Military physician, new to mutual fund investing

[Re3iRtH]

Hello everyone! I know most folks are not military docs, but I was hoping to get some feedback on my situation as it relates to investing.

Some pertinent info: junior staff, filing single, net worth is low 7-figures. 80% is in real estate equity, <10% in equities/mutual funds, rest cash.

Looks like tax bracket for the next few years will be ~28%

I decided to start contributing to the TSP again, I started briefly and stopped in 2015. My real estate side-hustle has grown quite a bit and conservatively pays me ~$3K in net monthly income.

I will be contributing roughly $15K the last 3 months of 2017 to catch up. Then will probably contribute the same the following years, plus pick up the 5% of base pay match. I has set a withdrawal of 50% traditional/50% Roth into the TSP. I think its just set it to the 2050 Lifecycle fund as this still gives the low 0.038% ER.

What are your thoughts on the traditional / Roth distribution I am doing? I don't know much about mutual funds but as someone else mentioned that I'm "up to my ears in real estate" which I cannot disagree with. My specialty pays at least double on the civilian side, but I am not sure I will be working full time after leaving the service. I am 70-90% sure I will be getting out after my commitment is up.

If I am off base on the 401k plan I outlined, or if I should be doing anything else, I'm all ears.

[DoubleMDs]

This was a recent thread here on the TSP with some good discussion.

https://www.whitecoatinvestor.com/forums/topic/tsp-fund-questions-for-those-whove-used-them/

 

 

[Re3iRtH]

DoubleMDs wrote:

This was a recent thread here on the TSP with some good discussion.

https://www.whitecoatinvestor.com/forums/topic/tsp-fund-questions-for-those-whove-used-them/

 

 

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Thanks, I checked it out. That thread was a good explanation of each of the TSP funds. I am looking for advice more specific to my situation as well as relative percentages of trad. and Roth TSP given current tax bracket and future goals.

[StarTrekDoc]

Really depends on what/how you're planning to use and your horizon along with income now vs future.

If your income is lower now or anticipated the same, then Roth - If you anticipate high income pushing you into higher brackets, Roth.  If you're going to be low income brackets, then standard TSP.

If TSP in DoD works the same as TSP in VA, remember to not max out TSP immediately in a bolus next year.  Cause 1% is the automatic and only does this if there is room to save into TSP.  ie don't put more than $1400/month into TSP to allow room for the 5% match

[Hank]

you can and should put $1500 in to TSP every month. I use a mix of C and S fund, but Lifecycle 2050 is a reasonable choice.

At 28% tax bracket, I might lean toward more of the traditional instead of Roth.
1) Are you a resident of a no income tax state?
2) Will you be a resident of a no income tax state in the future?
3) Do you expect to have high taxable income in retirement? Your real estate holdings make this a possibility.
4) How early do you plan to retire?
5) Can you do a series of Roth conversions at less than 28% marginal rate between retirement and required minimum distributions at age 70 1/2!

[Hank]

Great job with the real estate investing to hit low seven figures! That said, I'd still max out the TSP and back door Roth every year.

If you get deployed, make sure to max out the Savings Deposit Program (guaranteed risk free 10% return) and non-taxable TSP contributions up to $54K.

You don't get a second chance to make up for a year's TSP and IRA contributions if you didn't make it. If you get the TSP match under the blended retirement system, then you need to check if you lose part of the match by contributing more than $1500 per month. The match for civilian TSP stops if you've hit the annual TSP contribution limit.

[Re3iRtH]

At 28% tax bracket, I might lean toward more of the traditional instead of Roth.
1) Are you a resident of a no income tax state?
Yes.
2) Will you be a resident of a no income tax state in the future?
I will for the next 6 years of service. After I get out, I am not sure if I would maintain residence in a non-taxable state unless I take a job in one.
3) Do you expect to have high taxable income in retirement? Your real estate holdings make this a possibility.
If I keep working after i leave the military for sure I will have a higher income.
4) How early do you plan to retire? Best guess is work part-time mid 30s, retire by 40-42.
5) Can you do a series of Roth conversions at less than 28% marginal rate between retirement and required minimum distributions at age 70 1/2!
Hmm.. could you please elaborate. Roth conversations are only for traditional 401k funds, correct? If some of the funds are Roth 401k, could this be accessed before age 62?

Thank You!

[Hank]

Roth conversions are for traditional IRAs to Roth IRAs.  When you get leave your employer, you can roll money out of your 401(k) or your TSP and roll it into an IRA.  The pre-tax portion would go into a traditional IRA, the post-tax portion would go into a Roth IRA.

Best practice is to fill up the 10%, 15%, 25%, and perhaps 28% bracket with income and Roth conversions.  Better still, you have until October 15 the following year to re-characterize some or all of a Roth conversion, allowing you to fill a tax bracket or avoid a phase-out on a deduction or credit.

You should be able to access your retirement funds well before age 62 using a 72t transaction, or a series of substantially equal periodic payments.  Your Roth account is supposed to be open for at least 5 years before you take gains from it.  Johanna or Jim should be able to describe this better than I have.

[Donnie]

Not sure exactly what low 7 figures means, but $36k / yr on even $1M of real estate equity seems low to me.

[Re3iRtH]

Hi Donnie,

Sorry, for income I was counting only income from specific properties that i am the sole owner of. These properties are in a coastal/island market which has seen a good bit of appreciation over the last 3-4 years. There was a little rent growth but not that much relative to appreciation.

There is also roughly $200K in equity from K-1 partnerships/syndications, and $50K in a self-directed IRA investing in real estate. I do get about $4K income every 3 months from these totally passive ventures. I hadn't counted this towards the $3-3.5K of net income from my properties.

I have been going crazy back and forth with the idea of investing in the TSP. I understand real estate, and it has worked well. I was fishing in Southern Alaska the other week and spent 1-2 hours one of the days dealing with a tenant while I was literally trying to pitch a tent, and I realized, maybe diversifying into more passive investments isn't such a bad idea!

My only concern, was/is being able to access these TSP and IRA before age 62.

[DMFA]

Re3iRtH wrote:

My only concern, was/is being able to access these TSP and IRA before age 62.

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Substantially equal periodic payments.