Retirement Planning [Archive]

pyriel

07-06-2005, 02:01 AM

Wonder Woman wrote:
I certainly wouldn't roll my funds out of TSP to an IRA type account. I've always read that the costs of maintaining an account, manager fees, etc. out way the benefits. Heard the paper work is outlandish also!
Just My http://i3.photobucket.com/albums/y72/W_W/Money/2_cents.gif http://i3.photobucket.com/albums/y72/W_W/WW.gif
It is a good idea... However I would like to raise this issue to you WW... I am not really privy with your status whether you are single, married, with children etc. etc... However, I can tell you that if you are married with children, rolling it over to a traditional IRA (and later to ROTH IRA) is a better choice. Especially for someone like yourself that have a portfolio that could easily encompass $1 mil is something to think about.It is unfortunate thatmany of us thinks about our current investment as isright now but we also have to think aboutthe future. IRS is hard to fight when you are dead. If not done correctly, you canloseeverything to IRSwithout any of your love ones gettinga penny of the hard earned money that your worked for throughout your entire life.

I am not saying that leavingsomeone's TSP account intact after retirement is a bad idea. In fact, I plan to do the same. However, I also plan an exit of transferring my TSP to traditional IRA then to ROTH IRA.I know that we always say that we plan to livelonger after we retire and leaving it to TSP will allow us to play the market and hopefully makeour retirement grow even more. Butnobody can tell me on this board that they know when are they going to die. And because of this, we need to be concern about the love ones who will inheritthe money that we worked so hard for.

Grandma suggested a book by Ed Slott (?) in one of the topics within this board. I urge people to read that book... It is not only a good read but also an informative one. For me, I would like to be able to pass on my TSP funds to my kids while at the same time letting the money grow even more. I also hope thatwith proper planning, they can then passit on to their children as well.Leaving your retirement in TSP without a proper exit could causeyour children and their children not to take advantage of tax deffered and reinvesting compounding interest thatonly IRA could offer.

I would like someone to answer this question I am going to post with hope that people will think about estate taxes... If you have a million dollars now in TSP vs. traditional IRA, and you die a year from now. How much of that money do you think you are going to pass on tax deffered to your children or love ones (besides spouse) and to their children for the next generation. Imagine the possibility of passing your hard earned money through generations is more than enough for me to take the risk of transferring my TSP to a traditional IRA (and later to a ROTH IRA). If you know the answer to my question, please put it in excel worksheet and attach it here so that people can see the difference. For the sake of argument, lets say you are 60 years old, your spouse is 65, and your 2 children are 20 and 25 years old... Thanks...

P

07-06-2005, 04:31 AM

As usual Pyriel your contribution is generous. I was just trying to address Spaf's question and state what I have determined is best for me. As soon as I finished writing it I realized that all the 'what if's' were going to follow - so let's just for this thread, this time, for Spaf's sake, stick to Spaf's question, needs and situation.
And please don't get carried away with the million $$$ thing for me - I'm no where near that, nor will I ever be. I really don't like to repeatedly strut my stuff, nor do I like it when others repeatedly strut theirs.
http://i3.photobucket.com/albums/y72/W_W/Birds/peacock_preening_sm_clr.gif IMHO http://i3.photobucket.com/albums/y72/W_W/WW.gif

pyriel

07-06-2005, 05:47 AM

Sorry, didn't mean to offend you. My post is merely to increase level of knowledge and discussions with our readers. I did agree with your plan and had said that I will most likely do the same (with a little variation).I really do like seeing people here mention what they have for it tells me that these are the people that we need to be listening to and reading their advice since they've been there and done that.

Get carried away sometime, to the point that I don't watch what I write. Need to tell myself to be more carefulso others maynot perceive it the wrong way. Now about your fonts... Could you make that a little bigger. My age is catching up to me and my eyes are not doing too well:). ThanksWW... Here is a hug from me to you... P

07-06-2005, 06:17 AM

Pyriel, you did not offend me in any way.
Gee, I wish I knew what the problem with the fonts is. What I see on my screen is your font is smaller than mine. Let me f/uthis discussion in the Problems Category.
http://i3.photobucket.com/albums/y72/W_W/WW.gif

mlk_man

07-06-2005, 06:27 AM

What's wrong with 50/50? :^

The main difference is that with ST you have sooooooooo many more options. The fun part, and let's face it don't we all wanna have fun when we retire, is putting a little into a developmental company and watching it take off. Of course, it doesn't always work. :shock:

Then again, TSP has that new "L" fund coming out and so you can just give them your money and they can make you rich.........er..........:P

Good luck,

M_M

SkyPilot

07-06-2005, 08:55 AM

I have about a decade to go before I retire, however, I think I will probably keep most or all in TSP. I can easily change allocations, daily if I choose. There is no assessed cost per transaction, and the management fees are extremely low, as funds go.

So, my only draw back is limited choices. However, the choices I have seem to offer enough potential to accomplish my basic goals. Also, I understand the funds pretty well, which is of some value in it's own right.

If the daily deadline ever gets moved to the end of the day rather than the middle, I will really be pleased. Theremay be more fund options in TSP as time goes by as well, like a REIT and maybe some addittional international funds.

In any regard, good luck and good fortune...

Birchtree

07-06-2005, 09:55 PM

Spaf,

I've been thinking about your retirement question on and off for a few days - hate to rush into giving free advise, especially if it's of limited value.

The first thing you have to do is go back to square one - and consider how much you will have coming in yearly that you can't control. That figure is what sets your AGI -adjusted gross income - that is your tax bracket. Everything else you do is impacted by that tax bracket- no way out of it as long as you have a defined benefit retirement program. You will get that check every month as long as you live. Depending what options you select for payment as well as your primary beneficiary selection will all impact the end amount. Generally speaking the least amount you take the lower the tax bracket. An example would be covering your sp[ouse for her remaining life -if she happens to be younger you will be forced by default to take a smaller amount.

At some point you will apply for social security - the longer you can wait the greater the amount provided. This money is added to your AGI.

If your wife has her own retirement plan - that may be more family money you cannot control- it all adds up to either help you or hurt you depending upon you future plans.

Capital gains are another option to consider. They are generally taxed at 15% unless you have maneuvered your fiscal situation into the 15% tax bracket which is AGI of $56,800. Capital gains are then taxed at 5%.

The TSP could continue to provide valuable income that is deferred. Depending upon how aggressive you might want to invest the opportunity is wide open I think for several years going forward even if the Fed ends up engineering a shallow recession. I think they will stop shortly and we'll have an economy that is slow to moderate with low inflation and continued low interest rates. Goldilocks.

When you turn 70and one half you will be required to take a required minimum distribution from TSP that will be set by regulators. You can also take monthly payments - the amount of your choice - and these payments can be sent anywhere to include traditional IRAs. When you pass all funds go the the primary beneficiary that is usually the wife. If children are named as eventual beneficiaries then TSP will send the remaining funds in a lump sum which require higher taxes. Remember you cannot transfer money from a traditional IRA to a Roth IRA if yourmarried income is more than $160,000/year. There is much more- but this should give you some ideas. Ask and you will find the answers.

I justremembered you can give children or anyone up to $15,000/year without enacting any kind of estate type tax. I believe the current estate tax policy may be eliminated entirely in the not to distant future. Currently there is no estate tax on any funds that pass to the spouse. After that the first exemption is 1million, and is set to rise to 3 million by 2008.

Mike

07-06-2005, 10:39 PM

Giving money to children has consequences, though. It will count against them dollar-for-dollar in financial aid calculations when they apply for college (i.e. whatever assets the kid has will be expected to be used to pay for college). Money in the name of parents, on the other hand, is only counted at ~35% I believe. Money held by relatives/grandparents is not counted at all. This makes a huge difference in eligibility for state and federal aid.

pyriel

07-07-2005, 12:59 AM

Birchtree wrote:
At some point you will apply for social security - the longer you can wait the greater the amount provided. Sorry but I have to disagree. Please look at the excel worksheet attached to show that it is more beneficial to start taking money out of SS at age 62.

If your wife has her own retirement plan - that may be more family money you cannot control- it all adds up to either help you or hurt you depending upon you future plans. Sorry but I have to disagree about this scenario hurting them rather than helping them. Having more retirement plan is always better than having less, even if you have to pay taxes on them...

When you turn 70and one half you will be required to take a required minimum distribution from TSP that will be set by regulators. You can also take monthly payments - the amount of your choice - and these payments can be sent anywhere to include traditional IRAs. Sorry but I have to again disagree. Once you reach 70 1/2 years, you reach your RMD. This means that Uncle Sam gotta get paid. You have no more recourse. You have to at least take out an Minimum Required Distribution (MRD). You can't send any of your TSP to an IRA. It is the end of the road for you once you reach 70 1/2...
When you pass all funds go the the primary beneficiary that is usually the wife. If children are named as eventual beneficiaries then TSP will send the remaining funds in a lump sum which require higher taxes. This is the reason I advocate transferring TSP to traditional IRA then later ROTH IRA.When to do it is anyone's option but it should be done nonetheless. Not doing it will cut off the possibility of passing your hard earned money to yourchildren and to their children etc.by having your fund continue to earn tax deffered withcompounding interest. Only IRA can do this. TSP, 401K, 403b can't.
Remember you cannot transfer money from a traditional IRA to a Roth IRA if yourmarried income is more than $160,000/year. There is much more- but this should give you some ideas. Ask and you will find the answers.$160,000.00 is AGI per year not actual. This means that you can be earning $200,000.00 and still have an AGI of $100,000.00. You can easily beat this if you have real estate through phanton income such as depreciation and deductible expenses.

I justremembered you can give children or anyone up to $15,000/year without enacting any kind of estate type tax. This is per person so a couple can actually give out $30,000.00 (I thought limit is $10k but it might have been increased). And it is not limited to your children.
I believe the current estate tax policy may be eliminated entirely in the not to distant future. Currently there is no estate tax on any funds that pass to the spouse. After that the first exemption is 1million, and is set to rise to 3 million by 2008.If you want to planto maximize going around estate tax, please plan to dieon 2010.This is theyear the cap for estate tax is eliminated. However, it goes back again on 2011. Weird huh?

Birchtree

07-07-2005, 05:09 AM

Pyriel,

I'll have to double check on the required minimum distribution - but I think if you already have a monthly payment plan in place it remains in place - you may be required to increase the amount to comply with RMD. If you have a monthly payment plan set up you can have funds sent to an IRA - the longer it is drawn out the better. That way you keep TSP money working - some people will actually prefer to take the annuity program. Now the problem you are going to have is how to control all that rent income - you can only depreciate so much. Even when we all convert to a Roth IRA we are still going to have certain complexities to deal with - like RMD for the heirs. We'll get to the bottom of the subject eventually.

Now some employers will start offering a Roth 401k program - if the Gov ever offers a process to go from a defined benefit program to a defined contribution program this would be nirvana for me. My wife made the conversion as a State of Florida employee - a whole new set of retirement parameters- especially choosing a beneficiary. And she is in complete control of her funds - the money belongs to her. We can discuss this option at a later date. And by the way - waiting longer gives you a larger payout on social security.

pyriel

07-07-2005, 08:10 AM

Birchtree wrote:
Pyriel,

I'll have to double check on the required minimum distribution - but I think if you already have a monthly payment plan in place it remains in place - you may be required to increase the amount to comply with RMD. If you have a monthly payment plan set up you can have funds sent to an IRA - the longer it is drawn out the better. hmmm... this confuses me for you are jumping into different aspects of RMD. Let me break it down... 1) "if you already have a monthly payment plan in place it remains in place." This is not true. Once you reach 70.5 RMD starts. Your required RMD is based on your remaining life cycles. However, there is nothing that stops you from taking out more than the RMD. 2) "you may be required to increase the amount to comply with RMD" Again RMD is set according to your remaining life cycle. You can't increase to meet RMD since you are not allowed to go below that.If you draw below RMD,you will get hit with multiple taxes. 3)"if you have monthly payment plan set up you can have funds sent to an IRA."This isnot true and I am positive about this. Once youstart taking RMD upon reaching 70.5 this means that you are drawing distribution. Distribution from a retirement account is not eligibleto be invested into an IRA.If youshould put it in another IRA, you must rollit over. However, as I stated earlier, you lostout on that once you reach 70.5."the longer it is drawn out the better" This is true, however, you can not make that longer when your retirement is in TSP. If you die at age 75 and you have 1mil in your account, your heir must take them all out within 3-5 years. However, in IRA or ROTH IRA,your heir can draw out an RMDaccording to their life cycle. So if the heir is only 25 years old, then they only have to take out RMDand make that money last throughout their life cycle. Any left over after that can be given to their heir as well...
That way you keep TSP money working - Not after death. Your heir is required to take them out within 3-5 years. In IRA, you can prolong it to your heir's life cycle.
some people will actually prefer to take the annuity program. Now the problem you are going to have is how to control all that rent income - you can only depreciate so much. Now you are going into my realm which I am very knowledgeable about... Apparently, people's mentality is to pay off their debts. If you do that, you will be correct.However, a real estate investors will never do that. Once you start building equity,they remortgage. Why?Because it is free money. You don't get taxed for them since it's not income. And I don't pay for the increase monthly payment since my tenant will pay that off for me. Let's do the math with one of my apartment. I am paying $2003 per month. I only owe 198k. I am getting killed because I only have 12 more years to pay this. I am not maxing out in depreciation and deductible (interest pmt, repairs, etc). So I am in the process of refinancing for 300k. Monthly will go up to $2450. I'll get about 100k in my pocket without ever paying a dime in taxes. The increase in monthly pmt is almost the same and my tenant will pay for it. Hmmm... I also increased my interest and depreciation which will help me for my tax at the end of the year.
Even when we all convert to a Roth IRA we are still going to have certain complexities to deal with - like RMD for the heirs. We'll get to the bottom of the subject eventually. RMD for the heir is easy. Why? IRS created a tax table for them by life cycle. All you have to do is figure out what is your life cycle and then minus that by one for every year there after until you deplete the fund.

Birchtree

07-08-2005, 07:48 AM

Pyriel,

Thank you for your response - but the debate must continue. Go to the TSP Gov site and under heading - Getting Your Money Out After Separation. Also under the heading- What Are My Withdrawal Options.

Inorder to clarify from this point all my comments are essentially direct quotes from the site. A series of monthly payments can be used for full withdrawal. You can have TSP transfer all or part of any single payment or in some cases, a series of monthly payments, to a traditional IRA plan. There are 2 types of withdrawal programs - either full withdrawal or partial withdrawal. Partial withdrawals are paid only as a single payment. You can have the TSP transfer all or part of the payment to a traditional IRA.

You can request to withdraw your entire account in either a single paymrnt, monthly payments or a life annuity. For example you may withdraw your entire account in monthly payments. If you choose to withdraw your account in monthly payments, you must also choose whether you want the TSP to compute your payments based on the IRS life expectancy table or whether you would like to receive a specific dollar amount each month. If you choose to receive a specific dollar amount each month, you may be able to transfer all or part of your payment to an IRA. This would depend on the number of payments you are expected to receive. Pyriel, there is also a section that deals with the RMD- we can get to that later.

Payments to beneficiaries other than spouses cannot be transfered to an IRA.

This should be enough to keep the conversation going before we get into the age requirements for RMD and the subsequent consequences.

pyriel

07-08-2005, 10:02 PM

One thing I like about exchanging ideas with you is that no matter how I present the issue/comments, you always come back with more information. Other people will think of my commentsas an attack. I really appreciate you coming back and being patient with me for I can be pushy sometime (unaware). Now, lets get back to our discussion so our readers may learn from us and/or they can chime in so we can learn from them.

Inorder to clarify from this point all my comments are essentially direct quotes from the site. A series of monthly payments can be used for full withdrawal. You can have TSP transfer all or part of any single payment or in some cases, a series of monthly payments, to a traditional IRA plan. There are 2 types of withdrawal programs - either full withdrawal or partial withdrawal. Partial withdrawals are paid only as a single payment. You can have the TSP transfer all or part of the payment to a traditional IRA.This is true and I'm glad you gave me more clarification. However, although this willwork for someone who is 70.5 years old. He will not be able to escape the RMD for both TSP and IRA.Upon reaching that age, he/she gets hit with RMD. Even if you decide to transfer a full or partial withdrawal to an IRA, it doesn't change the fact that you will still have to pay taxes on them. Here is an example.. You are 71 years old. You transfer $500k to IRA on 12/31/05. On 1/1/06 you have to do an RMD for your remaining $500k in TSP and an RMD on your new IRA account. You can't escape it because you reach the magic age of 70.5.If you die at age 75. Your heir must withdrawyour TSP account within 3-5 years. Your IRA can then be passed on to your heir and they can continue to keep it according to their life cycle by only taking out their equivalent of RMD.

Payments to beneficiaries other than spouses cannot be transfered to an IRA. Yes this is true. The way to go around this is to assigned beneficiaries to your children instead of your spouse. Then once you are dead, your heir (not the spouse) will be able to continue with your IRA according to their lifecycle. Now, some people are thinking that this is not fair. This is where estate planning comes in. Since your IRA went to your children, once your wife dies later, they will not incur taxes for them since it is not under the spouse estate. My plan (and this is what Pyriel is doing) is to buy insurance for me and have the wife be the beneficiary. When I die, my children can get the IRA (lets say for ex. $1 mil) and my wife gets the insurance (lets say $1 mil). What this does is we just took Uncle Sam out of the picture for a possible $600k of taxes if my spouse was to get both anddecide die later. Good deal huh?

grandma

07-09-2005, 01:37 AM

Birchtree wrote:
When you turn 70and one half you will be required to take a required minimum distribution from TSP that will be set by regulators. Is this documented in the TSP manual somewhere? I don't seem to be able to spot it.

Birchtree

07-09-2005, 09:32 AM

Grandma,

The information is located at the TSP. gov home page, and under TSP features. Select Getting Your Money Out After You Separate. Then select What Are My Withdrawal Options. Come back if you have questions of any kind. Even if you think they might be oversimplified.

grandma

07-09-2005, 10:41 AM

The key phrase in this is: "If you have separated from service, the IRS requires that you receive a certain portion of your account balance beginning with the year in which you become 70½, so that you can start paying taxes on that (originally) tax-deferred money. This portion, known as a "required minimum distribution," is based on your life expectancy. If you do not make a full withdrawal or begin monthly payments by the year in which you become ......"
http://smileys.smileycentral.com/cat/4/4_12_1.gif
...age is immaterial to the RMD if you are still employed. Also, under certain circumstances & you are still employed, you can receive some Social Security monies, You can call this speculative (I'll die while still working) or you can call it foolishnes (I'll live to be 90 & be in the `Pauper's home' with meager help/meds/food.)

(http://www.smileycentral.com/?partner=ZSzeb001_ZNxmk145YYUS)

Birchtree

07-09-2005, 11:28 AM

Grandma,

Thank you, you made some valuable points for all to consider - care to elaborate on your investment strategy sometime? We salty dogs can help each other.

Birchtree

07-09-2005, 12:51 PM

Pyriel,

The point of paying RMD was not being contested. I was trying to suggest a working strategy of using monthly payments before reaching RMD age to begin the process of shifting money to a traditional IRA. That would take time to accomplish and still leave money in TSP for continued growth because it is so cost effective. If Spaf were to move money in steps from TSP to IRA and then to Roth IRA he could conceivably save on taxes. He has already investigated the options for his IRA - whether he uses a Roth IRA also, would depend on his future plans.

We don't know what Spafs' retirement situation will be like - for all we know he may be getting ready to harvest a pine forest and declare capital gains - or he may have more rentals than you or a larger portfolio than mine. That's why AGI is so important when making fnancial decisions - taxes need to be kept as low as possible. And working toward a goal of a lower AGI is very important - especially if you can achieve that illustrious 15% barcket. All capital gains and dividends are taxed at 5%. Don't you think at some point when you liquify your real estate holdings you would want to keep your capital gain costs as low as possible?

Here is a point you may add your thoughts to if inclined. What am I saying - of course you'll be inclined. The spouse can have what is left in the TSP account as the beneficiary transfered to their own TSP account if one is available (your situation) or to an IRA. The monthly payment program should essentially remain in effect or probably can be modified to meet new time constraints. Most IRA accounts are jointly owned. Should be a smooth transition.

Staring out with a Roth IRA is so much simpler, especially when the time arrives to start the draw down. The is no RMD - only the heir will be forced to utilize RMD, and if the heir is much younger then the money coming out over that particular life cycle will be at a minimum- leaving the bulk position to continue to grow and eventually be passed on to the next heir. I think we have agreement on this issue. Spaf now has to decide on what IRA strategy he wants. My suggestion is one based on individual stocks that pay dividends every three months and are likely to increase over the years. These dividends usually are reinvested for free. Over time capital gains will be available - but don;t have to be taken until many years later if ever. I actually would prefer a program based on auto-pilot, that way the owner is always buying stock in up and down years. Let the cycles take care of them selves.

Here is another point - rather a suspicion that I have. TSP and politicians are trying to add more investing alternatives to this current plan. I suspect that at some point the program will eventually offer participants the voluntary option to convert their present defined benefit retirement plan to a defined contribution plan using the new and improved TSP plan because the infrastructure will already be in place. You will still be offered the annuity - but if you take the contribution plan the money is yours today - you don't have to worry how long you will live and the complicated beneficiary problems will be solved. You name any beneficiary you want What do you think? It would be great for somone trying to lower that AGI - you only take money you need - you are in control. Some States are doing this already.

Aslan

07-10-2005, 03:31 AM

Pyriel,

I didn't read through everything you wrote, but it is real interesting what I did read. Did you mention on the conversion to the Roth IRA(from the Traditional IRA) with what money were you going to pay the tax? If you had a million dollars in your TSP (then IRA), that is a HUGE amount of tax to pay out when converting to a Roth. I just thought I'd ask in case someone else was wondering the same. Thanks

Spaf

07-11-2005, 12:34 AM

Ok Mr. Pyriel and U2 Birch (Dennis)(not the hurricane)

RE: I'm retiring in 1yr+20 days.

What I did (years ago) was to set up two investment accounts. One tax deferred which is TSP. The other was in mutual funds which was tax paid.

Mutual funds kind of soured out after the NASD bubble in 2000. Fund managers were not very appreciative of folks moving funds. Therefore, I changed to a online discount broker to handle my tax paid funds. This way I can change positions at will!

Using my tax paid funds, I have paid off the bigger bills. However, my Accountant advised that I take out a minimum mortgage, together with (on going with age)medical expenses to minimize IRS dues.

Leaving Tax deferred funds in TSP or going with USAA on a concervative IRA investment strategy seems to be good options at the present time.

I know that everone's financial position is different. I do question the position of maximizing TSP funds vs alternate investments. Reasoning that alternate investments that are tax paid are readily available for the ups and downs of later years. Mainly, the practice of "diversification" comes to mind. Granted, TSP has both good and bad points. But, why put all of your eggs in one basket?

Just my 2 cents. Gotta get a new boat to chase them croppie! Rgds :D Spaf

pyriel

07-11-2005, 05:38 PM

Aslan wrote:
Pyriel,

I didn't read through everything you wrote, but it is real interesting what I did read. Did you mention on the conversion to the Roth IRA(from the Traditional IRA) with what money were you going to pay the tax? If you had a million dollars in your TSP (then IRA), that is a HUGE amount of tax to pay out when converting to a Roth. I just thought I'd ask in case someone else was wondering the same. Thanks

We are looking at around max of about 40% ($400k). There are two ways to do this. Rollover the 600k and pay the 400k. Ouch... There goes 40% that you made over the lifetime of managing your TSP. If you don't do it, your heir will get hit with it. Second option is to slowly transfer your TSP to IRA then ROTH. You will still pay the 40% (sorry, can't get away with it). For me (and this is what Pyriel will do) is to start transferring 100k a year to ROTH. I can manage to pay 40k a year but i can't do 400k at one time. I figure that it will take me ten years to make this happen starting at age 60 (if i have 1 mil). I plan to roll over 100k at a time and give Uncle Sam 40K (from my own pocket every year). Now, why shouldn't I just roll over 60k and let Uncle Sam take away the 40k? The reason is compounding interest and the reality of not having to pay (and my heir) any taxes on my ROTH IRA once I die and it is passed on to them. It is much easier to let Uncle Sam take the 40k but to me this is 40k more that can be compounding year after year. Tryingdoing the math ofsocking away 40k tax free for ten years then add that up withmy heir's lifecycle of 65 years (if I was to die and they were only 25 years old). That plus what I have in my TSP will grow tax deferred and my heir (and theirs) will never have to pay taxes ever again... Like what I said earlier, I can't get away from paying taxes so the next best thing is to maximize with tax deferrment and compounding interest... Where am I going to get 40K a year? I'll let my tenants take care of that...;-)

Aslan

07-11-2005, 09:29 PM

How did you come up with the 40% for a tax base? Is that your tax bracket, I guess? Also, you come out with 40K positive cash flow from your tenants? That is impressive. You obviously taken a lot of thought to this. Thanks

pyriel

07-11-2005, 11:36 PM

Aslan wrote:
How did you come up with the 40% for a tax base? Is that your tax bracket, I guess? Also, you come out with 40K positive cash flow from your tenants? That is impressive. You obviously taken a lot of thought to this. Thanks
I'm actually looking at around 36% but I am not good with math so I rounded it off to 40%. In 2002, I read a book that changed my life and i've decided that I want to retire at a time where I can still enjoy the fruits of my labor. I created a 10 yearexit plan. A mapwhich I use as a guideto get to my goal.I'm attaching a copy of it. I've revised it many times for as I got wiser with my investments, i'm able to create more opportunity by using OPM. My goal is to have no less than 10k monthly passive income (after allexpenses paid for) and with my military retirement check(I have about9 years remaining) I should be able withstand any downturn in theeconomy for the rest of my life.By having this in place, I can then leave my TSP and ROTH intact until such time that I have need of them or I pass them to my children...I believe in havingwritten goals, for it keeps me focus on where I want to be ten years from now.

For some, they might think that this is risky. Yes, it is risky (for other people). However, this is the reason why I took the time to learntaxation (taxes is one of the highest expenditure of people who earns income), leveraging OPM by creating money without money, managing money responsibly by being familiarized with financial statement (this is what the bank looks for), knowing good debt vs. bad debt, estate planningand having an exit plan.

Rolo

09-04-2005, 12:29 AM

Spaf wrote:
...move them to my internet discount broker (ST).
Are there any reasons to not do that?

Spaf

09-04-2005, 12:38 AM

Rolo,
please do not edit what I say out of context! Rgds Spaf

Rolo

09-04-2005, 12:55 AM

Spaf wrote:
...edit...

I did not edit, I quoted the portion to which I was speaking. I even provided an ellipsis!

Are you getting enough fiber lately?

Spaf

09-04-2005, 01:21 AM

Spaf wrote:
Retirement

From: Spaf

As I've stated before my retirement date from the US Government is July 2006.

I have reviewed IRA plans from many companies i.e., Vanguard, USAA, Fidelity, Bank Brokers, and etc.

My top two (2) choises to date, is to let the funds ride with TSP, or move them to my internet discount broker (ST). I seem to lose control of the "funds" when placed with other folks. Something I do not like in todays market.

If someone has a better strategy/plan, please post! Otherwise, I'll manage my own funds, good, bad or whatever, but at least, I'll be in charge!

Agree/disagree! Let me know! Rgds! :) Spaf

Then here is the entire post!
Rolo. Please stop. This ain't getting us anywhere!

Tom, please DELEATE these posts!

Rolo

09-04-2005, 09:22 AM

Spaf wrote:

Then here is the entire post!

Yourentire postnever left, Spaf. We don't need to see it in every reply; that is poor netiquette because it is annoying.

Posting and netiquette from Borland's site:

Keep quoted text to a minimum. When quoting a previous post, edit out the non-relevant parts of the message. Remove salutations and signatures. A good rule of thumb is, there should not be more quoted text than new text.

Spaf wrote:

Rolo. Please stop. This ain't getting us anywhere!

I didn't start it. I was asking you if you could think of any reason not to plop your TSP into a Scottrade IRA. You decided to ignore the conversation and get NET-PICKY. (baha! I just made that wordup...wonder if I'm the first?)

Spaf wrote:

Tom, please DELEATE these posts!

DaaaAAAAAaaaaaD!?!?!!? Good grief, how old are you? (that was rhetorical)

Now forget about this and decide what are you gonna do with your TSP?

pyriel

09-04-2005, 08:31 PM

Rolo wrote:
Spaf wrote:
...move them to my internet discount broker (ST).
Are there any reasons to not do that?

There is a reason to do it but it varies fromeach retirees. For me, I'd probably be swtiching my TSP (little by little) to a Traditional IRA then to ROTH. But that is a long time from now. I like the idea of managing my TSP (plus its low maintenance fee)butit will not make sense for me to leave it thereif my main focus is to leave my retirement savings to my children. The possibility of my children being able todraw using their own RMDafteri'm gone is my driving force. Others may not see it that way...;-)

P

Spaf

09-05-2005, 11:30 PM

Thanks pyriel,

RE: Retirement

The retirement sinerio is a little bit confusing to me. And, I'm getting there kind of fast!

Sorry Rolo, I misinterepted your question! My apology!

On retirement we have the option to let the TSP funds stay in TSP, or move them.

Now here is where I don't know all the details!

1. If we let the funds stay in TSP, the status quo stays like it is. However, paycheck allocations stop. Around December we can make a one time transfer (withdrawl) of funds. Say 4%. And, we are still able to conduct IFTs, etc during the year, just like we do now. But, if the member dies, the funds have to be moved within 5 years.

2. We can opt to transfer funds to a different account. If not a Traditional IRA then we have to pay the taxes. If we go for a traditional IRA the deferred taxed TSP stays pretty much the same. However we now have a delima. If the new IRA is with a mutual company, we are back in the buy-and-hold status. However, if we transfer the funds to an online broker IRA, we can trade funds within the IRA account.

pyriel this is where you come in. We can also have a Roth, where gradually we could transfer funds from the Traditional to the Roth.

Now here is where it gets more complicated.

Outside of TSP, the security of the G-fund doesn't seem to exist, for like a recession or a bad down turn in the market. The safest haven would be a long term bond fund, or some online brokers do pay the same interest as banks (savings) for non invested trading cash.

At present, if I wanted to be able to manage the TSP funds after retirement then I will need to leave them in TSP or transfer them to a broker with a Traditional IRA. If I chose not to manage the funds, then I can select a reputable company handling mutual funds.

Now TSP throws a curve. The Life-cycle funds. Why not leave the funds in the L-Income fund and if a desaster approaches, move them to the G-fund?

So, I guess for right now I'm thinking to make sure my "will" is up to date, and stay with TSP through retirement.

Rgds, and be careful! :) Spaf

Mike

09-06-2005, 05:39 AM

You can't beat TSP's low fee structure... so keep your money there.

A few recommendations, though:

If you can do so, increase your distributions and put the extra money into a Roth. Tax rates at the present time are relatively low (hard to believe but actually true), but that will not be the case indefinitely. Rising medicare and social security costs combined with the problematic deficit and national debt will force the government to cut back on services eventually *and* raise taxes. This means you are probablybetter off paying taxes on larger sums of money right now in order to shelter some of it for later.

Ask yourself: "will I need the money I'm putting into the Roth?" If you don't - if it's going there for beneficiaries - then aggressively invest it into a stock fund or perhaps even a 2040 type fund. If you think you might need the money, then you should remain at least somewhat defensive with it - invest anywhere from 60% stocks / 40% bonds to 100% bonds (you can afford to be a bit more aggressive in the Roth since the annual contribution is a small fraction of your TSP balance). That range of allocations isn't very volatile and should do an adequate job of preserving your balance regardless of what happens to the market.

As for your distributions themselves - if you don't have a high yield money market account, get one ASAP. If you're comfortable with internet-based accounts (which I assume you are based on your ownership of a Scottrade account), there are plenty of banks out there offering 3% or more APY. I know that Netbank pays this amount. Also, ifyou buy things on Ebay once in awhile and use Paypal, they are paying 3.5% APY on money that sits in there. :^

Hope this helps. Good luck. :cool:

pyriel

09-06-2005, 09:49 PM

Spaf wrote:
Now here is where I don't know all the details!

1. If we let the funds stay in TSP, the status quo stays like it is. However, paycheck allocations stop. Around December we can make a one time transfer (withdrawl) of funds. Say 4%. And, we are still able to conduct IFTs, etc during the year, just like we do now. But, if the member dies, the funds have to be moved within 5 years. The beneficiary has to move them within 5 years. This means that you can leave the funds alone but you must totally withdraw them allwithin 5 years. However, if you transfer the funds to a traditional IRA before you die, your beneficiary will have to zero it out in accordance to his/her RMD age. If he/she is 25 years old,RMD is 56 years (somewhere there). This will allow the inheritance (if they only take the RMD) to grow tax deferred for 56 years. The formula is 100k/56 for the first year X .10 (I just used 10 percent as my basis of yearly return). To get the consequent years just deduct one year for year RMD is taken out (sum + % return / (56-1, 55-1, 54-1 etc.) )See attached worksheet so you can better see the comparison. Actually, there is no comparison if you plan on leaving something behind to your loved ones.;-)

So, I guess for right now I'm thinking to make sure my "will" is up to date, and stay with TSP through retirement.Spaf, your will is useless for retirement account. TSP, Traditional IRA, and ROTH IRA will always go to the form that you signed telling them who is your beneficiary. So even if you put Aunt Ethel in your will, she will not get the money from those three retirment system I mentioned. ;-) (What about putting me as one of your beneficiary? ;-))

Rolo

09-06-2005, 11:08 PM

Spaf wrote:
Sorry Rolo, I misinterepted your question! My apology!

Cool, we're cool! :cool:

Spaf wrote:
We can also have a Roth, where gradually we could transfer funds from the Traditional to the Roth.

Yes, this is stretching my brain. Why would you want to do this?

Spaf wrote:
Outside of TSP, the security of the G-fund doesn't seem to exist, for like a recession or a bad down turn in the market.

That's a damn good point; I never thought of that. TIPS funds or short-term bond funds not comparable? I think you can find many near-zero funds to fit the "pseudo-cash" role, no?

Spaf wrote:
...some online brokers do pay the same interest as banks (savings) for non invested trading cash.

eheh...not Scottrade... 0.5% ...but I don't put $ in ST to just sit there anyway. I'll find SOMEthing for it to do...or spend it.

Spaf

09-07-2005, 12:13 AM

pyriel,

Thanks for the spreadsheet comparison. Thus> I can stay with TSP for a while after retirement, and make plans to transfer it to a traditional IRA. USAA is looking pretty good right now, but I'm still researching.

Rolo,

Ok! back to the drawing board for me. I never could figure out the ST interest rate on trading cash, it did seem to be a minimum.

Been seeing a lot of boats going by with V-8 engines in them. They sure are pretty!

Rgds! :) Spaf

pyriel

09-08-2005, 02:22 AM

Spaf wrote:
We can also have a Roth, where gradually we could transfer funds from the Traditional to the Roth.

Yes, this is stretching my brain. Why would you want to do this?

I was challenged by Rolo'squestion and decided to put it in an excel worksheet so that we can all see if it makes sense to do this or not. My scenario is based on someone retiring at 60 years old with 500k in TSP. On one column, individual transferred the money to traditional IRA. The other column, individual transferred his TSP to Traditional IRA then to ROTH. I based the Tax bracket to 36% which is pretty high but not the highest.

Money left in Traditional IRA grew to about $3,363,749.97 at age 80. If individual decides to close the account, he/she will get $2,152,799.98 after the 36 taxes.

Money transferred to Traditional IRA then to ROTH grew to $1,891,069.76 PLUS $290,811.36 that is left with traditional IRA (36% tax was taken out). The premise here is that individual was taking 10% per year, paying taxes on it, then moving them to ROTH.

COUNCLUSION: transfering the money from "Traditional IRA then to ROTH"only made just as much as "leaving the money in a Traditional IRA." This means that ROLO isright about stretching his brain on why would anyone do this in the first place.

Mike

09-08-2005, 03:53 AM

Doesn't this depend on what the tax rates are doing? I.e. if they are stable for a long period of time, it makes no difference which approach you take, but if rates are rising over time, it would make more sense to take more out early on and shield it... right?

mlk_man

09-08-2005, 06:28 AM

THanks Pyriel, stop working so hard will ya!!

I think a Roth account makes the most sense if you start an IRA before you actually retire. Just keep putting the yearly max. in it and put the rest in a tax-exempt IRA.

So currently I have this going on:

TSP- 5% with govt. matching

Roth- put $4000 in this year. Goes up to $5000 next year.

Traditional IRA- all other "free" monies

In case of emergency I would set up an electonic transfer with ST to deposit money directly into my checking account using money that I deposited into my Roth. This money would be tax and penalty free. Depending on the day of the week you make the request, this should only take about a week. I believe they distribute funds on Wed. so if you fax in a form on Mon. or Tues., you should have your money in a couple days.

Also don't forget that you have until April 15th of the next year to fund your Roth for the current year. Meaning that you have until April 15th, 2006 to come up with $4000 for 2005.

M_M

pyriel

09-08-2005, 11:31 PM

mlk_man wrote:
I think a Roth account makes the most sense if you start an IRA before you actually retire. Just keep putting the yearly max. in it and put the rest in a tax-exempt IRA.

I did a cost analysis pertaining to your comment. Here is the scenario. Elvis is 25 years old male that is currently in the 30% bracket. For him to actually contribute 2k into ROTH, it means that he had paid $600 tax for them based on his 30% tax bracket. El visis also 25 years old and he started putting in 2k every year to his Traditional IRA.I set the return to 8% per year. At age 60, both have accumulated, $404,140.64. ROTH ended up paying a total amount of $21,600 upfront (600 per year).Elvis then decided to do a one time withdrawal with his ROTH($404,140.64 - $21,600 = $382, 540.64). El vis also decided to do a one time withdrawal with his Traditional IRA ($404,140.64 -30% = $282,898.45).

***I didn't factor inwhat 2k would do to Elvis' taxes yearly since his W2 would have shown 2k less due to hiscontribution to theTraditional IRA.

Rolo

09-09-2005, 08:34 AM

mlk_man wrote:
Roth- put $4000 in this year. Goes up to $5000 next year.

Not until 2008....unless yer old.

[line]

I'm still at a loss as to why you would want to convert from Traditional to a Roth; why pay all those taxes up-front rather than over time?

Note that this is different than deciding which type to contribute,so "tax-free growth" axioms not necessarily apply....or do they? Tax-free growth henceforth, but at the expense of immediately paying taxes on all prior growth.

Also..if you are leaving your retirement balance to an heir...rather than enabling them to continually defer those taxes, you paid them up-front by converting to a Roth.

mlk_man

09-09-2005, 10:32 AM

Rolo wrote:

I'm still at a loss as to why you would want to convert from Traditional to a Roth; why pay all those taxes up-front rather than over time?

Note that this is different than deciding which type to contribute,so "tax-free growth" axioms not necessarily apply....or do they? Tax-free growth henceforth, but at the expense of immediately paying taxes on all prior growth.

Also..if you are leaving your retirement balance to an heir...rather than enabling them to continually defer those taxes, you paid them up-front by converting to a Roth.

I think it's probably all about the age that you decide to either or.

But just a couple points, once you start taking distributions from a Traditional IRA, it is considered "taxable income". This will most likely effect your Social Security and how it is taxed. Distributions from a Roth are not considered "taxable income".

You also have mandatory distribution rules when you turn 70 with a traditional buy not with a Roth.

As far as heirs, with the Roth your beneficiaries never pay taxes on it. Why bother them with having to pay taxes on a traditional? Of course both will be subject to estate taxes.

I've already done one conversion for a friend. Keep in mind she only had about $10000 in the account. Everything changes if you have a few hundred grand in it and make a decent return on the money that you would have paid in taxes "upfront". So I think it's an age and a money issue as to which one is best. :^

If one is just starting out and doesn't have a lot of capital built up yet, I'd say a Roth is right for you. If you have a lot of capital and are already at the top of the tax bracket, I'd say stick with the traditional.

M_M