Retirement: BRS/High 3

[Flash]

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

The max you can contribute to a Roth IRA is $5500, or $6500 if you are AARP-eligible, while the Roth TSP contribution limit is the same for Roth and non-Roth accounts at $18,500.

 

[AllYourBass]

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.

Yep. I used to aggressively contribute to max out TSP fairly early, but yesterday I re-ran the percentage required to contribute as close as possible to $1,541.66/mo ($18,500/12) from my base pay.

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

The catch-up contribution limit for ages >50 is $6,000, but the normal contribution limit is still $5,500 in 2018.

 

[Flash]

The catch-up contribution limit for ages >50 is $6,000, but the normal contribution limit is still $5,500 in 2018.

That is for IRA's, not TSP.

 

[MGoBrew11]

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.

Copy. That.

Thank goodness for this thread or I would be missing out on some money and may never have realized it.

Thanks to @pourts for pointing this out as well.

 

[nukon]

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)

Appreciate the tip on the premature maturation. Also, with respect to maxing the TSP - what, if any, is the benefit of splitting the amount required to max among the incentive/special pays vs. just using a larger percentage from base pay?

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?

I'd be very interested in the answer to this. I was under the impression the match could bring you over $18.5, but I'm starting to think that might not be the case. Only verbiage I've found on the TSP.gov site so far is the following:

"Contribution Limit: $18,500.
Applies to combined total of traditional and Roth contributions. For members of the uniformed services, it includes all traditional and Roth contributions from taxable basic pay, incentive pay, special pay, and bonus pay, but does not apply to traditional contributions made from tax-exempt pay earned in a combat zone."

If the match is in fact invested as a traditional contribution, I could see it counting towards the limit. I'll try and get an answer from somebody at the TSP.

 

[Hammer10k]

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?

Just read the powerpoint and the 21.5k figure seemed fishy. Still, the whole thing makes a good case for maxing TSP. Maxing at O-1 requires ~50% of base pay.

I'm sending about ~40% a month into TSP, maxing a Roth IRA, and sending about 6k a year into a taxable investment account. So I'm broke. Not sure if maxing both TSP and IRA at the expense of having accessible investments is the smartest move. Having a ton of money coming back at 59 sounds great, but the ability to invest smartly in real estate before then could yield big time gains. Numbers are hard. Shouldn't have gotten that Poli-Sci degree

 

[DanMa1156]

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?

The 18.5 limit is personal contributions only. The government match does not compute into that number.

 

[DanMa1156]

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. Avoid maxing out early for this reason. @villanelle is right about dollar cost averaging, but I don't want to give up free cash.

 

[DanMa1156]

Just read the powerpoint and the 21.5k figure seemed fishy. Still, the whole thing makes a good case for maxing TSP. Maxing at O-1 requires ~50% of base pay.

I'm sending about ~40% a month into TSP, maxing a Roth IRA, and sending about 6k a year into a taxable investment account. So I'm broke. Not sure if maxing both TSP and IRA at the expense of having accessible investments is the smartest move. Having a ton of money coming back at 59 sounds great, but the ability to invest smartly in real estate before then could yield big time gains. Numbers are hard. Shouldn't have gotten that Poli-Sci degree

This is basically how I lived as an ENS, LTJG, and as a junior LT. When I moved back to the Pensacola area, I took 15,000 out of the taxable investment account I had and some cash to put a down payment on a house and pay for all the closing costs to avoid the VA funding fee.

 

[DanMa1156]

The analysis is very sensitive to rate of return, so if you are going to assume a 7-8% return (I would call that extremely optimistic) vice a more realistic 5-6% return then you're not doing a complete analysis. .

Look, ultimately, I showed my math. I agree 8-10% feels optimistic, which is why I used 7. I understand history isn't an indicator of future success, but from 1928-2015 (before this bull market really took a run!), the compounded annual growth rate from the S&P 500 was 9.5%. As a result, I don't thikn 7% is overly optimistic. I'll run my numbers later, but 5% isn't horribly bad from the high-3 plan, especially if someone weren't to make / retire at O-5. The article you linked to also initially uses Vanguard's Wellington fund as a solid 7% performer over the past decade, however, even that fund, since inception has 8.3% return with a 35% bond mixture. Keep in mind that within the past 10 years, that 7% gain includes the second worst stock market crash and financial crisis in American history and continues to hold bonds that have nearly rock bottom prices that you know will only go down in value as rates rise. To me, that's pretty damn impressive.

No need to get into a pissing match, but a service-member entering the service today who opts in and gets the match over 18+ years (IIRC, it doesn't kick in fully until 2 years in) and a 40% pension will likely end up better than he would have previously with just a 50% pension.

 

[Pags]

For all you guys who are putting 50% of your paycheck away to max TSP I hope you’re still ensuring that you’re enjoying today and have some money in a place that’s easier to access for a home purchase, etc. wouldn’t want to die an early death and have you’re last thought be “man, I should’ve spent that money on hookers and blow when i had the chance.”

 

[Caesium]

Though, iirc with a Roth IRA or 401k (presumably including TSP) you can withdraw your contributions (not any gains made on them) at any point penalty free.

 

[Tycho_Brohe]

Sorry if I missed a correction on this already in the wall of text, but

The difference is that the multiplier is 2.5 with BRS, versus 3.0 with the legacy system. See my last sentence in the first paragraph. Read as reduced retirement benefits. This is probably why you are hearing the legacy system is better if you are going to 20.

The multipliers are 2.0 and 2.5, respectively. So someone that retires at 20 years would get 40% of their high-3 base pay under BRS, or 50% under legacy.

Unrelated but related, I can't recommend enough making a budget and/or downloading a program like Mint or YNAB, especially for those starting out. Seeing money coming in vs money going out allows you to cut unnecessary expenses and make educated decisions about how to allocate TSP, IRA, and savings contributions. For example, if you're maxing out TSP, but you're still paying interest on CC debt, you are wrong.

For all you guys who are putting 50% of your paycheck away to max TSP I hope you’re still ensuring that you’re enjoying today and have some money in a place that’s easier to access for a home purchase, etc. wouldn’t want to die an early death and have you’re last thought be “man, I should’ve spent that money on hookers and blow when i had the chance.”

It'll also gut-check you from doing this. You gotta enjoy SOME of your money while you can. When I retire around 65-70, I doubt I'm gonna be able to do a fair bit of the things I can do for fun now, and I don't think I'll want to travel a whole hell of a lot at that point. Set goals, and know why.

 

[Pags]

Sorry if I missed a correction on this already in the wall of text, but

The multipliers are 2.0 and 2.5, respectively. So someone that retires at 20 years would get 40% of their high-3 base pay under BRS, or 50% under legacy.

Unrelated but related, I can't recommend enough making a budget and/or downloading a program like Mint or YNAB, especially for those starting out. Seeing money coming in vs money going out allows you to cut unnecessary expenses and make educated decisions about how to allocate TSP, IRA, and savings contributions. For example, if you're maxing out TSP, but you're still paying interest on CC debt, you are wrong.

It'll also gut-check you from doing this. You gotta enjoy SOME of your money while you can. When I retire around 65-70, I doubt I'm gonna be able to do a fair bit of the things I can do for fun now, and I don't think I'll want to travel a whole hell of a lot at that point. Set goals, and know why.

Please do enjoy it while you can. You guys work hard and get paid well. Make sure you enjoy some of that money today. Your 20s as a naval officer is a great time to have a sweet car, nice gear for you athletic pursuits, fun toys, nice watches, big trips etc. in a few years you’ll be thinking about college for kids, mortgage for a big home, private school so you might as well enjoy some of your money while you can.

 

[Spekkio]

No need to get into a pissing match, but a service-member entering the service today who opts in and gets the match over 18+ years (IIRC, it doesn't kick in fully until 2 years in) and a 40% pension will likely end up better than he would have previously with just a 50% pension.I'mma leave this here...

I'mma leave this here...

You can play with it as you like. The only way BRS works out as 'better" is under specific conditions that your rate of return is >= 7% for the duration of your investment up until withdrawal *and* your investment is being exactly matched. That is, you are investing <= 5% of your pay. if you were to invest, say, 10% into TSP each year (or max it as people are discussing), the old system becomes more advantageous even at a 7% return. Also the optimal age of death to benefit from BRS is 85.

Coincidence that all of the ads selling this program assumes these best-case parameters? I think not.

But hey, it's your money. Do with it as you wish. Just don't tell someone at 9 years of service they're going to make money by opting in; they won't.