This past Tuesday, the GSA hosted Tom Hartman, MBA, CMA, for a seminar titled “Budgeting Your Money to Live Now and Retire Comfortably”. Attendees were engaged and asked questions throughout the whole of this comprehensive talk. The first section on budgeting covered tracking spending, creating a budget, and using credit. The second section on investing detailed what is investing, why do I need to invest, and what are the best investments and plans for grad students. The GSA would like to thank Tom Hartman for taking the time to come give this presentation and for providing us with the following talk materials for our use:
Sample Budget
Blank Budget
The Magic of Compounding Interest
Presentation Slides
Recording

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The recording was setup by the SON and ended right at 6:00pm on slide 37. A summary of the key points from the remaining slides is included below:

Slide 37
Once you pick the ETFs you want to invest in, research if any brokerages (the middle person between you and the stock market) allow you to purchase those ETFs commission free.

Slides 38-40
Once you pick a brokerage, you need to open an account with them. Here are the account types:
Roth IRA – Individual retirement account that you put post-tax money in. Withdrawals after retirement are tax free but are never required. $5,500 annual contribution limit.
Traditional IRA – Individual retirement account that you put pre-tax money in, which reduces your taxable income. Withdrawals are required after age 70 1/2 and are taxed as regular income. $5,500 annual contribution limit.
Taxable brokerage account – A regular account that you put post-tax money in. Both capital gains and dividends are taxed, but there is no annual contribution limit.
Roth 401K – Retirement account offered by some companies, similar to Roth IRA in that it is post-tax money, but the contribution limit is $18,000 for 2017 ($18,500 for 2018, plus an additional $6,000 for employees age 50 or over). The company will often match a percentage of your contributions.
401K – Retirement account offered by some companies, similar to traditional IRA in that it is pre-tax money, but the contribution limit is $18,000 for 2017 ($18,500 for 2018, plus an additional $6,000 for employees age 50 or over). The company will often match a percentage of your contributions.

(403b is the nonprofit offering equivalent of a 401k)

Of note, the contribution limit is a total contribution limit for all of that type of account (IRAs or 401Ks) in one calendar year. For example with IRAs, you could put $5,500 in a Roth IRA or $5,500 in a traditional IRA or split it like $3,000 in a Roth IRA and $2,500 in a traditional IRA. You CANNOT put $5,500 in a ROTH IRA and then also put $5,500 in a traditional IRA in the same calendar year.

It is suggested that individuals in lower tax brackets contribute to the Roth varieties of IRAs or 401Ks so that you pay taxes now while in a lower tax bracket rather than paying taxes when in a higher tax bracket during retirement.

Once you have an account at a brokerage, you may purchase stocks, bonds, ETFs, and mutual funds within that account with the money you contributed to that account. See evaluation rules for purchasing ETFs earlier in the talk.

Slides 41-52
The screenshots for setting up an account are pretty easy to follow. Once you connect a bank account to your new Roth IRA account, there will be a couple deposits to the bank account to make sure it is connected properly. The brokerage will then probably ask you what amount the deposits were to confirm it is your account. Feel free to contact the brokerage if you are having difficulty since they are more than willing to help you put your money in one of their accounts.

Slide 53
It is suggested we use market orders and not try to time the market since we are long term investors. However, it was noted that the stock market is pretty high right now, so if you are worried about a crash, some bond ETFs may be a good idea. Since we are long term investors, it is most important to START ASAP since nobody can actually time the market. You at least want to contribute to an IRA even if you don’t buy any ETFs at this time because once the deadline (approximately April 15 of the following year – tax filing deadline) for each calendar year passes, you can never contribute $5,500 for that year again.

Slide 54
For some of the submitted questions:

You should contact your old companies’ HR department to track down old 401Ks. Then make sure you have online login access to those accounts. You can switch those accounts to the broker you chose earlier to keep all your accounts together and easier to track if you need to. 401Ks cannot be rolled over into a Roth IRA, so you will need to create (with your broker) a Traditional IRA to roll them into.

Non US citizens need to check with the Office of International Services, ask brokerages, possibly a tax attorney, and/or the IRS. The situation can be complicated due to tax treaties, whether you are paying US taxes, whether you are staying in the US after school, what your visa is, and whether your country recognizes IRA tax advantages.

Traditional IRAs from previous years can be converted to Roth IRAs. You can also make your yearly $5,500 contribution to the Roth IRA in the same year as the conversion. This conversion should be done broker to broker or within your one broker. If you take longer than 60 days to make the transfer of funds, you may be assessed a 10% early withdrawal penalty. Also, you will have to pay taxes on the conversion amount when you do the conversion, so you need to be ready for that tax increase, which may push you into a higher tax bracket.

There is no agreed-upon “average length of time people own a stock”. It is recommended we buy broadly diversified ETFs and hold them. You don’t really need to sell until you get to about 12 years from retirement when you MUST start thinking about reducing the risk in your portfolio by diversifying into bonds and possibly other types of investments. If the market is up at that time, begin the diversification. If the market is down, you have time to wait for it to come back up.

A money market account is similar to a savings account, typically with a slightly higher interest. It may or may not keep up with inflation. The minimum opening deposit for a money market account may be as high as $2,500. If your balance drops below that amount — say, from withdrawals — a monthly maintenance fee may be assessed.

For the new Tax Cuts and Jobs Act, you don’t need to do anything specific to take advantage of it. However for 2018, our tax bracket will be lower and the standard deduction will be higher, so we should end up paying less in federal tax. Such a “windfall” should be invested, not spent.

Slides 55-56
If you have the option of contributing to a 401K or a Roth 401K, you want to contribute at least enough to get 100% of your company matching since that is free money. If a 401K, stop after attaining matching and fully fund your Roth IRA (not to be confused with the Roth 401K). After fully funding the Roth IRA, circle back to the 401K with any remaining investable funds.