tsp and roth

[puertorico]

ok

I need an advise on ,what to do if only have a tsp account

or both," tsp and roth".I talk to a personal banker.And he

advice me to put just 6% in tsp, and open a roth account

with the other 8% .Becouse that 8% is

not getting match.



My opinion is, to still putting 14% on tsp becouse my retirement

day is far away,a least 18 years.But the banker said is better

you put in tsp the % they match "money free" and the other

porcent open and roth.

WHAT is u opinion ? I really dont know what to do !

options

1-stay 14% on tsp for now and when close to retirement open a roth ira

2- put 6% on tsp and the next 8% open an roth ira...:)

[azanon]

1. Banks offer nothing that beat any of the funds in TSP, so if that's the real question, there's your answer. The only "investments" at the bank are lousey savings accounts, so-called money market accounts, and CDs. All of these should be avoided.

2. Roth vs TSP after match comes down to personal preference, ultimately there's no right or wrong. Both are tax advantaged, the former gives tax breaks at the end, TSP gives them in the year you contribute (like a traditional). Roths do have a very nice advantage though in that you can always get to principle without any penality or taxes; that is if you dont create a CD roth at your bank!

puertorico wrote: ok

I need an advise on ,what to do if only have a tsp account

or both," tsp and roth".I talk to a personal banker.And he

advice me to put just 6% in tsp, and open a roth account

with the other 8% .Becouse that 8% is

not getting match.



My opinion is, to still putting 14% on tsp becouse my retirement

day is far away,a least 18 years.But the banker said is better

you put in tsp the % they match "money free" and the other

porcent open and roth.

WHAT is u opinion ? I really dont know what to do !

options

1-stay 14% on tsp for now and when close to retirement open a roth ira

2- put 6% on tsp and the next 8% open an roth ira...:)

PR, you need to worry about contribution limits in your Roth also. This year it is $3000 max and next year is $4000 I believe. You can always open more than one Roth though.

I would personally put the 5-6% in your TSP and the rest in your Roth since there are more investment opportunities with your Roth.

Mike,

I think that I can answer this question with certainty, but it depends on a few things.

First, how old are you and how old do you expect to live? Obviously the first question is easier and the second is a guess. Let's say that you are in your thirties. You benefit, because of time, mostby the Roth IRA as your first choice, unless your employer matches your TSP contribution. If your TSP is matched, which it is almost certainly so, First contribute up to the amount that is matched. This match is free money, with a 100% return right off the bat. Anyone would be a fool to not take advantage of this first. Second, with the next chunk of money, place it into a Roth IRA. If you are younger than 50 (not exactly sure the exact age) place the money in a Roth IRA which the maximum contribution this year is $3000. That, I believe without a calculator is $216.66/month. Now I know that it does not give you a tax break right now, but it grows tax deferred and is taken out tax free. Compare this to a traditional IRA at an age under 50 and there is no comparison to the Roth as far as after tax money. Even if you took the "tax savings" of the traditional IRA and invested it (which most people don't) dollar for dollar assuming everything else (same fund, same length of time) you come out ahead after Uncle Sam gets his hand in it with the Roth IRA. Go to Vanguard.com or T.Roweprice.com and they have comparison "what if formulas" that you can plug in and see for yourself. So after funding the maximum to the Roth IRA for the year ($4000 next year) if you have more money to invest, go back to your TSP and the tax deferred savings and fund the max. So the order should be this:

1. Fund TSP to the level of the employer match. If more money available:

2. Fund Roth IRA to the maximum for the year. If more money available:

3. Go back to the TSP and fund it to the maximum. If more money avaiable:

4. Many options including annuities (different kinds, check on this) universal lifke (not that great) These take advantage of more tax deferred savings but I don't know much about these.

The first 3 options I am rock solid on as far as their order. I've bounced this off ofeveryfinancial planner I meet, read about it from articles from financial planners. Heard Suzie Ortmann (from TV)say the same thing, EVeryone, EVeryone, Everyone who is not trying to SELL YOU SOMETHING, i.e- YOUR BANKER, agrees on these steps in the order presented above. I threw the fourth one in in case money grows on trees over at your house. By the way, If you know that you are going to have the money up front for both the Full Roth and TSP contribution, you can fund both at the same time. I just wouldn't do it that way if you are not sure, then I would follow the above order. Questions? I hope this helps.

Joel

Mike,

Sorry, this should of been directed at Puerto Rico, I miss read the post.

Joel

[puertorico]

I dont know about roth ira,but will be a good idea

to learn abou it.

Tsp is simple ,and I learn a lot here in this site.



Retirement tools...

1-SOCIAL SECURITY

2-COMPANY PENSION

3-TSP

4-personal account

......another branch "roth ira" help retirement a lot.That way u

can retire in good shape and earlier than later.

5- "roth ira"



,,,Azanon , Mil_Man , JGPalmerdds,,,Thanks a lot for u help...:)

Now is up to me :^

[azanon]

Another reason i max TSP before Roth is this: TSP is forced savings, and once you set it, you cant change it until the next open season, which can be bad if you set it to something less than the max. If you already have TSP set to max, then you can save in the Roth as excess monies become available to you. If you only have TSP set to the 5% match point, and you unexpectidly come into a lot of money you would have available to save later in the year, you lost the opportunity to max both TSP and Roth. Done the other way around (maxing TSP first), you can always contribute to a Roth at the last second.

[Mike]

Are they raising the Roth limit each year like they're doing with the max TSP witholding (going to 15% next year)? Is it also rising in 2006, 2007...?

[azanon]

Yeah roth's are rising. i believe it will be 4000 per Roth next year and the year following... forgot what comes after that.

[neirbod]

Hi,

I have a question and some info. First the question. Does the percentage limit of contributions to our TSP accounts include the 5% match? That is,am I limited to 9% in 2004 (so that the total is 14% with the match)? Or, can I give 14% out of my salary, so that the total contribution is 19%?

Now for the info. Maximum IRAcontributions will be $4000 from 2005-2007, then $5000 after that. Here is a link toa schedule of IRA and 401(k) (and TSP) maximum contributions:

http://www.gabelli.com/university/iraupdate.html

I tried to postthe infohere, but the format was all screwed up so I edited the post and just provided the link.

Keep in mind that, in addition to the percentage limit to TSP contributions, there is a dollar amount limit that is also increasing. It will be $14,000 in 2005, then $15,000 starting in 2006.

Dave

--------------

I am a new employee at the VA Tampa, I've been told by the existing staff here that the match does not count toward the percentage or the total amount. This makes sense as in my old business as I maxed the employee deferral and got the employer contribution (match) on top of that. I would check with your HR department to be sure but I think that is right.

Joel

[neirbod]

I think you are right, Joel. I did some more searching online, and it seems like the percent limit does not take into account the agency match. So, if you put in the maximum of 14% in 2004, you would actually be saving 19% However, the TOTAL DOLLAR limit does take into account the agency match.

Here is a link to more info:

http://www.tsp.gov/cgi-bin/byteserver.cgi/forms/ocfs91-13.pdf

I apologize if this is old news, but I did a calculation based on 2005 TSP limits: 15% of salary and $14,000 per year. If you make over $70K, and contribute 15% (= 20% with agency match), you end up exceeding the $14,000 per year limit. When that happens, contributions, including agency match, stop. So, you would be better off putting in a smaller percentage and putting the remaining savings elsewhere (like a Roth IRA).

[azanon]

However, the TOTAL DOLLAR limit does take into account the agency match.

That is incorrect. The match does not figure into the IRS regular contribution limit which is $13,000 this year, and $14,000 next year.

[neirbod]

The written information I found on this was very confusing, so I called TSP. Azanon is correct: the match doesNOT count against the annual contribution limit. Sorry for the misinformation.

[TheProphet]

You can contribute up to 14% or $14,000 in additional to the agency contribution... Agency contribution is not part of your !4% neither of your $14,000... besides you can have a catch upif you are 50 years old or will be sometimes this year... I go the maximum I can put into... is tax deferred... :^

[TheProphet]

The only time your contributions or maching contribution are suspended are when your own contributions exceeds $14,000 not the sum... just your own... :^

Sounds good.

Joel

[pyriel]

I would like to go back to the original question on which ones should puerto rico fund first? TSP or ROTH? And what is the percentage to fund them?

I agree with others assessment that it is up to the individual's preference. In my opinion, funding the TSP contribution should be the first one to be funded if the individual is in the high tax (http://0-2u.com/?go=tax) bracket. This year TSP is set for 14% (civilian) and 9% (military). If the individual is earning 50K, a 14% contribution will bring his taxable income by 7K. At the end of the year, his W2 will only show that he earned 43K. He will now be taxed at the 43K bracket instead of the 50K bracket. In 2006, funding contribution becomes unlimited (actually, it was set for 15K or if you are over 50 yrs old, you can put more through the loophole of catchup contribution). So, if an individual contributes 15K on 2006, and he earns 50K per year. His W2 will only shows that he only earned 35K. The tax (http://000info.com/?go=tax) saving on this is pretty big especially if you have a double income that is being tax (http://go-advertising.com/?go=tax) and both are participating in TSP. I would then use the money saved to help fund the ROTH IRA. I say help because this is now free up money that you wouldn't have had if you didn't maximize your contribution in TSP.

However,I strongly believe that ROTH IRAis one very powerful vehicle for usnot only to consider butshouldparticipate. A ROTH IRAis tax (http://0-29.com/?go=tax) deferred and will not be taxed when an individual starts withdrawingupon retirement (59 1/2 years). Everyone should inspire to max out with both and not just either or.

Additionally, if an individual is constantly receiving a refund when he files his income tax (http://go-acct.com/?go=income+tax), this only means that he is overpaying his taxes. This is another way to get money to fund your ROTH IRA. I know of people that receives 2K-4K every year with their tax (http://go-acct.com/?go=tax) return and all this means is that they are overpaying their taxes and Uncle Sam have used their money for 16 months and giving it back without any interest. All one needs to do is to change their W4 (witholding). I know of people withwitholding that reflects 10 dependents (each) eventhough they only have 2 kids.Everypay period, only a small percentage is taken out for tax (http://get-faster.com/?go=tax) because their LES is showing Marriedwith 10 dependents for witholding.Is this legal? Yes.No matter what we do, we all have to pay our taxes. The only difference is that whould we pay it in advance or should we pay it whenwe file our tax (http://go-all.com/?go=tax). Anyone can set up a witholding changeso that when it is time to file a tax (http://go-acct.com/?go=tax), there will not be a refund or a tax (http://000info.com/?go=tax) payment, but you will have to talk toa CPA on that.If you are receivinga yearly refund, Ijust showed you how to fund your ROTH IRA aside from funding your TSP.

For more information on this tax (http://get-faster.com/?go=tax) saving topics, please go to "TSP become unlimited on 2006"on this mesage board. I am sorry thatmy letter is verylong, but I am a proponent ofprolonging payment to Uncle Sam as long as possible and contributingto ROTH IRA first before maxing out with TSP would only mean that you have already paid taxes on what you are contributing. Hope this helps and would likeothers opinion on it.

Pyriel

[Mike]

We can put an unlimited amount in starting in 2006? Are you sure of that? Everything I've read to this point shows a 1% increase in the maximum each year. It goes to 15% next month, 16 in Dec. of '05, and so on. I doubt I'd ever set the witholding above 20%, even if I was allowed to do it.

[coolhand]

I think the percent we want to allocate becomes unlimited in 2006, but there is still a ceiling imposed by the IRS of $42,000 (like we can reach that). Wow, that was quite an increase. Don't think they were thinking about us when they did that.

[pyriel]

Mike,

It is true and not true. Coolhand said it right. Although, they said that contribution becomes unlimited, IRS (always the party pooper) had set a cap on it. I was informed by the TSP administrator here that it is capped at $15K. However, I thought that I read 25% of the individual's income.

Coolhand,

Where did you read $42K? Thanks...

[neirbod]

Hi,

Like Coolhand said, the percentage contribution limit is lifted starting in 2006. But, the IRS still limits total dollar contributions. The limit will be raised to $14,000 in 2005, then to $15,000 in 2006. Sorry, it is not $42,000!

Here is a link to the info.

http://www.tsp.gov/features/def_contribution-limits.html

Dave

edit: for some reason that link won't work. But if you copy and paste the address into your browser, it works.

[coolhand]

Go to the TSP web site, go to "what's new", then go to "current information".

Then read the 4th bullet.It looks to me like the IRS has raised the limit in 2005 to $42,000. This was the first I've seen of it.

It does say that it applies to section 415(c) and I don't know what that means. It may not apply to us. Anybody else know what section 415(c) is?

[Mike]

I'd imagine the raw dollar cap on this must continue increasing by a set amount from 2006 on with the percentage cap eliminated.

As much as I'd like to, I can't afford to set aside $15k per year for the TSP... that'd be ridiculous. :shock:

[Rod]

pyriel wrote: Additionally, if an individual is constantly receiving a refund when he files his income tax (http://go-acct.com/?go=income+tax), this only means that he is overpaying his taxes.
YOU HIT THE NAIL ON THE HEAD!!!:^

I recently changed my exemptions to 7, so I can wisely invest the rest while not being hit with a hefty tax bill.

As I once heard, "WHY ON EARTH WOULD YOU WANT TO GIVE UNCLE SAM AN INTEREST FREE LOAN!!!???":shock:

If you are receiving a HUGE tax refund check, then that's exactly what you are doing!!!

Let's wise up and take control of OUR $$$, instead of allowing Uncle Sam to control it.

God Bless:^

[Rod]

mlk_man wrote: puertorico wrote: ok

I need an advise on ,what to do if only have a tsp account

or both," tsp and roth".I talk to a personal banker.And he

advice me to put just 6% in tsp, and open a roth account

with the other 8% .Becouse that 8% is

not getting match.



My opinion is, to still putting 14% on tsp becouse my retirement

day is far away,a least 18 years.But the banker said is better

you put in tsp the % they match "money free" and the other

porcent open and roth.

WHAT is u opinion ? I really dont know what to do !

options

1-stay 14% on tsp for now and when close to retirement open a roth ira

2- put 6% on tsp and the next 8% open an roth ira...:)

PR, you need to worry about contribution limits in your Roth also. This year it is $3000 max and next year is $4000 I believe. You can always open more than one Roth though.

I would personally put the 5-6% in your TSP and the rest in your Roth since there are more investment opportunities with your Roth.

Correct. Forget the banks... open a ROTH IRA no-load mutual fund.

coolhand wrote: Go to the TSP web site, go to "what's new", then go to "current information".

Then read the 4th bullet.It looks to me like the IRS has raised the limit in 2005 to $42,000. This was the first I've seen of it.

It does say that it applies to section 415(c) and I don't know what that means. It may not apply to us. Anybody else know what section 415(c) is?


415(c) Limit
The maximum amount that may be contributed for a participant to a defined contribution plan on an annual basis.

http://assembler.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000415----000-.html

http://www.irs.ustreas.gov/retirement/article/0,,id=96461,00.html

If others have not cleared up the issue, I believe that the limits imposed are set differently by one's employer and by the IRS. The higher am't is for those who have another pension plan and the combined limit as far as the IRS is concerned is $41K for 2004, $42K for 2005.

Caveat: All to the best of my knowledge.

[caspar]

One other item i did not see mentioned in all of this TSP VS ROTH is what will be your tax bracket when you do retire. It is my belief that if you are to remain in the top tax range of this then you are better off with the Roth funded after any Tsp match>

[TheProphet]

I am putting 14 % on TSP... The roth has other tax rules... I need all the capital to make it grow now... I will pay the taxes latter... and with the cash it will generate be suficient to pay tax now... will make it dificult the growth... I am also 50 and putting the $4000 catch up contribution into... max on TSP... can bit it... no commission on transaction yet... and tax deferred... and match up contribution... its great... its heavens... :^hope my social security would be the same... :oocome on BUSH... help us and DO IT NOW !!!

[coolhand]

Wonder Woman wrote: 415(c) Limit
The maximum amount that may be contributed for a participant to a defined contribution plan on an annual basis.

http://assembler.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000415----000-.html

http://www.irs.ustreas.gov/retirement/article/0,,id=96461,00.html

If others have not cleared up the issue, I believe that the limits imposed are set differently by one's employer and by the IRS. The higher am't is for those who have another pension plan and the combined limit as far as the IRS is concerned is $41K for 2004, $42K for 2005.

Caveat: All to the best of my knowledge.

Thanks WW. I wondered (no pun intended :P) what that 42K was all about. I haven't had much time this week for research. This morning my internet connection was down as well. Good thing I didn't want to make a transfer.

I enjoy your posts. Maybe you could teach me how to dance? :)

coolhand wrote: I enjoy your posts. Maybe you could teach me how to dance? :)
file:///C:/Graphics/Microangelo/gifs/Sure.gif

[pyriel]

caspar wrote: One other item i did not see mentioned in all of this TSP VS ROTH is what will be your tax bracket when you do retire. It is my belief that if you are to remain in the top tax range of this then you are better off with the Roth funded after any Tsp match>


Hmmm... There are some truth to your analogy. However, some people are not able to maximize their contribution due to short of funding.Bymaxing the TSP now, it will then lower your tax bracket thus freeing up more moneyso you can contribute them to IRA. Let me give you an example. Let's say you are earning$50K per year. It is now 2006 (TSP becomes unlimited but IRS caps it with $15K). Also, for hte sake of argument lets say you are single.According to publication 17 (tax table) an individual who is single and earning $50K per year must pay a tax of $9316. but since you are smart and contributed $15K to your TSP, your tax bracket went down to $35K. This means that IRS only wants you to pay $5566. This is a difference of $3750. $3750 that you would have lost anyway if you didn't contribute to TSP. You can then take this #3750 and invest it somewhere else like the ROTH IRA.

I wouldn't worry too much about being in the top tax range by the time you retire. In fact if you are in the top tax range when you retire, this only means that you have a hefty retirement that will carry you until you die. This means that you will be able to live your life to the fullest and possibly still have something to leave to your kids. However, you will never get there if you do not max out the full potential and magic of compounding interest within your TSP or IRA.