"maxing out" TSP, 401, etc.

[Anonymous]

Anonymous wrote:

PP, this is awesome. Good for you. Could you expand on the traditional IRA/SEP transferred to the TSP? I didn't realize you could transfer your traditional IRA there. Am also curious to know, given that you're so savvy, why traditional IRA instead of Roth IRA for yourself? TIA

To transfer a traditional IRA, SIMPLE IRA, SEP-IRA, solo 401k, traditional 401k or even a Roth 401k (very rare atm) into your TSP account, just use form TSP-60 (TSP-60-R for a Roth 401k transfer): https://www.tsp.gov/PDF/formspubs/tsp-60.pdf Roth IRAs are currently ineligible to be transferred into TSP, but may be in the future. You may have to guide your teller on filling out the trustee section if your funds are at a bank or credit union, as the form is a little involved. Always use the term "transfer" not "rollover" in all communications. (A transfer classified as a rollover may trigger a taxable event if your timing gets sloppy.) Get a cashier's check for your transfer amount and send it certified to the TSP in Birmingham, Alabama along with form TSP-60. You're going to have to do some legwork if you're trying to transfer in a 401k from a former employer. Vanguard is a lot easier...just tell them what you'd like to do and they'll make it happen with a couple of steps.

As for the other question, I'm still not sold on the benefits of the Roth while working a salaried career-track-type job. (But at a low-paying, lightly-taxed job, by all means put as much as you can into Roth.) For example, if tax rates are exactly the same at some point 30..40..50 years in the future as they are today, the net result of funding either a traditional or Roth IRA are exactly the same. If tax rates are higher the future, you came out ahead if you used Roth. If takes rates are lower, you win with traditional contributions by getting a "double" tax break both now and in the future. Who knows? Maybe they will, maybe they won't, but I'm a big fan of the bird-in-hand. Also, I think I mentioned that the traditional IRA deduction does get phased out entirely at an income over $71k currently, so eventually I'll get forced in to a Roth IRA solely by increase in salary...hopefully.

[Anonymous]

And to add on to the traditional preference...in retirement you're able to "pick your income" out of your 3-legged stool by adjusting TSP monthly withdrawals. You get more options to avoid taxes on your retirement funds with traditional tax-deferred contributions when going this route.

[Anonymous]

doesnt anyone pay Alternative Minimum Tax? I have hit that almost every year. Makes some of the income reduction moot w/ the AMT. Limits the amount of itemized deductions b/c of the AMT. the offset is finding a balance between what i can contribute to 401k and still get a real benefit from it since it lowers MAGI.