Author Topic: Don't qualify for an IRA...What now?  (Read 6197 times)

camarijm

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Don't qualify for an IRA...What now?
« on: January 16, 2013, 08:45:26 PM »
Today I found out that I no longer qualify for any IRA because I don't have "earned income". I'm a graduate student and my funding was switched in the middle of last year to a training grant, so I no longer have any taxes withheld. Apparently only graduate student stipends are counted as earned income only if you get a W2, which I won't be getting starting in 2013. What should I do with my retirement savings now?

tooqk4u22

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Re: Don't qualify for an IRA...What now?
« Reply #1 on: January 17, 2013, 08:23:42 AM »
If you haven't already maxed out the IRA for 2012 do so before April 15th.

camarijm

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Re: Don't qualify for an IRA...What now?
« Reply #2 on: January 17, 2013, 09:23:48 AM »
Already maxed it out :/

Jamesqf

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Re: Don't qualify for an IRA...What now?
« Reply #3 on: January 17, 2013, 11:16:15 AM »
Why not just put the money in a general investment account (mutual funds, etc)?  Then you will have it available as emergency fund, eventual house downpayment, etc.  At grad student pay scales, you shouldn't be losing much in tax deductions.

Jack

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Re: Don't qualify for an IRA...What now?
« Reply #4 on: January 17, 2013, 12:17:13 PM »
Why not just put the money in a general investment account (mutual funds, etc)?  Then you will have it available as emergency fund, eventual house downpayment, etc.  At grad student pay scales, you shouldn't be losing much in tax deductions.

Wouldn't the issue be losing out on the tax-free growth when he has some kind of high-powered career after graduation?

tooqk4u22

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Re: Don't qualify for an IRA...What now?
« Reply #5 on: January 17, 2013, 12:17:36 PM »
Do you plan on doing any work that will have earned income - summer job?  If so match it.

camarijm

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Re: Don't qualify for an IRA...What now?
« Reply #6 on: January 17, 2013, 12:45:03 PM »
Why not just put the money in a general investment account (mutual funds, etc)?  Then you will have it available as emergency fund, eventual house downpayment, etc.  At grad student pay scales, you shouldn't be losing much in tax deductions.
I think that's really the only choice that I have. It just sucks that I can't put it in a Roth IRA at be taxed at my current rate since it's so low.

Wouldn't the issue be losing out on the tax-free growth when he has some kind of high-powered career after graduation?
That's the annoying part of it. I don't think there's any tax-advantaged account that I can open.

Do you plan on doing any work that will have earned income - summer job?  If so match it.
I work full time in my lab year round and we aren't allowed to have other jobs :(

Jamesqf

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Re: Don't qualify for an IRA...What now?
« Reply #7 on: January 17, 2013, 12:57:14 PM »
Wouldn't the issue be losing out on the tax-free growth when he has some kind of high-powered career after graduation?

Sure, but suppose that high-powered career doesn't immediately materialize, or suffers an unexpected hiatus?  He might be glad to have funds available that he can tap without penalty.  What I'm trying to say is that it seems just a little overboard to worry about not being able to put money in a tax-advantaged retirement account while you're still in grad school.

Chris

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Re: Don't qualify for an IRA...What now?
« Reply #8 on: January 17, 2013, 01:09:54 PM »
Some ideas:

  • HSA - You can contribute to an HSA even if you're unemployed. But you can only contribute if you are covered by a high-deductible health plan. You can contribute $3,250 in 2013.
  • Side hussle - You're right, you need earned income to contribute to an IRA. But any extra cash that you earn: tutoring, house sitting, mowing lawns, or selling on eBay counts as self-employment income. You can use this income to contribute to an IRA (up to the limit).
  • Municipal bonds - at least your earnings will be tax-exempt. But if your tax rate is low enough, you're probably better off earning taxable dividends.

Jack

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Re: Don't qualify for an IRA...What now?
« Reply #9 on: January 17, 2013, 01:19:51 PM »
[W]e aren't allowed to have other jobs :(

How is this enforced? (By looking at your FAFSA or something, I guess?) Are there any loopholes?

Speaking of a loophole, could you get married, have your spouse earn income, and file your taxes jointly? [insert silly smiley here]

camarijm

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Re: Don't qualify for an IRA...What now?
« Reply #10 on: January 17, 2013, 01:35:25 PM »
Some ideas:

  • HSA - You can contribute to an HSA even if you're unemployed. But you can only contribute if you are covered by a high-deductible health plan. You can contribute $3,250 in 2013.
  • Side hussle - You're right, you need earned income to contribute to an IRA. But any extra cash that you earn: tutoring, house sitting, mowing lawns, or selling on eBay counts as self-employment income. You can use this income to contribute to an IRA (up to the limit).
  • Municipal bonds - at least your earnings will be tax-exempt. But if your tax rate is low enough, you're probably better off earning taxable dividends.
1) My health insurance is covered by my training grant, so I don't have a high-deductible health plan.
2) Even if it's self-employed income, would it still count as earned income since I wouldn't be paying social security, etc. on it? That's the problem that I face with how I'm paid. I work in my lab 60+ hours a week, but because I'm paid with a stipend and not counted as a regular employee, I don't count as having earned income according to the IRS.
3) My tax rate is very low. I think I just have to suck it up and realize that I'll probably have to pay taxes on my investments.

[W]e aren't allowed to have other jobs :(

How is this enforced? (By looking at your FAFSA or something, I guess?) Are there any loopholes?

Speaking of a loophole, could you get married, have your spouse earn income, and file your taxes jointly? [insert silly smiley here]
We don't fill out FAFSAs. It's just one of the rules for us to be federally funded. I believe as long as you're federally funded, there's no loopholes.

Chris

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Re: Don't qualify for an IRA...What now?
« Reply #11 on: January 17, 2013, 02:05:27 PM »
Even if it's self-employed income, would it still count as earned income since I wouldn't be paying social security, etc. on it?

Yes, self-employment income is earned income. You would pay self-employment tax on the net profit. Self-employment tax includes the full Social Security amount (employer and employee portions), but you get a deduction for part of it.

Jack

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Re: Don't qualify for an IRA...What now?
« Reply #12 on: January 17, 2013, 02:25:41 PM »
It's just one of the rules for us to be federally funded. I believe as long as you're federally funded, there's no loopholes.

Are you sure it prohibits any other income whatsoever? Even something completely unrelated, like burger-flipping? I mean, I understand that they wouldn't want you moonlighting at a private-sector company in the same field due to conflict of interest, but IMO a blanket ban on side work would be unethical on their part!

camarijm

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Re: Don't qualify for an IRA...What now?
« Reply #13 on: January 17, 2013, 02:58:48 PM »
It's just one of the rules for us to be federally funded. I believe as long as you're federally funded, there's no loopholes.

Are you sure it prohibits any other income whatsoever? Even something completely unrelated, like burger-flipping? I mean, I understand that they wouldn't want you moonlighting at a private-sector company in the same field due to conflict of interest, but IMO a blanket ban on side work would be unethical on their part!
It prohibits any outside employment whatsoever. It's not a conflict of interest issue, it's a "we're spending $100,000 a year training you and you will dedicate your time to just this" situation.

twinge

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Re: Don't qualify for an IRA...What now?
« Reply #14 on: January 17, 2013, 03:15:34 PM »
This is a known suck-y issue for some academic fields--particularly for Phd fields with long post-docs where people might be in this mode for 8-10 years when all is said and done.  The other issue is that these long stints in graduate school/post-doctoral appointments with these kinds of stipends can make it so you have a lot of "zeros" in your social security record.  It's a double whammy for retirement savings.  I would just pay attention so that if you ever find yourself with a funding gap etc. you can quick earn a bunch of money just to stick into a Roth IRA. 
Sometimes people put you on for 90% on a grant which frees you up to have a small side gig but there's not always that kind of flexibility particularly with federal funds and set "training" roles. But if you have some potential solid side gig and a good relationship with the PI on the grant you could check and see.

chucklesmcgee

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Re: Don't qualify for an IRA...What now?
« Reply #15 on: January 17, 2013, 08:36:13 PM »
It prohibits any outside employment whatsoever. It's not a conflict of interest issue, it's a "we're spending $100,000 a year training you and you will dedicate your time to just this" situation.

That sounds like crazy talk. Show us where in your contract it says you lose your funding if you take on any form of employment.

camarijm

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Re: Don't qualify for an IRA...What now?
« Reply #16 on: January 17, 2013, 08:50:44 PM »
It prohibits any outside employment whatsoever. It's not a conflict of interest issue, it's a "we're spending $100,000 a year training you and you will dedicate your time to just this" situation.

That sounds like crazy talk. Show us where in your contract it says you lose your funding if you take on any form of employment.
"Stipend and tuition fellowships are awarded to allow students to devote full time to the pursuit of a Ph.D. degree in the Training Program and to complete the requirements for the degree in as short a time as is consistent with adequate training and research progress.  The student should not engage in additional employment while receiving a stipend through the graduate program, regardless of the source of that stipend, because such employment causes a serious impediment to the graduate educational process.  Graduate education and research are of necessity largely self-motivated processes, and the distractions of outside employment can interfere with the ability of students to prepare satisfactorily for their future professional careers.

If additional income is necessary, students are encouraged to consider the possibility of low-interest student loans. Advice about such loans may be obtained from the University Financial Aid Office (listed in the Appendix section).  If a student feels strongly that outside employment is necessary while in the Training Program, this must be discussed with the studentís Dissertation advisor and a formal request must be submitted to the Graduate Education Committee through the DGS.  Students should be aware that such requests will rarely, if ever, be granted.  However, if outside employment is necessary
and is approved by the Committee, the student must not allow it to interfere with high standards of performance and the timely completion of graduate education and research training."

So I guess it technically can happen, but it doesn't.

chucklesmcgee

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Re: Don't qualify for an IRA...What now?
« Reply #17 on: January 17, 2013, 09:59:50 PM »
It prohibits any outside employment whatsoever. It's not a conflict of interest issue, it's a "we're spending $100,000 a year training you and you will dedicate your time to just this" situation.

That sounds like crazy talk. Show us where in your contract it says you lose your funding if you take on any form of employment.
"Stipend and tuition fellowships are awarded to allow students to devote full time to the pursuit of a Ph.D. degree in the Training Program and to complete the requirements for the degree in as short a time as is consistent with adequate training and research progress.  The student should not engage in additional employment while receiving a stipend through the graduate program, regardless of the source of that stipend, because such employment causes a serious impediment to the graduate educational process.  Graduate education and research are of necessity largely self-motivated processes, and the distractions of outside employment can interfere with the ability of students to prepare satisfactorily for their future professional careers.

If additional income is necessary, students are encouraged to consider the possibility of low-interest student loans. Advice about such loans may be obtained from the University Financial Aid Office (listed in the Appendix section).  If a student feels strongly that outside employment is necessary while in the Training Program, this must be discussed with the studentís Dissertation advisor and a formal request must be submitted to the Graduate Education Committee through the DGS.  Students should be aware that such requests will rarely, if ever, be granted.  However, if outside employment is necessary
and is approved by the Committee, the student must not allow it to interfere with high standards of performance and the timely completion of graduate education and research training."

So I guess it technically can happen, but it doesn't.

So it sounds like a university policy about federal grants and not a Federal policy about federal grants. Also "should not" and the wording of the rest of the section makes it sound as though employment is just discouraged and not recommended, not outright prohibited or something that would cause you to lose your position if you still were able to keep up your work. Depending on your field I could imagine you might be able to land a free-lance consulting gig which would get approval from the committee as it would be helping you prepare for your future career and applying what you've learned, improving your ability to communicate your research, gain new ideas for your current research based on client's needs and interests etc.

Or you could go the route as Chris.