Roth IRA, tIRA, and/or TSP Contributions

[primozaj]

I promise I searched the forums but I don't see an answer to my specific question so I'm just going to go ahead and post away.

Applicable Assets:
Roth IRA: ~$74,000
Traditional IRA: ~$23,000 (inherited from late wife)
Thrift Savings Plan: ~$255,000

Contributions:
For TSP - 8% of Salary, 5% is matched - so a little over $500 in total is invested ever other week when I get paid
For IRAs - I have $400-ish per month to invest in IRA(s) already set aside from pay check after expenses

I'm 38, recently widowed, and trying to sort out where to best put that monthly contribution.  So my question is, where would be best to allocate the extra $400/month; TSP with limited investment options but immediately tax deferred, tIRA for tax deduction that won't be seen until I file, or the Roth, which until recently is where I put the $400/month (stopped contributions so I could sort out estate)?

I am in the 25% tax bracket due to the fact that IRS seems to consider one married for the whole year even if you are only married for one day that year.  In 2016 I will jump to 28% from what it looks like on the tax tables so I'm assuming the tax advantaged choices would be the best for this situation.  Let me know if you have any advice.  Thanks in advance.

[seattlecyclone]

I'm sorry for your loss.

Tax-deferred saving is generally best for frugal people in the 25+% tax bracket who plan to retire early. Whether you put that pre-tax money in the TSP or a traditional IRA doesn't matter a whole lot. You have more choices in the IRA, but the choices you have in the TSP have lower expense ratios than you'll find in any IRA, so you may prefer that if there's even one TSP fund that you like. Try to work toward maxing out both accounts as you get the estate sorted out and exercise those frugality muscles.

[not_a_trex]

I think something else you should consider as you enter the 28% bracket is the phase out for IRA contributions. Depending on your MAGI for that year you may not be allowed to make deductible contributions to an IRA.

There is a loophole to allow you to make rIRA contributions by rolling over non-deductible tIRA contributions, but that would also require moving ALL tIRA contributions that you already have. You'll have to work out with your numbers if being able to make phased out contributions later outweighs the cost of paying taxes on tIRA contributions now.

[Frs1661]

I would max the TSP ($692/pay period) and stick the remainder in a tIRA as long as you can take the deduction. Actually, this is exactly what I do.

My AA is 60% us stocks 30% international stocks and 10% bonds. I hold all my international exposure in the TSP, as their expense ratio is 10x lower than vanguards international index fund. I also hold all my bonds in the G fund, since it has zero duration and I don't love the extra risk in the F fund for little extra return. My IRA is just vtsax.

So sorry for your loss!

Sent from my Nexus 4 using Tapatalk

[primozaj]

So $18k is the max for TSP?  I guess I still thought is was around $15k though I've pretty much stayed at 8% for the last 15 years (currently around $312 per pp).  So I guess I just add my $400-ish to my current allocation to get as close as I can to $18k?

[MDM]

So $18k is the max for TSP?

Yes.  E.g., see http://www.cffpinfo.com/download/annual_limits/2015_Annual_Limits.pdf.

So I guess I just add my $400-ish to my current allocation to get as close as I can to $18k?

Many payroll software programs will allow you to enter an amount that would go over $18K if applied to all paychecks, but the program will stop those contributions when you reach $18K.  Check with your HR folks.  Regarding the 5% match, google "401k true-up" and ask HR about that also.

[doggyfizzle]

Have you considered putting the $400 month into the Roth TSP?  You can contribute to both the Roth and traditional TSP simultaneously.

[Frs1661]

So $18k is the max for TSP?

Yes.  E.g., see http://www.cffpinfo.com/download/annual_limits/2015_Annual_Limits.pdf.

So I guess I just add my $400-ish to my current allocation to get as close as I can to $18k?

Many payroll software programs will allow you to enter an amount that would go over $18K if applied to all paychecks, but the program will stop those contributions when you reach $18K.  Check with your HR folks.  Regarding the 5% match, google "401k true-up" and ask HR about that also.

In the TSP, you have to contribute at least 5% every pay period in order to receive the full match. No way around that unfortunately.

[primozaj]

Have you considered putting the $400 month into the Roth TSP?  You can contribute to both the Roth and traditional TSP simultaneously.

I thought the Roth TSP is not tax deferred like the traditional.  I'm looking for tax deferred or deductible options since my tax bracket is going up.  I think I'm either going to increase my trad TSP (currently 8%) another $185-ish per pay period or just send $400 a month to the tIRA... I'm still trying to decide.

[Full_Beard]

Have you considered putting the $400 month into the Roth TSP?  You can contribute to both the Roth and traditional TSP simultaneously.

I thought the Roth TSP is not tax deferred like the traditional.  I'm looking for tax deferred or deductible options since my tax bracket is going up.  I think I'm either going to increase my trad TSP (currently 8%) another $185-ish per pay period or just send $400 a month to the tIRA... I'm still trying to decide.

The Roth TSP is like a Roth IRA, so yes, you're right, it's not tax deferred. The TSP contribution limit is $18K for 2015 and 2016, so if you're paid on a biweekly basis, you can contribute $693 per pay period (with last period less to avoid over payment).

At 38, I personally put money in both types of accounts. Pundits debate which is better for whom, and unless your crystal ball is 100% accurate, there's no way to know for sure. There's no restriction on contributing to both a Roth TSP and the traditional one. Same for traditional and Roth IRA. For example, you could max your TSP contributions and put 493 into the traditional and 200 the Roth per pay period. Then contribute the remaining $300 or so per month into a Roth IRA. Any excess money you may find can go into the Roth IRA.

[primozaj]

So I asked the initial question in this thread about 15 months ago and I have new but similar question that I feel still fits into this thread, so I felt like rejuvenating it.

I had been reviewing one of the sticky posts and it got me thinking about my retirement distributions again.

Current Assets:
TSP - $315k
Vanguard Roth IRA - $85k
Vanguard tIRA - $24k (inherited)

Contributions:
TSP - 5% salary match, $693 per biweekly pay period (won't go over the $18k yearly maximum)
Roth IRA - $250/month
tIRA - $0

I am doing well (emotionally and financially) since losing my wife in late 2015 and my only debt is on my houses (incl. rental property).  When I did my taxes this year (I use Turbo Tax) the calculator showed that I would not get any tax benefit for contributing to a tIRA due to my income.  However, as filing Single, I can still contribute to my Roth IRA without any limits ($102k W2 box 1, $88.5k W2 box 3).  I do have some additional money (~$150 per month) that I can contribute so I have a couple questions...

1) In which IRA should I invest my additional money?
2) Should I keep the tIRA open or roll it into the Roth and pay the tax? (My thought was to keep it open as the venue to move my TSP when I retire)

Thanks for any input that you can provide.

[dandarc]

New money in Roth IRA.  Since you can't deduct but you can make regular Roth contributions, tIRA doesn't make sense there.

Keep the tIRA open, or roll it into the TSP (if you can - I'm not familiar with TSP enough to know).  If you're like most people here, your taxes while still working are most likely higher than they will be when you retire.  So wait until you've got lower income to convert or withdraw from the traditional accounts.

Sorry for your loss, glad to hear you're doing ok.