Roth TSP--what to do?

[Neecy]

I was wondering what people thought about the Roth TSP? I am contributing $1228 per month into the TSP. Since the max is $17,000, I still can put in $2,264 into the TSP. I have no idea what my tax bracket will be when I retire. I like the idea of not paying any taxes on withdrawals. I also have a Roth IRA with $61,890 in it as of today. I am single and 40 years old. Do you think I should put $2,264 in the Roth TSP or traditional TSP?

I also start my Reserves duty next month. I plan on doing six additional years to reach 20 years. Reserves retirement begin at 60 years old. I will also have to pay back the $99,000 (after taxes) in severance out of my retirement. TIA.

 

[Bimmerbill]

I am doing something similar. I believe there is a 17K max for both ROTH and regular TSP. They wont let you put 17K in regular TSP and then put money into the Roth TSP.

So I put money into a Vanguard Roth and max the TSP. Best of both worlds.

 

[Gabieta]

Neecy,

My sister is debating this issue as well. She turns 50 next year, and is trying to decide whether to put her catch up contributions in the Roth or traditional TSP.

Just to clarify your question -- are you also continuing to max your Roth IRA? I would definitely put the full $5000 there before putting $2264 more into the TSP. If you are maxing your Roth IRA, it is a harder call.

Since you will be drawing a military pension, government pension and ss in retirement, you may end up in the same tax bracket, especially once you start drawing down your traditional TSP balance.

I will watch this thread with much interest -- maybe someone will have some advice that I can pass on to my sister!

 

[donheff]

I am doing something similar. I believe there is a 17K max for both ROTH and regular TSP. They wont let you put 17K in regular TSP and then put money into the Roth TSP.

So I put money into a Vanguard Roth and max the TSP. Best of both worlds.

The TSP allows you to roll over external IRAs into the TSP. I did this with an old traditional IRA. Does the TSP permit you to roll in an external Roth? If so, you could eventually roll your VG Roth into the TSP if you want to take advantage of the TSP's great expense ratios.

 

[Neecy]

Yes, I am maxing out my Roth IRA. I think you can roll over the Roth TSP into a Roth IRA.

 

[LOL!]

In general, folks will be in much lower tax brackets in retirement, so paying into a Roth 401(k) or Roth TSP doesn't make sense unless
1. You will get huge pension
2. You will work until you are 70 or later
3. You are in the 35% tax bracket nowadays and have plenty of money to pay the taxes.

Many of the early retirees pay no taxes in retirement. So if they had paid taxes by contributing to a Roth TSP, they would have been shooting themselves in the foot.

For some tips on how to avoid paying taxes in retirement, there is this: Bogleheads • View topic - How to pay ZERO taxes in retirement with 6-figure expenses which shows how to use TaxCaster, TurboTax, and www.i-orp.com to minimize taxes in retirement.

 

[donheff]

Yes, I am maxing out my Roth IRA. I think you can roll over the Roth TSP into a Roth IRA.

The better move is to roll over into the TSP Roth, not from.

 

[Gabieta]

The better move is to roll over into the TSP Roth, not from.

Because the Roth TSP will also be subject to RMD's, it may make sense to roll the Roth TSP into a Roth IRA before age 70, if you do not need the money. That way, the money continues to grow tax-free.

 

[Nords]

I was wondering what people thought about the Roth TSP? I am contributing $1228 per month into the TSP. Since the max is $17,000, I still can put in $2,264 into the TSP. I have no idea what my tax bracket will be when I retire. I like the idea of not paying any taxes on withdrawals. I also have a Roth IRA with $61,890 in it as of today. I am single and 40 years old. Do you think I should put $2,264 in the Roth TSP or traditional TSP?
I also start my Reserves duty next month. I plan on doing six additional years to reach 20 years. Reserves retirement begin at 60 years old. I will also have to pay back the $99,000 (after taxes) in severance out of my retirement. TIA.

The Roth TSP confused the hell out of me, so I got a bunch of advice from USAA's J.J. Montanaro:
Is the Roth Thrift Savings Plan right for you? | Military Retirement & Financial Independence
Ryan Guina also has good TSP & Roth TSP posts at The Military Wallet:
Thrift Savings Plan - The Military Wallet

You haven't brought it up yet, but are you getting a match on your TSP contributions? Are you maxing out the match before you decide about the Roth IRA and the Roth TSP?

Once you've maxed out the TSP match, and then maxed out your Roth IRA, you're ready to put more into the Roth TSP. I think you'll find that you have enough RMDs coming from the TSP when you retire (unless you roll to a conventional IRA and convert) and you'll also have your Reserve pension pushing you well into the 15% bracket... limiting the amount of Roth conversions you can do after age 60.

As for the TSP or conventional IRA conversions to Roth, when do you plan to stop working? Serious question-- you can probably only maximize the Roth conversion window before age 60 (Reserve pension) and after you stop earning a civil-service income.

Now let's make this even more complicated. Not only do you have a civil-service TSP and Roth TSP account, but you're going to start contributing to your military TSP and (eventually) military Roth TSP account again. I think you're still subject to the $17K/year max across all four accounts, but you'll need to check that with your Reserve unit.

You could make it even more complicated by doing your Reserve duty in a combat zone, which gives you humongous tax-free contributions to your military TSP account. Search Ryan's blog for more on that subject.

Yes, I am maxing out my Roth IRA. I think you can roll over the Roth TSP into a Roth IRA.

That gets rid of the RMD issue, but it also moves your investments from the world's cheapest index funds (just 0.025%) to more expensive funds (Vanguard's or Fidelity's 0.07%-0.10%). Might be worth the tradeoff.

The better move is to roll over into the TSP Roth, not from.

Cheaper expenses, yes, but you lose the flexibility of being able to withdraw contributions from the Roth IRA... or to use some of it for a first-time home purchase.

 

[Neecy]

The Roth TSP confused the hell out of me, so I got a bunch of advice from USAA's J.J. Montanaro:
Is the Roth Thrift Savings Plan right for you? | Military Retirement & Financial Independence
Ryan Guina also has good TSP & Roth TSP posts at The Military Wallet:
Thrift Savings Plan - The Military Wallet

You haven't brought it up yet, but are you getting a match on your TSP contributions? Are you maxing out the match before you decide about the Roth IRA and the Roth TSP?

Once you've maxed out the TSP match, and then maxed out your Roth IRA, you're ready to put more into the Roth TSP. I think you'll find that you have enough RMDs coming from the TSP when you retire (unless you roll to a conventional IRA and convert) and you'll also have your Reserve pension pushing you well into the 15% bracket... limiting the amount of Roth conversions you can do after age 60.

As for the TSP or conventional IRA conversions to Roth, when do you plan to stop working? Serious question-- you can probably only maximize the Roth conversion window before age 60 (Reserve pension) and after you stop earning a civil-service income.

Now let's make this even more complicated. Not only do you have a civil-service TSP and Roth TSP account, but you're going to start contributing to your military TSP and (eventually) military Roth TSP account again. I think you're still subject to the $17K/year max across all four accounts, but you'll need to check that with your Reserve unit.

You could make it even more complicated by doing your Reserve duty in a combat zone, which gives you humongous tax-free contributions to your military TSP account. Search Ryan's blog for more on that subject.


That gets rid of the RMD issue, but it also moves your investments from the world's cheapest index funds (just 0.025%) to more expensive funds (Vanguard's or Fidelity's 0.07%-0.10%). Might be worth the tradeoff.


Cheaper expenses, yes, but you lose the flexibility of being able to withdraw contributions from the Roth IRA... or to use some of it for a first-time home purchase.

Yes, I contribute a little over $1200 a month in the TSP. I plan on maxing the roth at $416 a month. I do not think I will put anything in the military TSP since there is not a match.