fi nancialforum Retirement Plans T
The Final Score Max out your 401(k)/ Thriſt Savings Plan each year before you con- tribute to an individual retirement account (IRA), and make sure you have the right IRA.
Advice for determining which retirement account is best for accumulating wealth can be all over the map. Lt. Col. Shane Ostrom, USAF (Ret), CFP®, off ers some insight.
To help you determine whether a 401(k)/Thrift Savings Plan (TSP) or indi- vidual retirement account (IRA) is best for you, score them by account specifi cs. Contribution amounts — 401(k)/TSP
wins: The maximum annual contribution for a 401(k)/TSP is $18,000 ($24,000 for those age 50 and older). Traditional IRAs only allow contributions up to $5,500 ($6,500 for those age 50 and older). However, Roth IRAs have annual in- come restrictions on contributions. Roth IRA income restrictions are $116,000 to $131,000 for singles and $183,000 to $193,000 for married couples. Contribu- tion amounts lessen within the ranges and stop after the top amount. Tax advantages — 401(k)/TSP wins: Those who contribute to a Roth want their tax advantage in retirement. A Roth 401(k)/ TSP with the $18,000/$24,000 maximum contribution provides a greater future tax advantage. Though Roth 401(k)/TSPs do have mandatory required minimum distri- butions (RMDs) at age 70½, you can trans- fer your Roth 401(k)/TSP to a Roth IRA at retirement to continue the tax benefi t. There’s no RMD with a Roth IRA. Those who contribute to a traditional
plan want their tax advantage now. A tradi- tional 401(k)/TSP gives the full deduction off your current taxable income up to the $18,000/$24,000 maximum contribution. Traditional IRA deductions for contribu- tions are reduced for single tax fi lers start- ing at an income of $61,000. After $71,000,
the deduction is lost. The income range is $98,000 to $118,000 for married couples fi l- ing jointly. Traditional IRA deductions are allowed to the full contribution amounts if neither spouse has an employer retirement plan. Contributions still are allowed even if the deduction is not. Investment options — IRA wins: Your IRA should have access to all possible invest- ment options. The TSP is limited to six options, and the majority of 401(k)s have limited investment options. Costs — TSP wins: The TSP is so in-
expensive it’s practically free. The costs of an IRA versus a 401(k) depend on you selecting an inexpensive IRA. Your 401(k) expenses are fi xed by your employer and 401(k) fi rm. Ease of management — IRA wins: The right IRA is easy to manage online. A 401(k)/TSP requires extra administration because of the employer’s plan documents. RMDs — Roth IRA wins: Every retirement account other than a Roth IRA has an RMD obligation at age 70½. Wealth-building potential — 401(k)/TSP
wins: There’s no question here — up to $18,000/$24,000 compounding each year with a 401(k)/TSP versus $5,500/$6,500 compounding each year with an IRA. Plus, the tax advantages help.
MO
— Lt. Col. Shane Ostrom, USAF (Ret), is a CFP® and benefi ts information expert at MOAA. Visit
www.moaa.org/fi nancialcenter for other re- sources. Email specifi c benefi t and fi nance inqui- ries to
beninfo@moaa.org.
online: Find other financial articles and advice at
www.moaa.org/financialfrontlines. 44 MILITARY OFFICER AUGUST 2015
PHOTO: SEAN SHANAHAN
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