bigjer25
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| Roth IRA vs TSP |
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Here we go again. I know this topic has been beat to death, but I do need some good advice. I am a submarine guy with 8 years of enlisted duty. I just got commissioned, and now that college is over, and ready to start funding my retirement. My biggest concern is to fully fund a roth IRA (for myself and non-working spouse) or try to max tsp first; what should my priority be? roth first, tsp first, both? I have funds available, I am wondering how to use them. I also plan on buying my first home in 2 years if that matters. Thank you all.
On a differnt note, how do i join TSP? It was unavailble while i went through college ( i got discharged to do so) and now that I have come back, no one has mentioned how to enroll. Thanks again.
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Tue May 31, 2005 3:47 am |
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vethost.com
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| Re: Roth IRA vs TSP |
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quote:
Originally posted by bigjer25
Here we go again. I know this topic has been beat to death, but I do need some good advice. I am a submarine guy with 8 years of enlisted duty. I just got commissioned, and now that college is over, and ready to start funding my retirement. My biggest concern is to fully fund a roth IRA (for myself and non-working spouse) or try to max tsp first; what should my priority be? roth first, tsp first, both? I have funds available, I am wondering how to use them. I also plan on buying my first home in 2 years if that matters. Thank you all.
On a differnt note, how do i join TSP? It was unavailble while i went through college ( i got discharged to do so) and now that I have come back, no one has mentioned how to enroll. Thanks again.
I hope by now you've gotten an answer, but just in case...
Always fund the TSP first since I presume you are getting "matching: contributions from the Navy. That's a no brainer. And if your personnel office hasn't informed you. sue them 
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Fri Feb 17, 2006 3:17 am |
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Jaszbo
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every finanical except says exactly the samething. It's this:
get the matching on your TSP, then invest in a Roth IRA to max it out, then increase our TSP.
The TSP has a lot of downfalls. One is that you really don't have many investment options, you have two bonds/securities and 3 index funds. Out of those 3 index funds two are basically the total stockmarket index, which really means you only have two funds. Take a look here, to help explain things better.
http://tsp.gov/rates/monthly-history.html look at the C fund 10 year return and now look at the S fund 10 year return. Nothing something really much in common?
I'm not sure how long you've been investing, but look at years 2000, 2001 and 2002 for the C, S and I fund, which I'm sure most of your money will be in. Look at those returns. Would you believe that a lot of investors who have Roth IRA did not have one single negative year. You have so many more options with a Roth IRA and also a lot more benefits.
To not get the matching on your TSP is just not a smart idea. So you don't even have to think about that one, get the matching and if somebody tells you differently, instantly never take advice from that person again.
After this I agree with everybody else that you should max out a Roth IRA and then go back to your TSP. How would like like to be in retirement in the year 2000, 2001 and 2002 with say 50% of your money in these funds? Grab a calculator and see how hard it is going to hurt you.
I wish more people would complain and they would at least, the very minimum bring in the REIT. There's been a lot of talk about the REIT, which I would do anything to see it happen. I can't see anything wrong with having more index funds to pick from. If somebody doesn't like that index fund, then don't use it.
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Fri Feb 17, 2006 5:02 am |
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drinkoj
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Here's another dead horse that I know I've asked the question before, but now I'm a little more serious in makeing a move; Can anyone name some good Roth IRA accounts to invest in? Just don't want to get beat up with fees like everyone else.
I looking for an aggessive Roth IRA that will be managed by someone else because I don't want to have to think about it. I am going to use it as a suppliment to my TSP, another IRA that I have had since being a teenager, pension, and Social Security. I'm only 35 yrs old, so it's a long term investment.
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Fri Feb 17, 2006 8:13 am |
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vethost.com
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quote:
Originally posted by drinkoj
Here's another dead horse that I know I've asked the question before, but now I'm a little more serious in makeing a move; Can anyone name some good Roth IRA accounts to invest in? Just don't want to get beat up with fees like everyone else.
I looking for an aggessive Roth IRA that will be managed by someone else because I don't want to have to think about it. I am going to use it as a suppliment to my TSP, another IRA that I have had since being a teenager, pension, and Social Security. I'm only 35 yrs old, so it's a long term investment.
I agree. At your age, be aggressive. I've got over 20 years on you, and my investtments are aggressive still. My TSP is 100% I Fund, my IRA is CGM Focus (CGMFX is the symbol), and I intend on transfering my TSP to a self-directed IRA at Scottrade. I'm retired 
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Fri Feb 17, 2006 2:54 pm |
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Jaszbo
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drinkoj I agree with sarah about the IRA acount, but if you are looking for a discount broker. I would only recommend vanguard and T. Rowe Price for most people. My preference is vanguard, but if you like "managed funds" as you have indicated then I would probably go with T. Rowe Price. There's a few others that aren't bad like USAA and fidelity, but each year I'm liking fidelity a little less.
A lot of people don't understand you can change the place you invest with and it's not that big of a deal. You can also split the money, say you want to put 4k a year into a Roth IRA. You can do 2k at T. Rowe Pirce and 2k at vangaurd if you'd like.
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Fri Feb 17, 2006 3:59 pm |
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vethost.com
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quote:
Originally posted by Jaszbo
drinkoj I agree with sarah about the IRA acount, but if you are looking for a discount broker. I would only recommend vanguard and T. Rowe Price for most people. My preference is vanguard, but if you like "managed funds" as you have indicated then I would probably go with T. Rowe Price. There's a few others that aren't bad like USAA and fidelity, but each year I'm liking fidelity a little less.
A lot of people don't understand you can change the place you invest with and it's not that big of a deal. You can also split the money, say you want to put 4k a year into a Roth IRA. You can do 2k at T. Rowe Pirce and 2k at vangaurd if you'd like.
Scottrade at scottrade.com is excellent for its NO fee IRA, and its huge menu of NO fee mutual funds across many fund families, as well as closed end funds, ETFs, stocks, bonds and money markets. No need to pay an annual maintenance fee to T Rowe Price. Take a look and compare before jumping.
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Fri Feb 17, 2006 4:08 pm |
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pandashark
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In response to the original question, I would have said Roth IRA first...I would think it's more worthwhile to fund that, as long as you still have a few decades before you would withdraw the money for retirement (plus you can take out the contributions at any time, and other things). But I forgot about the matching fund. So assuming that you don't have enough income to fully fund both TSP and Roth IRA, I would follow what the other person said, you should fund the tsp to get matching contributions (which means put 5% of your salary into the TSP to get 5% matching, at least at my work place), but then max out (or put as much as you can into) the Roth IRA, which is $4K this year. After that, anything leftover can be used to increase your tsp contribution.
I believe if you're a younger person, it is generally better to get in on a ROTH IRA, as you will end up with decades of compounded interest that would be untaxed in retirement. But it is also important to get those matching contributions, since that is essentially free money. But someone correct me if my reasoning is flawed.
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Tue Feb 21, 2006 6:38 pm |
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vethost.com
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Good advice, ...shark. I'd love to convert to a ROTH now, even though I'm a young retiree from the feds but for the tax bite I wouldn't enjoy at this time 
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Tue Feb 21, 2006 7:31 pm |
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surfer
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I don't think active duty folks get matching funds, which is why many don't participate. I'm sure he was comtemplating the Roth IRA because he could use that money to help with his home purchase a couple years away. However, my suggestion would be to save up about 5% of home purchase to put down, and then fund the TSP (or Roth IRA) as much as you can. You might be able to save up 20% of home purchase in the next 2 yrs, but your investments will perform better hopefully than you'll be paying in interest.
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Thu Feb 23, 2006 1:56 am |
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Rolo
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NO funds-matching for the military, so that logic doesn't apply.
The logic that does apply is the tax break. TSP contributions are not subject to income tax; therefore, one keeps more cash in-pocket (15-30% depending on one's tax situation). It is also a good tool to prevent from climbing into the next tax bracket.
The question, bigjer, is: Can you build a Roth that outperforms a TSP allocation's returns (say L2040) PLUS the tax break?
Assume a low-ball TSP return of 9% plus 15% income tax break; can you ensure a 24%+ return?
If not, stick with TSP until you can, then fund BOTH.
Additionally, don't fund a retirement account with the intent of tapping it for purchases, such as a house.
quote:
Originally posted by sarah
That is, ANYTHING can be a Roth IRA account as long as you are depositing the correct amount of after-tax monies and you meet the requirements. A mutual fund, gold coins, a painting, an oil well... you name it.
Correct. It is more like "account in my Roth".
quote:
Originally posted by sarah
*LOL* Do you really want to be aggressive with an IRA? And without managing it yourself?
I'll join in the chuckling. 
quote:
Originally posted by Jaszbo
You can also split the money, say you want to put 4k a year into a Roth IRA. You can do 2k at T. Rowe Pirce and 2k at vangaurd if you'd like.
That is insane. Pick the best one and focus on it.
quote:
Originally posted by vethost.com
Scottrade at scottrade.com is excellent for its NO fee IRA, and its huge menu of NO fee mutual funds across many fund families, as well as closed end funds, ETFs, stocks, bonds and money markets. No need to pay an annual maintenance fee to T Rowe Price. Take a look and compare before jumping.
Totally agree.
"Expect me when you see me."
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Fri Feb 24, 2006 2:00 pm |
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Jaszbo
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There is somethings wrong with your logic Rolo. "Assume a low-ball TSP return of 9% plus 15% income tax break; can you ensure a 24%+ return? " you cannot add percentages like that for one.
Also I think you really aren't understanding what a Roth IRA is versus a 401k plan. A 401k plan/TSP is pretax dollars and a Roth IRA is after tax dollars. Both get taxed Rolo. One is before you get your paycheck and one comes out of your paycheck. One is before taxes and one is after taxes, but at the end they both pay taxes. So that 15% income tax break break in your 24% is not correct what so ever. First you can't add 9% plus 15% because of a tax break and second you do not understand the Roth IRA.
Second if I was not getting a match on a TSP, I would not invest in a TSP, but I would invest in a Tradtional IRA as well as a Roth IRA. I believe in investing in both before and after tax dollars.
"That is insane. Pick the best one and focus on it." There is no such thing as a best one. If there's one best fund there wouldn't be an industry or even books written for your logic. Just pick one fund you know doesn't hold any water.
about scottrade:
I don't think there's anything wrong with scottrade, but I personally don't like a place that has loaded funds.
It all depend what you want. If you like index funds like I do then I would argue that fidelity and vanguard all day are better. For one let's compare the whileshire 5000 which scottrade offers.
I really don't won't to write a book, so do the research yourself, but here's what to look up WFIVX, which is what I found on scottrade's web site.
Ok the WFIVX is scottrade's whileshire 5000 index fund, it has a total expense ratio of 0.92% and Max 12b1 Fee. I can't believe it actually has a Max 12b1 Fee of 0.25%, but I guess they will rip off anybody who doesn't pay attention. Now let's go and take a look at vanguard's whileshire 5000 index fund they offer. They don't offer the exact same index, but the similar index has an expense ratio of 0.19%, but maybe some people will argue that these two are not 100% the same, so to be fair, let's find two index funds at both places.
Ok I've been looking at scottrade for awhile and it looks like they don't have any funds themsevles. You just can buy from T. Rowe Price, Vanguard and they seem like they have some index funds also they might produce themselves. I look at the T. Rowe Price and some vanguard funds scottrade offers, they charge the exact same operating expenses, excep they have a management fee on top of it. So you are better off investing at those places and paying less.
The only thing I would use scottrade for is trading. They are just buying from other firms. With vanguard, T. Rowe Price you can do the samething. If I have an account at vanguard and I want a fund at fidelity I can use vanguard and purchase through them, but it will cost me more. I think this is a basic investment knowledge that's even covered in the book mutual funds for dummies.
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Sat Feb 25, 2006 5:24 am |
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vethost.com
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quote:
Originally posted by Jaszbo
I look at the T. Rowe Price and some vanguard funds scottrade offers, they charge the exact same operating expenses, excep they have a management fee on top of it. So you are better off investing at those places and paying less.
What management fees? There are none at Scottrade if the underlying fund has none. What they do is simply pass through the actual operating expenses of the fund. From their site: "At Scottrade, you can choose from a growing list of more than 850 no-transaction Fee mutual funds."
There's nothing wrong with T Rowe Price, Fidelity or Vanguard, but they will charge a small annual fee to maintain your IRA. Scottrade doesn't and you have a wide array of investments and mutual funds to choose from.
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Sat Feb 25, 2006 5:45 pm |
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Jaszbo
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you are wrong about them charging you an annual fee. This is not true, they have an operating expense, which they all do. Believe me I am investing at vanguard and I know hundreds of other investors personally and I know vanguard pretty well. They are one of the least expensive places there are. They were the absolute cheapest broker to buy index funds, but just recently fidelity is actually winning. Fidelity doesn't have the same investment options, but for their S&P500 for instance about 6 months ago became much less expensive than vanguard. They do not have many index funds though. Maybe a hand full, so if you still want inexpensive index funds vanguard is still the king.
Ok, let's take a look at scottrade, then
go to www.scottrade.com
click on the top that says mutual funds
click on where it says fund families
click on no load fund families
click on Vanguard Group-Investor Shares
To make it easy click on Vanguard Asset Allocation Fund-Investor Shares
click accept
Now do you see this: Max Mgmt Fee - 0.37%
Show me where this is at vanguard. This is the same for each of them. Believe me scottrade cannot just buy funds at vanguard or any of the other funds. Just think about it for a second:
You are Jack Bogle and you have a new manager at vanguard who selects a lot of stocks and bonds for a new mutual fund. You call your mutual moneytalk. Now it's a vanguard fund and there's operating expenses involved as all other places, but how would somebody actually get this fund cheaper than going through vanguard?
There is nothing wrong with scottrade, but you are simily wrong if you think that it's less expensive with investing in index mutual funds than vanguard. I'm sorry.....
I would agree though that if you want funds from all the differnet firms that it's probably cheaper to go through scottrade. I will for sure agree on this, but I completely disagree that scottrade is less expensive than if I was investing only in vanguard.
If you invest at vanguard you can also purchase funds outside of vanguard, just like scottrade. My assumption is that scottrade would be cheaper than vanguard then. Yes
If you want name some funds, so we can be exact what you are talking about. I'll tell tell look at S&P500, whileshire 4500 or whileshire 5000 or REIT, total bond market index fund.
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Sat Feb 25, 2006 6:03 pm |
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vethost.com
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quote:
Originally posted by Jaszbo
you are wrong about them charging you an annual fee. This is not true,
Now do you see this: Max Mgmt Fee - 0.37%
You are mistaken. The "Max Mgmt Fee - 0.37%" is NOT from Scottrade. It comes from a chart provided by Value LineŽ, which is an independent research firm that sells subscriptions to investors. Scottrade only provides that as a value added service. The fee shown is the "maximum" Vanguard may charge.
quote:
Originally posted by Jaszbo
how would somebody actually get this fund cheaper than going through vanguard?
You get it for the same price--NOT CHEAPER.
quote:
Originally posted by Jaszbo
There is nothing wrong with scottrade, but you are simily wrong if you think that it's less expensive with investing in index mutual funds than vanguard. I'm sorry.....
Yes. Vanguard does charge a small fee. And when holding different funds from different fund families, closed end funds, stocks, etc., it is more convenient to buy your Vanguard index funds via Scottrade, and there is no fee with Scottrade unless you're a day trader. But keep it maintained by Vanguard, and here is what you can expect: When an index fund has a balance of less than $10,000 in an account, it's $10 yr. per fund. In addition, for Traditional, Roth, and SEP IRAs, it's $10 per year per fund with a balance of less than $5,000, and the fee applies when a shareholder has assets totaling less than $50,000 at Vanguard in any combination of accounts (retirement, nonretirement, employer-sponsored plan, brokerage, annuity, or 529 college savings plans) under the same Social Security number. Also, 403(b)(7) accounts at Vanguard are always charged $15 per year per fund. For SIMPLE IRAs, it's $25 per year per fund for balances less than $100,000. Of course, if your balances are higher, you need not concern yourself with the fees. See "What Vanguard Mutual Fund Fees Might I Incur (and How Can I Avoid Them)?" on their website. My point was Scottrade does not charge a dime for account maintenance.
I don't care much for standard index funds, but I do own a country index fund -- KF (Korea Fund) -- and it's in my non-IRA Scottrade account. I also have an separate IRA in the mutual fund CGM Focus where I do pay a tiny IRA administration fee. I've owned Vanguard, Scudder and Fidelity funds in the past, but I chose CGM Focus for its superior returns. Dare to compare it to any other fund. Once I open my Scottrade IRA, I'll move CGMFX over to them. It will be more convenient that way, and I'll save a couple of bucks.
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Sat Feb 25, 2006 7:21 pm |
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