Thrift Savings Plan

[AdamA]

Is anyone familiar with Thrift Savings Plan for federal employees?

I use it for a portion of my portfolio.  From what I've read it's pretty safe and also low expense.  Just curious if anyone on this site knows anything about it...

Thanks,
Adam

[MediumTex]

Sure.  What do you want to know?

[AdamA]

Do you know anything about the short term treasury fund? It invests in an unusual short term treasury that  isn't available to the general public.  I use it for the cash portion of my fund. 

I guess that's it...unless there's something else about it you think and investor should know.

I will likely continue to use it barring any huge problem you know about it.  It's the only retirement plan available to me right now.

Thanks,
Adam

[MediumTex]

Do you know anything about the short term treasury fund? It invests in an unusual short term treasury that  isn't available to the general public.  I use it for the cash portion of my fund. 

I guess that's it...unless there's something else about it you think and investor should know.

I will likely continue to use it barring any huge problem you know about it.  It's the only retirement plan available to me right now.

Thanks,
Adam

The short term fund is fine for cash.  Think about who is offering it.

It's not perfect, but I think it's fine for PP cash purposes.

[Greg]

I'll be joining the workforce for the Federal Government soon and will be enrolled in the Thrift Savings Plan. The G fund look to be pretty good added to the portfolio while the other funds could be used in combinations for the stock portion. No gold or bonds in there though. Looks like the G fund however is a weighted average of treasuries 4 years and older. Wouldn't this make it sort of a combination between the cash and bond portion of the portfolio?

Also, they have come out with a new option, a Roth TSP, for all their Roth-y goodness. Since you wouldn't be paying taxes on the increases, is there then still a preference for cash over stocks in the account? I would think that it'd make more sense to keep the TSP weighted more towards the stock side since capital appreciation over time I'm assuming would be greater than the interest coming from the G fund.

For instance, I'll probably be contributing to taxable funds because not all of my investing money will be going into TSP and a Roth IRA. Would it make more sense then to have the TSP more weighted in stocks because then that means you need less in a taxable account to hit the 25% band?

I would think that you'd be paying more taxes due to dividends and capital gains from stocks than you would from a cash/G fund position but I'm not sure.

- Greg "1NV3ST0R"

[Reub]

I will be retiring from federal service this summer and I can tell you that the G fund is one of the greatest gifts that you will see as an investor. It is guaranteed by the federal govt NOT to ever lose value and pays an interest rate that is subsidized by the taxpayers and is over and above what you can get for a similar product in the real world. I use it for the cash portion of my PP. The C fund is also excellent for the stock portion with very low operating costs.

[Greg]

After you retire from Federal Government (or quit, either way), and you have your TSP account still active. Can you keep adding to it while at another job? Or is it that the money in there is now fixed since you quit and you can't add in any more but you could take money out if desired/roll it over into an IRA.

[HB Reader]

"Nancy", I will be retiring from federal service this summer and I can tell you that the G fund is one of the greatest gifts that you will see as an investor. It is guaranteed by the federal govt NOT to ever lose value and pays an interest rate that is subsidized by the taxpayers and is over and above what you can get for a similar product in the real world. I use it for the cash portion of my PP. The C fund is also excellent for the stock portion with very low operating costs.

I retired from federal service about nine years ago, and I agree completely.  The G Fund gives you Treasury bond returns with T-Bill safety.  It works well for a major portion of your PP cash component.  The C Fund works quite well for the stock portion.  All the funds have very low expenses. 

[Greg]

Reub or HB reader (or any one else with federal knowledge for that matter),

any idea if you can keep adding to your positions in the TSP after you retire? Or does it just turn into withdrawal-only machine/rebalancing within whatever amount of positions are in there already.

Gracias.

-Greg

[AdamA]

Is there then still a preference for cash over stocks in the account? I would think that it'd make more sense to keep the TSP weighted more towards the stock side since capital appreciation over time I'm assuming would be greater than the interest coming from the G fund.

The G-fund really is a gift.  As HB Reader points out, T-Bill safety with T-bond return.  Also, remember that interest on T-bills, notes, and bonds is taxed as income, not as dividends and capital gains like stocks.  It obviously depends on your situation, but I try to use the TSP as much as possible for cash for these reasons. 

[Greg]

The G-fund really is a gift.  As HB Reader points out, T-Bill safety with T-bond return.  Also, remember that interest on T-bills, notes, and bonds is taxed as income, not as dividends and capital gains like stocks.  It obviously depends on your situation, but I try to use the TSP as much as possible for cash for these reasons. 

Wouldn't the stock portion of the portfolio have a larger amount of taxable income though even if it is at long-term capital gains rates? I'd imagine if the Roth TSP has the G fund in it that I'd be able to keep then what would be the taxable interest of the fund at ordinary income rates. However wouldn't the taxable amount be potentially much smaller than the taxable amount from a large run-up in stocks over stocks (if we assume there is more volatility to stocks than cash).

If you looked at tax rates along then the G Fund would make more sense to keep in the tax-sheltered account.

If you look at tax rates AND how much potentially larger the capital gains would be of stocks with dividends, wouldn't it make more sense then to keep stocks in the tax sheltered account?

[Reub]

No, you cannot continue to add to your TSP after quitting or retiring from federal service.

[Greg]

No, you cannot continue to add to your TSP after quitting or retiring from federal service.

Oh poo. Oh well. But I suppose that's better to know now than later. Depending when, if ever, I leave federal service, maybe it'd make sense to leave at the beginning of a new year after I have fully deposited in my max contributions to my TSP for the year since I wouldn't be able to put any more into again after I'd potentially quit. (I'm assuming the max contributions is per calendar year if I'm not mistaken and not for tax time in April)

[AdamA]

If you looked at tax rates along then the G Fund would make more sense to keep in the tax-sheltered account.

If you look at tax rates AND how much potentially larger the capital gains would be of stocks with dividends, wouldn't it make more sense then to keep stocks in the tax sheltered account?

Interest rates and your tax bracket will also be a part of this equation, so I'm not sure there's a right answer.  

I think the TSP is great for both cash and stocks, though.  

[Greg]

Interest rates and your tax bracket will also be a part of this equation, so I'm not sure there's a right answer.  

I think the TSP is great for both cash and stocks, though.  

I agree. We'll see what tax bracket I'll be in when I'd have to rebalance. It also would take into account for the Bush Tax cuts expiring at the end of 2012 and what that would mean for potentially different allocations in tax-sheltered accounts.

[TBV]

The TSP G Fund is really a fine PP cash option.  Super low expense ratio and a guaranteed positive return.  However, as others have already noted, the TSP F Fund (Bonds) does not provide the long duration volatility needed to offset declines in the stock portion of a PP.  And the TSP isn't able to cover the PP gold allocation at all.  If a retiree were to rollover TSP funds to either a Roth IRA or a traditional IRA, he/she would solve that problem, but lose the guaranteed low-cost return of the G Fund.  If that person were to leave funds in a TSP to keep the G Fund cash allocation, then re-balancing could become problematic.  There is no 100% satisfactory solution.  Folks will just have to choose which combination of investment attributes best suits their needs.

[Greg]

Well before leaving federal service, you could sell everything that is not G fund and then fully buy G fund with the proceeds. You could then just consider this as a "lifetime"/deep-cash bond and rebalance with cash that is outside of the G fund. I'm just thinking if I were to leave government service in late 20s with perhaps 50k + in G funds, then I could just sit on that cash for 40+ years while I rebalance with other cash elements. It seems like a legit idea to me. Perhaps even too legit.

[TBV]

Well before leaving federal service, you could sell everything that is not G fund and then fully buy G fund with the proceeds. You could then just consider this as a "lifetime"/deep-cash bond and rebalance with cash that is outside of the G fund. I'm just thinking if I were to leave government service in late 20s with perhaps 50k + in G funds, then I could just sit on that cash for 40+ years while I rebalance with other cash elements. It seems like a legit idea to me. Perhaps even too legit.

Having a sufficient amount of non-TSP cash to rebalance with would certainly make hanging on to the G Fund a very good idea.  Then again, that would require even more non-TSP funds to be on hand to establish/maintain a full 25-25-25-25 split.  Some folks might prefer to allocate the extra cash to one of the other three asset classes.  As noted above, an investor's age upon leaving federal service will have a big impact on which strategy to take.  The G Fund's inherent attractiveness makes it all worth thinking about.

[Greg]

Agreed. If I did have 50k in the cash portion plus an amount out of the TSP (let's say 25k for the sake of argument). I would technically need a 300k sized portfolio for 25% in each category. We'll see how quickly I can get to that. (haha)

I suppose you can't move any NEW money into the TSP account but you could move around money that already exists in there. I could either have stocks and G fund in there at the same time for whenever I leave federal service and as I get older and my portfolio grows, shift more into the G fund and have stocks in a Roth IRA or in a taxable account instead.

[HB Reader]

Agreed. If I did have 50k in the cash portion plus an amount out of the TSP (let's say 25k for the sake of argument). I would technically need a 300k sized portfolio for 25% in each category. We'll see how quickly I can get to that. (haha)

I suppose you can't move any NEW money into the TSP account but you could move around money that already exists in there. I could either have stocks and G fund in there at the same time for whenever I leave federal service and as I get older and my portfolio grows, shift more into the G fund and have stocks in a Roth IRA or in a taxable account instead.

FWIW --Juggling PP allocations with a TSP account that was growing faster than my IRA's and regular accounts was definitely one of the more challenging tasks I encountered over the course of my federal career.  It can also be complicated by the introduction of new options in the TSP and new offerings in the financial markets (like the introduction of gold ETFs like GLD).  On a couple of occasions I did let it alter my PP/VP allocation somewhat (in violation of HB's recommendation), but not dramatically.  While I don't think there is a perfect solution to it (since you can't forsee the future), I would encourage you to try to look ahead a few years as best you can with respect to your likely employment situation.  For instance, you might be able to use the F Fund, juiced up by some leveraged zero coupon bonds or EDV in your other accounts, to maintain your bond allocation until your other accounts catch up.

Like you have suggested we (my wife was also a federal employee) have ended up with a major portion of the one TSP account we retained in the G Fund.  I would suggest, however, that if at all possible also having some portion of your cash allocation scattered throughout your IRAs and regular accounts -- even if you have to pay a small amount more in taxes.  Be mindful of tax consequences, but don't let the tax tail wag the investment dog.             

[Greg]

Be mindful of tax consequences, but don't let the tax tail wag the investment dog.             

Very good advice. I'm still currently in the transition phase of the portfolio. I have over 70% of everything I've got in stocks right now (I know I know, too much). And am slowly selling off the lower capital gains and getting ready to do the big splash in with about $5k in gold coins and then buying a few 30 year bonds before I then start putting bonds in my Roth IRA come July. Having most of my eggs in one basket (stocks) seems swell from a lot of people's viewpoints it seems but not for me.

Even some of my finance professors in a grad school class I was taking was staying a rule of thumb as being 120 - your age and that amount to be in stocks. I've got a lot of "hopefully" enjoyable years ahead of me to learn about finance, the PP way, and maybe how to cook a perfect omelet.

[Greg]

I'll be starting federal work next month and will be using the Thrift Savings Plan.

Currently, all of my assets are in taxable accounts except for about 10% of my portfolio in I-bonds.

I've read on here that at points it's a better idea to make mini-PPs in each of your tax deferred accounts so you can buy and sell within there for rebalancing purposes and not need to do anything to your taxable bunches.

Odds are though I'll go over my $17k max of the ROTH TSP and the $5k of the ROTH IRA so I'll still be putting in a lot into taxable but wanted advice towards the TSP.

Currently, they have 5 options:

G Fund (Government Securities, acts as cash portion mainly), F Fund (Fixed Income Intermediate Bonds), C Fund (S&P 500), I Fund (MSCI EAFE), S Fund (U.S. Small Cap)

If I wanted to make a Lemonade PP within this, should I go for something like this?

50% I Fund (For Prosperity with a currency hedge, so both accounting for the Stocks and Gold Portion of PP)
50% F Fund (To account for LT and ST Bonds)

or 50%
I Fund (same as above reasoning)
35% F Fund (same as above)
15% G Fund (averaged maturity of bills 4+ years, can't lose principle, so might be worthwhile to have some in there)

Thoughts?

[AdamA]

I'll be starting federal work next month and will be using the Thrift Savings Plan.

Currently, all of my assets are in taxable accounts except for about 10% of my portfolio in I-bonds.

I've read on here that at points it's a better idea to make mini-PPs in each of your tax deferred accounts so you can buy and sell within there for rebalancing purposes and not need to do anything to your taxable bunches.

Odds are though I'll go over my $17k max of the ROTH TSP and the $5k of the ROTH IRA so I'll still be putting in a lot into taxable but wanted advice towards the TSP.

Currently, they have 5 options:

G Fund (Government Securities, acts as cash portion mainly), F Fund (Fixed Income Intermediate Bonds), C Fund (S&P 500), I Fund (MSCI EAFE), S Fund (U.S. Small Cap)

If I wanted to make a Lemonade PP within this, should I go for something like this?

50% I Fund (For Prosperity with a currency hedge, so both accounting for the Stocks and Gold Portion of PP)
50% F Fund (To account for LT and ST Bonds)

or 50%
I Fund (same as above reasoning)
35% F Fund (same as above)
15% G Fund (averaged maturity of bills 4+ years, can't lose principle, so might be worthwhile to have some in there)

Thoughts?

I really think the only funds that work in the PP are the G and the C funds.  If I could only use the TSP I would 50/50 split these funds and call it a day.  I'd eventually add at least 10% gold to this when I could afford it.

[Greg]

I really think the only funds that work in the PP are the G and the C funds.  If I could only use the TSP I would 50/50 split these funds and call it a day.  I'd eventually add at least 10% gold to this when I could afford it.

AdamA,

Thanks for the thoughts. I have a PP right now that is in all taxable and I'll be contributing to a Roth IRA as well (by probably putting in $5k into LT bonds since I'm low on that percentage as of now). I was just thinking of if it is worthwhile to make a frankenstine PP within the TSP by having a foreign stock component that would function as both stocks and currency factors to it with a fixed total bond market which would act as a combination of short and long term bonds. I'd have to see however if the Fixed income bond index fund they have carries only treasuries (probably not likely) and if not, how much as a percentage of the fund that they hold of treasuries.

[AdamA]

I'd have to see however if the Fixed income bond index fund they have carries only treasuries (probably not likely) and if not, how much as a percentage of the fund that they hold of treasuries.

The F fund is basically just tracks the Barclay's US Aggregate Bond Index.  It's similar to an ETF like AGG.  It's a good fund if you want a Booglehead type portfolio, but it won't work for the PP, IMO.