Can You Max Out a TSP as Well as Max Out a Roth IRA?
Before the introduction of the Roth IRA in 1998, individual retirement account owners had a special set of income limits, one for those participating in an employer plan and one for those with no employer plan. The Roth doesn’t make this distinction though traditional IRAs still do. Thrift savings plans are employer-based contributory plans for federal employees. As long as you meet the one set of income guidelines, you can max out both.
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The Maximum Contribution
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As of 2011, the maximum annual contribution a person is allowed to make into a Roth IRA is $5,000. Those over the age of 50 are allowed to make what are referred to as “catch-up contributions,” adding an additional $1,000 to the maximum annual contribution. The maximum contribution allowed in a TSP is $16,500 annually with an additional $5,500 allowed in catch-up contributions for those over 50 years of age. Maxing out both each year allows you to contribute a total of $21,500 for those under 50 and $27,000 for those over the age of 50, if eligible.
Roth Eligibility
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Contributions are based on income levels. While there is no differentiation between those who are covered or not covered by an employer’s plan with Roth contributions, you must still meet income thresholds, which are based on household income. To make a full contribution, a single person must make less than $107,000 and a married couple must make less than $169,000. Partial contributions are allowed in the phaseout ranges of $107,000 to $122,000 and $169,000 to $179,000 for single and married households respectively. No contributions are allowed over the phaseout range.
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TSP Eligibility
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Federal employees must be working for 31 one days before they are eligible for TSP contribution enrollment. Contributions are taken from income not to exceed 100 percent of earnings. If you participate in both a TSP and Federal Employee Retirement Savings plan your contribution limit is an aggregate of $16,500 between the two plans. Total contributions made to employer plans is $49,000 annually; the $16,500 tax-deducted contributions plus non-deducted contributions and employer matching.
Choosing Options
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If you cannot afford to max out both the TSP and the Roth, you can choose the better option for your situation. The Roth IRA gives you no tax-benefits immediately, but funds grow tax-free. The TSP is tax-deferred with immediate income deductions. You also get employer matching contributions with the TSP, which is free money for your retirement just by participating. Each situation is unique and should be reviewed with a financial planner before choosing.
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