I need some financial advice with retirement plans.?
I'm 24 and in the military. I have 10% going to my Thrift Savings Plan through the military and I was thinking about opening up an IRA. Should I open a traditional or Roth IRA? Which would compliment my TSP and what is better in the end? I'll appreciate all serious advice.
Congratulations on investing 10% of your money into the TSP and are currently considering the Roth as an investment vehicle. Most people advise not having bonds at your age; an emergency fund of 3-6 months is good enough unless you plan on exiting the military in which 8 months to 1 year is more appropriate. Your E-Fund needs to be consistent with your living situation and needs to be added if you have employment risk, need a new automobile, or want to put a down-payment on a home (not a good idea in the military since you can be given orders to move at any time). Anything that you need in 1 year or less should be 100% cash (money-market, CD, or high-yield savings account).
If you are in the 25% tax bracket, consider a 50/50 allocation between the TSP and the Roth account. If you are in a lower tax bracket, I'd max out the Roth account and than contribute to the TSP only after you have maxed out your Roth account. To be in the 25% tax bracket, you need to have a taxable income of more than $31,850 as a single filer so if you take the standard deduction, you need to make more than $40,600. So if you make $42,000, I'd contribute $1,400 to the TSP, then $5,000 to the Roth and then you have to make a decision. You would either contribute further funds to a TSP or to a tax-efficient portfolio. A taxable account allows you to have ready access to the money, such as for a trip or some other luxury, but whereby if the market goes down, you won't miss it, while a TSP plan gives you a tax deduction through a salary reduction.
Personally, my favorite fund is the C fund. My next favorite fund is the G fund. I also like the S and I funds. I think its a good idea to have some fixed income especially a fund as good as the G fund. When the market goes up, you have to sell stocks to get towards your target allocation while if the market goes down, you have to buy to reach your target allocation. Remember this is how I'd do it and it might not be suitable for your investment needs, thus I'd sit down with someone with USAA to discuss a strategy.
Normal Market Allocation
40% C fund
10% S fund (2/3 Domestic / 1/3 international)
25% I fund 75% Equities
20% G fund
5% F fund 25% Fixed Income
Another possible allocation (global down market)
60% C Fund
15% S Fund
15% I Fund 90% Equities
10% G Fund 10% Fixed Income
Bull Market Allocation (prices don't make sense in the US and the Federal Reserve has a Fed Funds rate of between 5.5% and 7.5% or higher; hold on tight, it's headed down!)
30% C Fund
15% S Fund
15% I Fund 60% Equities
30% G Fund
10% F Fund 40% Fixed Income
Good luck. I hope this helps.
I'm not familiar with TSP, but at your age the Roth is the way to go.
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First, congratulations on the 10% into your TSP. Hopefully, for right now, you are NOT in the C, S or I funds…they are not stable for now, until the market begins a good rally. G fund, believe it or not, or the F Fund is better, for the short term…just to keep your principal in good shape.
Now, the difference between the IRAs you mentioned will determine what kind of money you will be using. Since you already put in a sizable portion (but not the max) into your TSP, you are limited in how much you can put into another tax-deferred arrangement, which is what an IRA is. Since traditional IRAs, such as a custodial IRA account, uses generally before tax dollars to fund, until you reach your personal limit on the amount you can shelter, put that into a traditional. If you reach the maximum you can defer, but still want to have tax sheltered moneys build for retirement, use a Roth, which is funded with after tax dollars. The difference here is that the Roth's gains will build tax deferred, and when you retire and begin to take distribution, the gains are tax free.
I hope this helps.
Best of success.
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An IRA is a great choice. A ROTH IRA would be my choice. You cannot deduct contributions to a ROTH, but you can to a regular IRA.
Consider an example which would be relevant to someone your age. If you put $5000 in an IRA, after 30 years, it could easily grow to $20,000. If it comes out at your retirement, it will come out tax free if from a ROTH. If from a regular IRA, then $15,000 will be taxed.
Thus if you claim the tax deduction now, you will pay dearly later on. That's why I recommend ROTHs
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I am not a financial adviser, well now I suppose, I am! But, I have been going over all this, getting ready to retire.
If you expect to be in a higher tax bracket when you retire or take your funds out, use a Roth, it is opened with money on which you have paid taxes, so you won't pay on it later.
A typical IRA saves you the taxes until you close the IRA.
The IRA money will not be available without a huge penalty before retirement, so be careful not to become "Savings Poor", All depends on your long-term plans, of course.
Best of luck, and thank you for serving.
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Open up both. You can do that. A Roth is really attractive at you age, but you get no tax deduction. A traditional IRA gives you a tax deduction. Do both. Call Fidelity or Vanguard.
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Congratulations on investing 10% of your money into the TSP and are currently considering the Roth as an investment vehicle. Most people advise not having bonds at your age; an emergency fund of 3-6 months is good enough unless you plan on exiting the military in which 8 months to 1 year is more appropriate. Your E-Fund needs to be consistent with your living situation and needs to be added if you have employment risk, need a new automobile, or want to put a down-payment on a home (not a good idea in the military since you can be given orders to move at any time). Anything that you need in 1 year or less should be 100% cash (money-market, CD, or high-yield savings account).
If you are in the 25% tax bracket, consider a 50/50 allocation between the TSP and the Roth account. If you are in a lower tax bracket, I'd max out the Roth account and than contribute to the TSP only after you have maxed out your Roth account. To be in the 25% tax bracket, you need to have a taxable income of more than $31,850 as a single filer so if you take the standard deduction, you need to make more than $40,600. So if you make $42,000, I'd contribute $1,400 to the TSP, then $5,000 to the Roth and then you have to make a decision. You would either contribute further funds to a TSP or to a tax-efficient portfolio. A taxable account allows you to have ready access to the money, such as for a trip or some other luxury, but whereby if the market goes down, you won't miss it, while a TSP plan gives you a tax deduction through a salary reduction.
Personally, my favorite fund is the C fund. My next favorite fund is the G fund. I also like the S and I funds. I think its a good idea to have some fixed income especially a fund as good as the G fund. When the market goes up, you have to sell stocks to get towards your target allocation while if the market goes down, you have to buy to reach your target allocation. Remember this is how I'd do it and it might not be suitable for your investment needs, thus I'd sit down with someone with USAA to discuss a strategy.
Normal Market Allocation
40% C fund
10% S fund (2/3 Domestic / 1/3 international)
25% I fund 75% Equities
20% G fund
5% F fund 25% Fixed Income
Another possible allocation (global down market)
60% C Fund
15% S Fund
15% I Fund 90% Equities
10% G Fund 10% Fixed Income
Bull Market Allocation (prices don't make sense in the US and the Federal Reserve has a Fed Funds rate of between 5.5% and 7.5% or higher; hold on tight, it's headed down!)
30% C Fund
15% S Fund
15% I Fund 60% Equities
30% G Fund
10% F Fund 40% Fixed Income
Good luck. I hope this helps.
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I'm passionate too. I am an aspiring Certified Financial Planner (CFP). It's extremely interesting even if you are giving generalized suggestions that apply to a mass audience.
My advice to someone your age is don't rush to save for retirement yet. You will probably need money for wedding/house/kids/cars etc. Don't lock up too much money too soon. If you have your heart set on opening and IRA, the Roth is definitely the way to go.
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Good for you for saving 10% in the plan! Since you have that already, I would recommend opening a Roth IRA. This will diversify your income stream in retirement between taxable and tax-free income. Also, since you are so young and have so much time before retirement, chances are high that your income and tax rate then will be much higher, so Roth is the way to go. I would be happy to give you more advice, I do this for a living
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I am a CERTIFIED FINANCIAL PLANNER (TM)
Roth by far.
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