Can I max out TSP and do a traditional IRA?

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TexMexIndex
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Joined: Wed Mar 28, 2018 12:38 pm

Can I max out TSP and do a traditional IRA?

Post by TexMexIndex » Wed May 23, 2018 4:46 am

I plan on reaching the 18,500 contribution limit for my TSP this year, and am wondering about whether to do a Roth or a Traditional IRA.

My salary is 72K taxable. I get tax free cost of living, housing, utilities, but that doesn't come into play tax wise.

1. If I am married filing jointly, can I do a 5,500 Traditional IRA? Can I do two?
2. I prefer funding Roth IRAs, But if I can get my AIG down low enough I think I could hit the savers credit, and get more back
with a traditional IRA.
https://www.irs.gov/retirement-plans/pl ... ers-credit
Am I thinking of this right, if I make 72k, the 18.5k to TSP takes me down to 53.5 AGI, IRAs could take me down to 42.5k AGI?

dbltrbl
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Re: Can I max out TSP and do a traditional IRA?

Post by dbltrbl » Wed May 23, 2018 4:57 am

Yes. You can do traditional IRA for you and your spouse if combined income is as stated by you.

TexMexIndex
Posts: 30
Joined: Wed Mar 28, 2018 12:38 pm

Re: Can I max out TSP and do a traditional IRA?

Post by TexMexIndex » Wed May 23, 2018 5:27 am

Oh and one detail spouse isn't working currently. Does that change anything?

motorcyclesarecool
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Re: Can I max out TSP and do a traditional IRA?

Post by motorcyclesarecool » Wed May 23, 2018 5:47 am

Look up “Spousal IRA”.
Also, if you go Traditional IRA, you can roll it to the TSP above and beyond the $18,500 and enjoy the low costs and other benefits of the TSP.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

rkhusky
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Re: Can I max out TSP and do a traditional IRA?

Post by rkhusky » Wed May 23, 2018 6:40 am

Via the Savers Credit, you can get back 10% of each of your retirement contributions (max of $2K each) if your AGI is between $41K and $63K. So, in terms of the Savers Credit, you will get back $400 whether you use Traditional or Roth IRA.

retiredjg
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Re: Can I max out TSP and do a traditional IRA?

Post by retiredjg » Wed May 23, 2018 7:18 am

I agree with rkhusky that you could deduct two traditional IRAs, but it does not do you any good. That only gets you down to $42.5k which is still in the 10% tier. I don't see a way to get your AGI down into the 20% tier.

I get a different number from $400 though. I get $2,900.

I'd use Roth IRA for each of you if you are able to save that much money.

rkhusky
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Re: Can I max out TSP and do a traditional IRA?

Post by rkhusky » Wed May 23, 2018 9:27 am

retiredjg wrote:
Wed May 23, 2018 7:18 am
I get a different number from $400 though. I get $2,900.
I admit I've never file form 8880 before, but the calculations look fairly easy. Line 6 is the smaller of contributions or $2000 for each ($2000 each for OP). Line 7 adds the two together ($4000 for OP). Line 9 is the percent (0.1 for the OP). Line 10 multiplies Line 7 and Line 9 ($400). I did this quickly, so could have missed some detail.

The IRS description of the credit is ambiguous, as it is not clear whether the $2000 maximum applies to the contribution or the credit. The form seems to indicate that it applies to the contribution.
The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly)

terran
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Re: Can I max out TSP and do a traditional IRA?

Post by terran » Wed May 23, 2018 9:43 am

rkhusky wrote:
Wed May 23, 2018 9:27 am
retiredjg wrote:
Wed May 23, 2018 7:18 am
I get a different number from $400 though. I get $2,900.
I admit I've never file form 8880 before, but the calculations look fairly easy. Line 6 is the smaller of contributions or $2000 for each ($2000 each for OP). Line 7 adds the two together ($4000 for OP). Line 9 is the percent (0.1 for the OP). Line 10 multiplies Line 7 and Line 9 ($400). I did this quickly, so could have missed some detail.

The IRS description of the credit is ambiguous, as it is not clear whether the $2000 maximum applies to the contribution or the credit. The form seems to indicate that it applies to the contribution.
The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly)
You're right. It's 10% of $2000 in contributions from each spouse.

TexMexIndex, is your salary reduced by anything else, or will your AGI be $72k minus whatever you defer in your TSP and IRA? As others have said, those will still leave you in the 10% savers credit, but you're pretty close to the 20% and 50% credits, so if you have health insurance taken out of your paycheck or have access to an HSA or anything like that you might make it.

Do note that the credit is non-refundable, so you can't actually get the full credit at the 50% level because getting below the AGI limit makes you total tax liability less than the credit. Still, a $0 tax bill is pretty cool.

retiredjg
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Re: Can I max out TSP and do a traditional IRA?

Post by retiredjg » Wed May 23, 2018 1:55 pm

Ah, I see now.
  • The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A). Use the chart below to calculate your credit.
I thought it meant the credit was up to 10% of the contributions. But no, up to $2,000 means $2,000 in contributions.

Thank you for bringing this to my attention. (Some little bells going off.... have I learned this before????)


As for anything else that would reduce your AGI, if you are paying health care premiums out of your paycheck, I believe that will reduce your AGI and maybe would get you into the 20% tier.

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BL
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Re: Can I max out TSP and do a traditional IRA?

Post by BL » Sun May 27, 2018 11:46 am

Since you are already saving in the TSP I would be sure to save in spouse IRA first.

Do you have kids? That credit would happen first, I believe. Do a tax program when available to see how it works out. Hard to say what your taxes would be.

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