The Big Roth Opportunity for Graduate Students

Congratulations! You’ll be starting full-time as a graduate student. You’ve seen the average salary numbers and know a nice, six figure income likely awaits you upon graduation. The only trouble is you’ve been working hard to save and now you’re concerned your finances are taking a step back as you have a temporary wage loss.

Is there anything you can do now or during school to improve your long-term financial situation?

Here is an idea to make the most of this unique window in your financial life:

Your biggest opportunity – Roth Conversion

You are likely about to enter the lowest income years of your foreseeable future. If you have been working and already made pre-tax contributions to a traditional 401k or IRA, this could be an incredibly powerful opportunity to convert those assets to Roth.

Benefits of a Roth:

• Provides tax free withdrawals of investment growth when the account is held more than 5 years and you’re age 59 and 1/2 or older
• Provides tax free withdrawals of principal at any time (or in this case, the converted amount if held in the Roth for five tax years)
• Has no required minimum distributions at age 70 and 1/2 (unlike regular IRA’s)

A tax favorable conversion has the potential to be worth tens of thousands of dollars!

• With your income dropping, so will your tax rate
  • Converting your assets will allow you to pay taxes now at the lower rate, while avoiding the higher taxes later from gaining Roth status

Try this helpful Roth conversion calculator to see if the opportunity may be a fit for you.

Interested in learning how to maximize every dollar you’ve made?

Talk to a financial planner or CPA to prepare tax estimates so that you can appropriately “fill your tax buckets” to make sure you are converting the optimal amounts and have the ability to pay the tax liability.

Disclaimer: Every situation should be analyzed on an individual basis. This is an attempt to showcase the concept and potential benefits.