The Thrift Savings Plan is a great retirement account for military members. And starting in 2018, military members who participate in the Blended Retirement System (BRS) will be eligible to receive matching contributions to their TSP. Prior to the BRS, military members were not eligible for matching TSP contributions. However, civil service and other government TSP participants are eligible for agency matching contributions, up to 5% of their base pay.
While the TSP is a great way to save for retirement, it’s not the only way to save. Many TSP participants also choose to invest in other accounts, including other retirement accounts such as an IRA, or in a taxable investment account. In this case, a taxable account simply means it does not offer any tax deferred advantages that retirement accounts such as IRAs, TSPs, 401k plans, and similar retirement plans offer. But taxable accounts offer other advantages, namely low long-term capital gains tax rates, and access to your funds at any time without penalty – not just when you reach retirement age.
Can I Invest in the TSP and an IRA?
A reader recently sent us this question:
I am a military veteran who transitioned to the civil service. I participate in the Roth Thrift Savings Plan, and contribute 5% of may paycheck to take advantage of the agency match. This gives me a total of 10% of my paycheck into my TSP. I still want to invest more for my retirement. Is the Roth TSP separate from a Roth IRA that I can open at USAA or another brokerage firm? In other words, can I contribute up to the $18,500 TSP limit and still contribute up to $5,500 in a Roth IRA? (I am under age 50, so the catch-up limits don’t apply to me). Thank you in advance!
Jimmy S.
Hello Jimmy,
What a great question. Yes, these are separate investments, and have separate contribution limits. You can participate in both retirement plans in the same year.
A good way to consider your retirement accounts is as two different buckets of money for retirement savings. Let’s take a look at your TSP and your IRA as different buckets of money, and how they work together for your retirement.
Employer Sponsored Retirement Plan Bucket (TSP)
The TSP is an employer sponsored retirement plan, similar to a 401k, 403b, and other deferred compensation plans. Contributions to these plans are offered by your employer and contributions can only be made from your paycheck. All of these plans share the same annual contribution limit of $18,500 for 2018, plus the catch-up contribution if you are over age 50.
In fact, these employer sponsored retirement plans share the same bucket, so if you are eligible for both a TSP and a 401k, your contributions can’t exceed the $18,500 contribution limit across both accounts. This is important to note, especially if you change jobs during a given year, or if your are eligible for more than one employer sponsored retirement plan.
This may not apply to everyone, but it can actually be common for members of the National Guard and Reserves who qualify for the uniformed services Thrift Savings Plan, and often have a civilian employer sponsored retirement plan such as the civil service TSP, or a 401k. Yes, you can have two separate, and active, Thrift Savings Plan accounts! But they both share the same annual contribution limit.
Contributing to more than one employer sponsored retirement plan in a tax year: Since these plans share the same contribution limit, you need to be careful not to exceed the shared annual contribution limit. If your limit is $18,500, you can contribute the entire amount in one account, or across two or more accounts (example, $10,000 in one account and $8,500 in another), so long as it does not exceed the limit for your age.
Where can you open an employer sponsored retirement plan? As the name implies, you can only open your employer sponsored retirement plan through your employer. In your case, this will be the Thrift Savings Plan. But if you were to change jobs, you would need to contact your Human Resources office for more information.
Individual Retirement Account Bucket
An IRA is an Individual Retirement Arrangement (also referred to as Individual Retirement Account). These are separate from employer plans, and individuals can contribute on their own if they wish. The limit for 2018 is $5,500, with a $1,000 catch up contribution limit for those age 50 and older.
IRAs are a completely different bucket than your employer sponsored retirement accounts, and eligibility for one account doesn’t impact eligibility for the other, nor does it impact your ability to make contributions to those accounts.
Where can you open an IRA? IRAs can be opened in many places, including banks, mutual fund firms, brokerage accounts, and through investment advisors. I generally recommend people open an IRA at an investment company that offers a wide range of investments, such as index funds and mutual funds. This gives them a wide range of low-cost investment options to choose from.
USAA is a great place to open your IRA if you already have a banking or brokerage account with them. They have a nice variety of investment options to choose from. We also recommend this list of brokerages for opening an IRA if you want more places to choose from.
How Many Retirement Accounts Can You Have?
We just established that you can have both an active Thrift Savings Plan account and an IRA. But you can actually have more retirement accounts than just these two. How many retirement accounts can you have?
There isn’t really a limit to the number of retirement accounts you can have. In fact, it’s actually common for people to have multiple retirement accounts, especially if they have changed jobs and have had more than one 401k, TSP, or similar retirement account. Many people choose to leave their old accounts with their former employer. Personally, I’m a fan of combining accounts when possible (more on this below).
Above we gave an example of Guard and Reserve members who can have two separate active Thrift Savings Plan accounts, or an active TSP account and a civilian 401k or similar retirement plan.
Of course, you can also open a Traditional or Roth IRA. You can have multiple IRAs as well, you just can’t contribute more than the annual contribution limit in any given year. Like employer sponsored retirement accounts, your IRAs share an annual contribution limit. You can split the contribution between both types of accounts (Traditional and Roth, such as $3,000 in one account and $2,500 in another), or contribute the max to just one account. It’s all up to you.
How Much Can You Contribute to Your Retirement Accounts?
The better question to ask, instead of how many retirement accounts can you have, is how much can you contribute to your retirement accounts in any given year. We can help you there:
- Annual IRA Contribution Limits
- Annual 401k Contribution Limits
- Annual Thrift Savings Plan Contribution Limits
The referenced articles include current and historic contribution limits, as well as catch up contribution limits for those age 50 and over, and income limits for IRA contributions (there are certain eligibility rules for Traditional and Roth IRA contributions).
Consolidate Retirement Accounts When Possible – it Makes Your Life Easier!
My personal preference is to consolidate financial and retirement accounts when possible. That makes it easier to manage your TSP and investment portfolio and know where your retirement funds are. Sometimes it’s not possible to consolidate your financial accounts, either because they are still active, or you are taking advantage of certain investment opportunities that are only in that account.
If that is the case, then I recommend using software to help manage your portfolio and keep things on track. The best free tool for doing that is a tool called Personal Capital, which offers a free asset allocation tool to help you understand your portfolio’s allocation, and make changes to bring your portfolio in line with your desired investment mix.
You can learn more or sign up for a free account at the Personal Capital website.
