IRA vs TSP

[Guest]

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Pete,

Five years. Go to irs.gov.

Utilize a credit card such as priority club where you accumulate hotel points. I go to vegas a couple times a year and stay for free by using my credit card points. Plus I am a platimum member so I get free upgrades to the best room available. Once I was in Paris and got a room that costs $587Euros per night for 10K points. If you use idining you canget up to 25 points per dollar spentdining places. My interest rate is like 5%. In my life I have never paid credit card interest so I am unsure of the rate. But get your cake and eat it to. I charge everything and have 395,000 points which is 395 nights at a Crown Plaza.

For your emergency utilize Vanguard Tax Free Money Market...current yield 1.23% tax free. What for the yield curve to even out before going to anything long term at this point.

Good going Pete. Just get clear data for planning purposes. Ask questions. Milk/Timer and I love them.

MT

 

[Guest]

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Ask me no questions, I tell you no lies!!!!!!!

 

[Pete1]

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Checked with my company today (Dodge and Cox). I can withdraw my contributions at anytime penalty free. The five year rule applies to earnings.

 

[Rod]

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Pete1 wrote:

Checked with my company today (Dodge and Cox). I can withdraw my contributions at anytime penalty free. The five year rule applies to earnings.

So, I was right in my initial post. :^

Boy, I must stop underestimating my "aquired knowledge" andverify what "I knew I knew",when questioned!

NOW, let me get my facts straight!

· At any age, after the account is opened 5 years one can withdraw a lifetime maximum of $10,000 (contributions and earnings) without taxes or penalties for a first time home purchase.
· At any age, for any reason one can withdraw the amount(s) contributed (NOT EARNINGS) without tax or penalties.

WHEW!

 

[Rod]

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MarketTimer wrote:

Pete,

Five years. Go to irs.gov.

Could you please direct us to whereit specifically states that you can't withdraw your contributions (not earnings) at anytimefrom a ROTH without penalty?



From: http://www.fairmark.com/rothira/thumb.htm

"Choose the Roth IRA over a taxable account if you expect to qualify for tax-free distributions. Remember, you can withdraw contributions tax-free at any time, but earnings generally have to stay in until you're 59½ and have satisfied the five-year requirement."

Thanx!

 

[Wheels]

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Azanon - Where are you getting that 15% figure for SS Supplement? I only ask because many many many Fed employees have misconceptions when it comes to the SS Supplement. There is a thread in here somewhere title "3 Legs of Fers Retirement" or something like that, where I explain the SS Supplement. You may want to take a look. Hope you find it helpful, (and not too disheartening).

 

[azanon]

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I dont remember the link, but i found a site that had several example FERS retirements based on folks of different GS grade, different years of working, etc. A couple of the examples were similar to my likely situation (GS 12, 30 years tenure), and the percentage of your income at that time for the SS suppliment part was in the neighborhood of 12-15%. Meaning if when i retired, my salary was $80K, then the SS suppliment upon retirement would be approximately $9600-$12000

Best i can tell, a Fed employee should be plenty well off at the age of retirement eligibility if he saved the standard 10% because you're looking at 30% from the Pension, 12-15% from SS Suppliment, and 10% you dont have to allocated to retirement anymore. That means you only have to replace the other 48-45% of your former salary with Savings. If you saved 10% in TSP, you'll get the additional 5% match. 15% in a pseudo traditional IRA should have no problem replacing that remaining 45-48%.

 

[Guest]

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Penalties on Earnings from Contributions
Unless an exception applies, most distributions from a Roth IRA before the owner reaches age 59 1/2 will be subject to an "early withdrawal penalty" of 10% on the amount of the distribution. Be very careful NOT to confuse the early withdrawal penalty with the taxes imposed on a non-qualified distribution (discussed in Rod wrote:

MarketTimer wrote:

Pete,

Five years. Go to irs.gov.

Could you please direct us to whereit specifically states that you can't withdraw your contributions (not earnings) at anytimefrom a ROTH without penalty?



From: http://www.fairmark.com/rothira/thumb.htm

"Choose the Roth IRA over a taxable account if you expect to qualify for tax-free distributions. Remember, you can withdraw contributions tax-free at any time, but earnings generally have to stay in until you're 59½ and have satisfied the five-year requirement."

Thanx!

 

[Guest]

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Rod wrote:

MarketTimer wrote:

Pete,

Five years. Go to irs.gov.

Could you please direct us to whereit specifically states that you can't withdraw your contributions (not earnings) at anytimefrom a ROTH without penalty?



From: http://www.fairmark.com/rothira/thumb.htm

"Choose the Roth IRA over a taxable account if you expect to qualify for tax-free distributions. Remember, you can withdraw contributions tax-free at any time, but earnings generally have to stay in until you're 59½ and have satisfied the five-year requirement."

Thanx!

Penalties on Earnings from Contributions
Unless an exception applies, most distributions from a Roth IRA before the owner reaches age 59 1/2 will be subject to an "early withdrawal penalty" of 10% on the amount of the distribution. Be very careful NOT to confuse the early withdrawal penalty with the taxes imposed on a non-qualified distribution (discussed in Part III). A non-qualified distribution imposes an ordinary income tax on the distribution, but the early withdrawal penalty will be imposed in addition to that tax.

Example #1: Jim, age 30, made a Roth IRA contribution of $2,000 in 1998. In 2005, Jim's Roth IRA has a balance of $3,500. Jim decides to close his Roth IRA in a non-qualified distribution that year. Since the distribution is non-qualified, Jim will owe taxes on his Roth earnings of $1,500, and will pay tax on this amount at his marginal tax rate. In addition, since the distribution took place before Jim reached age 59 1/2, and since Jim did not meet any of the exceptions, Jim will also be assessed a 10% early withdrawal penalty on the earnings. If we assume that Jim is in the 28% marginal tax bracket, he will pay $420 in tax on the earnings, and will pay a penalty in the amount of $150 on the early distribution. This is a very steep price to pay.

Exceptions
The early withdrawal penalty does not apply to distributions that:

1. Occur because of the IRA owner's disability. (This can be a very narrow definition, so if you get a severe paper cut, don't consider a Roth IRA distribution for a disability until you review IRS Code Section 72(m)(7) and IRS Publication 590.)
   
   
2. Occur because of the IRA owner's death.
   
   
3. Are a series of "substantially equal periodic payments" made over the life expectancy of the IRA owner.
   
   
4. Are used to pay for unreimbursed medical expenses that exceed 7 1/2% of adjusted gross income (AGI).
   
   
5. Are used to pay medical insurance premiums after the IRA owner has received unemployment compensation for more than 12 weeks.
   
   
6. Are used to pay the costs of a first-time home purchase (subject to a lifetime limit of $10,000).
   
   
7. Are used to pay for the qualified expenses of higher education for the IRA owner and/or eligible family members.
   
   
8. Are used to pay back taxes because of an Internal Revenue Service levy placed against the IRA.

 

[Guest]

imported post

Pete1 wrote:

Checked with my company today (Dodge and Cox). I can withdraw my contributions at anytime penalty free. The five year rule applies to earnings.

Pete,

They may not charge (Dodge and Cox) penalities. The IRS, however does unless you meet one of the exemptions:

Penalties on Earnings from Contributions
Unless an exception applies, most distributions from a Roth IRA before the owner reaches age 59 1/2 will be subject to an "early withdrawal penalty" of 10% on the amount of the distribution. Be very careful NOT to confuse the early withdrawal penalty with the taxes imposed on a non-qualified distribution (discussed in Part III). A non-qualified distribution imposes an ordinary income tax on the distribution, but the early withdrawal penalty will be imposed in addition to that tax.

Example #1: Jim, age 30, made a Roth IRA contribution of $2,000 in 1998. In 2005, Jim's Roth IRA has a balance of $3,500. Jim decides to close his Roth IRA in a non-qualified distribution that year. Since the distribution is non-qualified, Jim will owe taxes on his Roth earnings of $1,500, and will pay tax on this amount at his marginal tax rate. In addition, since the distribution took place before Jim reached age 59 1/2, and since Jim did not meet any of the exceptions, Jim will also be assessed a 10% early withdrawal penalty on the earnings. If we assume that Jim is in the 28% marginal tax bracket, he will pay $420 in tax on the earnings, and will pay a penalty in the amount of $150 on the early distribution. This is a very steep price to pay.

Exceptions
The early withdrawal penalty does not apply to distributions that:

1. Occur because of the IRA owner's disability. (This can be a very narrow definition, so if you get a severe paper cut, don't consider a Roth IRA distribution for a disability until you review IRS Code Section 72(m)(7) and IRS Publication 590.)
   
   
2. Occur because of the IRA owner's death.
   
   
3. Are a series of "substantially equal periodic payments" made over the life expectancy of the IRA owner.
   
   
4. Are used to pay for unreimbursed medical expenses that exceed 7 1/2% of adjusted gross income (AGI).
   
   
5. Are used to pay medical insurance premiums after the IRA owner has received unemployment compensation for more than 12 weeks.
   
   
6. Are used to pay the costs of a first-time home purchase (subject to a lifetime limit of $10,000).
   
   
7. Are used to pay for the qualified expenses of higher education for the IRA owner and/or eligible family members.
   
   
8. Are used to pay back taxes because of an Internal Revenue Service levy placed against the IRA.

 

[Guest]

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By the way once money is put into a IRA any money coming out is called a distribution.

Good luck!

MT

 

[azanon]

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Is the yelling necessary?

If you owned a roth at least 5 years,its very possibleyou'd come out ahead having received the tax-exempt growith, and no taxes due at withdrawal despite the 10% withdrawal penality thanhad you just went with a taxable account with no penality at withdrawal. An exception to this would be if during your 5 years of investment, you got paltry returns. Up the timeframe to 10 years or more, and it becomes almost an absolute certainly you'd be better off with the Roth despite the penality.

 

[Guest]

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A,

When erroneous information of that importance is promulgated. HECK YES!

Pete is using his ROTH as his emergency fund. That means if he taps it he will have to pay a 10% penalty. That would be a costly error...since 10% is pretty hard to get right now.

By the way I was anwering your question to begin with. Maybe you should do your own research. Because I am not going to answer you again. But based on the bad info that trickled down - GOOD LUCK MATE.

:^MT

 

[Guest]

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THAT IS HIS EMERGENCY FUND!

If you invested in the S&P 500 Index 500 five years ago he would be down 12% plus being stuck with a 10% penalty.

Bottom line: Your IRA should not be used as an emergency fund unless you plan on dieing prior to 59.5 to be eligible for the exemption.

Anyone agree??

MT



azanon wrote:

Is the yelling necessary?

If you owned a roth at least 5 years,its very possibleyou'd come out ahead having received the tax-exempt growith, and no taxes due at withdrawal despite the 10% withdrawal penality thanhad you just went with a taxable account with no penality at withdrawal. An exception to this would be if during your 5 years of investment, you got paltry returns. Up the timeframe to 10 years or more, and it becomes almost an absolute certainly you'd be better off with the Roth despite the penality.

 

[azanon]

imported post

Pete is using his ROTH as his emergency fund. That means if he taps it he will have to pay a 10% penalty. That would be a costly error...since 10% is pretty hard to get right now.

If he owned it at least 5 years before he needed it,I just explained previously why he'd still come out ahead.

By the way I was anwering your question to begin with. Maybe you should do your own research. Because I am not going to answer you again. But based on the bad info that trickled down - GOOD LUCK MATE.

Did you see me ever disagree withyour correction? Who says I didnt research? Perhaps I was just misinformed and made a mistake. Sounds like you've proven beyond a resonable doubt I'm human. I dont think i did anything to warrant your sarcasm; Jerk.

 

[Guest]

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Pete,

I beg you man do not listen to these people on this board - do not use your IRA as your emergency fund.

They can hammer me all they want but you are going to lose some dough if you take their advice.

God bless.

MT



Pete1 wrote:

I believe Roth contributions can be withdrawn penalty free the day after deposit if need be. Hence, I maintain a smaller emergency fund (roughly2 months of current expenditures). I try to carryover 240 hours of annual leave and of course, do not abuse sick leave (my sick leave goal is to accumulate6months). I have a single credit card (10K limit @ 6.75%) which I pay off monthly.

 

[azanon]

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If you invested in the S&P 500 Index 500 five years ago he would be down 12% plus being stuck with a 10% penalty.

Who ever guaranteed stocks always wins? I know i didn't.

If one hasnt exhausted their IRAs yet and has excess money, you could do MUCH worse than putting it in an IRA. If you dont end up needing it, then by default, you chose the best investment vehicle possible.

I have an emergency fund myself, but I dont intend on needing it. I live under the belief that there's no such thing as luck, except the luck you create. I dont go crying in a corner when life deals me a curveball. It'd be a matter of days, maybe weeks, that I'll solve whatever problem I have. And lets not forget, TSP is related to federal Jobs. Who the hell loses their federal job? Even those that do, you have #1 preference for a new position. Our risk relative to the average american is very low.

 

[azanon]

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Want some valid advise? If you want someone to listen to you, get a new handle. Everyone knows market timing is a loser's game.

 

[Guest]

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A,

All the freaking indexes are down year over year over the past five plus years. PLUS the 10% penalty you are going to crush this guy. How is he going to come out ahead???

If you invested in the S&P 500 Index 500 five years ago he would be down 12% plus being stuck with a 10% penalty.

A NASDAQ INDEX he would be down 40% plus the penalty.

I strongly disagree with your advice. There is no sure thing in the market to be able to come out ahead after a 10% penalty.

Good luck!

MT

azanon wrote:

Pete is using his ROTH as his emergency fund. That means if he taps it he will have to pay a 10% penalty. That would be a costly error...since 10% is pretty hard to get right now.

If he owned it at least 5 years before he needed it,I just explained previously why he'd still come out ahead.

By the way I was anwering your question to begin with. Maybe you should do your own research. Because I am not going to answer you again. But based on the bad info that trickled down - GOOD LUCK MATE.

Did you see me ever disagree withyour correction? Who says I didnt research? Perhaps I was just misinformed and made a mistake. Sounds like you've proven beyond a resonable doubt I'm human. I dont think i did anything to warrant your sarcasm; Jerk.

 

[Guest]

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Valid advise - DO NOT USE YOUR IRA AS A SHORT TERM EMERGENCY FUND. He could put the money in Friday and need it on Monday and have to pay a 10% penalty.

Using your IRA as a emergency is a idiots game. Let me off your train of thought!

:^



azanon wrote:

Want some valid advise? If you want someone to listen to you, get a new handle. Everyone knows market timing is a loser's game.