Pre-Medical; what do I do with my retirement accounts?

[MidwestGal]

Howdy fellow Mustachians,
I struggled with whether to post this here or on the medical community website I'm a part of, but I figure that you all would give me a more financially sound answer to my question.

I'm a non-traditional student in my very early 30s.  I have just over 24 months of veterans education benefits left, and have been working full time with a full class load and a family.  My 'stache sits in a Roth, 401(k), and taxable stocks.  The reason I originally wanted to post this on the medical site is because they've got a really good idea of the 'hidden' costs of trying to get to medical school.  Just the medical admissions tests and the applications and interview season can run well into the thousands of dollars, which is not considered necessary for the purpose of student loans.  I plan to take the admissions test in early 2017 and apply that summer.  In the meantime, I will reduce my work hours and eventually stop altogether, leaving me more dependent on my other half (who is in a contracted position) to focus on keeping my grades at the level they need to be.  My personal savings will cover roughly 4 months of everyone's expenses, including debt payments and student loans.  I've considered the D.O. path but am set on being an M.D. which generally requires a higher test score and GPA level.

So our household income will fall (we are both in school and have a mini-mustache to raise), and while we will be able to pay bills, it will be really tight.  For a decade or more.  We accept the fact that we'll be living poor, and that's fine.  It won't be much different than we're doing now!  The hardest part will be the time that's spent away from my family.  I know it's hard to understand unless I'm actually working 16+ hours a day, 7 days a week with on calls for very little (resident) or no pay (regular student).  Fortunately, I have great support and we are in this together.  My dream medical school is the local one, which is really a couple minutes' walk from our house.

So after that novel, my questions are:

• Do I keep the retirement accounts, or cash everything out or just tell Vanguard and my 401(k) people to sell everything and hold the money?  I worry about losing any gains on my contributions when they're needed most, which will be in roughly 2 years.
• Is there anything I can do to soothe the tax bite?  As a sidenote, my retirement accounts will not count against me for financial aid.
• If I am supposed to sell, where is the optimal place to keep the funds liquid?
• Thanks to my benefits, I have no student loans, but am considering taking some out to fund the rest of my undergrad.  My school is extremely well-priced for undergrad.  The purpose of this would be to save the remaining benefits for most expensive school later.  Does this idea have merit?  There is always the chance that I will not be accepted into a medical program, but I am very determined and my back-up is still in a healthcare field.
• I have no debt, but my spouse has ~$10k car/credit card debt.  I am definitely the saver/investor of the household.  Do we pay down the debt first, or save a cushion?  My concern involves cutting down on my work hours, because school will come first.  Last term was really shaky and I came out fine gradewise, but don't think I can have that schedule for another entire term.
• Is there anything else I need to consider?

Thanks for reading, and for any advice!

[matchewed]

Do I keep the retirement accounts, or cash everything out or just tell Vanguard and my 401(k) people to sell everything and hold the money?  I worry about losing any gains on my contributions when they're needed most, which will be in roughly 2 years.

I'd keep money in the retirement accounts if they are already there. If you need to you can take hardship distributions. See here. However is this an active 401k? Are you still employed with the employer who it is with? You usually can't just up and sell everything if that is the case. You'd have to look at your specific literature regarding hardship withdrawals or distributions.

Is there anything I can do to soothe the tax bite?  As a sidenote, my retirement accounts will not count against me for financial aid.

Mostly the hardship. Nothing else if you withdraw above that amount. You'll just suffer the penalties.

If I am supposed to sell, where is the optimal place to keep the funds liquid?

If liquidity is important and I'm assuming you want minimal risk too then a savings account is probably best.

Thanks to my benefits, I have no student loans, but am considering taking some out to fund the rest of my undergrad.  My school is extremely well-priced for undergrad.  The purpose of this would be to save them for most expensive school later.  Does this idea have merit?  There is always the chance that I will not be accepted into a medical program, but I am very determined and my back-up is still in a healthcare field.

Taking out student loans is not a bad idea. But know how much you'll need. Go back to those forums you were talking about and get a good estimate on costs. Then challenge those assumptions. Lots of what people spend their money on is not necessary.

I have no debt, but my spouse has ~$10k car/credit card debt.  I am definitely the saver/investor of the household.  Do we pay down the debt first, or save a cushion?  My concern involves cutting down on my work hours, because school will come first.  Last term was really shaky and I came out fine gradewise, but don't think I can have that schedule for another entire term.

Not just a cushion, you definitely need an emergency fund especially if you will have a drop in income and a rise in expenses. Keep in mind your regular expenses and envision "oh shit" scenarios, in fact envision a few of them and estimate some costs. Examples of this are emergency flights or needing to buy a used vehicle or replacing a big ticket item.

Is there anything else I need to consider?

Dunno. Good luck and work hard. Minimize your expenses and keep pushing. :)

[MidwestGal]

Yes, the 401k is still active with my current employer.  I'll have to look that up.

Thanks matchewed!

[matchewed]

Yes, the 401k is still active with my current employer.  I'll have to look that up.

Thanks matchewed!

In that case most plans only allow for hardship withdrawals or loans. I would not recommend the loan as it has some tricky rules in the event of leaving the job before the loan is paid off. I'd use any hardship withdrawal as it is noted as, a hardship. If you need 10k really bad I'd do it. Other than that I'd rely on loans and income.

[Gracie]

I'm in residency right now so please take what I have to say VERY seriously.

1. Your family needs to learn to live on less than your spouse's income RIGHT NOW. That is what you are going to have while you are in medical school so better to adjust now. All the extra money needs to pay off your debts, then be saved in a very liquid account. You have 2+ years to store up a large chunk of your tuition. Then you can take out minimal loans

2. How much does the local school cost per year? I went to a low-cost school that cost $12k per year. If you can save $20K+ per year by moving to a less expensive area, that may be worth it. The money you save in #1 can finance a lot of your education. Unless you want to teach a fancy IVY, you do not need to go to Harvard or Hopkins to be a great doctor. 

3. Residency actually pays well (though not on a hourly basis), about the median family income for Americans. Unless you live in New York, LA or San Francisco. So don't sneeze at that money. Where you do residency can have a HUGE impact on your debt load. I live in the Midwest and make about $50K. You can have an awesome life on $50K in the Midwest (or South or South west or anywhere with a low COLA).

4. Check out the White Coat Investor. Great tips and some of the articles are addressed to premeds.

5. Be aware that there will be rich people in medical school and you will NOT be able to live like they do. They have family money. Many are actually quite frugal with their own money, but have family that like to pay for tuitions,  vacations, etc.

6. Do you know what you want to do after residency? Have you actually checked it out? expect it to change during medical school.  I thought I wanted to be a surgeon for YEARS. Then as a 3rd year medical student, I discovered that I HATED surgery. So don't expect to do what you think you want to do now.

7. Are you volunteering? If not, start now. Make it a family affair if you can.  Too many applicants say they want to help people, but have never actually done anything helpful.

8. Study your a** off. No amount of interesting background makes up for a bad MCAT or GPA. Let your kids see study.

The 401k is actually the least of your concerns. We left ours alone during medical school. We didn't contribute because it didn't make sense to take student loans while investing at a lower rate.

[zedpol]

So,  I've taken the long route,  did medical school, two residencies both in the most expensive parts of the country and I am now an attending.  The best advice I can give you is.

1) live below your means ( I second gracie's point of learning to live on less than your spouse's income)
2) don't look at loans as free money, they will come back to bite you in the behind.  I know many people who borrowed based on their future earnings and now have multiple hundreds of thousands of dollars in debt, can't afford houses any time soon and are taking jobs they don't want because they pay more.
3) I went to a second rate school and now am faculty at one of the top schools in the country,  pick a budget option if you get that choice. 
4) leave your 401k untouched if you can even if it means a little more debt.   

[MidwestGal]

Hi Gracie and Zedpol, your advice is most appreciated, truly.

I am thankful to have those benefits available, but really wrestle with taking the safe route and paying for the rest of undergrad with it, or saving it for med school and taking out loans sooner.  Basically one year of benefits = $10,000 now, or $30,000+ later if I wait with no guarantee of entry.

My local university is a moderate walk/short bike ride away, and costs less than Gracie's school per year.  There is nothing I can do to move to a lower cost area when residency is taken into account (plus the tuition rocks) and we LOVE the neighborhood.  The medical school is nearby on another campus, which can also be easily accessed by bike for me.  On days when I drive to work, it is on my route.  A daily kick in the ass, if you will.  They've historically been very unfriendly to OOSers so that keeps my hopes high.  As a nontrad, I'm not in the least concerned about the prestige of a school.  I care about what I can do with the information taught.

I understand that a resident's ~50k isn't a trifle, and I take that to mean that student loans can be deferred during that time?  If I can get in the local program my debt will likely not cross $100k, which is my goal ceiling limit.  We're used to living frugally, and were both raised that way.

There is no set specialty in my mind, but my current leanings are toward neuro, psych, or physiatry.  No surgery here, thanks!  I was originally interested in the therapy and rehab PT/OT/SLT fields, then quickly realized how little autonomy they have with certain aspects of healthcare.  The more research I do about physicians, the more I realize that I will have no idea what it's like until actually there in it.  I've been volunteering slowly and steadily in the community and will up that as my work schedule is lowered.

Let your kids see study.

This is the only part that makes me feel funny.  My little mustache is from the prior marriage; currently a horribly anti-mustachian household with TONS of waste.  Does one person really need 3-4 cars at any given time?  There has already been innocent comparisons as to why we have so little here when mommy works so hard when it's parenting time at the other place.  The kiddo and any subsequent siblings will be going without terribly fancy stuff for a very, very long time.  I can study, but worry about having enough time for my loved ones.

[Gracie]

$100K total student loans is decent. You would be able to keep up with the interest in residency and pay it off quickly after residency.

BTW my Medical School was only $12k per year. So if you were able to get into a place with tuition like that, you could come out the other side with only $48Kish in debt.

[jabber]

I concur with Gracie, read through www.whitecoatinvestor.com on his sections for Pre-Meds, Med Students, and Residents.  This knowledge will pay higher return s than any decision you make about your retirement accounts.

If it were me (it was me about 10 yrs ago), I would keep your $ in your retirement accounts.  This is tax favorable space you cannot recover if relinquished.   You can make the money back to repay student loans, as an MD.

Two other pieces of free advice: exercise enough to stay healthy and start studying for MCATs now.  I used a self-study book and went over it three of four times page to page.

Cheers.

[MidwestGal]

Jabber, thanks for the reminder to look at WCI.  The site fell off my radar after Gracie recommended it but it's on another tab now so I am less likely to forget.  We decided to keep my money in the retirement accounts unless something terribly drastic happens.  The plan is to continue adding to them slowly while I am still employed, after building up a cushion and my spouse's debt repayment.

I have preordered MCAT study supplies for the 2015 version, and do plan to study as I understand more material (as more classes are taken).  It's really changed a lot.  Our family biking hobby and some calisthenics and freeweights are keeping me sane for now.  Appreciate the tips!