Hi, I am 19M and I am currently an e-2 in the military. I have by defaulted 5% of my paycheck every month going to my traditional ira. However, I have a separate fidelity account (my personal investment account) that is a Roth IRA that I put 500 extra of my paycheck monthly into it. I am on my way to maxing out the 7k cap per year of the Roth IRA. My question was since u cannot exceed the 7k limit on traditional and Roth ira what should I be doing because I have the traditional ira under the military but I have a Roth ira on my personal account. Thanks in advance guys.
Note: I also have a separate Robinhood account that is not an ira (don’t know if that information matters)
Posted by Acrobatic_Tap6315
4 Comments
The TSP is not an IRA and has a separate limit. Your TSP contributions don’t affect your IRA limit or vice versa.
Think of them as separate pots of money.
TSP (Roth or Traditional) has a limit of 23,500 (with some caveats) annually.
An IRA (Roth or Traditional) has a limit of 7,000.
Big kudos to you for tackling both, and ensuring you’re getting the 5% match.
Regarding your Robinhood account, if it’s not “tax advantaged” (its not a 401K/TSP, IRA, HSA etc.), I think most people would say you should maximize your TSP and ROTH first before doing anything in a taxable brokerage.
First question would be – do you have an emergency fund?
There have been times when the fiscal budget gets delayed and the Military isn’t getting paid but has the promise of getting back paid after the budget is signed. This has happened and pushed newly enlisted troops into a panic when they may not have enough liquid cash saved up for potentially 2+ months of no paycheck.
– If you’re in the dorms and on a meal card, this would still be something good to have.
– budget for 3-month expenses as a good starting point and put it into a High Yield Savings account or Money Market account with Fidelity (most are getting around 3.5% or higher which beats out any normal bank’s savings account).
– money set aside for car issues etc.
As an option, you could just do TSP since the expenses/fees are very low.
Alternatively keeping the ROTH IRA is good since you can withdraw contributions if you need to for some reason (emergency in the future.).
While you might not think you need an emergency fund now, I would definitely prioritize that to ensure you’ve got a solid foundation to fall back in before diving head first into the rest of investing.
Great job getting ahead on money, especially at your age.
The other comments are helpful, but the only suggestion I would add is to shift your TSP contributions from traditional to Roth. At your income, traditional is no necessarily the best way to contribute to TSP.
Start a cash management account at Fidelity and save a couple months pay as an emergency fund. Once you max out TSP and Roth IRA you can invest in something like VT in your brokerage account. Stacking cash at your rank is very wise! I was a PV2 many moons ago and knew nothing about investing. Keep it up and stay the course.