fellowship

How This Multi-Fellowship Winner Managed Her Applications and Finances

September 9, 2019 by Lourdes Bobbio Leave a Comment

In this episode, Emily interviews Dr. Anne Rocheleau, who holds a PhD in biomedical engineering and currently works in industry. Anne won several fellowships during grad school (and applied for many more), including ones that paid her stipend and tuition and fees and ones that paid for conference travel expenses. Anne shares her process of finding and applying for fellowships and the extracurricular activities she pursued to make her a competitive candidate. Anne’s established budget helped her manage her income as her pay frequency changed while going on and off the fellowships, but she did have an unpleasant surprise one April since her fellowship did not withhold income tax. Overall, Anne’s fellowships greatly contributed to her development as a researcher and science communicator as well as her personal finances.

Links Mentioned in the Episode

Teaser

00:00 Anne: Fellowships can be a really wonderful way to broaden your experience in grad school and I know a number of students that studied in a different country, for instance, which is a great experience that they wouldn’t have gotten necessarily if they had stayed on a research assistantship or a teaching assistantship.

Introduction

00:23 Emily: Welcome to the Personal Finance for PhDs podcast, a higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season four, episode four and today my guest is Dr. Anne Rocheleau, a PhD in biomedical engineering who won several fellowships and travel awards during grad school and her postdoc. Anne gives advice for other fellowship seekers based on her experience of finding and applying for several fellowships each year and shares the enriching experiences she sought out that made her a competitive candidate. The fellowships had a positive effect on Anne’s personal finances and scholarly development and we discuss how to avoid the financial pitfalls that come with some types of fellowship income. Without further ado, here’s my interview with Dr. Anne Rocheleau.

Will You Please Introduce Yourself Further?

01:13 Emily: I’m joined today by Dr. Anne Rocheleau. Thank you so much for coming on the podcast and we are going to be discussing fellowships, how to win them and what happens to your finances once you do win one. Anne has plenty of experience with this, so thank you so much for joining us today and will you tell us a little bit more about yourself, please?

01:33 Anne: Sure. Thank you so much for inviting me to be part of this podcast. I’m really excited to be here. I got my undergraduate degree in chemical engineering from Worcester Polytechnic Institute in Massachusetts. I did my Masters of Science degree at Cornell University in chemical engineering, as well, and I did my PhD in biomedical engineering, also at Cornell. Then I worked for a year as a quality engineer in Massachusetts, before moving out to the west coast to Portland. I was a postdoc for a year and a half at Oregon Health and Science University and now I work as a research scientist at a startup medical device company here in Portland.

02:17 Emily: Well, we’re going to get on a little diversion here already because I’m curious about you having a real job for a year and then going back to having a postdoc. I didn’t know that was a thing. Was there any difficulty in landing that postdoc, having been out of academia for a little bit of time? And also, what was the reasoning behind that? Was it just, “I want to live in Portland and this is the kind of job I can get”, or what?

02:41 Anne: Yes, it was largely a geographic. I wanted to move out to Portland to be with my now fiance, but also, it was really fun to work in industry for a year. It was very different and it got my mind working in a totally different way, being a quality engineer, and then when I wanted to move to Portland, I had a connection from my PhD advisor, who knew my advisor that became my postdoc advisor here in Portland, so that was a really natural fit and I really liked OHSU, Oregon Health and Science University. To work in the med school environment was really great, so that was a really cool transition. It was interesting going back into academia. I felt like I had a little bit of a different take on things and it really solidified my desire to stay in research. I love research.

03:37 Emily: Glad to hear that it added to your career. It sounds like you networked your way into it, so that’s very natural.

Finding and Applying to Fellowships

03:45 Emily: Let’s hearken back to your grad student and postdoc days when you were applying for and winning fellowships. Which fellowships did you end up winning?

03:56 Anne: I did my master’s degree on the National Science Foundation Science Master’s program fellowship. That one I actually got lucky, I didn’t have to directly apply for it. I was offered that program by my department, so that was the first one. Then, during my PhD, I received the National Science Foundation GK-12 fellowship. That was a full tuition and PhD stipend fellowship and also included a teaching element. I was part of the Society of Women Engineers as a grad student and so I received a scholarship through them, that was $3,000. I applied for and received two travel grants for the Biomedical Engineering Society’s annual meeting, so those travel grants covered the meeting registration as well as $400 for travel. When I was a postdoc, I received a travel grant for a conference and I wasn’t presenting there, but I did attend some workshops and I think that was about $2,000.

05:03 Emily: I’m glad to hear that list because I just want students and postdocs to get an idea of the diversity of fellowships that are out there, it’s not only from the NSF, it’s not only the GRF, there’s a lot of other ones as well. There’s all these travel grants from the conferences and everything. Conference travel is a big pain point for grad students and postdocs and so it’s just good to hear that there is money available. You have to ask, get a little bit lucky, or put together the right kind of application and the money’s there for some people, so that can help a lot.

05:39 Emily: Can you tell me a little bit about your process of applying to fellowships and finding out about these fellowships. You said there was one you were automatically nominated or awarded, but other ones you had to seek out. What was that process like? How did you find these fellowships?

05:57 Anne: I have a couple of recommendations for that. First of all, I found internal university resources to be excellent for finding fellowships and talking to other folks that were in my department that had received these fellowships in the years before me, that was really useful. There were some databases at my university, where they aggregated fellowship opportunities. Professional societies are a great way to find fellowships, both for conferences and I also received one that was a scholarship. My other recommendation for this is ProFellow.com. This is an awesome website. I’m still on the email list. It’s post-bac, post-graduate fellowships, graduate fellowships, both long term, short term, all fields, all over the world. It’s a fantastic resource for fellowships.

06:52 Emily: It’s so funny that you mentioned that because we’re recording this on a Tuesday and I’m interviewing Vicki, who’s the person behind ProFellow, on Thursday for the podcast. I don’t know which order they’ll come out in, if yours will come before hers or vice versa. I’m not sure, but listeners, these two podcasts episodes are coming together, they’re a pair. Thank you so much for mentioning those resources. I have a post, I’ll link to it in the show notes, on how to find fellowships, which includes a couple of the databases you mentioned that I saw. Some universities have really extensive ones, but I’m going to add some of the things that you just mentioned to it. So listeners if you want to see some links to this, go to the show notes and find that post. Thank you so much for adding that. I really liked the tip about the professional societies. I hadn’t thought about that at all, but it totally makes sense.

07:42 Emily: So you found some fellowships you applied for. You told us which ones you were successfully awarded, but did you have some others that you applied to that you didn’t win? Were you applying for a lot or maybe only one or two a year or what was it?

07:55 Anne: Oh, yes, I definitely applied to a number that I wasn’t successful in. This is definitely a numbers game and sometimes you get lucky and sometimes you don’t. So yes, there were certainly several from all levels — from scholarships, fellowships, travel grants — that I did not get.

08:14 Emily: Well, it’s good to hear that you were just trying a lot. Since you were submitting a number of these applications per year, how did you think about that in terms of the usage of your time? Did you feel like it was, not a waste of time, but not really within your core mission of what you were doing in graduate school? Like something you had to do that was kind of extra, or did you really see it as just grant writing and building a skill set? How did you view it?

08:43 Anne: I do enjoy writing, so that’s part of it, and I was happy to develop those skills. In the case of the NSF GK-12 fellowship, it was a great way to enhance what I was doing with another skill set. In that case it was teaching and mentoring. I was paired with a teacher that I mentored for a project in the summer. I think fellowships can be a really wonderful way to broaden your experience in grad school and I know a number of students that studied in a different country, for instance, which is a great experience that they wouldn’t have gotten necessarily if they had stayed on a research assistantship or a teaching assistantship.

09:40 Emily: Yeah, that’s a really good point because, what I tend to forget about is fellowships pay you or pay your expenses, but really their purpose is to further your development as a researcher. That could be through doing whatever you’d be doing as an RA at your university, or it could be having these much more independent experiences, as you just mentioned, that are really enriching in a variety of ways. That’s what a fellowship is for, right? It’s good to be reminded of the core mission of a fellowship, which is to develop an individual, not necessarily to further some larger grant or whatever that you’re working on.

10:24 Anne: I have one more thing that I can add there too. I felt like it really deepened my connection to the professional societies that I was part of as well. I’m actually now involved in my local chapter of the Society of Women Engineers as a scholarship chair, so it really inspired me to turn around and give back after graduate school. It really meant a lot to me and it was inspiring to me that those organizations believed in me and I felt like that also came out as well in these.

Fellowship Application Tips and Tricks

11:00 Emily: Wonderful. What about the process of actually writing these applications? Did you have any tips for another grad student or postdoc going through that? What was that process for you?

11:12 Anne: I generally kept these materials together and it was my folder of preparation for what I needed to write some of these applications. First of all, you almost always need a copy of your transcripts, so I just had that handy so I didn’t have to go searching for it when I needed it. You almost always need a CV, so again, I just had that handy, a two page CV. I also had my set of go-to recommenders because many of these a fellowships also require recommendations. Then I had some talking points that I used as a basis for the essays for these different fellowships. They all require something a little bit different, but they almost always have a research component — what you’ve previously done, what you would like to do, some quantifiable results if you have those. Many of them have an outreach component, so I had this running list of what I was involved in with volunteer efforts and professional society involvement. Many of them have leadership component too, so again, I just kept that list of bullet points of some of the things that I’ve done and this just really helped me make the process smoother and faster, and when I went to go actually write one of these, I had something already there to go off of.

12:39 Emily: It kind of seems to me that the more of them you write, the easier it gets, right? Because you can reuse the themes and reuse some of the wording and so forth from your previous submissions.

Building Up Your CV

12:51 Emily: We talked a little about the process of writing applications, but what about the other things that you just mentioned, which was building up your CV, building up your leadership experiences, building up your outreach experiences. What did you find were relevant experiences that you had that you think helped you win these when these awards?

13:16 Anne: I got involved in some of the organizations through my department and through my university. We had some outreach events through my departments that were really fun. I had a good time participating in those. I also started getting involved in the leadership executive board of the professional society chapter at my university. I did that throughout my years in grad school, so I felt like that was really valuable. And again, I kept a list of the deliverables for my research, so I always had that ready to go. I think that was helpful too.

14:02 Emily: Define deliverables, because I’m thinking papers, but maybe there’s some other things in there too.

14:09 Anne: Yeah, papers, presentations. This wasn’t applicable for me, but if there was any media coverage of your research or anything special like that, if your university highlighted your work or a local news station highlighted your work, something like that. Those would be the main deliverables that I’m thinking of.

14:30 Emily: Did you have publications early on that were easy to point to when you have these further applications, like from your masters, for example?

14:40 Anne: Yup.

14:42 Emily: Yeah. I think that just goes into being the kind of candidate who wins these fellowships, having those deliverables come out early. So push for that, I think, is the advice for a current grad students. Don’t try to publish all your papers right at the end. It’s nice to get maybe one out the door early on.

15:00 Anne: Yeah, absolutely.

Writing the Fellowship Application

15:02 Emily: Anything else around advice for writing and winning fellowships?

15:08 Anne: I would say, first of all, if you have any questions about the content of the materials of the application definitely reach out to the organizational contact. It’s an obvious thing, but make sure you’re completing the full application packet. Sometimes they can be pretty long, a little bit complicated, and also don’t give more than they ask for. That might be held against you, potentially. If there’s an essay limit, stick to the essay length limit, things like that. When you’re organizing your essay, make sure you have an introduction. Make sure you have a section that’s organized around your research, the content of what you’ve done before, what your proposal is. Make sure you group any other outreach and leadership experience together. And then also explain how the fellowship could benefit you and your career path. I think the people that are reading, and having been now on the other side, I think it really is nice to know that it really would make an impact to the person if they received the fellowship. They’re not just applying willy-nilly to these. It really would be meaningful and helpful to them, financially too.

16:30 Emily: Can you give an example of that? What’s beyond the obvious of how a fellowship would further your career? Maybe something that you included in one of your essays?

16:41 Anne: Yeah. For instance, the NSF GK-12 fellowship had the teaching component and I think learning about science communication, that was really something that was really important to me, and being able to translate my work to others, that was what I included in that essay. And even though I’m not actively teaching in a professor capacity right now, that really was valuable to me and that really was something that meant a lot to me to gain out of that fellowship.

Commercial

17:18 Emily: Emily here for a brief interlude. Through my business, I provide seminars and webinars on personal finance for graduate students, postdocs and other early career PhDs, for universities, institutes and conferences, associations, etc. I offer seminars that cover a wide range of personal finance topics and others that take a deep dive into financial topics that matter most to PhDs, like taxes, investing, career transitions and frugality. If you are interested in having me speak to your group or recommending me to a potential host, you can find more information and ways to contact me at pfforphds.com/speaking, that’s p f f o r p h d s.com/speaking. Now back to the interview.

Financial Impact of Winning a Fellowship

18:08 Emily: Let’s shift gears and talk about the financial effect that winning a fellowship has on you, the awardee. So in your case, what happened? You won some fellowships, what happened with your personal finances?

18:25 Anne: One of the really great things about the fellowships I received was they were actually higher than the RA or TA stipend that I would have otherwise received, so that was really great and definitely a motivation for others to apply for fellowships. They’re often higher than what you would receive from your university. One thing to note is that different fellowships pay out slightly differently, so I had different payment arrangements depending on the years. One fellowship paid at the beginning of the semester, so just twice, and the other paid biweekly, every other week. It made a difference in my monthly budgeting. I didn’t change really how I budgeted because of that necessarily, but depending on how you operate with your budget, it might. The other thing is that the year that I received the the $3,000 Society of Women Engineers Fellowship Scholarship, that was actually on top of the GK-12 fellowships, so I stacked those, which was really cool. That’s sometimes possible as well. I’m trying to think of what else.

19:44 Emily: Well, there’s already a lot there. Let me ask a couple follow-on questions. Okay. So the first one — it sounds like, in total for your years in graduate school, were there two years when you received a fellowship that paid above the baseline stipend or was it more than two years?

20:01 Anne: It was two years.

20:02 Emily: Okay, so two years out of how many?

20:04 Anne: Five.

20:06 Emily: Did you do anything different in those years compared to the other three? For instance, did you live in a different place that was maybe more expensive or were you a little bit freer with your discretionary spending? Or did you end up saving more? What happened to the increase in pay since it wasn’t the entire time since it was only a couple of the years.

20:30 Anne: No, I didn’t change my budget really at all. I probably should have saved a little bit more when I was making the slightly higher salary that one year, but no, I didn’t change it really very much.

20:46 Emily: Okay. I just kind of always think about people who win a multi-year fellowship at the beginning of grad school and then they set their spending level in line with that fellowship. Then at some point they go down to the base stipend and I worry about those people. I’m a little concerned for them. Okay, so you didn’t really change anything but you could have saved more during that time. I think it’s really just about being intentional. Whatever you decided to do with it, just decide and don’t kind of float along with it. Okay, so slight increase in pay, that was one thing. Another thing you mentioned was a change in pay frequency and pay timing. Out of curiosity, when you were an RA or otherwise not on these fellowships, what was the pay frequency for that kind of position?

21:36 Anne: It was every other week.

21:38 Emily: Every other week, so also biweekly.

21:41 Anne: Yes.

21:41 Emily: So the same with one of your fellowships, and then the other one was once per semester?

21:46 Anne: Yes.

21:47 Emily: I can definitely see that the ones per semester might be a challenge, but it sounds like since you were already budgeting, already in that mode, maybe you could handle it a little bit better. How did it work for you? Just explain to me how you managed it.

22:06 Anne: It didn’t change too much. I tracked every dollar in graduate school, I still do, so I was very aware of what my base spending was. It didn’t vary a ton over my years in grad school, so that was the basis of how I budgeted.

22:25 Emily: It sounds like you got this influx of cash into your checking account and you just left it there and kind of drew it down according to your normal spending pattern as the semester went on and then you got another in flow for the next semester. Yeah, I just think that that can be a really challenging situation for someone who doesn’t already have a handle on their finances. Maybe someone who it’s their first semester in a new city — you don’t really know what the expenses are going to be, and you have to make sure that money lasts you until you get that next check coming in. I was thinking actually, how did you handle irregular expenses with your budgeting in grad school? Maybe it’s traveling, or health, dental, vision, those kind of expenses, anything that’s kind of big and occurs one time a year, a couple of times a year. How did you handle that, let’s say with your biweekly pay?

23:22 Anne: Yeah, that’s a good question. I didn’t have a giant emergency fund, but I did keep a small emergency fund throughout grad school. That was where I would draw out of, and again, I kind of honed it in over the course of five years when those expenses would come, so I knew to expect them. I did track it throughout my five years so I could make sure that I wasn’t getting a lifestyle creep or anything and made sure I kept that cushion my emergency fund at all times.

23:57 Emily: Okay, so if that was your method, then having the once per term fellowship wouldn’t change it that much, it’s just you have more money on hand and it goes towards paying these normal, same expenses as always. Because you already had that stuff in place, sounds like it was pretty easy for you and not much difference. I also wanted to ask, you mentioned taxes, right? In one case you didn’t have automatic income tax being withheld, so did you end up paying quarterly estimated tax during that year?

24:30 Anne: No. I remember it took me by surprise when I was filling out my taxes, and again, thankfully I had the emergency fund, but I was just not in that mindset at that time, so I didn’t. I was lucky I had that emergency fund to smooth it over when tax time came and I owed taxes.

24:54 Emily: So it sounds like you weren’t even aware that it wasn’t being withheld.

24:59 Anne: Maybe vaguely, but not properly.

25:00 Emily: But not enough to prepare for it. Fair warning, to any listeners. It sounds like in one case you did have automatic tax withholding, in one case you didn’t, so hey, figure it out. Maybe you’ll be pleasantly surprised that you are having tax withheld from your fellowship. That could be the case, but you certainly need to know if you’re not, either for that large tax bill in April or for paying quarterly estimated tax, if required to.

25:30 Emily: Yeah. Any other effect on your personal finances from winning those fellowships?

25:36 Anne: No, I think that’s about it.

Professional Impact of Winning a Fellowship

25:38 Emily: And how about effects on you as a researcher, as a PhD? Did the fellowships do what they were supposed to do and further your development?

25:48 Anne: They strengthened my credentials, which was wonderful. They gave me the opportunity to attend conferences and present my work. I learned a lot of those conferences and they were inspiring to me. I definitely improved my writing skills through the application process and that continues to help me today. I also feel like the application process, in general, helped me hone my elevator pitch about what I was doing in graduate school, which I thought was really great. Like I said before, I do think it helped me to explore some other interests that I had, while a graduate student, and it also gave me encouragement and support while I was a graduate student, and that meant a lot.

26:42 Emily: I have an article on my site and again, we’ll link it from the show notes. It’s called something like why you should apply for fellowships, even if you’re fully funded as a grad student or postdoc. It was for me, to some degree, tempting to kind of just rest on, “well, I’m going to be funded, I know that’s going to happen, I don’t need to go this extra mile or many extra miles submitting all these applications”. But it really sounds, based on your experience and others, that it’s worthwhile, even just applying, even if you don’t end up winning anything, which like you said, if you end up applying a lot, it’s a numbers game, so hopefully here and there you’ll win something. But even the process of applying without even winning is valuable. Plus, if you do win then further and further, it really develops you as a scholar. I’m really glad to hear your examples of that.

Advice for PhDs and Postdocs Applying to Fellowships

27:37 Emily: Any final concluding words of advice from you on how a person who wins a fellowship can get the most benefit possible out of it, whether it’s financial, whether it’s benefiting them professionally? Any words on that?

27:56 Anne: I would really encourage people to take a look at some of those lesser known fellowships. Especially in my field, I remember there were some really big ones that everybody knew about that were more competitive, but there’s a lot of fellowships out there for all kinds of things. And get creative, try something new. Don’t get discouraged if you don’t get one, because yeah, it’s a numbers game. And have fun.

28:28 Emily: Well, thank you so much for sharing your experience with us and I’m really glad to hear such a positive process and outcome from you.

28:39 Anne: Well, thank you very much, Emily. I had a good time. Thanks.

Outtro

28:42 Emily: Listeners, thank you so much for joining me for this episode. PFforPhDs.com/podcast is the hub for the Personal Finance for PhDs podcast. There you can find links to all the episode show notes, a form to volunteer to be interviewed, and a way to join the mailing list. I’d love for you to check it out and get more involved. If you want to support the show and my business, please go to PFforPhDs.com/helpout. There are plenty of ways do so without laying out any of your own money. See you in the next episode. And remember, you don’t have to have a PhD to succeed with personal finance, but it doesn’t hurt. The music is Stages of Awakening by Poddington Bear from the free music archive, and it’s shared under CC by NC.

This NDSEG Fellow Prioritizes Housing and Saving for Mid- and Long-Term Goals

August 5, 2019 by Jewel Lipps Leave a Comment

In this episode, Emily interviews Lourdes Bobbio, a graduate student in materials science at Penn State and NDSEG fellow. Lourdes breaks down the top five expenses in her budget: housing, food, taxes, utilities, and subscription services. She explains the financials systems she has put in place to reach financial success during her PhD: targeted savings, automated transfers, quarterly estimated tax, high-yield savings accounts, and taxable retirement investments with a roboadvisor. Lourdes has decided to prioritize her housing within her budget, but still balances that expense with plenty of saving for her future wedding and retirement.

Links mentioned in episode

0:00 Introduction

1:07 Please Introduce Yourself

Lourdes Bobbio is a fourth year PhD student at Penn State University in State College, Pennsylvania. She is in the materials science and engineering department. She currently lives alone.

1:55 What is your income?

Lourdes is on the National Defense Science and Engineering Graduate fellowship. She makes $38,400 each year which is $3,200 per month. She says that this income goes pretty far in State College.

2:37 What are your five largest expenses each month?

Lourdes explains that the cost of living in State College is fairly low, especially compared to where she grew up near Washington, DC and where she went to undergraduate in Boston. She was more accustomed to high cost of living. Her top expenses are rent, taxes, food, utilities and subscription services.

3:08 #1 Expense: Rent

Lourdes lives in the downtown area of State College. She lives on her own without roommates. She determined that she values being able to walk to work every day, living close to campus, living near restaurants, and living by herself. She doesn’t have a car, so she doesn’t have car related expenses in her budget. She says she has never owned a car. She says a majority of graduate students in State College have a car. The town is small and there is a limited number of things to do. If you want to go away for the weekend, having a car is useful. She says there is an abundance of housing close to campus and a fairly good bus system.

She spends about $1500 per month for rent. She lives in a one bedroom with an office space which could be a second bedroom. She values having a space of her own. Because it is a college town, it runs on the school schedule. She says the cycle of finding apartments is over in November and December. She has lived in the same place for her whole time in graduate school. She says for her first year of graduate school, she wasn’t on the NDSEG fellowship. Her parents helped her pay rent a little bit and they stayed in the office room when they came to visit her. When she got her fellowship, she determined she could pay for the apartment on her own.

Lourdes says that her boyfriend has a car, and several of her friends own a car. When she wants to travel out of town, she goes with them.

8:46 #2 Expense: Taxes

Lourdes charges herself for taxes. Because she has fellowship income, she does not have automatic withholding for her taxes, so she needs to make quarterly estimated tax payments to the IRS. When she gets paid at the beginning of the month, she takes out the money for taxes right away and puts it into a savings account. When it’s time to make the quarterly payment, she has the money available. Emily emphasizes that the majority of fellows do not have taxes withheld and fellows need to withhold taxes themselves.

When she first got her fellowship and realized that no taxes would be withheld, she had to go through the process of filling out the 1040-ES worksheet to figure out the total amount that she would owe. She figured that out and divided it by twelve so she could save that amount each month. She has a spreadsheet to plan her budget for the entire year. She sets it aside in a high yield savings account until she has to pay it each quarter. Emily explains that 1040-ES is not submitted to the IRS and she has a workshop to help people work through the form.

Lourdes banks with Discover online bank and she also has a credit card with them. She puts her long term savings there. She has a checking account with a local credit union and a short term savings account.

13:42 #3 Expense: Food

Lourdes includes groceries and going out to eat in her food expenses. She says she spends more on dining out than she would like to, but she doesn’t feel guilty about it because she budgets for it and knows how much she can spend. Emily shares that budgeting is “freeing” and Lourdes agrees. Lourdes says that she values the social time that is associated with dining out. She spends about $200 to $300 per month on food.

15:42 #4 and #5 Expense: Utilities and Subscription Services

Lourdes says that she pays $30 to $40 on electricity. She pays about $25 per month on subscription services, Netflix and Spotify. She says that Audible is about $15 per month and she recently cut it. She reevaluates what she is subscribed to each year.

Her apartment has internet and cable included. She wouldn’t have paid for cable if it wasn’t included. She says that internet can be pricey and she’s glad it is included in her rent.

19:08 What are you currently doing to further your financial goals?

Lourdes has short term, mid term, and long term goals. She says she has two savings accounts to break down her goals. She has a savings account through her credit union that’s connected to her checking account. She puts money for her short term goals there. Her mid term and long term goals go into her high yield savings account.

Her short term goals include a general travel fund. She takes a bus to go to DC to visit her parents. She puts about $15 to $20 per month for travelling home. She has a gift fund as well, which helps her save for going to weddings. She has a “fun fund” where she saves for higher price experiences, like going to Broadway shows that have $60 tickets. She also uses her fun fund for buying items for her hobbies, like baking equipment. Emily says that she calls this a system of targeted savings account. This is a system for saving for irregular expenses.

Her mid term savings goals is for her wedding. She is saving about a couple hundred dollars per month for her wedding. She is also thinking about buying a house in the future and she is saving with that in mind. Additionally, because she is on a fellowship, she has to pay out of pocket for her health insurance. Recently when she had to be taken off of her parent’s health insurance, she used her emergency savings account to pay for health insurance. Now she has been saving for her next year’s health insurance premium.

26:28 Do you have long term goals?

Lourdes is also saving for retirement. For one year in graduate school, before she was on her fellowship, she was able to max out her Roth IRA. She learned that she is not eligible to contribute to a Roth IRA while on a fellowship. Now she invests in a general taxable brokerage account. She does not contribute as much but she tries to put $100 or $200 per month into it.

Emily explains that your eligibility for an IRA depends on you having taxable compensation or earned income. For graduate students, this means W-2 pay which is typically an assistantship. The NDSEG fellowship doesn’t count as taxable compensation or earned income. At this point, many people don’t bother saving for retirement because they don’t have an IRA. Emily encourages investing at as an early an age as possible.

Lourdes said when she learned about the tax and retirement savings of her fellowship, she realized that she would have to invest in a taxable account. She did a lot of research into what she wanted to invest in. She didn’t feel very knowledgeable. She used Vanguard for her Roth IRA but she wanted to try something else. She currently uses an online roboadvisor Wealthfront, which she likes so far. She says it is an easy way to get a broad portfolio. She thinks in the future she would move to somewhere with lower fees. She says she has no fees because her amount is below the threshold of $15,000. Wealthfront lowers the threshold with referrals. Her referral link in these shownotes.

32:30 What is your best financial advice that you’d share with your peers?

Lourdes advises not to be afraid of having a budget. She says many people are worried that budgets are restricting. She says that budgets are freeing, especially as a graduate student on a limited income. She says the budget gives her freedom that is very valuable and makes finances less scary.

33:50 Conclusion

Fellowship Income Can Trigger the Kiddie Tax

April 11, 2019 by Emily Leave a Comment

The Kiddie Tax is an alternate, higher rate of calculating tax due that applies to young people. While it was intended to ensure that wealthy parents paid their full share of tax on their investments, it also sometimes applies to graduate students whose income comes primarily from a fellowship or training grant.

If you have found this article through search, it’s likely that your (software or human) tax preparer has determined that you owe the Kiddie Tax. This article will help you understand what the Kiddie Tax is, who it applies to, how it is calculated, and how to avoid it in the future.

What is the Kiddie Tax?

Back in the early 1980s, finding tax shelters (i.e., legal ways to avoid paying tax) was all the rage because tax rates were much higher than they are today. The top marginal tax rate was reduced to 50% in 1981 and finally to 28% in 1988 with the last major tax reform prior to the Tax Cuts and Jobs Act (source).

One of the tax shelters was for parents to put income-generating assets in their minor children’s names. The children were (presumably) in much lower tax brackets for investment income than their parents, so overall the family paid less in tax for those assets (source).

In 1986, the “Kiddie Tax” was enacted to close this loophole. Under the Kiddie Tax, a child or young adult’s unearned income is taxed at a higher rate than it would be if they were older (with all other factors being the same).

How Does the Kiddie Tax Affect PhD Students?

The way the Kiddie Tax is written and structured makes sense for the purpose of preventing wealthy parents from sheltering their income using their children. However, it has an off-label effect on PhD students.

The Kiddie Tax applies to all children through age 17, some children through age 18, and some students through age 23. It applies to “unearned income,” which includes not only investment income but also income from fellowships, scholarships, and training grants.

This means that a graduate student under the age of 23 whose income is from a fellowship may be taxed not at the ordinary income rates that they will be at age 24+ but rather at the rates designed to apply to estates and trusts.

(Applying the estate and trust tax rates to young adults subject to the Kiddie Tax is actually an improvement that the Tax Cuts and Jobs Act made over the previous system, which was to tax the child’s income at the investment income tax rates that applied to the parents. This system presumed that the parents were willing to tell the child their income so that the child could use the correct tax rates, which obviously was not always the case.)

The PhD students most in danger of the Kiddie Tax applying to them in a way that will massively increase their tax due are those who received fellowship (non-compensatory) income for an entire calendar year, e.g., January of the first year through December of the second year.

For example (approximate numbers), in 2018 a single PhD student age 24 with $30,000 of taxable fellowship/scholarship income and no other income, deductions, or credits would pay $1,970 in tax or an effective tax rate of 6.6%. A student with the same profile who is 23 would pay $5,050 in tax or an effective tax rate of 16.8%.

Who Has to Pay the Kiddie Tax?

The Kiddie Tax does not apply to every graduate student on fellowship, though it applies to many.

The instructions for Form 8615 lay out who has to file the form and (potentially) pay the Kiddie Tax. There are five qualifications for being subject to the Kiddie Tax, all of which must apply. If any one of the following is not true for you, you aren’t subject to the Kiddie tax.

1) You had more than $2,100 of unearned income.

Taxable fellowship and scholarship income counts as “unearned income.”

The definition of “unearned income” from p. 1 of the instructions for Form 8615 is:

For Form 8615, “unearned income” includes all taxable income other than earned income. Unearned income includes taxable interest, ordinary dividends, capital gains (including capital gain distributions), rents, royalties, etc. It also includes taxable social security benefits, pension and annuity income, taxable scholarship and fellowship grants not reported on Form W-2, unemployment compensation, alimony, and income (other than earned income) received as the beneficiary of a trust.

2) You are required to file a tax return.

The Form 1040 instructions (p. 9-12) answer the question of who has to file a return.

Chart A (p. 10) is for most people under age 65. It states that you must file a return if you are single and your gross income is at least $12,000.

Chart B (p. 11) is for dependents. You are required to file a tax return if you are single and:

Your unearned income was over $1,050.
Your earned income was over $12,000.
Your gross income was more than the larger of
- $1,050, or
- Your earned income (up to $11,650) plus $350

For the purpose of Chart B only, taxable scholarships and fellowships are “earned income” while “unearned income” includes taxable interest, ordinary dividends, and capital gains distributions.

If your gross income was less than $11,650 and your unearned income (taxable interest, ordinary dividends, and capital gains distributions) was less than $350, you do not need to file a tax return and are not subject to the Kiddie Tax.

Alternatively, you can use the IRS’s Interactive Tax Assistant to determine whether you are required to file a return: Do I Need to File a Tax Return?

3) You are a student under age 24

To be subject to the Kiddie Tax, you must be (Form 8615 p. 1):

Under age 18 at the end of 2018,
Age 18 at the end of 2018 and didn’t have earned income that was more than half of your support, or
A full-time student at least age 19 and under age 24 at the end of 2018 and didn’t have earned income that was more than half of your support.

Full-Time Student Status

Form 8615 refers to Publication 501 for the definition of ‘full-time student’ (p. 12):

To qualify as a student, your child must be, during some part of each of any 5 calendar months of the year:

A full-time student at a school that has a regular teaching staff, course of study, and a regularly enrolled student body at the school, or

A student taking a full-time, on-farm training course given by a school described in (1), or by a state, county, or local government agency.

The 5 calendar months don’t have to be consecutive.

Full-time student. A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance.

You do not have to be a student throughout the calendar year to be defined as a student and subject to the Kiddie Tax. You are considered a student if you are a full-time student in (part of) 5 calendar months, which do not have to be consecutive.

Support Test

Defining support and who/what provided it is the trickiest part of determining whether you are subject to the Kiddie Tax. First, you must determine your support, and then calculate whether your earned income amounted to more than half of your support.

The Form 8615 instructions defines support as (p. 1):

Support. Your support includes all amounts spent to provide you with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. To figure your support, count support provided by you, your parents, and others. However, a scholarship you received isn’t considered support if you’re a full-time student. For details, see Pub. 501, Dependents, Standard Deduction, and Filing Information.

Publication 501 includes the Worksheet for Determining Support (p. 15), which you must go through in detail. Your support is the amount of money that is used to pay all your living, education, medical, and travel expenses. The education expenses include the tuition, fees, etc. for your graduate degree.

If you do not have earned income totaling at least half of your own support, you may be subject to the Kiddie Tax. Scholarships and fellowships do not count as earned income for this purpose.

The support test being calculated this way creates a very high bar for funded graduate students as tuition can easily rival or exceed living expenses.

4) At least one of your parents was alive at the end of the year

If your parents (including adoptive and step-parents) are deceased, the Kiddie Tax does not apply to you.

5) You don’t file a joint return

If you are single, the Kiddie Tax may apply to you. If you are married filing jointly, the Kiddie Tax does not apply to you.

If you meet all five of these criteria, you need to fill out Form 8615, as the Kiddie Tax may apply to you.

How Is the Kiddie Tax Calculated?

Form 8615 calculates your Kiddie Tax. Part I calculates your net unearned income, and Part II calculates your tax.

You should carefully fill out each line and read the instructions to find the correct definitions. I have highlighted some points about each line specific to fellowship recipients, but you still need to read the full instructions.

Line 1

Line 1 asks for your “unearned income” as defined above. If you had no earned income (i.e., you were 100% on fellowship for the calendar year and had no other income sources), you can use the value from your Form 1040 Line 7. If you had both earned and unearned income, you need to fill out the Unearned Income Worksheet (p. 2 of the form instructions), which subtracts your earned income from your total income.

Line 2

If you took the standard deduction, enter $2,100. If you itemized your deductions on Schedule A, there is a different formula to use in the instructions.

Line 3

Line 3 = Line 1 – Line 2

If the value in Line 3 is 0 or negative, you do not have to pay the Kiddie Tax. (Translation: If you took the standard deduction and your unearned income is less than $2,100, you do not have to pay the Kiddie Tax.)

Line 4

Enter in Line 4 your taxable income from Form 1040 Line 10 (your gross income minus all relevant deductions).

Line 5

Enter in Line 5 the smaller of the values in Line 3 and Line 4.

Line 7

To calculate your tax, you have to use the Line 7 Tax Computation Worksheet on p. 4 of the instructions. This is very long and tedious form. It basically applies the estate and trust income tax rates to your taxable unearned income.

The estate and trust income tax rates escalate much, much more quickly than the ordinary income tax rates. You reach the top marginal tax rate of 37% with taxable unearned income over $12,500, whereas you need over $500,000 of ordinary to reach that top rate.

How to Avoid the Kiddie Tax

Once a tax year ends, you run out of opportunities to avoid the Kiddie Tax. To avoid the Kiddie Tax in the current or a future tax year, make sure that at least one of the five above points on who the Kiddie Tax doesn’t apply to is true for you. For example, you could:

Delay your matriculation into grad school
Configure your income and expenses such that you pass the support test, e.g.,
- Request that you are paid by an assistantship instead of a fellowship for part or all of the calendar year
- Earn a significant side income
Get married and file a joint return.
Find every applicable qualified education expense to make more of your fellowship income tax-free (e.g., your student health insurance premium if paid by scholarship)

The fact that fellowship income triggers the Kiddie Tax is unconscionable and highly financially damaging to an already vulnerable population (low-income students). This aspect of our tax code desperately needs reform.

Where to Report Your PhD Trainee Income on Your Tax Return (Tax Year 2018)

April 10, 2019 by Emily Leave a Comment

There are two broad categories of PhD trainee income: compensatory and non-compensatory. Compensatory pay is W-2 pay, whereas non-compensatory is any other regular type of income for a graduate student or postdoc, e.g., Form 1098-T Box 5 or Form 1099-MISC Box 3. For US citizens and residents, both compensatory and non-compensatory pay are supposed to be reported in the ‘wages’ line on your tax return, i.e., Form 1040 Line 1. For non-residents (e.g., some international students and postdocs), other lines on Form 1040-NR and Form 1040-NREZ are used. Read on for the relevant tax code references.

Where to Report Compensatory (i.e., W-2) Income

Compensatory income comes from work as an employee and will be reported on a Form W-2. The terms used for employees at the postdoc level vary quite a lot, but at the graduate student level the positions are usually called assistantships (research, teaching, graduate, etc.).

Your gross yearly compensatory income will appear in Form W-2 Box 1, and the income tax that has been withheld from you pay will appear in Boxes 2 (federal), 17 (state), and 19 (local).

Form W-2 contains instructions for the employee (p. 7), which state: “Box 1. Enter this amount on the wages line of your tax return.”

On Form 1040 (for US Citizens and Residents)

The wages line of your tax return is Form 1040 Line 1, which is labeled: “Wages, salaries, tips, etc. Attach Form(s) W-2.”

The Form 1040 instructions for Line 1 (p. 26) state: “Enter the total of your wages, salaries, tips, etc. If a joint return, also include your spouse’s income. For most people, the amount to enter on this line should be shown in box 1 of their Form(s) W-2.”

On Form 1040NR (for Non-Residents)

The wages line of your tax return is Form 1040NR Line 8, which is labeled: “Wages, salaries, tips, etc. Attach Form(s) W-2.”

The Form 1040NR instructions for Line 8 (p. 16) state: “Enter the total of your effectively connected wages, salaries, tips, etc. Only U.S. source income is included on line 8 as effectively connected wages. For most people, the amount to enter on this line should be shown in box 1 of their Form(s) W-2. Do not include on line 8 amounts exempted under a tax treaty. Instead, include these amounts on line 22 and complete item L of Schedule OI on page 5 of Form 1040NR.”

On Form 1040NR-EZ (for Non-Residents)

The wages line of your tax return is Form 1040NR-EZ Line 3, which is labeled: “Wages, salaries, tips, etc. Attach Form(s) W-2.”

The Form 1040NR-EZ instructions for Line 3 (p. 6) state: “Enter the total of your effectively connected wages, salaries, tips, etc. Only U.S. source income is included on line 3 as effectively connected wages. For most people, the amount to enter on this line should be shown in box 1 of their Form(s) W-2. Do not include on line 3 amounts exempted under a tax treaty. Instead, include these amounts on line 6 and complete item J of Schedule OI on page 2 of Form 1040NR-EZ.”

Where to Report Non-Compensatory Income

Non-compensatory income is given as an award and is not in exchange for work as an employee, and therefore no W-2 is issued. At the graduate student level, non-compensatory pay is usually called scholarships, fellowships, and grants. The titles used for postdocs receiving non-compensatory pay vary, but they are not considered employees.

Non-compensatory pay will be officially reported to the student on a Form 1098-T in box 5, on a Form 1099-MISC in box 3 (rarely Box 7), or on a Form 1042-S in Box 2 (for non-residents). It also might be unofficially reported on a courtesy letter or not appear on any documentation at all.

Please note that when you calculate the taxable portion of your non-compensatory income for the year, you have two choices for what to do with your qualified education expenses: to take a deduction or a credit. See How to Prepare Your Grad Student Tax Return for more details.

Publication 970 Chapter 1 discusses where to report the taxable portion of scholarships, fellowships, and grants (p. 6):

How you report any taxable scholarship or fellowship grant income depends on which return you file.

Form 1040. If you file Form 1040, include the taxable amount in the total on line 1. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 1.

Form 1040NR. If you file Form 1040NR, report the taxable amount on line 12. Generally, you must report the amount shown on Form(s) 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, box 2. See the Instructions for Form 1040NR for more information.

Form 1040NR-EZ. If you file Form 1040NR-EZ, report the taxable amount on line 5. Generally, you must report the amount shown on Form(s) 1042-S, box 2. See the Instructions for Form 1040NR-EZ for more information.

The Form 1040 instructions for Line 1 state: “The following types of income also must be included in the total on line 1… Scholarship and fellowship grants not reported on Form W-2. Also, enter “SCH” and the amount on the dotted line next to line 1.”

Form 1040NR Line 12 is labeled: “Scholarship and fellowship grants. Attach Form(s) 1042-S or required statement (see instructions).”

The Form 1040NR instructions for Line 12 state: “If the grant was reported on Form(s) 1042-S, you generally must include the amount shown in box 2 of Form(s) 1042-S on line 12. However, if any or all of that amount is exempt by treaty, do not include the treaty-exempt amount on line 12. Instead, include the treaty-exempt amount on line 22 and complete item L of Schedule OI on page 5 of Form 1040NR.”

Form 1040NR-EZ Line 5 is labeled: “Scholarship and fellowship grants. Attach Form(s) 1042-S or required statement.”

The Form 1040NR-EZ instructions for Line 5 state: “If the grant was reported on Form(s) 1042-S, you generally must include the amount shown in box 2 of Form(s) 1042-S on line 5. However, if any or all of that amount is exempt by treaty, do not include the treaty-exempt amount on line 5. Instead, include the treaty-exempt amount on line 6 and complete item J of Schedule OI on page 2 of Form 1040NR-EZ.”

How to Financially Manage Your NSF Graduate Research Fellowship

April 5, 2019 by Emily 1 Comment

Congratulations on being awarded the National Science Foundation (NSF) Graduate Research Fellowship (GRF) (or a similar remunerative, competitive, national fellowship)! Whether you’re a prospective grad student or a current first- or second-year PhD student, this fellowship is a great boon to your research, your CV, and almost certainly your finances. However, you may not yet realize that your finances will become a bit tricky once you start receiving your fellowship. With the help of this article, you can avoid the pitfalls associated with fellowship income and fully capitalize on the benefits.

The NSF GRFP’s Negotiation Power

I’m sure you didn’t miss this headline info about the NSF GRFP: The fellowship pays you a stipend of $34,000 plus $12,000 of educational expenses to your institution for three years. Awesome! At the majority of universities in the US, that stipend amount is well above what you would be paid if you didn’t receive the fellowship, so you’ve effectively achieved a raise for the next three years.

But the good news doesn’t stop there: Your university/department might confer even more benefits upon you for winning independent funding. If the administration isn’t forthcoming about these additional benefits, it is appropriate to inquire about them.

Independence

Your new outside funding may give you a degree of independence in your research that you wouldn’t otherwise enjoy. This is highly dependent on your field, department, and advisor, but the fellowship may enable you to take your doctoral research in a direction that you advisor couldn’t or wouldn’t have supported without it. Perhaps you could take a risk on a side project, establish a new collaboration, or take extra time to rotate through a lab to gain new skills.

Additional Funding

At many universities, there is a standard offer of additional funding for winning a multi-year, lucrative fellowship like the NSF. This offer could come in one or more forms, such as:

A guarantee of funding for additional years
A one-time bonus
A stipend supplement above $34,000 while you have the fellowship
A stipend supplement after the fellowship concludes (e.g., up to $34,000/year for your remaining time in graduate school)

Not all departments offer additional funding to NSF GRFP recipients, but it’s worth inquiring about with your advisor, the administration, and current NSF fellows at your university. Stipend supplements during the time that you receive the NSF GRF are more common in high cost-of-living cities where the departmental base stipend is near $34,000/year to begin with. For example, searching “NSF” in the PhD Stipends database reveals stipend supplements awarded during the NSF GRFP years to students at the University of California at Berkeley, Northwestern University, and Columbia University, while a student at the University of California at San Diego writes that he/she received no funding incentive for winning the NSF GRF.

For Prospective Graduate Students

You’ll never have more negotiation power than you do as a prospective graduate student with an outside fellowship in hand. Unfortunately, you don’t have a lot of time to negotiate as the NSF GRFP awards list comes out approximately two weeks before grad school decision day, April 15.

Further reading: Vote with Your Feet, Prospective Graduate Students

As quickly as possible, you need to clarify if the offers from the universities you are still considering are going to be sweetened at all now that you have your fellowship. If the financial package from your preferred university isn’t up to par with your other offers (after considering cost of living differences), you can tactfully ask if a bonus, stipend supplement, or guarantee of future funding is possible.

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Budgeting with Your Fellowship Income

There are two vital questions you need to ask of your department before you can begin creating a budget for your NSF GRF stipend.

After the fellowship ends, what will my stipend be?
How frequently is my fellowship disbursed?

Accelerate Progress on Financial Goals

In my ideal personal finance-oriented world, an NSF fellow would live on (less than) the base stipend from his department and put all the excess income received toward growing his wealth. There are a few advantages to that approach:

Your lifestyle roughly matches that of your peers in your department.
You can relatively quickly achieve financial goals such as saving or debt repayment.
If your income is set to drop once the fellowship ends, you avoid acclimation to the higher, temporary income and don’t have to make major lifestyle sacrifices once the three years are up.

Some financial goals you could work on during the time you receive the additional fellowship funds are:

Eliminating any troublesome debt (e.g., credit card balances, medical debt, car loan)
Saving up cash for short-term needs and expenses (e.g., emergency fund, targeted savings accounts)
Investing for long- and mid-term goals (e.g., retirement, house down payment)
Pay down student loans

Further reading:

This strategy is easiest to implement for graduate students who start the NSF GRF after one or more years in grad school. Just put all of your ‘raise’ toward financial goals and don’t change anything about your lifestyle! Prospective grad students will have to be more conscious about setting up their grad student lifestyle on a lower income than they will start out with.

Preparing for the Post-Fellowship Income Drop

If you choose to upgrade your lifestyle with your fellowship stipend, be careful to maintain any long-term financial contracts at a level that will be sustainable for you after your income drops (if it will). The two key areas to watch out for are housing and transportation expenses. While it is possible to reduce your spending in either of these areas during grad school, it is a painful process, so it is preferable to lock in your spending in those areas at a level that you can maintain long-term.

Budgeting with an Irregular Income

Sometimes, fellowships are disbursed to the recipient at a frequency other than monthly, e.g., once per term. This schedule can cause issues for budgeting, which is usually framed as turning over each month.

One of the advantages of an infrequent disbursement schedule is that you are paid at the beginning of the period rather than the end, so the money you need throughout the period is already available to you. However, you may not be able/inclined to use typical budgeting software functions and prefer to set up your own budgeting system.

One of the most useful budgeting concepts for people with irregular incomes is that of fixed vs. variable expenses. At the beginning of your budgeting period, project the fixed expenses that will be paid during the period, such as your rent/mortgage, debt payments, certain utilities, subscriptions, etc. Then allocate your remaining income to your variable expenses at a frequency that is convenient for you. For example, you can estimate the variable utility bills that you may pay monthly during the period, plan to spend no more than a certain amount of money each week on groceries, and give yourself a lump sum of money for entertainment for the entire period to be spent as opportunities arise. In this way, allocate your fellowship disbursement so that you are sure that your expenses won’t exceed your income (leaving some buffer for unexpected expenses).

Income Tax Implications of the NSF GRFP

Your NSF GRFP stipend is subject to federal income tax. (It is usually subject to state and local income tax as well, but there are some exceptions.)

Further reading:

However, the taxation of fellowship stipends is handled completely differently by universities than assistantship pay.

Tax Reporting

While assistantship pay is reported on a W-2, fellowship stipends are not required to be reported in any particular way.

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A large fraction of universities, possibly the majority, do not report outside fellowship stipends on any official tax form. At most, the fellow might receive a courtesy letter, which is an informal letter stating the amount of the fellowship stipend received during the calendar year.

Some universities report fellowship stipends on Form 1098-T in Box 5 (along with other scholarship and grant income).

A small minority of universities report fellowship stipends on Form 1099-MISC in Box 3.

Whatever reporting mechanism used or not used, the important information to bring to your tax return preparation process is the amount of fellowship stipend paid to you during the calendar year. From that point, the fellowship stipend income is treated the same as any other fellowship/scholarship/grant income, and (possibly after some adjustments) it will ultimately be taxed as ordinary income.

Further reading:

Quarterly Estimated Tax

While you are required to pay federal and usually state income tax on your fellowship stipend, the vast majority of universities do not offer automatic income tax withholding on your fellowship stipend as they normally do for employee pay. (You should inquire whether automatic withholding is an option and use it if so, but the remainder of this section assumes it is not offered.)

This means that you will receive 100% of your gross fellowship stipend instead of your stipend net of income tax as you would assistantship pay. However, the IRS still expects to receive income tax payments throughout the year, so you will have to look into filing quarterly estimated tax.

Further reading: The Complete Guide to Quarterly Estimated Tax for Fellowship Recipients

As a default position, you should assume you are responsible for paying quarterly estimated tax. It’s possible that you won’t be required to in the year you switch on or off of the fellowship or if you’re married to someone with a high income and high withholding, but even in those cases it’s prudent to check.

The way you calculate your quarterly estimated tax due (and figure out if it’s required of you) is by filling out Form 1040-ES. That form will give you the amount of the payment you are supposed to make four times per year and an estimate of your total tax due for the year. You can make the payment online at IRS.gov/payments or through a host of other mechanisms.

Whether or not you are required to file quarterly estimated tax, it’s a great idea to set up a personal system that simulates automatic tax withholding. Open a separate savings account labeled “Income Tax” and transfer in the fraction of each paycheck you receive that you ultimately expect to pay in tax each time you are paid. Then, draw from that savings account when you make your quarterly or yearly tax payments.

This upcoming weekend I’m running an online workshop to help fellows file quarterly estimated tax. This is my first time giving the workshop, but if it goes well I plan to repeat it at least twice per year. If you would like to join my mailing list to be notified about future iterations of this workshop, please enter your information in the form immediately following this paragraph or at the end of the article.

Investing Implications of the NSF GRFP

The upside of receiving the NSF GRF is that your income is most likely higher than it would have been, which means you have an increased ability to achieve financial goals during graduate school such as debt repayment, saving, and/or investing.

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The downside of receiving the NSF GRF is that the stipend is not considered “taxable compensation” or “earned income.” It is taxable income, as discussed in the previous section, but it is not “compensation” or “earned.” If you receive only fellowship income in the course of a calendar year (and you’re not married to someone with taxable compensation/earned income), you become ineligible for certain tax benefits. The lost benefit that most commonly concerns graduate students is the ability to contribute to an Individual Retirement Arrangement (IRA).

Further reading:

An IRA is a tax-advantaged retirement savings vehicle. It’s a great idea to use an IRA (or other tax-advantaged retirement vehicle such as a 401(k) or 403(b)) for your retirement savings as it helps you maximize your long-term rate of return by protecting your investments from taxes. As a graduate student, you almost certainly don’t have access to the university 403(b), so the IRA is basically the only game in town for tax-advantaged retirement savings.

The catch is that you (or your spouse) must have taxable compensation during a calendar year for you to contribute to an IRA for the year. So if you go an entire calendar year with only fellowship income (you don’t have compensatory income from an assistantship or outside job and you’re not married to someone with taxable compensation), in that year you’re not eligible to make any IRA contributions.

It’s a catch-22: While you are likely more financially capable than ever of investing for the long term, you’re barred from doing so in a tax-advantaged retirement account.

I don’t think your inability to contribute to an IRA should stop you from working on your financial goals. It may be that you choose to prioritize another goal over retirement savings as a result of not being able to use an IRA, e.g., paying down student loans. But if saving for retirement is your top priority, you should pursue it; just use a taxable account instead of an IRA during any years of ineligibility.

Your tax burden can actually be quite low during grad school if you choose a long-term, low-turnover investing strategy. If you are single and your income in 2019 is below $39,375, your long-term capital gains and qualified dividends will be taxed at 0% at the federal level (you may still owe state and local tax). So it’s really not too bad to save in a taxable account as long as your income stays low. When you have access to an IRA or other tax-advantaged retirement account, you can probably shift your taxable assets into that account time to maximize the growth rate in the long term.

Further reading: Fellowship Recipients Can Save for Retirement Outside an IRA

What other questions do you have about financially managing your NSF GRF stipend?

Purchasing a Home as a Graduate Student with Fellowship Income

March 11, 2019 by Jewel Lipps 1 Comment

In this episode, Emily interviews Jonathan Sun, a second-year PhD student at Yale University. Jonathan purchased a house in New Haven after his first year in graduate school. He shares the process he used to search for and ultimately go under contract on a home, including applying for various incentive programs. But his home ownership goal was nearly derailed; his original mortgage lender pulled out because his fellowship income isn’t reported on a W-2, and he had to scramble to find another lender at the last second.

Links mentioned in episode

0:00 Introduction

1:02 Please Introduce Yourself

Jonathan Sun is a second year PhD student in Pathology at Yale University in New Haven, Connecticut. His stipend is $35,000 and it increases annually. When he moved to New Haven, he started by renting a two bedroom, one bathroom apartment with his girlfriend. He was paying about $1,500 monthly for rent.

3:10 What made you think that it would be a good idea to buy a home as a graduate student?

When he began his PhD program, Jonathan had in mind that he would want to buy a home. He thought between his first and second year would be the ideal time to buy. At this point in his PhD, he would know if he would be staying there for five or six years. Emily mentions that it’s a good idea to learn about the neighborhoods before buying a house. Jonathan agrees that it was a good idea to get to know the city and neighborhoods. He shares that if he had bought a home when he first moved to New Haven, he would have chosen a less convenient or less desirable neighborhood.

Further reading: Should I Buy a Home During Grad School?

5:11 Was your interest in buying a home specific to New Haven or anywhere you moved to for your PhD?

The idea of buying a home occurred to Jonathan when he was interviewing at Johns Hopkins. He saw that homes were affordable near Johns Hopkins. He realized that homes could be affordable even on a graduate stipend. When he chose to attend Yale, he did some housing market research on New Haven and saw he could afford homes there.

When Jonathan was interviewing for PhD positions, he met a current graduate student at Johns Hopkins who owned their house. He didn’t meet any graduate student at Yale who bought a home. Jonathan says owning a home as a graduate student is not that common in New Haven. Emily shares that when she was a PhD student at Duke University, it was fairly common for grad students to own home.

7:20 How did you prepare your finances in the months leading up to buying a home?

Jonathan worked on improving his credit. He says that good credit is definitely important. To get a mortgage at a decent rate, or even to get a mortgage at all, he had to have good credit. Jonathan also searched for incentive programs around New Haven. He says he saved about $10,000 with incentive programs. He shares that while Yale University offered incentive programs for employees, he could not qualify for them as a PhD student. He relied on incentive programs instead of savings because he was paying expensive rent in New Haven.

To research incentive programs, Jonathan talked to a real estate agent who pointed him to incentive programs. Shortly after Jonathan arrived in New Haven, he started working with an agent. Jonathan didn’t have connections to an agent when he started to process. He simply dropped into a real estate office and met an agent there.

9:54 What were the steps you went through to buy a home?

Jonathan started looking for houses with agents about three months after he moved to New Haven. He didn’t start seriously looking until six months after his move. He says that even if you don’t have intention to buy right away, it is important to familiarize yourself with the neighborhoods. He was looking at four different neighborhoods around Yale University. He got an idea of price range for homes and who are the neighbors. This process gave him a firm idea of whether he wanted to rent or buy. Most of the time, he looked at houses through private showings with his agent. He went to just a few open houses without his agent.

During Christmas break, Jonathan thought carefully about whether he should pursue buying a home or not. He talked to his friends and family, and it seemed like the right thing to do. He asked his family if they could help with his downpayent, and made sure to have open communication with his family.

Buying a home took at least two months of seriously looking. Jonathan went through some experiences of making an offer but not getting the hoouse. He recalls three homes that he made an offer for, and there were some other situations where he almost made an offer. He didn’t want to settle for a house that he wasn’t satisfied with. However, his offers were outbid or made too late, and this added to the challenge of buying a home. Emily shares that in Seattle, she hears stories about bidding wars and people struggling to get the house they want, then they end up settling for a home that wasn’t all that they wanted.

13:54 How did you balance the process of buying a home with your first year of graduate work?

After his offers on homes were rejected multiple times, Jonathan felt demoralized. He had lowered his standards for a home. But then when he was browsing an online resource, he found a house that looked perfect. This house ended up being the one he bought. He says it was challenging to balance his graduate work with buying a home, but he was glad he did this in his first year rather than in his second year. He shares the example that on the day that he gave his offer, he was giving a presentation on a paper. He barely read the paper because he was so tired, but he still managed to give a compelling presentation. Right after he finished the presentation, he ran off to give an offer on the house. Much of the stressful part of home buying is waiting to get a response on the offer.

16:01 Tell us about the house that you ultimately purchased and live in now.

Jonathan was browsing online on the day before his presentation. He noticed the house was ten minutes away from where he was living. The house had just gone on the market that day. He pushed his agent to get a showing the very next morning. He got to meet the owner and exchanged contact information directly. The owner was a Masters student, and they had a connection. About two hours after the tour of the house, Jonathan gave an offer of $2,000 over the asking price. This was right after his presentation. He asked to receive a response in one day. The next day, someone else made an offer of $5,000 over the asking price with full cash. Jonathan raised the offer to $2,000 over the other offer. Jonathan’s offer was accepted, and he says that meeting the owner in person helped him get the house.

19:06 How was the process of getting a mortgage?

Jonathan didn’t have his mortgage ready until after his offer was accepted. He did have a pre-approval, but this didn’t work out for him. The lenders didn’t understand his financial situation as a graduate student with a stipend. The pre-approval came from a lender with connections to multiple banks. When you make an offer on a house, it is important for the seller to know that you can afford the house. For a pre-approval, the lender does a very brief credit check on you. The pre-approval shows that you can take out a loan of a certain amount. The pre-approval shows the seller that you can take out a loan for the house. Pre-approvals are very superficial, since they do not ask for a W-2. The lender asks for monthly income and proof that you reliably pay rent.

After his offer was accepted, Jonathan first explored incentive programs. He found an incentive program that stipulated if he stayed at least five years in New Haven, the program would pay at least $2,000 per year and contribute to the downpayment. The application for the incentive program took a while. Jonathan says that ideally the application should be done before submitting an offer. The seller wanted to move out three months after the sale, so this gave Jonathan the right amount of time to sort out the finances.

Jonathan qualified for two incentive programs, but he was happy to get just one because the programs were slow to respond. The incentive programs have a list of lenders that you have to use for a loan. The lenders were local banks in Connecticut. Everything seemed like it would work. He submitted all his documents, but about three weeks before closing, he got a phone call saying that they couldn’t pre-approve of his mortgage because the university wouldn’t be able to provide W-2. The university wouldn’t submit a form indicating that his stipend is guaranteed for 3 or 4 years.

Emily explains that there are different types of pay for graduate students. The W-2 is provided for assistantships and this represents a more typical employment situation. Jonathan says he doesn’t know the name of his pay. He gets the 1098-T, and he simply calls his pay a graduate stipend. Emily says that the 1098-T usually means you are funded through an award or outside fellowship. Lenders get confused by fellowship income. Jonathan says his acceptance letter from Yale says his stipend is guaranteed for several years, but the lender wanted the university to sign a form. The university was unwilling to compromise on signing that form that indicated the stipend is guaranteed. Emily says this “guarantee” of income is strange, because even with a W-2, the typical job is not guaranteed for multiple years.

28:15 How did you resolve the problems with the lender?

Jonathan was calling Yale’s financial office daily. He asked for help from the Dean. He started looking at the other banks on the incentive program’s list, because he had a feeling it wouldn’t work with this bank. There were a few banks around the university, so he went in person to the bank. He talked to a mortgage broker in person. They sat down together, and Jonathan filled out the form during the meeting with the mortgage broker at the new bank near the university. Jonathan resolved the situation because he found someone who was willing to work with him through his unique financial situation.

Jonathan said that this bank offered their own portfolio mortgage with their own requirements. It was harder to qualify for, but it came with a lower interest rates. He had little debt and good credit so he could qualify. It was a different type of mortgage than the first lender offered.

Jonathan was really caught of guard by the phone call from the first lender. It seemed fine, then suddenly he got the call, with no easy way to resolve the issue. Closing got delayed from Friday to Monday, but the closing went very smoothly with the new lender.

32:29 How does it feel to be a homeowner and to be a graduate student?

Jonathan says it feels good to come back to his own house. He can rent out some of the rooms. If he rents out two bedrooms of the three bedroom house, he can cover a good chunk of monthly mortgage. He says this is a great financial decision for him. The mortgage is less than what he paid in rent, plus he has the potential to rent out rooms. Two months after he moved in, he started renting out the rooms. He has two tenants and they are covering good fraction of mortgage payment.

Jonathan has to stay in the house for at least five years. He says that in five years, he will definitely be in a better financial situation from buying instead of renting. He bought in a very good location, in the up and coming neighborhood near Yale. He thinks the market value of the home will increase.

35:25 Have you thought about what you will do when you finish your program?

Jonathan says he has two different options after he finishes his PhD. First, if there’s a good market value to sell the home, he can sell it. Second, the location near Yale University will make it very easy to continue to rent the rooms in the house. He doesn’t see himself working in New Haven after his PhD unless it’s for an academic position.

36:24 Final Comments

Jonathan shares that he had a huge budget for his move, but he didn’t spend very much. He estimates he spent less than $1,000 to move into the house. He moved during the summer, so everyone was getting rid of furniture for free. He used his Toyota Corolla to pick up furniture, and hardly spent any money to furnish the house. He is replacing pieces over time as he saves money. He recommends overestimating expenses for a move.

38:44 BONUS INTERVIEW with Sam Hogan, mortgage industry professional.

Emily chats with her brother, Sam Hogan, who works in the mortgage industry. She asks him about solutions for graduate students and postdocs who are receiving fellowship income but want to buy a house.

Sam Hogan is based out of Northern Virginia. He works for PrimeLending and he is licensed in all 50 states. He explains what lenders look for in the risk profile. They are looking for the ability to repay, and to see verification of history of the type of employment as well as the likelihood of employment to continue. Sam says that ten years ago, anyone could get a no document loan. This meant anyone could verbally verify their finances, but this practice led to many foreclosures. Now, lenders require written verification of employment.

Sam explains that in Jonathan’s case, the lenders sent a form for verification of employment to the university. On the form, there is a tiny check box that asks if employment is likely to continue. It is a yes/no checkbox. Universities won’t check this box because technically a PhD candidate could discontinue their PhD by going into the workforce or transferring institutions.

Sam shares that the best approach is to document likelihood of continuation of income. This may be in the fellowship offer letter. Conventional loans look for at least three years of guaranteed income. When it comes to approving loans, it is all about the presentation of the buyer. Sam says to work with someone goal-oriented like yourself, who will be able to over-document your income. For example, you can write a letter about why you got the fellowship, and include that even after your PhD you will have income. This approach ensures you have good presentation to the underwriter. Loan approval comes down to one person’s decision, a human’s opinion. He says to work with underwriters who are flexible and will give you personalized attention.

Emily recommends that PhD students and postdocs work with Sam because he understands fellowship income situations. Sam can be contacted by cell phone at 540-478-5803. He can be emailed at samhogan03@gmail.com. His national licensing number is 1491786. He has a Zillow profile under Sam Hogan.