Is Roth TSP Right for Me?

[dcitty]

I came across this website and thought it was fairly useful in terms of advice/guidance. This is my first time posting, so please forgive me if I posted this in the wrong thread. I remember reading on various sites that the Roth TSP is attractive for younger feds due to the lower tax bracket benefits; however, I was wondering if the Roth TSP is right for me. I started working for the G while in high school and have earnestly put money into my TSP.

Once I turned full-time in 2008, I maxed out my contributions to get the full benefit as allowed per IRS rules. Currently I am allocating all of my money in the Roth TSP. I am 26 and have a lot more years to go before I retire and my balance as of today is $88,921. The PIP for CY 2012 was 15.1%.

My question is, does it makes sense for me to be allocating all of my money towards the Roth? I am a GS-13 Step 2 so I'm not exactly in a lower tax bracket. Given the way the market is flowing, would it make more sense for me to go the traditional TSP route so that I can invest more money up front and hope that in the long run, the market will rebound so that my end result is higher OR should I stay the course with the Roth for the tax benefit at the end. Pardon my financial ignorance, I never took a financial planning/econ class in school.

 

[Birchtree]

Anytime you see the term Roth, go for it. You won't see lower taxes 30 years from now as long as there are Democrats left breathing.

 

[craigerv]

dcitty, you're way ahead of the game already! At 26 and already almost $100k is phenomenal. My opinion is that you're already going have a huge amount for retirement if you keep contributing the way you are. Because you're young the amount that you will earn on the growth of your contributions will also be huge. Ask yourself this, would you rather pay tax on a small amount of money now when you're in a middle tax bracket or would you rather pay tax on all of your money (earnings too) when you will be in a higher tax bracket at retirement? If you pay tax now, then all your earnings will be tax free. And the benefit with TSP Roth is that you have a very high contribution limit. You can stuff away $17k per year into TSP Roth whereas in a Roth IRA you can only put in $5k per year. Since I'm confident you're going to have a huge retirement fund at retirement, I'd suggest contributing the full TSP Roth amount if you are able.

 

[k0nkuzh0n]

I personally would rather have the money outside of a retirement account so I can do whatever I want with it, but thats just me. I also have 0 debt and don't have spending/budget problems (K0n for president!)

Difference between putting the money in a ROTH TSP and personal investment account (Only talking contributions ABOVE the 5% matching minimum):
TSP-
Pros:
free trades,
money isn't easily accessible to blow (Non factor for me)
gains are tax free (this is the big one)
Cons:
only 2 trades per month
money isn't easily accessible

Personal Account-
Pros:
money is available within the time frame of a trade and transfer (important to me)
MANY more trading options (this is a big one)
Cons:
pay for trades
gains are taxed


NOW, if its simply between non-ROTH TSP and ROTH TSP, at this point in your life I would deffinitely say ROTH as you will likely make plenty more than what you are making now.
The idea is to pay as few taxes as possible.
If the tax rates never changed, you would want to level off your taxable income ('inflation' adjusted) over your entire lifetime.
If the tax rates change, you want more income during reduced tax rate years and less income during high/non-reduced tax rate years.

 

[Viva_La_Migra]

I came across this website and thought it was fairly useful in terms of advice/guidance. This is my first time posting, so please forgive me if I posted this in the wrong thread. I remember reading on various sites that the Roth TSP is attractive for younger feds due to the lower tax bracket benefits; however, I was wondering if the Roth TSP is right for me. I started working for the G while in high school and have earnestly put money into my TSP.

Once I turned full-time in 2008, I maxed out my contributions to get the full benefit as allowed per IRS rules. Currently I am allocating all of my money in the Roth TSP. I am 26 and have a lot more years to go before I retire and my balance as of today is $88,921. The PIP for CY 2012 was 15.1%.

My question is, does it makes sense for me to be allocating all of my money towards the Roth? I am a GS-13 Step 2 so I'm not exactly in a lower tax bracket. Given the way the market is flowing, would it make more sense for me to go the traditional TSP route so that I can invest more money up front and hope that in the long run, the market will rebound so that my end result is higher OR should I stay the course with the Roth for the tax benefit at the end. Pardon my financial ignorance, I never took a financial planning/econ class in school.

My personal opinion, stick with the Roth TSP. If you can, get a Roth IRA as well. Like Birchtree said, if you see Roth next to the product you are considering investing in, go for it. The only danger is that you are young enough for some future "tax and spend" politicians will see the great pool of money you have and say it isn't fair that you aren't paying your fair share of taxes based on the interest you've earned, and change the rules to make you pay additional taxes on the interest you've accumulated. Don't think it will happen? I hope I am wrong, but I can totally see it happening.

 

[dcitty]

Wow! Thanks everybody for the great responses. I do have a Roth IRA as well and that is sitting at $29k. I also have $10k+ cash on hand via my checking account. Is this too much to have on hand or should I be investing some of it else (if so, where would you recommend?) and make my money work for me? I read somewhere that you should have about 6 months worth of salary accessible or for emergency funds.

 

[sniper]

Wow! Thanks everybody for the great responses. I do have a Roth IRA as well and that is sitting at $29k. I also have $10k+ cash on hand via my checking account. Is this too much to have on hand or should I be investing some of it else (if so, where would you recommend?) and make my money work for me? I read somewhere that you should have about 6 months worth of salary accessible or for emergency funds.

YMMV, but I've heard that a good amount to keep on hand would be 6 months worth of pay, just incase of emergency or layoff. Always good to have cash if **** hits the fan, or life throws something unexpected at you. Some may disagree with me and say invest all of it, but I keep a decent amount in my checking for the same reason, never know when you'll need the money, and right then and there.

or maybe one day out of the blue you'll decide it's a good time to take the wife or family on a vacation, it's always good to have that option

 

[Birchtree]

If the Roth IRA is in mutual funds I'd consider new cash go toward dividend paying stocks - the gains will be quicker to add up. Let your checking account ride - there are prescient times when money doesn't always have to make money.

 

[Frixxxx]

Wow! Thanks everybody for the great responses. I do have a Roth IRA as well and that is sitting at $29k. I also have $10k+ cash on hand via my checking account. Is this too much to have on hand or should I be investing some of it else (if so, where would you recommend?) and make my money work for me? I read somewhere that you should have about 6 months worth of salary accessible or for emergency funds.

If having liquidity to your cash is a requirement, you could always look at municipal bonds. Make money without the tax hit...I get some good returns, well, better than any checking account. BUT MAKE SURE THAT THE FUNDS ARE MAKING MONEY!! I had a California muni that took a serious hit in 2008. But I forgot to put it on my "watch". I have since closed it and moved the funds to a better investment!

 

[k0nkuzh0n]

Wow! Thanks everybody for the great responses. I do have a Roth IRA as well and that is sitting at $29k. I also have $10k+ cash on hand via my checking account. Is this too much to have on hand or should I be investing some of it else (if so, where would you recommend?) and make my money work for me? I read somewhere that you should have about 6 months worth of salary accessible or for emergency funds.

Everyone's case is different. I'd say pay off any debt (loans, credit cards, etc.) if you haven't already. Guessing by how much you already have saved for retirement, I'd assume you are already debt free.

6 months worth of salary accessible is usually for an emergency of losing your job or not being able to work.. If you work for the government, unless your at risk of being layed off, its not likely you'll be fired (unless u REALLY deserve it).

Plus i would consider money in a personal investment account easily accessible. You could sell stocks and transfer the money in less than a weeks time. You aren't going to need 6 months worth of salary for less than a weeks time. Only problem is the value is flucuating, so if you are banking on that money as 'emergency money' you should adjust your risks accordingly. Probably don't want to invest 100% into some new startup solar company you read about on msn or something.

Credit cards would easily be able to hold you over for 30 days without interest in emergency situations.

If you are providing for a family, you may want to forget everything I just said.

 

[ILoveTDs]

6 months of wage, need liquidity, with return = precious metal