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Retirement Planning


Whether you are close to federal employee retirement or just starting out in your career, this is the place to share ideas with your federal colleagues on creating a secure financial foundation.


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BioFed  
#1 Posted : Tuesday, September 28, 2021 8:34:42 AM(UTC)
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Hello, I currently am investing 5% of my bi-weekly pay into my Roth TSP and am receiving my 5% agency match. In the future when earning a higher income, should I continue to invest more into the TSP or open a Roth IRA in addition to the TSP. Someone recommended that I dont do an IRA, another recommended that I should only do the IRA once I've maxed out my TSP, and other said that I earn more income then that income should be maxed out in a Roth IRA and then I can go back to contributing more to my TSP but none in detail explained why. Any sugesstions?
frankgonzalez  
#2 Posted : Tuesday, September 28, 2021 8:53:49 AM(UTC)
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Originally Posted by: BioFed Go to Quoted Post
Hello, I currently am investing 5% of my bi-weekly pay into my Roth TSP and am receiving my 5% agency match. In the future when earning a higher income, should I continue to invest more into the TSP or open a Roth IRA in addition to the TSP. Someone recommended that I dont do an IRA, another recommended that I should only do the IRA once I've maxed out my TSP, and other said that I earn more income then that income should be maxed out in a Roth IRA and then I can go back to contributing more to my TSP but none in detail explained why. Any sugesstions?
Not an expert, but I believe the TSP has some of the lowest fees out there. So, I'm of the camp of max out the TSP, then do the IRA.

You should have voted Cthulu...the greatest of all Evils
bp340  
#3 Posted : Tuesday, September 28, 2021 12:08:22 PM(UTC)

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Originally Posted by: BioFed Go to Quoted Post
Hello, I currently am investing 5% of my bi-weekly pay into my Roth TSP and am receiving my 5% agency match. In the future when earning a higher income, should I continue to invest more into the TSP or open a Roth IRA in addition to the TSP. Someone recommended that I dont do an IRA, another recommended that I should only do the IRA once I've maxed out my TSP, and other said that I earn more income then that income should be maxed out in a Roth IRA and then I can go back to contributing more to my TSP but none in detail explained why. Any sugesstions?



Your 5% is going into Roth TSP. The matching money always goes into the regular TSP. The max contributions for you would be 19,500 per year until age 50. The matching contributions is not calculated into that 19,500. If I were you I’d max out TSP before I even considered opening an IRA or Roth IRA. Eventually as you move up the grades and start to make more money you may find yourself needing the tax break that regular TSP offers. I don’t have a Roth TSP but do have a ROTH IRA.

My son started under FERS sometime back and has been in a covered position for the past couple of years. Regular TSP allows enhanced FERS retirees immediate access without penalty if you retire the year you turn 50 or later. To the best of my knowledge the Roth TSP still has the 59.5 age requirement. Up until a couple of years ago any withdrawals had to equally be deducted out of the regular TSP and Roth TSP (this would have meant a penalty for FERS enhanced retirees). To my understanding that changed and now as you make withdrawals you can decide from which account. My advice to him was to build up the Roth TSP until he really needed the tax break of the regular TSP then switch all contributions. The Roth TSP would continue to grow over the next couple of decades and he’d have a nice slush fund.
0018 Hopeful  
#4 Posted : Tuesday, September 28, 2021 12:33:23 PM(UTC)
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There is a maximum amount of contribution for the TSP Roth and TSP tax free of $19500.

I personally did it this way.

5% in the TSP Tax Free as it is matching.

Then anything else you can afford in the TSP Roth.

https://www.tsp.gov/calc...ch-can-i-contribute/#top

If you are young and new to the government ensure that you are investing in something other than the G fund. My personal strategy at 46 years of age is that I am 50% S and 50% C. Never stop investing in these two funds.

Shares might be expensive now, but if you never pull it out it will grow like wildfire.
0018 Hopeful  
#5 Posted : Tuesday, September 28, 2021 12:36:56 PM(UTC)
0018 Hopeful

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I also have a external investment account through an online broker. Where I buy a monthly portion of stocks. I only buy fortune 500 companies, and I only invest in companies that produce things I understand.

Do not invest in anything you do not understand.

There are a lot of people that have lost and won a lot of money in crypto currency. I am not involved in that as I don't understand it.
roger.d  
#6 Posted : Wednesday, September 29, 2021 5:36:48 PM(UTC)
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This is a very complex question. It depends on many, many variables.

1st, the TSP HAD the lowest fees until a few years ago. Now, places like Fidelity, Schwab and Vanguard have lower fees. With that info, NEVER pass up the free money of the TSP/401k matching.

2nd, any TSP contributions, Roth or traditional, receives the match.

Next, where do you live? Does you have a State income taxes? When you retire, does your State tax TSP/401k withdrawals? Do they tax pensions?

Are you single, married? Do you have children?

With that info, to maximize things:

If you can contribute to the traditional TSP to get your AGI below the next tax bracket, do so. Then contribute to a Roth IRA. If you have money left over, go back to the Roth TSP.


Why the Roth IRA? When you reach your MRA (year of birth or 50 if you are a LE, Fire Fighter or Air Traffic Controller) you can draw your pension. And draw from the TSP (penalty free). But, there is a delay in receiving your full pension. And there may be a delay of a few months before the TSP receives notice of your retirement. In the mean time, any "contributions" to a Roth IRA may be withdrawn tax/penalty free. So, if you contribute to a Roth IRA for 10 years at $5000/yr, that give you $50,000 to withdraw with no penalty.

I will not say I am an expert. But I did stay at a Holiday Inn a couple of years ago. And I am real close to punching the timecard for the last time. So I have a vested interest in knowing what I am talking about.

Personally, I invest in the Roth TSP. And a Roth IRA. I am currently 70% stocks and 30% bonds. I have a traditional IRA from the time before Roth's were available. I only invest in the US market. S&P 500 or the "total stock market".

Edited by user Wednesday, September 29, 2021 5:38:06 PM(UTC)  | Reason: fat fingers

Socialist governments traditionally do make a financial mess. They always run out of other people’s money. --Margaret Thatcher
Noontime  
#7 Posted : Friday, October 1, 2021 9:12:18 AM(UTC)
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25 year fed getting close to retirement. I want to be as clear as possible - you should max out the TSP (in whatever form, Traditional or Roth) AND max out a Roth IRA in your name and spouses name if applicable. So, yes, this means you’ll be living as if you make less because you are securing your future. You won’t miss what you don’t get. I have been maxing out the Traditional TSP since 1997 and maxing out two Roth IRA’s as well. For instance this year the Roth IRA limit is $6,000 per person with $1,000 catch up for over 50. For me and my wife that’s $14,000 so in January I adjust my allotment to reflect that ($14,000 divided by 26 pay periods = around $550 per pay check).

Been doing this since we were married in 1993 then hired as a fed in 1997. By doing this, I have amassed 1.5 in TSP and another 1 in Roth IRA’s. And I haven’t missed a beat in lifestyle by living below my monthly pay. If anything, it’s helped me avoid stress because I know the day I walk out the door that I’ll be set financially.

I’d also suggest opening up 529 plans the day you have a child. I have been able to pay for 2 college educations by paying 30 cents on the dollar by investing in 529’s from birth.

I have way too many work buddies who over bought homes or over bought cars and lifestyles and had to borrow from their TSP and never invested a dime above their TSP. Now, they have children having to take large student loans and they are in a position where retirement is way down the road because they need every dime. It’s really sad to see decisions they made in their 20’s and 30’s coming home to roost in their 50’s and beyond. Save, invest, and put every pay raise into an investment because it will pay off down the road.
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