20M Financial suggestions/opinions based on financial profile

[laeomis]

20M E-3 married with one child

Assets:

(Fidelity) Roth IRA : $7170.03 (VOO) (soon to lump sum an additional 7000 due to high tax refund of 7,167)

Edit:

(Fidelity) Roth IRA : 14,168.85 (VOO) (my tax refund dropped today and I immediately parked the 7k max contribution into my IRA as of 02/23/2024)

Edit :

(Fidelity) Roth IRA :22,647.20 (VOO) (Opened and funded IRA under stay at home spouse)

HYSA : 15,672.93 (CITBANK 5% interest)

Edit :

HYSA : 10,000 (Poppy Bank 5.50% APY)

TSP : 2,712.92 (recently changed from L Fund 2065 100% to 80% C fund and 20% S fund. Though I am contributing 5% I am not yet being matched as I joined august 2022.)

Taxable brokerage account: 1,694.97 (with MooMoo, mostly VOO, a few selected stocks such as AMZN & TSLA)

Checking account : 2000

Joint account for stay at home wife: 300 (I give her 25% of each paycheck for her personal wants and buy necessities with the remaining 75% then save whatever remains)

Debt:

No debt as of current, revolving credit cards paid off monthly, nothing affecting long term, though I do hope to buy a home sometime in the next 5 years (credit score 760)

Note: writing this on staff duty so hopefully I didn’t forget anything. (I posted this to the subs I read most so apologies if you’re in all of r/leanfire r/personalfinance r/fire & r/militaryfinance)

Criticism is welcome, but constructive input will be appreciated. I don’t mind editing screenshots in for a more visual outlook. Thanks in advance.

 

[katasamu]

@laeomis I think this looks like a real good plan! I am definitely no expert with this stuff so take what I say with a grain of salt. What makes you keep 15k in a HYSA? Is it specifically for a purpose or just happened over time? I would recommend that if it just built up over time, try to determine how much of an emergency fund you want and utilize the extra. If that is a 3-6 month emergency fund that is great!

Personally I realized like 6ish months ago I had too much in my emergency fund and was under contributing in my TSP and adjusting that for me was beneficial.

Also just out of curiosity what made you want an IRA before maxing TSP? Currently I keep upping my ROTH TSP and have held off on an IRA because I’m not maxed on the TSP yet but curious if you recommend an IRA over maxing TSP?

My number one recommendation would be to invest more into the TSP. There aren’t hidden fees and it is a useful/straight foward tool to prepare yourself for retirement. I would recommend try upping your contribution to at least 15% if you can.

 

[laeomis]

@katasamu 15k is just a general 3-6 month’s emergency fund that I assessed was an appropriate amount for a household of 2 adults and a newborn son on one income. I suppose it could be reduced while I’m active duty, since most things are covered by the military, but in the long run it just eases my mind allowing me to focus on just investing. Do you think it’s too much with this information in mind?

That’s fair, I’ll dive deeper on Roth tsp’s below.

It’s a personal choice, as in my own research I haven’t found any pros as of yet that would point to a significant financial benefit in using solely Roth TSP. On the contrary, I know that after 5 years from my first contribution I can withdraw any amount I would like with no extra steps or taxes from my Roth IRA contributions. In your TSP there will be a 10% tax deduction regardless of when you want it or you will end up having to borrow from it, etc etc… basically I know right now that I’m in 100% control of all the contributing money that is put into my Roth IRA, so I max it first then go as close to maxing the tsp as comfortably can.

What I said previously aside, I will soon promote to E-4 as well as receive my 5% matching, and that is exactly what I plan to do (adding 10%). Honestly finally reaching the matching will make it feel a lot better too.

 

[tsundoku]

@laeomis Consider your emergency fund well invested in that HYSA - no need to contribute to it further, focus on investing like you said. $15k is more than I recommend to other junior enlisted folks just starting out, but I wouldn't be in a hurry to "put part of it to work" especially while HYSA's are paying out 5%.

You've nailed one big advantage of Roth IRA vs Roth TSP account - option to withdraw contributions with no penalty, which you can't do in a TSP. Another benefit of a Roth IRA is no RMD's during your lifetime, whereas TSP generally requires distributions beginning at age 73.

One benefit of the Roth TSP is that it's a "set and forget" payroll deduction to an account automatically created for every servicemember, versus the manual process of funding and then investing within a self-created account. This isn't as much of an advantage for folks like you who are thinking hard and planning ahead. More of a good reason to encourage fellow junior servicemembers to lean into their TSP's if they don't want to think about finance otherwise. The intricacy of IRA's can be off-putting to new investors; it's less of an initial hurdle to get someone to simply increase their monthly TSP percentage. Plus, it enforces dollar-cost averaging to avoid market-timing-temptations ("do I invest a lump sum in January, or wait until a market correction, or...?), and makes it much easier to commit to saving goals because the money is invested before there's a chance to touch/divert it elsewhere.

 

[laeomis]

@tsundoku I thought so as well, to me 15k is the perfect number, a few months pass by and I take out the extra 500 and just invest it. Sometimes it feels like an infinite money glitch, but I know in my mind a hysa isn’t beating inflation no matter how much you invest into it.

I definitely forgot about RMDs part! (Sometimes I trust the amount of effort I put into research so much, if I remember researching it I trust my past decision ,it’s only when I’m educating others or relearning myself that I actually remember all the reasons.)

Edit: Roth TSP is no longer subject to RMDs as of 2024 thanks for correction

While I do see why that last note is a benefit for many young soldier, as you implied I do enjoy taking things into my own hands which inherently makes not being able to do it manually less beneficial on a personal basis.

I’m a firm believer that the more that you interact with intricate things, the less intricate they become. Classic fear of the unknown.

These were all very good points, you’re significantly more financially literate than any financial advisor the army placed in front of me from btc to now I’m sure you’re invaluable to those around you.

 

[beforetheseven]

@laeomis There is a new law this year that states all Roth accounts (Ira, TSP, 401k) are no longer subject to RMD’s

 

[laeomis]

@beforetheseven Just fact checked this to be true. Thank you for correcting this. That’s pretty huge

 

[beforetheseven]

@laeomis Being able to keep that as an asset you don’t have to draw on is going to be a cheat code if you do 20 and have your pension paying you a decent amount for the rest of your life!

 

[katasamu]

@laeomis To be clear, not trying to say what you should do, only trying to provide another perspective from what I’ve decided. You have a great financial plan in place so you can easily just keep on without adjusting anything. I do not work in finance/business or have a background in this type of stuff or have too much experience with this stuff beyond my own research

For me though, I feel very secure in my job so I lowered my emergency fund to 3 months. Which as a single male in my 20s, I can easily live off of an emergency fund of 7.5k. I will probably even lower it more. I have my TSP Maxed (30% contribution) and have been considering maxing a Roth IRA for 2023 before I do my taxes then maxing it again for 2024 but I think I may be cutting things too thin if I do (still trying to determine the best path for me).

My main message was not to persuade you one way or the other, just wanted to give another perspective. We are limited with how much we can contribute to TSP and IRAs partially because they are great tax advantaged systems to save for retirement. As military personnel, we aren’t going to have a ton of disposable income, however, for me, the job security I do have is allowing me to feel safe being more liberal with my retirement contributions.

I really appreciate your insight to IRAs! I will definitely be opening a Roth IRA now lol. I have been debating who to open my IRA with. I currently have a brokerage with Robinhood and was considering changing it to fidelity and opening my IRA through there but one of my coworker’s parents had a bad experience (apparently a bunch of fees and penalties when her parents were trying to withdraw from it). Do you have any specific recommendations for who to open a Roth IRA with?

 

[laeomis]

@katasamu Completely understood, surely you couldn’t be held accountable for a stranger who changed his financial path at every perspective offered on Reddit. But I most definitely appreciate you contributing your perspective, as there’s no such thing as knowing everything in finance. You made me consider things that I may not have given a thought organically from my perspective alone, which for me is a very valuable interaction. Thank you.

You seem to have a great financial plan as well, maxing your tsp alone is quite the feat, those that do this are quite the minority within the army. Always refreshing to see others taking their finances seriously in a similar capacity.

More importantly, emergency funds are very subjective, heavily dependent on the individual(s) it’s made for. While in active duty you have a significantly larger cushion than most civilians so your outlook is totally valid/understandable. Since receiving your perspective I’ve thought heavily about about reducing my emergency fund to 10k while serving, I’ll talk it over with my wife (we review finances on the first and last Sunday of each month though she isn’t quite as financially literate lol) but you’ve definitely given food for thought.

Saving is important but yes do remember that financial independence doesn’t serve its purpose if you’re miserable.

No problem, again, completely understood. It’s also important to note that the limit between Roth TSP and Roth IRA are completely separate. Meaning no number that you contribute to the max of your government funded IRA will affect the max contributions of your Roth TSP.

I’m going to reply to your last question separately so it doesn’t get lost in this massive information dump and easier for others, who may just want to lurk and learn, to read

 

[laeomis]

@katasamu For general information purposes I’m referencing a post I researched in the past that I used as a start to gain a foundational understanding in which brokerage to pick from r/financialplanning I implore you to look into it before reading the rest of my response.

r/financialplanning Roth IRA Brokerages

For smaller sums of money RobinHood is ok, but it lost a lot of customer trust in the past years.

Personally I would still recommend Fidelity regardless of what you heard. Assuming you’ve read the thread at this point I’m going address your dismay from your coworkers parents.

No matter the brokerages the rules are the rules. That is why it’s extremely important that you know how everything you put your money into works.

Obviously all you know from your coworkers parent’s situation is they had fees/taxes when they withdrew, however, what is more likely is that your coworkers parents were trying to utilize a resource they had not properly researched/completely understood before making/using.

What’s more likely is that they did 1 of two things; A. before 5 years post their first contribution they attempted to withdraw from their account

Edit: Correction you can withdraw contributions made to a Roth IRA at any time with no penalty/tax. You do not in fact have to wait 5 years, as it was already taxed. My apologies.

Or

B. They tried to withdraw beyond the money that they had contributed before they reached the proper retirement age. Here is an example for understanding; assume in this scenario it has been five years since your first contribution (say you contribute 7000 to your Roth IRA. Next, the market has an amazing uptrend and your 7000 doubles into 14,000. In this scenario even though you have accumulated 14,000 in your Roth IRA account, you have only contributed 7000. If you withdraw anything over 7000, you are now going to be taxed and penalized. This is because you can not withdraw the funds being compounded from your contributions.

This is the most common mistake made in Roth IRA owners that have not completely understood the tool they are using. Not everyone truly researches on their own, some people just wake up and do things, to those people I would recommend a meeting with a financial adviser to run them through the exact scenario and details that are being provided to you.

You’re doing great, and I commend you for taking your financial literacy in your own hands and asking questions no matter how literate you may be. Keep up the good work!

 

[katasamu]

@laeomis Wow that was such an easy to read and understandable explanation, thank you so much! I will definitely look into that subreddit and will open a Roth IRA. Thank you brother!

 

[bensherie]

@laeomis Here's a sneak peek of /r/FinancialPlanning using the top posts of the year!

#1: My husband passed away suddenly and left me with $120,000 in debt on credit cards.

#2: Settlement from car accident just changed my life.

#3: My dad died I now now not in poverty

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[werewolf]

@laeomis I’m twice your age and have none of this, so I’d say you’re doing great.

 

[laeomis]

@werewolf This is both reassuring and slightly concerning, but then again I don’t know your journey, thank you!

 

[werewolf]

@laeomis I’d like to think it was 40% bad education (high schools should really teach financial literacy), 40% bad decisions, and 20% outside struggles/situations outside of my control. I will have a couple pensions + SS + GOV/MIL TSPs at least so I won’t be completely fucked when it comes time to retire.

 

[laeomis]

@werewolf They definitely should, but you know, who cares about financial literacy when we can keep the poor poorer? Or whatever Uncle Sam says

To be frank, the fact that you can look back and assess your financial hardships in a matter of percentages .. something tells me you’ll be alright with whatever budget you retire with.

Regardless of how you started if you got in prior to 2018 you’d be surprised how ahead you may be just by simply making it to your pension, not bad at all.

I’m sure at your current state you know more than I could mention, but just in case, as you finish your stride don’t forget to go to sick call consistently for any damage you accrued over the years and make the VA add it to your retirement plan!