Check out “Building Wealth in The TSP” on Amazon:
Check out the full article here:
Check out my courses here:
Check out my articles on FedSmith here:
Dallen Haws at Haws Financial Planning
Sierra Vista, AZ
Want to work with me? Click here:
…(read more)
LEARN MORE ABOUT: Thrift Savings Plans
REVEALED: Best Investment During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
When it comes to retirement planning and investing, the Roth TSP (Thrift Savings Plan) can be an excellent option for many individuals. However, there are certain situations where utilizing the Roth TSP may not be the most suitable choice. By understanding these scenarios, individuals can make more informed decisions regarding their retirement savings.
Firstly, it is important to note that the Roth TSP is a post-tax retirement savings account. This means that individuals contribute funds that have already been taxed, and qualified distributions are tax-free in retirement. Conversely, the Traditional TSP allows individuals to contribute pre-tax dollars, potentially lowering their current tax liabilities, but distributions are taxed at retirement. Therefore, a key consideration in determining whether or not to utilize the Roth TSP is the current and future tax bracket of the individual.
If an individual is currently in a higher tax bracket and expects to be in a lower tax bracket during retirement, it may be more advantageous to contribute to the Traditional TSP. By deferring taxes until retirement and potentially paying them at a lower rate, individuals can potentially save money in the long run. However, if an individual is currently in a lower tax bracket and anticipates being in a higher tax bracket in retirement, the Roth TSP may be a better fit as it allows individuals to pay taxes now at a lower rate and enjoy tax-free distributions later.
Another situation where the Roth TSP may not be the best option is if an individual expects to have a lower income in retirement. If an individual foresees a decrease in income during their retirement years, it may be more financially prudent to contribute to the Traditional TSP. By taking advantage of current tax deductions and potentially lowering their tax rate during retirement, individuals can maximize their retirement savings.
Furthermore, for individuals who require immediate tax deductions, such as those in high-income brackets, contributing to the Traditional TSP can result in significant tax savings in the present. This allows individuals to invest these savings elsewhere, potentially experiencing higher returns. Although Roth TSP contributions do not provide immediate tax benefits, they offer the advantage of tax-free distributions in retirement.
Lastly, it is important to note that the Roth TSP has income limitations. As of 2021, individuals who earn more than a certain threshold ($139,000 for single filers, $206,000 for married individuals filing jointly) are not eligible to contribute directly to a Roth TSP. In such cases, utilizing the Traditional TSP may be the only option for retirement savings within the TSP.
In conclusion, while the Roth TSP can be an excellent investment vehicle for many individuals, there are certain situations where it may not be the most suitable choice. Factors such as current and future tax brackets, expected income in retirement, immediate tax deductions, and income limitations should all be carefully considered when deciding between the Roth or Traditional TSP. By evaluating these factors and consulting with a financial advisor, individuals can make informed decisions and optimize their retirement savings.
Can you put money in Roth TSP even if you are maxing your Regular TSP?
Taxes are relatively low when compared to historic rates. Does anyone think that a country $32T in debt is going to climb out of that hole without raising taxes?
What do you mean…"your income is super high"… thank you…
Before blanket statements are made comparing Roth to Regular TSP you must know EXACTLY how the state you work in now taxes the pension of a federal civil servant. Approx. 9 states that normally have income taxes (e.g. NY and PA) consider the TSP "part of" their civil servants pension and DO NOT tax it on withdrawal in retirement. This is significant because if you work in one of these states (and assuming you will retire there) and contribute to the regular TSP – you can escape state taxes altogether (which are not insignificant in states like NY) by contributing to the regular TSP. As unbelievable as it seems the money is not state taxed going into the regular TSP AND it is not state taxed when withdrawn as it is considered "part of" the civil servants pension in these states. However – if you contribute to the Roth TSP – you will pay state taxes on the money going in. Everything else being equal- you are actually losing money by contributing to the Roth TSP instead of the regular TSP in these states.
What do you consider making “tons of money” when Roth doesn’t make sense?
Wonderful video! (“Preface” should be pronounced “PREFF us,” though.)
My question is, what is a high income in the federal employment?
Is that over $100k?
So what about I’m living in a tax free state, then i won’t pay much tax if I do Traditional now I get some tax benefit when I do return. We need more examples on this matter more I hear about it I get more confused.
How much is “high” income? Can you please give a salary range on what you consider high? Thanks.
Thank you, This was so informative and helpful to me,
Theres couple more reasons in todays world not to use roth even when you are not vlose to retirment. Please correct me if I am wrong.
1. If you want to reduce your AGI for student loan forgiveness the ROTH TSP does not help lower that
2. Whybuse ROTH when a private brokerage like fidelty and robinhood can help you keep more control over liquidity and allocation
Can I rollover a TSP traditional or Roth TSP to a Roth IRA while I’m still employed? Does the government still tax the interest on the Roth IRA?
Ok if I’m still working for the government at 70 years old, making over $100,000 yr, drawing social security at $3,000 month, do you think I should retire? Can I rollover TSP traditional or Roth TSP to a Roth IRA while still employed or just wait till I completely retire?
It doesnt have to be a binary decision.. You can contribute to both as well. With my civilian federal position I do 5% traditional and 5% Roth. On the military side (when I'm activated/placed on orders), it's 20% Roth. Now, I should do it the other way, but just haven't changed it in 10+ years. Now, where the Roth TSP helps out is when a service member is serving in a Combat Tax Exclusion Zone (CTEZ). He/she can contribute to the Roth and will receive ALL of their federal and state income tax back (as long as their salary isn't higher than the highest E-9).
I'm sorry if I confused some folks here. Bottom line, great information to find out EARLY and not wait. You're only cheating yourself by waiting. Great video, Sir and thank you for educating us.
Is the Roth TSP subject to RMD? If so than why?
Is there a way I would be able to liquidate and withdrawal my account while active duty? I plan on getting out of the service next year, but wanted to withdrawal my whole roth tsp NOW, for other investments. I've only been able to see the 59.5 rule, hardship, and upon getting out of the service.
helpful thanks
I am retired from Active Duty and can not contribute to my TSP except for roll overs. How can I use and shift my current TSP money to the Roth TSP and once I do can I contribute to it later outside my TSP account money? Any guidance would be a blessing.
How about this: A newly married couple each have TSP available at start of their careers. One spouse does Roth TSP and the other does Traditional TSP. Both invest only up to the full match, then invest in separate Roth IRAs up to the annual max if they are able to, or as much as possible until budget is bigger. Then they each go back to the TSPs to invest whatever is left once the IRA maximum is fulfilled. That seems like a decent plan in my head.
I think I'm missing something. I understood the Traditional IRA to pay taxes when taking the money out but only at whatever the tax rate is for the income at that time. So, for example if I'm taxed on $150K/yr income now but want to live off of $25K/yr income when I take out my IRA, then I should use Traditional since I'll be taxed at a lower rate than now. Is this right or wrong?
What if you put %5 on Roth and the other %5 on traditional?
Thoughts Please! I am 12.5 years out before I will hit 30 years of federal time for FERS and I will be 57 years old at that time. I have been contributing into the traditional TSP and am wondering if I should change my next 12.5 years contributions to a ROTH TSP. I will be to young for Social Security when I retire at 57, but will be eligible for the FERS Special Supplement retirement until I collect social security when I turn 62. The amount of the FERS Supplement I will collect is around 1390 per month or or 16,680.00. I will also be receiving around 2770.00 monthly from FERS or 33240.00 annually and lets say I get 1980 per month or 23,760 from traditional TSP for a total @ 73680.00 that will be taxed. But when I reach 62 and the FERS supplement stops and regular social security kicks in at @ 1890 per month or 22680.00 annually. My total gross that will be taxed at 62 will be 79680. So after all that should I leave my monies in traditional TSP or start the ROTH TSP? Thank you fo any advice!!
I wish there were better information/calculators to do paycheck planning around using both Roth and Traditional. It is so hit or miss.
In addition, Roth TSP is not a good idea when the stock market price is too high, you would pay high tax for less shares. The opposite is true.
Great content. One issue I have with the Roth TSP, unlike a Roth IRA, is that there are still RMDs, just like the traditional TSP. I never understood that. If the tax has been paid why would I be forced to withdraw money?? Any thoughts?
Folks should also consider the time value of money. What is a dollar worth today verse years of inflation on that same dollar. A mix of Roth and traditional probably is the best bet. Lower taxes some today and some tomorrow. After all, our goal should be to lower our tax bracket through an entire life time. Not just the end of our life. Enjoy your whole life. There is no guarantee for the future. Live smart, enjoy life while you save and be kind and generous to others.