The U.S. Armed Forces Blended Retirement System

Go,

Please forgive mydimwittedness.

If the income while deployed is not taxable, does it make sense to contribute to TSP in the first two years when there is no match? Does the tax-deferred compounding of gains make it worthwhile?

Thanks in advance for plying your trade here for free. I'd be happy to advise you on soybean production prospects for Northern/Central Brazil.

Great question, CB. My opinion is yes. The TSP still allows for long term compounding and more importantly it is comprised of very low cost investment choices. So even if there is no match, you are not likely going to find lower expense ratios than what is found in the Government TSP program. It is like shopping at Costco for groceries versus getting them at the "kwikie mart" The expenses and/or sales commissions of other investment brokerages will usually be much higher and put you further behind to start.

The ratio of Roth vs pre-tax needs to be decided by the specific tax situation and time horizon to retirement. Generally speaking (and that's all I can do here on this forum), a split is a way to play it safe. This is because we all don't really know what our tax situation will be in retirement. Nonetheless, the younger you are, the more likely you are to benefit from the Roth component.
 
Probably should start a new thread and I am jumping the gun. But, does any of this apply to SA or ROTC students?

TSPs won't affect SA cadets/mids or ROTC until their Firstie or MS IV year. But they should be briefed and prepared to make decisions about their commission income and any other income earned while in school. I think it is relevant, but then again I eat, sleep and breathe this stuff. :)
 
Our son is deploying. My nephew (active duty AF) made us aware of the following. I don't know where else you would get guaranteed 10% interest rate with no risk on $10,000. If only applies if you are deployed to an eligible combat zone.
http://www.dfas.mil/militarymembers/payentitlements/sdp.html

According to the below line taken from the link, they are guaranteed UP TO 10 percent. I didn't see anything guaranteeing it would be 10%. Can you clarify that it indeed is guaranteed?

A total of $10,000 may be deposited during each deployment and will earn up to 10% interest annually.
 
According to the below line taken from the link, they are guaranteed UP TO 10 percent. I didn't see anything guaranteeing it would be 10%. Can you clarify that it indeed is guaranteed?

A total of $10,000 may be deposited during each deployment and will earn up to 10% interest annually.
Rocko, you are correct on the verbiage that they reserve the right to pay lower, but my DD advised me that she thought that they are currently paying 10%.

Of course she just opened the account when her husband deployed 3 months ago.
Can anyone else here corroborate this?
 
The brochure states that if you joined the service after January 1st, 2018 you are automatically enrolled in the Blended Retirement system, while those who entered prior have a choice. For Service Academy Cadets, what is considered the date they joined the service, the day they entered the Academy or the day that they commission?
 
The brochure states that if you joined the service after January 1st, 2018 you are automatically enrolled in the Blended Retirement system, while those who entered prior have a choice. For Service Academy Cadets, what is considered the date they joined the service, the day they entered the Academy or the day that they commission?

38 USC 1965(1)(d) states, "The term 'active duty' means full-time duty as a cadet or midshipman at the United States Military Academy, United States Naval Academy, United States Air Force Academy, or the United States Coast Guard Academy."

I would interpret the above federal law as qualifying a current cadet/mid as having a choice of retirement plan.
 
Rocko, you are correct on the verbiage that they reserve the right to pay lower, but my DD advised me that she thought that they are currently paying 10%.

Of course she just opened the account when her husband deployed 3 months ago.
Can anyone else here corroborate this?
You are right it does say up to 10%... the email from my nephew said it paid 10% so I was going off that.
 
Going back to qualifying for TSP participation....I found this. Not sure if it is current or not, but it may preclude SA cadets/mids from getting a choice prior to commissioning.

TSP for cadets/midshipmen. Cadets and midshipmen do not receive basic pay and thus


would not be eligible to establish and contribute to TSP while attending a Service Academy.


ROTC cadets and midshipmen, who receive subsistence stipends, not basic pay, are not


eligible to establish and contribute to TSP while attending ROTC.

Source: https://www.govexec.com/media/gbc/docs/pdfs_edit/061115kl1.pdf
 
When you 1st posted that ROTC cadets as C400s could get TSP, I figured it was wrong. They receive stipends not pay.
~ I just did not reply because the poster that asked and your DS have years to go...who knows what it will be in years to come.

I remember for my DS that when he took out his starter loan he dumped 5K into a personal IRA (USAA), and had no TSP option until he reported to his 1st duty station.
 
Is the "pay" SA cadets get considered income and would they be eligible to start a Roth IRA?
 
Is the "pay" SA cadets get considered income and would they be eligible to start a Roth IRA?
Yes. It's taxable salary for full-time active duty status as midshipmen or cadets. They get paid roughly 1/3 what an ensign/2nd LT earns. Not USMMA, but those mids earn pay when sailing.
 
+1 Jcleppe.
I preach this concept about Roth IRA accounts heavily to new graduates. You will likely never be in a lower tax bracket as you are when you are a new grad. The Roth requires you to use after tax monies but the growth can be withdrawn at retirement tax free. Roths also offer more flexibility as their are no required minimum distributions at age 70 1/2. The TSP is beneficial too because of the matching contribution and also it works to reduce your income by pretax deferrals. You can also contribute more to the TSP.

With the Roth, the younger an investor is, the more time there is for the tax free growth to occur. This is very powerful mathematically.

Ideally, a young commissioned officer should be participating in BOTH the TSP and the Roth strategies. Some circumstances may adjust this strategy, such as heavy debt burdens, etc.
Full disclosure, I am a Certified Financial Planner.

Gokings814: Just to clarify when you say above "The TSP is beneficial too because of the matching contribution" - I thought there was no current matching contribution for Active Duty AF officers. Can you clarify? Are you talking about the new plan starting in 2018? Thanks.
 
Gokings814: Just to clarify when you say above "The TSP is beneficial too because of the matching contribution" - I thought there was no current matching contribution for Active Duty AF officers. Can you clarify? Are you talking about the new plan starting in 2018? Thanks.

Yes, you are correct. I was referring to the new plan. So if your DS/DD was commissioned in 2013, then he/she should have the choice of the blended plan or in the old system.

I should also add that the TSP offers very low expenses for investments compared to other "retail" accounts.

See this link:
http://www.bloomberg.com/news/artic...ldiers-out-of-low-fee-federal-retirement-plan
 
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Probably should start a new thread and I am jumping the gun. But, does any of this apply to SA or ROTC students?
My son opened a traditional IRA and has been contributing $50.00 of his stipend each month since he contracted. With the market growing since 2012 it's already grown into a tidy sum...and it's gotten him excited about saving. Since the stipend is not earned he could not do a ROTH (per our financial planer) otherwise he would have. I convinced him he didn't need the whole stipend.
 
Rocko, you are correct on the verbiage that they reserve the right to pay lower, but my DD advised me that she thought that they are currently paying 10%.

Of course she just opened the account when her husband deployed 3 months ago.
Can anyone else here corroborate this?

Yes, they are paying 10%. Many people in my unit took advantage of this on the last deployment.
 
nofodad. . . the stipend is earned income. . . Your son should have been filing his taxes each year. My DD has been funding her ROTH while a cadet and plans to use part of her starter loan for it.
 
I decided to educate myself on the issue of taxability of ROTC stipends, having thought for years stipends were not earned income and not taxed. There are amazing numbers of generally reliable sites which say "not taxable," and also "taxable."

I will only post the link to the only irs.gov mention I found. The link refers to an Armed Forces Tax Guide which can be downloaded or ordered, for more complete info.

https://www.irs.gov/uac/Special-Tax-Benefits-for-Armed-Forces-Personnel

You can view the pdf of this 2015 pub at the bottom of the link. Page 5, Table 2, Excluded Items, Other Pay, mentions "ROTC educational and subsistence allowances." The term "stipend" is not used.
 
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Good post by Gokings, hopefully the cadets are reading these as well as parents. Afraid my 18 DS still hears "blah blah" when I speak, though perhaps I am getting smarter so he only "blah."

From Capt MJ's IRS link, which specifically includes ROTC:

“ROTC Students Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.”

Breaking down the above into two parts leaves us with the following:

1.Subsistence allowances paid to ROTC students participating in advanced training are not taxable; or

2. active duty pay – such as pay received during summer advanced camp-is taxable.

There are only two periods of advanced training for ROTC cadets- school year and summer.

If ROTC cadet is not at “advanced camp” such as summer training and receiving active duty pay, which is taxable, then by default the only other option is the first listed, the non-taxable “subsistence allowances paid to ROTC students participating in advanced training.” Which must by default include and mean allowances received during school period training, i.e. school year ROTC. Such payments which only go to contracted cadets are also known in the ROTC community as stipends, which I interpret to mean non-taxable "subsistence allowances."

DISCLAIMER: I am not a tax attorney, nor financial planner, and this is an anonymous forum so take our comments in light of same.
 
I decided to educate myself on the issue of taxability of ROTC stipends, having thought for years stipends were not earned income and not taxed. There are amazing numbers of generally reliable sites which say "not taxable," and also "taxable."

I will only post the link to the only irs.gov mention I found. The link refers to an Armed Forces Tax Guide which can be downloaded or ordered, for more complete info.

https://www.irs.gov/uac/Special-Tax-Benefits-for-Armed-Forces-Personnel

You can view the pdf of this 2015 pub at the bottom of the link. Page 5, Table 2, Excluded Items, Other Pay, mentions "ROTC educational and subsistence allowances." The term "stipend" is not used.

I agree with Capt. MJ, there is a LOT of misinformation out there along with improper terminology thrown about regarding taxation of armed service benefits. The above IRS link is a good one.
I tend to stick with IRS websites as a primary resource.
 
nofodad. . . the stipend is earned income. . . Your son should have been filing his taxes each year. My DD has been funding her ROTH while a cadet and plans to use part of her starter loan for it.
uhm... I disagree. DS has requested a w-2 each year to cover pay received during CULP, CLC etc. stipend has never shown up on the w-2. I too am not a tax attorney...but I did stay at Holiday Inn Express last night...
 
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