Hello sgtnicholssgtnichols wrote:On the debate between contributing to pre-tax Roth or post-tax Traditional TSP, I would like to know where others stand and why.
We can neglect my wife's income. In my case, my salary is about $90k now as a GS-13 and I expect to make more than $120k by the time I retire in 25 years. (Inflation over that time will halve the dollar, so that $120k could be more like $200k and our $50k in living expenses would double). We don't have kids yet, but probably will next year so that could affect the tax situation.
In my case, I would probably pay less in taxes the Traditional route withdrawing $50k (before inflation). RMD may make that withdrawal closer to $70k (double that if considering inflation). Tax rates will probably rise over time. Looking that far ahead makes my head hurt.
For now I have been going with 10% into Roth TSP and 8% into a Roth IRA (backdoor emergency fund capability, though we already have 8 months set aside), but am considering switching over to Traditional if in the long term it makes sense. What are your thoughts?
Though somewhat dated, this looks like a good resource:
https://www.futureadvisor.com/content/b ... tributions
I've been retired for almost a year and a quarter and I can share my simple view from the experience along the way.
I recommend reading the roth vs traditional articles at thecollegeinvestor.com I didn't understand them and it made me feel better about my choices. There is at least one great article on going all traditional ira and doing roth ira conversions every year to pay expenses. If I remember I'll let you know how that works out after the end of this year (1/1/2019). There is good information for all stages of an investors life at the website. I didn't put anything into a roth at work until the last four pays because I thought I missed the boat.
If I had to do it all over again I think I would follow something along Wingchaser's process ("I have the maximum goin' into Traditional TSP Account (Pre-Tax) to garner the leverage I will get with that maximum investment (over time). I then maximize my ROTH IRA (Post-Tax) with Fidelity Investments, which for my age bracket is $6,500.00..."). I like ProFunds way better than Fidelity though. It's like a better designed Thrift Savings Plan. Unlimited IFT's. Leveraging to double what you are already going to invest in (S&P500 =C Fund; etc...). Inverse funds for down trends instead of parking in the G Fund equivalent (close but not quite . No fees to transfer between funds. I initially moved my emergency fund there 15 or so years ago. If you have any excess money above all the normal sequence of saving/investing [trad ira, roth ira, HSA (still not sure I'm onboard with this one yet) I'd invest it in a taxable account at ProFunds or similar investment medium that can consistently return 30 to 70% APY. You would think taxes would hit this pretty hard once you start pulling it out of the mutual funds for expenses but the tax losses harvested throughout the year apparently make them negligible. Don't ask me to explain. I pay someone that does all that for me. I just do the trading.
I do not have a diminished lifestyle in retirement. My pension gross from my hybrid CSRS/FERS is about 4600 minus the payout to the ex of about 1450 minus about 300 in fed taxes and insurance for 2850/mo. This covers all of my expenses like housing, utilities, groceries and dining out most nights. I am snow-birding in Florida (how cliche' for the second year. This and a future car expense is paid for by the returns off of by what I left in TSP (125,000) to be disbursed monthly to guarantee a monthly income until I reach 59.5 and start withdrawing the balance moved from TSP to ProFunds (about 300,000).I should have at least another 150,000 in the traditional ira by then. About ten years before retiring at 57, I switched my philosophy to only putting in up to what the gov't would match and investing the rest in a taxable individual acct at ProFunds. This was a dream home building fund that I got up to 175.000 by retirement.
I put all this down to illustrate that you don't have to have over a million to retire. Apply the zeal you put into your career into learning a really profitable investment hobby and save and you will be fine at the end. I would take a couple more vacations along the way and have bought that truck I always wanted sooner if I had known it was going to work out this well.
I hope you and yours live long and prosper,
Tim