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Difference between the Roth TSP and Roth IRA?

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What is the Thrift Savings Plan?

A retirement plan run by the Federal Retirement Thrift Investment Board for members of the United States military and federal government civilian employees.

The Thrift Savings Plan (TSP) is the U.S. government’s version of the 401(k) retirement plan.

The Thrift Savings Plan offers a number of benefits. To learn more, read the Thrift Savings Plan (TSP): A Guide to Retirement for Veterans.

Is the Roth TSP the same as the Roth IRA?

No, it isn’t.

What?! 

Trust me, I was just as confused until I did some research. They have some similarities, such as using Roth in their name, but otherwise, are very different. 

Roth TSP and Roth IRA Similarities

Let’s look at what makes them similar.

  • The Roth TSP and Roth IRA are both considered “after-tax accounts.” Which means the account holder is taxed on the contributions — withdrawals are tax-free, as long as they meet the requirements. This makes finances less stressful during retirement.
  • Both require a waiting period of 5 years before withdrawals can be made. While withdrawals are tax-free, both the Roth TSP and Roth IRA have a 5-year waiting period. The account holder is allowed to take out funds once they’ve reached the designated age of 59 ½, as long as the account has been open for 5 years or more.

Roth TSP and Roth IRA Differences

Now that we know what makes them similar. Let’s look at what’s really important — the differences.

  • Contribution limits for the Roth TSP are higher than Roth IRA. Roth TSP accounts have a limit of $19,000 for those under 50, or $25,000 for those 50+. Roth IRAs on the other hand, have a limit of $6,000 for those under 50, or $7,000 for those 50+.
  • Employers can’t match contributions to a Roth IRA. They can for a Roth TSP.
  • While Roth IRAs don’t allow account holders to take loans out, Roth TSPs do. The Roth TSP allows you to borrow up to 50% of your vested balance, or up to $50,000.
  • Roth TSP accounts have no income caps, but Roth IRAs do. This means no matter what your total household income is, you can still choose to defer up to the $19,000 (or $25,000 if you are over the age 50) to the TSP Roth.
  • In a Roth IRA, you never have to take required distributions, regardless of your age. In the Roth TSP, you are required to take minimum distributions beginning at age 70 ½ (if you are still working at your federal job, no distributions are required).
  • You are allowed to roll money from a Traditional IRA into a Roth IRA, regardless of your income (and you’ll pay taxes on the amount you transfer into the Roth). Within the TSP you are not allowed to roll or transfer money from your traditional balance into your Roth balance.
  • In a Roth IRA, all withdrawals come first from contributions and are taken from earnings only after the amount due to contributions have been exhausted. If you withdraw from your Roth TSP, those withdrawals are viewed as coming proportionately from your contributions and earnings.

Note: The Roth TSP and Traditional TSP share the same limit, so you can’t contribute $19,000 to each. 

Conclusion

Hopefully, this clears up some confusion!

As I mentioned, there are a few similarities — with one being the name “Roth” which causes the most CONFUSION!

As you can see though, there are some major differences when it comes to the Roth TSP and Roth IRA.

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