USAA has been more than a car insurance company for a while now. Today they’ve grown into a huge bank with plenty of investment opportunities USAA members can take advantage of. Keep reading to find out how to start investing with USAA. We’ve even included a section on how to transfer your TSP to a USAA IRA once you leave the service.
Table of Contents
- Investing with USAA
- Transferring your TSP to a USAA IRA
- TSP Fund Options
- TSP FAQs
- How to rollover a TSP into a USAA IRA
Investing with USAA
If you’re looking to invest, there are plenty of ways to do so. However, before you start, you need to think about your goals. Some investments offer tax benefits, while others don’t. There are short-term investments, long-term investment, education investments and more. So first, consider your goal(s), and then pick where you want your money to go.
Keep in mind, you should never invest if you’re not in a position to do so. Make sure you have an emergency fund saved up (because you never want to pull from an investment account – this will typically come with fees), you should be paying all your bills on time (if you can’t, get that under control first), and finally make sure if you have debt, such as a car or house payment, that it’s manageable. If you have all that going for you, then you can start looking to invest.
USAA Mutual Funds
If you don’t know a lot about stocks or you don’t have the confidence you’d like to invest in bonds, mutual funds are a good place to start. This is because an expert does all the work for you. Now, we’re not saying hand over your money and never look at it again until you’re eligible to withdraw. You should still keep an eye on your account, watch where your money is being invested, and all that. But, it’s a much easier option for those who want to invest but don’t have a lot of knowledge about doing so. You can, of course, do this yourself, but financial advisors are there to educate you along the way.
You can open a mutual fund for $50/month after you’ve invested an initial $50 when opening the account. You also have the option of simply opening an account with $500, without the $50/month. Minimum investments range anywhere from $50 to $3000, depending on what type of mutual fund you open, which will depend on what type of investing you want to do (c
Digital Investment Adviser
Knowing which exchange-traded funds or EFTs to invest in can be confusing, especially if you’re new to investing. That’s why USAA has something called a Digital Investment Adviser to help you out. It’s like a little tiny robot who has all the right answers. You tell it how much risk you’re willing to take and then your new robot friend will do all the heavy lifting. Okay, it’s not really a tiny robot; there are real people, portfolio managers. The “robo advising” takes place when your account needs rebalancing.
The good news, you can invest at any given time, you’ll have a globally diversified portfolio, according to USAA, and you can track it all from your computer or fancy smartphone.
They do all the hard work for you. If your account becomes unbalanced, they’ll rebalance it for you, without an additional fee. There isn’t a transfer fee or any additional trading fees either—if USAA is the one buying and selling for you.
However, there’s a .50% annual fee for what your account is worth. This excludes underlying fund fees. You’ll also need $2,000 to open this particular account.
This is an option for those who are looking to make a long-term investment—5 or more years.
EFTs are investments in diversified securities. If you want to invest in this, you’ll first need to open a brokerage account. You’ll also need a minimum of $3,000 to get yourself started. Unlike some of the other investment opportunities, this requires you to do the work. You have to give USAA your trade details and complete your own orders. USAA won’t be investing for you.
If you need a little help, don’t worry there’s something called Morningstar Investing Education, which has several virtual classrooms on everything you’ll need to start investing properly. You can learn about EFTs, mutual funds, and stocks.
If you have $25,000 or more just sitting there in an account, begging to be invested, but you aren’t quite sure what to do with it, a USAA managed portfolio might be the way to go. You’ll start by telling them your financial goals—retirement, vacation, new car, house, sending your kid to college, etc.—and how much risk you’re willing to take. Then, they’ll let you know what type of portfolio fits your specific needs and desires.
You’ll have a professional helping you make the best financial decision for you and your money, instead of leaving you to figure it out on your own. They’ll monitor, reallocate and rebalance when need be. However, this does come with a fee, but you’ll get diversified investments and a professional to keep you on track toward the goals you’ve set with them.
If you have $250,000 lying around, you can open up a UMP Wrap with Wealth Management—USAA Managed Portfolio with additional benefits. This option is a bit more custom, and you’ll get a lot more than investment management basics. This also comes with a fee.
If you’re not wanting to hold your money up in a retirement account, but still want to invest, you might want to consider looking into a CD—no, not that disk you used to put in your car before iTunes came out, Certificates of Deposit. With a much lower risk than dealing in the stock exchange, you can choose to deposit as little as $250 and let your money sit for 1, 2, or maybe 5 years if you so choose. The longer and larger your investment, the larger your APY.
If you’re not looking at investing for years, you can opt for a 30-day CD. You won’t be making a lot of money this way, but it’s better than nothing. If you’re looking for something with a little more gain, you can choose a 7-year investment.
USAA claims that their rates are competitive. However, this does not mean they have the best rates. There are some banks who offer a better return. So, shop around some before taking the leap, especially if you’re planning on tying your money up for 7 years.
USAA 529 Plan
In case you didn’t know, USAA can help you save for college with a 529 plan. A 529 is just one more way you can help prepare yourself or your child for their education. The difference between this account and other investment options are the tax benefits. If you have to withdraw from the account for any educational costs, including K-12 expenses, you won’t have to pay federal income tax on it.
Pro Tip: If you open a 529 account under the parent(s)’ name, it won’t affect financial aid as much as with other funds. Also, you can earn cashback if you’re enrolled in UPromise. And if that’s not enough, USAA will let you invite your friends and family to help contribute to the educational expense through something called Ugift. Yes, you can do this on a social media account.
You can open an account for as little as $50 and make automatic investments of at least $50/month or make an initial investment of $250 and save yourself from having to make that automatic $50/month contribution.
IRA stands for Individual Retirement Account. You have the option of a traditional IRA or a Roth IRA. Both are intended to help you save up for retirement. With an IRA you can choose to place your money in stocks, exchange-traded funds (ETFs), mutual funds, and even a managed portfolio, for a financial expert to manage. Which IRA you choose will depend on a few things, such as your future tax bracket and when you want to pay taxes on the money you invest.
In all cases:
- If you withdraw money before you turn 59 1/2 you’ll risk a 10% tax penalty
- You may invest a maximum of $6,000/year if you’re under 50 as of 2019
- You may invest a maximum of $7,000/year if you’re over 50 as of 2019
Traditional IRAs aren’t for everyone. But if you think your tax bracket will lower once you hit retirement, this could be a good option for you. It’s also great for people who would rather pay taxes once they start withdrawing money, instead of right now. If you aren’t planning on taking out any money until you’re 71 1/2 this could be a beneficial investment. It’s also a good option for those who are still making taxable income up until age 71 1/2.
A Roth IRA is nearly the opposite of a Traditional IRA. It’s optimal for those who intend to stay or be placed in a higher tax bracket in retirement compared to their working years. It’s best for those who don’t want their tax benefits now and would rather wait until retirement. Don’t mind paying taxes on their investment now, so they can make tax-free withdrawals once they’re retired. And it’s good for those who don’t want to worry about minimum distributions.
Transferring your TSP to a USAA IRA
Before we get into talking about how to transfer your TSP into a USAA IRA, let’s take a moment to go over what a TSP is, what you should be doing with it while you’re in, and then we’ll cover how to transfer it to USAA once you get out.
What’s a TSP?
TSP is the federal government’s IRA. That’s why it’s so easy to do a rollover once you leave the military or federal service. What’s inviting about a TSP account is, you can choose what percentage of your paycheck you want to invest. Also, it’ll be deposited before you actually see it. If you elect a traditional IRA, you will not have to pay taxes on the funds until you start making withdrawals. This means that you’ll actually make a little more on each paycheck. Why? Because the amount of taxable income has decreased. So, if you need more money upfront, this might be ideal for you.
The TSP also gives you the option of doing a Roth IRA. The difference is when you pay taxes on any invested money. If you opt for a Roth IRA, you’ll pay taxes before you invest. In the end, It’s up to you to decide which option is more beneficial for you. Will it be better for you to pay taxes later? Invest in a traditional IRA. Will it be better for you to pay taxes now so you can withdraw tax-free in old age? Invest in a Roth IRA.
Who’s Eligible for a TSP?
Almost all hired personnel working under the United States Government are eligible to take part in the TSP. According to tsp.gov, the following are eligible:
- A Federal Employees’ Retirement System (FERS) employee (generally if you were hired on or after January 1, 1984)
- A Civil Service Retirement System (CSRS) employee (generally if you were hired before January 1, 1984 and did not convert to FERS)
- A member of the uniformed services (active duty or Ready Reserve)
- A civilian in certain other categories of Government service
- Actively employed by the Federal Government as a civilian employee or as a member of the uniformed services
*You must be in pay-status to contribute
How to Invest in a TSP
No matter which type of IRA you choose, investing through a TSP account is easy. Go into your MyPay account and select TSP. Then go down the list and select anything from 1% to 100% of your base pay. Bonuses, allowances, severance, etc. do not count as base pay. You may select different percentages you’d like taken out of these extra payments to put toward your TSP as well. If you want to stop your contributions, you can do so at any time. You can also make changes through tps.gov or MyPay at any time.
TSP Fund Options
Depending on how much risk you do or do not want to take, will depend on what fund you invest your money in. You have the option of a G, F, S, C, I, or L Fund. Each of these funds can help get you a little more cash in your pocket come retirement day.
The G Fund, or Government Securities Investment Fund, is a no-risk investment option. No risk unfortunately also means you’re not likely to make a lot in interest. However, while you might not actually make a lot between now and retirement, you cannot lose any money you put in.
For example, let us say you invest $500 into your G Fund this year. You might potentially make a few dollars. But, you’ll never lose the $500 you put in. So, if anything, a G Fund will ensure you’re saving money for your future, just not with a high-interest rate.
Keep in mind, interest rates fluctuate daily. Therefore, it’s impossible to say exactly how much you’ll make by retirement age. But, you can have peace of mind knowing you won’t lose anything you put into your TSP.
The F Fund, also known as the Fixed Income Index Investment Fund has some risk. Any account you invest in with risk means you could potentially lose the money you put in. For example, let’s say that instead of putting that $500 into your G Fund account, you chose to place it into an F Fund. There’s a potential that you could lose all $500. But, an F Fund’s risk value is moderately low compared to other investment options. However, that doesn’t mean the risk isn’t there.
For instance, the stock market or bonds drop. If this happens, you might be left with less than you started with. This is because you are contributing to more long-term investment-grade securities. Keep in mind, you’ll experience gains or losses based on how bond prices rise or fall. This also means you shouldn’t get scared when the price of bonds drop because they’ll most likely go back up again.
The C Fund, also known as the Common Stock Index Fund also has some risk. This is because of the market risks of stock in S&P 500 index rates. As the prices of stocks rise or fall, so will your potential gain or loss. C Funds, just as F Funds are also subject to inflation risk. This simply means, whatever you invest might be less than what you’ll need to offset inflation.
C Funds carry more risk than an F Fund, which means there’s a potential for higher gains. This is because your money is being invested in equity ownership of large and mid-sized stocks. These stocks are all U.S. Companies.
The S Fund, or Small Cap Stock Index Investment Fund, attempts to match the performance of the Dow Jones U.S. Completion Total Stock Market Index. Unlike a C Funds, S Funds do not include the S&P 500 Index. Your money will still go toward U.S. companies, just not those in the S&P 500 index.
S Funds are subject to the same risks as those of the F and C Funds. This is because they are susceptible to market risks and the risk of inflation. But, that does not mean you won’t see some rewards. Similar to a C Fund, you can increase your profit through equity ownership. But, instead of investing in large and mid-sized companies, your equity ownership is in small and mid-sized companies. Again, these are invested in U.S. companies only.
The I Fund, also known as an International Stock Index Investment Fund has the most risk. Also, unlike your other investment options, your money is going into international accounts. Because of this, your risk increases. Why? Because now your money is subject to market risk, inflation risk, and currency risk. However, this also means you have the potential of having a higher gain on your investment.
L Funds, or Lifecycle Funds, work differently than other investment options. Instead of going in and selecting which fund you want to invest in at any given time, the L Fund does it for you.
It’s never advised to approach investing with a “set it and forget it” mentality. However, with an L Fund, you can get help on when to risk more or pull back, and it happens automatically.
Now, an L Fund does not mean you’ll be investing in a G, F, S, C, or I fund one at a time. It will be a mix of all five. How much you risk in each will fluctuate the closer you get to retirement. This means that the further away from retirement you are, the more risk you’ll have. Therefore, less money will be going into your G Fund the further away you are. However, the closer you get to retirement, the more money you’ll have going into the G Fund. The reasoning behind this is, you shouldn’t be risking as much, and there’s no risk in G Fund contributions.
Currently, when selecting an L Fund, you can choose between the L 2050, L 2040, L 2030, and the L 2020. These refer to the year in which you plan to retire. For example, if you plan to retire between 2025 and 2034, you would select the L 2030 plan. If you’re already withdrawing from your account, you’ll be using L Income. The same applies if you will be withdrawing prior to 2020.
A TSP is like a 401(k). On the outside, it may seem like a simple investment. However, there’s a little more to it than one may think. If you don’t invest your money properly, you might not be taking full advantage of what a TSP could offer you. Below are some of the most frequently asked questions about TSPs.
Are there any TSP restrictions?
Yes, there are restrictions on a TSP account. First off, you must be working for the federal government to take advantage of it (refer to the section, “Who’s Eligible for a TSP?”). There’s also a restriction on how much you can invest. In 2019, the investment limit raised from $18,500/year to $19,000/year.
When can you withdraw funds from a TSP?
Ideally, you can withdraw funds from your TSP at retirement age. However, if you want to withdraw before that, you may. But, a word of advice, don’t. Withdrawing, before you retire will leave you paying extra fees along with taxes on the cash you take out.
What are the benefits of a TSP for service members not enrolled in the BRS?
Service members investing in a TSP account, up until recently, have not been able to receive government matching. However, that changed when the Blended Retirement System (BRS) came out. Before, only civilians working for the federal government could contribute with a 5% match from their employer. Unfortunately, the same did not apply to service members. With the BRS, those serving in the military can now receive a 5% match, just like their civilian counterparts. However, only service members who opted into the BRS, or were automatically placed into this retirement category have this option. If you’re unsure about which retirement system you fall into, check with your finance office.
If you’re not investing under the new BRS, you might be wondering what the advantages of a TSP are? Is a TSP better than other investment options? The answer, yes. Fees under a TSP are typically much lower than outside investment options. In 2018, the fee for G Funds was only .40 per every $1,000. L Funds work similarly. One might think because an L Fund involves more on the part of professionals there would be more fees. However, this is not the case, and it is based on the average expenses between all five funds.
How to rollover a TSP into a USAA IRA
Rolling your TSP over is pretty straightforward. It’s really a matter of transferring funds. Many banks will let you do this, but we’re going to USAA as our example since a lot of service members use them. Simply go onto USAA’s website and request to rollover your TSP into one of their IRA options. You can do this by following the steps below.
- First, open an IRA with USAA. You can do this online or over the phone with a representative.
- Select, “Rollover” for your funding source
- Download the form that applies to you: TSP-70 (full withdrawals) or TSP-77 (partial withdrawals)
- Mail, send via member message, or fax the completed form to 800-292-8177