Author Topic: Where to do a probably-short-term stache  (Read 2985 times)

I_shave_my_stache

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Where to do a probably-short-term stache
« on: February 04, 2015, 01:05:32 PM »
Hello beautiful people!

I graduated from undergrad last year, and will have spent the '14-'15 academic year in a graduate program in the sciences that isn't getting me anywhere jobwise. I am switching into an MS Engineering program which will last 2 years and leave me with a good chance of a $75,000/yr job. I was lucky enough to receive funding in exchange for teaching undergrads this year, and one of the possible MS programs seems like it might let me get a similar deal. During these two years, I will hopefully get internships with companies, which may or may not be paid, and may or may not require a car.
I want to invest this money in a way that I can withdraw it relatively easily at any point over the next 2 years, in the event that I go without pay for a summer/semester or need to buy a car.
The numbers:
Current pay/spending rate: I save about $1300 per month. Pay cuts out on May 15th, and will hopefully be replaced with a paid summer internship or regular summer job.
Current assets: $6700 in a checking account.
TLDR: I am a graduate student, and I'm about to go through some transitions in where I live etc. I currently have some freed-up money and no hair-on-fire debts, but the money I have may need to be withdrawn at an unknown point over the next 2 years. I'd like some advice on how to go about investing/saving my surplus money where I could cash it with ~1 month warning.
« Last Edit: February 04, 2015, 04:36:57 PM by I_shave_my_stache »

Cwadda

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Re: Where to do a probably-short-term stache
« Reply #1 on: February 04, 2015, 01:15:52 PM »
A Roth IRA allows you to contribute up to $5500 per year. You can withdraw contributions freely without penalty or taxes, but if you withdraw anything that it gains, you will be penalized and taxed.

For example, you contribute $5,000. One year later, the value is $5300 but you want to buy a car. You can withdrawal the original $5000 without incurring taxes or penalties. However; a withdrawal of anything over that amount will be subject to a hefty penalty and tax.


Finally, Roth contributions go by tax year. So you are still eligible to contribute $5500 for 2014 and $5500 for 2015. We are at an in-between time where you can do either year. So if you're going to contribute to a Roth, I'd recommend maxing out for 2014 because you'd still have a fresh 2015 if you want to do any more. The deadline for 2014 contributions is April 15th, 2015.
« Last Edit: February 04, 2015, 01:19:57 PM by Cwadda »

neo von retorch

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Re: Where to do a probably-short-term stache
« Reply #2 on: February 04, 2015, 01:26:33 PM »
The cautious answer is "savings." If you may need it in less than 2 years, there is zero guarantee of where any kind of equity investment will be. The market could "correct" 10-20% and $7100 could become $5840 right when you need to withdraw it. Ally, GE Capital Bank, etc offer ~0.90-1.05% interest. Barely anything, more than nothing, but safe for a short-term plan.

I_shave_my_stache

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Re: Where to do a probably-short-term stache
« Reply #3 on: February 04, 2015, 01:27:48 PM »
You can withdraw contributions freely without penalty or taxes, but if you withdraw anything that it gains, you will be penalized and taxed.

Will withdrawal of these gains always be heavily penalized/taxed, or is there some period after which I can withdraw them  more easily?

neo von retorch

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Re: Where to do a probably-short-term stache
« Reply #4 on: February 04, 2015, 01:29:28 PM »
Yes, once you turn 59.5 you can freely withdraw from a Roth IRA including gains.

I_shave_my_stache

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Re: Where to do a probably-short-term stache
« Reply #5 on: February 04, 2015, 04:37:40 PM »
Alright, thanks for the help guys!

looking for FI

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Re: Where to do a probably-short-term stache
« Reply #6 on: February 04, 2015, 04:42:38 PM »
I wouldn't bother with a roth if is going to be that short term . I would just use a taxable account
« Last Edit: February 04, 2015, 04:45:54 PM by looking for FI »

Cwadda

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Re: Where to do a probably-short-term stache
« Reply #7 on: February 04, 2015, 06:33:32 PM »
You can withdraw contributions freely without penalty or taxes, but if you withdraw anything that it gains, you will be penalized and taxed.

Will withdrawal of these gains always be heavily penalized/taxed, or is there some period after which I can withdraw them  more easily?

There's a list of circumstances that let you withdrawal gains without being penalized. Age 59.5 is just one of them.

Also, BEWARE: Your contribution cannot exceed your taxable income. So if you were a student in 2014 and made $3000 then don't contribute more than this. If you made plenty of money then don't worry about any of this.

innerscorecard

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Re: Where to do a probably-short-term stache
« Reply #8 on: February 04, 2015, 06:53:41 PM »
Quote
I want to invest this money in a way that I can withdraw it relatively easily at any point over the next 2 years

You should keep this money in cash in a savings account. A 2 year time horizon is too short for any non-cash investment.