How much should a federal employee or retiree have in their Roth TSP and IRAs? This is a great question that someone recently brought up and I thought I would address. Having all in Roth isn’t possible for federal employees, but more tax free income means more flexibility in retirement….(read more)
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The Roth TSP mix is a retirement savings plan for United States federal government employees and military personnel. The plan is a combination of a traditional Thrift Savings Plan and a Roth IRA, offering savers the ability to invest their contributions in both pre-tax and after-tax accounts.
Unlike a traditional TSP, which uses pre-tax dollars, the Roth TSP uses after-tax dollars. This means that employees pay taxes on their contributions upfront, but their withdrawals during retirement are tax-free. The Roth TSP also offers an advantage over a regular Roth IRA since it has a higher annual contribution limit than other Roth retirement accounts.
The Roth TSP offers a mix of investment vehicles, including government securities, common stock index funds, and fixed income index funds. This allows savers to diversify and adjust their investments to match their risk tolerance and financial goals. The mix of investment options also offers the potential for higher returns and lower fees.
It is important to note that the Roth TSP is not an all-or-nothing savings plan. Employees can choose to contribute to both the traditional and Roth TSP plans, or just one of the options. The flexibility of the Roth TSP allows for employees to adjust their contributions as their financial picture changes over time.
One advantage of the Roth TSP mix is that it can help individuals lower their taxes in retirement. Since withdrawals from the Roth TSP are tax-free, individuals who have both Roth and traditional accounts can time their withdrawals in a way that helps manage their tax rate. These savings can add up over time and help individuals manage their retirement income more effectively.
Another advantage of the Roth TSP mix is its portability. Employees who leave the federal government or military can roll over their Roth TSP to another retirement account, such as an IRA or a Roth IRA, without incurring taxes or penalties.
In conclusion, the Roth TSP mix offers federal government employees and military personnel a unique and diversified way to save for retirement. The combination of a traditional and Roth IRA, along with a variety of investment options, provides a flexible and effective way to manage retirement savings. With its potential tax benefits, the Roth TSP mix can be an excellent option for those looking to smoothly transition into retirement.
I really enjoy your content. My son just joined the navy and I’m helping him set up his tsp account, so far I have him investing 15% of his pay into the roth C fund. As someone who never invested into anything I feel I can help him not become me and regretting not starting young.
10-33% taxable, 33% deferred, 33% tax free (not just Roth) also optimized for balanced asset allocation as well as location? Kitces and others have made the argument for NOT converting all IRA/401k funds into Roth for health care deductible.