Commentary

DAVE SAYS

Switch to Roth TSP?
Dave Ramsey

Dear Dave,

Do you think I should consider switching from my traditional TSP (Thrift Savings Plan) to a Roth TSP?

Jeremy Dear Jeremy,

If I’ve got a choice, I’m going with the Roth TSP. Now, if you’re starting out really late with your saving and investing, the math might work out either way. But in most cases, when you’ve got several years ahead of you, a Roth TSP, or even a Roth IRA or Roth 401(k) where your money grows tax free, is a much better choice.

Remember, unless you’ve waited until you’re in your sixties, the vast majority of the money in the account will be growth. Ten percent or less will be the money you actually put into the account. This tax-free growth is what makes the Roth TSP an excellent choice.

In other words, if you’ve got $1 million in your current investment, and $900,000 is growth, you’ll get taxed on that portion. That would amount to around $300,000. If your money is in a Roth, there are no taxes. You just saved $300,000 out of every $1 million. Not a bad deal, is it?

—Dave

Online bank okay?

Dear Dave,

What do you think about using an online bank for my emergency fund?

Raphael Dear Raphael,

It’s not a bad idea at all, as long as you can easily check out the institution’s reputation and stability. There are lots of financial scams online, so you want to do some research and make sure they’re a reputable and trustworthy organization.

Due diligence is the key, Raphael. There are reliable household names that are online banks, but you can’t just assume the group you’re dealing with online is made up of honest, stand-up folks any more than you can with a traditional brick-andmortar bank. Make sure you take your time and know exactly what you’re getting into before going into business with them.

Remember, it’s not as simple with an online bank as just walking in the door to get your money back if something goes wrong!

—Dave


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2013-12-26 digital edition



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