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Thrift Savings Plan Underutilized & Underappreciated AWAG Leadership & Training Seminar. Presented by: Joseph “J.J.” Montanaro, CFP® USAA Financial Planner . Since our lawyers are not here…. Investments/Insurance: Not FDIC Insured • Not Bank Guaranteed • May Lose Value

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slide1

Thrift Savings Plan

Underutilized & Underappreciated

AWAG Leadership & Training Seminar

Presented by:

Joseph “J.J.” Montanaro, CFP®

USAA Financial Planner

since our lawyers are not here
Since our lawyers are not here…

Investments/Insurance: Not FDIC Insured • Not Bank Guaranteed • May Lose Value

  • J.J. Montanaro is a CERTIFIED FINANCIAL PLANNERTM practitioner with USAA Financial Planning Services, one of the USAA family of companies.
  • Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
  • Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.
  • USAA or its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor. The information is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional representation before acting on any information you may have found in this article. This article is in no way attempts to provide advice that relates all personal circumstances. 
  • Any examples given during this presentation are hypothetical illustrations and not an indication of the benefits or features of any USAA product. You should seek policies and advice based upon your own particular circumstances. Sample loans are for illustration purposes only and are not a rate quote, pre-approval, or commitment to lend.
  • S&P 500 Index: Standard & Poor’s 500 Index and S&P are registered trademarks. The S&P 500 Index is an unmanaged index of 500 stocks. The S&P 500 focuses on the large cap segment of the market, covering 75% of the U.S. equities market. S&P 500 is a trademark of the McGraw-Hill Companies, Inc.
  • Past performance is no guarantee of future results.
  • USAA means United Services Automobile Association and its affiliates. Property and casualty insurance provided by United Services Automobile Association, San Antonio, TX. Each company has sole financial responsibility for its own products. Investment provided by USAA Investment Management Company, and financial Advisors Inc., both registered broker dealers. Life insurance and annuity products provided by USAA Life Insurance Company, San Antonio, TX, and in New York by USAA Life Insurance Company of New York, Highland Falls, NY. Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California), and USAA Financial Advisors, Inc., a registered broker dealer. Credit cards provided by USAA Savings Bank. Other banking products provided by USAA Federal Savings Bank. Both Member FDIC.
agenda
Agenda
  • The TSP
  • Basics
  • Roth vs. traditional
  • Investment options
  • Deployment
  • Separation/retirement
  • Withdrawals
  • Common Objections
tsp basics
TSP-Basics

Tax-advantaged employer retirement plan

  • Roth (after-tax, save taxes in retirement)
  • Traditional (pre-tax, save taxes today)
  • Tax-deferred accumulation (both plans)

2013 Contribution limits

  • $17,500 or $23,000 (age 50 or older)
  • Funded by payroll deduction
  • Sign up on myPay

Access

  • Generally age 59 1/2
  • Exceptions
  • Loans available
tsp basics1
TSP-Basics

Low cost investment options

  • TSP average expense ratio: .027%*
  • Typical Mutual Fund expense ratio: 1.00%

Name a beneficiary

  • Form TSP-3
  • Update with life events

Account access

  • Adjust contributions via myPay
  • Adjust/view portfolio at www.tsp.gov
  • Quarterly statements

*source: www.tsp.gov

tsp roth vs traditional
TSP-Roth vs. Traditional

What’s the Big Deal?

  • Traditional
    • Potentially reduce taxable income
    • No ongoing tax on investment income/gains
    • Taxable as ordinary income upon withdrawal
  • Roth
    • Does NOT reduce taxable income
    • No ongoing tax on investment income/gains
    • Potentially tax free upon withdrawal
tsp roth vs traditional1
TSP-Roth vs. Traditional

What's Your Tax Future?

  • Higher taxes nowTraditional
  • Higher taxes laterRoth

Future tax rates are unpredictable

*Percentages are highest marginal tax rates for the years given.

Roth accounts allow tax-free withdrawals if you are 59 ½ years old and have held the account for at least five years.

tsp roth vs traditional2
TSP-Roth vs. Traditional

Consider tax-diversification:

  • Pre-tax retirement plans
    • Reduce taxes today, pay in retirement
    • TSP, traditional IRA
  • Tax-free retirement plans
    • No tax benefit today, potentially tax-free
    • Roth IRA, Roth TSP
  • Taxable savings and investments
    • Pay taxes on investment income, gains today
    • Savings, CDs, mutual funds, brokerage
tsp roth vs traditional3
TSP-Roth vs. traditional

Roth IRA vs. Roth TSP

  • Contribution limits
    • IRA: $5,500 ($6,500 age 50+)
    • TSP: $17,500 ($23,000 age 50+)
  • Eligibility income limits
    • IRA: $112-$127K single/$178-188K joint filers
    • TSP: Not applicable—all can contribute
  • Required Minimum Distributions
    • IRA: Not applicable
    • TSP: Begin at age 70 1/2
  • Access
    • IRA: Contributions anytime/no penalty
    • TSP: generally no
  • Investment Options
    • IRA: Virtually all options available
    • TSP: G, F, C, S, I and L Funds
tsp investment options
TSP-Investment options

Individual Funds

C Fund: S&P 500 Index (large US stocks)

S Fund: Small Stock Index (small US stocks)

I Fund: MSCI EAFE Index (foreign stocks)

F Fund: Bond Index (US bonds)

G Fund: Guaranteed Fund (non-marketable treasuries)

L Funds: Lifecycle Funds- target date mix of above

tsp investment options1
TSP-Investment options

Risk vs. Return

  • Risk (high to low): I,S,C,F,G
  • Return (expected, low to high): G,F,C,S,I
  • Return* (10 years ending 12/31/12):

G-3.61%/year (High: 4.93%, Low: 1.47%)

F-7.01%/year (High: 7.89%, Low: 2.40%)

C 7.12%/year (High: 28.54%, Low: -36.99%)

I-8.39%/year (High: 37.94%, Low: -42.43%)

S-10.79%/year (High: 42.92%, Low: -38.32%)

*source: www.tsp.gov

tsp investment options2

F fund

C Fund

S Fund

G Fund

TSP-Investment Options

Lifecycle Fund Example

  • May work well for those with low interest, time, expertise
  • Portfolio more conservative as target date nears

Portfolio Automatically Adjusts:

L2030 Fund : April 2013April 2028*

G Fund 25%60%

F Fund 8%6%

C Fund 35%19%

S Fund 13%5%

I Fund 19%10%

8%

13%

35%

19%

I Fund

25%

*Source: www.tsp.gov

Public Information

tsp deployment
TSP-Deployment

Deployment differences

  • Contribution limits:
    • Increased total contribution limit ($51,000)
    • Roth contributions still limited to $17,500
    • Potential to contribute $33,500 to traditional plan

and $17,500 to Roth

  • Roth contributions:
    • Limited to $17,500
    • Opportunity to never pay taxes on contributions or earnings
  • Tax-exempt contributions to traditional plan tracked separately; growth is taxable.
  • Consider using Roth TSP whenever in combat zone
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TSP-Separation/retirement

  • Leave it
      • Account balance must be >$200
      • Reasons: low cost, easy, legal
  • Roll it over
      • Traditional IRA or new employer plan
        • Defer tax on traditional contributions and taxable growth
        • No current tax from transaction
      • Roth IRA
        • Include taxable portion as income and pay tax
        • Ideal approach for tax-exempt contributions
  • Withdraw it
      • Taxes and penalties on taxable component
      • Don’t lose momentum
      • If you must, use tax exempt to assist in transition
tsp withdrawals
TSP-withdrawals
  • Spouse must sign off (>$3,500)
  • Annuity options:
    • Single life
    • Joint life (50% or 100%)
    • Irrevocable choice
  • Monthly payments
    • Specific dollar amount
    • Calculated based on life expectancy
  • Withdrawals must begin at 70 1/2

USAA or its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor. Diversification does not guarantee a profit or prevent a loss.

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TSP-Common objections

  • “I’ve only got a few more years”
      • Get the ball rolling
      • Money will move easily to new employer/IRA
  • “I don’t have enough money”
      • Just about everyone can spare 1%...and then increase with pay raise/promotion
      • Great entry into budgeting discussion—free up $$ for debt/savings/investments
  • “Retirement, are you kidding me?”
      • Time value of money-small commitment can yield big results
      • Life and obligations increase with time—do it now
  • “I’ve got military retirement”
      • Right now you do
      • Will that be enough?
questions
Questions?

USAA

800.306.2599

USAA.com

@jj_usaa

Calls will be answered by USAA representatives who may discuss bank and non-bank products. Investment/Insurance: Not FDIC Insured • Not Bank Issued, Guaranteed or Underwritten• May Lose Value