Podcast Summary: "Should I Use TSP to Payoff Mortgage?"
Jill on Money with Jill Schlesinger
Release Date: May 2, 2025

Introduction

In this episode of "Jill on Money with Jill Schlesinger," host Jill Schlesinger delves into the nuanced topic of utilizing the Thrift Savings Plan (TSP) to pay off a mortgage. The discussion is enriched with listener questions, expert insights from co-host Mark Talercio, and practical financial advice aimed at empowering listeners to make informed decisions about their finances.

Main Topic: Using TSP to Pay Off a Mortgage

Listener Question: Michael's Mortgage Dilemma

At [07:45], listener Michael reaches out with a pertinent question:

“I'm 70 years old with an IRA worth $165,000 and a Thrift Savings Plan valued at $305,000. I receive a total of $6,400 monthly from federal retirement, Social Security, and other sources. My mortgage balance is $194,000 with monthly payments of $2,089, plus an extra $100. Should I use my TSP to pay off my mortgage?”

Jill Schlesinger's Response:

Jill begins by addressing a critical missing piece in Michael's question—the interest rate on his mortgage. She speculates:

"What's the interest rate on that mortgage? I bet it's not very high." [07:50]

She questions the rationale behind using the TSP to pay off the mortgage:

"Why would we use your Thrift Savings Plan to pay off your mortgage? I don't get this. You got plenty of money." [07:55]

Jill outlines the potential downsides, emphasizing the loss of access to funds and the tax implications:

"Once you use that, you've got $200k less, but you've put up taxes and lost access to the money. I love access to my money, especially as I get older." [08:00]

Mark Talercio's Input:

Mark strongly advises against the move:

"I would not do that. I mean, he's going to be slashing his nest egg in half." [08:02]

Jill wraps up the discussion by reinforcing the idea that Michael has sufficient income to manage his mortgage without tapping into the TSP:

"You're good. Okay, this is Michael. I want to convince you not to do this." [08:06]

Key Takeaways:

• Assess Interest Rates: Before making financial decisions, understanding the cost of debt (mortgage interest rates) is crucial.
• Preserve Retirement Funds: Utilizing retirement savings to pay off a mortgage can jeopardize financial security in later years.
• Maintain Liquidity: Keeping funds accessible ensures flexibility to handle unexpected expenses or opportunities.

Additional Listener Questions

1. Rose's Inquiry on Charitable Annuities and QCDs

Question: Rose asks whether she can use a Qualified Charitable Distribution (QCD) of $10,000 in 2025 for a different charity after purchasing a charity annuity for $53,000 in November 2024.

Jill's Analysis: Jill expresses skepticism about combining charitable annuities with QCDs, suggesting that directly utilizing QCDs without annuity wrappers is often more straightforward and advantageous:

"I really don't know why to do it. I'm not sure why you would do that versus doing a QCD in a more simplified way." [05:30]

Advice:

• Simplify Strategy: Opt for direct QCDs over complex annuity-based structures unless there’s a compelling reason.
• Understand Product Choices: Carefully evaluate the necessity and benefits of combining financial products.

2. Jeremiah's Question on Rolling Over a 401(k) Annuity

Question: Jeremiah, a 48-year-old listener, is considering rolling over a poorly performing employer 401(k) annuity valued at $500,000. He contemplates dollar-cost averaging over 12 months versus a lump-sum reinvestment.

Jill's Perspective: Jill advises caution and underscores the importance of understanding the contract details before proceeding:

"What is in this contract if you can roll it out? I'm not sure you should necessarily use an advisor to roll it out." [09:00]

She suggests exploring low-cost platforms like Vanguard or Fidelity for reinvestment and questions the necessity of using an advisor for this process:

"Why not just roll it out to some low-cost platform where you can invest?" [09:15]

Key Points:

• Evaluate Investment Options: Ensure that the chosen reinvestment aligns with financial goals and risk tolerance.
• Minimize Fees: Opt for low-cost investment platforms to maximize returns.
• Seek Clarity: Fully understand the terms and performance of existing annuity products before making changes.

3. Andrew's Query on Roth Conversions and RMDs

Question: Andrew and his wife, both 65, hold substantial pre-tax retirement funds totaling $6 million, a Roth account with $1.5 million, and $10 million in taxable investments. They’re considering Roth conversions to mitigate future Required Minimum Distributions (RMDs) tax exposure.

Jill's Insights: Jill advocates for aggressive Roth conversions to lock in current tax rates, especially given the high pre-tax balances:

"Why not convert most of it? You got plenty of money." [11:20]

Mark concurs, recommending a comprehensive approach rather than partial conversions:

"If you're going to do it, just do the whole thing." [12:28]

Strategic Advice:

• Lock in Tax Rates: Convert during periods of favorable tax rates to minimize future tax liabilities.
• Comprehensive Planning: Consider converting substantial portions to fully leverage tax benefits.
• Future-Proof Finances: Prepare for potential tax rate increases by securing current rates through conversions.

Notable Quotes

• Jill Schlesinger on Simplifying Financial Products:
  "I really don't know why to do it [use annuity with QCD]. I'm not sure why you would do that versus doing a QCD in a more simplified way." [05:30]

• Mark Talercio on Mortgage Payoff Strategy:
  "I would not do that. I mean, he's going to be slashing his nest egg in half." [08:02]

• Jill Schlesinger on Roth Conversions:
  "Why not convert most of it? You got plenty of money." [11:20]

• Mark Talercio on Comprehensive Roth Strategy:
  "If you're going to do it, just do the whole thing." [12:28]

Conclusion

In this episode, Jill Schlesinger effectively navigates complex financial decisions by addressing listener queries with clarity and expertise. The primary discussion highlights the potential drawbacks of using retirement funds, specifically the Thrift Savings Plan, to pay off a mortgage, emphasizing the importance of preserving retirement savings and maintaining financial flexibility. Additionally, the episode covers strategic approaches to charitable giving, retirement account management, and tax planning through Roth conversions. Jill and Mark provide actionable advice, encouraging listeners to evaluate their financial strategies comprehensively to achieve long-term security and prosperity.

For more personalized financial advice or to join the conversation, listeners are encouraged to visit Jill on Money and utilize the "Contact Us" feature to submit their questions or participate in live webinars.

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