How MBA Students Can Leverage Taxes for a $150,000 Income

If you are an MBA student and you want to make over $150,000 right now, you might want to stick around for this. But first, I have good news and bad news.

Understanding Your Financial Status

The bad news is that when you're an MBA student, you're not making a lot of money. And the good news? When you're an MBA student, you're not making a lot of money either.

Maximizing Your 401k

So if you have a 401k from a previous employer and you convert that account today to a Roth IRA, you could make well over $150,000.

Let's say you have $20,000 in an old 401k and you continue to fund that 401k with $500 a month for the next 20 years. You would have an account worth close to $526,000. However, because that 401k is tax-deferred, you’re going to owe the government $150,000 of that money in taxes.

The Smart Move: Convert to Roth IRA

But let’s say instead that you are a financially savvy MBA student and you decide to convert that 401k to a Roth today. In that case, you only owe $2,180 of that money in taxes. That account, funded with $500 a month over the next 20 years, will be worth close to $510,000.

But here's the biggest upside: you won’t owe one penny of that money to the government because you took advantage of your low status as an MBA student and invested for the long term in a tax-advantaged account.

A Final Note

Oh, and don’t put MBA after your name when you get your degree. Not a good look.

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