A: You can contribute to both a Roth IRA and the TSP, but the total amount you can save in both is incorrect; you can actually contribute more. There are, however, annual income limits for Roth IRA contributions.
Does a Roth TSP count against Roth IRA?
The Roth TSP is unique in that it is funded with after-tax dollars. If you earn more than a specific amount ($183,000), you can’t contribute to a Roth IRA. However, you can contribute after-tax money to the Roth TSP. As a result, you might have both a regular and a Roth TSP account at the same time.
Can I contribute to a Roth IRA if I have a TSP?
Yes. Your ability to contribute to an IRA is unaffected by your participation in the TSP. However, the Internal Revenue Code (IRC) has restrictions on how much money you can put into qualifying employment plans like the TSP and individual retirement accounts like regular and Roth IRAs.
Can I contribute to my TSP and an IRA in the same year?
TSP contribution limits are $17,000 as of 2012, while IRA contribution limits are $5,000. If you’re 50 or older, the TSP and IRA contribution limitations increase to $22,500 and $6,000, respectively. The contribution limits for TSPs and IRAs do not overlap. As a result, every dollar you put into a TSP doesn’t count against your IRA contribution maximum. The limits, however, apply to both Roth and regular TSPs and Roth and traditional IRAs. Each dollar you put into a Roth TSP reduces the amount you may put into a regular TSP, but not into a Roth IRA or a traditional IRA.
Should I do both Roth and traditional TSP?
There’s no better time than now to start investing for retirement. The Thrift Savings Plan is the greatest approach for US service members to do so (TSP). However, before you can begin, you must choose between a Traditional and a Roth TSP account.
The Roth TSP is the superior option for most people since they are currently in a lower tax rate than they will be in the future. Because you contribute after-tax money to a Roth, your gains and withdrawals are tax-free because you pay taxes upfront. As a result, you won’t have to pay taxes on your money if you remove it after 59 1/2 years.
The money you put into the Traditional TSP is pre-tax. This means that you will pay taxes when you remove the funds, rather than when you put the money in. Your current tax bracket may be greater at that time than it is now, which is why the Roth TSP is preferable. However, you should consult an accountant or financial counselor to see whether the Roth version is the best option for you. Here’s more on the Roth vs. Traditional TSP debate.
What does Dave Ramsey recommend for TSP?
We propose that you save aside 15% of your salary for retirement. When you routinely contribute 15% of your income, you set yourself up to have options when you retire. You also leave enough room in your budget for other financial goals, such as saving for education and paying off your mortgage.
So, how much of that 15% should you put into your TSP account? As previously stated, you should invest at least enough to receive the full match if you are eligible. Don’t let free money go through your fingers.
Work with your financial advisor to form a Roth IRA once you’ve made enough contributions to qualify for the match. You can benefit from tax-free growth and withdrawals with a Roth IRA, and you can choose from a wider range of funds than the TSP. If you’ve maxed out your Roth IRA and still haven’t reached the 15% mark, transfer the remaining funds to your TSP account and invest them there.
Start with a Roth IRA if you don’t obtain a match on your contributions for some reason. It’s simple to sit down with a financial advisor and discuss your possibilities. They can assist you in setting up a Roth IRA and selecting the funds that are best suited to your needs. After you’ve maxed out your Roth IRA, put the rest of your money into your TSP account until you reach 15% of your gross pay.
Is TSP or Roth IRA better?
Once you’ve taken full advantage of the TSP match, deciding where to put your money gets more difficult. If your taxes are high now and you expect them to be considerably lower in retirement, the TSP is a superior option. It is preferable to apply your deduction to the higher tax rate. The Roth IRA is a superior option as you get closer to retirement. A longer investment horizon means your money has more time to grow, and you’ll enjoy more tax-free gains from your Roth IRA. There isn’t a plainly superior alternative. It is up to you whether you want to take advantage of your tax savings now or wait until retirement.
How much can I contribute to my Roth TSP in 2021?
For 2021, the IRC 402(g) elective deferral limit is $19,500. This cap applies to both traditional (tax-deferred) and Roth contributions made by employees during the calendar year. During a calendar year, the total of conventional (tax-deferred) and Roth contributions made cannot exceed the elective deferral maximum. The elective deferral limit does not apply to automatic (1%) contributions, matching contributions, catch-up contributions, traditional contributions made from tax-exempt pay, or monies transferred or rolled over into the TSP.
Employee contributions that exceed the year’s elective deferral limit are not accepted by the TSP. Beginning in January 2021, if a payroll office makes a contribution for an employee who is not eligible to make catch-up contributions that exceeds the elective deferral limit, the TSP will reject only the portion of the employee contribution that exceeds the elective deferral limit. (The TSP had previously rejected the entire contribution before January 2021.) Agencies and services will have a year to submit any negative adjustments on excess matching.) Once an employee exceeds his or her voluntary deferral maximum, his or her contributions will be halted for the remainder of the year. This means that FERS and BRS participants who hit the annual contribution limit before the year’s end will miss out on matching contributions for the remainder of the year.
How much should I have in my TSP at 40?
Goals for Retirement Savings You should have three times your annual pay by the age of 40. By the age of 50, you’ll have earned six times your income; by the age of 60, you’ll have earned eight times your salary; and by the age of 67, you’ll have earned ten times your salary. 8 If you retire at the age of 67 and make $75,000 each year, you should have $750,000 in the bank.
What is the max for a Roth IRA?
Contribution restrictions for various retirement plans can be found under Retirement Topics – Contribution Limits.
For the years 2022, 2021, 2020, and 2019, the total annual contributions you make to all of your regular and Roth IRAs cannot exceed:
For any of the years 2018, 2017, 2016, and 2015, the total contributions you make to all of your regular and Roth IRAs cannot exceed:
How much does Roth TSP match?
If you’re a FERS or BRS participant, once you’re eligible, your agency or service will match your normal employee payments with Agency/Service Matching Contributions. Matching Contributions, unlike Agency/Service Automatic (1%) Contributions, are not subject to vesting rules.
You will receive matching contributions on the first 5% of your pay that you donate each pay period if you are a FERS or BRS participant.
The first 3% of your income will be matched dollar for dollar, and the next 2% will be matched at a rate of 50 cents on the dollar. Contributions of more than 5% of your take-home salary will not be matched. Your matching contributions will stop if you stop making regular employee contributions.
Furthermore, your Agency/Service Matching Contributions are calculated based on the total amount of money you contribute each pay period (including regular and Roth). All contributions from agencies and services are placed into your conventional account.
Does the military match your Roth TSP?
On the TSP, how much does the military match? The military contributes 1% of your basic pay to your military Thrift Savings Plan account automatically. The military will contribute another 5% to your Traditional TSP if you donate at least 5% of your military income to either the Roth or Traditional TSP.