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So I'll either be starting law school this cycle or next. I have about 45k in savings but only 5500 of it is in an IRA. I'd like to get as much of the money into an IRA because:

1) Some schools factor retirement funds out of PSLF expected contributions, expected student contributions, etc.
2) It's my understanding that I can withdraw the money for living expenses during school penalty-free and pay less income tax that I would pay in my current bracket.

We just got a 403b at work. It seems like I can:

1) Max contribute 18k into it and live off of my current savings
2) Roll the 403b into an IRA when I leave for school
3) Pull it out of the IRA as needed penalty free and at a lesser tax rate for living expenses, or alternatively just leave it there in anticipation of PSLF

Am I misunderstanding anything? Thanks in advance for advice!

Cloture wrote:So I'll either be starting law school this cycle or next. I have about 45k in savings but only 5500 of it is in an IRA. I'd like to get as much of the money into an IRA because:

1) Some schools factor retirement funds out of PSLF expected contributions, expected student contributions, etc.
2) It's my understanding that I can withdraw the money for living expenses during school penalty-free and pay less income tax that I would pay in my current bracket.

We just got a 403b at work. It seems like I can:

1) Max contribute 18k into it and live off of my current savings
2) Roll the 403b into an IRA when I leave for school
3) Pull it out of the IRA as needed penalty free and at a lesser tax rate for living expenses, or alternatively just leave it there in anticipation of PSLF

Am I misunderstanding anything? Thanks in advance for advice!

Yeah unless the school (or the government for PAYE/PSLF purposes) figures qualified plans differently from IRAs, and I doubt they do, there's no reason not to roll the 403b money into an IRA.

Will schools not consider you for need-based grants based off of your savings?

Apologies for butting in!

yunjh2725 wrote:Will schools not consider you for need-based grants based off of your savings?

Apologies for butting in!

I believe every school is different, some treat retirement funds just like money sitting in a savings account (Like NYU, I believe). Some draw a distinction between retirement funds and liquid savings.

Someone else may be able to provide more insight about how it factors into need-based grants, I'm primarily concerned with the impact on LRAP programs!

^Thanks! Do they check how much we have in like savings/checking?

Cloture wrote:So I'll either be starting law school this cycle or next. I have about 45k in savings but only 5500 of it is in an IRA. I'd like to get as much of the money into an IRA because:

1) Some schools factor retirement funds out of PSLF expected contributions, expected student contributions, etc.
2) It's my understanding that I can withdraw the money for living expenses during school penalty-free and pay less income tax that I would pay in my current bracket.

We just got a 403b at work. It seems like I can:

1) Max contribute 18k into it and live off of my current savings
2) Roll the 403b into an IRA when I leave for school
3) Pull it out of the IRA as needed penalty free and at a lesser tax rate for living expenses, or alternatively just leave it there in anticipation of PSLF

Am I misunderstanding anything? Thanks in advance for advice!

This sounds like a solid plan. I actually had no idea that you could pull money out of IRAs penalty free if you're engaged in higher learning but I Googled it myself and lo and behold: https://www.irs.gov/publications/p970/ch09.html I just wish I thought of this when I went to law school.

The only thing I'd add is to make sure you have no money left in your IRA if you end up changing your mind and going to Biglaw. Otherwise, you won't be able to do the Backdoor Roth IRA (at least, not without paying a bunch of taxes.) https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

Lexaholik wrote:

Cloture wrote:So I'll either be starting law school this cycle or next. I have about 45k in savings but only 5500 of it is in an IRA. I'd like to get as much of the money into an IRA because:

1) Some schools factor retirement funds out of PSLF expected contributions, expected student contributions, etc.
2) It's my understanding that I can withdraw the money for living expenses during school penalty-free and pay less income tax that I would pay in my current bracket.

We just got a 403b at work. It seems like I can:

1) Max contribute 18k into it and live off of my current savings
2) Roll the 403b into an IRA when I leave for school
3) Pull it out of the IRA as needed penalty free and at a lesser tax rate for living expenses, or alternatively just leave it there in anticipation of PSLF

Am I misunderstanding anything? Thanks in advance for advice!

This sounds like a solid plan. I actually had no idea that you could pull money out of IRAs penalty free if you're engaged in higher learning but I Googled it myself and lo and behold: https://www.irs.gov/publications/p970/ch09.html I just wish I thought of this when I went to law school.

The only thing I'd add is to make sure you have no money left in your IRA if you end up changing your mind and going to Biglaw. Otherwise, you won't be able to do the Backdoor Roth IRA (at least, not without paying a bunch of taxes.) https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

One of the only withdrawal differences I know of between a 401k and IRA is that educational expenses can be deducted penalty-free from the latter but not the former - I'm guessing the same may be true for a 403b. So I basically filled out some forms, rolled the 401k over into an IRA, and then deducted the balance, which you should be able to do as well. Considering you can pretty much always roll the balance over into an IRA, it really makes no sense for the government to have different withdrawal exemptions on the accounts, but whatever.

Yea, I completely agree it makes so sense that they have different early withdrawal rules. Good to hear from someone who has successfully gone this route. Thanks!

I'm also looking into this. My 403b is pretax money so I'm thinking about rolling over to a Roth IRA when I'm in school (i.e. my lowest foreseeable tax bracket).