This may sound like a naive question, but if I will have a defined retirement benefit (about 60% of my highest salary), and I'm also investing as much as I can (about 14% of salary) in a govt. sponsored thrift savings plan (I guess it's equivalent to a 401K), would it still be beneficial to divert some of that money to a traditional or Roth IRA? thank you.
Welcome DCaRoma. We're glad you could join us.The best you can do for yourself is to develop a regular aggressive savings program and to keep increasing the amount of savings as you get raises, etc. Ie, pay yourself first.Doing this gives you the most choices as things come up, you get an opportunity to retire early, or anything unexpected (illness, you lose your job, accidents, etc, etc).So yes, save all you can. And especially if it is for retirement, put as much as you can into all the programs offered. Roth IRA is an excellent choice to max. Traditional IRA is less so--especially if it is non-deductible. So do a Roth if you quality.Once you max all the plans available to you, and have a decent emergency fund, then you move on to taxable investing in the Long Term Buy and Hold style.You are on the right track. By all means, save as much as your budget will allow.Fool on!!
I suspect that you will not be eligible for a deductible IRA (but you spouse may be) so the Roth may make be the only real attractive alternative. The big question to decide about the Roth is if you will be in a higher tax bracket now or when you spend the money. Some states have special treatment for government pensions so this might be a factor as well. Likewise if you might retire in a higher or lower tax state that can also favor different account types. Some unusually fortunate people may very well be in a higher tax bracket the day they turn 65, but even these people will likely not be in as high a tax bracket by the time they are halfway through retirement at the age of 80(assuming that they plan as if they will live to be 95). Many people plan on having a paid off house by the time they retire. If this is the case for you then that will also reduce the amount of income that you need in retirement, which will help, keep you in a lower tax bracket then. You will also not be paying social security taxes then either. My gut feel is that the majority of people won't have the "problem" of having so much money over 30 years of retirement that being in a high tax bracket will be a big a big long term problem. Likewise, setbacks happen and having to unexpectedly retire ten years early could put you in a much lower retirement tax bracket than you expected. Personally I'm taking all the tax deductions I can now, and when I get close to retirement, I will look to see if I can plan a few low-income years to roll some of my money over to a Roth if it looks like high taxes will be a problem. Greg
Since the gov't TSP has such low cost funds, I would first max out that ($15,500 this year, maybe $16K next year?). If you can save more than that, I would fund a Roth, if eligible, then use tax-friendly investments in a regular taxable account at Vanguard or Fidelity.Karen
Thanks Paul -- I appreciate your advice.
Thanks Greg. I appreciate your advice. Bill
Thanks Karen -- Based on your feedback, I think I'm on the right track. Bill.
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