abidingpatri0t
New member
Seeing lots of TSP related threads so trying on an annual, pinned to the top mega thread to consolidate a lot of the questions and knowledge. Please comment with your questions and we will add the most frequently asked ones on the top.
The TSP or Thrift Savings Plan is an employee sponsored retirement savings plan. It is very similar to a 401k except that it is only available to military servicemembers and federal civilian employees. https://www.tsp.gov/
A TSP is a tax-advantaged retirement account. This means that there are tax advantages for contributing to the account and leaving the money in there until retirement age.
You can either select to be taxed on your contributions today, which makes sense if you have a low tax rate. Or you can select to be taxed on your contributions when you withdraw them, which makes sense if you have a high tax rate now.
If you joined after 2017, a TSP account will be automatically created for you. After Oct 2020, an automatic 5% contribution will go into your TSP so you receive the full 5% BRS match.
You can select your contribution percentages on https://mypay.dfas.mil/.
As much as you can. If you are in the BRS (which you most likely are if you joined the military after 2017), then at a minimum 5%. A good goal initially can be 10% of your base pay.
Once you are more settled, try to increase your contributions until you max out your contributions every year. If you are in the legacy system, you can max out before December every year without consequences. If you are in BRS, you need to make sure you contribute at least 5% of your pay every month including December. See more details here:
$19,500 or $58,000 if you receive Combat Zone Tax Exclusion (CZTE) pay, such as when you are on a deployment. https://www.tsp.gov/making-contributions/contribution-limits/
No, the 5% match goes into the $58,000 "annual addition limit". So you can contribute $19,500 of your own money and the US government will kick in an extra $1000 or more, and you end up with $22k+ going into your TSP every year.
Roth contributions come from your after-tax pay. So you pay income tax on the pay and then contribute the "after tax pay" into your Roth TSP account. Since you paid taxes on the money this year, the federal government will not collect capital gains or income taxes on the money in a Roth TSP when you withdraw it after age 59.5.
Yes, a Roth IRA is an "individual retirement account" or IRA. It is set up by the individual and is a completely separate type of account from the TSP. The contribution limit is $6000 in 2021.
If you are in the Blended Retirement System (BRS), then you should at least contribute 5% every month to your Roth TSP. You will receive a 5% match from the government that will go into your Traditional TSP (you can't change this, it's due to the way the matching is taxed).
After the first 5%, it's really up to you. The Roth IRA max is $6000 per year in 2021, which works out to $500 per month. That is a nice, round easy number to set a goal for and work towards. However, the TSP is simple and as your pay increases you can simply increase your contribution amount on myPay until you're maxing the $19,500 per year for the TSP (in 2021), which may take a few years to get to depending on your spending habits.
Ideally, you would max both your IRA and your TSP, but this can be extremely difficult as a lower ranking enlisted member or a new officer. Pick one and work towards maxing it out. Once you max out one type of account (IRA or TSP), then max out the other one!
Unless you and your spouse make more than $170,000 adjusted gross income, you are probably better off with the Roth TSP and Roth IRAs. This really only includes dual military officer couples, officers over the rank of O-3, or enlisted servicemembers with spouses that make a significant ($80k+) income.
If you are enlisted or you are a deployed officer, you are most likely better off contributing to the Roth TSP. Your tax rate at this stage in your life is probably as low as it is ever going to be, especially since military servicemembers usually don't pay taxes on 30-40% of their income thanks to untaxed allowances such as BAH, BAS, and others.
Max out your Roth TSP and Roth IRAs as best you can. The money goes in untaxed, grows untaxed, and returns to you untaxed. You can also contribute extra to the Traditional TSP (up to the $58k annual addition limit) but this is probably NOT optimal since, while the contributions will distribute back to you untaxed, the growth on those contributions will be subject to income tax when you withdraw them.
It is probably more optimal to max out your Roth TSP, Roth IRA, Savings Deposit Program (SDP), and then contribute to a taxable brokerage account, since the money in a taxable brokerage account is only subject to capital gains tax, not income tax (other than dividends received).
Yes, there are many ways to access retirement funds early: https://www.madfientist.com/how-to-access-retirement-funds-early/. You can also transfer funds from your TSP to your IRAs when you leave military service: https://www.tsp.gov/publications/tsp-775.pdf
Yes, it is still worth it to contribute. The TSP is an excellent investment vehicle, especially with it's low cost, simple index fund investment options, and tax advantages.
On your Leave and Earnings Statement (LES) from MyPay.
Short answer: Lifecycle 2065 https://www.tsp.gov/funds-lifecycle/l-2065/ until you know how you want to set up your asset allocation.
Long answer: Do your own research and read classic books like A Random Walk Down Wall Street, The Little Book of Common Sense Investing, and the Bogleheads Lazy Portfolios: https://www.bogleheads.org/wiki/Lazy_portfolios.
Understand Modern Portfolio Theory and how diversification increases your returns while decreasing your volatility. Once you do that, then you can go about creating your own asset allocations.
Before building a portfolio inside TSP, you first need to understand what tools you have at your disposal.
The Funds:
The second path you can take, is to utilize the G/F/C/S/I funds yourself and build a custom portfolio. Notice the L fund is not listed among the tools you should use in building a custom portfolio, as it’s unnecessary and will only blur how your assets are actually allocated. If you want to use the L Fund, just use the L fund. If you want to build a custom portfolio, exclude any L funds as they will only complicate things; the opposite of their intended purpose.
Custom portfolios can vary greatly, with 31 potential combinations of funds, and each fund can have a custom allocation between 0-100%. To help you get started, here are the generally accepted principles to consider:
As of 2021, L 2065 has the following composition:
You’ll need to keep an eye on it over the years to make sure it stays balanced, and you will need to adjust accordingly as your risk capacity changes, but overall you should hold your allocation once it’s set and minimize changes that go against buy-and-hold philosophy.
You could also select a starting point from Vanguard’s, Schwab’s, or Fidelity’s target date funds. These funds may require an extra step or two in order to arrive at your decision for a TSP portfolio, but they offer more funds which may be more correctly tailored to your age, and you’ll get a better variety of opinions on what an ideal portfolio should look like.
What is the TSP?
The TSP or Thrift Savings Plan is an employee sponsored retirement savings plan. It is very similar to a 401k except that it is only available to military servicemembers and federal civilian employees. https://www.tsp.gov/
A TSP is a tax-advantaged retirement account. This means that there are tax advantages for contributing to the account and leaving the money in there until retirement age.
You can either select to be taxed on your contributions today, which makes sense if you have a low tax rate. Or you can select to be taxed on your contributions when you withdraw them, which makes sense if you have a high tax rate now.
How do I create a TSP account?
If you joined after 2017, a TSP account will be automatically created for you. After Oct 2020, an automatic 5% contribution will go into your TSP so you receive the full 5% BRS match.
How do I contribute to my TSP?
You can select your contribution percentages on https://mypay.dfas.mil/.
How much should I contribute to my TSP?
As much as you can. If you are in the BRS (which you most likely are if you joined the military after 2017), then at a minimum 5%. A good goal initially can be 10% of your base pay.
Once you are more settled, try to increase your contributions until you max out your contributions every year. If you are in the legacy system, you can max out before December every year without consequences. If you are in BRS, you need to make sure you contribute at least 5% of your pay every month including December. See more details here:
What is the TSP contribution limit for 2021?
$19,500 or $58,000 if you receive Combat Zone Tax Exclusion (CZTE) pay, such as when you are on a deployment. https://www.tsp.gov/making-contributions/contribution-limits/
Does the 5% match count towards the $19.5k limit?
No, the 5% match goes into the $58,000 "annual addition limit". So you can contribute $19,500 of your own money and the US government will kick in an extra $1000 or more, and you end up with $22k+ going into your TSP every year.
What is the difference between Roth TSP and Traditional TSP contributions?
Roth contributions come from your after-tax pay. So you pay income tax on the pay and then contribute the "after tax pay" into your Roth TSP account. Since you paid taxes on the money this year, the federal government will not collect capital gains or income taxes on the money in a Roth TSP when you withdraw it after age 59.5.
Can I contribute to a Roth TSP and a Roth IRA?
Yes, a Roth IRA is an "individual retirement account" or IRA. It is set up by the individual and is a completely separate type of account from the TSP. The contribution limit is $6000 in 2021.
Should I max out my Roth IRA or Roth TSP first?
If you are in the Blended Retirement System (BRS), then you should at least contribute 5% every month to your Roth TSP. You will receive a 5% match from the government that will go into your Traditional TSP (you can't change this, it's due to the way the matching is taxed).
After the first 5%, it's really up to you. The Roth IRA max is $6000 per year in 2021, which works out to $500 per month. That is a nice, round easy number to set a goal for and work towards. However, the TSP is simple and as your pay increases you can simply increase your contribution amount on myPay until you're maxing the $19,500 per year for the TSP (in 2021), which may take a few years to get to depending on your spending habits.
Ideally, you would max both your IRA and your TSP, but this can be extremely difficult as a lower ranking enlisted member or a new officer. Pick one and work towards maxing it out. Once you max out one type of account (IRA or TSP), then max out the other one!
So should I contribute to Roth TSP or Traditional TSP?
Unless you and your spouse make more than $170,000 adjusted gross income, you are probably better off with the Roth TSP and Roth IRAs. This really only includes dual military officer couples, officers over the rank of O-3, or enlisted servicemembers with spouses that make a significant ($80k+) income.
If you are enlisted or you are a deployed officer, you are most likely better off contributing to the Roth TSP. Your tax rate at this stage in your life is probably as low as it is ever going to be, especially since military servicemembers usually don't pay taxes on 30-40% of their income thanks to untaxed allowances such as BAH, BAS, and others.
Anything special about deployments?
Max out your Roth TSP and Roth IRAs as best you can. The money goes in untaxed, grows untaxed, and returns to you untaxed. You can also contribute extra to the Traditional TSP (up to the $58k annual addition limit) but this is probably NOT optimal since, while the contributions will distribute back to you untaxed, the growth on those contributions will be subject to income tax when you withdraw them.
It is probably more optimal to max out your Roth TSP, Roth IRA, Savings Deposit Program (SDP), and then contribute to a taxable brokerage account, since the money in a taxable brokerage account is only subject to capital gains tax, not income tax (other than dividends received).
Can I access TSP funds before age 59.5?
Yes, there are many ways to access retirement funds early: https://www.madfientist.com/how-to-access-retirement-funds-early/. You can also transfer funds from your TSP to your IRAs when you leave military service: https://www.tsp.gov/publications/tsp-775.pdf
How much should I contribute to the TSP if I am in the BRS and want to receive my full 5% match every year?
I'm late to the game and never contributed to the TSP until 5/10/15 years of service. Is it worth it to contribute now?
Yes, it is still worth it to contribute. The TSP is an excellent investment vehicle, especially with it's low cost, simple index fund investment options, and tax advantages.
Where can I double check that I'm getting the matching on my TSP account?
On your Leave and Earnings Statement (LES) from MyPay.
How should I invest my TSP account?
Short answer: Lifecycle 2065 https://www.tsp.gov/funds-lifecycle/l-2065/ until you know how you want to set up your asset allocation.
Long answer: Do your own research and read classic books like A Random Walk Down Wall Street, The Little Book of Common Sense Investing, and the Bogleheads Lazy Portfolios: https://www.bogleheads.org/wiki/Lazy_portfolios.
Understand Modern Portfolio Theory and how diversification increases your returns while decreasing your volatility. Once you do that, then you can go about creating your own asset allocations.
Before building a portfolio inside TSP, you first need to understand what tools you have at your disposal.
The Funds:
- G Fund - The safest fund. This is a fund of uniquely issued government backed securities, similar to very short term bonds. They are designed to preserve money, however, you'll also not make a lot of money with this fund.
- F Fund - The F Fund's investment objective is to match the performance of the Bloomberg Barclays U.S. Aggregate Bond Index, a broad index representing the U.S. bond market. Bond funds are less volatile than stock funds, but have historically returned less. This fund will be useful in guarding against economic downfall and providing a differing correlation in your portfolio.
- C Fund - Common stock fund. Matches Standard & Poor’s 500 (S&P 500, available as the ETF "SPY"). The top 500 companies in the United States. This is the index fund of Apple and Ford and Microsoft and General Electric and Amazon and so on. These are heavyweight corporations that form the backbone of the American commercial industry both at home and abroad.
- S Fund - Tracks the Dow Jones U.S. Completion Total Stock Market. All those medium and small companies the C fund leaves out, this one picks up. Slightly more volatile than the well-established blue-chip stocks, but these companies have more potential for major growth and historically has produced a higher return than the C fund.
- I Fund - Europe, Australia, and Far East index, though it will be switching to the MSCI All World ex US index in 2019 (This is generally considered a good change, as it will provide greater diversification and fill gaps in the global market that the previous index left). The U.S. holds a minority of the global market cap, and leadership in commerce swings back and forth between the U.S. and other countries. Investing internationally can provide diversification while maintaining or improving returns over the long run.
- L Fund - Lifecycle funds, the ultimate tool for the “lazy” investor. It is a portfolio composed of the other funds listed above, that automatically reallocates investments based off of a generally acceptable balance in respect to your remaining years until retirement (aggressive while you’re younger, gets safer as you age). You can see how it works here.
The second path you can take, is to utilize the G/F/C/S/I funds yourself and build a custom portfolio. Notice the L fund is not listed among the tools you should use in building a custom portfolio, as it’s unnecessary and will only blur how your assets are actually allocated. If you want to use the L Fund, just use the L fund. If you want to build a custom portfolio, exclude any L funds as they will only complicate things; the opposite of their intended purpose.
Custom portfolios can vary greatly, with 31 potential combinations of funds, and each fund can have a custom allocation between 0-100%. To help you get started, here are the generally accepted principles to consider:
- Stay within your risk tolerance and capacity.
- Try to maximize return while minimizing risk.
- Keep a long-term outlook.
- Past performance does not guarantee future returns.
- Diversification is the only free lunch, eat up.
- The “Buy-and-Hold” strategy is king. Other strategies may look flashy, but they consistently fail to beat buy-and-hold strategies.
- Time in the market beats timing the market.
- Have a glide path.
As of 2021, L 2065 has the following composition:
- G fund – 0.35%
- F fund – 0.65%
- C fund – 49.04%
- S fund – 15.31%
- I fund – 34.65%
- G fund – 0%
- F fund – 1%
- C fund – 49%
- S fund – 15%
- I fund – 35%
You’ll need to keep an eye on it over the years to make sure it stays balanced, and you will need to adjust accordingly as your risk capacity changes, but overall you should hold your allocation once it’s set and minimize changes that go against buy-and-hold philosophy.
You could also select a starting point from Vanguard’s, Schwab’s, or Fidelity’s target date funds. These funds may require an extra step or two in order to arrive at your decision for a TSP portfolio, but they offer more funds which may be more correctly tailored to your age, and you’ll get a better variety of opinions on what an ideal portfolio should look like.
