Effective retirement planning in Virginia isn’t just about knowing your options — it’s about developing a strategy using those options to help make the most of your efforts. In our last blog about Roth Thrift Savings Plan (TSP) and Roth IRA accounts for federal employees, we explored the fundamental differences between these retirement savings vehicles. Now, we’ll dive deeper into tips, insights, and common scenarios to consider when creating a Roth account strategy to align with your long-term savings goals and vision.
Building a Roth Contribution Strategy: What Federal Employees Should Know
Many federal employees assume that successful retirement planning in Virginia means choosing between a Roth TSP or a Roth IRA. While a common approach typically begins with contributing to your TSP for the employer match, it’s important to know that for some federal workers, there can be significant savings power in a dual account strategy.
The first thing to know when building a Roth contribution strategy: These accounts are not interchangeable. Yes, both vehicles allow for post-tax contributions. However, the Roth TSP offers higher contribution limits and employer matching, while the Roth IRA provides more investment flexibility. Using both effectively can potentially be a game-changer for long-term tax-free growth.
Key Factors To Consider
When developing your approach, the goal isn’t just to contribute — it’s to contribute strategically, starting with your contribution capacity. Remember, it’s not just about knowing how much you can save for the future; it’s also about knowing how much you can still spend to enjoy your life now. When tapping into the unique components of these accounts to maximize results, consider factors such as:
- Contribution Limits
- Income Restrictions
- Employer Matching
- Withdrawal Rules
An experienced financial advisor can provide insight into these components and how to best leverage them for your specific financial needs and future vision.
Tax Planning Considerations
Tax strategy should always play a key role in your contribution decisions. Having access to both Roth accounts allows you to better manage tax implications during retirement through strategic withdrawals and create tax diversification that can protect against future tax rate changes
Additionally, one of the biggest mistakes federal employees make is contributing to these accounts without considering the long-term picture of your tax bracket now versus your tax bracket in retirement. If you expect to be in a higher tax bracket in retirement, prioritizing Roth contributions may make the most sense — you lock in today’s tax rate and withdraw tax-free later. However, if you expect to be in a lower tax bracket in retirement, traditional pre-tax contributions may be preferable to lower taxable income now.
Common Roth Savings Account Scenarios For Federal Employees
Here are some common scenarios that take these factors into consideration:
Scenario 1: Early Career Federal Employee Building Wealth
Sarah is an early-career federal employee earning $65,000 annually. Sarah recently transitioned from the private sector to federal service. Her current tax bracket and income level create an ideal opportunity to utilize both accounts. She can contribute enough to her Roth TSP to receive her full employer match while still having the capacity to fund a Roth IRA. While this dual approach does not provide any immediate tax savings due to Sarah’s low tax bracket, it could provide significant tax savings in retirement as she will likely be in a higher bracket then.
Scenario 2: Federal Employee with Catch-Up Contributions
Jake’s combined federal and Army pension income of $150,000 enables maximum contributions. At 52, his TSP Roth optimization includes the full $23,500 plus a $7,500 catch-up contribution to his TSP. He also contributes the maximum amount of $7,000 to his Roth IRA with an additional $1,000 catch-up contribution. By year-end, his total annual savings will reach $39,000, plus matching, demonstrating effective use of both accounts.
Scenario 3: High-Income Couple Above Phase-Out Limits
With a combined income of $450,000, Michael and Jenn face IRA income limits but maximize multiple retirement channels. Michael contributes the full $23,500 to his Roth TSP plus $7,500 in catch-up contributions. Jennifer’s position as a defense contractor allows her to utilize the Mega Backdoor Roth strategy through her 401(k), which permits after-tax contributions and in-plan Roth conversions. Despite income limitations, their combined approach creates substantial tax-free retirement savings.
Advanced Strategies for Federal Employees
There is no one-size-fits-all answer when it comes to any retirement planning approach. Instead, structuring contributions effectively depends on an individual’s income level, savings goals, and future tax situation. Some advanced strategies to discuss with your financial advisor when developing your priorities and approach may include:
Conversion Ladder
A Roth conversion ladder allows federal employees to gradually convert pre-tax retirement accounts (such as Traditional TSP or IRAs) into Roth accounts. When done correctly, a conversion ladder allows individuals to create a tax-free income stream that can be accessed before reaching the age 59 ½. This approach can be beneficial if you’re looking to retire early. It can also provide advantages if you expect to have lower taxable income years before Social Security or pension income kicks in. By converting in stages, you may avoid pushing yourself into a higher tax bracket.
Backdoor Strategy
For federal employees who earn too much to contribute directly to a Roth IRA, the Backdoor Roth IRA strategy provides a legal workaround to gain access to tax-free retirement savings. This approach involves making a non-deductible contribution to a Traditional IRA and then converting those funds into a Roth IRA. Since there are no income limits on Roth conversions, this effectively bypasses Roth IRA income restrictions. However, federal employees should be mindful of the pro-rata rule, which can create unexpected tax consequences if they have existing pre-tax IRA balances. Working with a tax professional or financial advisor can help ensure the conversion is done strategically to maximize Roth benefits while minimizing tax liability.
Mega Backdoor
While federal employees cannot currently utilize the Mega Backdoor Roth strategy within their Thrift Savings Plan (TSP), this powerful retirement savings tool may still be accessible through alternative means. For 2025, the Mega Backdoor Roth allows eligible individuals to contribute up to $70,000 (or $77,500 for those 50 and older) to Roth accounts. Additionally, according to a recent NerdWallet article, people ages 60 to 63 are eligible for a catch-up contribution of up to $11,250 for a maximum savings of $81,250. Federal workers who have their own business or have a spouse who is self-employed might leverage this strategy through a Solo 401(k) if it allows after-tax contributions and in-plan Roth conversions.
Implementation Guide: Steps to Turning Strategy into Action
Some potential steps to take when developing and implementing your strategy include:
Step 1: Assess Your Tax Situation
Evaluate current vs. future tax bracket projections to determine the best contribution mix between post-tax and pre-tax accounts.
Step 2: Max Out Roth TSP First
Federal employees should prioritize contributions to capture the full 5% employer match before considering other accounts.
Step 3: Determine Roth IRA Eligibility
If MAGI permits, contribute directly to a Roth IRA. If not, consider using the Backdoor Roth strategy.
Step 4: Balance Tax Diversification
For those uncertain about future tax rates, splitting contributions between post-tax and traditional accounts offers flexibility in retirement withdrawals.
Step 5: Review Annually
Last but certainly not least, it’s essential to review your retirement savings strategy every year to see what’s working — and what requires adjustments. Tax laws and your income can (and do) change. Working with your financial advisor to assess your contribution strategy every year can help keep your strategy aligned with your financial goals.
Smart Savings Strategies Start with Action — Take the First Step Today
The most important step in an effective retirement planning strategy is to start saving. Taking action today is critical to attaining the goals of tomorrow. At Good Life Financial Advisors of NOVA, we help federal employees develop tailored retirement strategies that leverage these opportunities to support their specific needs and lifestyles. Schedule a call with us today to learn more about our personalized approach to retirement savings.
We’ll have a short conversation to see if we’re a good fit for each other.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification mark CERTIFIED FINANCIAL PLANNERTM in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.
