How do I make the most of retirement investments during deployment?

Q:  I am cur­rently deployed to a com­bat zone and have a con­tri­bu­tion ques­tion. I have a 401k through my civil­ian employer that I am mak­ing con­tri­bu­tions to with my mil­i­tary dif­fer­en­tial pay approx­i­mately $8000 in cal­en­dar year 2014. Would it be ben­e­fi­cial to con­tribute up to the $17500 (i.e $9500) limit into the Roth TSP or just con­tribute as much as I can to my tra­di­tional TSP up to $52000. I cur­rently have a tra­di­tional TSP set up but no Roth TSP as of yet. Any assis­tance or advice appre­ci­ated. Thank you from the hills of Afghanistan.

–Rick, US Navy, Afghanistan

 

A:  Rick, thanks for serv­ing in the hills of Afghanistan!  Wow, I love it. Your ques­tion reveals the think­ing of some­one who’s work­ing to make some real finan­cial head­way dur­ing a deploy­ment.  In my opin­ion, you should con­sider a strat­egy that max­i­mizes the use of Roth accounts dur­ing a deploy­ment.  Fund­ing a Roth (TSP or IRA), with tax-free com­bat pay pro­vides the poten­tial to invest, com­pound returns (maybe over decades?), and with­draw money for retire­ment with­out ever hav­ing to pay taxes.  That’s a pretty attrac­tive opportunity.

That being said, I would def­i­nitely direct the addi­tional $9,500 of your avail­able defer­ral limit to the Roth TSP.  If you’re eli­gi­ble (and given your tax-free pay you should eas­ily meet the income lim­its), also con­sider mak­ing the max­i­mum $5,500 con­tri­bu­tion to a Roth IRA.  If you’ve still got money left to invest for retire­ment at that point, for 2014 you would have room to con­tribute up to an addi­tional $34,500 into the tra­di­tional TSP.  The $8,000 you would have con­tributed to your civil­ian employer’s plan and the $9,500 to the Roth TSP do count towards the $52,000 total con­tri­bu­tion limit.

Finally, all you’ve got to do to “setup” the Roth TSP is visit myPay and elect to direct con­tri­bu­tions to the Roth.  I wish you the best. Thanks for set­ting a superb exam­ple.  I hope you’ll encour­age oth­ers to do what you’re doing!  Stay safe.

JJ

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Scott Halliwell and JJ Montanaro are CERTIFIED FINANCIAL PLANNER™ practitioners with USAA Financial Planning Services, one of the USAA family of companies. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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