Maximum Yearly Contributions to Both TSP IRA & Outside Roth- Separate & Independent?

[Wishful]

My financial adviser says that since TSP is an employer sponsored retirement plan for 2019 you can contribute a maximum of $19,000.00 annually from your salary to your TSP account through the government and up to a maximum of $6,000.00 annually to your Roth IRA account. The maximum contribution limits are independent of each other.
DD is able to do this but I'm unsure if the outside Roth IRA should be part of the 19K total. He say no but I pose this question to the forum because I am not completely satisfied that my adviser is familiar with TSP as we live in NY and almost all of the companies' clients are white-collar private sector-employed types.
I want to advise my DD so I asking our readers if this makes sense. The links provided below were sent to be by the adviser. I read them & it seems to me that the question is that is TSP Traditional IRA an employer sponsored retirement plan? I say yes, but I'm not 100% sure.
BTW: DD was on the phone with TSP on another related matter and they said the 1% govt. contribution does not count towards the 19K cap.

Retirement topics - IRA contribution limits | Internal Revenue Service

Information about IRA contribution limits. Learn about tax deductions, IRAs and work retirement plans, spousal IRAs and more.

www.irs.gov

Can I Fund a Roth IRA and Contribute to My Employer’s Retirement Plan?

You can contribute to both a 401(k) and a Roth IRA, but make sure you understand the rules, regulations, and contribution limitations for each type of account.

www.investopedia.com

 

[okboomer]

My financial adviser says that since TSP is an employer sponsored retirement plan for 2019 you can contribute a maximum of $19,000.00 annually from your salary to your TSP account through the government and up to a maximum of $6,000.00 annually to your Roth IRA account. The maximum contribution limits are independent of each other.
DD is able to do this but I'm unsure if the outside Roth IRA should be part of the 19K total. He say no but I pose this question to the forum because I am not completely satisfied that my adviser is familiar with TSP as we live in NY and almost all of the companies' clients are white-collar private sector-employed types.
I want to advise my DD so I asking our readers if this makes sense. The links provided below were sent to be by the adviser. I read them & it seems to me that the question is that is TSP Traditional IRA an employer sponsored retirement plan? I say yes, but I'm not 100% sure.
BTW: DD was on the phone with TSP on another related matter and they said the 1% govt. contribution does not count towards the 19K cap.

Retirement topics - IRA contribution limits | Internal Revenue Service

Information about IRA contribution limits. Learn about tax deductions, IRAs and work retirement plans, spousal IRAs and more.

www.irs.gov

Can I Fund a Roth IRA and Contribute to My Employer’s Retirement Plan?

You can contribute to both a 401(k) and a Roth IRA, but make sure you understand the rules, regulations, and contribution limitations for each type of account.

www.investopedia.com

Separate amounts is correct.

 

[Capt MJ]

I am not an expert, but a long-time investor. I have simultaneously contributed to Roth IRAs and TSP, and then Roth IRA and Roth 401k, as a civilian.

TSP follows 401k-type rules as an employer-sponsored contributory retirement account.

IRAs are personal retirement investment accounts, following entirely different rules. It is unrelated to employer plans and rules.

 

[Capt MJ]

I am not an expert, but a long-time investor. I have simultaneously contributed to Roth IRAs and TSP, and then Roth IRA and Roth 401k, as a civilian.

TSP follows 401k-type rules as an employer-sponsored contributory retirement account.

IRAs are personal retirement investment accounts, following entirely different rules. It is unrelated to employer plans and rules.

TSP is available to all Federal civilians, and was available to them first, years before the armed services were offered the opportunity to participate. If your adviser has any Fed civilians as clients, it will be routine. TSP is essentially the Fed 401k.

 

[gjayp]

My financial adviser says that since TSP is an employer sponsored retirement plan for 2019 you can contribute a maximum of $19,000.00 annually from your salary to your TSP account through the government and up to a maximum of $6,000.00 annually to your Roth IRA account. The maximum contribution limits are independent of each other.
DD is able to do this but I'm unsure if the outside Roth IRA should be part of the 19K total. He say no but I pose this question to the forum because I am not completely satisfied that my adviser is familiar with TSP as we live in NY and almost all of the companies' clients are white-collar private sector-employed types.
I want to advise my DD so I asking our readers if this makes sense. The links provided below were sent to be by the adviser. I read them & it seems to me that the question is that is TSP Traditional IRA an employer sponsored retirement plan? I say yes, but I'm not 100% sure.
BTW: DD was on the phone with TSP on another related matter and they said the 1% govt. contribution does not count towards the 19K cap.

Retirement topics - IRA contribution limits | Internal Revenue Service

Information about IRA contribution limits. Learn about tax deductions, IRAs and work retirement plans, spousal IRAs and more.

www.irs.gov

Can I Fund a Roth IRA and Contribute to My Employer’s Retirement Plan?

You can contribute to both a 401(k) and a Roth IRA, but make sure you understand the rules, regulations, and contribution limitations for each type of account.

www.investopedia.com

I am an ‘expert’ - your financial advisor is correct - you can do both

Advise I give to young people is - Max the amount that is matched - in the case of TSP 1% - I would probably do 5% at least, then fully fund the Roth IRA, then go back and fund the remainder of the 19,000 as income and budget permits - the Roth has more benefits for a young person and will be more valuable to them long term and they likely will have very low tax liability in their younger years so the TSP’s tax savings are less significant - hope that helps

Ps - this mixed strategy would be adjusted as incomes, tax liabilities, age and budget change over time

 

[Capt MJ]

There is also Roth TSP, an option added more recently.

 

[kp2001]

Roth TSP is where it’s at for young folks.

19k (or 19,500 this year) in a Roth is awesome. For us active duty folks new to a matching program who plan to max the 19k just make sure to even it out so you don’t hit the limit early and miss out on the full 5% match for December pay period.

There’s a Navy EM physician, Joel Schofer, who runs a blog that talks a bit about investing while in the military. It’s mainly geared towards Navy physicians, but the investing stuff (which I think is every Friday) is pretty applicable to everyone. The blog is called mccareer (aka medical corps career).

 

[Wishful]

Thanks to all!

 

[Hurricane12]

I am not a financial expert by any measure, but I am an Officer on active duty who wants to retire comfortably, so maybe I can add a little input.

If your child (or for the active duty folks here) are opted into the new Blended Retirement System (BRS), which they absolutely should be unless they have 10+ years TIS, they get an automatic 1% matching from the government. This increases up to 5% with further service member contributions. Contributions from the service do NOT count against the $19,500 total, but they do stop if the member hits that number from their own contributions prior to the end of the year. The 5% matching isn't a ton (for me it winds up being around $300/mo), but it's free money so I'll take it.
If your daughter is an aviator or has some other type of incentive pay, this is able to be contributed separate from the base pay. The way it works is on the MyPay DFAS website you have options for you to determine the percentage you want to contribute from base pay, incentive pay, and other special pays. You may not contribute BAH.

HURRICANE RECOMMENDATIONS ONLY, NOT SERIOUS FINANCIAL ADVICE:
I contribute 100% of my flight pay and a portion of my base pay. I am now old, so my flight pay is relatively significant.* That all goes direct to the TSP. Even as a 2ndLt, that $125-200/mo adds up over the course of the year.
Base pay contributions I vary based on what's happening and how much I can afford to. On my first deployment where I was on a ship, I dumped large amounts (>20%) into the TSP because I didn't have a ton of expenses. Deployment round 2, I had more expenses, but was still able to contribute a decent amount. When I came home and had more expenses (car, utilities, internet, phone, food, going out, etc.) plus bought a house, I cut that down a lot to closer to 10%. Since then, due to some other life changes and stabilization, I've been able to bump that up a little more to ~15%, which with flight pay puts me right about maxing out the TSP by the end of the year. The magic number you need to hit is around $1600/mo.
In addition to the TSP, I also max out my IRA and try to do so as close to the beginning of the year as possible. In the years I have been unable to max or get close on my TSP, I have still maxed out the IRA. Part of why I can do this is flight pay, part of it is because BAH at my duty station is high and I'm dual income so money is not exactly tight, and part of it is because I am a boring person who has relatively few expenses (car is paid off, have cheap hobbies).

There is little excuse as an officer to not start setting yourself up financially as early as you can. Officers make good money, and the earlier you start the better. Maxing out the IRA and contributing a good amount, like $10k+, to the TSP is completely doable with minimal impact to quality of life and creature comforts.
I didn't start really paying attention to this stuff until I was in flight school for a year or so, and I look back and kind of kick myself for not getting started earlier. I'm likely over $10-15,000 "behind" from where I could have been had I started a little earlier.

*While googling stuff for this post, I just learned that apparently the Navy/USMC makes slightly less at each bump than the Air Force. Hey!! That's not cool!

 

[brewmeist]

I am an ‘expert’ - your financial advisor is correct - you can do both

Advise I give to young people is - Max the amount that is matched - in the case of TSP 1% - I would probably do 5% at least, then fully fund the Roth IRA, then go back and fund the remainder of the 19,000 as income and budget permits - the Roth has more benefits for a young person and will be more valuable to them long term and they likely will have very low tax liability in their younger years so the TSP’s tax savings are less significant

I am a former licensed 'expert' but have changed careers. I agree 100% with all of this.

 

[raimius]

There is little excuse as an officer to not start setting yourself up financially as early as you can. Officers make good money, and the earlier you start the better. Maxing out the IRA and contributing a good amount, like $10k+, to the TSP is completely doable with minimal impact to quality of life and creature comforts.

*While googling stuff for this post, I just learned that apparently the Navy/USMC makes slightly less at each bump than the Air Force. Hey!! That's not cool!

Agreed, assuming one does not have significant student debts. I also recommend young officers immediately start saving (at least) half of any promotion/time in service raises. By doing that, they increase their savings while not experiencing any cut to their disposable income. By the time you hit O-3, it's a significant boost in savings.

Oddly, the AF doesn't pay out the full, Congressionally authorized flight pay amount. ...really sending mixed signals to set up an aircrew retention crisis task force but refuse to pay an already approved amount of flight pay ($100/mo lost out )

 

[GoCubbies]

My financial adviser says that since TSP is an employer sponsored retirement plan for 2019 you can contribute a maximum of $19,000.00 annually from your salary to your TSP account through the government and up to a maximum of $6,000.00 annually to your Roth IRA account. The maximum contribution limits are independent of each other.
DD is able to do this but I'm unsure if the outside Roth IRA should be part of the 19K total. He say no but I pose this question to the forum because I am not completely satisfied that my adviser is familiar with TSP as we live in NY and almost all of the companies' clients are white-collar private sector-employed types.
I want to advise my DD so I asking our readers if this makes sense. The links provided below were sent to be by the adviser. I read them & it seems to me that the question is that is TSP Traditional IRA an employer sponsored retirement plan? I say yes, but I'm not 100% sure.
BTW: DD was on the phone with TSP on another related matter and they said the 1% govt. contribution does not count towards the 19K cap.

Retirement topics - IRA contribution limits | Internal Revenue Service

Information about IRA contribution limits. Learn about tax deductions, IRAs and work retirement plans, spousal IRAs and more.

www.irs.gov

Can I Fund a Roth IRA and Contribute to My Employer’s Retirement Plan?

You can contribute to both a 401(k) and a Roth IRA, but make sure you understand the rules, regulations, and contribution limitations for each type of account.

www.investopedia.com

Are cadets allowed to contribute to TSP while at the academy?

My DD gets $200/month right now. It’s designated as pay, I think, instead of stipend.

If it’s pay, then that’s earned income which can be put into TSP. If she can’t put into the TSP, then I’ll just have her open a Roth IRA with USAA, Vanguard, or T Rowe Price.

She hasn’t spent a penny of the $200 she’s gotten each month since it started right after Beast. She can be putting all that money into TSP, if allowed, instead of sitting in her low interest bank account.

 

[Capt MJ]

No TSP while a cadet or midshipman. They get briefs before graduation, and can go into DFAS to get it rolling for O-1 pay.

Www.tsp.gov has the info on the funds.

DFAS has specific info for AD military here:

https://www.dfas.mil/militarymembers/tspformilitary/tspac.html

She can certainly plow that money into a Roth IRA since it’s earned income. It’s pay.

 

[Wishful]

There are financial experts on this forum however I am not one of them.
I use Fidelity's SPAXX account currently @ 1.24% for a savings account. It's their default account from which you make trades, buy T bills from, etc. & it's FDIC insured. They have debit/credit cards, etc.; it could replace your bank if you wish.
It's never too early to start a Roth account.
She will need to have a USAA account for several reasons, ease of access to Venmo-like transfer of $ between cadets (for ex., splitting the restaurant tab between several cadets; 1 person pays the bill & everyone Venmo's the bill-payer's account for their portion), apply for the Career Starter Loan, etc.

 

[Wishful]

@Capt MJ I think the cadets have to in the BRS so they'll have to enroll in the TSP around graduation.
I think the Class of 2017 was the last class to have the pension option.

 

[AROTC-dad]

As a practicing CFP, I agree with the above posts as well.

Some things to note, especially for newly commissioned junior officers:

• Roth Rocks - Most junior officers will never be in this low of a tax bracket again, so a Roth TSP makes perfect sense as they will have decades of tax-free growth while paying a low tax rate today.
• TSP limits - 2020 TSP, 401(k), 403(b) limits have been raised to $19,500 for those under the age of 50.
• Split decision - You can opt to split your employee deferrals between traditional TSP and Roth TSP, so long as the total does not exceed $19,500.
• Income Limits are high - In 2020, a Roth IRA is phased out partially for a single person beginning at $124,000 MAGI (modified adjusted gross income) and eliminated at $139,000. So most junior officers can indeed contribute to both a Roth IRA and Roth TSP.
• Roth IRA contribution limit - The 2020 IRA contribution maximum is $6,000 regardless if Roth or Traditional (i.e. the total between Roth and Traditional IRA's cannot exceed $6,000).
• Don't be shy - It does no good whatsoever, to open a Roth TSP or Roth IRA and leave the cash in a money fund. Invest it at least in a targeted age fund or the SP500. INVEST for a long time horizon!
• Beware of debt - The ONLY reason you should not be maxing your IRA and TSP contributions is if you have high interest debt. You will get an immediate 20%return on your investment by paying off a high interest credit card of 20%.
• Emergency - Build an after-tax emergency fund - You want to avoid borrowing from your TSP. At least 3 to 6 months of expenses is good for an emergency fund and it should be placed in a high yield savings account earning at least 1.5% annual yield with FDIC insurance. This helps avoid using credit cards and dipping into investments.
• Brokerage Account - Once your emergency fund is fully funded and you're debt free, consider opening an after-tax brokerage account for growth. This fund can be a launching pad to purchase a home down the road, or as another retirement bucket.

 

[Capt MJ]

My additional two cents: Reserve two pots of money for 1/c year:
Pot 1. New uniform buys in the spring. Though some cadet and midshipman uniforms can be updated with new insignia to be worn post-commissioning, some are just too worn. The Marine Corps in particular requires USNA mids going Marine to fully pay for a mandatory set of uniforms and accessories prior to graduation. I know it’s a couple thousand dollars.
Pot 2. A little “fun money,” to celebrate graduation and commissioning, perhaps a trip with buddies to Europe for a last fling before scattering to first duty stations, or a special family trip, etc. If it’s budgeted for, it won’t cause bad decisions such as “I won’t start putting money in my X investment account just yet because I’ve decided to go backpacking in Europe for two weeks.”

 

[HawkeyeMom]

As a practicing CFP, I agree with the above posts as well.

Some things to note, especially for newly commissioned junior officers:

• Roth Rocks - Most junior officers will never be in this low of a tax bracket again, so a Roth TSP makes perfect sense as they will have decades of tax-free growth while paying a low tax rate today.
• TSP limits - 2020 TSP, 401(k), 403(b) limits have been raised to $19,500 for those under the age of 50.
• Split decision - You can opt to split your employee deferrals between traditional TSP and Roth TSP, so long as the total does not exceed $19,500.
• Income Limits are high - In 2020, a Roth IRA is phased out partially for a single person beginning at $124,000 MAGI (modified adjusted gross income) and eliminated at $139,000. So most junior officers can indeed contribute to both a Roth IRA and Roth TSP.
• Roth IRA contribution limit - The 2020 Roth IRA maximum is $6,000.
• Don't be shy - It does no good whatsoever, to open a Roth TSP or Roth IRA and leave the cash in a money fund. Invest it at least in a targeted age fund or the SP500. INVEST for a long time horizon!
• Beware of debt - The ONLY reason you should not be maxing your IRA and TSP contributions is if you have high interest debt. You will get an immediate 20%return on your investment by paying off a high interest credit card of 20%.
• Emergency - Build an after-tax emergency fund - You want to avoid borrowing from your TSP. At least 3 to 6 months of expenses is good for an emergency fund and it should be placed in a high yield savings account earning at least 1.5% annual yield with FDIC insurance. This helps avoid using credit cards and dipping into investments.
• Brokerage Account - Once your emergency fund is fully funded and you're debt free, consider opening an after-tax brokerage account for growth. This fund can be a launching pad to purchase a home down the road, or as another retirement bucket.

Great advice for my children! Thanks!

 

[AROTC-dad]

Reserve two pots of money for 1/c year:

Perhaps also a 3rd Pot, a "transition" fund.

In some cases, when reporting to your first assignment, whether it is BOLC, TBS, or your first duty station after commissioning, the paycheck might not come right away!

In my son's BOLC class, the first Army payroll deposit wasn't received until six weeks after report date. In the meantime, on a PCS, you are placing deposits on utilities. your apartment, etc. While my son was thankfully well prepared from his restaurant job savings, some of his buddies were squeaking by on ramen dinners.

So it is a good idea to make sure you have the necessary funds to "float" by until your first paycheck arrives.

At least a 30 day sustenance fund would be a prudent measure.

 

[VelveteenR]

In some cases, when reporting to your first assignment, whether it is BOLC, TBS, or your first duty station after commissioning, the paycheck might not come right away!

The Army did not resolve the issue with our son's pay until a few weeks ago while he was home over Christmas. He loved that $9,200 deposit. That's right, folks, the Army owed him $9,200 back pay since shorting him from his first O1 paycheck after graduation this past May. After paying rent and all his necessities, he was living on $143/month. Eh. Just forced savings, right?