I have been contributing to the TSP for about a year now with my allocation spread out evenly.I want to change it to the L Fund 2040.Do i put 100% in L2040 fund and they mange my account with the different funds?I guess my question is when i change my allocation do i put all my(100%)money in the L2040 fund if i want them to mange it for me.Any help will be appreciated and great forum.
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L Fund Question
- Thread starter elroi21
- Start date
Hi all, I am new to the forum and I have a lot of questions for all of you! Hope you don't mind. I am 32 years old and have been contributing to the TSP for the past four years. I have recently changed my contribution from 5% to 10% of my bi-weekly pay to the TSP and I have both of my contributions allocation and interfund transfers distribution at 5-5-55-20-15. My Agency Matching contributions only applies to the first 5 percent of pay that I contribute each pay period. My contributions are matched dollar-for-dollar on the first 3 percent of pay I contribute each pay period and 50 cents on the the dollar for the next 2 percent of pay They will not match the contributions that I make above 5 percent of my pay. I would like to open up A ROTH IRA account as well on top of my TSP account. My first question is, since the agency will only match up to 5%, should I change my TSP contribution back to 5% and put the other 5% into a ROTH? Or should I leave it at 10% and hold off on a ROTH for now? My second question is, I was looking at switching to the L Funds, but I not so sure which one is right for me. I am eligible to retire in 20 years (when buying back my military time). Which one would anyone recommend at my age? If I do decide to go with an L Fund, should I go in and change my contributions allocation and interfund transfers distribution (which I have both of them at 5-5-55-20-15)? I am not really sure how it all works so any info would be greatly appreciated... Thank you in advance!
mailmanusa
Member
I for one would suggest maxing out TSP contributions before considering a Roth. If after maxing out TSP contributions and you still can afford to invest more, then look at Roth. So my suggestion is to leave your TSP at 10%.
Show-me
Well-known member
Njae1974,
First thing is get that Military time bought and paid for. They are charging you interest after three years.
Second, it is your preference how you want to fund, there are advantages to both. Funding TSP has the tax advantage of lowering your taxable income. Roth advantage is never pay taxes on it again, liquidity of the principle in case of emergency, and a large number of investments to choose from. Did I mention never pay taxes on it again? Do you think taxes will be higher or lower in the future? L Fund is great if you what a hands off approach, buy & hold.
Third, the number in the L Fund represents approximately how many years to retirement. The higher the number the higher the risk/reward. Meaning they put more money in stocks. The L Funds readjust automatically as time goes by.
Back to first thing, you can set up a allotment to do the buy back. Too many people put it off and pay much more than they should or don't get it done.
First thing is get that Military time bought and paid for. They are charging you interest after three years.
Second, it is your preference how you want to fund, there are advantages to both. Funding TSP has the tax advantage of lowering your taxable income. Roth advantage is never pay taxes on it again, liquidity of the principle in case of emergency, and a large number of investments to choose from. Did I mention never pay taxes on it again? Do you think taxes will be higher or lower in the future? L Fund is great if you what a hands off approach, buy & hold.
Third, the number in the L Fund represents approximately how many years to retirement. The higher the number the higher the risk/reward. Meaning they put more money in stocks. The L Funds readjust automatically as time goes by.
Back to first thing, you can set up a allotment to do the buy back. Too many people put it off and pay much more than they should or don't get it done.
SkyPilot
Well-known member
I often use this calculator instead of the one at the TSP site. It allows for more variables and projections.
http://hr.er.usgs.gov/calculators/tsp/tsp.pl
http://hr.er.usgs.gov/calculators/tsp/tsp.pl
EW_ret
Retired Tracker
On your first question, you’re going to get different answers on TSP versus Roth contributions. My advice is place the first 5% in your TSP account to get the maximum government match. Then fund the Roth IRA, and work on savings a few months living expenses in emergency fund for unforeseen events. If you have any money left after that, open a taxable account at mutual fund or low cost brokerage. Invest in low cost index funds. You should have investments in all three types of accounts (TSP, Roth, Taxable). Its just wise money management to spread your future tax risk among low-tax (taxable accounts), higher tax (TSP), and tax-free (Roth) accounts. Only after funding all three, would I consider putting additional funds in your TSP. That very well could happen as you near your retirement date and your wages/assets increase. Of course this is just my opinion which is based upon personal experience over last twenty years.
If you are a highly paid worker you may have to place more than 5% in your TSP account to get your adjusted gross income below the $95,000 (single) or $150,000 (married joint) Roth thresholds. Otherwise, you would not be able to contribute the full amount allowed. This was my issue the last few years I worked before retirement. Another consideration that impacts most government workers is the cost of raising a family precludes setting aside much more that 10% for retirement. The cost of living makes it difficult to put the maximum $15,500 into TSP AND then fund the Roth IRA. That is just not an reasonable expectation.
On the second question both L2040 and L2030 are more conservative (i.e. less in stock funds) than your current allocation. The L2040 fund has 84.5% in C/S/I funds and the L2030 fund has about 74.5% in C/S/I. The year of the Lifecycle fund matures is the year that it moves into a 20% allocation among C/S/I funds. This is too conservative in my opinion. If I were your age I would choose L2040. But, once again that is just my opinion.
Also important is paying for post-56 military time to get the credit for FERS retirement. The interest starts accumulation on money owed after three years of employment. The government uses the G fund rate for the interest charge (5-6%). I waited more that ten years before paying for my 10+ years of post-56 military time, and the amount owed went from $6,400 to $11,000 in course of twelve years. The first five years or so had interest rates of 9% to 13%. The important action to take now is getting the estimated military earnings. Then apply to repay the amount through paycheck withdrawals. It can be spread over years so it won’t hurt much.
If you are a highly paid worker you may have to place more than 5% in your TSP account to get your adjusted gross income below the $95,000 (single) or $150,000 (married joint) Roth thresholds. Otherwise, you would not be able to contribute the full amount allowed. This was my issue the last few years I worked before retirement. Another consideration that impacts most government workers is the cost of raising a family precludes setting aside much more that 10% for retirement. The cost of living makes it difficult to put the maximum $15,500 into TSP AND then fund the Roth IRA. That is just not an reasonable expectation.
On the second question both L2040 and L2030 are more conservative (i.e. less in stock funds) than your current allocation. The L2040 fund has 84.5% in C/S/I funds and the L2030 fund has about 74.5% in C/S/I. The year of the Lifecycle fund matures is the year that it moves into a 20% allocation among C/S/I funds. This is too conservative in my opinion. If I were your age I would choose L2040. But, once again that is just my opinion.
Also important is paying for post-56 military time to get the credit for FERS retirement. The interest starts accumulation on money owed after three years of employment. The government uses the G fund rate for the interest charge (5-6%). I waited more that ten years before paying for my 10+ years of post-56 military time, and the amount owed went from $6,400 to $11,000 in course of twelve years. The first five years or so had interest rates of 9% to 13%. The important action to take now is getting the estimated military earnings. Then apply to repay the amount through paycheck withdrawals. It can be spread over years so it won’t hurt much.
Wolverine
Member
Thanks for the calculator.
eccougar
Member
Try the link and click on returns, then monthly returns, L Funds.
http://www.tsp.gov/rates/index.html
http://www.tsp.gov/rates/index.html
Thanks to us (or no thanks), you have to cut and paste tsp.gov links into your browser rather than click on them in order to be taken directly to a page other than their home page. They did not like when I had links to their share price page on this website so they disabled that ability. Their thinking was that people would think they were still on tsptalk.com when they click that link, and not on their site. 
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