Posted on Apr 7, 2014
Do you invest using TSP, Roth TSP, or outside investments?
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Throughout my military career, I have had many leaders recommend investing in the TSP. I never wanted to because it didn't seem like the best investment option because investors will need to pay taxes on the earnings when it is withdrawn in the future. Since October 01, 2012 the Army has had a Roth TSP in place. To me, this seems like a much better investment option for a majority of Soldiers because contributions are already taxed at the investor's current tax rate, but will be tax free upon withdrawal in the future. Since many Soldiers pay such a low tax rate (factoring in the already low tax rate due to income level, the earned income tax credit, any child tax credits, and any education tax credits), that this can be a virtually tax free way to invest.
Do you invest, and if so, do you use either of these options or do you use another method to invest? I use the Roth TSP and have realized about a 6% gain since starting in Oct 12.
TSP
Retirement
Investing
Personal Finance
Posted 10 y ago
Responses: 31
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C, S, I Funds at 30% and F Fund at 10% - I've been beating the Lifecycle funds every year. I also have two Oppenheimer Roth IRAs, and two 529s for the boys. I also invest in guns and ammo. All bases are covered!
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SFC (Join to see)
You have to log-in to the actual TSP website and you can allocate where your funds go. MyPay only does so much. No, it didn't roll your money over, you have to do so through the TSP website. I believe you have to request a password and your acct number the first time to create a log-in. They send those in the mail to your address on file.
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MAJ Ken Landgren
CNN pearls of wisdom:
Start by looking at your income. There are income limits for Roth IRAs, so if your income is above those limits, then it's a no-brainer: a traditional IRA is the only one for you.
Let's say you're eligible for both a Roth and a traditional IRA. Generally, you're better off in a traditional if you expect to be in a lower tax bracket when you retire. By deducting your contributions now, you lower your current tax bill. When you retire and start withdrawing money, you'll be in a lower tax bracket, thereby giving less money overall to the tax man. If you expect to be in the same or higher tax bracket when you retire, you may instead want to consider contributing to a Roth IRA, which allows you to get your tax bill settled now rather than later.
But it can be difficult, if not impossible, to guess what tax bracket you will be in later in life, particularly if you've got a long way to go until you retire. So if you're not sure, another rule of thumb is to keep your retirement savings tax diversified, meaning you have accounts that will be both taxable and tax-free when you cash out in retirement. For example, if you already have a tax-deferred 401(k) plan through your employer, you might want to invest in a Roth IRA if you are eligible.
The Roth also offers more flexibility: You can withdraw your contributions (but not the earnings) without incurring a penalty so you have more access to your money. So if you've got a long way to go before retirement, and you're concerned about locking away your money for too long and want to be able to get at it if you need it, a Roth might be the way to go. To top of page
Start by looking at your income. There are income limits for Roth IRAs, so if your income is above those limits, then it's a no-brainer: a traditional IRA is the only one for you.
Let's say you're eligible for both a Roth and a traditional IRA. Generally, you're better off in a traditional if you expect to be in a lower tax bracket when you retire. By deducting your contributions now, you lower your current tax bill. When you retire and start withdrawing money, you'll be in a lower tax bracket, thereby giving less money overall to the tax man. If you expect to be in the same or higher tax bracket when you retire, you may instead want to consider contributing to a Roth IRA, which allows you to get your tax bill settled now rather than later.
But it can be difficult, if not impossible, to guess what tax bracket you will be in later in life, particularly if you've got a long way to go until you retire. So if you're not sure, another rule of thumb is to keep your retirement savings tax diversified, meaning you have accounts that will be both taxable and tax-free when you cash out in retirement. For example, if you already have a tax-deferred 401(k) plan through your employer, you might want to invest in a Roth IRA if you are eligible.
The Roth also offers more flexibility: You can withdraw your contributions (but not the earnings) without incurring a penalty so you have more access to your money. So if you've got a long way to go before retirement, and you're concerned about locking away your money for too long and want to be able to get at it if you need it, a Roth might be the way to go. To top of page
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SFC Tierney,
In AIT, we had a mandatory Financial Management course. I hated it and it was 8 of the most boring 8 hours of my life, but I'm thankful for it! I learned how to read my LES and learned how to use TSP to my benefit.
Now, I invest 15% of my income to TSP via the L 2050 fund and averaged an almost 25% annual return after expenses. My favorite aspect of investing in TSP is that I can take a loan out on my fund and pay it back at a low 1.89% interest rate (or whatever the G fund interest rate is at the time I initiate the loan).
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CSM (Join to see)
Yes the TSP is a very good option afforded to us now. If you can avoid it never take alone against it. Remember compound interest is where you make it at the more base the better interest.
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MAJ Ken Landgren
Wow good for you. The army is coming to its senses by teaching financial skills to the soldiers.
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LTC (Join to see)
If I'm not mistaken, taking a loan out against your TSP may end up costing your more than the 1.89% as I believe it requires you to reallocate money for any loans taken into the g-fund. In that case, the expected return on the g-fund is substantially lower in the long-run than in the C or S funds. That means in addition to the 1.89%, you're also losing a 6-8% return, making the real cost to you about 8-10%... about the same as a low interest credit card, but more than a car, home, or home equity loan. So, in the long-run, you're better off taking these forms of credit than borrowing against the TSP. In a short-term situation, it's negligible.
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We started 529 funds for both kids and a Roth for me in 2003. At the time I was an E-4 and we were investing $100 per month. With every rank I took the difference and invested it, currently we are living on E-6 pay. After making E-7 I called my investment broker and we moved some stuff around, when I got the statement I realized that since 2007 we were getting almost 27% ROI.
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CSM (Join to see)
this is why it good thing to live on the budget. I had a WO3 from the Marine Corps and had done the same thing as you (including living on an E6 wage) Is loving retirement now. Keep up the good work.
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SFC (Join to see)
MSG Frank, I used to keep an old account statement at my desk for when I had a new Soldier report to me. I showed them how much of my own money I had put into the account (I started out with $50 per month for me and $25 per month for each kid for three years) and what the current balance was. I did this not to show off, but to show the power of investing and how just a few dollars today could mean thousands tomorrow. Some would just listen, others would invest in a new TV, while others would actually start investing. I try telling them that if you invest your raise/bonus you won't miss "not" having it. But, if you start using your raise on other things and then want to start investing you will miss it. My only regret is that I waited until I was 27 to start investing.
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