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TSP

Administered by the Federal Retirement Thrift Investment Board, this defined contribution plan for federal employees has roughly 4,614,874 participants, and over $358 billion in assets under management. Ask your TSP questions and post related topics here.

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colty31  
#1 Posted : Wednesday, July 24, 2019 6:47:46 PM(UTC)
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TSP & IRA V. TSP ONLY

What are the main advantages and disadvantages of these two methods?

From my understanding, both accounts would work almost the same way. Each are an investment account that can be invested in various stocks/bonds. I understand that if you are MAXIMIZING your yearly TSP contribution, then it could be beneficial to have an additional IRA (or HSA) account.

BUT,

If you're not maximizing your TSP, is there any reason to have a separate IRA? Seems like it would make more sense to just keep everything in the TSP and increase your allocation % when you can.

Edited by user Wednesday, July 24, 2019 6:49:00 PM(UTC)  | Reason: Not specified

Rikaku  
#2 Posted : Thursday, July 25, 2019 5:20:40 AM(UTC)

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The benefit of opening an IRA, regardless if you've maxed TSP or not, is that IRA contributions (but not gains) can be withdrawn at anytime penalty free thus giving you greater control of your money. Plus, an IRA with an investment firm would have a lot more investment options than TSP's selection.

Me personally, my order of preference is max TSP first, max IRA second, then contribute to a taxable brokerage account.
TheRealOrange  
#3 Posted : Thursday, July 25, 2019 7:19:41 AM(UTC)
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Originally Posted by: Rikaku Go to Quoted Post
The benefit of opening an IRA, regardless if you've maxed TSP or not, is that IRA contributions (but not gains) can be withdrawn at anytime penalty free thus giving you greater control of your money. Plus, an IRA with an investment firm would have a lot more investment options than TSP's selection.

Me personally, my order of preference is max TSP first, max IRA second, then contribute to a taxable brokerage account.

Your order of preference makes complete sense, but I don't think your comment about IRA withdrawals is necessarily correct. For Roth IRAs, you can withdraw your regular contributions (not the earnings) at any time and at any age with no penalty or tax because your Roth IRA contributions are made with after-tax dollars. For a traditional IRA, before you can receive distributions before age 59 1/2 without paying the 10% early withdrawal penalty, one of the following conditions must apply:

* You have unreimbursed medical expenses that are more than 10% of your 2019 AGI.
* The distributions aren’t more than the cost of your medical insurance due to a period of unemployment.
* You’re totally and permanently disabled.
* You’re the beneficiary of a deceased IRA owner.
* The distributions aren’t more than your qualified higher education expenses.
* You use the distributions to buy, build, or rebuild a first home.
* The distribution is due to an IRS levy of the qualified plan.
* The distribution is a qualified reservist distribution.
* You’re receiving distributions in the form of an annuity, in which case these conditions must apply:
* The distributions must be part of a series of substantially equal periodic payments over your life. They could also be over the joint lives of you and your beneficiary. You’ll need to use a distribution method the IRS approves, and you must take at least one distribution annually.
* You must continue making the withdrawals for at least five years and until you’re at least age 59 1/2.
Rikaku  
#4 Posted : Thursday, July 25, 2019 8:44:05 AM(UTC)

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Originally Posted by: TheRealOrange Go to Quoted Post
Originally Posted by: Rikaku Go to Quoted Post
The benefit of opening an IRA, regardless if you've maxed TSP or not, is that IRA contributions (but not gains) can be withdrawn at anytime penalty free thus giving you greater control of your money. Plus, an IRA with an investment firm would have a lot more investment options than TSP's selection.

Me personally, my order of preference is max TSP first, max IRA second, then contribute to a taxable brokerage account.

Your order of preference makes complete sense, but I don't think your comment about IRA withdrawals is necessarily correct. For Roth IRAs, you can withdraw your regular contributions (not the earnings) at any time and at any age with no penalty or tax because your Roth IRA contributions are made with after-tax dollars. For a traditional IRA, before you can receive distributions before age 59 1/2 without paying the 10% early withdrawal penalty, one of the following conditions must apply:

* You have unreimbursed medical expenses that are more than 10% of your 2019 AGI.
* The distributions aren’t more than the cost of your medical insurance due to a period of unemployment.
* You’re totally and permanently disabled.
* You’re the beneficiary of a deceased IRA owner.
* The distributions aren’t more than your qualified higher education expenses.
* You use the distributions to buy, build, or rebuild a first home.
* The distribution is due to an IRS levy of the qualified plan.
* The distribution is a qualified reservist distribution.
* You’re receiving distributions in the form of an annuity, in which case these conditions must apply:
* The distributions must be part of a series of substantially equal periodic payments over your life. They could also be over the joint lives of you and your beneficiary. You’ll need to use a distribution method the IRS approves, and you must take at least one distribution annually.
* You must continue making the withdrawals for at least five years and until you’re at least age 59 1/2.



You are correct. I was only thinking of Roth IRA, but for a traditional IRA those rules on withdrawals do apply.

Roger.D  
#5 Posted : Friday, July 26, 2019 8:16:43 PM(UTC)
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Depending on the fund/fund family, the expense ratio is getting to be the same or less than the TSP expense ratio.


Prior to this/next year, the withdrawal options for the TSP were not user friendly. Advantage to the IRA's. After 2019 the playing field looks to be even.
f3d3mploy33  
#6 Posted : Thursday, January 16, 2020 4:31:01 PM(UTC)

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Asking along the same lines, I have maxed out on my TSP contribution and not age eligible for the $5k age 50 catch up.

Can I do a back-door ROTH IRA and max that out at $6k?

Does anyone else do this? Any pitfalls I should be made aware of ? I have no other Traditional IRA accounts but I do a ROTH IRA that I opened up six or seven years ago when I was income eligible.
Roger.D  
#7 Posted : Thursday, January 16, 2020 6:14:18 PM(UTC)
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Originally Posted by: f3d3mploy33 Go to Quoted Post
Asking along the same lines, I have maxed out on my TSP contribution and not age eligible for the $5k age 50 catch up.

Can I do a back-door ROTH IRA and max that out at $6k?

Does anyone else do this? Any pitfalls I should be made aware of ? I have no other Traditional IRA accounts but I do a ROTH IRA that I opened up six or seven years ago when I was income eligible.


Are you currently ineligible for a Roth IRA?

Edited by user Thursday, January 16, 2020 6:16:22 PM(UTC)  | Reason: Not specified

f3d3mploy33  
#8 Posted : Thursday, January 16, 2020 6:22:25 PM(UTC)

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Yes over income for direct contribution to ROTH IRA
GWPDA  
#9 Posted : Thursday, January 16, 2020 7:05:44 PM(UTC)
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It is quite possible to bulk up your TSP outside the rules of tax-defrayal. Yes, the amount you can contribute is 18k per year that will be tax exempt until you draw it - but you certainly can contribute much more and take the tax hit. This is something to consider if you're coming up toward retirement and want to pump up the TSP. You're not going to lose anything except the tax defrayal.
Rikaku  
#10 Posted : Saturday, January 25, 2020 5:40:47 AM(UTC)

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Originally Posted by: GWPDA Go to Quoted Post
It is quite possible to bulk up your TSP outside the rules of tax-defrayal. Yes, the amount you can contribute is 18k per year that will be tax exempt until you draw it - but you certainly can contribute much more and take the tax hit. This is something to consider if you're coming up toward retirement and want to pump up the TSP. You're not going to lose anything except the tax defrayal.


Can you expound on this because I always thought it was not possible to over contribute to TSP and once you hit the annual limit ($19,500 in 2020) for a year you cannot have any more withdrawn from your paycheck.

Also, even if one could over contribute, it makes 0 sense to do so. If the lose of tax deferral is true as you say, you will be hit twice: going in is taxed, and when the money is withdrawn the entire amount is taxed as income, not just the capital gain.

Edited by user Saturday, January 25, 2020 5:42:45 AM(UTC)  | Reason: Not specified

GWPDA  
#11 Posted : Tuesday, January 28, 2020 4:27:17 PM(UTC)
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The other method is to fill both a TSP and an IRA. The IRA gives you an extra $7,000 or so which you can then flip over to the TSP without exceeding the 25,500 TSP maximum.
edalder  
#12 Posted : Saturday, February 8, 2020 12:49:43 PM(UTC)

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To f3d3mploy33

You can contribute to a nondeductible traditional IRA, to the max, if you like. while working. You can then convert it to a Roth IRA at a later time. The conversion process does involving paying the taxes on any earnings in the traditional IRA. I did this one the last few years of my active employment. (I have been retired for over 5 years at this point.) It is a backdoor way of establishing a Roth IRA if your income does not allow you to open such an account directly.

There is no immediate tax advantage to doing this one since your traditional IRA contributions likely are not tax deductible for you. However, once you convert to a Roth IRA, pay the taxes, etc. any withdrawals you make from your Roth IRA (after age .59.5 years), will be tax free. You also could just leave it alone for your heirs, who, if adult children, would be allowed to liquidate the account over their life expectancies without paying taxes. Rules for a spouse might be a little different. I haven't checked that one out.

Double check with a qualified financial advisor as I have been retired for awhile and rules may have changed since then. I also agree with the advice that you fully fund your TSP first, then directly fund a Roth IRA, if eligible or indirectly fund one, if you like and cannot do it directly, and then invest in taxable accounts, if you have sufficient discretionary income to do so..

There is no way to do this with the TSP. You could have to establish an account with a financial firm, such as Vanguard, Fidelity, Schwab, etc.
Kivi
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