TSP Contribution
TSP Contribution
I am a believer who does tithe. Because of that I cannot max out my retirement accounts. Currently I'm maxing out one ROTH IRA and putting 20% of my salary into my TSP account. With the limit raised this year I would like to consider stopping the ROTH contribution and adding the money to the TSP account thus getting the tax deduction. I'm planning on using my ROTH IRA for medical and my TSP for daily expenses. Would this be appropriate to do? What are your thoughts?
- jimb_fromATL
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Re: TSP Contribution
A popular rule of thumb is to contribute at least 10% to 20% of your income to retirement, depending on when you start. Sounds like you're already doing that, so are probably doing fine now. Plus, most folks who are eligible for the TSP in a life-long career typically have a federal pension too, so the rule of thumb for other retirement contributions may not be as important.
Nobody knows for sure how tax laws may change. However when you can afford to max a Roth IRA and contribute that much to the TSP too, and since you are within the income limits to qualify for a Roth IRA, I'd guess chances are your tax brackets are high enough that you'd be better off maxing the Roth IRA before putting a lot more into the TSP ... or reducing the TSP if necessary to continue maxing the Roth IRA.
That could give you a better balance of taxable and non-taxable income after retirement, with a lower percentage of your retirement income subject to the RMD (Required Minimum Distribution) after age 70. That in turn could conceivably let you choose to withdraw less from the TSP from year to year if it might help lower your total taxes in retirement.
In order to try to make a more educated guess, it would help to know your age, income, when you plan to retire; whether you will have a pension; your top tax brackets for federal (and state if applicable); and whether you get to deduct state income tax on contributions to tax-deferred plans now and/or will have to pay state income tax on withdrawals after retirement.
Got more details?
jimb
Nobody knows for sure how tax laws may change. However when you can afford to max a Roth IRA and contribute that much to the TSP too, and since you are within the income limits to qualify for a Roth IRA, I'd guess chances are your tax brackets are high enough that you'd be better off maxing the Roth IRA before putting a lot more into the TSP ... or reducing the TSP if necessary to continue maxing the Roth IRA.
That could give you a better balance of taxable and non-taxable income after retirement, with a lower percentage of your retirement income subject to the RMD (Required Minimum Distribution) after age 70. That in turn could conceivably let you choose to withdraw less from the TSP from year to year if it might help lower your total taxes in retirement.
In order to try to make a more educated guess, it would help to know your age, income, when you plan to retire; whether you will have a pension; your top tax brackets for federal (and state if applicable); and whether you get to deduct state income tax on contributions to tax-deferred plans now and/or will have to pay state income tax on withdrawals after retirement.
Got more details?
jimb
Last edited by jimb_fromATL on Thu Oct 23, 2014 6:34 pm, edited 1 time in total.
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Re: TSP Contribution
Are you under CSRS, FERS or military retirement system?
Re: TSP Contribution
If you have the TSP, you work for the federal government, so you would probably be better off using a high-deductible health plan and saving in your HSA for medical expenses. The government makes high-deductible plans particularly attractive because the plan contributes to your HSA.peddler12 wrote:I'm planning on using my ROTH IRA for medical and my TSP for daily expenses.
Having both a Roth IRA and a TSP is often a good idea, as long as you can get your entire bond holding into the TSP G fund. You can get funds in your Roth IRA which are about as good as everything else in the TSP, and if you want to hold some funds not in the TSP, the Roth IRA can be used for that purpose. (So can the HSA, once it is large enough to be worth investing.)
- TimeRunner
- Posts: 1938
- Joined: Sat Dec 29, 2012 8:23 pm
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Re: TSP Contribution
God helps those who help themselves. Make sure you take care of yourself.peddler12 wrote:I am a believer who does tithe. Because of that I cannot max out my retirement accounts. Currently I'm maxing out one ROTH IRA and putting 20% of my salary into my TSP account. With the limit raised this year I would like to consider stopping the ROTH contribution and adding the money to the TSP account thus getting the tax deduction. I'm planning on using my ROTH IRA for medical and my TSP for daily expenses. Would this be appropriate to do? What are your thoughts?
One cannot enlighten the unconscious. | "All I need are some tasty waves, a cool buzz, and I'm fine." -Jeff Spicoli
Re: TSP Contribution
You also have the option to contribute to the roth tsp. one other thing, do you have the 5% match? If so, a 15% contribution would really be 20. Keep that in mind.
I would suggest some mix of regular and roth tsp contributions as you deem fit.
I would suggest some mix of regular and roth tsp contributions as you deem fit.
Re: TSP Contribution
See this wiki page to get some insight into the prognostication that one needs to make to decide if Roth or Traditional is better:
http://www.bogleheads.org/wiki/Traditional_versus_Roth
See this wiki page to see how Social Security affects the calculation:
http://www.bogleheads.org/wiki/Taxation ... y_benefits
If it is not obvious which will be better, it is prudent to have some of both.
http://www.bogleheads.org/wiki/Traditional_versus_Roth
See this wiki page to see how Social Security affects the calculation:
http://www.bogleheads.org/wiki/Taxation ... y_benefits
If it is not obvious which will be better, it is prudent to have some of both.
Re: TSP Contribution
Personally I expect that I (and most people) will be in a lower tax bracket at retirement so I would max out your traditional TSP before investing in Roth (that said, I think it's a good idea to have some money in a Roth).