Hello and a question on TSP loan and contributions

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mufasa

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Hi All,

I am 50 and been in the service for little over 13 years. I did not know about this forum. So glad to find it. Please bare with me in case I do not follow a decorum or have the question posted in the wrong thread. I have a ways to go before I retire. I have a paltry $205K in the TSP. I also have a $25K loan that I have to pay off at 2.835% I took to purchase a home. I pay about $310/month for the loan. At this rate I will pay the loan off in about seven years. I am thinking of keep paying my loan at the current rate and increase my TSP contributions to the max and also do the extra catch up as I turned 50 last month. Should I pay off my loan down faster instead of increasing my retirement contribution and lose out on potential gains that I could get more than 2.835%? I'd appreciate your thoughts. Many thanks in advance! Respects and a lot of smiles. Mufasa
 
Without a doubt I would increase TSP contributions to include catch-up. Your loan is VERY low, and in seven years the loan should be paid off which is great. Once paid off, it would give you around three more years of additional savings you could add to catch-up or other retirement vehicle. Based on your post, your minimum retirement age wouldn't be until 60 for full benefits so there is still plenty of time to save if you start now.
 
Mufasa,
You are ahead of 75% of the population in retirement savings. Before increasing your TSP, I would consider fully funding an outside Roth IRA each year for several reasons. There is a 5 year rule that starts the year of your 1st contribution*, since it is after tax you can withdraw contributions without penalty and if you leave your job for any reason that loan has to be paid back within 90 days or you will have a taxable distribution & penalty for early withdrawal. If you are under the income limits for Roth, you could still put $6,000 in for 2020* and $7,000 for 2021 https://www.irs.gov/retirement-plans/roth-iras Even if you don't have full amount for 2020, I would put what I could in for 2020 (you have to tell them that it for prior year of they will assume it is for the current year).
*Note: You have until April 15th to fund one for 2020.


mufasa said:
Hi All,

I am 50 and been in the service for little over 13 years. I did not know about this forum. So glad to find it. Please bare with me in case I do not follow a decorum or have the question posted in the wrong thread. I have a ways to go before I retire. I have a paltry $205K in the TSP. I also have a $25K loan that I have to pay off at 2.835% I took to purchase a home. I pay about $310/month for the loan. At this rate I will pay the loan off in about seven years. I am thinking of keep paying my loan at the current rate and increase my TSP contributions to the max and also do the extra catch up as I turned 50 last month. Should I pay off my loan down faster instead of increasing my retirement contribution and lose out on potential gains that I could get more than 2.835%? I'd appreciate your thoughts. Many thanks in advance! Respects and a lot of smiles. Mufasa
Click to expand...
 
It should be outside of tsp since no more commission trading stocks market. My IRA and ROTH IRA combine less than 10x TSP account, but I make more than 10X TSP by selling PUT and cover-call.
 
I have thinking about this myself since I have been doing well on my trading account problem is the cap gains so I might move it to IRA if I am eligible like EA mentions below. I think I am barely missing out on creating a Roth IRA. Yes, I came to public service from a high paying private sector job almost halving my salary but did it for work life balance mainly and to spend more time with my little kids.
 
Thank you EA for the IRA idea. Do you happen to know if TSP allows backdoor IRA conversions? I manage a trading account that I have been doing well but do not want go all in due to the cap gains taxes. I have been thinking of IRA's but I do not think I qualify. Would appreciate some insights. Glad to know I am 75% better than many but that also makes me terribly sad for all of them. I might even not live state side and retire probably in a low income country.
 
Roth IRA contribution limits from IRS: https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2021

You can't do a conversion unless five tax years have passed since your first Roth IRA contribution. Once you do the conversion, you have to wait another five years to withdraw that conversion money penalty free.

If you open an account today, you can still make the first contribution for the 2020 tax year. Dumping a mere $100 into it would start the clock ticking. If it's not for you, you can always withdraw that money.
 
This is great SWAVET, do you pay taxes for the IRA when you contribute over your maximum? Say your maximum contribution limit is 6000, what if we you contribute 3000 more to the account? Do you pay taxes for the excess? What about gains from capital? Does it stay tax free no matter how much the gain is? I am assuming you actively manage your traditional and Roth IRA.

SWAVET said:
It should be outside of tsp since no more commission trading stocks market. My IRA and ROTH IRA combine less than 10x TSP account, but I make more than 10X TSP by selling PUT and cover-call.
Click to expand...
 
mufasa said:
Thank you EA for the IRA idea. Do you happen to know if TSP allows backdoor IRA conversions? I manage a trading account that I have been doing well but do not want go all in due to the cap gains taxes. I have been thinking of IRA's but I do not think I qualify. Would appreciate some insights. Glad to know I am 75% better than many but that also makes me terribly sad for all of them. I might even not live state side and retire probably in a low income country.
Click to expand...
I don't think TSP will allow anything backdoor and no conversions, but if you have an existing traditional IRA you can transfer it into your TSP. You can also transfer in other retirement accounts from qualified plans. see https://www.tsp.gov/account-basics/move-money-into-tsp/
 
Bullit make a good point on the 5 year rule, but the confusing part comes when you start taking distributions if it includes earnings..
See https://www.investopedia.com/ask/an...roth.asp#5-year-rule-for-roth-ira-conversions
I didn't see anything that limits when you can do a conversion as you can rollover TSP or other retirement accounts into a Roth if you can afford to pay the taxes. If you contribute to Roth TSP, that also starts the 5 year clock
 
If still working its super easy to get 5 year clock ticking by just going to your payroll office (in my case its MyPay on line) and change your TSP allocation there (no forms). Window allows you to change and or drop % or amount going to regular TSP versus Roth TSP.
 
You can have as many IRA's as you want as long as the combined contributions stay under the IRS limits.

You can have a Roth TSP and Roth IRA and max them both. I don't think the Roth TSP to Roth IRA would require a 5-year clock though since it's a rollover and not conversion.
 
DreamboatAnnie said:
Is there a limit on how many Roth IRAs you can have?
If you already have a Roth TSP, can you open a second Roth IRA with brokerage firm without rolling the Roth TSP to it?
Click to expand...

Bullitt said:
You can have as many IRA's as you want as long as the combined contributions stay under the IRS limits.

You can have a Roth TSP and Roth IRA and max them both. I don't think the Roth TSP to Roth IRA would require a 5-year clock though since it's a rollover and not conversion.
Click to expand...

Bullitt is correct. The Roth 5 year rule applies to the 1st Roth opened, so it is important to keep track of your various Roths and contributions and to open one sooner than later, even if it is a small amount. Since the 5 year rule also applies to inherited accounts this is important information to pass on to your beneficiaries so they will get the full benefit of tax free growth. My understanding is that even if you open a 2nd Roth it falls under your original contribution. As far as a conversion of a Roth TSP to Roth IRA, the clock would start with your original contribution to the Roth TSP, so if it has been less than 5 years when you do the conversion you would have to wait the remaining time if you want to withdraw the earnings tax free. One thing I'm not sure of is if you retire before age 59.5, how a Roth distribution is handled if you were to withdraw all of your Roth including earnings. I know for traditional, if you are at least 55 when you retire you can take out whatever amount you want to without penalty but the rules for Roth are a bit more restrictive and I never contributed to Roth TSP. Generally you contribute for the long term so in most cases it wouldn't be an issue.
 
What is a Roth TSP? Is it when I move my current TSP balance over to a self-managed Roth IRA? Can it be done? Holy smokes this would be awesome. Bloody hell I get better returns trading on my own but it is the taxes on cap gains that's really putting a damper on my gains. I can't believe what a great site this is. I just can't thank the founders enough!!!

Btw, are you aware if TSP allows to sell covered calls? Do you know if naked put selling is allowed if you have an IRA? I'd basically like to purchase a few stocks I want in my portfolio for the long run. However, I was given big no for the IRA account. I am with TD Ameritrade. Do you know if Schwab or anyone else allow? Million and half thanks!

Bullitt said:
You can have as many IRA's as you want as long as the combined contributions stay under the IRS limits.

You can have a Roth TSP and Roth IRA and max them both. I don't think the Roth TSP to Roth IRA would require a 5-year clock though since it's a rollover and not conversion.
Click to expand...
 
mufasa said:
Hi All,

I am 50 and been in the service for little over 13 years. I did not know about this forum. So glad to find it. Please bare with me in case I do not follow a decorum or have the question posted in the wrong thread. I have a ways to go before I retire. I have a paltry $205K in the TSP. I also have a $25K loan that I have to pay off at 2.835% I took to purchase a home. I pay about $310/month for the loan. At this rate I will pay the loan off in about seven years. I am thinking of keep paying my loan at the current rate and increase my TSP contributions to the max and also do the extra catch up as I turned 50 last month. Should I pay off my loan down faster instead of increasing my retirement contribution and lose out on potential gains that I could get more than 2.835%? I'd appreciate your thoughts. Many thanks in advance! Respects and a lot of smiles. Mufasa
Click to expand...

Keep the loan and just continue to pay off. Do the max TSP contribution and also do the max catchup.
 
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