Should I Use TSP to Payoff Mortgage?

Summary

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

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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.

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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.

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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.

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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]

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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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Stay Informed and Empowered:
Subscribe to "Jill on Money" on your preferred podcast platform and visit jillonmoney.com for the latest insights and resources to optimize your financial well-being.

Transcript

[Jill Schlesinger]

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[Jill Schlesinger]

Welcome to the Jill on Money show. It's Friday, May 2nd and we are we are answering your financial questions. If you've got one, just go to our website, conveniently called just like the name of the show, Jill on Money. Jill on Money. Incredible, right? It's just like that. Now what's really cool about the website and the way that it was designed is that there's a contact us button. It's in the upper right hand corner. When you click on that, you can ask us a question and you know we'll get the question. We'll do email episodes. We're going to do an email episode today and then of course you are able to also check the box and you can join us live on the website. We also have webinars and it is called Jill on Money Live. This is such a great deal. For 45 bucks for a whole year you get access to upcoming and prior webinars. Thursday, June 5 this is quite timely, my friends. We have Mike Quincy, the car expert from Consumer Reports joining us. Boy, is the car market in crazy disarray. We are going to get a live update with Mike about what is going on in the car market. Should you make the big leap? Should you buy a car right now before things change? Should you wait? Should you drive your car into the ground? What are you giving up? Should you buy the car off lease. All these are questions that Mike is going to actually answer. He's wonderful. He, he loves cars. He hates me and Mark because Mark and I both have this aversion to actually dealing with cars, which is why we both have very old cars. But Mark, I have been considering this myself and I keep coming back to him and keep what I have. I just hope everything goes okay because if not, I'm going to screw myself. Right. Got a 10 year old car and you know, I have to figure out should I look through the tariff thing or am I worried in running out and buying a car right now?

[Mark Talercio]

I mean, the car that I have, I mean, I have no interest in having a car. I would get rid of it in two seconds. But the car that I have is. I have it because Quincy told me to go out and buy it. And that's what we bought.

[Jill Schlesinger]

Wait a second. Also, the reason why you have it is that it is a very New York story because the reason why Mark has a car is not cause he wanted a car, but it was because he and his wife had the opportunity to get a very cheap parking spot. And so that all of a sudd was like the motivating factor. And this was before you had a kid, right?

[Mark Talercio]

Yeah, this was pre Theo, but yeah, I mean, you know, it's come in handy and we use it, I use it all the time. It's, it's parked right outside now. I can look at it. But yeah, I mean it comes in handy. But yeah, I had no interest in having a car, but Quincy said if you're going to get one, go buy a Subaru. So that's what we did.

[Jill Schlesinger]

There you go. And I called him from the dealership to ask him about the car that I was being. That I was looking at. Just to be clear. Okay, now it's time to answer your questions and I am so delighted to do so. Here is a question from Rose who writes, I purchased a charity annuity for $53,000 in November of 2024 using the Qualified Charitable Distribution RMD required minimum distribution. May I use a QCDRMD of 10,000 in 2025 for a different charity? Thank you. Love the program and the emails. Okay, I'm confused. So here's the thing. I get that you bought a charity annuity. I'm not sure why you did it. So these are different kinds of annuities. Charitable remainder annuity, crat, crud, all these things. But you could just use a QCD without an annuity wrapper around it. So I think the question is, can you make a $10,000 distribution under the qualified charitable distribution of $10,000 in 2025 for a different charity? I think you can. I don't think that that's the problem. But I want everyone to really think twice before they get involved with any sort of annuity products that are charitable, because those were. They used to be put in place quite often before we had the qcd. But the QCD limit is kind of high. I mean, a qcd, a qualified charitable distribution. You know, obviously one issue is that you have to be over 70 and a half, but the limit is $108,000. That's incredible, right? You know, why would you actually do an annuity? I don't know. There was an opportunity to use a QCD to fund a charitable remainder trust, unit trust, or annuity trust. I don't even know why you would do that. I really don't know why to do it. I'm not sure why you would do that versus doing. Maybe it was because you could put so much more money in. Maybe it's because you pop the money in and the charity will get it at the end. You don't have to do it every year. But I'm not. I'm not a fan of the. Of, like, overuse of product when you can do it in a more simplified way. Okay, Rose, give us a holler back. I'm interested in knowing why you did this. Here is a question from Michael. Paying off mortgage. Hi, Jill. I'm 70 years old. I retired in 2018 from the federal government and from. In the year 2000. Also retired from the National Guard. I have an IRA. It's worth $165,000. I have a Thrift Savings Plan. It's worth 305,000. I receive monthly federal retirement. 3,200 from the Federal Retirement System, 2,400 Social Security, $780, for a total of about $6,400 a month. My mortgage balance is $194,000. Okay. Says my monthly mortgage amount is $2,089. I pay an extra $100 every month. I want to pay off the mortgage ASAP. Should I use my thrift savings plan to pay off my mortgage? You left out one big issue, Michael. What's the interest rate on that mortgage? I bet it's not very high. I'm just guessing. What do you guess the interest rate is? 4. Maybe. Maybe it's a little bit less. Why would we use your thrift savings plan to pay off your mortgage? I don't get this. You got plenty of money. And once you use that, let's just say you take the money out, you've got 200 grand and you would take the money out of the thrift savings plan, and then you'd have to take the money out, pay taxes on it, then pay off your mortgage balance, and then you have no mortgage balance, but you've lost access to the money. I love access to my money, especially as I get older. Michael, get back in touch with us. I want to, I want to convince you not to do this. Mark's going to convince you to.

[Mark Talercio]

I would not do that. I mean, he's going to be slashing his nest egg in half.

[Jill Schlesinger]

And really, for what? Because you just, you can't deal with it like, you got plenty of money. You're good. Okay, this is Jeremiah, who says, I started listening to you about a month ago. All right, Jeremiah, new listener. Love your content and help for us. Okay. I'm 48 years old and I'd like to retire at around age 60. I have the ability to roll an employer 401k annuity in June. And just for a number, say $500,000. I'm rolling it out because I believe it's doing poorly. Hmm, interesting. Pretty much stagnant since COVID That's interesting because if you look at post Covid, think about that. I mean, that's rough. 22 is a bad year. Let's just. I don't know when post Covid starts, but let's say he started in. 22 is a bad year. 23, 24 great years, 25, you know, pretty rough year, but stagnant is tough. Okay, Jeremiah is using an advisor. He says, I'm thinking about dollar cost averaging over 12 months. Would this be a wise move? Should I roll and reinvest it all at once? Here's the question that I have to you, Jeremiah. I want to know 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. If you could roll it out, then why not just roll it out to say, Vanguard, Charles Schwab, Fidelity T. Rowe Price, you know, some low cost platform where you can roll it and just invest maybe that 401k annuity. I wonder if it's like got a big fixed portion. I just don't know what's in it. But if it's really done that poorly, I am concerned that you're going to roll it into some advisor. I know I would not. Dollar cost average, where you're 48 years old. We got to get this money invested. But I'm not sure you need an advisor. Like to hear a little bit more about that because I'm worried he's going to, you know, buy an annuity or something. Buy another annuity. All right, here's Andrew. Andrew and his wife are 65 years old. Let's title this the $6 million man.

[Mark Talercio]

And no, no, no, it's not six. It's more like 16, 17.

[Jill Schlesinger]

Oh, I see. I just started. Okay, let's, let's continue. Andrew and his wife are 65. They've got $6 million in pre tax retirement funds. They also have a million and a half in a roth. That's good. $10 million in taxable investments. All right, well done. RMDs begin at age 75. Andrew says, I understand the thought exercise for doing Roth conversions over the next several years to reduce the required minimum distribution tax bomb, but we already have plenty of income from our taxable investments. A pension, deferred comp, and we're going to wait till claim Social Security. Is there any value to converting 1 to $2 million over the next 10 years? We still have a sizable amount of pre tax monies that are subject to RMDs. Interested in your thoughts? Okay, so $6 million to convert, plenty of money to pay the tax to. I think the question mark that I would have is, you know, what is your. I'm going to guess because they've got $10 million in taxable. You think they're in the highest tax bracket or not, Mark?

[Mark Talercio]

I would think so, yeah.

[Jill Schlesinger]

So here's your only, here's the risk, Andrew, is that, you know, you got 10 years or however long we have this where you have tax rates at 37% even in this current Congress. I don't know if you heard this, Andrew, but there was some chatter about increasing the top bracket. It's been quelled. But I think one of the best reasons to convert is to lock in the 37% bracket, which is pretty much the lowest top bracket that we have seen in decades. And so the reason I would do that is simply to lock in a 37% tax hit and know that that's the case. And frankly, since we know you're in the 37% bracket, maybe you should just get rid of all of the money. Maybe you should just pay the tax that's due, you know, and really supercharge this thing. Instead of converting 1 to $2 million, why not convert most of it? What do you Think, Mark, you want to convert $6 million?

[Mark Talercio]

Yeah. I don't see the real value in just doing one or two. Like, if you're going to do it, just do the whole thing.

[Jill Schlesinger]

I would do the whole thing. It's 37%. It stinks. And maybe you would just kind of scale it in just so you don't have to pay it all at once. Because, you know, I don't know of your taxable investments, what's invested in what, but I like the idea of converting for you guys. You got plenty of money. But let's just say that, you know what, we don't know what's going to happen with tax rates. Tax rates could go up. How would you feel if you could have converted everything at 37 and 10 years from now, you're pulling money out in RMDs and it's 44%, 43%. You know, that's a big number, right? So I would get it done. I just would do it. I'm sorry. Hey, gang, don't judge us because we're talking to someone. $16 million. Just pretend it's 160,000. And we wouldn't be talking about top bracket. But the process and the analysis is the same, which is essentially, does it make sense for me to take this money that has not yet been taxed, convert it, add that money to my taxable income, pay the tax that's due now with money outside of my retirement accounts, and know that I never have to worry about it in the future? That is kind of cool. So if you've got a Roth question, you've got a tax question, you've got a retirement question, you've got a college funding question, give us a Holler. Go to jillonmoney.com, click the contact us button. Let us know if you would be willing to come on the air live with us. We'd love to have you. It really is so much more fun when you come on live. And also on the website, you can sign up for the free weekly newsletter comes out every single Friday, which, coincidentally is today. And because it is Friday, I'd like to tell you that our music is composed by Joel Goodman. Mark Talercio is our executive executive producer and king of all things web. We are distributed by Odysee. And by the way, if you'd like to subscribe to us, you can do that right on the Odysee app or wherever you find your favorite podcast. Try to do something nice for someone else today. Change your work, change your wealth, change your life. Thank you for listening. We'll talk to you on Monday. Hey gang, I was a small business owner. I know how hard it is and starting your business should actually be simple. Now you can get more when you start your business with Northwest Registered Agent, your entire business Identity in just 10 clicks and 10 minutes. Northwest registered agent provides more privacy, more guidance, and more freedom to run your business from anywhere. If you want to build your business while keeping your personal information secure, Northwest is the partner you need. In just 10 clicks and 10 minutes, they'll flip form your business, create a custom website and set up your local presence wherever you need it. Don't wait, protect your privacy, build your brand and set up your business in just 10 clicks in 10 minutes. Visit northwestregisteredagent.com Jill and start building something amazing. Get more with Northwest registered [e-mail] Jill buying a home in California can certainly feel intimidating. We hear from listeners all the time throughout the state, and they want to know, where can they even start? Many of them find that turning to a Realtor changed everything. Realtors can help buyers understand what they can afford. They can explain all of the steps that are involved in purchasing a home, and they can walk you through every detail, from making an offer to closing the deal. Working with a realtor can help you feel less alone or unsure about the process and that peace of mind that is the power of having a realtor by your side. Whether you're ready to move or just starting to dream, don't go it alone. Don't let what you don't know stop you from starting your next chapter. Find your [e-mail] that's championsofhome.com.