where is the TSP "magic" at?

[Keyboard Ninja]

This is probably really lame, but can someone point me in the right direction on how the TSP works? I've only been in the USAF for 2 years, and I have only contributed to the TSP for 1 year.

How does the "magic" work? I took a look at what I've contributed via my LES (aka paycheck stub) vs. what the TSP shows and it is about the same amount (give or take $10). When should I actually see the benefits of contributing?

 

[saxquiz]

I've been contributing for the TSP for about the same amount of time (Navy here) and I've seen the same thing. It's just like the stock market though. There are ups, downs, and stagnation. So far this year my account has lost money. Just keep at it. If you want to guarantee positive returns then go with the G fund. I'm in the C, S, and I with all of my money. I only have 5k in right now, but I plan to put my bonus in there to avoid the taxes for now.

 

[Boxkicker]

Depending on how much risk you want to worry about, TSP is either gonna make money or lose money. I have been contributing since 4Q/03 and here is what my returns have been so far:

I have made $5,033.86. I lost $3K just last quarter!

Remember TSP is a LONG-range investment tool for retirement. It is fun to watch, but don't get wrapped around the axle about it and start worrying! It will all shake out in the end!

 

[Keyboard Ninja]

How come it looks like your contirbutions went up and down? I thought you just add money to the TSP not subtract from it.

 

[Boxkicker]

That is just my gains/losses per quarter.

I have about $50K in it.

 

[virginia]

Keyboard - Investing in the TSP is investing in the stock market. If the market goes up, the shares that you bought will increase in value. As the market goes down, so will your shares.

You've actually started investing at a great time, when the market has been not so great. That means that you bought the stock on sale.

The benefits of TSP are that the costs to manage the TSP are extremely low, the lowest of pretty much all mutual funds, which means that more of your money grows instead of going into someone else's pocket.

Another benefit is that the money that goes into TSP comes out of your gross and not after tax income. What that means is that basically - let's say you were in the 20% tax bracket and make 2k a month and invested 1k into TSP. Given that you invested $1000 into TSP - that $1000 is never taxed, only the other $1000. Tax total = $200. If you didn't put any money into TSP - then all $2000 would be taxed. Tax total= $400. So you are receiving immediate tax benefit -

Sorry, if that's too simplistic, but I'm not sure how much you already know - basically TSP works like a Traditional IRA.

 

[virginia]

Actually - I need to make a correction. In my post above, I said "that $1000 is never taxed" -

Never say never - actually - what I should have said is that it is not taxed during that pay period. When you withdraw from the TSP in retirement - it is taxed at that time. The benefit is that your money is allowed to grow and compound for all of those years, and then you pay tax when it's withdrawn.

 

[Nords]

This is probably really lame, but can someone point me in the right direction on how the TSP works? I've only been in the USAF for 2 years, and I have only contributed to the TSP for 1 year.
How does the "magic" work? I took a look at what I've contributed via my LES (aka paycheck stub) vs. what the TSP shows and it is about the same amount (give or take $10). When should I actually see the benefits of contributing?

It's one of the world's largest mutual funds with absolutely the world's lowest expenses. Even Vanguard drools with envy over the TSP's numbers.

Returns are lumpy and your contributions, for whatever reason, ended up coming near the end of five years of market gains. Relatively speaking, you're doing great-- many people who were making 401(k) contributions during the 2000-2002 market watched their dollars drop to 75 cents or even less.

After about 8-10 years of contributions (and compounding, and reinvested dividends) you'll wake up one morning to realize that your TSP shares have earned more money for you that year than your paychecks did. It's like having an extra worker bringing a paycheck home without having to feed them groceries...

 

[W2R]

Relatively speaking, you're doing great-- many people who were making 401(k) contributions during the 2000-2002 market watched their dollars drop to 75 cents or even less.

I first started contributing to the TSP in 2000. We have 5% match, and I have always contributed the max (plus catch-up once that was possible), but I remember that at that time, it seemed like the TSP was not really beating my savings account.

But: don't forget that buying stocks in a down market is like a "blue light special" at K-mart. The stocks are essentially on sale.

Anyway, the market was back up in 2003, and by the end of that year my TSP contained 130% of the entire amount I had put into it.

By now, my TSP contains nearly twice what I have contributed since 2000. Also I have had a much lower income tax burden all along, so I am happy with it. It has been pretty painless because I never see the money in the first place.

 

[Bimmerbill]

Yeah, keep contributing! TSP is a great plan. Mine has been flat for most of this year after an initial 10-15% drop. My bi-weekly contributions seem to be keeping it at the same level.

 

[Keyboard Ninja]

I first started contributing to the TSP in 2000. We have 5% match, and I have always contributed the max (plus catch-up once that was possible), but I remember that at that time, it seemed like the TSP was not really beating my savings account.

I suppose TSP matching is only available for certain civilian jobs? Or is that something I can ask about in the military?

 

[W2R]

I suppose TSP matching is only available for certain civilian jobs? Or is that something I can ask about in the military?

I am a federal employee, but not military. The rules are different, but here are the conditions under which you can get a match:
TSP: Uniformed Services Features, ch#4, Understanding Agency Contributions; 2008 Feb 29

Well gee, that link didn't seem to work. Here's another way to get to the matching contributions webpage that that link was supposed to take you to!

Go to The Official TSP Home Page, maintained by FRTIB; 2008-05-22 and click on "TSP features" for "Uniformed services" (bottom middle of the page). Then go to Understanding Matching Contributions.

You can read and learn more about your tsp by going through the publications about military TSP located at that website, as well.

 

[Nords]

I suppose TSP matching is only available for certain civilian jobs? Or is that something I can ask about in the military?

So far TSP matching is only available to civil-service employees.

IIRC the legislation exists for services to provide TSP matching but no one wants to be the first to implement it. They'd rather be able to hand over cold hard cash for reenlistments (or agreements to continue on active duty) and let the servicemember decide whether or not to put it into the [-]new pickup truck[/-] TSP.

I haven't kept up with the rules, but it's possible that bonus pay and special pays can also be dumped into the TSP. You'll have to check TSP.gov on this one.

 

[virginia]

You can put all of a bonus into the TSP as long as you are contributing at least a certain amount (I think 1%) of basic pay. There may be a limit on the amount though-

 

[Keyboard Ninja]

What sucks is that my AFSC's bonus just dissappeared in Dec07. 5.5 multiplier to 0

 

[deserat]

TSP is a way to grow tax deferred money like a 403B or 401K. This is in addition to your pension - think of it as 'streams of income.' You have your pension, you have your after-tax and you have your tax-deferred. So, you are fully diversified. Think of it as long-term -not short-term like MM, CDs or other cash-like savings.

TSP is awesome an I started contributing as soon as it was available for the military - I've also had 403Bs with my civilian jobs and that tax deferred money is just going to sit there for awhile until I decide to use it.

Frankly, with a TSP, you could truly retire at 20 if you do it right.

 

[deserat]

One last think Keyboard Ninja - if I may say this - march yourself to the local financial planning/help office in the AF. The AF is taking a lot of time making sure that the young airman know how to manage their money cuz we are having problems with that - there is a wealth of information out there that you can use as a youngster and not learn the hard way when you are older - fire up the AF Portal and go look. If I had a sixteenth of the access to the information you have now, I'd be miles ahead of where I am and I'm pretty far ahead. Time is your friend right now when you are young.

 

[PsyopRanger]

Did anyone catch the latest on the proposal that would add a Roth feature to the TSP and make it an automatic enrollment upon enlistment?

Good idea to me.

FederalTimes.com

 

[Nords]

What sucks is that my AFSC's bonus just dissappeared in Dec07. 5.5 multiplier to 0

Holy crap. In the Navy we refer to that as a "separation incentive".

When I was teaching at instructor training school I saw just about every rating in the service. We'd poll around the room with "big" re-enlistment bonus multiples of 2.5, 3.5, and even 4.0. I'd save the submarine nuclear reactor electronics technicians for last because their bonus multiple was always at least 6.0...

 

[Keyboard Ninja]

Holy crap. In the Navy we refer to that as a "separation incentive".

Part of me thinks it is a good thing. Alot of really crappy NCO's have crosstrained into the field just to reap the benefits of the bonus. Alot of other airman who suck do the same. The big negative is of course were the good ones who were on the bubble and couldn't decide.

 

[Bimmerbill]

They have been talking about adding a Roth option to the TSP for a while now. I hope they do it. It would make things much easier (for me at least). You can't beat the TSPs low costs!

I think the automatic enrolement option will be one of the L lifecycle funds. I think that is much better than the G fund.

 

[Keyboard Ninja]

They have been talking about adding a Roth option to the TSP for a while now. I hope they do it. It would make things much easier (for me at least). You can't beat the TSPs low costs!

I think the automatic enrolement option will be one of the L lifecycle funds. I think that is much better than the G fund.

Is this a result of those who [-]know[/-] think that social security won't be around? If there is a ROTH IRA fund will it be something we can choose, or will it just be a single fund the government picks out for us?

 

[Bimmerbill]

I think all TSP funds will be present in the ROTH side of it, just like normal TSP. I bet it will be expensive to inplement, as they will almost have to give everyone a second account to keep ROTH seperate from normal 401K contributions.

 

[ChrisC]

I think all TSP funds will be present in the ROTH side of it, just like normal TSP. I bet it will be expensive to inplement, as they will almost have to give everyone a second account to keep ROTH seperate from normal 401K contributions.

Nah, it's a very simple fix. You just add and track a Roth 401K; not a major big deal as many employers, including at least a few Federal employers with separate 401K plans in addition to TSP, have already added.