Good news, your participation in the Thrift Savings Plan (TSP) doesn’t affect your eligibility to contribute to an IRA (Individual Retirement Account). In fact, you can create a stream of tax-advantaged retirement income when you make after-tax contributions to a Roth IRA. Then again, the Roth TSP offers many of the same advantages and more. Before you decide, it’s important to understand the differences between the two.
The Roth TSP
Since 2012, the TSP has offered federal employees another option for retirement savings: the Roth TSP. The Roth TSP provides them with the ability to invest after-tax earnings to create a source of tax-free distributions in retirement. The biggest advantage of the Roth TSP is that your contributions get the 5% agency match. That’s something you don’t get with a Roth IRA. However, since your agency match is not taxed, it’s deposited into your traditional TSP balance to be taxed upon withdrawal.
“A significant advantage is that the Roth IRA offers a wider range of investment options.”
The Roth IRA
While there is no income threshold when contributing to the Roth TSP, income is a factor for those who contribute to a Roth IRA. In 2024, eligibility is limited to single filers who earn less than $161,000 and married couples filing jointly earning less than $240,000. Your contributions to a Roth IRA are made with after-tax dollars for tax-free withdrawals in retirement. A significant advantage is that the Roth IRA offers a wider range of investment options. On the other hand, since 2022, the TSP now offers more investment flexibility with the TSP Mutual Fund Window.
2024 Contribution Limits
- Roth TSP: for 2024, the contribution limit is $23,000, with an additional catch-up contribution of $7,500 for those turning age 50 at any time during the year. Your agency can match up to 5% of your Roth TSP contributions to help grow your nest egg.
- Roth IRA: unlike the Roth TSP, it has lower contribution limits. For 2024, you can contribute up to $7,000 with an additional $1,000 Catch-up Contribution for those age 50 and older.
Withdrawal Rules
- Roth TSP: to withdraw earnings tax-free, the account must be held for at least five years, and the account holder must be at least 59 ½, disabled, or deceased.
- Roth IRA: contributions can be withdrawn at any time without taxes or penalties. For tax-free earnings withdrawals, the account must meet the same requirements as Roth TSP.
As you can see, the Roth TSP and Roth IRA offer different advantages. To help ensure you’re making the best decision for your financial goals, contact an FRC® trained advisor.
