i'm a 28 yo med student with sizable loans should i open up a roth

[Guest dr.ic]

i feel like i should open a roth because although i have sizable loans, i also have sizable investments that are being taxed. In fact, i have left over loan money borrowed at 6.5%. Should I put this money into a Roth with a proposed growth rate of 12%

[John G]

First, you must qualify for a Roth by having some earned income, but not too much. Perhaps you may be in the window of residency where you will qualify. At some point you will be making a doctors income and may no longer qualify for an Roth.

However, depending on how your future practice is structured you may be looking at a 401K, 403b (if paid by a city owned hospital or similiar public entity), or pension/profit sharing plan which are various types of tax shelters. These approaches typically allow you to set aside much more than the $2000 limit on Roths. But, the tax treatments vary.

I was under the impression that med schools offered a class on the business side of being a doctor. If they do, take it.

Your education loans if fixed at 6.5% should probably not be repaid with available cash. This is a lower rate then mortgages, credit cards, etc. and is probably on atleast a ten year repayment schedule. The first use of cash should be to pay down any credit card debt, which often has rates that far exceed what investors dream of for an annual rate of return.

Opening a Roth at a young age is a fine thing to do. You may want to do this as part of the process of educating yourself about investing, after considering the concerns mentioned below. A 12% annual return target is reasonable if you are talking about equities with a slight bias towards growth companies, but year to year results can vary widely.

If the question is purely hold cash vs Roth, then you still might want to hold cash. Why? Because you are about to transition from student to career and can probably not predict the transition expenses which could include an income gap (post graduate vacation?), moving, furnishing a new place to live, etc. I would hold off on the decision until these issues are resolved.

Good luck.

[This message has been edited by John G (edited 03-28-2000).]

[Guest dr.ic]

thank you for your answer. What do you think about holding on to this money and selling stock that i currently own and put that stock into a roth. The stock would be sold at the 28% tax bracket, long term gain?

[John Olsen]

You cannot contribute more than $2,000 per year into a Roth IRA(or all IRAs combined, for that matter). Nor may you "convert" non-IRA funds to a Roth.

And 28% is not a bracket for Long Term Cap Gains. You're probably looking at 20%.

------------------

John L. Olsen, CLU, ChFC

Olsen Financial Group

St. Louis, MO

314-909-8818