No longer in military but working. I already have a Roth TSP account but of course, no longer get matching funds. Should I continue to contribute to Roth TSP (L4050) or just open a Vanguard Target Retirement Fund? I plan to just leave current funds in TSP but don’t know whether to add the allowable $6000 per year or put in Vanguard fund.
The advantage of the Roth is that you have more control of the distributions rather than what I call the end of January Surprise.
I am not a big fan of Target Funds. They appear to be too conservative. If you want target funds… push the date out 5 to 10 years. This will make them less conservative. At some point you may want to switch to Vg Index Funds… VTSMX
I assume VTSMX has more stock investments. I have two Vanguard accounts. One is a IRA rollover in Wellington. The other is target 2045. If I were to change the 2045 into VTSMX, how would I go about that? Would I incur fees?
I presume this means you’re working for a private employer, not the federal government (since feds get matching contributions). In that case, you can’t contribute to the TSP. If you’re working for the federal government, then contribute to the TSP.
The Roth IRA limits went up to $6500 this year.
So only government employees can contribute to TSP?
Same contribution limit for a Traditional IRA, $6,500.
For those 50 and over they can do an additional catchup contribution of $1,000 for a total of $7,500 IRA contribution for 2023.
Only federal employees can contribute to the TSP.
Target retirement funds are too conservative and have too much in international stocks often in excess of 35% of the equity holdings thus having 100% in target funds is sub optimal. You may want to have 50% in target funds, 0-10% in bonds, 20-30% in large cap stocks and 10-25% in small cap stocks
L2050 is for government employees; it has 18.25% in fixed income which is perfect for someone retiring in 2038 or 15 years. In contrast, the Vanguard 2050 is in 10.53% bonds or 89.47% stocks. If you use the 130-age, that’s appropriate for a 40 year old or someone retiring in 25 years or 2048.
Most target date funds have only 30% in stocks. If stocks earn 10% and bonds earn 4% a 50/50 portfolio nets around 7% which barely covers 3% inflation and a 4% withdrawal rate. A 30/70 portfolio in turn only earns 5.8% thus reducing the withdrawal rate to a mere 2.8%. A 70/30 portfolio by contrast may have an aggressive withdrawal rate of up to 5% though you will likely need to drop your withdrawal rate in half during a down or stagnant market
I’m just going to clarify that TSP is military and civilian federal employees.
Civilian employees get a match, 5 for 5
Military members under BRS get 1% to start then up to 5% match after two or three years. Those who joined before 2018 and did not switch to BRS do not get the match.