Roth IRA???

[duece123]

Ok gents, please help me out here. Can you take out loans from your IRA? Can withdraw from a IRA penalty free for the down payment of your first house?

[stick]

Yes on the loan issue for a Roth, no for a traditional/TSP.

The govt has already taken it's share of what you have in your Roth, so it doesn't care when you pull out your contributions. There are more rules about whether you can pull out interest earned for free, but that's kind of beside the point. Try and pull any money out with a Traditional IRA before 59.5 and you'll get a 10% penalty on your withdrawal amount, no matter what.

As people have already alluded to, the lynchpin between the two IRAs is what your current tax rate is compared to your retirement tax rate. If it's lower now, Roth; if it's higher, Traditional; if it's the same, it doesn't matter. For dorks who want more confirmation, https://www.dinkytown.net/java/RothvsRegular.html will give you more exact numbers.

For young military members on this board, provided you make less than 95k single or 150k married, the Roth is almost always the correct answer.

And for those of you who listen to USAA and put all of your money in USCRX, check out the 3 year yahoo chart of your fund versus VFINX, an SP 500 index. Dec 2005 and Dec 2006 sucked, didn't it? I don't know what they do wrong at that fund, but they continue to lag the index. Returns since 1988 for USCRX are 50% and 350% for the SP 500. You decide. (I once was in this laggard)

[F16Deuce]

For the wife and I's ROTH IRA's we go through Fidelity. Right now I only have the Contrafund (FCNTX) in my portfolio, but it has been doing really well. I looked into investing with USAA and was less than impressed with their mutual funds. As for TSP, I contribute my flight pay and 5% of my base pay.

[sky_king]

Is there any benefit to investing flight pay over investing the same amount of money from your base pay into TSP?

[Whitman]

What's the best broker out there for investing? USAA, Vanguard, Fidelity, etc.?

[Guest rumblefish_2]

Originally posted by mas del rio:

Yes on the loan issue for a Roth, no for a traditional/TSP.

Maybe I'm misunderstanding you, but you CAN take loans out on your TSP account. The interest you pay on the loan also goes back into your account as well. So technically you don't "lose" any money. Within certain limits of course, they also let you determine your own terms of the pay back of the loan. If you take it out on a new home, the terms are even more flexible.

Also, no one talks about it much, but real estate is also an investment option. There is always an argument against dealing with renters, but getting someone else to pay your mortgage can pay off big in the end. Depending on the market and how you finance it, you can also turn it into income after 15 years. Not to mention it can have some good tax benefits as well. Over the long term real estate is a pretty safe bet and not a bad way to "diversify your portfolio."

[stick]

Thanks for the correction, rumblefish.

I actually only read up on the TSP until I understood the tax implications were the same as a Traditional IRA, and quit there, so I assumed the withdrawal rules would be similar. Doh.

Either way, I thought of another point to add... Roth and Traditional IRAs can be equal only if you keep track of your Traditional IRA tax savings each year and invest those for retirement, also. Since you can only put 4k (this year) in any combination of the two, 4k in a Roth represents more retirement savings since it already has tax taken out and no further saving is required.

No to the flight pay over base pay in TSP, it makes no difference; it's the same dollar amount flowing out of your coffers either way.

The best broker for investing depends on what you are trying to get from your broker. Are you looking to trade stocks daily/monthly/yearly? Do you only want to systematically invest in actively managed mutual funds or index funds?

The most basic, no frills stock broker for the least amount of money is Scottrade. They only charge 7 bucks a trade no matter what your trading frequency is. USAA beats that price once you trade 25 times in 3 months, but I get no where near that amount.

As far as mutual fund companies, Vanguard and Fidelity are excellent, but T. Rowe Price is also a solid company with a lot lower minimums for their IRAs. You can start with nothing but a monthly deposit like USAA advertises with much better fund offerings or with 1000 upfront versus 3000 or 2500 for Vanguard and Fidelity. I use both Vanguard's and T Rowe Price's target date offerings.

Fidelity

T. Rowe Price

Vanguard

[addict]

avoid First Command... especially if they try to sell you on a 50% front loaded fund.

[Whitman]

Originally posted by Rainman A-10:

Don't get me wrong, Roth IRAs are great as long as you are eligible.

I can't invest in a Roth anymore but I am always looking for a way to reduce my current tax liability.

Have you looked at VUL's? It's a life insurance plan that allows you to invest tax free.

https://en.wikipedia.org/wiki/Variable_univ..._life_insurance

A friend of mine told me about these. Does anyone else have any experience with them?

[Guest Hydro130]

Yeah, I had a sim instructor at The Rock who was trying to sell me hard on getting in a VUL from him. Sounded interesting, but I didn't have the time to research more about it then (outside of just what he was telling me), and have forgotten about them since.

I'd do my homework before I put money there; they very well may be that super deal he insisted they were, but then why aren't they more prevelant?

Perhaps I'm a non-visionary wuss, but I'm wary of the "these are a great deal for X [X = additional tax shelter / quick money / super returns / whatever], and no one knows about 'em, so get in now while the gettin's good" kinds of sales pitches. Meh.

Cheers, Hydro

[F16Deuce]

Originally posted by sky_king:

Is there any benefit to investing flight pay over investing the same amount of money from your base pay into TSP?

Flight pay is technically a bonus and therefore gets taxed at a higher rate than your base pay (meaning you might as well put it into TSP).

For those asking about Fidelity, I've been really pleased with using Fidelity. Not only do they offer some great funds, but they also have excellent customer service. Avoid First Command like the plague. All of my friends that went with them have been unhappy and went elsewhere...

[Guest rumblefish_2]

Originally posted by addict:

avoid First Command... especially if they try to sell you on a 50% front loaded fund.

I'm definitely not defending/promoting the First Command punks, but loaded funds are not necessarily a bad thing. I may get this mixed up so feel free correct me, but most loaded funds are Class A shares meaning you pay a higher fee at the beginning (loads), but your expense ratios are much smaller one at the end. No-load funds start out as Class B/C shares and have higher expense ratios in the end, even if they eventually become Class A shares. When I say higher it may be only 0.5% higher, but that can be significant on $100,000+. ALMOST ALL mutual funds have these expenses. So if you are investing in a mutual fund for the long term, (which is the purpose of a ROTH IRA), loaded funds may not be a bad deal. Some describe it as paying the season pass price at opposed to paying as you go. You could always argue that one could take those loads, invest them elsewhere and make more money, but if you're like me those extra funds end up spent on stuff I don't need. You can always make more money if you're constantly watching the market and constantly moving like a day-trader, but I get someone else to do it for me albeit in a single family of funds with (now) low expense ratios.

[Guest 130 GAFO]

Originally posted by mas del rio:

And for those of you who listen to USAA and put all of your money in USCRX, check out the 3 year yahoo chart of your fund versus VFINX, an SP 500 index. Dec 2005 and Dec 2006 sucked, didn't it? I don't know what they do wrong at that fund, but they continue to lag the index. Returns since 1988 for USCRX are 50% and 350% for the SP 500. You decide. (I once was in this laggard)

You do realize the reason those charts look bad is because they paid out dividends right? So yeah, the price dropped, but if you have your dividends reinvested automatically, you got more shares at that lower price. Don't see what's so wrong with that.

[Herk Driver]

Originally posted by Bull:

Flight pay is technically a bonus and therefore gets taxed at a higher rate than your base pay (meaning you might as well put it into TSP).

In the end, doesn't all of your money (with exception of capital gains) just get taxed at your marginal tax rate? Flight pay may initially get taxed at a higher rate, but when I file my taxes, I'm paying tax on all my wages at my marginal rate. Of course, capital gains, are treated a little differently, but also has it's own schedule to take all that into account.

[ 16. January 2007, 03:41: Message edited by: Herk Driver ]

[Guest KoolKat]

Originally posted by mas del rio:

The most basic, no frills stock broker for the least amount of money is Scottrade. They only charge 7 bucks a trade no matter what your trading frequency is.

Sharebuilder charges $4 unless something has happened since the last time I was logged in. The services may not be as good as Scottrade though...It would be quite easy to provide additional service that would ecllipse the 3 dollar divide. I just humbly submit that fact for consideration.

Originally posted by rumblefish_2:

You can always make more money if you're constantly watching the market and constantly moving like a day-trader...

Always? I couldn't always do it when I didn't have a job, although sometimes I must say it worked out quite well, sometimes. I wouldn't stand a f'in' chance now...you must be smarter than I.

Where's rumblefish_1? Was he the 16 driver or is that you...this place is confusing sometimes...At least Hydro is Hydro, Rainman is Rainman, Sleepy is Sleepy and so forth.

"The room is spinning"...from all the name changing.

BENDY

[stick]

Originally posted by rumblefish_2:

No-load funds start out as Class B/C shares and have higher expense ratios in the end, even if they eventually become Class A shares.

Close, but not quite. A loaded fund will have all of the share classes you are talking about, and the sleaziest financial advisor who is taking advantage of you will make sure you end up in those B shares with the higher expense ratio that you'll never notice unless you read the fine print. (If any of you read your financial statements and it says class B shares, start looking for a new advisor)

B Shares Suck

The only semi-valid reason I have ever heard for buying loaded funds is people are more likely to stay in the fund and profit in the long run instead of profit chasing recently well performing funds.

No-load funds mean just that, no-load. When you invest 3k into the fund, 3k gets invested in that fund, and your expense ratio is the same as the dude that's been in 15 years.

Edit: Sharebuilder is better if you buy every month, but a mutual fund/money market purchase every month is free, so why not save up and buy a bigger bulk of stock at a lower expense?

[ 16. January 2007, 08:34: Message edited by: mas del rio ]

[Guest WildBill]

Originally posted by Bull:

Flight pay is technically a bonus and therefore gets taxed at a higher rate than your base pay (meaning you might as well put it into TSP).

Flight pay is an Incentive Pay, but if the converse is true, didn't know it was taxed higher.

While we're at it, who knows about 529 College Programs, not trying to threadjack.

[ 16. January 2007, 12:00: Message edited by: WildBill ]

[Guest C-21 Pilot]

I have 3 529's set up for my kids as I'm sure others do as well. What would you like to know specifically?

You can also do plenty of research on the subject yourself and save some face.

There is no thread jack...however, I'll start a new thread for search function ease. please utilize that one...

[ 16. January 2007, 13:12: Message edited by: C-21 Pilot ]

[Guest mghodgson]

Originally posted by Herk Driver:

In the end, doesn't all of your money (with exception of capital gains) just get taxed at your marginal tax rate? Flight pay may initially get taxed at a higher rate, but when I file my taxes, I'm paying tax on all my wages at my marginal rate. Of course, capital gains, are treated a little differently, but also has it's own schedule to take all that into account.

[stick]

Originally posted by 130 GAFO:

You do realize the reason those charts look bad is because they paid out dividends right? So yeah, the price dropped, but if you have your dividends reinvested automatically, you got more shares at that lower price. Don't see what's so wrong with that.

[Herk Driver]

Originally posted by KM:

Maybe I'm missing something somewhere, but I'm pretty sure that flight pay is taxed at the same rate as your basic pay.

When you file your taxes, you are paying taxes on all your wages at your average tax rate. Your marginal tax rate is the rate you pay on the next dollar earned.

I stand corrected. Average tax rate, it is. My point and your point is still that flight pay is not taxed at a higher rate than any other income. Unless, we are all missing something.

[sky_king]

All I'm asking is the following. Will $1 invested from flight pay will give me the same amount of cash as $1 invested from my basic pay? I was just curious as to why we have the option of putting percentage of each Basic Pay, Special Pay, Incentive Pay and Bonuses and not just a set amount from our check.

[stick]

From the tsp.gov website (edited for brevity)

Generally, all of the money from your TSP account paid directly to you will be taxed as ordinary income for Federal tax purposes in the year in which you receive it.

However, if you made any tax-exempt contributions to the TSP (i.e., from pay subject to combat zone or qualified hazardous duty tax-exclusion pay), the portion of your withdrawal that represents the tax-exempt contributions will be exempt from tax. On the other hand, earnings attributable to tax-exempt contributions are taxable when withdrawn.

For example, suppose that over the course of your career you made $15,000 in ordinary contributions and $5,000 in contributions from tax-exempt pay received in a combat zone and that these contributions have earned $30,000 by the time of your withdrawal. In such a case, your account balance at the time of your withdrawal would be $50,000. The $45,000 of combined ordinary contributions and total earnings would be taxable, and the $5,000 in contributions from tax-exempt pay you received while serving in a combat zone would be exempt from tax.

---

Since flight pay is taxed as normal pay on the front side, it's taxed as normal income on the backside. (Assuming you owed taxes in the month that you received the flight pay)

TSP

Go to "How will my TSP benefits be taxed"

[addict]

Can I sign up for the TSP and make contributions under the year 2006 (when it is 2007, before tax day), affecting my current return (IRA rules), or is it 401k rules and not permitted?

[Guest mghodgson]

No. 401k plans do not allow contributions to the prior year unless you are 50+. If you are 50+, you can contribute to "catch up" for the years you did not contribute (subject to an annual limit), but it would only affect your taxes in the year that you actually contribute to the 401k.

[ 01. February 2007, 21:22: Message edited by: KM ]