TSP vs. Roth

[ExtremeWX]

Hello all,
I just started a Scottrade self directed Roth IRA and transferred my Janus Traditional IRA over to the Scottrade (liquidated).

My questions are...
1. Should I reduce my TSP contributions since we are limited on IFTs, and put the bulk of my monthly investment $$ into the Scottrade Roth, or should a balanced approach be taken with both?

I guess I just don't know the pros and cons of each to know what to do.
I like the idea of being able to buy or sell when I want, instead of 2X per month.

2. Should I open a standard Scottrade account (non IRA) and maybe put a 1/3 of my monthly investment in there for trading?

Any opinions out there?
Thanks!
Bryan

 

[Birchtree]

The first hard lesson of finance is that it takes money to make money and it takes a long time to build enough of a base to make it worthwhile. A Roth account is a wonderful long term mechanism to build a base but you are limited to how much you can invest on a yearly basis - there are no paper work requirements to the IRS. A regular IRA allows more funds to be deposuted but is still limited. A regular account has all the potential and of course reporting requirements. So open a regular account to be prepared for later on and stay with your TSP account and get the matching and learn before you churn. You also will have more gain potential if you stick with individual stocks in your Roth.

 

[ExtremeWX]

Thanks Birch!
I do not get matching in TSP since I'm in the Air Force, so would this change your stance on trimming down TSP and maybe go with a max in Roth, and the rest in a standard trading account?

I'm investing about $1K per month now... what would you recommend as the amount to each account?

My original thought was:
Roth: $416.00 per month ($5K per year... max contribution)
TSP: $200.00 per month (benefit of pre taxed $$)
Standard trading account: $384 per month.

As for purchasing individual stocks for my standard account... I wouldn't know where to start. I guess that is where the homework comes in.

Bryan

 

[Birchtree]

Bryan,

Your plan looks good - evenly balanced. Now all you have to do is keep working and the longer you work the greater the base. Good luck.

 

[Rogue]

You Must Spread Some Reputation Around before giving it to Birchtree again.

Birch, locally (Tri Cities, TN) we have Edward Jones, Fidelity, (both have unimpressive staff when I visited), Morgan Keegan, and Raymond James. Since RJ just bought MK, I was thinking of opening a new Roth with them, since I already max-out my TSP. Any thoughts on these companies?

 

[roskopfj]

Why not just use vanguard. Unless you are investing in actively managed funds all companies are the same except for fees. I learned that lession the hard way. I used a broker that bought fidelity plain old funds. I have been paying 1-2.5% fees per year out of the fund earnings. I shopped around and the best one out there is Vanguard. Vanguard has the lowest fees from anyone except the TSP. All of the index funds and ETF's have extremely low fees. Trust me Vanguard is by far the best you can get at the lowest price. There customer service is 10 times better than I have experienced with anyone else.
'

 

[Boghie]

Thanks Birch!
I do not get matching in TSP since I'm in the Air Force, so would this change your stance on trimming down TSP and maybe go with a max in Roth, and the rest in a standard trading account?

I'm investing about $1K per month now... what would you recommend as the amount to each account?

My original thought was:
Roth: $416.00 per month ($5K per year... max contribution)
TSP: $200.00 per month (benefit of pre taxed $$)
Standard trading account: $384 per month.

As for purchasing individual stocks for my standard account... I wouldn't know where to start. I guess that is where the homework comes in.

Bryan

Bryan,

Your savings vehicle split is good to go assuming you are in the 15% tax bracket or lower. As your taxable income increases the tax advantage value of TSP increases. If you're top bracket is 25% or higher use the TSP more than the Roth. Kinda a rule of thumb - but you will probably have so much moola in your accounts by the time this decision has to be made that you can hire a good financial advisor.

Since the Roth and TSP are retirement accounts you should be looking long term. If you are young you should always hold a large majority of assets in equity funds (C/S/I or equivalent - which all fund houses provide). Even if you rode C/S/I down from late 2007 through early 2009 you would be doing quite well now if you kept on contributing (or increased contributions - thanks BT). Play on the edges - maybe market time 20% - 30% of your assets. Otherwise you will miss 100% of the big booms and your retirement account will not be funding wine and caviar. A better Alpo maybe.:cheesy:

Your standard account must be managed a bit more. Watch out for taxes. Short term gains are taxed high. It is also a pain in the but to track all the tax stuff - and you really can't sluff it off since the IRS gets all the documents. But you can invest here for mid term and short term requirements (a car or a house). That is not possible in retirement accounts.

Finally, why not start your Roth and standard account investing in ETF/Funds that match TSP. Hold off on the individual stock and fancy stuff till you have enough to diversify a bit. And, do you really enjoy poring over the balance sheet of 'Tractor Supply' or something. Yuk, and double yuk...