Fellow federal workers: another Roth/TSP question.

[horsepoor]

From everything I've read here, there is a combined retirement accounts contribution limit of $17,500 for 401(k) and $5,500 for Roth.  However, for TSP, we are limited to $17,500 TOTAL contributions.  https://www.tsp.gov/planparticipation/eligibility/contributionLimits.shtml

I am trying to figure out how to stash about 7 years of expenses so I can retire from government at age 50 (14 years from now).  Roth seems to make sense for at least part of it - still looking at the Roth pipeline concept, but it is starting to make more sense.  I haven't been maxing my TSP, but if I do, I really don't think I'd need it all for my "old lady money" along with a 25% pension and any social security that might still be around.

Can I max my traditional TSP, and then go get a Roth account with say, Vanguard, and stuff $5,500 in there, or would that also count against my $17,500 limit?

[Joel]

You can contribute 17,500 to your TSP or 401k, and contribute 5,500 to your IRA. These can be traditional or Roth contributions, assuming your income is not subject to the applicable deductibility limits.

[CheapskateWife]

Hi there Horsepoor!

My understanding is that the ROTH contribution limit is an IRS dicatate thing...and the 17500 limit for TSP is separate.  Not that I am in a position to do it, but I think someone could theoretically max out the TSP traditional and also a separate market ROTH.  Your best bet there is to call the TSP folks (no really, there is a phone number on that 1990 vintage website) and ask them specifically.  Or you could read this VERY dry handbook

https://www.tsp.gov/PDF/formspubs/tspbk08.pdf

[CheapskateWife]

https://www.tsp.gov/PDF/formspubs/oc91-13.pdf

This is a little more suscinct!

[sol]

I think you're confusing the Roth IRA with the new Roth TSP.  The TSP, like a 401k plan, has a $17,500 limit on total contributions between the regular TSP (tax deferred) and the new Roth TSP (pay taxes up front).  Separately from that, you can put $5,500 into your Roth IRA with after-tax money at some place like Vanguard and your employer is not involved in any way.

For most people here, the best advice is to max the $17,500 in the traditional TSP to get the up front tax deduction (and full match) and then begrudgingly put $5,500 into your Roth IRA because it's better than investing in a taxable account. 

The Roth TSP doesn't make a lot of sense for an someone trying to retire early unless you have some unusual circumstances, like combat pay.

[horsepoor]

I think you're confusing the Roth IRA with the new Roth TSP.  The TSP, like a 401k plan, has a $17,500 limit on total contributions between the regular TSP (tax deferred) and the new Roth TSP (pay taxes up front).  Separately from that, you can put $5,500 into your Roth IRA with after-tax money at some place like Vanguard and your employer is not involved in any way.

For most people here, the best advice is to max the $17,500 in the traditional TSP to get the up front tax deduction (and full match) and then begrudgingly put $5,500 into your Roth IRA because it's better than investing in a taxable account. 

The Roth TSP doesn't make a lot of sense for an someone trying to retire early unless you have some unusual circumstances, like combat pay.

Thanks, that's what I was thinking.  When I first looked at the TSP Roth, I assumed I could put $5,500 in it in addition to the $17,500, but many others must have been making that assumption as well, because there is a giant, red-fonted notice in the Employee Express TSP adjustments area stating that $17,500 is the TOTAL max.

[CheapskateWife]

So what I am walking away from this discussion with, is that investing in the ROTH TSP limits your total ability to invest...by capping your total paycheck deduction at 17500.  Best option, if you are sufficiently frugal is to max out the Traditional TSP and pull your taxable income way down, then invest your max ROTH $5500 separate from the TSP?

I am so excited about the idea of being able to even consider this!

[sol]

there is a giant, red-fonted notice in the Employee Express TSP adjustments area stating that $17,500 is the TOTAL max.

That's there because the early memos were worded in way that led some people to believe that they could invest 17.5k pre-tax in their regular TSP and then another 17.5k post-tax in the Roth TSP.  Which is wrong.

You can put 17.5k total into the TSP, divided however you like between the regular TSP and the Roth TSP.  Then, after all of that, you can still put up to 5.5k into a Roth IRA, just like every other American who isn't income-limited.

investing in the ROTH TSP limits your total ability to invest...by capping your total paycheck deduction at 17500.

I don't think that's quite accurate.  Your 401k or TSP contributions are capped by federal law, regardless of whether you are a federal employee or not.  And technically, you can put more money into the Roth TSP than you can put into the regular TSP because you're stuffing it with after-tax dollars.  This sounds good until you realize that you're paying your highest marginal tax rate on those dollars, which is also why the Roth TSP isn't as good of a deal as the regular TSP for most federal employees.

Best option, if you are sufficiently frugal is to max out the Traditional TSP and pull your taxable income way down, then invest your max ROTH $5500 separate from the TSP?

Yes and yes.