June contributions:
As you can see, service matching is now gone. Since the free money hitting my account has been discontinued, I see no reason whatsoever to put my hard earned money into the TSP.
The thrift savings plan has a choice of 5 different mutual funds plus some lifecycle funds. The federal government is trying to do us a favor because these 5 funds do in fact have lower expense ratios than anything else I've seen. But you cannot buy individual stocks or bonds. I do not have the choice of owning shares of Coca-Cola or Johnson & Johnson in this account. I cannot buy individual bonds or preferred stocks when rates rise. In short, you cannot be an income investor with the TSP.
Instead of parking $126 a month into the TSP, it's going to be deposited into my brokerage accounts from this point forward. I will lose a small tax advantage but will gain freedom of choice, and I don't need to wait to age 59.5 to enjoy delayed gratification.
The capital built within my TSP will likely be rolled into an IRA or used to buy an annuity many years from now when I transition out of the military.
CI - I agree with that approach. I used to work at places that had matching RRSP (i.e 401k) plans, and I could not understand why so many of my co-workers did not take advantage of it. As it turns out many were not aware, and others just did not bother. Same as options to buy company shares at a discounted price - 20% discount and the company guaranteed at least your money back. Option to sell immediately after a one year hold - a complete no brainer, yet most passed on it.
ReplyDeleteHowever, without these discounts no incentive to use these plans, so better to invest in the broader market.
Yes I completely agree. I originally signed up for the TSP my first week at basic training. It actually built up quite nicely the past 5 years and since it was automatically deducted I never really noticed the missing money. 401k's are fine for a traditional retirement, but I hope to stop working a bit earlier. Easier said than done!
DeleteI do not have the option to buy company shares, but if I did I'd take advantage!
As long as there's some kind of match I think it's worth it to at least contribute enough to get all of the match. But since you're no longer getting that then I would rather take the tax hit now even though I'm in a higher tax bracket currently so the money is more accessible for FI/ER uses.
ReplyDeleteIs there a reason that the match stopped? Do they only match for a certain amount of years or is there a max annual contribution the government makes?
TSP matching for military service members is very, very, very rare. But it does exist if you enlisted into the Army, around 2008, into specific jobs, and with at least a 5 year contract. I knew a some other Soldiers who had it (in the same field as myself), but of course they didn't take advantage.
DeleteAnyways the only reason myself or anyone else who joined when I did had matching at all was that the Army offered it as a pilot program. The Army was testing it out. My time in service surpassed 5 years a few months back, now that my original contract is over the matching stopped.
Matching before it expired:
First 3%: 100%
4&5%: 50%
So I had 5% deducted from my base pay and 9% was deposited into the account. I receive other pays besides base pay (housing and food allowances for example), the matching only applied to base pay.
Yes there is a maximum, same as a 401K. Since the matching capped out at 5%, you would never hit the cap as an enlisted Soldier. Impossible. You'd have to contribute without match to max it.
For Department of the Army Civilians the whole system is different. I think they are entitled to 1% without even contributing anything plus the same matching scheme I used to get.
Back when I enlisted the financial incentives were massive. It's no longer the case. You can bet $40,000 of my portfolio is from a nice bonus package no longer available and almost half my TSP is from matching no longer available. I joined at a great time. It was the middle of the Iraq war and the Army needed people.
Age 55, you can start 72T.
ReplyDeleteI looked at the 72T rule before but honestly do not know what I'll do with the TSP money. I have 15 years to figure it out, not in a rush. LOL!
DeleteCI, I agree on this approach. You can now create your own "mutual fund" with a broker, who offers an option to create a portfolio of your favorite stocks, up to 30 per portfolio (but you can create several of them) and set balance of each stock in that portfolio and then be buying that portfolio as a whole. They will be buying whole shares as well as fraction based on the money invested. And of course you still can be buying individual stocks into the same portfolio, so you are not tied to buying the whole portfolio. I like this concept a lot. I just wanted to mention it. If you open an account and invest, they will give you 150 dollars bonus (I think it depends on how much you invest). And you can open ROTH, IRA, or regular taxable account whichever you wish.
ReplyDeleteIf you want to give it a shot, go to my blog and read an article "Create your own mutual fund". If you think it is something you would like, you can open an account using this link:
Get up to $150 when you start trading at Motif Investing.
If you think it may work for you, use the link. It will also help me. You get up to 150 in your account and I get some share too. And the concept is great. If you think this is not worth it, then no worries, ignore it. And sorry for spamming, but you mentioned you might be opening a new account, so I wanted to rush in with an idea.
Thanks
Martin
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ReplyDeleteDo you know of another way to be able to invest 18K in a Roth per year?
ReplyDelete