- quote -

This might tell us something significant about the original poster. If his
TSP contributions receive *no* match, then he is probably covered by the
Civil Service Retirement System (CSRS) as opposed to the Federal Employees
Retirement System (FERS). This is significant, because CSRS retirees are
covered by a VERY generous defined *benefit* plan that kicks in at age 55
(provided he's worked long enough for the fed govt). In simple English,
starting at age 55 the original poster will receive an excellent pension
(indexed to inflation). That would explain his comment that his pension
will cover "most if not all" of his routine expenses in retirement.

In my view, this gives the original poster lots of flexibility. If he
favors a "die broke" philosophy he can live off his pension and use his
accumulated investmements for big ticket things like first class travel, a
second home or perhaps gifts to others. On the other hand, he might be
interested in accumulating wealth to pass to future generations or to
charity upon his death. If that's the case, his generous pension would
permit him to be more aggressive with his investments than most retireees
because his basic needs are always going to be covered. (Federal retirees
remain in the health insurance program as well, which is a HUGE fringe
benefit.)

- quote -

I would lean toward maxing out contributions to the TSP for several reasons.

First, the TSP has extremely low fees. Last time I checked all the index
funds were charging less than 10 basis points per year. That's as good as
the cheapest index fund or exchange-traded fund you'll find in the private
sector.

Second, the TSP offers the G Fund. Most people erroneously think the G
Fund is the same as a money market fund. Not so. The rate of return on the
G Fund is actually calculated using a formula that's based on Treasury
yields farther out the yield curve. So it's always going to pay more than
a money market fund, because it's average maturity is longer. Normally,
when a bond fund has a longer average maturity the net asset value (share
price) will fluctuate and in times of rising rates the NAV will go down.
But the G Fund is invested in special Treasury paper that has a very short
duration (never more than four days, if I recall correctly). So the neat
thing about the G Fund is that the NAV *never* goes down. It's the best of
both worlds. You get the yield of a intermediate term bond fund, with the
stable NAV of a money market fund. Most people who are retired become more
focused on fixed income investing. If the original poster is one of them,
he might consider maxing out on the TSP and shifting assets to the G Fund
to take advantage of its unique properties that are simply not available
in any private sector investment.

Third, upon retirement a TSP account can be converted into an annuity. I
have no idea how the annuities sold by the TSP stack up against equivalent
products available in the private sector. And I have no idea if the
original poster would even want to purchase an annuity upon retirement.
But if he thinks he might be interested in an annuity upon retirement he
should surf over to www.tsp.gov and dowload the publication entitled
"Withdrawing Your TSP Account After Leaving Federal Service." If the
annuities offered by the TSP are better than those offered by the private
sector, that might suggest it would be a good idea to max out on TSP
contributions.

Time for turkey and football now. ;-)

May I
- quote -

We have a regular savings account at my local credit union. You're right,
the interest rate is low and so the balance is low. We have 2 accounts at
Vanguard for this portion of our portfolio. First, their Prime Money Market
account is currently yielding 3.78%. Second, is their Short Term Investment
Grade Fund (a short-term bond fund) which is yielding 4.4%. Some on this
board have referred to an ING account which is has a similar yield. I'm sure
there are other institutions that make good offerings.

Elle is right about putting funds in a Roth and then treat it as cash. We
prefer to think of our Roth accounts as retirement accounts and wouldn't
access them for the kinds of things I think we need a cash position for. But
others might find a Roth to be a good vehicle for these kinds of purchases.

Elizabeth Richardson

what will you do with the 401k/ TSP when you retire? If rolling over
to an IRA, maybe consider setting aside some cash for an immediate Roth
conversion when rolling over the 401k.

if there is not an employer match, I would be maxing out the IRA first,
but there are tax implications to not contributing to TSP/ 401k.

Elizabeth Richardson wrote:
- quote -

That's a very interesting thought! Definitely one to consider. May I
ask you what "cash" vehicles you're contributing to at the moment? I
have a few bank money market accounts, but they only pay between 2-3% (I
think -- I'd have to check to be sure). I guess that CD's might be an
option as well, but they don't really pay much better at the moment.

Thanks!

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote
BRH wrote
- quote -

Maybe I'm missing something, but if you're eligible for a Roth, why not
store the cash in it, earning at least 3.5% interest these days.
Contributions to a Roth may be withdrawn without penalty at any time, so I
don't see how you're losing anything from doing this. ISTM, the Roth will
give you more, not less, options than what you are doing now. Each year you
let go by is one less opportunity to build up money in the Roth whose
earnings ultimately will be tax free. (I don't buy that Congress will change
this retroactively.)

I have come to look at my Roth this way.

For the original poster, the above guidance also goes hand-in-hand with what
I call the conventional wisdom about prioritizing retirement investing:

1. Max out the matching portion of one's 401k.
2. Max out the Roth, because it's so flexible and has the tax advantages
3. Resume contributing to the 401k.

This all assumes one can forecast one's tax rate in retirement. One can't.
The law changes. One's circumstances change. So use your best guess.

- quote -

Have you considered building up your cash position outside of any retirement
vehicles? We are about 4 years from retirement. We are no longer
contributing to IRAs or 401ks. My strategy now is to increase various "cash"
accounts. I think that there will be some months that we may wish to draw
above our regular income, but not wish to draw extra on an IRA. I can
foresee house maintenance, cars, etc. that we wouldn't want to take out a
loan for.

Elizabeth Richardson

As a federal employee, my 410(k) is the Thrift Savings Plan (TSP). It's
been announced that, beginning in 2006, I can contribute up to $20,000
annually (since I'm over 50 years old), as opposed to the previous limit
of 10% of salary + $4000.

Up until now, I contributed the maximum to TSP (10% +$4k) and also
contributed the maximum ($4500) to my Roth IRA each year. With these
higher TSP contribution limits, I can no longer fully fund both anymore.

My TSP contributions don't get included in taxable income (and there is
NO employer match), but all distributions will be taxed eventually.
There's no immediate tax benefit on the Roth, but distributions will be
tax-free.

So, I need advice on what to do..... Fully fund the TSP and forget
about funding the Roth any further? Or Fully fund the Roth and then
contribute as much as possible to the TSP?

To give a better picture of my situation, I'm eligible to retire in 2
years (Age 55), single and have no dependents. My TSP fund and regular
IRA's are both in the six figure range, while my Roth balance is approx
$29K. On top of this, I fully expect that my pension will cover most,
if not all, of my everyday routine expenses in retirement.

Any thoughts on which route to follow would be appreciated.