Retirement: BRS/High 3

[AllYourBass]

Public Service Announcement: if you are one of those nerds (like me) that maxes out your TSP each year, make sure you calculate your max percentage so you aren't leaving money on the table by reaching your limit too early... nobody likes culminating early

Max Percent = 18,500/(annual base pay + incentive pay + special pay)

This assumes constant deposits throughout the year. I recommend you throw the numbers on a spread sheet to see all the deposits and ensure that you don't reach the 18,500 personal contribution limit (not government match) before the last paycheck.

This makes it even more interesting for people in a combat zone trying to max out all the financial benefits (SDP, and tax exempt into TSP up to $55k).

....aaaaand that's how I learned the 2018 contribution limit increased to $18,500 from $18,000.

¯\_(ツ)_/¯

 

[Pags]

Who is saying that? The information that I received from our base representative is that you can contribute to Roth, but matching will go into regular. I will say that they could have published something on this point on the website to alleviate the confusion.

Sorry, that’s what I meant. As a Civil Servant my matching goes in to Roth. Very odd that that isn’t an option for Mil.

 

[Caesium]

Public Service Announcement: if you are one of those nerds (like me) that maxes out your TSP each year, make sure you calculate your max percentage so you aren't leaving money on the table by reaching your limit too early... nobody likes culminating early

Max Percent = 18,500/(annual base pay + incentive pay + special pay)

This assumes constant deposits throughout the year. I recommend you throw the numbers on a spread sheet to see all the deposits and ensure that you don't reach the 18,500 personal contribution limit (not government match) before the last paycheck.

This makes it even more interesting for people in a combat zone trying to max out all the financial benefits (SDP, and tax exempt into TSP up to $55k).

I'm planning on maxing out my TSP--why is it bad to max it out before the end of the year? I assumed that if you've already maxed out your contribution for the year they just stop transferring your paychecks into TSP and you get your full paycheck into your bank account.

 

[whitesoxnation]

If I have a Roth IRA I max out with a different financial services company there in no issue with having either the Roth TSP or traditional TSP and still maxing out both my TSP and my account with the other company, correct?

 

[MGoBrew11]

If I have a Roth IRA I max out with a different financial services company there in no issue with having either the Roth TSP or traditional TSP and still maxing out both my TSP and my account with the other company, correct?

Correct, I max out both every year.

@pourts why is it bad to max it out early? I do that and you just get the full paycheck after it is all in the bank. If anything, I thought the sooner you can get it in the TSP the better since it has a bit more time to grow.

 

[villanelle]

Yeah, I am missing why it's bad to max out early. I'd love to read that explanation, because I can't think of a reason why it's bad, and generally dollar cost averaging is actually *not* better when there is a lump sum involved (which is, in effect, what that $18.5k limit is). If you have a lump sum to invest, if you have the nerve to do it, the stats say it is better to dump the whole amount in ASAP, rather than dripping it in over time. It gets in the market more quickly, which means it gets to work more quickly. So theoretically, it would be better to set the contribution at 100% of pay, if that's allowed, and go without a paycheck the first few months of the year in order to get your money in the market as soon as possible. I don't see how it could possibly be "leaving money on the table", since the whole amount still gets invested; it just does so a bit more quickly.

 

[SlickAg]

Yeah, I am missing why it's bad to max out early. I'd love to read that explanation, because I can't think of a reason why it's bad, and generally dollar cost averaging is actually *not* better when there is a lump sum involved (which is, in effect, what that $18.5k limit is). If you have a lump sum to invest, if you have the nerve to do it, the stats say it is better to dump the whole amount in ASAP, rather than dripping it in over time. It gets in the market more quickly, which means it gets to work more quickly. So theoretically, it would be better to set the contribution at 100% of pay, if that's allowed, and go without a paycheck the first few months of the year in order to get your money in the market as soon as possible. I don't see how it could possibly be "leaving money on the table", since the whole amount still gets invested; it just does so a bit more quickly.

It is allowed, I did it in 2011. My goal was to minimize my taxable income because I knew I'd be spending most of that year in a combat zone. My wife was working and we didn't need the cash to live on. Ended up paying taxes on around $10-15k dollars that year I think.

This is a great thread and I hope all the younger guys read it and understand that there are advantages to both systems, but you may not know if you made the right choice until you actually reach retirement. The important thing is to encourage everyone to start putting away money for retirement early and not rely solely on Uncle Sam to finance their retirement.

 

[IwannabeaPHROGdvr69]

IP at the squadron came out with a 'BRS for real people' presentation and seemed to be saying that under the BRS, if you are already maxing the TSP 18.5k limit per year yourself with your own contributions, the additional 5% matching from the government will be above and beyond the limit giving you additional tax-free protection above 18.5k. I talked this over with a family member who is a CPA and he said that this was false, 18.5k is the absolute annual limit unless you are old enough to be in the "catch-up phase" - has anyone heard differently?

 

[insanebikerboy]

and I can still see why some O-4's safe to make O-5 might choose to opt in.

Are there folks that are in that timeframe that can even opt-in due to time-in-service limits?

 

[Flash]

...The pension payouts are at the whim of a Congress that continues to struggle with infighting. We assume it won't change because of the high level of military support we enjoy from the American public...take a look at the post Vietnam years and the benefit cuts they saw). In my time in the military thus far, I've almost exclusively seen benefit cuts: Post 9/11 GI Bill eligibility, a 5% cut to BAH...Call me jaded, but it is what it is - a political reality that can change on a whim. The pension may not be as rock solid as one may think - take a look at the number of city and state pensions that have been cut in the past 15 years.

Great post but that is the one thing I'll disagree with, the federal government has not cut pensions at least in the past 100 years if not longer. State and local pensions are also very different animals than military/federal pensions, usually not nearly as well-funded while also often being far more generous.

 

[BigRed389]

Are there folks that are in that timeframe that can even opt-in due to time-in-service limits?

Some RL communities promote super fast. IP has had IZ selects put on O-4 at @9YCS. Knock out a milestone tour with solid paper and you probably have a fair idea how it'll work out before the 12 year limit.

 

[pourts]

I'm planning on maxing out my TSP--why is it bad to max it out before the end of the year? I assumed that if you've already maxed out your contribution for the year they just stop transferring your paychecks into TSP and you get your full paycheck into your bank account.

The government matches up to 5% on a per transaction basis. If you max out in September, then you are losing your 5% contribution for October, November and December. This is my understanding how it will work after discussing it with 10 different "experts" and finally getting to someone who knew what they were talking about. It also makes sense, as the program is antiquated, and all contributions have to come as an allotment from your paycheck, even though money is fungible. I ought to be able to dump in $18,500 from my checking account on Jan 1, but its not allowed. The money must come as an allotment from your paycheck. I can dump $5500 into my Roth IRA on Jan 1. Same thing with SDP in a combat zone. If I am eligible, why can't I just dump $10,000 on my 30th day in combat into the account and rack up 10% interest? NO says the government. It must come out of your paycheck as an allotment on the 1st and the 15th.

Also, my suggestion is the "safer" way to do it I believe. If it turns out you can max out early and still get contributions, cool. With my way you still get full matching, just money deployed a little later. Tactically, I think it is prudent to spread out your 2018 contributions to take advantage of any pullbacks after the 9 year bull market.

Also, I sent a question to this email address today and got an answer in 10 minutes: BRS@usmc.mil

 

[Flash]

The government matches up to 5% on a per transaction basis. If you max out in September, then you are losing your 5% contribution for October, November and December. This is my understanding how it will work after discussing it with 10 different "experts" and finally getting to someone who knew what they were talking about....

I didn't know that but it is also in black and white on the TSP Contributions Limits webpage (the box on the lower right-hand side of the page):

If you are a FERS or BRS participant and your contributions reach the IRS elective deferral limit before the last pay date of the year, you will not receive all of the matching contributions to which you would otherwise be entitled.

 

[pourts]

Yeah, I am missing why it's bad to max out early. I'd love to read that explanation, because I can't think of a reason why it's bad, and generally dollar cost averaging is actually *not* better when there is a lump sum involved (which is, in effect, what that $18.5k limit is). If you have a lump sum to invest, if you have the nerve to do it, the stats say it is better to dump the whole amount in ASAP, rather than dripping it in over time. It gets in the market more quickly, which means it gets to work more quickly. So theoretically, it would be better to set the contribution at 100% of pay, if that's allowed, and go without a paycheck the first few months of the year in order to get your money in the market as soon as possible. I don't see how it could possibly be "leaving money on the table", since the whole amount still gets invested; it just does so a bit more quickly.

Generally, I am inclined to agree with you. However, this being 2018 after a 9 year bull market, I am trending a little more conservative than in the past. I would also be interested in reading that data on dollar cost averaging generally not being better. What timeframe are they using to measure? 2009-present?. You also need to consider the opportunity cost of that lump sum that you save in order to live off in the first few months of the year. If during Sep- Dec you are saving $18k cash to live off in a liquid savings account making 0.2% while you send all your pay to TSP in Jan-March ... why not invest that money in October of the previous year into a taxable stock account? That's how you deploy capital early. All these decisions depend on your future expectations of the stock market. The last 10 years it has been a never-ending gentle escalator up. That isn't always the case. I am not in violent disagreement with you. I put all $5500 into my Roth yesterday.

Folks also shouldn't be making bad financial decisions in order to save early. I am referencing Thaler's book "Misbehaving" and the fact that many people carry a 25% balance on credit cards but still save 5% of their salary into a savings account making 0.2%.

 

[sevenhelmet]

Isn't the Roth contribution maximum $6,000 for 2018?