Vetter Posted February 17, 2012 Posted February 17, 2012 It seems like there are quite a few differing perspectives on investing. Maybe we don't really make enough money to throw loads of cash into an investment portfolio, but there has to be something better than the TSP and a basic Roth IRA. Aside from the few day traders that seem to exist in each squadron, does anyone have any recommendations on a good portfolio manager or any techniques on wealth gaining ideas. "Better" is how you define it. If you want most of your money to go to the actual investments that performs with the market, passive investing on your own (without a financial advisor) and low fund fees (ERs of less the 0.2%) are the way to go. If you want the prospect of beating the market (called alpha), then by all means put your money into actively managed mutual funds. Just realize these funds tend to be more expensive, which comes out of your bottom line. Also realize that most mutual funds fail to beat the market. There is a huge debate on active vs passive. A great resource with tons of info is the Bogleheads Wiki page: https://www.bogleheads.org/wiki/Main_Page
Danny Noonin Posted February 17, 2012 Posted February 17, 2012 (edited) TSP rocks...lowest fees of ANY retirement programs. Max it out! Like anything else...it depends. If you can max out TSP after maxing out a Roth IRA, then great. But maxing TSP without first maxing a Roth is, for most military guys, lunacy. That's a lot of money for most of you guys...if you're married, that's 10K in Roth + $16.5 TSP + any spousal 401K contributions + bolstering liquid savings + kids college funds if you're so inclined. If dudes can save that much, fantastic. But not everyone can. When you do your taxes this year, look at your effective tax rate. I mean the effective tax rate you pay relative to ALL of your actual pay...including your tax free BAH, any tax free months you had, etc. For most military guys, your actual effective tax rate now is absurdly low. So low that you won't possibly get close to that after the military. Meaning, why wouldn't you want to pay the taxes on that money now, at the absurdly low rate, instead of paying it all at a rate that can likely only go up later on in life when you have fewer tax benefits (BAH, tax free, mortage interest deductions, child tax credits, etc). I get that TSP is cheap. It will be great if they do a Roth TSP. But just because the fees are super low doesn't necessarily make that your smartest option for the long run. Edited February 17, 2012 by Danny Noonin 1
ClearedHot Posted February 18, 2012 Posted February 18, 2012 Like anything else...it depends. If you can max out TSP after maxing out a Roth IRA, then great. But maxing TSP without first maxing a Roth is, for most military guys, lunacy. That's a lot of money for most of you guys...if you're married, that's 10K in Roth + $16.5 TSP + any spousal 401K contributions + bolstering liquid savings + kids college funds if you're so inclined. If dudes can save that much, fantastic. But not everyone can. When you do your taxes this year, look at your effective tax rate. I mean the effective tax rate you pay relative to ALL of your actual pay...including your tax free BAH, any tax free months you had, etc. For most military guys, your actual effective tax rate now is absurdly low. So low that you won't possibly get close to that after the military. Meaning, why wouldn't you want to pay the taxes on that money now, at the absurdly low rate, instead of paying it all at a rate that can likely only go up later on in life when you have fewer tax benefits (BAH, tax free, mortage interest deductions, child tax credits, etc). I get that TSP is cheap. It will be great if they do a Roth TSP. But just because the fees are super low doesn't necessarily make that your smartest option for the long run. Excellent post... Word of advice from an old guy...all you ACPers thing long and hard about what you do with that money and don't pass on a great opportunity to secure long-term wealth.
Homestar Posted February 18, 2012 Posted February 18, 2012 The information from the TSP website describes the Roth TSP option as Roth 401(k), which means I can continue to max out my Roth IRA ($5,000/year) and still contribute to the Roth TSP as long as my Roth TSP + Traditional TSP contributions do not exceed $17,000/year, correct? Also, if one is deployed for the entire year, and therefore has no taxable income, there is no benefit to Traditional TSP contributions, right? In this case would the Roth TSP be the better option?
LockheedFix Posted February 18, 2012 Posted February 18, 2012 I just got a brochure in the mail for the Roth TSP. It sounds like for all the reasons stated above, and for the same reason it makes sense to max out the Roth IRA before contributing to TSP, that for most people it would make sense to contribute ONLY to the Roth TSP. Am I missing anything with this line of thought? Also, does anyone have any good gouge on which funds to contribute to? The G and F seem to be the most consistent with the C, S and I being pretty hit or miss the last couple years.
Vetter Posted February 18, 2012 Posted February 18, 2012 Yes, the Roth TSP will act like a Roth IRA. The advantage of the Roth IRA is it allows diversification into some assets not available in the TSP such as emerging market funds, real estate investment trusts, and inflation protected bonds. So, if you don't need those asset classes and the TSP funds meet your needs, I don't see a problem with contributing to the Roth TSP first. Fill your Roth tax advantaged space first, especially at our low tax rates. There really is no gouge on which TSP fund is better. They each do different things. There is associated risk vs return for each fund. Except for the G-Fund...it's a free lunch. There is no other asset out there these days that will give 3-4% return and protect your principle. I'd recommend reading into asset allocation plans. There are tons of ways to skin the cat. If you are even thinking about this stuff, you are ahead of 75% of the general population.
Dingle Posted February 18, 2012 Posted February 18, 2012 https://www.tsp.gov/...tins/11-u-4.pdf interesting, i did some looking around and I can't find anywhere how to contribute to the roth TSP yet... am i right in assuming we cannot do this yet?
ThreeHoler Posted February 18, 2012 Posted February 18, 2012 It keeps getting pushed back. Last info said "available 2Q 2012."Here you go: https://www.tsp.gov/PDF/bulletins/12-2.pdf
Beaver Posted February 19, 2012 Posted February 19, 2012 Excellent post... Word of advice from an old guy...all you ACPers thing long and hard about what you do with that money and don't pass on a great opportunity to secure long-term wealth. Given the fact that the Dow in 2010 was the same as it was in 2000 how do you suggest that an additional $18k a year after taxes is a road to securing long term wealth going forward? I'm sure you were killing it in the first half of your career, but that hasn't been the case since I've been in.
Jaded Posted February 19, 2012 Posted February 19, 2012 Well, remember that once you commit to taking the bonus, most of that 18k per year will be tax free.
xaarman Posted February 19, 2012 Posted February 19, 2012 (edited) Given the fact that the Dow in 2010 was the same as it was in 2000 how do you suggest that an additional $18k a year after taxes is a road to securing long term wealth going forward? I'm sure you were killing it in the first half of your career, but that hasn't been the case since I've been in. Don't forget 10 years of dividends. Edited February 19, 2012 by xaarman 1
czecksikhs Posted February 19, 2012 Posted February 19, 2012 Don't forget 10 years of dividends. Or 10 years of inflation.
Magellan Posted February 21, 2012 Posted February 21, 2012 The information from the TSP website describes the Roth TSP option as Roth 401(k), which means I can continue to max out my Roth IRA ($5,000/year) and still contribute to the Roth TSP as long as my Roth TSP + Traditional TSP contributions do not exceed $17,000/year, correct? Also, if one is deployed for the entire year, and therefore has no taxable income, there is no benefit to Traditional TSP contributions, right? In this case would the Roth TSP be the better option? I do not believe this is the case. You can only contribute $5,000 total into Roth type retirement plans, unless you are eligible for catch up contributions. They are basically targeting the people who are skipping TSP to make Roth IRA contributions instead.
Danny Noonin Posted February 21, 2012 Posted February 21, 2012 I do not believe this is the case. You can only contribute $5,000 total into Roth type retirement plans, unless you are eligible for catch up contributions. They are basically targeting the people who are skipping TSP to make Roth IRA contributions instead. Not true according to the Roth TSP fact sheet they just sent me. It's up to 5K in Roth IRA and/or up to 17K in Roth TSP. Separate issues.
Vetter Posted February 21, 2012 Posted February 21, 2012 (edited) What Noonin said. Edited February 21, 2012 by Vetter
HoHum Posted February 22, 2012 Posted February 22, 2012 Has anybody done a Traditional TSP to Roth IRA conversion? Pain level?
ThreeHoler Posted February 22, 2012 Posted February 22, 2012 You cannot convert existing TSP to the Roth TSP. You must start a new Roth TSP.
Magellan Posted February 23, 2012 Posted February 23, 2012 Not true according to the Roth TSP fact sheet they just sent me. It's up to 5K in Roth IRA and/or up to 17K in Roth TSP. Separate issues. So you are telling me I can now put 22,000 away a year and never have to pay taxes on it ever again? That sounds too good to be true.
ThreeHoler Posted February 23, 2012 Posted February 23, 2012 It is the same thing that has been available to people who have a Roth IRA and Roth 401k.
Danny Noonin Posted February 23, 2012 Posted February 23, 2012 So you are telling me I can now put 22,000 away a year and never have to pay taxes on it ever again? That sounds too good to be true. I'm just telling you what they sent me. Believe it when you see it.
Vetter Posted February 23, 2012 Posted February 23, 2012 Yes, until the .gov raids retirement plans or decides to go ahead and tax Roth money anyway.
Vetter Posted February 23, 2012 Posted February 23, 2012 Here's a pretty good article on whether or not you should use the Roth TSP. I'm having a little trouble determining how much I am going to put into the Roth TSP. Anyone have any good rules of thumb? https://thefinancebuff.com/case-against-roth-401k.html
ThreeHoler Posted February 24, 2012 Posted February 24, 2012 (edited) https://www.tsp.gov/...oth/index.shtml With the introduction of Roth, you will potentially have two types of balances in your TSP account: A traditional (non-Roth) TSP balance and a Roth TSP balance. Any agency contributions you receive will always be a part of your traditional (non-Roth) balance. However, you may designate your own contributions any way you like depending on your individual tax circumstances. (Note: Money already in your account when you begin making Roth contributions will remain part of your traditional balance. You will not be able to convert it to Roth.) My thoughts (other investment vehicles not considered): I dump $5k into my Roth IRA. In an ideal world, this $5k comes from tax free sources such as CZTE pay or left over TDY money so that it is never taxed. My next goal is $17k into the TSP. In the past (and until they finally open the Roth TSP), this contribution would serve to reduce my taxable income. If my ability to contribute is limited to $17k (i.e. I am unable to take advantage of the CZTE additional limit of $50k), there is only marginal advantage to putting tax free money into the Traditional TSP (this advantage being that the contribution will never be taxed). However, there is significant advantage to using tax free money in a Roth TSP. So, let's say I wind up with a six month CAOC tour later this year after the Roth TSP is available (assume May-Oct deployment for shits and giggles). Let's also say I'm terrible at managing my tax free trips and don't manage a cha-ching for the remaining six months. Also, let's say I have everything set up so that I contribute monthly to both my IRA and TSP ($416.67 and $1416.67 respectively). Since I'm deployed so long, I plan to max out my SDP as well. So, at the end of April I have $1666.68 in my Roth IRA and $5666.68 in the Traditional TSP. Before I deploy, I change my TSP allocations to the Roth TSP (same account) effective 1 May. I continue contributing throughout the deployment in this manner and prior to rotating home I change my allocations back to 100% into the Traditional TSP. So my balances at the end of the year are Roth IRA: $5000 (of which $2500.02 is never taxed and $2500.98 is post-tax); Traditional TSP: $8500 (all tax deferred); Roth TSP: $8500 (of which the entire amount is never taxed); SDP: $10000. That is how I envision the Roth TSP being useful to most of us...sheltering tax free money for life. Edited February 24, 2012 by ThreeHoler
herkbier Posted February 24, 2012 Posted February 24, 2012 https://www.tsp.gov/...oth/index.shtml My thoughts (other investment vehicles not considered): I dump $5k into my Roth IRA. In an ideal world, this $5k comes from tax free sources such as CZTE pay or left over TDY money so that it is never taxed. My next goal is $17k into the TSP. In the past (and until they finally open the Roth TSP), this contribution would serve to reduce my taxable income. If my ability to contribute is limited to $17k (i.e. I am unable to take advantage of the CZTE additional limit of $50k), there is only marginal advantage to putting tax free money into the Traditional TSP (this advantage being that the contribution will never be taxed). However, there is significant advantage to using tax free money in a Roth TSP. So, let's say I wind up with a six month CAOC tour later this year after the Roth TSP is available (assume May-Oct deployment for shits and giggles). Let's also say I'm terrible at managing my tax free trips and don't manage a cha-ching for the remaining six months. Also, let's say I have everything set up so that I contribute monthly to both my IRA and TSP ($416.67 and $1416.67 respectively). Since I'm deployed so long, I plan to max out my SDP as well. So, at the end of April I have $1666.68 in my Roth IRA and $5666.68 in the Traditional TSP. Before I deploy, I change my TSP allocations to the Roth TSP (same account) effective 1 May. I continue contributing throughout the deployment in this manner and prior to rotating home I change my allocations back to 100% into the Traditional TSP. So my balances at the end of the year are Roth IRA: $5000 (of which $2500.02 is never taxed and $2500.98 is post-tax); Traditional TSP: $8500 (all tax deferred); Roth TSP: $8500 (of which the entire amount is never taxed); SDP: $10000. That is how I envision the Roth TSP being useful to most of us...sheltering tax free money for life. I follow, except for the Traditional TSP contributions for the non-deployed months. Your taxable income for the year is already lower, so is your tax bracket. Wouldn't the roth make more sense for the whole year too? I guess, on that same line of reasoning.. When the roth tsp comes online, and we now have a traditional and roth version of both the tsp and ira, when would it make sense to contribute to the roth flavor of one and the traditional of the other in the same year? My only guess is that the traditional contributions would help lower your tax burden on your roth contributions. But the whole reason you are contributing to the roth is becaus e you expect to be in a higher tax bracket in retirement, which is when you'll now have to pay higher taxes on those traditional contributions. Am I missing something?
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