Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
TSP Questions
Old 02-18-2008, 10:37 AM   #1
Recycles dryer sheets
 
Join Date: Feb 2005
Posts: 260
TSP Questions

Hi everyone-

I did some searching around, but could not find the answers I need in regards to TSP. I'd like to start contributing more to TSP, eventually maxing out every year my TSP plan. I have a few questions, and have not been able to find the answers in the TSP booklet. Also would like your advice on how to invest in the TSP.

1) When contributions are made in a combat zone, and are labeled as "exempt" - is that the same as having contributed to a Roth IRA? Is that money forever not taxable?

2) When the TSP booklet talks about withdrawing upon retirement - that is military or federal service retirement - correct? Want to make sure that the money that I'm putting in now will be available upon military retirement, not in my 60's.

3) I currently have 100% of the money in the C fund. I know this needs to change. I currently have 12 years active service. Should I break this down into the C, S and I funds or go ahead and do a Lifecycle fund? My inclination is to go with the Lifecycle 2030 fund, because the 2020 fund seems to0 conservative for me - too much in fixed income, but don't want to be foolish either. I don't like moving in and out of funds a lot, so I think that a Lifecycle fund will be for me.

4) When I pull from the C fund and invest in other funds, will the gains be taxed? I don't think so, but want to be sure -

Thanks for your time.

Michelle
__________________

__________________
virginia is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-18-2008, 11:04 AM   #2
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Quote:
Originally Posted by virginia View Post
I did some searching around, but could not find the answers I need in regards to TSP.
Have you cruised around TSP.gov? It's big and it's messy so there's lots of buried treasure.

Quote:
Originally Posted by virginia View Post
1) When contributions are made in a combat zone, and are labeled as "exempt" - is that the same as having contributed to a Roth IRA? Is that money forever not taxable?
Yep, that's my understanding of the current legislation. You'd track it through your tax returns.

Congress fixed the earned-income/IRA issue recently too, so even if you have zero earned income in that combat zone you can still contribute to an IRA as well as max out the TSP.

Quote:
Originally Posted by virginia View Post
H2) When the TSP booklet talks about withdrawing upon retirement - that is military or federal service retirement - correct? Want to make sure that the money that I'm putting in now will be available upon military retirement, not in my 60's.
Um, not so fast. The TSP resembles most tax-deferred investments in that you either have to tap it when you're older than age 59.5, or meet some kind of exemption, or withdraw via a 72(t) system.

When I retired at age 41 I had to roll my pitiful TSP balance over to an IRA. When spouse retires at age 49 she'll leave her more respectable balance with the TSP for a few years and then eventually roll it over to an IRA for conversion to a Roth before age 60 (when her Reserve pension kicks in). But we don't anticipate needing to touch the TSP money for a looooong time.

Quote:
Originally Posted by virginia View Post
3) I currently have 100% of the money in the C fund. I know this needs to change. I currently have 12 years active service. Should I break this down into the C, S and I funds or go ahead and do a Lifecycle fund? My inclination is to go with the Lifecycle 2030 fund, because the 2020 fund seems to0 conservative for me - too much in fixed income, but don't want to be foolish either. I don't like moving in and out of funds a lot, so I think that a Lifecycle fund will be for me.
It only "needs" to change to the extent of your "sleep at night" comfort zone, your overall asset allocation (TSP as well as IRAs and any investments in taxable accounts), and your interest in tinkering with the system. Many people would be perfectly happy with a "fire & forget" lifecycle fund.

If you think you're gonna be hanging around for a pension then you could consider going 100% stocks with your TSP funds, perhaps even just splitting between the I & S funds. International investing is generally a higher expense ratio but the TSP does it at just a 0.03% expense ratio, so that's a great bargain. Same for small-cap stock funds, although there's less of an expense difference. You could always adjust the asset allocation if you transfer to the Reserves or separate, but for now you have plenty of earnings power to get you through the bear markets.

Quote:
Originally Posted by virginia View Post
4) When I pull from the C fund and invest in other funds, will the gains be taxed? I don't think so, but want to be sure
No taxes on anything done inside the TSP. You're only taxed if you withdraw the money (or convert it to a Roth IRA).

Many people rebalance their overall asset allocation by moving money around in their tax-deferred accounts to avoid having to make taxable transactions in their taxable accounts. Many equity traders also use IRAs for the same reason.
__________________

__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 02-18-2008, 01:43 PM   #3
Recycles dryer sheets
 
Join Date: Feb 2005
Posts: 260
Thanks very much Nords.
I think that I will go into a Lifecycle Fund so that I won't have to worry about it anymore. Also - if combat pay is forever exempt, I will max it out during deployments. Maybe I'll shoot for saving as much in TSP as possible and then doing the 72t withdrawals upon retirement. I don't really see any benefit in continuing to save in taxable accounts, especially if the 72(t) option will be available to me.
Thanks again - your responses were very helpful!
__________________
virginia is offline   Reply With Quote
Old 02-20-2008, 03:36 PM   #4
Thinks s/he gets paid by the post
martyb's Avatar
 
Join Date: Nov 2006
Location: Bossier City
Posts: 2,182
Quote:
Originally Posted by Nords View Post
Um, not so fast. The TSP resembles most tax-deferred investments in that you either have to tap it when you're older than age 59.5, or meet some kind of exemption, or withdraw via a 72(t) system.

I'm a military reservist and a civilian federal employee. A federal employee can tap his/her TSP without penalty at age 55 if they retire at any time during that year or later. I realize an active military person would probably not be that old when they retire....but hey! You could always retire from active duty and then take up a career in Civil Service!
__________________
“Change is the law of life. And those who look only to the past or present are certain to miss the future.”
-John F. Kennedy

“Hard work never killed anybody, but why take a chance?” - Edgar Bergen
martyb is offline   Reply With Quote
Old 02-20-2008, 10:19 PM   #5
Recycles dryer sheets
 
Join Date: Feb 2005
Posts: 260
Marty - thanks -
.......but I hope to be retired by 55!
__________________
virginia is offline   Reply With Quote
Old 02-21-2008, 12:12 PM   #6
Thinks s/he gets paid by the post
martyb's Avatar
 
Join Date: Nov 2006
Location: Bossier City
Posts: 2,182
Can't say I blame you...if only I had a magic time machine and could go back to when I first enlisted in the Air Force! I'd sure be in a different position now! Still, I think that I could be doing worse than retiring at 55 in 4 + yrs from now with 2 COLA pensions and my TSP from uncle sugar. Too bad I have to wait 5 extra yrs to start drawing the military money, though. Mentally, I'm already in retirement mode, I think!
__________________

__________________
“Change is the law of life. And those who look only to the past or present are certain to miss the future.”
-John F. Kennedy

“Hard work never killed anybody, but why take a chance?” - Edgar Bergen
martyb is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
TSP annuities free4now FIRE and Money 8 12-24-2007 01:59 PM
TSP LeatherneckPA FIRE and Money 14 01-16-2007 06:57 AM
TSP Annuity lazyday FIRE and Money 5 11-24-2006 10:19 AM
Roth TSP? PsyopRanger FIRE and Money 1 08-05-2006 12:13 PM
TSP vs. Vanguard setab FIRE and Money 15 03-22-2006 10:39 AM

 

 
All times are GMT -6. The time now is 09:42 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.