Ask The Experts: Money Matters

By Mike Miles

Roth TSP and Roth IRA combined contributions

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Q. I have a Roth IRA and Roth TSP, and I am not eligible for catch-up contributions at this time due to my age. What is the maximum I can contribute to both for FY13?

A. There is not a combined maximum, and the limits apply to calendar years, not fiscal years. The most that you can contribute to the Roth TSP for 2014 without catch-up is $17,500. The limit for Roth IRA contributions for 2014 is $5,500, but this might be reduced for you based on your tax filing status and income for the year. You should consult IRS Publication 590 for more information. These limits were the same for CY 2013.

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Roth TSP vs. TSP income limits

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Q. I’m a little unclear on the Roth IRA vs. Roth TSP differences. I’ve been told that I can’t contribute to a Roth IRA since my adjusted gross income (married, filing jointly) is too high. Does that same rule apply to the Roth TSP? It seems to me, if I can go with the Roth TSP and max it out at the 2014 maximum of $17,500, I can also max out the Veterans Affairs Department contribution (which goes to my traditional TSP).

A. The Roth IRA contribution limits do not apply to Roth TSP contributions. Separate and distinct rules apply to each.

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Best plan for maximum returns

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Q. I have been using a Vanguard Roth IRA Target Fund for my retirement account. Now that I work for the federal government, I have a Thrift Savings Plan standard account and contribute the additional 5 percent to take full advantage of employee matching. I’m 37 and plan on working until at least 67. I believe my best bet is to just keep maxing out my Vanguard Roth IRA, taking full advantage of my employee matching and putting away anything extra I can into my Vanguard Roth IRA. Do you think that is my best bet, or should I stop investing in the Vanguard account and:

a.) Start maxing out the standard TSP with employee contributions?

Or b.) stop investing in the Vanguard IRA, keep investing the 5 percent to take advantage of employee matching in the standard TSP account and max the rest of my allowable annual contribution in the Roth TSP.

The reason I think I should stick with my Vanguard IRA and 5 percent employee matching instead of Option A or B is due to the advantage of dollar cost averaging from all of the years I already have invested in the Vanguard IRA.

A. I prefer maximizing the TSP contribution first, but it probably won’t matter much in the grand scheme of things. Your dollar cost averaging argument makes no sense, however, and should not be factor in your decision-making.

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TSP contributions in retirement year

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Q. If my retirement date is in May, would I be allowed to contribute the maximum Thrift Savings Plan and catch-up amounts ($17,500 and $5,500) up to my retirement date in May and still receive matching up to 5 percent of basic pay. If not, what are the rules?

A. You can contribute up to your entire paycheck and receive the automatic 1 percent agency contribution, but the matching contributions will be limited to 4 percent of your pay, each pay period.

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Roth TSP

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Q. For the past five years, I’ve been contributing the maximum to the traditional Thrift Savings Plan (balance north of $127,000). In 2014, I plan to switch all contributions ($17,500) to Roth TSP.

I have more than four years until military retirement (April 2018). At that time, will I be able to transfer all Roth TSP contributions to my Roth IRA? I have no plans of transferring the traditional TSP balance. The goal is to combine Roth TSP/Roth IRA contributions and pay cash for retirement home. We don’t want any debt, including mortgage upon retirement.

A. You may not selectively request the distribution of your Roth TSP balance. Any withdrawal will come, pro-rata, from your Roth and Traditional TSP balances, so you may want to use a different strategy for accumulating the funds to buy a home.

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TSP maximum contributions

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Q. I am a federal worker who will turn 50 next year. I plan on putting in the maximum amount for contributions ($17,500) and catch-up contributions ($5,500). Thrift Savings Plan form instructions (TSP-1, TSP-U-1-C) require a whole dollar amount for contributions per paycheck, and we get paid every two weeks. $17,500/26 = $673.077.  $673 x 26 = $17,498, which is two dollars short of the limit.  The catch-up limit doesn’t kick in unless you reach $17,500, but there is no way to get there with the current set of instructions. What do you recommend? I don’t want any penalties if I go over the limit but don’t see any way unless they come up with a whole dollar amount divisible by 26. The catch-up contributions also have to be in whole dollar amounts.  $5,500/26 = $211.53846. Do I go with 211 x 26 = 5,486?  At least here there are no built in penalties other than losing out a few dollars from what is being invested. Why don’t they just let you put in an annual dollar amount on the TSP form and catch-up form, since the rules are written as such? 

A. You can simply over-contribute a little, and the TSP will automatically stop your contributions when the annual limits are reached.

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Roth TSP vs. Roth IRA

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Q. I am really confused over the Roth IRA and Roth TSP. I have an individual Roth IRA through Vanguard. I have a Thrift Savings Plan account that I max every year, and because I’m over 50, I also max my TSP catch-up contribution. I’m thinking of changing the catch-up contribution from the regular TSP to the Roth TSP. If I contribute the max to a Roth TSP, can I still contribute the max to my Vanguard Roth IRA ($6,500 to Vanguard and $6,500 to Roth TSP for a total of $13,000). Or do I need to choose just one Roth to contribute to — either Roth TSP or Vanguard Roth IRA?

A. You don’t have to choose. Your Roth TSP contributions don’t reduce your eligibility for contributing to a Roth IRA.

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TSP allocation

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Q. I have reverted back to a more conservative Thrift Savings Plan allocation: 67 percent G Fund/33 percent C Fund. I put in the maximum, including the maximum catch-up and, with match, it’s nearly $30,000 per year. My balance at 60 when I retire in five years should be between $500,000 and $600,000 depending on the return.  I am estimating a 4 percent return.

I am wondering about keeping this asset allocation and taking monthly payments starting near 4 percent or slightly higher at age 60. Is a distribution with 70/30 as indicated above a bad idea? I like the conservative allocation and feel fairly comfortable with it. But some people say taking monthly payments out of TSP is a bad idea. Any suggestions?

A. It’s impossible to judge what’s best for you from the information you’ve provided. I can tell you that your asset allocation model is risk-inefficient. That is, you could achieve a higher rate of return for the risk you’re taking.

Adjusting your allocation to 20 percent C Fund, 8 percent S Fund, 2 percent I Fund, 30 percent F Fund and 40 percent G Fund will stay within your preferred 70 percent debt/30 percent equity constraint while increasing sustainable TSP lifetime withdrawal rate by about 20 percent.

Greater increases could be achieved by shifting toward more equity-heavy allocation models.

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TSP maximum contribution and catch-up

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Q. Has the maximum contribution allowed for Thrift Savings Plan election and catch-up changed from 2013 to 2014?

A. Not yet.

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Increasing TSP contributions

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Q. I plan to retire Jan. 11, 2014. I would like to maximize my Thrift Savings Plan contribution. If my calendar is correct, Pay Period 1 of 2014 starts Dec. 16 and Pay Period 2 on Dec. 30.  How much can I contribute in pay periods 1 and 2? My entire paycheck? More? How do I do that?

A. You may contribute your entire paycheck until you reach the annual contribution limit. Submit forms TSP-1 and/or TSP-1-C to make your request.

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