If I know my income will increase in the next few years...

[elspouse]

I was recently hired by an agency that has a very generous promotions schedule, so that for the next four years, I can expect my salary to jump up in 10-15k increments each year.

If I contribute the max. to TSP in 2007 and 2008, I'll probably need to borrow from TSP to finance a down payment on a home that I want to buy in a year. However, I expect to be able to repay the loan in its entirety (on top of continuing to contribute the max) in 2009 due to the expected promotions.

Does this strategy make sense? I know that TSP loans are tax-disadvantaged, but I'm wondering if it's worth it to be able to contribute the maximum during the first two years when I'm earning less and save a few thousands in taxes those years.

 

[GGal]

There are several points to consider here. I won't try to cover them all.....let's leave some for the others:

Point 1 to consider: Will contributing the max keep you out of a higher tax bracket? It does for me, and I like that!

Point 2 to consider: if you have to borrow money from your tsp, I think it is better to borrow it in a down market, and pay it back while it is still a down market, that way, conceivably, you aren't losing as much potential earnings. Just something to think about - and it does seem most are assuming the market will be down within a year or so.

Point 3 to consider: What is the name of your agency and are they hiring any 54 year old women???????

LOL

GGAL

 

[Show-me]

I don't think I can add much more to GG's post. The great unknown up market or down market.

By the way welcome to the mb.

 

[elspouse]

Thank you both for the informative replies!

I guess I can boil the issue down to:

Is it better not to contribute as much to TSP and use the non-contributed money without having to borrow it, or is it better to contribute to TSP knowing that I'll soon be borrowing half of what I put in?

I.e. I'm trying to decide between contributing only 7.5k per year in 2007 and 2008, or contributing 15k both years and then promptly borrowing 15k for a year or two.

In deciding between these two courses of action, does an up or down market even make a difference?

 

[ChemEng]

Why not just use a Roth? You can withdraw Roth contributions anytime you want with no fuss. The downside is that it wont reduce your taxable basis and only gives you $4k of yearly savings this year. Next year will increase to adjust for inflation. But you dont have to worry about repaying the sucker.

Im surprised more people dont use Roths to do what you are trying to do.

 

[Show-me]

I do!!! My super duper emergency/savings fund. Every cent I gain is tax free baaabby!!! I luv Roth!!

 

[Ed]

Go for it...sounds like a good plan...I like to know which job and agency you work for; I'd like to apply.

Ed

 

[elspouse]

Thanks for all the info.

I neglected to mention that this would be on top of putting money in a Roth (although I think I would rather borrow from TSP than deplete the Roth since I can't put the roth money back in after I withdraw it).

For those curious about the agency, it's DOJ and its promotions schedule for attorneys, which can be found at http://www.usdoj.gov/oarm/arm/hp/hpsalary.htm#b .

 

[ChemEng]

If you have a 2 income family, be aware of retirement contribution limits. At GS14/15, itll be pretty easy to brush those limits with another income.