Author Topic: New PhD student, 55k in savings account, how to start growing my money?  (Read 9515 times)

DSA

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Hi, I'm a 25-year-old software developer who is going back to grad school to get a PhD in CS at Purdue (I will be starting May 1 as a research assistant to work early with my advisor on a computer graphics project). I think I've historically been a pretty frugal person (and guides like Mr Money Mustache's seem appealing to me). For the next few years I will be living on a PhD stipend, and while it will be meager, when considering my monthly expenses (and including yearly expenses, split up monthly) I will be just about breaking even.

Right now the one thing I've got going for me is that from the past couple years of working as a software developer (and living with the parents) I have about $55,000 in my credit union's savings account. I recognize that while I'm in school I will not be really having more income than what is needed to maintain. Therefore, a big priority for me is figuring out how to do something with that blob of saved money that benefits me more than just having it sit in an account with barely any return.

I recently got my first car (2008 Prius) used from CarMax, and am financing through my credit union. It is at $15,000 with 2.99% interest, for 48 months. One question I have: how quickly should I be paying this off? As I have $55,000 in my savings account, I imagine I could pay the whole thing off in one go (am I deluding myself by pretending that I have 55k with a 15k loan, when I truly have 40k?). On the other hand, I had also heard from my parents about the value of establishing credit by paying it back over time according to the standard payment schedule, or somewhat faster (maybe in 2-3 years instead of 4).

I also have a Schwab account, a SIMPLE IRA set up by my previous employer. I did the maximum matched contributions, and here is the information about it:

- Total Accounts Value: $5,844.60
- Total Cash & Cash Investments: $1,250.77
- Total Market Value: $4,593.83

- SWEGX (Schwab MarketTrack All Equity Portfolio Investor Shares): 11.25%
- SWBGX (SCHWAB MARKETTRACK BALANCED): 8.87%
- SWERX (SCHWAB TARGET 2040 FUND): 35.64%
- SWMRX (SCHWAB TARGET 2045 FUND): 12.75%

I had also purchased a few shares of FB, which was my (perhaps ill-advised?) gamble that their acquisition of Oculus and my belief in the growth of VR technology in the future would be a good long-term bet.

The simple fact of the matter is that I have no idea what I'm doing when it comes to investing. I look at phrases like "index funds" and "dividends" and my eyes start to glaze over. I've just been following the Schwab "Portfolio Performance" guides on what asset classes to get.

I've heard of the importance of maximizing contributions to an IRA each tax year. Could someone help explain what that means? For the single brokerage account I have (the SIMPLE IRA), do I put funds into that or do I open a new account with Schwab and put money into it? It just feels like there's a lot of terminology involved in finance that is impenetrable to me, and I don't really know how to get started getting my money to do something and start seeing good returns over time.

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Finally, a quick breakdown of my estimated monthly expenses. Please let me know if you see areas where I'm being foolish:

- estimated income (after taxes) for stipend: $1790
- apartment rent: -$531
- renter's insurance: -$23
- water utilities: -$45 (estimated)
- electric utilities: -$125 (estimated)
- campus parking permit (yearly, shown here as monthly expense) : -$11
- internet: -$40
- groceries: -$150
- medical insurance (through university, yearly, shown here as monthly expense): -$50
- car insurance: -$84
- gas for car: -$92 (estimated from edmunds)
- car taxes/fees: -$75 (estimated from edmunds)
- car payments: -$353
- car maintenance: -$38 (estimated from edmunds)
- car repairs: -$27 (estimated from edmunds)
- phone bill / data plan: -$30
- university fees (reduced because I'm funded, yearly, shown here as monthly expense): -$67
- surplus per month: $49

If I pay off my car completely, I could say that I'm getting a surplus of $400/month. Is it sensible to do so, or should I pay it off more slowly given that I have an existing buffer in my savings account?

Gin1984

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Does your new employer have a 403b?  I am a PhD student and we have them but my husband (also a PhD) who has a different employer does not?  I'd be putting in enough to pull yourself down to the 10% tax bracket if you do and then max out your Roth.  I'd pay off the car and use that $400 to invest monthly.

Thegoblinchief

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Unless the car makes or breaks your cash flow, pay it off at the normal schedule. It is a risk, but historically you will gain 2-3% per year more by investing it instead. Doubly so if the investing is done in a tax-advantaged vehicle like a Roth or 403b.

You can pump $5500 a year into the Roth. If you have access to a 403b, consider allocating more than what you need to cover expenses, slowly drawing down your savings. Alternatively, leave yourself an emergency fund and invest everything besides the Roth in a taxable account with Vanguard or Fidelity, focusing on low-cost index funds like VTSAX.

galliver

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PhD student here, stipend approximately equal to yours, at a university a few hours west. Importantly, my school covers most of our health insurance costs, the rest is rolled into "fees" which (combined with others!) come out to the tune of $900/calendar year.
--> Are you living alone (if not, that seems like a high rent...)? That's a big place for a grad student to save, if possible (i.e. no SO/wife/dependents).
--> Do you need to drive to (and park on) campus? Bike? Walk? Bus? Not sure what the regional options are, but could save you some. Parking fee(s) but also wear and tear, gas, etc.  I don't have a car and get by just fine. I'm not in a major city but we do have good bus service and the town is bike friendly.
--> You don't seem to have anything budgeted for fun/socializing. I realize it's typically perceived as a luxury here, but grad school is a very isolating environment and you don't want to set yourself further apart by not going out for beers or coffees on occasion. This is how we network and how we relax and how we celebrate. At this point you can't just invite people to "play at your house" right away, you need some familiarity. And for some relationships "at home" just isn't appropriate for a meeting. $5 to talk to an expert in X for an hour and get their input on idea Y? Worth it.
--> What about other occasional/incidental expenses? Holiday travel and/or gifts? I realize it's a question of values, but it's worth considering before it sneaks up on you.
--> I'm not a model grad student budgeter by any means, but I do fit comfortably into my stipend, slowly paying back my parents for college expenses, and basically never feel deprived (meaning I can continue this lifestyle indefinitely). Just letting you know it's possible. Although the no-car thing helps a lot.
« Last Edit: April 19, 2014, 08:39:19 PM by galliver »

DSA

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Thanks for the information! Yeah, I'm still torn on whether to pay off the car all at once or not. It seems like here's the situation:

Paying it off all the way:
Pro: Don't need to have debt
Pro: Don't have to pay additional interest
Pro: "Frees up" money in monthly expenses

Paying it off on normal schedule:
Pro: Can potentially use money to invest

I will initially be living alone in a 1-bedroom apartment. I recognize the potential for saving by getting roommates, though I was wanting to avoid the extra potential for "getting it wrong" my first year in terms of roommate choices (I'm already somewhat going in blind with this initial move to a new city). For future years I was considering it.

The apartment I'm moving into is about a 10-12 minute drive from campus. It is on an easy bus line to campus, though, so I am planning on using the bus when possible. The apartment was honestly my second pick (there was another apartment complex about 5 minutes from campus that looked better, but its vacancies filled up literally the day I emailed them that I wanted to get a room there). After moving into the city and getting a chance to see what it's like firsthand, I will likely change my apartment to somewhere closer (however, I was also trying to avoid being right next to campus, as many Purdue grad students I had talked with had recommended being away from the loud partying undergrads).

I agree that I didn't have anything budgeted for fun, and thanks for reinforcing the importance of that, especially for networking and avoiding isolation. I've mainly been looking at my list of "known expenses" and wasn't sure how much I could allocate to that. This may be a reason to pay off the car early -- it opens up my monthly budget for things like that.

EDIT: I did have a question about investing, when it comes to my SIMPLE IRA that I have from my current (soon-to-be-former) employer. When I change jobs, what happens to this SIMPLE IRA? Are future contributions to it allowed? Or do I set up a new IRA with new employers? I think I will have a 403b available when I'm a grad student. Do people end up with a bunch of different accounts over time?
« Last Edit: April 20, 2014, 07:49:54 AM by DSA »

clarkfan1979

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In my opinion with a PhD in CS you are going to make a lot of money when you are older. As a result, my priority would be to fully fund a Roth IRA during graduate school. I have a PhD in Social Psychology. I didn't know anyone in graduate school with a car payment. Most stipends were around 12K-18K and I don't think its possible to survive on this amount with a car payment. I have always been frugal myself and I really liked graduate school because it was cool to be frugal. Now that I'm working and making money I am no longer cool being frugal.

Thegoblinchief

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Look at the expense ratios of your IRA. Chances are, as soon as employment is severed, you can benefit from a rollover to Vanguard or Fidelity (stick with their Spartan series).

Gin1984

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Have you looked at this: http://www.purdue.edu/hr/audience/gradstaff.html to see what benefits you have?   Personally, I'd rather put the money in tax-advantaged accounts so, until then it is not making money so paying off the debt makes sense (since you won't be putting the money away all at once).  At max you are putting away $23K, unless you have a 457 which I missed.  When I graduated college, I had a 764 credit score with only using credit cards, so don't think you need a car loan to have good score. 

DSA

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Have you looked at this: http://www.purdue.edu/hr/audience/gradstaff.html to see what benefits you have?   Personally, I'd rather put the money in tax-advantaged accounts so, until then it is not making money so paying off the debt makes sense (since you won't be putting the money away all at once).  At max you are putting away $23K, unless you have a 457 which I missed.  When I graduated college, I had a 764 credit score with only using credit cards, so don't think you need a car loan to have good score.

Yeah, when I was initially shopping around for my auto loans a couple months ago, my credit score was in the 730s.

Gin1984

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Have you looked at this: http://www.purdue.edu/hr/audience/gradstaff.html to see what benefits you have?   Personally, I'd rather put the money in tax-advantaged accounts so, until then it is not making money so paying off the debt makes sense (since you won't be putting the money away all at once).  At max you are putting away $23K, unless you have a 457 which I missed.  When I graduated college, I had a 764 credit score with only using credit cards, so don't think you need a car loan to have good score.

Yeah, when I was initially shopping around for my auto loans a couple months ago, my credit score was in the 730s.
So pay it off, and say you have $100/month for fun or oops, $3600 for savings.  23K-3600=19,500, so two years of maxing out your Roth and 403b.  Well, unless you want an EF, then it could be a year and half of maxing.  :)

beltim

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #10 on: April 20, 2014, 10:46:07 AM »
For this year it probably doesn't matter because you haven't ably have enough earned income from your previous job, but before contributing to an IRA of any type in future years, make sure your stipend is considered earned income.  Most fellowships I've seen are not considered earned income.

Gin1984

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #11 on: April 20, 2014, 11:56:21 AM »
For this year it probably doesn't matter because you haven't ably have enough earned income from your previous job, but before contributing to an IRA of any type in future years, make sure your stipend is considered earned income.  Most fellowships I've seen are not considered earned income.
Purdue and most universities with PhD programs pay via w-2 and therefore are earned income.  The only time it is not is if you have gotten a private direct fellowship (mostly federal).

galliver

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #12 on: April 20, 2014, 12:01:04 PM »
By the by, in your shoes I think I would consider the car a relic of my industry-job past and either pay it off immediately or set aside the $$ required to pay it off from your savings (depending on how much you need the credit history, after checking it and your score). I'd also set aside an emergency fund, then invest the rest. Then work with the car-less budget to optimize lifestyle and savings to my own satisfaction, with $383 more wiggle room. And possibly more next year if roommates work out. :)

daymare

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #13 on: April 20, 2014, 12:59:02 PM »
I'll chime in a bit with my experiences -- I'm a 1st year PhD student with a ~31K stipend, 45K in a Vanguard Roth IRA (through funding a Roth IRA and 401K for the ~2 years I worked after undergrad, company match to traditional 401K converted), about 10K in savings account (I'm paying for my wedding this summer, so a chunk of that will be gone soon).

As others have mentioned -- check out the rules of your stipend.  For me, the first year is considered a fellowship (as I have no TA/RA work, just classes) and so doesn't count as earned income & hence can't contribute to my 401K.  The rest of the years are a stipend (TA/RA work required), and count as earned income.

I cannot get over how expensive it is to own a car! (Never owned one myself.)  The biggest factor in your living expenses (when you're a young student) is where you live (rent) & I guess also car expenses (if you have one).  Sounds like you've already signed your lease, but generally I think if you can find something cheaper, walking/biking distance to campus, you will be in a MUCH better position.  It's really a tremendous luxury to be able to walk/bike and not need a car at all, but I recognize that I'm in an urban area where that's doable, and may not be as straightforward in the midwest.

As far as socializing -- let's be real, my social life has never, ever been worse, it's one of the more miserable aspects of doing a PhD ;).  But agree with what was said above -- finding friends and colleagues to talk to can really make the difference between losing or keeping your sanity.  Doesn't have to be expensive - $5-10 to get beers during a happy hour with some folks.  Also once you make some casual friends, I've had a lot of fun inviting people over for wine night (just drinking and socializing ... or drinking & playing boardgames or charades).  And of course I try to attend all the happy hours with free booze.  Also, highly recommend having an exercise routine.  I used to never run and now I can truly call myself a runner (7 miles twice in one week for fun when we had nice weather recently ... clearly a runner).  It's really nice to move and exercise when everything else I do is pretty much sitting and doing math.

In sum: if you have any money you can invest, I'd go with a Roth IRA, low cost stock index fund.  Also, think about whether you need this car -- if you can move closer to campus, might be a great opportunity to get rid of it and get a bike instead (basically, what galliver said).

ch12

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #14 on: April 20, 2014, 01:34:24 PM »
I'm from Indiana, and I just got out of college a year ago.

Your car expenses are crazy high for someone with a take home of 1790. I question the $92/month figure for a Prius, given that you'll primarily use the bus to get to and from campus. While I'm very pro-bike and Indiana is handily quite flat, Purdue gets cold in the winter, which is why the campus has underground tunnels.

Your renter's insurance and utilities seem really high. I paid about $160/year for renter's insurance when I lived in Indiana. https://www.geico.com/getaquote/renters/

Your utilities are way higher than mine ever were. Take showers at the gym. :) At the 2012 Purdue price of energy of 8.2/kwh, http://www.purdueenergyforum.org/kill-a-watt.html, then you'd be using 1524 kwh/month (ish, not counting fees, surcharges, etc.). The two people in my 1,130 sq ft apartment consumed 177 kwh last month. I'm sure that you have more wiggle room than you think, which is good, since you really do need money for pure recreation, even if it's the broke college student standard of board games and wine.

I also made extra money (grocery money, to me) by tutoring. It's low-hanging fruit on a college campus.

Gin1984

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #15 on: April 20, 2014, 02:06:20 PM »
I'm from Indiana, and I just got out of college a year ago.

Your car expenses are crazy high for someone with a take home of 1790. I question the $92/month figure for a Prius, given that you'll primarily use the bus to get to and from campus. While I'm very pro-bike and Indiana is handily quite flat, Purdue gets cold in the winter, which is why the campus has underground tunnels.

Your renter's insurance and utilities seem really high. I paid about $160/year for renter's insurance when I lived in Indiana. https://www.geico.com/getaquote/renters/

Your utilities are way higher than mine ever were. Take showers at the gym. :) At the 2012 Purdue price of energy of 8.2/kwh, http://www.purdueenergyforum.org/kill-a-watt.html, then you'd be using 1524 kwh/month (ish, not counting fees, surcharges, etc.). The two people in my 1,130 sq ft apartment consumed 177 kwh last month. I'm sure that you have more wiggle room than you think, which is good, since you really do need money for pure recreation, even if it's the broke college student standard of board games and wine.

I also made extra money (grocery money, to me) by tutoring. It's low-hanging fruit on a college campus.
Many PhD programs that come with stipends require that you do not pick up any extra work without permission, also your time is pretty limited in grad school especially since you don't want to be there for too long. 

galliver

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #16 on: April 20, 2014, 03:11:00 PM »
I'm from Indiana, and I just got out of college a year ago.

Your car expenses are crazy high for someone with a take home of 1790. I question the $92/month figure for a Prius, given that you'll primarily use the bus to get to and from campus. While I'm very pro-bike and Indiana is handily quite flat, Purdue gets cold in the winter, which is why the campus has underground tunnels.

Your renter's insurance and utilities seem really high. I paid about $160/year for renter's insurance when I lived in Indiana. https://www.geico.com/getaquote/renters/

Your utilities are way higher than mine ever were. Take showers at the gym. :) At the 2012 Purdue price of energy of 8.2/kwh, http://www.purdueenergyforum.org/kill-a-watt.html, then you'd be using 1524 kwh/month (ish, not counting fees, surcharges, etc.). The two people in my 1,130 sq ft apartment consumed 177 kwh last month. I'm sure that you have more wiggle room than you think, which is good, since you really do need money for pure recreation, even if it's the broke college student standard of board games and wine.

I also made extra money (grocery money, to me) by tutoring. It's low-hanging fruit on a college campus.
Many PhD programs that come with stipends require that you do not pick up any extra work without permission, also your time is pretty limited in grad school especially since you don't want to be there for too long.

But many don't. I think OP can figure it out. :)

beltim

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #17 on: April 20, 2014, 03:19:53 PM »
For this year it probably doesn't matter because you haven't ably have enough earned income from your previous job, but before contributing to an IRA of any type in future years, make sure your stipend is considered earned income.  Most fellowships I've seen are not considered earned income.
Purdue and most universities with PhD programs pay via w-2 and therefore are earned income.  The only time it is not is if you have gotten a private direct fellowship (mostly federal).

There are far more times that it is not than the one example you gave.  The OP just needs to be aware of this possibility.

Gin1984

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #18 on: April 20, 2014, 06:07:51 PM »
For this year it probably doesn't matter because you haven't ably have enough earned income from your previous job, but before contributing to an IRA of any type in future years, make sure your stipend is considered earned income.  Most fellowships I've seen are not considered earned income.
Purdue and most universities with PhD programs pay via w-2 and therefore are earned income.  The only time it is not is if you have gotten a private direct fellowship (mostly federal).

There are far more times that it is not than the one example you gave.  The OP just needs to be aware of this possibility.
Can you mention any?  Given the lawsuits that made graduate students (those who work and are paid by the university), employees, most HRs are pretty strict about making sure they don't cross the line, legally.  I only know of the one I mentioned, if there are more I would like to know.

beltim

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #19 on: April 20, 2014, 06:40:08 PM »
For this year it probably doesn't matter because you haven't ably have enough earned income from your previous job, but before contributing to an IRA of any type in future years, make sure your stipend is considered earned income.  Most fellowships I've seen are not considered earned income.
Purdue and most universities with PhD programs pay via w-2 and therefore are earned income.  The only time it is not is if you have gotten a private direct fellowship (mostly federal).

There are far more times that it is not than the one example you gave.  The OP just needs to be aware of this possibility.
Can you mention any?  Given the lawsuits that made graduate students (those who work and are paid by the university), employees, most HRs are pretty strict about making sure they don't cross the line, legally.  I only know of the one I mentioned, if there are more I would like to know.

Well, it depends on how you're characterized by your school, but I have direct knowledge of at least four different fellowship funding sources routed through the university (i.e. the funding is not disbursed directly to the student).  In three of those four cases, the fellowship was not considered earned income, and no W-2 was issued.  In the fourth case, the fellowship was considered earned income, a W-2 was issued, and Social Security taxes were taken out. 


Gin1984

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #20 on: April 20, 2014, 06:51:58 PM »
For this year it probably doesn't matter because you haven't ably have enough earned income from your previous job, but before contributing to an IRA of any type in future years, make sure your stipend is considered earned income.  Most fellowships I've seen are not considered earned income.
Purdue and most universities with PhD programs pay via w-2 and therefore are earned income.  The only time it is not is if you have gotten a private direct fellowship (mostly federal).

There are far more times that it is not than the one example you gave.  The OP just needs to be aware of this possibility.
Can you mention any?  Given the lawsuits that made graduate students (those who work and are paid by the university), employees, most HRs are pretty strict about making sure they don't cross the line, legally.  I only know of the one I mentioned, if there are more I would like to know.

Well, it depends on how you're characterized by your school, but I have direct knowledge of at least four different fellowship funding sources routed through the university (i.e. the funding is not disbursed directly to the student).  In three of those four cases, the fellowship was not considered earned income, and no W-2 was issued.  In the fourth case, the fellowship was considered earned income, a W-2 was issued, and Social Security taxes were taken out.
So, basically, what I said, private fellowships.....even if it goes through your university as financial aid (private grant), it is still a direct fellowship.  If it goes through the research accounting, it becomes "research funds" and you get paid as a W-2 employee.   If this is not what you mean, and you can be a little more clear, I would like to know.

beltim

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #21 on: April 20, 2014, 07:05:47 PM »
So, basically, what I said, private fellowships.....even if it goes through your university as financial aid (private grant), it is still a direct fellowship.  If it goes through the research accounting, it becomes "research funds" and you get paid as a W-2 employee.   If this is not what you mean, and you can be a little more clear, I would like to know.

I'm confused by your terminology.  What is a "private direct fellowship" if most of them are given by the federal government?

Leaving that point aside, at one point I was receiving a stipend while pursuing a Ph.D. without any fellowship and it was not considered earned income.  In fact, everyone in my Ph.D. program had that status the first year, when the school (rather than an individual lab) paid for the stipend and tuition.  After the first year, it depended on what bucket of money you were paid out of.  I was paid out of an IAVI grant awarded to my advisor, and my stipend continued to be considered not earned income.  Other students, who were paid out of NIH grants (or received NIH fellowships), were considered employees, their stipend was earned income, and they received W-2s. 


Gin1984

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #22 on: April 20, 2014, 07:34:09 PM »
So, basically, what I said, private fellowships.....even if it goes through your university as financial aid (private grant), it is still a direct fellowship.  If it goes through the research accounting, it becomes "research funds" and you get paid as a W-2 employee.   If this is not what you mean, and you can be a little more clear, I would like to know.

I'm confused by your terminology.  What is a "private direct fellowship" if most of them are given by the federal government?

Leaving that point aside, at one point I was receiving a stipend while pursuing a Ph.D. without any fellowship and it was not considered earned income.  In fact, everyone in my Ph.D. program had that status the first year, when the school (rather than an individual lab) paid for the stipend and tuition.  After the first year, it depended on what bucket of money you were paid out of.  I was paid out of an IAVI grant awarded to my advisor, and my stipend continued to be considered not earned income.  Other students, who were paid out of NIH grants (or received NIH fellowships), were considered employees, their stipend was earned income, and they received W-2s.
When did you go to school?  And were doing rotations your first year?  Based on the lawsuits, if you were, you should have treated as an employee.  But again, it depends on if you were in this before or after all the lawsuits.

A private direct fellowship is paid directly from the granting institution or as a "scholarship" through your financial aid department.  For example, if the IAVI paid you directly, you may not (though the IRS is the final determiner and they have shut some down) be a W-2 employee, but if the IAVI grant was awarded to your PI, sent through his research account and then paid to you, you should have been paid as W-2. 

DSA

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #23 on: April 20, 2014, 08:54:26 PM »
From what I've been able to glean from Purdue's website, it looks like my research assistantship is earned income (all the language talks about myself as being an employee and getting pay for services rendered). Thanks for the reminder to check on it, though.

I also like the recommendations about tutoring (I had done some tutoring in undergrad and always enjoyed teaching), and about showering at the gym. I'm definitely not in shape yet, but I've been doing a lot of weightlifting over the past several months and plan to continue that at the new fancy rec center at Purdue.

EDIT: Quick question though -- what is the impact of not having "earned income" on whether or not to contribute to an IRA? If it's not counted does that limit the amount you can contribute?
« Last Edit: April 20, 2014, 09:01:05 PM by DSA »

beltim

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #24 on: April 20, 2014, 11:57:47 PM »
So, basically, what I said, private fellowships.....even if it goes through your university as financial aid (private grant), it is still a direct fellowship.  If it goes through the research accounting, it becomes "research funds" and you get paid as a W-2 employee.   If this is not what you mean, and you can be a little more clear, I would like to know.

I'm confused by your terminology.  What is a "private direct fellowship" if most of them are given by the federal government?

Leaving that point aside, at one point I was receiving a stipend while pursuing a Ph.D. without any fellowship and it was not considered earned income.  In fact, everyone in my Ph.D. program had that status the first year, when the school (rather than an individual lab) paid for the stipend and tuition.  After the first year, it depended on what bucket of money you were paid out of.  I was paid out of an IAVI grant awarded to my advisor, and my stipend continued to be considered not earned income.  Other students, who were paid out of NIH grants (or received NIH fellowships), were considered employees, their stipend was earned income, and they received W-2s.
When did you go to school?  And were doing rotations your first year?  Based on the lawsuits, if you were, you should have treated as an employee.  But again, it depends on if you were in this before or after all the lawsuits.

A private direct fellowship is paid directly from the granting institution or as a "scholarship" through your financial aid department.  For example, if the IAVI paid you directly, you may not (though the IRS is the final determiner and they have shut some down) be a W-2 employee, but if the IAVI grant was awarded to your PI, sent through his research account and then paid to you, you should have been paid as W-2.

With all due respect, that's contrary to IRS rulings and my institutions legal departments. I'd be interested in seeing he lawsuits you referenced. The only thing I can think of to explain the discrepancy is that we were never required to do anything like be a TA other services for payment.

beltim

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #25 on: April 21, 2014, 12:06:19 AM »
From what I've been able to glean from Purdue's website, it looks like my research assistantship is earned income (all the language talks about myself as being an employee and getting pay for services rendered). Thanks for the reminder to check on it, though.

I also like the recommendations about tutoring (I had done some tutoring in undergrad and always enjoyed teaching), and about showering at the gym. I'm definitely not in shape yet, but I've been doing a lot of weightlifting over the past several months and plan to continue that at the new fancy rec center at Purdue.

EDIT: Quick question though -- what is the impact of not having "earned income" on whether or not to contribute to an IRA? If it's not counted does that limit the amount you can contribute?

Sounds like you know the situation.  Good research

To answer your question, yes - to contribute to an IRA you have to have "earned income" according to http://www.irs.gov/publications/p970/ch01.html

ch12

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #26 on: April 21, 2014, 09:27:23 PM »

I also made extra money (grocery money, to me) by tutoring. It's low-hanging fruit on a college campus.
Many PhD programs that come with stipends require that you do not pick up any extra work without permission, also your time is pretty limited in grad school especially since you don't want to be there for too long.

But many don't. I think OP can figure it out. :)

I worked as a writing tutor for the university itself. About half of us were grads and the other half were undergrads. It's deeply dependent on the university, but obviously grad students at my university were allowed/encouraged to tutor...necessary, again, to pay the bills.

beltim

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #27 on: April 22, 2014, 04:52:52 PM »
Gin1984:  I'm not alone in my experience with graduate stipends not being considered earned income.  There are a lot of comments at http://www.evolvingpf.com/2012/03/earned-income/ that show a wide variety of situations.  Your simplistic description of whether or not the money goes through "research accounting" is just not accurate at some institutions.

seattlecyclone

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #28 on: April 22, 2014, 06:53:58 PM »
I went to a different Big Ten university for a master's in CS a few years ago. My thoughts on your finances:

  • Consider selling the car. $15k is a lot of capital to tie up in a car, given your salary. Replace it with a cheaper one ($5k or less) if you absolutely need to own a car for some reason. You should ideally live close enough to campus that you can walk and/or take public transit for most of your transportation needs. The main reason I kept a car during grad school was to visit family and friends out of state; I rarely drove it in town.
  • Contribute to a 403(b) if you're eligible (I was). Your stipend may not be enough to max out this plan; minimize your tax withholding and aim for a net paycheck as close to zero as possible. If you don't have outside employment, the majority of your stipend will be taxed at the 0-10% level. Use traditional contributions to get rid of all your income in the 15% bracket. Once you're in the 10% bracket, I think Roth contributions tend to make more sense if they're an option in your plan. Also max out your Roth IRA every year.
  • Consider applying for summer internships in places like Microsoft Research or Google. Your internship will probably pay you more in a summer than your university will pay you during an academic year. This may make your PhD take slightly longer if you can't find an internship in your desired research area, and you probably won't be able to do something like this every year anyway, but the industry connections and extra income may prove worthwhile. If you do this, forget about the Roth 403(b) contributions; traditional contributions usually are better when you're solidly in the 15% bracket.
  • Get most of your cash working for you in a taxable brokerage account. You'll want to keep some of it in cash to be available for the next year's worth of living expenses (since almost all of your stipend will be going into your 403(b)), but having $50k in cash all at once is just foolish.
  • Investigate how many credit hours you need to take for your university to consider you a "full-time student." If you fall below this number, you will probably be eligible for the saver's credit on your taxes. I'm not suggesting that you modify the number of courses you would ordinarily take just to get this tax credit, but it's something to be aware of. Some programs may require you maintain full-time course load to get your stipend. By contrast, my department strongly recommended that grad students who had teaching assistantships should only take six credit hours of coursework (full-time was eight).

Gin1984

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #29 on: April 22, 2014, 07:02:44 PM »
Gin1984:  I'm not alone in my experience with graduate stipends not being considered earned income.  There are a lot of comments at http://www.evolvingpf.com/2012/03/earned-income/ that show a wide variety of situations.  Your simplistic description of whether or not the money goes through "research accounting" is just not accurate at some institutions.
My mother works in labor law, it is not simplistic, there is very nice form that you can send to the IRS and they can determine if you should be getting a w-2 or not.  But the lawsuits have been very clear which is why as the link you provide said "Here is the really crazy part, from the instructions for the 1099-MISC:
 
“Do not use Form 1099-MISC to report scholarship or fellowship grants. Scholarship or fellowship grants that are taxable to the recipient because they are paid for teaching, research, or other services as a condition for receiving the grant are considered wages and must be reported on Form W-2. Other taxable scholarship or fellowship payments (to a degree or nondegree candidate) do not have to be reported by you to the IRS on any form.”".
Pretty clear from the IRS.  And yes, some universities, even some departments within universities will give 1099 out instead because they don't want to pay benefits or FICA, and they think they can get away with it because we need the letters of rec, but as multiple lawsuits have shown and even more crack downs from the IRS directly, it is not legal except for direct private fellowship, which are normally federal fellowship.  But, frankly the argument does no good the OP, can we either take this to another thread and I can post links to the lawsuits and IRS links, or drop it?

beltim

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #30 on: April 22, 2014, 07:14:53 PM »
Gin1984:  I'm not alone in my experience with graduate stipends not being considered earned income.  There are a lot of comments at http://www.evolvingpf.com/2012/03/earned-income/ that show a wide variety of situations.  Your simplistic description of whether or not the money goes through "research accounting" is just not accurate at some institutions.
My mother works in labor law, it is not simplistic, there is very nice form that you can send to the IRS and they can determine if you should be getting a w-2 or not.  But the lawsuits have been very clear which is why as the link you provide said "Here is the really crazy part, from the instructions for the 1099-MISC:
 
“Do not use Form 1099-MISC to report scholarship or fellowship grants. Scholarship or fellowship grants that are taxable to the recipient because they are paid for teaching, research, or other services as a condition for receiving the grant are considered wages and must be reported on Form W-2. Other taxable scholarship or fellowship payments (to a degree or nondegree candidate) do not have to be reported by you to the IRS on any form.”".
Pretty clear from the IRS.  And yes, some universities, even some departments within universities will give 1099 out instead because they don't want to pay benefits or FICA, and they think they can get away with it because we need the letters of rec, but as multiple lawsuits have shown and even more crack downs from the IRS directly, it is not legal except for direct private fellowship, which are normally federal fellowship.  But, frankly the argument does no good the OP, can we either take this to another thread and I can post links to the lawsuits and IRS links, or drop it?

I agree that it's not simplistic.  I agree that that instruction inform the IRS is clear. It's also why the non-compensatory grants that I've received don't issue a 1099.  I'm happy to take this to another thread or private message.

squatman

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #31 on: April 22, 2014, 08:39:47 PM »
If growing money is the ultimate goal, finishing your PhD as fast as possible is probably the most important thing you can do. While I certainly loved the year I spent "post-docing" in my lab after I finished my PhD, the 60k+ in missed salary between stipend and "real" job was a big deal. Obviously that goal is somewhat out of your hands, but I'd focus on things like establishing industry connections (assuming academia is not the end goal, as it's an unlikely one), looking into a summer internship after your first year of classes, and being extremely proactive with your advisor about having a multi-pronged research plan as early as possible.

Gin1984

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #32 on: April 23, 2014, 09:33:18 AM »
If growing money is the ultimate goal, finishing your PhD as fast as possible is probably the most important thing you can do. While I certainly loved the year I spent "post-docing" in my lab after I finished my PhD, the 60k+ in missed salary between stipend and "real" job was a big deal. Obviously that goal is somewhat out of your hands, but I'd focus on things like establishing industry connections (assuming academia is not the end goal, as it's an unlikely one), looking into a summer internship after your first year of classes, and being extremely proactive with your advisor about having a multi-pronged research plan as early as possible.
What kind of field did you do?  We definitely don't have summers off.

galliver

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #33 on: April 23, 2014, 10:02:39 AM »
If growing money is the ultimate goal, finishing your PhD as fast as possible is probably the most important thing you can do. While I certainly loved the year I spent "post-docing" in my lab after I finished my PhD, the 60k+ in missed salary between stipend and "real" job was a big deal. Obviously that goal is somewhat out of your hands, but I'd focus on things like establishing industry connections (assuming academia is not the end goal, as it's an unlikely one), looking into a summer internship after your first year of classes, and being extremely proactive with your advisor about having a multi-pronged research plan as early as possible.
What kind of field did you do?  We definitely don't have summers off.

Likewise. Getting your advisor to *let* you do an internship is...a project in itself, kind of.

squatman

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #34 on: April 23, 2014, 11:54:37 AM »
If growing money is the ultimate goal, finishing your PhD as fast as possible is probably the most important thing you can do. While I certainly loved the year I spent "post-docing" in my lab after I finished my PhD, the 60k+ in missed salary between stipend and "real" job was a big deal. Obviously that goal is somewhat out of your hands, but I'd focus on things like establishing industry connections (assuming academia is not the end goal, as it's an unlikely one), looking into a summer internship after your first year of classes, and being extremely proactive with your advisor about having a multi-pronged research plan as early as possible.
What kind of field did you do?  We definitely don't have summers off.

I was in engineering. We didn't have summers off either, but several people in my department did summer-long industry stints/externships as part of training grants, and one person in my lab spent 8 weeks at a local VC firm. I only suggested the first year because you're the least far along in terms of research, but really you could do it at any time. If you make it a large priority and find an understanding advisor - something that will also make your grad school life better - you can make it happen.

DSA

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #35 on: April 23, 2014, 05:42:31 PM »
This is some great advice, both for financial stuff and grad school life/work in general. I went ahead and got the car paid off. This next week or so, as I get moved in and get started with my research assistant work, I'll get the details on my work and what investment options it provides (403b, getting myself into a lower tax bracket, etc), and at that time I'll get a Roth set up and get a portion of my funds working for me.

Gin1984

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Re: New PhD student, 55k in savings account, how to start growing my money?
« Reply #36 on: April 23, 2014, 06:36:11 PM »
This is some great advice, both for financial stuff and grad school life/work in general. I went ahead and got the car paid off. This next week or so, as I get moved in and get started with my research assistant work, I'll get the details on my work and what investment options it provides (403b, getting myself into a lower tax bracket, etc), and at that time I'll get a Roth set up and get a portion of my funds working for me.
One thing I noticed with my DH (he started before me), is that they did not give you much time to decide things and pushed you to fill out everything right then and there.  It may be just our department but just in case, you could do what I did and request the paperwork from HR early.  I was funded through a different source, so I could not just use my husband's old paperwork.