Thread: 15k limit by year 2006. Are you ready?

To contribute $15k to TSP, I'd have to kick in nearly 30% pretax. Sorry, but even for a miser like me, that's insane. :P

I'll just continue to raise my TSP witholding by 1% per year (currently at the maximum of 15% :shockand max out the Roth. At my age, this is more than enough.

If my wife will allow - I'll do the full $20K and be pleasantly satisfied.

Folks who have 15+ years to retirment need to seriously reconsider contributing anything more than the match amount (5%)in to TSP. This is because oftwo importantreasons:

1. The max tax amount you save 20%+by contributing this extra money will be dwarfed by the taxes you will pay when you get to retire. Any one here does not belive that, with all those deficit the gubbermint is running, they will not be stuck with higher taxes on income 20 years from now? Also, Remember, the extra 10% you are "allowed" to contribute alsowill not escape the social security taxes (7.65%) and so you really are not saving that much in taxes as you think.

2. Since the asset class available in TSP is very limited, you are better off opening your own Roth IRA elsewhere and investing in emerging markets, oil, gold, natural resources, utilities, international real estates, and yes, even junk bonds--all asset classes you are unlikley to find any time soon in TSP.

Also, worst of all . don't forget that even in these days of computerized investing, it takes any where up to 2 pay periods to get your TSP contributions actually get fully implemented on your paycheck. That is 28 days when in emergency you want to adjust your pay!!!

Mike & Sr,

Although the asset classes for TSP are limited, don't you think that it is much easier to move your funds to safety when there is a need. I've also done some analysis about TSP growth vs. ROTH growth and I am finding that there really is not much difference even TSP participant has to pay tax towards the end. I felt the same way in the beginning until I ran them through excel. Do you think that either one of you can do one and show us your result. I just want to validate it with my findings.

Sr,

My plan is to have my family unit in the 15% tax bracket when I finish employment.

My hope is that eventually my defined benefits pension will be converted to a defined contribution plan - that will allow me full control of the resources - take only the money that I want. My wife has already made her conversion - so her money belongs to her to invest as appropriate. Social security can wait until later years. By being in the 15% bracket - and that requires planning - all capital gains and dividend income is 95% tax free. The TSP program will add to income because of the RMD - but if one slowly converts to a traditional IRA and then rolls those funds gently into a Roth IRA one can possibly have income without increasing the tax bracket.

I would prefer to be independent of any set pension plan or annuity program and just invest the funds as I see applicable - the money would be mine. Forget the monthly pension check - social security will fill that gap. The TSP provides ample options to make money - all one needs is to avail and participate. Take some risk and use the money to make more money.

Dennis

Birchtree wrote:

If my wife will allow

WTF?

Quite a non-sequitur after that Katrina post. :shock:

Maybe you should change your 'r' to a 't'. :l

$15K into TSP...been thinkin' about that for a while. I wanna, but I don't wanna.

I can...but just because I can doesn't mean I should.

I can...but I won't have anything for Scottrade and I really miss playing with stocks...and the ridiculous gains and that "Master of the Universe" feeling.

I didn't know SS tax was not exempt on 403(b) contributions...that does make it less appealing.

I do need to make sure I don't pop a bracket...guh...more fiddling with numbers just to keep my own money....TEDIOUS.

I find it hard to believe that a well-managed regular brokerage account won't outperform (as in "kick the crap outta") a well-managed TSP investment. The profit-opportunities of..well...the whole world are much greater than five index funds.

I definitely will up my TSP..but the max...for now, yes...but I'll see.

rolo,

A Roth IRA has a lot more potential and flexibility for sure. The only problem is it takes so long to build a position that you can do anything with - it takes money to make money. It's great if one is younger and has ample time to build resources. In 2006 I can put in $5000/year - it just takes forever. Rolling from a traditional IRA when in a lower tax bracket to the Roth IRA will build faster. You just have to live on savings so one doesn't have a large tax bracket - requires much planning.

Dennis

Birchtree wrote:

Sr,

My plan is to have my family unit in the 15% tax bracket when I finish employment.

With all that investment that you have, it is hard for me to fathom that you'll make that 15% tax bracket.;-) Wishful thinking, perhaps?

Birchtree,

I agree with what you are saying regarding position. My plan is to max the TSP where about 85% of the balance of our retirement accounts reside and contribute the tax savings generated by TSP contributions plus anything else I can muster to our Roths. Will not be able to max out TSP and both my wife and my Roths, but cannot ignore the power of the TSP compounding at this point.Will begin convertinggradualllyfrom TSP to Roth in the lowest tax bracket available at my MRA of 56 (43 now). May get bit by higher ratesthan 15% at my MRAbutthe TSP is the money makerdue to positoning and the compoundingshould help to compensate for a higher tax rate at MRA 13 years from now. The TSP is like a rather enormous snowball at this point as compared toour Roths (about 5% of our savings is in the Roths). I will only convert up to the ceiling of the lowest tax bracket available each year. Will take social security as late as possible.

Pyriel,

You are over looking the advantages of capital gains - you take them only when you feel the desire - there is no rush to the IRS.

There have been so many companies in the last ten years making employee conversions of defined pension plans to defined contribution plans, that I'm sure Uncle will eventually do the same. That's probably one reason the L funds are being offered in TSP - the mechanism for the conve rsion will already be in tact. The advantage of the defined contribution plan is that it works just like TSP, only you are in control of the income that is available - you can take it all at once or none until you are ready and then you name the amounts and conditions of distribution. There is of course the RMD. Staying in the 15% bracket does require planning - but I think it can be done and will allow me to keep more of what I have earned.

Dennis