Can Federal Employees Contribute to a Roth IRA?
Roth individual retirement arrangements are accounts set up by individuals, rather than employers, that offer after-tax savings. Though the Internal Revenue Service imposes restrictions on who can contribute to a Roth IRA, who you work for isn't one of them; thus, federal employees who meet other requirements can contribute.
You must have compensation during the year, which includes all of your income from working. Salary paid to federal employees counts as such compensation, as does nontaxable combat pay, for the purpose of contributing to a Roth IRA. If your compensation is less than your contribution limit, your compensation becomes your contribution limit. As of 2013, the limit is $6,500 if you're 50 and up to $5,500 if you're younger.
The IRS also requires that your modified adjusted gross income fall below the annual limits for your filing status. The limits change each year to adjust for inflation. If you're making too much, you can't contribute. Your modified adjusted gross income includes all taxable income -- not just your compensation. For example, if you have substantial investment income, you could find yourself over the limit even if your compensation alone is significantly below the limits.
Instead of setting an all-or-nothing limit, the IRS phases out your ability to contribute to a Roth IRA as your income increases. For example, in 2013 if you're single the phaseout range runs from $112,000 to $127,000. If your MAGI is $112,000 or under, you can make a full contribution. As your income increases above $112,000, your contribution limit goes down. When your MAGI hits $127,000, your ability to contribute disappears completely. For married couples in 2013, the phaseout range is $178,000 to $188,000.
Roth Thrift Savings Plans
Roth thrift savings plans are completely separate from Roth IRAs. So, if you participate in a Roth TSP, you can still contribute to Roth IRA, assuming you still meet the other requirements. For example, in 2013 you can contribute up to $17,500 of your salary into your Roth TSP ($23,000 if you're 50 or older) and up to $5,500 to your TSP ($6,500 if you're 50 or older). If you max out both accounts, you can save up to $23,000 ($29,500 if you're 50 or older) in after-tax dollars per year. (ref 4) Plus, since both Roth IRAs and Roth TSPs are after-tax accounts, you can roll money from your Roth TSP into your Roth IRA when you leave your job without having to pay taxes on the transfer. However, you can't transfer your Roth IRA funds into a Roth TSP. (ref 3)
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."