I am a young officer and I am currently contributing 20% to my tsp but I heard mixed opinions as to max out your tsp first then roth (and the opposite). I also currently have 5k in my roth from investing while in college. What are your opinions? Thanks!
roth vs tsp
- Thread starter rdwarejr
- Start date
Hoo-boy, let the [-]food-fight[/-] fun begin!
On a board of this [-]opinionated[/-] size, with a two-sided question involving a response from "n" posters, you'll get "n+5" opinions favoring at least three sides.
I previously expressed an opinion to OP on this subject, so I'll hold my comments to [-]avoid undue influence[/-] see if I've overlooked any of the finer points...
aaronc879
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jan 10, 2006
- Messages
- 5,351
Most people suggest contributing to a TSP/401K up to the match if there is one. Then max your ROTH. Then contribute more towards the TSP up to the max if possible. If you have money left to invest go with a taxable account at Vanguard or similar company.
W2R
Moderator Emeritus
I put every cent possible into my TSP during my years of federal employment, and I don't regret it. There may be more efficient ways to invest, but I am pretty happy with the TSP.
In retirement, I am taking equal monthly withdrawals from it and it is a nice source of income.
In retirement, I am taking equal monthly withdrawals from it and it is a nice source of income.
zinger1457
Thinks s/he gets paid by the post
- Joined
- Jul 22, 2007
- Messages
- 3,230
The TSP will start offering a ROTH option, I believe in 2012. My understanding is that you can contribute up to the max in either plan or a combination of both. If I was young I would lean towards putting a higher percentage in the ROTH option.
yakers
Thinks s/he gets paid by the post
X2
Don't know why you would want to miss out on matching funds. I don't think the military gets matching funds so that makes it harder. If you think your income will be higher later than the Roth is a good bet, lower after tax contribution. If you think your income in retirement will be lower than the TSP reduces current income. The Roth has some other good aspects, like passing on a tax free fund. Also nice to diversify funds in taxable, tax deferred and tax free. Of course, the best answer is to do both if you can.
hcho3528
Dryer sheet wannabe
- Joined
- Nov 11, 2007
- Messages
- 17
@rdwarejr: That depends on alot of things. Are you a Police Officer? Military Officer? Do you have a pension along with the TSP? When do you plan on retiring and when are you eligible to collect? I believe the TSP is much like deferred compensation (tax free) savings right?
So, depending on all of the variables there are some considerations. If you can retire at 50 with a pension, you need to figure out what tax bracket you will be in because that will effect what you collect on your TSP and ROTH. You also have to consider when you can start collecting from your ROTH and TSP. I am not sure if there is a minimum age for the TSP as I don't know much about it.
I have a pension at 50 that will put me in a tax bracket where it would be more beneficial to max out my ROTH and then put what's left over in my deferred comp. You need to consider your tax bracket because your TSP is pre-taxed and is taxed when you collect, whereas your ROTH is taxed along the way and you collect tax free. Also consider inflation, taxes will only go up.
So if you will be retiring with high income, it will be more beneficial for you to invest int he ROTH first.
We are in a unique niche because we have gov. pensions that allow us to retire early. I would advise you have a professional that has experience with gov. portfolio's take a look at your stuff. Good luck.
So, depending on all of the variables there are some considerations. If you can retire at 50 with a pension, you need to figure out what tax bracket you will be in because that will effect what you collect on your TSP and ROTH. You also have to consider when you can start collecting from your ROTH and TSP. I am not sure if there is a minimum age for the TSP as I don't know much about it.
I have a pension at 50 that will put me in a tax bracket where it would be more beneficial to max out my ROTH and then put what's left over in my deferred comp. You need to consider your tax bracket because your TSP is pre-taxed and is taxed when you collect, whereas your ROTH is taxed along the way and you collect tax free. Also consider inflation, taxes will only go up.
So if you will be retiring with high income, it will be more beneficial for you to invest int he ROTH first.
We are in a unique niche because we have gov. pensions that allow us to retire early. I would advise you have a professional that has experience with gov. portfolio's take a look at your stuff. Good luck.
If you're in the military, my advice is to max out the ROTH first and then push money into the TSP. Military members' tax rates are artificially low due to the fact that their housing allowance (which can be sizeable depending on location) and BAS are not taxed. So, someone not in uniform that makes the same amount as you actually pays more in taxes...take advantage of being "tax advantaged" with the ROTH. You will likely be in a higher tax bracket later on down the road after you leave the service, at which time the traditional IRA or TSP might be more beneficial to you. Also remember that military members do not get a match for their contributions to the TSP.
Beginning in the first quarter of 2012 there will be a ROTH option available in the TSP. If you're in the military, you'll be deploying at some point (and likely at many points). Any money that you invest while deployed in either a ROTH IRA or the ROTH TSP (beginning in 2012) will never be taxed, and neither will any of the earnings/returns that you get from that money. Considering that when you're deployed you can put up to $48K into the TSP rather than the normal $16.5K (in addition to funding either a traditional or ROTH IRA) could be very beneficial early in your career while you still have a relatively large amount of expendible income, a low income tax rate, and a lot of years to take advantage of the power of compounding interest.
Beginning in the first quarter of 2012 there will be a ROTH option available in the TSP. If you're in the military, you'll be deploying at some point (and likely at many points). Any money that you invest while deployed in either a ROTH IRA or the ROTH TSP (beginning in 2012) will never be taxed, and neither will any of the earnings/returns that you get from that money. Considering that when you're deployed you can put up to $48K into the TSP rather than the normal $16.5K (in addition to funding either a traditional or ROTH IRA) could be very beneficial early in your career while you still have a relatively large amount of expendible income, a low income tax rate, and a lot of years to take advantage of the power of compounding interest.
ejw93
Recycles dryer sheets
ROTH TSP in 2Q 2012
The ROTH TSP announcement, with the accompanyint 83+ pages in the Federal Register, was posted this week:
http://www.ofr.gov/OFRUpload/OFRData/2012-02489_PI.pdf
The TSP pamphlet is here:
https://www.tsp.gov/PDF/formspubs/tsplf30.pdf
My take:
- Good: Roth option starts in 2nd quarter.
- AWESOME: Agency (government) matches your contribution up to 5% in the 'traditional' TSP, whether you choose to put your contributions in the 'Traditional' TSP, the 'Roth' TSP, or any combination of both.
- HOLY GRAIL: If you are on active duty being paid tax-free combat pay, you can put every penny (up to $17K) of this in to the Roth TSP tax-free, it compounds tax-free, then you take it out tax-free in retirement.
- Good: Aggregate contribution limit (your contributions to any combination of Traditional or Roth) is presently $17,000 for CY12.
- Good: You can roll an existing individual Roth account in to the new 'Roth' TSP (not sure why you would want to do this, unless you are concerned about being sued).
- Bad: No option to perform Roth 'Conversions' within the TSP.
Consult your tax adviser or CPA on whether you are better off taking tax deductions now ('traditional' TSP) or later ('Roth' TSP).
The ROTH TSP announcement, with the accompanyint 83+ pages in the Federal Register, was posted this week:
http://www.ofr.gov/OFRUpload/OFRData/2012-02489_PI.pdf
The TSP pamphlet is here:
https://www.tsp.gov/PDF/formspubs/tsplf30.pdf
My take:
- Good: Roth option starts in 2nd quarter.
- AWESOME: Agency (government) matches your contribution up to 5% in the 'traditional' TSP, whether you choose to put your contributions in the 'Traditional' TSP, the 'Roth' TSP, or any combination of both.
- HOLY GRAIL: If you are on active duty being paid tax-free combat pay, you can put every penny (up to $17K) of this in to the Roth TSP tax-free, it compounds tax-free, then you take it out tax-free in retirement.
- Good: Aggregate contribution limit (your contributions to any combination of Traditional or Roth) is presently $17,000 for CY12.
- Good: You can roll an existing individual Roth account in to the new 'Roth' TSP (not sure why you would want to do this, unless you are concerned about being sued).
- Bad: No option to perform Roth 'Conversions' within the TSP.
Consult your tax adviser or CPA on whether you are better off taking tax deductions now ('traditional' TSP) or later ('Roth' TSP).
Mr Gadget
Dryer sheet aficionado
- Joined
- Jul 17, 2009
- Messages
- 27
I thought there was talk about being able to convert funds within TSP to the new ROTH, specifically for Vets that were no longer contributing income. Of course Taxes would still be due.
