Can someone explain TSP to me please?

2020-09-09T22:08:41-04:00

I am entirely clueless and would appreciate some help/ explanation to what it is. Is it even worth investing into? Roth or Traditional?

Response by SFC Marc W. made Sep 9 at 2020 10:17 PM

2020-09-09T22:17:24-04:00

Asking great questions. I wish I had gotten into it when I was a young soldier, but like you no one explained it to me. It's a type of 401k. I highly suggest getting with your base ACS finance counselor. There's a lot of benefits to the TSP that other investment opportunities don't have, but I don't want to give you dated or possible false information. Keep asking until you find someone that can explain it.

Response by MSG Private RallyPoint Member made Sep 9 at 2020 11:22 PM

2020-09-09T23:22:42-04:00

Go to this website. There is a number at the bottom for if you have questions. No better answers will come your way than from the SMEs

https://www.tsp.gov/

Response by Sgt Private RallyPoint Member made Sep 9 at 2020 11:46 PM

2020-09-09T23:46:38-04:00

SPC Private RallyPoint Member I have been out of the military since 1972 so I can't explain the TSP but I can provide some tips:

1. Utilize online resources to figure out TSP and investing in general. The more research you do, the more knowledgeable that you will become. The links below are resources that you can explore.

2. Saving and investing wisely will help with future plans. Make sure that you max out to obtain any matching amount.

3. Study the choices that you have in your TSP to select what is best for you.

4. Learn about asset allocation.

5. You mention Roth or Traditional. The attached link will explain it. If you still have question, you can send me a message.

6. becoming a knowledgeable investor takes time and you will need to keep up with it over your lifetime. Good luck.

https://www.investor.gov/

https://investor.vanguard.com/home

https://www.schwab.com/ira/understand-iras/roth-vs-trad-ira?src=SEM&keywordid= [login to see] 6&s_kwcid=AL!5158!10! [login to see] 5583! [login to see] 6&ef_id=Vg2ZFwAAAWKllq0i: [login to see] 3904:s

Home | Investor.gov

The .gov means it’s official. Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.

Response by SGM Private RallyPoint Member made Sep 10 at 2020 12:43 AM

2020-09-10T00:43:37-04:00

One of the main benefits of TSP is the low fees for transactions. They are so low you might not even notice. Wall Street professionals have been trying to find ways to get into the different TSP funds for years, and the new Blended Retirement System is drastically increasing the number of investors.

ROTH contributions are done after taxes have been assessed against your salary. These contributions will not be taxed when you withdraw in retirement (after age 59.5).

Traditional is the opposite—it is deducted from your pretax income. This reduces your adjusted gross income (AGI) at tax time, resulting in less taxes paid. You will need to estimate your AGI for the year after deductions, which will determine your overall tax rate. If you are at the edge of the threshold for the next higher bracket, it makes sense to use traditional TSP.

Both ROTH and Traditional have yearly contribution limits.

https://www.tsp.gov/bulletins/19-u-11/

I would recommend ROTH at your rank, assuming you don’t have any other income streams that will place you in a higher tax bracket. Your tax liability will be pretty low under that assumption, and the tax advantages of Traditional don’t outweigh the years of tax-free market gains you will see with ROTH. If you aren’t already doing so, start learning about tax laws and how to file your own taxes. Nobody is going to look out for your finances better than you. I’ve been doing it for years, and have had my tax liability down to 3-4% with multiple income streams and two working adults in the household.

Lifecycle funds are your best bet this early in your career. Stay away from the G and F funds. They are a net loser in the long run due to inflation.

https://www.investopedia.com/articles/investing/061113/breaking-down-tsp-investment-funds.asp

19-u-11

Response by CAPT Kevin B. made Sep 10 at 2020 12:55 AM

2020-09-10T00:55:57-04:00

Great resources already pointed out. Let's see if you can go for the "no brainer". If you put 5% of your base pay into TSP, the Government immediately matches it... every payday. You get 100% return on the investment every payday. The total amount grows from there and the pot becomes available to you at age 60 with some exceptions. If you want to go for the gusto like I did, put 10% in and with the 5% match, your funds grow to a larger amount. This should only be one piece of your future retirement. There are other things to do once you leave the service or go Reserve, but that's another story. Your goal should be to get a pay raise by quitting all work and doing whatever you want. It can be done.

Response by SFC Casey O'Mally made Sep 10 at 2020 6:36 AM

2020-09-10T06:36:32-04:00

OK. So I absolutely love that you are trying to figure this out and figure it out early. It is NEVER too early to start saving for retirement.
But. Holy hell, Private. This is why you have a Sergeant. Seriously. Go to him/her with this stuff. If (s)he does not have the info, (s)he can link you up with a local SME (like ACS finance that SFC Marc W. mentioned. Give your NCOs a chance to do their job. Trust me, this is VERY DEFINITELY in your team leader's wheelhouse.

Response by CW3 Kevin Storm made Sep 10 at 2020 10:53 AM

2020-09-10T10:53:41-04:00

I am not a TSP Guru by any stretch, but I got into TSP when it first came out back in the 1990's. Mind you I was drilling National Guardsman so it took me a while to get it to amount to anything. So you can look at it a couple of different ways. The General Fund, almost like a basic bank savings account. Like a Bank don't expect to make much in the G-Fund. Normally, unless you set up your TP differently all of your funds will go into the G-Fund, from there you can move it around. L Funds, these funds are for long term growth. They invest on the more aggressive side early on, and as you get closer to retirement they invest in more stable lower yielding items. If you plan on staying until retirement, the L funds are not a bad way to go. The other funds, there is an international fund, which IMHO, I stay away from. It can give you really good returns, and one bad day it can all go away, hence why I don't like it. C fund invests in common stocks, can give you a decent return on your investment, it also can take a hit if the stock market goes south. S fund, invests in small to medium size companies. You can a good return when the market is doing well, and a crappy one when the market heads south. I tend to do a mix between G, C & S funds. That's what you have for the funds.

Why you should put money in TSP? Hear is my take on it, and I have no idea what the military is giving people as far as any matching funds. As a civilian government employee, I get a 3% matching up to a given dollar amount. So before I do anything I just got 3% increase for just putting money in the fund (this is part of my Federal Civilian Retirement, not part of my DoD TSP). How much is your bank going to give you right now? maybe 0.002% or something ridiculous like that. So you make money there. Every month you should be making a contribution to your TSP. As a PFC you are not making a ton of money, so telling you to try and max out your TSP contribution won't make any sense to you. But if the DoD is contributing a matching amount, up to a certain dollar amount, I would highly recommend hitting that dollar amount. Your getting free money.

Now what the TSP is not, and this is a big deal. It is not a bank account where you can walk up to an ATM machine and withdraw money. I would not borrow from my TSP to buy a car, or stereo or X-box. Now some people have used it to buy homes, and if you have the funds there for it is not a bad idea. Why, you borrow from your self, you are the lender, you pay interest on the money you borrowed, but the money goes to you.

If you deploy, this one is funky area, but as someone who has made use of this benefit, I hope I can explain it. As combat pay is not taxed, the interest that that deployment contribution, and only the deployment contributions, are not taxed. So while deployed you deposited $10,000 into TSP. That $10,000 becomes say $75,000 when you retire, and start drawing retirement at age 67. The $75,000 will not be taxed. The rest of the money in your TSP will be taxed as you draw it out.

Personally, I like the TSP system, I have done fairly well with it. There are people who are "TSP millionaires." I am not one of those people, I would like to be, but it is stretch as I got started as a Fed employee late in life. Starting as a PFC, you have an excellent chance to become one. The biggest thing I can say about it, it is a long strategy, don't worry about what the stock market is doing today. Crashes can be a really good thing for a savvy investor. Why, if you have liquid cash in the G-Fund after a crash, the value of all the other funds goes down, you can now buy in at a lower rate, meaning your money buys more shares of say a C-Fund. So instead of getting 10 C-fund shares for $100 you 17 for the same money (example only, not the real C-Find price). 12-36 months later odds are that C-fund will be worth far more than what you paid for it. This is how a lot of the "millionaires made their money. Granted they have to wait till they are of retirement age to draw it without penalty.
Understand, you can lose money if you don't think things through. If you buy on the high side, and the market drops. If you panic after a market cringe, and put everything back into the G or L fund. If you are doing this for 20+ years what ever you lose will come back you just hang tight with it.

I hope this has been helpful, again I am a layperson, who has made mistakes, learned from them, and am passing them on.

Response by CPT Private RallyPoint Member made Sep 10 at 2020 2:29 PM

2020-09-10T14:29:13-04:00

By profession I am a Financial Investment Professional, and Chartered Financial Analyst (CFA). Many details have already been shared here. I wont duplicate those.

The Army truncated it's previous retirement plan, and placed the responsibility of retirement planning square on your shoulders. The CON of course is you as an individual no longer have the modest pension payments the old timers will get. The PRO is if you decide the army isn't for you going forward you get to take with you your investment nest egg (poor retention planning on the Army's part if you ask me).

Negating all the fancy mumbo jumbo of investment planning the absolute MOST IMPORTANT factor in every single financial and investment planning formula is T-I-M-E!!!!!!!!!!!!!!!!!!!!!

To highlight this, all things being constant, what ever you save in your years of age 20 to age 30 will comprise 90% (NINETY) of what you retire with at the end of your savings horizon. MEANING !!!!!!!!!! If you saved every penny you could for the first 10 years of your career, and then straight up STOPPED at age 30 you will still retire with 90% of the total balance you would have if you continued 30 more years.

At the VERY LEAST save up to the matching amounts that the government will MATCH. Otherwise you are giving away money that is yours.

At the very MOST you should MAX OUT any tax sheltered investment options you have open to you before you should even bother diverting funds into any other kind of investment. LOWER YOUR TAXABLE INCOME as much as you can all the time.

I was young like you once. I was lucky. I worked in banking, and figured this out at 22. Saved every penny I could, and then was in a position to walk away from civilian life with my retirement nest egg secure. At 38 joined the USAR, and as long as I can keep a roof over my head don't have to worry about saving for anything, and just need to coast in life to retirement age.

TIME.

I canNOT express the importance of TIME!!!!!!!!!!!!!!! The dollar you save today will have 40 years to grow. The dollar you save next year will only have 39 years go grow, the next year you only have 38 years to grow, and so on. That dollar you saved in year 1 at 10% will be worth $45 at year 40.

So every dollar you fail to save NOW will need to be made up as much as 20-40 times just to equal out the lost opportunity from your past.

For everyone else still reading up to this point. I've set my kids up since birth, and give them $5K a year (taxes allow $15K) into mutual funds. Their starting investment horizon is SIXTY YEARS!!!!!!!!! At college age they can use it for college. If not they could buy a house. If not they could ride it out until retirement. $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Response by MAJ Ken Landgren made Sep 10 at 2020 2:36 PM

2020-09-10T14:36:55-04:00

Essentially it is your private and self directed retirement account. I suggest you invest in it for two reasons, it is a vehicle to build wealth for retirement, and when you invest; the government will match or add to your contributions to TSP. Consider that free money that you don't want to throw away.

There are various funds in TSP that you can invest in. You are not relegated to one fund. You can spread your investments over various funds. The funds have different focuses. Some will invest in stocks (stocks is proof of partial ownership of a corporation) or bonds (essentially an entity borrows money and pays it off with interest) like government bonds.

The litmus test of a funds performance is comparing it to an index fund like the S&P 500 which is comprised of the 500 largest corporations in the US. An index fund is a good indicator of the performance of the stock market as a whole. Let us say the S&P 500 yielded an average of 12% over 10 years and the stock fund you want to invest in has yielded on average 7% over the same period of time, that stock fund has underperformed, and you should find a fund that has performed better.

One fundamental in investing is the risk/reward relationship. The investment vehicle like government bonds have no risk, but its yield will be very low. The stock market has a higher risk, but over the long-term it will yield more. Risk is defined by the volatility of an investment as it goes up and down. The stock market has more volatility than bonds, but over the long-term you can ride the ups and downs and the long-term trajectory is upward. The key is long-term investing to ride the ups and downs.

If you go Roth, you will pay taxes on your invested amounts now and pay no taxes when you retire and start withdrawing. If you go Traditional you get a tax break now and will pay taxes when you retire and start withdrawing. Let's assume you invest $6000 in one year.

Roth: You invest $6000. Don't pay taxes when you withdraw.

Traditional: You invest $6000 and you are in the 20% tax bracket. The IRS will say that the $6000 is non taxable and you don't have to pay $1200 taxes on it. It is essentially like the IRS gives you back the $1200. You pay taxes at the end when you withdraw.

I will be around if you have more questions.

Response by SFC Chuck Martinez made Sep 10 at 2020 3:51 PM

2020-09-10T15:51:58-04:00

TSP is what is called The (Thrift Saving Plan) It's a federal Government-sponsored retirement saving and investment plan. It offers the same type of savings and tax benefits that many private corporations and companies offer to their employees under a 401(K) plan. This is open not only for the military but for Federal employees as well. I lost a lot of money during 911, hopefully, nothing like this will happen again!

Response by Wayne Soares made Sep 11 at 2020 8:12 AM

2020-09-11T08:12:29-04:00

Great question Kayden