Invest in Roth IRA vs Saving Up for School/Take out Less Loans

[laxative_mess]

I recently graduated from college and plan on entering dental school next year fall. So during this gap year, I am currently working a job as a sales rep.

I'd like some advice on what to do with the money I earn during this gap year.

A) Invest the money into a Roth IRA. I keep hearing that time is precious. Also, this could possibly be my last chance to take advantage of a Roth IRA since there is a chance I will exceed income limits after graduating.

B) Save up for dental school tuition thus less loans to take out. Total cost of attendance is around 200-250k, and I will be borrowing most, if not all, of it. Using the money on tuition instead of Roth IRA/401k would mean I am taking out less loans (which are at around 7% interest).

I haven't started/opened up a Roth IRA yet, and I'd like to get some advice from you wise people!

[marvholly]

Why is this an either or question. You MAY take out any funds you actually contribute to a Roth at any time. You just cannot take out any earnings w/o taxes/penalties.

thus, IMHO, put it in a Roth for now. Explore scholarships, work off programs (while in school and for a few years after) for your dental school costs. Also, there is some discussion about student loans becoming a federal program so your interest may not be so high when you do go.

[littleroc02us]

Is there a cheaper dental school you can attend? Seems quite hefty. I would save up for school and wait on the Roth until later because of the great costs.

[Joan.of.the.Arch]

I would not put the money into a retirement account. I would apply it to living expenses while in school so as not to have to borrow the equivalent amount. Are you even allowed to work for wages while in dental school?

[jpg7n16]

Think of the endgame: after you graduate, which one will you start up on first?

a) Save for retirement
b) Work on paying down your school debt
c) split money between the two (70/30 or 50/50, etc.)

Then whichever option you'd choose when you're done with school, make that same decision now as a head start.

7% is actually my personal "I'm uncomfortable with this high of interest" threshhold. So once I graduated, got my dental career rolling, I'd likely pay down the huge student loans. Therefore, I'd choose B and give myself a headstart.

Don't bother setting up a Roth to temporarily house the money (investments may go down, low balance fees may eat away any earnings, time horizon is too short for any real long term investment, etc.)


Remember: student loan interest is only deductible up to a certain amount ($2500 max), and isn't deductible if your income is too high. (7% on $200k is 14k, so 11,500 of that isn't deductible even in the best case scenario)

[Slug]

I'll be the contrarian. I'd put the money in a Roth in a brokerage with no account minimums that offered me lots of ETF's I could trade commission free like Ameritrade or Fidelity or Schwab. That way it's tappable if you need it, but if not you'll feel good about the little piece of retirement you've started. This is the way I did it in graduate school, and I really liked knowing I given myself a small leg up on retirement.

For dental school you're going to take on boatloads of debt for several years, then make boatloads of cash upon graduation (hopefully for many years). Worry about attacking that debt when you have an income that actually impacts it. For now, dabble in your Roth, live reasonably, and prepare to mold lots of teeth and become a guinea pig for your classmates.