I promised my HM2 He would be a TSP Millionaire

You could own 5 shares of this company!

You could own 5 shares of this company one day!

BLUF: Maximize your $18k TSP, from age 18 to 38 and by age 71 you will have a million dollars with a mere 2.35% return. Put it in Roth TSP or you will be forced to take out contributions at age 71.

So its going to be half a year gone this Wednesday June 1. What this means is you need to look at your LES and figure out how much you got to contribute to maximize your $18,000 a year towards your TSP. The formula is this:

  1. Subtract all your TSP contributions so far this year from $18,000
  2. Take this amount and divide by the 6 months you got left
  3. Now divide this by your base pay
  4. This is the percent you must put in to MyPay to deduct from your base pay to max your TSP

For example I have put away $9,000 into my TSP at the end of May. I got $9k left to put in over 6 months so I need to put in $1500 a month. My base pay according to the DFAS chart is $4,849.20. That makes my election 31% of my base pay. You can only take from pays like Base, Bonuses etc, and not allowances like BAH, COLA, BAS.

We did it for HM2 and it looks like it would be about 60% of his base pay to maximize his TSP. What exactly does that mean? So $1,500 a month is $50 a day making it possible to do, but with a lot of sacrifices. It looks like Mess Hall and Green Line for a few years. For you childless single officers you really have no excuse. Also you DINK HENRYs, what the hell, why are you not maximizing your TSP?

I compiled this excel spreadsheet: Seaman to Millionaire which shows with a maximized contribution of $18k a year at age 18 (I haven’t found any willing to do 100% base pay in to TSP) with a modest 2.35% return (almost achievable with 100% G fund) for 20 years, you will have a million dollars by age 71. I chose this age because at age 70.5 you must take money out of your Traditional IRA. This is not required for Roth TSP, more on this later.

In this model you already did 20 years of Active Duty and now you got that sweet 1/2 of base pay of your last 3 of your highest paid years. Hopefully it was your last 3 years that were the highest paid, but it doesn’t really matter even if you have been knocked down to an LT from CAPT you still get your highest 36 paychecks to determine your pension. You would spend all of this money, and all of your Vanguard or Fidelity IRA before even touching this amount in your TSP.

However like I said before there is a Minimum Required Distributions (MRDs) to be taken from your TSP or any IRA by April 1 of the year following the calendar year you turn age 70½. There is a chart that gives you a number based on when the IRS expects you to die. So at age 71 take your $1 million and divide by 26.5 giving you a required distribution of $37,735.85. This in addition to your pension to count as your income for the year. This is so the IRS can finally collect on the taxes on the money you made when you were 18 years old.

Now there is a provision for those who marry some one more than 10 years younger then yourself. There is another table for you silver foxes with your trophy wives listed as your only beneficiary. At 70 years old with your 4o year wife/husband you only need to take out $1,000,000/44= $22,727.27 a year. This amount should be in your tinder profile, or whatever old farts will be using to hook up in 40 years.

Better idea is to pay taxes on your contribution up front in the form of a ROTH TSP. Then you can keep the money in your TSP forever! With the Roth TSP this pile of cash is not taxed again since the $18,000 you put in from age 18 to 38 you already paiwd taxes on, but your pension and what other sweet contracting job you have at 70 years old will be taxed as regular income.

Now the traditional TSP you were able to skip out on taxes on since it was deducted from your income. On paper when you were HM2 it looked like you made 60% less money and were taxed as such. Now your a Millionaire 70 year old with a 40 yea old spouse, they will tax that forced $23k distribution as income.

If you intend to take advantage of the mary a 40 year old when your 70, just keep in mind your wife isn’t even born yet, gross. Just stick with the Roth TSP.


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