Author Topic: TSP how to maximize? Roth and contribution limit? FERS employee  (Read 2039 times)

the_fixer

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Wife is accepting a Federal position and will qualify for FERS / TSP.

I have been reading as much as I can about the benefits so we can get her setup and maximizing everything from day one.

So far it looks like the TSP is similar to a 401k and the limits are similar however I keep seeing sites that reference that you are only allowed to put in $18,500 for 2018 (plus catchup contributions if you are old enough) but from the TSP site it shows the same 55K max as a standard 401K.

While I understand that the employee pre-tax contribution for a standard 401K is $18,500 for 2018 I am allowed at my work to contribute up to the total of the 55K limit 18,500 pretax + 1% company match + after tax to reach 55K limit.

Looking at the form to start the TSP it has the following options.
Traditional (Pre-Tax) Contributions
Roth (After-Tax) Contributions
https://www.tsp.gov/PDF/formspubs/tsp-1.pdf

And from the TSP site it shows the 55K max
https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/contributionLimits.html

If this were a normal 401K I would set it up to max out the pre-tax over the entire year to reduce our taxable income, get the full match and then put in additional money into the Roth after tax account up to the allowable max of 55K in 2018.

Am I missing something with how the TSP works?
Do they only allow you to put in $18,500 total?

Hoping to put in a big chunk of money into a Roth every year if the TSP will allow it.

Would also love to hear any other suggestions for optimizing / maximizing federal benefits.

wenchsenior

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #1 on: April 29, 2018, 01:31:28 PM »
I'd never seen that info about the 55K max for the TSP.  I can't actually figure out how that would occur, unless you can choose to have bonuses deposited directly into the TSP?  Honestly, I would think that would occur only under very rare circumstances, and I can't envision them, but perhaps someone else with experience with TSP could.

From our experience and AFAIK, TSP works the same as a regular 401k through an employer.  The total employee contribution per year is 18500 + 6000 catch up if you are of age.  This total applies to the regular and Roth options combined (I know this because I misunderstood it the first year, thought that DH could contribute an ADDITIONAL $6500 into the Roth option on top of the tax exempt option, and therefore I screwed us out of several thousand dollars in matching contributions for that year. DOH!)

ETA: To clarify, the agency automatically cuts off automatic contributions into DH's TSP account when we reach the limit of 24,500. Normally we set it up for a deposit for every pay period, so as to get the match, which otherwise will not occur.

« Last Edit: April 29, 2018, 01:35:28 PM by wenchsenior »

wenchsenior

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #2 on: April 29, 2018, 01:40:17 PM »
Now that I'm googling about the 55K limit, you have me curious as to whether we could actually get HR to allow contributions after hitting the regular and Roth limits.  I wonder if only some agencies or positions have this as an option?

MDM

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #3 on: April 29, 2018, 01:44:20 PM »
Am I missing something with how the TSP works?
Do they only allow you to put in $18,500 total?
Perhaps the $55K is applicable only to those receiving non-taxable combat pay.  For everyone else, the $18.5K limit is the pertinent one.

the_fixer

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #4 on: April 29, 2018, 02:54:15 PM »
Those are the documents we were linked to by the agency, she is not military or uniformed service just a nerd AKA science and engineering.

-----

Not that it applies but the way it works for me at my non federal government job

I put in my 18,500 pre-tax
Company matches x%
Then I add after tax dollars to get to the 55k

The way the TSP documents read it looks almost like doing a mega backdoor Roth without having to rollover.

If that is the case I am really surprised that no one has covered it as I can not find it discussed anywhere and that would be a huge benefit being able to Superfund a Roth.

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MDM

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #5 on: April 29, 2018, 03:00:39 PM »
Based on TSP participants cannot use the mega-backdoor Roth, right? - Bogleheads.org, it appears the combat pay route is (at   least, was 2.5 years ago) the only way. 

wenchsenior

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #6 on: April 29, 2018, 07:24:38 PM »
Based on TSP participants cannot use the mega-backdoor Roth, right? - Bogleheads.org, it appears the combat pay route is (at   least, was 2.5 years ago) the only way.

Yeah, my quick sleuthing seems to show the same.  But I'd advise the OP to definitely follow up with HR. 

the_fixer

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #7 on: April 29, 2018, 07:44:20 PM »
I doubt my wife will bother with it, she is about as hands off when it comes to money so unless I can tell her do XYZ then it will not get done.

Only thing I can think is that it is like a Roth 401k with different tax treatment. In a normal Roth 401k you contribute after tax but pay taxes on the gains when you take it out where the TSP says you contribute after tax dollars but do not pay tax on the gains.

That or they simply do not allow employee contributions beyond the 18,500

Not the end of the world, I can put 35,000 after tax into a Mega @ my work this year was just wanting to ballance our paychecks a little as I currently only get around $200 every 2 weeks due to the amount we are putting away.

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« Last Edit: April 29, 2018, 09:04:21 PM by the_fixer »

abhe8

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #8 on: April 29, 2018, 07:58:46 PM »
So can you fund the tsp with $18500 Roth?

abhe8

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #9 on: April 29, 2018, 08:04:43 PM »



ETA: To clarify, the agency automatically cuts off automatic contributions into DH's TSP account when we reach the limit of 24,500. Normally we set it up for a deposit for every pay period, so as to get the match, which otherwise will not occur.

So I'm confused... How is the limit 24,500?

MDM

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #10 on: April 29, 2018, 08:54:04 PM »
ETA: To clarify, the agency automatically cuts off automatic contributions into DH's TSP account when we reach the limit of 24,500. Normally we set it up for a deposit for every pay period, so as to get the match, which otherwise will not occur.
So I'm confused... How is the limit 24,500?
For anyone age 50 or older.

the_fixer

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #11 on: April 29, 2018, 08:54:41 PM »



ETA: To clarify, the agency automatically cuts off automatic contributions into DH's TSP account when we reach the limit of 24,500. Normally we set it up for a deposit for every pay period, so as to get the match, which otherwise will not occur.

So I'm confused... How is the limit 24,500?
Catch up contributions due to being over 50 I would assume.

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MDM

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #12 on: April 29, 2018, 09:02:48 PM »
In a normal Roth 401k you contribute after tax but pay interest on the gains when you take it out....
Not if you wait until after age 59.5.  In that case, all withdrawals are likely tax free.  See Retirement Plans FAQs on Designated Roth Accounts | Internal Revenue Service.

the_fixer

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #13 on: April 29, 2018, 09:48:49 PM »
Sorry about that you are right not sure what I was thinking.


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simonsez

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #14 on: April 30, 2018, 07:25:16 AM »
So can you fund the tsp with $18500 Roth?
Yes

All employer matched monies still go to traditional TSP, though in case that matters.

wenchsenior

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #15 on: April 30, 2018, 07:45:25 AM »
So can you fund the tsp with $18500 Roth?
Yes

All employer matched monies still go to traditional TSP, though in case that matters.

Yes, you can fund up to 18500 (+catch up of 6000 if 50+) in any year, and it can be 100% regular, 100% Roth, or any combo of the two.

ematicic

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #16 on: April 30, 2018, 10:05:15 AM »
Greetings,

I am hoping to tag along on this TSP question as opposed to beginning a new thread. The information so far is very helpful.

I am retired military with money in the TSP. It is all Traditional as Roth was not an option. I retired in 2015 and have been working as a contractor since. I have accumulated money in my companies 401K Roth, but am looking at being hired on as a GS. As a GS I will once again be able to contribute to the TSP.

I would prefer the Roth but I am unsure of 2 things:
1. Is the smartest play to roll the 401K amount into the TSP?
2. Should I, or can I do 2 separate TSP accounts? 1 Traditional with existing money 2 the new Roth.

I am trying to catch up and read previously answered questions and have searched. I apologize if my first noob inquiry has already been addressed!

Thanks for listening.

Fomerly known as something

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #17 on: May 01, 2018, 06:51:59 AM »
They all those in a combat zone to pay above 18,500.

They do not allow Mega backdoor Roths.

You can contact them with other questions as well.  They are very responsive.

Fomerly known as something

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #18 on: May 01, 2018, 06:56:32 AM »
Greetings,

I am hoping to tag along on this TSP question as opposed to beginning a new thread. The information so far is very helpful.

I am retired military with money in the TSP. It is all Traditional as Roth was not an option. I retired in 2015 and have been working as a contractor since. I have accumulated money in my companies 401K Roth, but am looking at being hired on as a GS. As a GS I will once again be able to contribute to the TSP.

I would prefer the Roth but I am unsure of 2 things:
1. Is the smartest play to roll the 401K amount into the TSP?
2. Should I, or can I do 2 separate TSP accounts? 1 Traditional with existing money 2 the new Roth.

I am trying to catch up and read previously answered questions and have searched. I apologize if my first noob inquiry has already been addressed!

Thanks for listening.

Emnimic, I'd say I don't have enough information to answer your question.  A lot depends on what grade you get hired at, how long you are going to work and your other finances.  I'd recommend paying $15 for Dan Jaminson's FERS guide he has several based on grade and job classifications.  I feel he does a good job of giving a lot of information that you can combine to fit your specific purposes.

Kierun

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #19 on: May 01, 2018, 05:09:33 PM »
Greetings,

I am hoping to tag along on this TSP question as opposed to beginning a new thread. The information so far is very helpful.

I am retired military with money in the TSP. It is all Traditional as Roth was not an option. I retired in 2015 and have been working as a contractor since. I have accumulated money in my companies 401K Roth, but am looking at being hired on as a GS. As a GS I will once again be able to contribute to the TSP.

I would prefer the Roth but I am unsure of 2 things:
1. Is the smartest play to roll the 401K amount into the TSP?
2. Should I, or can I do 2 separate TSP accounts? 1 Traditional with existing money 2 the new Roth.

I am trying to catch up and read previously answered questions and have searched. I apologize if my first noob inquiry has already been addressed!

Thanks for listening.

1. Rolling into the TSP depends on what your current plan is and the options available and if you like the TSP options.  Personally, I like the flexibility of Vanguard, granted the expense ratios are not as low as TSP but the TSP options are quite limited.

2.  You can do separate "accounts" and I put accounts in quotes because they'll all be under the same account number but will be held in two different buckets, separating military and civilian.  If you were to do just traditional you would have two separate accounts, one for trad military and one for trad civilian.  If you were to do roth you would have two separate accounts, one trad military and one roth civilian.  If you were to do both trad and roth for civilian (yes, you can contribute to both) you'd have three separate accounts, one trad military, one trad civilian and one roth civilian.  They separate the military and civilian TSPs.  I have a trad military and trad civilian TSP account.  I asked someone about it a long time ago and one of the reasons it's separated because if you were in the mil serving in a combat zone the money put into the TSP is flagged as tax-free, there were other reasons but I forget.

To the OP, your wife should have the option of doing percentage or dollar amount.  Just make sure she doesn't hit the max before the 26th pay period otherwise she might miss out on the FED match.  5% matching on 0 contribution would be 0. 
« Last Edit: May 01, 2018, 05:24:31 PM by Kierun »

ematicic

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Re: TSP how to maximize? Roth and contribution limit? FERS employee
« Reply #20 on: May 02, 2018, 04:37:03 AM »
@Fomerly known as something - Awesome, I will certainly pick up a copy of the FERS guide.

@Kierun - The break down is very helpful, thank you for the thorough explanation. I lean more towards the TSP only because it is all I know but reading through the vast information here helps expand my options. I was fortunate to be in a combat zone in 2008 and eligible for the Redux plan. For those that aren't familiar, it is a $30,000 bonus but it comes with the forfeiture of retire pay at 20 years. I would say it is almost always a bad idea. However, being in Afghanistan at the time and the market in the tank, I jumped on it and got the whole thing tax free and 100% into the I Fund at $12.00 a share. I wish I had the foresight to chose the S fund at $8.00 but such is life.

So I have about $185,000 in my Traditional TSP, $48,000 of that is tax free. I have only been a Contractor for 2.5 years but I have $28,000 vested in my 401K. I am looking at transitioning to a GS-12 position. I am 42 and am looking at transitioning now so I can ride it out 20 years. I figure with 20 more years to invest, I just want to start off this new adventure in the best way possible. I am certainly more frugal than many of my peers but nowhere near as knowledgeable as you folks!