It’s generally a smart idea to start saving for retirement by putting away as much as you can, as early as you can. The longer your money is in a savings plan, the longer it can work for you. If you are eligible for the federal government’s Thrift Savings Plan (TSP), you can easily have a portion of your income taken out of every check and set aside. An individual retirement account (IRA) is a bit more effort, but well worth the trouble. Both programs have limits, but they don’t conflict with one another.
The Thrift Savings Plan is the federal government’s retirement plan, and is open to both military and civilian personnel. Not all employees can participate, but most are eligible. The plan is similar to a 401(k), usually providing for matching employer funds for a portion of an employee’s contributions. Military members and some civilians may not qualify for matching funds, so it’s important to check your plan documents to be sure you understand your situation. Contributions to a TSP are taken out of your pay prior to taxes being figured, so taxes are due at the time you begin to withdraw from your TSP.
Roth IRA Basics
A Roth individual retirement account (IRA) is a personal savings plan funded with after-tax dollars. If you want a Roth IRA, it’s up to you to open one; IRAs are not work-related retirement funds. As individual accounts, they are also not eligible for employer matching. Since you have already paid taxes on any funds you contribute to a Roth IRA, you don’t have to pay taxes when you remove the funds. This is true not only for your original investment dollars, but also for any earnings your IRA makes.
Roth IRA Contributions
Participation in a Roth IRA is based on your annual modified adjusted gross income (MAGI). If you are married, filing jointly, and your income is above the 2012 annual limit of $183,000, you can’t contribute to a Roth IRA that year. If your income is under the maximum, you can contribute up to $5,000 per year, or $6,000 for those 50 or older. The IRS has additional rules about minimum income and a phase-out of contributions if you make between $173,000 and $183,000 annually. You can contribute the maximum amount to your Roth IRA regardless of how much you put into your TSP account.
As long as you're eligible to participate in the TSP, you can contribute up to $17,000 annually to your account as of 2012. For those in the military, this amount represents the total allowable contribution from all types of pay combined, including basic pay, special pay, bonus pay and incentive pay. It does not apply to traditional contributions from tax-exempt pay resulting from deployment to a combat zone. While there may be additional restrictions on your contributions due to your specific employment, your Roth IRA contributions aren't figured into the total and don't affect your TSP maximum.