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The Thrift Savings Plan (TSP) is a retirement savings plan for federal employees. It has two options for contribution, the traditional TSP and the Roth TSP. While both have their advantages and disadvantages, the Roth TSP has been severely underutilized. The question is, why aren’t federal employees using the Roth TSP?
One of the main reasons why federal employees are not using the Roth TSP is due to the lack of awareness. Many employees are not familiar with the Roth TSP and its benefits. The traditional TSP has been around longer, and employees are more familiar with it. However, with the passage of the Roth TSP Improvement Act of 2018, federal employees now have the option to contribute to a Roth TSP, making it more accessible than ever before.
Another reason for the low usage of the Roth TSP is the misconception that the traditional TSP is a better option. Many employees believe that the traditional TSP is better because it allows them to reduce their current taxable income. However, this is not the case. While traditional TSP contributions are tax-deductible, Roth TSP contributions are made with after-tax dollars. This means that when you withdraw your money in retirement, your Roth TSP contributions and earnings will be tax-free, whereas traditional TSP contributions and earnings will be taxed as ordinary income.
The Roth TSP also offers more flexibility than the traditional TSP. With the Roth TSP, you can withdraw your contributions at any time, tax-free and penalty-free. However, you cannot withdraw earnings until you reach age 59½ and have held the account for at least five years. With the traditional TSP, you cannot withdraw your money without penalty until you reach age 59½, regardless of how long you have held the account.
The Roth TSP also allows for more estate planning options than the traditional TSP. With a Roth TSP, your heirs can inherit the account tax-free, as long as they meet IRS requirements. However, with a traditional TSP, your heirs will have to pay taxes on the entire amount they inherit.
In conclusion, federal employees should consider the Roth TSP as an option to save for retirement. It offers tax-free withdrawals in retirement, more flexibility, and estate planning options. While there may be some misconceptions about the Roth TSP, taking the time to understand its advantages can benefit employees in the long run. It is up to the employees to take advantage of the Roth TSP and make the most of their retirement savings.
My wife is at the VA as a NP. Working to help her maximize her retirement. She hates this stuff. I read on investopedia that Roth TSPs do have minimum withdrawals that you have to make? Am I missing something? I thought there was no required distributions with a Roth TSP. And also, I have read that they fully match 3 % and the other 2 percent are not a full match? So confusing. Any help to clarify would be appreciated.
What I like is a mixed portfolio traditional, TSP, Roth, IRA savings, and some other interest earning income
I’m using both Roth and traditional TSP
Standard deduction is north of $25k for married filing jointly. If you’re bringing in $110k annually in retirement on only 4% withdrawal rate then congrats.
100% Roth now. Wish I started a long time ago. Saving 3-4k in taxes now vs savings tens of thousands if not hundreds of thousands later, makes sense. I didn’t get it until Dave Ramsey spelled it out like that
Joined the fed few years ago. Only reason I don’t use roth tsp is because I already had an Roth IRA before I joined. So it’s easier to manage one roth instead of two especially when maxing it out.
Roth IRA has some income limit (married and tax file jointly, MAGI must be under $214,000 for tax year 2022 and $228,000 for tax year 2023). Does Roth TSP has same kind of income limit?
Thank you for this. I was a fed after Roth IRA started, so it was very clearly explained in my benefits package. Other feds look at me like I'm crazy when they're advising a new person to put all their money in a traditional TSP and I comment saying their Roth TSP is better because they don't have to worry about how much will be taxed when it's time to withdraw.
Mr. Haws, I've had a traditional TSP for over 20 years and I just switched over a month ago to the Roth TSP. This retiring commander I know you told me that I shouldn't have done it because I pay more taxes now than I will and retirement due to making less money in retirement. Is that logic sound or not… thanks in advance. I'm currently paying 8% to TSP, do you recommend going to 10% in either Roth or traditional?
Because new employee orientation doesn't explain the why of the tsp, just the how. They avoid anything that could be construed as financial advice.
12 months from retirement. Past two years withdrew from tsp and paid ALL bills except house mortgage. I am single income. I’ll be 65 2024. All of what’s left is in tsp c fund. Will have 5-10% from paycheck deposited into Roth Tsp after seeing this vid. I’m in great health and will be doing side jobs for extra income. Have about 100k in c fund. Still deciding whether to ride it out till 66 & 10 months for full ssc. After taxes & premiums my retirement will be about 2k & ssc $2200 @65 or 2600 @ 66&10. Any suggestions on improving this? Really didn’t look into this till a year ago.
So if I put 100 percent into the Roth TSP, which is 10 percent. My agency will still match 5 percent but in TSP? So when I sign up, do i split it 5% Roth TSP and 5% percent TSP to get the match or 10% all TSP and they still match it?
I love the fact that you keep your advice videos in the 5 to 12 minute range! It is great for short advice and gets the thinking going!
I am too close to retirement, and my plan is to stay in the 12 percent tax bracket where the money I would pay tax on now for the Roth would be at 22 percent. If the Roth TSP was around when I was younger it would definitely have made sense to put some in the roth.
Pls explain the Roth and matching ?
What amount of Roth do you recommend ?
Never planed on with drawing any of it ever
Being a high earner. I wanted the tax deduction.
Full contribution 26.5 years + catchup.
So yes . 1.3 m
I have already maxed out my external ROTH for this year. Ami still eligible to contribute to a TSP ROTH without penalty?
I’m in an interesting situation. I’m on an income-based repayment plan for my student loans, including eventual PSLF. Traditional contributions reduce my taxable income and thereby reduce the income my loan payments are based off of. I max out my contributions, so my income is currently reduced by $20,500. If I were to contribute to Roth, not only do I pay the taxes now, but 20 cents of every dollar of that $20,500 would also go to my student loans instead of my TSP. So until I get my loan forgiveness, I max out my traditional TSP, and anything else goes into my wife’s Roth 403(b) at her job.
I max out my traditional tsp and fund a Roth with Fidelity. I need the tax break bc my agency has a lot of overtime where we are heavily taxed.
I didn't know any better when I first started off. I have about 80% in Traditional and 20% in Roth currently but I made the switch about 3 years ago. Now I am 100% in Roth
Can you confirm something for me? As I understand it, if you make too much you can’t contribute to a ROTH, correct? What’s the income limit?
Maxing out my Roth TSP and Roth IRA's(spouse). Will continue this till 2025 when the tax rates change. I believe now will be the cheapest tax rates for awhile, so I am loading up on Roth's.
How do I set up a Roth TSP. I’m 47 with 15 years in the gov. Looking to retire late 60”s maybe early 70’s if it’s still fun and the benefit is there.
Federal employee with 20 yrs in but can still do another 10. Was thinking of doing a roth conversion starting 5 yrs out from retirement. Wondering is it beneficial to start contributing to roth in tsp now. Also does the 5% agency match still get invested and make capital gains?
I work for USPS for 32 years now. I only have 4 more years to retire when I qualify by age at 56. Is it still good for me to change my TSP to Roth TSP? I am debt free by the way.
As always good info to us federal workers, good advice on things we can put in place now, keep them coming Dallen
I thought if you make more that 147,000$, you cannot contribute to Roth TSP? Correct or incorrect?