Author: jeo0120 Date: 11/15/01 10:41 PM Number: 32551
I am 29 years old and I recently
started a new job working for the federal government. Until the middle of January, I am eligible to enroll in a tax deferred savings plan (TSP) in which I am allowed to contribute up to 7% of my pre-tax income.
There are no matching contributions by the employer. Both my wife and I also have Roth IRA's. Here is my question: Since my wife and I are eligible to contribute the maximum amount to our IRA's right now, am I better off enrolling in the TSP or should I pass on the TSP and max out my Roth IRA instead?

The answer to this depends on your income level now compared to when you are retired. If your income is low now, as is common for people starting out, the the Roth IRA is favored, because you will pay taxes at your very low current rate, and when you retire, you will take the money out of the Roth tax-free.

Then, as your income grows, and your tax rate increases, you would want to switch to the TSP to get the tax break. Of course, at this point, you might want to start a Traditional (deductable) IRA and contribute to that in additional to the TSP.

rk