401 success or failure

[Like2Plan]

I briefly looked at the tsp website here. It does look like loans are an option in a hardship situation. I didn't look for contribution limits.

Loans are permitted for
1. For any reason
2. For a house
In general, there is a limit of 50,000 or your contribution amount (whichever is lower).
There are lots of nuances, but it is all covered in these references.

TSP: Civilian Features chapter 11, TSP Loan Program; 2008 Sep 18
TSP loan booklet

("http://www.tsp.gov/forms/tspbk04.pdf")
("http://www.tsp.gov/features/chapter11.html" )
(If you click on the links, they take you to the main tsp web page--but if you cut and paste the links into your browser, they take you to the particular reference)

Personally, I think the TSP is overly simplified. Only 5 funds to choose from!!Of course, for the average person the simplier the better.

Recent legislation (The Tabacco Bill) will give more choices.
From Mike Causey's Federal New Radio column:
"Authorizes the Federal Retirement Thrift Investment Board, which oversees the TSP, to allow investors to put TSP account balances into a mutual fund outside of the TSP. In effect this will allow feds to invest in a TSP-selected mutual fund provider. This will be a complex procedure. "
Link to entire article

[Like2Plan]

Part of the reason they're able to keep the expenses so low is that there are so few choices. More people's money in just a few pots, and less overhead. Also, fund-to-fund transfers are limited to something like 5/month to prevent excessive transaction costs. The TSP is great for "leave it and forget it" investing, but nothing much more complex than that.

They actually cut it back. Currently, it is 2 per month. After two, you can only move it back to the G fund for the remainder of that calendar month.

Link to FAQ How often may I make an interfund transfer?

("http://www.tsp.gov/features/chapter10.html#sub8")

"How often may I make an interfund transfer?
For each calendar month, your first two IFTs can redistribute money in your account among any or all of the TSP funds. After that, for the remainder of the month, your IFTs can only move money into the Government Securities Investment (G) Fund (in which case, you will increase the percentage of your account held in the G Fund by reducing the percentage held in one or more of the other TSP funds).

For example, if on May 10 you made a transfer which increased the percentage of your account invested in the F Fund and on May 17 you made an IFT which increased the percentage of your account in the G Fund, you have reached your unrestricted IFT limit for May. For the rest of May, you may transfer amounts in your TSP account to the G Fund only (i.e., you may only increase the percentage of your investment in the G Fund by decreasing the percentage of your investment in one or more of the other TSP funds).

The transfer counts in the calendar month we process it, not in the month you submit it. For example, if you were to submit your transfer request at 12:15 p.m. on July 31, that would be after our noon cut-off for same-day processing. Therefore, we would not process your request until August 1 (the next business day), and it would count against your IFT limit for August."

[Like2Plan]

What's wrong with the 401(k) and how it can be fixed - Jun. 16, 2009

Is the 401k and other self directed retirement plans a success or failure? In your opinion/ your world?

Thoughts?

I don't think it is a failure, but I think it is a poor substitute for a defined benefit. The company line/propaganda is the 401K puts you in the drivers seat--blah blah blah.

IMHO, it is just another cost that has been shifted to the employee and the further shrinking of the paycheck. Additionally, the individual takes on all the risk with the investment choices. In order for it to be a reasonable alternative, I think the company match would have to be at least 12-15% of income. There are not too many companies that provide that level of funding.

[Runaway Finances]

InsuranceGuy,

I'm guessing from your screen name you are in the insurance business. I would partially disagree on the non-qualified annuities. I'm assuming you were referring to guaranteed interest annuities since you said "avoid the pitfalls of the stock market". Variable annuities have "separate accounts" which are just like mutual funds. I would NOT buy an annuity if it were invested in the stock market. Annuities are ordinary income taxed upon withdrawal so you lose the tax benefits of capital gains and losses. Guaranteed interest annuities are ok, but most of them have "contingent withdrawal charges" for 5-10 years. That means you get hit with a penalty if you withdraw before that time. Most have 10% free withdrawals which means you can withdraw 10% of the account each year without a penalty. However, if you are not 59 1/2, you will incure an IRS penalty plus income taxes on any gain. So, there is a lot of fine print to read on annuities. I sold a ton of guaranteed interest annuities back in the late 70's and early 80's when interest rates were so high. Guarantee interest annuities have some benefits, but you have to really read and make sure they are suitable for you.