Thrift Savings Plan vs Roth IRA

 Note: This article contains just my personal ideas and thoughts. You should always make your own decisions when working with your own money!!!
      
     Should military members contribute to Thrift Savings Plan or a Roth IRA? What's the difference between to the two? One fundamental difference between the two options is that your pay tax on your money first, they you put it in a Roth IRA. However, when you are able to pull it out all the returns are tax free. In contrast, the Thrift Savings Plan (TSP) is very much like a civilian 401(k) plan. Your money goes in before you get taxed and you pay tax when you take it out--at your current income level. 

     I am enlisted in the United States Air Force and I believe that for enlisted members you should contribute to the Roth IRA before you invest in the TSP. Once you max out your Roth IRA, then you should contribute to the TSP. Here's why I believe this:

1. Most if not all enlisted people are in a very low income bracket (15%). That means you pay 15% on your money before you put it in your Roth IRA. However, everything you make in the account is tax free when you pull it out. If you become the next Warren Buffet and make 50% a year over 30 years, everything will be tax free. In addition, most of us will actually make more money once we get out of the military and will probably be in a higher tax bracket. Therefore, contributing to a Roth while in the military makes more sense for most people.

2. The Roth IRA 5000 limit will soon adjust with inflation and you can max out the Roth IRA and keep up with inflation in the future. In addition, you can contribute 5000 for yourself and your spouse. Therefore, most families can contribute up to 10K a year.

3. Roth IRA has way more flexibility for investment choices than TSP. With TSP you're locked into a choice between 6 index funds. With a Roth IRA you can invest in anything your want. You can buy individual stocks, exchange traded funds and many other investment vehicles. In fact, you could buy the same type of funds that are available in TSP in your Roth IRA, but you have the option to move you're money if things get crazy. A big drawback of TSP is that most of it's funds are tied to the overall market performance. Therefore, Macro Economic issues hugely impact TSP funds.

4.  Another way, even though I don't recommend it, the Roth IRA is more flexible is after 5 years of investing you can take out the principal with no penalties. You can't do this with TSP. For example, let's say you put 5K a year in a Roth IRA for 5 years and after 5 years you're account had a value of 30K. That's 25K of principal and 5K of gains. You can take out the 25K with no fees or penalties. In addition, you can take the gains if you're buying a house. However, once again this is a bad idea! Compounding interest takes a long time and you will feel the impact. Don't do this unless you have no choice! I just like the fact that I have this option is the need arises.

There's 4 reasons why I believe the Roth IRA is better than TSP for enlisted military members. TSP is a good 401(k) because it has low fees and uses index funds. However, the flexibility, options, and tax breaks of a Roth IRA can't be ignored.

Currently, the government doesn't match TSP contributions for Active Duty military. If they change this the situation above will be different and I'll write another article about it. Below is a break down of the two programs.


                                                                  TSP                                      Roth IRA

Contribution Limit	$15,500 per year	$5,000 per year
Minimum Age to Begin Withdraw	59 ½ years-old	No Minimum Age
Age for Mandatory Withdraws	70 ½ years-old	Never
Taxed When?	When Withdrawn	Before Invested
Getting Out of the Military?	Contributions must stop	Contributions can continue

Military tuition assistance could be cut 25%

http://www.commguys.net/viewtopic.php?f=25&t=22243

     "Congress has amended the Defense Authorization Act of 2012 (HR 1540)to direct the DoD to reduce the current 100 percent tuition and fees rate by 25 percent. The amendment was offered by Rep. Mike Coffman (R-CO). Currently servicemembers can get up to 100% of the tuition and fees covered as long as the per semester credit limit of $250 is not exceeded. Anything tuition costs which exceed the per credit hour cap must be paid through secondary sources like their GI Bill benefit, scholarships, grants or out-of-pocket."

     This may be a rumor now, but it's going to happen. Do we really think that the military will cut retirement payments and not go after tuition assistance. My advice: use your TA as quick as possible. I've used TA to get my B.S degree and my M.B.A, but I've always thought it was strange that the military gave TA at all. We have the G.I bill after all. Now most of us plan to give our G.I bill to our wives or kids and that's great. I just hope it's still around when our kids are school aged. I believe that if the current economic situation stays the same, and it looks like it will, either TA or the G.I bill will go away. I would venture to say that in 5 years we may not get T.A at all.
      Honestly, the new G.I bill is one of the smartest long term investments that the government has made in a long time. In addition, allowing us to give it to our families is equally as wise. College educated people pay more in taxes or their life times and the government will reap huge returns over the long term. However, will everything being looked at for cuts how can it really justify giving T.A when we already have the most generous education benefit of any employee in the world?

Use it while you can!!

What do you think?

Army to cut nearly 50,000 soldiers over 5 years

Army to cut nearly 50,000 soldiers over 5 years 

Why is the Army going to cut 50,000 soldiers while we're still fighting wars? The deployment time for the Army is usually one year and we're cutting troops now? How about if we end the wars then talk about drawing down troops. Furthermore, what does this lack of accountability say about leadership? Why can't leadership keep personnel at their approved levels in the first place? This lack of leadership causes serious problems and uncertainty to many military families.  I think the first people that should be cut are the leader's that don't know how to count!
What do you think?

Airmen passing PT test with flying colors

Airmen passing PT test with flying colors 

Hopefully the Air Force will stop making such a big deal about PT now! It's already shameful that we had to hire civilian testers. No matter how you try to justify it, the hiring of civilian test proctors is a charge on the integrity of the force. Now that most Airman have stepped up and passed, let's move on to something that really matters--like developing the force or fixing the EPR system. However, I can already see the writing on the wall. I personally think that leadership is using the PT system as a way to force shape and to fix other broken systems--like the EPR system.

PT is a standard and that doesn't mean that you need to have a high failure rate to have high standards. I'm sure

our uniform standard generally has a 99.9% compliance standard. Should be make wearing the uniform more difficult by adding, changing, and replacing how wear are required to wear the uniform in order to weed out bad Airman. No. Let's leave the fitness program as it is and accept that Airman are more physically fit.

What do you think?

Sgt Dakota Meyer

           The only living Marine Medal of Honor winner since Vietnam. I saw this interview and was highly impressed. He's such a down to earth person and a great American.
           Sgt Meyer has started a scholarship fund for children of wounded military members. It never surprises me the honor of our military brothers. Check out his $1 Million dollar challenge on his website: www.dakotameyer.com

Change to military retirement plan

Last month the Pentagon proposed replacing the military's pension system with a 401 (k) style contribution program. Under the plan, "...all troops would receive yearly retirement contributions if they served at least 20 years -- a stipulation of the existing system. The money, however, would not vest until service reached at least three to five years and would then be payable at retirement age. If personnel left before that three-to five-year mark, the time served would be rolled over into Social Security.

     What do I think of this possible program? I don't like it. I've been in the military for 14 years. For the first 10 years of my service, I greatly benefited from the military. I learned leadership, management, and a lot about technology. In that first 10 years I got my B.S degree and an M.B.A. However, during my last 10 years the military will greatly benefit from my skills and expertise. At 14 year mark of service, the prize of a pension is a huge motivator to stay in and provide my expertise at half the cost I would expect as a civilian. 

     There are about 1.5 million members in the United States military. Of that number 1.1 million of those personnel are enlisted. Enlisted personnel are middle class families. Before the 1990's internet stock boom, the stock market was seen by the middle class as a rich man's game. I guess the rich got tired of trading each other's money and started getting the middle class in the game to bring some new cash in the mix. In the 2000 stock crash, millions of middle class people who didn't know any better lost their shirts. Don't get me wrong, you can make money in the stock market, but most people don't know what their doing. It's not their fault and the military shouldn't force it's members to become stock traders. In the stock market there are no guarantees and I believe that we owe your military members, who put their lives on the line, a guarantee that their families will be taken care of after they complete their service. 

     It's clear that the military needs to take some pain like the rest of the country, but cutting middle class military members pay and benefits is not the way to go. I think everyone in the military knows the truth about government spending. We all know tons of other ways the government could save money. Most of us have seen the outrageous end of year spending spree's, contracts and contractors that are paid enormous sums to do basic jobs, and many other ways the military could save money. Before enlisted members get on board with cuts to their hard earned retirement and other benefits, we need to see some real changes in the way the military and it's leaders spend money. I have a good way to start saving money, how about if we end the two wars that are eating up most of our budget?