I have a question for Nords and other military people. I'm still coaching my 21 year old with finances.
Hunh. We're doing the same thing with our 21-year-old. It's going well.
He also has guard duty once a month and gets paid for that. I have no idea about the investment options available through the TSP. Based on the above, what would be the best place to put his guard money. I imagine he will just contribute the full amount as he will still have plenty left over to save for a home. He's planning on renting for 3 to 5 years.
As DavisGang90 and others have said, your son should maximize his contributions to the TSP. He probably wants to reduce his taxable income a little (since he seems to have hit it with a high-paying civilian job plus his Guard pay) so I'd recommend the conventional TSP. No need to use the Roth TSP now.
The TSP has expense ratios of about 0.025%. I don't know anything about his 401(k) but I'm pretty sure that it has (much) higher expense ratios. Because of this, I'd try to put as much of his Guard pay as possible into the TSP. If he can't reach the $17,500 limit on his Guard contributions to the TSP then he should make up the rest via 401(k) contributions. And as I tell my daughter just about monthly, if he wants to retire in his 40s then he should try to save at least 40% of his income. That means after maxing his TSP/401(k) and his IRA then he should put even more money in his taxable investment accounts.
The Defense Finance & Accounting Service myPay site will let your son designate up to 92% of his Guard pay to the TSP. (The other 8% is reserved for the 7.45% FICA deduction.) He should do that right now (so that it's in place before his next drill weekend) and then do the math on whether he'll make $17,500 in Guard contributions during 2014. If not then he should adjust his 401(k) deductions to make up the difference.
During my spouse's Reserve years, she did the 92% deduction from her drill pay straight into the TSP. She ended up getting Reserve paychecks like "$1.78". Our daughter commissioned last month and has an ensign school where she's not spending much money, so she's doing the same thing with her active-duty pay-- $2500/month into the TSP. She expects to max out her TSP and Roth IRA this year while drawing down some of her college (cash) savings.
If he is already contributing to a Roth IRA will that conflict with the RoTh TSP? Will he be limited on the maximum amount in both like with his 401(k)?
No. They're different accounts, but they have similar names.
IRAs come in two versions:
Conventional IRA: contributions are made from any source of earned income, and may not be deductible if income is above a certain limit. Non-deductible contributions can always be made to a conventional IRA.
Roth IRA: contributions are made from any source of earned income, but are limited when income is above a certain limit. If a high salary keeps someone from contributing to a Roth IRA then they can contribute to a conventional IRA.
In general, the total (combined) contribution limit between conventional & Roth IRAs is $5500.
The TSP comes in two versions:
Conventional TSP: contributions are made by payroll deduction before taxes.
Roth TSP: contributions are made by payroll deduction after taxes.
There are similar distinctions between traditional 401(k)s and Roth 401(k)s. The total (combined) contribution limit is $17,500.
There's a different TSP contribution limit for deploying to a combat zone. He doesn't need to know about that right now, but when his deployment is scheduled then he can research "IRS elective deferral limits" on the TSP.gov website. Short answer: when he's deployed to a combat zone, he can contribute up to $52K/year to the TSP.