SpaceX’s Biggest IPO in History and Funding a $117K Life Change

16:52It's not just theoretical hype, but this is not true in every case. For example, as of its most recent prospectus, SpaceX actually isn't turning a profit yet. They have a loss per share as of their most recent results. So it varies. There isn't necessarily a consensus on the AI bubble theory. Well, Friday, I think should be pretty interesting. Thanks for walking us through that, Sam. It definitely will be interesting. And thanks for having me on.

17:20Elizabeth Ayoola:And thank you, Rick. My biggest takeaway is that I may or may not need to look into direct indexing later on today. Up next, we're going to talk about how you can manage your money through a career transition. But before we get into that, a reminder to send us your money question. Maybe you are thinking about how to divvy up your portfolio so that it aligns with your values. Or maybe you're thinking about whether you should invest in the next big stock. Whatever your money question is, please leave us a voicemail or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD.

17:57Sean Pyles:You can also email us at podcast at nerdwallet.com or drop a comment on Spotify or YouTube. We're back in a moment. Stay with us.

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19:36Elizabeth Ayoola:We are back and answering your money questions to help you make smarter financial decisions. This episode's question comes from Jen, who is going through a career transition and has questions about how to budget for it. That's a good question to ask Jen. All right. So Jen's question was pretty long, so we're going to summarize it and we'll get into the nitty gritty as we answer the question. Jen is making a huge leap. She's leaving her career to pursue a doctorate in occupational therapy, which runs about$117 ,000 and recommends students don't work during the program. She's got a year to save before she starts,$17 ,000 in existing student debt, a three-month emergency fund, and a lot of questions about how to make it all work.

20:19Elizabeth Ayoola:Now, the main things that Jen wants to know are, should she prioritize a high-yield savings account or use a Roth IRA conversion strategy while her income is low? Question number two, how do student loans actually work for living expenses? Question three, what are other grad students doing to get creative with their income? And then last, she wants to know what happens to her existing loans when she's in school.

20:42Sean Pyles:Okay. Lots and lots of questions. Jen, thank you for all of those details. We love getting super technical, savvy questions like this. But of course, because it was so long, we had to summarize it. So hope you didn't mind that. Elizabeth and I are tackling Jen's multi-part question ourselves. So let's dive in, Elizabeth.

20:58Elizabeth Ayoola:Jen is considering doing something that I found pretty savvy with her IRA. She's thinking about contributing to a traditional IRA now that she's still working. And then when she stops working, she wants to convert those funds into a Roth IRA while her income is low so that she can take advantage of that low tax window. Now, her question is, is that strategy actually worth it or should she just focus on building up her high yield savings account?

21:23Sean Pyles:Before we get into whether Jen should do this, let's just set the groundwork a little bit for this and talk about what a Roth conversion is. So for those who may not know, a Roth IRA conversion is when you take money that's in a pre-tax retirement account. This could be a 401k or a traditional IRA in Jen's case. And then you just convert it into a Roth IRA account. You're basically just transferring money from one type of account to the other, but there are tax implications. And that's really key here. And that's part of why Jen's strategy could be really smart. Exactly.

21:53Elizabeth Ayoola:And then for those who are wondering, well, why would I want to do a Roth conversion? There are two main benefits. One, if you are a high earner and you do not qualify for a Roth, that's one way that you can benefit from a Roth account because you can roll funds from a traditional IRA into a Roth IRA. And also for people like me who would rather not pay many taxes during retirement, a Roth conversion can be helpful because you can save more of your retirement dollars into a Roth and then you get more post-tax dollars, which is to me amazing. Yeah.

22:20Sean Pyles:And here's the key to why Jen's strategy could be really smart. So say they are making minimal income next year, their tax rate is going to be much lower. So when they do a conversion from a traditional IRA or a 401k into the Roth, they will pay income tax based on their income bracket for that year. But because their income is going to be much lower next year, they'll actually have a much lower tax rate on whatever they convert. And that's just a really savvy way of timing how to do conversions.

22:49Elizabeth Ayoola:Exactly. And my guesses are, Jen, I'm putting this in the universe for you, that once you graduate, you're going to be earning some big bucks. So these might be the lowest tax years that you're going to have, I don't know, for your foreseeable work future, hopefully.

23:01Sean Pyles:I would sure hope so if she's taking out$117 ,000 for a program. I mean, they better be making a lot of money after that.

23:08Elizabeth Ayoola:Exactly. Now, I think something that is helpful with Gen Strategy 2 is that there aren't limits on how much you can convert in a Roth conversion in a year. Right, Sean?

23:18Sean Pyles:Yeah, this is something that a lot of folks may not know because there are limits on how much you can put into an IRA, traditional or Roth. And that limit is$7 ,500 for those under 50 and$8 ,000 for those 50 and older in 2026. But this same limit does not apply to conversions. You can convert really as much as you want, which is pretty phenomenal.

23:38Elizabeth Ayoola:Yeah. And yes, it's legal. If you guys are loyal listeners to the show, you may remember an episode where someone was saying their colleagues were doing conversions every single week, right? So, well, every time they got paid, not every week. So you can do it as frequently as you want. And yes, it's legal. All right. So one more thing as well, in case you're out there thinking of doing a Roth conversion and maybe you're close to retirement, you have to do that conversion at least five years before retirement so that you can get those tax benefits.

24:05Sean Pyles:Yeah. And that rule only applies if you are 59 and a half or younger. So another little caveat there too.

24:10Elizabeth Ayoola:So we can move along to Jen's next part of the question. Do we think this is ideal for Jen's situation?

24:16Sean Pyles:If Jen goes this route, I want them to really make sure they have enough money to cover the tax bill. Yes, it might be pretty low when they do this next year when they're not earning a lot, but play with a tax calculator and or consult a CPA and just have an understanding of how much they might actually be on the hook for because surprise tax bills are never fun and could kind of suck all the joy out of this really clever idea.

24:40Elizabeth Ayoola:I'm hoping that Jen wanted to use this strategy to save more money for retirement. But I know some people out there actually do use Roth's savings accounts, which sounds a little bit complicated. But I'm hoping that Jen isn't doing that and hopes to keep the money inside the Roth because otherwise the other strategy that she mentioned, bulking up that high yield savings account, may be a better route.

25:00Sean Pyles:Yeah, here's the thing with using Roths as a savings account is that you can take out the money you put in your contributions at any time without penalty. It's a different story for earnings and conversions and whatnot. But I don't really like that idea because you're intermingling the purpose of a savings account and a Roth. savings should be in savings for emergencies and other day-to-day expenses. And your Roth should be hopefully just for your retirement savings. Now, if there's a big crisis and you don't have anything in your emergency fund, this can be an okay route to go, but it's just not my favorite overall.

25:33Elizabeth Ayoola:Same, same, same. Before we move along, Sean, I want to know if you know what the term for a strategy of capitalizing on different tax rates to reduce the total amount of taxes you pay is. Do you know what that term is?

25:47Sean Pyles:This is one of the more jargony terms. It is tax arbitrage.

25:51Elizabeth Ayoola:Ding, ding, ding. I'm so impressed by you. Always impressed by you. I am a CFP, Elizabeth, of course. Just a little nerdy term there.

25:58Sean Pyles:Okay, well, let's move on to the high-yield savings account option because Jen is also thinking about moving all of the funds into an emergency fund instead of bulking up the Roth. So, Elizabeth, give me your thoughts here.

26:09Elizabeth Ayoola:Well, so my thoughts are I appreciate the zeal and the savviness. I do think it's a very thoughtful and can be helpful strategy that Jen is trying to do. But there's alarm bells going off in my mind, Sean.

26:22Sean Pyles:Okay, go on. Thank you. List these alarm bells. Ask me why. Yeah, I want to hear what they sound like.

26:27Elizabeth Ayoola:They sound like that three-month emergency fund is not enough when she might be out of work for like three years.

26:33Sean Pyles:Well, actually, you know, I kind of disagree with you on this point. Tell me. Because one thing that we didn't get in the summary is that Jen is living with a partner and the partner owns the house they live in. And if you are in a two income or somewhat more financially resilient household because you have two folks living in it and you're not really paying a lot in rent, three months could be enough. For three years? I mean, possibly, especially if they have the support of their partner. Now, I don't think they're married, but that said, because they have the support of not having to pay rent or paying minimal in housing, I think that they actually might be okay given the other financial priorities.

27:13Sean Pyles:And that's kind of the key here is that Jen has a lot of other demands on their money right now. But our disagreement here points out how it's such a personal decision. Others might be a lot more comfortable with six months, but it can be very time consuming and expensive to get to that point.

27:26Elizabeth Ayoola:Yeah, the way my anxiousness is set up, three months, even if living with a partner for three years, being potentially out of work would not make me feel settled. And of course, I wish the best for Jen and their partner, but you just never know what happens.

27:39Sean Pyles:Don't want to be too financially dependent on someone.

27:41Elizabeth Ayoola:No, yes. I would personally try to bulk that up. But you're right. You know, if you have a dependable partner, you're not paying much of the big bills, then three months might be OK. Might.

27:49Sean Pyles:Yes. So if they don't go this route, what other options does Jen have?

27:53Elizabeth Ayoola:Well, Jen could save the money that she's planning to invest and bulk up that emergency savings more close to six months. And the good news is if she's able to do that quickly because she lives with her partner and doesn't have to pay many bills right now, then she can redirect the rest of those funds towards that retirement savings. So I guess I'm saying Jen could potentially do both. Okay.

28:15Sean Pyles:I mean, I always love making progress on multiple goals simultaneously. So that actually might be what I would do in this situation.

28:21Elizabeth Ayoola:I personally would do that, too, because I will not lie. As much as I like the idea of having a bigger emergency fund, this tax arbitrage strategy she's doing, chef's kiss. Because, again, these may be the lowest earning years that she's going to have. And it feels like a crime to miss out on that opportunity.

28:38Sean Pyles:Totally. And just work on that relationship, too, and make sure everything is stable in that regard so that you don't end up having to move out in the middle of this program.

28:46Elizabeth Ayoola:That's right. All right. Let's move on to Jen's second question. Jen is not sure how much money she'll be eligible for with the student loans since there have been changes to the Graduate Plus Loans program. And she's starting the program after those loans are phased out. Jen also wants to know what expenses her loan will cover and how to potentially make extra bucks while studying. My kind of person. I love a side hustle.

29:08Sean Pyles:So let's start by talking through some of these changes that Jen referenced to Graduate Plus Loans, because some folks might not be aware of this, but the changes are pretty significant. And due to the one big, beautiful Bill Act, graduate plus loans will actually sunset. The program's going to sunset in July 1st of 2026. And borrowing limits for direct plus loans in general are changing. Most graduate students in these non-professional programs, they're called, will be capped at$20 ,500 annually and can only get$100 ,000 for lifetime federal borrowing, which, as we saw, is less than Jen needs for this program.

29:45Sean Pyles:And that's not including day-to-day expenses. That's just the program tuition itself.

29:49Elizabeth Ayoola:That's right. So Jen is at an advantage because she does live with her partner and she doesn't have to pay any big bills right now. But as you said, this might not cover the total amount that she needs to borrow. So this is a genuine concern. Now, whether the program will be fully funded really does depend on how much federal aid she's already used, because there's now with the changes, a lifetime limit of$100 ,000. Since her doctorate program, I think based on what I looked at, will not be considered professional, as the administration says, Jen will be eligible for the lower borrowing limits and may not have enough money.

30:23Sean Pyles:And on top of this, Jen is now thinking that they might have to go into the private loan market. And there was a lot of conversation after this bill and this facet of it was unrolled that actually this might be what the goal was anyway, is to push people into the private market. but the private market is more expensive and there are fewer protections. So I would be really wary of this too. If I was in Jen's position, I would do everything I can to minimize the amount of private loans I get. But for a lot of people, it's going to be inevitable.

30:53Elizabeth Ayoola:That's right. And a good place for Jen to start. I can see that you love to do your own research, Jen. We do have an article on the best private student loans that can help with comparison shopping. And we also have one on the best grad school loans that can help you during your decision-making process. And we will link those in the show description. But before you jump to those articles, I did a little bit of digging. And there are some things that you can consider like scholarships and grants. If you haven't already seen it, Jen, I saw the American Occupational Therapy Foundation has scholarships and also National AMBUCs offer scholarships for doctoral students.

31:30Sean Pyles:And we know that navigating student loans is really confusing. So if Jen hasn't already, I would implore them to reach out to their program's financial aid office directly and just get a really clear understanding on what the federal borrowing limits will be and how it may apply or not to their doctoral program.

31:47Elizabeth Ayoola:And then, Jen, if you do end up having to use a private loan, some factors to look out for include fixed versus variable APRs. You want to know how much you're paying over the lifetime of the loan. You want to look at co-signer requirements. And hey, a co-signer can also, in some instances, bag you better rates. So that's something to look at. You want to look at repayment flexibility, grace periods, and also the rules around deferment.

32:09Sean Pyles:And Jen was also wondering what they can use the funds for. So these student loans can be used for tuition, fees, room and board, tech equipment, transportation, book supplies, and some other personal expenses, which I think that's what Jen was really curious about is can they maybe buy groceries with these funds?

32:26Elizabeth Ayoola:Yeah, groceries. And also they wanted to know they said their car might give out in a couple of years. It's pretty old. So they wanted to know whether it could cover maybe car expenses and also dental work.

32:36Sean Pyles:And I'm going to guess that student loans are not designed to cover dental work or car loans.

32:40Elizabeth Ayoola:I personally don't think so. And I don't think Jen was saying she wanted to take out a car loan, but I just wanted to point that out because I wouldn't buy a car with it. And I also probably wouldn't get any dental work personally with my student loans.

32:51Sean Pyles:So in the lengthy question we got from Jen, they also asked about side hustles and ways to make money while in school. So Elizabeth, what do you think Jen should look into here?

33:00Elizabeth Ayoola:Yeah, and I do remember Jen being concerned that they would have to create a formal business. And I just want to say, Jen, most of the time you do not have to be a formal business to do a side hustle. The most important thing the IRS cares about is those taxes. So you do not necessarily have to incorporate your business, but you do have to report your income most times. You could just be self-employed. When I started out as a freelancer, I was just self-employed and I was reporting my income and paying taxes on whatever amounts that I earned. And Jen, if you are deciding to go this route, quarterly taxes, we always recommend doing that on this show.

33:34Elizabeth Ayoola:And if it exceeds the amount that needs to be reported, which is$400 or more, then you definitely need to let the IRS know that you're making extra money. Yeah.

33:41Sean Pyles:As always, when you have more income streams, you have more problems. But hey, if it lets you afford your life and get into less debt, it could be a really good option for Jen.

33:50Elizabeth Ayoola:Yeah. And Jen, something else I want you to think about is beware of any insurances that you might need for this side business, especially because you mentioned when you wrote us having people come into your home. You don't want to face any lawsuits. You don't want to make yourself liable for anything. And you also don't want any creeps in your house since you may potentially be inviting outside people into your personal home. And think about licenses as well and permits, which vary by state.

34:16Sean Pyles:Okay. Well, let's look into the last part of Jen's question, which is about the student loans that they already have, that$17 ,000 balance. They're wondering how this is going to be handled when they are in school again and taking on more loans. So, Elizabeth, is Jen going to have to continue making payments on these other loans while in school?

34:35Elizabeth Ayoola:Well, the long answer is no, but maybe Jen might want to. It depends. I know we all hate that answer.

34:43Sean Pyles:If that's the long answer, I want the even shorter answer because that was pretty short.

34:46Elizabeth Ayoola:Oh, my God. So for federal loans, in-school deferment is a thing. It's possible as long as you meet two requirements. You have to at least be in a part-time at school somewhere and attending somewhere eligible for federal aid. I think Jen meets those requirements. Now, if you want to go the deferment route, just make sure that your loans are actually deferred. Your school's registrar automatically notifies the National Student Loan Data System, and your servicer usually will pause your bills. However, I always recommend that you manually check your portal once you start classes to ensure that it says deferred and you know that those loans are being paused.

35:21Sean Pyles:Yeah, and deferring can be the best option to have a little bit more room in your budget on a month-to-month basis when you're in a program like this. But there's a catch, and that's that you will be accruing interest on your loan balance during deferral. So that's not as great, but hey, at least it frees up money to help you address the more immediate needs of just covering your living expenses and getting through your program.

35:44Elizabeth Ayoola:We don't know what kind of loan that you have, Jen, but if it is partially subsidized, then the government will pay the interest while you're in school. So that's something to check out, too.

35:52Sean Pyles:It's a very key point. Yeah. Now, the thing is, if your loan is unsubsidized, you actually may want to consider paying just the interest while you are in deferral so that your loan balance doesn't accrue. It won't be as big as your regular monthly payment. It might be nice just to make a little bit of progress or at least prevent your debt from ballooning while you're in this program anyway.

36:11Elizabeth Ayoola:Exactly. Now, one other thing Jen can look into is loan consolidation post-graduation. Starting July the 1st, this year, 2026, a new repayment plan called the Repayment Assistance Plan, RAP, I do like that acronym, is replacing many of the old income-driven repayment plans. And once Jen graduates from her doctorate, she could consider bundling her loans into this plan. But Jen, only do that if it makes financial sense because the downside of RAP is it could hit restart on your student loan forgiveness. And it could also lead to highly monthly payments.

36:48Sean Pyles:Yeah. And I want to clarify that this kind of consolidation is very different from consolidating through making a federal loan a private loan. Some financial people on the internet recommend you do this. And it's a huge mistake in most cases because, again, when you have federal student loans, you just have more protections and payment options than with private student loans. So please hold on to your federal loans if you have them.

37:12Elizabeth Ayoola:If you want to learn more about RAP, we have written all about it on nerdwallet.com, and we will link to it in the episode description.

37:20Sean Pyles:And I think that's a wrap on Jen's question.

37:24Elizabeth Ayoola:Ah, I like that. Sorry, I love a corny joke.

37:27Sean Pyles:Elizabeth, any final thoughts you want to leave Jen and our listeners with?

37:31Elizabeth Ayoola:So my final thoughts are, if you are going back to school and you are planning to focus fully on your studies and want to know how to budget for it, my first step would be to prioritize that emergency fund, especially if you plan to be out of work for the next year or three like Jen. Reduce the likelihood of yourself getting into debt by keeping your income and budget low. So if you have existing student loans, I would at least pay the interest on those loans if they are unsubsidized. And then I would prioritize retirement maybe last.

38:03Sean Pyles:But also you have an opportunity to be super savvy with your retirement savings and convert some of your traditional money into Roth. And I think that is just super smart. But again, make sure you have money to cover any potential tax bill.

38:16Elizabeth Ayoola:That's all, folks. It's a wrap.

38:18Sean Pyles:All right. That's a wrap. Remember, folks, we're here to answer your money questions, so send them to us. You can hit us up on the Nerd Hotline by calling us or texting us at 901-730-6373. That's 901-730-NERD. You can also send us an email to podcast at nerdballout.com or drop us a comment on Spotify or YouTube.

38:38Elizabeth Ayoola:And we love you guys. Please come hang out with us next time, and we're going to be talking about umbrella insurance. Make it rain. Who's corny jokingly?

38:47Sean Pyles:Make it rain in liability coverage.

38:49Elizabeth Ayoola:Follow Smart Money on your favorite podcast app. Those haven't changed. That may be Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

38:59Sean Pyles:And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

39:09Elizabeth Ayoola:This episode was produced by The Dream Team. That includes Tess Vigland, Hilary Georgie helped with editing, Eve Krogman edits our audio and video. And a big thank you to NerdWallet's editors for all their help.

39:21Sean Pyles:And with that said, until next time, turn to the nerds.