Author Topic: Working for free under Trump administration  (Read 1452 times)

alohaKane

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Working for free under Trump administration
« on: February 18, 2019, 09:31:44 AM »
hey guys,

government employee here. While I have extra income going to school (gi bill) in which will only last until end of spring semester (May), ive decided to allocate 100% of my base pay into my tsp (401k). this will be in effect this upcoming week (friday). which means no more pay day for me. lol

last year was my first year maxing out my 401k. which actually felt good seeing my NW reach a new high of 100k. its not much compared to most people but i can confidently say to be the first in my family.

anyway, it seems crazy to me that im working for all of this and just giving my hard earned money back to the government in hopes to get a return on my investment. iíve only shared this thought with one coworker and he looked at me like im crazy.

tell me if its a dumb move in my part or im better off putting my money elsewhere. no RE just yet so...

sol

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Re: Working for free under Trump administration
« Reply #1 on: February 18, 2019, 09:55:13 AM »
The TSP contribution limit is only $19k per year.  That's from your paycheck, then the government will match up to 5% of your total salary.

If you're putting in 100% of your income, does that mean you earn less than $19k/year?  Because if not, you're going to have troubles at the end of the year as they reject the surplus contributions.

The 5% TSP match is 5% of your salary, not your TSP contributions.  So if you were earning $100k/year, you could put in 19k of your income and they would contribute 5k on top of that for a total TSP balance of 24k before investment returns.

Assuming you earn less than $19k and are doing 100% TSP contribution, you're probably fine as long as you don't need the money to survive month to month.  If you have some other income sources that pays for your rent and groceries, then putting that income into the TSP is usually a smart idea.  The fees are lower than comparable products in the private sector, the asset allocations offerings are good, and you have access to the G-fund, which is basically unmatched anywhere else in the investing universe.

Where are you putting your money in the TSP?  Most people recommend you choose one of the Lifecycle funds with an appropriate target retirement date, and as of 2015 that is now the default for new federal hires.  Prior to that they would put 100% of your TSP contributions in the G-fund, which is a pretty terrible idea in most cases.

LPG

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Re: Working for free under Trump administration
« Reply #2 on: February 18, 2019, 10:03:17 AM »
last year was my first year maxing out my 401k. which actually felt good seeing my NW reach a new high of 100k. its not much compared to most people but i can confidently say to be the first in my family.

Slight correction to help boost your ego.

Actually, it is much compared to most people! You'll see lots of posts on these forums of people celebrating their high 401k balances or net worths, but remember that this forum is a gathering place for financial oddballs and outliers. In the US or the world at large having 100k in your IRA is huge compared to most people.

alohaKane

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Re: Working for free under Trump administration
« Reply #3 on: February 18, 2019, 12:02:04 PM »
The TSP contribution limit is only $19k per year.  That's from your paycheck, then the government will match up to 5% of your total salary.

If you're putting in 100% of your income, does that mean you earn less than $19k/year?  Because if not, you're going to have troubles at the end of the year as they reject the surplus contributions.

The 5% TSP match is 5% of your salary, not your TSP contributions.  So if you were earning $100k/year, you could put in 19k of your income and they would contribute 5k on top of that for a total TSP balance of 24k before investment returns.

Assuming you earn less than $19k and are doing 100% TSP contribution, you're probably fine as long as you don't need the money to survive month to month.  If you have some other income sources that pays for your rent and groceries, then putting that income into the TSP is usually a smart idea.  The fees are lower than comparable products in the private sector, the asset allocations offerings are good, and you have access to the G-fund, which is basically unmatched anywhere else in the investing universe.

Where are you putting your money in the TSP?  Most people recommend you choose one of the Lifecycle funds with an appropriate target retirement date, and as of 2015 that is now the default for new federal hires.  Prior to that they would put 100% of your TSP contributions in the G-fund, which is a pretty terrible idea in most cases.

My fault for not being clear. My reasoning for this move is actually because of the school benefits I'm currently receiving runs until May. So I wanted to maximize all pretax dollar savings as much as I can. Then when may comes, I might actually stop my contributions until I go back to school again where I can get gibill benefits.

I'm at 70k/yr at the moment. Now based on what you mentioned, I may have not maxed out my contributions last year *facepalm*. I thought along with employer's match it should tally up to 18500.. Where i did around 16k as my contributions and the employer for the rest. Geessh.. I learned something today lol

My allocation is 60/30/10 for C/S/G respectively. I just read somewhere recently that L-funds is a scam lol. I'm almost 33 so I figure I should take some risk. To be honest after going through December, I started questioning this strategy.. Until I saw my returns from Jan.. 💪😎 time in the market really pays off.

But really, thanks for the tip!

alohaKane

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Re: Working for free under Trump administration
« Reply #4 on: February 18, 2019, 12:13:14 PM »
last year was my first year maxing out my 401k. which actually felt good seeing my NW reach a new high of 100k. its not much compared to most people but i can confidently say to be the first in my family.

 but remember that this forum is a gathering place for financial oddballs and outliers. In the US or the world at large having 100k in your IRA is huge compared to most people.

Lol. Totally how I feel when I talk to my peers.

Just last week read a 34 y/o guy in reddit reaching 1mm. Earning 120k at age 24... I mean, what am I doing with my life?! Lol

sol

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Re: Working for free under Trump administration
« Reply #5 on: February 18, 2019, 05:05:59 PM »
I would strongly advise AGAINST frontloading your TSP and then stopping contributions later in the year.  Yes, this gives you more "time in market" for your dollars, but you will miss out on the matching funds.

The federal employer matching funds for the TSP are 5% per paycheck, not 5% of your total annual contribution.  They will put in 5% of your paycheck each pay period, if you also put in at least 5% per pay period.  So if you're making 70k you are entitled to an extra $3500 in TSP match (that's 5% of 70k) but only if you contribute each and every pay period.  If you were to do 100% TSP allocation of your 70k paycheck, you'd be putting in about $2700 every two weeks and would max out the 19k limit in only seven pay periods, then you wouldn't be allowed to put in any more.  You'd get 5% of your first 7 paychecks matched, about $135 for each check times 7 would be $945 in matching added to your TSP, instead of the $3500 you could get by spreading out your contributions over all 26 pay periods. 

You'd end up costing yourself 3500-945 is $2555, in lost TSP contributions.  Don't be that guy.  The approach normally recommended for folks who want to max it out is to put in $731 from each of their 26 paychecks, to hit the 19k limit at the end of the year and maximize the matching funds regardless of salary level.

In your case, it probably makes sense to figure out how much you've already contributed for 2019 and how many pay periods you have left, then do the math to spread out the remainder of your 19k limit over the whole year.  If you're making 70k, you only need to contribute $135 per paycheck to get your full match each pay period.  It adds up.  Try not to leave money on the table.

alohaKane

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Re: Working for free under Trump administration
« Reply #6 on: February 19, 2019, 10:39:05 AM »
Good point Sol!

I wish I made that whole 2700 per check but unfortunately, i have so much deductions. But I'm curious to see how my allocation of 100% of base pay would play out.. Does that mean all my monthly deductions would be not get paid? ie. health insurance, state tax, etc.. Or 100% of what's left after my deductions..

Earnings statement should come in this Friday so we will see.

I appreciate your keen perspective on this subject. I'll make sure not to be that guy who miss out on free money.. ;p

smallstache

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Re: Working for free under Trump administration
« Reply #7 on: February 19, 2019, 10:54:36 AM »
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Kierun

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Re: Working for free under Trump administration
« Reply #8 on: February 19, 2019, 11:57:57 AM »
Yes, to what Sol said about missing out on the 5% match on your paychecks if you frontload.  Additionally, technically I think the TSP maxes out contributions at 92% of your base, which is to pay for your monthly deductions.  And lastly, you may want to rethink the G fund, perhaps the F fund if you don't like volatility. 
« Last Edit: March 06, 2019, 11:02:49 AM by Kierun »

ChpBstrd

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Re: Working for free under Trump administration
« Reply #9 on: February 22, 2019, 11:52:56 AM »
Your deductions and any unavoidable taxes would come out first, then what's left would go to your retirement account.

You can expect the payroll software to stop making TSP deductions as soon as you hit the annual max. However, we know what they say about assumptions, so check on this!

Good catch on the matching, Sol! That was the nail in the coffin.