Reply to "maxing out" TSP, 401, etc.

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Reply to ""maxing out" TSP, 401, etc."

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]What is that advantage of maxing out TSP early in the year?[/quote]

There is none in fact, there is a disadvantage.  The match comes with each pay period, so you maxing out early means that the matching stops prematurely.  Spread it out evenly over the year to get your full match.  [/quote]

Gotta do the math to make this work.  I get a paycheck on the first of each month at my agency, so it makes the math a little easier.

In December, figure up the highest salary you could possibly be at within the next year with step increases, COLAs, or even a promotion.  Using $96,000 as an example, the 5% gov match for the year would be $4,800.  Divided by 12, that's $400/mo.  In January, February, and March your TSP contribution could be $4,800 each month.  For April-December, it'd be $400/month to get the max total of $18k in contributions for the year.  As long as your salary is always under $96,000 thru the year, you will always catch the full gov match on each paycheck.  It will involve some timing with Payroll to change your contribution amounts correctly.  And obviously takes a little planning in the prior year because you could end up short on cash.

The advantage?  
1) Gets 80% of your yearly contribution done in the first quarter, freeing up a huge chunk of cash each month after March for whatever you'd like
2) It's statistically proven that lump-summing/front-loading contributions outperforms DCA (dollar cost averaging) 2:1. I'll take those odds any day with hopefully 20-ish more years to contribute.  http://pressroom.vanguard.com/content/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf *Remember, it's time [i]in[/i] the market that helps boost returns
3) Get a nice bonus if the market happens to take a dip in mid-late winter

[/quote]
Your statistics are not including the match.[/quote]

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