Roth TSP vs. Roth IRA: How Do They Compare? 

Most people have heard that saving for retirement is important. It can be difficult to even get started with all the different accounts available. Multiple accounts can make it difficult to choose the right one.

This article compares two types of retirement accounts: the Thrift Savings plan and the individual retirement account. Although they share some similarities, the features, requirements and benefits of each account are different.

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Definition of each plan type

What is a Roth TSP and what are its benefits?

The Thrift Savings Plan is a retirement plan that's available to federal employees and military personnel. It is the federal government's version to the 401(k), which most for-profit businesses offer their employees.

Federal employees can use a TSP to save for retirement tax-advantaged. TSP participants can make traditional or Roth contributions just like other retirement plans. This allows them to choose the tax advantage that they desire.

Federal employees can contribute to the TSP. Unlike workplace retirement plans, there are no waiting periods or vesting periods.

What is a Roth IRA and how can I get one?

An individual retirement account (IRA), is a type retirement account that a person opens directly with a brokerage company and not through their employer.

Participants have the option to make traditional or Roth contributions. Each has its tax advantages, just like TSPs and other retirement account. Roth IRAs are subject to stricter eligibility requirements.

You must have earned income in the year you wish to contribute to an IRA. You can contribute no more than 100% of your annual income, or the annual contribution limit.

You must have an income of less than $2,000 per year to be eligible for a Roth IRA. To contribute the entire amount, you must have a income of less that $129,000 for single filers and $204,000 for married filers. Your allowed contributions will begin to decrease after that. You can't contribute to the household if your income exceeds $144,000 for single filers or $214,000 for married filers.

Note:TraditionalIRAs do not have an income limit. However, they have an income cap that you can use to deduct your contributions from your account if you have a retirement plan through an employer.

Similarities between a Roth IRA & a Roth TSP

Let's first look at their similarities before we get into the differences between a Roth TSP or a Roth IRA.

As we have already mentioned, both IRAs and TSPs can make traditional or Roth contributions. Although this article is primarily about Roth accounts, it's useful to understand the differences between them.

Traditional contributions to a TSP/IRA are eligible for a deduction from your taxable income. TSP contributions will be deducted from your salary before taxes. In the case of a traditional IRA you can claim a tax deduction on your income tax return next year.

The money that you have contributed to your traditional TSP/IRA grows tax-deferred. Until you withdraw the funds during retirement, you won't have to pay any taxes again. Your distributions will then be subject to income tax

Roth contributions to a TSP/IRA work exactly as traditional ones. Contributions to these accounts are already taxed so they don't lower your taxable income for the entire year. You won't have to pay tax on these funds again, whether they are in the account or when your retirement income is taken.

Another important difference between a Roth IRA or Roth TSP is that they both have retirement goals. The IRS prohibits you from withdrawing money from the account until you turn 59 1/2. Some exceptions may apply, such as financial hardship. However, withdrawals made before the minimum age are subject to a 10% penalty tax.

What is the difference between Roth IRA and Roth TSP?

As we've seen, Roth TSPs as Roth IRAs share some important similarities. The two types of accounts are far more different than they are alike.

Plan Type

The type of plan that they are is the first thing that distinguishes a TSP from an IRA. TSPs, which are federal employee-sponsored retirement plans, are available to federal employees. To participate, you must be employed by the federal government.

An IRA is an individual account. Anybody with earned income can open an IRA and make contributions through a brokerage company of their choice.

Contribution Limits

TSPs have the same contribution limits as other workplace retirement plans. You can contribute up to $20,000.50 into this account in 2022. For a total contribution limit of $27,000, you can add $6,500 if you are 50 years old or older.

Federal employees can contribute to the TSP, and your contributions are automatically made. For employees who started their service between September 1, 2010 and September 30, 2020, 3% of their salary will be automatically deferred to their TSP. The automatic contribution amount for employees who were hired after October 1, 2020 is 5%.

The contribution limits for IRAs have been reduced significantly. The IRS limits workers' ability to contribute up to $6,000 to an IRA in 2022. TSPs are similar to IRAs. IRAs allow older workers to make a catch-up contribution. The IRA catch-up contribution limit for older workers is $1,000.

IRAs do not have automatic contributions like TSPs. You will need to actively deposit money into your IRA. To ensure that they are actively investing in retirement, many people make a monthly automatic transfer to the account.

Employer Contributions

Participating in a TSP has the advantage of being eligible for employer contributions. First, employees will receive an employer contribution of 1% to their TSP. This contribution is not a matching one. You'll receive it regardless of whether you contribute to your TSP account.

TSP participants will receive an automatic 1% contribution and a matching contribution up to 5% of the pay. Your employer will match any amount you contribute to TSP up to 5% of your income.

Important to remember that the matching contribution also includes the automatic contribution of 1%. If you contribute 5% to your TSP account and your employer contributes 1% to the automatic contribution and 4% for matching contributions, it will total 5%.

IRAs are a different story. These plans are personal and you don't have an employee contributing on your behalf. Therefore, you will only be able to contribute money to the account.


The investment options are another important distinction between a TSP plan and an IRA. TSPs, like other workplace retirement plans have a limited number of investment options that can be selected by the employer (in this instance, the federal government).

TSP participants have five options for fund choices: the G Fund, F Fund, C Fund, S Fund, C Fund, S, Fund, I Fund. These funds offer investors the opportunity to invest in U.S. securities for short-term or index funds that are made up of domestic stocks and international stock.

TSP investors also have the option of lifecycle funds. These funds are very similar to target-date funds found in other retirement plans. The five funds that make up the lifecycle fund are diversified, so you can build a diversifying portfolio from one investment. As you approach retirement, the fund adjusts its risk automatically.

IRAs shine in the area of investment options. IRAs are not limited in terms of what you can invest, unlike workplace retirement plans. You can generally invest in any asset offered by your brokerage firm, including individual stocks, bonds, mutual funds and exchange-traded funds.


Some investors may find the ability to lend loans a significant difference between TSPs & IRAs. TSPs, like 401(k), can offer loans to participants.

A general purpose loan can be taken. It can be used for any purpose and must be repaid in five years. A residential loan can be repaid if the principal residence is being built or purchased. This type of loan can be paid off in 15 years.

TSP loans cannot be made without your contributions. Loans are not available if your employer contributes, both automatic and matching.

IRAs don't offer loans, however. Any withdrawal from the account will be considered permanent and subject to all tax consequences, including the 10% penalty for early withdrawal.

Required Minimum Distributions (RMDs).

The Roth TSPs are different from Roth IRAs in that they can be subject to minimum distributions (RMDs). RMDs are imposed by the IRS on most tax-advantaged retirement accounts. Starting in the year 72, you will have to begin withdrawing a minimum amount. Failure to pay your RMDs can result in a financial penalty.

RMDs apply to traditional IRAs but not to Roth IRAs. You can keep the money in a Roth IRA for as long or as you wish, to either fund your retirement years or pass it on to your heirs. Roth contributions to an IRA are exempt from RMDs.

Which is better for you, Roth IRA or Roth TSP?

Both Roth TSPs as Roth IRAs have their advantages and disadvantages. TSPs offer high contribution limits and automatic or matching contributions from your employer. There are some drawbacks, including a restricted investment selection and the requirement to submit RMDs by 72 years old, even for Roth contributions.

Roth IRAs, on the other hand have lower contribution limits. Due to income limits, Roth IRAs are not available for everyone. It is an individual plan so there are no employer contributions.

Note Even if you are unable to contribute directly to a Roth IRA there are still ways around it. A backdoor Roth IRA is where you first contribute to a traditional IRA, then convert those funds into Roth contributions.

Roth IRAs have other major benefits. They offer a wider range of investment options. You can invest in any investment offered by your brokerage firm through your Roth IRA. Roth IRAs do not have RMDs which makes them a valuable tool for estate planning.

What are the best ways to contribute to TSP or Roth IRA?

We have good news for you if you are having trouble choosing between your Roth IRA and your TSP. You can contribute to both as long as you meet all the requirements.

There are many ways you can balance TSP and IRA contributions. Here's one that many people prefer:

  1. You can start by contributing to your TSP until you reach your full employer contribution. If you have a TSP, you would contribute at least 5% to your employer match and your automatic contribution.
  2. After you have contributed enough to your TSP for your employer match, you can start contributing to your Roth IRA.
  3. Roth IRAs allow for lower contribution limits. If you reach the maximum Roth IRA contribution limit, you can return to contributing to your Roth TSP until you have reached it or as much as you are able.

You don't have to contribute to Roth accounts only. Traditional contributions are available for both IRAs and TSPs. If you feel they are a better tax strategy, you could consider those. Both tax benefits can be taken advantage of by contributing money to a Roth and traditional account.

Our Take

Popular investment accounts are both Roth TSPs or Roth IRAs. Federal employees can access Roth TSPs, and all individuals with earned income within the IRS's limits are eligible for Roth IRAs.

Remember that selecting the right retirement account for you is just one part of the puzzle. To help you achieve your retirement goals, the Personal Capital Retirement Planner is also available. This planner will help you make sure you are on track to reach your retirement goals. It will also tell you how much money you need to retire on time.

Personal Capital: Get started

The author is not a client at Personal Capital Advisors Corporation. He is paid as a freelancer.

This blog post contains general information and is not intended to be legal, tax, or accounting advice. No compensation exceeding $500. For your particular situation, you should speak to a qualified tax or legal professional. Remember that investing comes with risk. Your investment's value will fluctuate over time. You may lose or gain money. Personal Capital Advisors Corporation is a subsidiary owned by Personal Capital. Any reference to advisory services means that Personal Capital Advisors Corporation is referring to them. Personal Capital Advisors Corporation (SEC) is an investment advisor registered with the Securities and Exchange Commission. Registering does not imply any specific skill or training, nor does it imply endorsement of the SEC.

By: Erin Gobler
Title: Roth TSP vs. Roth IRA: How Do They Compare? 
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Published Date: Tue, 13 Sep 2022 15:00:15 +0000

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