I made a mistake with my Thrift Savings Plan (TSP) in 2013-2014 that cost me thousands of dollars in the long term. In this video, I will reveal the five common mistakes people make with their TSPs. Please don’t make the same mistakes I did to achieve your financial independence.
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⏰ Table of Contents ⏰
0:00 TSP Enrollment
1:38 Traditional TSP vs Roth TSP
3:08 TSP Investment
5:42 TSP Loan
7:41 TSP Contributions
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How do I cash out now. Only vested 5k and ever filled taxes since 2007 so why pay now? Trump never pay taxes
Good stuff, thanks!
You will still have to pay taxes in retirement. Your SS is taxable above a certain amount, which most Feds will hit. Your FERS is taxable. Your matching is always traditional, so you have to pay taxes on that. Using Roth only shelters a portion of your retirement income from taxes.
Been maxing out for 4 years now. I hope to continue maxing out and getting my accumulation as high as possible before I get married. Thankfully not for a little while as I am still looking around.
I have committed a couple of them, but I have had significant time to continue contributions to get that money back. Being a dual status employee has significant advantages over being a straight up mil or govt. employee, if you handle your retirement correctly. My advice…because I used this option in my life, was to start retiring the day I had a career. Even though my retirement wasn't for another 20+ years.
With the complete disaster TSP has become since June 1st, I am getting out and putting into IRA with Schwab. I regret not doing this 2 months ago..
How do people survive? They need this advice?
Nice video, a few points for consideration:
1) Enrollment. Auto-enrollment for military is 5% contributions as of 10/1/2020 (previously 3% under new BRS). Members receive 1% automatically regardless of contributions after 60 days of service. They don't start receiving any additional match to 5% until after 2 years of service.
2) Roth Option. Roth is not "tax free" as many people describe it…it is actually "tax first", but it is tax-free on the growth. I believe one of the big overlooked benefits of Roth though is that you can actually invest more each year. If you invest in traditional, it is pre-taxes. Whereas Roth is post taxes. So $1,000 invested in traditional is actually $1,000 + taxes in Roth. Then you get all the other added benefits of Roth…no RMD, tax-free withdrawals, etc. And I agree with you that tax brackets are only going to get worse in the future. I would consider Trad over Roth if your income is just into the 22% tax bracket. You will be able to save 10% by investing Trad and reducing your taxable income that is in the 22% bracket.
3) Fund Options. This one is hugely important for military if you joined prior to 2018. Prior to the change to the BRS, the default fund was the G fund. This was criminal! The government was/is taking a low interest loan from its own employees who think they are 'investing'. Now the default is an age-appropriate L Fund, but you should still learn and make your own choices.
4) Admin fees. The Board (FRTIB) unfortunately raised the admin fees on the basic TSP funds by 30% each year in 2021 & 2022 to help pay for the new changes and improved IT security. Terrible. The mutual fund changes are too expensive and they will now want more personal information (photo ID, etc). Not good at all.
5) Nice discussion on fund choices. I tend to do 70C/30S as long as I am a long term investor (over 10 years).
6) Thanks for sharing your TSP loan example. Borrowing from your retirement fund is bad news.
7) Increasing your contributions. You are investing by %, not $ amount, so as you receive raises you will be increasing your contributions automatically. If you can put more in, great.
what is a good percentage for TSP? 5% or what do you recommend?
Also I plan on only doing C fund what do you think?
I made a couple mistakes; when in the military I did not use the TSP. When in civil service, I left everything going to G fund for a couple years. I was slow to contribute my max. One year I contributed my max early, which meant that about Oct the TSP contributions were stopped and I missed out on months of agency matches. It is so important to invest early in life—you literally cannot buy back the effect that time brings on compounding interest.
Six mistakes I made that left money on the table: 1. Not using the 50+ catch up as soon as I could to increase contributions above the cap by $6,500 per year and to lower my taxable income. They have since made this more automatic for Federal employees. 2. As a high salary employee, not adjusting my contributions and hitting the cap plus catch up limit before the end of the year and missing out on some agency matching. You always want to maximize agency matching over the calender year. 3. Using a percentage rather than a fixed contribution amount when nearing the cap. For example, when the cap was $19,500 plus $6,500 ($26,000 per year) with 26 pay periods per year, I corrected this by resetting my beginning of the year TSP contributions from a percentage (which could easily under shoot or over shoot the cap) to $1,000 per pay period, to hit the cap and maximize agency matching. Now the limit has inched up to $27,000, so you would divide $27,000 by 26. 4. After maximizing my contributions, not investing extra cash outside TSP. After 6 month cash cushion safety net, extra money could be put in a taxable investment account to grow and fight inflation. 5. Not understanding taxable accounts. I wrongly assumed that since I was investing taxed cash and not withdrawing, that I wouldn't owe taxes, but I got hit by a big end of the first year tax bill on qualified dividends. This tax lowers some once a fund is owned more than a year and it becomes a long term investment. 6. Not contributing to a Roth TSP account. The Roth yearly limit looked too low to me and I assumed I would be in a low tax bracket in retirement. However, both my wife and I will retire with large pensions and huge TSP/401k accounts and we will still be in a high tax bracket once we drawdown on those. A tax free withdrawal Roth account would have been nice.
With the possibility of a housing and stock market crash, will I lose the money I’ve been investing in my TSP?
I have taken out a couple of loans and never stopped contributing… why did you have to stop? You don't have to stop… I just paid off a loan and was contributing max at the same time of course it leave less in your paycheck. I may or may not get a new loan but either way I will contribute max if I take out a loan.
Great content! More people will find and appreciate your channel – keep it up!!