maximum in tsp or start roth?

[haffey005]

I have $140,000 in my tsp account and probably another 17 years before I retire. I am definitely a newbie to investing. I am now putting 15% into my tsp account. I like the tax advantage of the roth as a supplement to my tsp, but if I start a roth it would only be with $500 and probably $150 added each month. It just seems like I would come out more ahead by putting 20% into my tsp because it already has such a large balance instead of the roth.
Any opinions?

 

[Spaf]

I think it's a matter of preference! Non taxed money thats for retirement goes great in a TSP account where it can grow under the principal of compounding. Taxed money can operate the same way in a ROTH or other vehicle. My concern is that the money be managed, whether you do it or have some one do it for you. For traders there are stops that are used. We never risk over 2% of the total or 5% for any one fund, as a general rule. The crash of 2000 was a rude awakening to buy and hold. The reality died, even if the practice still resides in some places. Understanding the fundamentals of the market and it's technical analysis will give you a big edge in handling your accounts. I think having a tax differed plan and a tax paid plan is the way to go, MHO! i.e., You get a bonus, (tax-paid) put it in your tax-paid vehicle!
Rgds
Spaf

 

[tsptalk]

Welcome haffey!

I read somewhere that a Roth works out best (compared to a tradition pre-tax IRA or TSP in our case) if you have 15 or more years left until retirement. As you probably know, the key to the advantage is that your compounded return can be cashed out tax free. The larger the eventual balance, the bigger the advantage will have been. i.e. - If your final IRA balance is $300,000 when you are ready to take it out, you will have saved more in taxes than if your balance was $30,000.

With less than 15 years the pre tax savings of a traditional IRA or TSP works out better since it costs less to save money because of the immediate tax savings. And if you did have a Roth, your balance will be smaller because of fewer years of compounding. Less savings on tax after all is said and done.

Plus with a Roth you will have more investment options. That helps if you are concerned about diversification.

Tom

 

[Spaf]

Haffey,
Thats the benifits of this board! U got my 2 cents, then tsptalk, some other members will add theirs and pretty soon you will have a $1.00.
Sure does beat the original 2 cents............ ..................Spaf

 

[Mike]

I'll keep it simple. Fund the Roth. For the love of God, fund the Roth! Here's Mike's Roth primer:
1. Future tax rates will be higher - unless your retirement income is going to be substantially lower than current income. If you don't agree, look at the looming retirement of the boomers. Then look at our government's financial obligations (medicare, etc) to them. Then tell me we aren't going to be paying more taxes to pay for these programs... with a straight face.

2. Emergency savings - a Roth is a perfect place for this money - you can tap into it pretty easily, and withdrawing is penalty free as long as you aren't taking out your profits. Your return is likely to be higher than it is if you just dump the money in a savings account / money market (unless we are in a bear market).

There's also something about being able to pass on wealth to heirs - Roths are better at that, too (I can't remember all the reasoning off-hand, but it's probably tied to taxes.

 

[Show-me]

I'll keep it simple. Fund the Roth. For the love of God, fund the Roth! Here's Mike's Roth primer:
1. Future tax rates will be higher - unless your retirement income is going to be substantially lower than current income. If you don't agree, look at the looming retirement of the boomers. Then look at our government's financial obligations (medicare, etc) to them. Then tell me we aren't going to be paying more taxes to pay for these programs... with a straight face.

2. Emergency savings - a Roth is a perfect place for this money - you can tap into it pretty easily, and withdrawing is penalty free as long as you aren't taking out your profits. Your return is likely to be higher than it is if you just dump the money in a savings account / money market (unless we are in a bear market).

There's also something about being able to pass on wealth to heirs - Roths are better at that, too (I can't remember all the reasoning off-hand, but it's probably tied to taxes.

What he said. Taxes will be higher and I like the emergency money that is available. I didn't think that way before I discovered Tom's MB. Welcome to the fray. Lota info on this MB.

 

[mlk_man]

Welcome to the board haffey. I agree with the other Roth supporters. Many more investment options even if the fees are higher and with electronic transfers, you can have emergency cash in a week or two if you need it. Plus it's more fun and more frustrating at the same time. :blink:

Personally, I'd take out a $8000 loan on your TSP and fund your Roth for this year, you have until April 15th 2007 to do this, and next year. You'll have to wait till Jan 2007 for that. This will give you some money to invest with and if you spread that loan out over 5 years, you're next step increase and yearly raise will cover it. With $140000 in your TSP, it'll hardly be missed.

 

[haffey005]

Thanks so much for all the information-you guys are good! It looks like I will just do up to the matching in the TSP and then take the rest of the monies to fund a Roth. I love the loan idea mlk_man, unfortunately I have a loan out already. Has anyone done a Roth in Sharebuilder or BuyandHold? Thanks!!!

 

[azanon]

You guys left another big advantage out of the Roths: you can withdraw the contributions to a Roth without penality at any time (but not earnings), and for any reason. So lets say 10 years down the line you've put in 40K (4K per year), you can withdraw 40K penality free.... and tax free (since you've already paid taxes on it) for any reason. There are also certain conditions you can withdraw the earnings too without penality (such as for a first time home purchase).

We had some guy here (forgot who he was) that refused to accept this as truth, but it is true. You can do this with a Roth.

Azanon

 

[tsptalk]

Hey stranger. How have you been?