Recommended Investment Plan 2020

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tsipareht
Posts: 13
Joined: Tue Jan 20, 2015 2:51 pm

Recommended Investment Plan 2020

Post by tsipareht » Thu Nov 14, 2019 11:11 pm

I work in San Francisco and I am a high income earner. I am in the Air Force Reserves, and I am trying to figure out which accounts to contribute to for next year.
What I have been doing:

Maxing the 457 through work.
Maxing the TSP through the Air Force Reserves.

My work offers a Defined Contribution Plan ($56k after tax), and any growth in the account can be contributed to a ROTH account (I’m not sure if this is the same as a back door ROTH).

My plans for 2020:
Max out 457 through work
Max out DCP through work
Open ROTH IRA for the DCP returns, so I won’t be taxed
Max out TSP through Air Force Reserves.

Should I contribute to the ROTH TSP?
Am I eligible to contribute to the ROTH TSP if making over $200k/year?

What are your thoughts?

lakpr
Posts: 3095
Joined: Fri Mar 18, 2011 9:59 am

Re: Recommended Investment Plan 2020

Post by lakpr » Fri Nov 15, 2019 12:20 pm

At 200k per year, Roth TSP does not make sense for your particular situation. You may also be either on the border of, or definitely beyond, the eligibility to make a direct Roth IRA contribution.

If I were you, this is what I would do:

1. Since you have access to TSP, if you have any traditional IRA or Rollover IRA (or really any IRA that's not prefixed by "Roth" adjective), into TSP
2. Contribute $6000 to a traditional IRA. This will be non-deductible due to your high income
3. Wait 2 days for the funds to settle, then immediately convert it to Roth IRA.

This is the backdoor Roth technique, described in more details in the wiki. Step 1 is CRUCIAL, you should have $0 in any traditional IRA. One way to make the balance $0 in traditional IRA is to convert everything in there to Roth and pay income taxes. The other way is to roll it over to 401k plan or TSP. TSP plan has really this unicorn benefit of accepting rollovers of pre-tax funds from other sources, EVEN IF you are no longer employed with the Federal government. So don't ever close out the TSP account, leave always at least $5000.

Repeat steps 2 and 3 for every year in the future.

After that ..
1. Max out 457 through work (for $19k into tax-deferred)
2. Max out DCP through work, then roll over to Roth IRA (this is the "Mega Backdoor Roth", not the ordinary backdoor Roth)
3. Max out TSP through AF reserves (for additional $19k into tax-deferred)

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