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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: ahmahzahn on July 09, 2015, 04:36:59 PM

Title: Reader Case Study - Military Case Study
Post by: ahmahzahn on July 09, 2015, 04:36:59 PM
Hey everyone, first post here!

So over the last 3.5 weeks I've read every post from the blog and suffice it to say my eyes were opened wide.  I was turned onto the blog after reading some stuff on r/financialindependence, which in turn was inspired by looking at my spending from May, which was $5,000, $2,000 more than I make a month. 

I'm 25, no dependents, live in AZ but file taxes in WA (no state income tax).

I am in the military, currently an E-5 in the Navy and next June I'll receive a commision, which includes a healthy pay raise.  I've done a bit of searching on these forms and on the-military-guide.com to get some sort of idea of what I should be doing with my money, but I just wanted some first person advice if you guys don't mind.

On to the numbers: (monthly)
Gross Income - $3,938 ($467.80 in taxes, 8.00 in SGLI Life insurance)
Net Income - $3,462.2 ($2,580 taxable)
Rental income - ~$550, includes $325 for a room in my house and half of utilities/supplies
Roth TSP (401(k)) contribution - $645 (just upped this month from $387)
Mortgage - $504 (3% interest, 45k left, 65k estimated value)
Car/insurance/Gas - $520/mo, leased (I'm punching myself in the face, don't worry) lease expires in early 2017, will be selling it back to the dealership and getting a practical car off craigslist with cash (20 is for gas)
TV/Internet - $145, roommate would leave without cable, otherwise I would cancel it (also non-negotiable)
Phone - $106, one year left on contract, then moving to Cricket for $30ish a month
Gas/Water/Electric - $100 for my share, working on reducing electrical consumption
Spotify - $6
Gym - $50 (I go to the university gym for free for weights, but attend unlimited yoga for the next few months while my shoulder regains mobility after a surgery)
Groceries - $300 (soylent, might move to a DIY recipe for a $150 savings/month and stuff for my dog)
Restaurants/Entertainment - $250 (for dates with girlfriend/movies/parties/mandatory balls)
Discretionary - $400 (for whatever comes up, pump for the bike, lead for pencils, whatever, most of this will hopefully go into savings)

So $2,776  spoken for, apparently $1,236 unspoken for

Assets
$5,500 in a wealthfront Roth IRA (maxed out for this year) (90% various vanguards, 5% corporate bonds and 5% emerging markets)
$5,000 in a wealthfront taxable account (90% various vanguards, but 5% municipal bonds and 5% natural resourses)
$8,600 in my TSP (2050 lifecycle fund)

No credit card debts
Student Loans - $9,000 (4% deferred interest until next June)
$25,000 loan at 3.0% interest
That's pretty much all I can come up with.  What I'm looking for is recommendations on what to do with the money remaining at the end of the month, whether I should increase my contribution to TSP, decrease it and increase my taxable account contribution?  Basically any advice you can give me on where I should allocate my assets, and where I should be putting any additional assets that are available to me.

It's also important to note that next June I will be losing my rent income, selling my home and getting a $1,400/mo pay raise.  I am also getting a $15,000 bonus in the next couple of months, and right now I have 60% earmarked for the Roth TSP (the max allowed) and am not sure what to do with the rest.

Any help at all is very appreciated, please let me know if I should include anything else, I tried to list everything I could think of.

Edit: I also bike to school/work everyday, my car probably sees <40 miles/month
Title: Re: Reader Case Study - Military Case Study
Post by: Jeremy E. on July 09, 2015, 04:54:48 PM
I recommend putting more into TSP because it has tax benefits that a taxable account doesn't have. I'd also consider switching to non-Roth(Traditional) starting January, to reduce your taxes. You might even consider switching prior to that. If you max out your TSP, start putting excess money into taxable account. For your budget, I would consider changing "Discretionary" to "Emergency Fund" get that up to 3 months of your spending and then start putting that money into savings instead. You can buy lead for pencils etc. out of your Groceries budget. When you get your raise, try not to let it inflate your spending. Good Luck!
Title: Re: Reader Case Study - Military Case Study
Post by: ahmahzahn on July 09, 2015, 05:19:13 PM
Hmm, okay.  I'm confused about the tax savings that moving to a traditional retirement account would give me.  Right now I usually get between $800 and $3,000, depending on whether or not I'm in school, come tax season.  Would switching grant me more money?  I'm also a little confused about the benefits of Roth vs traditional. I believe it to be that if you think taxes are going to go up over time, or if you are going to retire in a lower tax bracket that you should put money in a Roth.  However, I'm probably going to retire in a similar tax bracket that I'm currently in (but I'm 25 and still a long ways from retirement, also don't know how marriage will change any of that.)
 I do have around 5k in a checking account, just to cover whatever bills are due each month and to act as an emergency, I could increase that to 6k next paycheck to act as my 'emergency fund', but since I'm in the military my pay is pretty much guaranteed.  Even if I were to get kicked out unexpectedly (I have 6 years left on contract) it would likely take over 45 days just to process me.  Plus my taxable account can be leveraged for an emergency as well if I really need it.   I guess what I'm trying to say is that whatever is left over at the end of each month, along with what is left in 'discretionary' will go into my taxable.  I could play around with increasing my TSP amount little by little, to make sure that I have enough left for expenses, but once it's contributed it's basically gone.
Title: Re: Reader Case Study - Military Case Study
Post by: MDM on July 09, 2015, 06:03:46 PM
I'm confused about the tax savings that moving to a traditional retirement account would give me.  Would switching grant me more money?
Your tax bill for the year will be lower if you contribute to a traditional account instead of a Roth.

Quote
I'm also a little confused about the benefits of Roth vs traditional. I believe it to be that if you think taxes are going to go up over time, or if you are going to retire in a lower higher tax bracket that you should put money in a Roth.  However, I'm probably going to retire in a similar tax bracket that I'm currently in (but I'm 25 and still a long ways from retirement, also don't know how marriage will change any of that.)
Don't know if that was a typo or a misunderstanding, but see the edit above.
At 15% marginal now, and if that is what you expect in retirement, there is a good chance that "some of each" will end up being best for you. 
Remember the "higher tax bracket in retirement favors Roth"?  Well, the more you have in Roth the lower your retirement tax bracket will be (because withdrawals are not taxed).  Conversely, the more you have in traditional the higher your retirement tax bracket will be (because withdrawals are taxed).

Quote
I do have around 5k in a checking account, just to cover whatever bills are due each month and to act as an emergency, I could increase that to 6k next paycheck to act as my 'emergency fund', but since I'm in the military my pay is pretty much guaranteed.  Even if I were to get kicked out unexpectedly (I have 6 years left on contract) it would likely take over 45 days just to process me.  Plus my taxable account can be leveraged for an emergency as well if I really need it.   I guess what I'm trying to say is that whatever is left over at the end of each month, along with what is left in 'discretionary' will go into my taxable. 
That seems reasonable.

One thing: your "miscellaneous" is ~21% of your non-mortgage, non-tax expenses.  If you are serious about expense reduction, you'll want to examine those items more closely.

Good luck!
Title: Re: Reader Case Study - Military Case Study
Post by: Jeremy E. on July 09, 2015, 06:07:31 PM
Hmm, okay.  I'm confused about the tax savings that moving to a traditional retirement account would give me.  Right now I usually get between $800 and $3,000, depending on whether or not I'm in school, come tax season.  Would switching grant me more money?  I'm also a little confused about the benefits of Roth vs traditional. I believe it to be that if you think taxes are going to go up over time, or if you are going to retire in a lower tax bracket that you should put money in a Roth.  However, I'm probably going to retire in a similar tax bracket that I'm currently in (but I'm 25 and still a long ways from retirement, also don't know how marriage will change any of that.)
 I do have around 5k in a checking account, just to cover whatever bills are due each month and to act as an emergency, I could increase that to 6k next paycheck to act as my 'emergency fund', but since I'm in the military my pay is pretty much guaranteed.  Even if I were to get kicked out unexpectedly (I have 6 years left on contract) it would likely take over 45 days just to process me.  Plus my taxable account can be leveraged for an emergency as well if I really need it.   I guess what I'm trying to say is that whatever is left over at the end of each month, along with what is left in 'discretionary' will go into my taxable.  I could play around with increasing my TSP amount little by little, to make sure that I have enough left for expenses, but once it's contributed it's basically gone.
http://www.madfientist.com/traditional-ira-vs-roth-ira/
http://jlcollinsnh.com/2012/05/30/stocks-part-viii-the-401k-403b-ira-roth-buckets/
http://www.gocurrycracker.com/roth-sucks/
Read The blog posts above, if you only want to read one, i recommend the madfientist one.
I'm not trying to say you need a big E-Fund, but that you should save that discretionary fund rather than spend it. I recommend maxing TSP
Title: Re: Reader Case Study - Military Case Study
Post by: ahmahzahn on July 10, 2015, 01:07:58 AM
Okay, I just finished up all three articles.  The second link (and I think the third) say to contribute to Roth if you currently don't pay income taxes, which I don't think I do as I get a refund every year (not trying to be sarcastic, I actually don't know if getting a refund implies that.)

So would it be wise to open up a traditional IRA, contribute to that instead of my Roth, and change my TSP contributions to traditional as well, in order to perform the conversion tax free as outlined in the first link?  Can I contribute $5,500 to both a traditional and a Roth IRA?

Here's a quote from this http://the-military-guide.com/2012/03/19/is-the-roth-thrift-savings-plan-right-for-you/ (http://the-military-guide.com/2012/03/19/is-the-roth-thrift-savings-plan-right-for-you/) article: Most military compensation is already lightly taxed. Military base pay is lower than its civilian equivalent because total compensation includes tax-free allowances and other non-cash benefits. For most of the military, contributing tax-free to the TSP now doesn’t actually save very much in taxes. Of course you’d want to revisit this situation when you’re promoted to E-7 or O-4.
which makes me hesitate a bit.

Thaks again for all your help.
Title: Re: Reader Case Study - Military Case Study
Post by: ShoulderThingThatGoesUp on July 10, 2015, 06:38:24 AM
Getting a refund doesn't imply that you don't pay income taxes. It just means you're withholding too much. If I withheld 50% of my salary I'd get a giant refund, but I'd still pay taxes.
Title: Re: Reader Case Study - Military Case Study
Post by: MDM on July 10, 2015, 09:36:47 AM
Okay, I just finished up all three articles.  The second link (and I think the third) say to contribute to Roth if you currently don't pay income taxes, which I don't think I do as I get a refund every year (not trying to be sarcastic, I actually don't know if getting a refund implies that.)
Did you use Form 1040 to file your 2014 taxes?  If so, what was line 63?  That is the amount of federal tax you paid.

Quote
So would it be wise to open up a traditional IRA, contribute to that instead of my Roth, and change my TSP contributions to traditional as well, in order to perform the conversion tax free as outlined in the first link?  Can I contribute $5,500 to both a traditional and a Roth IRA?
If you actually don't pay income tax, then keep contributing to the Roth accounts as those links suggest.
Title: Re: Reader Case Study - Military Case Study
Post by: libertarian4321 on July 10, 2015, 11:57:37 AM
It's been 20+ years since I left the active duty military (I feel so old), but I vaguely recall some sort of program that would help soldiers (or even seamen :) ) pay off college loans they had incurred outside of any military program (e.g. if you incurred the costs before entering the military OR if you did civilian education at you own expense while in the military).

Like I said, my information is vague and outdated, but it might be worth talking to someone at your base education center about help with paying off those student loans.  This is assuming that you didn't already get Tuition Assistance of some sort from the Navy. 
Title: Re: Reader Case Study - Military Case Study
Post by: ahmahzahn on July 10, 2015, 05:24:58 PM
To MDM - I filed form 1040A, so there is no line 63.  But in line 39 (which I think is the equivalent, "total tax") it says $463.  Does this mean that if I were to have invested $463 in a traditional tsp last year that I would have paid 0 taxes?

to libertarian - They certainly still have loan forgiveness programs, but they don't apply to me.  I'm going to school right now on the military's dime in order to get a commission, so any loans I took out were because I was being stupid with money and wanted too many fancy things that I couldn't afford.

Title: Re: Reader Case Study - Military Case Study
Post by: MDM on July 10, 2015, 05:58:15 PM
To MDM - I filed form 1040A, so there is no line 63.  But in line 39 (which I think is the equivalent, "total tax") it says $463.
Yes, this is the equivalent line.

Quote
Does this mean that if I were to have invested $463 in a traditional tsp last year that I would have paid 0 taxes?
Assuming the TSP works the same as a 401k, the amount you invest there never makes it to the 1040A at all.  It gets subtracted from your gross wages and the difference is reported on your W-2, which you then enter on line 7 of the 1040A.

I'm guessing you don't have many non-zero entries on your 1040A.  In that case it shouldn't be too complex for you to put your 1040A entries on a spreadsheet of your own.  You can test your calculations by using your 2014 numbers.  Then copy those entries one column to the right and you are in good shape to predict your 2015 taxes.  You could add a calculation that starts with gross income, subtracts whatever TSP amount you choose, and puts the difference in the cell used for "1040A line 7" in your spreadsheet.

After you do that, you should be able to answer the $463 question yourself.  Let us know if you think the answer is "yes, because _______" or "no, because ______" and we can confirm or correct as needed.
Title: Re: Reader Case Study - Military Case Study
Post by: Jeremy E. on July 10, 2015, 06:44:16 PM
To MDM - I filed form 1040A, so there is no line 63.  But in line 39 (which I think is the equivalent, "total tax") it says $463.  Does this mean that if I were to have invested $463 in a traditional tsp last year that I would have paid 0 taxes?

to libertarian - They certainly still have loan forgiveness programs, but they don't apply to me.  I'm going to school right now on the military's dime in order to get a commission, so any loans I took out were because I was being stupid with money and wanted too many fancy things that I couldn't afford.
Here is the tax bracket, the standard deduction is $6,300. Your taxable income is what is taxed. Every $ you put into Traditional TSP will reduce your taxable income.
If you make $50,000, subtract the standard deduction of $6,300, you get $43,700, I think you also subtract a $4,000 personal exemption, making it $39,700. So plugging that into this chart, you would pay $5,156.25 + 25% of $2,250 = $5,718.75
If you put $18,000 into the TSP you would bring that $39,700 down to $21,700 and only pay $922.50 + 15% of $12,475 = $2,793.75
$5,718.75 - $2,793.75 = $2,925 savings in current taxes
Money you put into your TSP will be taxed later, however hopefully when you take it out you will be in a lower tax bracket and you will pay less in taxes.
This is pretty basic and I may have left something out, but it gets the basic idea accross.
Good Luck!
Title: Re: Reader Case Study - Military Case Study
Post by: ahmahzahn on July 11, 2015, 02:02:48 AM
Okay, so my adjusted gross income is 26,286, standard deduction 6,200, personal exemption 3,950, leaving 16,136 as taxable income.
I have something that is just labeled 'tax, including any alternative minimum tax' (on line 28 of the 1040A) with a value of 1,965 and an educational credit of 1,500, leaving the 465 total tax. I also have a 1,000 american opportunity credit.
From what I understand from all of your help: I will pay 922.50 + .15 * (16,136-9,225), or 1,959.15 in taxes.  So, if I just contributed 6,911 (16,136-9225) I would drop that number to 922.50, a little over a thousand dollars less than I paid last year.  And, of course, if I contributed 16,136 I would pay 0. 
Hopefully all that's right, it seems to be based on my interpretation of what you all have posted...It seems like I could contribute the full 16,136 into a traditional plan and then 1,864 into a Roth for maximum benefit?
Now, if I did that would I be still get the educational tax credits, pay no income tax, but not get the saver's tax credit.  Are the credits I receive taxable? And would I save money on those taxes if I contributed more to the traditional retirement account? When I'm out of school I can continue to calculate how much I need to contribute to pay 0 in income tax and also get the saver's tax credit.
This is all getting a lot clearer for me, thanks for the helpful tidbits and nudging... let me know if I've screwed up anything in my analysis!
Title: Re: Reader Case Study - Military Case Study
Post by: Jeremy E. on July 11, 2015, 02:54:02 PM
Okay, so my adjusted gross income is 26,286, standard deduction 6,200, personal exemption 3,950, leaving 16,136 as taxable income.
I have something that is just labeled 'tax, including any alternative minimum tax' (on line 28 of the 1040A) with a value of 1,965 and an educational credit of 1,500, leaving the 465 total tax. I also have a 1,000 american opportunity credit.
From what I understand from all of your help: I will pay 922.50 + .15 * (16,136-9,225), or 1,959.15 in taxes.  So, if I just contributed 6,911 (16,136-9225) I would drop that number to 922.50, a little over a thousand dollars less than I paid last year.  And, of course, if I contributed 16,136 I would pay 0. 
Hopefully all that's right, it seems to be based on my interpretation of what you all have posted...It seems like I could contribute the full 16,136 into a traditional plan and then 1,864 into a Roth for maximum benefit?
Now, if I did that would I be still get the educational tax credits, pay no income tax, but not get the saver's tax credit.  Are the credits I receive taxable? And would I save money on those taxes if I contributed more to the traditional retirement account? When I'm out of school I can continue to calculate how much I need to contribute to pay 0 in income tax and also get the saver's tax credit.
This is all getting a lot clearer for me, thanks for the helpful tidbits and nudging... let me know if I've screwed up anything in my analysis!
I wasn't sure if you were correct when you said you paid 465 total tax, but that's not very much at all. If you think it's going to be the same next year I'd keep contributing to Roth. Depending on how big your raise is, if you'll still get an eductaional credit, you might consider traditional, but it's just math and figuring out how much you'll need in retirement
Title: Re: Reader Case Study - Military Case Study
Post by: Nords on July 11, 2015, 04:57:44 PM
Welcome to the board, Ahmahzahn, and congratulations on your commission!  What's next after that?

Okay, I just finished up all three articles.  The second link (and I think the third) say to contribute to Roth if you currently don't pay income taxes, which I don't think I do as I get a refund every year (not trying to be sarcastic, I actually don't know if getting a refund implies that.)

So would it be wise to open up a traditional IRA, contribute to that instead of my Roth, and change my TSP contributions to traditional as well, in order to perform the conversion tax free as outlined in the first link?  Can I contribute $5,500 to both a traditional and a Roth IRA?

Here's a quote from this http://the-military-guide.com/2012/03/19/is-the-roth-thrift-savings-plan-right-for-you/ (http://the-military-guide.com/2012/03/19/is-the-roth-thrift-savings-plan-right-for-you/) article: Most military compensation is already lightly taxed. Military base pay is lower than its civilian equivalent because total compensation includes tax-free allowances and other non-cash benefits. For most of the military, contributing tax-free to the TSP now doesn’t actually save very much in taxes. Of course you’d want to revisit this situation when you’re promoted to E-7 or O-4.
which makes me hesitate a bit.
Clearly I'm biased, but I can refer you to a CFP who will give you the same advice for free:  I'd stick with the Roth TSP and your Roth IRA.

You're lightly taxed (due to a combination of lower taxable pay, untaxed allowances, and tax credits).  When you pay that tax now (by contributing to the Roth TSP and your Roth IRA) then you pay taxes in a low bracket.  With a little financial gymnastics you could contribute to the traditional TSP and eliminate your tax bill entirely.  But then you'd be counting on later (after you stop working) transferring your traditional TSP to a traditional IRA and doing a Roth IRA conversion.  Even "worse" (especially with a military pension and a bridge-career paycheck), you might end up finding yourself doing a Roth IRA conversion in the same tax bracket that you're in now.  That's currently happening to my spouse and me.

CFP Rob Aeschbach at MilitaryFinancialPlanner.com has advised hundreds of servicemembers on their finances (or debts).  He points out nearly every day to a client that the average E-6 earns the rough equivalent of $70K/year and pays almost zero in taxes... and that's with zero effort.  You could exert some additional effort now to drop your tax bill to zero, and you could exert more effort later to convert those tax-deferred accounts, but you might be slaving away at the project for less than minimum wage.  You're probably better off studying or exercising or some other form of self-improvement.

However you've already noted the percentage limit on your Roth TSP contributions.  You'd expect to be able to contribute at least $1500/month to the Roth TSP, but I've heard numerous reports that the MyPay limits the percentage contribution.  Maybe they'll fix that someday, or maybe that's deliberate, but if you want to max your annual TSP contributions then you might have to contribute some of that $1500/month to the traditional TSP. 

So I'd focus on maximizing your TSP contributions (ideally Roth TSP but traditional TSP as necessary) and Roth IRA contributions.  As all of those links have noted, you can tap the Roth IRA contributions anytime and you can access the TSP before age 59.5 with a little advance planning.

The student loans:  if they're from a federal program then you may be eligible for Public Service Loan Forgiveness:
http://the-military-guide.com/2013/01/10/will-the-military-pay-off-your-student-loans/

The $25K loan at 3%:  I'd be tempted to amortize that at its minimum payment for the life of the loan.  You have a steady paycheck and you're essentially borrowing money at 3% to invest it aggressively (mostly in equities) for after-tax returns of at least 3%.  But you also have to sleep comfortably at night, so you might want to take the leftover $10K from your bonus and throw it at either the student loan or this loan.  But make sure you understand Income-Based Repayment and PSLF, and make sure you invest in at least 80% equities.  I'm picking up the impression that you're already doing it with your asset allocation.

No worries when you're spending $250/month on entertainment, but hopefully your girlfriend has the same Mustachian ambitions as you.  Or just have fun and be prudent about those spouse upgrades.

Speaking of "mandatory fun":  Unless we had a great wardroom and my spouse wanted to go to an event like the Navy Ball, I usually volunteered for the duty.  Everybody thought I was a great guy, but the reality was that I got double bonus points for the watchbill, the duty section usually had holiday routine (because everyone else was at the party), and both the CO/XO (as well as my spouse) were relieved that I was not at the party.  Plus if the CO (or anybody else) got picked up on a DUI, the XO knew that I'd be able to handle the appropriate reports in a timely and professional manner...
Title: Re: Reader Case Study - Military Case Study
Post by: Sailor Sam on July 11, 2015, 05:51:28 PM
Hi Ahmahzahn, I don't have any advice about money that hasn't already been explained by my betters. Just posting to say welcome. Congratulations on your commission. Once you finish school will you be going the DCO route, or straight up OCS?
Title: Re: Reader Case Study - Military Case Study
Post by: ahmahzahn on July 11, 2015, 06:39:48 PM
Sailor Sam - I'm actually stationed at an NROTC unit right now, so I'll be receiving my commission via that path. I was stationed up in Rhode Island for a bit, so I'm thankful I don't have to go through OCS, haha.

Nords - Thank you very much for the reply, it seemed like all of my forum searching before I posted led to answer provided by, or quoted from, you.  I appreciate the time you take to help all the TSP guys out, especially shipmates!

I was an ETn and got picked up for STA-21 (probably BOOST in your days?) and am going back to the fleet as a sub officer, assuming my interview at NR on Thursday goes smoothly anyway.

With the percentage limit to my Roth TSP contribution being set to a pretty low maximum (is there  a reason no one here actually says the number? Is that not allowed or something) I can actually contribute $1,548/mo (hitting the 18k cap by years end) if I max it out.  Knowing my E-5 base pay I guess you estimate what that max percentage is if I'm not supposed to say it or something.  Anyway, this year I won't be able to max it out each month, but with the bonus coming up I will still hit my yearly max for the first time(woohoo!)

As for the student loans - as noted above, unfortunately, I took out loans while in active duty (two years ago when I first got stationed at a university) so I don't believe there will be any sort of program to repay those back for me. 

I failed to mention in my original post, but the 25k loan is the commissioning loan offered by USAA, so I took that out on purpose just a few months ago, understanding that the 3% rate should be below my return on investment.  So that's how I opened the wealthfront account, and completely paid off some unsub loans as well.  I have the same philosophy for my mortgage too... I'd rather invest the money that I could throw at the principal each month, and see better returns than the guaranteed 3% that my mortgage is!

The girlfriend has a lot more natural mustachian tendencies than I do, so no worries on that front!  And great advice about taking watches on mandatory fun days, never thought of that!
Title: Re: Reader Case Study - Military Case Study
Post by: Nords on July 11, 2015, 08:01:50 PM
Nords - Thank you very much for the reply, it seemed like all of my forum searching before I posted led to answer provided by, or quoted from, you.  I appreciate the time you take to help all the TSP guys out, especially shipmates!
You're welcome!

I was an ETn and got picked up for STA-21 (probably BOOST in your days?) and am going back to the fleet as a sub officer, assuming my interview at NR on Thursday goes smoothly anyway.
You were a nuke ET and you're still going submarines?  Clearly you've learned nothing.  Just kidding!  I think.

I remember BOOST being around long before I joined the Navy and up through the 1990s, but I don't know whether it still exists.  STA was started in the mid-90s, then it became STA-21, and I retired in 2002. 

Just to give you some perspective for this Thursday, when you're sitting in front of that four-star geezer John Richardson himself, tell him I said "Hey."  He and I are USNA '82 classmates, and 33 years ago we had our NR interviews with ADM Rickover.  Last year after my daughter interviewed with John, he sent my spouse and I a very nice thank-you note.  (ADM Rickover never indulged in such social nonsense.)  I thought John was ditching that high-stress NR job for a bigger office with a better view, but I guess he hasn't evicted Greenert yet. 

If you haven't already heard enough NR interview advice, my daughter recommends practicing the entire route from your hotel to the NR offices on the day before the interview.  (You and about 50 other mids!)  On the morning of the interview, start the Metro trip a couple hours early in case of rush-hour delays.  If you're early then you can hang out at a Starbucks, try to look casual in your cool summer whites, and imagine that nobody knows why you're loitering so close to NR.  You may have to surrender your cell phone at the NR entrance, so consider labeling it or giving it a distinctive case to pick it out from the other 100 phones in the pile.  Last year one guy had a yellow/magenta trefoil sticker on his cell phone, and NR had absolutely no sense of humor about it.

My daughter was accepted into the program-- after she recovered from a couple of weak spots on the written exam and a flubbed verbal interview followed by a bonus round.  The admiral has the staff's index-card summary on his desk during your interview with him, so he'll know more of the details than you.

She said he's also a Sherlock Holmes fan-- both the Doyle books and the BBC TV series. 

The best advice is to try to relax (good luck with that) and show all of your work as you're stumbling through the problem-solving technique.  They're more interested in your method than in your answer.  The NR staff do thousands of these interviews every year and they're very good at detecting your potential, even if you're not displaying it. 

Many of the military officers at NR wear civilian clothes.  You never know who you're talking with, and they could be an O-5 (maybe even your next CO) or an O-6.  The staff also design the equipment and write the procedures in the RPMs.  Even if the guy you're interviewing with is a long-haired hippie freak, he may have been the design engineer on the S9G reactor protective system electronics and he may think that human operators are 95% of "his" equipment failures.  Try to avoid getting suckered into talking snark about submarine design deficiencies... I'm sure your NROTC nuke LT has a similar story about his NR Engineer's exam.

With the percentage limit to my Roth TSP contribution being set to a pretty low maximum (is there  a reason no one here actually says the number? Is that not allowed or something) I can actually contribute $1,548/mo (hitting the 18k cap by years end) if I max it out.  Knowing my E-5 base pay I guess you estimate what that max percentage is if I'm not supposed to say it or something.  Anyway, this year I won't be able to max it out each month, but with the bonus coming up I will still hit my yearly max for the first time(woohoo!)
I think the reason we don't say the number is because we military personal finance bloggers haven't figured it out yet.  It's either 60%, or 62.5%, or 65%.  It seems to be based on withholding 7.45% for FICA, another 20% for federal income tax, and maybe some more for state taxes-- but we haven't found a reference yet.  We're all willing to believe that DFAS and TSP are still debugging their computer systems.  But while we figure it out, good job on maxing out your contribution!  My daughter is still mightily annoyed that she got the $15K bonus before her TSP account was established.

As for the student loans - as noted above, unfortunately, I took out loans while in active duty (two years ago when I first got stationed at a university) so I don't believe there will be any sort of program to repay those back for me. 
Agreed, you might not be eligible for either IBR or PSLF.  The answers could be on your lender's or processor's website.

I failed to mention in my original post, but the 25k loan is the commissioning loan offered by USAA, so I took that out on purpose just a few months ago, understanding that the 3% rate should be below my return on investment.  So that's how I opened the wealthfront account, and completely paid off some unsub loans as well.  I have the same philosophy for my mortgage too... I'd rather invest the money that I could throw at the principal each month, and see better returns than the guaranteed 3% that my mortgage is!
You're in good shape.  You'll also enjoy Spencer Reese's posts on the tactic:
http://the-military-guide.com/2012/12/19/guest-post-wednesday-how-to-smartly-use-the-usaa-career-starter-loan/
http://militarymoneymanual.com/usaa-career-starter-loan-paid-off-2-years-early/
http://militarymoneymanual.com/seasoned-army-lt-wants-to-invest-in-real-estate-with-usaa-loan/

The girlfriend has a lot more natural mustachian tendencies than I do, so no worries on that front!  And great advice about taking watches on mandatory fun days, never thought of that!
You'll be the wardroom JORG for a couple of years, so you'll be "voluntold" for the duty anyway...
Title: Re: Reader Case Study - Military Case Study
Post by: MDM on July 13, 2015, 07:16:13 PM
Okay, so my adjusted gross income is 26,286

From OP:
Gross Income - $3,938 ($467.80 in taxes, 8.00 in SGLI Life insurance)
Net Income - $3,462.2 ($2,580 taxable)
Rental income - ~$550, includes $325 for a room in my house and half of utilities/supplies
Roth TSP (401(k)) contribution - $645 (just upped this month from $387)
An AGI of 26,286 doesn't correspond to $47,256 gross income unless you have ~$21K in deductions or (as you noted in post #5) some of that income is not taxable.  That doesn't even include the $6600 in rental income....

For the purposes of this post, let's assume the $26,286 AGI is correct.

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standard deduction 6,200, personal exemption 3,950, leaving 16,136 as taxable income.
Those were your 2014 numbers.  For 2015 it will be $6,300 and $4,000, so for the same AGI the taxable income will be $15,986.

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I have something that is just labeled 'tax, including any alternative minimum tax' (on line 28 of the 1040A) with a value of 1,965 and an educational credit of 1,500, leaving the 465 total tax. I also have a 1,000 american opportunity credit.
Yes, $1,965 is the 2014 number for $16,136 taxable income.

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From what I understand from all of your help: I will pay 922.50 + .15 * (16,136-9,225), or 1,959.15 in taxes.
Yes, you have the right idea.  As noted above your taxable income will be $15,986 so you will pay ~922.5 + .15*(15986-9225) or ~$1,937.  The actual number may differ by a few dollars because the IRS calculates the tax in $50 income increments, but 1,937 is certainly close enough. 

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So, if I just contributed 6,911 (16,136-9225) I would drop that number to 922.50, a little over a thousand dollars less than I paid last year.  And, of course, if I contributed 16,136 I would pay 0.
Other than the 2014 vs. 2015 amounts I think you had all the concepts in previous quotes correct.  Here you probably do also, although it's not as clear.  Yes, contributing $6761 in 2015 would drop your "line 28 tax" to $922.50, but that is still more than you paid last year - due to the credits you received.
 
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Hopefully all that's right, it seems to be based on my interpretation of what you all have posted...It seems like I could contribute the full 16,136 into a traditional plan and then 1,864 into a Roth for maximum benefit?
Now, if I did that would I be still get the educational tax credits, pay no income tax, but not get the saver's tax credit.  Are the credits I receive taxable? And would I save money on those taxes if I contributed more to the traditional retirement account? When I'm out of school I can continue to calculate how much I need to contribute to pay 0 in income tax and also get the saver's tax credit.
This is all getting a lot clearer for me, thanks for the helpful tidbits and nudging... let me know if I've screwed up anything in my analysis!
To know for sure, you'll have to run the numbers in detail.  If you used TaxAct, TurboTax, or similar for 2014 you could take that file, save it under another name (e.g., "2015 estimate") and look at different scenarios there.

As the discussion in http://forum.mrmoneymustache.com/taxes/best-paycheckwithholding-calculator(s)/msg726237/#msg726237 indicates, your situation, while simple enough to use 1040A, is complex in its own way.  Note this quote from that link:
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taxcaster and the case study spreadsheet both have holes: taxcaster does not calculate the saver's credit, and may not handle passive income (from rentals) well.  The case study spreadsheet does not calculate the child/dependent care credit, nor any education credits, nor SS benefit taxation (probably not a big hole for the MMM audience), etc.  The spreadsheet does do the saver's, child tax, and earned income credits.
Your situation includes each of the bolded items.

In any case, best wishes for success as you go forward.  If you do have more specific questions, filling out the case study spreadsheet (http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/msg274228/#msg274228) would help clarify things - and maybe provide incentive for us to improve its education credit handling, etc., if that would be worthwhile.