FIRE before 59.5 with all money in a TSP?

[Scubatoad]

Hey guys,

I have been hanging around for the past few months really trying to grasp a lot of the concepts. 

I recently fully understood the benefit of putting my investments into my TSP (Thrift Savings Plan - I am Military) instead of my regular Vanguard account because of the tax breaks. 

I have begun trying to max out my TSP Roth, which I think is 17.5K a year instead of putting that money into my Vanguard account as I was doing before. 

It is my understanding that I can take loans out from my TSP, but they must be payed back into the TSP (and this is only while you are active duty, because the payments have to come straight out of your paycheck).  Otherwise, I cant touch the money until I am 59.5. 

If you want to reach financial independence before 59.5, how are you expected to draw money out from this account before then to live off of?

Is this the same for other typed of tax shielded accounts like 401K?

[matchewed]

I'm assuming you can take your TSP when you leave and roll it over to an IRA account with similar tax treatment (Roth vs. Traditional) correct?

If it is a traditional account you can safely pull in some money as long as your income is low and you'd pay a 10% penalty plus any taxes. Alternatively you can roll it over to the IRA and then start the Roth IRA Pipeline where you convert your IRA in small increments to a Roth IRA paying small amounts of income tax on it and then wait five years to access it tax and penalty free.

If it is a Roth account I believe it would have to season for five years before you could access it. After that five year period that money should be accessible.

[Scubatoad]

Yes, it can be rolled over to an account with similiar treatment.

I had heard the term ROTH IRA PIPELINE before, but was not sure what it was in reference to. 

Will have to do some digging to look at those exact numbers to understand how that process works.

I am guessing this forum reccomends that process over a taxable account through Vanguard because of the long term tax benefits outwieght the small fees?

[ak907]

Yes, it can be rolled over to an account with similiar treatment.

I had heard the term ROTH IRA PIPELINE before, but was not sure what it was in reference to. 

Will have to do some digging to look at those exact numbers to understand how that process works.

I am guessing this forum reccomends that process over a taxable account through Vanguard because of the long term tax benefits outwieght the small fees?

First Roth Laddering, see get the best of both world section specifically, but read the whole thing:
http://www.madfientist.com/traditional-ira-vs-roth-ira/

Second, keep in mind with your TSP both TSP traditional and Roth contributions are limited by the same 17,500 limit. Which you do depends on factors like do you think you will earn more money in retirement, and how much if at all you expect the tax rate for your tax brackets to go up. If you think you income will be higher and/or taxes higher when you are retired then Roth is the way to go, if not maybe not. Keep in mind in the 401k traditional (TSP traditional) you contribute the money before tax, the before tax money that would have otherwise disappeared is now sitting in your account earning you money which can be a big multiplier.
Additionally on the 17,500 limit (which changes, usually up, each year), you can contribute 5,500 per year to a traditional true Roth, which you can open with Vanguard. So a strategy you could take to save the maximum amount of tax advantaged savings each year like I do would to be make maximal traditional TSP contributions (17,500) and make as much as you can or maximal amount of traditional Roth (5,500) contributions.
Due to Roth laddering this the fastest path to early retirement, investments outside these vehicles should only be made once they are maxed out. Or so I have recently concluded, it certainly has multiplied my savings rate significantly.
Hope this all helps.

[matchewed]

Yes, it can be rolled over to an account with similiar treatment.

I had heard the term ROTH IRA PIPELINE before, but was not sure what it was in reference to. 

Will have to do some digging to look at those exact numbers to understand how that process works.

I am guessing this forum reccomends that process over a taxable account through Vanguard because of the long term tax benefits outwieght the small fees?

Well I'd recommend a rollover to whatever tax treatment account the TSP was originally in. If it is traditional money roll it over to a traditional IRA, Roth then a Roth. Since it seems you have some time until you leave the service you just may want to sit down and figure out a general plan. Feel free to ask any questions that come up as you look into these things.

[DoubleDown]

I am guessing this forum reccomends that process over a taxable account through Vanguard because of the long term tax benefits outwieght the small fees?

The TSP has lower fees than even Vanguard; they are lower than anywhere you will find.

Yes, maxing out your contributions to the TSP is the way to go in order to get matching funds and excluding that income from taxation. But to the extent you can, do both!! Invest the max in your TSP and contribute to a taxable account like Vanguard index funds. Come on, you can do it!

Then you will also have some no-strings-attached funds you can draw on at any time, including in early retirement. For example, you could use those funds to live on in order to defer withdrawing from your TSP earlier than 59.5.

[Jack]

Yes, maxing out your contributions to the TSP is the way to go in order to get matching funds and excluding that income from taxation. But to the extent you can, do both!! Invest the max in your TSP and contribute to a taxable account like Vanguard index funds. Come on, you can do it!

Are people who are eligible for a TSP also eligible for an IRA? If so, the OP should max his TSP ($17.5K/year), then max his IRA ($5.5K/year), then contribute to a taxable account.

[Scubatoad]

THanks for going above and beyond the first question asked!  I guess I can share some information - as I am still quite new to the game.

Basically, I found investing before I found MMM and some other concepts.  I did not consider the TSP at the time, as I thought I could only access it after 59.5 - and I wanted to slow work down well before that.  I knew that there was some tax benefit - but I didnt want to wait to retire until then.

I have alwasy been a natural saver - yet I had absolutely no financial guidance for building wealth.  So when I realized I was an idiot for sitting on a mound of cash, I did the following:

40K into VTSAX
30K left in cash
0 TSP

I had tested the waters of investing before to make sure I could handle the ups and downs emotionally before making large commitments.

I left 30K to be put in a safer investment at the time, which i never got around to.

Fastforward 6 months to today.

I am now dumping 1.5K a month into a ROTH TSP to max it out, once i started running numbers on the benefits.

All the sudden this morning - I thought to myself - how do i draw from this, if I want to be FIRE before 59.5?

So that is where I am at now.  And yes - I still need to do something with my 30k in cash...