Roth TSP

[jeffkal]

Am I allowed to open a personal Roth IRA with TDAmertrade or am I restricted because I contribute my TSP Roth ? i know there are limits to contribution to Roth?
Thanks Jeff

 

[Bullitt]

TSP has no bearing on Roth IRA limits. Only thing that matters is household income.

 

[flalaw97]

Bullit is right - your TSP contributions (to Roth TSP or Traditional TSP) do not impact your ability to open and contribute to a Roth IRA with Ameritrade. Your contribution limits to Roth IRA in 2021 are $6k if you make less than $198K (married filing joint) and that limit is reduced by $600 for every $1K you make ovver $198K, zeroing out if you make over $208K. If you are over 50 years old you can also contribute another $1K if AGI is less than $198K (married filing joint). https://www.irs.gov/retirement-plan...yee/retirement-topics-ira-contribution-limits

Your TSP Roth contribution limits are defined by the combination of your traditional TSP and Roth TSP contributions which cannot exceed $19,500 (plus $6500 in catchup contributions if you are 50 or over)

 

[fedgolfer]

I think I'm too old (51) to start a TSP Roth and income doesn't qualify (+$270K married/joint). I assume I can't start a Roth TSP and start doing Roth conversions from traditional TSP?

However wife has a Vanguard SEP IRA and Roth IRA. We have some recent large windfalls (unrealized) on the SEP IRA side due to most TSLA (plus FB, AAPL, SQ holdings). Not being a tax expert, I assume we should start converting some of that to the Vanguard Roth side (it says $7K IRA Max) each year? Sounds like we could be facing heavy tax bills in retirement. Thoughts and advice, please. Thx and blessings to all for healthy returns

Gonna have to move to TX, WA, FL in retirement!

 

[Bullitt]

You're not too old to start with the Roth TSP and there are zero income limits. As long as collecting a government salary you can do the Roth TSP. Roth IRA is a different story.

You aren't taxed on capital gains in a pre-tax retirement account. It's taxed as a whole depending on your bracket and it may be lower than what you're paying now. Let the gains ride unless the portfolio has too much risk.

The Roth conversion is very likely to be on the chopping block by 2031.

https://www.napa-net.org/news-info/daily-news/case-week-congress-closing-backdoor-roth-ira

The pitch is, it's easy to transfer the money over. That's the easy part, the tax end of it is not and may require professional help. An easy way to convert to a Roth IRA would be to do the Roth TSP and convert in retirement. Both are after tax contributions and there would be zero taxes owed. Both can't be withdrawn until 59.5 years.

I might be wrong here, but when you withdraw from TSP, it takes a proportionate amount from Roth TSP and Traditional TSP. Maybe that rule changed in 2020, I can't remember right now. The benefit here would be having the Roth IRA (tax-free) separate.

 

[evilanne]

I think I'm too old (51) to start a TSP Roth and income doesn't qualify (+$270K married/joint). I assume I can't start a Roth TSP and start doing Roth conversions from traditional TSP?

However wife has a Vanguard SEP IRA and Roth IRA. We have some recent large windfalls (unrealized) on the SEP IRA side due to most TSLA (plus FB, AAPL, SQ holdings). Not being a tax expert, I assume we should start converting some of that to the Vanguard Roth side (it says $7K IRA Max) each year? Sounds like we could be facing heavy tax bills in retirement. Thoughts and advice, please. Thx and blessings to all for healthy returns

Gonna have to move to TX, WA, FL in retirement!

With conversions, there isn't a limit for the amount. You can convert the whole account if you want to pay the taxes (The $7K is for contributions when you are below the income limits). If you have the accounts at the same financial institution, you can also transfer specific assets and the conversion will be priced at the market rate on that date for the shares converted. Note: A good time to convert would be during a market pull back.

https://www.investopedia.com/ask/answers/03/110803.asp

 

[tsptalk]

5 Reasons to Avoid Roth TSP and Conversions

These are situations in which federal employees should avoid utilizing the Roth TSP.

This article will discuss when it may not make sense to use a Roth as well as some big Roth mistakes we’ve seen federal employees make with their TSP.

https://www.fedsmith.com/2023/07/21/5-reasons-to-avoid-roth-tsp-and-conversions/

 

[Bullitt]

5 Reasons to Avoid Roth TSP and Conversions

#5 is a big one - Where's the money coming from to pay for taxes? You can really dig yourself into a hole if you don't have cash on hand for this one.

The whole concept of a Roth conversion is oversold. Now that brokerages don't make money on trades, they have to try to profit from advisor or robo advisor fees. The more accounts they can bring in, the better chances they have of selling additional services.