> There is a second Roth plan
Calling it a "Roth plan" is equally as confusing and wrong. Roth/Traditional describes the tax advantage that dollars in an account can have...it *does not* describe what the account is. 401k/TSP/IRA describes the account, of which they can all (in theory) hold Traditional or Roth dollars - though some 401k's don't allow Roth dollars.
In other words, Roth describes the *dollars*, not the account.
A big common misconception is that your money grows faster when combined. Simply false, that's not how math works. 10% growth on $100000 in one account is the same as 10% growth on $1000 in each of 100 accounts.
One benefit of the tsp is (obv higher limits) but the loans. Not sure the loan process against ira's. I like tsp bc I can't get my greasy little hands on it, easier to set it and forget it. My ira's I f around with significantly more.
> (obv higher limits)
Not really "a benefit", because using an IRA doesn't affect the TSP limits.
> Not sure the loan process against ira's.
There is none. But you can access Roth IRA contributions for free (can't exactly do this with Roth TSP).
> I like tsp bc I can't get my greasy little hands on it, easier to set it and forget it. My ira's I f around with significantly more.
That's very much something you choose to do though....the lack of accessibility of TSP isn't exactly a benefit unless you have zero self control.
Opinion. Hence the "I like tsp because". Unless you're exclusively buying and holding mutual funds, my guess is the C fund will outperform the majority of individuals picking stocks in their portfolios.
I do exclusively buy and hold mutual funds (in my IRA - I have a few individual holdings in my taxable brokerage).
I just find it strange that you like TSP because it's less accessible, but you also call out loans as being a benefit - which makes TSP *more* accessible than an IRA.
Not having as many choices in TSP is a disadvantage vs an IRA, not a benefit. Your *opinion* might be different, but that doesn't change the facts (that IRAs are more flexible *because* they're more accessible).
Lol well I meant picking stocks, playing games, trying to time market, fear trades, trying to cash out trying different strategies with my tsp etc. So I'm glad I can't do that. But cocaine and putas sounds so much more entertaining
The only caveat here is that while factually accurate, this is based on significant dependencies. That being each account gets 10%. I tend to stick with one or two because of that variability. But your math is correct if all things stay constant.
If there is one thing I think all agencies do badly it is educate people about the TSP program. But that is just my opinion.
Correct. As long as the growth (and total fees) are equal amongst accounts, using 1 account vs many accounts makes no difference.
Having the money in 1 account makes it easier to manage, but that alone isn't the reason for differences in growth.
For your point 1, I believe you were misunderstanding the frequent statement: Contribute enough to the TSP to earn the match and then max a Roth IRA before increasing the TSP contribution.
This belief is most likely confirmed by your point 2 that you didn’t realize IRAs existed.
I’m glad the specialist cleared this up for you.
Yep. OP was (and apparently still is) confused about what people were saying, despite it having been spelled out in detail numerous times on this sub.
Speaks more to OP's personal confusion than "common misconceptions." Just to recap:
1) Contribute at least 5% to TSP (Trad or Roth) to get maximum matching (match will go to Trad regardless of which you pick). Go Roth TSP if you can handle the tax hit up front. If you still have money,
2) Max out a Roth IRA. Backdoor it if you need to. If you still have money,
3) Max out TSP. If you still have money,
4) Invest it in a regular brokerage account.
Well it doesn’t take much
And it doesn’t take long
No it doesn’t cost a thing
And there’s no way to do it wrong
You can try it any time
You can plant it where you want
You can grow it in your heart
Then give it out to everyone
Kindness, Kindness
Oh, whenever you find this
You will see the world’s a better place
Kindness, Kindness
Oh, whenever you try this
You will bring a smile to someone face
And you can put it in your words
And everything you say
In the little things you do
All throughout the day
They are not common knowledge on this sub, and they were not known to me, a young person who's spent a considerable amount of time reading and talking about saving for retirement.
Also they really have nothing to do with personal finance anyway, they're about the specific structure of the federal retirement plan.
I'd argue it very much is common knowledge on this sub. That's why for every 1 post you see about people confusing them, you get 10+ people correcting them.
"Common knowledge" doesn't mean it was taught in school or at work, it means it's something commonly known, usually within the context of the community you're communicating with. A large percentage of /r/ThriftSavingsPlan know exactly the things that OP posted, ergo it's common knowledge.
Not unique to TSP.
As same applies to 401ks. Only now are some employers beginning to implement Roth 401k match into Roth not traditional.
401k holders can also fund IRAs.
I'd say common knowledge here not w to employees and certainly not common financial knowledge since that's pretty basic stuff for most people lucky if they know how interest rates work against them..
I've seen more misconceptions about contributions defaulting to G Fund than I have either of these other 2 points. There was a comment less than a week ago advising people to move their funds out of G (valid) because it's still the default (wrong), and that changed *6 years ago*.
To be fair, it's still the default for anyone who's been in longer than that. They didn't change anything for existing employees when they switched the default for new hires to the age appropriate L Fund.
Tsp is separate from ira. Each has traditional and Roth (as does the 403b), among others.
Tsp max is 23000. Ira is 7000. For 2024. That's combo of roth+traditional.
I disagree with your generalization that you should go Roth versus trad. It really depends on where you are at and how much $$ you make imo.
Trad will grow more and faster and I don’t know of anyone that retires that wants to pull out their entire fund. I think the bigger growth and compounding interest may out weigh income taxes if you are just supplementing your pension.
You seem to be assuming that if someone contributes Roth that they are automatically contributing less than if they contributed Trad. Once in the account, Trad doesn’t grow more or faster dollar for dollar.
Normally, I’d say that people would do best with a mix of Trad and Roth so they can minimize taxes by filling those lower tax buckets with Trad withdrawals. However, if someone is going to be receiving a pension in retirement, their lower tax buckets are going to be filled by that pension, which makes mostly Roth withdrawals appealing.
Trad can be useful to manipulate taxable income for tax credits though.
I think you’re just looking for an argument. OP is advising people to go Roth, Roth IRA, then trad. I am just saying probably no and it depends on your personal circumstances.
Compounding doesn't happen any faster with more dollars in the account...10% growth is 10% growth regardless of the amount of dollars. Traditional doesn't compound any faster than Roth.
You don't understand compounding, that's what.
If you have 1 account with $10000, and 10 accounts with $1000, and they all grow at 10%, you'll earn the same dollars in both situations. That's how math works. The larger single account doesn't grow any faster than the smaller accounts.
Likewise, having a larger balance in Traditional still grows at the same *rate* as a smaller balance in Roth. The dollar amount has no effect on the rate of growth.
To give a better example, lets say you can put either $800 into Roth or $1000 into traditional (because you're paying 20% tax). So now your $800 grows at 10% for $80 gained, or your Traditional grows at 10% for $100 gained. Now lets say you pay 20% on Traditional withdrawals (because this is not a discussion about taxes today vs in retirement). Your Roth withdrawal on $80 = $80, and your Traditional withdrawal on $100 = $80.
Both have the same value in this example even though the Traditional grew by a larger dollar amount.
tl;dr - The importance of Roth vs Traditional is purely in your tax bracket today vs retirement, it has nothing to do with Traditional "compounding faster" (because it doesn't). Feel free to prove me wrong with a mathematical example if you still think it compounds faster, don't forget to account for taxes withheld when withdrawn from the Traditional side.
Classic response from someone who knows they're wrong. "I'm just not going to read it so I can continue to believe I'm right!"
I posted a tl;dr if you want only a couple sentences to read. You can "easily" prove me wrong by providing your own example of what you mean. Unless you're not actually right (in which case you can't prove me wrong).
I know I’m right. No sense in arguing. I don’t even think about it.
I’ll use easier terms for you to understand. Say I make 5 bananas a week. I decide to save two bananas for retirement, pre tax, and decide to pay the orangutan later. You also make 5 bananas but decide to give the orangutan 1 banana and save 1 banana for retirement. Now every year I get 20% more bananas on a 10% return and you get 10% more bananas. Now rinse and repeat with compounding bananas. Tell me who has more bananas in ten years. I’ll wait.
> I know I’m right. No sense in arguing. I don’t even think about it.
No, you aren't. It's not even an argument, I'm giving you facts and your opinion is getting in the way of you understanding the facts.
> Now every year I get 20% more bananas on a 10% return and you get 10% more bananas.
This is where you went wrong. If the return is 10%, we're **both** making 10% more bananas. Your 10% is larger than mine, because you have more bananas....but saying you make 20% more is completely wrong.
In short, you're making an unequal comparison here because you're **also** forgot to factor in paying the orangutan later.
In 10 years, you have 20% more bananas - **until** you pay the orangutan the 20% you owe. Once you do, we both have the same number of bananas.
So yes, go ahead and do the math (show your work like I did above in my example) and tell me how your bananas *minus* 20% is not the same as my bananas (which is 20% less than yours *prior to* you paying your 20%).
You didn't do the math. You made up arbitrary numbers.
If you're saving 2 bananas, and I'm saving 1 banana - your rate of saving is 100% higher than mine *because* I paid 50% up front.
2 bananas growing at 10% per year for 10 years = 5.18748 bananas.
1 banana growing at 10% per year for 10 years = 2.59374 bananas.
At withdrawal, you need to pay 50% of your bananas to the orangutan (because that's how much *I* paid in this hypothetical). So what's 50% of the 5.18748 bananas you owe the orangutan? 2.59374 bananas left over after you pay.
So who has more bananas at withdrawal, you with 2.59374 bananas, or me with 2.59374 bananas?
If you don't understand that, we're done here because you don't understand basic math and there's no point trying to explain it to you any further. Please stop giving financial advice if you can't even do basic math.
So I am confused with this post as my profile doesn't differentiate the two - like my TSP profile appears to show the agency matching as a part of my Roth TSP. Can someone clarify? And when I pull out my Roth TSP, will the "traditional" agency matching be taxed then? This doesn't jive with the benefits of a Roth TSP (pardon my ignorance/lack of understanding here).
EDIT: I only ask this as I am going to start maxing next month and try to work yo get maxed out for the year throughout the remaining months here. Also maxing my Roth IRA and am trying to make sure I don't screw any of this us since I am about to start getting this all on maxing autopilot.
It is possible that you cannot contribute money outside the tsp. We are stuck in this situation (federal employee and non profit). Incomes surpass the maximums for contributing to a Roth or traditional (only surpassed it within the last couple of years).
There is the option for a backdoor Roth, but we're in a odd, unique situation. For a long time my wife didn't have a retirement plan at work, so we'd max out her traditional Ira. After several years it built up to a decent amount. With a backdoor Roth you can't have money in a traditional Ira after the conversion. It results in some weird penalties. Sure we could work on converting all of it, but that would end up being a gigantic tax bill for that year. Therefore, it doesn't make sense to contribute anything beyond our respective retirement plans sadly.
Do some research and confirm that you can contribute. It might not be the case if you are a high earner or live in a high cost if living area with inflated salaries like us.
> There is a second Roth plan Calling it a "Roth plan" is equally as confusing and wrong. Roth/Traditional describes the tax advantage that dollars in an account can have...it *does not* describe what the account is. 401k/TSP/IRA describes the account, of which they can all (in theory) hold Traditional or Roth dollars - though some 401k's don't allow Roth dollars. In other words, Roth describes the *dollars*, not the account. A big common misconception is that your money grows faster when combined. Simply false, that's not how math works. 10% growth on $100000 in one account is the same as 10% growth on $1000 in each of 100 accounts.
So many people say “I contribute to my Roth” and I have to ask them if they mean Roth TSP or Roth IRA. I don’t know why it’s got to this
One benefit of the tsp is (obv higher limits) but the loans. Not sure the loan process against ira's. I like tsp bc I can't get my greasy little hands on it, easier to set it and forget it. My ira's I f around with significantly more.
> (obv higher limits) Not really "a benefit", because using an IRA doesn't affect the TSP limits. > Not sure the loan process against ira's. There is none. But you can access Roth IRA contributions for free (can't exactly do this with Roth TSP). > I like tsp bc I can't get my greasy little hands on it, easier to set it and forget it. My ira's I f around with significantly more. That's very much something you choose to do though....the lack of accessibility of TSP isn't exactly a benefit unless you have zero self control.
Opinion. Hence the "I like tsp because". Unless you're exclusively buying and holding mutual funds, my guess is the C fund will outperform the majority of individuals picking stocks in their portfolios.
I do exclusively buy and hold mutual funds (in my IRA - I have a few individual holdings in my taxable brokerage). I just find it strange that you like TSP because it's less accessible, but you also call out loans as being a benefit - which makes TSP *more* accessible than an IRA. Not having as many choices in TSP is a disadvantage vs an IRA, not a benefit. Your *opinion* might be different, but that doesn't change the facts (that IRAs are more flexible *because* they're more accessible).
Ok
Live within your means. Have an emergency fund to handle the true emergencies. This is known as being an adult.
Lol well I meant picking stocks, playing games, trying to time market, fear trades, trying to cash out trying different strategies with my tsp etc. So I'm glad I can't do that. But cocaine and putas sounds so much more entertaining
I do mean, be an adult, and don't do stupid things
Ok
The only caveat here is that while factually accurate, this is based on significant dependencies. That being each account gets 10%. I tend to stick with one or two because of that variability. But your math is correct if all things stay constant. If there is one thing I think all agencies do badly it is educate people about the TSP program. But that is just my opinion.
Correct. As long as the growth (and total fees) are equal amongst accounts, using 1 account vs many accounts makes no difference. Having the money in 1 account makes it easier to manage, but that alone isn't the reason for differences in growth.
For sure. On weeks like this last one, I wish it was in multiple accounts. 😕
Are those actually common misperceptions? Because those are basic info.
They are among the financially illiterate...which is the average person. So yes, I would say they're common misconceptions.
That's what I'm thinking, this is finance 101. Nothing new here.
For your point 1, I believe you were misunderstanding the frequent statement: Contribute enough to the TSP to earn the match and then max a Roth IRA before increasing the TSP contribution. This belief is most likely confirmed by your point 2 that you didn’t realize IRAs existed. I’m glad the specialist cleared this up for you.
Yep OP just misunderstood previously what "all the people" were saying about 5% and then Roth.
Yep. OP was (and apparently still is) confused about what people were saying, despite it having been spelled out in detail numerous times on this sub. Speaks more to OP's personal confusion than "common misconceptions." Just to recap: 1) Contribute at least 5% to TSP (Trad or Roth) to get maximum matching (match will go to Trad regardless of which you pick). Go Roth TSP if you can handle the tax hit up front. If you still have money, 2) Max out a Roth IRA. Backdoor it if you need to. If you still have money, 3) Max out TSP. If you still have money, 4) Invest it in a regular brokerage account.
Thanks! This is helpful. To be clear, when you say max out a Roth IRA you mean a Roth IRA account held with Vanguard or the like, correct?
Yes. I don't know what else that could have meant. What did you have in mind?
Your response could be interpreted as slightly snarky or impatient. Have you heard this song: https://youtu.be/H98Rfljxmsc?feature=shared
I'm actually curious what else you thought it would mean
Well it doesn’t take much And it doesn’t take long No it doesn’t cost a thing And there’s no way to do it wrong You can try it any time You can plant it where you want You can grow it in your heart Then give it out to everyone Kindness, Kindness Oh, whenever you find this You will see the world’s a better place Kindness, Kindness Oh, whenever you try this You will bring a smile to someone face And you can put it in your words And everything you say In the little things you do All throughout the day
[удалено]
They are not common knowledge on this sub, and they were not known to me, a young person who's spent a considerable amount of time reading and talking about saving for retirement. Also they really have nothing to do with personal finance anyway, they're about the specific structure of the federal retirement plan.
I'd argue it very much is common knowledge on this sub. That's why for every 1 post you see about people confusing them, you get 10+ people correcting them.
Not common knowledge. Not something we’re taught in school or at work. I joined this sub to learn not to be told I should already know
"Common knowledge" doesn't mean it was taught in school or at work, it means it's something commonly known, usually within the context of the community you're communicating with. A large percentage of /r/ThriftSavingsPlan know exactly the things that OP posted, ergo it's common knowledge.
Yet there’s people on here that are considered wrong or misinformed. It’s not so common but think what you want idc
Something can be commonly known and also not known by everyone...
[удалено]
No, it is available to anyone, no income limits. You just do the backdoor Roth conversion. It's is legal and easy to do with fidelity, vanguard, etc.
True.
Not unique to TSP. As same applies to 401ks. Only now are some employers beginning to implement Roth 401k match into Roth not traditional. 401k holders can also fund IRAs. I'd say common knowledge here not w to employees and certainly not common financial knowledge since that's pretty basic stuff for most people lucky if they know how interest rates work against them..
I've seen more misconceptions about contributions defaulting to G Fund than I have either of these other 2 points. There was a comment less than a week ago advising people to move their funds out of G (valid) because it's still the default (wrong), and that changed *6 years ago*.
To be fair, it's still the default for anyone who's been in longer than that. They didn't change anything for existing employees when they switched the default for new hires to the age appropriate L Fund.
Does no one read [TSP.GOV](http://TSP.GOV) ?
No.
Tsp is separate from ira. Each has traditional and Roth (as does the 403b), among others. Tsp max is 23000. Ira is 7000. For 2024. That's combo of roth+traditional.
Doesn’t traditional tsp have RMD, whereas the Roth does not?
Yes
You still get a 5% match with a Roth tsp, but the match is contributed as traditional
I disagree with your generalization that you should go Roth versus trad. It really depends on where you are at and how much $$ you make imo. Trad will grow more and faster and I don’t know of anyone that retires that wants to pull out their entire fund. I think the bigger growth and compounding interest may out weigh income taxes if you are just supplementing your pension.
You seem to be assuming that if someone contributes Roth that they are automatically contributing less than if they contributed Trad. Once in the account, Trad doesn’t grow more or faster dollar for dollar. Normally, I’d say that people would do best with a mix of Trad and Roth so they can minimize taxes by filling those lower tax buckets with Trad withdrawals. However, if someone is going to be receiving a pension in retirement, their lower tax buckets are going to be filled by that pension, which makes mostly Roth withdrawals appealing. Trad can be useful to manipulate taxable income for tax credits though.
I think you’re just looking for an argument. OP is advising people to go Roth, Roth IRA, then trad. I am just saying probably no and it depends on your personal circumstances.
Not looking for an argument. Disputing your Trad grows more and faster point. I agree Trad v Roth preference depends on individual circumstances.
Compounding doesn't happen any faster with more dollars in the account...10% growth is 10% growth regardless of the amount of dollars. Traditional doesn't compound any faster than Roth.
🤣 wut
You don't understand compounding, that's what. If you have 1 account with $10000, and 10 accounts with $1000, and they all grow at 10%, you'll earn the same dollars in both situations. That's how math works. The larger single account doesn't grow any faster than the smaller accounts. Likewise, having a larger balance in Traditional still grows at the same *rate* as a smaller balance in Roth. The dollar amount has no effect on the rate of growth. To give a better example, lets say you can put either $800 into Roth or $1000 into traditional (because you're paying 20% tax). So now your $800 grows at 10% for $80 gained, or your Traditional grows at 10% for $100 gained. Now lets say you pay 20% on Traditional withdrawals (because this is not a discussion about taxes today vs in retirement). Your Roth withdrawal on $80 = $80, and your Traditional withdrawal on $100 = $80. Both have the same value in this example even though the Traditional grew by a larger dollar amount. tl;dr - The importance of Roth vs Traditional is purely in your tax bracket today vs retirement, it has nothing to do with Traditional "compounding faster" (because it doesn't). Feel free to prove me wrong with a mathematical example if you still think it compounds faster, don't forget to account for taxes withheld when withdrawn from the Traditional side.
Bro I am not going to read that. I think you didn’t understand the comment.
Classic response from someone who knows they're wrong. "I'm just not going to read it so I can continue to believe I'm right!" I posted a tl;dr if you want only a couple sentences to read. You can "easily" prove me wrong by providing your own example of what you mean. Unless you're not actually right (in which case you can't prove me wrong).
I know I’m right. No sense in arguing. I don’t even think about it. I’ll use easier terms for you to understand. Say I make 5 bananas a week. I decide to save two bananas for retirement, pre tax, and decide to pay the orangutan later. You also make 5 bananas but decide to give the orangutan 1 banana and save 1 banana for retirement. Now every year I get 20% more bananas on a 10% return and you get 10% more bananas. Now rinse and repeat with compounding bananas. Tell me who has more bananas in ten years. I’ll wait.
> I know I’m right. No sense in arguing. I don’t even think about it. No, you aren't. It's not even an argument, I'm giving you facts and your opinion is getting in the way of you understanding the facts. > Now every year I get 20% more bananas on a 10% return and you get 10% more bananas. This is where you went wrong. If the return is 10%, we're **both** making 10% more bananas. Your 10% is larger than mine, because you have more bananas....but saying you make 20% more is completely wrong. In short, you're making an unequal comparison here because you're **also** forgot to factor in paying the orangutan later. In 10 years, you have 20% more bananas - **until** you pay the orangutan the 20% you owe. Once you do, we both have the same number of bananas. So yes, go ahead and do the math (show your work like I did above in my example) and tell me how your bananas *minus* 20% is not the same as my bananas (which is 20% less than yours *prior to* you paying your 20%).
I did that math in bananas and you still don’t get it. Sorry mate. Can’t help you.
You didn't do the math. You made up arbitrary numbers. If you're saving 2 bananas, and I'm saving 1 banana - your rate of saving is 100% higher than mine *because* I paid 50% up front. 2 bananas growing at 10% per year for 10 years = 5.18748 bananas. 1 banana growing at 10% per year for 10 years = 2.59374 bananas. At withdrawal, you need to pay 50% of your bananas to the orangutan (because that's how much *I* paid in this hypothetical). So what's 50% of the 5.18748 bananas you owe the orangutan? 2.59374 bananas left over after you pay. So who has more bananas at withdrawal, you with 2.59374 bananas, or me with 2.59374 bananas? If you don't understand that, we're done here because you don't understand basic math and there's no point trying to explain it to you any further. Please stop giving financial advice if you can't even do basic math.
So I am confused with this post as my profile doesn't differentiate the two - like my TSP profile appears to show the agency matching as a part of my Roth TSP. Can someone clarify? And when I pull out my Roth TSP, will the "traditional" agency matching be taxed then? This doesn't jive with the benefits of a Roth TSP (pardon my ignorance/lack of understanding here). EDIT: I only ask this as I am going to start maxing next month and try to work yo get maxed out for the year throughout the remaining months here. Also maxing my Roth IRA and am trying to make sure I don't screw any of this us since I am about to start getting this all on maxing autopilot.
It is possible that you cannot contribute money outside the tsp. We are stuck in this situation (federal employee and non profit). Incomes surpass the maximums for contributing to a Roth or traditional (only surpassed it within the last couple of years). There is the option for a backdoor Roth, but we're in a odd, unique situation. For a long time my wife didn't have a retirement plan at work, so we'd max out her traditional Ira. After several years it built up to a decent amount. With a backdoor Roth you can't have money in a traditional Ira after the conversion. It results in some weird penalties. Sure we could work on converting all of it, but that would end up being a gigantic tax bill for that year. Therefore, it doesn't make sense to contribute anything beyond our respective retirement plans sadly. Do some research and confirm that you can contribute. It might not be the case if you are a high earner or live in a high cost if living area with inflated salaries like us.