Details on our Post 9/11 GI Bill Payment

My earlier post on our Post 9/11 GI Bill benefit tranfer payment was a bit brief given the workup since April 30th, so I thought I'd spend a few moments outlining what we actually received.

Our VA award letter was dated Nov 18, a full 6 1/2 months after I submitted my application for benefits.

Tuition and Fees:

• The school submitted information to the VA that verified that my son enrolled in the university from Aug 20 through Dec 20, with a full-time course load and total tuition of $14,778.50 and fees of $1,430.25.
• "The in-state maximum fees per term for your state (CA) is $287.00. Since we are entitled to receive 100% of the amounts payable under the program, you may be paid up to $2,165.25 for fees each term or 100% of the actual fees charged, whichever is less. Your school certified that you were charged $1,430.25 for 15 credit hours.
• "We issued a tuition and fees payment to your school on your behalf in the amount of $5,735.25."

Monthly Housing Allowance:

• "The monthly housing allowance payable under the Post-9/11 GI Bill for your school's zip code is $1,930 (Berkeley, CA). Since you are eligible at the 100% rate, you will receive $1,930 a month for each full month of training during the certified enrollment payment."

Books and Supplies Stipend:

• "The maximum amount payable for books and supplies is $1,000 each year. Since you are entitlesd to receive 100% of the amount payable under the Post-9/11 GI Bill, you may be paid up to $1,000 each year for books and supplies. VA pays a portion of the books and supplies stipend for each credit hour pursued during the year up to 24 credit hours. Your school certified that you are enrolled in 15 credit hours. We sent you a payment of $625.05 for books and supplies."

On November 30th two deposits hit my son's checking acount. The first was for $$6,497.67 for the housing allowance. The second was $625.05 for the books and supplies. We made a payment to the university for his room and board, and left $1,000 in his checking account for expenses and books for second semester.

So, to summarize our benefit:

1. October 13, we receive $3,000
2. Nov 30, we receive two payments, totaling $7,122.72
3. The university received a direct payment of 5,735,25

TOTAL RECEIVED: $15,857.97

All together, it was a slow process, but an incredible benefit to our military family.

Academic Research Suggests You're Paying Your Fund Managers Too Much

A very interesting report on Marketwatch.com reports that index funds beat actively managed mutual funds 97% of the time. This is counter to what some financial planning experts, such as Ray Lucia (of whom I am a huge fan) have said. Mr. Lucia said in a recent broadcast of his syndicated "Ray Lucia Show" that in turbulent times like this, actively managed funds will beat the indexes because of the skill of the fund managers. Unfortunately it's just plain tough to pick a fund manager who's right enough of the time to beat the broader indexes. The other factor is the expense of using mutual funds. Even no-load funds have fees equal to 1% or more of assets invested. Compare this with index funds where the fees are less than 0.3%, and the actively managed funds are already lagging behind index funds. Now try Exchange Traded funds where the cost can be less than 0.17% (plus brokerage fees of course) and you're really swimming up stream with your mutual funds.

Does all this mean that I'm firing all my fund managers? Absolutely not, but for those who argue that the TSP is not a great option because you're linked to broad indexes instead of actively managed mutual funds, this study helps provide a counter-argument.

When it opens, should I fund the Roth or the traditional TSP? Maybe neither!

Let's start with the basics. Dollar for dollar, the money in the Roth Retirement savings account is more valuable than the money in the traditional TSP or 401K. Here's a link to help explain why.

So, all other things being equal, if you can scrape together with $16,500 post tax, the Roth TSP/401K is worth between 25-33% more than the same amount of money in the traditional TSP/401K account because of the taxes.

It's a two edged sword, of course, because you'll have to come up with more money up front because you'll have to pay the taxes now.

When funding retirement savings, conventional wisdom goes like this: Fund your TSP (or 401K) up to the limit of the company match (which of course is $0 for military members), then fund your Roth IRA to the max ($10,000 per married couple) then go back and max out the traditional 401K to the limit ($16,500 in 2010). The Roth IRA allows you to simplify this dramatically. Max out the Roth IRA, then max out the Roth TSP. To do both you'll need to save $2208/mo! That's a lot of clams.

So here's the wildcard: what if you can't save that much? Is it better to have a larger balance growing in a traditional (taxable) 401K or a smaller (post-tax) balance in a ROTH 401K? All other things being equal, it would appear to be a wash--but--current tax laws treat traditional 401K benefits as earned income when computing your taxable portion of your Social Security benefits. It's like getting taxed twice on your money.

So, the bottom line is that as long as you believe that you'll be in a similar or higher tax bracket in retirement, the best plan is max out your ROTH TSP if you can.

Others waffle more than me. but I think this is a solid plan.

The last item to consider is investment choices. Since there's no matching for military members (yet), when the ROTH TSP option becomes available I recommend this plan:

1. Max out your ROTH IRA to maximize your investment options.
2. After you've done that, begin funding your Roth TSP.
3. Once 1 and 2 are complete you can begin to contribute to taxable account using tax advantaged accounts like exchange traded funds.

Post 9/11 GI Bill Pays

We received a letter dated 18 Nov that our claim had been paid. Yesterday, on 30 Nov, the money hit our joint account and I transferred much of it to the University. All together, we received almost $15,000!

TSP planning for 2010 with Pay table

Now that the 2010 pay table has been released you can begin planning for your TSP withholding percentage. If you plan to distribute your withholding out equally over the year you'll need to have the government hold out $1,375 each month. The math then is pretty simple. Just divide $1,375 by your basic pay to determine the percentage of your base pay to allot to the TSP each month to max it out.

I've taken the 2010 pay table from Military.com and done the math for you in excel. Here's the link to the results. You'll see that a 14 year E-7 needs to set aside 35.6% of their base pay to max out the full $16,500 in 2010. A 14 year O-4 defers 20.4%.

If those numbers sound high, remember that these are pre-tax dollars, and exclude your BAH, bonuses, or other special pay allowances you receive. You really can max out your TSP.

College waiting to be paid

Our son's college has really been very patient with the VA. They have charged us late payment fees of about $20 per month, but overall there haven't been any harassing phone calls or nasty letters. Our son did talk to the veterans affairs office and they advised him to continue to be patient while the processing gets done.

The issue now is registration for the spring schedule. Without his account paid, he will not be allowed to sign up for classes. We're hopeful that the VA can take care of this soon, and that they'll begin his living expense payments and pay them retroactively to August when he completed the requisite paperwork.

Eligibility Certificate Arrives!

Sixty days after we submitted the VA forms, our son's benefit eligibility certificate arrived. We immediately sent that to his university as instructed on the certificate. Once they verify his enrollment, the payments will begin. His school is waiting to be paid, so the sooner they act the sooner they'll receive the money.

I'll keep you informed of our progress, so keep an eye out.