TSP 401(k) vs. TSP Roth

[Anonymous]

Has anyone looked into this? I had been doing the max of the TSP 401(k) and also the TSP over 50 catch up. As a stab in the dark, I just decided to do the over 50 catch up as a Roth. Any advice as to whether or not I should also do a Roth for the TSP 401(k)?

[Anonymous]

Is this a new options? Spouse of a fed here. Do you meet the income requirements for a roth?

[Anonymous]

There are two or three other posts recently on this. It is a new option, as of this year I think. You don't need to meet income requirements, but the rules are different in some relatively small ways (e.g. you have to take min. distributions, but you can just roll it over to a Roth IRA and then not take distributions).

It's not a bad idea to have some money in a Roth, but generally speaking, most us (perhaps especially those over 50 since the time horizon for tax rates to go up is shorter and especially those of us asking for advice on this forum) are going to be in a lower tax bracket in retirement.

One difference with a Roth is that the contribution limits are calculated on after-tax income, so if you have $7k and you would normally pay $2k in taxes on it, you can either put $5k in TSP, and $2k (less taxes) somewhere else (i-bond, ETF, mattress, groceries, vacation) or you can pay $2k in taxes now and put $5k in the Roth. The difference is that you have "prepaid" your taxes in the Roth, so effectively you have set aside more in your retirement account (now, if you set aside the $2k to pay for the taxes you will owe when you withdraw from the TSP, there won't be a difference, so that is mostly an "advantage" if you have the extra $2k to spare but are not disciplined enough to save it).

[Anonymous]

I think putting your over 50 catch up contributions into the Roth option are wise. I agree that you probably need the tax break now rather than later, but its nice to hedge.

I'm in my 20s and trying to find the right balance right now. Currently doing about 60/40 (pre-tax/Roth). I'm going to TRY to start maxxing at 30 and see if I can stomach the lost in current income.

[Anonymous]

Anonymous wrote:I think putting your over 50 catch up contributions into the Roth option are wise. I agree that you probably need the tax break now rather than later, but its nice to hedge.

I'm in my 20s and trying to find the right balance right now. Currently doing about 60/40 (pre-tax/Roth). I'm going to TRY to start maxxing at 30 and see if I can stomach the lost in current income.

Are you contributing less than the max now? I think I would definitely contribute the max before I considered trying to save in a Roth, but you sound reasonably thoughtful.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I think putting your over 50 catch up contributions into the Roth option are wise. I agree that you probably need the tax break now rather than later, but its nice to hedge.

I'm in my 20s and trying to find the right balance right now. Currently doing about 60/40 (pre-tax/Roth). I'm going to TRY to start maxxing at 30 and see if I can stomach the lost in current income.

Are you contributing less than the max now? I think I would definitely contribute the max before I considered trying to save in a Roth, but you sound reasonably thoughtful.

Aww thanks! I met with a financial advisor who said I should only contribute enough to get the 5% match and then fully fund a Roth IRA. I tried to do that but the after tax contributions really HURT.lol Then I tried to max the regular TSP one pay period and that hurt too. So now I'm doing 10-12% TSP and $200 a month to IRA, which I can stomach. At the minimum, I'm going to 15% TSP (likely 20%) and $300 a month to Roth next year in about 7-8 months.

I am paying off debt now, so maxxing is out of the question. Will be debt free (save for mortgage) in 1-2 years including student loans though.

[Anonymous]

I should add that I currently make nowhere near 100K and will likely bring in more income at retirement than I do now, hence the suggestion from advisor to do Roth (that and my age, tax free earnings).