A full picture of interest rates: why points and fees matter - We Are The Mighty
MIGHTY MONEY

A full picture of interest rates: why points and fees matter

“What is your interest rate?” This is the most frequently asked question in the lending world. Without a doubt, personal experience compounded with all of the social media questions prove the point every single day. Because I take an educator-first mindset, it is imperative to explain why this is only one small piece of a much larger puzzle when comparing lenders.


An interest rate can be manipulated to look better than it actually is by throwing on origination fees, processing fees, underwriting fees and points to lower the rate. All of these things mean you are actually paying to have a lower interest rate. The VA regulations allow for up to one percent of the loan amount to be charged by the lender in addition to reasonable discount points. This one percent is outside of the other fees paid to outside parties such as an appraisal, credit report, title examination, title insurance and more. This flat (up to) one percent is specifically designed to cover the lender’s services.
A full picture of interest rates: why points and fees matter

While the VA may allow up to a one percent fee, that doesn’t mean that it is necessary. Many lenders, including myself, will never charge a veteran a fee for doing a VA loan. It’s just not how we envision taking care of each other looks like. Additionally, many financial institutions that typically do charge this fee will occasionally run promotions that eliminate it for a short window of time. It is important to read the fine print when looking up any advertised interest rates, as many will have a disclaimer such as “Rates quoted above require a 1.00% loan origination fee. The origination fee may be waived for a 0.25% increase in the interest rate”.

The origination or other lender fees like in the above scenario are similar to discount points, but are not tax deductible. This is yet another downside of lender fees. Discount points, however, are a tax deductible fee in exchange for a lower interest rate. One point is equal to one percent of the loan amount, and will reduce the interest rate by .25%. Let’s practice some mortgage math on a scenario I pulled up today from an undisclosed lender’s website:

“VA 30 yr fixed loan – Interest rate as low as 3.625% – discount points 2.00

*Rates quoted above require a 1.00% loan origination fee. The origination fee may be waived for a 0.25% increase in the interest rate”

As the disclaimer states, to not pay an origination fee of 1%, the rate goes up by .25%. Now the rate is at 3.625 +.25 = 3.875 … but we still have those two points to deal with!

2 points *.25 each = .5 increase to rate without paying for them. 3.875 +.5= 4.375

That 3.625 advertised rate comes with so many points and fees that it is actually a TRUE rate of 4.375 – a far cry from what was seen on the surface. In a 0,000 home loan, this would make the difference of 9 each and every month if you chose not to pay any of those fees, OR ,000 upfront, out of pocket in addition to the regular closing costs.

Even if you have a motivated seller offering to pay your closing costs, you have a choice to use that money to pay a lender’s fee or you could use that money to buy down points with a lender that doesn’t charge. That 1% lender’s fee could actually be you saving .25% off of the interest rate elsewhere if the seller’s contributions aren’t already maxed out. This is just one way to make your closing cost contributions work for your bottom line instead of your lender’s. All financial matters are based on trust, and this is likely your largest life purchase, so it’s important to be in the know!

Articles

The Air Force just escalated its war with the airlines

The Air Force has just escalated its response to efforts by the airlines to hire away military pilots. They’re throwing huge retention bonuses to the pilots and boosting flight pay to $1,000 a month.


According to a report by BreakingDefense.com, the flight pay boost will add an additional $1,800 a month to the paychecks of officers. Enlisted men will see their flight pay go from $400 to $600 a month, a 50 percent increase, and taking their pay up $2,400 a year.

A full picture of interest rates: why points and fees matter
Maj. Kurt Wampole, assisted by Capt. Matt Ward, 774th Expeditionary Airlift Squadron pilots, taxis a C-130H Hercules back to its parking spot. (U.S. Air Force photo by Master Sgt. Ben Bloker.)

“We need to retain our experienced pilots and these are some examples of how we’re working to do that,” said Secretary of the Air Force Heather Wilson in an Air Force release. “We can’t afford not to compensate our talented aviators at a time when airlines are hiring unprecedented numbers.”

In addition to announcing the increased flight pay, Secretary Wilson announced the creation of an “Aircrew Crisis Task Force” under Brig. Gen. Michael G. Koscheski. This task force’s formation is a sign that the pilot shortage the Air Force is facing has not improved. The Air Force release noted that at the end of Fiscal Year 2016, the Air Force was short 1,555 pilots overall, including 1,211 fighter pilots.

A full picture of interest rates: why points and fees matter
An F-16 Fighting Falcon pilot, assigned to Detachment 1, 138th Fighter Wing, dons his helmet in preparation of a barnstorming performance for reporters, Feb. 1, 2017, in Houston. (U.S. Air National Guard photo/Tech. Sgt. Drew A. Egnoske)

The Air Force is looking to bring back 25 retired pilots to fill staff positions through the Voluntary Rated Return to Active Duty program, allowing pilots who are still current to be returned to front-line duties. The staff positions are non-flying, but retired pilots could have sufficient expertise to handle them.

This past June, the Air Force increased its Aviation Bonus cap from $25,000 a year to $35,000. These bonuses are paid to pilots who commit to stay past their service commitment for up to nine years.

The Air Force was also seeking to reduce the number of non-flying assignments for pilots, including headquarters positions and developmental opportunities. The Air Force is also trying to reduce additional units and add more flexibility for Airmen with families and children.

Articles

This little known safety net can help service members and veterans in a pinch

Finances are stressful in emergency situations, and it doesn’t matter what rank you are. From an unexpected death in the family to a broken car courtesy of the deployment curse, financial emergencies happen no matter how well you plan for them.


Fortunately for service members, their spouses, and veterans, there’s a little safety net in place for each of the services to help when these things happen, dubbed the “Emergency Relief Fund.”

Army:

The Army has the Army Emergency Relief, a non-profit that helps soldiers, retirees and families with resources in a pinch. Additionally, AER provides access to interest free loans, grants, and scholarships.

The AER is endorsed and run by the Army.

National Guard:

The National Guard has the National Guard Soldier and Airman Emergency Relief Fund, which provides up to $500 to eligible households. For more information, check out the National Guard’s publication on its emergency relief fund.

Air Force:

The Air Force has the Air Force Aid Society, and it provides emergency assistance, education support, and community programs. While the AFAS is a private non-profit, it is “the official charity of the United States Air Force.”

Coast Guard:

The Coast Guard has Coast Guard Mutual Assistance, wich is a private non-profit organization that works closely with the Coast Guard to provide interest free loans, grants, and counseling.

Navy / Marine Corps:

The Navy and Marine Corps share a relief fund called the Navy-Marine Corps Relief Society. The NMCRS is a non-profit that, though unaffiliated with the Department of Defense, can be found on nearly all Navy or Marine Corps bases.

The NMCRS is completely funded by donations and on-base thrift stores, and it provides financial assistance and counseling, quick assist loans, education assistance, health education and post-combat support, budget for baby classes, emergency travel, disaster relief, and the on base thrift stores.

American Red Cross:

For service members, family members, and eligible veterans who are not near an installation, there is The American Red Cross. The Red Cross works alongside the above mentioned aid societies to provide assistance.

MIGHTY MONEY

4 VA loan myths busted: What to know before you go

If someone were to ask me what the best advice is for someone buying a home, I would have to say “educate yourself.” I realize that sounds vague, but there is SO MUCH information, more importantly, incorrect information, out there and every family situation is unique. I’m hard-pressed to say what is most important, but breaking barriers to getting started would be first. Unfortunately, I see a lot of myths repeated on a daily basis, sometimes from fellow mortgage professionals! I will continue to share digestible pieces of information, but first, need to get these common myths out of the way, so no military family is deterred from getting started:


A full picture of interest rates: why points and fees matter

There is no debt-to-income ratio cap.

The VA’s deciding factor on whether or not you can afford a loan is based on “residual income” (p.57), meaning how much money is left over every month after your debt obligations are met. This is a formula based on loan amount, geographic location and family size; it’s not always a one-size-fits-all answer. Some lenders have “overlays,” which are additional requirements that reach beyond what the VA themselves require, which is why the DTI myth is still floating around. The big takeaway here is that if you’re told by one lender your DTI is too high, they might have extra requirements on top of what the VA states, and you should SHOP AROUND! Not all lenders are created equal.

Residency requirements.

The VA has one residency requirement (pp.12-13), that you intend to make the home your primary residence and occupy “within a reasonable period of time” – usually deemed as 60 days. A spouse or dependent child can fulfill this residency requirement, but no other family member. I continuously see the myth of “one year,” circulated, but it is simply a myth. Last-minute moves and orders happen; the VA knows that, and according to their guidelines, you are not tied to live in any home for any period of time that doesn’t work for your family – period.

A full picture of interest rates: why points and fees matter

County loan limits still apply for multiples.

The Blue Water Navy Vietnam Veterans Act Sec.6(a)(1)(C)(ii) that went into effect January 2020 lifted the VA county loan cap for how much money you can borrow with down, but that’s only if you have full entitlement available. A borrower can have multiple VA loans out at once, but if any entitlement is currently used, the county loan limits DO apply for bonus entitlements. You may be subject to a downpayment requirement if you exceed your remaining entitlement available.

Work history – what counts?

I repeatedly see posts in social media about a service member transitioning, receiving a new job (or job offer), and they don’t think they can qualify for a loan until two years into the job. This is totally false! Military active duty counts towards work history. The VA allows future employment income to be counted if the lender can verify a non-contingent job offer, including start date and salary. Documented retirement and disability pay also count towards qualifying income, but GI bill benefits do not.

Social media can give instant access to other people’s experiences, but some of the answers to your VA loan questions can only be found in a licensed professional. Make sure you’re talking to a lender that is passionate about educating you and your family, allowing you to make smart financial decisions. Not all financial institutions lend “by-the-book,” so ask more than one lender if something doesn’t feel right, or you’re not satisfied with the answer. An ounce of prevention, in this case, is certainly worth well more than a pound of cure!

Humor

24 people to marry with better benefits than a US service member

Recently, the military healthcare system Tricare posted a photo on its Facebook page that had its fans in a frenzy.


People got pissed; they complained; they shared the post with harsh words; some even used “caps lock” in their comments. It was terrible.

What was so offensive about the post, you ask? If you hadn’t already seen it, it was a wedding photo with the comment “You had me at #TRICARE.” See below.

A full picture of interest rates: why points and fees matter
Tricare recently posted what was supposed to be a humorous post to its Facebook page. Instead, it got a lot of backlash!

As someone who works online almost exclusively, I had to laugh at the post. In fact, I laughed a lot. I could understand why some people were upset (hello, pushing a negative stereotype on female military spouses), but mostly I couldn’t understand how the marketing department at Tricare saw the post and said “Oh hey, THIS post is an EXCELLENT idea!”

My first reaction when I saw it, honestly, was “I wonder how long whomever approved this post will have a job?” I post all kinds of crazy things on my own personal Facebook page, but I’ve been called into more than one come-to-Jesus meeting with a boss over a poorly planned social media post.

When that’s your job, you have to be aware of your audience.

And who is the audience for most of Tricare’s social media pages? Probably spouses who want to keep up with changes in Tricare benefits. So it’s no small wonder that a whole bunch of them were butthurt.

So I did what any responsible journalist in my position would do: I shared the flub on my personal Facebook page and asked for hilarious feedback. My friends did not disappoint.

The idea? If we were to marry someone for his benefits, couldn’t we have chosen someone with better perks?

The military benefits are great, don’t get me wrong. But what about if you married:

1. A mob boss

All the Italian food your heart desires and the destruction of your mortal enemies. (this is obviously my first choice)

2. Prince Harry

Crowns and gowns, you’d never have to work! (wait. maybe this is my first choice)

3. United State Senator or Representative

The best health care your tax dollars can buy. Plus no one’s allowed to hurt your feelings. (gag me now)

4. A doctor

All you can eat hospital food! (food? queue the fat dependa jokes, because I AM IN)

5. A dog breeder

Picks of the litter! (meh, I’m not really a puppy person. Don’t shoot me, I prefer a full-grown rescue)

6. Donald Trump

If you ever go bald or are in desperate need of a tanning bed, you’re already in the right place! (If you can stomach this, its an option for those of you under 25!)

7. Any president

Free food, vacations all over the world; top private schools for kids; secret service body guards; couple cabins in the woods; free airfare!! (Woah woah woah…. someone sign my husband up!)

8. A Masseuse

Happy massages for days. (Okay I’m really torn between this one and Prince Harry. Can we choose two?)

9. Bill Gates

When one door closes the windows are always open!! (I’m a Mac girl, so…)

10. A handyman

All the crap around the house might actually get done! (Except my daddy raised me to be able to DO all the crap around the house, so this isn’t an issue here.)

11. Cesar Milan (the dog whisperer)

Maybe he can make the kids behave! (Wait, I have to choose between behaving kids and Prince Harry? Adulting is hard.)

12. A plastic surgeon

Think this speaks for itself. (Meh, not really my cup of tea)

13. A Starbucks barista

I think this also speaks for itself. (Okay, so do you think Harry could make coffee AND be a mob boss AND be a masseuse? Someone with connections find this out for me?)

14. An airline Pilot

Get to travel for free or for little out-of-pocket when there are seats available. (I’m married to a pilot. I see how he drives, I DO NOT want to fly with him.)

15. A personal trainer and chef

Never have to cook again and always fit into your skinny jeans! (I already fit into my skinny jeans. I just buy them bigger now.)

16. A hotel manager

Free room and board with complimentary continental breakfast! (I do enjoy food…)

17. A mechanic

(Free oil changes?)

18. Matt Damon

He’s my fantasy celebrity boyfriend and I’m waiting for his proposal. (Obviously this wasn’t my suggestion. If it’s not obvious, I super like Prince Harry. Just saying.)

19. A farmer

Cheap help from laborers, tractors and back hoes to dig as many holes as I need to bury the bodies. Then, when the old man ain’t worth it anymore I just take him out to pasture on the back 40! (So maybe not husband material, but maybe as a side piece while I’m married to the mob boss? Questions need to be asked here.)

20. A coffee importer

I would always have the best coffee. Ooh or someone who owns a bookstore too! Unlimited coffee and books for life it can’t get any better than that. (Just out of curiosity, does anyone know if Prince Harry has a library? Asking for a friend.)

21. The owner of a winery

(Also need to find out how Harry feels about wine)

22. A civilian so you never have to sleep alone

…Or worry. (I know, too serious)

23. A Costco employee

I used to work at Aetna. Let me tell you — those folks get great insurance. Or they used to. Free glasses once a year for all members of the family. (It IS time for me to get new glasses.)

24. The heir to a million dollar business with really nice in laws

No wait.. better! Heir to an awesome chocolate company. (Note to self, find out how Prince Harry feels about wine and chocolate and masseuse school and libraries and…)

I just realized that Prince Harry is in the military as well, so maybe I just really appreciate a man in uniform and the benefits aren’t really even the icing on the cake.

MIGHTY MONEY

DoD denied benefits to a widow over one mistake

Joseph Parrinello served his country during three wars – World War II, Korea, and Vietnam. He met and married Margaret Donnelly while serving in England. They married on December 27, 1957. She followed him to all his assignments and did what many wives did at that time: she took care of the children and managed the household.


In 1972, Joseph retired after 28 years of service. His chief concern in life was making sure Margaret, who was 14 years younger than he and only ever worked in the home, was taken care of if he died. After a lifetime of investments, the Defense Department denied his beloved her survivor benefits because of one wrongly checked box.

 

A full picture of interest rates: why points and fees matter

After many years together, they divorced in 1991. There was no love lost, Margaret married Joseph at 19 and had just never really known life without Joseph. He still loved her and she was still the mother of his children, so she remained the beneficiary of his Survivor Benefit Plan, even though they were no longer married. During their time apart, Joseph gave his beloved money every month to take care of her, even after the children came of age and left home. It was a surprise to no one when they remarried in 2006. Joseph was 83 and Margaret was 69.

By that time, Joseph had battled cancer and kidney failure. His overall health declined for years, but he never filed a disability claim with the Department of Veterans’ Affairs because he only wanted what he was due and felt the VA didn’t owe him anything. So he lived on Social Security and his retirement pay as an E-7 with 28 years in service.

A full picture of interest rates: why points and fees matter

Throughout his retirement, Joseph paid 15 percent of his income to take care of Margaret. He had an allotment taken out of his retirement to cover her in the event of his death, resulting in several decades of investment. His survivor benefit plan listed her as the sole beneficiary. At 83, he was tired, ill, and not as sharp as he once was. He didn’t change Margaret’s status from “former spouse” back to “current spouse” on the SBP form because he didn’t think he had to. In his mind, his Margaret was both former and current, and was going to be okay.

When he died at age 91 in December 2014, his daughter Lisa, also an Air Force veteran, tried to help her mother claim her survivor benefits. They initially filed in December of 2014 – but the Defense Finance and Accounting Service said they didn’t receive Margaret’s claim, though DFAS was sure to stop Joseph’s retirement pay and take back pay for part of the month of December. So Margaret refiled in January and was told it takes about six weeks to receive benefits.

A full picture of interest rates: why points and fees matter
Joseph Parrinello

After six weeks, Margaret called DFAS to check the status. The answer was the claim was “still processing”. When her daughter Lisa called in February 2015, the claim was “still processing.” In March 2015, Lisa was told her mother “will get paid by the end of March.” In April, the claim was “still processing” and DFAS asked Margaret to send more documents to support her claim.

Lisa, frustrated, contacted her congressman, Mark Sanford. Sanford’s office was able to get an answer from the Defense Department. On June 1, 2015, Margaret was officially denied her benefits because the form had “former spouse” checked even though she is both the former and current spouse and her name is also on the form stating her as beneficiary. The family was told the form needed to be changed through the Air Force Personnel Center. The change (if approved) can take up to 18 months but the Air Force is “backlogged and must go in order.”

As Margaret waits for the Air Force to check a different box, she’s about to lose the house she shared with Joseph, their car, their treasured possessions, and the last wishes and lifetime work of a 28-year Air Force Master Sergeant, who only wanted the love of his life to be taken care of when he died.

The Defense Department did not tell the Parrinellos where Joseph’s 20-plus years of investments went or where they will go if they’re not given to Margaret.

Articles

Are there any military spouse retirement benefits?

A full picture of interest rates: why points and fees matter
Mrs. Hyun Crites, wife of Chief Master Sgt. James Crites, 9th Operations Group superintendent (right), is presented the Military Spouse Medal during her husband’s retirement ceremony. | U.S. Air Force photo by Senior Airman Bobby Cummings


Military retirement often marks the end of a long road.

As a military spouse, you’ve put in months of waiting on your service member to come home from long trainings or deployment, all while holding down your home and taking care of your family. You’ve battled career challenges for yourself, planning disasters, cross-country moves and everything Murphy’s Law could throw at you.

But other than the long-sought break from the challenges of military life, what’s in military retirement for you? Although your service member is who put on the uniform every day, military retirement isn’t without perks for military spouses or ways that you can still benefit from the community.

And while all of the benefits available to you are by virtue of your spouse’s service, it doesn’t mean you shouldn’t take full advantage of them.

Military spouse retirement benefits

Health and dental care. After military retirement, you are eligible to continue using Tricare, the military’s health care system. If you are near a base, you may even still be able to be seen in the military treatment facility or hospital if that is your wish. You can also sign-up for a dental plan for military retirees.

Commissary and shopping privileges. Now that you’re not a part of the active-duty military anymore, you might find that your living expenses go up. But as the spouse of a military retiree, you still have access to the military commissary and exchange systems. Although just how much you save at those stores over civilian markets is an often-debated topic, everyone agrees there is some benefit to shopping at them.

Military lodging and recreation. As a military retiree, you still have access to the military lodging and recreation systems. Although there are some rules restricting who can stay in military lodges overseas, most allow military retirees. Maybe now is the time to take that girls’ or guys’ vacation you’ve been dreaming about for the last 10 years.

GI Bill and education benefits. If your service member transferred the Post-9/11 GI Bill to you while he or she was still on active duty, you can use it to go back to school. Through it, you will receive a monthly housing allowance, an annual books stipend and, depending on where you are going to school, all of your tuition costs and fees covered. The GI Bill must be transferred while the service member is on active duty for this to be available.

If you don’t have the GI Bill and your service member has died, you might be eligible for Survivor and Dependents Educational Assistance.

Survivor Benefit Plan. If your service member chooses to set up the Survivor Benefit Plan, an insurance policy, at the time of his retirement, you will have access to that money after he or she dies. That plan can be complicated and confusing, so go here for the full explanation.

VA benefits after your service member’s death. Although a service member’s pension checks end with his or her death, you may have access to Dependency and Indemnity Compensation, and the Veteran’s Death Pension.

Articles

Vets First helped this former airman build her spiritual home

“It is neither your title nor your name that defines you, but what is written on your heart.”


Rene Locklear White has held many titles: lieutenant colonel; Air Force veteran; wife; mother; Native American religious leader.

But none of these things define her.

Serving as a space satellite surveillance officer, White says, “I spent 22 years in the Air Force. Proudly. Happily.”

That pride and that happiness are what define her more than anything.

With her husband, Chris “Comeswithclouds” White, White runs Sanctuary on the Trail, a Native American Christian church in the Blue Ridge Mountains of Virginia. The church has five key areas of focus this year, the Spirit Speaks Forum, arts and culture advancement, disaster relief, human rights advocacy, and veteran wellness.

The focus on veteran wellness doesn’t jut apply to spiritual wellness, but to physical wellness. Together, the Whites work with veterans to understand their benefits and to get wounded warrior care for themselves and their families.

Comeswithclouds built their house with his son, Jacob, and the home is a beautiful reflection of who they are.

“We can honor nature and be a part of it, all the time,” White said. “The house is built, but now we’re.. building the community,” Comeswithclouds noted.

Currently, the family hosts Ceremony at their home, inviting members and strangers alike to experience the land in its purest, untouched state. The way Native Americans thousands of years before them did.

For more information, visit Sanctuaryonthetrail.org.

MIGHTY MONEY

Now you can directly invest in hiring veterans – here’s how

When the opening bell at the New York Stock Exchange rang out on Monday, July 23, 2018, it was Chris Isola, head of Veterans Affairs at UBS, ringing the bell. You may not know who Chris is, but you will be interested in what he’s bringing to the New York Stock Exchange: Veterans – and in a big way.

Isola represent UBS, an investment bank like many others on Wall Street, providing financial advice and other products to wealthy institutions, individuals, and corporate clients all over the world. The bank has indexed the price movements of certain companies’ stock — companies with policies, practices, and outcomes that support the employment of American veterans.

From that index, you can now buy into an Exchange Traded Fund that supports the best companies that meet UBS’ liquidity and stability standards while being the best example of military veteran employers. It’s all based on Viqtory’s Military Friendly employer rating.


In a world where both Main Street and Wall Street are increasingly removed from the wars and conflicts currently fought by the military, the economic powerhouse that drives America is working to create jobs and opportunities for the men and women who make the world’s largest economy possible: U.S. military veterans.

“We believe this is an innovative way for investors to express their support for the veteran community,” said Richard Cea, Executive Director of Exchange Traded Products at UBS. “This ETF provides investors with exposure to companies that recognize the value of our nation’s veterans to the workforce.”

ETFs are financial products that trade like common stock, complete with a ticker symbol, but is essentially a pool of different stocks owned by the fund. Investing in an ETF means you’re buying shares of the pool of companies owned by the fund. The overall value of the pool is divided into shares.

In this case, the ticker symbol HONR represents the InsightShares Patriotic Employer ETF and the fund owns stocks in businesses that value veteran employees, based on Viqtory’s Military Friendly employer reviews. The HONR fund also actively donates portions of its profits to veteran-related charities. Some of the stocks held by HONR include:

  • Devon Energy
  • Proctor Gamble
  • Boeing
  • Verizon Communications
  • Coca-Cola
  • IBM
  • Walmart
  • JPMorgan Chase Co.
  • Honeywell
  • Southwest Airlines
  • T-Mobile US
  • Starbucks Corporation
  • General Mills, Inc.

So when you buy into the HONR fund, you’re buying into a fund that supports only corporations who proved their mettle in hiring America’s veterans, are genuinely good business investments, and will routinely give back to military-veteran oriented charities and nonprofits.

It’s a small way of giving a buck to veterans while doing something good for your retirement portfolio.

MIGHTY CULTURE

What to do with your TSP after the military

Leaving the military means making a lot of decisions — big decisions — often in a short period of time. One important decision, thankfully, doesn’t have a time limit: What should you do with the balance in your Thrift Savings Plan account?

Several myths and rumors surround the answer to that question, with plenty of salesmen wanting you to believe that you should move your money out of the TSP. Five clear options exist for service members and their TSP account assets after transitioning from the military. Even though there’s no single answer for everyone, three choices are more optimal for most people, and two choices are less right for most people.


The usually-better options include:

  1. Leave the money in your TSP account.
  2. Roll your TSP account balance into an Individual Retirement Arrangement.
  3. Roll your TSP account balance into your new employer’s 401(k) plan.

The rarely-better options include:

  1. Withdraw your TSP account balance in a lump sum.
  2. Transfer your TSP account balance to a qualified annuity.

Leave the balance in your TSP account

Once you have a TSP account, you can leave your money in there until you have to take required minimum distributions. There is no requirement to move it anywhere, at any time. In fact, most military-savvy financial planners recommend that you leave your retirement funds in TSP.

“As an entering argument, we don’t advocate doing anything different with your TSP,” says Sean Gillespie of Redeployment Wealth Strategies. “Just because you can’t contribute to it any more doesn’t mean you have to move it. And with low cost being one of the leading predictors of maximizing your returns, it’s darned difficult to do better than you will with TSP.”

Pros: Leaving your money in the TSP is by far the easiest option, and it’s a good option for many situations. The TSP has very, very low fees. You can move the money elsewhere later. TSP understands tax-free contributions from a Combat Zone Tax Exclusion. You can roll new money from other qualified plans into your TSP account to take advantage of the low costs.

Cons: TSP offers limited distribution options, though they are scheduled to expand this fall. You have limited investment options in TSP. You can’t roll from Traditional TSP to Roth TSP, so if you are trying to move your Traditional money into Roth accounts, it will have to be out of TSP. You can’t take multiple partial withdrawals out of your TSP account.

Roll your TSP balance into an Individual Retirement Arrangement

Pros: You have total control of how you invest your money, and unlimited investment options. You can still roll the money into a 401 (k) in the future. You can convert money that is currently in a Traditional account into a Roth account, but it will be a taxable event. And it’s really nice to put everything in one place!

Cons: IRAs don’t have any loan options, and will probably have higher fees.

A full picture of interest rates: why points and fees matter

Roll your TSP balance into your new employer’s 401 (k) plan

Pros: Moving your TSP balance will streamline your accounts, and that balance will be available for borrowing with a 401 (k) loan. (But don’t do it!)

Cons: Most 401 (k) plans have higher costs than TSP. You’ll still be limited to the investment options in the new plan. There may be a waiting period to participate in your new employer’s 401 (k). Not all 401 (k) plans have a Roth option.

Forrest Baumhover, a certified financial planner with Lawrence Financial Planning, suggests caution when moving your TSP to a 401(k).

“When you leave military service, don’t be quick to jump out of TSP. It has better and lower-cost investment options than 401 (k) plans.”

Withdraw your TSP account balance in a lump sum

Pros: Cash in hand.

Cons: Withdrawing money from your TSP account may be subject to withdrawal penalties (10%) and taxes (probably in the 20% range). More importantly, you’ll lose all future earnings on that money, and you can’t replace that money into a tax-advantaged account because they have yearly contribution limits.

Transfer your TSP account balance to a qualified annuity

Pros: Predictable, guaranteed income stream for life.

Cons: It is a permanent decision. There may be high fees involved. You may not get anywhere near the full value of your contribution. If it isn’t indexed for inflation, the purchasing power of your monthly benefit will decrease each year.

This is a relatively short overview and can’t possibly cover every possible situation. As with everything, there are exceptions and nuances for many different scenarios. If you are considering moving your TSP to another investment, you may find value in consulting a financial advisor to figure out which choice is right for you and your specific situation.

Lacey Langford, AFC ®, The Military Money Expert ®, suggests several reasons why you might want to consider using a fee-only financial planner vs. the advisor offered through a bank, insurance company or investment company.

“Fee-only allows you to have a clear picture of what you’re paying for and how the advisor is being compensated for the advice and recommendations they’re giving you,” Langford added.

This article originally appeared on Military Families Magazine. Follow @MilFamiliesMag on Twitter.

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This Marine just saved the government $15 million

The Marine Corps was paying $60,000 more than it was supposed to for a type of radio cable since 2007, according to Stars and Stripes.


The cable was discovered to be overpriced in October 2016, when Marine Cpl. Riki Clement had to fix a radio. After being told that the needed parts would take six to eight months to arrive, he decided to reverse engineer a replacement using old parts and found out its true cost was actually closer to $4,000.

Later that month, the Marine Corps said the corporal had saved the government $15 million.

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The cable that the Marine Corps was overpaying by $60,000. (U.S. Marine Corps photo)

The defense contractor that makes the cable, Astronics, had been charging $64,000 for each cable. Astronics did not immediately respond to request for comment.

“There may be a good reason for the price, but based on us taking apart the cable and researching the individual parts, we’ve found no reason for this part to cost as much as it does,” Clement told Stars and Stripes in December 2016.
The overpriced cable was one of six in the same parts catalog, Barb Hamby of Marine Corps Systems Command told Stripes.

“The catalogued mistakes were made nearly seven years ago,” Tony Reinhardt, the command’s team lead for automatic test systems, told Stripes. “We went through every [item] in the kit to confirm the prices and fix the errors.”

Reinhardt said the cable costs $4,000 because of the material that goes into it, as well as the process of designing, developing and manufacturing it. He added that there’s no record of the Marine Corps ever purchasing individual replacement cables. The originals were part of kits, and Marines had been using parts from other kits for repairs.

The cost of each kit was $21,466, Capt. Frank Allan, a project officer at Marine Corps Logistics Command, told Stripes.

This isn’t the first time the military has been caught overspending.

In December 2016, it was discovered that the Pentagon had buried a study from late 2015 exposing $125 billion in administrative waste. President Donald Trump has also attacked defense contractors for overpriced weapons, despite recently calling for a $54 billion boost in defense spending.

MIGHTY MONEY

Market takes a dive on news of Trump victory

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The DOW took a hit after Trump was declared the President-Elect, a slump that was felt around the world.


The stock market took a massive dive just before and moments after Donald Trump was declared the President-Elect around 0230 today.

The Sydney Morning Herald reported that there was a moment of panic felt around the world as countries like Australia, Mexico, and Japan had market slumps in response to voting results showing Trump’s gradual climb.

Fortune reported that the Dow Jones Industrial Average dropped almost 650 points during after hour trading; SP 500 was down 4 percent, the Nikkei was down 5 percent, and the Mexican peso had plummeted almost 12 percent. The drop in the Mexican peso was the largest the currency has seen in over 20 years.

The Economist reports that “vague and erratic” statements from Trump in regards to trade and foreign policy have the rest of the world worried.

This might motivate some service members and veterans to pull their funds out of Thrift Savings Plans, 401(k)s, and other investment tools. Before they do that, take note that the dive was temporary and seems to be recovering. According to The Guardian, U.S. yields (interest rates) on U.S. debt is on the rise.

That bounce, according to The Guardian, is due in part to Trump’s acceptance speech.

Alex Edwards of UKForex wrote “[Trump’s] appeasing tone has definitely helped” the market response.

Jeremy Cook of World First writes “It’s because he sounded more presidential.”

That said, Paul Krugman from the New York Times writes “If the question is when markets will recover, a first-pass answer is never.”

So how does this impact your investment and retirement dollars?

Most experts would say don’t panic just yet. Right now, it’s still unclear how exactly Trump’s election will impact the U.S. and global economies in the long run. It would be premature to pull funds out of the TSP and other market investments, but should you decide to do that, consult a financial advisor.

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