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Reply to "Roth TSP?"

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[quote=Anonymous]I think a key point that is often overlooked is that with a pretax deduction, that is _at_ your marginal tax rate, i.e. 25%.  And obviously for a Roth, you'd be paying taxes at that same rate.

However, when we go to file taxes, our _average_ tax rate is much lower.

What am I trying to say?

Well if you only did the pretax option, when you go to "cash it out" later in life, it would take a significantly larger sum of money to get an effective average tax rate as what you benefited from when you deducted.

For example, I'm in the 28% rate.  For me to pay an "average" rate of 28%, I'd need to be making a lot more money (which means I'd likely be in the 33% rate).  So I'm benefiting on that difference by maxing out my 401k.

So while tax rates may go up, I think there's something to be said with maxing out as much as you can with the pretax option.  If you still have money on the sideline, converting some of your pretax rollovers into a roth isn't a bad option (assuming your income is too high for a TradIRA or RothIRA).

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