TSP contributions can only be made from your federal salary through payroll deduction. As long as you have earned income, your IRA contributions can come from any source. Image: Vitalii Vodolazskyi/Shutterstock.com
By: FEDweek StaffWorkers have had access to Individual Retirement Arrangements since 1974, and federal employees have been able to contribute to the Thrift Savings Plan since 1987. When employer sponsored defined contribution plans, such as the TSP, were introduced, they were patterned after the already existing IRA. However, they were not carbon copies – there are differences between them and lack of understanding these differences will often cause confusion and can sometimes have unpleasant consequences.
Before we get started, be aware that you are allowed to contribute to both the TSP and an IRA. In fact, if you can afford to, you can max out both accounts. In 2024, you can contribute $23,000 to the TSP (an additional $7,500 if you are 50 or older) and $7,000 to an IRA (an additional $1,000 if you are 50 or older).
In addition to the difference in how much you can contribute, here are some other areas where the two retirement savings opportunities differ.
One cannot contribute to a Roth IRA if their income is over certain thresholds ($161,000 for single filers or $240,000 for joint filers in 2024). There is no income level that keeps you from contributing to your Roth TSP
One cannot deduct their contributions to a traditional IRA if they belong to a retirement plan at work (we do) and their income is above a certain level ($87,000 for single filers, $143,000 for joint filers when both spouses belong to a retirement plan at work, or $240,000 for joint filers if only one spouse (you) belongs to a retirement plan at work in 2024). There is no income-based deduction phase-out in the traditional TSP.
TSP contributions can only be made from your federal salary through payroll deduction. As long as you have earned income, your IRA contributions can come from any source.
You are allowed to convert a traditional IRA to a Roth IRA. You are not allowed to take money from your traditional TSP and move it to your Roth TSP. However, under certain circumstances you can roll your traditional TSP into a traditional IRA and your Roth TSP into a Roth IRA.
You must take required minimum distributions from an IRA at age 73 (75 if born in 1961 or later) regardless of whether you’re still working. No RMDs from the TSP are required, regardless of age if you’re still working at your federal job.
If you separate from federal service in the year in which you turn 55 (or later) you will have penalty free access to monies in your Thrift Savings Plan. This is age 50, or any age with 25 years of qualifying special category service, for special category employees. Within an IRA you will be subject to a 10% early withdrawal penalty for anything you take out before reaching the age of 59 ½.
When withdrawing from the Roth TSP, your withdrawals are viewed as coming proportionally from contributions and earnings. When withdrawing from a Roth IRA, your withdrawals come first from contributions, second from conversions, and lastly from earnings.
Don’t assume! Check the rules on IRAs (in IRS Publications 590A and 590B) and the TSP (in Summary of the Thrift Savings Plan) before you act.
Did you know that even though 75% of large employers offer a Roth 401(k), only 14% of their employees invest in the Roth option.
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.
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