3 Times You Should Run from Roth TSP

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[@Vicshade]

I think taxes are going to up so I’m going to pay it now…but I have at least 6 years to go but like you say, it’s hard to predict.

[@walkingdude8779]

Agreed. I can afford the taxes now. The future is unknown. Taxable income effect IRRMA, SS taxes. Pump the the Roth as much as you can. Everyone can plan for zero taxes in the future.

[@Dave-sw2dm]

The other unknown is if they will continue not to tax the growth in the Roth Retirement accounts. Remember that they used to not tax SS income.

[@itguru2037]

Taxes always go up over time. Just look at what the tax rates were 6 years ago. Before taking out money from traditional TSP make sure that your income is near zero to lower your tax bracket.

[@Dave-sw2dm]

The other thing to consider is what tax bracket you will be in when retired. My plan is to do Roth Conversions in retirement.

[@ozzyngcsu]

​@@itguru2037 The 2018 and 2024 federal income tax rates are exactly the same so not sure what you mean. Also taxes today are much lower than they have been historically.

[@walkingdude8779]

Roth is the boss. Taxes will not be lower.

[@russthompson4296]

IF you are working in a High Locality pay location and you have any kind of plan to relocate to a low cost location upon retirement, Roth is a bad bet. Even more so if you retire debt free with a paid off home your expenses/income needs are much lower.

[@sevenson4426]

Dallen for clarification, I believe TSP does not allow QCD.

[@susan6336]

Good info, Dallen! It's been interesting to have these issues present themselves now in retirement. Now we're faced with having to convert IRAs to Roths prior to the expected future higher tax rates. Wish I'd been better prepared as we planned our retirement portfolio.

[@jerrys2346]

Good stuff. The way I look at it, if you're planning for ways to reduce taxes, you've already put yourself in a good position.

[@zenawarrior7442]

Thanks Dallen, luckily I use regular TSP😊

[@donrodriguez8615]

59 1/2 start moving your money to what ever you want. Set up your tsp distribution as you like . Pay yourself or feed another account. Up to you

[@jasongross7977]

I think get another reason to avoid Roth altogether is if you were living in a high tax area Like the DMV and are going to move to a low or no tax area like Florida when you retire. That way if you do traditional, you’ll avoid the state tax altogether. Pennsylvania is another good option. Also, if you were going to move out of the country and you might not have a state assigned to you, you won’t have state taxes on top of your federal. Since you live in Virginia now and moving to Pennsylvania when you retire broth is a bad choice because you will be paying state tax that you would otherwise be able to avoid when you retire.

[@toddwerther188]

Thank you for all your videos. Q: Would sick leave count against your MRA+10 deduction amount? i.e., if a years' worth then 5% drop due to 5% year penalty of MRA+10.

[@PlanYourFederalBenefits]

Great question. Sick leave is still used in the MRA + 10 retirement calculation. Here is a great video on sick leave: kzbin.info/www/bejne/n6LaYaCOfbR1lZo&pp=ygUWaGF3cyBmZWRlcmFsIHNpY2sgbGVhdg%3D%3D

[@Ben78255]

what if the TSP is projected to grow to where the RMD puts you into the higher bracket?

[@erickarnell]

That's exactly the danger of having a lot of money in traditional TSP or IRA. You need software to calculate what makes sense.

[@alrocky]

Having RMD that puts you in higher tax bracket is a "good" problem that's certainly a lot better than being in such a low tax bracket in retirement that necessitates returning to work. You have all the years from retirement to RMD age dozen years or so to convert traditional TSP to Roth IRA. Generally at 50 you should be contributing $8,000 to Roth IRA every year.

[@c.hunter631]

Just curious, when did Roth TSP become available? I’ve commented before but I started as a Fed EE in 2010 and only started ROTH recently after learning about it from you. I still have another 13 years to work, so I think it will be beneficial. I’m also still doing 5% in TSP.

[@benjaminjohnson1693]

I believe it was first made available in August 2012. I have been putting all my contributions into the Roth TSP since it first became available. I really like the Roth TSP.

[@alrocky]

@ *hunter* consider increasing your contribution rate of 5% to $23,000 as soon as you can and $30,500 once you reach 50.

[@Tkh21209]

can heir take Traditional TSP out anytime or other rules apply?

[@PlanYourFederalBenefits]

Great question. The TSP can only be given to heirs upon death of the account owner. Here is a great video on who pays the taxes once the TSP owner dies: kzbin.info/www/bejne/oKHLZoWQg7x1oc0&pp=ygUqaGF3cyBmZWRlcmFsIGdpdmluZyB0c3AgdG8gc3BvdXNlIG9yIGNoaWxk

[@roseystroup]

Do you have a business card?

[@PlanYourFederalBenefits]

Great question. Here is our contact information: Contact us: [e-mail] or [phone]

[@user-cf2px2ko8y]

For most situations, I think it is better to contribute to the roth at least until the trump tax cuts expire in January 2025.

[@bleebu5448]

There is a sweet spot where you can contribute to both the TSP and a Roth. If you are in a high income bracket, you can max out your TSP, AND contribute to an outside Roth. As long as your MAGI doesn't go over 146K if you're single or 230K if married. The cool part is, your tax savings for the TSP can fund your Roth (up to 7K)

[@alrocky]

"your tax savings for the TSP can fund your Roth" That's an all too common misconception and false. The "tax savings" that comes from contributing to traditional TSP is not available to fund Roth IRA as that "tax savings" is inside and part of the traditional TSP contribution.

[@bleebu5448]

@@alrocky Your notion is incorrect. Money contributed the TSP reduces your taxable wages. My TSP contributions reduced my taxable wages significantly. (24% bracket) Maxing out the TSP (30K) saved me $7200 in taxes each year. This went straight into my bank account. Money is fungible. If I save $7200 in taxes each year by contributing to the traditional TSP, I can put that money into a Roth IRA at an outside brokerage, like Fidelity or Schwab. As long as I don't go over the limits in earnings and contributions. I am effectively funding my Roth IRA with my tax savings from the traditional TSP.

[@alrocky]

@@bleebu5448 Math does not agree with you. $30,000 pretax income = ($30,000 * 0.76 =) $22,800 spendable income + $7,200 tax $30,000 pretax income = ($30,000 * 0.76 =) $22,800 Roth TSP + $7,200 tax $30,000 pretax income = $30,000 traditional TSP + $0.00 tax $30,000 pretax income = $22,800 t-TSP + $7,200 t-TSP + $0.00 tax The $7,200 did not go straight into your bank account. You are not funding Roth IRA with the "tax savings" of contributing to t-TSP. That $7,200 is inside and part of the $30k t-TSP contribution. The $7,200 tax is either paid to Uncle Sam or deferred and instead part of the $30k t-TSP.

[@David-cv3bp]

I think a lot of people miss the point about TSP, taxes and retirement. It is unlikely that a current non-high earner , will in the Future will be making more money in retirement. That is why the Roth is good Incase it does happen. When I retired my spouse was working, so I took the ROTH portion of TSP and lowered our tax BASE. Yes the IRS tax bracket changed, but not the amount we owed. No one retires with a 100% retirement paycheck. Many will come out at 80% of pre retirement salary. This includes all 3 sources of Federal pension parts. So the tax bracket is already lower, so you’re paying less, spending less. IMHO While working in the Federal Government, which is what Haws focuses on, you should always put your money pretax and then add what you can to the ROTH especially for the catchup limit.

[@dale9484]

The ROTH TSP is not a good idea because you have to pay taxes up front instead of investing the funds in the markets. If you take those funds and invest them up front in the traditional TSP stock accounts you will gain a lot of dividends and interest. If you pay the funds up front in taxes for the ROTH TSP instead, you lose all of the interest and dividends that you would make in the traditional TSP markets. Even if you have to pay taxes later in the traditional TSP when you cash out, you still have all the dividends and interest in your account that you would not make with the ROTH. So basically its potentially tens or hundreds of thousands of dollars lost with the ROTH TSP. You lose the funds up front with the ROTH TSP by paying taxes while other employees are making a lot of money by investing their funds instead of paying taxes. Also, you can avoid paying taxes on the TSP by giving the funds to charity.

[@unconscious_Thoughts]

This is not true, 20% is 20% . 20% of 1000 is 200. You will invest $200 every pay period. The taxes that you either pay or save isn’t included in your invested amount , only your take home amount . Try to change your tsp allotment from Roth from traditional or vice versa , as long as the percentage is the same the deduction will be the same . Taxes are not included in your invested amount .