Now that the official announcement is out regarding the ROTH TSP accounts, it’s time to evaluate the options. First, review the details.
- Contributions are post-tax
- No income limitations for ROTH TSP contributions
- Contribution limits are $17,000 for taxpayers younger than 50 years (plus $5,500 catch up if older than 50)
- Earnings are tax free if account is held open 5 or more year and the taxpayer is over age 59 1/2 at the time of the distributions
- You can take out TSP loans up to 50% of your balance, up to a limit of $50,000
- Contributions are post-tax
- Income limitation to contribute to a ROTH IRA: Single $110,000, (with decreasing eligible contributions up to $125,000; Married $173,000 (with decreasing eligible contributions up to $183,000.)
- Contribution limit is $5,000/$6,000 for those 50+
- Earnings are tax free if account is held open 5 or more year and the taxpayer is over age 59 1/2 at the time of the distribution
- Contributions can be withdrawn at anytime without penalty
- You cannot borrow against your ROTH IRA
So, while the ROTH TSP option allows all of us to contribute up to the limit regardless of income, the ROTH IRA gives you some added flexibility, particularly the ability to make withdrawals of contributions.
In the end, the ROTH IRA remains our top choice for flexibility and tax free growth. The ROTH TSP is a great option for lower income military members, and for those who have large amounts of tax free earnings from deployments. For higher income military members we recommend a combination of deductible TSP and ROTH IRA for tax savings and flexibility.
– Thanks to http://www.taxbrackets2012.com/ for the bracket breakdowns.
I believe you meant to write "deductible TSP" not "deductable[sic] IRA""For those in the 25% bracket (single $35,350 – $85,650 or MFJ $70,700 – $142,700) you can fully fund your deductable IRA and have tax savings of enough to almost fully fund a ROTH IRA ($17,000 * 25% = $4250 tax savings)."
Nice catch Brian. The key factor was the distinction between the conventional TSP and traditional IRA. Of course the contribution limit for a traditional, deductible IRA is $5,000($6,000 for 50yrs+) subject to income limitations. The conventional TSP has the higher contribution limit. I appreciate your attention to details.
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