A potpourri of Roth questions

Q: I’ve got three ques­tions regard­ing my Thrift Sav­ings Plan. First, is it ben­e­fi­cial to stop con­tribut­ing to my TSP tar­get fund and start up with Roth TSP? Sec­ond, can I max out both ROTH IRA $5500 and Roth TSP $17,000, with­out any penal­ties? Finally, for how long will the Roth TSP main­tain a $17,500 max contribution?

–Erron, Fort Laud­erdale, Florida

A: I hope the 2013 hol­i­day sea­son is off to a great start for you! It sounds as if you’re focused on build­ing for the future and that’s a “gift” that always puts a smile on my face! So, let’s get right to it.

Tra­di­tional TSP in Life­cy­cle fund  vs.Roth TSP

First, within the TSP you can allo­cate your con­tri­bu­tions to Roth, tra­di­tional or a com­bi­na­tion of the two.  As you prob­a­bly know, you can change your con­tri­bu­tion allo­ca­tion by vis­it­ing myPay. One inter­est­ing note: con­tri­bu­tions to the Roth TSP (for Air Force and Army per­son­nel) are made using a fixed dol­lar amount while con­tri­bu­tions to the tra­di­tional TSP are set up as a per­cent­age of pay. In either case, the invest­ment options remain the same. So, if you like one of the tar­get or life­cy­cle funds as your invest­ment you can use it whether you’re con­tribut­ing to the tra­di­tional or Roth TSP. In fact, even if you use both the tra­di­tional and the Roth, your con­tri­bu­tion to both will be allo­cated accord­ing to your sin­gle con­tri­bu­tion allocation…you can’t con­tribute money in a dif­fer­ent way to the dif­fer­ent plans.

Roth IRA & Roth TSP

As long as you’re eli­gi­ble to con­tribute to a Roth IRA there’s no rea­son why you can’t con­tribute to or even max out both the Roth IRA and the Roth TSP.  Remem­ber, for the Roth IRA there are income lim­its.  In 2013, sin­gle tax­pay­ers are pro­hib­ited from mak­ing any con­tri­bu­tion to a Roth IRA if their MAGI exceeds $127,000 ($188,000, for joint fil­ers). For 2014 those lim­its increase to $129,000 ($191,000 joint). There are no income lim­its for the Roth TSP.

Con­tri­bu­tion limits

Finally, the con­tri­bu­tion lim­its for both the Roth TSP and Roth IRA (and all other retire­ment plans) are adjusted for infla­tion. In 2014, the lim­its are sched­uled to remain the same, but each fall the IRS announces the lim­its for the upcom­ing year. 

Keep up the good work!

 

JJ

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Scott Halliwell and JJ Montanaro are CERTIFIED FINANCIAL PLANNER™ practitioners with USAA Financial Planning Services, one of the USAA family of companies. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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