FIRE Crossroads 016: 42 with a $4.2 Million Net Worth & FatFIRE Plans

This dual-income, one-physician household could retire right now if they really wanted to, but that would require a significant downgrade in spending and a move away from their $2.1 Million home.

However, they’re not inclined to do so, and frankly, they have no need. They’re both in great spots career-wise, and they’re on a trajectory to reach their $7 Million fatFIRE goal before traditional retirement age. They’ve gotten to this point by investing simply, saving wisely, and “embracing the suck” while they were young so that they could enjoy the fruits of their labor later.

Their early sacrifices included a military physician career that ended only four years ago, after which he saw his income better than triple. I want to thank today’s interviewee for both the insightful peek behind the financial curtain and for his years of military service.

If you’re interested in participating in one of three interview series, please download the most appropriate form for your life situation: FIRE Starter, FIRE Crossroads, or Post-FI Notes. To see other posts in the series, visit our Q&A archive.

 

 

Getting to Know You

 

Where are you on your financial independence journey? Have you crossed the halfway point in terms of net worth and/or passive income?

First of all, thanks for allowing a few of us to share our journey with you and the PoF readers.  This was a fun exercise to go through.

We are just about midway on our FI journey I think, but we have lofty goals—definitely on the fatFIRE to moFIRE track. [PoF: That would be morbidly obese FIRE, a term that I believe originated in our fatFIRE Facebook group.]

Sometimes I feel, as others have suggested, that the goalposts keep moving.  Until you get closer to reaching “your number,” I feel it will be very hard for me to FIRE with absolute comfort.  Maybe that is the point, but I deeply respect those of you who have taken the leap.

 

Tell us about your household. How many people and at what ages? Are you supporting anyone outside of your home? Where do you live?

My wife and I are both 42 and have two children, a 6-year old and an 8-year old.  We live in a very affluent suburb of a major city in the South.

We accidentally stumbled into our town and neighborhood when we moved here, but are extremely happy.  We were surprised to learn that professional athletes, CEO’s, and many other “white coats” live on our street and around the corner.

Even though we have a very beautiful home, my wife and I feel very content driving our 8-year old Hondas around the neighborhood among the Ferraris and Bentleys.

Both of us have each been mistaken for a nanny, housekeeper, or groundskeeper at one time or another as we were working on tasks inside or around our own home.  We kind of laugh at sometimes appearing to be the “poorest” on the block, even though we subscribe to the belief that “wealth is what you don’t see.”

We both grew up in low- to middle-class families so we really have no interest in trying to keep up with our neighbors concerning clothes, cars, etc.

We chose our area based on the award-winning public schools, quiet surroundings, safety, and proximity to major metropolitan culture and entertainment.

We also significantly support one set of parents and have recently bought a newly constructed home for them to live within 20 minutes of us.  We essentially pay all housing and utility costs for them so that they may use their other income (which is not much) to enjoy their remaining retirement years.

 

In what field are you working? How is your career going? What do you like best and least about your chosen profession?

I am a full-time surgical subspecialist and have been a hospital employee for about 4 years now.  I was in the military all through training and for 8-plus years as an active-duty attending physician during my military commitment/scholarship payback.

I am very satisfied in my career and feel I am at my peak skill level (if there exists such a place).  I feel respected and am considering a move into a more full-time leadership role soon.

I have a wonderful lifestyle in regards to work hours (no nights/weekends/call) and usually only work a maximum of 4 days a week.  This leaves plenty of time for family time, which I relish.

My annual salary including profit sharing is just a little under $500,000 a year.  My wife, who is a superhero by the way, is a full-time work-from-home lead project manager/consultant and makes between $160,000 and 175,000 a year depending on bonuses.

She works much harder than I do and does an amazing job with the kids when I am away.  We could not survive a day without her!

We both feel overly blessed that both of our jobs were completely secure during the COVID crisis, among a thousand other things that we are grateful for.

 

Do you feel you’ve come to a crossroads of sorts? If so, tell us about it. What options are you contemplating?

I do feel like I am at a bit of a crossroads with respect to my career and financial trajectory.

Do I move into a more significant leadership role at the potential cost of a bit worse lifestyle (more administration time required, more stress), even though it may come with a bit of a pay bump?

I feel like my 12-plus years in the military put us a bit further behind financially than our peers—or does that even matter?  I have only been making real “attending” money for the past 4 years.

During my last few years in the military, I was making in the mid-$100,000’s (was still awesome, for sure!).  I still had some student loan debt to contend with (both my wife and I did, actually).

We know we should not compare our situation to others—personal finance is personal; but how do we know we are on a solid path to FI?  You can run as many financial calculators as you want, but I still feel that I will have a hard time retiring once we have “made it.”

There are too many unknowns for me to see that far right now.  On the other side of the coin, do we have enough assets now to coast a little bit—enjoy a bit more spending or freedom now?

Do I sacrifice some of our nest egg to gain more passive income or just keep building our retirement and taxable accounts to grow a safe withdrawal rate later?

 

Investing

 

How is your nest egg invested? Approximately what percentage is allocated to stocks, bonds, real estate, and alternatives?

As of this writing (October 2021), our net worth is a little above $4.25 million.  We have $2.5 million in retirement accounts and about $1.7 million in home equity within two single-family homes.

We own outright a new home that our parents live in (valued at $500,000) and have about $1.2 million in equity in our primary home (valued at $2.1 million after estimated sales costs; $900,000 left on a first mortgage note).  Other than our primary mortgage, we have no other debt.

We keep about $75,000 in cash/emergency savings/sinking funds.  In our retirement accounts, we invest completely in index mutual funds and ETF’s.

All of our assets are with Vanguard, the TSP, or Blackrock (workplace 401(k)) with 95% allocated in equities:

  • U.S. Large-Cap/S&P 500 Index 45%
  • U.S. Small/Mid-Cap Index 22%
  • Total International Index 28%
  • TIPS 5%.

I do not have a military pension.  We have been through a couple bear markets now and sleep completely soundly given our 95% equity exposure.  In fact, we were able to build up a very sizable taxable account as we invested heavily throughout the downturn of early 2020.

We have a solid written financial plan that outlines our increased allocation into bonds/fixed income every few years until retirement.  So right now, I guess you could say we are about 40% real estate, 57% equities, and 3% bonds.

 

Are your investments primarily in tax-deferred, Roth, or “taxable” post-tax accounts?

Our $2.5 million retirement account balance is broken down as follows:

$1.2 million in Roth accounts (Roth IRA’s, Roth TSP, Roth 401(k)).

$1.3 million in Tax-deferred (TSP, 401(k), 403(b), 457(b), and a small amount in deferred company pensions).

We had a taxable brokerage account that we used to buy a second home recently, which was part of our long-term investment plan, and will focus our future investment efforts into rebuilding that, along with always maxing out our annual workplace retirement plan contributions.

 

Do you have investments in an HSA? How about 529 Plans?

Our company just started a high-deductible health plan with HSA last year so ours has a very small balance in it so far.  Even though it is triple-tax advantaged and the technical correct answer is to never pull from it until you are retired, we will likely reimburse our ongoing healthcare costs from it each year as we go—rather than hoarding receipts for decades. [PoF: We do the same.]

We have about $110,000 in a 529 account but actually feel this might be over-funded (we do not contribute to it anymore).  One of our children will be able to receive 4-years of full educational benefits (tuition/room/board/fees/supplies) from my post 9-11 GI Bill program benefits transfer.

The other child may be able to receive 4-years of tuition-only benefits if they choose to go to an in-state public school from a unique state-funded Veteran benefit program (if that still exists in 10-plus years).

 

What has been your best investment?

I know it sounds very boring and cliché, but long-term periodic investing in low-cost passive index funds.  We also took advantage of many years of Roth contributions and conversions since we had low relative salaries for a long time (compared with what we make now).

We have tried to save and invest as much and as often as we could.  Another great investment—albeit philosophical—has been to avoid early lifestyle inflation.

During my training and even during my military time, we lived a very conservative lifestyle.  We had a great time traveling the world but otherwise spent very little on our home (bought for less than $160,000 when I was a resident), cars, and outward appearance.

We knew that if we saved diligently and worked hard, we could afford a seriously nice house once I got out of the military.  Therefore, that’s what we did.

We still try to make very intelligent choices with our spending (yes, we still buy at a discount or use coupons for most things—and yes, our family teases us about this all the time).

I also put in the time to educate myself in personal finance.  I started in college and became a pretty severe personal finance nerd.  I gravitated naturally to Bogle, Bernstein, and others.

It definitely helped me to parry the frequent blows from unscrupulous salespersons masquerading as “financial planners.”  After a short, misguided foray with Janus funds, I moved to Vanguard in the early 2000s and haven’t looked back.

 

Your worst investment?

This is ongoing still, but probably our big doctor house.  We bought it for a good deal and put a lot of money down, but we have had to put in some serious money for repairs, renovations, and annual maintenance.

Our property taxes and home insurance alone are more than $35,000 per year.  Nobody can ignore that the insane housing market has been incredibly kind to us, though.  I doubt the value will keep increasing as it has; however, we have made some significant improvements, so the value should hold just fine over time.

Once the kids grow up and leave the house, we will downsize into a smaller nest, for sure.  Then, I’ll be able to tell you how good or bad this investment was.  It has been a very bad investment in the sense of lost time, increased stress, and constant vetting of contractors.

 

 

Into the FIRE

 

Numerically, what is your FI goal?

$7 million in our portfolio is our FI goal.  Obviously, a large part of this would need to be in a taxable account if we were to actually retire before we reach 59 ½. [PoF: Don’t forget the many ways to access retirement funds early!]

Currently, we spend about $23,000 per month or about $275,000 per year.  We probably won’t retire until we pay off our mortgage or we sell our large home and downsize into something we buy outright.

Once you strip out the mortgage, life/disability insurances, and other work-related costs, we are at about $16,000 spending per month, which equates to about $190,000 per year of annual spending.

We were going to plan conservatively since we would like to up our travel budget significantly in retirement.  We would probably be most comfortable with a $7 million portfolio and 3% annual withdrawal rate, which would put us at $210,000 annual spending.

This would not include the value of our primary residence (although we plan to turn our current $1.7 million home equity into a more manageable ~$700,000 paid-off home and bank the extra $1 million—once our parents pass and our kids hit college).

 

When do you suspect you will achieve financial independence? Will you retire from your career once you’re comfortably FI?

We should easily hit FI before we reach 60, but I don’t think we will retire while our parents still need significant financial assistance and before our kids reach college age.  In addition, given how lifestyle-friendly both our careers are right now, I really don’t see us retiring until we are 60-62.

 

What are your post-FI plans? How will your life change? What do you look forward to the most?

After FI, we will consider extensive (and luxurious) travel and even contemplate moving to be close to where our adult children settle—if they desire that.

I would like to continue to volunteer (how great would it be to be the therapy-dog handler/trainer in a children’s hospital—to walk around and bring joy to sick children all day long?) and devote some more time to niche interests, such as becoming a master arborist.  What about getting back into my military physical fitness shape?  OK, maybe just lose some weight and stay active!

 

Have you made any major changes in your lifestyle or investments to accelerate your FI path?

The biggest lifestyle change was to separate from the military after my service commitment was complete.  My salary tripled at least, along with having a much more peaceful lifestyle, obviously.

When you run the numbers, those brave service men and women healthcare professionals really take a financial penalty for serving, even if it means having little or no student loans to pay back.

It would have made zero financial sense for me to stay on active duty any longer (until I earned a full military pension).  I have absolutely no regrets, however.  I believe that at any given moment in your life, you are exactly where you are meant to be.

I am thankful for all the wonderful (and crazy) experiences I had and for being able to help thousands of fellow service-members and their families.  It is the greatest honor of my life to have cared for others in this way.  And it was one hell of a ride!

 

Are you facing any unique challenges making FI or RE more difficult?

As discussed above, we essentially shifted almost $500,000 of equities into real estate in buying a home for our parents to live out the rest of their lives in, and to cover their housing costs indefinitely.  One could strictly run the numbers and see this wasn’t the most financially sound decision (wow, how much would that have grown over the next 20 years?).  It’s more about family and people than money at this point and we are happy to give back.

It enabled them to move closer to their grandkids and take pressure off their financial worries.  Good times are ahead!

I think the biggest threat to being comfortable in at least the RE portion of FIRE is the potential tax, inflation, and retirement account changes that could be coming down the pipeline.

That is why the goalposts seem to be moving constantly with seemingly every news release or Congressional decision (or inaction).  I think healthcare costs in retirement could be quite eye-popping also.

 

What advice do you have for others who are seeking financial independence?

I do not have any mind-blowing epiphanies or hold the recipe to the secret sauce—other than what you’ve already heard hundreds of times from PoF, WCI, and all the other excellent physician personal finance gurus out there.

Follow these smart men and women, read all you can.  Tune out the noise.  Beware the snakes in the grass.  We just kept investing as early and as often as we could into passive index funds.

Become a master at your own personal finances so you can invest confidently on your own.  Do Roth contributions as much as you can early on.

Avoid early lifestyle inflation—if you want to go big-time on one or two things later, go for it (but please still think twice about the huge doctor house).  Do not be afraid to make financial decisions that will benefit family greatly, even though it may mean another year or two before you hit FI.

If you aren’t happy with your physician job, go find (or make) the perfect one for you!  Those jobs are out there.  Trust me, I am in one now.  OK, now stop reading this financial blog post and go play with your kids!

 

Finally, is there anything under the sun that you’d like some help with? The hive mind would be happy to weigh in.

More philosophical than not, but how much is enough?  How secure is secure?  How do you hang up the white coat after seemingly a lifetime of training, educating, and taking care of patients?  How do you know when you are ready?  How do you “allow” yourself to enjoy the good life of retirement?

 

PoF: Catch all the future interviews from those just getting started, at a crossroads, or at the end of their FI journey with a free subscription to Physician on FIRE.

 

 



 

I’ve shared my feedback privately with today’s guest. I wouldn’t want my opinions to influence yours. Please give your take in the space below!

Again, if you’d like to partake in a future Q&A, please download a FIRE Starter, FIRE Crossroads, or Post-FI Notes interview form.

 

13 thoughts on “FIRE Crossroads 016: 42 with a $4.2 Million Net Worth & FatFIRE Plans”

  1. This young couple will do fine. The 33% gross wage savings rate is absolutely blistering and few of their peers will be able to meet that pace. Young professionals (age in the late 30s to mid 40s) seldom are able to maximize all of their retirement buckets and I have spoken to many of them.

    The $1.2M in the Roth instruments is formidable. If he intends to work until his early 60s, then they will run into a minimum of 2 (probably 3) bull markets in the next 20 years. That $1.2M in Roth (assuming they make no further contributions which is probably not true) will double about every 10 years. Thus, they will have 4.8M (~$5M) in Roth in their late 50s/early 60s. This would be the equivalent of $7.6M in a non-Roth account assuming they would be forced to pay 33% taxes on that $7.6M (worse case scenario).

    I don’t see social security in their game plan. They will have the wherewithal to delay social security until 70. Assuming they get at least $4,500/month in social security, this would amount to $4,500 x 12 = $54,000 per year. They envision a 3% safe withdrawal rate. Thus, drawing from a famous Jack Bogle perspective, they could view the $54,000/year as coming from a $1.8M portfolio ($54,000/year divided by 3% safe withdrawal rate). This in essence would be an additional $1.8M added to their portfolio when they hit 70 [They could elect to withdraw SS sooner and they would still be doing great].

    In any event, they will be able to conservatively safely withdraw (at 3%) $150,000/year from the Roth alone in their late 50s/early 60s. Honestly, they will have the depth to avoid sequence of return downturns. Thus, a conventional 4% withdrawal rate from the Roth accounts ($200,000/year) looks very safe to me.

    This would climb to $254,000/year by the time he hits 70 (or sooner) once they add social security. This is all irrespective of how their other retirement funds/investments perform. 10-20 years from now, they won’t remember what all of their expenses were and it won’t matter.

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    • Wow! Thanks so much for your thorough analysis and calculations. Also speaks again of the importance of contributing early to allow those later portfolio doubling events.

      Reply
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  3. Don’t move into leadership for a small bump in your salary. Do it if it is really what you want to do with your career. And I would think hard about forsaking a great work-life balance, when you have a working spouse and two small children. You are young, in great financial shape. At 55 years old, your children will be gone from home and you can pursue further career interests then.

    Reply
    • Thank you for your comment and insight; good food for thought. At this point, this pivot to a new admin/leadership role would not only come with a commensurate increase in salary, but an equivalent decrease in required clinical care/time–so thinking the work/life balance should be about the same. Maybe a little more time at home on a zoom call vs. in the hospital. Since leaving the military where I held a department chief role, I’ve been eager to get back into it, and feel I have more to give back to the organization.

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  4. I am a little worried about these plans. That is an amazing level of spending now, even if you assume the mortgage will go away. The high spending during accumulation years, plans for early retirement and expensive travel thereafter leaves you open to serious funding problems.

    It would not be so concerning if you learned to live comfortably at a far lower level of consumption. You would accumulate more and need less annual cash flow come retirement. Outside mortgage and homeowner’s insurance ( a painful figure, far higher than ours), what are you buying?

    Reply
    • Amazon? Ha, just kidding. Thank you for your comment. Believe me, no one is more concerned with our spending—both present and future—than I am. We are 100% committed (and eager) to downsize our primary home (and likely will have sold off the parents’ home as well) prior to retiring in 18 years at age 60. Our current property is just too large to take care of once the children leave. There will be no mortgage left at this point, so whatever real estate assets we don’t use to purchase our smaller retirement home/apartment can be added directly into our retirement portfolio. But since you asked, here is a high-level breakdown of our annual income and spending. This is probably worthy of an entire post in itself, but POF can delete if this long comment isn’t appropriate. I’ll probably regret this but here’s me ripping the curtain fully open. Our combined gross annual income is about $660k. We save about 33% of our gross income (220k) into retirement accounts, broken down as follows. With employer matching, we are able to save about 108k into our workplace retirement accounts, 12k into back-door Roth IRAs, and 100k into a taxable brokerage account. Another way to look at it is we are able to save about 25% (112k/436k) of our take-home pay into growing our net worth outside of our workplace retirement accounts. After taxes, retirement contributions, HSA, FSA, and health insurances, we are left with 436k annual take-home which goes out the door as follows:

      25k: charity/donations *
      12k: back-door Roth IRAs *
      100k: taxable brokerage account *
      6k: term life insurance premiums *
      10k: disability insurance premiums *
      64k: primary home mortgage P&I (18 years left) *
      14k: after-school and summer daycare for children *

      The starred amounts above (231k) will be eliminated before we retire or are adjustable with regards to charitable donations.

      39k: primary and secondary home property taxes
      12k: assist with parents’ home utilities/living expenses
      8k: homeowners insurance on both homes/umbrella/valuable personal property insurance
      18k: sinking fund/savings for future home repair costs
      11k: sinking fund/savings for future auto purchase(s)
      13k: home utilities
      7k: auto costs (gas, insurance, maintenance)
      11k: pool, yard/landscaping, housekeeping
      20k: travel
      66k: discretionary/variable (groceries, dining out, gifts, clothes, gym, children’s activities (tutoring, music, sports, language), cultural events, entertainment).

      The above total (205k) is how we came to our estimated retirement spending of about 190-210k. Pretty insane to see this all on paper though—you can see how a family can massively spend annually and not feel it day-to-day or month-to-month. That’s why I stress that it is important to first carve out at least 25% of your take-home pay into growing your net worth. Since we do that already, we haven’t been too focused on taking a deep dive into counting every dollar we spend on discretionary spending. As you can see, we could trim our discretionary, travel, and other luxury costs way down. Obviously, a lot of the massive home upkeep costs listed in the bottom spending group will come down significantly once we downsize. We are insured to the max for any foreseeable life catastrophes and have a plan for medical care costs in retirement (Medicare, VA healthcare as supplemental for me, HSA). We have a plan for long-term care costs for parents (they both receive SSI and one of them a monthly teacher’s pension) and have set aside 220k in an additional account for them which isn’t factored into our personal net worth. Just using a simple future value calculator, $2.5 MM starting portfolio, adding $220k per year for 18 years, 5% annualized rate-of-return puts our portfolio above $12.2 MM (some of which is tax-free), which at a 3% withdrawal rate would allow 366k of future annual spending. When you plug these values into a monte carlo portfolio visualizer with your asset allocation, the numbers really get interesting. But this doesn’t factor in any of our real estate equity/additions to the portfolio or increased contributions in the future. Therefore, I believe this is a very conservative estimate and we should have enough built-in cushion to allow for generous future spending (which we are fine adjusting as inflation/market conditions dictate). All of this is calculating with today’s dollars of course so inflation will certainly bring spending costs in future dollars much higher; but hopefully should bring employment income, real estate, and portfolio growth up along with it. But anything can happen; you just hope for the best and plan for the worst. Thanks for reading this far and best of luck on your FIRE journey as well!

      Reply
      • Thank you for this. I found your original post to be very insightful, especially regarding “finding the job that suits you”. I’ve had a bit of trouble doing that myself (including a recent stint as a civilian physician in the army, lol so I know how hard you worked/work) and recently decided to pursue an MBA to diversify my choices. You’re doing great. I think we gotta live a little in addition to FIRE!

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        • Thanks for your comment. Best of luck with your MBA; I had thoughts of doing that quite some time ago and wished I could have fit it in. However, I’ve thought recently about doing the CFP course/certification. But I’m having a hard time wrestling with the fact that to get your certification, you have to achieve 4,000 hours work as an apprentice with a CFP individual/practice. Maybe I’ll just do the certification for the knowledge aspect when the kids reach teen years and don’t want to be around us as much.

  5. Thank for for your response. And great move leaving Janus many years ago. I did the same, was with Janus in the late 90s and then moved over to Vanguard indexing.

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  6. Thanks for sharing. Always interesting to see the arc of someone’s financial lifespan.

    Clarification: your projected spending numbers include taxes?

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    • Thanks for your comment. Yes, we fully realize we have a huge ticking tax-bomb on our hands with potentially large tax-deferred accounts, but we have built in some flexibility in our future spending projections to account for that. Our largest current expenses are in housing, property taxes, and insurance costs, which will fall significantly once we retire and downsize from these two properties. We imagine a lock-and-leave apartment lifestyle with significant traveling in the early retirement years. There was really no way to avoid these large tax-deferred accounts unless we chose not to contribute, considering all employer matching is in tax-deferred accounts (and many of our retirement plans never offered Roth contribution options). We did Roth contributions and conversions when we could. Once we retire and before we hit RMD-age, we plan to withdraw only those amounts to keep us in the lower tax brackets (like 22% for 2022, for example). If the government allows in the future, we can do Roth conversions of our deferred accounts in early retirement before RMD-age while staying under lower tax brackets–living off taxable and Roth accounts. I think PoF posted some interesting articles on how to withdraw $80-$100k from retirement accounts and pay little to no taxes. But ultimately we may need to have some CPA and/or financial planning guidance on a tax-efficient draw-down strategy.

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  7. Great job on accumulating wealth.
    How were you able to accumulate so much in your tax deferred accounts? I am also active duty, but we can only max out TSP and Roth IRA for tax deferred accounts. So I was wondering other strategies to accumulate in tax deferred accounts, as the majority of my wealth is in taxable accounts as there are relatively low limits allowed each year in tax deferred acounts.

    Reply
    • Thanks for your comment. Our portfolio $ totals above include my spouse and my aggregated accounts (although interestingly enough they are almost exactly equal amounts between the two of us): 403(b), 457(b), 401(k), TSP, and Roth IRA’s. We’ve both contributed into tax deferred accounts (and maxed these out) since college as we both worked continuously since high school. Mine were originally in Janus funds and then I transferred to Vanguard in the early 2000’s. That’s a lot of compounded growth since the late 90’s. We converted/contributed to Roth accounts when we could during lower income years. My wife had a particularly generous employer matching program into her 401(k) for the last 20 years, as well as doing a mega back door Roth 401(k) with after tax contributions for the past few years. For the past 4-5 years we have been able to contribute between $110-$120k per year in all these various tax-deferred and Roth vehicles. I would also recommend moonlighting if you can swing it during your military time and your lifestyle allows. I moonlighted for 7-8 years as a military attending and some years made an additional $100k per year. I put the max allowed into a SEP-IRA and then rolled this deferred account entirely into the TSP so I could still do the back door Roth IRA. Don’t ever close your TSP account. After you separate, you can continue to roll old 401(k)’s, traditional and SEP-IRA’s into it. I also contributed tax exempt pay into the TSP when deployed and on combat status, etc. Thank you for your military service also!

      Reply

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