I searched for this topic so I apologize if this has been discussed before. My obvious question is:

Which one is better for a military person? Specifically in the lower enlisted ranks.

Also, lets say I get out of the military...do I get to transfer my TSP to a ROTH IRA tax free? (Thus in the end never paying tax on it.)

Thanks for the input in advance. I am open and willing to learn!

Paxton

I believe TSP contributions are pre-tax, therefore a rollover to a ROTH IRA, though allowable, you will need to pay taxes on contributions and any earnings.

As for what is better; TSP or ROTH IRA, they are both good choices. The important thing is to make a contribution to one or both if possible.

'On Target'- Motto of 1/84 FA (LAR)

I believe a Roth IRA is better for a few reasons:
1) Many more investment choices.

2) You will never pay taxes on the growth portion of your IRA

3) You dont have to worry about what the future tax rate will be.

If you do leave the service and roll over your IRA to a Roth you will have to pay taxes on anything converted in the year of conversion. If your planning on rolling it into a Roth, why not just put it their in the first place and get all the earnings tax-free

Maverick - you ask a very good question. The short answer is, contribute as much as you can to a Roth IRA, then apply additional savings to your TSP account. Here's why:

Right now, being in the military means you're probably not in a high tax bracket. Besides the fact that you're not overpaid, frequent deployments to war zones can also reduce your income taxes. This means the tax-deductible aspect of the TSP is not as meaningful for you. You're pretty well guaranteed to be in a higher tax bracket later in life, so the Roth IRA will work in your favor.

Right now, most military don't get matching contributions in the TSP, although I heard the Army had a test program on that. If that were to change, my answer might change. Matching contributions (which Fed Employees DO get) is just free money - my advice is never to turn that down.

The answer to your second question regarding converting your TSP to a Roth IRA is that this is also possible. Beyond possible - it's really smart! The converting funds will be taxed as they convert, so the typical strategy is to make the conversions over a period of years - just enough to not put you in the next higher tax bracket of course.

If you're interested in actively managing your TSP account to move funds into profits and away from risk, you can read more at my blog:"Deleted"

- Divot

Edited for content-USMCvet

This message has been edited. Last edited by: usmcvet,

I was thinking about this some and a few thoughts came to mind.

I want to retire before 60. Does this mean if I start pulling out of a ROTH before 60, ALL of it becomes taxed...or just the part I pull out before 60? If I want to retire 60, dont I loose all of the advantages of the ROTH IRA?

(I say this with planned goals...not just whimsy wants

your fine, a roth ira is still better.

With a Roth you can take out whatever you contributed at any time with no penalties. The part you cant touch is the growth until you are 59.5 years old.
Ex. you contributed 10K over the last 10 years it is now worth 15K. You would be able to withdraw 10k at any time.

With a TIRA or 401K you would be subject to a 10% penalty

You may also want to take a look at ETFs, Exchange-Traded Funds. "ETFs for Dummies may be a great place to start!

I do not believe that a TSP can hold an EFT. Get a life. If you want to post make sure you have some idea what you are talking about. I looked at your posts and most are babble.

Be mindful that any IRA is issued by an insurance company. Therefore if you take money from a ROTH prior to maturity (age 59.5), you may have to pay surrender charges or penalties, for a period of time (called surrender charges). Generally, a ROTH IRA is after tax money saved for RETIREMENT, that when you withdraw it, beginning not earlier than 59.5, those funds are withdrawn tax free (all gains above cost basis). The TSP is a great vehicle for savings and growing money on a tax deferred basis, however, it will be taxed on the withdrawals after age 59.5. As a financial planner, I say do both if you can, but the ROTH is ideal for those persons in a lower tax bracket who will be in a much higher tax bracket later in life.

AN IRA is not issued by an insurance company. That is an annuity. My IRA is with a Brokerage firm. Many banks offer IRAs. The only issue for early withdrawal is the tax issues. There is a 10% penalty on traditional IRAs for early withdrawal except for education and home buying. There are also hardships that do not incur a penalty. You will still have to pay taxes on the withdrawal.

When it comes to school costs, the IRS says no penalty will be assessed as long as your IRA money goes toward qualified schooling costs for yourself, your spouse or your children or grandkids.

You can use up to $10,000 in IRA funds toward the purchase of your first home. If you're married, and you and your spouse are both first-time buyers, you each can pull from retirement accounts, giving you $20,000 in residential cash.

Roth IRAs have different rules. A ROTH can be used like a traditional IRA for funding a down payment, but because the ROTH is after tax money invested, but tax exempt earning, you may owe some taxes. It depends on how long you own your ROTH.

You can read the full rules at:

http://www.irs.gov/pub/irs-pdf/p590.pdf

Wow, so much screwed up info in one thread!

IRAs are not only from insurance companies. Any investment vehicle can be used to establish an IRA.

Due to the fact that the military TSP has no matching funds and is a tax deferred investment, the Roth IRA with it's tax free earnings should be a higher priority. Although convential wisdom would be that you need to invest in both. AT LEAST 10% of your GROSS income should be put into retirement investments, and therefore most people will have money left over after maxing out their IRA. Well maybe not Es in their first few years, but you'll be making enough eventually to do both.

As to the rest I suggest reading the book, "Deleted" and/or "Deleted." It will clear up much of the bad info from this thread.


Edited for advertising-USMCvet

This message has been edited. Last edited by: usmcvet,

WTH? I suggested a couple of books, I wasn't advertising anything. I don't get a cent from either of those books, and I didn't suggest buying them, only reading them. I know it's the age of the internet, but there are still libraries where people can read books for FREE.

RogerOT,

Despite your attempt to provide good information, posting links to other websites and the mere mention of products, by name, is prohibited.

So I can't reccommend a movie, or even state that I drive a particular car? If that's so there are posts all over mil.com that need to be pruned.

Where in the TOS is it stated that merely mentioning a commercially available product is prohibited?

I'm serious I'd like to know.

This message has been edited. Last edited by: RogerOT,

quote:

Originally posted by RogerOT:
So I can't reccommend a movie, or even state that I drive a particular car? If that's so there are posts all over mil.com that need to be pruned.

Where in the TOS is it stated that merely mentioning a commercially available product is prohibited?

I'm serious I'd like to know.

From the TOS:

6. You shall not upload, email, post or transmit to, or distribute or otherwise publish through the Military.com Web site any material which:(i) disrupts the normal flow of dialogue and/or exchange on the Site, including posting or otherwise transmitting material that is not related to the subject at issue or otherwise restricts or inhibits any other user from using and enjoying the Military.com Web site; (ii) is unlawful, threatening, abusive, libelous, defamatory, obscene, vulgar, offensive, harassing, hateful, embarrassing, pornographic, profane, sexually explicit, or indecent; (iii) constitutes or encourages conduct that would constitute a criminal offense, potentially give rise to civil liability (including claims of defamation and/or libel), or otherwise violate the local, state, or national laws of any country; (iv) violates, plagiarizes, or infringes the rights of third parties including, without limitation, copyright, trademark, patent, rights of privacy or publicity, trade secrets, or any other proprietary right; (v) contains a virus, worm, Trojan horse, or other harmful component; (vi) contains any information, software, or other material of a commercial nature; (vii) contains solicitations or advertisements of any kind; (viii) constitutes or contains false or misleading indication of origin or statement of fact; or (ix) contains chain letters or pyramid schemes.



Satisfied now?

I'm serious as well, and thus, this matter is no longer up for discussion.-USMCvet

Vet is just trying to 'improve' his post count. I've seen this same post at least three times:.

'On Target'- Motto of 1/84 FA (LAR)

quote:

Originally posted by ajm184:
Vet is just trying to 'improve' his post count. I've seen this same post at least three times:.

'On Target'- Motto of 1/84 FA (LAR)

Al,

Oh, what do we have here.......a comedian!