TSP G Fund - how liquid?

[ATC Guy]

I think I'm going to put my emergency fund into the Roth TSP. I will need this money in 2 years when I separate from the military. How much I will need depends on how quickly I become reemployed. Since I hopefully won't need it all, this will allow me to get my yearly contributions into a tax deferred account.

Doing some research for the first time on the TSP, it looks like the G fund is my best option for my purpose. Problem is I'm not exactly sure how the G fund operates. How liquid is it? Is it like a money market or do I have to wait for certain holdings to mature before I'm able to withdrawal my principle interest free?

Anyone have more experience with this fund?

 

[donheff]

I think I'm going to put my emergency fund into the Roth TSP. I will need this money in 2 years when I separate from the military. How much I will need depends on how quickly I become reemployed. Since I hopefully won't need it all, this will allow me to get my yearly contributions into a tax deferred account.

Doing some research for the first time on the TSP, it looks like the G fund is my best option for my purpose. Problem is I'm not exactly sure how the G fund operates. How liquid is it? Is it like a money market or do I have to wait for certain holdings to mature before I'm able to withdrawal my principle interest free?

Anyone have more experience with this fund?

I use the TSP for my "cash" reserve. The G is guaranteed not to lose face value which is the same as cash. On the upside it delivers decent Treasury based interest. From the TSP site: "The interest rate resets monthly and is based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity." This is like a Government backed super money fund.

Edit: I haven't looked into the Roth option but that sounds wrong for a two year deal. Don't Roth earnings have to stay put for 5 years? The way I would tap my TSP "cash" in an emergency would be to sell equities in a taxed account and buy an equal amount of equities in the TSP to balance out the sale. Of course, as long as you have something outside of the TSP to sell you could use this approach in a Roth TSP as well as in a regular TSP -- i.e. liquidate whatever you want outside the TSP and balance the transaction (if needed to maintain your AA by trading within the TSP).

 

[W2R]

Check the TSP withdrawal rules. There are various options and I don't recall them all, but there may not be one that meets your needs.

As a non-military retiree, I get equal monthly payments from the TSP but I couldn't just go to it and withdraw an extra $5K in an emergency, for example. Since you are working you have different rules. Also maybe you could borrow from the TSP in an emergency, but I am not sure how long that would take.

That said, even though I treat it as a bond fund in my portfolio rather than emergency cash, I do like the G Fund.

 

[ejw93]

ATC -

1) Thanks for your service.

2) You should not be concerned with the liquidity of the G fund. Not an issue.

3) You SHOULD be concerned about Roth TSP withdrawals, especially if you have an existing 'traditional' TSP balance. According to TSP site https://www.tsp.gov/planparticipation/loans/loanBasics.shtml , TSP loans are made proportionally from your Traditional and Roth accounts. For example, if your TSP Roth balance is $5k, your Traditional TSP balance is $5k, and you ask for a $5K loan- $2500 will be 'Traditional' and $2500 will be 'Roth' (50/50). If I am reading the TSP regulations correctly, your'e paying interest on the full loan amount ($5k) at the 'G' fund rate on the day the loan is issued.

TSP loan bottom line: you've already paid taxes on the Roth TSP contributions, now you're going to pay interest to borrow some of it back.

4) Contrast this with money in an individual Roth account. Assuming you are eligible for an individual Roth IRA, I'd put the 'rainy day' money there first, THEN any extra in to the Roth TSP. If you need to withdraw individual Roth account money, your contributions (not earnings) are there for your taking at any time- no penalties, no loans, no interest payments.

 

[zinger1457]

All the TSP funds have the same level of liquidity, it doesn't matter what funds you're invested in when making withdrawals. The G fund would be the safest fund if you plan on taking it out soon. You'll have no problem getting your money out. You don't state your age but if you're not at least 55 years old in the year you leave military service you will get hit with a 10% penalty on withdrawals unless you roll the money over to another qualified retirement account.

 

[samclem]

Note: Once you've retired, if you've got a TSP account it's a good idea to >never close it<. You can roll over money from other retirement accounts (e.g. a private employer's 401K) into your TSP if you have one open even if you've retired from govt service, which can be a great deal. However, once you've closed the account you can never open another TSP account without resuming government employment. The TSP has great low-cost offerings, some unique aspects (the G-Fund) and who knows what may come down the line later. Keep your options open by leaving a few hundred bucks in there even if some other place seems to be a better deal for most of your money.

 

[donheff]

According to TSP site https://www.tsp.gov/planparticipation/loans/loanBasics.shtml , TSP loans are made proportionally from your Traditional and Roth accounts. ... If I am reading the TSP regulations correctly, your'e paying interest on the full loan amount ($5k) at the 'G' fund rate on the day the loan is issued.

IIRC the "interest" you pay goes back to your own account. After all you are taking a loan from yourself.

 

[ATC Guy]

Thanks everyone for your responses so far. I'm 24 right now and don't have any money in the TSP. My plan is to open the Roth TSP only to setup an emergency fund for when I separate from the military. If I don't have to use it all, at least I will have been able to fund this tax advantaged account in these years.

I know in a Roth you can take out principle without penalty. This isn't any different in the new Roth TSP is it? If I store all savings in the G fund, I can take out my principle penalty free right? Or are there special rules for the Roth TSP that make it different than a regular Roth?

 

[ejw93]

Thanks everyone for your responses so far. I'm 24 right now and don't have any money in the TSP. My plan is to open the Roth TSP only to setup an emergency fund for when I separate from the military. If I don't have to use it all, at least I will have been able to fund this tax advantaged account in these years.

I know in a Roth you can take out principle without penalty. This isn't any different in the new Roth TSP is it? If I store all savings in the G fund, I can take out my principle penalty free right? Or are there special rules for the Roth TSP that make it different than a regular Roth?

ATC -

As I stated above, Roth TSP does not let you do straight-up withdrawals of principal. You must take a TSP loan and pay interest.

This is why an individual Roth account is the best way to get started if your intent is a 'rainy day fund'. A withdrawal of principal/contributions from an individual Roth IRA is permissible at any time for any reason.

With the individual Roth IRA, you are not taking a loan from the account. This is the key difference from the Roth TSP.

 

[donheff]

ATC -

As I stated above, Roth TSP does not let you do straight-up withdrawals of principal. You must take a TSP loan and pay interest.

I understand the concept of loans as they apply to employees. But the OP is planning to leave the military. Anything he takes out after leaving is a withdrawal. Why would a TSP Roth be different than any other Roth? If you are aware of some difference, how about citing where you found the info?

 

[ejw93]

I understand the concept of loans as they apply to employees. But the OP is planning to leave the military. Anything he takes out after leaving is a withdrawal. Why would a TSP Roth be different than any other Roth? If you are aware of some difference, how about citing where you found the info?

TSP loans are not permissible once the employee leaves the employ of the federal government or uniformed service: https://www.tsp.gov/planparticipation/loans/loanBasics.shtml#LoanEligibility

If ATC's plan is to stash money in the Roth TSP, and then leave the service, then there are 2 ways to access the TSP Roth $$ without penalty:

1) Wait until age 59.5.

2) Direct Rollover aka "Trustee-to-Trustee Transfer" of the TSP Roth balance in to an individual Roth IRA. Then withdrawals of Roth contribution basis are permitted without penalty.

Primary Resource - Roth Distribution Rules: IRC Sec. 408A (d)(2)(A).

Primary Resource - Roth Aggregation and Ordering Rules: IRC Sec. 408A (d)(4)(B).

Secondary Resource - IRS Pub 590 (Ordering rules for Roth Distributions): http://www.irs.gov/pub/irs-pdf/p590.pdf

 

[donheff]

If ATC's plan is to stash money in the Roth TSP, and then leave the service, then there are 2 ways to access the TSP Roth $$ without penalty:

1) Wait until age 59.5.

2) Direct Rollover aka "Trustee-to-Trustee Transfer" of the TSP Roth balance in to an individual Roth IRA. Then withdrawals of Roth contribution basis are permitted without penalty.

Primary Resource - Roth Distribution Rules: IRC Sec. 408A (d)(2)(A).

Primary Resource - Roth Aggregation and Ordering Rules: IRC Sec. 408A (d)(4)(B).

Secondary Resource - IRS Pub 590 (Ordering rules for Roth Distributions): http://www.irs.gov/pub/irs-pdf/p590.pdf

If the TSP requires a rollover to a standard Roth and then a withdrawal that seems the height of stupidity. If they are setting up a Roth, set up a Roth.

 

[Nords]

If the TSP requires a rollover to a standard Roth and then a withdrawal that seems the height of stupidity. If they are setting up a Roth, set up a Roth.

Well, you've laid your finger on the problem. It's not a Roth IRA, it's a "designated Roth account".

I got beat up pretty good on this one on the blog. Here's the IRS language:
Retirement Plans FAQs on Designated Roth Accounts

and here's what I finally ended up writing for servicemembers:
Is the Roth Thrift Savings Plan right for you? | Military Retirement & Financial Independence

 

[donheff]

Well, you've laid your finger on the problem. It's not a Roth IRA, it's a "designated Roth account".

I got beat up pretty good on this one on the blog. Here's the IRS language:
Retirement Plans FAQs on Designated Roth Accounts

and here's what I finally ended up writing for servicemembers:
Is the Roth Thrift Savings Plan right for you? | Military Retirement & Financial Independence

Thanks Nords. As I said, the whole concept sounds like the height of stupidity. But then the whole tax code is a mess, why not this stuff.

 

[ATC Guy]

Thanks Nords and ejw. That is exactly what I was looking for.

Nords the article on your blog was perfect for my question. Thanks again everyone!