403(b)

Tax-Advantaged Retirement Account Options in Higher Ed and K-12

February 23, 2026 by Jill Hoffman Leave a Comment

In this episode, Emily interviews Dr. Daren Card, a computational biochemist working in industry. Daren and his wife moved to Arlington, TX for his PhD and then Boston, MA for his postdoc, and she held K-12 teaching positions in both cities. He shares their financial journey, from managing their student loan debt through opening and funding IRAs. Daren and Emily discuss the tax-advantaged retirement account options available, such as 403(b)s, 457s, and 401(k)s, and how to spot red flags in your employer-sponsored plans.

Links mentioned in the Episode

Tax-Advantaged Retirement Account Options in Higher Ed and K-12

Teaser

Daren (00:00): This was one of these fellowship programs that’s actually channeled through me. So I sort of administered my own award, which is a bit unique, uh, in this way. And, and there’s some upsides to that. But some of the downsides are you don’t get sort of the, the, the financial benefits of, of being attached to a large university.

Introduction

Emily (00:26): Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. This podcast is for PhDs and PhDs-to-be who want to explore the hidden curriculum of finances to learn the best practices for money management, career advancement, and advocacy for yourself and others. I’m your host, Dr. Emily Roberts, a financial educator specializing in early-career PhDs and founder of Personal Finance for PhDs.

Emily (00:54): This is Season 23, Episode 4, and today my guest is Dr. Daren Card, a computational biochemist working in industry. Daren and his wife moved to Arlington, TX for his PhD and then Boston, MA for his postdoc, and she held K-12 teaching positions in both cities. He shares their financial journey, from managing their student loan debt through opening and funding IRAs. Daren and I discuss the tax-advantaged retirement account options available, such as 403(b)s, 457s, and 401(k)s, and how to spot red flags in your employer-sponsored plans.

Emily (01:30):The tax year 2025 version of my tax return preparation workshop, How to Complete Your PhD Trainee Tax Return (and Understand It, Too!), is now available! This pre-recorded educational workshop explains how to identify, calculate, and report your higher education-related income and expenses on your federal tax return. Whether you are a graduate student, postdoc, or postbac, domestic or international, there is a version of this workshop designed just for you. While I do sell these workshops to individuals, I prefer to license them to universities so that the graduate students, postdocs, and postbacs can access them for free. Would you please reach out to your graduate school, graduate student government, postdoc office, international house, fellowship coordinator, etc. to request that they sponsor this workshop for you and your peers? You can find more information about licensing these workshops at P F f o r P h D s dot com slash tax dash workshops. Please pass that page on to the potential sponsor. Thank you so, so much for doing so! You can find the show notes for this episode at PFforPhDs.com/s23e4/. Without further ado, here’s my interview with Dr. Daren Card.

Will You Please Introduce Yourself Further?

Emily (03:06): I am delighted to have joining me on the podcast today, Dr. Daren Card, who currently works in industry at Colossal Biosciences as a computational biologist. But we are gonna be taking it back to his grad school days and his postdoc days to talk about his financial journey. And Daren, because this story involves both you and your wife and your kind of joint projects and finances, please introduce yourself and your wife and we’ll get started.

Daren (03:30): Yeah, so, so my name’s Daren as, as you’ve heard, uh, my, my wife’s name is Rachel. Yeah, we’ve, uh, we’re both originally from sort of rural western New York, uh, south of the Buffalo, New York area. And we actually met in high school at the very end of high school. We both shared a, a high school job at Burger King, ironically, a fast food job. And, um, yeah, got to know each other there. Started dating at the very end of high school, and we’ve been together ever since as, as partners in life. So we’re approaching now, uh, 10 years of marriage, uh, next year and 20 years of being together. So it’s been quite a ride. Um, we both sort of navigated through the community college system and the SUNY system in the, in the state University of New York. Um, both were interested in biology, generally speaking. My wife wanted to pursue more veterinary science. I became interested in conservation. Ultimately, uh, I got more interested in the research bug, like a lot of folks do. Um, and that brought us both down to Arlington, Texas, where I did a PhD at that point in time, uh, focused on evolutionary genomics, uh, sort of trying to link the, uh, the, the genes that we have in our, our cells to the actual physical traits that we see, uh, in organisms in, in nature. Um, Rachel worked for a few years in a veterinary field. Um, we ended up getting married in, in 2016, about 10 years ago now, and a week later, actually, Rachel got a new job as a, as a high school teacher, and she’s been doing that since, and she really enjoys that work. So I finished my PhD in 2018 and was fortunate enough to get a, a fellowship from the National Science Foundation, so shout out to NSF and the US government for funding folks like me and the work that we do. Um, and that brought me up to Boston area where I did a five year postdoc at Harvard University. And, uh, that ended about two years ago. And since then, I, I worked a couple years at the Broad Institute as a computational biologist, mostly focused on cancer genomics. And recently, just this summer I moved over, uh, to a computational biologist position at Colossal Biosciences, which is a bit more in my traditional area. So.

Emily (05:20): Wonderful. Thank you. Such, that was a very succinct overview. Let’s rewind a little bit through that process, because I wanna know what your finances, um, and I don’t know at what point you considered those are finances, yours, mine, whatever your situation was. Um, with your now wife, going back to the start of graduate school, what were your finances like? Like did you have assets? Did you have debts at that point? Maybe student loan debt. Um, did you know anything about money <laugh>? Um, and then what was the stipend like when you started grad school?

Daren (05:46): For, for me, you know, both my wife and I came out of, I guess sort of lower to middle class, uh, sort of backgrounds. We were in more of a rural area, so, you know, just didn’t quite have some of the access that you get in sort of urban areas to a lot of, of the, the benefits of, of sort of population density, I guess you could say. So, um, so because of that, you know, we, we both came out of bachelor’s degrees, uh, in that time period with, with basically zero assets, right? And we had to fund our way through, uh, through our undergraduate degrees using debt, unfortunately from, from, uh, student loan debt in the form of government debt, or in some cases private debt as well. So, so yeah, the, the, uh, the, the numerator of the equation here, I guess is zero in the form of assets.

Daren (06:24): Uh, the, the debt that we had, I had in the order of about 60 or so from memory, uh, k worth of debt from my undergrad, uh, education at a state, uh, university. Um, my wife had a bit more, she was about 75K or so, I think. Um, and yeah, as far as sort of knowledge and and mindset at that point in time, you know, minimal knowledge, I guess, you know, we’re both entering adulthood. We, we did share our, our, our finances largely by that point when we moved on to Texas together. Um, which, uh, had a lot of benefits, I would say. Um, and, uh, and yeah, but I’ve just always been sort of a nerd about various things I like to learn. And, and, and for whatever reason, I got the personal finance bug, uh, a couple years into graduate school, you know, um, and, uh, and yeah, just spent a lot of time perusing the internet, basically teaching myself about all this stuff.

Daren (07:10): You know, it’s all out there in some form, right? It’s tax code, um, uh, it’s not the most easiest thing to read, but usually people distill it down for you. And, and I took advantage of that in that time. So, uh, as a grad student, my stipend over my, uh, six years at UT Arlington was on the order of 30K A year, I would say. I was, uh, I was funded at, on a, a teaching assistant line, so I, I taught the whole time, including on the summers. Um, and my spouse, uh, was fortunate to have a bit more income. She sort of hovered around 50 to 60K through that time period. Um, and overall, and I, I do want to point this out, you know, I should have said it before, but I, I, I do think it’s really important to emphasize this. This is a partnership with my wife. Um, she takes as much credit for these successes as I do. I might be the one standing here talking with a PhD. Uh, she’s not an academic. She’s, she, uh, doesn’t have a PhD, but, uh, but I’ve been very fortunate in that this way, and I think it’s important to point that out. And not take too much credit here because my wife had a big role in this. And, and I think it’s also an important caveat too, um, because, uh, some things are just, you know, simply easier when you have two forms of income and you can split costs. And, and not all PhD students are gonna be able to have that advantage like I had over that time period. So, uh, that was a bit unique to me, I guess.

Turning Personal Finance Knowledge into Action

Emily (08:23): Yeah, very important context for us to have. Thank you for like, explaining that and caveating that. And, uh, yes. Wonderful. So you’ve mentioned that you, you know, kind of <laugh> developed this interest in personal finance, decided to kind of nerd out, learn about it in, you know, that time period when you were in graduate school. And so did you actually start applying that knowledge, um, like what were you doing with your finances during that period of time in graduate school and then also with your postdoc?

Daren (08:49): Yeah, yeah. So we, we, yeah, we did I think, start applying that pretty quickly. My wife has, has always been a, a saver <laugh>, you know, I, I guess I am too by, by nature for whatever reason. Uh, you know, I think we’ve had relatives that sort of knocked into our head early on, you know, given their limited means in many cases that, you know, you gotta think long term and, and, and not wait. Um, so we started pretty early, you know, by our mid, mid twenties I guess I would say. We were starting to contribute to, uh, IRAs. Um, I, um, is, is, is a great way of starting, uh, in this world. Um, you know, it’s flexible. Uh, it doesn’t have the highest contribution limits, but for our income at the time, it was perfectly sufficient, right? So, uh, you’re able to just to open that account yourself, right online, uh, at a, at a many different options out there to, to use that.

Daren (09:33): Um, I think at the time I used, uh, Betterment, uh, just for a, a, a bit of a reference. And my, my wife had started up a Vanguard account, uh, at that time. So, so that’s what we did the first few years during, uh, my, my PhD, um, when my wife switched over to a teaching job, she was able to access a, the state pension system, um, being a K 12 teacher. So she was, uh, starting to contribute in that way as well, on top of the IRAs. Um, and, and that’s basically the status quo up through, uh, 2018 or so when I left my PhD and, and, and wrapped that up. Um, when we moved to Massachusetts, you know, my wife obviously continued with the pension system, being a K 12 teacher. Uh, she’s also able to take advantage of what is called a 457 plan, which we can talk a bit more about here if you’d like, um, at one of her former school districts, uh, that she taught at before.

Daren (10:19): And, uh, and then, um, basically, uh, in my peer in my position as a postdoc, I was, I was funded by and an NSF Fellowship, so I think we made some contributions still to IRAs, but I didn’t really have access to like a 401k or a 403B. This was one of these fellowship programs that’s actually channeled through me. So I sort of administered my own award, which is a bit unique, uh, in this way. And, and there’s some upsides to that, but some of the downsides are, you don’t get sort of the, the, the financial benefits of, of being attached to a large university. Um, so, so yeah, I had to sort of sacrifice that for a few years, which was a, a little tough, I guess, but it wasn’t the end of the world. And, uh, and my last year I actually moved on to a more of a proper internal position and was able to contribute to a 401k for the last year, my postdoc. And then since, uh, in my positions, I’ve been contributing to a 401k, uh, as well. So, so yeah, that’s basically the journey through grad school to- till about now really.

Tax-Advantaged Retirement Account Options

Emily (11:13): Let’s dive into the tax advantage retirement accounts. ’cause I know you and I both really excited to talk about those. So, um, you’ve kind of mentioned already some of the different accounts you and your wife have had access to over the years. Um, just tell us more about what you learned about those accounts over time, what you think is important for the audience to understand.

Daren (11:31): Yeah, yeah. You know, I think the, the one big tip is, you know, don’t overthink it. Just, just pick one and, and go with it. <laugh>. That would be my sort of big tip here. Um, but yeah, we can spend a second sort of talking about some of the, the differences between these different accounts. So, so there’s a, uh, an IRA, so an individual retirement account, I believe is the acronym, right? Um, uh, so this is sort of the, the, the, I guess the beginner, uh, account, I think for most people. So it’s, anyone is eligible for it. Um, generally speaking, um, it’s flexible. You can open it up yourself. It doesn’t have to come through an employer. Um, the contribution limits are lower, that’s one of the downsides. I think they’re on the order of 7,000 now or so,

Emily (12:07): 7,000 in 2025. It’s gonna go up in 2026. Yeah, 7500, I think.

Daren (12:12): Yep. So, so that’s, uh, the, the, the option that we took advantage of in the beginning, you know, that was perfectly sufficient for our, our, our, uh, our situation. And honestly, it’d probably be perfectly sufficient for most grad students. I would, I suspect out there, uh, in, in the US at least. So, um, you know, when we moved beyond grad school, we started to think more and more about other things, and mostly that was because we actually became eligible for other sorts of retirement accounts. I didn’t have access to that sort of a thing as a graduate student, given my appointment at the university, uh, my wife, uh, became eligible for a, a pension system, but, um, but not really a, a 401k, right? Um, um, but yeah, when we sort of moved into graduate school and moved up here to Massachusetts, then we started to think about things like, uh, the, the very famous 401k, right, which comes typically from, uh, normal employment out in at businesses and things like that.

Daren (12:58): And then you have a very similar plan called a 403B, which is usually reserved for nonprofit sectors. Um, so universities typically have this type of, of plan. So these are sort of your quintessential retirement plans. They come through the employer. Occasionally you’ll get an employee, employee match, uh, not, not usually at a, at a a a college. I’m, I suspect, or at least for grad students and, and postdocs, maybe for faculty. Um, uh, but out in the sort of private industry and things like that, you can get nice employer matches that, uh, will sort of help to top up your contributions a bit. Um, so we’ve been taking advantage of that a lot since, uh, coming into sort of the postdoc and beyond phase of, of our, uh, of our lives. Um, and, uh, those contribution limits, I think on the order of about 24,000 right now, so much more substantial.

Daren (13:39): And then with the, with the additional contributions from an employer, you know, that’s sort of a hundred percent return right away, which can be pretty nice on at least a subset of your contributions. Um, so definitely take advantage of that for sure. And then, uh, a last account, I’ll, I’ll talk about, I mentioned it earlier, is a, uh, is a 457, uh, plan. Uh, this is another, these are all IRS tax codes. Uh, basically is, is people probably know. And, uh, honestly, I think this is maybe the best of the, the group in my opinion. There’s, uh, it’s basically the same as a 401k or 4013B as far as contribution limits and the way it’s administered and things like that. Uh, but one nice thing about it is, uh, and again, I should say it’s, it’s really reserved much more for I think, state level or local level, um, uh, government sorts of positions and, and things like that. So it’s a bit more restricted. You’re not gonna see this at a, at a company or something like that. Um,

Emily (14:28): Nonprofits can also have them sometimes. Um, but I do see it more often with like state university systems or something like that,

Daren (14:36): Right. Or local municipalities and things like that. Yeah. So, uh, but yeah, the, the real nice advantage of this is when you leave employment, there’s some, you know, I don’t remember the exact details now, it’s been a while since I’ve looked at it, but there’s some nice, um, there’s some sort of nice liquidation options. You know, usually with these accounts, you’re sort of locked out of them for, for good reason, don’t touch ’em. That’s the idea, right? Um, and, uh, so yeah, when you do have to touch them, like if you have an emergency or something, you take, you take a penalty, um, and you, you do typically with a 457 as well. But one of the sort of, uh, caveats of the way that they wrote the tax code here is that when you leave the service that provides that 457, uh, it is eligible, you know, all these things are eligible to get rolled over, but the 457 is a bit unique in that you can actually liquidate that money, you know, you have to follow certain procedures and, uh, and sort of tap into it in a way that you can’t with these other traditional, um, retirement plans.

Daren (15:28): So, uh, so that’s a nice one. We’ve took, taken advantage of that on top of my wife’s pension here in Massachusetts. Her previous district had, uh, access to a a 457 plan through the state of Massachusetts that’s administered at the state level to keep the cost low. It’s called a smart plan here. Um, and, uh, yeah, we’ve been able to take advantage of that a little bit as well.

Emily (15:47): So I’ve heard about the 457, I mean, in my work, it’s like, okay, you know, 457, 403B kind of similar sort of arrangements, but in the FIRE community, the financial independence retire early community, it’s kind of held up as this, like, hey, you can, if you separate from service, as you said, you can access this money earlier in ways that you don’t have to pull the tricks that you need to do with your IRAs and the 401k and all those other types of accounts. So it’s kind of held out in that community in particular as a really great plan to use, if that is your goal of stopping work before age 59 and a half, and, you know, trying to access some money earlier. So, um, I did a previous interview interview with Dr. Corwin Olson that people might wanna reference, um, talking about early retirement in the FIRE community, uh, for PhDs and people who work, again, in, in sectors where these kind of, um, accounts are permitted and offered. So that might be something for listeners to check out, um, as well. But it sounds like you, if you’ve tapped that 457 have not done so for funding your lifestyle in retirement, but maybe for other investment opportunities. Is that right?

Daren (16:51): Yeah, you know, and I, I sort of, you know, definitely in grad school and, and stuff, you know, who knows where life will take me, right? But, but I wouldn’t mind retiring early <laugh>, you know, I sort of look at, uh, personal freedom and the ability to sort of control your time is, is one of the ultimate forms of freedom that you can have in, in, in this world, and subscribe to the idea that that that is something to strive for. And, and, and that has been part of our, our, my, my collective goal with my wife is to, to somehow facilitate, you know, early retirement and it’ll be an open question, you know, how early it can be for us, uh, or if we’re even successful. But, um, but yeah, the 457 at least allows the opportunity to be able to draw down that money before you hit the age.

Daren (17:29): The age is where you’re typically eligible to do so under more traditional plans without a penalty. So, so yeah, if you do wanna retire early, that’s where the 457 can really shine. Otherwise, you know, if you’re gonna start, if you’re gonna retire at a traditional sort of 62 or, or 59 and a half, I guess technically is the earliest you can do, um, you know, it, it really doesn’t make much of a difference which of these you sort of go with. Um, so, so yeah, we’re in the weeds here a little bit, but, but these are I think, some useful, uh, tidbits of information that might be helpful to folks.

Emily (17:57): Yeah, I think I wanna go back to how you started this section, which is like, the main thing is just pick one plan <laugh>, and then like stick with it. So like, it always depends on what’s offered to you. So if nothing’s offered to you because you’re a graduate student, then you’re gonna go with an ira, probably a Roth IRA given your income at the time. Um, if you work in the private sector, okay, it’s probably gonna be a 401k if you work in, you know, universities or other types of nonprofits, government, yeah. Maybe then we’re talking about the 403B, maybe with the 457 as well, and then you have a bit of a choice, which one do I wanna prioritize? Or if you’re really mad about personal finance, you might do both.

Daren (18:29): That is a good advantage of the two. You can do both, uh, the 403B and the 457.

Emily (18:33): Yes. That, that is like, yeah. And most people who have these types of jobs don’t earn enough money to be able to do both. But if you’re a PhD and you’re well compensated and you have to be, happen to be in an industry that does offer both of these things, maybe you’re that unicorn where you actually could, you know, contribute to both. But the point is like, what is being offered to you, it’s probably not gonna be this whole suite of options unless like you two, you have a married couple who works in different industries with different types of opportunities and also maybe shifts over time. Um, what’s available to you? I’ll throw in as well self-employed person. I have a solo 401k, so like throw those options and advantages in there as well. If you have any kind of self-employment side hustle, you can open a solo 401k. So anyway, just to complicate things further, basically yeah, there’s even more. It’s out there. Yeah, it’s like an IRA like you said, is almost always available. There are technically some eligibility things about your income, but most graduate students and postdocs will qualify. Yeah, so there’s the IRA and then it kind of depends on your work after that,

Daren (19:30): Basically. Yeah, that’s a good take home. I think there, and, and yeah, there’s even more out there as, as you’re sort of alluding to, and, and there’s even more, you know, the, I think the other side of this, uh, the coin here that this sort of comes into this conversation that I think is maybe worth, uh, talking about as well is, you know, this is just a sort of the, the tax code, the vehicle in which you’re sort of investing, but, um, but there’s also what you’re investing your money in. And that can be just as important as the, the tax advantages and things like that is, well, you know, am I investing in something that’s gonna see a good return? Uh, am I ensuring that that return isn’t being eaten up by needless fees and, and things of that nature? And, uh, and honestly, I, I would say the, the 401k, 403B, that, that’s a bit easier to understand. It’s, it’s the, that aspect of things, the, you know, what you wanna put your money into, what things you might want to avoid. You know, when the salesman sort of comes calling and says, we have the best plan for you. Um, I think that’s where people get into more trouble, um, and where it takes a lot more effort to, to sort of understand what’s in front of you and, and what might be best for your, your personal situation.

Commercial

Emily (20:32): Emily here for a brief interlude! Tax season is in full swing, and the best place to go for information tailored to you as a grad student, postdoc, or postbac, is PFforPhDs.com/tax/. From that page I have linked to all of my free tax resources, many of which I have updated for this tax year. On that page you will find podcast episodes, videos, and articles on all kinds of tax topics relevant to PhDs and PhDs-to-be. There are also opportunities to join the Personal Finance for PhDs mailing list to receive PDF summaries and spreadsheets that you can work with. Again, you can find all of these free resources linked from PFforPhDs.com/tax/. Now back to the interview.

Fees Associated With 403(b) and 457 Accounts

Emily (21:23): Well, going off of that, uh, comment about a salesperson, um, I wanna say that listeners might be aware, and you’re prob- most likely aware, um, that 403Bs and 457s have a bad reputation of being fee laden, uh, very expensive types of, um, vehicles in which to put your investments. And also the investments that you might be steered toward by people helping you with this might not be actually optimal for the decades of investing that are ahead of you. I think this reputation more comes from K through 12, those kinds of educators versus the higher ed, um, group that I’m normally talking to. But since your wife is in that former category, let’s talk about this a little bit more. And also, there’s sexism in this because women are, you know, dominating the K through 12 educational space, whereas men are dominating the higher education space. This is one of the ways that sexism ends up influencing our investments and our finances overall. But that’s me getting on a soapbox. Let’s let you get on your soapbox <laugh>.

Daren (22:21): Sure, yeah, yeah, please. This is, this is great. Um, yeah, you know, as you say this, this pertains more to the K 12 level. You know, some of this maybe propagates up to, to post-secondary levels and, and it’s something to be aware of, certainly. Um, but, but yeah, at the K 12 level, you know, again, we have 403Bs, 457, so on and so forth. Uh, but as I said before, beyond that, you’ve gotta pick, you know, what you wanna invest your money in, and there’s lots of things out there that you can invest your money in. Um, what I tend to personally invest my money in is, is, is what they call, uh, uh, low cost index funds. So these are, uh, basically funds that are indexed to the, the overall stock market, so like the s and p 500, right? So they basically try to, uh, select a mixture of investments that are out there that match the performance of what the overall market is doing with the idea that it’s diversified.

Daren (23:07): And it’s, and, and it might not give you the best return every year, but it’s at least gonna give you, uh, a reasonable return and, and be somewhat protected against, uh, big downsides or big down swings, uh, that you can have, uh, in, in certain situations. So, so yeah, that, that’s, that’s what I tend to invest my money in is, is sort of a low cost index fund. Um, and, uh, the big reason for that is, is the, the low cost. You know, so there’s the money coming in from the stock market, right? So you can go out and you can look at what that is. You know, the people keep track of that all the time, right? Uh, the downside is, you know, the, in some cases that folks aren’t maybe as clear as they can be about, um, the, the cost associated with these sorts of things.

Daren (23:46): Um, so with a low cost index fund, you know, this is something offered by like a company like Vanguard. They sort of pioneered this kind of thing. The idea is, you know, we keep the, the fees as low as possible, you know, it, it’s sort of a bit automatic. It’s, it’s sort of easy to manage because it is an index fund and therefore we can offer it with very low fees. Um, and therefore your most of your money is going into your pocket, and it’s not coming into the pocket of, of, say, Vanguard or whoever is administering these funds. Obviously, there’s some cost, right? These things aren’t free, but it’s, it is actually very, very low cost. Uh, typically speaking, uh, on the other side of the coin, unfortunately, are, are what I would say are sort of predatory practices, especially at the K 12 level, given the, the sort of abundance of K 12 educators that are out there, uh, uh, the, you know, across diverse communities and so on and so forth.

Daren (24:33): Unfortunately, you know, there’s, there’s folks that, that, that sort of, I would say, sort of prey upon this <laugh> in some way. You know, they, they’ll, uh, you know, they’ll, they’ll maybe put out something sort of similar to an index fund as far as its performance, but they’ll, uh, they’ll sort of riddle it with, with high fees. Um, and you may not think much about, you know, a 1% fee, no big deal, right? Um, but, but in the long run, it really adds up. Um, you gotta think about compound interest in, in it can help you, but it can also hurt you when it’s working against you, right? So, uh, you know, you can go out and do, look at some calculators online that will sort of show you over a 20, 30, 40 year time period, even a 1% fee. You know, if you were to knock that down to a, you know, by to a 10th of that, you know, a 0.1% fee, which is more akin to what you would pay, uh, at a low con-, low cost index fund, um, you know that the extra money that you would accrue over that time period is, is substantial. It’s, it, it almost knocks you over when you look at it.

Emily (25:26): It’s hundreds of thousands of dollars, typically.

Daren (25:29): So, so yeah, you know, it really is unfortunate. You know, my, my wife, uh, is in a district now. They actually, the district in which we, we reside, um, where they do have a pension system, and that’s what most teachers contribute to. And, and, uh, and then it, it just doesn’t feel like folks have really thought much more about everything else. Um, but, but there are certainly gonna be people that want to contribute to additional savings accounts. And at least at my, my, my wife’s school district, uh, uh, you know, all the plans that we’ve seen are either quite opaque. You have to sort of call people and, and get them on the phone and, and try to get the details. You know, there’s not like a nice sort of prospectus laid out of, of what you can invest in and, and what the costs are and all this sort of stuff, which alone is sort of annoying when, when folks are busy and have lives to live, right?

Daren (26:09): Um, but then on top of that, you know, when you sort of do dig in, you find that a lot of them are, uh, uh, these varieties that do have high costs associated with ’em that really can detract from the, from the, uh, the, the, the whole opportunity, I would say. So, uh, so yeah, it’s, it’s just unfortunate, at least in the case of my wife’s district that the, that the folks haven’t put more thought into that, I would say. Um, and the other sort of downside here is, is across Massachusetts, most folks have access to the state level 457 plan called the smart Plan locally. Uh, but for whatever reason, my wife’s district currently, uh, hasn’t adopted that plan. Um, which is a, a major downside, I would say as, as well. Um, and I, and I get this at some ex- to some extent, you know, most teachers will contribute only to a pension plan, never think about anything else, but not all teachers.

Daren (26:53): Um, you know, and, uh, and it really is a, it’s a missed opportunity, I would say, and it points out some, some, I I would say big problems in how sort of K 12 administrators and school districts in general, which are usually tied to local municipalities. Um, you know, even in cases with very strong sort of local union support, which is definitely the case up here in Massachusetts. Um, you know, uh, you know, still allow these things to happen. Um, you know, and, and especially in this day and age where we’re sort of facing these major teaching shortages, um, really this could be such a simple way, in a cheap way for a local school district to, to improve compensation for teachers in a way that that makes a difference, um, and, and, and not really add to their bottom line in a major way.

Daren (27:34): Um, so I would consider it really a very big missed opportunity in, in, and quite a shame. Um, and hopefully, you know, by, by pointing these things out, uh, and advocating for ourselves collectively, uh, we can improve these situations. But, but there’s definitely an uphill climb, um, in this way. And again, this mostly pertains to K 12. Some of this might trickle up to, to the post-secondary level. But, you know, I think the take home at the end of the day is, is, um, you, you really can’t rely on anyone else. Uh, you know, not to say you can’t trust people ’cause you can, but you really gotta do your homework. Um, uh, you know, you gotta make sure that the advice you’re getting is correct. You gotta make sure that it’s actually in your best interest and it’s not just a generic form of advice.

Researching Retirement Account Options Before Investing

Daren (28:13): And, uh, and that’s where sort of being a researcher I think can really be an advantage, right? So, you know, this is tailored towards PhDs and PhDs are professional researchers, so, uh, I guarantee you, if, if you can get a PhD, you can, you can learn the, the basics of this stuff and, and, and, and really help yourself out, I think in, in the long run. So, and it’s becoming better and better. I, I think, uh, there are advocacy, advocacy efforts sort of starting up in this way. A couple I can sort of point to is one’s called 403Bwise.org. Again, this is mostly k12, but they’ve sort of taken up this cause and have a, a podcast as well as a lot of information online and as well as school district, uh, report cards, uh, a lot of which are Fs and and Ds nationwide, unfortunately, uh, because of the, the, the, the, uh, the plans that are offered at most school districts.

Daren (28:59): Um, and another place that, uh, that is probably more useful, I think beyond the K 12 system is the state of California has a nice database of a lot of the, the, the, the, basically the retirement options that are available to K 12 educators in that state. And, uh, a lot of these generalize across other sectors and, and other non-profit, at least situations too. So if you’re looking for a, a, I would say maybe the best place to compare these sorts of plans, uh, in a, in a relatively unbiased manner, it’s not perfect. Um, I would say it’s the, the state of California, I can’t recall the name of the database right now, but, uh, but maybe go look that up. Um, and, uh, maybe you could put it in show notes or something like that. Um, that would maybe be the place I would suggest where folks, uh, can get more of a one-to-one comparison between these funds and really maybe get at the true details that sometimes can be hidden from you when you actually, uh, uh, go and talk to, uh, the folks at the banks and the financial institutes that offer these sorts of things.

Emily (29:52): Yeah, thank you for mentioning those resources. And kind of like you were saying in that like it’s really, um, important to investigate what’s available to you, get into the details, and then talk with your peers, right? Because whether it’s part of union or whether it’s just just talking to your colleagues, um, it’s very helpful to just get that information out there and things do and can change over time. If enough people ask, why is it that we’re not offering a 457 like every other district in the state or whatever, whatever the case is, then maybe that will eventually change. I wanna give you a small example and a big example of similar, uh, themes that I’ve run across. Um, the small example is I was actually, I had a, a series of speaking engagements recently for a university client. And so I was looking into their retirement account options for their postdocs, and I noticed that they, uh, you know, they had a 403B and a 457, uh, great.

Emily (30:39): And they had three providers, two you’ve heard of and one you maybe haven’t before. And they had a really nice table. Like you said, sometimes this information is hard to come across, but they had a really nice table laying out all of your investment options. There weren’t that many, there were maybe 10 or 12 across these three different providers and what the expense ratios are. And so I’m looking at this table going, good, good, good. We got some Vanguard funds, we got some Fidelity funds, everything’s low cost. Awesome, awesome, awesome. Oh, they’re really clearly delineating. What are the passive funds and what are the active funds? This is a very easy chart, at least for me to read since I have some familiarity. But then I looked right up at the top and saw there was a record keeping fee for each one of these different providers, which is just another add-on to the expense ratio.

Emily (31:19): And that the two you’ve heard of had very, very low record keeping fees and the one you hadn’t heard of, even though it offered the same investments as the other two, had a much higher, probably three to four times higher, uh, record keeping fee. And so I was looking at that like, oh, that one little number on this chart changed everything in terms of what I would choose if I were an employee at that institution. And I can’t give anybody financial advice, but when I ended up talking with the postdocs, I said, look at these numbers. Bigger numbers are not to your advantage, <laugh>, what should you conclude if you see these three numbers, two of which are much lower than the other. So again, just a call for like looking into the documents and having an awareness of how important fees are and really that they don’t buy you an advantage.

Emily (31:59): That’s kind of how we think that that money works. You’re gonna buy something that’s more expensive and it’s gonna be better, not the case. So it turns out in investing, um, statistically speaking, okay, so that’s a small example. The bigger example is, um, from my husband’s um, uh, biotech company that he’s worked for since he finished his postdoc, um, which has a startup. And so it’s gone through some growth over the years. Um, and they used to offer a 401k plan, um, through I’ll name and shame Edward Jones with American Funds. That was very high expense ratios. And we looked at that and we’re like, okay, we’re gonna use every other vehicle we have before we get around to this 401k, because there was not a match offered. So there’s really no advantage of using it unless we needed the contribution room, which eventually we did.

Emily (32:45): So eventually we started making some small contributions that as we were maxing out everything else available to us. Um, but over the years, again, the company grew and eventually their benefits changed, and now they have a fantastic 401k provider who has low costs and low fee options. And it’s just such a relief now that we’re using it more, we’re like, oh, this is great. Like, it’s actually not <laugh>, it’s actually to our advantage to use this 401k instead of trying to have to avoid it. Um, so things do change over time, but that, but my point is it happens in the private sector as well. You still have to be careful about, um, those expense ratios about who the providers are, about the investments that you choose. Do they offer those low cost, um, index funds or is it all actively managed stuff? So it’s not hard, you know, spend a couple of hours reading about this, read The Simple Path to Wealth, you will get it, you’re a PhD, you’re can be very capable in this area. And really, as we were saying earlier, this is worth hundreds of thousands of dollars to you over your investing lifetime. So it is worth a little bit of time upfront.

Daren (33:41): Yep. Yeah, don’t be afraid to ask questions.

Achieving a Positive Net Worth

Emily (33:43): Is there anything else that you would like to share about your financial journey, the investment component of your journey, maybe at, you know, coming outta your postdoc or any other stage you’d like to share with us?

Daren (33:54): Yeah, maybe I’ll, I’ll conclude with, um, with a bit of an update on sort of where I am now. You know, like I said before, I’m a couple years out of a, of, out of a postdoc and, and yeah, we, we definitely have picked up momentum, uh, over the course of the postdoc and especially these last couple years moving into sort of my, my big boy job, so, so to speak, right. Um, and, uh, and, and yeah, so I, I’m happy to report and it, it’s a big source of pride, I think for me and my wife that we, we did do a little bit of math recently, you know, looking at, you know, our, our, our, our student loans, which haven’t really moved much, but, but that’ll change soon. Um, and, uh, as well as, you know, the, the money that we have accrued across these various sort of investment vehicles as well as sort of personal savings and, and, and, and other things that we haven’t even gotten into today.

Daren (34:35): And, uh, and I can say that we, we have a positive net worth, which I think is an a major accomplishment. We have, you know, in, in the, you know, having collectively over a hundred thousand dollars worth of student loan debt. So, um, so yeah, you know, you know, I’m now sort of approaching 40 <laugh> to age myself. Um, so I’m not super old, but, uh, I’m not as young anymore. But, you know, like we started, I guess around 25, so we’re, we’re, I’m going on 13, 14 years now. Um, so, so it’s, it’s time. It’s not no time, but it’s not a lot of time either. Um, you know, and, and like I said, we, we came in with basically no savings in the beginning.

Best Financial Advice for Another Early-Career PhD

Daren (35:10): So, you know, I, I think, uh, the, the biggest advice I can give to people is, is just, just start now. Start start as early as you can. Um, the, the big thing there is just the compound interest. It’s, it’s your your best friend here. Um, you know, look for those low fee things so that, uh, there, there aren’t fees compounding on top of your compounding interest <laugh>. Um, and, uh, and yeah, the other big thing like we’ve been saying right along is, is is do your research, you know, tap into your professional skills as a PhD and, uh, and, uh, you know, I think in doing so, you can set yourself up for a, a more comfortable retirement and perhaps a bit less stress along the way. And, uh, and I think, you know, due to Emily and other folks that are out there, there, there are an increasing number of, uh, sort of resources and information that’s available. You know, when I started sort of nerding out on this 12 years ago, it was fewer and further between, but, but you know, there is a bit more of a cottage industry now of folks trying to advise folks on the best way in which to think about these things, or at least provide all the options so that people can make more informed decisions.

Daren (36:08): So on top of this, I think, uh, another good source I’ve seen that I haven’t shouted out already is, uh, I think there’s like white coat investing or something. There’s a, a [white coat investor], MDs basically, which is a pretty good proxy for PhDs in many respects and have a lot of the same, uh, you know, career stages and, and, and affiliations and things like that. So if I could fi, if I could point you to anything that’s sort of most relevant besides Emily’s things tailored to PhDs, it might be sort of the white coat investment, uh, side of things. Um, they do a pretty good job, outlining a lot of this stuff.

Emily (36:36): Yeah, I agree. They’re a great resource, especially the more your profile looks like that of their typical audience member, which is like you having student loan debt, having significant student loan debt, and then also having a good salary, which I’m sure you do now on the other side of the educational journey. Um, the more you look like that profile, the more that community is gonna benefit you. And of course, if you get really into investing, then they’re gonna benefit you as well. ’cause they talk a lot about that. Um, amazing. I love that advice. Um, thank you so much for, um, sharing that with us and for sharing your story and your insights. And I just echo like everything you said about yeah, doing your research and starting early, of course, it’s difficult during your PhD to get compound interest working on your side, but we are in PhD training for a long time. I mean, you had six years in your PhD, five years in a postdoc had you not gotten started, you know, with the investing side of things. Like not a late start exactly, but it would’ve been later <laugh>, right? And that time is really on your side. So thank you so much for sharing this with us today.

Daren (37:34): Well, well thank you Yeah. For providing a forum to, to sort of share my story. Uh, it’s, it’s been a, a wild ride in some respects, but it’s been enjoyable. I’ve, I’ve learned a lot and it’s great to sort of be able to impart that onto other folks, um, you know, to help them avoid maybe some pitfalls that are certainly out there and, and to, to hopefully, you know, to, to, to help them to maximize their personal finances. Uh, both now and, and well into the future.

Outro

Emily (38:08): Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? My team has collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance… but it helps! Nothing you hear on this podcast should be taken as financial, tax, or legal advice for any individual. The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by me and show notes creation by Dr. Jill Hoffman.

Financial Questions from an International Graduate Student

January 27, 2025 by Emily

In this episode, Emily interviews Gauri Patel, a first-year grad student in biomedical engineering at the University of Texas at Austin. Gauri is on an F-1 visa, but she has lived in the US for over 10 years. The financial questions Gauri has encountered are different from those typically asked by both US citizens and new international students. Gauri and Emily discuss bank accounts, retirement accounts, tax reporting, and the cost of immigrating to the US.

Links mentioned in the Episode

Teaser

Gauri (00:00): I’m the type of person to gather all the information before doing things, but that can hinder progress if you just keep adding more bits of information rather than like acting on what you already know. I spent a little too long deciding like, oh, which, which company to go with. But yes, I I was able to open up the Roth IRA.

Introduction

Emily (00:28): Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. This podcast is for PhDs and PhDs-to-be who want to explore the hidden curriculum of finances to learn the best practices for money management, career advancement, and advocacy for yourself and others. I’m your host, Dr. Emily Roberts, a financial educator specializing in early-career PhDs and founder of Personal Finance for PhDs.

Emily (00:59): This is Season 20, Episode 2, and today my guest is Gauri Patel, a first-year grad student in biomedical engineering at the University of Texas at Austin. Gauri is on an F-1 visa, but she has lived in the US for over 10 years. The financial questions Gauri has encountered are different from those typically asked by both US citizens and new international students. Gauri and I discuss bank accounts, retirement accounts, tax reporting, and the cost of immigrating to the US.

Emily (01:30): The tax year 2024 version of my tax return preparation workshop, How to Complete Your PhD Trainee Tax Return (and Understand It, Too!), is now available! This pre-recorded educational workshop explains how to identify, calculate, and report your higher education-related income and expenses on your federal tax return. Whether you are a graduate student, postdoc, or postbac, domestic or international, there is a version of this workshop designed just for you. While I do sell these workshops to individuals, I prefer to license them to universities so that the graduate students, postdocs, and postbacs can access them for free. Would you please reach out to your graduate school, graduate student government, postdoc office, international house, fellowship coordinator, etc. to request that they sponsor this workshop for you and your peers? You can find more information about licensing these workshops at P F f o r P h D s dot com slash tax dash workshops. Please pass that page on to the potential sponsor. Thank you so, so much for doing so! You can find the show notes for this episode at PFforPhDs.com/s20e2/. Without further ado, here’s my interview with Gauri Patel.

Will You Please Introduce Yourself Further?

Emily (03:06): I am delighted to have joining me on the podcast today, Gauri Patel, a first year PhD student in biomedical engineering at UT Austin, and today Gauri and I are going to discuss being an international graduate student, but one who has been in the US for a significant amount of time and how the financial questions that you have at that stage are different than either you know, domestic graduate students or people who are international students and brand new to the US. So I’m really excited to learn from Gauri about this. So Gauri, will you please introduce yourself a little bit further for the audience.

Gauri (03:37): Thank you so much Dr. Roberts. So I, as you mentioned, I am a first year graduate student at the University of Texas at Austin and I’m studying biomedical engineering, uh, specifically in biomedical imaging. So my start in this field was during my master’s thesis where I studied a particular image analysis technique to understand how a tumor microenvironment could influence outcomes to therapy. And so I want to continue studying this and so here I am, uh, doing more research at, uh, in a PhD program.

Emily (04:14): Excellent. Well, let’s kind of rewind the clock and take us back to, uh, maybe when you first, uh, entered the US and tell us about how that happened.

Gauri (04:23): I first moved to the US pretty much exactly 11 years ago. Uh, and it was because my dad had found a job in Michigan and so at at that age you don’t really have much of a say in where you’re going. And so my family moved to the states and I’ve been in Michigan ever since.

Visa Status: H-1B, H-4, F-1

Emily (04:46): So tell me how that works visa wise. ’cause I know, I’m gonna guess your father was on an H-1B, but I don’t know how the family aspect of that works.

Gauri (04:55): He eventually got to an H-1B, so we moved from Canada to the US and so Canada, there’s a different visa category that my dad could also work under. So he first started on a TN visa and I was on whatever dependent version of the TN there is. I’m not sure what the name of that is exactly, it was quite a while ago, but then eventually he did get moved over onto an H-1B, after which I was on an H-4 visa, which is a dependent of the H-1B. And I basically stayed on that, um, from middle school through high school and then my first year of my undergrad.

Emily (05:34): Okay. And then from your second year of undergrad, did you start on F1 visa at that time?

Gauri (05:40): I switched to an F1 during my second year of my undergrad and that was because I wanted an opportunity to do internships or paid research on campus. Uh, so the H-4 visa, you require some type of worth work auth- authorization and that there’s a different timeline about when you’d be able to work. It has to go through a different approval process and it’s kind of like up in the air when that, uh, work authorization would come through. And so if I was on an F1 visa, it would be rather immediate. I would do a year of school and during that time I would be permitted to work in a research capacity on campus. And also it’s pretty immediate you can get authorization for CPT or OPT and so that’s why I switched to the F1.

Emily (06:34): That certainly seems like a reasonable reason to, to, you know, make that switch. I’m wondering were there any downsides, like anything that you were foregoing or giving up by making that switch?

Gauri (06:44): Yeah, for sure. So since my family was on an H-1 was under the H-1B visa category, there’s also the option to apply, have your employer sponsor for a green card. And so that’s like the main perk of the H-1B visa. It can eventually lead to a green card. However children, they age out at 21 and so I was like really getting close to that point of aging out. And so the question remained, do we still hang on to this H4 dependent visa and not be able to work in the hopes that before I turned 21 I would, that green card would, you know, go through or do I switch immediately and you know, cut my losses. And so, uh, we just decided that the green card was probably not gonna happen before I turned 21. And so I might as well switch to the h uh, sorry, excuse me. F1 visa at this time.

Emily (07:53): Well I wanna kind of pick up with the green card process maybe a little bit later in our conversation, but let’s kind of go back with um, your experience, you know, doing research and everything through your undergrad. Um, it totally makes sense to me that you would want to have those potentially paid research experiences where you already thinking at that time that you wanted to pursue, uh, your field or science generally or like did this basically the switch to allow you these experiences. Were you thinking ahead to graduate school, I guess is what I’m asking?

Gauri (08:24): Yeah, for sure. So I first started off, um, my first year I was pretty set on pre-med. I wanted to go to medical school, um, and pre-med the curriculum makes you jump through like a lot of hoops, like oh, do shadowing and do research hours and all that. And so that’s how I got into research in the first place. But I ended up liking it so much that I abandoned the pre-med track and I’m like, I think this is the research is just what I’m interested in general. And so the F1 visa definitely helped. It also would’ve been helpful for pre-med purposes as well to get like clinical hours maybe, you know, work in some, some sort of, um, healthcare setting. So working somewhere was like whether I wanted to go to graduate school in research, in a research capacity or to medical school working somewhere had to have happened.

Family and Personal Finances

Emily (09:21): Yeah, that makes sense. Um, since we’re talking about work then and paid work and so forth, can you tell me a little bit about, doesn’t necessarily have to be your family’s finances, but like what was going on for you financially during that time and especially if there were any tie-ins then with like your visa status or your choices around that.

Gauri (09:39): Finances were never really a struggle for my family, which I’m very grateful for. Um, because I, as an international student, I didn’t get any financial aid or qualified for federal student loans, so everything did have to come out of pocket. So more about having paid work, it was more about, um, finding a sense of autonomy and not having to rely on, you know, my family being my safety net all the time. And so that’s why I was interested in the paid work.

Emily (10:14): And you told me during our, um, pre-interview chat that you started listening to financial podcasts even as an undergrad, including this podcast. And so what led you in that direction of like being interested in finances even at that stage?

Gauri (10:28): Oh yeah, it was pretty much, so I worked in this, um, lab as a volunteer for two semesters and then that summer after I asked them like, Hey, can I stay for the summer and work here full time and also get paid perhaps? And they were like, yeah, sure we can make that happen. Um, in hindsight I didn’t realize how like, oh wow, that actually happened <laugh>. Um, now that I know more about the research space like that, that was kind of incredible that that happened. But anyway, so I, I’m like, oh, I’m about to get money for the first time. Um, and unlike some of my peers that I went to high school with, they all worked like, you know, jobs, um, at like the local ice cream shop or they were, you know, hosts at, you know, some type of diner or they tutored on the side. I couldn’t do that on the H-4 visa. And so up until this point I’d just been volunteering. This was quite literally like my first paycheck. And so I was like, what do I do with this? What could I possibly do with this? And I’m just the type of person to go poking and prodding for answers. And so I went to finance podcasts.

Emily (11:49): Yeah, that’s great to hear. Um, I think when I had a similar like transition, you know, coming out of undergrad and getting like my first stipend paychecks, like after that I was asking the same questions like, oh, uh, never had this control over money before. Like, what exactly do I do with this? I went to books because podcasting was barely a thing back then, but that’s awesome that we have so many different like avenues you can go to now. Um, okay. So anything else you’d like to share with us? Maybe about the transition from, you know, finishing up undergrad and your master’s into graduate school in terms of your finances and then we can kind of dig into the, um, specific questions or concerns that like someone in your position has?

Gauri (12:29): I think the only big difference between my undergrad and master’s and then grad school now is that in undergrad and Master’s, the amount I was making was like, it, it couldn’t sustain all of me. Um, my family was helping out with tuition entirely and then now it’s a, a different ball game. Like I, I can more or less like take care of myself on this stipend. And so that autonomy I was like really searching for. Um, I I feel like it’s like finally coming to fruition like, oh, it’s happened.

Emily (13:06): So when you kind of approached me about doing this episode, you were saying, okay, yes, I’m an international student but I don’t have the same concerns of a brand new to the US international student and I also have different concerns going on than someone who is already a citizen or resident. So just like point by point like let’s talk through like what you’ve encountered and sort of what you’d like to share with other, other listeners who might be in a similar situation.

Choosing a Bank as an International Student in the US

Gauri (13:30): Yeah, for sure. So the first thing, um, you do is when when you get some type of money in your hands, it’s like I have to put this somewhere. And so it’s the first question is like, oh, what bank do I choose? And so I was consuming this financial content and it was like, oh, you should start saving up for an emergency fund and moreover you should put it in a high yield savings account, but for international students there are only a certain number of banks that will offer their services to you. And so the first bank account I had was, um, a Chase bank account. Um, I don’t know if it’s okay to name names.

Emily (14:07): Oh yeah, go ahead.

Gauri (14:07): For banks. Okay. So it was a Chase bank account and it had some like stipulations on the minimum balance that should be in there. It didn’t offer any interest at all. And so in terms of all the different banks you could choose from, you’re limited to a very set few. Um, so I had that bank account first, but then finally after I got the work authorization to work on campus in this uh, lab and then after I got the social security number associated with it, it was after all that that I could open this bank account. And so anytime you hear like, oh, do this, do X, y, and z, like a pretty actionable step, that seems easy enough. Um, I always seem to find like, oh I need to have this before I can do this thing.

Emily (15:05): Yeah, it is, it is really hard at like as a podcaster, someone who does one to many communications, it’s really hard <laugh> to keep all audiences in mind and speak to like all audiences. So you’re absolutely right. Like if you’re listening to a US based, you know, personal finance podcast or like reading a book or something else, like you definitely have to put another filter on that and say like, okay, <laugh>, is this actually going to be possible for me? And the answer is like, just like you said, yeah, there are banks that will work with you, it’s just not necessarily every bank and not everyone’s gonna make it easy and some people need the SSN and some don’t and so forth. So like you just have to be, there’s just another selection criteria on that. Absolutely. Have you, so since like having that Chase bank at first, have you subsequently opened or been able to open any other types of like higher yield savings or something like that?

Gauri (15:51): Yeah, for sure. I primarily use uh, my SoFi bank account now and it was pretty easy to like get the account, but it’s only after you’ve got some type of job lined up and you’re getting paid for it and you’ve got like all the things that come with the job first, like you need to have that SSN which um, is not like a oh I’ll just like apply for it type of thing. They’re finding the job is not like the easiest thing in the world. So you could hear the fi- finance advice but know that there are steps before steps you must take before you can, you know, enact those. Um, yeah, in general it’s like a thing I have to Google, like, oh open up a Roth IRA, can I open up a Roth IRA is something I have to Google.

Commercial

Emily (16:42): Emily here for a brief interlude! Tax season is in full swing, and the best place to go for information tailored to you as a grad student, postdoc, or postbac, is PFforPhDs.com/tax/. From that page I have linked to all of my free tax resources, many of which I have updated for this tax year. On that page you will find podcast episodes, videos, and articles on all kinds of tax topics relevant to PhDs and PhDs-to-be. There are also opportunities to join the Personal Finance for PhDs mailing list to receive PDF summaries and spreadsheets that you can work with. Again, you can find all of these free resources linked from PFforPhDs.com/tax/. Now back to the interview.

Opening a Roth IRA as an International Student in the US

Emily (17:34): Yeah, let’s talk about that question. Um, so you heard about Roth IRAs, I’m sure through all the content that you were consuming and uh, tell me what year that was when you like first learned about a Roth IRA,

Gauri (17:46): I actually learned about a Roth IRA back in high school and so my high school offered a finance class and so they tried to teach us about, um, saving for retirement and 401Ks and Roth IRAs and whatnot, but I don’t think it like fully sunk into our minds yet about how significant those things were. So I heard about a Roth IRA before, um, I didn’t fully grasp its like importance until I started listening to like finance content a few years later.

Emily (18:21): Yeah. So when did you like start googling that question? When did you feel like, okay, as an imminent step I would like to open this kind of account and I really need to figure out if I’m able to? When did that happen?

Gauri (18:31): I think that was two years ago. I was like, I’ve listened to all this advice. Um, so I’m the type of person to gather all the information before doing things, but that can hinder progress if you just keep adding more bits of information rather than like acting on what you already know. So I knew that I needed the Roth IRA and I was like, you know what, fine, let’s, let’s just start googling. Um, can I, can I open this and who’s willing to offer this to me?

Emily (19:01): Yeah. And what did you find?

Gauri (19:04): I think it was from your podcast, like some interview a while back, um, and there was like a snippet. I remember watching like as an international student you can open a Roth IRA and I’m like, oh check. Fabulous. Um, now I spent a little too long deciding like, oh, which, which uh, investment bank or like, which, which company to go with. But yes, I I was able to open up the Roth IRA <laugh>.

Emily (19:31): Yeah, that I think you’re referring to the interview I did with Hui-chin Chen who’s a CFP. And I think that we recorded that back in like maybe 2018 or 2019. And even by then I had been getting regularly questions in my like, live seminars from international students, can I open a Roth ira? Should I open one? You know, is it allowed? Is it a good idea? And so I was really, really glad to get an expert on the podcast who could help us with all those questions. But the, the gen, I mean people who are interested should listen to that full episode. But yeah, the, the general, uh, takeaway was like, yep, <laugh>, if you want to invest like while you’re an international student or postdoc in the US go ahead and do it now with a Roth IRA specifically, you still need to fulfill the, um, taxable compensation requirement to be able to make those contributions. Did you have to like, I don’t know if you were receiving W2, you know, employee type income at that time, maybe it wasn’t so much a question for you or is that, is that taxable compensation question something you also had to investigate?

Gauri (20:30): I don’t think I investigated it that much because at the time I really wasn’t earning all that to put anything into the Roth IRA, so it was just open for a while and it, my income definitely wasn’t a W2, it was actually a 1099, but I think from another series of, not another series, but like another episode or couple of episodes of yours, um, I think you went over the old guidance before 2020 and then after 2020 and it was like, yes, 1099 income can be uh, put into a Roth IRA. And so I was like, oh great. So I I could have done it all along. Um, not that there was anything left <laugh>.

Emily (21:16): Yeah, that definitely did change to have fellowship income not reported on W2 eligible to be contributed starting in um, 2020. But you still had that added wrinkle of like as an international student, as a non-resident in the us um, we’ve settled like the compensation term in, in taxable compensation, but you also had to know that your income was taxable in the US and I don’t know, would you like to share like what is your technical country of residence? It seems so silly to say that ’cause you’ve been here for so long, but like what is your country of residence?

Gauri (21:47): I think right now for tax purposes, it is not the US I think it switches to the US in a year. I think it’s like five years. Mm-hmm <affirmative>. Yeah, that I can say I’m on my tax. I’m like, not from here, but after five years of saying that you are from here now for as far as taxes are concerned.

Emily (22:09): Yes. So I don’t know the Canadian US tax treaty intimately, but I’m pretty confident that your income was then taxable in the US at least to some extent. So you did have that eligibility mm-hmm <affirmative>. Yep. So yeah, that’s great. But like you said, like, you know, US citizens, residents and so forth, they have this one bar of like questions they have to ask about the Roth IRA and then there’s that further bar that, you know, international non-residents have to ask. So I’m really glad that we kind of reviewed that to like, you know, point people back to that other resource and like get that all out there because like it is such an amazing tool. Um, and it’s really a shame to miss out on it if you’re ready to contribute to one just because you might have some outstanding questions that, you know, they can take a little bit of time to resolve those. So hopefully we resolved a few for the listeners. Um, is there anything else that you’d like to add on that? Like Roth IRA question?

Gauri (23:03): I think that’s about all. Just, uh, don’t let the tail wag the dog as, as they say. So I had the account open but I wasn’t like too worried about what could go in there. Um, it all worked out in the end for me, but I think if I got too caught up in the weeds, I I don’t think the account would’ve ever been opened or I would’ve ever put anything in there <laugh>.

Emily (23:25): Yeah, I totally agree. And it’s, and it’s this area of investing where people that in my observation seem to have the most like analysis paralysis. Um, and I, maybe you’ve heard me say this on podcast before, I’ve probably told the story, but like I made like a huge mistake when I first opened my Roth IRA, which is that I didn’t actually invest the money that I was putting in and yet it’s really good that I started it and started contributing even though I made like a huge mistake with it. Like, I mean we have a decades, decades long investing journey ahead of us, so like it’s better to just get started even imperfectly than to just like wait and wait and wait and wait and not do anything. It’s totally okay to make relatively minor mistakes. You can overcome them along, along the journey. What was your third uh, point that you wanted to bring up?

Opening a 403B as an International Student in the US

Gauri (24:08): So I figured out the bank account, I figured out the Roth IRA and then now my question is, hmm, I still have some more left to save. Can I open a 403B? Which the answer is yes, but then all of this additional money that I have, it’s coming from a fellowship which according to my university, it’ll be reported on a 1042s form, which I’ve never encountered before. Um, from my searches on Google, I don’t see that much guidance for graduate students with this form. It’s more about US citizens that have moved abroad that, that received this form and I’m like, I’m, I’m not that <laugh>. I’m very much the opposite. I’m a non-citizen within the US so the jury is still out. I’ve emailed like the tax folk at my university regarding like, Hey, would you happen to know if this can be put in a 403B or a Roth IRA or like any tax advantaged account and they’re like, sorry, we can’t give tax advice.

Post-Interview 403B Contribution Follow-Up

Emily (25:19): Hi y’all, this is Emily breaking in during the editing process. Gauri and I talked for a bit here about her 403(b) and her tax situation, but I wasn’t quite asking the right questions, so we ended up exchanging several emails after the interview to sort it out. Here’s what we figured out: Gauri has two types of income. She’s an employee throughout the year and also receives supplemental fellowship income. Her employee income exceeds $10,000 per year and therefore is not subject to the US-Canada tax treaty, so it is fully taxable and reported on a Form W-2. As a nonresident, her fellowship income is reported on a Form 1042-S with income code 16, and it is also fully taxable. Gauri’s question was whether or not she could contribute her Form 1042-S income to her 403(b), and the answer to that is no because it is fellowship income and only employee income can be contributed to a 403(b). But she does have employee income, and that’s why her university allowed her to open the account and she could contribute to it from her employee, i.e., W-2, income if she chose to. The reason she particularly was asking if she could contribute the fellowship i.e., Form 1042-S, income to her 403(b) is because of the automatic 14% income tax withholding rate, which is rather high compared to her effective tax rate. So our conclusion is that she can contribute to the 403(b), but not from the particular pot of money that she wanted to, and even though she has that annoyingly high income tax withholding rate, it’s all going to come out in the wash at tax time, likely in the form of a tax refund. OK now back to the interview!

Building a Financially Stable Life in the US as an International Student

Emily (26:52): Was there any other, another point that you’d like to bring up in this sort of question about having been in the US for like a very long time yet still being on this F1 status?

Gauri (27:03): The main goal of consuming all the finance content is, so answering the question of like how do I build a financially stable or good life for myself years in the future if I’m in the US but because of my visa I also have to, it’s like vacillating between yes, think long term, but also what if you’re not here long term? What then? Um, so of course that opens a can of worms, like what if this, what if that? But I just have to work with, let’s just assume I’m gonna be here for some indefinite amount of time and then if the day that I have to go back to Canada comes, um, I will deal with extricating myself from all of this money that’s invested in these US-based, um, accounts at that point. Um, I think it would, it would be like a hindrance if I constantly worried about it right now.

Emily (28:09): Yeah. And I I’m really not sure what steps you would that would be practical to take, um, to, you know, think about this possible future where you would be living in Canada, um, I don’t know, open a Canadian bank account. Like I’m not even sure what would be like a reasonable thing to do, um, like you said for an outcome that you’re hoping is not going to come about and has a probably a low chance of actually coming about. I think you’re exactly right. Just to say like, I’m gonna build what I can here and if the day comes when I have to make a change, I’ll make a change then, but you don’t need to anticipate that. Yeah, and I think that was the answer too from that podcast episode with, um, with Hui-chin Chen. She was just saying like, yeah, if you end up leaving the US later whether because you wanted to or because you had to or whatever the reason, you can sort of cross that bridge when you come to it. Like don’t let that be a reason for you to not build wealth and build your financial life in the US. So I think you’re taking exactly the right path.

Gauri (29:08): That’s fabulous to hear.

Current Financial Goals

Emily (29:09): <laugh> Do you have any current financial goals?

Gauri (29:14): Current financial goals? So the immediate thing would be to restore my emergency fund. So my emergency savings, I had to draw out of that for moving to Austin from Michigan. And so the moving costs and then furnishing, you know, the apartment, the first few months of, you know, rent before the, uh, the stipend payments came in. I used my savings to tide me over during that time. And so right now I, I need to work on restoring that amount. Um, so that’s my immediate goal. And then once that’s done, I think that should take up to a year, depending on how aggressive I’d like to be at. After that point, I will have to decide where to redirect those extra funds that were going into my, um, emergency savings, like should I put that into a taxable brokerage account or finally answer that 403B question. And so send that, send those funds over there. Where should those go would be the next question.

Emily (30:25): And are you also thinking about a potential green card in the near future and like what are the, because I know there’s sometimes hefty financial costs associated with that transition.

Gauri (30:34): Oh yeah, for sure. So the past, I think two or three years, uh, my Visa has cost about $500 a year in different work authorization fees or different petition fees. So I already have that in the back of my mind. Like, oh, every time I need to do something with my visa, it’ll be a couple hundred dollars. But for a green card application for someone that is seeking a PhD, there is a employment based visa that I myself could petition for if I demonstrate that I’ve done outstanding research in my field and I’m a person worthy of staying in the us. Um, and so just for that, just for two forms relating to that, I think it’s um, called, it’s called Immigration for Alien Worker or Petition for an Alien Worker, something along those lines. The fee for that is around $700 and then the adjustment of status. So to adjust my status from an F1 to this employment based visa, that would be around $1,400. And so just for those two forms, if I were to go about it without the help of any sort of immigration lawyers, whatnot, that’s already over two grand. So I definitely need to have some sort of bucket larger than a couple hundred dollars ready to go for when that day comes about. And also I have to decide like, do I even wanna pursue that path or would I prefer to just go the more routine route, which is employment based, um, visa. So like pursuing an H-1B track, so up in the air.

Emily (32:31): How will you make that decision? Or I guess I’m also asking like you mentioned earlier about, you know, the number of years you’d been in the US and having to make a decision about F1 versus staying on the previous status. Um, is there an amount of time that you’re looking at where you’ll, that you’ve been in the US where you or been on the F1 visa where you’ll need to make this decision? Or is it really kind of up to you? You can do it at any point?

Gauri (32:53): The sooner it happens, the sooner like a weight would be lifted off my shoulders about like this always, you know, you have to keep in the back of your mind that like you’re not necessarily here forever, whether you choose to be or not to be here forever. So it would be like a mental weight, you know, relieved. Um, the F1, since I’m in a STEM field, I could have my OPT go for I think up to three years with the extension. And so within those like three years, I’d have to make some type of decision about whether my employer can sponsor for an H-1B visa or I’m going to go about it on my own. So it’s within the next eight years I have to come up with an, an exact plan about what would be the fastest, um, most efficient way to go about this process. Mm-hmm <affirmative>

Emily (33:53): And if you decide you wanna do it on your own and you have those fees that you’re looking at, plus maybe you, you might wanna pay a lawyer, um, to help you as well, are the finances going to hold you back or do you think you’ll be able to save up the requisite amount of money by the time you want to go about this process?

Gauri (34:10): I think I am well informed enough about how much this is going to cost me, and so I’d be able to plan for that regardless. It would still be a stretch, but it’s not like this is happening six months from now or you know, this is happening in just in a very short amount of time. Like I have the time to prepare for this type of scenario.

Traveling Back to Your Home Country as an International Student

Emily (34:36): I don’t know if this applies for you at all, but something I’ve seen happen with other international students, um, is that they need to go back to their home country every so often to deal with their visas. Has that ever come up for you and, and if not, is it ’cause you’ve been in the US under all these different statuses for so long? Or is it because of the relationship between US and Canada or like how does that work?

Gauri (34:57): It’s a US and Canada thing, so it’s a special caveat in this regard as well. So most students need to go through a Visa interview and actually receive approval to study in the US however, I’m Canadian and so I simply have to be accepted into a US university and show that I have some method of paying for my stay here and that’s all the evidence I have to give to study. I don’t have to continue to go back to Canada to renew my visa or even have any documentation for the exact visa.

Emily (35:41): I see. I’m just throwing that out. There’s another potential cost that I’ve seen international students bear uniquely these like high fees of international travel every, you know, few years to deal with that like particular issue. Um, yeah, I mean the more that obviously I, I was not an international student, so like, but the more I learned about the financial aspects of having this status in the US like it just, there’s just kind of more that burdens that kind of get thrown on the pile. Like, okay, no access to student loans, can’t side hustle, have to pay fees for visa related items, maybe for travel as well. Like just, it it emphasizes um, very deeply for me the importance of paying a living wage and not just a living wage more than a living wage to graduate students, especially international students because there’s just no, there’s no ways to pivot. Um, if you are financially on your own, if you’re financially independent from your family, then you have to make it work on the stipend like you’ve been talking about and you have all these additional, um, fees that can, that can pile up as well that domestic students don’t have to, don’t have to worry about. So yeah. Yeah. I’m really glad that, you know, you brought this up and that we got to have this conversation. Um, is there anything else that you wanna add about yeah, um, being an international student, having been in the US for so long? Or about your current financial goals or anything else?

OPT Application Tip for International Students in the US

Gauri (36:59): Pro tip for international students, um, when it comes time to send in your OPT application, do it the day you’re allowed to submit that application. So first you need all those signatures or you know, green lights from your advisor about like, yep, you’re ready to graduate and whatnot. That should be done before the 90 days. You have like a 90 day window before your last day of classes to apply for OPT. Have those ready to go. And on that like very first day of the 90 days apply for OPT then ’cause I did it right the first year after I grad, graduated from my undergrad and the second year I waited a few weeks and my OPT was delayed, I think over a month.

Emily (37:55): So it’s just for processing time, like you’re just saying like be the first one, like be first in line mm-hmm <affirmative>. Because if you delay then these applications are like piling up behind it and just pushes like the timeout. Is that right?

Gauri (38:06): Yeah, exactly. So when I was first in line, my OPT, like the EAD card arrived within three weeks. And so I had it well in advance of any start date and the second year round I was like, oh, it arrived in three weeks. I’ve got time.

Emily (38:26): You were complacent. Yeah, <laugh>.

Gauri (38:27): I was, I didn’t think I’d be so off base. Um, but yeah, don’t, don’t, don’t do what I did. <laugh>.

Best Financial Advice for Another Early-Career PhD

Emily (38:37): <laugh> Yeah, don’t do it <laugh>. Um, okay. Well thank you so much for that tip. And I’d like to end by asking you the question that I ask all of my guests, which is, what is your best financial advice for another early career PhD? And it can be something that we’ve touched on in the interview already, or it could be something completely new.

Gauri (38:53): I’ve learned that you need two savings buckets at least. So there’s the emergency when truly it’s an emergency and you have no sources of income whatsoever, and then a second bucket for yearly, like one off expenses, like, oh, there’s that vacation you’ve really been wanting to take or you have to travel for whatever reason. For me it’s like, you know, oh, here’s a couple hundred dollars for some visa related thing or I’m working in a STEM field. But I think all grad students in this day and age need a laptop or some type of technology of some sorts, and that’s pretty costly as well. And so, you know, your phone falls apart or your laptop needs to be replaced or you gotta go to a conference or whatnot. Um, there has to be like a separate bucket <laugh>, aside from the emergency savings. Um, and that, that having that separate bucket really relieves like a lot of stress, at least for me.

Emily (39:55): Yeah, this is like a major component of my teaching. I would say that’s different from like you mentioned listening to like financial feminists, for example, Tori Dunlap’s podcast, Her First 100K. Um, what I see in like the more general personal finance space is people talking to other people who have higher incomes high, you know, moderate to high incomes, which is just not the case for graduate students. And so things like having to pay for a plane ticket, well, you know, if your income’s high enough and you’re doing a great job with your personal finances, you know, keeping your rent low and all that stuff, like that’s not gonna be an issue for you, but it’s an issue for almost all graduate students to pay for those types of expenses. So like that is definitely an area that I have of much greater emphasis than other like personal finance teachers do because I totally agree with you. It takes so much stress off to have planned and prepared for those expenses in advance so that you’re not having to, I don’t know, like go to the food bank and like not, you know, put gas in your car and like all the stuff that you would have to do on the short term basis to sacrifice, to come up with money that you really needed if you, if you didn’t have that savings. So I love that tip. Thank you so much for sharing that. Um, and this was, it was wonderful to talk to you and thank you so much for teaching me and you know, asking the questions and you know, sharing the conclusions that you’ve come to along the way. And I wish you all the best in getting your, you know, status in the US secured in the way that you would like it in the near future.

Gauri (41:15): Thank you so much. It was great talking to you

Outtro

Emily (41:27): Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? My team has collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance… but it helps! Nothing you hear on this podcast should be taken as financial, tax, or legal advice for any individual. The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by me and show notes creation by Dr. Jill Hoffman.

What to Do With Your 401(k) or 403(b) When You Start Grad School

April 29, 2019 by Emily

One of the common perks that companies and organizations give to their employees is access to a workplace-based retirement account such as a 401(k) or 403(b). They may even match your contributions to a degree! Unfortunately the great majority of universities do not give their graduate students access to their 403(b)s. (This does happen rarely, so it’s worth inquiring about.) If you had a 401(k) or 403(b) in a prior job, what do you do with that account when you leave your job for grad school?

Further reading: Financial Reasons to Work Before Starting Your PhD

Your Three Options for Your Workplace-Based Retirement Account

In general when you leave a job, you have three options for what to do with your 401(k) or 403(b).

Leave It Where It Is

Most of the time, your former employer will permit you to leave your 401(k) or 403(b) where it is and continue to manage the account for you while you are in grad school. Employers usually have a minimum balance requirement to maintain these accounts, so your account has to meet that bar.

The upside to this approach is that you don’t have to do anything, and if you liked the investment options and account fees, you can keep using it.

The downside to this approach is that you have to stay in some degree of contact with your former employer and go through them if you want to make any changes to the account.

Roll to Your New Workplace-Based Retirement Account

If you have the option to open a 403(b) with your university, you may be able to roll your previous 401(k) or 403(b) into that account. Again, this opportunity is rarely extended to grad students.

Roll to an IRA

You always have the option when you leave a job to roll your 401(k) or 403(b) into an Individual Retirement Arrangement (IRA). An IRA’s tax advantages are similar to those of a workplace-based retirement account, but you manage the account yourself instead of your employer managing it. Be sure that you have instructed your firms to execute a “rollover” directly to your IRA and not to cash out your account and send you a check, which would be a hassle to correct. You can use an existing IRA account or open an IRA account specifically to receive this transfer.

Which Option Should You Choose?

The general personal finance advice is to always roll your 401(k) or 403(b) when you leave an employer to avoid eventually having accounts scattered across many employers and potentially losing track of one. Whether you should roll into your new employer’s 401(k) or 403(b) or your IRA is debated. If you are trying to optimize the investments inside your retirement account, IRAs have an advantage because the entire world of investment options is open to you, whereas the options inside a 401(k) or 403(b) are only what your employer decides to make available. Sometimes, 401(k) or 403(b) plans are more expensive than what you can get inside an IRA, and since cost minimization is a key tenant of successful investing, again IRAs are preferred.

However, this general advice is not necessarily fully applicable to grad students.

First, your options are mostly likely to be either to leave your 401(k) or 403(b) where it is or to roll it into an IRA.

Second, you may not want to manage your own investments. While managing your IRA can be easy and hands-off, it may still be intimidating, and some students might prefer to simply choose among the options offered by the former employer to opening and managing an IRA.

Third, the investments available to an individual investor inside an IRA may not be as attractive as the institutional-level investments available inside a 401(k) or 403(b) in terms of their fees. To paint with an overly broad brush, 401(k) and 403(b) options at smaller companies and organizations may be more expensive than what you can buy inside an IRA, whereas 401(k) and 403(b) options at larger companies and organizations may be less expensive than what you can buy inside an IRA. So if you were employed by a university or a large company before starting grad school, compare the cost (expense ratios) of your current investment options with those at the brokerage firm you’re considering for your IRA. It may turn out that your existing options are more favorable.

Further reading:

My advice to entering grad students is to roll your 401(k) or 403(b) into an IRA unless you have high-quality, inexpensive investment options inside the workplace-based retirement account and do not want to manage your own account.

Other Advice Related to Retirement Saving

You’re on a great path already by starting to invest for retirement through your job. If at all possible, continue to make excellent choices related to retirement investing during grad school.

Contribute Money to Your 401(k) or 403(b) While You Still Can

It’s a great idea to kick your retirement savings rate into an even higher gear in the months you have left at your job. You’re likely to not have access to a 401(k) or 403(b) again for quite a while, so any additional money you can get into that tax-advantaged account will be a huge boon to your post-PhD self. (Plus, you’re forcing yourself to deflate your lifestyle, which you’ll have to do in a few months anyway!)

However, don’t become so zealous about retirement saving that you compromise your cash position. It’s going to take a good amount of cash to transition into grad school between moving costs, start-up expenses, and university fees. You don’t want to put a lot of money inside your 401(k) or 403(b) only to turn to credit cards to make it until your first grad school paycheck.

Keep Investing for Retirement!

Yes, it is sometimes possible to invest for retirement during grad school, but it heavily depends on your stipend, the local cost of living, and the rest of your financial situation. If you have no pressing debt, enough cash savings for emergencies and short-term expenses, and some excess cash flow, please continue to invest for retirement!

Further reading:

If you have W-2 income as a grad student (typically from an assistantship) in a given calendar year, you can contribute to an IRA. If you don’t have IRA eligibility due to receiving only non-W-2 (typically fellowship) income in a given calendar year, don’t let that stop you from investing for retirement! You can still use a taxable brokerage account. Between tax-efficient investments and your low tax bracket, you are likely to still enjoy tax benefits of investing even outside of an IRA.

Further reading:

Consider Traditional to Roth Conversion During Grad School

During your time in grad school, you may be in a lower tax bracket than you were while at your previous job. Grad students, unless married to someone with a much higher income, are usually in the 12% marginal tax bracket at the highest.

If you have any money in a traditional 401(k), 403(b), or IRA (which you certainly would if you ever received a retirement contribution match from your employer), consider converting it from traditional to Roth during your lower-earning grad school years. It’s pretty unlikely that you’ll ever be in the 12% (or lower) tax bracket again after you finish grad school due to both your personal earning potential and today’s rock-bottom income tax rates, so it makes sense to do the conversion at that low tax rate to gain the benefits of a Roth IRA. (People are flocking to do this type of conversion even in much higher tax brackets!)

Further reading: Why the Roth IRA Is the Ideal Long-Term Savings Vehicle for a Grad Student

When you do the conversion, you’ll have to pay income tax on the full balance of your traditional retirement account. Before you start the conversion process, be sure that you 1) have enough cash to pay the tax and 2) are not bumping yourself into a higher tax bracket with that income infusion.

You don’t have to rush to do this in your first full calendar year as a grad student if you’re not ready, but you should do it as early as you can, and keep an eye on that year in which you expect to finish and get a higher-paying job.

This conversion can be slightly complicated if you only want to convert part of your traditional money in any given year, so be sure to discuss your plans with the brokerage firm that houses your IRA.

Conclusion

Great job on contributing to a 401(k) or 403(b) prior to starting grad school! The positive financial habits you’ve already cultivated will serve you well during and after grad school. If you want to take any steps at all with your existing workplace-based retirement account, they are quite straightforward and easily accomplished.

How to Successfully Plan for Retirement Before and After Obtaining Your PhD

April 8, 2019 by Jewel Lipps

In this episode, Emily interviews Dr. Brandon Renfro, a finance professor and financial advisor. Brandon shares the tortuous path that led him to his current faculty position at East Texas Baptist University and side business in retirement advising. They discuss the long-term financial effects of doing a PhD – both positive and negative – and how to have a successful retirement even if you can’t save (much) during your PhD training.

Links mentioned in episode

0:00 Introduction

1:05 Please Introduce Yourself

Dr. Brandon Renfro has a PhD in Finance. He is both an academic and a practitioner. He advises retirement advising for individuals. He does financial planning while being a tenure track professor.

2:02 What was your career trajectory?

Brandon says that he “walked backwards” or stumbled into his PhD. As an undergraduate, he planned to go to law school. He was advised to major in business in preparation for law school. He took an American enterprise course and saw a presentation about the time value of money in the retirement planning context. This presentation inspired him, so he majored in finance and loved it. He went to law school but says he crashed and burned. He was in the military and had GI bill benefits. He decided to use his GI bill benefits for an Master of Business Administration (MBA). He asked his MBA advisor about adjunct teaching. He had to have 18 graduate hours in the discipline to teach a course. He discovered he loved teaching. He decided he wanted to teach full time. He feels fortunate that he got a tenure track position at a liberal arts college in Louisiana, where he worked for three semesters. Now he is in his third semester at East Texas Baptist.

Emily points out that Brandon tried stuff and saw what stuck. Brandon agrees that this is important to explain to students today. He says many students set a goal and stick to it no matter what, even if the path isn’t right for them. He says there is a time when you should recognize if you don’t love what you’re doing and you should try something different. Brandon says he would tell his 18 year old self to major in finance, but at the time it didn’t occur to him.

Emily asks how Brandon handled the sunk costs of going to law school. Brandon clarifies that he didn’t meet the GPA requirements to continue law school but he wasn’t sad about it. He says he was miserable in law school. He had taken out loans to pay for the year in law school. He says it was $20,000 that he spent to learn that he didn’t want to be an attorney. He says if he looks at it like it’s money he spent to learn that he loves being a finance professor, it was worth it.

7:47 Given that a person has decided to do a PhD and maybe a postdoc, what are the effects of their financial outlook?

Emily starts by explaining that graduate students, postdocs, and early career PhDs have a lot of anxiety around saving for retirement. Most of these people are in their 20s or 30s and they know they are supposed to be investing for retirement. But planning for retirement feels overwhelming in the context of their competing financial demands, like student loan payments or saving for a house down payment, coupled with their suppressed income for an extended period of time.

Brandon says that if you put off starting a career to do a PhD, this will make saving and preparing for retirement a little more challenging. These are foregone years of savings. However, academics have the ability to work past typical retirement age. As a professor, you can work longer and save money for retirement for more years, even if you start work and start saving a little later in life. Emily clarifies that PhDs can add years on the back end, instead of on the front end, to the total years that they can work to save for retirement. PhDs can do this because their work is fairly intellectual, and hopefully they get better with time. It’s less daunting to add years at the end in these career paths than others. Brandon says it’s (physically) easier to talk about what you know than it is to work on a factory floor, and you can prolong the years you do this kind of work. Even as PhDs reach retirement age, they have options to be an instructor, lecturer, adjunct, or consultant. You can work less than a full time load, and still capitalize on your years of experience.

Brandon says even while you’re working in your 30s or 40s, you have the ability to leverage expertise outside the classroom. Even if you are working a full time tenure track position, you have a lot of knowledge that you can leverage in industry, even while you’re teaching. Emily shares that when she was an engineering PhD student at Duke University, she saw plenty of professors had consulting businesses or wrote books. In academia, there are many ways to step outside your primary role and leverage your expertise. Emily says that there are plenty of opportunities to have side hustles all through your career. She is part of a community of self employed PhDs, and many people’s self employed job is on the side of their full time job. Brandon believes there is a lot of potential for academics to be self employed. He says even if you were the lowest ranked student in the lowest ranked PhD program, you still have knowledge and you are already part of a select group. Emily says any PhD can find a market where their skills are valuable. They give examples of formatting and copy-editing and tutoring.

17:13 How can someone handle the income jump after the suppressed income period of being a trainee in a PhD or postdoc?

Brandon says in one phrase, avoid “lifestyle creep.” When you suddenly go from an undergraduate or PhD student lifestyle based on lower income to receiving a full time income, you need to be mindful to not immediately start living at the new income. He says you don’t need to be extremely frugal, but use a moderate amount of your new income to build your emergency savings, pay down consumer debt, and pay down student loans in order to be much better off in the long run.

Emily shares the standard personal finance advice to commit a large percentage of your raise to your financial goals. Either all of the raise or as much of the raise as you can, put it towards goals instead of your consumption spending. She says it applies even more when you have a large income jump. Most of it should be used to accelerate financial goals. When Emily and her husband finished their PhD programs, they applied this concept to their new “real jobs” income. They had several financial goals that they focused on and avoided lifestyle creep.

Brandon shares his story about buying a house. He was unsure where he would get his tenure track position, but he wanted to build equity without committing his family to a large mortgage payment. He bought a small rent house before they bought a house to live in. Emily brings up that some people rent their properties as they move, in contrast to how Brandon purchased the property purely as a rental property.

23:40 Grad students and some postdocs don’t pay into the social security system. What are the long term effects of missing out on these years of contributions?

Brandon explains that social security benefits are based on 35 years of covered earnings. Essentially, it’s an average of your highest 35 years of earnings. If you’re starting to contribute later, do the math. If you’re in your early 30s, you may be in your late 60s before you have 35 years of covered earnings. The issue is that your benefit will be calculated with some zeros in the 35 year average, which skews down your average. When you’re on the back end of your career, this may influence your decision to work for a few more years to replace some of the years where you contributed zero dollars to social security.

26:59 What steps can someone who’s in or recently been in PhD training do to mitigate negative effects of lower income and not contributing to retirement?

Brandon brings up the psychological benefit of being used to living on a small income. He says to continue to live like that for a couple of years so that you can build yourself a financial cushion and start saving for retirement. He says eventually the feeling goes away and you get used to the new level of income. Psychologically, it’s harder to start saving for financial goals later.

Emily says that this is classic personal finance advice. Sometimes the lifestyles of PhD students are lower than those of college students. She says it’s difficult to deflate lifestyle. You might see the higher paycheck from your first real job, then you lock yourself into higher housing costs or buy a new car. It’s difficult to take a step back, but it’s much easier to keep a similar lifestyle and put the new income to your financial goals and slowly work up your lifestyle.

30:16 If a person starts saving during graduate school, what kind of effect can that have on retirement?

Brandon explains the first presentation that he saw on the effect of compound interest. If you started when you were 18 years old and you saved just $2,000 per year in a retirement account, you would have a million dollars for retirement if you simply earned the average market return. He says the same is still true if you start at 30 or 32, but there are a few less years for compounding to take effect.

Emily says that even during graduate school, saving a couple hundred dollars a month is accessible. It’s not a thousand dollars every month that you need to save. The earlier you take these steps, the more and more impact it can make. It really does make a difference to take these steps earlier.

Brandon adds that at least, don’t make negative steps. Buying a cheaper car or cheaper clothes can go a long way. Emily says that the professional students, like law students, were living a higher lifestyle even though they were living on loans. She says the smallest amount of debt that you have to take on during training will make it easier for you in a few years.

35:50 What do you do for clients?

Brandon can help with anything within realm of retirement planning. He can help someone starting out. He can help graduate students and postdocs sort through their different options for retirement plans. He can help with decisions about how to invest within retirement plans. Brandon encourages you to take retirement very seriously and to think very hard about putting off retirement. He says it’s really hard to make a strong case against contributing to a plan with an employer match. He says employer match is essentially free money. Emily says an employer match is a 50% or 100% return on investment.

Emily clarifies that someone looking at different options can ask Brandon for help considering which option to prioritize. Brandon can help overcome “analysis paralysis.” Brandon says something is almost always better than nothing, and you need to just do something. He encourages you to envision your retirement and what your financial goal looks like.

40:03 Final Comments

Brandon’s contact information is at brandonrenfro.com. If anyone has a question about something that he hasn’t published an article about on his website, send him an email and he will write about it!

403(b)

Links mentioned in the Episode

Teaser

Introduction

Will You Please Introduce Yourself Further?

Turning Personal Finance Knowledge into Action

Tax-Advantaged Retirement Account Options

Commercial

Fees Associated With 403(b) and 457 Accounts

Researching Retirement Account Options Before Investing

Achieving a Positive Net Worth

Best Financial Advice for Another Early-Career PhD

Outro

Links mentioned in the Episode

Teaser

Introduction

Will You Please Introduce Yourself Further?

Visa Status: H-1B, H-4, F-1

Family and Personal Finances

Choosing a Bank as an International Student in the US

Commercial

Opening a Roth IRA as an International Student in the US

Opening a 403B as an International Student in the US

Post-Interview 403B Contribution Follow-Up

Building a Financially Stable Life in the US as an International Student

Current Financial Goals

Traveling Back to Your Home Country as an International Student

OPT Application Tip for International Students in the US

Best Financial Advice for Another Early-Career PhD

Outtro

Your Three Options for Your Workplace-Based Retirement Account

Leave It Where It Is

Roll to Your New Workplace-Based Retirement Account

Roll to an IRA

Which Option Should You Choose?

Other Advice Related to Retirement Saving

Contribute Money to Your 401(k) or 403(b) While You Still Can

Keep Investing for Retirement!

Consider Traditional to Roth Conversion During Grad School

Conclusion

Links mentioned in episode

0:00 Introduction

1:05 Please Introduce Yourself

2:02 What was your career trajectory?

7:47 Given that a person has decided to do a PhD and maybe a postdoc, what are the effects of their financial outlook?

17:13 How can someone handle the income jump after the suppressed income period of being a trainee in a PhD or postdoc?

23:40 Grad students and some postdocs don’t pay into the social security system. What are the long term effects of missing out on these years of contributions?

26:59 What steps can someone who’s in or recently been in PhD training do to mitigate negative effects of lower income and not contributing to retirement?

30:16 If a person starts saving during graduate school, what kind of effect can that have on retirement?

35:50 What do you do for clients?

40:03 Final Comments

41:15 Conclusion

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