Question on ROTH TSP agency contributions for FERS employees

[eahinkle]

I have been researching Roth TSP option with regards to how it affects agency matching.... let's say my agency provides a 5% match and that 5% of each paycheck is $150 (not my actual numbers). This would be the amount I am currently contributing to the traditional TSP. If I instead contribute 5% to the Roth TSP, I am aware the matching would go in the traditional TSP but wondering about the percentages.

5% pre-tax would be $150
5% post-tax(Roth) would be $112.50 assuming a 25% tax rate

Therefore, would my 5% matching be 5% of my pre-tax (gross) or post-tax (net) income? I have called TSP directly, spoken to HR and EBIS helpdesk and cannot seem to get a clear answer. I would appreciate any response from someone who knows or has seen the specific numbers through their Roth TSP option.

Let me know if this is clear. I am new to TSP

[mjedlin66]

All percentages are based on gross pay. Your contributions, whether roth or traditional, have no impact on agency controbutions as long as you contribute 5% or more.

Good on you for thinking outside the box, though.

Example (assumes 25% tax):

Gross pay: $1000
Roth 5%: -$50
Tax 25%: -$250
Net check= $700
Agency contribution 5%: $50

Gross pay: $1000
Traditional 5%: -$50
Tax 25%: ($1000-$50)*.25 = -$237.5
Net check= $712.5
Agency contribution 5%: $50

[SnareMV17]

Slight correction. Percentages are based on your gross Annual Salary. For those who earn differentials, holiday pay, overtime, etc., this pay does not factor in to your TSP percentages or match.

[MasterPSC]

I wonder how the matching contribution could go into Roth account because the balance in Roth account is not taxable during withdrawal period. If the matching contribution goes into the Roth account without paying taxes, then how heck it can be separated for taxable portion and non-taxable portion? Just curious to find out how it works...

[mjedlin66]

I wonder how the matching contribution could go into Roth account because the balance in Roth account is not taxable during withdrawal period. If the matching contribution goes into the Roth account without paying taxes, then how heck it can be separated for taxable portion and non-taxable portion? Just curious to find out how it works...

All agency contributions are traditional. There cannot be roth agency contributions.

[cb3]

There was a thread a few months ago that explained this, also showed a way to separate the two after retirement. Maybe someone can post a link to it.

[bad70nova]

Just my 2 cents for what it is worth, while my 5% agency matching goes to traditional my other 22% goes to Roth. Rather pay the taxes now while I am still working so later in life when I want 5,000 for something I will not have to take out 6,000 to get it. Just my opinion pay now so I can play later.

[galveston1]

Right now I live in a state that collects state income taxes. So I contribute the maximum to traditional. This reduces my state income tax burden while I'm still working. I will be retiring to a state that does NOT collect state income taxes.

[evilanne]

Galveston...given your name, are you planning on retiring in Texas? Wyoming & Florida also don't have state income tax and Alaska pays their residents. Other states exclude all or part of retirement income but some are based on age or limited in amount.

In retrospect, it would be good to have a mixture with the Roth for those that are early in your career but they didn't offer it until 2012 so outside Roth made more sense for me. Agency matching have to be traditional as mjedlin66 pointed out.

[galveston1]

evilanne - Born and raised on Galveston Island. But we will be calling Florida home after retirement. Warmer winters, nicer Gulf coast beaches. Besides maxing out my regular and catch up TSP contributions, I also have both Roth and Traditional IRAs. Probably retiring in 6 years (59½) so I have access to my IRAs. The plan right now is to rollover TSP (except $250) to my Vanguard accounts.

[Five-O]

Similar situation. I only have traditional.

[BR549]

Right now I live in a state that collects state income taxes. So I contribute the maximum to traditional. This reduces my state income tax burden while I'm still working. I will be retiring to a state that does NOT collect state income taxes.

Sounds like a good strategy.

[SunsetBlvd]

Been thinking about Roth. But so far I only have Traditional.

[mjedlin66]

Taking advantage of your local tax laws is a great strategy. I never gave it much thought because Washington does not have a state income tax. I was always Roth. Overseas, I also don't pay sales tax. So my check goes just a little bit further. All the more reason to stay Roth.

[evilanne]

evilanne - Born and raised on Galveston Island. But we will be calling Florida home after retirement. Warmer winters, nicer Gulf coast beaches. Besides maxing out my regular and catch up TSP contributions, I also have both Roth and Traditional IRAs. Probably retiring in 6 years (59½) so I have access to my IRAs. The plan right now is to rollover TSP (except $250) to my Vanguard accounts.

Sounds like you are well prepared. Florida's other taxes are definitely lower than Texas--property taxes here are way too high IMO https://smartasset.com/taxes/texas-prop ... calculator vs https://smartasset.com/taxes/florida-pr ... calculator