ROTH TSP Option and Matching

[VirginiaBob]

Tom,

Do you know if the new ROTH TSP Option will include a full 5% match for civilian federal employees? If so, I was thinking that it would be to our advantage since the match would be made after taxes getting taken out. Hence, we'd actually get a higher match. For example, if you are in the 28% tax bracket and make $100,000, 5% right now would be $5000. But under the roth option, would the match be $5000+28%, with the final matching contribution being higher?

 

[burrocrat]

Tom,

Do you know if the new ROTH TSP Option will include a full 5% match for civilian federal employees? If so, I was thinking that it would be to our advantage since the match would be made after taxes getting taken out. Hence, we'd actually get a higher match. For example, if you are in the 28% tax bracket and make $100,000, 5% right now would be $5000. But under the roth option, would the match be $5000+28%, with the final matching contribution being higher?

theory of tsp is pretax dollars go in and acrue tax-free (advantage), then are taxed at a hopefully lower bracket later (advantage).

theory of roth is aftertax dollars go in, neither the principal nor gains ever to be taxed again (advantage-especially if rates go up) if you follow the rules.

i would imagine the match would stay the same up to 5%. you are proposing that the match gets increased by the amount it 'would've' got if you put it in tsp, and then once in roth also gets the preferential tax treatment on the withdrawl side too (double advantage).

everything gets taxed once in either system. you are mixing the two to avoid taxation on the free match. where do the free match funds come from? yep, you guessed it, tax dollars. if you can figure a way to pencil it out, i think you've got a lucrative future in the perpetual motion industry. can i get in on the ipo?

that would be a neat trick, but i don't see it happening for a number of reasons. but the most important reason is because you have a job, therefore you are the mule. if you want to pay no taxes then you got to ride in the wagon. now it's a free ride of course, and some interesting things go on back there, but we are the company we keep.

 

[burrocrat]

here's the closest thing i've found to a perpetual motion macheen.

now where do you suppose they plug the wires in?

i think it's got to be in the ... uh ... um ... donkey?

but i'm sure it gives quite a jolt.

oops, i meant volt.

View attachment 10310

 

[VirginiaBob]

theory of tsp is pretax dollars go in and acrue tax-free (advantage), then are taxed at a hopefully lower bracket later (advantage).

theory of roth is aftertax dollars go in, neither the principal nor gains ever to be taxed again (advantage-especially if rates go up) if you follow the rules.

i would imagine the match would stay the same up to 5%. you are proposing that the match gets increased by the amount it 'would've' got if you put it in tsp, and then once in roth also gets the preferential tax treatment on the withdrawl side too (double advantage).

everything gets taxed once in either system. you are mixing the two to avoid taxation on the free match. where do the free match funds come from? yep, you guessed it, tax dollars. if you can figure a way to pencil it out, i think you've got a lucrative future in the perpetual motion industry. can i get in on the ipo?

that would be a neat trick, but i don't see it happening for a number of reasons. but the most important reason is because you have a job, therefore you are the mule. if you want to pay no taxes then you got to ride in the wagon. now it's a free ride of course, and some interesting things go on back there, but we are the company we keep.

I think you probably missed the point of the question (probably my fault). Obviously I realize that either way we will be taxed on the matching contributions. The question that I am asking is whether we will get an increase in matching contributions based on the tax rules.

 

[burrocrat]

yep, i misunderstood the question then.

as far as getting an increase because of tax rules...

there are no tax rules one can count on, they change all the time, but one thing we can be sure of is if you're working you will be taxed.

that's how this merry goes round.

back to the donkey thing.

luckily we all got choices. either pull, or enjoy the ride.

 

[VirginiaBob]

Ok, the rules have been posted. Here is the deal. Your contributions will be taxed before they are deposited in the Roth TSP account, but the matching contributions will be tax-deferred and placed in a "Traditional" TSP account. So essentially, you will have two TSP accounts going. See here for the rules: http://www.fedsmith.com/articles/records/file/2010/RothIRA.pdf

 

[James48843]

Ok, the rules have been posted. Here is the deal. Your contributions will be taxed before they are deposited in the Roth TSP account, but the matching contributions will be tax-deferred and placed in a "Traditional" TSP account. So essentially, you will have two TSP accounts going. See here for the rules: http://www.fedsmith.com/articles/records/file/2010/RothIRA.pdf

Thanks for the link.

Yep - bottom line- the Roth TSP won't be available until January of 2012. We'll have lots of time between now and then to figure out exactly when it might be to the advantage of the employee.

Here's an extract from that link VirginiaBob provided:

View attachment 10374