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Retirement Planning


Whether you are close to federal employee retirement or just starting out in your career, this is the place to share ideas with your federal colleagues on creating a secure financial foundation.


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FSUGuy  
#1 Posted : Sunday, October 07, 2012 11:12:31 AM(UTC)
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Is there any advantage to contribute to both TSP and IRA? From what I gather, the IRA would come into play if contributing the max of $17,000 to TSP.

From November 2010 to February 2011: 120 applications, 4 interviews, 2 job offers. Selected dream job. EOD: April, 2011 Promoted: May 2012.
FlatBroke  
#2 Posted : Sunday, October 07, 2012 3:35:00 PM(UTC)
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Yes there are several advantages. With an IRA you can invest in (or add weight to) asset classes not found in the TSP such as Emerging Markets and REITs. An IRA allows more investing and withdrawal options and with ETFs you are not limited to the 2 InterFund Transfers a Month TSP limit. A Roth IRA is likely a better investing option than the Roth TSP. 
 
Even if you don't max out your TSP account, it's likely a good idea to max out your IRA (after contributing at least 5% to the TSP.)
 
 
Fed1969  
#3 Posted : Sunday, October 07, 2012 9:51:17 PM(UTC)
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Yes.  It gives you more at retirement.  IRAs have a lot more flexibility.  I like the Roth IRA.  You can also do spousal IRAs.
Knight  
#4 Posted : Monday, October 08, 2012 1:06:05 AM(UTC)
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By the time I can put 17k or better in to the TSP/IRA won't I be over the income limit for the IRA?
Okay, I'm back. yes, there is a limit by the IRS since we have the TSP. 56K income for a single person (90k for married) begins limiting your IRA contributions. 66k (110k married) and you are blocked totally from contributing to an IRA.
 
vbgregg  
#5 Posted : Monday, October 08, 2012 2:03:23 AM(UTC)
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Knight wrote:

By the time I can put 17k or better in to the TSP/IRA won't I be over the income limit for the IRA?
Okay, I'm back. yes, there is a limit by the IRS since we have the TSP. 56K income for a single person (90k for married) begins limiting your IRA contributions. 66k (110k married) and you are blocked totally from contributing to an IRA.

I thought the TSP and IRA contributions were completely separate.  I thought one could put up to $17K (or $22K if over age 50) into the TSP each year, plus up to $5K (or $6K if over age 50) into an IRA each year.

I'm pretty sure that's what was said at a retirement planning course I took.

Gregg

FlatBroke  
#6 Posted : Monday, October 08, 2012 2:16:48 AM(UTC)
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Contributing $17k in the TSP will improve chances of making a tax deductible IRA contribution, not prevent it. The 2012 limit is $58 MAGI. If over the limit for a tax deductible IRA you may still be eligible for a Roth IRA and a non tax deductible IRA.
Knight  
#7 Posted : Monday, October 08, 2012 10:32:31 PM(UTC)
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vbgregg. There is an income limit to do both a TSP and traditional IRA. If your AGI is over $68k ($112k if married) and you cannot max both the TSP and Trad IRA. But like Flatbroke said you should be able to do the TSP and a Roth IRA.

 

From the IRS website. http://www.irs.gov/uac/IRS-Announces-Pension-Plan-Limitations-for-2012

Quote:
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.
The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011.  For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. 
FSUGuy  
#8 Posted : Tuesday, October 09, 2012 7:27:20 AM(UTC)
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I currently contribute 15% of my earnings to TSP as a GS12. I'm thinking I can change that to $654 biweekly to reach the TSP maximum of $17,000 (my expenses are very minimal). I'm also going to open up a ROTH IRA in the next couple of weeks, and fund it at about $100 a month.

I'm in my late 20s, so I believe these are shrewd moves that will pay off big time down the road.
I'm planning on buying a home in the next couple of years, and will probably take a TSP loan.
 
Any suggestions on how I can better my financial situation?
From November 2010 to February 2011: 120 applications, 4 interviews, 2 job offers. Selected dream job. EOD: April, 2011 Promoted: May 2012.
edalder  
#9 Posted : Tuesday, October 09, 2012 8:02:38 AM(UTC)
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Yes, do some research on the right investment mix for someone who is your age, given your risk tolerance, whether you are single or married, etc. You have a long way to go before retirment. You probably can afford to be a tad more aggressive than someone who is close to retirment.
Kivi
Knight  
#10 Posted : Tuesday, October 09, 2012 8:15:56 AM(UTC)
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Good for you for starting early. I'm in my 40's and am playing catch up.
martyb  
#11 Posted : Tuesday, October 09, 2012 8:54:37 AM(UTC)
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Knight wrote:

vbgregg. There is an income limit to do both a TSP and traditional IRA. If your AGI is over $68k ($112k if married) and you cannot max both the TSP and Trad IRA. But like Flatbroke said you should be able to do the TSP and a Roth IRA.

 

From the IRS website. http://www.irs.gov/uac/IRS-Announces-Pension-Plan-Limitations-for-2012

Quote:
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.
The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011.  For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. 
 
 
Knight is correct in that you cannot max your TSP and also contribute tax-deferred income to a traditional IRA.  You can do a Roth, though. 
 
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vbgregg  
#12 Posted : Tuesday, October 09, 2012 10:55:52 AM(UTC)
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Yes, sorry, I should have said TSP and Roth IRA.  Thanks for the correction.

Gregg

FlatBroke  
#13 Posted : Tuesday, October 09, 2012 11:53:00 AM(UTC)
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FSUGuy wrote:
I currently contribute 15% of my earnings to TSP as a GS12. I'm thinking I can change that to $654 biweekly to reach the TSP maximum of $17,000 (my expenses are very minimal). I'm also going to open up a ROTH IRA in the next couple of weeks, and fund it at about $100 a month.
 
I'm in my late 20s, so I believe these are shrewd moves that will pay off big time down the road. I'm planning on buying a home in the next couple of years, and will probably take a TSP loan.
 
Any suggestions on how I can better my financial situation?
If $654 is not at least 15% of your income you'll need to raise your contribution amount higher to get to $17k this year. ($654 a pay period will work for next year.) Were you thinking about bumping up your contribution for the last 5 pay periods of this year?
 
You can invest $5,000 in your 2012 Roth IRA and have until Apr 15 2013 to do so. You may wish to increase your Roth IRA from $100 a month to about $1,000 a month so you max out your 2012 Roth IRA. You could lower your TSP contribution for the first part of next year until the Roth IRA is done and then increase your TSP contribution. Do you know what mutual fund you're going to invest in with your Roth IRA?
 
If your home purchase is only a few years away, you want to save as much income as you can. You could use the contributions from the Roth IRA and a TSP loan but I'm guessing you'll need more money for the house down payment. So save as much as your income as possible in a taxable account and invest in a relatively safe investment since you must preserve the capital.
 
How is your current TSP account invested? L2040?
 
You may wish to ask your question on the Bogleheads.org site.
FSUGuy  
#14 Posted : Wednesday, October 10, 2012 1:49:23 AM(UTC)
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^ I don't have THAT much money. $654 biweekly to TSP is a HUGE commitment. I haven't pulled the trigger just yet but I believe it's something I can do. For the IRA, all I can do realistically do is just the $100 monthly. That's about all I can afford right now until I make some lifestyle changes. I have not made any decisions where to invest the IRA money yet to say that I'm risk tolerant (When I was in the private sector, I lost over 60 percent of my 401k in 2008, it hurt but it's still the way to go since I have many years to retirement)   Right now TSP is 20% G, 20% F, 20% C and so on. I might reduce the G and F and add L2040 to the mix.
 
Thanks for the website. I'll check it out.
 
Quote:
If your home purchase is only a few years away, you want to save as much income as you can. You could use the contributions from the Roth IRA and a TSP loan but I'm guessing you'll need more money for the house down payment. So save as much as your income as possible in a taxable account and invest in a relatively safe investment since you must preserve the capital.
 
I don't understand this part fully. Part of the reason I'm investing so heavily in TSP is so I will have a nice amount of money I can use to supplement the down payment when the time comes so my mortgage payments will be lower. What do you mean by a taxable account?
FSUGuy2012-10-10 09:55:51
From November 2010 to February 2011: 120 applications, 4 interviews, 2 job offers. Selected dream job. EOD: April, 2011 Promoted: May 2012.
Skippy134  
#15 Posted : Wednesday, October 10, 2012 2:00:34 AM(UTC)
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You have to repay the TSP loan, with interest.  Personally I would hesitate to touch the TSP and instead save your money outside of that for your down payment.  Interest rates on home loans are amazingly low right now.

FSUGuy  
#16 Posted : Wednesday, October 10, 2012 3:54:41 AM(UTC)
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^ true, but the interest I pay is to myself. Plus the terms are much more flexible than a mortgage since they can be modified with a mouse click. I've read the argument about TSP loans: losing out in possible gains and repaying pre-tax money with after-tax dollars. Additionally, I would have to reduce my TSP contribution in favor of contributing to a savings account for a down payment.

 

Here is an interesting analysis: Is it better to borrow at 1.35% from TSP for a real estate loan than to borrow at 3.00% from a bank with a mortgage, with the interest being tax deductible. A third option would be to open a savings account at .5% interest to save up for a down payment by reducing TSP contributions by that same amount. It would be interesting if someone built a spreadsheet so assumptions can be modified for individual circumstances.

 

I don't know the answer Embarrassed Is anyone really good with Excel?

From November 2010 to February 2011: 120 applications, 4 interviews, 2 job offers. Selected dream job. EOD: April, 2011 Promoted: May 2012.
Knight  
#17 Posted : Wednesday, October 10, 2012 6:19:16 AM(UTC)
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Are you a veteran? Don't forget the VA Home Loan service. Less down payment needed. Also look into making your first "home" a duplex or a fourplex. Rent out the other parts and eventually move into the real home you want. I did that 15 years ago and have 5 rentals now. I'm hoping they will be part of my retirement plan. Right now they are a bit of a drain but when I am 65 they should be paid off.
Skippy134  
#18 Posted : Wednesday, October 10, 2012 8:54:05 AM(UTC)
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All I can way is my wife, the CPA, would recommend against it.  But hey, you went to Fresno State University so you will figure it out!!  Smile

martyb  
#19 Posted : Wednesday, October 10, 2012 11:14:03 AM(UTC)
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Skippy134 wrote:
All I can way is my wife, the CPA, would recommend against it.  But hey, you went to Fresno State University so you will figure it out!!  Smile

 
 
LOL.....I'd recommend against it too, but whada I know?  I only went to Community College of the Air Force! Wink
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Skippy134  
#20 Posted : Wednesday, October 10, 2012 7:28:13 PM(UTC)
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martyb wrote:

LOL.....I'd recommend against it too, but whada I know?  I only went to Community College of the Air Force! Wink


I went to CCAF too!  But none of the credits transferred...
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