Thrift Savings Plan (TSP) Q&A

[Guest Sebastian]

No, but you can roll it over to your new company's 401k-type plan. Your other options include letting it sit there and earn interest or you can make a full withdrawal.

https://www.tsp.gov/

[Nanook]

The tax exempt money you deposit into TSP is a different color than the tax deferred. The deferred is the one subject to the $15k and the exempt can go as high as approx $42k for each year. The details are a bit fuzzy and the definitive answers are hard to find, but a call to the TSP folks should clear things up a bit. C17 Driver has a great point, if you are disciplined enough to put the money onto a Roth then put the max there and TSP the rest.

[Guest Roswell]

Absolutely. Until you start getting some sort of matching from TSP, max the roth first, then add to TSP.

[dmeg130]

AFY's original question, "what to do with CZTE pay?" and Batman's Roth or TSP both have considerations. In general,

TSP: Contributed BEFORE taxes. Excluded from taxable income. Taxed on withdrawl. Contributions from CZTE income are tax-free on withdrawl. Annual limit: $15000 Max annual contribution from CZTE: $44000!

Roth: Taxed as normal income. Tax-free on withdrawl (w/stipulations). Annual limit $4000.

Traditional IRA: Contributed AFTER taxes. Excluded from normal income. Taxed on withdrawl. Annual limit $4000.

If you're already getting tax-free, max out a Roth because that money will NEVER be taxed, when start dumping all that extra into TSP while deployed ($44K limit!)

If you're at home, you need to take a look at your current and predicted tax-bracket, fund performance, etc. before making a big choice. TSP's big benefit is the high limit vs. Traditional. Roth gives you a big advantage for retirement because the earnings are tax-free too. Typical military pre-bonus and pre-max flight pay are probably better off maxing out a Roth first, then as much TSP as they can handle.

You're best off maxing out all 3.

[ 05. April 2006, 15:58: Message edited by: dmeg130 ]

[HeloDude]

I'd be cautious about sticking all of my investments/savings in a 'tax option' Roth IRA/TSP. Don't get me wrong, I max out my ROTH every year, however, you do want some liquidable savings let's say for an emegergency, someone in your family needs quick money, etc. I put this portion of my savings in taxable mutual funds and money market accounts. If you have all of your savings in an IRA or in TSP, if you try and make early withdrawls, you pay penalities.

[Guest KillYourself]

One word: "diversify".

[ClearedHot]

Originally posted by KillYourself:

One word: "diversify".

Concur.

When I started investing my broker was against me investing in real estate. He gave me the hard sell about the historical returns from the market. I've always maximized my traditional IRA -Roth - and TSP, but I also purchased a house at each PCS location which I kept and rented out when I moved to my next station.

When I took the bonus I refinanced all of my properties to 15 year mortgages which means I will own several houses outright right around the time I am retirement eligible. While rental property can be a pain, you are typically able to write off the operating costs which with depreciation will always be more than you bring in.

My wife has a great job and as a result our income bracket is such that this will be the first year I am not able to write off the loss from rental operations. Thus I am writing a big check to uncle sugar on 15 April.

If I had listened to my broker I would have a nice IRA – Roth – and TSP, but I would be missing about $750,000 in equity that I have right now. Moral of the story…diversify.

[Guest sheilamike12]

Finally doing my taxes. Using Turbo Tax. In Block 14 of the LES, has a code of "E" (Military TSP Contribution) (Tax Exempt). Turbo Tax does not recognize this entry, and gives a drop down menu of options to select.

Does anyone know what entry should be entered here? Thanks for the help...

[dmeg130]

You shouldn't have to enter anything... that money's already been taken out of your reported annual income (Block 1), and is for information only. You'll see the same thing in Block 12 if you deploy to a Combat Zone and get tax-free. So just skip it.

[Guest KoolKat]

It took mine. It was labeled "D" on my W-2 though...

I wonder why it wasn't coded "E" if "Military TSP Contribution" is that code?

hmmm...

BENDY

[ 06. April 2006, 17:55: Message edited by: Bender ]

[Guest mghodgson]

I believe the amount in Box 12 "D" is the money you contribute to TSP from your base pay. The amount in Box 14 "E" is the amount of your special or incentive pay that you contribute to TSP.

[Scooter14]

KM,

I think Cookster's E was for Tax Exempt contributions, ie, contributions made from months you served in the designated "combat zone"

I don't send any special or incentive pay, but I had the E on mine. I just entered it as "other" because I had no idea how to make it recognize the entry. Don't know if I was right or wrong...

[ 06. April 2006, 22:50: Message edited by: Scooter14 ]

[Guest mghodgson]

Now that I go back and crunch the numbers, you are exactly right.

I am guessing the IRS doesn't care how you enter it since they can't have any of it...

[Guest the_keenanite]

Maybe some of the old craniums can supply some good info, but anyone feel free to contribute.

For the past couple years, I just had 100% allocation to the default government fund. I finally looked at the trends on the other funds, and what do you know, the returns are significantly better. Any good strategies that have worked for you?

[ 13. May 2006, 23:39: Message edited by: Parseghian ]

[C17Driver]

This all depends on how risky you want to be. You can make it real easy on yourself and just put the allocation towards the life cycle funds (which are based on when your plan to retire)...Most younger guys should consider allocating the funds towards the 2040L fund.

However, if you don't want to do that, then you should spread it out among the other funds (G, F, C, S, and I). Realize that the G (goverment) and F (Fixed Income) funds traditionaly have low returns due to the low level of risk.

I would recommend you distribute a majority (80% or more) among the C, S, and I funds.

The description of the funds can be found at www.tsp.gov

[Murph]

Like C17Driver said, that new D fund (life cycle) works out pretty well for the young dudes (imo). I'm 100% D-Fun nowadays.

[Guest Sniper5482]

If you're going to invest you're money, you need to do research and know something about where it's going and what it's doing for you. You should never just blindly invest with no purpose or goal. That being said, if you don't have the time or patience for that then I recommend the life cycle funds (I think they're called L funds, not D funds) because it will essentially give you a pretty diverse portfolio and gear it towards you're retirement timeline. Like C17Driver and Murph said, the L2040 plan is a pretty good one for younger dudes because it's fairly aggressive and diverse.

-Sniper

[Guest SnakeT38]

Not sure what funds are offered on this thing but I take numerous letters and programs to run my own

AA 401K, my wife's 401K and 3 different rollovers along with several other non-qualified investments. Common to all them right now is a mix that is about 60% International, 40% Domestic.

I have had 2 different companies for my grandkids

529-B plans that were using "Lifestyle" type investments..............bottom line was with the fees, they made as much as I did, switched both programs to 529 with American Funds and have seen immediate improvement.

FOr you young guys, my advice is "GO FOR IT NOW",

while you can, with a Defined Benefit type retirment with the USAF you can AFFORD to take risk with your 401K type TSP plan, as you get closer to retirement (real retirement) not just USAF you change gears.

If they offer Emerging Markets, Int Small Caps, etc etc etc, you need to "ride that wave" while you can. If you check track records on most International Funds right now, almost all make money. As for Domestic, I think times may be changing just a bit with the "steam" running out on Small Cap type stuff but I still do them, I also mix in Mid Cap and a VERY GOOD LArge Cap that I will never sell since their "history" is awesome, Dodge and Cox Stock Fund. Mix in a little "flavor of the day" in sector funds, I have been playing energy and gold for awhile and have seen gains way north of 30% per year.

Don't listen to me, I never got to "invest" anything at your age, I just paid the bills and heard about guys that could save money. ALMOST out of "slavery" 20 years later.

[C17Driver]

I agree with Snake...I would also add that TSP should not be your only investment vehicle. You should max out an IRA first (there are more investment options in an IRA compared to a TSP) and pay off any high interest debt including credit cards and student loans that have high interest. Then work on the TSP and other brokerage accounts/certificate of deposits/savings.

[Guest the_keenanite]

Good advice guys. I am debt free (getting set to purchase a house) and have maxed out both a Roth and my TSP for the past 2 years now. While the "G" fund was a pretty safe return, I'm trying to educate myself on how I can do a better job at making my money work for me. I'm sure there's plenty of others [here] who wouldn't mind more sage advice, keep it coming.

[C17Driver]

I would not recommend putting all of it in just the S and I funds. The C fund has historically done quite well also. (just remember that historical returns are not always good predictors of future earnings)

[BADFNZ]

I currently work for a municipal gov't that doesn't contribute to Social Security; instead all funds go into a personal retirement account. I've been working here for a little over a year so I only have a few thousand in this account. I'll be leaving for OTS next year so I'll be forced to either take this money out of the fund and incur a penalty on it, or roll it into an IRA of some sort. I'd rather do the latter.

I did some reading on the TSP and from what I understand, there isn't too much of a difference between it and a traditional IRA. There seem to be a few differences but they seem minor, but then again I'm not a financial genius of any sort. So what would be the best course of action for me? Should I roll the money into a traditional IRA or the TSP? Roth IRAs are not an option since this money has not been taxed.

I did a search and read a couple good threads on the TSP and IRAs, but I'm still a bit confused on the difference.

[av8tor55]

One downside to rolling your funds into the TSP is that there are only a few investment choices offered. An IRA from Fidelity/Vanguard/etc. would give you a lot more options.

[BADFNZ]

One downside to rolling your funds into the TSP is that there are only a few investment choices offered. An IRA from Fidelity/Vanguard/etc. would give you a lot more options.

Yeah I've read that. So what exactly is the upside to the TSP? There has to be something it provides that a traditional IRA doesn't.

[Jaded]

Yeah I've read that. So what exactly is the upside to the TSP? There has to be something it provides that a traditional IRA doesn't.

From what I understand there are two potential benefits to the TSP. One is if you're in the group of federal employees that gets matching contributions. The other is that it doesn't have a yearly contribution limit. Your traditional IRA is going to have a $4000 limit this year.

You may be able to convert it to a Roth IRA. You would have to pay taxes on it now, but Roth IRAs have a lot of advantages over traditional IRAs for a lot of people.