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Too few federal employees are investing in the Thrift Savings Plan (TSP) and that needs to change.
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Cooper Mitchell helps federal employees better understand their benefits and helps them retire on their terms. Using financial planning and investment management, Cooper is able to tackle the issues that are unique to federal employees.
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Why Most Federal Employees Should Invest in the Roth TSP!
For federal employees, planning for retirement is a crucial aspect of financial security. One important decision that federal employees must make is choosing the right retirement savings plan, among which the Roth Thrift Savings Plan (TSP) has gained significant popularity in recent years. This article aims to discuss why the Roth TSP is a beneficial investment option for most federal employees.
First and foremost, it is important to understand what makes the Roth TSP unique. Unlike a traditional TSP, contributions to a Roth TSP are taxed upfront, meaning that the money contributed to the account has already been taxed. This is in contrast to a traditional TSP, where contributions are made with pre-tax dollars, and taxes are paid upon withdrawal from the account during retirement.
One of the primary advantages of a Roth TSP is the potential for tax-free withdrawals during retirement. Since contributions are made with after-tax dollars, the money grows tax-free and can be withdrawn tax-free, as long as certain conditions are met. This can be particularly advantageous for federal employees who expect to be in a higher tax bracket during retirement, as withdrawals from a traditional TSP would be subject to taxes at that time.
Another reason why most federal employees should consider the Roth TSP is the flexibility it offers. Unlike a traditional TSP, which has required minimum distributions (RMDs) at age 72, the Roth TSP has no RMDs during the owner’s lifetime. This means that federal employees can leave their money in the account to continue growing tax-free for as long as they wish, without being forced to withdraw a certain amount each year.
Additionally, the Roth TSP allows for greater control over retirement tax planning. By contributing to a mix of traditional and Roth TSP throughout a federal career, employees can strategically withdraw funds from different accounts to manage their tax liability effectively. This can be particularly beneficial during years when an employee may have high medical expenses or other deductions that could significantly reduce their taxable income.
Furthermore, the Roth TSP permits penalty-free withdrawals of contributions before age 59 ½, as long as the contributions have been in the account for at least five years. This could be advantageous for federal employees who may need access to some of their retirement savings before reaching traditional retirement age.
It is worth mentioning that the decision to invest in the Roth TSP may not be suitable for every federal employee. Factors such as current and future tax brackets, financial goals, and personal circumstances should be taken into consideration before making a decision.
In conclusion, the Roth TSP is an attractive investment option for most federal employees due to its tax-free withdrawal potential, flexibility, and greater control over retirement tax planning. While it may not be the right choice for everyone, understanding the benefits and consulting with a financial advisor can help federal employees make an informed decision that aligns with their individual retirement goals and financial situations.
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.
So my son just finished BMT he’s 18 he should do at least 5% to get the 5% match correct. From what you said he should do the Roth option but the match will go into the traditional correct. Is this the best setup for him.???
Would roth be bad for me since im working a crapton of overtime now but later on in life i plan to settle into a regular 40 hr work week
Sorry if I missed this, but can I still get the "Employee Match" if I am contributing 15% of my base pay to the *Roth TSP*?
I have my Traditional TSP open, but am not making any contributions since all of my contributions are going into my Roth. However, I still want to receive that match capability.
What funds are inside the Roth TSP? Inside my TSP IRA, I can select c fund, s fund, I fund….. but how and where do I find selections within the Roth tsp??
The current rules for TSP contribution is $19,500 for a combined Traditional TSP and Roth TSP for those under 55 yo. If I don’t contribute to the Traditional TSP, does that mean I can contribute $19,500 to my Roth TSP? Or am I still limited to $6,000?
I have both.
Great information, Coop! Any new content coming out soon?
After I leave the service, would I be able to rollover my entire Roth TSP into my Roth IRA in a single transaction? Or will be the 6k a year?
I'm 58 and just hired into usps. I make $50k now. I plan to retire at 65 maybe 67. I'm putting 40% into the tsp and 100% of it into the I fund for now. While Biden fails the forgien markets will rise in my opinion. Should I do Roth tsp?
Can you invest in both the roth TSP and traditional ?
Thank you, Sir
Wait did I miss something what about number 3?
Do you even invest Coop?
Hello sir don’t know if you’ll see this but I’d like some of your knowledge I’m 18 just moved out I joined the Air Force I’ve been in a year so far and I’ve been putting 5% in and as you stated with the Roth tsp no RMD if I roll over my Roth tsp to Roth IRA at what age would one typically switch to the Roth IRA after being in Roth tsp and how smart would this option be should I be putting more or less I’m new to all this maybe anything else you could tell a young kid out here where nobody was taught anything in public schools about financing and retirement go figure
If you convert your ROTH TSP into the ROTH IRA is there a 5 year wait to withdraw it
Welcome back! I'm a new fed. Employee had struggling with the amounts for the TSP! Assuming to do 5% but what about the roth? Not sure how to balance how much to invest at age 45 and still have a decent pay check. Please help this is not my thing at all!
Get to the point men! WTF
Cooper one thing you didn't mention is the fact that your employer does not give agency matching funds if you invest with the Roth TSP. That needs to be accounted for as well.
Hello, can you talk about Roth TSP contribution limits? I have my own Roth “IRA” and was wondering if I can have a ROTH “TSP” also. If so, what’s the yearly contribution limits? Can I roll my Roth IRA into the Roth TSP ?
Hello Cooper. Recently began investing in the Roth TSP. Appreciate the information.
I am 46 and been in the government for 20 years – I only have traditional tsp – should I do some in Roth IRA
Is there a fee to transfer from Roth TSP to Roth IRA?
so I have a Roth TSP , and I also have Roth and Traditional IRA. I put the maximum matching fund into the Roth TSP, am I allowed to contribute more money into the Roth IRA, and how do I do that? Or can I only put into the Traditional IRA, is there a limit?
Hi new subscriber here. It’s now 2020. Do you still think it’s a good idea to invest in Roth more?