Difference between TSP Roth and Brokerage Roth IRA?

[eastj]

Hello all -

I have a question about the difference between the two. Currently contributing into Roth TSP, but wondering if it would be more advantageous to start contributing to Roth IRA going forward. I contribute to both Traditional and Roth TSP, and apart from employer match (which I would still try to maintain with Traditional TSP) I am not finding a lot of benefit in also contributing to TSP Roth. I believe the key difference between TSP Roth and Roth IRA is the contribution limit (6000 for Roth IRA), but what other important contributing factors should I consider?

Any guidance would be appreciated. Thank you in advance.

Jules

 

[Bullitt]

Without being able to look into a crystal ball and see our future, the biggest benefit I can think of with Roth TSP over regular TSP is it removes the tax headache in retirement. Nobody knows what tax rates will be down the road, so it's best to diversify by having some in taxable, tax deferred and tax free accounts. Don't overthink things though. For most of us, the tax benefit of a regular TSP is the best option.

Roth TSP is way to contribute to a tax free retirement account and get around income limits if that would prevent you from contributing to a Roth IRA.

Roth TSP has RMD's which can be avoided by converting to a Roth IRA in retirement. You will need the Roth IRA opened for at least five years prior to a rollover.

See also: https://www.tsptalk.com/mb/retirement-and-ira-talk/23322-roth-tsp-vs-tsp.html

 

[eastj]

Thank you!

 

[flalaw97]

Don't overthink things though. For most of us, the tax benefit of a regular TSP is the best option.

Roth TSP contributions come from AFTER tax income correct? And the maximum contribution to TSP ($19,500 + $6500 catchup if over 50) is the sum of the Roth TSP and Traditional TSP. So isn't it accurate to say that for every dollar you contribute to Roth TSP, you are losing the tax benefit of contributing that to traditional TSP? The only way it makes sense to me to contribute to Roth TSP is if you believe your tax rate when you go to withdraw money will be significantly higher than when you are contributing it. So maybe if you are currently in the early stages of your career and are in the 12% tax bracket, moving up the income ladder. If, on the other hand, you are currently in the 24% bracket, you are foregoing an "instant" 24% return on your money, right? Am I missing something?

 

[Bullitt]

No, you're not missing a thing. For most of us, just contributing the TSP is the best option since it gives an upfront tax advantage.

Nobody knows where tax rates will be years down the road and most studies show taxes to be lower in retirement. Since we'll probably all still be paying some taxes in retirement, the benefit of the Roth TSP or Roth IRA is you can withdraw money and not have to worry about paying taxes on it.