Q: I have been trying to find the answer to this question everywhere with no success…Can I contribute the max to my Roth TSP and also $6,000 to a Roth IRA in the same year? I am not over the $140K/$180K income threshold.
A: IRS publication 590-A concerning IRAs, Roth IRAs, and Designated Roth accounts (such as 401k and TSP accounts) is what addresses your question. I think what you are interested in is located at the bottom of page 37: “Designated Roth accounts (like the TSP Roth) aren’t IRAs and shouldn’t be confused with Roth IRAs. Contributions, up to their respective limits, can be made to Roth IRAs and designated Roth accounts according to your eligibility to participate. A contribution to one doesn’t impact your eligibility to contribute to the other.”
Disclaimer: I am not a tax professional. I am a financial advisor…different hats altogether. For tax questions, you should seek out the advice of a tax professional.
I really liked this question. Some federal employees don’t take “meaningful” interest in their retirement planning until near the end of their “work life” when they are nearly ready to retire. This federal employee, however, is looking to advantage his retirement savings in every “tax-savvy” way possible.
Roth accounts enjoy no initial income tax benefit like an IRA or TSP deposit. In the year the contribution is made, the deposited amount is still viewed as (and lumped together with) regular income and taxable. However, Roth does:
- Offer Tax-deferred growth.
- Offer Tax-free withdrawals…generally after 5years. (see the IRS Roth withdrawal rules).
- Avoids Required Minimum Distributions (RMDs). (While this is true of Roth IRAs, it may not apply for the Roth portion in your TSP). See the IRS chart: Ten Differences Between a Roth IRA and a Designated Roth Account
- Avoid requiring any withdrawals until after the death of the owner.
My interpretation of the statement at the bottom of page 37 is centered around the last sentence: “A contribution to one doesn’t impact your eligibility to contribute to the other.”
So, if investing in Roth is your goal and is a good fit for your overall plan, then yes, you can contribute up to the respective limits of each (Roth IRA and TSP Roth) in the same year. In 2022, the Roth IRA maximum contribution is $6,000 ($7,000 if you are 50 years old or older). For 2022, the maximum contribution in the Roth portion of your TSP is $27,000.
Note: The max YOU can contribute may be determined by age, filing status, and Adjusted Gross Income (AGI).
Not knowing specifics (income, age, goals, etc.) about this Fed, I didn’t address the pros and cons of him investing in a Roth IRA or Designated Roth account, nor could I speak to the possible inappropriateness of investing in Roth products for him specifically.
Seeking Answers? For the quickest response time, please send inquiries to firstname.lastname@example.org for questions about:
- TSP/TSP upcoming changes
- Federal retirement systems (FERS, CSRS, CSRS-Offset)
- Planning for retirement
- Request for a free Federal Retirement Readiness Review
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