mikeyandem
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Joined: 26 May 2007
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| Confused on TSP |
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My wife and I are both military and have general questions about the TSP. We have finally gotten our finances in order and need to distribute about $2000 a month in various investments for out retirement. We both have the TSP but have failed to commit a good amount of money to it. I have read the info on the different funds and was wondering if investing money to the C fund is the same as investing in the S&P elsewhere? Or is there a difference? And what of the S fund and I fund? It gives me the basics, but we really don't know much about investing and don't want to throw $2000 a month into something we don't understand. We have talked to financial counselors and I can tell they simply want to sell us particular funds regardles of what I say.
Also, what are the tax benefits of TSP? What are the differences if I am deployed to a tax free area? And what about dispersal after I retire?
Thanks
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Mon May 28, 2007 9:36 pm |
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Divot
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Mikey -
You'll get your best advantage from a Roth IRA, assuming you and your wife qualify (eligibility phases out around $150k Adjusted Gross Income, or AGI).
This year you and your wife can both contribute $4k (each, more if you're older than 50). Stash that away first, there are plenty of companies that can help you set up and manage those funds. You can make those contributions in the first 4 months of the year, or spread them out evenly over 12 months.
With the remaining money you wish to invest/save, the TSP is a good choice for some tax advantages. Contributions to the TSP are "pre-tax", so they'll reduce your AGI. With you and your wife active duty, you could be pretty close to the AGI limit for IRA contributions, so TSP contributions may be required to open the door for Roth IRA contributions.
I've got a blog that discussed TSP allocation and management, but there's plenty of other websites out there devoted to the topic.
- Divot
http://tsptrader.blogspot.com
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Mon May 28, 2007 10:48 pm |
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mikeyandem
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Right now we both max out our ROTH IRAs. Our AGI is only $75k due to tax breaks, deployments, etc. We put one Roth IRA into Pioneer Independence Fund P (PINDX) and the other into Franklin Templeton Growth Fund (TEPLX) as well as $75 into PINDX in addition to the Roth IRA. We want to add about $2000 a month to this but not sure where to put it. I have been told that index funds are key and will do great for retirement. Is this true? And if so, wouldn't it make sense to contribute to the C fund assuming it's the same as contributing to the S&P500 elsewhere and getting the tax break? Or can my money do better elsewhere? If the military matched then it would be an easy choice.. but obviously they don't.
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Mon May 28, 2007 11:50 pm |
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Divot
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Location: Phoenix, AZ
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| TSP Allocation |
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It's really a crime that the military doesn't match TSP contributions. That would significantly improve its use in the military community.
Your logic is correct regarding the C fund (with tax advantage) vs. S&P indexing elsewhere. After you and your wife max out your Roth IRAs, the only other place your cash can grow tax free (as a Fed employee) is the TSP. It's worth noting that each of the funds (other than the G fund) are index funds. The S fund is designed to follow the Wilshire 4500 (4500 of the smallest companies traded), the I fund follows the EFA (an index of stocks on non-US exchanges), and the F fund follows the AGG (an aggregate bond fund).
Now the only questions you and your wife need to address are:
- How much risk/reward are you looking for in your TSP accounts, and
- How interested are you in managing your TSP accounts as the market conditions change?
If your answer to the second question is, "I don't want to think about my TSP account other than to put it on autopilot", then the Lifecycle funds are designed to automatically scale your participation out of stocks and into bonds as your target retirement date approaches.
If your answer to the second question is that you don't mind redistributing your TSP funds a few times a year (and based on the fact that you've posted a question online I think this is you), then you should take the time to get some education on how the markets work. By taking an active interest, you can do much better than the TSP Lifecycle funds.
- Divot
http://tsptrader.blogspot.com
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Tue May 29, 2007 12:39 am |
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mikeyandem
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Are the above funds I mentioned even good? I have seen the 10 year history and it seems ok I guess.. but I don't really know.. and I know you want the roth IRA to generally perform the best.. I don't even know what returns are realistic.. 8%? 10%? 12%?
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Tue May 29, 2007 2:26 am |
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Divot
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| Expected returns |
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The traditional answer is 10% return per year. I've been doing much better than that in my TSP account.
Remember that there's no reward without risk, so the key is to be able to manage your risk so you can sleep at night. That doesn't just mean phasing out of stocks as you get closer to retirement, but increasing fund concentrations in stocks when demand is in control of those sectors.
- Divot
http://tsptrader.blogspot.com
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Tue May 29, 2007 3:38 am |
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Case-Face
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| hi |
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Savings is my middle name...
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Wed Jul 18, 2007 8:56 pm |
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paydaycare
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Location: italy
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I came to know about S Fund and I fund at TSP Talk, and you can search at Google to find it.
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Fri Jul 30, 2010 2:51 pm |
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Jammy
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| 10% return |
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I think the return is 10% each year. It is definitely worth it.
payday loan
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Fri Sep 17, 2010 6:09 am |
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Elena C.
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quote:
Originally posted by Divot
Mikey -
You'll get your best advantage from a Roth IRA, assuming you and your wife qualify (eligibility phases out around $150k Adjusted Gross Income, or AGI).
I agree - I started contributing to my Roth IRA a few years ago, and it's one of the best things I've ever done. 
Work hard. 
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Thu Oct 14, 2010 12:57 am |
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riccky4787
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It is an interesting article indeed.
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Tue Dec 21, 2010 11:25 am |
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joshk
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I just got my first 401k and I never realized how complicated it is thanks for the great information
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Sun Jul 03, 2011 4:21 am |
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