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Author: hjg0989 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: Re: Need Advice on a Thrift Savings Plan Date: 12/9/2004 1:38 AM
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<<<As for the funds in which you should put your money, there are a few things you should consider. 1) The Government is currently in a very difficult fiscal position which has forced it to raise the debt ceiling allowed for federal spending. Before taking this step the Treasury Department announced that it would stop funding the (G) fund with new money from employees retirements contributions and instead use that money for daily government expenses. As the (G) fund is the government securities fund and not likely a place where YOU personally were planning on putting much, if any, of your money this may be no big deal for you. I just feel that it is necessary to point out that the government is ready, willing, and able to tap into your retirement funds to pay for normal daily expenses. They did end up raising the debt ceiling, but I have not yet seen reporting that they have reinstituted retirement investing in the (G) fund. I would advise avoiding this fund if possible.>>>

The Feds withheld contributions for two weeks in 2002 until the budget was signed then replaced the money. The G fund is totally funded. Here is where you can read about it:

http://www.govexec.com/dailyfed/0402/040202b1.htm

<<<Beyond that minimal investment, though, it may not be in your best interest to put your money into TSP. If you compare the F, S, C, and I funds to their maket index counterparts you will find that TSP tends to underperform these indecies. Outside of your free money contribution, it may be worth just putting your money into a Brokerage account of a mix of the indecies that interest you. Otherwise, you are locking your money into TSP where it will not perform as well as if it were outside of it. Yes, this money is pre-tax, but you should measure that as compared to higher returns to decide which is of greater benefit to you over the long-term.>>>

Nonsense. The TSP is probably the best run - or at least cheapest - 401K in the world. When I checked into this several years ago, the expense ratios charged by TSP were cheaper than what Vanguard charged ! This is in part due to the costs being offset by the 1% matching that is given to TSP when employees quit before being vested.

All funds including index funds have fees that are extracted from the returns, therefore funds won't match the exact return of the index. When comparing expense ratios, even without any matching contributions, you will absolutely not do better by putting after tax money in similar funds outside of the TSP. If I recall correctly, expense ratios have to exceed 1.5% before the tax deferment loses it's advantage. The ERs for these funds are way below that.

<<<The best answer would be to just convert it to your new employer's 401(K) upon finding a new job outside of the military.>>>

Check your new employer's expense ratios before rolling TSP money into the new plan. Expenses greatly diminish returns over the course of time. The low expense ratios is the one best reasons to leave the money in TSP if you leave the service.

<<<As for particular funds to invest in within TSP, that depends upon your risk tolerance and your time-frame. Since you said that you see this as a long-term investment, but you want money for a house, wedding, and the like, I would suggest a balanced approach between aggressive and low-risk funds. I think that you will be taking a good chunck of change out within the next 5 years for that house and wedding, so you want that money secure.>>>

The OP clarified that they are using the TSP as a long term retirement plan. Just to reiterate what others have said, taking the money out before age 55 will result in paying income taxes and a hefty 10% penalty. This is not a place for short term investing, it could cost you dearly.

As for matching contributions, it looks like military personnel have to be in an area that is considered a critical speciality and be on active duty for 6 years to get the 5% matching.

Here is a link to the Summary of the Thrift Savings Plan for Uniformed Services:

http://www.tsp.gov/uniserv/forms/tspbk-u-08.pdf

Best of luck,

-helen
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