TSP vs IRA priority help

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cap49
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TSP vs IRA priority help

Post by cap49 » Fri Jan 04, 2019 11:56 pm

I'm a beginner investor looking for some advice starting out. I just finished The Bogleheads Guide to Investing, and I'm curious about how a TSP factors into the equation.

I'm active duty military with 7 years in service. I have a Roth TSP which I am nearly maxing out annually. I now have extra funds and intend to start a Roth IRA this month for myself, and I would like advice on my next steps. I'm married, wife doesn't work. Should I open a Roth IRA for myself AND my wife both (I understand that I can open one for her, even though she doesn't have an income because my income is high enough). If so, should I prioritize maxing out the Roth IRAs annually with 11k, and dump everything extra into the Roth TSP. Or should my priority be the Roth TSP, since I can invest more into it annually and cover more ground with the Roth TSP(s)?

The assumptions here are I'm unable to max all 3 accounts, there is no match on my TSP, and I can't invest in the TSP after retirement from military (in 14 years)... Thanks for the help! TSP is $25K funded, 60% C / 20% S / 20% G currently. I am 30 yrs old.

mac2019
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Re: TSP vs IRA priority help

Post by mac2019 » Sat Jan 05, 2019 8:11 am

I would max out the TSP Roth first, your own Roth second and your wife's Roth third. I'm a federal employee who will be retiring within the year and I always maxed out the TSP before anything else. It has proven to be a very wise decision.

MBB_Boy
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Re: TSP vs IRA priority help

Post by MBB_Boy » Sat Jan 05, 2019 11:25 am

Vet here. I would go ahead with prioritizing the TSP - from the situation you are describing, I don't think it matters so you should prioritize simplicity. Next would be your Roth, and then your wife's (again, for simplicity).

That said, your IRA is going to have a lot more possible options. It doesn't sound like you care, and the TSP has all the funds you need and they are cheap. If you ever decide you care to start getting more exotic in your investing (e.g., tilting toward certain sectors or asset classes, specific type of bond durations, etc), then your IRA is going to become your workhorse.

Once you eventually leave the military, make sure to keep SOMETHING in the TSP so you don't lose access to it. It accepts incoming funds even after you separate, but only if you didn't close the account.

Iorek
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Re: TSP vs IRA priority help

Post by Iorek » Sat Jan 05, 2019 11:30 am

I wonder whether it's worth considering adding some tax-deferred investing. If you can't max out all three now, you could consider whether doing half-Roth and half-traditional in TSP would give you enough tax savings to then put more in the IRAs? I don't know enough about your tax rate to know if that makes sense.

janezoey
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Re: TSP vs IRA priority help

Post by janezoey » Sat Jan 05, 2019 11:40 am

My husband is in federal service and we try to max out his TSP retirement first. It’s because the expense ratios are incredibly low and the G Fund is unique. I think only Admiral Shares at Vanguard might be a slightly better expense ratio. When you leave for civilian service, you can’t be sure your new employer will offer Vanguard funds.

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tadamsmar
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Re: TSP vs IRA priority help

Post by tadamsmar » Sat Jan 05, 2019 12:18 pm

janezoey wrote:
Sat Jan 05, 2019 11:40 am
My husband is in federal service and we try to max out his TSP retirement first. It’s because the expense ratios are incredibly low and the G Fund is unique. I think only Admiral Shares at Vanguard might be a slightly better expense ratio. When you leave for civilian service, you can’t be sure your new employer will offer Vanguard funds.
TSP expense ratios are a bit better than Vanguard Admiral Shares:

https://www.tsp.gov/InvestmentFunds/Fun ... atrix.html

https://investor.vanguard.com/mutual-fu ... nd-returns

I concur on the rest, the G fund is a uniquely good deal for most or all of one's bond allocation.

Fishing50
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Re: TSP vs IRA priority help

Post by Fishing50 » Sat Jan 05, 2019 2:24 pm

I'm career military, 2 years from retirement.

I agree, it doesn't matter much. I'd prioritize his and her Roth IRA accounts over TSP because Roth IRA contributions can be withdrawn for any reason.
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

stan1
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Re: TSP vs IRA priority help

Post by stan1 » Sat Jan 05, 2019 2:57 pm

Expense ratios on total market domestic mutual funds and ETFs are now about as good (or better) than the TSP. This was not true 10 or more years ago but today Vanguard's expense ratios are similar and Fidelity has their zero fee funds. TSP is still a good value for international, especially when emerging markets and smaller capitalization stocks are added to the I Fund later in 2019. The G Fund is unique and worth holding, but you don't need it for 100% of your portfolio.

I'd max your Roth TSP, then fund your wife's Roth IRA since she doesn't work right now, then fund your Roth IRA. That's not a strong preference though, it doesn't matter much. If you are able to do all that on one income that's a very good savings rate.

Even if you stay in the military for 20 years you'll still probably have many years of 401K contributions before you retire for the second or third (and final) time.

retiredjg
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Re: TSP vs IRA priority help

Post by retiredjg » Sat Jan 05, 2019 4:16 pm

If you are deployed to one of the regions where you get tax free pay, put as much as possible into Roth TSP. That money will not be taxed going in or coming out. A big win for you and your family.

If you are not in that situation, see if putting part of your contribution into traditional TSP will save you enough in taxes to fund both Roth IRAs.

If you are in a higher tax bracket, you should probably be using traditional TSP some anyway.

In the long run, just saving money is good enough. Which account it is in is less important.

I think many wives would find the "fill His TSP and fill His Roth IRA and then if you have anything left, put it in Her Roth IRA" approach to be somewhat male-centric. I would probably do it differently.

MBB_Boy
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Re: TSP vs IRA priority help

Post by MBB_Boy » Sat Jan 05, 2019 5:36 pm

retiredjg wrote:
Sat Jan 05, 2019 4:16 pm
If you are deployed to one of the regions where you get tax free pay, put as much as possible into Roth TSP. That money will not be taxed going in or coming out. A big win for you and your family.

If you are not in that situation, see if putting part of your contribution into traditional TSP will save you enough in taxes to fund both Roth IRAs.

If you are in a higher tax bracket, you should probably be using traditional TSP some anyway.

In the long run, just saving money is good enough. Which account it is in is less important.

I think many wives would find the "fill His TSP and fill His Roth IRA and then if you have anything left, put it in Her Roth IRA" approach to be somewhat male-centric. I would probably do it differently.

Has nothing to do with being "male centric". It's "person earning the income and managing the accounts" centric. And they are married, so it literally doesn't matter. In the case of divorce, the assets will be split.

Since she isn't working, putting money into an account with her name would require extra work. Probably creating a new account, likely transferring the money into her checking account, and techincally SHE would have to log into and manage the account. For what? Some PC sensitivity?

retiredjg
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Re: TSP vs IRA priority help

Post by retiredjg » Sat Jan 05, 2019 5:44 pm

MBB_Boy wrote:
Sat Jan 05, 2019 5:36 pm
Since she isn't working, putting money into an account with her name would require extra work.
How is it more work to put $6k into Her Roth IRA than His Roth IRA?

For what? Some PC sensitivity?
No.

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tadamsmar
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Re: TSP vs IRA priority help

Post by tadamsmar » Sat Jan 05, 2019 7:06 pm

MBB_Boy wrote:
Sat Jan 05, 2019 5:36 pm
Has nothing to do with being "male centric". It's "person earning the income and managing the accounts" centric.
I think that being "person earning the income and managing the accounts" centric is a bad idea. But I am not sure exactly what you mean.

For accounts at Vanguard, I think it would be a good idea for the wife to have at least limited Agent Authorization, if not full Agent Authorization, so that she could manage the accounts in a pinch. Hopefully, she already is hubby's POA, but POAs are somewhere in the range of hard and impossible to use at Vanguard.

I sort of agree that it might not be worth the trouble to create accounts in her name just for the heck of it since you are probably right that the matter would be worked out in a divorce settlement anyway. And having more smaller accounts can be a bit more expensive and inconvenient.

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randybobandy
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Re: TSP vs IRA priority help

Post by randybobandy » Sat Jan 05, 2019 10:35 pm

The OP has not identified as male.

-randy bo bandy

Topic Author
cap49
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Re: TSP vs IRA priority help

Post by cap49 » Sun Jan 06, 2019 1:22 am

Thanks for all the advice. I'll plan to max the TSP as my priority, and begin 2x Roth IRAs for investing outside of index funds. I'm thinking of using my IRA for mutual funds in growth, growth and income, aggressive growth, international... (similar to Dave Ramsey's plan... is that taboo to say here?). And using my wife's IRA for a target retirement fund.

Should I keep my TSP at 60% C, 20% S, 20% G? and rebalance semi quarterly?
Is the I fund something I should incorporate?

I'm the one who manages the money, and my wife is totally fine with that. She manages most of the other aspects of our life, so she isn't upset if her IRA is the lower of the 3 priorities. There's no competition and no hard feelings, its all OUR money 8-). However, I think I'll fund the IRAs evenly to compare performances.

Again, I'm just getting started, so I'm open to any advice on how to start/shape my portfolio and percentages for the IRAs, as well as TSP percentages that others recommend. Thanks again to everyone for the advice! It's a huge help and confidence boost.

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tadamsmar
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Re: TSP vs IRA priority help

Post by tadamsmar » Sun Jan 06, 2019 9:06 am

cap49 wrote:
Sun Jan 06, 2019 1:22 am
Should I keep my TSP at 60% C, 20% S, 20% G? and rebalance semi quarterly?
Is the I fund something I should incorporate?
I think quarterly rebalancing is too often, yearly is better. On the assumption that markets have a bit of so-called "momentum".

I would include some I fund exposure. The L funds are a good guide. Maybe even some exposure to the international bond found similar to the Vanguard target retirement funds. But the G fund is special and it's hard to find examples of how to use it. The L fund and financialengines.com are the only examples of analyses that include the G fund that I know of. You might have access to a free version of financialengines.com. The rule of thumb seems to be that at least 2/3 of your bond allocation should be G fund.

Iorek
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Re: TSP vs IRA priority help

Post by Iorek » Sun Jan 06, 2019 4:13 pm

You might get more informed advice if you shared more about current marginal tax rates and maybe expectations for future income both working and in retirement.

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BL
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Re: TSP vs IRA priority help

Post by BL » Sun Jan 06, 2019 4:56 pm

It sounds like you want to "play" a little in your Roth IRA. That is all the more reason to fill TSP first (maybe a combo of trad. and Roth). Have you read any threads about the 3-fund portfolio or looked it up in the Wiki? Here is a great little book (16-page free pdf) for both of you that also uses the 3-fund (target date funds are very similar):
https://www.etf.com/docs/IfYouCan.pdf

Suggest you start with the basics and later on consider adding a fund or two after you have studied it carefully. As the pdf mentions, beware of salespeople who want to make money off you for investments or insurance products. There are some who target the military folks, especially former military or civilians with access to you.

MichDad
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Re: TSP vs IRA priority help

Post by MichDad » Mon Jan 07, 2019 1:50 pm

cap49 wrote:
Sun Jan 06, 2019 1:22 am
I'll plan to max the TSP as my priority, and begin 2x Roth IRAs for investing outside of index funds. I'm thinking of using my IRA for mutual funds in growth, growth and income, aggressive growth, international... (similar to Dave Ramsey's plan... is that taboo to say here?). And using my wife's IRA for a target retirement fund.
I'm going to present two pieces of advice. The first, I suspect, will not be controversial, the second, I fear, will be.

First (not controversial), I recommend that you consider your and your wife's investments as one large pot, not two separate, unrelated pots. So, make sure your entire portfolio is maximizing your joint investment goals.

Second (potentially controversial), I'm a believer that young people investing for a retirement that's more than twenty years away, should strongly favor US and international equities over bonds and other investments. My case is an extreme example of this. I began investing towards retirement in 1987 at the age of 32 -- relatively late. Essentially, I put 100 percent of my retirement investments into US and international equities -- no bonds. The extreme part of my story is that I stayed this way until the spring of 2017, at age 61.5. At that time, and in one chunk on one day, I moved a bit over $1 million of my TSP (representing around 60 percent of my TSP account) into the G Fund. [To this day, I've never invested into the F Fund.] That represented about 35 percent of my and my wife's combined retirement assets. So, we had a retirement portfolio at that time that was about 65/35 US and international equities to the G Fund. We continue to hold no other bond-type assets.

To do this, I had to stand firm during some dramatic equities downturns, including 2001-02 and 2008-09. I succeeded. Knowing that I would likely have a decent FERS pension and Social Security to fall back on helped me stand firm.

If you don't want to take on the risk I did by waiting until shortly before retirement to move into bond-type assets, you could around age 40 start to invest a percentage of your new TSP contributions into the G and/or F Funds. Over the next twenty or more years, you'll "age into" bonds. This will allow the C, S, and I Fund investments you'll make between age 25 and 40 (or longer) continue to grow (or not).

MichDad

MBB_Boy
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Re: TSP vs IRA priority help

Post by MBB_Boy » Sat Jan 12, 2019 9:47 am

retiredjg wrote:
Sat Jan 05, 2019 5:44 pm
MBB_Boy wrote:
Sat Jan 05, 2019 5:36 pm
Since she isn't working, putting money into an account with her name would require extra work.
How is it more work to put $6k into Her Roth IRA than His Roth IRA?

For what? Some PC sensitivity?
No.
It's more work because 1.) Sounds like she doesn't already have an account, so they would have to create one and 2.) Technically, HE isn't alllowed to log in and contribute the money. She is supposed to, and if she isn't comfortable doing so, that's a pain. Seeing as it literally doesn't matter what account the money is in, why would you go through these extra steps?

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ruralavalon
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Re: TSP vs IRA priority help

Post by ruralavalon » Sat Jan 12, 2019 11:05 am

cap49 wrote:
Fri Jan 04, 2019 11:56 pm
I'm a beginner investor looking for some advice starting out. I just finished The Bogleheads Guide to Investing, and I'm curious about how a TSP factors into the equation.

I'm active duty military with 7 years in service. I have a Roth TSP which I am nearly maxing out annually. I now have extra funds and intend to start a Roth IRA this month for myself, and I would like advice on my next steps. I'm married, wife doesn't work. Should I open a Roth IRA for myself AND my wife both (I understand that I can open one for her, even though she doesn't have an income because my income is high enough). If so, should I prioritize maxing out the Roth IRAs annually with 11k, and dump everything extra into the Roth TSP. Or should my priority be the Roth TSP, since I can invest more into it annually and cover more ground with the Roth TSP(s)?

The assumptions here are I'm unable to max all 3 accounts, there is no match on my TSP, and I can't invest in the TSP after retirement from military (in 14 years)... Thanks for the help! TSP is $25K funded, 60% C / 20% S / 20% G currently. I am 30 yrs old.
I suggest prioritizing contributions to the TSP. The TSP funds offered have lower expense ratios, and the unique G Fund is not available elsewhere.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

deskjockey
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Re: TSP vs IRA priority help

Post by deskjockey » Sat Jan 12, 2019 1:09 pm

Another vote for focusing on Roth TSP first (or a blend of Roth and traditional TSP contributions to enable you to fund more Roth IRA contributions), then the Roth IRAs. My wife and I are feds, so we're well acquainted with the uniqueness of the G fund and use it heavily. As for the 60-20-20 AA, it seems reasonable to me. Adding I to the mix also would be OK (we have I in the mix), but you can find plenty of threads here where people argue about the advisability of investing in international funds, so it's really a personal decision.

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BL
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Re: TSP vs IRA priority help

Post by BL » Sat Jan 12, 2019 5:30 pm

I suggest Total International and Total Stock Market for both Roths (or even one in each for uneven results).
Suggest you keep all desired bonds in TSP, along with C and perhaps S.

10, 12, or 22% tax savings on trad TSP contributions should yield an additional amount that you can also contribute to retirement. At least half Roth (or whatever your tax-free income determines) is probably smart. It is a little early to be sure of retirement pay, so suggest you wait with the full Roth TSP for a bit until you are more sure of pension, and also earn enough to fill all retirement accounts.

Agree that her seeing Roth IRA in her name is psychologically helpful, and encourages combined effort to save. Just open the account and transfer cash from your (joint?) account to fund it. No problem! Also set up access and passwords so you can each access and manage accounts as needed. I would think this would be especially helpful in deployments or other emergencies. Being able to see them is probably most important, you can set up automatic deposits if you prefer.

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