Author Topic: US Govt employee - how to best use the TSP 401k plan?  (Read 12484 times)

Pixelshot

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US Govt employee - how to best use the TSP 401k plan?
« on: May 06, 2013, 09:37:56 AM »
My wife works for a federal agency here in DC. (thank you taxpayers). Govt jobs allow 401k contributions up to the max $17,500/year, which we are now taking advantage of (later, there will be a 5% match). The system permits you to contribute to the Thrift Savings Plan (TSP) which I know almost nothing about.

Having recently been introduced to the Mustachian way of life, I am now wondering if anyone else has recommendations for how to best use this TSP system in a Mustachian way. MMM recommends Vanguard funds, but I'm not sure I can actually put that money toward Vanguard funds (or can I?). The default is government bonds, which must be a pretty terrible investment at the moment.

All of our other retirement savings (from past jobs) are through Vanguard, which works well. Ideally, I would love to consolidate it all in one place.

Any suggestions??

Thx

icefr

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Re: US Govt employee - how to best use the TSP 401k plan?
« Reply #1 on: May 06, 2013, 09:44:49 AM »
TSP has really low expense ratios (0.025%), even lower than Vanguard on everything. Bogleheads has some good info on it: http://www.bogleheads.org/wiki/Thrift_Savings_Plan

Their international stocks aren't as good (just developing markets), but the G Fund is a great stable value fund and the C/S funds are good to make up the total stock market.

the fixer

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Re: US Govt employee - how to best use the TSP 401k plan?
« Reply #2 on: May 06, 2013, 10:15:28 AM »
I second icefr's advice on the C and S funds. As the Boglehead wiki states, you can mimic investing 100% in VTSMX by buying 80% C fund and 20% S fund.

Because the ERs are so low, it may be a good idea for you to roll any existing IRAs into the TSP, at least for most of your US stock market and bond portions.

davisgang90

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Re: US Govt employee - how to best use the TSP 401k plan?
« Reply #3 on: May 06, 2013, 02:02:22 PM »
TSP is the bomb, especially with gov't matching.  Depending on your wife's age she may be able to sock away more than 17,500.  I think it applies to over 50 or something.

TSP recently launched a Roth TSP option that is pretty cool depending on your income levels/tax situation.

CrochetStache

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Re: US Govt employee - how to best use the TSP 401k plan?
« Reply #4 on: May 06, 2013, 03:38:27 PM »
The link provided by icefr has good information. I'm sure you've already looked at the tsp.gov website for more information.

It is my understanding the tsp elections can be changed throughout the year so she can check if she's eligible for the ROTH TSP option also. They've been rolling it in throughout the various gov't areas.

Definitely do at least 5% of the regular(pre-tax) TSP contributions to earn the matching 5% and then decide if the remainder should still be the pre-tax or Roth TSP options.

If she has any other qualifying retirement funds such as a 401k from before she got this gov't position it is possible to move it into the TSP program. Enjoy the low expense ratios!

Pixelshot

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Re: US Govt employee - how to best use the TSP 401k plan?
« Reply #5 on: May 07, 2013, 03:46:18 AM »
This is a bit surprising. I was not expecting people to praise the ER levels. My wife (34) does have IRA funds from previous jobs invested in Vanguard (about 25k worth). Is it really worth moving them to the TSA to save? How much savings are we talking about? I'm not really sure how the ER's work and how much I'm giving up. Thanks!

the fixer

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Re: US Govt employee - how to best use the TSP 401k plan?
« Reply #6 on: May 07, 2013, 08:21:51 AM »
IMO when the expenses get this low it doesn't make a huge difference. Vanguard's best ERs on stock funds are 0.05%, compared to 0.025% in the TSP. An expense ratio is the amount of a fund's assets that go to expenses instead of getting invested each year, so it's basically a percentage of your money the fund takes from you annually regardless of how well it performed. In this case, for a $100k investment, each year the TSP costs a whopping... $25 less than Vanguard.

It can still be a benefit to roll the IRA into the TSP if you're happy with the investment options available, because it simplifies the amount of work you have to do managing money (one less account to deal with and fewer different funds).

sol

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Re: US Govt employee - how to best use the TSP 401k plan?
« Reply #7 on: May 07, 2013, 05:31:13 PM »
My wife and I are both feds, so we've become TSP wizards.

I encourage everyone with access to the TSP to take full advantage.  The offerings are solid, the expense ratios are fantastic, the administration and communications are first rate, and the withdrawal options are numerous.

The TSP does have a couple of downsides.  It doesn't really offer you much in emerging markets, and the Lifecycle funds which automatically rebalance daily (and which I generally recommend for ease of implementation) don't necessarily age out quite the way I would like.  Those are quibbles, though, and easily rectified with other investments or by choosing a different L fund.

The Roth TSP option is generally to be avoided by Mustachians unless you're military and have tax-exempt combat pay.  It primarily benefits people who will work long careers and oversave for retirement, like politicians and judges.  I'd stick with the regular TSP, and thank your lucky stars for it.  It's one of the only redeeming perks of being a fed these days.

Crash87

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Re: US Govt employee - how to best use the TSP 401k plan?
« Reply #8 on: May 08, 2013, 06:37:55 AM »
I use the F, I and S funds since the difference between their fee and the vanguard counterpart's fee is large.

simonsez

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Re: US Govt employee - how to best use the TSP 401k plan?
« Reply #9 on: May 08, 2013, 09:06:48 AM »
Just an FYI for those interested in the Roth TSP....

Even if you have zero contributions toward the traditional TSP, but you have 5% going toward the taxable Roth TSP, your matched dollars will still be traditional TSP.  Meaning, no matter what your allocation of TSP vs. Roth TSP, as long as it is 5% or higher, you will receive the total matching capability to your traditional TSP balances.  Many love to overstate the utility the Roth TSP provides (not here on this site, just in general it seems) and act like it is this magical concept that will provide financial benefit throughout one's life that wasn't available before. 

I personally contribute to both, much more so on the traditional side since my wife and I are nearing the upper end of the 25% bracket.  I like the hedging aspect of it and probably figure to be on the lower side of the 25% bracket in retirement, meaning no big difference either way. YMMV