This one is for any of you penny rubbing, Active Duty mofos out there.
For the last several years, I have had 4-5 months tax free every year, which combined with my outrageous mortgage interest payments and 3 kid tax credits have knocked my federal tax rate to zero.
I don't know why I didn't think of this before, but here goes: I have always contributed the same amount of TSP every month, for non-tax free months it gets coded "deferred" and for tax free months it gets coded "exempt".
"Deferred" = reduce your tax liability this year, pay it sometime in the future when you are old and gray. "Exempt" = never pay tax on what you put in, just on your earnings thereafter.
Since "exempt" is better for many reasons, especially because my tax bracket is zero anyway (taking away any advantage of a "deferred" tax on something that wasn't taxable to begin with!), then why don't I just do the following:
Make my TSP contributions only in the months I know that I will be tax free, thereby guaranteeing myself the much more preferrable "exempt" status for my entire year's contributions? Assuming I can manage the pains of budgeting the months where very little shows up in my paycheck, why not code the highest amount possible of my base pay and flight pay (the limit is what the senior E-10 of any service makes, plus HFP, currently $7100.10/mo. and $45k/yr total) that I can handle and still pay the bills?
This is high level math stuff, but hopefully there are at least a few Poindexters out there who catch my drift. This could be a huge boon to some very significant tax avoidance (vice tax evasion) in your retirement years. If any of you are like me and you get enough tax free months a year to be in the 0% tax bracket, this is definitely worth considering.
I used to do taxes for a living, so I wish I had thought of this sooner. Unless I'm missing something, it could be equivalent to a $45k/yr Roth (except for the earnings). Probably few of us can afford to contribute that much, but if your wife is working and making decent money, you could throw a good chunk towards that 45k ceiling. Of course she's going to be PO'd that you're gone all the time, but we're all expert at managing that. =)
Thoughts anyone, or am I on my own with this one?
Thanks!
For the last several years, I have had 4-5 months tax free every year, which combined with my outrageous mortgage interest payments and 3 kid tax credits have knocked my federal tax rate to zero.
I don't know why I didn't think of this before, but here goes: I have always contributed the same amount of TSP every month, for non-tax free months it gets coded "deferred" and for tax free months it gets coded "exempt".
"Deferred" = reduce your tax liability this year, pay it sometime in the future when you are old and gray. "Exempt" = never pay tax on what you put in, just on your earnings thereafter.
Since "exempt" is better for many reasons, especially because my tax bracket is zero anyway (taking away any advantage of a "deferred" tax on something that wasn't taxable to begin with!), then why don't I just do the following:
Make my TSP contributions only in the months I know that I will be tax free, thereby guaranteeing myself the much more preferrable "exempt" status for my entire year's contributions? Assuming I can manage the pains of budgeting the months where very little shows up in my paycheck, why not code the highest amount possible of my base pay and flight pay (the limit is what the senior E-10 of any service makes, plus HFP, currently $7100.10/mo. and $45k/yr total) that I can handle and still pay the bills?
This is high level math stuff, but hopefully there are at least a few Poindexters out there who catch my drift. This could be a huge boon to some very significant tax avoidance (vice tax evasion) in your retirement years. If any of you are like me and you get enough tax free months a year to be in the 0% tax bracket, this is definitely worth considering.
I used to do taxes for a living, so I wish I had thought of this sooner. Unless I'm missing something, it could be equivalent to a $45k/yr Roth (except for the earnings). Probably few of us can afford to contribute that much, but if your wife is working and making decent money, you could throw a good chunk towards that 45k ceiling. Of course she's going to be PO'd that you're gone all the time, but we're all expert at managing that. =)
Thoughts anyone, or am I on my own with this one?
Thanks!
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