Okay, so with the hit I took from this market my roth is currently less than what I contributed over the life of the account (ouch, I know). Because of this I could withdraw from it right now without any penalty. Would it be wise transfer my holdings to a non-roth account (about 30K) and keep it available to use for B-school tuition? Also, would it be wise to stop contributing to my roth right now and just throw it in savings (making my total savings at the start of B-school around 80K). Assuming 2 years with living costs is $160K, I would only be short about 40K instead of 80K. That would mean a lot less student loan debt. I figure if i get into an associate gig as a banker, my first year stub bonus could cover any little debt I have and start saving big in my early career. Am i being Naive?
Also, side note question: if you got into HBS or Wharton, but then was offered a half scholarship to Darden, what would you do? Total cost of Darden would be around 60-70K while the other schools are 150-160K. I want to go into banking, and all three schools have representation on the street. Is the name brand of H/W worth the extra coin?
These are obviously all very personal decisions but I would absolutely choose H/S/W over almost any other school+$. I think the brand/network is well worth the extra up front cash and hopefully over your lifetime the $60K difference will be irrelevant.
I would suggest that you take on as much student debt as possible (assuming you are able to obtain competitive rates, which I realize has been difficult given the current environment). Im no Paulson but I like to think that my PA would yield a greater return than the cost of my student loans, thus making it worthwhile to take on debt and conserve my cash for other investments. I would keep an emergency fund of cash held in something like ING, a Roth for retirement, and stock portfolio account.
These are all issues that I will be facing as well over the next year or two to the extent that I decide to apply.
Good luck to you.
No idea about the IRA stuff... but as far as scholarships, not worth it. Personally, I'll outline my personal decision-making. This will be different for everyone of course:
Situation A) 2 similarly ranked schools (i.e. Kellogg vs. Chicago), one gives you a half- scholarship, the other one doesn't.
In this case, I'd go for the school that gave me the scholarship.
Situation B) 2 differently ranked schools (i.e. Wharton vs. Darden). Lower ranked school gives you a FULL RIDE.
I would take the higher ranked school if you want to go into Finance or Consulting. Pedigree is very important for these fields. If you want to go into something like Marketing, General Management, Non-Profit, Entrepreneurship -- I'd take the full ride.
Situation C) You get into H/S/W, plus have a full ride from ANYWHERE else.
I would take H/S/W.
Do I have this right? You are asking whether you should a) use your retirement savings to pay for the MBA, or b) keep investing the savings and borrow for the cost of the MBA.
It would only make sense to borrow the money if you could earn a return on your portfolio above the borrowing cost. To match with your fixed liabilities, you would want to invest in very safe (like treasuries and investment grade debt) assets. Your borrowing costs will be 7-8% on a gross basis. With treasury yields as low as they are, and the stock market looking over-valued, I would have advise you minimize your debt and use your savings to pay for the mba. Also factor this in: your career prospects are positively correlated with the stock market. If the market tanks, you lose another chunk of your portfolio, have a tougher time getting a job, and still have to repay the $160K.
About the scholarship:
I believe scholarships are tuition-only. The top schools run $40-$50K per year. If that’s the case, even a half scholarship represents just a fraction of the total cost of an mba (in terms of tuition + foregone wages) or about a third of the cost if you measure it by tuition plus living expenses. That’s the case against taking a scholarship at Darden.
Here’s the case for taking the a scholarship at Darden: You can get the same IB associate job coming out of Darden that you would from Harvard or Stanford. Going to H/S is very important if you want to jump into PE (and you are likely not getting PE without any IB/PE Experience). Those programs don’t offer a huge advantage for sell side jobs (the placement numbers bear that out). Maybe H/S will give you an advantage 10 years later (I have no clue) but in the short run, Darden will get you to the same place.
On that distribution penalty from your Roth IRA. There are both qualified & non-qualified distributions from a Roth, and the qualified distributions (the non-taxable ones) occur when:
a) you have reached age 59 1/2 b) you have become disabled c) you are using the withdrawal as a first time home buyers expenses d) the withdrawal was paid to a beneficiary after your death *none of these include market crash
If you were to pull the funds from your Roth right now to put into a simple savings account and wait to pay for B-School you will most likely be taxed a 10% penalty on that withdrawal as it does not fall under a qualified distribution.
There are a few other options to consider.
Is your Roth a personal account, or is it through your employer? If it is through your employer (and you employer also offers 401(k) retirement plans), you may think about rolling your Roth into 401(k), from which you may take a loan against when you need to, without tax penalties.
This will allow you to continue to earn a a greater return on what you currently have than you would in a regular savings account, as well as avoiding the 10% tax penalty of withdrawing from your Roth.
If your Roth is a personal account, then you may want to look at the allocation of cash reserves vs fund investments and take into accunt your medium to long-term goals (i.e. paying for school (non qualified) or retirement (qualified) distributions).
As far as paying for B-School on general, if that is what you are most concerned with, I would consider opening a 529 plan for higher education, and contributing whatever you would have put into any account into this, as it is meant for tax-free education funding.
Whichever way you plan to go, I do not think that it is an easy decision to make. I also do not think it is a decision to make without some outside tax advice.
I wish you the best, but definitely do not advise withdrawing from your Roth to pay for B-School. Consult an advisor, take out some loans. You'll be able to deduct the interest from your student loans from your taxes in the future and your nice new job when you get out of school should help to pay those off in no time.
You should consult your friendly edward jones or charles schwab neighborhood advisors.
I would have to say I agree with Buyside CFA. I know that Wharton and Harvard are definitely viewed as more prestigious but the real question is how much that will affect you in the future. That is a very difficult question to answer. I agree that Darden would get you to the same place on the IB side given you work hard, but your opportunity cost will be not having that Harvard or Wharton network to call on.
With all that said, is the $60k or so difference worth the "risk" in the long run? Don't get me wrong, $60k is a good chunk of coin, but in the end will not having that money, which will probably just be spent on models and bottles, really hamper your lifestyle or future?
Its a personal decision, but I would guess there are very few people who regret going to HBS/Wharton over a program widely consider of lesser quality. Good luck.
Regards
What about a Darden half ride vs a higher ranked non H/W/S (say some place like NYU or Tuck) ? Idea is comparing 2 MBA Programs - one considered to be better yet not having the universal aura of a H/W/S.
To the OP, I would say if you could spare the cash, and feel confident in yourself about working a bit longer in your life, then go with H/W/S. If you want to make your buck and get out quick then the answer is obvious.
Porro non et consequuntur voluptatibus minima fugiat temporibus dolor. Qui et reprehenderit consequatur veniam cumque consectetur. Quas voluptatem aut magnam eum id. Illum in eligendi blanditiis eum illum et. Quos nam nostrum dolores temporibus laudantium.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...