Podcast
Money Pilot Financial Advisor Podcast
Hosted by Kathleen "Katie" Cannon · EN
Financial life advice serving military and government employees.
87episodes
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Episode 36 Let's Plan
Mar 9, 202100:14:27Tap to summarizeToday I thought I’d talk a bit about where you can get financial advice and financial planning. Are your major concerns right now short term or do you have fundamental questions like how to meet your day to day needs or in a financial crisis? Do your want help creating a budget, or paying off credit card debt. You may find a financial counselor really helpful. If you’re a servicemember you may have financial counseling available right on post. You can also access confidential financial counseling from anywhere through the MilitaryOneSource website. https://www.militaryonesource.mil/confidential-help/interactive-tools-services/financial-counseling/ These trained professionals can answer questions, and also refer you to other services or programs that may help. And anyone can request help from an accredited counselor through the Association for Financial Counseling & Planning Education. https://www.yellowribbonnetwork.org/covid-19 If you want more help getting started and keeping motivated to save for your goals, reduce debt, and learn more about finances in general, you may find financial coaching useful. This really is the wild west and coaches may go by titles like money coach, financial life coach, certified money coach, more. Their focus is on motivating and educating. This field is mostly unlicensed and their advice is typically generalized to fit most people. Coaching can be a great way to get started and help with implementing, especially if you are looking for help for the first time. Coaches may have a background in other fields that make them good teachers and motivators. They may not have much specific financial training. When you want or need specific advice and help with a range of financial areas, like taxes, retirement saving and investing, forming a business, investing in real estate, paying for education, balancing debt, insurance and more, a financial planner is your go to person. The gold standard for this is a Certified Financial Planner. Their work and advice i focuses on the interactions of many areas and help you identify your financial goals, develop options, form a plan, and implement the steps of the plan. Then work with you to make adjustments and adapt as your life situation evolves.Several associations have great information and list member profiles you can browse with links to their websites. The Military Financial Advisor Association has planners with in depth knowledge of military life and benefits. Several like me also work with federal employees. http://militaryfinancialadvisors.org/about/ XY Planning Network members are dedicated to providing advice regardless of your age or assets, especially those of you in your working, not-yet-wealthy years. https://www.xyplanningnetwork.com/The Garrett Planning Network specializes in providing planning by the hour. One of their members may be good choice if you only want to commit to a short time initially, or more want limited planning. https://www.garrettplanningnetwork.com/And you can check out the National Association of Personal Financial Advisors (or NAPFA). https://www.napfa.org/find-an-advisor#When you meet an advisor or planner they should be able to explain things in a way you understand. Part of a planner’s job is education, but you should never feel you are being talked down to, pushed around, or ignored. There are more fish in the sea. Your experience and results are best when you feel comfortable and understood.
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Episode 34 Umbrella Insurance
Feb 23, 202100:07:53Tap to summarizeHello and welcome back to the podcast. Today we’ll be talking about umbrella insurance. I’m sure you’re familiar with auto insurance, home insurance, health insurance, maybe even travel insurance. But you may be wondering why on earth you would need to insure an umbrella. Well umbrella insurance doesn’t really insure umbrellas. It gets its name because it offers extra protection and sits on over of other insurance coverages you already have. Umbrella insurance is also called excess liability or personal liability insurance. It’s there to protect you from the financial fallout of a really a large claim or lawsuit. For example, if you unintentionally cause a car accident, or someone is hurt on your property and the claims are higher than your auto or homeowner’s insurance coverage, umbrella insurance begins to pay after your other insurance is exhausted.Why is this important? An umbrella policy protects your existing personal assets (what you own) and even future assets like wages from being taken away to pay the cost of losing a lawsuit over a car accident or an accident on your property. Lose a lawsuit like that and you could have to pay the winning party for medical expenses, legal costs, and lost wages, which can become really expensive really fast. You don't have to be wealthy to benefit from an umbrella policy. Even if you don't own much now your wages could still be garnished. Now, if you are young, you don’t own a home, and don’t have much savings, you may not need umbrella insurance. The auto and renter’s insurance you have may be adequate to cover you. But the more you have (or the more someone thinks you will earn), the more you can lose, and the more likely you are to be the target of a lawsuit. WHAT you have or HOW you live your life may also increase your chances of being sued. Like having a swimming pool or trampoline. If you have pets that could cause injury like dogs, horses or other large animals. Do you like to host large parties at your house? Drive during rush hour, when drivers are more likely to get into an accident. Coach youth sports?If you own rental property you are also at higher risk and should have umbrella insurance. Your personal umbrella policy CAN provide you liability protection for accidents at rental property too. But you have to be sure it is included. For example, my umbrella policy will cover up to four rental properties before I need a commercial liability policy. Ask specifically what is covered when shopping around.How does umbrella insurance work? An umbrella policy provides excess coverage above and beyond what your homeowners and auto insurance policies provide. Let's say your auto policy pays up to $300,000 of medical expenses per accident and your umbrella policy is for $1 million. If you are sued for $900,000 because of a car accident, your auto insurance would pay $300,000 and your umbrella policy would pay the remaining $600,000. Your legal expenses are covered as well. Umbrella policies usually provide $1 to $5 million of extra coverage. You choose the amount of coverage. One million dollars of coverage typically costs $150 to $300 per year. When you shop for an umbrella policy, the insurer will require you to have a specific amount of liability coverage in your existing auto and homeowners’ policies. Remember umbrella insurance sits above you other insurance, it doesn’t replace it. It will only pay after you regular insurance has paid. Know those base requirements and increase your auto and homeowner liability limits if necessary. You may get a better price buying your umbrella insurance from the same company you have your home and auto insurance with, though its not required to be with the same company. Now, umbrella insurance won’t cover your own injuries or damage to your own property. Your health insurance is for your medical expenses. Your homeowner’s insurance would cover your property from l
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Episode 33 Estate
Feb 16, 202100:16:36Tap to summarizeToday we’ll be talking about your Estate. That is what happens to you and your stuff when you die. Estate Planning plans for what happens to you when you are very sick, and your stuff when you die. At the top of the list is to put, in writing, what kind of end of life medical care you do or don’t want and who you want to make health care decisions for you if you can’t. This is an Advanced Medical Directive for Healthcare, also know as a Living Will. These forms are usually state specific. A good place to start is ask your healthcare provider or search online for your state government resources. My local hospital had the forms printed out, answered questions, and even notarized it for me. Military OneSource has a pamphlet available on line called Making Your Health Care Wishes Known Through an Advance Directive: A Guide for Active Military and Their Beneficiaries This is a great place to start for our military. It gives a great overview and points servicemembers to your supporting military Legal Assistance Office. The next estate task is to name beneficiaries on your various financial accounts. This includes life insurance, bank accounts, and retirement accounts like an IRA, 401k and the Thrift Savings Plan (TSP). When you die, they will pretty quickly pay the beneficiaries you named, giving them much needed cash as soon as possible. These accounts don’t go through probate. Probate is the legal process done through the courts verifying that your will is legal and your intentions are carried out. Probate is also public, it takes time, and it costs money.Another way for some of your assets to bypass probate and go directly to who you designate is by titling. You’re probably familiar with the title for your car. After you buy your car, you take the title the seller signed to the DMV to get plates and a new title in your name. Or in the name of you and someone else, usually a spouse. Two types of shared ownership which are called Joint Tenancy with a Right of Survivorship and Tenancy In Entirety pass directly to the surviving co-owner with out going through probate. These types of title are common for spouses who own property together like a house or a car. Using a title with survivorship rights means that person will get your share directly without the time, cost, and publicity of probate. Probate will also occur when there you die without a will, this is called dying intestate. Without a will the probate court must decide how to distribute the assets of your estate to your loved ones, and anyone else who might try to lay claim to your stuff. So the next important estate tip to consider is have a will. If your single, no kids, not much stuff, it might not matter to you much. Have more assets? Married? Kids? You should have a will. A will tells the court where you want your assets that pass through probate to go. It’s also where you would tell the court who you would like to act as a guardian for under age children and provide funds to support them. Our military can get a will free from JAG legal services. Not sure where you supporting facility is, check at Military OneSource online. For you civilians, some workplaces offer legal services as a benefit, so that may be a resource. For very simple wills, you might consider an online will preparation service like Legal Zoom , Trust and Will or NOLO. Just be aware that these sites don’t actually provide legal advice. If you want to set up a trust to take care of minor children, have a blended family, want to disinherit an estranged family member, or have a life partner you aren’t married to, it is probably best to hire an actual lawyer to draft your will.
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Ep 32 Name Your Savings
Feb 9, 202100:08:48Tap to summarizeOur more recent podcasts have been kind of heavy on facts and figures. But let’s face it, we’re human, real people. I know what a healthy diet and lifestyle is, but what I’d REALLY like to do is wake up at noon and eat ice cream for the rest of the day. Managing our finances can feel that way too. So today we’ll talk about ways to set up your financial life so that you can make progress on your financial goals even when you don't feel like it.The first step is daydreaming. Ask yourself, if I could have anything, time and money are no object, what would my ideal day be like? What would I do? Who would I do it with? From the moment you woke up till the end of the day, think it through and write it down. Then ask yourself, if I could have anything, but not everything, what would my day be like? What made the cut? Naming what is important to you is the next step. Let’s go back to your happy day and give your wants and dreams names that mean something to you. It’s not a mortgage, maybe it’s your Home Sweet Home, or the cabin? Travel, meh. How about you name favorite beach, Disney, or Yellowstone? Retirement, really? Maybe you dream of the 9th Hole, breakfast in bed. You name it. Even your Emergency fund could probably have a better name, like safety net or soft landing. What do you want to be working and saving for? Bring up that vision in your head and give it a name that means something to you. The whole idea is that you work and save FOR something, not just because you have to or you should. Don’t get me wrong, maybe you need to or you should do something. But if you are working hard and saving, make it for something you can name and dream about.Next step, start making it happen. One trick lots of people use, and I do myself, is to have separate pots of money for things. Let’s say you want a weekend away. Remember it’s not just a vacation. Name it. Dreaming of Nashville? Then get a jar or container and label it. Nashville, or Grand Ole Opry. Girlfriend Suzie lives there? Maybe your jar says Suzie Time. Put it in plain sight and each day before bed, put our leftover change in it. Thinking of Nashville? Give the jar a little shake. Remember your why. You can even count it out and see how much closer you are to your Nashville getaway.Thinking, that’s quaint? Who even carries cash any more? You can do this electronically, too. Check with your bank about setting up multiple savings accounts. Many banks, including USAA and Navy Fed for our military, and online savings banks, do allow you to have multiple accounts and give them nick names. You can name your different accounts and transfer money from your direct deposit account, to the savings accounts. Usually you can even do this with a phone app. Starting small? Try transferring a few dollars every couple days. What’s even easier than the electronic “loose change goes in the jar” method? Automatic savings. Once you’ve named your accounts, you can make transfers from your paycheck to your special accounts. For example, USAA Bank has Savings Booster in their phone app. You can have $1 to $9 automatically transferred to a savings account 2 to 4 times a week. You can also set up automatic transfers to a savings account when regular deposits, like your pay, show up in your checking account. Ask your bank what savings programs they offer.What’s great is you can check your balances online or in your app and see Suzie or the Cabin growing closer and closer to reality. Set milestones along the way. When you reach one give yourself a pat on the back, have a little mini-celebration. Just don’t rob the piggy bank to celebrate! For most of us, if we set money aside in a special place for something we can really see in our mind, we don’t miss that money as much. We get used to living day-to-day on what is left in the checking account. We make it work. And when we start to feel a little pain, then can give the jar a shake and dream.
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Episode 31 Tax Prep
Feb 2, 202100:16:06Tap to summarizeStep one, get organized and collect tax documents as they come in. You can expect tax documents from your employer, businesses you did work for as a contractor, former employer pensions, banks, investment accounts, mortgage company, charities you donated to, and schools you paid tuition to, to name a few.You may need to log into your accounts at these places and download the documents yourself. Landlords, organize all the receipts for expenses, as well as rent collected. If you’re self employed, you’ll need to have income records and receipts for expenses. Parents and caregivers paying claining child or dependent care tax credit and will need receipts.It’s expected that 90% of taxpayers will take the standard deduction this year, If you think you might itemize gather receipts compare that to the standard deduction. For medical, only the expenses that exceed 7.5% of your adjusted gross income are itemized. If you lost of income and had high medical expenses not covered by insurance due to COVID you may exceed the 7.5% threshold. If you had property losses, you can itemize them if they occurred in a Federally declared disaster area. But he amount you can deduct is limited to our loss, minus insurance received, minus 10% of your income, and minus $100. Itemized deductions for state, local, and property taxes are limited to $10,000. Home mortgage interest and charitable gifts can still be itemized. If you refinanced to a lower interest rate, your mortgage deduction will be lower.The IRS has a great tool called the Interactive Tax Assistant (ITA) to get answers to many questions based on your individual circumstances. https://www.irs.gov/help/itaFor active duty, guard, and reserve military check out Military One Source’s MilTax. for information, where to get help with your taxes even from overseas, and efree, tax preparation software available online. https://www.militaryonesource.mil/financial-legal/tax-resource-center/miltax-military-tax-services/A great resource our nonmilitary is the IRS's Volunteer Income Tax Assistance (VITA). They prepare tax returns free for people who make $57,000 or less, persons with disabilities; and limited English-speaking taxpayers. https://www.irs.gov/individuals/free-tax-return-preparation-for-qualifying-taxpayersAnother great resource for free tax filing is the IRS Free File. The IRS’s partnered with tax prep companies to provide access to free online income taxes filing, if your adjusted gross income or AGI is $72,000 or less. https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-freeThere are also paid tax return programs online with different levels of support and prices like TurboTax, Tax Slayer, or H&R Block. Costs vary with most under $130 for federal and state taxes. If this is your first time filing with rental property income, you sold property, own a small business, may itemize your taxes, or had a big life event in 2020 do extra research, or hire someone to help with your taxes. Cost depends on how complicated your taxes are and where you live. The average is $150 to $450. Enrolled Agents and Certified Public Accountants have specialized training, expertise, and can represent you before the IRS if were necessary. Contact them early and have all the documents they will need together and organized. The tax filing deadline is April 15. If you can’t file by then, request an extension to file and pay any tax due by April 15 to avoid a late penalty.
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Episode 35 Trust Me
Feb 2, 202100:15:32Tap to summarizeToday we’ll talk a little about deciding when you need a trust and a few tips for getting one if you do. A trust involves three parties. If you are setting up a trust, you are the trustor, also called the grantor. You and your lawyer draft up trust documents setting up the trust. Then you put some of your assets into the trust where the trustee now controls them. Your trustee is then duty bound to carry out your instructions for the benefit of the beneficiary. Wills are cheaper, easier to draft, and easier to change than trusts too. But a trust can give you control, through the trustee, during and AFTER death. For example if you are married for the second time and you have an adult son from your first marriage that struggles to to hold a job and make ends meet. You have been helping support him. If you don’t have a will, everything will go to your new wife. Your son won’t get anything. If you listed him as a beneficiary on an account, or did have a will leaving him an inheritance, he’d have money to help him survive. But your worried he’d waste it, leaving him with nothing. This may be a good case for a trust that would provide him regular but limited assistance like for health care or housing even after you die. There are MANY different kinds of trusts. If you have a special need, there is likely a trust that would work for your situationIf you die owning a lot of assets, you may have to pay 40 percent federal estate tax. So many trusts are set up in part to minimize taxes. The current estate tax exemption to $11,580,000. Special needs children or disabled relatives may be another reason to look into a trust that would continue to provide for them after you die. And in general a blended family especially second marriages with children from a previous marriage and non-traditional families might consider trusts. For example, die without a will or designated beneficiaries and your assets pass to your spouse if married or other relatives based on state law. Children you raised but didn’t adopt or an unmarried life partner might not get anything. Even with a will, others may contest your wishes in probate court after your death. Especially if other family members who would lose out didn’t approve of your life choices. That would be another reason to consider a trust. In general, trust can be revocable or irrevocable. A revocable trust can be changed at any time and in any way during your lifetime, including totally revoking it. The irrevocable trust cannot be changed or revoked after the trust agreement has been signed. Why would anyone give that up? Because it removes it from their estate so they won’t pay estate taxes on it.Are you single or married with no kids, modest saving, you’re likely fine with just a will. If you have children the priority should be to designate in your will loving and willing guardians to care for them if you die prematurely. If you have assets or life insurance you plan to leave children, you might consider a trust to manage it while the children are still minors. If you have a blended family and want to be sure everyone is taken care of the way you intend. If or you want to disinherit someone or prevent them from benefiting from your death. You may also want to consider a trust.Trusts are also more complicated and cost more to establish than a simple will. And trusts really need to be set up by a lawyer. How can you save some money if you are considering a trust? Know what you want to accomplish. Like I’ve said there are A LOT of trust options, and an estate attorney can help guide you through your decision.The more complicated your situation and the longer it takes, the more it will cost in attorney’s fees. Go in with a clear understanding of what your needs are or want to accomplish. The cost for a straight forward trust can be in the $1,500 to $3,000 range, it really varies. More complicated is more costly.
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Episode 30 To Roth or Not to Roth
Jan 26, 202100:18:56Tap to summarizeWelcome to Part three of our introduction to Roth. Today we wrap it up and look at some things to consider before you pop the question to a Roth. The fundamental question to ask yourself is “Will I make more income in retirement than I do now?” With Roth you pay income taxes now. Then you don’t pay any tax on what that money earns, forever. General wisdom is that most people have less income and will be in a lower tax bracket in retirement. If this is you, investing in a Traditional account now is better, not Roth. Overall, you pay less income tax and have more savings left to live your best retirement life. So let’s do some brainstorming and see if this fits you. Are you new to the work force? You're probably not earning much. If you stay in until you are eligible for a pension, your retirement pay will be a percentage of the salary you earn in last few years of your career. You will also be getting Social Security, and have Traditional TSP withdrawals to pay tax on as well. So less income now than in retirement is a good candidate for a Roth. But if money is tight, you may not have the cash to pay the higher tax bill. If you are a FERS employee or BRS military you get a TSP matching contributions of up to 5% of your pay. Prioritize getting to that full match first. What if you think you will make less later in your career? Or you are unsure. A lower or no pension at all, less Social Security, and less TSP, 401k, or IRA distributions to take might put you in a lower tax bracket in retirement. Better NOT to make that commitment to Roth and pay the income taxes now. Make Traditional contributions and pay that lower tax later. As you get closer to retirement age and your future looks clearer. You can go to the Social Security website and get an estimate of your Social Security benefits. If you are eligible for a military or government pension, you can estimate that. If you'll work part time in retirement, add in that income.along with what you will need to withdraw from Traditional retirement accounts for living expenses. How does your current income compare to your retirement income estimate? If you’ll be in a lower tax bracket in retirement, you don’t want to pay more tax now with a Roth contribution. Give Roth a pass and stick with Traditional.Don’t forget that if you have or a Traditional TSP, 401k, or IRA you will have to take Required Minimum Distributions, and pay taxes on them, each year beginning at age 72. Even if you do not need all that money for living expenses right away, you are required to take out a certain amount from your Traditional retirement savings (called distributions) and pay taxes on those distributions each year. If you were a good saver and your investments grew well, these required distributions may bump you up into a higher tax bracket. It might pay to convert or rollover some of those Traditional funds into a Roth account during that lull in income from when you retire to age 72. You could move enough to “fill up” your tax bracket. You pay less taxes on what you move each year until 72 while in that temporary lower tax bracket, than you would after 72 when you have to start those Required Minimum Distributions. If you’re already maxing out your yearly contributions and you go through a period at some point where your income will dip down into a lower tax bracket, then back up, it may be worthwhile to convert or rollover some of your existing Traditional account to a Roth account.But beware there are A LOT of rules and possible tax consequences when moving money between the 401k/TSP and IRAs and within the IRA family. Honestly, it’s not a good time to go it alone. It is a great opportunity to tap into the expertise of a financial planning or tax professional.
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Episode 29 Roth IRA
Jan 19, 202100:13:20Tap to summarizeSo what about that IRA family? While the TSPs and 401k may seem like practical, simple folk. That IRA family can be as easy to comprehend as a dumpster fire. So today I thought I’d take on the stink, smoke, and confusion and make some sense of the IRA family. First off, remember all IRAs have the same allowed contribution amounts, that’s $6,000 a year, plus an extra $1,000 a year if your age 50 or over. Yes, those numbers are different than the TSP and 401k families. The IRA family is completely separate. And unlike real life, you can hitch yourself to a member of the IRA family AND a member of the TSP or 401k family at the same time, up to the full limit for each.The first thing an IRA will wants to know about you is how much money do you make. If you’re single and make less than $76,000 a year or married making less than $125,000 a year you can contribute to a Traditional IRA. Like other retirement plans with a first name Traditional, you don’t pay tax on your contributions when you make them or while your money grows. Your taxes are deferred until you pull it out in retirement. Many people are in a lower tax bracket when they retire, so they pay less taxes overall than if they had paid tax on those contributions while they were still working. But there’s a catch. If you make more than the income limits you cannot deduct contributions. You can court the Non-deductible Traditional IRA but is no great catch. Your contributions are non-deductible which means you will have to pay income tax on your contributions when you make them. The earnings will grow tax deferred. But when you pull it out, those earnings are taxed as regular income. So why would anybody swipe right on that IRA? Sad to say, they often are just using it to get in the family. Then dump old Non-deductible to hit on other hotter sibling Roth IRA, which I’ll get to in a little bit. Like those other Roths, Roth IRA is tax-free in retirement. You need to leave it in the account for 5 years and be over 59 ½ years old to avoid taxes and penalty though. And what does the IRA family want to know before you start dating one of their own? How much money do you make?! If you are single and earn more than $140,000 or married earning more that $208,000 dollars you can’t contribute directly to a Roth IRA at all. You can’t just go in the IRA family front door, drop to one knee, and propose to Roth. Heartbroken? Well…there is always the backdoor. The IRS does permit you to rollover money from other qualified retirement plans into a Roth, you just have pay to income taxes on it if you haven’t already. You can choose to rollover contributions from the Non-deductible account into a Roth account and it is transformed into tax-free forever savings. If your savings grew while it was in a non-Roth account, you would need to pay tax on just that increase at the time of the rollover. Some 401k plans allow you to rollover from a Traditional 401k to a Roth 401k. TSP does not allow you to transfer funds from Traditional TSP to a Roth TSP. But you can rollover from any Traditional 401k, Traditional TSP, Traditional IRA or Non-deductible Traditional IRA into a Roth IRA. You’ll pay some taxes on the money you rollover. But after that all the earnings are tax-free.Depending on the rules of your retirement account, to can transfer or rollover your savings from one to another. You may do this to consolidate your savings in one place. Or you may decide to roll your savings over from a Traditional account to a Roth account to pay some tax now so you can save on taxes in retirement. Check the rules for your specific plan.Still wondering if a Roth might be the one for you? Tune in next week as we look at some examples and things to consider as you make your big decision.
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Episode 28 Meet Roth
Jan 12, 202100:13:32Tap to summarizeAs we start a New Year and people I’ve been getting more questions about Roth retirement contributions. So I’m using the next few episodes to introduce you to Roth. Think of Roth as a retirement plan’s first name. Although Roths share the same first name, they belong to different families. And lthese families have their own family rules and norms. Common Roth last names are Thrift Savings Plan (TSP), 401(k), and Individual Retirement Account (IRA). So what’s so special about Roth? You pay income tax on your contribution’s BEFORE you put them into a Roth retirement account. All the money you earn on those contributions over the years is all yours, tax-free when you pull it out, as long as you meet a couple of requirements. If you have to pay taxes now, why would get hitched to a Roth? Look at what tax bracket you are in now. What tax bracket you will you be in when you retire? Generally, if you are earning less money now than in retirement, it pays to choose Roth and pay less tax overall in your lifetime. If you're earning more now, it often pays to choose one of Roth’s traditional siblings. To some extent you need a crystal ball to predict the future. I’ll cover more details and examples in another episode. There is a special rule for our military servicemembers contributing tax-exempt combat pay to TSP. Put it in a ROTH TSP. You won’t pay tax if you use it to make contributions to a Traditional TSP account. BUT when you take that money out in retirement, you will be taxed on your contributions. If you will be earning tax exempt combat pay make only ROTH TSP contributions with that pay, not Traditional TSP contributions. How long until you tap your retirement savings? Roth can be fun, but it could be a costly mistake if it’s a one-night stand. You have to wait for 5 years from your first contribution to a Roth and be at least 59 ½ years old when you begin withdrawals to stay tax and penalty free. There are just a few exceptions. Pull out early, and you’ll pay income tax on the earning and an additional 10% penalty for an early withdrawal. An early breakup is gonna cost you.Also, Roth can be a faithful partner in old age. The IRS will require you to begin taking withdrawals from traditional retirement accounts at age 72. Your Roth retirement savings can stay invested and grow with you until you decide. What about those last names? 401k plans are sponsored by your employer. They can offer a traditional 401k and a Roth 401k if they want. TSP follows the same rules as the 401k family. TSP does offer both Traditional TSP and Roth TSP. Your combined yearly contributions don’t exceed the limit, which in 2021 is $19,500 a year, plus an additional $6,500 a year if you are age 50 or older. Roth IRAs? Your employer has nothing to do with it. You would open an IRA on your own. The IRA family is not tied to the TSP or 401k families in any way. For 2021, your combined yearly IRA contributions (whether Roth and Traditional) ca be $6,000 per year, plus an additional $1,000 if you are 50 or older. There is no rule baring you from contributing your full $19,500 total to the Roth and Traditional TSP family as well as $6,000 total to the Roth and Traditional IRA family. So to wrap things up, remember if your retirement plan has a first name of Roth, you pay income tax up front when you contribute, and as long as you follow the family rules, all your withdrawals are tax-free in retirement. If your retirement plan has a last name of TSP or 401k, you cam make contributions up to $19,500 a year, plus $6,500 a year 50 or over. through your employer. If your retirement plan has a last name IRA, you set the account yourself and can contribute up to $6,000 a year, $7,000 50 or over. And yes you can contribute the max amount to the TSP/401k family and the maximum amount to the IRA family at the same time.
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Episode 27 Retirment Savings Countdown
Jan 5, 202100:09:27Tap to summarizeToday we’ll ask five questions that will help keep your Thrift Savings Plan (TSP) and 401k retirement savings plans on track in the new year. So here’s your very own New Year’s retirement savings count down. 5. Did you get a raise? Maybe you got promoted or got a bump in pay. Military are getting a 3% pay raise for 2021 and federal employees are getting a 1% increase in base pay. Military retirees, VA disability recipients, FERS retirees and CSRS retirees are all getting a 1.3% cost of living allowance (COLA) increase for this year. If you were able to get along with your previous income you, why not use your raise to increase your retirement savings? One technique I like to recommend is for each raise you get, give half to yourself for now and give the other half to your future self by increasing your retirement contributions. This can help you ease into a more savings year by year with hardly any pain.4. Are getting your full TSP or 401k match? Remember, you BRS military and FERS civilians need to save at least 5% of your basic pay every paycheck to get the full match. Contribute less than that and you permanently lose out on some matching funds and leave money on the table. Most 401k plans offered by civilian companies offer a match, too. Double check with HR to make sure your getting the most our of your 401k that you can. If you are already getting our full match, or you are a CSRS federal employee or non-BRS military and don’t get a match at all, try upping your game. Most people can’t meet their retirement goals if they only save 5% during their working years. Everyone is eligible save up to $19,500 to your TSP or 401k again this year. 3. Are you getting special pay or a bonus this year? Consider socking all that special pay away for future goals like retirement. Why save all your extra pay for the future? Because if you are counting on that special income to cover your everyday expenses, you can really be screwed if circumstances change and you’re suddenly not eligible for that pay anymore. It can be “here today, gone tomorrow”. Not having that money to fund your wants is a bummer. Not having money to pay your day to day living expenses can be a disaster.2. Will you turn 50 this year? If so you can save an additional $6,500 a year to your TSP or 401k. You just need to turn 50 anytime in 2021. Even if your birthday is December 31st, you’re eligible to save the entire $6,500 extra. It’s called Catch-up contributions. And another nice thing is for the first time, you only have to fill out one form for TSP to designate both your regular and catchup contributions for 2021. So for you over 50 savers, that $19,500 plus $6,500 for a total of $26,000 a year you can contribute. 1. Are you already saving up to your limit TSP or 401k limit? You can save an additional $7,000 in 2021 to an Individual Retirement Plan (IRA). If you’re married both you and your spouse can contribute $7,000 each, even if your spouse isn’t working. IRAs come in several flavors. Each have different eligibility requirements depending your income and are treated differently for taxes. Did you mean to contribute to an IRA for you or your spouse last year, but didn’t or couldn’t? You still have time. You can still make 2020 IRA contributions up until April 15 of this year. Bonus question for you more seasoned listeners. Will you be turning 72 in 2021? You must begin taking Required Minimum Distributions from your TSP, 401k, and Traditional IRAs. Miss this important retirement birthday task and there is a 50% penalty for each distribution you miss.Thanks for sharing your journey with me with me over the last year. Here’s wishing you and your family a healthy and prosperous 2021. Want more information on how to prosper in 2021? Reach out at katie@moneypilotadvisor.com
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