TSP vs. military buyback

[Arif]

It's been awhile since I've been on this site. After reading a few posts now I remember why I enjoyed it so much. There are so many smart people here from all walks of life willing to provide their prospective.

My wife works for the Federal gov't and she's contributing to her TSP. Since she served 10 years in the Army we're going to buy back her time so it counts toward her civilian retirement. This year we've got to decide whether to max out her TSP which would be $18,000 or pay off her buy back which totals $10,000. She gets a 5% match on the TSP and the buy back will start charging interest on the balance until the $10,000 is paid off. So my question is which one should we tackle first? One missing piece of information is the interest rate that the gov't charges on the buy back.

As I'm typing this maybe the answer is pay off the buy back in full and take the balance and fund the TSP. Am I missing anything?

[W2R]

Can you somehow manage to cut back enough to fund them both fully? That would be ideal, IMO.

I don't know anything about the military buy-back (sorry!), since I don't qualify for one. But, the TSP has been wonderful for me in retirement and I am so glad that I maxed out my TSP contributions and over-50-catch-up for all those years. She should at least fund the TSP enough to get the full match. If not, then she's essentially turning down part of her benefits.

[bad_LNIP]

Contribute to tsp for match and do tsp loan for buyback

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[Greg V]

I was in the same situation with buying back military time for Civil Service. If I recall correctly, there is no interest charged for the buyback the first 3 years as a FERS employee. I urge you to first buyback the military time, the sooner the better to avoid paying or minimize interest. The 10 years are worth 10% of the average of her high 3 years of salary every year in retirement and, depending on her situation, may also allow her to earn an unreduced FERS retirement earlier than if she did not do the buyback. Next contribute at least enough to TSP to get the full match...more if you can manage it.

Best of luck on whatever choice you make.

[unno2002]

I spread my “military buyback” over the years I had until retirement.


I do not recall what the interest rate was, but overall the total amount I needed to pay to buy my active duty time, and the interest, were such that I went for the least impact to monthly cash-flow, and the ability to put the max into the TSP, getting the most current tax write off and getting the TSP to a useful amount.

[kitesurfer2]

i bought my service time but also put 10% in TSP forever, until a couple years ago where i started with the max that IRS would allow.

11 weeks left (at 2 days per week) use or lose sick leave

[Arif]

Thanks everyone for the suggestions. I forgot to mention our goal is to be able to take care of both this year. However our priority is to pay off our home this year. I'm just trying to come up with a plan b in case we can't accomplish everything we set out to.

My wife's job is having HR stop by tomorrow to discuss retirement so I told her to ask them about the interest on the buy back. We only have to fund 5% of her pay to max out on the matching for her TSP according to their website.

[Arif]

Greg V you are correct, we have 3 years to pay back her military service which gives us about 18 months to pay it back. We'll pay half this year and half next year while fully funding her TSP. Thanks again everyone.