Is TSP or Roth IRA better?
Roth IRAs are beneficial because you can withdraw this money tax-free in retirement. This diversifies your future tax liabilities by having taxable and non-taxable retirement funds. If you have enough money to invest for the full company match and max your Roth IRA, you should consider investing more in your TSP.
A Roth TSP has higher contribution limits, automatic contributions, and matching contributions. However, the investment options are limited and at the moment you have to take RMDs at age 72. Roth IRAs have a great selection of investment options and they don't have RMDs.
Thrift savings plans have limited investment options compared to the broader range available in a Roth IRA. If you desire greater control over your investments, converting to a Roth IRA is better for you. However, Roth IRAs usually have higher fees because of this. Make sure you compare before making a decision.
The Upfront Tax Burden is Too Much
If you make a $1,000 Roth TSP contribution, your taxes will be $200-$300 higher than if you had made a Traditional TSP contribution. This will vary depending on your tax bracket, but it is money does not have an immediate tax break.
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.
Before we get started, be aware that you are allowed to contribute to both the TSP and an IRA. In fact, if you can afford to, you can max out both accounts.
You might consider investing more in our stock funds (C, S, and I) than in the more conservative G and F Funds at this stage of your career. Stocks present more risk but offer the opportunity for potentially higher returns over time.
Earnings are considered qualified after both of these Internal Revenue Code (IRC) requirements are met: 5 years have passed since January 1 of the calendar year when you made your first Roth TSP contribution and you are at least age 59½, permanently disabled, or deceased.
Your TSP account is a portable retirement benefit. This means that when you withdraw your account, you can have the TSP transfer part or all of your single pay- ment or certain monthly payments to a traditional IRA or an eligible employer plan (for example, the 401(k) plan of a new employer).
Yes. Your participation in the TSP does not affect your eligibility to contribute to an IRA. However, the Internal Revenue Code (IRC) establishes limits on the dollar amount that you can contribute to eligible employer plans like the TSP and to individual retirement accounts such as traditional IRAs and Roth IRAs.
What happens if I put too much in my Roth TSP?
You may request a refund of any excess deferrals from one or more of the plans in which you participate. Each plan then has the option of returning your excess deferrals, plus associated earnings, by April 15 of the year following the year in which the deferrals were made.
The rule of 55 is a great feature of your Thrift Savings Plan that helps early retirees. This IRS rule means that those who leave service in the year they turn age 55 or later can take TSP withdrawals without penalty.
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.
Age 40—three times annual salary. Age 45—four times annual salary. Age 50—five times annual salary. Age 55—six times annual salary.
A Roth TSP has higher contribution limits, automatic contributions, and matching contributions. However, the investment options are limited and at the moment you have to take RMDs at age 72. Roth IRAs have a great selection of investment options and they don't have RMDs.
If you decide to roll over your TSP assets to an IRA, you can choose either a traditional IRA or Roth IRA. No taxes are due if you roll over assets from a traditional TSP account to a traditional IRA, or if you roll over your contributions and earnings from a Roth TSP account to a Roth IRA.
Apart from employee contributions, TSP participants also receive agency/service matching contributions up to a specific limit to boost their retirement savings. You should contribute a minimum of 5% of your basic pay each pay period; this is the percentage needed to obtain the full agency matching contribution.
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.
By taking advantage of the TSP and other investment opportunities, and by making smart financial decisions, you can work towards building a comfortable retirement and achieving millionaire status.
By starting early, contributing regularly, investing in a diversified portfolio, taking advantage of catch-up contributions, and considering the impact of taxes, you can maximize your retirement savings and enjoy a comfortable retirement.
What is the downside of a Roth IRA?
You have to wait longer for the tax-savings payoff with a Roth IRA versus a traditional IRA. You pay taxes on the money before it goes into the account, meaning no tax deduction.
If you're now in one of the higher tax brackets, your tax rate in retirement may have nowhere to go but down. In this case, you're probably better off postponing the tax hit by contributing to a traditional retirement account.
The Roth IRA annual contribution limit is $7,000 in 2024 ($8,000 if age 50 or older). If you open a Roth IRA and fund it with $7,000 each year for 10 years, and your investments earn 6% annually, you may end up with more than $92,000 by the end of the decade.
If you qualify for federal match funds, you should contribute to your TSP at least up to this limit (3% of your salary). Beyond this, it can make sense to have a Roth IRA alongside your Roth TSP: No rules prevent you from contributing to both. Ideally, you could max out both accounts to boost your retirement savings.
Traditional Money
Any payment from your traditional balance is considered taxable income since you've deferred paying taxes on this money . This includes your contributions, any agency or service contributions, and the earnings .
