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SpaceX’s Biggest IPO in History and Funding a $117K Life Change
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- [00:01]
Sean Pyles
The following is a paid sponsorship, not an endorsement by NerdWallet's editorial team. Today's episode is sponsored by Bilt.
- [00:07]
Sean (alternate or producer voice)
You've heard me talk about Bilt as the loyalty program that lets you earn points on rent wherever you live, and they just leveled up even more. As of 2026, renters and homeowners can also earn up to 1.25x points on their housing payments.
- [00:23]
Sean Pyles
This is thanks to Bilt's three new credit cards, the Palladium Card, Obsidian Card and Blue Card. All three can turn your housing payments, rent or mortgage into flexible rewards so you can choose the card that fits your lifestyle without missing out on points and exclusive benefits.
- [00:38]
Sean (alternate or producer voice)
Built Points can be redeemed at top airlines and hotels, Amazon.com purchases, future rent payments, and so much more. Built Points have also been ranked by top publications as the industry's most valuable point currency.
- [00:52]
Sean Pyles
Your housing payment is most likely your biggest expense. Make it your most rewarding. Find the card that fits your lifestyle and Apply today at joinbilt.com smartmoney that's J-O-I N B I L T.com smartmoney make sure to use our URL so they know we sent you. Terms and limitations apply subject to approval and eligibility.
- [01:14]
Sean (alternate or producer voice)
BILT cards are issued by column NA member FDIC pursuant to license for MasterCard International Incorporated.
- [01:23]
Elizabeth Ayola
Today's episode is sponsored by Spectrum Business. What happens when your Internet drops during business hours and you're the one running the business? Say goodbye to your to do list unless that list involves panicking and having trouble getting any actual work done.
- [01:38]
Sean Pyles
For business owners, being connected isn't a perk. It's how you take payments, talk to clients and keep things moving. Not to mention pretty much everything else. Spectrum Business keeps businesses connected seamlessly with fast, reliable Internet and advanced WI fi plus phone, TV and mobile services if you need them.
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Elizabeth Ayola
And Spectrum Business offers 100% US based customer support 24. 7 to help you stay up and running. That means you get actual help, not submit a ticket and hope for the best.
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Sean Pyles
Our colleague Kerry on the social media team is a Spectrum customer and she told us that she chose Spectrum because people online kept recommending it as a reliable and affordable option for Internet and phone service.
- [02:17]
Elizabeth Ayola
She told us she was actually a little hesitant to switch at first since she'd been using a different service for a while, but after a year with Spectrum, she's actually had a really good experience. Her phone gets strong, reliable service and it automatically connects to Spectrum WI Fi everywhere.
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Sean Pyles
Join the millions who rely on Spectrum Business. Visit spectrum.combusiness to learn more one more time. That's spectrum.com business restrictions apply.
- [02:43]
Elizabeth Ayola
Services not available in all areas.
- [02:45]
Rick Vanderknife
What do SpaceX, OpenAI, and Anthropic all have in common?
- [02:49]
Sean Pyles
They're all looking to debut on the
- [02:51]
Rick Vanderknife
stock market this year.
- [02:52]
Sean Pyles
With SpaceX planning to go public on Friday, we're exploring what IPOs are and
- [02:56]
Rick Vanderknife
how upcoming ones from tech giants could affect your portfolio. Welcome to NerdWallet's Smart Money podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Pyles.
- [03:09]
Elizabeth Ayola
And I'm Elizabeth Ayola. Later this episode, we'll be answering a question about managing money through a career transition. If that's you who's going to transition, listen up. But first, our weekly Money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. Our news colleague Rick vanderknife is here, stepping in again while Ana is on sabbatical. Ana, if you can hear us, we miss you, but we like you, too, Rick. Hey, Rick.
- [03:35]
Rick Vanderknife (alternate or main)
Hey, Elizabeth and Sean. It's good to be here. As always, we're here to talk about IPOs, but I want to give a quick nod to another big story this week. The World cup, that giant global soccer tournament that's happening in cities across Mexico, Canada and the United States through mid are astronomically expensive. So we've rounded up some of the best ways to watch for free in Friday's edition of Money. Nerd. Nerd Wallet's weekly newsletter.
- [04:00]
Rick Vanderknife
Okay, we'll include a link in the show notes to how to sign up to that newsletter for folks who aren't already signed up.
- [04:05]
Elizabeth Ayola
Well, as a Nigerian and a Brit, I am sorry to admit that I do not care about soccer, but I will be attending the World Cup. And for context, Nigerians and British people are crazy about soccer. They are to soccer what Americans are to football, you know?
- [04:21]
Rick Vanderknife (alternate or main)
Mm.
- [04:22]
Rick Vanderknife
Well, you'd call it football, right? Outside of the States.
- [04:25]
Elizabeth Ayola
Depends on who I'm talking to.
- [04:27]
Rick Vanderknife
Yes. Wait, so how are you attending the World cup if you don't care about it? Because tickets, like Rick said, are so expensive.
- [04:32]
Elizabeth Ayola
Because my wonderful boyfriend wants to attend the World cup and I'm just his plus one, so I'm just tagging along. And don't ask me what game we're going to see, because I have no clue. I'm just there for the vibes.
- [04:41]
Rick Vanderknife
What I want to know is how much he paid for these tickets.
- [04:44]
Elizabeth Ayola
Oh, that's another conversation. He was not happy because he paid a pretty hefty price. And then at the last minute, they changed everyone's seats, so he didn't even get the seats that he thought. Thought he was going to. But that's a different conversation. So he's not a happy camper.
- [04:57]
Rick Vanderknife (alternate or main)
They're having games here in Seattle. I was kind of planning to go. And I'm not paying $1,000 to see a soccer game, so no thanks.
- [05:04]
Rick Vanderknife
Especially if you can watch it for free.
- [05:05]
Rick Vanderknife (alternate or main)
Exactly. So, anyway, back to Wall Street. We're about to witness one of the biggest IPO seasons in memory. Starting it off is Elon Musk's SpaceX, which he combined with his AI venture Xai earlier this year. That combined company is planning to go public this Friday, June 12, and it looks like they will be followed into the stock market by two other big names in artificial intelligence. And Wall street, as you might guess, is buzzing. To talk about what this all might mean to the average investor, I've invited investing writer Sam Taub. Thanks for being here, Sam.
- [05:38]
Sam Taub
Hey, Rick. Always happy to be on.
- [05:39]
Rick Vanderknife (alternate or main)
Let's start with a quick basic definition. What is an ipo?
- [05:43]
Sam Taub
An initial public offering is a company's debut on the stock exchange. It's when a company goes and starts trading and people can buy their shares.
- [05:53]
Rick Vanderknife (alternate or main)
Awesome. So I mentioned SpaceX. What other companies are expected to go public in the near future?
- [05:59]
Sam Taub
So SpaceX is going public on Friday, and then OpenAI and Anthropic have both filed for initial public offerings sometime later this year. We don't have as much detail about the exact date yet, but that's coming up.
- [06:13]
Rick Vanderknife (alternate or main)
Got it. So SpaceX, I know it's a big IPO, but just. Just how big is it the biggest ever?
- [06:20]
Sam Taub
It is the biggest ever. It is on track to dethrone Saudi Aramco, which was the previous title holder of biggest IPO ever. That one raised about $25 billion at a valuation of 1.7 trillion back in 2019. SpaceX is looking to raise $75 billion at a value of 1.75 trillion. So this is going to be the biggest ever. Wow.
- [06:44]
Rick Vanderknife (alternate or main)
I have a question about OpenAI and Anthropic. I know they're both moving toward IPOs, aren't they? Nonprofits.
- [06:51]
Sam Taub
One of them was a nonprofit. It's a good question, because this is a confusing thing that involves a lot of legal gymnastics. OpenAI used to be a nonprofit, but last year it restructured itself into a public benefit corporation, or pbc, which is A type of for profit company whose bylaws prioritize some kind of social responsibility alongside profit. In OpenAI's case, the development of a benevolent artificial general intelligence is that social responsibility aspect. And this transition involved some really complicated maneuvering because as you can imagine, you're not really allowed to found a non profit and then just say, nevermind, we want to make money and be a regular company. So what OpenAI did is they basically created this new for profit entity and then gave the old OpenAI nonprofit a big equity share of it. Anthropic has had a somewhat simpler journey to IPO because it's been a public benefit corporation since its inception. One thing that I think is worth kind of mentioning here is that the legal definition of a PBC is pretty squishy. You have to have some kind of social responsibility goal in your corporate charter, and that creates a fiduciary duty for executives to work toward that goal. And a lot of states have some requirement that PBCs have to file reports regularly that show how they're working toward their social responsibility goal. But there aren't really laws that regulate like whether or not a particular goal is legitimate or what exactly it means to prioritize that goal over profits. So from a regulatory perspective, you could make an argument that this PBC structure is not that different from a regular corporation, but it has better pr.
- [08:45]
Rick Vanderknife (alternate or main)
Got it. Okay, so it sounds like several big opportunities to invest in the AI boom are coming up. How does an average investor get in on this?
- [08:54]
Sam Taub
So the OpenAI and Anthropic IPOs are in the very early planning stages and they haven't been scheduled yet. So we don't have much detail on how or if retail investors can participate in those. We know more about the SpaceX IPO because it's coming up in just a few days. IPO shares will be available directly to retail investors on June 12 at the opening price of $135 per share via five specific brokerages, Schwab, Fidelity, E Trade, Sofi and Robinhood.
- [09:30]
Rick Vanderknife (alternate or main)
Okay, so maybe this is a bigger question. Should an ordinary investor get in on this?
- [09:35]
Sam Taub
That's a very good and complicated question. IPOs are heavily marketed, and the ones we're talking about have a ton of word of mouth hype. And that does often generate a short term pop in the first day or two of trading, which gives traders an opportunity, in theory to make a quick buck by snapping up shares and then quickly reselling them to another very excited trader. But for exactly this reason, IPOs generally aren't such a good way to buy into a stock at a low price. A few years ago, Nasdaq did an analysis of IPOs between 2010 and 2020 and found that two thirds of them were underperforming the market at their third year of trading because that initial pop kind of raises the bar as to how well the stock has to do to have long term positive returns. Having said all that, if you have a long time horizon like you're really planning to hold the stock for at least five years and you really believe in the company's long term potential, the fact that IPOs give you a not so great entry price may not matter. Every stock has to start somewhere, and if you're willing to hold long enough to let the stock recover from a potential post IPO sell off, it may not bother you to buy at a relative high.
- [10:55]
Rick Vanderknife (alternate or main)
So how likely is it that the average investor will end up owning some of these companies whether they want to or not?
- [11:01]
Sam Taub
I'm glad you asked, because we very well might end up heavily invested in SpaceX and later OpenAI and anthropic if those IPOs go through whether or not we want to be. And to explain why, I'm first going to go on a quick tangent here. We talk a lot at NerdWallet about passive investing or index fund investing. Financial advisors have long recommended buying and holding index funds rather than actively trading stocks because historically that approach tends to outperform stock pickers and in theory it provides really thorough diversification very easily. But recently this has been called into question because big tech names like Nvidia nowadays make up an enormous share of the indexes by weight. We wrote about this last year in the Nerdy Investor Newsletter. Now these big IPOs could make the concentration problem even worse because in the last few weeks some of the companies that manage the indexes, specifically NASDAQ and FTSC Russell, have announced that they are changing their rules for index inclusion to make sure that these big IPOs like SpaceX and presumably down the line, OpenAI and Anthropic get included right away. Usually there are rules where companies have to trade for a few quarters and maintain a certain level of profitability consistently in order to be included in the indexes. But ftse Russell and NASDAQ are basically kind of letting these large IPOs like SpaceX skip the line and presumably they might do the same for OpenAI and Anthropic. S and P Dow Jones, which maintains The S&P 500 and Dow Jones Industrial Average indexes, was going to do this but then then they decided not to at the last minute. So the consequence of this is that investors who are passively holding NASDAQ index funds or Russell 3000 index funds might end up to an oversized allocation to these mega cap tech stocks. S&P 500 and Dow Jones Industrial Average investors are safe for now, as far as we know.
- [13:06]
Rick Vanderknife (alternate or main)
Got it. So I know there's some anti AI sentiment out there, as well as worries about a bubble. How can an average Investor avoid adding SpaceX, for instance, to their portfolio? Let's say, if they have an index fund?
- [13:20]
Sam Taub
So there's a technique called direct indexing, where you basically recreate an index fund by buying fractional shares of all the stocks that make it up in their respective weights. Direct indexing started out as a tax optimization strategy, but another potential application of it is that you could use it to build a portfolio that tracks, say, the NASDAQ or the Russell 3000 sans SpaceX or another big hype Y stock that you want to avoid. My colleague Bella Avila recently updated a really thorough article that explains how direct indexing works and how you could use it to exclude a specific stock from an index investment.
- [14:00]
Rick Vanderknife (alternate or main)
So how much are these companies looking to raise?
- [14:02]
Sam Taub
Overall, OpenAI is looking to raise at least 60 billion at a valuation of more than $850 billion, according to recent reports. We don't know how much Anthropic is looking to raise, but their last round of private fundraising gave them a valuation north of 900 billion. So both of these AI companies, in terms of their total market cap, are getting near the trillion dollar line. Those IPOs aren't expected until later in the year at the earliest, and a lot could change between now and then. We'll probably find out more details over the next few months. SpaceX is looking to raise $75 billion in this IPO, which would put its total valuation or its total market cap at about 1.75 trillion. Now, you might think that this valuation reflects SpaceX's worldwide dominance in the space launch business, but according to their recent prospectus, you would be wrong. As you mentioned at the open SpaceX is now the parent company of Xai, which is Elon Musk's AI company. It developed the the Grok chatbot, which is a ChatGPT and Claude competitor. And according to SpaceX's most recent S1 filing, the company is actually expecting to make most of its money on AI and software stuff. Investment prospectuses for a company usually list the company's total addressable market, or tam, which is the Sum of all demand for the products they sell. Or in other words, it's kind of the maximum theoretical amount of revenue the company could make. SpaceX's prospectus shows a TAM of $28.5 trillion. But only 2 trillion of that is space stuff like rocket launches or Starlink Internet services. The vast majority of their projected TAM. The other $26.5 trillion is AI and apps.
- [15:57]
Rick Vanderknife (alternate or main)
So obviously there's a ton of hype around these stocks. I've seen a big range of Wall street opinion about the value. Is there any kind of consensus?
- [16:07]
Sam Taub
I wouldn't say there's a strong consensus. Last year for a nerdy investor issue, we asked more than a dozen economists if they thought AI was a bubble, and the vast majority of them said that they thought it was. The argument in favor of the bubble theory is almost kind of self explanatory to most people who are paying attention. There's a lot of utopian rhetoric about what AI is going to do to the economy and our way of life. There's companies that are kind of shoehorning AI into every product, even when it doesn't make a ton of sense. You've got these huge numbers for valuations of AI companies, often in the trillions of dollars, et cetera. There are some parallels here with like the dot com boom in the late 1990s, but I do think it's worth mentioning the arguments against the AI bubble theory. The big publicly traded AI companies that people like to worry about, your Nvidia, your Google, Microsoft, your Meta, and so on, they actually generally don't have such crazy price to earnings ratios. The earnings and revenue from AI stuff is very real and often it's actually growing faster than the share prices of these companies are. It'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.
- [17:42]
Rick Vanderknife (alternate or main)
Well, Friday I think should be pretty interesting. Thanks for walking us through that, Sam.
- [17:47]
Sam Taub
It definitely will be interesting and thanks for having me on.
- [17:50]
Elizabeth Ayola
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.
- [18:02]
Sean (alternate or producer voice)
But before we get into that, a
- [18:04]
Elizabeth Ayola
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-N E R D. You can
- [18:27]
Rick Vanderknife
also email us at podcasterdwallet.com or drop a comment on Spotify or YouTube.
- [18:32]
Sean Pyles
We're back in a moment.
- [18:33]
Rick Vanderknife
Stay with us.
- [18:38]
Elizabeth Ayola
Today's episode is sponsored by Quince.
- [18:41]
Sean Pyles
Summer always makes me rethink what I'm
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Rick Vanderknife
reaching for every day.
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Sean Pyles
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Elizabeth Ayola
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Sean Pyles
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Rick Vanderknife
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Sean Pyles
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Elizabeth Ayola
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Sean Pyles
I recently picked up a pair of
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Rick Vanderknife
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Sean Pyles
don't want to be sweating through my sheets all summer long. And let me you I'm sleeping so nice and cozy and cool and I just love these sheets and I'm super
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Elizabeth Ayola
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Sean Pyles
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- [20:10]
Sean (alternate or producer voice)
You've heard me talk about Bilt as the loyalty program that lets you earn points on rent wherever you live and they just leveled up even more. As of 2026, renters and homeowners can also earn up to 1.25x points on their housing payments.
- [20:27]
Sean Pyles
This is thanks to Bilt's three new credit cards, the Palladium card, Obsidian card and Blue Card. All three can turn your housing payments, rent or mortgage into flexible rewards so you can choose the card that fits your lifestyle without missing out on points and exclusive benefits.
- [20:42]
Sean (alternate or producer voice)
Built points can be redeemed at top airlines and hotels, Amazon.com purchases, future rent payments, and so much more. Built points have also been ranked by top publications as the industry's most valuable point currency.
- [20:56]
Sean Pyles
Your housing payment is most likely your biggest expense. Make it your most rewarding. Find the card that fits your lifestyle and Apply today at joinbuilt.com smartmoney that's J-O-I-N B I L T.com smartmoney make sure to use our URL so they know we sent you. Terms and limitations apply subject to approval and eligibility.
- [21:17]
Sean (alternate or producer voice)
BILT cards are issued by column NA member FDIC pursuant to license for MasterCard International Income
- [21:28]
Elizabeth Ayola
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. 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 3 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.
- [22:33]
Rick Vanderknife
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
- [22:47]
Sean Pyles
question ourselves, so let's dive in.
- [22:49]
Elizabeth Ayola
Elizabeth, 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?
- [23:15]
Rick Vanderknife
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 convers. 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.
- [23:43]
Elizabeth Ayola
Exactly. 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.
- [24:11]
Rick Vanderknife
Yeah. And here's the key to why Gen strategy could be really smart. So say they are making minimal income next year, their tax rate's going to be much lower. So when they do a conversion from a traditional IR 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.
- [24:40]
Elizabeth Ayola
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.
- [24:53]
Rick Vanderknife
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.
- [25:00]
Elizabeth Ayola
Exactly. Now, I think something that is helpful with Gen strategy too is that there aren't limits on how much you can convert in a Roth conversion in a year. Right, Sean?
- [25:10]
Rick Vanderknife
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 app apply to conversions. You can convert really as much as you want, which is pretty phenomenal.
- [25:30]
Elizabeth Ayola
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.
- [25:57]
Rick Vanderknife
Yeah. And that rule only applies if you are 59 and a half or younger. So another little caveat there too, so
- [26:02]
Elizabeth Ayola
we can move along to Jen's next part of the question. Do we think this is ideal for Jen's situation?
- [26:08]
Rick Vanderknife
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
- [26:16]
Sean Pyles
they do this next year when they're
- [26:17]
Rick Vanderknife
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.
- [26:31]
Elizabeth Ayola
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 Roths as 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.
- [26:52]
Rick Vanderknife
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.
- [27:25]
Elizabeth Ayola
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?
- [27:39]
Sean Pyles
This is one of the more jargony terms.
- [27:40]
Rick Vanderknife
It is tax arbitrage.
- [27:42]
Elizabeth Ayola
Ding, ding. I'm so impressed by you. Always impressed by you.
- [27:45]
Rick Vanderknife
I am a cfp, Elizabeth. Of course.
- [27:48]
Elizabeth Ayola
Just a little nerdy term there.
- [27:50]
Rick Vanderknife
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.
- [28:01]
Elizabeth Ayola
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, Shawn.
- [28:13]
Rick Vanderknife
Mm. Okay. Go on.
- [28:15]
Elizabeth Ayola
Thank you.
- [28:16]
Rick Vanderknife
List these alarm bells. Yeah, I wanna hear what they sound like.
- [28:19]
Elizabeth Ayola
They sound like that three month emergency fund is not enough when she might be out of work for like three years.
- [28:25]
Sean Pyles
Well, actually, you know, I kind of
- [28:26]
Rick Vanderknife
disagree with you on this point because. 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 2 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.
- [28:48]
Sean Pyles
I mean, possibly especially if they have
- [28:50]
Rick Vanderknife
the support of their partner. Now, I don't think 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. 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.
- [29:18]
Elizabeth Ayola
Yeah, my. 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.
- [29:30]
Rick Vanderknife
Don't want to be too financially dependent on Someone.
- [29:32]
Elizabeth Ayola
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 okay. Might, yes.
- [29:42]
Rick Vanderknife
So if they don't go this route, what other options does Jen have?
- [29:45]
Elizabeth Ayola
Well, Jen could save the money that. But 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.
- [30:06]
Rick Vanderknife
Okay. I mean, I always love making progress on multiple goals simultaneously. So that actually might be what I would do in this situation.
- [30:13]
Elizabeth Ayola
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 gonna have. And it feels like. It feels like a crime to miss
- [30:28]
Rick Vanderknife
out on that opportunity 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.
- [30:38]
Elizabeth Ayola
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 loan 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.
- [30:59]
Rick Vanderknife
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
- [31:34]
Sean Pyles
saw, is less than Jen needs for this program.
- [31:36]
Rick Vanderknife
And that's not including day to day expenses. That's just the program tuition itself.
- [31:41]
Elizabeth Ayola
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 of 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.
- [32:15]
Rick Vanderknife
And on top of this, you know, 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 anyways 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.
- [32:45]
Elizabeth Ayola
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 scholarship 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.
- [33:22]
Rick Vanderknife
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.
- [33:38]
Elizabeth Ayola
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 cosigner 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.
- [34:00]
Rick Vanderknife
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?
- [34:18]
Elizabeth Ayola
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.
- [34:27]
Rick Vanderknife
And I'm going to guess that student loans are not designed to cover dental work or car.
- [34:32]
Elizabeth Ayola
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. I wouldn't buy a car with it, and I also probably wouldn't get any dental work personally with my student loans.
- [34:43]
Rick Vanderknife
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?
- [34:52]
Elizabeth Ayola
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 tasks, 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. 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.
- [35:32]
Rick Vanderknife
Yeah, 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.
- [35:42]
Elizabeth Ayola
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.
- [36:07]
Rick Vanderknife
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?
- [36:27]
Elizabeth Ayola
Well, the long answer is no, but maybe Jen might want to. It depends. I know we all hate that answer.
- [36:34]
Rick Vanderknife
If that's the long answer, I want the even shorter answer because that was pretty short.
- [36:37]
Elizabeth Ayola
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 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.
- [37:12]
Rick Vanderknife
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.
- [37:35]
Elizabeth Ayola
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.
- [37:44]
Rick Vanderknife
That'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.
- [38:02]
Elizabeth Ayola
Way exactly. Now, one other thing Jen can look into is loan consolidation. Post Graduation Starting July 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. But Jen only do that if it makes financial sense because the downsides of WRAP is it could hit restart on your student loan forgiveness and it could also lead to highly monthly payments.
- [38:39]
Rick Vanderknife
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 that with private student loans. So please hold onto your federal loans if you have them.
- [39:04]
Elizabeth Ayola
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.
- [39:12]
Rick Vanderknife
And I think that's a wrap on Jen's question.
- [39:16]
Elizabeth Ayola
Ah, I like that.
- [39:17]
Rick Vanderknife
I love a corny joke. Okay, Elizabeth, any final thoughts you want to leave Jen and our listeners with?
- [39:22]
Elizabeth Ayola
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. 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.
- [39:55]
Rick Vanderknife
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.
- [40:08]
Elizabeth Ayola
That's all, folks. It's a wrap.
- [40:10]
Rick Vanderknife
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 podcastnerdwallet.com or drop us a comment on Spotify or YouTube.
- [40:30]
Elizabeth Ayola
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.
- [40:37]
Rick Vanderknife
Whose corny joke is make it rain in liability coverage?
- [40:41]
Elizabeth Ayola
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.
- [40:50]
Rick Vanderknife
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.
- [41:01]
Elizabeth Ayola
This episode was produced by the Dream Team that includes Tess Figlund, Hilary Georgie help with editing. Eve Krogman edits our audio and video. And a big thank you to NerdWallet's editors for all their help.
- [41:12]
Rick Vanderknife
And with that said, until next time, turn to the nerds.
- [41:20]
Sean Pyles
Hey smart Money listeners. We have a brand new email newsletter and it's completely worth signing up for, especially since it's free.
- [41:27]
Elizabeth Ayola
Every issue has clips from recent episodes, links to stories you might have missed,
- [41:32]
Sean (alternate or producer voice)
and also behind the scenes commentary from me, Sean and our producer.
- [41:37]
Sean Pyles
Some of it is stuff that doesn't make it into the episodes, the context, the moments, the takes we didn't plan on sharing.
- [41:43]
Sean (alternate or producer voice)
You can think of it as the group chat for smart money fans.
- [41:46]
Elizabeth Ayola
I'm going to be sharing inside details
- [41:49]
Sean (alternate or producer voice)
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- [41:51]
Elizabeth Ayola
Yes, I'll be sharing all the juicy
- [41:52]
Sean Pyles
stuff and I'll have loads of tips about what I'm doing in my garden. So if you want to putz around your garden like I do, sign up for the newsletter. And also, you know, we have money, tips and all that kind of stuff. So head to NerdWallet.com podcast to sign up. Again, it's free.
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Elizabeth Ayola
That's NerdWallet.com podcasts.
- [42:08]
Sean (alternate or producer voice)
We'll see you in your inbox.