Advice for a coworker

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LoGiK
Posts: 122
Joined: Mon Jul 30, 2012 7:59 pm

Advice for a coworker

Post by LoGiK »

Looking to get people's opinions. I currently have a Roth IRA through Fidelity that I am contributing to. I'm an e4 in the Air Force and in 2012 I made $25k. I didn’t max my Roth contributions (Still paying off some debt before I can afford that). Once I am able to Max my Roth IRA I plan on contributing more than 1% to my TSP and eventually try to bump that up to max while I eventually get paid more.

One of my coworkers is getting the itch with investing and much like when I started there were so many options. He 23, and e4 and has $0 in retirement but no debt. He is thinking about two options and I wanted to get some views on them.

1. Start a Roth TSP and once he's able to max that open a Traditional IRA (TSP or broker)

2. Start a Traditional TSP and once he's able to max that open a Traditional IRA (TSP or Broker)

Either are sound options in my mind. The only reason I started with a Roth is because I don't currently make enough to take advantage of getting bumped into a lower tax bracket.

Any advice I could pass along to him? - giving him a link to this site too

Random question: Once you open a TSP account are you able to roll it over to another financial institution, or would you have to wait until you retired/separated?
No clue what I'm doing, but willing to learn.

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Relevant
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Re: Advice for a coworker

Post by Relevant »

Considering your age and the fact that you do not receiving matching contributions to TSP I recommend a Roth IRA. The main reason is that you can withdraw your principal in the future for any reason without penalty. You just can't touch any of the earnings until 59 1/2 without incurring a big penalty.

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MSR
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Re: Advice for a coworker

Post by MSR »

Personally, I am not sure that I trust the Government not to change the tax laws and dip into peoples retirements Roth included.

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repinda808
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Re: Advice for a coworker

Post by repinda808 »

Relevant wrote:Considering your age and the fact that you do not receiving matching contributions to TSP I recommend a Roth IRA. The main reason is that you can withdraw your principal in the future for any reason without penalty. You just can't touch any of the earnings until 59 1/2 without incurring a big penalty.


My feelings as well. If your buddy is going to start an IRA right now, he should do a Roth. You're both E4s. Chances are that by the time you're drawing from this account, you will be making more income than you are now. Taxes taken out now will allow your account to grow with no worries on taxes when you withdraw. If he can afford it, max out his Roth contributions.

As far as the TSP. Yes there's no matching, and the rules are restrictive. If he's so inclined though, it's better than sticking it into a savings account. However, there probably are better ways to participate in a 401k. I'm no expert on that though, so I'd rely on people with better knowledge for that information.
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LoGiK
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Re: Advice for a coworker

Post by LoGiK »

Thanks for your replies.

Would you recommend he go with a Roth TSP over another Roth IRA through someone else?

Here are the advantages/disadvantages I see with going Roth TSP

Advantage:
$17,500 a year, not taxable on withdrawal
$52,000 in a combat zone (if I understand Annual Addition Limits correct)

Disadvantage:
Chances are once the Roth TSP is maxed , the $5,500 put into a traditional IRA/TSP (T-TSP) won't bump you down a tax bracket

Whereas if you maxed an external Roth IRA, when it came time to contributing to a T-TSP chances are you'll end up going to a lower tax bracket. And at his current pay grade he's still $16,900 away from hitting 25%.

Please tell me if I'm wrong here: you can't have a T-TSP and a Roth TSP. But you can have one or the other along with another institutions IRA.
No clue what I'm doing, but willing to learn.

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Relevant
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Re: Advice for a coworker

Post by Relevant »

LoGiK wrote:Thanks for your replies.

Would you recommend he go with a Roth TSP over another Roth IRA through someone else?

Here are the advantages/disadvantages I see with going Roth TSP

Advantage:
$17,500 a year, not taxable on withdrawal
$52,000 in a combat zone (if I understand Annual Addition Limits correct)

Disadvantage:
Chances are once the Roth TSP is maxed , the $5,500 put into a traditional IRA/TSP (T-TSP) won't bump you down a tax bracket

Whereas if you maxed an external Roth IRA, when it came time to contributing to a T-TSP chances are you'll end up going to a lower tax bracket. And at his current pay grade he's still $16,900 away from hitting 25%.

Please tell me if I'm wrong here: you can't have a T-TSP and a Roth TSP. But you can have one or the other along with another institutions IRA.


IRA's and 401k's are two different animals with independent rules. Do the $5.5k Roth IRA first. Then put as much of the $17.5k you can afford into Roth TSP. Don't worry about Tradional TSP until/if taxes become an issue.

And yes you can have a Roth & Traditional TSP. You just can't put more than $17.5k in the 2 accounts combined per year.

BBBInvest
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Joined: Mon Feb 25, 2013 9:53 am

Re: Advice for a coworker

Post by BBBInvest »

LoGiK wrote:Looking to get people's opinions. I currently have a Roth IRA through Fidelity that I am contributing to. I'm an e4 in the Air Force and in 2012 I made $25k. I didn’t max my Roth contributions (Still paying off some debt before I can afford that). Once I am able to Max my Roth IRA I plan on contributing more than 1% to my TSP and eventually try to bump that up to max while I eventually get paid more.

One of my coworkers is getting the itch with investing and much like when I started there were so many options. He 23, and e4 and has $0 in retirement but no debt. He is thinking about two options and I wanted to get some views on them.

1. Start a Roth TSP and once he's able to max that open a Traditional IRA (TSP or broker)

2. Start a Traditional TSP and once he's able to max that open a Traditional IRA (TSP or Broker)

Either are sound options in my mind. The only reason I started with a Roth is because I don't currently make enough to take advantage of getting bumped into a lower tax bracket.

Any advice I could pass along to him? - giving him a link to this site too

Random question: Once you open a TSP account are you able to roll it over to another financial institution, or would you have to wait until you retired/separated?


I would recommend maxing out the Roth IRA then Roth TSP. Everyone here has given some great advice but with your young age I would also recommend that you and your friend expand your investment education.

Yes right now would be a good time to open a Roth IRA and purchase a low expense mutual fund, but over time I believe you would do much better investing in individual stocks.

I suggest you look into dividend investing. You can PM me for further information as this is not the forum for that type of strategy but I believe a lot of TSP contributors overlook the fact that in retirement they will need income. Not just a pile of money.

Also please commend your friend for having no debt, that is a tremendous accomplishment for someone his age.
Marvin

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crondanet5
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Joined: Tue Aug 19, 2008 8:51 pm

Re: Advice for a coworker

Post by crondanet5 »

Here's another approach that might make better sense to you. There is considerable concern amongst Air Force personnel about being returned to civilian status this year. We are not talking about a small number of people, and I know they all have a wartime job that strategically makes the Base operate under attack. How these cuts affect that capability I'm not sure, but it means things may not go as the planners back in a D.C. bunker think they'll go. And next year the Air Force will be scrambling because of manpower shortages, paying bonuses to keep people in when they could have avoided the whole thing by keeping already trained and motivated people in uniform. Ah well, the staff person that thought this up will have gotten their promotion and moved on to some other job with bragging rights so they won't see the damage they've caused. But let's talk about you. Because of this possible departure from the military I suggest you NOT put money in a ROTH, and possibly stop your TSP contributions and throw every dollar you can into a brokerage account so you have money you can access IF you become a civilian later this year and you need cash for basic necessities like food, gas, rent. If you put it in a tax deferred program you will have to pay a penalty on any withdrawals. Why lose money? Position yourself financially to keep your head above water IF you have to transition back to the civilian world. And if you can stay, you can make a lump contribution to a ROTH/TSP to match the max (or as close to that as you can/want) before the end of the year. Don't get caught in a possible penalty trap until you know what happens with your Air Force career. Hope it goes your way and you stay.

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repinda808
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Re: Advice for a coworker

Post by repinda808 »

Crondanet,

Is the Air Force kicking out non-HYT E4s as part of the force shaping?
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LoGiK
Posts: 122
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Re: Advice for a coworker

Post by LoGiK »

Crondanet5,

Thank you for your concern and post, you've always had great posts to read.

Thankfully I am unaffected by force management this year, my DOR saved me (ironic situation behind that too). Next year I am unsure of though, unless I make SSgt this cycle. Although my career field is splitting up and roughly 85% of us are being moved into the new field, I am *hoping* whichever field I get put into we will me "manned" or "undermanned".

I like your idea of a brokerage account, fortunately I've already had along conversation with my parents and they'd be 100% ok with taking me back in until I am able to go back to college full time - and then I have the Post 911 GI bill with its BAH which would help me through college.

I do plan on setting up a brokerage account someday when I have some money I want to play around with. Thankfully my current tax refund will pay off the last of my debt, with roughly $500 going into my emergency fund. I've been slacking on that (hence the debt) and would like to get that to around $2.5/3k before I invest more/max my IRA.

Repinda808,
If you are an e4 you should have received an email on your personal email if you're eligible for Force Management. Any negative indicators, or if your DOR is BEFORE 1 Jan 13. Ask your shirt if you have no idea what I'm talking about. Every e4 is eligable, HYT or not, but not everyone is getting the boot.
No clue what I'm doing, but willing to learn.

crondanet5
Posts: 4330
Joined: Tue Aug 19, 2008 8:51 pm

Re: Advice for a coworker

Post by crondanet5 »

My son was sweating the Force Management as well. The next couple of months are going to be critical in your preparation for the next WAPS test. If you stay in your old AFSC the bar may be raised for promotion. If you move into the new AFSC there may be new technical material to master to test well. Are you working on your Associate's Degree? How close? The Air Force needs sharp senior NCOs. One way to be sharp is through education, not necessarily in what is being taught in the course, but the opportunity to learn how to search for information, develop questions, organize ideas and written paragraphs, produce perfect papers. One time I was on a BTZ promotion board. As a nominee turned to leave a board member leaned over and looked at his shoes. I asked what that was about. The response was "I wanted to see how clean the soles of his shoes were." Moral: Pay attention to detail both in the way you look and the way you perform your duties. Volunteer, volunteer, volunteer. Can you imagine having 22 Letters of Appreciation referenced in your next performance report? If you want to be in the Air Force be IN the Air Force. The time goes so quickly. Accomplish things now. I trust your goal is E-9. You have a clear path to follow but it takes your personal initiative and effort to get there. You can do it. Now put your money in the ROTH and TSP and make them grow. They are not bank accounts, they are your retirement money. you need to make them grow. Good luck.

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RGEN
Posts: 228
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Re: Advice for a coworker

Post by RGEN »

Bravo Cron! Very well done! I hope you are in a supervisory role because you are a great mentor.
RGEN

crondanet5
Posts: 4330
Joined: Tue Aug 19, 2008 8:51 pm

Re: Advice for a coworker

Post by crondanet5 »

Let's just say I deciphered that roadmap to success in the Air Force. There are plenty of other road maps to figure out. Now the question is does he apply the information?

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