Can I Invest in TSPs & Traditional IRAs?
Utilizing all possible retirement savings programs helps create the greatest amount of savings that will eventually supplement federal retirement income sources. As a federal employee or military personnel, you are eligible to participate in a Thrift Savings Plan through your employer as well as a traditional IRA as long as you meet the Internal Revenue Service income regulations.
Other People Are Reading
-
Thrift Savings Plan Eligibility
-
Thrift Savings Plans are called different things depending on when you started working for the government. The Federal Employees' Retirement System is the newer program for those starting as of Jan. 1, 1984. Anyone starting before this date has a Civil Service Retirement System TSP. Both part-time and full-time employees are eligible to make contributions. The maximum annual contribution for employees is $16,500, but employees 50 years and older are allowed to contribute up to $22,000 based on 2011 IRS regulations. Your employer matches contributions you make.
Traditional IRA Regulations
-
Traditional IRAs allow up to $5,000 in annual contributions, as of 2011, with $500 more allowed if you are 50 years or older. The money contributed reduces your annual income on a dollar-for-dollar basis if you meet IRS income limits. These income limits are lower if you have an employer's retirement savings plan. If you file taxes as a single person or head of household, you must make less than $56,000 to take a full deduction. You can take a partial deduction on a full contribution with income all the way up to $66,000. A married couple must make less than $90,000 to take a full deduction, with income levels up to $110,000 qualifying for partial deductions. If you are over the income limits, you can still make a full contribution, you just can't deduct it from income.
-
The Roth Alternative
-
Roth IRAs don't provide a tax deduction when contributions are made; eventually distributions in retirement are tax free. The Roth IRA is not subject to income limits based on whether or not you are covered by an employer's plan. Therefore, if you cannot make a fully deductible contribution, you might look at the higher income phaseout limits for the Roth since you won't get a deduction anyway. If you file as a single person or head of household, the range is $107,000 to $120,000, while married couples have the range of $169,000 to $179,000, as of 2011. The range determines if you can make a contribution and how much. Falling under the range allows a full contribution, while incomes between the range only allow a partial contribution. No contributions are allowed above the range.
Considerations
-
When possible, make the maximum salary-elected contributions. The matching contributions from your employer are free money for your retirement. If you still have money to contribute after maxing out your TSP, then look to the IRA as an alternative and additional savings source. Speak with your tax adviser to make sure you choose the right IRA structure for your tax and income needs.
-
