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View Full Version : Is my money better off in the TSP?



shiftomnimega
06-20-2010, 10:47 AM
During my two deployments I was able to throw a lot of money into a non-retirement portfolio.

I'm on the civilian side now and received a FERS retirement class. The instructor swears that any money you put aside for retirement is way better spent within the TSP than any other vehicle (dirt cheap expense ratios, US gov't backing, diverse asset classes, etc).

Although he only mentioned rolling IRAs or other retirement vehicles into the TSP, I was thinking that maybe I could, in a round about way, roll my non-retirement portfolio into the TSP. I was thinking I could do this by selling off my underperforming holdings along with my gold fund so I wont incur any tax liability. I will use this money for my month to month expenses. Also, I will jack up my TSP contributions to leave just enough to cover my deductions. I figure this knocks out two birds since this will also help me avoid moving up a tax bracket this year, at least until I hit the TSP max.

Does anyone think this is a good idea besides me?

Boghie
06-20-2010, 11:36 AM
During my two deployments I was able to throw a lot of money into a non-retirement portfolio.

I'm on the civilian side now and received a FERS retirement class. The instructor swears that any money you put aside for retirement is way better spent within the TSP than any other vehicle (dirt cheap expense ratios, US gov't backing, diverse asset classes, etc).

Although he only mentioned rolling IRAs or other retirement vehicles into the TSP, I was thinking that maybe I could, in a round about way, roll my non-retirement portfolio into the TSP. I was thinking I could do this by selling off my underperforming holdings along with my gold fund so I wont incur any tax liability. I will use this money for my month to month expenses. Also, I will jack up my TSP contributions to leave just enough to cover my deductions. I figure this knocks out two birds since this will also help me avoid moving up a tax bracket this year, at least until I hit the TSP max.

Does anyone think this is a good idea besides me?

shiftomnimega,

If you are less than 50 years old your maximum (http://www.money-zine.com/Financial-Planning/Retirement/401k-Contribution-and-Catch-up-Limits) (including the 5% government match) annual contribution to TSP is $16,500. If you are 50+ years old you can contribute an additional $5,500 - for a total of $22,000 per year. There is an inflation adjustment. And, a grasping Federal government could simply change the law and hence the limits.:p

The Federal match will only be paid till the limit is met and only at a rate of 5% of your gross salary per pay period. This means that you will be cheating yourself of the match if you lump sum too much. You have to be contributing at least 5% of your gross to get the 5% match. Thus, the match - while not difficult - should be taken into account.

Example 1:

Age: 40, thus TSP max = $16,500
Gross Salary: $52,000 / year
Pay Period Gross: $2,000 / pp
5% Match: $100 / pp
13 pay periods remaining
You get excited and contribute $2,000/pp
In 7 pay periods you (+ match) contribute $14,700

Result: Sometime in September/October neither your $2k nor the Federal Match can be contributed to TSP. You will be leaving about $800 in matching contributions off the table.

The proper way:

Age: 40, thus TSP max = $16,500
Gross Salary: $52,000 / year
5% Match: $100 / pp
13 pay periods remaining

Math: $16,500 / 13 pp = $1,269 maximum per pay period (including match)

Result: You still put the maximum legal contribution into TSP, but collect the full 5% Federal matching benefit.

There are a lot of smart folks on this site that know more than I. If I am in error they will comment.



Finally, your TSP 'instructor' was both right and wrong. He was right in that the fees charged to you are very inexpensive - but, many index funds and ETFs have very low fees. He was wrong in that you have access to really only five funds.

You Have:

G: Cash equivalent
F: Government/Corporate Bonds
C: The S&P 500
S: Wilshire 4500
I: EAFE - Large cap Euro/Asian stocks, kinda foreign S&P 500.
You have no:

REITS - Real Estate
Emerging Markets
Small Caps (S is effectively the rest of the equities not in C)
Sector Funds
True Cash (my peeve, the G is Social Security Bonds)
Commodities

Happy Hunting:)

Boghie
06-20-2010, 11:45 AM
Yowser shiftomnimega,

I call BS to the instructor's claim that the funds are BACKED by the Federal Government.

Only the 'G Fund' is backed by the government.

And, it will buy you dog food in retirement if that is the only way you 'invest' in your accumulation years!

Using the above example the 'G Fund' will provide only about a thousand dollars / month in retirement assets. It only clears 2% - 3% per year.

That is not a good investment return on $16,500 per year.

You need to get to 6% - 10% growth per year which will require F/C/S/I investments - WHICH ARE IN NO WAY BACKED BY THE FEDERAL GOVERNMENT.

Yowser:sick:

shiftomnimega
06-20-2010, 01:08 PM
The instructor did discuss all these topics in class. Front loading, and leaving the match on the table. Only G fund being guaranteed (and how it isn't a good 'investment'). What the max is and catchup contributions.

I sort of truncated the class into a couple sentences to avoid being too wordy. Ultimately, the instructor was expressing that we should try to max out TSP every year. I imagine this is hard for newbie fed employees to do, but I plan on batting for the fences.

Since I have this big portfolio sitting there I saw an opportunity to use it to finance my day to day life so I can just stuff my salary into the TSP.

My TSP has performed better overall than my non-retirement account. I'm thinking having less asset classes out there not only simplifies investing for me, but also keeps me from playing with things I don't understand as well like emerging markets, REITs, and penny stocks that have burned me.

Side note, it seems every person around my age that I've met who had an investing portfolio has learned a lesson or two from penny stocks. Since those youthful days I have figured that money is better placed on the pass line with full odds.

tsptalk
06-20-2010, 04:08 PM
I've actually had pretty good success with the portion of my retirement money in an IRA. I've been "playing" with Trader Fred's etf trades (mostly just SSO, SDS, TNA, and TZA). So far the SSO trades alone are up 36.6% in 2010, and I believe +81% in 2009 (I'll have to verify that one). I do know taking all of Fred's ETF trades (not just SSO) in 2009 gained 149.9%, but that was a lot of trades with a lot of commissions involved. That's one reason I stick with just the 4 ETF's.

Just say'in... There are some good opportunities in IRA's that are not available in the TSP.

tsptalk
06-20-2010, 04:15 PM
Sorry if this sounds like a shameless plug, but here are the 2009 trades mentioned above. The point is yes, the costs are lower in the TSP, but you can be a lot more flexible in an IRA.

http://www.tsptalk.com/images/mb/fred09.gif

shiftomnimega
06-21-2010, 04:38 AM
Thanks, this is something to consider.

I wasn't planning on selling off the entire portfolio. I'm keeping my more conservative holdings. If I ever feel like trading heavy again I'll play with ETFs. If I was to follow the plan of action you provided, then I would need to go to Brokerage with smaller trading fees.

Birchtree
06-21-2010, 08:28 AM
When you were previously deployed you missed a golden opportunity to dump up to $45K at each deployment into TSP that would eventually remain tax free on distribution. Now you have to build your TSP the slow long way - meaning time in grade is how you accumulate shares and that should be the objective. The longer you work the larger your balance - but remember to learn before you churn. Once you reach the levels of multi-tens of thousands of shares you can make serious money for retirement.