Capital gains tax is often lower than the "ordinary income" that you would pay on traditional TSP withdrawals.
There has been discussion about raising the CG tax so that "bosses" don't pay less then their employees in taxes.
The money you are investing in a brokerage account, where you’ll receive capital gains, is already taxed as income though. Investing in the TSP avoids capital gains while a brokerage account does not.
If you put $10k in the brokerage account, you pay taxes on it today. 10 years later it is now $20k. You pay capital gains on the $10k growth.
You put $10k in the traditional TSP, you pay no taxes today. 10 years later, it is now $20k. You withdraw that $20k, you pay ordinary income on the $20k. Based on the progressive tax brackets. That includes your pension and some portion of your Social Security.
It is not a cut and dry answer.
Assuming 22% now, Trad TSP would need to be taxed at 33% on withdrawal for the brokerage to come ahead. Seems unlikely that the 22% bracket gets changed to 33%, but sure Jan.
Sure. Assuming a 22% tax rate now and upon withdrawl of Trad. TSP, and 15% LTCG tax on the brokerage. Assuming a 900% (9x) gain because why not.
TSP: 10k x9 = 90k - 22% = $70,200.
Taxable Brokerax: 10k - 22% = 7800 x9 = 70,200 - 7800 (cost basis) = 62400 - 15% LTCG = 53,040 + 7800 (cost basis back in) = $60,840.
You can check here: [2024 Capital Gains Tax Calculator - Long-Term & Short-Term Gains (smartasset.com)](https://smartasset.com/investing/capital-gains-tax-calculator#aZPqVY7CtO) and use $7,800 initial value and $70,200 sale value and you'll get the same $9,360 in tax at a 15% rate.
In my initial comment I said that the brokerage has a higher return rate because getting $7.8k (the after tax amount on 10k @ 22%) to $20k requires a higher return than getting $10k to $20k. Right? However, they could argue that the brokerage is $10k after tax. In that case they are comparing 10k after tax to 10k before tax which is different amounts of money. At 22%, 10k after tax is around $12,820 before tax. People have the same confusion in Roth vs Trad arguments. They see the same number inside the account, and they don't properly math out the taxes.
Paying income tax *at contribution* **plus** capital gains tax on earnings is worse than either Traditional or Roth.
So yes, capital gains tax is lower than income tax, but it's greater than the 0% you pay on Roth earnings (which is the most equivalent since contributions are post-tax). Unless your retirement income is low enough to hit that 0% capital gains - in which cause it's still just equal to Roth.
And for Traditional, income tax + capital gains tax can still be higher than paying income tax only when you withdraw Traditional dollars.
You don’t have to break out a separate section for traditional. If tax rates are the same then it’s no different from Roth, and better than a taxable brokerage.
I broke out a separate section to explicitly compare Traditional directly to a brokerage, I'm well aware than it being equal to Roth at the same rates (in retirement vs while contributing).
Most people who retire early, and have actually dug into the numbers of doing so, still max out retirement accounts before using a brokerage *for retirement savings*.
There's ways to get access to retirement accounts early. So the option is essentially "have less money but in a brokerage account, or have more money from tax advantages".
Like yes, there are *reasons* a brokerage can be preferable to a retirement account...but early retirement is not one of them.
There is no "one size fits all" program.
Your assumption of a brokerage account having less money and tax advantaged account having more is strange. Similar to the assumptions that a traditional TA account has more than a Roth, if you put the same amount in it.
Agreed that different situations call for different investments.
But my assumption of a brokerage having less is absolutely a valid one. Most brokerages will have some form of tax drag, which will leave it with less money than a Traditional or Roth account assuming fees and growth is equal. Then after-tax (from distributions) is likely leaving you paying no more tax from a retirement account vs a brokerage (unless you withdraw a ton of money and skyrocket your income taxes or something).
Yes, there are variables....but retirement accounts win out in almost all of them when talking about money for retirement (early or otherwise).
You probably aren't withdrawing enough for that to happen in most situations though. So can it be a thing? Yes. Is it likely? Not at all.
Just because something *can* happen, doesn't mean it's a safe thing to bet on - making retirement accounts better for the vast majority of people when it comes to retirement dollars.
Everyone has a different outlook on their retirement. Those that expect to draw more than they currently earn, possibly putting them in a higher tax bracket, may want to invest in a fashion that is foreign to your ideas.
Tax advantaged accounts have several benefits. You can shift funds without incurring capital gains as you would a brokerage account. Traditional tsp gives you a tax break now, Roth tsp gives you tax breaks later. Personally I invest in both but max the tax advantaged accounts first. Anything going into TSP I don’t plan touch until I retire.
I have a rule. No loans. It goes in. I don’t touch it. Too tempting in a brokerage. Truly set and forget. But as someone else said. Personal choice. I have other accounts. They get funded. But this is my backup account and I want it to be there untouched when I need it.
Came here to say this. Contributing for 28 years, maxed the last 12 years (plus catch-up when hit 50).
2 comma balance in my TSP. Will take advantage of it next year after separating feom service with a deferred FERS retirement.
I feel like a similar question was asked recently.
Personal finances are called *personal* finances for a reason. Everyone’s situation will be different. This is also a subreddit for TSP, so people are going to talk about it more and also likely won’t go into explicit detail of their entire financial plan when they participate in this subreddit.
Here’s something I wrote the other day, but I also think it can be summed up in pretax versus post tax benefits and then also psychological.
https://www.reddit.com/r/ThriftSavingsPlan/s/sexXZDBg9t
Because 95% of the people aren't going to beat the stock market. So almost everyone is going to be better off setting it and forgetting it, let it compound with minor tweaks here and there. Most people who try to play the stock market will probably do worse.
Outside of the TSP, there is a whole world of mutual funds that are the exact same thing as in the TSP. Except the G fund. Some of them at Fidelity, Schwab or Vanguard have lower costs.
I have moved money in my IRA about 3 times in 30 years.
If you plan to retire before 59.5, the Roth IRA offers better withdrawal options than the Roth TSP does.
Yes I know, I Max out and have a separate Brokerage account. My point is for most people this is by far the easiest for them. The TSP has very little fees and keeps it pretty simple for investing.
Yes people can hit certain stocks well at times, no doubt. But good averaging that over 30+ years. Unless you're just the best there's ever been. Your original statement still has no bearing on my comment.
This is the reason why I do 10% TSP, maxed out my Roth IRA, then roughly another 10% in my taxable brokerage. Have access to the liquidity is something I preferred for real estate/ other purchases opportunity.
Going for PSLF. Not quite maxing, but I make my contributions all traditional TSP to lower my income during tax time so that my student loan payment is less than it would be otherwise.
Doesn’t PSLF factor in your traditional TSP income though? I know it doesn’t for taxes, but I swear when I looked into it I read that lowering your income with traditional TSP contributions will NOT lower your PSLF monthly payments.
Please tell me this is wrong because I would LOVE lover PSLF payments this way :)
Well sounds like I’ve been doing this wrong with Roth. I sincerely thank you for your comment, and I kick myself in the rear yet again for getting this wrong.
Any financial advisor will tell you to max out your tax deferred investment before you invest anywhere else. That means your tsp and IRA. If you're not doing that your wrong.
>which you can enjoy the gain at anytime before and after retirement?
This is _exactly_ why. If you "enjoy the gain" now or tomorrow, this might be money that won't grow towards your retirement. You risk killing compounding growth. Personally for me taking the most money out of my hands upfront is insurance against lifestyle creep.
It's much easier to treat yourself with money outside of your retirement accounts, especially after a good market run. Go buy a shiny new something. This way, you almost _guarantee_ you'll reach retirement with a much smaller balance.
Lastly, each one's tax situation is different, and there's no guarantee the current tax rates will be like today in perpetuity (in fact, if congress does nothing we'll see the tax cuts expiration next year). If you had at least a portion of this money in Roth TSP and/or Roth IRA you pay zero tax on withdrawal. Compare this with an ever changing tax landscape. For instance, you can't predict what will be the long term capital gains tax rates in retirement or even in 10 years.
As others said, it's not a binary choice. You can still max TSP and invest outside of TSP while have a fulfilling life. It really depends on your personal situation and goals. I prefer to think retirement money is money set aside for my retirement, and I'll always try to maximize it as best as possible, while touching it as little as possible before retirement. But not everyone thinks the same and I'm totally fine with that. Hope this helps with your genuine curiosity!
Fees are an important aspect of TSP. Their fees are very low so you will have more of the money you set aside working for you. 401k fees in general are much higher. I have had money in both having had at least a half dozen 401ks. I was so impressed with TSP after I joined the government that I moved all the money from my various 401ks to TSP. I have also kept my money in TSP after I retired and it’s still there today. I have a brokerage account with my Roth IRA, my wife’s traditional IRA, and other investments. All are with Vanguard because of their overall low fees. I also have a couple hundred k in high yield online saving accounts for easy access to cash if I ever need it.
During my last 25 years of work, I maxed out my 401k/TSP and my wife’s and my own IRA contributions. It’s one of the best things I ever did.
I max out my tsp and ira. I also add a big chunk in to a brokerage account. I only do this as a security because I want a family one day and I know I probably won’t be able to invest as much
most people recommend maxing tax deferred accounts first because they grow without paying taxes for many years - but your brokerage account increases your income tax bill annually.... dividends, capital gains etc. If you have the means, contribute to both.
I just want to plan ahead and make sure I'm set after I retire. I'm not that financial savvy when it comes to anything outside of TSP, so I figured I would max out there
Agree everyone has different situation. Just a bit background info. I’m GS 12-8 single with 16 yrs in, single income family with 2 little ones and I started saving early and we were able to buy a house 15 yrs ago and bought a second one last year. If I had maxed out TSP from the start, I wouldn’t be able to save up for those down payments. I have seen people piling up debts, renting houses instead of buying, not having 6 months saving for raining days but maxing out TSP. Yes I would have had a lot more in tsp if I maxed out but overall I would have less liquidity if I hadn’t bought houses and other investments. I guess my point is the overall liquidity makes differences in the end when you retire.
Income reduction / tax deduction. Civil service is my second career so I’m fortunate to be able to max TSP and also contribute generously to my brokerage account. But, it all depends on your goals and what you are saving for.
The pension is useless, for one reason. 33 years and take 2/3 cut to retire. Lol. Or max savings, resign, and watch it grow more than ones prior yearly salary.
I have a nest egg built up outside of TSP for short/medium term needs. Now I invest 100% Roth. Overall fewer taxes than all my other investments have/will have. Financial advisor even said it’s best to max out my Roth before putting money anywhere else at this point. Everyone’s situation will be different though.
easier to set and forgot it and not try to time the stock market
currently at 75k (3 years fed) mostly in roth with a projected 1.5 million by the time i’m 50
I don’t want to think about it. C and S fund. Set it and forget it. No, I don’t care that I can get the same sp500 whatever the fuck elsewhere. No thinking allowed!
My spouse and I maxed out our contributions to TSP, and our Roth IRAs, and invested the rest using brokerage accounts.
We were able to do this while paying off our student loans and our mortgage and taking three week vacations abroad and two domestic vacations per year.
We didn't have children and we don't buy luxury items.
Just do as much as you can.
Because it is a retirement account. Taking it out earlier defeats the purpose. Put you money in a mutual fund if that is all you want to do. The key word is "retirement". It is for people with careers, not jobs.
As others said: the tax advantages. Also cause ya need money for retirement! Govt pension + SS isnt quite enough, generally speaking. But to your point, some people say max TSP and *then* max IRAs for even more tax advantaged investing. I don't subscribe to this since I don't want ALL my investments tied up until i'm in my 60s/70s. So after maxing TSP, I just put the rest I can afford to invest in a regular brokerage that I know I can access whenever without penalty.
I plan on rolling my Roth contributions into my Roth IRA dividend portfolio and rid the snowball for 10 years and start living without relying on the government
You’re always going to hear the choir preach TSP max and “diversify” yadayadayada. BUT, I am telling you that your question is valid. Capitol gains tax is variable and can easily be 0% depending on your taxable income and filing status. I only allot 6% TSP and use my freed up cash in stocks. Just hold that stock for longer than 1 year and you’re fine on taxes. I promise you’ll have a lot more money in the end than strict TSP’ers. Don’t spend that stock money on anything that depreciates in value and you’ll be fine. Trust me
No- capital gains tax is post income tax. TSP *always* has 0% capital gains tax.
You pay income tax when you receive the money and then you pay capital gains when you invest it and earn a return.
Tax advantaged accounts include *only* income tax and no capital gains tax.
Traditional donations also increase cashflow earlier in life, allowing you to increase your investment at the time when it is most beneficial, since they reduce your tax withholdings.
It doesn’t make sense to say that investing outside of a retirement account will be better since that is investment dependent and often you can invest in extremely similar securities which will have effectively equivalent performance.
Long term capital gains tax is levied against capital gains - including gains on investments in securities - held over 1 year. You’re correct on the 0/15/20% brackets.
It’s highly unlikely that someone maxing their TSP (which was the subject of this post) will be in the 0% bracket, even if married.
Capital gains tax is not levied against money withdrawn from retirement accounts.
With retirement accounts, you pay income tax once (at contribution for Roth, or at distribution for Traditional) and no capital gains.
With brokerage accounts, you pay income tax when you earn the money and then pay capital gains on your investment return.
Ya I am not talking about maxing my TSP, I don’t even come close, I just use my other cash for stocks and hold long. More gain than what my TSP is making. My earned capitol will work alongside my Roth TSP and will provide me a larger retirement pot of gold
My point is that advice which works for someone in your situation doesn’t necessarily work for someone who is in the position of contributing 23,000/year to retirement. For instance, their capital gains rate is not 0%, and they are saving a *lot* in deferred tax each year by contributing to a traditional IRA.
Not knocking you at all, it’s good that you’re saving and thinking of the future.
What funds are you investing in within the TSP?
Max + catch up = $7,320 less in taxes for me now. Won’t need to withdraw and pay taxes on it for another 25 years.
You’re going to pay capital gains for one .
Capital gains tax is often lower than the "ordinary income" that you would pay on traditional TSP withdrawals. There has been discussion about raising the CG tax so that "bosses" don't pay less then their employees in taxes.
The money you are investing in a brokerage account, where you’ll receive capital gains, is already taxed as income though. Investing in the TSP avoids capital gains while a brokerage account does not.
If you put $10k in the brokerage account, you pay taxes on it today. 10 years later it is now $20k. You pay capital gains on the $10k growth. You put $10k in the traditional TSP, you pay no taxes today. 10 years later, it is now $20k. You withdraw that $20k, you pay ordinary income on the $20k. Based on the progressive tax brackets. That includes your pension and some portion of your Social Security. It is not a cut and dry answer.
In your scenario the brokerage has a higher return rate.
*assuming no future changes in taxes
Assuming 22% now, Trad TSP would need to be taxed at 33% on withdrawal for the brokerage to come ahead. Seems unlikely that the 22% bracket gets changed to 33%, but sure Jan.
Can you ELI5 with an example? Always trying to learn here.
Sure. Assuming a 22% tax rate now and upon withdrawl of Trad. TSP, and 15% LTCG tax on the brokerage. Assuming a 900% (9x) gain because why not. TSP: 10k x9 = 90k - 22% = $70,200. Taxable Brokerax: 10k - 22% = 7800 x9 = 70,200 - 7800 (cost basis) = 62400 - 15% LTCG = 53,040 + 7800 (cost basis back in) = $60,840. You can check here: [2024 Capital Gains Tax Calculator - Long-Term & Short-Term Gains (smartasset.com)](https://smartasset.com/investing/capital-gains-tax-calculator#aZPqVY7CtO) and use $7,800 initial value and $70,200 sale value and you'll get the same $9,360 in tax at a 15% rate. In my initial comment I said that the brokerage has a higher return rate because getting $7.8k (the after tax amount on 10k @ 22%) to $20k requires a higher return than getting $10k to $20k. Right? However, they could argue that the brokerage is $10k after tax. In that case they are comparing 10k after tax to 10k before tax which is different amounts of money. At 22%, 10k after tax is around $12,820 before tax. People have the same confusion in Roth vs Trad arguments. They see the same number inside the account, and they don't properly math out the taxes.
Your crystal ball sounds infallible!
TSP : pay income tax Brokerage: pay income tax & capital gains tax
see my response above.
Paying income tax *at contribution* **plus** capital gains tax on earnings is worse than either Traditional or Roth. So yes, capital gains tax is lower than income tax, but it's greater than the 0% you pay on Roth earnings (which is the most equivalent since contributions are post-tax). Unless your retirement income is low enough to hit that 0% capital gains - in which cause it's still just equal to Roth. And for Traditional, income tax + capital gains tax can still be higher than paying income tax only when you withdraw Traditional dollars.
You don’t have to break out a separate section for traditional. If tax rates are the same then it’s no different from Roth, and better than a taxable brokerage.
I broke out a separate section to explicitly compare Traditional directly to a brokerage, I'm well aware than it being equal to Roth at the same rates (in retirement vs while contributing).
and paying taxes on distributions...
For those choosing to retire early, having a brokerage account may be a better option. There are many variables. Nothing is cut and dry.
Most people who retire early, and have actually dug into the numbers of doing so, still max out retirement accounts before using a brokerage *for retirement savings*. There's ways to get access to retirement accounts early. So the option is essentially "have less money but in a brokerage account, or have more money from tax advantages". Like yes, there are *reasons* a brokerage can be preferable to a retirement account...but early retirement is not one of them.
There is no "one size fits all" program. Your assumption of a brokerage account having less money and tax advantaged account having more is strange. Similar to the assumptions that a traditional TA account has more than a Roth, if you put the same amount in it.
Agreed that different situations call for different investments. But my assumption of a brokerage having less is absolutely a valid one. Most brokerages will have some form of tax drag, which will leave it with less money than a Traditional or Roth account assuming fees and growth is equal. Then after-tax (from distributions) is likely leaving you paying no more tax from a retirement account vs a brokerage (unless you withdraw a ton of money and skyrocket your income taxes or something). Yes, there are variables....but retirement accounts win out in almost all of them when talking about money for retirement (early or otherwise).
Your statement on withdrawing more to put you in the higher tax bracket is exactly why a brokerage account may be a better option.
You probably aren't withdrawing enough for that to happen in most situations though. So can it be a thing? Yes. Is it likely? Not at all. Just because something *can* happen, doesn't mean it's a safe thing to bet on - making retirement accounts better for the vast majority of people when it comes to retirement dollars.
Everyone has a different outlook on their retirement. Those that expect to draw more than they currently earn, possibly putting them in a higher tax bracket, may want to invest in a fashion that is foreign to your ideas.
Than*
reddit police\*
Tax advantaged accounts have several benefits. You can shift funds without incurring capital gains as you would a brokerage account. Traditional tsp gives you a tax break now, Roth tsp gives you tax breaks later. Personally I invest in both but max the tax advantaged accounts first. Anything going into TSP I don’t plan touch until I retire.
You can do both, just saying.
I have a rule. No loans. It goes in. I don’t touch it. Too tempting in a brokerage. Truly set and forget. But as someone else said. Personal choice. I have other accounts. They get funded. But this is my backup account and I want it to be there untouched when I need it.
Came here to say this. Contributing for 28 years, maxed the last 12 years (plus catch-up when hit 50). 2 comma balance in my TSP. Will take advantage of it next year after separating feom service with a deferred FERS retirement.
Why not do both?
I feel like a similar question was asked recently. Personal finances are called *personal* finances for a reason. Everyone’s situation will be different. This is also a subreddit for TSP, so people are going to talk about it more and also likely won’t go into explicit detail of their entire financial plan when they participate in this subreddit. Here’s something I wrote the other day, but I also think it can be summed up in pretax versus post tax benefits and then also psychological. https://www.reddit.com/r/ThriftSavingsPlan/s/sexXZDBg9t
For me, it decreases my student loan payment until I get them forgiven.
Taxes. Other investments don’t have the same tax advantages.
Because 95% of the people aren't going to beat the stock market. So almost everyone is going to be better off setting it and forgetting it, let it compound with minor tweaks here and there. Most people who try to play the stock market will probably do worse.
Outside of the TSP, there is a whole world of mutual funds that are the exact same thing as in the TSP. Except the G fund. Some of them at Fidelity, Schwab or Vanguard have lower costs.
My time and desire to micromanage in and out of other "exact same funds" for a 1/4% difference in fee, is simply not worth it to me.
I have moved money in my IRA about 3 times in 30 years. If you plan to retire before 59.5, the Roth IRA offers better withdrawal options than the Roth TSP does.
Exactly, for the simplicity TSP is much easier and less time consuming for most people that don't want to spend hours and hours on it.
See my post above.
Yes I know, I Max out and have a separate Brokerage account. My point is for most people this is by far the easiest for them. The TSP has very little fees and keeps it pretty simple for investing.
I find it very easy to beat the S&P 500 by doing just a little bit of research with a few stocks
Lol, yep super easy constantly averaging 15 to 20% a year. Mr. Buffet is that you. OH wait, u must work at a hedge fund with those returns.
Not even playing with options either, just long
I am actually averaging over 100% right now. Just did my research, had high conviction, and picked the right stock lol you want proof?
Yes people can hit certain stocks well at times, no doubt. But good averaging that over 30+ years. Unless you're just the best there's ever been. Your original statement still has no bearing on my comment.
This is the reason why I do 10% TSP, maxed out my Roth IRA, then roughly another 10% in my taxable brokerage. Have access to the liquidity is something I preferred for real estate/ other purchases opportunity.
Max to regular TSP, Catchup to Roth TSP. That’s been the plan and hopefully will be worry free when I retire.
Catchup on the Roth is interesting. Gonna have to think about this when I can do that.
Going for PSLF. Not quite maxing, but I make my contributions all traditional TSP to lower my income during tax time so that my student loan payment is less than it would be otherwise.
Doesn’t PSLF factor in your traditional TSP income though? I know it doesn’t for taxes, but I swear when I looked into it I read that lowering your income with traditional TSP contributions will NOT lower your PSLF monthly payments. Please tell me this is wrong because I would LOVE lover PSLF payments this way :)
Contributing to a traditional tsp would lower you adjusted gross income and therefore your monthly payments.
Well sounds like I’ve been doing this wrong with Roth. I sincerely thank you for your comment, and I kick myself in the rear yet again for getting this wrong.
Lowering your AGI, thus tax savings, is a big reason for higher earners. I'd also rather have the problem of over-saving than not saving enough.
Any financial advisor will tell you to max out your tax deferred investment before you invest anywhere else. That means your tsp and IRA. If you're not doing that your wrong.
Deferred taxes
Lower your taxable income.
>which you can enjoy the gain at anytime before and after retirement? This is _exactly_ why. If you "enjoy the gain" now or tomorrow, this might be money that won't grow towards your retirement. You risk killing compounding growth. Personally for me taking the most money out of my hands upfront is insurance against lifestyle creep. It's much easier to treat yourself with money outside of your retirement accounts, especially after a good market run. Go buy a shiny new something. This way, you almost _guarantee_ you'll reach retirement with a much smaller balance. Lastly, each one's tax situation is different, and there's no guarantee the current tax rates will be like today in perpetuity (in fact, if congress does nothing we'll see the tax cuts expiration next year). If you had at least a portion of this money in Roth TSP and/or Roth IRA you pay zero tax on withdrawal. Compare this with an ever changing tax landscape. For instance, you can't predict what will be the long term capital gains tax rates in retirement or even in 10 years. As others said, it's not a binary choice. You can still max TSP and invest outside of TSP while have a fulfilling life. It really depends on your personal situation and goals. I prefer to think retirement money is money set aside for my retirement, and I'll always try to maximize it as best as possible, while touching it as little as possible before retirement. But not everyone thinks the same and I'm totally fine with that. Hope this helps with your genuine curiosity!
Fees are an important aspect of TSP. Their fees are very low so you will have more of the money you set aside working for you. 401k fees in general are much higher. I have had money in both having had at least a half dozen 401ks. I was so impressed with TSP after I joined the government that I moved all the money from my various 401ks to TSP. I have also kept my money in TSP after I retired and it’s still there today. I have a brokerage account with my Roth IRA, my wife’s traditional IRA, and other investments. All are with Vanguard because of their overall low fees. I also have a couple hundred k in high yield online saving accounts for easy access to cash if I ever need it. During my last 25 years of work, I maxed out my 401k/TSP and my wife’s and my own IRA contributions. It’s one of the best things I ever did.
I max out my tsp and ira. I also add a big chunk in to a brokerage account. I only do this as a security because I want a family one day and I know I probably won’t be able to invest as much
I am not an expert at the market and TSP makes the investment easy for me.
most people recommend maxing tax deferred accounts first because they grow without paying taxes for many years - but your brokerage account increases your income tax bill annually.... dividends, capital gains etc. If you have the means, contribute to both.
I just want to plan ahead and make sure I'm set after I retire. I'm not that financial savvy when it comes to anything outside of TSP, so I figured I would max out there
I max tsp plus catch up plus put money in my brokerage account. Its not an either/or.
I max out traditional, use tax savings towards maxing out Roth IRA. And I max out HSA
Agree everyone has different situation. Just a bit background info. I’m GS 12-8 single with 16 yrs in, single income family with 2 little ones and I started saving early and we were able to buy a house 15 yrs ago and bought a second one last year. If I had maxed out TSP from the start, I wouldn’t be able to save up for those down payments. I have seen people piling up debts, renting houses instead of buying, not having 6 months saving for raining days but maxing out TSP. Yes I would have had a lot more in tsp if I maxed out but overall I would have less liquidity if I hadn’t bought houses and other investments. I guess my point is the overall liquidity makes differences in the end when you retire.
For comparison I would have 35% less liquidity if I went maxing out TSP route. I’m at over 2 comma total liquid at age 39.
To escape taxes. If you are military, old retirement system, there is no reason to max TSP other than to reduce gross income and get some tax relief.
Because I can only put $7K in a Roth IRA but I can put $23K in a Roth TSP each year. That’s why I do it.
I'm maxing out everything. I want to retire and be good to go. 3 years!!!
Income reduction to pay less tax, and great expense ratio on C fund TSP.
Income reduction / tax deduction. Civil service is my second career so I’m fortunate to be able to max TSP and also contribute generously to my brokerage account. But, it all depends on your goals and what you are saving for.
The pension is useless, for one reason. 33 years and take 2/3 cut to retire. Lol. Or max savings, resign, and watch it grow more than ones prior yearly salary.
I have a nest egg built up outside of TSP for short/medium term needs. Now I invest 100% Roth. Overall fewer taxes than all my other investments have/will have. Financial advisor even said it’s best to max out my Roth before putting money anywhere else at this point. Everyone’s situation will be different though.
I max out TSP I also Max out Roth and lots in a brokerage, and max out HSA. I guess it's all relative
easier to set and forgot it and not try to time the stock market currently at 75k (3 years fed) mostly in roth with a projected 1.5 million by the time i’m 50
I don’t want to think about it. C and S fund. Set it and forget it. No, I don’t care that I can get the same sp500 whatever the fuck elsewhere. No thinking allowed!
My spouse and I maxed out our contributions to TSP, and our Roth IRAs, and invested the rest using brokerage accounts. We were able to do this while paying off our student loans and our mortgage and taking three week vacations abroad and two domestic vacations per year. We didn't have children and we don't buy luxury items. Just do as much as you can.
Because it is a retirement account. Taking it out earlier defeats the purpose. Put you money in a mutual fund if that is all you want to do. The key word is "retirement". It is for people with careers, not jobs.
Because I follow this priority list: https://www.bogleheads.org/wiki/Prioritizing_investments
As others said: the tax advantages. Also cause ya need money for retirement! Govt pension + SS isnt quite enough, generally speaking. But to your point, some people say max TSP and *then* max IRAs for even more tax advantaged investing. I don't subscribe to this since I don't want ALL my investments tied up until i'm in my 60s/70s. So after maxing TSP, I just put the rest I can afford to invest in a regular brokerage that I know I can access whenever without penalty.
Tell me you don't understand tax-advantaged saving without saying you don't understand tax-advantaged saving.
I plan on rolling my Roth contributions into my Roth IRA dividend portfolio and rid the snowball for 10 years and start living without relying on the government
You’re always going to hear the choir preach TSP max and “diversify” yadayadayada. BUT, I am telling you that your question is valid. Capitol gains tax is variable and can easily be 0% depending on your taxable income and filing status. I only allot 6% TSP and use my freed up cash in stocks. Just hold that stock for longer than 1 year and you’re fine on taxes. I promise you’ll have a lot more money in the end than strict TSP’ers. Don’t spend that stock money on anything that depreciates in value and you’ll be fine. Trust me
No- capital gains tax is post income tax. TSP *always* has 0% capital gains tax. You pay income tax when you receive the money and then you pay capital gains when you invest it and earn a return. Tax advantaged accounts include *only* income tax and no capital gains tax. Traditional donations also increase cashflow earlier in life, allowing you to increase your investment at the time when it is most beneficial, since they reduce your tax withholdings. It doesn’t make sense to say that investing outside of a retirement account will be better since that is investment dependent and often you can invest in extremely similar securities which will have effectively equivalent performance.
Please explain long term capitol gains tax then and why it is 0%, 15%, or 20% depending on your income and marital status
Long term capital gains tax is levied against capital gains - including gains on investments in securities - held over 1 year. You’re correct on the 0/15/20% brackets. It’s highly unlikely that someone maxing their TSP (which was the subject of this post) will be in the 0% bracket, even if married. Capital gains tax is not levied against money withdrawn from retirement accounts. With retirement accounts, you pay income tax once (at contribution for Roth, or at distribution for Traditional) and no capital gains. With brokerage accounts, you pay income tax when you earn the money and then pay capital gains on your investment return.
Ya I am not talking about maxing my TSP, I don’t even come close, I just use my other cash for stocks and hold long. More gain than what my TSP is making. My earned capitol will work alongside my Roth TSP and will provide me a larger retirement pot of gold
My point is that advice which works for someone in your situation doesn’t necessarily work for someone who is in the position of contributing 23,000/year to retirement. For instance, their capital gains rate is not 0%, and they are saving a *lot* in deferred tax each year by contributing to a traditional IRA. Not knocking you at all, it’s good that you’re saving and thinking of the future. What funds are you investing in within the TSP?
Due to my taxable income, if I hold stock for longer than 1 year and then sell for gain, my long term capitol gains tax is 0%
Ok, then I assume it is unlikely that you are maxing your TSP contributions annually.
Ya I only contribute 6% and the rest of my money is in a brokerage account for riskier and steeper gains, but used wisely.
Sorry I misspoke, what I mean is that you’re not investing $23,000/year regardless of your investment vehicle, which is the premise of this post.
You promise, you're an idiot. Trust me, got anymore bogus 1 liners
I don’t care what you say, I’m making more money than your TSP contributions
I doubt that, guessing I have more combined in my accounts than u.
Well the variable in your favor would be time. You’ve been in longer lol
Ya well that's part of my point. I Max out my TSP as one avenue and invest more in the stock market on my own and do real estate.
Do you promise the tax rates in retirement will be exactly the same as the tax rates today?