Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Welcome to Reyna Retirement. Reyna Reyes has dedicated her career to helping people make small, smarter financial decisions. Reyna Retirement is all about breaking down complex financial concepts into language you can actually understand.
Now here's the co founder of American Federal Benefits Consultants, Reyna Reyes.
[00:00:39] Speaker B: We're going to make up a new song so you can remember how great the TSB Roth is. And let's go 1 o', clock, 2 o', clock, 3 o', clock, Roth 6 o'. Clock.
Anyway, I'm making myself laugh, but let's rock around the Roth tonight. Do, do, do do do do. So if you're contributing into the TSP and it's only traditional, you're getting a benefit because you are reducing your taxable income, right? So if you made 100 grand and you contributed $20,000, you only get taxed on $80,000. So that's fun, you get a benefit now. But are we just kind of kicking the can down the road? Yeah, it's inevitable, right? We're delaying the inevitable. Uncle Sam wants his tax money and he's going to get it down the road.
Alternatively, if we 1 o', clock, 2 o', clock, 3 o' clock Roth, we will be contributing money in that has already been taxed. So you pay the tax now and then the growth, it increases in benefit and value as time goes by. And then down the road when you go to take money out, you will not pay tax on the growth.
So you understand that concept. I've done a couple shows on that. So let's talk about what it looks like on your pay stub or you're leaving earnings statement. What you're seeing here is the options that you have or what it would look like on a postal employees pay stub if they were contributing into the GSP Roth. Okay, so let's talk about some different ways you can do this. Number one, this is a dollar amount. There's a flat dollar amount that you can contribute in this example, $100 per pay period. What's the problem? You see with this, they're probably not contributing 5%, right. So maybe $100 a pay period was 5% whenever they started. But if they're, you know, if they're, wow, I just did a big little math problem there.
Yeah, if they're, if their salary is say $70,000, they're only putting in 3.71% which we want it to be 5. So that's problem number one. If you did a dollar amount, that's fine, but you need to be sure that your dollar amount which will stay the same does not then change your ratio from being to be, to be under 5%.
So for example, if 100 a pay period was 5% five years ago and they kept getting raises, now it's not, what are they giving up? The match. There's a portion of the TSP match that they're not getting.
Public says, well, you don't get a match with the Roth. That is untrue. You do get a match, but it does not go into the same Roth bucket of your already taxed money. It goes into the other side that is traditional. So the government's not going to tax themselves. So they take their match and put it into your traditional side.
So you have the ability, nay, the obligation, no, I'm just kidding, to put Roth money into tsp. You are able to, and many people are jumping on that train.
Now, inversely or conversely or alternatively, here's an image of a leave and earnings statement for someone not in the postal service, but another agency. And they're contributing, not Roth, but traditional. They just happen to be doing a much higher percentage. Right. So that, what percentage are they putting in? 21% of their salaries going in or 1165 per pay.
Now if they were doing this the entire year, they may bust a little bit because it's going to go over what those maximums are. However, maybe they changed it in the middle of the year. What if they were, you know, contributing under that amount for the first five, six months and they're like, whoa, I need to experience the catch up. I haven't been contributing to my utmost and I'm now able to let me raise it a little higher to catch up. And that way for through the whole 12 month period, maybe I've now contributed my $31,000, which is what this year's maximum was with catch up for somebody over 50 not subject to those special catch up rules of age 61 and 2 and, and 3. So keep this in your mind. You have choices. Number one, Roth or traditional. Number two, choice for, for contribution is percentage or dollar amount. So you can say, yeah, I only want to do a percentage. Because if you want to do the minimum, you should do a percentage period. Because as you get a raise, that dollar amount, as we saw is not going to keep up with your raises. It's not going to increase to 5% because you didn't put 5%, you put a dollar amount. So if you're going to stay at the minimum, which is fine, a lot of people do, it's fine.
Go percentages, five at least. Never go below five. Why? Because of the match. You're not going to get it or you'll get less.
Now my preference, slash recommendation, if you're going to start at 5, the best time to make changes is when you get a raise. Remember, most of y' all are getting step increases and raises every beginning of the year.
So when you're going to raise, some people say, I don't take my raises, I redirect them into the tsp. Which means every January or February when you get the raise, that's when you log in and increase from say 5% to 7, 5 to 8, whatever the number is. And so you're still making the money and you're still making the same amount of money that you were before, but it's being redirected into your forced savings, into your thrift savings plan.
Now whether that's Roth or not is up to you. I'm a big fan of the Roth. I'm a great advocate for the Roth. But the other side of that, if you want it to max out your contributions to determine exactly the dollar amount that you want to be put in there for that 12 month period or 26 pay period, period.
I said period twice. But it made sense you would want to do a dollar amount because we know $31,000 divided by 26 is 1130, whatever it is, right? You know what the dollar amount. So if you have the whole year, you can set it and forget it and you'll be super duper close to the maximum contribution amount other than the fact that you need to be prepared for next year, 2026, if you are a high income earner and you make individually more than 145,000 in the year next year. If you are going to max out your catch up contributions, the catch up part will not go into the traditional. They are going to force the catch up portion into your TSP Roth next year. So you will not pay tax on your base traditional contribution, but you will pay tax on the catch up part next year. If your income is over $145,000 in the year, that's a change for 2026. There you have it. So in synopsys you have options with your contributions to TSP whether you're putting in traditional or 1 o', clock, 2 o', clock, 3 o', clock Roth and you have options for whether you want to do it as a dollar amount, like a flat dollar or a percentage. Remember, if you're doing the minimum go percentage, if you're trying to max it out, do a dollar amount so you know exactly how much you're going to put in during that time period. And when you get a raise, that's a great time to increase your percentages because you might not notice it near as much as you would if you did it in the middle of the year and you take a pay cut. Do it when you're going to get a pay raise anyway and you're not going to feel it at all or near as much. Hope that helps. If you have questions on this kind of stuff, you want to reach out to me, my team, we could definitely help you make some of these choices or at least weigh them out for you and your family to make sense of what you want to do. And remember, a lot of y' all are Twinkies and you have two family members with the same decision where one of y' all may max out your traditional and then maybe the other one does the wrong, right? Lots of choices, lots of things to consider. Let's talk reach out. Let's talk. Let's, let's have a meeting pretty soon so we can make a plan, right? Because if you fail to plan, you plan to fail. We'll talk to you soon.
[00:08:37] Speaker A: Thanks for listening to Reyna Retirement. With a strong commitment to ethical standards, Raina works hard to find the right solution for each individual or family who reaches out for advice. To contact Reina directly, call 850-456-500. That's 850-456-500. Or to reach the team at American Federal Benefits Consultants, call 1-800-872-8857. That's 1-800-872- 8857. You can also go online to americanfederal.org not affiliated with the United States Government. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. The information is intended to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. American Federal Benefits Consultants is an independent organization, not a government agency or affiliated with the federal government or any state government. The terms CSRs, FERs, FELI, and FEHB are all registered trademarks of the U.S. office of Personnel Management. American Federal benefits Consultants, agents, consultants, or any independent contractors do not provide tax, legal or investment advice and do not engage in the solicitation or sale of securities. Consult with your tax advisor or attorney regarding specific situations.
