready to retire. Remember the 8th wonder of the world: compounding interest!!! You'd be surprised how much difference there is starting your retirement savings in your early 20s vs. your early 30s.

    If you are already saving for retirement and you are trying to save for grad school, good for you. If you are planning on going to grad school in a relatively short period of time (five years or so), then I doubt in terms of growth it makes a whole lot of difference where you put your money. The safe thing is in CDs or bonds because at least you know what you'll be getting.

  3. Roth IRA by daftgirl · · Score: 2
    Since the education IRA probably wouldn't be the way for you to go, have you looked into a roth IRA? Granted, you have to use after-tax dollars, but there is no tax when you withdraw. You can withdraw your contributions after five years, but you have to leave the earnings in the account until retirement age, OR (If I'm remembering correctly) you can take out up to $10,000 in earnings without penalty if it's for the purchase of your first house or for college expenses. I'm not sure if the "college expenses" clause applies to graduate study or only undergrad. But it's something to check out. If you meet all the gov't requirements, you can put in $2,000 a year, as opposed to only $500 with the education IRA.

    1. Re:Roth IRA by daftgirl · · Score: 2
      Look here for some info on the regulations relating to education expenses and roth IRAs. Also, you can establish an education IRA for yourself because contributions can only be made until the person whose name it is in turns 18. After that, no more contributions can be made, and all the money has to be used or transferred to someone else by the time the account holder is 30.