Tax return?

[irishamerican4christ]

Any advice on what to do with this upcoming tax return? For reference I'm an E-2 making around $700 every paycheck after putting 15% in my TSP. I have a car loan for $17,000 left on it around 4 years of payments left, $3,000 in an emergency fund/cash savings, $2,000 in my TSP and around $2,500 in various Crypto.

I'm slated to get $2,900 back on my tax return, so simple question hopefully someone can give a little advice what do i do with it? my main options are A) put it all into my car payments and knock a solid few months of payments off B) keep it in an emergency fund for any car repairs or unexpected expenses C) put a lump sum into the TSP and not touch again until retirement D) put it into Crypto right now while the market is down and sell again when the peak summer months hit

Any advice is very welcome and appreciated, thank you in advance

 

[marina777]

@irishamerican4christ It bothers me that you have more in crypto than your TSP.

 

[resjudicata]

@marina777 Why? Last year my crypto portfolio saw 800% gains while my TSP only saw 50%. If I invested in crypto as vigorously as I have the TSP since I joined then I would be close to $1M net worth

 

[mraaron]

@resjudicata You said “last year”. But how is your crypto doing right now? I think the point he was trying to make is that your retirement accounts should be a much higher percentage of your crypto. I do have crypto, but it is less than 5% of my portfolio. My suggestion for your tax refund is to open a ROTH IRA and then set a monthly allotment to keep investing every month. My suggestion is to go with VTI. You will thank me later.

 

[resjudicata]

@mraaron I will not thank you later. I received this same advice 4 years ago, and I regret listening to it.

OP, put your 5% into the TSP to receive the agency match and then funnel the rest into Bitcoin. You’ll thank ME later

 

[mraaron]

@resjudicata Oh wow, so you held VTI for four years? VTI is best held in a retirement account; thus the reason why I (and many others) here keep suggesting a ROTH IRA. If you just want to gamble then buy lottery tickets or keep playing with crypto.

 

[resjudicata]

@mraaron I get that what you’re recommending is a safe bet over a long period of time, and has most likely worked for you. It makes sense for you to suggest what you’re familiar with and have had success with. However that doesn’t discredit crypto, especially established coins like Bitcoin.

So keep stuffing cash under your mattress. I’ll stick with crypto and my xxx% returns

 

[marina777]

@resjudicata "How do you know you have a crossfitter and a cryptoid at your party? Don't worry, they'll fucking tell you."

 

[resjudicata]

@marina777 “How do you know you’re talking to a boomer? They can’t wait to tell you how afraid of crypto they are.”

 

[marina777]

@resjudicata I'm 37

 

[resjudicata]

@marina777 Makes sense

 

[9button]

@resjudicata You got a time machine? Pondering orb?

 

[davidolonge]

@resjudicata Might as well take that crypto money to a casino instead, similar odds of winning big in the long term.

Bitcoin, for example, was around $40k in Jan 2021, and around $50k in Dec 2021. That's a 25% gain for 2021.

VTSAX was around $96.50 for Jan 2021, and up to $117.50 Dec 2021. That's around a 22% gain for 2021.

Meanwhile Bitcoin is down around 20% YTD, while VTSAX is down only around 8%.

Yes, you can win big in Crypto, but you can also lose big in Crypto. Crypto potential is higher than things like index funds, but volatility is significantly higher too.

 

[resjudicata]

@davidolonge OP is most likely 18-20 years old, has steady income, an emergency fund, and extra cash. If he is not the person to try for a higher risk/higher reward play then who is?

 

[davidolonge]

@resjudicata They're an E-2, yeah they have a steady income and small emergency fund, I wouldn't say they have "extra cash".

Funny thing about military pay, especially if OP is in the dorms (no BAH/BAS), their 15% into TSP is very deceiving. With 15% to retirement being a generally recognized recommendation for retirement savings, they actually need to be putting more like 20-25% of their base pay into TSP to match a civilian living in the same area bringing home the same amount of (post-tax / bills) money.

So they should up their TSP contributions to 20-25% just to reach the recommended amount. Then after that, they can worry about investing more for an earlier retirement or gambling.

As for who high risk/high reward is for - people that can afford to lose 100% of it. So if OP can afford to just delete $200/mo from their bank account, then they can afford to put $200/mo into Crypto. Maybe they win, maybe they don't - but it doesn't matter because they're willing to lose 100% of that money.

Ever hear "the rich get richer" or "it takes money to make money"? It's because they're exactly the people that can gamble with large amounts of cash to win even more and not live like a broke college student to do it. OP is not a rich person that can afford that risk.

 

[resjudicata]

@davidolonge I agree with mostly everything you said except for a couple points in the last two paragraphs.

OP investing his spare cash into crypto isn’t like deleting that money. Even if the investment is down he can just keep holding. He doesn’t have to realize those losses.

The next thing is that I’m willing to bet OP could lose the couple thousand dollars he has and it would not change anything about his life. Correct he’s not rich, but it’s not like he has to worry about rent or losing his job. He can afford that risk.

 

[davidolonge]

@resjudicata

Even if the investment is down he can just keep holding. He doesn’t have to realize those losses.

Unless the coin in question completely collapses or goes down and never recovers. Hence the "deleting the money".

Correct he’s not rich, but it’s not like he has to worry about rent or losing his job. He can afford that risk.

OPs situation can change, he can lose his job, he can have to start paying rent in a month or two. Just because they're in the military doesn't mean their situation is guaranteed to be stable. More like? Yup....but that's a far cry from guaranteed.

 

[resjudicata]

@davidolonge The “risk of collapse” is easily mitigated by purchasing an established coin like Bitcoin or Ethereum.

The second point is a little ridiculous. What are the odds of OP getting abruptly booted from the military without any kind of support or benefits? Definitely not high enough to keep ~50% of his net worth liquid. Also if this was truly a concern then why did you suggest OP up TSP contributions? Surely they should just hoard cash incase they get booted from the military.

 

[davidolonge]

@resjudicata

The “risk of collapse” is easily mitigated by purchasing an established coin like Bitcoin or Ethereum.

Imagine this, the US finally gets fed up with crypto and puts a hard stop to crypto transactions for US citizens. Now your "stable" Bitcoin or Ethereum is much harder to turn into USD. Not exactly a collapse situation, but way harder to work around than something like TSP.

Definitely not high enough to keep ~50% of his net worth liquid.

Which you wouldn't be doing if you invested it in TSP.

Also if this was truly a concern then why did you suggest OP up TSP contributions?

Because it has much lower volatility than crypto, and you can transfer it to a Roth IRA once you separate then take out contributions without penalty. So lower volatility, access to up to the amount you put in with zero penalty? That's better than the risk associated with crypto.

 

[kitty346]

@irishamerican4christ Assuming you’re single and living in the barracks, your emergency fund sounds sufficient to me.

You have a huge portion of your assets in crypto, so I wouldn’t do more there.

If your vehicle loan is underwater or higher than 3%, I would probably put it there.

If you don’t have other shorter term financial goals, I would put it in your TSP or an IRA. You can’t deposit it directly into your TSP, but you can increase the percentage coming out of your pay and use the refund money to make up a difference.

Lastly, I would adjust my W-4 so I don’t get such a large refund next year. Why not have a larger paycheck to invest each month? The IRS Withholding Estimator is helpful for figure out how to set up your W-4 properly.