Question 1
Good afternoon!! I’m 58, with 35 years in and I am a FERS employee. I’m contributing the max into the TSP including the catch up, so my TSP looks decent. My question is, I plan to work until I turn 62 and have never put anything into the Roth TSP. Is it worth starting now? Or is it too late? And if not too late, do I have to redirect my current TSP contributions to the Roth or can I start an additional allotment just for Roth?
Answer 1
The annual TSP contribution limit (how much you can put in) for 2021 is $26,000 including the catch up contributions. And this limit is shared between the traditional TSP and Roth.
So if you are already putting in 26k ($1,000 per paycheck) a year into the traditional side then the only way to start putting money into the Roth TSP is by putting less into the traditional.
However, depending on your income you can put money into a Roth IRA or worst case you can always save/invest extra funds into a brokerage account.
To answer the question of if you should be using the Roth TSP you will want to do some math on what you predict your taxable income will be in retirement. That will help you decide whether you’d like to pay the taxes now or later.
Question 2
I bought my current home in 2000 for $124,000. I will be selling it next year and moving. I will make about $275,000 on the sale. I am married and have lived in the home the entire time. Will I owe any taxes on the sale?
Also, I will need to take out about $175k from my TSP to cover all the costs of purchasing the other home. Is there anything I can do to lessen the tax bite from this big withdrawal?
Answer 2
As long as you have owned and lived in your home in 2 of the last 5 years then you can exclude up to $500k of capital gains from your home. If you file your taxes singly then you can exclude up to $250k.
So based on the information you provided it appears that you won’t owe any taxes when you sell your home.
But of course, if you withdraw $175k from your traditional TSP then that will be subject to taxes.
However you can lessen the tax blow by making the withdrawal in two different tax years to level out the tax spike.
