Spekkio
He bowls overhand.
But they have a Roth option that's capped at $17.5k, which gives you tax-free growth on your invenstments.
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O-1 Budget in Flight School
- Thread starter Draples
- Start date
mitrokhin
Active Member
This is a really sweet deal... so if you're deployed to a combat zone where your earnings are tax exempt, and you put them into the Roth TSP while in the combat zone, since it's taxed up front you pay essentially zero tax at all, right?
On top of that, if you've already maxed out your TSP contributions ($17.5k), you can still contribute tax-exempt money earned via the Combat Zone Tax Exclusion, in which case it's subject to the annual additions limit ($51k last year, including the $17.5k from non-tax-exempt pay).
https://www.tsp.gov/PDF/bulletins/oc08-13.pdf
This is especially important for the enlisted sailors getting the reenlistment bonus while deployed to a combat zone, and I imagine the same would hold true for things like the ACCP.
https://www.tsp.gov/PDF/bulletins/oc08-13.pdf
This is especially important for the enlisted sailors getting the reenlistment bonus while deployed to a combat zone, and I imagine the same would hold true for things like the ACCP.
Spekkio
He bowls overhand.
It's what we should strongly advise that they do, after they pay off debt and before the dependapotomii can spend it.
LET73
Well-Known Member
Or before they get that great deal on a Mustang.
I would argue that it's actually good to have cash on hand, say six months of living expenses tucked away in a CD or something else easily accessible. You should be advising your guys to fund their TSP continually each month, have savings, and carry little debt. I wouldn't automatically default to dropping 50-100% of an SRB into something they can't touch for another 40 years.
Spekkio
He bowls overhand.
Well...
1) CDs aren't liquid until the terms are up, and there really isn't much sense in putting money into shorter term CDs rather than just keeping it liquid in a saving's account. If you're worried about inflation over the mid-term, you'd be better off investing into a Barclay's index fund.
2) The 6-month rule is a rule of thumb, and part of that rule of thumb is that people in civilian world can find themselves with a pink slip a lot more readily than servicemembers. It also is a generic metric for people who may own homes or have children, something most junior enlisted servicemembers don't have.
However, I'll agree that a servicemember who plans to EAOS should be investing as much as possible in a conservative fund to put himself through college/post service job hunting, and balancing this with contributing to retirement. And he should not get married, have children, or make any purchases that require recurring monthly payments.
3) Vanguard.com ran a study about LSI vs. DCA over a long-term period. In nearly 2/3 of the simulated scenarios, the LSI approach ended with significantly more money at the end of the investment period. Link. Takeaway: Unless you know more information about how the market is going to behave, you stand the best chance at maximizing returns by investing the money the moment it's available to invest. So while yes, one should invest monthly if he's able to, if he comes across a tax-free bonus in April, has all his debts paid, and has only contributed $1000 on the year, it would be a good idea to max out the Roth TSP at that point.
1) CDs aren't liquid until the terms are up, and there really isn't much sense in putting money into shorter term CDs rather than just keeping it liquid in a saving's account. If you're worried about inflation over the mid-term, you'd be better off investing into a Barclay's index fund.
2) The 6-month rule is a rule of thumb, and part of that rule of thumb is that people in civilian world can find themselves with a pink slip a lot more readily than servicemembers. It also is a generic metric for people who may own homes or have children, something most junior enlisted servicemembers don't have.
However, I'll agree that a servicemember who plans to EAOS should be investing as much as possible in a conservative fund to put himself through college/post service job hunting, and balancing this with contributing to retirement. And he should not get married, have children, or make any purchases that require recurring monthly payments.
3) Vanguard.com ran a study about LSI vs. DCA over a long-term period. In nearly 2/3 of the simulated scenarios, the LSI approach ended with significantly more money at the end of the investment period. Link. Takeaway: Unless you know more information about how the market is going to behave, you stand the best chance at maximizing returns by investing the money the moment it's available to invest. So while yes, one should invest monthly if he's able to, if he comes across a tax-free bonus in April, has all his debts paid, and has only contributed $1000 on the year, it would be a good idea to max out the Roth TSP at that point.
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LET73
Well-Known Member
Sure, but it takes time to build up that savings account, and it can take a lot longer to find a decent civilian job than people might expect. For someone who's planning on staying in, it might make more sense to focus on investments more than just a savings account, but for a guy who's even thinking about getting out, having that six months+ of living expenses is a smart thing to do (especially given the [anecdotal, don't have stats] underuse of GI Bill benefits).
LET73
Well-Known Member
"As much as possible" and "at least six months of living expenses" might not mean the same thing to the young junior guy counting down the days to his EAOS, though. I read your original post as saying that a single guy who doesn't own a home or have child support obligations doesn't need to build up savings to cover six or so months of living expenses. The amount he needs to save will be smaller, but it's still a good rule of thumb, dependapotomii or not. That said, I don't think we actually disagree.
Spekkio
He bowls overhand.
I said 'as much as possible' because 'six months of living expenses' for a junior enlisted servicemember is $0. Everything they need to live is automatically deducted. They generally have no idea what that magic number ought to be. Hence, setting up a vehicle to put away almost every dollar they earn instead of blow it on cars, motorcycles, or marrying strippers is the smart thing to do. Some of that needs to go into the 'how I'm going to feed myself when I get out of the Navy' fund, some of that needs to go into the 'how I'm going to feed myself when I eat through a straw' fund. Besides, the topic at hand was what to do with a bonus, which should be extra money that isn't factored into the budget anyway.
Married with kids is a bit of a different story. In general, if you get to that point without some kind of savings built up and need a tax-free reenlistment bonus to make ends meet, you have a spending problem not a saving problem.
Married with kids is a bit of a different story. In general, if you get to that point without some kind of savings built up and need a tax-free reenlistment bonus to make ends meet, you have a spending problem not a saving problem.
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You being serious bro? I don't think you're being very realistic.