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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Re: TSP or Foolish Four? Date: 7/28/1998 10:39 PM
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Sdlipps,

TMF Pixy, Thanks for your reply. Some of it confused me a bit though. TMF's July 13th Foolish Four article: "Fool Four vs. S&P," by TMF Sheard:

http://www.fool.com/DDow/1998/DDow980713.htm

suggested that the S&P has returned 16.65% over the last 20 years, and may very well continue to do so for the next 20. What portends the plunge to around 10%?
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The past 20 years have been extraordinary. While they may indeed continue for the next 20 years, equally true is the possibility of a prolonged period of 8% returns. Historically (i.e., since 1860 or 1926 depending on whose numbers you're looking at) the market averages somewhere between 10% and 11% per year. That's not a "plunge," but simply the "expected" long term average. If you prefer 16+% over the next 20 years based on the past 20 years, I for one think you will be sadly disappointed. It hasn't happened historically and I see nothing to suggest these heady highs will persist indefinitely. OTOH, I see nothing that presages a catastrophic crash, either. Instead, I simply expect a return to historical averages.

My earlier question still stands, or at least part of it does. Since you pretty much set aside the post-employment TSP option as a Foolish suggestion, I'll assume it lends no particular benefits that I should consider over an IRA. Please pardon my ignorance of IRA's, but is that an option that would be better option for my retirement funds than just plain old taxable, FF market trading on my own for the next 20-30 years? Can I get my $$$ into a brokerage account that's also an IRA or ROTH IRA for FF trading.....i.e. can I practice FF foolishness while also enjoying the benefits of an IRA?

When you leave your job, as I understand the TSP you may roll your money to an IRA. Nothing says that can't be a self-directed IRA within which you can do your own trading. Any broker and your plan administrator can guide you through the steps to do that. You can't go directly to a Roth with that money, though. A Roth may accept rollovers only from another Roth or from a traditional IRA. That means you must roll your plan money to a traditional IRA first.

If that's not naive enough a question, how about this: If we assume that upon my retirement in 25 years cap gains taxes remain the same, and we are still taxed at 20% on investments held for a year, am I to be taxed again or at another rate on the money I've been Foolishly growing once I'm no longer working?

If the money stays in the TSP or a traditional IRA until that time, don't sweat capital gains rates as they don't apply. Everything you withdraw that hasn't been taxed before (i.e., all earnings and all your deductible contributions) will be taxed at the ordinary income tax rates in effect at that time. OTOH, if the money is in a Roth, you will already have paid taxes on the money rolled to that Roth when you established it. The earnings through the years were tax deferred. Therefore…..If you are over 59 ½ and if the Roth has been open for five tax-years, anything and everything you take out of it at that time will be totally tax free.

Regards…..Pixy

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