TSP Center

Hello there! I am fairly new to the Fed, with a good 30 years still to go, and I am already maxing out my TSP. With putting in my $693 every paycheck and following the PHENOMENAL "Seasonal Strategy" threads on this fine website, I plan to retire with a good 3-5 million dollars. So, since I am going to be withdrawing tons of money out of my TSP when I retire, wouldn't it make sense for me to choose the "Roth TSP" option right now since my 25% tax bracket ($37,951 - $91,900) right now is nothing compared to the 33-35% ($191,651 - $418,400) tax bracket I'll be stuck in when I retire and withdrawing my gazillion dollars? Or am I wrong?

Great question. I put all the money I could into ROTH. When I retire I withdraw tax free. I can withdraw my money as needed, not as required by a formula, RMD, at 70 1/2 years. Most importantly any money I leave to my kids is also tax free to them. What will your kids tax rate be? No one knows but I'm sure it will be more than yours.

I would not leave your money in the government TSP. Please check with the TSP office for how much you can withdraw AND the tax rate? Can you take out different amounts each month or is it fixed for the year? What about emergency money? Can you take out only your traditional IRA and not ROTH? Will they take out State taxes? I think the answer will be NO to all of these questions. Don't be shocked if they say they will need to withhold 20% federal taxes on your money. Good luck,

Yes. I am in the same boat. Go Roth if you plan on having a higher income in retirement than you do now. Keep in mind that your roth money has to mature before you can withdraw it tax free. That means you have to be 59.5 years old before you can withdraw it. So, make sure you save money outside the Roth TSP/traditional IRA for use before then.

For instance, you can use a Roth IRA and withdraw the contributions only whenever you need it (without penalty). You cannot withdraw Roth IRA earnings or traditional IRA anything before age 59.5. You can also just get a regular taxable brokerage account. I own stock in Apple, Tesla, Netflix, and Facebook in a taxable account. I can use this money to retire early if I choose to do that.

you can withdraw prior to 59.5 if you meet one of the exceptions, avoiding 10% penalty

Go Roth. Taxes are historically very low right now but dont expect it to stay that way for too many more decades.

Go Roth. Taxes are historically very low right now but dont expect it to stay that way for too many more decades. I woudlnt shock me at all if future leaders put a cap on TSP accounts because you obviously dont need that much money. hehe

MrSnrub, I commend you on your commitment to make the max contribution so early in your career. I would also recommend Roth for someone with so much time left to go. Keep in mind its not only the contributions, but also the 30 yrs worth of earnings that accumulate that you can withdraw tax free. That's where the big money will be for you!

By default, ROTH is the "safer" option. You won't have to worry about taxes in the future because you've already paid them. However, if you are even 80% ROTH your tax bracket would be extremely low meaning any addition funds taxable might be as low 10% instead of the 25% you are currently paying. A lot of people will say "I don't care" and would rather pay taxes now knowing they don't have to in the future. This makes sense as well as typically people have less deductibles in the future meaning they can't deduct as much of their income for tax purposes.

However, if you really want to get the most bang for your buck, you should split your investment trying to stay just under (or at) the lowest part of your current bracket. Obviously it's a gamble as it's impossible to know what that bracket will be in the future.


A piece of advice I got from my financial advisor:
Don't worry too much about it. Go ROTH if you can afford to pay the taxes now, otherwise, move as much into the traditional as you need to have the current lifestyle you want now. What matters is that you're making a good investment not the nickle vs dime question.

AKA: What we invest in (which fund/stocks/markets) matters more long term than ROTH/Traditional, but lean ROTH if you can afford it.

I just made this exact change myself MrSnrub. As many others have noted, it made more sense over the long-term that you and I have ahead of us.