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Thread: Questions from a beginner...

  1. Default Questions from a beginner...

    Sorry for the long questions, but I'm starting to get really interested in investing and would like to learn more about it. Any help is appreciated...

    1) When comparing the TSP to the eventual Roth TSP, what are the major advantages or disadvantages of each? Yes, I get the tax deduction right now with the TSP, but I'll have to pay income taxes on that amount when I withdraw the money anyway, correct? So on the surface, it looks to me that you either pay taxes on your income now and save later (Roth), or you save now and pay later (TSP). Is there more to it than that? If the govt gives us the Roth TSP option next year, I'm not even sure which option is better.

    2) How exactly do you receive your TSP money? In a lump sum? I have read a little about an annuity, but am not sure how that works. Is your tsp money just dispersed to you monthly over a pre-determined period of time, or over your remaining lifetime? Do we pay extra fees or premiums for an annuity once we start withdrawing?

    3) Can anyone recommend any good, updated investor books for beginners? I'd like something that explains everything in fairly simple terms for someone just starting to invest. I want to learn what index funds, REITs, ETFs, small cap, mid cap, etc. all mean. What are the tax implications of each? Are there any funds that are rock solid and should be in everyone's portfolio?

    I currently have a few mutual funds that I'm investing in, but outside of getting advice from friends/relatives or seeing reviews in Money Magazine, I don't really understand what those funds are all about. For example, I have some money with Vanguard, with T. Rowe Price, and with Dodge & Cox. I invested in these funds b/c I heard they were good, but I don't know if I'm just putting money into the same type of funds, if I need to diversify more, etc. I'd like to learn more about what I'm investing in.

    Any advice would be greatly appreciated!


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  3. #2

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    Default Re: Questions from a beginner...

    Quote Originally Posted by yolli71 View Post
    Sorry for the long questions, but I'm starting to get really interested in investing and would like to learn more about it. Any help is appreciated...

    1) When comparing the TSP to the eventual Roth TSP, what are the major advantages or disadvantages of each? Yes, I get the tax deduction right now with the TSP, but I'll have to pay income taxes on that amount when I withdraw the money anyway, correct? So on the surface, it looks to me that you either pay taxes on your income now and save later (Roth), or you save now and pay later (TSP). Is there more to it than that? If the govt gives us the Roth TSP option next year, I'm not even sure which option is better.

    2) How exactly do you receive your TSP money? In a lump sum? I have read a little about an annuity, but am not sure how that works. Is your tsp money just dispersed to you monthly over a pre-determined period of time, or over your remaining lifetime? Do we pay extra fees or premiums for an annuity once we start withdrawing?

    3) Can anyone recommend any good, updated investor books for beginners? I'd like something that explains everything in fairly simple terms for someone just starting to invest. I want to learn what index funds, REITs, ETFs, small cap, mid cap, etc. all mean. What are the tax implications of each? Are there any funds that are rock solid and should be in everyone's portfolio?

    I currently have a few mutual funds that I'm investing in, but outside of getting advice from friends/relatives or seeing reviews in Money Magazine, I don't really understand what those funds are all about. For example, I have some money with Vanguard, with T. Rowe Price, and with Dodge & Cox. I invested in these funds b/c I heard they were good, but I don't know if I'm just putting money into the same type of funds, if I need to diversify more, etc. I'd like to learn more about what I'm investing in.

    Any advice would be greatly appreciated!
    WOW! You realize, of course, that answers to your questions could fill a book?! Luckily, these boards DO fill several books!
    I would recommend that you peruse the boards...search for your keywords and have fun!
    To get you started, I can offer some info on Roths, since I have been very interested in them over the last few years and have read up on them pretty extensively.... To start, YOU ARE CORRECT! If everything stays the same, you will come out exactly equal with a Roth or Traditional IRA (or TSP, since we are supposed to get a Roth TSP option next year). But the caveat is 'if everything stays the same'. eg if you expect to be in a lower tax bracket when you retire, you would prefer to pay taxes later, so you would go with the Traditional. Conversely, if you expect to have about the same or higher income in retirement (due to cashing in your investments) or you expect that the Bush era tax cuts will expire and taxes will go up in the future, you would opt to pay taxes now (Roth). If you are especially young, like my daughters, and have very little income so very little taxes, pay the small taxes now and pocket the Roth tax-free later on. Depending on how close you are to retirement, you may or may not have an idea on whether you will be in a higher or lower tax bracket or taxes may go up or down. I have adopted a half/half approach. Put some in Roth and some in Traditional. Then, when the time comes, I can choose which to pull from. And even in retirement, the situation may change and I will have the option of changing which IRA/TSP to pull from. Even when my IRA/TSP passes into my estate, my beneficiaries can continue to defer taxes on the Traditional and use current funds out of the Roth. This is just one approach...you can use your imagination and apply these ideas against your own personal situation.
    Hope this helps you get started!

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  5. #3

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    Default Re: Questions from a beginner...

    For purposes of tax diversification the Roth IRA does not have a required minimum distribution while you are alive. A young heir would be required to take distributions based on a lifecycle which means a reduced amount. Mutual funds IMHO are not the best instruments to place in a Roth IRA or even a traditional because of their payout structure. Stocks will pay you four times a year and increase your opportunity to gain more shares.

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  7. #4

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    Default Re: Questions from a beginner...

    2) How exactly do you receive your TSP money? In a lump sum?
    One can receive it a number of differnet ways.

    You could ask for a lump sum.

    You could set it up for monthly payments.

    You could take the money and buy an annunity, and have the annunity send you monthly payments.

    All are possible ways to get the money later.

    All of your questions, by the way, have been asked and answered before. Use the search button up on the bar, and try simple searches for key words, and you'll find many threads with answers.

    Good luck, and welcome aboard.

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