Federal retirement can be confusing, especially when it comes the TSP.

And what’s the difference between a Roth TSP vs Traditional TSP?

Mel Stubbs from Christy Capital Management has some helpful info for you.

The information provided is not intended as tax or legal advice. Figures shown are for illustrative purposes only furthermore, the information nor the illustrations provided may not be used to avoid any tax penalties. This content represents the general views of Christy Capital Management and should not be regarded as personalized investment advice Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice. Retirement Benefits Institute, Inc., and a portion of its contents merged with Christy Capital Management Inc. Brandon Christy, former President of Retirement Benefits Institute, is also the current President of Christy Capital Management, Inc, a registered investment adviser….(read more)

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What’s the difference between a Traditional TSP and Roth TSP? | Federal Retirement| #shorts

When it comes to planning for retirement as a federal employee, one of the most important decisions to make is choosing between a Traditional Thrift Savings Plan (TSP) and a Roth TSP. Understanding the differences between these two options can help you determine which one is the best fit for your personal financial goals.

The Traditional TSP operates similarly to a traditional employer-sponsored 401(k) plan. Contributions made to a Traditional TSP are tax-deferred, meaning you don’t pay taxes on the money you contribute today, but you will pay taxes on your withdrawals in retirement. This can be advantageous if you expect to be in a lower tax bracket during retirement.

On the other hand, the Roth TSP works differently. Contributions to a Roth TSP are made with after-tax money, meaning you pay taxes on the amount you contribute now. However, the biggest advantage of a Roth TSP is that your withdrawals in retirement are tax-free, including both your contributions and any investment earnings. This can be beneficial if you expect your tax rate to be higher in retirement.

In terms of contribution limits, both the Traditional and Roth TSP allow eligible federal employees to contribute up to the annual elective deferral limit set by the IRS. As of 2021, this limit is $19,500, with an additional catch-up contribution of $6,500 for those aged 50 and above.

Another factor to consider is employer matching contributions. If you are eligible for matching contributions from your federal agency, these funds will always be deposited into the Traditional TSP, regardless of whether you contribute to the Traditional or Roth TSP. While your contributions to the Roth TSP will not receive matching funds, the match will still be contributed to the Traditional TSP.

One crucial aspect to note is that you are not locked into one choice forever. You have the flexibility to switch between the Traditional and Roth TSP options at any time, and you can also split your contributions between the two. This can be particularly useful if you’re uncertain about future tax rates or expect your financial situation to change.

When deciding between a Traditional TSP and a Roth TSP, it’s essential to consider your current tax situation, future tax expectations, and retirement goals. Consulting with a financial advisor or retirement specialist can provide further guidance in determining the best course of action for your individual circumstances.

In conclusion, the primary difference between a Traditional TSP and Roth TSP lies in the timing of tax payments. While the Traditional TSP allows for tax-deferred contributions and taxable withdrawals in retirement, the Roth TSP involves after-tax contributions and tax-free withdrawals. Consider your tax situation and future goals to make an informed decision about which option is most suitable for you.