Retirement fund question

[ktmarvels]

DH and I have been maxing out our Roth IRA accounts for the past couple of years (2007 and 2008 with 2009’s contribution already saved). DH is an officer in the military and as such has access to the government’s 401k program, the Thrift Savings Plan, but we currently do not contribute to it. I’m wondering if we should start.

Here’s a little more about our situation. DH and I are both 25. DH makes about 56k, which includes all the non-taxed bonuses. Last year his taxable income was only 36k. I am in pharmacy school full time. Last year I didn’t have any income and this year I will only have about 4k. By maxing out our roths we are already contributing 15-20% of our income to retirement.

When I graduate in 2011 all of this will change. I will be making about 100K, and I doubt we will still be eligible to contribute to a Roth (thus the urgency in maxing it out now, while we can). When I start working, I’m sure we’ll start contributing to one or both of our 401ks, especially if Roths are no longer an option. But should we start contributing to his now?

[jIM_Ohio]

If you can afford to set more aside a TSP would be a good place to look. Is there a match on the TSP? If so, I would strongly suggest investing enough to capture the full match.

[Like2Plan]

Is there a match on the TSP? If so, I would strongly suggest investing enough to capture the full match.

This is from the TSP Features for Uniformed Services from The Official TSP Home Page

Who is entitled to receive matching contributions?

Under the law that extended the TSP to the uniformed services, the secretary responsible for each service may designate critical specialties for matching contributions. Members serving in those specialties who agree to serve on active duty for 6 years may be eligible for matching contributions during the 6-year active duty obligation.

The matching contributions apply only to amounts contributed from basic pay and not from any incentive pay or special pay. If you do not contribute basic pay to the TSP, you will not be eligible to receive matching contributions. Matching contributions apply to the first 5 percent of pay that you contribute each pay period. Your contributions are matched dollar-for-dollar on the first 3 percent of pay you contribute each pay period and 50 cents on the dollar for the next 2 percent of pay.

As of the date of this Web edition, matching contributions had not been authorized by any of the uniformed services. Your service will notify you if you are eligible to receive matching contributions.

I think this is really rotten. I think service men and women should get the match.

[jIM_Ohio]

One sentence says there is a match on first 5%, then last sentence says there is no match for uniformed services. Which is it in this case (for the OP)?

If you do not contribute basic pay to the TSP, you will not be eligible to receive matching contributions. Matching contributions apply to the first 5 percent of pay that you contribute each pay period. Your contributions are matched dollar-for-dollar on the first 3 percent of pay you contribute each pay period and 50 cents on the dollar for the next 2 percent of pay

As of the date of this Web edition, matching contributions had not been authorized by any of the uniformed services.

[Like2Plan]

DH and I have been maxing out our Roth IRA accounts for the past couple of years (2007 and 2008 with 2009’s contribution already saved). DH is an officer in the military and as such has access to the government’s 401k program, the Thrift Savings Plan, but we currently do not contribute to it. I’m wondering if we should start.

Here’s a little more about our situation. DH and I are both 25. DH makes about 56k, which includes all the non-taxed bonuses. Last year his taxable income was only 36k. I am in pharmacy school full time. Last year I didn’t have any income and this year I will only have about 4k. By maxing out our roths we are already contributing 15-20% of our income to retirement.

When I graduate in 2011 all of this will change. I will be making about 100K, and I doubt we will still be eligible to contribute to a Roth (thus the urgency in maxing it out now, while we can). When I start working, I’m sure we’ll start contributing to one or both of our 401ks, especially if Roths are no longer an option. But should we start contributing to his now?

I believe the Roth starts getting phased out at 159K for married filing jointly, so you have some leeway there. (Phase out range for 2008: $159,000 to $169,000).
After you start earning a higher income you could defer another 31,000+ (2008 is 15,500 per account--it goes up every year) if you and your DH max out contributions to a 401K (assuming your work will also offer one).
If your work offers a flexible spending account (and you have things you normally purchase which would qualify for reimbursement), you could further reduce your taxable income.

My opinion--your doing a great job maxing out the Roths while you still can.

[Like2Plan]

One sentence says there is a match on first 5%, then last sentence says there is no match for uniformed services. Which is it in this case (for the OP)?

jIM_Ohio,
At the time legislation extended TSP to uniform services, the secretary for each service had the authority to offer a match for certain specialties. So far (as of the last time the TSP web page was updated), it has not been authorized...
But, it could be in the future for certain specialties.

[ktmarvels]

Unfortunately Like2Plan is correct, DH isn't eliglible for a TSP match. The decision to fund a TSP would be much easier if he were!

Also, thanks for the information about Roth phase out values and the tip about funding 401k's to keep income limits below that. I'll definately have to keep that in mind when the time comes!

[atomicrc11]

Also, with Roths as mentioned by Like2Plan, 401k/403b contributions reduce your AGI. As do FSA contributions. If you start making too much you may have to defer as much as possible to contribute to the Roth, at which point you may have none left. I'm not in that situation as my family AGI is less than the limit but in the future, it may be an issue for me.