Should I continue investing in an IRA while in college?

I currently have $9,000 dollars in student debt, and one more year of college left which will cost roughly $10,000. Then I plan an additional year of grad school for which will I have to pay tuition and living expenses.

Should I maximize contributions to my IRA for this year? I have $11,000 in savings and I will be going back this summer to my internship where I will earn $5,000. The follwing summer, I will have an internship making roughly $25 an hour. I don’t want to miss out on a year or two of investing, but I also want to pay off my debts. I currently have two years worth of full contributions in my IRA.

A. Congratulations on nearing the end of your schooling!  I appreciate your desire to add to your IRA, but my recommendation would be to hold off until you are finished with your schoolwork and are working full-time.  Instead, the better place to focus for the next two years is to graduate with no additional student loans (or certainly as little as possible).  You don’t provide your age, but I’m assuming you’re relatively young.  You will have time to invest and watch it compound over several decades!  Keeping your debt small will allow you to save more when you start to work as you won’t have loan payments coming out of your monthly income.

Borrowing to invest?

Think of it this way: Would you borrow money to invest it in your IRA?  Most people would say no.  But in essence, that’s what you’re doing if you invest in your IRA at the same time you are taking out new loans to pay for school and your living expenses.

People get into trouble with their retirement savings when they put off investing for many years after completing their schooling/training. I’d bet that your saver’s mentality won’t let that happen in your case!  Look at it from this perspective: You are investing over the next two years.  You’re investing in yourself (via school) in order to earn better returns (a higher paycheck) later!

Keep up the good work, focus on school for the next two years and try to finish with no more debt!  Then you’ll be in a great position to build wealth!

Be sure to contact me if you have any other questions and best of luck to you!

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John is a CPA and personal finance coach.  Email your questions to john@60minutefinance.com.

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