I'm in my late 40s with close to $400k in my TSP in total. I think I'll be paying the same or slightly lower taxes in retirement, but I have been putting a small portion of my maxed-out contribution into the Roth, just for a little tax diversity. It's nice to know that some money won't be taxed when I need it later.

There's a back door to contribute to Roth outside of TSP, even if your income limit is too high, by putting your money into tradition IRA and then convert it to a Roth.

At a high tax bracket and assuming that wehn you retire, you will be in a lower tax bracket, you should keep all of your money in a regular TSP and put additional money into Roth outside of TSP using this backdoor.

Here' why since your HHI is 240K, you are in 28% tax bracket since you max out your regular TSP and assuming when you retire, you'll be in a lower tax bracket such as 25% and a growth of 6% annually and assuming you will retire at 65. The growth of your 17500 and then taxed at 25% when you retire will be more than the growth of 17500 after-taxed at 28% (12600) and tax free at the time of retirement.


Of course this assumption is based on what is known now and no one can truly predict the future tax brackets.

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).

Anonymous wrote:PP here. That said, you're right about someone making 240K. In that case, I would go all traditional at work and do a Roth outside of TSP.

I think the ONLY way someone with a 240k HHI can do a roth is if its through work - don't think they are eligible outside of work.

Anonymous wrote:Tough to say what will happen with tax rates but I suspect they are only going up.

I would put money into the Roth TSP to diversify (from a tax perspective) your retirement assets. This is what I am doing.

Also keep in mind it really is like getting to put in MORE money to your TSP this year - your post-tax $17,500 is more valuable than your pre-tax $17,500.

Another poster with HHI similar to OPs doing the same thing- I figure tax diversification can't be a bad thing.

Anonymous wrote:Roth TSP is favorable for account owners who wish to pass on as much as possible to their heirs. After they retire from federal service, Roth TSP account owners are allowed to rollover their Roth TSP accounts to a Roth IRA. Roth IRAs have no required minimum distribution requirements starting at age 70.5 as do traditional IRAs, 401(k) retirement plans, the traditional TSP, and the Roth TSP. As such, a Roth IRA owner can hold onto the account indefinitely and pass it on tax-free to their beneficiaries upon his or her death.

It all depends...

When you die, an IRA can go to your spouse or others. They receive it with a basis of its value on the date of death. They can then elect to transfer it to a Roth. They will only pay taxes on any gain in value from the date of death to when they convert. Or so I'm told.

Roth TSP is favorable for account owners who wish to pass on as much as possible to their heirs. After they retire from federal service, Roth TSP account owners are allowed to rollover their Roth TSP accounts to a Roth IRA. Roth IRAs have no required minimum distribution requirements starting at age 70.5 as do traditional IRAs, 401(k) retirement plans, the traditional TSP, and the Roth TSP. As such, a Roth IRA owner can hold onto the account indefinitely and pass it on tax-free to their beneficiaries upon his or her death.

PP here. That said, you're right about someone making 240K. In that case, I would go all traditional at work and do a Roth outside of TSP.

Anonymous wrote:

Anonymous wrote:Tough to say what will happen with tax rates but I suspect they are only going up.

I would put money into the Roth TSP to diversify (from a tax perspective) your retirement assets. This is what I am doing.

Also keep in mind it really is like getting to put in MORE money to your TSP this year - your post-tax $17,500 is more valuable than your pre-tax $17,500.

No one knows what will happen but if you are making 240k my guess is there is a good chance you will drop at least one rate bracket in retirement so rates would have to rise 5 percentage points or more before you would paying as much as you are now (by comparison, I think the Bush tax cuts amounted to about 3 points for the highest tax brackets). Ironically, saving in a Roth makes it more likely you will be in a lower tax bracket in retirement, which makes it less worthwhile to save in a Roth...

Also, while it's true that $17.5k in a Roth is more valuable than $17.5k in regular TSP, it's also true that you may have paid $10k or more in taxes on the Roth money, so the real question is, do you have $27.5K to put in retirement savings and if so, how do you split it.

You're not factoring in growth on earnings which is all but guaranteed to be considerably more than taxes paid.

I'm in the 25% bracket and will make the same (or more) than I currently do in retirement. I also don't intend to have a mortgage or child care expenses to write off then, so Roth makes more sense to me.

Anonymous wrote:Tough to say what will happen with tax rates but I suspect they are only going up.

I would put money into the Roth TSP to diversify (from a tax perspective) your retirement assets. This is what I am doing.

Also keep in mind it really is like getting to put in MORE money to your TSP this year - your post-tax $17,500 is more valuable than your pre-tax $17,500.

No one knows what will happen but if you are making 240k my guess is there is a good chance you will drop at least one rate bracket in retirement so rates would have to rise 5 percentage points or more before you would paying as much as you are now (by comparison, I think the Bush tax cuts amounted to about 3 points for the highest tax brackets). Ironically, saving in a Roth makes it more likely you will be in a lower tax bracket in retirement, which makes it less worthwhile to save in a Roth...

Also, while it's true that $17.5k in a Roth is more valuable than $17.5k in regular TSP, it's also true that you may have paid $10k or more in taxes on the Roth money, so the real question is, do you have $27.5K to put in retirement savings and if so, how do you split it.

Anonymous wrote:Tough to say what will happen with tax rates but I suspect they are only going up.

I would put money into the Roth TSP to diversify (from a tax perspective) your retirement assets. This is what I am doing.

Also keep in mind it really is like getting to put in MORE money to your TSP this year - your post-tax $17,500 is more valuable than your pre-tax $17,500.

I'm turning 30 this year and planning to do 50/50 between the Roth and traditional. This is in addition to my Roth IRA.

Considering we have the option of retiring sooner than many Americans, I think its better to go the post tax route since we will have less time to build up our accounts.

Good points pls thanks for the feedback.

Tough to say what will happen with tax rates but I suspect they are only going up.

I would put money into the Roth TSP to diversify (from a tax perspective) your retirement assets. This is what I am doing.

Also keep in mind it really is like getting to put in MORE money to your TSP this year - your post-tax $17,500 is more valuable than your pre-tax $17,500.

My guess is that you are better off with the current tax deduction but who knows.

If you want to have some money in a Roth you could also do Roth conversion IRA on the side.

I am a long time fed with over $200k in a regular TSP account. Now that the Roth TSP is an option I'm trying to decide whether some or all of my future contributions should go into a Roth or if I should stick with the regular TSP. I'm early 40s, HHI $240k, and I max out my contributions. WWYD in my situation?