Question 1
I listened to your episode about investing in the TSP and traditional and Roth IRA all at the same time. I have money in all 4 (Roth and traditional TSP and Roth and traditional IRA outside of TSP). When I max out contributions to one account can I still contribute to the other accounts?
Answer 1
Yes and no. The Roth TSP and traditional TSP have a shared contribution limit and the traditional IRA and Roth IRA have a shared contribution limit.
For example, in 2021 the shared limit (without catch up contributions) is $19,500 for the Roth and traditional TSP. So you can split it up any way you’d like but when you add up how much you put into the traditional and Roth TSP it can’t be more than $19,500 (or $26,000 if you are 50 or older).
The same is true for the traditional IRA and Roth IRA. The shared contribution limit for IRAs is $6,000 before 50 and $7,000 after.
However, once your income is over certain thresholds (the thresholds change over the years) then it can impact how much you can deduct on your taxes when putting money into a traditional IRA. And once your income gets high enough then you aren’t allowed to contribute directly into a Roth IRA at all.
Question 2
Quick Question. Is it possible to do a Roth conversion within the TSP?
Answer 2
Nope. You can not move money between the traditional TSP and Roth TSP within the TSP. You’d have to move your money over to an IRA to do Roth conversions.
Question 3
I’m in the middle of going through a divorce. I am fortunate that my soon to be Ex is willing to settle on a specific cash amount. My question is, is it best to do a cash out refi or take it out of TSP? I am guessing refi is the way to go, I ask in case there is something I’m not thinking of.
Answer 3
This type of question really depends on the situation but here are some things to consider. A cash out refinance is really nice because you don’t have to take a huge chunk out of your TSP which will allow your money to continue to grow.
But of course you’ll want to consider how long you’ll be in your home and when you’d like to get your house paid off.
Question 4
I plan to withdraw the balance of my TSP next year and need to find out how to withdraw the money without paying a lot in taxes next year. Should I put the balance in my Roth IRA and/or part of it into my grandkids 529 accounts? I would appreciate your advice. Thanks.
Answer 4
If you withdraw money from your traditional TSP and don’t roll it over to another pre-tax account then you will have to pay taxes on it.
Both a Roth IRA and 529 Plans are after tax accounts so you would still have to pay taxes on TSP withdrawals that end up in one of those accounts.
However, if you rollover your TSP to a traditional IRA then no taxes are due for that transfer. From there you can decide when you’d like to take money out throughout retirement.
