Dave Ramsey's TSP Advice: The Good, Bad, and Ugly (2024)

Dave Ramsey has commented on the TSP (Thrift Savings Plan) many times and most of his advice is rock solid.

But some things I had to read twice to just make sure I hadn’t misread anything.

Because with anyone’s advice (even mine), you never want to blindly accept it as scripture.

You always want to think through how it applies best for you.

Because only you are responsible for your future.

Here is the good, bad, and the ugly of Dave Ramsey’s TSP advice.

Traditional Vs. Roth TSP

Dave Ramsey is very fond of both Roth IRAs and the Roth TSP.

That is why, the vast majority of the time, Dave Ramsey tells people to just use the Roth TSP instead of the traditional TSP.

And I see his point, as the Roth TSP has Tons of advantages. Afterall, who doesn’t want more tax-free income in retirement, right?

But in real life, things are a little more complicated. For example, some people are simply going to be in a much lower tax bracket in retirement compared to while they are working.

For these people, using the traditional TSP can be a huge help in evening out their taxes over time (and saving a bunch in taxes over time as well).

Check out this article more on when the Roth TSP may not make sense.

TSP, IRA, and Then TSP Again?

Dave Ramsey’s advice is to save 5% into the TSP to get the full match, then max out a Roth IRA, and then put more into the TSP if you are able to save more after that.

And honestly, I see why he gives this advice as this is the best option when looking at most employer sponsored 401k plans because of the high fees and mediocre investment options.

However, The TSP has very low fees and high-quality funds to invest in. So in my opinion, there is no reason to start using a Roth IRA (except for the 5-year rule) until your TSP is maxed out.

Afterall, who wants to have to manage more accounts then they have to at the same time as this often just adds unneeded complexity.

If you have already maxed out the TSP then investing in an IRA as well can be a great thing to do if you have the money but you will want to watch out for the earnings limits for IRAs.

The only time that I see real advantages to a Roth IRA over the Roth TSP is in retirement but one can easily move everything to a Roth IRA at that point while enjoying the simplicity of the Roth TSP during their career.

Invest in What?

Dave Ramsey’s go-to TSP investment advice for everyone is:

-60% in the C Fund

-20% in the S Fund

-20% in the I Fund

Dave’s thought is that everyone should invest aggressively all the time, even in retirement because more aggressive investments tend to perform better over time.

And I agree that the problems associated with investing too aggressively are generally easier to deal with than the problems that come with investing too conservatively in retirement.

However, unless you have a wide margin of error in your retirement numbers you are going to want to take a more moderate approach.

This moderate approach generally includes investing your long-term money more aggressively and your short-term money more conservatively. This strategy is outlined in my bucket strategy.

Dave Ramsey's TSP Advice: The Good, Bad, and Ugly (2024)

FAQs

What does Dave Ramsey recommend for TSP? ›

Dave Ramsey's advice is to save 5% into the TSP to get the full match, then max out a Roth IRA, and then put more into the TSP if you are able to save more after that.

Can TSP make you a millionaire? ›

Be patient: Building wealth takes time and becoming a millionaire through the TSP will likely require a long-term perspective. Stay the course and continue saving and investing consistently, and you will increase your chances of reaching millionaire status.

What are the 4 funds Dave Ramsey recommends? ›

And to go one step further, we recommend dividing your mutual fund investments equally between four types of funds: growth and income, growth, aggressive growth, and international.

What is the best TSP mix in retirement? ›

Your best bet is to stick with the C, S and I Funds. Here's the ratio we recommend for your portfolio: 80% in the C Fund, which is tied to the performance of the S&P 500. 10% in the S Fund, which includes stocks from small- to mid-sized companies that offer high risk and high return.

What is the average TSP balance at retirement? ›

Total TSP assets at the end of 2023 were $845 billion. 4,060,009 FERS TSP accounts with an average account balance of $175,692. To compare, the average 401(k) balance based on 4.9 million defined contribution retirement plans was $112,572 at the end of 2022, according to Vanguard's 2023 analysis.

What is a good amount to put into TSP? ›

Regular TSP

To make equal contributions over the course of the 2024 calendar year (for 26 pay periods), you should contribute $885 each pay period.

Is TSP really worth it? ›

Advantages of your TSP account

Regardless of your retirement system, participating in the TSP can significantly increase your retirement income, and starting early is important. Contributing early gives the money in your account more time to increase in value through compound earnings.

What is the best performing TSP fund? ›

The common stock index C fund still posted the highest year-to-date return at 6.03%, and a 10.88% return over the last 12 months. All Lifecycle funds also posted negative returns. The L 2055, L 2060 and L 2065 all posted a -4.06% return, with year-to-date returns of 4%, and 12.50% returns for the last 12 months.

What is a good amount to have in TSP at retirement? ›

There is no such thing as too much money in the Thrift Savings Plan. If you want your TSP balance to be able to generate an inflation-indexed annual income of $10,000, most financial planners will suggest that you have a $250,000 balance at the time you retire.

What should I be contributing to my TSP? ›

Regular TSP

To make equal contributions over the course of the 2024 calendar year (for 26 pay periods), you should contribute $885 each pay period. You should enter your election of $885 into myPay during December 3 – 9, 2023, and your election should be effective on December 17, 2023, the first pay period for 2024.

How should I invest my TSP right now? ›

Smart Strategy #1: Buy and Hold a Diverse Portfolio

The simplest TSP investment strategy is to build a portfolio that includes all five core funds. You could individually select your own funds, but the easiest way to do it is to buy one of the lifecycle funds, also called “L Funds”.

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