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This Grad Student-Parent Relied on University and State Benefits During a Tough Financial Period

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In this episode, Emily interviews Dr. Laura Farrell-Wortman about her experience as a graduate student-parent at the University of Wisconsin-Madison. Laura started her PhD when her daughter was an infant, so she was very intentional about choosing a PhD program that offered strong health insurance and a childcare subsidy. However, with a $9k/year stipend as the only income for a family of three, Laura’s family relied on the social safety net for a couple of years until both she and her husband increased their incomes. Laura shares the financial mindset she relied on to get through that tough period of time. Laura and Emily also discuss how the shifting political winds in Wisconsin in the early 2010s detrimentally affected the power of the grad student union at UW-Madison. Today, Laura works as a staff member at the University of Arizona Cancer Center and is making up for lost time in funding her retirement and her daughter’s college education.

Links mentioned in the Episode

This Grad Student-Parent Relied on University and State Benefits During a Tough Financial Period

Teaser

Laura (00:00): I also think it’s important to keep in mind you know, if you’re, if you’re feeling sort of weird about getting those benefits, that government benefits aren’t just you know, for people who are poor or struggling I get government benefits all the time. I get my mortgage interest deducted, right? I get my student loan interest deducted. Those are government benefits. And no, trust me, every rich person is getting every government benefit that they can. So you get your government benefits too. You earned them and you’re eligible for them.

Introduction

Emily (00:36): 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 (01:07): This is Season 16, Episode 7, and today my guest is Dr. Laura Farrell-Wortman. We’re discussing Laura’s experience as a graduate student-parent at the University of Wisconsin-Madison. Laura started her PhD when her daughter was an infant, so she was very intentional about choosing a PhD program that offered strong health insurance and a childcare subsidy. However, with a $9k/year stipend as the only income for a family of three, Laura’s family relied on the social safety net for a couple of years until both she and her husband increased their incomes. Laura shares the financial mindset she relied on to get through that tough period of time. Laura and I also discuss how the shifting political winds in Wisconsin in the early 2010s detrimentally affected the power of the grad student union at UW-Madison. Today, Laura works as a staff member at the University of Arizona Cancer Center and is making up for lost time in funding her retirement and her daughter’s college education. I’ve recently joined several different social media platforms, particularly for posting short videos. I’m using the next few months as an experimental period, after which I’ll focus only on the platforms where I’ve gained the most traction. So please give me a follow and engage with me there! You can find me on Instagram, YouTube, TikTok, Twitter, and LinkedIn at either PFforPhDs or Personal Finance for PhDs. You can find the show notes for this episode at PFforPhDs.com/s16e7/. Without further ado, here’s my interview with Dr. Laura Farrell-Wortman.

Will You Please Introduce Yourself Further?

Emily (02:53): I am delighted to have joining me on the podcast today, Dr. Laura Ferrell Wartman. She is the current assistant director for academic programs at the University of Arizona Cancer Center, but we’re actually gonna be mostly talking about her experience as a PhD student at the University of Madison. So Laura, thank you so much for volunteering to come on the podcast, and will you please introduce yourself a little further for the audience?

Laura (03:16): I did my PhD in interdisciplinary Theater studies at the University of Wisconsin Madison. I was a graduate student there from 2011 to 2017. And some of the really formative things about my time there was that I actually arrived to to grad school with a newborn. And so I think that’s probably gonna shape a lot of what we discuss today.

Financial Mindset During Childhood and Early Adulthood

Emily (03:42): Yeah, so a grad student parent and a unique kind of angle on this. Certainly for our conversation, the finances of that are very interesting as we’ll see as we go through. I should mention that Laura and I met at the Graduate Career Consortium annual meeting, and so it’s always a great time when I get to meet people face to face. And just from the first very few interactions that we had in the room that we were in together, I knew that Laura had to come on the podcast. So I’m really glad that , we made this happen. Okay. So let’s go back even before you started graduate school, actually. So let’s talk about like how you grew up and how, what, what your financial mindset was like during your childhood, your early adulthood, maybe through college and post-college leading up to this time when you were in graduate school.

Laura (04:26): Yeah. so growing up I grew up in a very high income area. I’m from Princeton, New Jersey. But due to a lot of specific factors within my family there was a real trend of scarcity in my childhood. And so I really grew up thinking that money was something that was very elusive. Something that was sort of to be afraid of and something where there was just never a sense that there was enough of it. And so I think that that is something that has really impacted the way that I view personal finance, and especially the way that I view my career because I know that stability and predictability is something that is very, very important to me. And that is sometimes at odds with working in academia, especially if you are not on the tenure track. And so that it very much impacted like the way that I viewed how I was going into my career.

Finances After College

Emily (05:30): So coming out of college, I understand you, you worked for some years right before you started graduate school. Is that correct? So talk to me about like your finances during that time and that decision to go pursue your PhD, especially as it relates to these, the mindsets and, you know, everything that was going on with you financially.

Laura (05:47): Yeah. Again, I think the, the time that I had spent working was very much related to both the sort of you know, desire for that stability but also my desire to continue the research work that I had started in my undergrad. So I, I really started to explore Irish theater and particularly Irish theater of this particular contemporary period when I was an undergrad. And I knew that I wanted to continue doing that. My sister had gotten a PhD. And so that really helped me to kind of see the possibility and see, you know, the, the things that I could do with a PhD. And so I knew that I wanted to, to pursue that. But first I was gonna need to get a master’s degree and a master’s degree in theater, just the, the ROI, the return on investment there is terrible, right? Um and so I got a job at the University of Arizona. I was an admin assistant and that paid for my master’s degree. So that was like, that was like fully a financial decision in terms of where I was gonna go for my master’s degree. And I do not in any way regret that. You know, I came out of that, I paid $25 a semester in tuition. I would highly recommend it to anybody who is looking to get a degree that maybe they don’t feel like they can you know, get that ROI in. But, so that was I was working in higher ed administration essentially, and really like working my way up the ladder while I was doing that master’s degree in theater. And that set me up really, really excellently in terms of you know, when I went into my PhD, I knew the possibilities in higher ed for somebody who has a PhD in anything. Um you know, there really is a benefit in higher education to just having a PhD. And I have noticed a big difference in terms of my career options after my PhD as opposed to before at the same institute. Being a full-time student and a full-time employee is really difficult. It definitely had a lot of financial benefits. I got married during that time and my husband was able to get a, a master’s degree paid as well. And so, you know, there were a lot of benefits to it, but it was I certainly don’t wanna sugarcoat it because it was very, very difficult.

Emily (08:04): So, because you had this long-term plan of getting the PhD, using the job, using the master’s as a stepping stone to get there, I understand during that time you were also saving up, right? And so you went into the PhD with some savings. Can you talk about how you did that or why as well?

Laura (08:19): That was around 2008, 2009. Both my husband and I were very lucky not to have lost our income during the financial crisis. I actually went on to write my dissertation about the financial crisis. You know, our, our income was middling. But we had very few large financial responsibilities. We had our rent, which was moderate. We had no current payments. We didn’t have children at that point. We, we just are frugal people. And so it was you know, we had a goal of, you know, putting money aside, not even really for any particular goal. I think for me, just having that savings, again, coming back to this idea of you know, that rug could be pulled out from under you at any point. So having, you know, liquid cash savings is something that just makes me feel better. So we had a a cash savings of about $30,000 by the time my daughter was born. And that was just from, you know, the jobs we were working.

PhD Admissions and Pregnancy

Emily (09:24): Okay. So let’s talk about the admission season. You mentioned that you had at least, you know, a couple offers, one unfunded, this one from Madison that you ended up taking because you knew at that time that your daughter was on the way. How did that play into your decision of where to attend? Like what factors were you looking at?

Laura (09:44): Yeah, so so being pregnant during admission season was very interesting. I did not do any visits because I didn’t want anyone to see that I was pregnant. Discrimination against pregnant people is a very real thing. And I was really concerned that I would be you know, deprioritized if they knew that I had a child on the way. So it was important to me to know you know, what the, the funding situation and what the daycare situation was in any area that we were planning to, to move. Madison happened to be the best overlap of those things. Daycare is extremely expensive in Madison. It was actually when we were looking in Manhattan because I had applied at a couple schools in New York. The, the daycare costs were essentially the same between Madison and and Manhattan. But the University of Wisconsin has a really comprehensive student parent support, well, system of networks really. And so that was what enabled me to get a PhD in a very real way. And so I think it wasn’t necessarily the top thing that I was looking at, but it was, it ended up being the most influential part of my graduate experience.

Emily (11:11): Wow. was this something that, I guess, I don’t know specifically like the timing of everything, but is this something that you were looking at at the time that you were choosing which schools to apply to? Or was it only by the time, okay, I’ve already applied to these sets of schools, now I know my daughter’s on the way and I need to, you know, evaluate how they’re doing on this front as well?

Laura (11:31): It was a little bit of both. There’s, you know, my, my specialty was Irish theater. There’s not, you know, a ton of schools where that’s going to be a strong focus. And admittedly, some of the schools that I applied to, it wasn’t a strong focus. It just was going to be a better you know, personal situation. But I think that there was a real you know, there, there’s sort of that cliche of like, you know, there’s never, there’s never the right time to have kids, and I think that’s very true. But for us it was like, well, we wanna, we know we wanna have a kid. I know I wanna get a PhD. I, I just think that these things can probably be true at the same time. You know, I was 30 going into my PhD which I’m, I, I’m, you know, really glad that I chose that point in my life to, to have my daughter. But I think, you know, it’s a, I think if people sometimes will try to time it out in ways that I think are never really gonna be, gonna be perfect. And so for me it was a, yeah, it was just kind of saying like, well, I want these two things in my life, and they’re just gonna have to, I’m gonna have to figure it out. And we did .

PhD Program Offer

Emily (12:47): Okay. So what else were you looking at in terms of the factors? We talked about the childcare subsidy, but like, what was your stipend offer, for example, and was that in line with what you were seeing at other institutions? I understand you looked carefully at the health insurance, so let’s talk about more like those other factors as well.

Laura (13:03): Yeah. so my stipend offer so I did, I did end up getting an offer of, of support from UW. This was in 2011. It was only $9,000 a year which is, I mean, it doesn’t approach a living wage. And again, I think that there are a number of different factors that go into that. I think, you know, part of it is that you know, in, in a lot of fields they have established minimums for you know, research assistants, graduates assistants and things like that. In, in theater that in the arts in general, that absolutely does not exist. And for state universities, that is also a difficulty. But yes my offer was $9,000 a year. The that did not include coverage of my fees. So I was still paying about a thousand dollars a year in fees. I was still paying, you know, reasonable but relatively market rate, rent to student housing on campus. So most of my money kind of ended up going back to the university. I, I did have really excellent health insurance though, which is again, to be attributed to the work of the union. Graduate students received the same health insurance as staff members and I didn’t know at the time how important that was going to become, but I was, I was diagnosed with a chronic illness my second year, and probably I would’ve had to leave grad school if my health insurance hadn’t been so good. So it was, it was very, really, really important, to, to have that health insurance.

Finances in Grad School With a New Baby and a Low Income

Emily (14:55): I wanna hear more about how you actually made the finances work, like, especially in this first year of graduate school. Okay. Like, you’ve got the new baby, you’re at a new place, you’re in student housing, like you’re not making very much money. You’ve got your husband to support as well, or, you know, your husband is factoring into this as well. So like, how did that go , especially like starting in that first year?

Laura (15:15): Yeah, it was, it was really tricky. My husband was looking for work but it was, it was really difficult to find. His background had been as an elementary school teacher and he had, he had done some work as like a paralegal. His, his main sort of goal and skillset was in horticulture. And that is what he does full-time now. But at the time, and in Madison it was really difficult to find those jobs. And so he, we also had this child, this infant who needed daycare, and infant daycare is just, I mean, my God, it is so expensive. So he was thinking, well, you know, I have this education background. Lemme see if I can just get a job working at a daycare and maybe that’ll be that’ll subsidize. Eleanor’s Care didn’t really work that way. He did get a job working in daycare. But essentially the money he made just, again, it went right back to the place where he was working because it was so expensive. And so there was no, there really wasn’t a benefit to, to that work. And he, he was able to sort of cobble together a couple of things, you know, sort of, sort of like temp work for that year. But for the most part, he was a stay at home dad. And so he was taking care of our daughter, and again, we were just using that like 25, $30,000 that we had in savings. So yeah, I would say we were living off of, I don’t know, like 35, 36,000 a year for that first year.

Emily (16:52): But not of income, right? Because that’s savings supplementing, yeah.

Laura (16:55): Yeah, yeah. So really it was like, yeah, that was, you know, like a few thousand bucks that I got from my TA work. And then just pulling it straight from savings. So in, in the next, you know, couple years when I was able to I got a a second job within the department working for the theater company of the department. My as my stipend went up a bit I got like a halftime TA instead of a third time ta. So I was able to get my income by the end up to, I think like 18, 19,000 per year, which felt it, it felt like so much money at the time, . And by that point, my husband had started working for the grounds department at UW Madison. And so you know, he was bringing in more money, but not, you know, a ton. Um and so we were, we were making it work, but there was, there was nothing going to retirement. There was nothing going to savings, there was nothing going to my daughter’s college fund, things like that. So we were we were definitely paycheck to paycheck but again, I didn’t have to take those loans for living. And I, I didn’t have to take out student loans to, to survive during that six year period, which is really, really helping now in terms of making up for those, those lost years of, of wealth building.

Emily (18:17): Yeah, let’s talk about that more in a second.

Commercial

Emily (18:21): Emily here for a brief interlude! I’m hard at work behind the scenes updating my suite of tax return preparation workshops for tax year 2023. These pre-recorded educational workshops explain how to identify, calculate, and report your higher education-related income and expenses on your federal tax return. For the 2023 tax season starting in January 2024, I’m offering four versions of this workshop, one each for US citizen/resident graduate students, postdocs, and postbacs and non-resident graduate students and postdocs. While I do sell these workshops to individuals, I prefer to license them to universities so that the end users, 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 one of my tax preparation workshops for you and your peers? I’d love to receive a warm introduction to a potential sponsor this fall so we can hit the ground running in January serving those early bird filers. 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. Now back to our interview.

Using Government Benefits: Food Stamps, WIC, and Child Care Subsidies

Laura (20:12): Yeah, so because our income was so low we were eligible for, well, because our income was so low, and because we had an infant and I was within, you know, a a couple years of, of having given birth. We were eligible for a few different mechanisms. We were eligible for food stamps, we were eligible for WIC, which is stands for like Women and Infant and Children Support. And we were eligible for childcare subsidy from the state government. And so we did take advantage of each of those. We received, I wanna say like four or $500 a month in food stamps, which, you know, so that paid for like, all of our food, and that was so, so vital to us being able to, to, to make it work. WIC provided for for Formula I was unable to breastfeed after the first, you know, like couple of weeks. And so we, we had to have formula. But formula again is incredibly expensive. It provided for, you know, certain amounts and certain types of food. It was you know, more kind of staples, whereas food stamps is a lot you know, had kind of cast a wider net. And then for our daycare, once Eleanor ended up going to daycare, we were able to supplement UWs contribution with the state support. And so from there we were able to get our month, and that still didn’t cover everything for daycare, but we were able to get our monthly payment down to something reasonable.

Emily (21:55): And how long did you end up using those benefits for? Like as your, your income is increasing as your daughter’s getting older, like did those phase out over time?

Laura (22:04): Yeah, absolutely. We were on food stamps and wic for about a year. And actually that makes us essentially like the standard user of government benefits. The standard user of government benefits is white, and they were on it for about a year. And so I think that there are a lot of misconceptions about people who are relying on certain types of government benefits. But, but in truth, they mostly look like me. And it was something that we used in the short term until we were able to get our income to the point where we could pay for those things on our own. I think we used the state benefits for daycare for like two years.

Emily (22:47): Can you talk a little bit more about how, I guess maybe the decision or your like, willingness to access those benefits stemmed from your money mindset more generally in your experiences in your earlier parts of life?

Laura (23:03): Yeah, absolutely. So there were a number of things that allowed, allowed me to, to access those benefits and sort of allowed me to access them in a way that I felt confident about doing. I think it’s really important, first and foremost to say that I am white. And so, you know, being white and, you know, middle class essentially there was a lot less stigma about me using those benefits. And so I think that that is, is a barrier for a lot of people. I also had a working car and that is not nothing. So the ability for me to apply for those benefits to go pick up my WIC checks, because the WIC is like actual physical large checks, which are really embarrassing to use at the grocery store. And I had to go and get them but I didn’t have to use a bus in the, you know, Wisconsin winters. Um I had a flexible schedule. I was a grad student, right? I didn’t have to like tell my boss, Hey, I need to leave to get my, my food stamps. So there was a lot of privilege that went into being able to do that readily, easily, which is not to say it was an easy process. It was still a, you know, more of red tape and paperwork. But, but I made it work. And I think too that, you know, my, my feeling really was like, well, you know, I’ve you know, I’ve worked since I was 15. I’ve paid into this system. I, you know, if I’m eligible for these benefits, then I’m gonna take these benefits. And, and I still think that more people should have that mindset, right? Like, if you are a grad student right now listening to this and you are eligible for food stamps, go get food stamps. Like if you are eligible for food stamps, it means that you are at a level where you have a need, and this is just providing you with food. Like food, please go and do that. I also think it’s important to keep in mind you know, if you’re, if you’re feeling sort of weird about getting those benefits that government benefits aren’t just you know, for people who are poor or struggling I get government benefits all the time. I get my mortgage interest deducted, right? I get my student loan interest deducted. There’s all kinds of benefits that I get from, you know, having like, like a Roth IRA, right? I get tax advantages. Those are government benefits. And no, trust me, every rich person is getting every government benefit that they can. So you get your government benefits too. You earned them and you’re eligible for them. And so that was kind of the mindset that I, that I brought into that. And it, I’m not saying that it was always easy, you know, like I said, with food stamps or with EBT as they call it now, you get a card that looks just like a credit card and you, and you pay with that. And, and to me it’s a very dignified system when you’re actually using them. Whereas wic it’s like, I, I never had an instance of using the WIC checks where the cashier didn’t roll their eyes, didn’t sigh, didn’t sort of like give me a like, oh, great, now I gotta deal with these. And that is a real deterrent. Like, it was, it was embarrassing. And that is so unacceptable. So, so I think that there are ways that probably the government could make this a little easier, but they maybe aren’t inclined to. But yeah, I think that that was all wrapped up in, you know, again, feeling like, well, I’m a middle class white woman, I’m still going to use these.

Emily (26:44): Well, I do appreciate you talking about this like so openly. It’s something that graduate students are sometimes not aware that they can access these kinds of benefits, or in some places they actually might not be able to, even if their right income would put them at the right level because of their student status or because of the type of income that they have. So it’s certainly a state by state thing. But I really appreciate you speaking about how, like, how you thought about this at the time and how you felt like, yep, I need this, it’s a benefit. I’m gonna take it. Let’s do this even if it’s a little bit embarrassing. Because I do think that, like, like you said, you were only on it temporarily and it really helped you to move past the, the temporary income crunch that you all were in. I mean, you’re moving to a new place, you have a brand new baby, like yeah, a lot of people need help at that time of life, and you happen to access, you know, this these various social safety net aspects for that help. So anyway, thank you so much for talking about this. I really appreciate that.

Grad Student Union at UW Madison

Emily (27:38): So you’ve already mentioned a couple of times the union, the grad student union at UW Madison and how it had negotiated for the great healthcare and like this parental benefits and all this stuff. Could you talk more about your experience with the union during the time that you were a graduate student and also how the overall political climate in Wisconsin at that time, kind of the interaction between those two?

Laura (28:01): Yes. So I, I think I’m gonna do that sort of in reverse because the political climate in Wisconsin sort of heavily influenced my experience with the union. So the year before I started at UW Madison, Wisconsin had gone through a major change with Scott Walker was the new governor. And he had grand designs on leadership of the GOP think we can all recall his presidential campaign. And so one of those was to remake the labor landscape in Wisconsin. Wisconsin has historically been a a very strong labor stronghold. You know, really part of that rust belt that was, was, you know, built and facilitated by unions in a, in a, in a lot of ways. And so new legislation in Wisconsin the year prior to my arriving essentially stipulated that unions had to disband and remake themselves and that there couldn’t be a requirement for dues and things like that. And so this was you know, anybody who’s done any sort of you know, organizational work with people understands that if you have to disband your membership and, and re-up, that is a ton of work. And that’s, you’re not, you’re never gonna get everyone back. And that, of course, was the point. So there were major protests of which graduate students at UW Madison were a really important part. But it meant that by the time I arrived, the union was really trying to reconstitute itself, and I think they deserve a lot of credit for how much work that was and, and the fact that they, you know, are still an ongoing institution within uw. So they deserve a lot of credit for that. But it did change the, you know, the leadership, it changed the the makeup of the union and it changed the resources of the union. Uh so the, the union was not what it, what it had been. And the university was thankfully, you know, still honoring the commitments that they had made to the union prior to that 2011 legislation. But it did change things. Unfortunately and, you know, it’s, it’s tragic that, you know, that was, that was the, the planned outcome and it worked. But it did mean that the, the union had less power. It had less people to do the important work and I believe it had fewer actually full-time staff members which, which really made a difference. And so my, my sort of experience with it was like the, it just didn’t have the legs that it used to. But I will say that you know, having any sort of union as a graduate student can be a powerful thing. There was one instance in which I you know, I had a TA job and I was being told that it was a requirement that I work beyond my contract. And I, it was really great to be able to say like, okay, well I, like, since I’m a union member, I actually can’t. So let me just go to the union and talk to them about this request. And lo and behold I no longer had to work beyond the confines of my contract.

Emily (31:44): What I’m taking from this is that you can’t be complacent about the benefits that are offered by your university and, and if there’s a union by the union, what the union has negotiated for, because like what I’m learning kind of as I talk to people in different states and people at different stages of the unionization like process is that like, like what you experienced in Wisconsin, like things can shift politically at the state level or at the national level, and that can really shift what happens at the university level and with unions or the formation of unions. And so it’s not something you can sort of take for granted. And you’re always gonna have to be responding to those like shifting wins, I guess . And so I, so I’m learning that like, just because there is a union doesn’t mean the union is safe forever, right? You have to keep advocating for yourself and keep organizing.

Laura (32:33): And I think that that is also true for universities. And I think that part of what frustrated me sometimes about our union and, and sometimes frustrates me in in general in terms of like, you know, the way that grad students can sometimes approach their relationship to their university is that there is a sense that the university has the resources to do everything it wants to do and just won’t. And that could not be further from the truth. This is something where, you know, having worked in higher education for my entire career universities are so much more hamstrung by a lack of resources by legislatures that are not supportive or maybe di you know, directly hostile and hamstrung by the need to consistently be getting federal grants. That it’s, it’s so much more complex of a, a situation than I think a lot of grad students that I worked with at UW wanted to acknowledge that this was not us against the university universities in general you know, the people who are in them, they are not here to get rich because we’re never gonna get rich working for a state university.

Emily (33:47): Mm-Hmm. And I think, I mean, your point is, especially I think well made for public universities that have to deal with these state level like issues again and their funding, but of course, all universities are dealing with the grant funding that you mentioned from the federal government and whether it’s there and in what amount and, and so forth. So thank you so much for pointing out. Like it’s not, it’s really not, especially I would say the individuals like at the lower levels working within universities, they’re not the enemies of the students. They’re not trying to work against the students. Like, we’re just all trying to survive within the system. Okay.

Impact of Financial Experiences in Grad School on Current Financial Life

Emily (34:20): In what way has your financial experience as a graduate student continued to affect your financial life to today? Like you mentioned earlier that you did not have any room in your budget for like retirement savings, for example, and so by the time you got out of graduate school, I’m doing some quick math. I think you were 36, so you can talk about that or any other ways that, that, that experience has still had like a financial effect on your life at the present.

Laura (34:44): So yeah, the, the, the period during which I was not able to be saving for retirement or saving for my daughter’s college education that so far has been the most impactful aspect of my finances. Again, I didn’t have to to take on those loans. And so you know, that my, my, my student loan payment has not really gone up. But the, I think it’s important for anybody who is in a PhD or considering doing a PhD to understand the opportunity cost that, you know, taking that time out of your life when you’re in your, you know, twenties or thirties, that is gonna be the most impactful period in which you can be saving for retirement because of compound interest. So the more that you can put away when you’re young, the less you’ll have to put away when you are older. Um and so, you know, know now that I am 42 and you’re right, I was in graduate school from 30 to 36. I am having to put more away towards retirement, and I probably will just have a smaller retirement nest egg. I am again, lucky to be in a university where in a state where I am in a pension system. So this is pretty rare to have a defined benefit pension. But the, the pension is not what it used to be. The pension will cover maybe 50% of my expenses in retirement which is great. I’m certainly not complaining. But it does mean that like I still have to, beyond the amount I put into the pension system, I have to be putting cash away into a Roth IRA. And that’s tricky because at this point I am I am saving for my own retirement. We’re saving for my husband’s retirement we’re saving for my daughter’s college education. So my daughter’s college education is also a strong determinant of where I work because the university I work for that is our local state university offers 75% tuition discount to the children of staff members. So that’s our college plan , right? Which is kind of rough. Like I, I was always kind of taught that like, you know, I had a lot of options for college and for my daughter that is not the case. And I think, you know, for, for Gen Z in general they’re much more savvy than us elder millennials are about these things at their age. But but it still means that like, okay, you know, the, the college savings that I do are aligned with the idea that 75% of her tuition will be, will be covered. Um and that again, is not you know, that was a, a very specific choice that I have made you know, to to to, to remain at a, you know, at a university where that is gonna be one of the benefits. So, you know, that’s also something where, that’s a decision that I made based on the financial situation I was in in grad school. At the same time you know, having the PhD has increased my, my earning potential greatly. And so even though you know, I am at a state university where I can just expect that the, you know, compensation is going to be lower than in the private sector I still am able to to make the kind of salary that allows me to, to save for all those things at once. But you know, there’s still you know compromises to be made. And that, you know, frugality that that my husband and I have always really, really had, has, has come in handy because I think it also can be very tempting, particularly for students who are coming right out of graduate school to have a lot of like lifestyle creep. And, you know, your, your paycheck gets bigger and so you’re spending more money. And I think the, the, the more that you can avoid that, the better.

Emily (38:42): Yeah, you really have to have that awareness right from that first paycheck they receive, you know, post PhD, post postdoc, that there’s a lot more on your to-do list financially that there probably wasn’t graduate school if you weren’t able to get to all those items like retirement and, and college savings and so forth. But I think your story sounds like pretty like par for the course, right? Like the PhD increased your earning potential, but you lost the, to a degree, the time value of money for the time that you spent during the PhD. And so there has to be, there’s the trade off, right? But then again, I’m sure you’re in a career that you find very fulfilling, and so there’s also that aspect of it. Yeah. Okay.

Best Financial Advice for Another Early-Career PhD

Emily (39:22): So Laura, as we wrap up, I’m gonna ask you the question that I ask all of my guests, which is, what is your best financial advice for another early career PhD that could be for a current graduate student, a prospective graduate student, like we’ve mostly talked about, it could be someone more at your current career stage, however you would like to take that,

Laura (39:40): You know, addressing PhD students and particularly PhD students who are going on the job market or are close to graduation. I really want to encourage you to keep in mind that you have a lot of options. I think that there are PhDs who will take a truly suboptimal offers like adjuncting that they do because they don’t feel that they have any options. And the truth is that with a PhD, even if, even if your job is not specifically in your field, my current job is not in the field of Irish theater. But you have options. And please don’t let academia make you feel as though you have a responsibility to, to take these sort of really terrible adjunct offers because that helps perpetuate the adjuncting system, frankly. And you have the ability to, to to have the same sort of self-worth the same sort of you know, fulfillment, even the same publication opportunities in some, in some cases without having to to stay in that subsistence situation. So just really, really understand your own earning power because no matter what field you are in, if you have a PhD, you have pretty significant earning power.

Emily (41:11): Hmm. And even pivoting outside of academia, like within academia, you feel like you’re a dime a dozen because literally your university is graduating like whatever, hundreds of PhDs each year and probably several even from your own discipline. And so you feel like, like you’re nothing. Some people might feel like they’re nothing special. But if you take your training and those translatable skills into another context, you will likely find that you actually have a lot to bring to that other context and that you can be paid very nicely for it. So thank you so much for that, the kind of like shot of confidence to those people who are in that at that point in their careers. So Laura, it’s been absolutely wonderful to have you on the podcast. I’m so glad I ran into you at GCC and thank you so much for agreeing to give this interview.

Laura (41:56): Well, thank you so much. I really appreciate It.

Outtro

42:04 Emily: 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 Dr. Lourdes Bobbio and show notes creation by Dr. Jill Hoffman.

Why and How to Increase Your Retirement Account Contribution Room

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In this episode, Emily presents why and how you should increase your retirement account contribution room. She gives a compelling compound interest example calculation that illustrates why you should start investing early in your career and reviews the types of tax-advantaged retirement accounts you might have access to and why you should use them if you can. If you would like to increase your available contribution room in tax-advantaged retirement accounts and you are self-employed, the last part of the episode is for you. You can open a tax-advantaged retirement account through your business, even if your business is new or tiny or unincorporated. Emily compared the three most popular self-employment retirement accounts and evaluated which is most advantageous for a solopreneur side hustler, as so many PhDs are, in a video training she recently added to the Personal Finance for PhDs Community. In this episode, she tells you about the training, what motivated her to create it, and how to avoid making the same mistakes she did with her self-employment retirement account. You can access the training by joining the Personal Finance for PhDs Community at PFforPhDs.community.

Links Mentioned in This Episode

retirement account contribution room

Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts.

This is Season 7, Episode 9, and today I don’t have a guest but rather am going to tell you why and how to increase your retirement account contribution room.

I’ll give you a compelling compound interest example calculation that illustrates why you should start investing early in your career. I’ll review the types of tax-advantaged retirement accounts you might have access to and why you should use them if you can.

If you would like to increase your available contribution room in tax-advantaged retirement accounts and you are self-employed, the last part of the episode is for you. You may not be aware, but you can actually open a tax-advantaged retirement account through your business, even if your business is new or tiny or unincorporated.

I compared the three most popular self-employment retirement accounts and evaluated which is most advantageous for a solopreneur side hustler, as so many PhDs are, in a video training I recently added to the Personal Finance for PhDs Community.

In this episode, I’ll tell you about the training, what motivated me to create it, and how to avoid making the same mistakes I did with my self-employment retirement account. You can access the training by joining the Personal Finance for PhDs Community at PFforPhDs.community.

I highly recommend going through the training if you are looking for more retirement account contribution room. It might even convince you to start a self-employment side hustle for that express purpose. This episode is specific to the US and is not tax, legal, or financial advice for any individual.

Without further ado, here’s my episode, on why and how to increase your retirement account contribution room.

Why You Should Invest for Retirement Early in Life

To build my case, I need to start by showing you why you should invest for retirement early on in your life.

There is an example I use in my seminars that makes a big impression on at least a few people in the audience.

This is a compound interest calculation, and you can follow along with it and play with some numbers of your own using a compound interest calculator such as the one at Money Chimp, which is linked from the show notes.

Compound interest calculations model the exponential growth of money over time with a given rate of return. It’s a way of modeling the returns you can get in the stock market, for example, though this calculation has a steady rate of return and your rate of return on stock investments would fluctuate quite a lot year to year. It’s a good model if you’re calculating returns over long periods of time.

So here’s the example:

Let’s say you’re able to save and invest $250 per month. That’s 10% of a $30,000 per year stipend or salary. You have no starting balance with your investments, and your money gets an average annual rate of return of 8%. You do this over five years, for example while you’re in grad school or a postdoc.

After five years, you have contributed $15,000 and your money has grown to $18,369. That might not sound too impressive yet but just wait!

Now, let’s take that $18,369 and let it keep growing with an 8% average annual rate of return. You’re not going to add any more money to this particular pot. Let it ride for 50 years this time.

The balance in your investment account has now grown to $990,000. You heard me right! The money you contributed over just five years has, given enough time and a good rate of return, grown to just shy of one million dollars! This is the power of compound interest.

If you’d like to read this example for yourself and dissect it a bit, I’ve linked an article from the show notes about all the assumptions and so forth.

Here’s the takeaway point, though: Don’t discount any amount of money you are able to invest during grad school or your postdoc. Whatever money you manage to invest early in life is going to have an outsized impact on your wealth in your older years. So start early and save at as much as you reasonably can.

Of course, you’re not limited to investing for retirement to an early five-year period of life. I hope that you will continue to invest throughout your career in larger sums than $250 per month. That doesn’t take away from the importance of starting early.

Why You Should Use a Tax-Advantaged Retirement Accounts

That’s the case for investing in general. Now I’m going to tell you why you should use a tax-advantaged retirement account for your very long-term investments.

What do I mean by tax-advantaged retirement account? Basically, the federal government gives a tax break to incentivize people to fund for their own retirements in particular. Money that has been contributed to a tax-advantaged retirement account is shielded from income and capital gains taxes.

These tax-advantaged retirement accounts go by many names, such as Individual Retirement Arrangement or IRA, 401(k), 403(b), 457(b), Thrift Savings Plan or TSP, and there are even more.

If you invested in a regular taxable investment account, you would pay your full income tax on the money you invest, plus every year there might be some small bites taken by income or capital gains tax. How large the tax bites would be depends on what you’re invested in, how long you’ve held the investment, and how high your overall income is.

Instead, with a Roth tax-advantaged retirement account, you pay your full income tax on the money you contribute, and then the money grows tax-free while it’s in the tax-advantaged retirement account and you can withdraw it in retirement without paying any income or capital gains tax.

A traditional tax-advantaged retirement account allows you to deduct your contributions to it from your taxable income in the year you contribute. The money grows tax-free while in the tax-advantaged retirement account, and then you pay ordinary income tax on the withdrawals in retirement.

It is a great strategy to use a tax-advantaged retirement account for money that you’re sure you won’t need access to until your retirement. While in any given year the tax you might pay on investments in a regular account might be fairly small, the cumulative effect on your investment balance over decades of this is a bit like a death by a thousand cuts. Plus, once you are in your peak earning years, it’s quite a valuable tax break to be able to deduct your contributions to a traditional tax-advantaged retirement account.

The tax break on the growth in a tax-advantaged retirement account alone typically amounts to tens or hundreds of thousands of dollars over the course of an investing lifetime. This again demonstrates the power of compound interest, because the biggest part of the difference is not in how much you pay in tax, but in how much that money could compound and grow if you were able to leave it invested instead, which is what a tax-advantaged account does.

Add to your investment balance some hundreds of thousands of dollars more if you are able to use Roth and traditional tax-advantaged retirement accounts to selectively pay ordinary income tax in retirement and/or your lower-earning years instead of in your peak earning years.

What Is Contribution Room?

I hope I have convinced you of the power of investing and specifically inside a tax-advantaged retirement account.

Now, I’ll define a term I’m going to use quite a bit in the remainder of this episode: contribution room.

Contribution room is the maximum amount of money you are permitted to contribute to a tax-advantaged retirement account in a given year.

For example, graduate students and postdocs who are not employees of their universities or institutes are not extended retirement benefits, so their only tax-advantaged retirement account option is an IRA. If you are under age 50, the annual contribution limit to an IRA is $6,000 in 2020.

Graduate students who are employees of their universities or institutes are only very rarely extended retirement benefits; it’s worth checking into but don’t get your hopes up.

If you are an employee in the private sector, it’s typical to have access to a 401(k), perhaps even with a matching program. If you are under age 50, the annual employee contribution limit to a 401(k) is $19,500 in 2020. Your total contribution room between a 401(k) and an IRA is $25,500.

If you are an employee in the non-profit sector, such as at a university, it’s typical to have access to a 403(b), perhaps with a match or a fixed contribution by your employer. If you are under age 50, the annual employee contribution limit to a 403(b) is $19,500 in 2020. You might also have access to a 457(b). If you are under age 50, the annual employee contribution limit to a 457(b) is $19,500 in 2020. Your total contribution room between a 403(b), a 457(b), and an IRA is $45,000.

You can see that the contribution room available to you as a full-time permanent employee is much, much greater than if you are a fellow or graduate student. This is why there is such a focus on contributing to 401(k)s and similar and less so IRAs.

Now we come to the question of how to create more contribution room. Of course, you only need more contribution room if you are currently maxing out the contribution room available to you.

When I was in grad school, I never maxed out my IRA. So if you are maxing out your IRA as a grad student, please hear me: You are a rock star. I am not telling you that you have to contribute more. I’m only going to show you how you can if you already want to.

If you are maxing out a 401(k), etc., you are also a rock star. But if you want to contribute even more to make up for lost time or hasten your retirement date, I can show you how.

Self-Employment Retirement Accounts

The specific strategy I’m teaching you today is about self-employment retirement accounts and how they can supplement your IRA, 403(b), etc.

But to have a self-employment retirement account, you have to own a business. That could sound like a really fancy, complicated thing, but it definitely doesn’t have to be. All I mean is that you file a Schedule C with your tax return, assuming your business is unincorporated. You might describe yourself as a freelancer, an independent contractor, a gig worker, a solopreneur, or self-employed.

You know as well as I do that lots of graduate students and postdocs have side hustles to supplement their pay, and many of those, whether the person thinks about it this way or not, are businesses. Again, if you file a Schedule C with your annual tax return, this information is for you.

If you aren’t a business owner and have no plans to become one but you know a grad student or PhD who might be interested in this strategy, please share this episode with them!

I’ve covered the two main requirements you should check off before pursuing a self-employment retirement account: 1) that you own a business and 2) that you want more contribution room in tax-advantaged retirement accounts.

My Story and My Client’s story

I’ll tell you what motivated me to first investigate self-employment retirement accounts a few years ago.

When my husband and I were in grad school, as I mentioned earlier we never maxed out both of our IRAs. So even though I did have some self-employment income by the end of grad school, we had no need to open a self-employment retirement account.

We defended in 2014, and in the year following, my husband was a postdoc employee and I had self-employment income, so we had our two IRAs plus access to a 403(b), and we didn’t get anywhere close to maxing out that contribution room.

Halfway through 2015, my husband took a job at a start-up that offered a 401(k). That was when our household income really jumped up. We knew we would need more contribution room than just our IRAs to meet our retirement investing goal of 20%.

However, the 401(k) offered by my husband’s job was and is really expensive. It’s offered through Edward Jones and composed of American Funds, both of which are notorious for charging high fees. And the company doesn’t offer a match.

So in 2015, I read up about self-employment retirement accounts and opened one for Personal Finance for PhDs. We had a lot of options in where to open the account and which funds to purchase within it, so we could keep the costs really low. And that’s been our tax-advantaged retirement investing strategy for the past five years. We can meet our retirement investing goal using our IRAs and my self-employment retirement account. If we do ever need more contribution room than those accounts provide, we will use the expensive 401(k), but not until.

Your motivation to use a self-employment retirement account to increase your contribution room might be different from mine. Honestly, I didn’t imagine that any graduate students, for example, would want to contribute more than the $6,000 IRA ceiling.

But I was wrong. One of my recent coaching clients through The Wealthy PhD, a grad student, maxed out her 2020 IRA, but had some additional money that she was interested in getting into a tax-advantaged retirement account. She did freelance work on the side of her role as a graduate student, so I suggested that she look into self-employment retirement accounts.

Self-Employment Retirement Account Options

Our conversations throughout that program on this topic inspired me to create a new training inside the Personal Finance for PhDs Community titled “Self-Employment Retirement Account Options.” You can access the training by joining the Personal Finance for PhDs Community at PFforPhDs.community.

As you can tell, I love to encourage PhDs to invest early on in their careers, even during grad school or a postdoc. I also love teaching about taxes. So this training is a perfect crossover point between my two favorite personal finance subjects, and it stretched me quite a bit as well as I learned lots of new things.

The objective for “Self-Employment Retirement Account Options” is to help you choose which self-employment retirement account type is right for you and your business. I haven’t mentioned it yet, but there are at least half a dozen high-level options and many of those have various permutations.

As I was sifting through these options to decide what to include in the training and in what depth, I kept in mind my coaching client who inspired the training. There is a lot of information out there about self-employment retirement accounts, but it’s largely intended for people who work full-time in their business, like I do, or even for small businesses with employees.

What I decided to do with the training in the Personal Finance for PhDs Community was to create it with a side hustler in mind instead—a solopreneur who has only a few thousand dollars in self-employment income—but who wants to maximize their retirement account contribution room even on that smaller income. When you frame the question that way, I believe the best choice becomes much clearer.

I included in the training detailed information about the three most popular self-employment retirement account types. The less popular account types are not ideal for a side hustler or solopreneur. The types I included are SEP-IRAs, SIMPLE IRAs, and one-participant 401(k)s.

Across these three account types, I compared the type of business they are ideal for; their employer, employee, and overall contribution limits and formulae; whether a Roth version is an option; and their deadlines to set up. For each account type, I also calculated the overall contribution limit for someone whose net business profit is $24,000 per year, an amount that highlights well the differences among the plans.

I also show you how contributions you or your employer make to a retirement account offered through your primary job affect your contribution room within each of the types of self-employment retirement accounts. This information is not the type you uncover by reading quick summaries of various account types, but it is crucial for a side hustler.

Ultimately, I recommended one account type over the others. I present whether that account type can be opened at 13 of the most popular brokerage firms today and a few specifics about the account at each of the firms where it is offered, such as what fees are charged. All of that is to save you a bit of research time when you are actually going to open your account.

I admit I did not do any research on the best place to open my self-employment retirement account. I opened it with Vanguard, which is where I had all my other investments. It was quite surprising to me when I looked around at other brokerage firms to find that Vanguard is not necessarily the best option.

The very last module in the training shows you how to use a certain IRS worksheet to calculate your contribution room, and I show four calculation examples. This module is really in the weeds, but should be super helpful for someone who trying to put as much money as legally allowed into their self-employment retirement account.

I actually didn’t know about this worksheet a couple of years ago when I accidently slightly overcontributed to my self-employment retirement account. Once I realized my mistake, I had to reverse that contribution in a slight panic right before the tax deadline. I don’t want anyone else to go through that process or overcontribute and not catch the mistake, so that’s why I included this module.

Summary

Let’s come back around to the compound interest illustration that I relayed at the beginning of this episode. Given the assumptions in that example, investing $250 per month for five years and then letting the portfolio grow for fifty years resulted in a balance of almost one million dollars.

Whatever your saving rate, increasing it by $250 per month is going to have a very impressive outcome, either in more wealth in retirement or achieving financial independence even earlier.

If your budget has no room for additional investing right now but you have a bit of time on your hands, consider pursuing a self-employment side hustle such as consulting; freelance research, writing, or editing; tutoring; baby or pet sitting; or gig work.

To invest $250 per month in the type of self-employment retirement account that I recommend, you only need to net $269 per month through your business. Let’s round it up to $350 per month to account for income and self-employment tax.

If you earn $15 per hour after expenses, you can earn $350 in 23 hours of work, or less than 6 hours per week.

At $25 per hour, that’s 14 hours of work in a month or between 3 and 4 hours per week.

If you charge $50 per hour, which is quite moderate for some of the types of work I mentioned earlier, you can earn $350 in just seven hours of work per month. Increase it to $100 per hour, and you’re down to less than 1 hour of work per week to meet your goal.

If you think that charging $50 or $100 per hour is outlandish, you’re probably anchoring against what you’ve been paid as an employee and/or for work outside of your unique skill set. Capitalize—literally—on the skills you built or are building during your PhD to command higher pay rates.

Do you think you can find between 1 and 6 hours per week to devote to a side hustle over just five years if it can become an extra million dollars fifty-five years from now?

If you’re already there with your self-employment side hustle or will be soon, please consider joining the Personal Finance for PhDs Community to take the Self-Employment Retirement Account Options training. You will learn which self-employment retirement account is best for you and your business and where to open one to protect your investments from taxes and maximize their growth over the decades. You can access the training by joining the Personal Finance for PhDs Community at PFforPhDs.community.

Taxable Compensation

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Note: The content in this article is outdated. As of January 1, 2020, there is a new definition of taxable compensation. You can read or listen to the details about the new definition in: Fellowship Income Is Now Eligible to Be Contributed to an IRA!

Not all PhD trainees are eligible to contribute to an IRA because IRAs require “taxable compensation” (formerly known as “earned income”).

“Generally, compensation is what you earn from working” (source) and includes wages, salaries, and self-employment income, among other few other types of income. A few types of income that are not earned are rental income, interest and dividend income, and pension income.

At first blush, it would seem that PhD trainee pay would fall under wages or working for someone who pays you. However, that is only true for PhD trainee pay that is compensatory. Non-compensatory pay may not be eligible for IRA contributions. Publication 590 states that “scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.” (See this explanation of how to calculate your taxable income for a discussion of compensatory and non-compensatory pay.)

The question of whether or not you can contribute to an IRA will come down to what kind of tax forms you receive in January. If you receive a W-2, you have taxable compensation and can contribute to an IRA from that income. If you receive a 1099-MISC, a 1098-T, a courtesy letter, or no notifications whatsoever, the form indicates that portion of your income is not eligible to contribute to an IRA.

Further reading: Earned Income: The Bane of the Graduate Student’s Roth IRA

Remember that you can contribute to an IRA up to your amount of taxable compensation for the year or $6,000, whichever is lower. If part of your income is compensation, you can contribute to an IRA from that portion – this may be the case if you switch funding sources between school years or between the academic year and the summer or if you have outside self-employment income. Also, if your spouse has taxable compensation, you can contribute to a Kay Bailey Hutchison spousal IRA (up to $12,000 between both IRAs).

Roth vs. Traditional

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You will often hear about traditional vs. Roth IRAs and 401(k)s. In both cases, your contributed money grows tax-free, so the chief difference between the two is when the money is taxed. In the case of a traditional account, you take an income tax break when you contribute the money and are taxed when you take distributions from the account. The Roth is the reverse – you pay income tax on the money when you contribute it, but the distributions are tax-free. The main question to ask is whether you believe your income tax rate is currently higher or lower than it will be when you take the distributions. While this answer cannot be predicted perfectly because tax rates are subject to the political process, many graduate students are sacrificing income in the short-term for long-term income potential, so it is likely that their incomes and tax rates will jump after grad school and increase with time. Therefore, the Roth seems to be the better choice for most graduate students and young people in general. Even the most tax-break-enthusiastic professionals will tell people to contribute to Roth IRAs when they are in the 15% tax bracket or lower.

The other noteworthy differences between the Roth and traditional options are:

  • there are income limits for contributions to Roth IRAs for high earners (contributions start being phased out with a modified AGI above $114,000 for single filers and $181,000 for married filing jointly)
  • you must start taking required minimum distributions from a traditional IRA by April 1 of the year after the year you turn 70.5, whereas there are no required minimum distributions from a Roth IRA
  • you can withdraw Roth IRA contributions at any time without penalty (but not earnings)
  • you can withdraw Roth earnings without penalty in certain situations such as for qualified educational expenses or a first-time home purchase

You should also consider tax diversification. If you are likely to have a higher-paying job in the future and plan to contribute to a traditional 401(k) or similar, you can diversify your tax situation by contributing to a Roth IRA now. That way, in retirement, you will have more flexibility with your distributions, paying tax on some of your income but getting some income tax-free.

Further Reading: Roth Vs. Traditional IRA: Which Is Right For You?; Traditional vs. Roth IRA: Some Unconventional Wisdom on Which is Better for Young Investors; Roth IRA Basics, In a Question & Answer Format; Roth IRA vs. Traditional IRA: The Complete Guide for Wise Investors

Retirement Savings

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Retirement savings is likely the longest-term savings goal you can set, and yet it is so beneficial to save for it early and continually because of the time value of money. The time horizon for the goal is so long that you can invest the money aggressively when you are younger and gradually shift the asset allocation to be more conservative as you near your retirement date. It is advantageous to invest your retirement savings in a tax-advantaged account like an IRA or 401(k) so that the money can grow tax-free.

As a graduate student, you likely do not have access to a workplace-based retirement fund like a 401(k), 403(b), TSP, or 457. If you have taxable compensation, though, you can contribute to an IRA. In 2015, the most a person under 50 can contribute is $5,500 or the amount of earned income, whichever is lower. Additionally, if you have a side hustle and are self-employed, you may want to set up a retirement account for self-employed individuals (solo 401(k), SEP IRA).

Once you decide to save for retirement such as in an IRA and confirmed that you have earned income, you will have to decide whether to open a Roth or a traditional version.

Further reading: Even Grad Students Should Have a Roth IRA