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\n\t\t\t\t\tAn IRA should be a supplement to your TSP, not a replacement for it.\t\t\t\t\t Image: g0d4ather\/Shutterstock.com
\n\t\t\t\tBy: John Grobe<\/p>\n
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\n\t\t\t\t\tAn IRA should be a supplement to your TSP, not a replacement for it.\t\t\t\t\t Image: g0d4ather\/Shutterstock.com
\n\t\t\t\tBy: John Grobe<\/p>\n
I\u2019m a crossword puzzle fan. It started when I was commuting to the Loop five days a week. The period of enforced inactivity was perfect for doing a crossword puzzle in the Chicago Tribune.<\/p>\n
I still do crosswords daily, and I do them in ink. I use ink not because I\u2019m so certain of my answers, but because my aging eyes can see it more clearly than in pencil.<\/p>\n
A recent puzzle had the clue \u201c401(k) alternative\u201d, and the three-letter answer was \u201cIRA\u201d. The Thrift Savings Plan is an employer sponsored defined contribution plan just like a 401(k).<\/p>\n
One definition of alternative is \u201cone of two or more available possibilities.\u201d This definition implies that there is a choice available. An IRA is an alternative to a 401(k), but only if you have a 401(k) in which you can participate. That leaves 30% of the workforce without an alternative to an Individual Retirement Arrangement. We federal employees are allowed to participate in the TSP, so an IRA is really an alternative \u2013 isn\u2019t it?<\/p>\n
Another definition of alternative is \u201creplacement\u201d or \u201csubstitute.\u201d I don\u2019t think it would be wise for a federal employee to replace their TSP with an IRA. An IRA should be a supplement to your TSP, not a replacement for it.<\/p>\n
Look at the advantages you get in the TSP that you don\u2019t in an IRA:<\/p>\n
Your agency contributes to the TSP on your behalf. If you contribute enough, you\u2019ll have your agency putting 5% of your salary in.
\nYou get 1% of your salary automatically deposited in your TSP, even if you don\u2019t contribute at all
\nFor the first 3% of your salary that you contribute, you get a dollar-for-dollar match
\nFor the next 2% of your salary that you contribute, you get a fifty-cent on a dollar match<\/p>\n
There are other TSP advantages such as lower expenses, saving by means of payroll deduction, and a higher contribution limit ($23,500 for the TSP versus $7,000 for an IRA).<\/p>\n
As a federal employee saving for retirement, don\u2019t think of an IRA as an alternative to your TSP, but do consider it as a supplement if you have extra retirement funds that you want to save in a tax advantaged account.<\/p>\n
See also: TSP and IRAs: Similarities and Key Differences<\/a> John\u00a0Grobe\u00a0is a retired federal employee and retired retirement educator with over 30 years of experience in helping federal employees understand their retirement.<\/p>\n Agency RIFs, Reorganizations Starting to Take Shape<\/a><\/p>\n Order Formally Launches \u2018Schedule Policy\/Career,\u2019 Adds Category of Appointees<\/a><\/p>\n Top 10 Provisions in the Big Beautiful Bill of Interest to Federal Employees<\/a><\/p>\n A Pre-RIF Checklist for Every Federal Employee, From a Federal Employment Attorney<\/a><\/p>\n Work Longer or Take the FERS Supplement Now: Which is Better?<\/a><\/p>\n See also<\/p>\n Alternative Federal Retirement Options; With Chart<\/a><\/p>\n Primer: Early out, buyout, reduction in force (RIF)<\/a><\/p>\n Retention Standing, \u2018Bump and Retreat\u2019 and More: Report Outlines RIF Process<\/a><\/p>\n Deferred and Postponed Annuities Under CSRS and FERS<\/a><\/p>\n
Workers 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 \u2013 there are differences between them and lack of understanding these differences will often cause confusion and can sometimes have unpleasant consequences.<\/p>\n