So now that we know the roth tsp and the roth ira are different things and even the executive director of the federal. Considerations for choosing the traditional or roth tsp. Roth tsp vs roth ira vs traditional tsp vs traditional ira. The roth tsp and the roth ira share many similarities. While these accounts have many similarities, they are also quite different.
In the end, the roth ira remains our top choice for flexibility and tax free growth. You can make both traditional and roth contributions if you want. I was told the first three days of the month or the last day of the month are the best times to go out to receive the check earlier. The roth tsp is a great option for lower income military members, and for those who have large amounts of tax free earnings from deployments. Rolled over a roth 401k or roth 403b to the roth ira. While it is possible to have both the traditional and roth, the accounts are not interchangeable. Jeremy on twitter asks if he should consider switching from his thrift savings plan tsp to a roth thrift savings plan. In fact, they are so different that the executive director of the federal retirement thrift investment board, greg long stated this. Keep in mind that you can have your tsp money in either a roth or a traditional tsp account, and you can also have an ira that is either roth or traditional. Can i combine the 2017 contributions for both accounts toward the retirement savings contributions credit. Why should i consider a roth versus traditional ira. In most retirement accountsunless youre starting in your 60sthe vast majority90%plus of the money in the account when you reach retirement is growth.
You dont get a tax deduction for your investment in a roth ira so you will owe more income tax for the year vs. Is there a financial counselor at tsp to speak with about taxes and iras vs. Roth tsp the decision whether to invest in a traditional tsp or a roth tsp boils down to whether you believe you will be in a higher or lower tax bracket when you take your distributions. Its critical to understand the difference between the two. When you invest in a tsp, the entire investment is taxdeductible.
While many people currently have a traditional tsp, they will be unable to transfer the funds in that account to a roth. Everything im about to write is about traditional vs roth tsp and does not translate directly to traditional vs roth ira. You can even have both a traditional and roth tsp account, as long. The amount of tax you pay on your transfer from a traditional tsp to a roth ira depends on your income tax bracket. The rules for roth tsp rollovers are similar to those for roth iras, with these three exceptions. For higher income military members we recommend a combination of deductible tsp and roth ira for tax savings and. Roth component, roth ira important, the roth tsp and a roth ira are not the same. A traditional tsp is one where you defer paying taxes on your contributions and earnings until you withdraw them. Tsp or roth you just need to make sure youre saving something for retirement. Roth iras have no required minimum distribution requirements starting at age 70. There are some differences between the roth tsp and a roth ira when it comes to withdrawals that could cost you in taxes and penalties if. By mike miles on march 8, 2017 c fund, f fund, i fund, roth ira, roth tsp, s fund, tsp. I have a separate roth ira with a fiduciary adviser, but my tsp consistently out performs my roth. Amount of roth ira contributions that you can make for.
You make contributions to your roth tsp on a posttax basis. Currently, you will not be able to transfer money into the tsp from roth iras. Ten percent or less is the money you put in to the account. Watch the video to find out the differences and visit. Now to further confuse you, these three retirement account types can have the word traditional or roth in front of them traditional tsp, roth tsp, traditional ira, roth ira. With the tsp, you are limited to the funds available. What this means is you pay taxes on your contributions as you make them unless you are making taxexempt. However,although many are unaware, they are not the same thing. Roth tsp is likely your best option for two big reasons. Soldiers who have access to both a roth ira and tsp may benefit by first maxing out contributions to a roth ira and then putting additional savings in the tsp to gain the most benefits from both plans.
Is there any benefit to cashing out my roth and starting to contribute to the tsp roth. A roth tsp can be transferred out to roth 401ks, roth 403bs, roth 457bs and roth iras. Here well look at the differences between a traditional and roth tsp. Why most federal employees should make contributions to the roth tsp may 7, 2019 by edward a. Now, well compare and contrast the traditional and roth tsp. You cannot roll funds from your traditional tsp to your roth tsp.
You will not receive a tax deduction for contributing funds to the roth tsp. A thrift savings plan, or tsp, is a retirement plan available to members of the military and federal employees. Why most federal employees should make contributions. The roth ira and the roth tsp are two very, very different things. Tax on a tsp transferred to a roth ira finance zacks. Steve holmes work includes facilitating the acquisition of revocable living trusts and funding a customized trust for each client by focusing on maximizing. The thrift savings plan is an excellent way for federal employees and military personnel to save for retirement. A roth ira is an individual retirement account that you open and fund directly. Little background im an e1 airman about to promote in the next month. Even though federal employees sometimes refer to the roth tsp as an ira, they are not the same investment vehicle. Roth versus traditional tsp air force special operations. Both the roth tsp and the roth ira are both aftertax retirement accounts this is the largest benefit of a roth ira that was added into the roth tsp that so many people appreciate.
If the amount you can contribute must be reduced, figure your reduced contribution limit as follows. However, although many are unaware, they are not the same thing. Should he scale back the roth tsp in favor of the roth ira. A selfdirected individual retirement account sdira is a type of ira, managed by the. You get to put money away for retirement while cutting down on your current tax bill. Throughout my nineyear military career, i had access to both the roth ira and tsp.
For example, if you fall in the 28 percent tax bracket. Tsp and roth ira are two popular savings plans available to service members, their families, and united states federal government. Should i take all of my thrift savings plan out at once or leave about 10,000 in and roll it over to a roth ira or leave it in tsp. The roth portion of your tsp can be rolled into a roth ira and the traditional portion of your tsp can be rolled into either a traditional ira or a roth ira again, taxes would have to be paid on. As such, a roth ira owner can hold onto the account indefinitely and pass it on taxfree to their beneficiaries upon his or her death.
A roth ira is taxed money that grows taxfree through the investment cycle. A roth tsp differs from a roth ira in several ways, including tsp contribution limits, distributions, rollovers and loans. A roth ira is separate from any traditional iras you might have, but your roth tsp is actually a separate balance within your one tsp account. Zurndorfer, certified financial planner since its official start on jan. Roth tsp vs roth ira posted in the personalfinance community. You can contribute to the tsp roth even if you are a highincome earner without a phase out qualifications. Both offer distinct advantages and in some cases disadvantages. Taking one is not necessarily a good idea, but it is an option not available with a roth ira. You cannot convert any portion of your existing traditional tsp balance to a roth balance. When you make withdrawals, you can choose to withdrawal traditional only, roth only, or a proportional mix of both. The tsp roth is not subjected to income limitations for participants. Along the same lines, agency automatic and matching contributions will always be traditional, taxdeferred contributions, even if your own contributions are only roth.
Which one should federal employees consider investing in by steve holmes. You can contribute in any percentages or amounts you choose subject to irc limits and change your election at any time. While they have closelyrelated names, if a federal employee contributes to a roth tsp, it doesnt necessarily mean theyre also adding to a roth ira. Roth tsp is similar to a roth 401k, not a roth ira. There are some differences between the roth tsp and a roth ira when it comes to withdrawals that could cost you in taxes and penalties if you do not understand them.
The roth tsp and roth ira may share the same name, but share only a few characteristics. Plan to add the extra pay when i become an e2 to the roth tsp or roth ira. However its important to note that the funds within the tsp have some of the lowest fees. Thats because both types of tsp accounts are identical except for the tax treatment, whereas with iras the roth ira has a few features that are not available at all on a traditional ira. Roth, whether its tsp or ira, can be a great way to save for retirement while youre in a taxfree combat zone. The difference between the two is when you are taxed on your contributions and withdrawals. The rollover must be made as a trusteetotrustee transfer. I use both a roth ira and the roth tsp to save for retirement. However, the roth ira is subject to income limitations. If you are fers or brs, your agencyservice matching contributions are based on the total amount of. The tsp will keep your traditional balance and your roth balance in separate buckets in your tsp account for the purposes of tracking contributions and transfers into your account. Your tsp and your ira are completely separate accounts. Also, you will not be able to convert money that is already in your tsp account into roth money. It provides two excellent options for its beneficiaries, lets have a look on traditional tsp vs.