Paying for an MBA degree from your savings is difficult, but it can help you avoid overpaying in student loan interest. No one takes pleasure in scaling back their lifestyle to save for graduate school, but planning and preparing for how you will finance your MBA is necessary. Here are a few financial products that can help:
The Roth IRA is technically a retirement fund, but you can use it to pay for business school if building a retirement fund is not your priority at the moment. You can contribute $5,000 a year to a Roth IRA and withdraw the funds at any time to pay for business school. Because the retirement account is not counted among your liquid assets by FAFSA, you should still receive an excellent financial aid package. Money you deposit in the IRA will not be taxed, although money you withdraw to pay for business school will either be taxed or subject to a 10% penalty, depending on exactly how you use the funds.
A 529 College Savings Plan is a state-administered savings plan that can offer excellent benefits to students saving for graduate school. The savings are exempt from federal taxes as long as you spend them on qualified educational expenses, and many states offer income-tax benefits associated with the plan. Withdrawals for unqualified expenses are subject to income tax and a 10% penalty, so you may want to use the funds strategically when you do withdraw them. The specifics of these plans vary from state to state and can involve significant fees, so research carefully before investing.
After making the maximum contribution to your Roth IRA, you may want to start a savings account for business school. You will have to investigate the options available to you through various banks and compare these options to your state’s 529 College Savings Plan. If you use this money to pay for qualified educational expenses, you can claim a Lifetime Learning Credit on your tax return. An option should be available without penalties or fees, but savings accounts do not offer tax benefits comparable to the above options.
How Much Should I Save for Business School?
How much to save for business school is a complex question that depends on a number of personal, professional and financial factors. Ultimately, you will want to handle this expenditure the way you would any other business decision: by planning careful to minimize cost and maximize benefit. You will want to consider the cost of your target school, other sources of financial aid available and the percentage of income you can realistically set aside. Other factors, such as familial expenses, may also be equally high on your list of priorities. You can find several useful calculation tools for planning your savings here
. But ultimately, only you can determine what savings plan is right for you.