Author Topic: Maxing out TSP  (Read 7307 times)

bkworm82

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Maxing out TSP
« on: June 14, 2014, 12:43:34 PM »
Hello all,

Maybe this is a dumb question but I've been wondering why I should max out my TSP retirement when I can't touch that money until I am 55 (I am 32 right now)? Also, if I maxed it out, I would come home with roughly a little more than half of my take home pay right now. My husband and I only owe the mortgage and we are actually selling our home in order to buy one that is significantly less so we can save on Home Owner's Assoc payments and PMI, mainly.

Right now I am putting 10% into the TSP, the gov't matches up to 5%.

Thanks for your help!

noblewolf

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Re: Maxing out TSP
« Reply #1 on: June 14, 2014, 05:14:07 PM »
It depends how much you need when you retire.  You should go to the TSP  website calculator and put your inputs.  How much you currently have, putting in, for how long and expected return.  It should give a total expected retirement amount when you turn 55.  If the calculation is too low, then increase your monthly percentage and vice versa.  Check out L2040 since you are able to get money out at 55.  I suggest keep putting in at least 5 percent to get the match once you have reached the amount you need for retirement.

Dr. Doom

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Re: Maxing out TSP
« Reply #2 on: June 14, 2014, 05:31:09 PM »
You can avoid paying taxes on money contributed to your TSP, which is the primary reason to stash as much as you can in that account.

You can roll from TSP to Traditional IRA once you quit. 
https://www.tsp.gov/planparticipation/withdrawals/requestingWithdrawal.shtml

Once you have money in the traditional IRA, you can backdoor convert to Roth.  This is a taxable event so it's really best done in chunks, maybe a 20K block per year or so, this will keep you in the lower brackets and you'll save thousands of dollars -- the exact amount will depend on your filing status and how quickly you need to move the cash to make it accessible.

For more info, check the The Mad Fientist who shows how to do this.

A quick bit of googling also turned up this blog which seems to validate that this plan will work.


I'm not a CPA, you might want to call your TSP account rep and make sure that you can do this.

Nords

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Re: Maxing out TSP
« Reply #3 on: June 14, 2014, 08:05:05 PM »
Hello all,

Maybe this is a dumb question but I've been wondering why I should max out my TSP retirement when I can't touch that money until I am 55 (I am 32 right now)? Also, if I maxed it out, I would come home with roughly a little more than half of my take home pay right now. My husband and I only owe the mortgage and we are actually selling our home in order to buy one that is significantly less so we can save on Home Owner's Assoc payments and PMI, mainly.

Right now I am putting 10% into the TSP, the gov't matches up to 5%.

Thanks for your help!
How long are you planning to live?  Right now the TSP is 23 years away from you, but you may be withdrawing from it for at least three-four decades...

Here's some reasons to invest in the TSP:
- Maximize your match from the govt (which you're already doing-- smart move)
- World's largest index funds with the world's lowest expense ratios (even lower than Vanguard)
- The "G" fund (essentially a stable guaranteed return fund) for some asset allocations
- You can only contribute to the TSP while you're employed in the federal govt or the military.  Once you leave that employment then you can no longer contribute.

As Dr. Doom pointed out, you can avoid taxes now (by contributing to the conventional TSP) and then roll over/convert during your ER when your income tax bracket is much lower.  Or, if you expect that you'll be in a higher tax bracket in retirement, you can avoid taxes completely by contributing to the Roth TSP.

As you approach financial independence, it's fairly straightforward to save up additional funds in taxable accounts to bridge the gap between the time your reach FI and the age of 55.  There are ways to tap your TSP funds for emergencies, and you can also tap your Roth IRA contributions at any time free of taxes or penalty.  You can also withdraw from your TSP via "substantially equal periodic payments" (a complex scheme known as 72(t) for the applicable IRS code) or via a Roth IRA conversion ladder:
http://the-military-guide.com/2014/03/20/early-withdrawals-from-your-tsp-and-ira-after-the-military/

You have plenty of other ways to bridge the financial gap between FI and age 55.  Why not take advantage of the TSP's benefits while you can?

bkworm82

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Re: Maxing out TSP
« Reply #4 on: June 17, 2014, 12:46:13 PM »
Thanks all for your advice. I am going to crunch numbers when I get home today and see what I can do.