Roth IRA has some income limit (married and tax file jointly, MAGI must be under $214,000 for tax year 2022 and $228,000 for tax year 2023). Does Roth TSP has same kind of income limit?
10% Roth TSP plus 5% matching, fully funded Roth IRAs (Spousal and personal) and fully funded HSA. Time is money. 26 more years to go in federal service. Hopefully it pays off...
Don't forget to purchase real-estate 2 or 3 times a year. And beware of spousal accounts. Because they can spend it anytime they want. Been there done that
@@barrymitchell7732 great advice! Thankfully I am married to a spouse who is on the same page as me. I have some work to do on real estate purchases and will start working on that. 👍🙂
As I understand it, the amount that you earn does not apply for Roth tsp…you can earn 250k married and still max contribute to Roth tsp; but does for Roth IRAs…believe it is max adjusted gross income of 214k for 2022 for married. And I’ve been Roth tsp for awhile now too 2017 or 2018 I believe.
You go Scott. 100% of my contributions to Roth since 2016 too. Taxes are inevitably going up after all this stimulus... somebody has got to pay for all the stimulus so how's that going to happen...higher taxes in the future. Pay now or pay later...
$6k for a personal Roth IRA, $6k for spousal Roth IRA. If you earn over $205k filing jointly you can't do a Roth IRA unless you do a back door Roth conversion.
@Haws Federal Advisors Your technical argument is false. It's not accurate to compare $10 in the Traditional and $10 into the Roth. Why? Because you have to pay tax on the $10 you put into the Roth, therefore the correct math comparison is $100 Traditional vs $78 Roth (100-marginal tax rate). If you do all the math and make equal assumptions...it will show you both are equal, if you assume you will be in the same tax rate in retirement vs during accumulation phase (e.g. savings years). The Roth provides more $ if and only if, your taxes are higher in retirement than when working-it's that simple. It's logical to assume taxes will go up. Roth is a good thing but one must understand the math and use the correct comparison. Folks it's probably best for most to use Roth...but "Buyer Beware". Im not a financial planner, but I studied the subject a lot. Remember: "Money Doesn't Grow on Fees".
I appreciate the feedback. I didn't go into too much detail in this video for simplicity. For that reason, I gave this example. If you would like more in depth examples, here is a link to all my tsp videos: hawsfederaladvisors.com/tsp-investing-articles/
1:00 The $10 to tradition vs $10 to Roth hypothetical is misleading as a novice viewer can easily assume he's using an apples to apples scenario and then falsely conclude that Roth is always superior choice. In 22% tax bracket, investor needs ($10 / 0.78 =) $12.82 pretax income to contribute $10 to Roth TSP while the traditional TSP only needs $10 pretax income.
I didn't even know what the Roth TSP was until like a month ago. And I've been at the post office since 2006 🤦. Attention to detail is key! Finally I'm putting my future earrings into the TSP but the Roth side 😅
He said it... because some of us started 2 decades before the Roth existed. It's hard to teach an old dog new tricks but I am putting all I can into Roth now.
Standard deduction is north of $25k for married filing jointly. If you’re bringing in $110k annually in retirement on only 4% withdrawal rate then congrats.
I cannot afford to max out my TSP. But I have been contributing 5% of my pay. I started the TSP in late 2011. Since Nov. 2022 100% of that contribution goes to the Roth portion. I have been maxing out my Roth IRA's since 2020. Additionally, I invest in dividend paying stocks in my taxable accounts. I make a point to buy non-qualified dividend paying stocks/ETFs in my IRAs such s REITs and REIT ETFs. I am trying to get to the point where dividends will assist in my living expenses and pay as little tax or no tax as possible on that income. I will probably roll the TSP into an IRA/Roth IRA when I retire and use the funds to buy more dividend paying stocks.
Would the next market downturn of say 15% or more be a great time to move money to Roth IRA? The TSP tax burden would be reduced by however much the market downturn. Then once the money was in the Roth IRA, hopefully it would rebound. Turn market corrections into TAX breaks?
12 months from retirement. Past two years withdrew from tsp and paid ALL bills except house mortgage. I am single income. I’ll be 65 2024. All of what’s left is in tsp c fund. Will have 5-10% from paycheck deposited into Roth Tsp after seeing this vid. I’m in great health and will be doing side jobs for extra income. Have about 100k in c fund. Still deciding whether to ride it out till 66 & 10 months for full ssc. After taxes & premiums my retirement will be about 2k & ssc $2200 @65 or 2600 @ 66&10. Any suggestions on improving this? Really didn’t look into this till a year ago.
I am too close to retirement, and my plan is to stay in the 12 percent tax bracket where the money I would pay tax on now for the Roth would be at 22 percent. If the Roth TSP was around when I was younger it would definitely have made sense to put some in the roth.
Thank you for this. I was a fed after Roth IRA started, so it was very clearly explained in my benefits package. Other feds look at me like I'm crazy when they're advising a new person to put all their money in a traditional TSP and I comment saying their Roth TSP is better because they don't have to worry about how much will be taxed when it's time to withdraw.
@@jscott1000 Who promised? I have followed long enough to see Mr. H say not...all I know is that I never have any problem changing my withdrawal from my Fidelity IRA, but you always get a written warning that such a change to TSP withdrawals might trigger tax recalculation.
@@edmundfong7288 The law signed in 2012 gave the TSP the authority to offer Roth Conversions and it was promised by the Thrift Savings Board but they have never acted on it. There is no reason except they don't want to do it.
I didn't know any better when I first started off. I have about 80% in Traditional and 20% in Roth currently but I made the switch about 3 years ago. Now I am 100% in Roth
Does Roth TSP count towards the 5 year required Roth holding period for tax free withdrawals on interest/earnings in an outside Roth IRA (ie: Fidelity, Vanguard, etc)? I’ve received conflicting answers to this question. Thank you…
Does the TSP annual maximum deposit limit include the match? If I contribute 15% into Roth, the 5% match will bump me above the maximum contribution limit.
In my situation I’m maxing out traditional TSP and fully funding my and spouse’s Roth IRAs. It’s important to have tax diversification. I plan on leaving federal service (special category employee) in my early 50s and the downside to Roth TSP is that you would get hit with 10% early withdrawal penalty before age 59 1/2. There isn’t a penalty for traditional TSP in this instance.
Each plan is different for each person. I've been so heavy on the Roth because I don't want to pay out the wazzu in my retirement age. Out of all the money printed, 80% was printed the last several years plus our federal debt is sky high...higher taxes are the only way out of this one unfortunately who takes that.... the middle class
For non-special category employees, you can take distributions from TSP penalty-free starting at age 55. Since you’re special category (LEO?), you can access your money earlier. You could actually invest TSP Roth, move the Roth TSP funds to an outside Roth IRA at retirement (you won’t be able to take distributions until age 59.5), and since the majority of your account is traditional funds you draw down those funds from within the TSP. It’s recommended to draw down traditional funds first while allowing tax-free Roth funds to grow.
100% Roth now. Wish I started a long time ago. Saving 3-4k in taxes now vs savings tens of thousands if not hundreds of thousands later, makes sense. I didn’t get it until Dave Ramsey spelled it out like that
Federal employee with 20 yrs in but can still do another 10. Was thinking of doing a roth conversion starting 5 yrs out from retirement. Wondering is it beneficial to start contributing to roth in tsp now. Also does the 5% agency match still get invested and make capital gains?
It depends on your income and the deductions you can claim on your taxes. Ideally you contribute to the Traditional TSP to lower your income into a lower tax bracket. Then contribute as much as you can to the Roth TSP and a Roth IRA. Only contribute 5% total to the TSP. Then contribute the max to a Roth IRA. If you have more money, go back to the TSP.
The ROTH TSP is definitely 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.
TSP doesn’t give you a good breakdown of what money was contributed so I take my money out in loans and invest it in a civilian roth. The worst part of the TSP is if you need to call them and you can actually get a hold of someone they treat you badly. I am not a prisoner to this plan and I refuse to be treated like anything but a customer. I’m willing to pay for quality service.
TSP Roth limitations are the same as 401k limitations. Ie- $20,500 if you’re under age 50. A Roth IRA at Fidelity or Vanguard does have $6000 annual contribution limits. You can roll your Roth TSP into the Roth IRA if you so choose one day.
Didn’t really know about ROTH until I was about to retire… now I’m retired, it’s too late - gonna have to pay $150k in taxes when I withdraw enough money to buy my forever home. (Unless some knowledgeable, trustworthy, CFP out there can advise/assist.)
Only reason I do not have a Roth TSP, is I can not find it on the TSP website, to start contributing. I've search a few times. I'm doing 15% traditional, but have 5% more I wish to put in a Roth. I was hoping this video would show me how. I wonder if I'm the only one? Rod
Did you find out how to start your Roth TSP contributions? As mentioned, it would be in the same place where you would raise/lower your contribution amount.
I work for USPS for 32 years now. I only have 4 more years to retire when I qualify by age at 56. Is it still good for me to change my TSP to Roth TSP? I am debt free by the way.
Hi Dallen, I'm already retired. How much can I move from my traditional TSP to a Roth. Is there a limit? thanks as always for your educational and very informative videos!
There’s not a limit on how much you can convert. HOWEVER, please be careful. You have to pay taxes on the conversion, and it counts against your income for the year. You don’t want to convert it all at once. You’d be in a higher tax bracket. (And possibly pay more in taxes on Social Security, and a potential large increase in your Medicare premiums- IRMAA)
@@rogerdoger9939 correct. But you can move a traditional TSP to a traditional IRA and then do a Roth conversion into a Roth IRA. Have to be careful with the tax consequences though.
Mr. Haws, I've had a traditional TSP for over 20 years and I just switched over a month ago to the Roth TSP. This retiring commander I know you told me that I shouldn't have done it because I pay more taxes now than I will and retirement due to making less money in retirement. Is that logic sound or not... thanks in advance. I'm currently paying 8% to TSP, do you recommend going to 10% in either Roth or traditional?
Contribute as much as you can to the TSP. Do you want to have more or less money in retirement. Will you be making less, or the same when you retire? I plan to have enough money in my TSP/IRA that I will be able to have the same lifestyle or greater when I retire. I have used a mix of Traditional and Roth accounts to try to keep my taxes low now, and when I retire.
@@rogerdoger9939 Thank you for your reply. I currently have everything in the G fund but before I had an equal amount in the C,S and I funds when Trump was President and made a lot of money. When do you think it will be responsible to go back to CSI or what combination of funds to you recommend?
@@scalawag6878 As of today (8/7/2023) you should have moved back to the C fund about a year ago. When the S&P500 was down close to 20%. Today it is only down about 5%. I am not an expert, as I missed this run up. But I think the economy is not good. And the stock market will test the lows again before the current administration is replaced. I am currently 60C/40G.
Joined the fed few years ago. Only reason I don’t use roth tsp is because I already had an Roth IRA before I joined. So it’s easier to manage one roth instead of two especially when maxing it out.
What about the compounding of the same pre-tax higher balance in the regular TSP vs the same after-tax lower balance that would be invested into the Roth TSP. Assuming both have good returns on investment, wouldn’t the regular TSP have much greater gains even though taxes would be due later?
I’m in an interesting situation. I’m on an income-based repayment plan for my student loans, including eventual PSLF. Traditional contributions reduce my taxable income and thereby reduce the income my loan payments are based off of. I max out my contributions, so my income is currently reduced by $20,500. If I were to contribute to Roth, not only do I pay the taxes now, but 20 cents of every dollar of that $20,500 would also go to my student loans instead of my TSP. So until I get my loan forgiveness, I max out my traditional TSP, and anything else goes into my wife’s Roth 403(b) at her job.
Hi already retired postal worker five hundred thousand tsp 401. Is it a good idea to put a hundred thousand into a roth ira. What would be the consequences tax wise. Thank you
Kevin, not a financial advisor but my understanding is that if you do the 100k from traditional tsp to back door Roth IRA you will still have to pay the tax but the transfer does not have to happen at once…example is 10k per year until you transfer the total amount of 100k dependent on ur tax situation ( so you don’t go into a higher tax bracket). After transfer all future growth would be tax exempt. Great question and look forward to a Haws response.
I just started using the Roth at the beginning of this year because of the flexibility it affords. I typically increase my retirement contribution at the beginning of the year, and I plan on putting most of my subsequent increases into the Roth and leaving my contributions to the traditional where they are. The only reason why I may increase my contribution to the traditional is to avoid going into the next tax bracket if I’m right near that line.
Maxing out my Roth TSP and Roth IRA's(spouse). Will continue this till 2025 when the tax rates change. I believe now will be the cheapest tax rates for awhile, so I am loading up on Roth's.
This "overtime is heavily taxed" is an urban myth. How withholding is calculated is based on what your gross pay is for the pay period, considering that you make the same amount all year. When you work more you pay more. When you work less, you pay less. Then you file your taxes and it all evens out.
Two TSP accounts examples: Traditional with 1million balance. You take that money home, it strangely changed to about $750k. Taxes. Roth with 1million. You take it home, still have 1million. I seriously doubt you would have paid 250k in taxes all those years you built up 1million nest egg. Hope that makes sense.
@ *mark* no that really doesn't make sense as you're not making apples to apples comparison since the $1M Roth required post tax income which is not reflected in the Traditional contribution. Assume $50k pretax income for contribution, 20 x growth 25% tax: $50k pretax income = $50k traditional : ($50k * 20 =) $1M traditional : $1M Traditional * 0.75 [25%tax] = $750,000 spendable traditional income $50k pretax income = ($50k * 0.75 [25%tax] =) $37,500 Roth : $37,500 * 20 = $750,000 spendable Roth income How does Roth get to $1M? $50k post-tax Roth requires: ($50k /0.75 =) $66,666.67 pretax income so $66,666.67 pretax income = ($66.67k * 0.75=) $50k Roth contribution : $50k * 20 = $1M Roth spendable income $66,666.67 pretax income = $66,666.67 traditional : $66,666,67 * 20 = $1,333,333,33 : $1,333,333.33 * 0.75 = $1M spendable traditional income Proper apples to apples comparison Roth requires only $16.67k in tax but yield identical $1M spendable as traditional.
What about the child tax credit? The reason I do traditional right now is because if I don't I will lose most if not all of child tax credits I get for my two children
I did not realize that you could contribute 5% to Roth and get matching 5% to traditional TSP. What is the rate of return on Roth? I have been thinking of putting money in a Roth.
The “rate of return” on a Roth depends on what fund(s) you invest in within that Roth account. A Roth account is not an investment fund itself, but rather how taxes are treated when you put money in and take it out. Within the Roth account, you have to select specific investment funds.
So if I put 100 percent into the Roth TSP, which is 10 percent. My agency will still match 5 percent but in TSP? So when I sign up, do i split it 5% Roth TSP and 5% percent TSP to get the match or 10% all TSP and they still match it?
Never turn down free money especially when the gov gives you their traditional side of the TSP that will grow over time then put about 10-12% (if you can) of your side to the Roth, diversify diversify diversify!
This advice is only good for people who can afford to contribute the maximum amount each year. Let's say you can only afford to contribute $10k a year. Your options are to contribute $10k to the traditional TSP or to contribute ($10k - taxes) to the Roth TSP.
Generally those who can afford to contribute max of $23,000 to TSP are likely to be in high tax bracket and thus should favor contributing to traditional TSP. Single person making less than $47k is in 12% Federal Tax Bracket and should favor Roth TSP.
1 until recently you could not pull just the roth so it negated much of the tax planning advantage. 2 buy making the max traditional contribution the tax savings allow me to fully fund a roth IRA I could not do this without the tax advantage.
I’m husband and I are both GS 15s in the DC area. We don’t qualify for Roth because we earn too much (or that’s what I was told).
Roth IRA has some income limit (married and tax file jointly, MAGI must be under $214,000 for tax year 2022 and $228,000 for tax year 2023). Does Roth TSP has same kind of income limit?
No, it does not have income limits like the Roth IRA.
I love the fact that you keep your advice videos in the 5 to 12 minute range! It is great for short advice and gets the thinking going!
10% Roth TSP plus 5% matching, fully funded Roth IRAs (Spousal and personal) and fully funded HSA. Time is money. 26 more years to go in federal service. Hopefully it pays off...
Great start!
Don't forget to purchase real-estate 2 or 3 times a year.
And beware of spousal accounts.
Because they can spend it anytime they want.
Been there done that
@@barrymitchell7732 great advice! Thankfully I am married to a spouse who is on the same page as me. I have some work to do on real estate purchases and will start working on that. 👍🙂
100% roth tsp since 2016!!
@Neil Stewart yes I have a fam. By myself I do not make over 75. But my wife and file jointly and together we are north of 120.
Same here, since 2012. Love it.
As I understand it, the amount that you earn does not apply for Roth tsp…you can earn 250k married and still max contribute to Roth tsp; but does for Roth IRAs…believe it is max adjusted gross income of 214k for 2022 for married. And I’ve been Roth tsp for awhile now too 2017 or 2018 I believe.
You go Scott. 100% of my contributions to Roth since 2016 too. Taxes are inevitably going up after all this stimulus... somebody has got to pay for all the stimulus so how's that going to happen...higher taxes in the future. Pay now or pay later...
$6k for a personal Roth IRA, $6k for spousal Roth IRA. If you earn over $205k filing jointly you can't do a Roth IRA unless you do a back door Roth conversion.
I put my entire contribution into ROTH TSP at 65 including catch up (working until 70).
I have some in Roth tsp. I would just like clarification whether I can access Roth tsp when I retire at 50 as a special provisions employee?
so how do you switch from traditional to roth tsp smoothly?
I love this question. Here is a great video about that:
ua-cam.com/video/6ZA1arPbo8M/v-deo.html&ab_channel=HawsFederalAdvisors
I have been 100% Roth since 2013.
Great to hear!
If youre maxing out every year, you are my hero.
@Haws Federal Advisors Your technical argument is false. It's not accurate to compare $10 in the Traditional and $10 into the Roth. Why? Because you have to pay tax on the $10 you put into the Roth, therefore the correct math comparison is $100 Traditional vs $78 Roth (100-marginal tax rate). If you do all the math and make equal assumptions...it will show you both are equal, if you assume you will be in the same tax rate in retirement vs during accumulation phase (e.g. savings years). The Roth provides more $ if and only if, your taxes are higher in retirement than when working-it's that simple. It's logical to assume taxes will go up. Roth is a good thing but one must understand the math and use the correct comparison. Folks it's probably best for most to use Roth...but "Buyer Beware". Im not a financial planner, but I studied the subject a lot. Remember: "Money Doesn't Grow on Fees".
I appreciate the feedback. I didn't go into too much detail in this video for simplicity. For that reason, I gave this example. If you would like more in depth examples, here is a link to all my tsp videos:
hawsfederaladvisors.com/tsp-investing-articles/
1:00 The $10 to tradition vs $10 to Roth hypothetical is misleading as a novice viewer can easily assume he's using an apples to apples scenario and then falsely conclude that Roth is always superior choice. In 22% tax bracket, investor needs ($10 / 0.78 =) $12.82 pretax income to contribute $10 to Roth TSP while the traditional TSP only needs $10 pretax income.
I didn't even know what the Roth TSP was until like a month ago. And I've been at the post office since 2006 🤦. Attention to detail is key! Finally I'm putting my future earrings into the TSP but the Roth side 😅
I have been in Roth since I started in the fed government. Surprised to hear more people aren't in Roth. Good stuff, Haws
Thanks for sharing!
He said it... because some of us started 2 decades before the Roth existed. It's hard to teach an old dog new tricks but I am putting all I can into Roth now.
Isn’t there an income limit where you don’t qualify to contribute to a Roth TSP? And then you’re forced to stay with the classic TSP?
Thank you for the question! Here is a video that might help:
ua-cam.com/video/83XF_RU4vaA/v-deo.html&ab_channel=HawsFederalAdvisors
Q1 No there is no income limit to contribute to either traditional TSP or Roth TSP.
Standard deduction is north of $25k for married filing jointly. If you’re bringing in $110k annually in retirement on only 4% withdrawal rate then congrats.
I believe you need to include the pension and Social Security for that $110k number.
How do I set up a Roth TSP. I’m 47 with 15 years in the gov. Looking to retire late 60”s maybe early 70’s if it’s still fun and the benefit is there.
If you call TSP they can walk you through it
Did you find the answer? It should be in the same place as where you would change the contribution amounts. At least at the USPS it is.
I cannot afford to max out my TSP. But I have been contributing 5% of my pay. I started the TSP in late 2011. Since Nov. 2022 100% of that contribution goes to the Roth portion. I have been maxing out my Roth IRA's since 2020. Additionally, I invest in dividend paying stocks in my taxable accounts. I make a point to buy non-qualified dividend paying stocks/ETFs in my IRAs such s REITs and REIT ETFs. I am trying to get to the point where dividends will assist in my living expenses and pay as little tax or no tax as possible on that income. I will probably roll the TSP into an IRA/Roth IRA when I retire and use the funds to buy more dividend paying stocks.
Would the next market downturn of say 15% or more be a great time to move money to Roth IRA? The TSP tax burden would be reduced by however much the market downturn. Then once the money was in the Roth IRA, hopefully it would rebound. Turn market corrections into TAX breaks?
3 straight years of maxing Roth TSP and Roth IRA
Great to hear!
12 months from retirement. Past two years withdrew from tsp and paid ALL bills except house mortgage. I am single income. I’ll be 65 2024. All of what’s left is in tsp c fund. Will have 5-10% from paycheck deposited into Roth Tsp after seeing this vid. I’m in great health and will be doing side jobs for extra income. Have about 100k in c fund. Still deciding whether to ride it out till 66 & 10 months for full ssc. After taxes & premiums my retirement will be about 2k & ssc $2200 @65 or 2600 @ 66&10. Any suggestions on improving this? Really didn’t look into this till a year ago.
Not sure if he ever responds to comments but. Are you allowed to have a personal ROTH IRA + a ROTH TSP?
Yes
I am too close to retirement, and my plan is to stay in the 12 percent tax bracket where the money I would pay tax on now for the Roth would be at 22 percent. If the Roth TSP was around when I was younger it would definitely have made sense to put some in the roth.
Thank you for this. I was a fed after Roth IRA started, so it was very clearly explained in my benefits package. Other feds look at me like I'm crazy when they're advising a new person to put all their money in a traditional TSP and I comment saying their Roth TSP is better because they don't have to worry about how much will be taxed when it's time to withdraw.
What I like is a mixed portfolio traditional, TSP, Roth, IRA savings, and some other interest earning income
I have already maxed out my external ROTH for this year. Ami still eligible to contribute to a TSP ROTH without penalty?
Yep!
I only invest in the Roth option
It would be a HUGE benefit if they would allow us to do ROTH Conversions while still on the payroll and keep it in TSP.
Not clear on the specifics, but IRA and 401k not the same. For example, 401k safer from lawsuits.
That would be nice!
They promised us a Roth conversion in TSP but still waiting for that to materialize.
@@jscott1000 Who promised? I have followed long enough to see Mr. H say not...all I know is that I never have any problem changing my withdrawal from my Fidelity IRA, but you always get a written warning that such a change to TSP withdrawals might trigger tax recalculation.
@@edmundfong7288 The law signed in 2012 gave the TSP the authority to offer Roth Conversions and it was promised by the Thrift Savings Board but they have never acted on it. There is no reason except they don't want to do it.
Can you confirm something for me? As I understand it, if you make too much you can’t contribute to a ROTH, correct? What’s the income limit?
That is for a Roth IRA, not a Roth TSP
I didn't know any better when I first started off. I have about 80% in Traditional and 20% in Roth currently but I made the switch about 3 years ago. Now I am 100% in Roth
Thanks for sharing!
Does Roth TSP count towards the 5 year required Roth holding period for tax free withdrawals on interest/earnings in an outside Roth IRA (ie: Fidelity, Vanguard, etc)? I’ve received conflicting answers to this question. Thank you…
No it doesn't.
Check out Rob Berger youtube video best explanation
This should help: hawsfederaladvisors.com/tsp-vs-ira-the-ultimate-guide/
Does the TSP annual maximum deposit limit include the match? If I contribute 15% into Roth, the 5% match will bump me above the maximum contribution limit.
All matching funds are placed in a traditional tax deferred TSP account.
And no, employer contribution limits are treated separately
Im using the Roth TSP for the last 5 years
In my situation I’m maxing out traditional TSP and fully funding my and spouse’s Roth IRAs. It’s important to have tax diversification. I plan on leaving federal service (special category employee) in my early 50s and the downside to Roth TSP is that you would get hit with 10% early withdrawal penalty before age 59 1/2. There isn’t a penalty for traditional TSP in this instance.
Each plan is different for each person. I've been so heavy on the Roth because I don't want to pay out the wazzu in my retirement age. Out of all the money printed, 80% was printed the last several years plus our federal debt is sky high...higher taxes are the only way out of this one unfortunately who takes that.... the middle class
For non-special category employees, you can take distributions from TSP penalty-free starting at age 55. Since you’re special category (LEO?), you can access your money earlier. You could actually invest TSP Roth, move the Roth TSP funds to an outside Roth IRA at retirement (you won’t be able to take distributions until age 59.5), and since the majority of your account is traditional funds you draw down those funds from within the TSP. It’s recommended to draw down traditional funds first while allowing tax-free Roth funds to grow.
Because new employee orientation doesn't explain the why of the tsp, just the how. They avoid anything that could be construed as financial advice.
100% Roth now. Wish I started a long time ago. Saving 3-4k in taxes now vs savings tens of thousands if not hundreds of thousands later, makes sense. I didn’t get it until Dave Ramsey spelled it out like that
Federal employee with 20 yrs in but can still do another 10. Was thinking of doing a roth conversion starting 5 yrs out from retirement. Wondering is it beneficial to start contributing to roth in tsp now. Also does the 5% agency match still get invested and make capital gains?
Yes, agency match is invest in your TSP as well.
What amount of Roth do you recommend ?
It depends on your income and the deductions you can claim on your taxes.
Ideally you contribute to the Traditional TSP to lower your income into a lower tax bracket. Then contribute as much as you can to the Roth TSP and a Roth IRA.
Only contribute 5% total to the TSP. Then contribute the max to a Roth IRA. If you have more money, go back to the TSP.
The ROTH TSP is definitely 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.
TSP doesn’t give you a good breakdown of what money was contributed so I take my money out in loans and invest it in a civilian roth. The worst part of the TSP is if you need to call them and you can actually get a hold of someone they treat you badly. I am not a prisoner to this plan and I refuse to be treated like anything but a customer. I’m willing to pay for quality service.
I switched to maxing out the ROTH TSP about 4 years ago. I wish I would have switched when it first became available.
Thanks for sharing!
How does the TSP Roth differ from outside ROTH accounts? I was told that you can only put 6000 into outside Roth accounts.
TSP Roth limitations are the same as 401k limitations. Ie- $20,500 if you’re under age 50. A Roth IRA at Fidelity or Vanguard does have $6000 annual contribution limits. You can roll your Roth TSP into the Roth IRA if you so choose one day.
This should help: hawsfederaladvisors.com/tsp-vs-ira-the-ultimate-guide/
There is a reason for going traditional , Student loans payments are based on taxable income
I am retired but I am still learning a lot from your channel
Great to hear!
How much per year should I move to a tsp Roth and not get slammed at tax time each year.
It depends on your income and long term plans.
Didn’t really know about ROTH until I was about to retire… now I’m retired, it’s too late - gonna have to pay $150k in taxes when I withdraw enough money to buy my forever home. (Unless some knowledgeable, trustworthy, CFP out there can advise/assist.)
If you would like to have a meeting with us to talk about that, feel free to schedule an appointment here:
hawsfederaladvisors.com/work-with-us/
Don't take all $150k out in one year as that's in 24% federal tax bracket. If half in Dec and Jan you're in 12% FTB.
I thought if you make more that 147,000$, you cannot contribute to Roth TSP? Correct or incorrect?
I got the same question. What’s the answer?
You can always invest in the Roth TSP, those rules are for Roth IRA
Its awful. Do people know what inflation and cost of living is? I plan on getting a private funded savings account to supplement it
Only reason I do not have a Roth TSP, is I can not find it on the TSP website, to start contributing. I've search a few times. I'm doing 15% traditional, but have 5% more I wish to put in a Roth. I was hoping this video would show me how. I wonder if I'm the only one? Rod
For my situation I go onto the “My EPP” website and can designate what amounts go into Roth and traditional. Hope this helps
GRB website helps switch from contributing Traditional to Roth...
Just call TSP, and they will walk you through on how to put 5% into a Roth!😎
Did you find out how to start your Roth TSP contributions? As mentioned, it would be in the same place where you would raise/lower your contribution amount.
I work for USPS for 32 years now. I only have 4 more years to retire when I qualify by age at 56. Is it still good for me to change my TSP to Roth TSP? I am debt free by the way.
That is a great question, this should help: hawsfederaladvisors.com/traditional-tsp-vs-roth-tsp-the-ultimate-guide/
As always good info to us federal workers, good advice on things we can put in place now, keep them coming Dallen
My pleasure, Have a great day!
Hi Dallen, I'm already retired. How much can I move from my traditional TSP to a Roth. Is there a limit? thanks as always for your educational and very informative videos!
There’s not a limit on how much you can convert. HOWEVER, please be careful. You have to pay taxes on the conversion, and it counts against your income for the year. You don’t want to convert it all at once. You’d be in a higher tax bracket. (And possibly pay more in taxes on Social Security, and a potential large increase in your Medicare premiums- IRMAA)
@@JonesDJDavid social security has a max contribution but Medicare and taxes obviously do not.
@@JonesDJDavid You can not convert a traditional TSP to a Roth TSP.
You can convert a t-IRA to a Roth IRA.
@@rogerdoger9939 correct. But you can move a traditional TSP to a traditional IRA and then do a Roth conversion into a Roth IRA. Have to be careful with the tax consequences though.
@@JonesDJDavid the OP's question was not clear as to what "Roth" they are talking about.
Mr. Haws, I've had a traditional TSP for over 20 years and I just switched over a month ago to the Roth TSP. This retiring commander I know you told me that I shouldn't have done it because I pay more taxes now than I will and retirement due to making less money in retirement. Is that logic sound or not... thanks in advance. I'm currently paying 8% to TSP, do you recommend going to 10% in either Roth or traditional?
Contribute as much as you can to the TSP. Do you want to have more or less money in retirement.
Will you be making less, or the same when you retire? I plan to have enough money in my TSP/IRA that I will be able to have the same lifestyle or greater when I retire. I have used a mix of Traditional and Roth accounts to try to keep my taxes low now, and when I retire.
@@rogerdoger9939 Thank you for your reply. I currently have everything in the G fund but before I had an equal amount in the C,S and I funds when Trump was President and made a lot of money. When do you think it will be responsible to go back to CSI or what combination of funds to you recommend?
@@scalawag6878 As of today (8/7/2023) you should have moved back to the C fund about a year ago. When the S&P500 was down close to 20%. Today it is only down about 5%.
I am not an expert, as I missed this run up. But I think the economy is not good. And the stock market will test the lows again before the current administration is replaced.
I am currently 60C/40G.
Joined the fed few years ago. Only reason I don’t use roth tsp is because I already had an Roth IRA before I joined. So it’s easier to manage one roth instead of two especially when maxing it out.
I don't understand how you feel it is more difficult to manage 2 Roth accounts vs a Roth and a Traditional?
I’m using both Roth and traditional TSP
What about the compounding of the same pre-tax higher balance in the regular TSP vs the same after-tax lower balance that would be invested into the Roth TSP. Assuming both have good returns on investment, wouldn’t the regular TSP have much greater gains even though taxes would be due later?
I’m in an interesting situation. I’m on an income-based repayment plan for my student loans, including eventual PSLF. Traditional contributions reduce my taxable income and thereby reduce the income my loan payments are based off of. I max out my contributions, so my income is currently reduced by $20,500. If I were to contribute to Roth, not only do I pay the taxes now, but 20 cents of every dollar of that $20,500 would also go to my student loans instead of my TSP. So until I get my loan forgiveness, I max out my traditional TSP, and anything else goes into my wife’s Roth 403(b) at her job.
Thanks for sharing!
Hi already retired postal worker five hundred thousand tsp 401. Is it a good idea to put a hundred thousand into a roth ira. What would be the consequences tax wise. Thank you
Kevin, not a financial advisor but my understanding is that if you do the 100k from traditional tsp to back door Roth IRA you will still have to pay the tax but the transfer does not have to happen at once…example is 10k per year until you transfer the total amount of 100k dependent on ur tax situation ( so you don’t go into a higher tax bracket). After transfer all future growth would be tax exempt. Great question and look forward to a Haws response.
Thank you
Each Roth conversion will also have a new five year waiting period before you can withdraw.
I just started using the Roth at the beginning of this year because of the flexibility it affords. I typically increase my retirement contribution at the beginning of the year, and I plan on putting most of my subsequent increases into the Roth and leaving my contributions to the traditional where they are. The only reason why I may increase my contribution to the traditional is to avoid going into the next tax bracket if I’m right near that line.
Thanks for sharing Boon!
Same here. I don’t want to dial back my traditional contribution and see my tax go up. But all additional contributions up to the max will go to Roth.
Maxing out my Roth TSP and Roth IRA's(spouse). Will continue this till 2025 when the tax rates change. I believe now will be the cheapest tax rates for awhile, so I am loading up on Roth's.
Thanks for sharing!
I max out my traditional tsp and fund a Roth with Fidelity. I need the tax break bc my agency has a lot of overtime where we are heavily taxed.
This "overtime is heavily taxed" is an urban myth. How withholding is calculated is based on what your gross pay is for the pay period, considering that you make the same amount all year. When you work more you pay more. When you work less, you pay less. Then you file your taxes and it all evens out.
Pls explain the Roth and matching ?
Feel free to submit your question here: hawsfederaladvisors.com/question-submission-page/
This is where we get topics for future videos.
Surprised only 16% use roth tsp
Two TSP accounts examples:
Traditional with 1million balance. You take that money home, it strangely changed to about $750k. Taxes.
Roth with 1million. You take it home, still have 1million.
I seriously doubt you would have paid 250k in taxes all those years you built up 1million nest egg. Hope that makes sense.
@ *mark* no that really doesn't make sense as you're not making apples to apples comparison since the $1M Roth required post tax income which is not reflected in the Traditional contribution. Assume $50k pretax income for contribution, 20 x growth 25% tax:
$50k pretax income = $50k traditional : ($50k * 20 =) $1M traditional : $1M Traditional * 0.75 [25%tax] = $750,000 spendable traditional income
$50k pretax income = ($50k * 0.75 [25%tax] =) $37,500 Roth : $37,500 * 20 = $750,000 spendable Roth income
How does Roth get to $1M? $50k post-tax Roth requires: ($50k /0.75 =) $66,666.67 pretax income so
$66,666.67 pretax income = ($66.67k * 0.75=) $50k Roth contribution : $50k * 20 = $1M Roth spendable income
$66,666.67 pretax income = $66,666.67 traditional : $66,666,67 * 20 = $1,333,333,33 : $1,333,333.33 * 0.75 = $1M spendable traditional income
Proper apples to apples comparison Roth requires only $16.67k in tax but yield identical $1M spendable as traditional.
Being a high earner. I wanted the tax deduction.
Full contribution 26.5 years + catchup.
So yes . 1.3 m
What about the child tax credit? The reason I do traditional right now is because if I don't I will lose most if not all of child tax credits I get for my two children
Heftier tax now or heavier later down the road?
Never planed on with drawing any of it ever
I did not realize that you could contribute 5% to Roth and get matching 5% to traditional TSP. What is the rate of return on Roth? I have been thinking of putting money in a Roth.
The “rate of return” on a Roth depends on what fund(s) you invest in within that Roth account. A Roth account is not an investment fund itself, but rather how taxes are treated when you put money in and take it out. Within the Roth account, you have to select specific investment funds.
It's amazing to me how many people don't understand the matching funds.
Your allotment will be exactly the same in TSP and Roth TSP.
So if I put 100 percent into the Roth TSP, which is 10 percent. My agency will still match 5 percent but in TSP? So when I sign up, do i split it 5% Roth TSP and 5% percent TSP to get the match or 10% all TSP and they still match it?
If you do the full 10% into the Roth TSP, your agency matching will be placed in the Traditional TSP account.
Never turn down free money especially when the gov gives you their traditional side of the TSP that will grow over time then put about 10-12% (if you can) of your side to the Roth, diversify diversify diversify!
Thanks for sharing!
This advice is only good for people who can afford to contribute the maximum amount each year. Let's say you can only afford to contribute $10k a year. Your options are to contribute $10k to the traditional TSP or to contribute ($10k - taxes) to the Roth TSP.
Generally those who can afford to contribute max of $23,000 to TSP are likely to be in high tax bracket and thus should favor contributing to traditional TSP. Single person making less than $47k is in 12% Federal Tax Bracket and should favor Roth TSP.
1 until recently you could not pull just the roth so it negated much of the tax planning advantage. 2 buy making the max traditional contribution the tax savings allow me to fully fund a roth IRA I could not do this without the tax advantage.
Thanks for sharing!