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July 27, 2013


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Not familiar with a 401a, but if it's limited to 5% interest, you may be better off rolling your TSP into 401k or Roth IRA. Anecdotally I'd recommend Roth IRA, but you'd need to look into it further and decide.

Better late than never! Sounds like you have a plan to get on the right track. I wouldn't increase savings to retirement until you've paid off your car and credit cards. The credit cards are probably the highest interest rate, so they need to first!

I also wouldn't reduce your retirement contribution in the next 2 years even though it would help you get out of debt faster. Going backwards can snowball.

Once your husband graduates, your financial situation will change dramatically. Hang in there!

What company is offering the target-date fund? Is it composed of index funds? If so, you've actually probably made the best choice you could. And to simplify your life it wouldn't hurt to roll the TSP over into the 401(k). Just make sure you roll it over DIRECTLY instead of taking a check distribution. It's very easy to accidentally incur penalties if the money passes through your own hands between retirement vehicles.

stop making house payments and see how long you can live there before bank kicks you out. Stop making credit card payments too. After it goes to collections, negotiate lump sum payoffs (use the money from not paying your mortgage to pay off the credit card peoples).

The real upside of this strategy is that it kills your credit so you're not tempted to borrow more money so often.

Then rent a modest home or apartment and live there until you have 25K or better saved up to put down on a 125K or less kind of home.

@jamesandrews... also don't forget to mention it would be years and years before credit recovers enough to qualify.

I don't see her as off a cliff, I don't think that's a good strategy.

I don't, either (and I have nothing against strategic defaults). The house is underwater, but she doesn't actually have to worry about that until she wants to sell. It doesn't sound as if she needs to undertake a desperation move like trashing her credit.

You sound like you have a reasonable plan, but you have to stick with it. And remember your ability to earn and save money is your most valuable asset.

Do not stop making house payments if you can afford them and the house is not too far underwater (another topic). Put as much into your retirement accounts as you can to get any matches that your employers offer. Then pay off your credit card debt and your auto loan as quickly as possible and don't worry about additional savings until then.

As far as consolidating your current retirement assets, I would consider moving any IRAs, 401Ks and other eligible accounts into your TSP. TSP has among the lowest expense and best performing broad based funds there are. I left the federal government about 15 years ago but rolled all my retirement funds into my TSP account. At your age, you should have 80 percent in the C Fund and the rest in the G Fund. Later you can add other funds available depending on your risk situation.

As far as new retirement savings after your debt is paid off, and you are still meeting employer matches, I would have you start a Roth IRA if you can. Your retirement accounts and savings should be 75-80% equities. In a few years, when your assets grow large enough, maybe around $100,000 or sooner, you can start to fine tune an allocation and balancing strategy.

Frankly, your post suggests you have financial common sense. The trick is to develop a sound financial strategy, maintain spending discipline and then enjoy your lives.

You guys are way ahead of where we were at 28. By then we had a mortgage, two car payments, loads of credit card debt, a personal loan, etc. and we were still listening to the salesmen saying we "could easily afford that on our salaries." About the only thing I did right was put enough money into my retirement to get the matching. Now I'm helping put multiple kids through college and am on track to a decent shot at a good retirement by sixty. So you guys are moving forward with a plan much earlier than we were and I applaud that.

It may be boring and unexciting, but until you've educated yourself the basics don't hurt. Save a minimum of 10-15% towards retirement (with the matching you've got around 12% going in), get the emergency fund set up (you didn't mention if you had one but you should), start snowballing your debt (you've got the two year budget plan for that), and other basics. I know it can feel like you're crawling, and that with every step forward something pops up that makes it feel like you just got shoved two steps back. But two or three years from now you should be breathing easier. One word of advice is that we suffered from a barrage of bills. Multiple store cards, at least three credit cards apiece, multiple loans, etc. above and beyond the regular bills we had to pay. I found just restricting use to one credit card a piece, consolidating other bills where it made sense, helped ease things. Yes, you may loose out on a few "deals", but the savings in late or missed payments made up for that not to mention it's harder to fool yourself as to your spending that way.

When considering where to roll investments, look at what they are earning and what you can invest in, but also look at the fees. The TSP is limited to a group of five primary index funds so the fees are really low. Index funds may be your best bet for the next few years while you're focusing on debt reduction. Being as young as you are you guys can accept volitility in the market and have 80-90% in equities and be able to look at the downswings as buying opportunities. The 2050 fund in your current plan sounds fine for now. Down the road I'd agree to looking into a Roth IRA and also consider your choice on college savings or not for the kids.

Finally, don't forget to have some fun, you seem to be working really hard but you also need to have some reasonable downtime as a family and as a couple. So work a little of that into the budget and plans.

Best of Luck.

Thanks Paul! I've been considering opening a Roth IRA and rolling in the TSP funds into that account. That way, I can continue growing that account. Can you recommend a good place for starting a Roth IRA? I have an account with USAA and have thought about opening a retirement account with them since I already use a lot of their products and services.

Sarah, the target fund is a Wells Fargo Advantage DJ Target Fund. I can roll the TSP into the 401K, I agree that is the easiest option. Would you recommend that over opening a new Roth IRA? Thanks for your advice!

@JamesAndrews Thanks for the advice but I don't think we're at a point where we need to let go of the house just yet. We're actually considering moving in about 5 years so I'd like to keep my credit intact and see if the market recovers. Our area looks like it is starting to recover a bit so I am hopeful that we'll gain some equity here in a few years.

@MiltonBruce, thank you for your advice. We have actually been able to pay off two of our credit accounts in the past month. We're on track to have most of the credit card debt paid off in a little over a year and then we'll work on tackling the car loan.

As far as moving my retirement accounts into my TSP, is there some sort of limit on how often you can do that? I don't have any plans of leaving my current job so I could rollover my 401k into the TSP now but I guess I'd still be in the same spot.

@getagrip Thank you for your comment. We recognize that we put ourselves into a somewhat difficult position but we are now working hard towards improving our financials. With two kids, it can be difficult but we thought it would be easier to cut down on things now since the boys are young and don't need much.

We do have a small emergency fund of $950 and I've been depositing $25 a month into that account. How much do you recommend we have in this account for now as we try to eliminate debt?

Jen, I think you need to be sure that rolling a TSP account (which I think is pretax [?]) into a Roth will not require that you pay taxes for the conversion, as you don't have the cash on hand to cover them.

0.8-0.9% expenses seems on the high-ish side for the target fund, but you may not have better alternatives.

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