TSP vs. ROTH IRA

[WallStreet]

First off, I am 25 years old and am an accountant for the federal gov. Yesterday I was listening to Suze Orman. She said always invest the max amount into your 401K (TSP) that your company (fed gov) will match.

Now, I am obviously doing this. I am actually putting in 10% and getting the government 5%. But, Suze also said (with emphasis towards young investors) to not invest any more that the percentage that will be matched and whatever else I want to invest should go into a separate ROTH IRA.

Now, I understand the difference between the TSP and a ROTH IRA. Simply put, the TSP is taxed later and not now (i.e. when I pull the money out at retirement) and the ROTH IRA is taxed now (before I put it into investment).

My question is:

(being 25 with alot of time ahead of me, and yes I expect to be in a higher tax bracket when I retire but I do not PLAN on leaving my gov job so I can only go "so much higher.")

Would it benefit me to put exactly what the gov matches in the TSP (for now until I can afford to get to the max) and pot the rest in a ROTH(obviously outside of the gov because they so far do not offer a ROTH)... Or should I say screw Suze Orman and put as much as I can into TSP??

Thanks for any advise guys

 

[Intrepid_Timer]

I agree with Suze on this one................but mainly because of the various investment options that a self-directed Roth affords.............

First off, I am 25 years old and am an accountant for the federal gov. Yesterday I was listening to Suze Orman. She said always invest the max amount into your 401K (TSP) that your company (fed gov) will match.

Now, I am obviously doing this. I am actually putting in 10% and getting the government 5%. But, Suze also said (with emphasis towards young investors) to not invest any more that the percentage that will be matched and whatever else I want to invest should go into a separate ROTH IRA.

Now, I understand the difference between the TSP and a ROTH IRA. Simply put, the TSP is taxed later and not now (i.e. when I pull the money out at retirement) and the ROTH IRA is taxed now (before I put it into investment).

My question is:

(being 25 with alot of time ahead of me, and yes I expect to be in a higher tax bracket when I retire but I do not PLAN on leaving my gov job so I can only go "so much higher.")

Would it benefit me to put exactly what the gov matches in the TSP (for now until I can afford to get to the max) and pot the rest in a ROTH(obviously outside of the gov because they so far do not offer a ROTH)... Or should I say screw Suze Orman and put as much as I can into TSP??

Thanks for any advise guys

 

[Frixxxx]

Would it benefit me to put exactly what the gov matches in the TSP (for now until I can afford to get to the max) and pot the rest in a ROTH(obviously outside of the gov because they so far do not offer a ROTH)... Or should I say screw Suze Orman and put as much as I can into TSP??

Thanks for any advise guys

Remember that you want to keep what is yours and defer everything possible until later.

1. Taxes, taxes, taxes. If you are in fear of your tax bracket, you should use your 401g(k) to maximize the effort to pay your taxes.

2. But, if you tak the standard deduction then you are paying the same rate anyway, it would behoove you to also start the Roth IRA....you will not be taxed in the future on it's earnings.

3. Goals, get some calculators and set some goals and crunch some numbers. Once you find harmony in your investments, you can be assured you've set the works in motion to be a successful investor!

Good Luck!

 

[brooksmd]

First I congratulate you on your concern for your later years and retirement. I would tend to go along with Suze on this one. As you know the big advantage to putting money in the TSP or 401K is reducing your current taxable income. If that is not a concern for you now then not having to pay taxes on retirement income by investing now in a Roth is a definite plus. I only wish I at your age had been as concerned with my retirement future as you are with yours. Unfortunately I invested too much money in beer companies. Good luck in achieving your retirement goals.

 

[Birchtree]

Remember there is no required minimum distribution with a Roth IRA. You take money when you are ready - you have the control and not the IRS.

 

[Intrepid_Timer]

Just remember that the current Roth contribution limit is $5000 per year.

 

[Birchtree]

I believe $6000 if you are lucky enough to be over 50.

 

[konakathy]

Has there been any more news on the new TSP ROTH? I thought it was supposed to be introduced in 2011.

 

[Myemal]

Has there been any more news on the new TSP ROTH? I thought it was supposed to be introduced in 2011.

software updates pushed it back to April 2012

 

[Boghie]

Re(1): "Basic Rules for Regular Contributions, Eligibility and restrictions", www.fairmark.com, Kaye Thomas


I know many of you know this, but...

Your Roth IRA contribution is not reduced or otherwise affected by any contribution you make to a 401k plan or 403b plan — even if you contribute to a Roth account in one of these plans.​

Not really a Roth IRA vs. TSP issue, but interesting none the less.

This means that you can max out both your TSP (under IRS limits) and your Roth IRA. Thus, if you are in the financial position to do so, you can push about $16,000 per year into TSP (including the match) and $5,000 into a Roth. And, for our seasoned Boomers that limit goes to $20,000 in TSP and $6,000 to the Roth.

Nice, very nice.

And, soon my credit card debt will be a thing of the past. I will be burning one in June - probably get fined by some Kleptocrat out here in the Peoples Republic of Kalifornea. Maybe that casholla will head toward a Roth, eh

 

[Lili]

I am 59 with currently 33 years under CSRS retirement plan and probably will be retiring in the next couple of years . I have received some inheritance and am trying to decide whether to max out my TSP contributions and lower my income tax dollars or should I put the money in a ROTH? My dilemma is the penalty for withdrawing earlier than 5 years, but maybe it is negligible. Does anyone know the penalty? Any advice? :suspicious:

 

[Frixxxx]

I am 59 with currently 33 years under CSRS retirement plan and probably will be retiring in the next couple of years . I have received some inheritance and am trying to decide whether to max out my TSP contributions and lower my income tax dollars or should I put the money in a ROTH? My dilemma is the penalty for withdrawing earlier than 5 years, but maybe it is negligible. Does anyone know the penalty? Any advice? :suspicious:

Is the inheritance straight money or life insurance?

Will you be paying capital gains on any of the inheritance?

If you are at 59, my calculations say that any monies in those investments are elligible at 59 1/2 for withdrawal.

My suggestion is to contact a tax person and maybe make an appointment to go over the implications for this year before you reach out into the future. But I too would be interested if anyone has experienced this sort of situation!

 

[Lili]

Inheritance is straight money(no tax implication), investments (small tax implication), and life insurance (no tax implication). No capital gains at all. My rationale is to lower my adjusted gross income for tax year 2011 by contributing more $ to TSP. So you think I would be able to withdraw at 59 1/2 with no penalty? I guess I need to check and see but if that is true would it be better to lower my income by contributing more $ to TSP or put the $ in a Roth?

 

[Frixxxx]

Inheritance is straight money(no tax implication), investments (small tax implication), and life insurance (no tax implication). No capital gains at all. My rationale is to lower my adjusted gross income for tax year 2011 by contributing more $ to TSP. So you think I would be able to withdraw at 59 1/2 with no penalty? I guess I need to check and see but if that is true would it be better to lower my income by contributing more $ to TSP or put the $ in a Roth?

Investing in TSP this year lowers your tax implications for this year. So, if the desired affect is to lower your tax rate, then load it up. If you look at the tax tables and TSP deposits actually lowers how much in taxes you'll pay, it should be a no-brainer. At 59 years of age, you'll need to get to an equilibrium as you get closer to retirement. Withdrawals from TSP at 59 1/2 are penalty-free, but still have an impact on your taxable income for the year.
Good Luck!

 

[Twit]

IF you are under CSRS you should open a Voluntary Contribution Plan and put the money in that account. You are allowed up to 10 percent of your lifetime earnings to be deposited into the VCP. When you retire you can roll the entire amount (except for your earnsing) directly into a ROTH IRA. This vehicle bypasses the income limits and $6000 yearly limited. You cannot participate in this program if you are under FERS, only CSRS or CSRS offset and you cannot owe any deposits back either.
It takes a while to set up the account, but it is a wonderful vehicle to maximize additional monies for retirement.

 

[azanon]

I'd recommend adjusting your lifestyle where you don't even have to ask which one you should pick. Max them both. If you're at least GS-7, and don't live in a high cost area, you can pull it off. I know that sounds insane, but you can do it. Used Honda Civics are cheap. One-bedroom apt. are cheap too. Go with Bengal spray to deal with roaches in low cost apartments.

Be one of the rare few who chooses being rich over looking rich ;-)

 

[uscfanhawaii]

For those of you who are looking forward to the Roth TSP option, the TSP website has started putting out info on the differences between the traditional and the Roth.
Also, GovExec has a good article that tries to put examples out to illustrate the differences. Go to:

[URL="http://gerp.govexec-media.com/portal/wts/cemcfOaOoAmbaSBg6ie8yRa-8ksxva"]http://gerp.govexec-media.com/portal...6ie8yRa-8ksxva[/URL]


(I also posted this on my account talk thread.)

For me, I only have a few years left till retirement, but I am interested in Roth from the tax diversification standpoint. I would like to be able to pull from a Roth or Traditional as needs arise in retirement. So no matter what happens to tax rates or my personal situation, I will have that option. And since you can't withdraw from Roth until 5 years after your first deposit, I plan to do at least some Roth as soon as it becomes available so I can 'start the clock'. ​

 

[SkyPilot]

I still am not clear why the FTRIB decided we needed to fund the expense of adding a ROTH option, when a ROTH option existed for anyone who wanted one in the first place. A simple allocation request to a ROTH account would do the same thing, plus give anyone who wanted a more diversified portfolio to invest in precious metals, emerging markets, etc... unless it was to allow matching up to 5% to go into a ROTH account as well.

Seems like much effort and expense of our TSP money for an option that was already available by personal intitiative. However, I am not a ROTH participant and prefer to have my tax benefit upfront, so maybe I am not so objective : )

 

[uscfanhawaii]

I still am not clear why the FTRIB decided we needed to fund the expense of adding a ROTH option, when a ROTH option existed for anyone who wanted one in the first place. A simple allocation request to a ROTH account would do the same thing, plus give anyone who wanted a more diversified portfolio to invest in precious metals, emerging markets, etc... unless it was to allow matching up to 5% to go into a ROTH account as well.

Seems like much effort and expense of our TSP money for an option that was already available by personal intitiative. However, I am not a ROTH participant and prefer to have my tax benefit upfront, so maybe I am not so objective : )

Yeah, I guess I should have posted under one of the other threads....my post is really 'Traditional TSP vs Roth TSP', not Roth IRA. And you are exactly right....this gets you in on the TSP rules for contributions. IRA yearly contribution is limited to 6K (if over 50 yrs old), and TSP is 22.5K(over 50). The matching is a wash since TSP matching will go to your Traditional TSP whether you put into Traditional or Roth.

I do have a Roth IRA, but it is small. I see you are getting close to retirement....so am I. I like the Roth for tax diversification reasons the most. Give me more options in retirement.

 

[mboja]

Question for 2011:


For those under 49 of age, If they contributed 16K into TSP for 2011 . Can they also contribute into a ROTH IRA for 2011 (obviously not with TSP) before April 15, 2012? If so, what would be the max one can contribute into the ROTH IRA for 2011?