The same TSP/Roth IRA question thread...

[FLY_USMC]

Question for the financial wizards...though I should just be calling my buddies...I'm currently lazy.

I have a Roth IRA for both my wife and I. Mine is currently maxed out...well it was last year....I need to change it. Hers is sitting at $100/month.

I have 5% of my special pay and 10% of my base pay coming out of TSP.

Would I be better off reducing my TSP deposits enough to allow us to max both our IRA's out?

The TSP takes about $380ish out of my pay/month.

 

[scoober78]

Concur...sorta. If you are only going to do one, Roth is definitely the one you want to fund fully. That said, the TSP can offer you real advantages now, especially if you fall right on a break point between tax brackets. In other words, if you can take 1500$ in funding from a Roth IRA and place it in a TSP or 401k and lower your AGI to the point where you fall into a lower tax bracket, you will likey save that 1500$ or more on your taxes for the year. In essence, the government just matched your funds. Only you can tell however.

That said, it is generally best to balance tax deferred investment (Traditional IRA's or 401k's) with after tax investments. (Roth's)

BTW...without sounding condescending (since we're the same age), good on ya. Waaay to many people who can, don't plan ahead. Doing anything is the most important thing.

 

[Aircrew Instruc]

This is one of the best threads I have seen. I was a CFS (Command Financial Specialist) at NASC and this is something that should be put out to all Sailors regardless of age or rank because is amazing how many people I have talked to from O-5 to E-1 have asked me the same thing.

 

[Thisguy]

That said, the TSP can offer you real advantages now, especially if you fall right on a break point between tax brackets. In other words, if you can take 1500$ in funding from a Roth IRA and place it in a TSP or 401k and lower your AGI to the point where you fall into a lower tax bracket, you will likey save that 1500$ or more on your taxes for the year.

Just to clear up something about tax brackets...If you move up to a different bracket, your entire income is not taxed at that level, hence there is no such thing as having a higher gross income, but taking less home because you barely made it into the next tax bracket.

The table at the bottom of this webpage explains it pretty well.

http://www.fairmark.com/begin/bracket.htm

 

[scoober78]

Absolutely correct Thisguy...didn't mean to suggest otherwise...but 2000$ taxed at 25% is still 500$. Never underestimate the power of the tax deduction!

 

[BourneID]

Another thing for you to look at (aimed at married or with dependents) is if your witholding status is still at single, you should change that to Married and 1 or higher, and increase the percentage of your TSP, to the point where your takehome is still the same. The downside is that you won't get a higher tax return though. But would you rather have the chance to earn interest on that money now, or the GOVT having it interest free for a while?

 

[CommodoreMid]

I agree that it should be put out...but that to me is the fault of our financial programs...We just do not do enough in the way of financial education.

Everything I have done was self discovery. We had/have no command briefs (just a 2 minute spiel at indoc). We are totally reactionary when it comes to financial education...ie we don't really do anything about it until one of our sailors has an issue. (wife took all his money, he makes 800 a paycheck yet drives a new caddy, bought a car with 17% interest etc, etc)

I just wish we as a navy took a more active role in financial education. When I am in the position to do so, I am going to make my guys watch the Dave Ramsey Financial Peace University videos...Our command has them...but no one has used them. i have heard that it is an excellent program (I am not endorsing it...)

Anyway Rant Over

That's something I'm really happy with my ROTC unit right now. I'm about to get commissioned and over the past month we've been given two financial briefs on setting up for retirement, etc. I learned a lot I would not have otherwise even thought to ask about, and come May when I get commissioned I know way more about getting myself good to go.

Does anyone else's ROTC unit do something similar?

 

[CaptainRon]

I've been reading Personal Finance for Dummies, 5th Edition. It's a great book that covers all the bases. I'm learning tons. Takes complex topics and writes about them so anybody can understand.

 

[AUtiger]

CommodoreMid, we have a financial brief once a year from USAA about saving for retirement and investing. Also in our Senior Seminar we are having a speaker come and talk to us about finances as a new O-1. I think these are great ideas as I see some of my friends dig themselves into holes with debt and poor choices while in college and as they get out.

This thread actually answered some Questions I had concerning IRAs and TSP.

 

[flynsail]

Hookers and Blow?

When investing, which one do I max out first?

 

[joshmf]

When investing, which one do I max out first?

Well, if you max out on the blow you'll be worthless for the hookers, so definately invest in them first .

 

[FrankTheTank]

Hookers....

Because once blow is gone it is gone but a Hooker can be recycled so to speak. And a Hooker can market, distribute and collect said monies in your investment. Where as, blow requires an additional investment to do those things.. But I think I read one of these threads those investment monies are tax deductable and the Hooker works under the table or something like that?

 

[snake020]

Concur...sorta. If you are only going to do one, Roth is definitely the one you want to fund fully. That said, the TSP can offer you real advantages now, especially if you fall right on a break point between tax brackets. In other words, if you can take 1500$ in funding from a Roth IRA and place it in a TSP or 401k and lower your AGI to the point where you fall into a lower tax bracket, you will likey save that 1500$ or more on your taxes for the year. In essence, the government just matched your funds. Only you can tell however.

I invest in both, but I max out the Roth first. My Roth is a trading account and it's nice to not have to pay taxes on the dividends (which I reinvest in the same stock) or capital gains whenever I sell my holdings.... EVER.

 

[CommodoreMid]

Ok I'm in the process of shopping for a Roth right now and though I understand a lot of the basic principles behind it, ultimately I'm at a loss as to which one to pick. I'm looking at the ones through USAA right now, mainly because I'm lazy and don't feel like managing money at multiple different places, but which ones are generally advisable for the 21 year old Ensign? I know I can afford to go for a riskier plan as I'm young, but what's a good balance with stocks and bonds in it?

 

[Waldo]

Ok I'm in the process of shopping for a Roth right now and though I understand a lot of the basic principles behind it, ultimately I'm at a loss as to which one to pick. I'm looking at the ones through USAA right now, mainly because I'm lazy and don't feel like managing money at multiple different places, but which ones are generally advisable for the 21 year old Ensign? I know I can afford to go for a riskier plan as I'm young, but what's a good balance with stocks and bonds in it?

Part of my Roth funds are invested at USAA (Cornerstone Fund). The returns have been ok, but it's tough to tell in this market.

My kids' 529 plans are with Vanguard, and I've been happy with the returns. Again, it's tough to be super happy with today's market, but it is a great opportunity to buy.

If you are approached by a First Command/USPA&IRA representative, I would look elsewhere.

I am by no means an expert financial planner(nor did I sleep in a Holiday Inn Express last night), but I think the smartest thing you can do is to start now, pay yourself first, and set up automatic deposits.

Best Regards,
Waldo