Take out money from taxable brokerage to invest into TSP?

[Atwater28]

Hello boggleheads was just curious to see if this makes any sense. I am 40 years old federal employee making around $70,000 a year, debt free, living in California. I have $200,000 in tsp (federal workers retirement account) and about $600,000 in taxable brokerage. Would it make sense to take money out of my taxable brokerage account and use the amount I took out and invest that amount into my TSP account or am I better off just keeping them separate? Thank you

[wolf359]

Hello boggleheads was just curious to see if this makes any sense. I am 40 years old federal employee making around $70,000 a year, debt free, living in California. I have $200,000 in tsp (federal workers retirement account) and about $600,000 in taxable brokerage. Would it make sense to take money out of my taxable brokerage account and use the amount I took out and invest that amount into my TSP account or am I better off just keeping them separate? Thank you

My understanding is that you can only contribute to the TSP through payroll deductions. You can't add your taxable brokerage money directly. However, if you can't afford to contribute the maximum to the TSP, you could do so anyway, and then pull from your taxable brokerage for money to live from. In that way, you can indirectly use your taxable account to enable a higher contribution to the TSP.

[wander]

TSP is another the name of 401k. How can you get money from taxable account to a TSP or a 401k?

[DCChak]

First, you probably want to familiarize yourself with the Boglehead Prioritizing Investments Wiki - https://www.bogleheads.org/wiki/Priorit ... nvestments

You are limited in the amount you can put into the TSP annually. For your age, the max elective deferral amount (through your paycheck) for 2021 is $19,500, and the max for 2022 will be $20,500. https://themilitarywallet.com/thrift-sa ... 20and%20up.)

Most Bogleheads would advise first, if possible, to contribute enough through elective deferrals to get the full matching funds. That would be 5%. See the table here - https://themilitarywallet.com/thrift-sa ... 20and%20up.)

I have not made contributions above the elective deferral route, but it appears there is also an annual addition limit of $58,000 for 2021 and $61,000 for 2022. I'm not sure what qualifications must be met to make additional account contributions (possibly from your taxable brokerage account?) through this window.

At your income level, you should consider making your TSP contributions on a Roth basis instead of a traditional basis.

[aristotelian]

You must contribute to an employer plan directly through payroll contributions from your employer. What you can do is increase the amount up to your annual maximum ($19,500). If that causes you to have negative cash flow you can live off income or gains from your brokerage account.

[Atwater28]

Hello boggleheads was just curious to see if this makes any sense. I am 40 years old federal employee making around $70,000 a year, debt free, living in California. I have $200,000 in tsp (federal workers retirement account) and about $600,000 in taxable brokerage. Would it make sense to take money out of my taxable brokerage account and use the amount I took out and invest that amount into my TSP account or am I better off just keeping them separate? Thank you

My understanding is that you can only contribute to the TSP through payroll deductions. You can't add your taxable brokerage money directly. However, if you can't afford to contribute the maximum to the TSP, you could do so anyway, and then pull from your taxable brokerage for money to live from. In that way, you can indirectly use your taxable account to enable a higher contribution to the TSP.

That was my thinking was to pull from my taxable brokerage account for money to live on while I contribute the max to tsp. Just wanted to see if that made sense or better just to leave it alone.

[Swee'pea]

Hello boggleheads was just curious to see if this makes any sense. I am 40 years old federal employee making around $70,000 a year, debt free, living in California. I have $200,000 in tsp (federal workers retirement account) and about $600,000 in taxable brokerage. Would it make sense to take money out of my taxable brokerage account and use the amount I took out and invest that amount into my TSP account or am I better off just keeping them separate? Thank you

My understanding is that you can only contribute to the TSP through payroll deductions. You can't add your taxable brokerage money directly. However, if you can't afford to contribute the maximum to the TSP, you could do so anyway, and then pull from your taxable brokerage for money to live from. In that way, you can indirectly use your taxable account to enable a higher contribution to the TSP.

That was my thinking was to pull from my taxable brokerage account for money to live on while I contribute the max to tsp. Just wanted to see if that made sense or better just to leave it alone.

Yes this does make sense. Also, if you are not already contributing to an IRA, you can do this directly from your taxable funds. If you are happy with the brokerage that holds your taxable account you should be able to set up your IRA with them. Your annual contribution can be a direct transfer between accounts. Your choice of a Roth or traditional IRA depends on your personal circumstances. I am retired and happy to have a healthy Roth IRA to augment my TSP savings. YMMV

[InvestorGirl92]

One important detail that i noticed is that the TSP does accept rollovers from traditional IRAs, so if you want that money to go into your tsp really badly, you could start putting it into a traditional IRA and then roll it over into your TSP. They do not accept roth IRA rollovers though, so do be careful there.
... i suppose this also depends on how much and how quickly you want to move the money over, but it is an option

[AnnetteLouisan]

I asked about the annual additions limit once. I think that is for matching and maybe the catch up contribution. I think you can add more from payroll but it won’t be tax deferred. However I am not sure if you can add more.

Speaking of, is there ever a reason NOT to do the full catch up if you are in a high bracket and can easily afford it? It’s not matched but I do it for the tax deferral and asset protection.

[123]

If you hold equities/stocks in a 401k account, like a TSP, you can be increasing your taxes needlessly. The reason is that if you hold equities/stocks in a taxable account you get the potential advantages of capital gains tax treatment for any growth. If such investments are held in a tax-deferred account all the money is taxed as regular income when you take a distribution.

Ideally you should have a mix of taxable and tax-deferred investments.

That said if you have a Roth option that is the ultimate vehicle to use for equity/stock holdings. But with a Roth you get no benefit from any losses you may have.

[tashnewbie]

I think it makes sense to set your deferral percentage such that you max the TSP in 2022 (max deferral amount will be $20,500 for someone OP's age).

Then if your paychecks become too small to pay your regular bills, then use money in taxable to pay them.

I'd do the same to get money into an IRA (Roth IRA probably makes sense for you).

[AnnetteLouisan]

If you hold equities/stocks in a 401k account, like a TSP, you can be increasing your taxes needlessly. The reason is that if you hold equities/stocks in a taxable account you get the potential advantages of capital gains tax treatment for any growth. If such investments are held in a tax-deferred account all the money is taxed as regular income when you take a distribution.

Ideally you should have a mix of taxable and tax-deferred investments.

That said if you have a Roth option that is the ultimate vehicle to use for equity/stock holdings. But with a Roth you get no benefit from any losses you may have.

Ok so should we only hold fixed income in our 401ks then? And total market in our IRAs and taxable brokerage? That might make my life easier since I’m mostly that way already. I’ve got to just get over myself and open a taxable brokerage and start w like 20k a year, DCA-ing in.

[dukeblue219]

If you hold equities/stocks in a 401k account, like a TSP, you can be increasing your taxes needlessly. The reason is that if you hold equities/stocks in a taxable account you get the potential advantages of capital gains tax treatment for any growth.

I'd rather have TSP dollars taxed once at withdrawal than taxed on upfront + capital gains.

I would never prioritize equities in a taxable account over tax deferred unless I needed them sooner than retirement.

[junior]

If you hold equities/stocks in a 401k account, like a TSP, you can be increasing your taxes needlessly. The reason is that if you hold equities/stocks in a taxable account you get the potential advantages of capital gains tax treatment for any growth.

This is a bold claim that has to be wrong. Money in a Roth IRA or Roth TSP will have zero taxes on any growth, and the consensus is a non-Roth 401k or TSP is just as good.

[retiredjg]

Hello boggleheads was just curious to see if this makes any sense. I am 40 years old federal employee making around $70,000 a year, debt free, living in California. I have $200,000 in tsp (federal workers retirement account) and about $600,000 in taxable brokerage. Would it make sense to take money out of my taxable brokerage account and use the amount I took out and invest that amount into my TSP account or am I better off just keeping them separate? Thank you

The conventional answer to this is yes, it makes sense. However, I'm going to suggest that maybe it is not such a great idea if you intend to stay a fed long enough to get a pension.

A person with a pension and SS is not going to need a great deal of tax-deferred money in retirement. Some, yes. A lot? No. You also may not fall into a lower tax bracket in retirement, at least not if you are single. Married? You might or might not fall into a lower tax bracket in retirement depending on a lot of things.

A better answer to your question could be given if you told us how much you will contribute to the TSP if you don't take money out of taxable. Are you single or married filing jointly? If MFJ, what is your tax bracket? Are you likely to stay in federal employment? Are you likely to retire before 60?

With $200k in the TSP already, if you continue to contribute some to the TSP (not the max) and if you work another 20 or so years....that may be plenty to put into the TSP. There may be no reason to raid your taxable account.

All that said, if you are considering living off taxable so you can contribute some to Roth TSP, that is a different question and a different analysis.

[wolf359]

Hello boggleheads was just curious to see if this makes any sense. I am 40 years old federal employee making around $70,000 a year, debt free, living in California. I have $200,000 in tsp (federal workers retirement account) and about $600,000 in taxable brokerage. Would it make sense to take money out of my taxable brokerage account and use the amount I took out and invest that amount into my TSP account or am I better off just keeping them separate? Thank you

My understanding is that you can only contribute to the TSP through payroll deductions. You can't add your taxable brokerage money directly. However, if you can't afford to contribute the maximum to the TSP, you could do so anyway, and then pull from your taxable brokerage for money to live from. In that way, you can indirectly use your taxable account to enable a higher contribution to the TSP.

That was my thinking was to pull from my taxable brokerage account for money to live on while I contribute the max to tsp. Just wanted to see if that made sense or better just to leave it alone.

Where did the $600K in taxable brokerage come from? It sounds like you have a high savings rate already.

If so, max out your TSP contributions for a month or two and find out what the actual impact on your take-home pay is. I'm assuming that you're already contributing to the TSP. The difference between what you're contributing now and what it takes to get to the max may not be as great as you think. The reason is that every dollar you contribute to the traditional TSP is deductible. If you maximize your contributions, your tax rate will drop, and the result is that less money is withheld to pay taxes. Every additional $1 that you add to your TSP contribution DOES NOT reduce your net pay by $1.

In other words, you might actually be able to afford to maximize your TSP without having to pull from the taxable account. Try it for a month and see how it goes.

[grabiner]

Hello boggleheads was just curious to see if this makes any sense. I am 40 years old federal employee making around $70,000 a year, debt free, living in California. I have $200,000 in tsp (federal workers retirement account) and about $600,000 in taxable brokerage. Would it make sense to take money out of my taxable brokerage account and use the amount I took out and invest that amount into my TSP account or am I better off just keeping them separate? Thank you

The conventional answer to this is yes, it makes sense. However, I'm going to suggest that maybe it is not such a great idea if you intend to stay a fed long enough to get a pension.

A person with a pension and SS is not going to need a great deal of tax-deferred money in retirement. Some, yes. A lot? No. You also may not fall into a lower tax bracket in retirement, at least not if you are single. Married? You might or might not fall into a lower tax bracket in retirement depending on a lot of things.

It's still a good deal. You also have the option of contributing to the Roth TSP instead, which will make all future gains tax-free. Even if the traditional TSP happens not to be a good deal given your tax situation, it's better to have money growing tax-free than taxable (especially in CA, where the high state tax rate increases the cost of continuing to hold the taxable investment).

However, at $70K income, it's likely that you would prefer the traditional TSP, or a mix of traditional and Roth TSP which puts your total taxable income at the top of the 12% bracket. If you go into the 22% bracket, every additional dollar you contribute to Roth rather than traditional is taxed at 31.3% including CA tax.

[jbinpa59]

[/quote]
However, at $70K income, it's likely that you would prefer the traditional TSP, or a mix of traditional and Roth TSP which puts your total taxable income at the top of the 12% bracket. If you go into the 22% bracket, every additional dollar you contribute to Roth rather than traditional is taxed at 31.3% including CA tax.
[/quote] quote edited for length

+1 to above
my plan in your position would be to put enough into Traditional TSP to get down to top of 12% federal bracket plus a bit more to leave room for 0% LTCG on cap gains in taxable
since the 0% LTCG cutoff is a bit lower than the 12% top out

then contribute to Roth TSP to fill the remaining TSP room drawing from taxable to subsidize living expenses if needed

after that you could contribute to a Roth IRA to shift more out of taxable if desired.
(which you could do no matter what you do with TSP)

this presumes you are not planing on a major purchase where those taxable funds would be needed
and that you plan to remain in Ca in retirement