Put my TSA job on hold to deploy again...

[TSP@ti2de]

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I have just over 18 years in the National Guard, and made Captain last year.

I paid everything off but my house last time I was away, I've been with the TSA for just over a year, wife just hooked up with her own good job, 2 kids,4 and 7.

I have just under $4K in the TSA TSP, and just cracked $10K on the military TSP.

I max 15% with a 5% match at TSA, 10% with 100% incentive pay on military.

I allocate 40% C, 30% S, 20% F, 10% I, on both accounts.

Getting ready to 'head out', the tax-free income will be ridiculous, almost $8K/month.

I max front-load my Roth every year, and push $600/year to each of the kids' college funds, but I'm thinking about using the rest of thisincome to pay off my house. I owe about $63K, I'm on year 3 of a 15 year re-finance, my usual monthly payment is $800.

Haven't had much luck keeping a broker, most of them bailed out in 2002-2003 and left my money (and a plan) hanging out there. Not one of them was able to look me in the eye and tell me that my house payoff strategy was a bad idea. Just wondering if my head is on straight.

 

[tsptalk]

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Welcome -
You might want to get a hold of Ric Edelman's book, "The Truth About Money". Whether you agree with him or not, he will give the other side of the story of why you shouldn't pay off your mortgage. His basic argument is that it isthe cheapest money you can borrow. (ie: borrow $100,000 at 5% and make 10% on it in the market).

Of course the book has serveral other money tips.

Thanks for joining us!
Tom

 

[TSP@ti2de]

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Tom -

Thanks for the prompt response!

My argument for paying off the house is that I would have more disposable income every month to do anything I want, and I am no longer tied to any debt.

I've been through the car loan / student loan / credit card games, and didn't like it one bit. I hated to see my paycheck get five-and-dimed out to someone else.

Do I need a head check?

 

[Birchtree]

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-Captain you have it going on, you are squared away. You will encounter the problem we all face - how to keep taxes low. We all get a tax cut in 2006 - the TSP % limits will be lifted in 2006 - the new cap is $15,000. You probably need to put your investment plan on auto pilot while you are deployed - unless your wife enjoys keeping an eye on the money. The only offsetting itemized deduction, besides child care expenses, will be your mortgage. But then it may not be enough to really help.Whether you pay off the mortgage is your choice - one fact remains regardless - the equity in the house will continue to expand and you can get access to it at a later date if so desired. I would suggest you change out of the F fund in TSP and put that % on the C fund. Keep the rest if you are inclined - although I think the C fund will outperform the others in the next year. Set your allocation accordingly - don't worry about the ups and downs of the market while away - you don't have enough to get hurt and you can equalize out with your dollar cost averaging.You will be building funds in your Roth - hope you own individual stocks there- they pay dividends every 3 months to be reinvested - self feeding system. What to dowith the remaining cash over the year is the question. If your wife doesn't need the money for home expenses I would suggest a discount broker (Sharebuilder.com) for example where they only charge b$4 per trade. They will chare only $8/month when you set up a recurring purchase program - they will deduct automatically from your bank and will reinvest all dividends for free. This is not a tax deferred account so you will be responsible for any dividends. But since your income will be tax free - if your wife can keep the family income under $56,800 - you are in the 15% bracket and your dividends are 95% tax free. This is an example where I helped a Navy Commander who was stationed at Cuba - while he was away his deferred account was bleeding and he had no way of knowing - he said never again. What to do - go auto pilot. I opened him a Sharebuilder and invested $135,000 to buy 41 different stocks for a cost of $164. We also purchase on a recurring basis another 5 stocks every 2 weeks- he never sees the money. Of the 46 stocks he owns he gets 181 dividend hits a year- money coming all the time, not to mention capital appreciation. He's up over $40,000 counting all gains and contributions. It's so simple - no brokers to pester you. Just pick good stocks - good luck. Stay safe and we appreciate your service to our country.

Dennis

 

[tsptalk]

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TSP@ti2de wrote:

My argument for paying off the house is that I would have more disposable income every month to do anything I want, and I am no longer tied to any debt.

I've been through the car loan / student loan / credit card games, and didn't like it one bit. I hated to see my paycheck get five-and-dimed out to someone else.

Do I need a head check?

Definitely not (head check ). You are likely the envy of many on the board, and I'm one of them. I don't have too much conviction either way on paying off the house. I was just playing devil's advocate to help you make the best decision for you.

Using the a long, cheap money, mortgage and investing the difference (of a higher, shorter term mortgage payment) takes a lot of discilpline in that if you don't invest the difference, it is a mistake. But if you do the math, getting a low interest, long term, smaller paymentloan, and investing the difference in a higher return, does give you more money in the end. Paying off the martgage gives you peace of mind. That is much more important to some.

For the record, I don't do it. I had done it about 5 years ago. I actually refinanced a 15 year loan to get a lower payment on a 30 year loan, and invested the difference in an aggressive IRA wireless fund. That was in the spring of 2000 :shock:. Not very good timingas techs dropped like a rock after that. That didn't make me very popular with my wife andI have since refinanced back to a low interest 15 yr loan.

Tom

 

[pyriel]

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TSP@ti2de wrote:

I have just over 18 years in the National Guard, and made Captain last year.

I paid everything off but my house last time I was away, I've been with the TSA for just over a year, wife just hooked up with her own good job, 2 kids,4 and 7.

I have just under $4K in the TSA TSP, and just cracked $10K on the military TSP.

I max 15% with a 5% match at TSA, 10% with 100% incentive pay on military.

I allocate 40% C, 30% S, 20% F, 10% I, on both accounts.

Getting ready to 'head out', the tax-free income will be ridiculous, almost $8K/month.

I max front-load my Roth every year, and push $600/year to each of the kids' college funds, but I'm thinking about using the rest of thisincome to pay off my house. I owe about $63K, I'm on year 3 of a 15 year re-finance, my usual monthly payment is $800.

Haven't had much luck keeping a broker, most of them bailed out in 2002-2003 and left my money (and a plan) hanging out there. Not one of them was able to look me in the eye and tell me that my house payoff strategy was a bad idea. Just wondering if my head is on straight.

I would just like to make a small recommendation. I would suggest for you to think of the following:

1. $15k max contribution for next year. If you are going to pay off your house, please ensure that you are also ready to max TSP next year.

2. I don't know how much you are paying for your house mortgage but if I think this is a good idea. If you can free up 1k a month, that will be going to your pocket instead of the bank then that is great. This will also be what you may use to continue maxing out your TSP when you return from deployment.

3. Once you free up your monthly mortgage,put 100% of your reserve pay (when you get back from deployment)to TSP as long as they are not going beyond 15K.

4. If you can, contribute all your especial pay to TSP when you are deployed.

5. Your W2 income for this year and next yearwill go down (due to tax exempt). Adjust your W4. Better to get your money now than wait for tax return.

P

 

[TSP@ti2de]

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"if your wife can keep the family income under $56,800..."

Did I mention that she just got a fat job? $68K to start. DANG - who woulda known?

I've kicked and pinched myself the last couple of months, thinking that maybe this wasn't the best time to deploy, but I'm trying to max out my deployment days. Afghanistan 'seems' like a safer bet than Iraq, wouldn't you agree?

Thank you for your kind words and the great responses so far.

 

[Guest]

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What is the interest rate on your mortgage and how much of it can you write off?

See if you can go to UAE instead. I really love that country.

Afgan is going to be a little hot and more ways then one.

I am thinking your best thing is to fund that tax free account that you get in a war zone. I can not remember the name of it? I know there was a thread that had data on it but I can not find it. Anyone know what I am trying to talk about? Thanks

I believe you get 10% interest and it is tax free. I am not military so I just glossed over it.

 

[TSP@ti2de]

imported post

What is the interest rate on your mortgage and how much of it can you write off?

Right now I am at 5.625, my taxes ran about $2K last year.

I am thinking your best thing is to fund that tax free account that you get in a war zone. I can not remember the name of it? I know there was a thread that had data on it but I can not find it. Anyone know what I am trying to talk about? Thanks

I believe you get 10% interest and it is tax free. I am not military so I just glossed over it.

Many myths surround this thing. I am about $1K shy of being able to front-load the whole thing, but I hear that you can't do this (IRS trigger). You need to write 2 separate $5K checks. Small additional work for a good 10% payoff, $1000 for doing nothing, and you have 90 days to cash it out, so maybe $200-$250 for being lazy...

 

[Guest]

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I would research the war zone account. It appears after the tax writeoff you will double your mortgage money that you are paying, i.e. that means you will be 100% ahead. Not to many sure 100% things out their right now.

IMHO.

Good luck buddy! DMA