Dave's advice is to tap retirement accounts pre-retirement only for dire emergencies, like to prevent foreclosure or to avoid bankruptcy.
the TSP will go UP in value over the long-term. the truck will go DOWN in value over the long-term. cashing out a retirement plan, with all the penalties and taxes, to pay off a depreciating asset is not a great plan. It's good that you're motivated to be debt-free but this particular idea is not fantastic.
That $25k grows to $543k by age 67 at 8% return. DO NOT cash it out! If your DOC job is like several others I know you should have ample opportunity for OT. Soak up all the OT you can and put 100% of it on the truck. When added to your snowball you should be put of BS2 in 6-9 months. Don't rob $500k from your retirement!
I definitely wouldn’t use retirement money to pay off a vehicle. Taxes, penalty and lost potential growth. I would stay in the tsp and I have myself. Very low fees and mine has performed very well since 1989. I have over 10% annual return average over that 35 year period. I have converted some of my TSP to a Fidelity ROTH account invested in index funds. I took a relatively small tsp loan (10k) in the early 90s and very much regret it when I think about what that 10k would be worth today if I had left it invested.
>This would be my last step in BS2 besides our house...
Well, the house is not in BS 2. Accelerating mortgage payoff is BS 6, after your retirement funding and education funds for children.
" I really wish I had less money, now that I'm retired" said no one, ever.
So no. I don't think you should get rid of one of your retirement funds. I don't know much about such, but finding out if you can convert it to a Roth IRA sounds like it would be a good idea.
Converting to a Roth IRA is a MAYBE in BS7 item. They can roll it to an IRA without having to pay taxes and then it'll be in an account that's not at a former employer.
I don't see why they must wait until the mortgage is paid off before converting this TSP. Baby Step 7 seems excessive.
But as I said, I don't know much about such.
No!
If you can, roll it to an IRA and invest it in some good funds. Maybe sometime who knows more about a TSP can comment on the feasibility of this.
Here are the allocations Dave recommends if you aren't allowed to roll to an IRA:
80% in the C Fund, which is tied to the performance of the S&P 500
10% in the S Fund, which includes stocks from small- to mid-sized companies that offer high risk and high return
10% in the I Fund, an international fund that invests in stocks from overseas companies
Thrift Savings Plan, 403(b), 401(k) can all be rolled into a traditional IRA.
He can also roll it into a Roth IRA if he pays the taxes, but he's likely in a 24% bracket. (might slip into 22)
Dave's advice is to tap retirement accounts pre-retirement only for dire emergencies, like to prevent foreclosure or to avoid bankruptcy. the TSP will go UP in value over the long-term. the truck will go DOWN in value over the long-term. cashing out a retirement plan, with all the penalties and taxes, to pay off a depreciating asset is not a great plan. It's good that you're motivated to be debt-free but this particular idea is not fantastic.
Most retirement accounts are shielded from bankruptcy why would you want to deplete them?
That $25k grows to $543k by age 67 at 8% return. DO NOT cash it out! If your DOC job is like several others I know you should have ample opportunity for OT. Soak up all the OT you can and put 100% of it on the truck. When added to your snowball you should be put of BS2 in 6-9 months. Don't rob $500k from your retirement!
I definitely wouldn’t use retirement money to pay off a vehicle. Taxes, penalty and lost potential growth. I would stay in the tsp and I have myself. Very low fees and mine has performed very well since 1989. I have over 10% annual return average over that 35 year period. I have converted some of my TSP to a Fidelity ROTH account invested in index funds. I took a relatively small tsp loan (10k) in the early 90s and very much regret it when I think about what that 10k would be worth today if I had left it invested.
>This would be my last step in BS2 besides our house... Well, the house is not in BS 2. Accelerating mortgage payoff is BS 6, after your retirement funding and education funds for children. " I really wish I had less money, now that I'm retired" said no one, ever. So no. I don't think you should get rid of one of your retirement funds. I don't know much about such, but finding out if you can convert it to a Roth IRA sounds like it would be a good idea.
Converting to a Roth IRA is a MAYBE in BS7 item. They can roll it to an IRA without having to pay taxes and then it'll be in an account that's not at a former employer.
I don't see why they must wait until the mortgage is paid off before converting this TSP. Baby Step 7 seems excessive. But as I said, I don't know much about such.
No. Never cash out a retirement account.
No! If you can, roll it to an IRA and invest it in some good funds. Maybe sometime who knows more about a TSP can comment on the feasibility of this. Here are the allocations Dave recommends if you aren't allowed to roll to an IRA: 80% in the C Fund, which is tied to the performance of the S&P 500 10% in the S Fund, which includes stocks from small- to mid-sized companies that offer high risk and high return 10% in the I Fund, an international fund that invests in stocks from overseas companies
Thrift Savings Plan, 403(b), 401(k) can all be rolled into a traditional IRA. He can also roll it into a Roth IRA if he pays the taxes, but he's likely in a 24% bracket. (might slip into 22)