Saving for retirement as a graduate student.
December 26, 2012 5:49 PM Subscribe
I am a new graduate student and was hoping to put some money into a Roth IRA to start saving for retirement, but just read that contributions must be made from earned income and now I'm not sure if that is the best plan for my circumstances.
posted by anonymous to work & money (7 answers total) 4 users marked this as a favorite
This fall I started a PhD program that provides fellowships without a requirement for teaching or research (I mean, there are TAships and RAships, but that's not what I have). Although I pay tax on the fellowship, the university does not withhold anything for retirement and I will not receive a W-2. My impression is that this fellowship cannot be considered 'earned income' for the purposes of funding a tax-advantaged retirement account. In 2012, I did make the minimum $5000 of earned income from work earlier in the year, so I would be able to make the maximum contribution for 2012, but then I wouldn't really be able to do anything with the fund until the distant future after I graduate and/or my funding runs out.
Given that I will have no source of earned income for the next several years, is it still a good idea to start a Roth IRA now, when I have the opportunity? If so, can I just use one of Vanguard or Fidelity's well-known products or is there some better option that I don't know about? I do not have good role models for financial planning in my family and feel very anxious about the possibility of making the wrong decision and being doomed forever. My partner suggested putting some of my savings into CDs but the rates look so discouragingly terrible that I feel there must be a better use of my savings. I saw some advice elsewhere on the internet encouraging graduate students to contribute in other ways to their long-term financial well-being (e.g., save aggressively for a down payment on a house or buy a car outright instead of financing), but I can't help feeling that the chance to start a Roth IRA now is something I should not pass up.
As for the rest of my financial picture, I owe several thousand in student loans, but they are all subsidized loans and the interest rate is very low (although not as low as my savings account's, of course). I don't have any other kind of debt, except for a hospital bill but that is interest free, too, at least for now. I do have an emergency fund in place, in addition to the $5000 that I am hoping to invest, but I do not have any kind of retirement savings (my lifetime SS contributions are laughably small and I have no company-sponsored 401k to roll over). My plan is to contribute $200 a month to whatever thing I go with and I would like the return to be more than the .10% I'm getting from my savings account but I do not have much time/energy/expertise available for keeping an eye on stocks and making frequent trades.
I've looked at a bunch of questions on retirement planning and dug through grad student forums for questions about finances, but I would still appreciate your advice. There is not really anyone I can talk to about this in my family and most of the people in my department are independently wealthy international students and I don't really want to talk with them (or really anyone with whom I have a professional connection) about my financial woes. Thank you!