What are thoughts concerning the new Roth tsp coming soon?

[ERdude]

To me, it seems that taking the tax deferral now is the way to go as most of us are likely in a higher tax bracket now than when we retire. However it would be nice to have a big fat nest egg growing tax free! Wondering what you guys are thinking? If this has been discussed, point me to the thread, I looked for a thread discussing this with no luck

[JayJ]

It is too late for me, but any person with more than 5 years to retirement should go for it, particularly the higher GS levels.

[crondanet5]

What would the maximum amount of contribution be allowed if you wanted to contribute the maximum to your TSP 401k and your TSP ROTH?

[reality88]

I think this will really help active duty. As for others it will depend on your income. I'm single so I need to reduce my income by maximizing my TSP including the over 50 contributions. Since the combined total of your TSP and ROTH cannot not exceed the IRS limits this has no value for me. If I could put money into a ROTH IRA no way would I use these TSP funds when you have so much more flexibility in the real world with IRA's.

[MakeMe$$$$]

I think this will really help active duty. snip.

Do you think that would also be true for CSRS since they don't get matching funds like military?

[flight23]

I would guess that most people active enough in their investments and retirement planning to be reading this site will end up in a higher tax bracket in retirement than they are now. For most people the question of whether to do a Roth vs traditional comes down to length of time to retirement and if > 5 years chances are you are better off doing the Roth.

[ERdude]

What would the maximum amount of contribution be allowed if you wanted to contribute the maximum to your TSP 401k and your TSP ROTH?

According to their educational pamphlet, the maximum contribution stays the same (currently $17,000 combined). You can however split your investments if you want but not sure how that would affect matching contributions. I am wondering if we went TSP Roth, would our matching funds be taxed? If not, that would be the way to go if your only contributing around 5 to 10% it would seem. I tried reading through the pamphlet to determine the tax implications of matching funds but could not find it.

[reality88]

I think this will really help active duty. snip.

Do you think that would also be true for CSRS since they don't get matching funds like military?

Yes sure. I did not read anything that prevents CSRS from participating. I just think with so few funds we get to invest in I would always max out a ROTH at say Fidelity or Vanguard or whoever you have your inverstments with before I use this one.

[jdeacon]

What would the maximum amount of contribution be allowed if you wanted to contribute the maximum to your TSP 401k and your TSP ROTH?

According to their educational pamphlet, the maximum contribution stays the same (currently $17,000 combined). You can however split your investments if you want but not sure how that would affect matching contributions. I am wondering if we went TSP Roth, would our matching funds be taxed? If not, that would be the way to go if your only contributing around 5 to 10% it would seem. I tried reading through the pamphlet to determine the tax implications of matching funds but could not find it.

My understanding but I cannot remember where I read it, is that matching funds are placed in your regular TSP. Thus a new federal employee who elects to go 100% Roth TSP will still have 2 TSPs. The Roth will be for his contributions and the traditional TSP for the matching contribution. Upon liquidation, the matching contribution will be taxed whereas the Roth will not. I am sure IRS will have a formula for how withdrawals can be made.

On that note I will not pursue the Roth TSP since I can already put $6000/year in a Roth IRA for myself and also put $6000/year in a Roth IRA my wife (we both meet the 50 year age threshold). Those younger than 50 can put $5000/year in a Roth IRA which if married, becomes a total of $10000/year.

[justjeff]

I would guess that most people active enough in their investments and retirement planning to be reading this site will end up in a higher tax bracket in retirement than they are now. For most people the question of whether to do a Roth vs traditional comes down to length of time to retirement and if > 5 years chances are you are better off doing the Roth.

Flight, I gave this some thought over the weekend and I thought that my tax bracket would be lower once I retire (9 more years to go) because I will be making significantly less than I do now as a GS-13. I am under the FERS system. If I am wrong, please correct me so I can make the right decisions.

I do not plan on getting another job post retirement, I just plan on managing my investments - following your trades Thanks for all that you contribute to this site.

Jeff

[skiehawk11]

Just an interesting tidbit. If you start contributing to the TSP Roth with your max contribution at 30 until you retire (Age 68) you will have accumulated 6 million dollars with 9% interest and 3+ million dollars with 7% interest.

If you combined that with your Roth IRA outside you would have a total of 7.7 million dollars with 9% interest at Age 68.

If you rolled your TSP over to your Roth IRA and invested the total amount in some good dividend stocks with an average of 6% dividend a year you would get a yearly paycheck of 464,000 dollars tax free.

Now, if you think you can get a return better than 9% a year averaged out over 40+ years by all means go ahead, but if you want less of a headache and a guarantee paycheck tax free starting at age 68 you could very well do it.

Of course other considerations are taxes and lost opportunity costs, but generally speaking having 7+ million dollars at 68 is a good thing.

Oh, when adjusting for inflation, that 464,000 dollars would be equal to $167,033.76 in today's dollars assuming an average inflation of 3% a year.

[flight23]

I would guess that most people active enough in their investments and retirement planning to be reading this site will end up in a higher tax bracket in retirement than they are now. For most people the question of whether to do a Roth vs traditional comes down to length of time to retirement and if > 5 years chances are you are better off doing the Roth.

Flight, I gave this some thought over the weekend and I thought that my tax bracket would be lower once I retire (9 more years to go) because I will be making significantly less than I do now as a GS-13. I am under the FERS system. If I am wrong, please correct me so I can make the right decisions.

I do not plan on getting another job post retirement, I just plan on managing my investments - following your trades Thanks for all that you contribute to this site.

Jeff

Well it really comes down to how well and for how long you invest before retirement. If you make 75k now, are 30 years old, retire at 60, and put 10% into your TSP you will have approximately 2M in the TSP at retirement (pretax, assuming standard TSP). Assuming by the time you retire your salary is 120k and you get a 33% pension you will make 40k from your pension, probably on the order of 50k from social security (if it still exists), and say you just take 4% out of your TSP per year for another 80k. That is 170k/year, presuming no inflation. If there is inflation technically that should be reflected in an even higher salary (thus higher pension), and higher social security benefits. It may also indirectly mean a higher TSP balance but for the purposes of this example without any of those you would have approximately equivalent if not higher income (adjusted for inflation) in retirement. This does not include any income from non-TSP retirement accounts, nor does it include income from brokerage account gains etc.

Keep in mind though that if you cannot contribute as much due to it being post tax money for a Roth vs pretax then the government match may skew the benefit towards putting in pre-tax money.

For most people who are reasonably good at saving if you have >5-10 years of employment left before retirement the Roth will likely work out best. If you are *already* in the highest tax bracket then it is tough to say, because chances are in retirement you will still be in the highest tax bracket and taxes at that time may or may not be higher than they are now.

[crondanet5]

Now if I choose to not use the ROTH TSP feature and put the full $17,000 into the TSP401k, can I put $5,000 additional money into a ROTH account opened elsewhere or do the 2 have to equal $17,000?

[Winner]

Now if I choose to not use the ROTH TSP feature and put the full $17,000 into the TSP401k, can I put $5,000 additional money into a ROTH account opened elsewhere or do the 2 have to equal $17,000?

TSP ROTH is similar regular traditional TSP, which doesn't affect your IRA ROTH that based on your income if you eligible to put additional $5K.

[jdeacon]

To follow up on Winner's comment, see the following IRS link for details on AGI limits for Roth IRAs:

http://www.irs.gov/retirement/participa ... 38,00.html