Situation for young (?) Sailor

[law87]

A little useless background, I am 25 in the US Navy. Ever since I discover this website which is about 3 years ago, I been learning a lot from members and contributing a lot to my TSP (18-20% of my base pay). Currently I have about 23,500 in there and would like to reach 30k by the time I'm 28. Now my situation change a little as I have bought a house a year ago in an area where I would see/hope that it would be a big rise one day. Just this week I decided to Refinance my house and going for 15 years(payment is still the same, just lower rate and years to pay off), I figure if I can double my payment right now I can pay the house off around 7-8 years but in order for me to do that, I need to stop contributing my TSP. My questions is, is that the right path to be taking? should I stop my TSP contribution and devote fully on my Mortgage?

P.S Thank you all for your great knowledge.

 

[Frixxxx]

Excellent..Here's what I need answered: Do you pay taxes? The reason I'm asking is because your tax liability is very low. Second, do you plan to retire from the Navy? Because if you do, it is like getting a $1 Million Dollar annuity after 20 years. Now, answering those questions, since you own a house now, I'm sure you will have to leave there in the course of your career an will either sell or rent the humble abode. Now, based on you are going to retire militarily, I would focus any investing dollars toward a Roth IRA. I would also make sure that you keep your house no matter what (unless just impossible) during your other career PCS's. Remember it is the balance of capital versus taxation. But this is also a very limited look at your life....There are many life changes that you will have to balance the equation....Many equations are different. Enjoy the journey!

 

[law87]

Excellent..Here's what I need answered: Do you pay taxes? The reason I'm asking is because your tax liability is very low. Second, do you plan to retire from the Navy? Because if you do, it is like getting a $1 Million Dollar annuity after 20 years. Now, answering those questions, since you own a house now, I'm sure you will have to leave there in the course of your career an will either sell or rent the humble abode. Now, based on you are going to retire militarily, I would focus any investing dollars toward a Roth IRA. I would also make sure that you keep your house no matter what (unless just impossible) during your other career PCS's. Remember it is the balance of capital versus taxation. But this is also a very limited look at your life....There are many life changes that you will have to balance the equation....Many equations are different. Enjoy the journey!

Hey Frixxx, yes I am renting out the house. As of right now, I have 4-5 years left, not sure if I want to re-enlist anymore. Hypothetical situation, lets just say I want to get out and go to school. Would you change your answer?

 

[law87]

Excellent..Here's what I need answered: Do you pay taxes? The reason I'm asking is because your tax liability is very low. Second, do you plan to retire from the Navy? Because if you do, it is like getting a $1 Million Dollar annuity after 20 years. Now, answering those questions, since you own a house now, I'm sure you will have to leave there in the course of your career an will either sell or rent the humble abode. Now, based on you are going to retire militarily, I would focus any investing dollars toward a Roth IRA. I would also make sure that you keep your house no matter what (unless just impossible) during your other career PCS's. Remember it is the balance of capital versus taxation. But this is also a very limited look at your life....There are many life changes that you will have to balance the equation....Many equations are different. Enjoy the journey!

yes I do pay taxes, is there anyone living in the state who doesnt :blink:?

can you clarify that for me? I'm a big noob.

 

[Frixxxx]

yes I do pay taxes, is there anyone living in the state who doesnt :blink:?

can you clarify that for me? I'm a big noob.

Well a lot of your income is considered non-taxable....so that being said...you already have a bit of tax free monies in your budget. So, based on your rank, your income is already lower than most. Hence you have write-offs to consider and goals to set. Thus, this lowers your tax footprint.

 

[law87]

Well a lot of your income is considered non-taxable....so that being said...you already have a bit of tax free monies in your budget. So, based on your rank, your income is already lower than most. Hence you have write-offs to consider and goals to set. Thus, this lowers your tax footprint.

problem is I don't have much to write-offs. So its better to take the standard deduction.

 

[Frixxxx]

problem is I don't have much to write-offs. So its better to take the standard deduction.

Try rerunning the numbers this year with your free tax software...every service offers it. I bet you can find owning a house and a few TSP dollars help you beat the standard deductions....

 

[Luke]

If I may chime in here, I did six active years Navy and did not start my TSP until 1.5 years ago when I got a federal job. If I could have changed one thing about my time in the Navy it would be that I started and contributed heavily to my TSP. You can never ever ever make up for lost time when it comes to investing. Not sure what state you're in but like Frixxxx said, your write offs for owning rental property should be tremendous. Are you deployed enough not to pay state taxes?

You can write so many items off on rental property. New chainsaw? It's for the rental. New jacuzzi? It's for the rental. You think the IRS is going to send someone out to your house to actually verify one persons miniscule write-offs in the grand scheme of the IRS tax world?

As a reference I rolled $9,800 into my TSP from a state retirement in April of 2011. Now, after contributing for slightly less than 2 years I have $29,000 in my TSP. This site is a large reason for that increase. Point is I believe you can find a balance between write-offs, a 15 year mortgage, and TSP contributions to make your situation work. What's the rush to pay off your mortgage if someone else is paying it for you and the mortgage interest is a write-off? Unless you plan on buying more rental property (which if done correctly is also a smart move) I wouldn't rush to pay off your mortgage. 15 years will come long before you retire and have to worry about that payment while retired. Time is your enemy in investing, but in your case it's your friend. Just my .02.....

 

[Frixxxx]

If I may chime in here, I did six active years Navy and did not start my TSP until 1.5 years ago when I got a federal job. If I could have changed one thing about my time in the Navy it would be that I started and contributed heavily to my TSP. You can never ever ever make up for lost time when it comes to investing. Not sure what state you're in but like Frixxxx said, your write offs for owning rental property should be tremendous. Are you deployed enough not to pay state taxes?

My tax assumption is based on many things.....People who make more will pay taxes, but when I was on active duty, I provided all writeoffs for my enlisted to not (legally) pay taxes. If law87 is an officer with no kids, he will probably be on the line of a tax bracket. And as I know, the VHA/BAQ is not taxable. My main focus of discussion is to make you footprint low in Uncle Sam's eyes while getting the best bang for the investment dollar. Hope this clears it up!

 

[Luke]

My father in law just retired from the California Court System. Making well over 6 figures he was paying less than 1% income tax. Two words, rental properties. The write offs are there you just have to find them. I am not aware if BHA is taxable, I would assume it is an entitlement. I can't see Uncle Sam giving away money to live out in town and not taxing it. In my situation I was a resident of NY while enlisted and was stationed in Va. Beach so I never paid NY state income tax. Not sure if this applies to him or not, just because he owns the rental doesn't mean he has to be a resident of that state, but the income from that state (where rental is located) would have to be filed and would probably be credited towards his state of residency if different.....I'm in agreement Frixxxx, just a lot of variables here that we need clarification on I think!

 

[law87]

Thanks Luke for chiming in, I guess I dont know anything about taxes to be able to write off anything. In the past, all I done is gobble up a bunch of paper work and give it to the tax lady, walk away for an hour and come back. The money I received last year was enough to make one mortgage payment. From what I get from Frixxx and Luke is that amount could be a lot more.

To answer some question, I am enlisted active duty, no deployment due to a type of job I'm doing. I do have a roomate currently living in my house, she pay more or less half of my Mortgage. Not sure if I can write that off though.

P.S if anyone know a good tax person in MD for this upcoming tax season please sent me a PM thanks

 

[Luke]

Is your rent money on the books or off? In other words, do you claim the rent money as income? Anything, and I mean anything you buy for your house (especially since you also live in it) is a write off. I mean that in terms of repairs of upgrades of course.....

Are you from MD, or another state?