TSP and Vanguard

[chonga]

Hello All - My 24 yo son just got his first job as a civilian fed employee. I am just learning about the TSP as I try to guide him in starting early in investing and retirement planning.

I already advised him to contribute 5% to get the max employer match of 5%. He wants to contribute more but I am not sure if he should increase his contribution in the TSP or invest more outside like in Vanguard where I am more familiar with.

Also, since he is young, I advised him to invest in the C fund following the S&P 500.

I would appreciate your thoughts on increasing his contribution in the TSP or do a combination with Vanguard please. Thanks in advance!

 

[Bimmerbill]

TSP is very low cost. I do a combination of the C, S, and I funds. TSP also has lifecycle funds.

 

[MuirWannabe]

Can’t offer advice to your question, sorry. But I am curious what type of work and with what agency your son snagged his job with? I kinda wish my DS could get a fed job. Thx.

 

[samclem]

Both the TSP and Vanguard offer very low cost investing options, so he can do fine in either case.

An IRA or Roth IRA (which is what his Vanguard account would likely be) does offer some differences from a 401k (which is what his TSP amounts to). The TSP has historically lacked some of the withdrawal flexibility that any IRA has, but recent changes in the TSP have addressed some of these issues.

If he expects his marginal tax rate now to be less than he'll experience in retirement, then he might want to open a Roth IRA with Vanguard and make his contributions (above the TSP match level) there. This could give him more flexibility in devising a tax-efficient withdrawal strategy when he takes the money out.

It's great that he wants to save a lot, and that you are looking out for him. Regarding the asset mix in the TSP, he might want to consider going with one of the L series funds instead of the C-Fund. He'd get better diversification (US small and international stocks, plus some fixed income). The expense ratio is the same as the C fund, and broadening beyond the S&P 500 may improve his risk-adjusted returns or even his absolute returns. Better still, he can forget about adjusting it as he gets older, that will be handled automatically.

 

[Lawrencewendall]

I max mine out to include the catch-up in the S fund. More volatile but better returns. TSP has some of the lowest fees in the industry (with the exception of Fido's new no fee US market index). 7 years ago the S was $18 a share, now it's $50+.

 

[chonga]

Can’t offer advice to your question, sorry. But I am curious what type of work and with what agency your son snagged his job with? I kinda wish my DS could get a fed job. Thx.

Hi - He got a job with Nav Air in Orlando, Florida. They are located in the research park next to the University of Central Florida where he graduated.

 

[chonga]

Thank you all for your valuable insight. I advised him to leave it in the default L Fund and increase up to 10% contribution. He can always adjust later on. Thank you!

 

[pb4uski]

If he is in a low tax bracket (lower than what he will likely be when he retires), he may be better off to save 5% in the TSP to get the match and any excess in a Roth IRA... it will diversify his retirement income sources.

That may be particularly true this year since has just started working.

Later on as his income grows and he is in higher tax brackets then pivot to tax-deferred savings.

 

[JDARNELL]

Load up on TSP in the ROTH!

 

[Amethyst]

Max out TSP, and then put any extra into VG.

 

[pb4uski]

Load up on TSP in the ROTH!

I didn't realize that there was a Roth TSP.... I think i would still prefer a personal Roth until his contributions start hitting the $5,600 limit... more choices that are just as affordable... but it is pretty much six of one or a half dozen of the other.

 

[nash031]

Simply put, TSP is as cheap as it gets - even cheaper than Vanguard for equivalent funds, and has a Roth option. Load it up. (Disclosure - I have both TSP and Vanguard accounts to which I contribute, I max TSP and Roth IRA at Vanguard).

 

[donheff]

I rolled a traditional IRA into the TSP. I would recommend that he max out his TSP contributions.

 

[wrigley]

My wife has been employed by the Federal Government for 25 years now. Her TSP is BOOMING!

 

[kannon]

Max out Roth TSP, life-cycle target fund, auto payments, live below your means and just wait 30 years and happy camper.

Also suggest max out a Roth IRA. Can do that with Vanguard.

If you like too, since maxing out both can be financially hard on a young person, and you can afford it, gift him the money.

Keep it up for 30 years and have a great retirement.

 

[zinger1457]

Thank you all for your valuable insight. I advised him to leave it in the default L Fund and increase up to 10% contribution. He can always adjust later on. Thank you!

Didn't realize they had changed the default fund to the L Fund, it was the G Fund when I was working. I recall reading in one of their newsletters that they were increasing the international stock investment % in the L fund so that might be something to consider. I would also recommend the TSP Roth, sure wish they had it when I was working. Changes to the TSP withdrawal options are suppose to take effect in 2019 and are a much needed and welcome change, the current TSP withdrawal options are terrible.