Treating T Bills as a Savings Account… Financial Advice?

Arizona_928 · 08-02-2024, 10:06 PM

I've been allocating my entire salary into T-bills that are on a rolling basis and mature early next year. Is there a better method to savings for a substantial purchase, either next year with a loan or in a few years with cash? I have access to the TSP, but I do not contribute to it. If I do contribute to the TSP, I have no intention of letting it sit until I’m 60….

My current savings plan has been in lead and noble metals, but this has proven unsustainable due to the weight.

fintstone · fintstone's Garage

Can you define/bound "substantial purchase" a bit?

KNS · 08-03-2024, 06:50 AM

You're missing out on employer contributions by not taking advantage of your TSP.

fintstone · fintstone's Garage

Also missing out on tax savings if you use a traditional TSP account...not to mention incredibly low management fees.

flatbutt · 08-03-2024, 06:57 AM

Do I understand you correctly that you may fund an investment with a loan? T Bills don't pay well enough to cover loan interest as far as I know.

Crowbob · 08-03-2024, 07:11 AM

Quote:

Originally Posted by flatbutt

Do I understand you correctly that you may fund an investment with a loan? T Bills don't pay well enough to cover loan interest as far as I know.

I think he’s talking about a loan in the future for a large purchase (home, car?).

fintstone · fintstone's Garage

TSP loan interest rate is G-Fund rates (current 4.500%) which are based on treasury rates. You can borrow up to $50K of your own contributions while employed/any age.

Alan A · 08-03-2024, 07:51 AM

You can do better than that in a CD.

I’ll freely admit my ignorance here - my retirement stuff is in a 401k - what am I missing?

Arizona_928 · 08-03-2024, 08:12 AM

Quote:

Originally Posted by Crowbob

I think he’s talking about a loan in the future for a large purchase (home, car?).

A home (at least a couple hundred).

fintstone · fintstone's Garage

Personally, I always maxxed out the TSP as it provided a great return and both tax savings and a guaranteed matching of up to 5% of your pay. At least put in enough for the matching. I could always borrow back $50K (plus $50K of my wife's) but the matching stayed there and drew interest. My wife contributed the max as well. In fact, we used some of her TSP to pay cash for a vacation home after she retired. It is nice to retire with a million or so (each)...which is very doable. With your nice pensions/s, it is really a great feature of your total compensation.

Arizona_928 · 08-05-2024, 07:32 AM

Maxxed for the 5% match or 23k?

David · David's Garage

I bought a one year T-bill last year with a 5% return since the bank the money was in wouldn't give me a CD at that rate. It matured a month ago and the bank was able to give me a CD at 4.9%.

fintstone · fintstone's Garage

Quote:

Originally Posted by Arizona_928

Maxxed for the 5% match or 23k?

If I had the ability to do so...I would certainly max it out to as much as allowed by law (currently $23K per year) ...and I did every year I was employed by the Fed Govt...as did my wife (it was limited to 3% of your pay originally which did not allow much if you were among the low graded folks). Plus, I would/did contribute the catch up (currently $7500 more per year) after age 49. The minimum I would ever invest would be the 5% they match...as matching is essentially free money. If it were me, I would do a no downpayment VA loan for the home...and would not buy a new car until I had enough left over (after maxxing out the TSP) to buy one.

wildthing · 08-06-2024, 05:49 PM

If I'm reading your post correctly, you are saving for a big purchase next year or in the coming years. You are right to not put the money in a retirement account, nor equities, as your time horizon is shorter than 5 years.

At this point, the 4 and 8 week T-Bills seem to have the highest return, the one thing is you have to stay on top of them to roll them over until you need the money. The other thing is taxes.

Arizona_928 · 08-06-2024, 09:05 PM

Quote:

Originally Posted by fintstone

If I had the ability to do so...I would certainly max it out to as much as allowed by law (currently $23K per year) ...and I did every year I was employed by the Fed Govt...as did my wife (it was limited to 3% of your pay originally which did not allow much if you were among the low graded folks). Plus, I would/did contribute the catch up (currently $7500 more per year) after age 49. The minimum I would ever invest would be the 5% they match...as matching is essentially free money. If it were me, I would do a no downpayment VA loan for the home...and would not buy a new car until I had enough left over (after maxxing out the TSP) to buy one.

After this year, I’ll heavily contribute to the tsp.

Current plan has been to use the VA home loan and to negotiate on the closing costs (I’m under the impression closing coats are the only aspect one has to cover if using the program).

No new vehicles for me. If i get bored and want a new truck, I’ll build it. I have also been very lucky buying JDM vehicles for daily drivers and just informally importing them myself.

Arizona_928 · 06:30 AM

Quote:

Originally Posted by wildthing

If I'm reading your post correctly, you are saving for a big purchase next year or in the coming years. You are right to not put the money in a retirement account, nor equities, as your time horizon is shorter than 5 years.

At this point, the 4 and 8 week T-Bills seem to have the highest return, the one thing is you have to stay on top of them to roll them over until you need the money. The other thing is taxes.

Retirement accounts will get hit with a 10% penalty. I cleaned out my AZ state retirement account when i was in grad school and that has been rolling in the t bills. I wasn’t vested and planned to never be, so i wasted years of interest on that.

I’ve been doing 8 week bills for each of my pay periods… taxes shouldn’t be too complicated…

fintstone · fintstone's Garage

TSP matches the first 5% plus you get T-Bill rates...so essentially a guaranteed 10% for the first 5% of your pay...plus a tax break (money comes out before taxes) ...so better than a 10% return. You can borrow up to $50K of your own contribution back (from yourself) at low rates. You could have rolled your AZ state retirement account over into your TSP without penalty.

Taxes on the T Bills returns is easy as they give you an accounting at the end of the year and you just transcribe it onto your tax form. Of course. with TSP, you don't pay taxes until you withdraw them (unless a Roth account and those are subject to payroll taxes upfront).