How to balance savings and investing (TSP vs Roth IRA)

Submitted by sadmedstudent2022 t3_zz1pe2 in personalfinance

Hello everyone! I am 27 years old and halfway through my intern year. I am an active-duty doctor who wanted some wisdom on better managing my finances in 2023.

I have an income of about 85k after taxes and will have another $6k in income midway through 2023 as additional physician compensation plus an increase in pay throughout the Army. Earlier this year, I bought my first home and have a roommate/tenant who is helping me cover my mortgage. right now the mortgage is about $3360 (including hoa) and my roommate pays me $1850 plus splitting utilities. I've basically been putting her money into a savings account offering >3% APY and just covering the mortgage myself while trying to manage some investing into my Roth IRA, Roth TSP, as well as some digital assets (only a bit please don't judge). my only other large monthly bill is my car which totals to $520 a month between lease and insurance payments. Aside from that, I don't have any big bills or dependants. My goal is to eventually reach FIRE in my early 50s. part of that goal will include DCAing into some digital assets as well.

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as of this year, I have contributed 1500 to my roth ira and $2250 to my roth TSP. partially because I used a large chunk of my savings to pay for closing costs on my house.

My questions for the group are the following:

is it worth maxing out my Roth IRA AND my Roth TSP for 2022? Should I combine the two to max out the $6k contribution?

for 2023, is it worth maxing out both?

How much of my income should I keep in my savings account for emergencies? How much should I have in an individual brokerage account? How can I maximize my tax return for this year given I bought my first home? And of course, Am I even asking the right questions?

sidenote: I'm a first-generation American, college graduate, and Doctor, so I feel like I never learned too much about this stuff growing up, so I apologize if some of the above questions seem silly! I appreciate you taking the time to help a stranger on the internet :)

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Werewolfdad t1_j28vowy wrote

Start here: https://www.reddit.com/r/personalfinance/wiki/commontopics

Roth or traditional: https://www.reddit.com/r/personalfinance/wiki/rothortraditional and https://www.madfientist.com/traditional-ira-vs-roth-ira/

Some math: https://reddit.com/r/personalfinance/comments/z5hb8v/_/ixw89x5/?context=1

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MountainStoneMist t1_j28xbpo wrote

>is it worth maxing out my Roth IRA AND my Roth TSP for 2022? Should I combine the two to max out the $6k contribution?

I am a little confused about this statement, Roth IRA and Roth TSP have separate contribution limits.

2022 Roth IRA contribution limit: $6,000

2022 Roth TSP contribution limit: $20,500

Side note: You have until April 18, 2023 to make 2022 Roth IRA contributions.

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sadmedstudent2022 OP t1_j28xxdo wrote

wow i didnt realize I had until April to contribute toward 2022, thank you! Also, I realize how my question could have been written better. I guess I mean Do you think it is worth it to attempt to max out both?

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MountainStoneMist t1_j2902kk wrote

Yes, starting on January 1st, 2023 pay close attention to your Roth IRA contributions, you will be able to select which year you apply your contributions to.

It's definitely a worthy goal to max out both accounts only if you are on the correct step according to the money management tips of the prime directive:

https://www.reddit.com/r/personalfinance/wiki/commontopics/

I would go ahead only if you have paid off all high interest debt and have a fully funded emergency fund (lots of people skip this step but they end up regretting it because the minute they get into financial trouble they raid their investment accounts. Think of an emergency fund as insurance that helps protect your investment accounts).

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>as well as some digital assets (only a bit please don't judge).

I wont judge, but you can't stop me from giving you the side eye.

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sadmedstudent2022 OP t1_j29ed2g wrote

I'll give this a read later, thank you! I was specifically wondering about emergency savings as well especially given that I have a house to take care of now. Luckily, no high interest debts or credit card debt at all here. just about 2k in student loans (once biden's forgiveness goes through).

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haha I can respect a side eye :) its an asset class I personally believe in and want it to be a part of my portfolio

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lakehop t1_j29gyk2 wrote

You should definitely max them both, even if you need to cut other saving. Your income will be much higher in future and having tax free retirement savings in future will be a major boon.

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UMfan11244 t1_j2a1rm9 wrote

So you’re in your lowest earning years right now assuming you’re a first year Army doc? For 2023, I would do $22,500 in Roth TSP and $6,500 in Roth IRA. You can probably try to do this throughout your obligated service. Once you leave the military and become a civilian physician, you’d probably switch to Traditional 401k contributions to keep your taxes low and then use the Backdoor Roth IRA process.

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deficitmonth t1_j291o6x wrote

Your TSP and IRA are both investment accounts. Max out both if you can.

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sadmedstudent2022 OP t1_j29egc1 wrote

will definitely try! biggest concern is maxing out both while also appropriately funding an emergency savings account

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UMfan11244 t1_j2a1z80 wrote

Having an emergency fund isn’t as important for you considering you’re active duty, an officer, and highly employable regardless. I’d maybe keep an extra month or two of living expenses, but that’s it.

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dr_echo t1_j296hbd wrote

Since you have a roommate/tenant, you could possibly take advantage of real estate rental deductions, if you were to report that income using Schedule SE (might be a different name now). You'd have to pay taxes on the rental income, but you get to deduct a proportional amount of acquisition expenses (closing costs + purchase price, any capital improvements to the structure) on a depreciation schedule, and can also deduct the proportional amount of more regular expenses (property tax, insurance, mortgage interest (I think), landscaping/trash removal etc). The "proportional" part is usually set as the proportion of square footage that is rented out.

If you go this route, a CPA is a godsend for preparing the depreciation schedule for the property.

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dr_echo t1_j2973ks wrote

Source - I rented out half of my duplex for ~ 5 years. I'm not sure how it would work with renting out a single shared dwelling space, but might be worth investigating.

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sadmedstudent2022 OP t1_j29eopy wrote

I'm gonna go through H&R block this year as opposed to trying to do taxes myself through TurboTax. i appreciate this comment, I'll definitely be asking about this when I file!

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Emily4571962 t1_j29awjs wrote

Have you checked out whitecoatinvestor.com? It’s speaking to you!

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sadmedstudent2022 OP t1_j29ewaf wrote

WCI is the reason i negotiated my mortgage so well :) I haven't read the whole book though, but I know I should. I'm a little hesitant to fully follow WCI since they are so against crypto.

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is there a specific section of the website you think I should start off with though?

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Emily4571962 t1_j29jh4q wrote

Not a Doc so I skipped most of it that’s not relevant to me — but used the site’s info on backdoor Roth, which was super helpful.

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BastidChimp t1_j29v38d wrote

Thank you for your service, from a Navy vet. IF you are comfortable with your monthly budget, this is the best time to max out both your Roth TSP and Roth IRA. Take advantage of this bear market since you're buying discounted shares. Your Roth earnings will appreciate tax free as the the market recovers. When the economy recovers back to its all time highs you can opt to return to the traditional Tsp.

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sadmedstudent2022 OP t1_j29xtat wrote

thanks for your service and thanks for your input here as well! it seems like the obvious right decision is to max out both, and I think I can manage to do so comfortably with my budget.

thanks for your service and thanks for your input here as well! it seems like the obviously right decision is to max out both, and I think I can manage to do so comfortably with my budget.

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DrJaymez t1_j2b8e80 wrote

Fellow doc here. Now is a great time to maximize your roth, because your have been taxed less on the money you are putting in. I would prioritize maximizing your roth and your TSP minimum should be to the 5% match. Would throw any extra you can afford into TSP up to the limit. This decreases your taxable income, but that doesn’t matter as much at this point in your career.

Would second reading WCI book cover to cover. I’m not going to change your mind on crypto, but the big picture view will help you figure out where you want your crypto piece to fit.

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