According to the Thrift Savings Plan (TSP) Fact Sheet on the topic of IRAs (Individual Retirement Accounts), the short answer to the title question is: yes. If you max out your TSP in a given year, an IRA offers the ability to save even more for retirement. However, it’s important to understand the differences between the two before you decide.
2024 Contribution Limits For The TSP & IRAs
For tax year 2024, you can contribute $23,000 to the TSP plus an additional Catch-Up Contribution of $7,500 if you turn age 50 any time during the year. The 2024 contribution limit for an IRA is $7,000 plus an additional $1,000 if you’re age 50 or older. However, if you’re planning on contributing to a Roth IRA your income is a factor.
In 2024, you cannot contribute to a Roth IRA if you’re a single filer with an income over $161,000 or if you file jointly with a combined income over $240,000. If you clear this hurdle, you can deduct contributions to a traditional IRA if you meet the IRS eligibility conditions. Depending on your filing status and income, the deduction may be reduced, or phased out, until it’s eliminated. For more information, go to the IRS website.
“While the TSP offers only five individual investment funds, IRAs provide more investment options.”
The Main Differences Between The TSP & IRAs
In addition a difference in contribution limits, each type of account differs in other ways. While the TSP offers only five individual investment funds, IRAs provide more investment options. However, fees for IRAs are usually higher than the traditionally low TSP fees. Then again, since the TSP Mutual Fund Window became available in 2022, TSP savers can also invest in nearly 5,000 mutual funds (though additional fees apply). Other features of the TSP that you don’t get with an IRA include:
- TSP employer contributions.
- TSP loans against your balance.
- And TSP hardship withdrawals.
The Roth TSP vs. The Roth IRA
Though income is a factor when contributing to a Roth IRA, there is no income threshold when contributing to the Roth TSP. However, contributing to the Roth TSP may affect your eligibility to contribute to a Roth IRA. When it comes to rollovers, you can move money from a traditional IRA into your TSP account. But you cannot move money from a Roth IRA into your TSP account, even if you have a Roth TSP.
Keep in mind that the above is just an overview. Talk with a tax professional to learn more about applicable IRS rules and touch base with an FRC® trained advisor who understands how the TSP works.
Sources:
https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000
https://www.tsp.gov/investment-options/
