Roth TSP update

[roskopfj]

I am in the 25% bracket and I do think my income will go down a bit in retirement. The reason I am going Roth 100% and pay the taxes now is two fold. The most important reason is I have 20+ years until retirement and I am confidence income rates will increase drasticly. Look at our national deficit which has tripled in 12 years. Just a decade ago the 25% bracket was the 28% bracket. Eventually it will be the 30% or higher bracket. Otherwise Social Security might be income based, some how rates will go up and I want to lock in my taxes now. The second reason it I can put more in my retirement this way. Lets say next year I move the 17000 from the traditional to the Roth account. If I am in the 25% bracket and lets say I have 5% state taxes, then I would pay $5,100 more in taxes in 2013, but I still get to put the 17,000 in my retirement. Say that 17,000 compounds at 5% for 20 years, then the value would be 45,106. Thats all my money and I can spend as I see fit, if that same 17,000 was invested in the traditional I would pay 30% taxes on the 45,106 and I would get a net value of 31,574 assuming I am in the same tax bracket. The difference I can put more real money in the Roth, because 17,000 in the Roth is worth more in 20 years than 17,000 in the traditional because of taxes. 30% of what ever is sitting in the TSP now is the goverments money when you pull it out.
If my tax bracket is lower I will live with that but if its higher than its worth it. For full disclosure, right now I have about 50% of my wife's combined retirement savings in Roth IRA investments already, I converted all of my old 401K's to Roths between 2003 and 2006. My wife contributes to a traditional retirement. When I retire I plan to have about 50% Roth and 50% traditional between the two of us. Then I can determine what I want to pull out from each type based on my brackets. If I am not near the next bracket, then I would pull out as much as possible from traditional accounts until right before then next bracket hits. Then I will take what every else I need to live on from the ROTH. I think its great tax planning.

 

[dannyboy]

I am in the 25% bracket and I do think my income will go down a bit in retirement. The reason I am going Roth 100% and pay the taxes now is two fold. The most important reason is I have 20+ years until retirement and I am confidence income rates will increase drasticly. Look at our national deficit which has tripled in 12 years. Just a decade ago the 25% bracket was the 28% bracket. Eventually it will be the 30% or higher bracket. Otherwise Social Security might be income based, some how rates will go up and I want to lock in my taxes now. The second reason it I can put more in my retirement this way. Lets say next year I move the 17000 from the traditional to the Roth account. If I am in the 25% bracket and lets say I have 5% state taxes, then I would pay $5,100 more in taxes in 2013, but I still get to put the 17,000 in my retirement. Say that 17,000 compounds at 5% for 20 years, then the value would be 45,106. Thats all my money and I can spend as I see fit, if that same 17,000 was invested in the traditional I would pay 30% taxes on the 45,106 and I would get a net value of 31,574 assuming I am in the same tax bracket. The difference I can put more real money in the Roth, because 17,000 in the Roth is worth more in 20 years than 17,000 in the traditional because of taxes. 30% of what ever is sitting in the TSP now is the goverments money when you pull it out.
If my tax bracket is lower I will live with that but if its higher than its worth it. For full disclosure, right now I have about 50% of my wife's combined retirement savings in Roth IRA investments already, I converted all of my old 401K's to Roths between 2003 and 2006. My wife contributes to a traditional retirement. When I retire I plan to have about 50% Roth and 50% traditional between the two of us. Then I can determine what I want to pull out from each type based on my brackets. If I am not near the next bracket, then I would pull out as much as possible from traditional accounts until right before then next bracket hits. Then I will take what every else I need to live on from the ROTH. I think its great tax planning.

I am thinking of going ROTH,TSP-100%, because of the increasing taxes and
I'm not too confident that I can earn or beat 30% in any year?

 

[uscfanhawaii]

When I retire I plan to have about 50% Roth and 50% traditional between the two of us. Then I can determine what I want to pull out from each type based on my brackets. If I am not near the next bracket, then I would pull out as much as possible from traditional accounts until right before then next bracket hits. Then I will take what every else I need to live on from the ROTH. I think its great tax planning.

It IS great tax planning...I have heard it called 'tax diversification' and I am trying to do the same thing. Bad news is that the Roth TSP does not allow taking out from one or the other. If you take out of your TSP, it has to come out of both Roth and Traditional, in amounts equal to their % in your account. (If you have 50/50, you have to take out 50/50.) That is the reason that I am funding my Roth IRA before looking at funding a Roth TSP. I don't understand why they have to place these additional rules on us! :blink:

 

[wvango]

New Scuttlebut on the street is Roth TSP will be ready 1 June for Marine Corps Active and Reserves. The will have to go to the Admin Office to request to contribute and set allocations. This is all due to MyPay not being ready for the transition. Word is MyPay should be ready sometime in July. Civilian employees will be ready sometime late June is what I am hearing. As far as the other services, I hear they are not ready for the transition yet, but I can not say for sure.

 

[Atarrin]

Could we simply transfer the Roth portion of our TSP accounts to an outside account upon retirement? Or would doing so also force us to withdraw our traditional TSP funds as well?

 

[domingo3]

Could we simply transfer the Roth portion of our TSP accounts to an outside account upon retirement? Or would doing so also force us to withdraw our traditional TSP funds as well?

As it stands now, there is no provision to only withdraw from one portion. Someone posted a good idea for a back door to this in which you withdraw 90% from both, and then turn around and put your traditional back into TSP.
I suspect that this will be more flexible by the time many of us retire, and they were simply set up with these restrictions to ease the initial implementation. Same goes for IFTs.

 

[Viva_La_Migra]

ICE employees are now able to sign up for the Roth TSP through the National Finance Center website. I just did it.

 

[craigerv]

I'm civilian and use MyPay and I just signed up for Roth TSP. I'm young and am putting all of my contributions into Roth TSP. If I were to remain in my current tax bracket into retirement, Roth TSP does make a little difference. It's not much, but it's a bit. And since I'm quite certain taxes are going up up up, the savings will be greater. The bigger picture is that if I wanted to I could max out and put in the $17,000/year that would be tax free at retirement, which is a ton! The income restrictions at retirement don't bother me all that much, especially since I plan to start a Roth IRA soon, so that is another option that will be available. I do agree that if you were deciding between a Roth TSP and Roth IRA, the TSP option is more limited at retirement and what you can invest in. So there may be advantages there for Roth IRA. But the income limit at $17,000 can really be advantageous if you can afford to put in more $$. So I think my priorities are as follows:

1.) Fill the TSP 5% to get matching
2.) Put my 5% contributions in Roth TSP to get the tax advantage
3.) Max out Roth IRA
4.) Any additional money add to Roth TSP

 

[Sensei]

I was at the Okinawa USO yesterday and picked up the June 13th Guam edition of the Stars and Stripes. An article within stated the following:

"The Roth TSP... will begin phased implementation this month for the Marine Corps, and in July for the DOD civilians... The Roth TSP plan will be available for Navy, Air Force and Army members in October of this year."

So that explains why I haven't been able to sign up for it yet. I'm DOD, so will be looking out for my chance in July.

 

[wvango]

If you are a DoD employee and use EBIS to make your elections, the option is out there. I signed up for it a few days ago.

 

[Adventurer]

Does anyone know what the return on the TSP Roth is expected to be? I can't seem to find that anywhere. My H&R Block Roth IRA pays typically pays about 1%. Any reason to expect the TSP Roth to be a better investment?

 

[Viva_La_Migra]

Does anyone know what the return on the TSP Roth is expected to be? I can't seem to find that anywhere. My H&R Block Roth IRA pays typically pays about 1%. Any reason to expect the TSP Roth to be a better investment?

Depends on how you invest it. You can do A LOT better than 1% with the TSP Roth, as long as you're making good decisions with your money.

 

[malyla]

Does anyone know what the return on the TSP Roth is expected to be? I can't seem to find that anywhere. My H&R Block Roth IRA pays typically pays about 1%. Any reason to expect the TSP Roth to be a better investment?

Whatever your traditional TSP gains, your Roth gains. You can't trade these separately. The money is kept in different pots, put the funds they are invested in are the same.

100% S means the Roth and Traditional are both in 100% S. When you do an IFT, it applies to both pots of money.

 

[uscfanhawaii]

Does anyone know what the return on the TSP Roth is expected to be? I can't seem to find that anywhere. My H&R Block Roth IRA pays typically pays about 1%. Any reason to expect the TSP Roth to be a better investment?

Not sure what you are asking...TSP Roth can be invested in all the same funds as regular TSP. G/F/C/S/I or L funds. So same returns as regular TSP. If you look at the Autotracker, if all these were invested in TSP Roth, they would have gotten anywhere from +20% to -11% so far this year.

 

[wvango]

EFFECTIVE JULY 6, 2012, MARINES MAY START, STOP OR CHANGE THEIR TSP ROTH CONTRIBUTION VIA MYPAY

 

[RealMoneyIssues]

Roth Contributions to Open to All Active-duty Troops

 

[Frixxxx]

Got this from the Air Force today....As a reservist, I must be patient until sometime in 2013.

Fellow Citizen Airmen,

You may hear of a new benefit for the Active Duty.

Earlier this year, the Federal Retirement Thrift Investment Board (FRTIB)
began implementation of the Roth Thrift Savings Plan (TSP) feature, as
authorized by the Thrift Savings Plan Enhancement Act of 2009. The Roth
feature allows for "after-tax" dollars into this defined contribution plan.

Beginning 1 Oct 2012, Air Force Active Duty members can participate in the
Roth TSP feature. The start date for Reservists and Guardsmen will occur
later in 2013.

As the DFAS website states (http://www.dfas.mil/militarymembers/rothtspformilitary.html),
"this timeline ensures system changes and electronic deductions meet all of the
requirements of the law and the Federal Retirement Thrift Investment Board.
Work continues as the interim solution for reserve component members did not
meet FRTIB requirements."

I want to assure you this has my attention and our AFR team is working hard
to expedite this. Whether or not you use TSP, we want to ensure you have
the same options as the rest of the Total Force Team. I appreciate your patience
as we work this issue.

Thank you for all you do,

JJ

JAMES F. JACKSON, Lt Gen, USAF
Commander

 

[Sensei]

Now that I've been contributing 2% to Roth for a few months, I had a moment of realization that will likely elicit a big "duh" from many of you. The automatic (1%) and agency (up to 4%) matching goes into the traditional TSP account. So while my personal contribution is currently set for 10% traditional/2% Roth, the traditional is actually receiving 15% to the Roth's 2%. I guess I thought the matching contributions would get carved up according to the same ratio I contribute, but if you think about it carefully, there's no way the gov't is going to give you their money tax free. So, even if I set my entire contribution to Roth, 5% will always go into the traditional account.

Anybody see it differently, please help to clarify.

 

[Scout333]

Sensei, Any money contributed by an employer is either tax deferred (almost always) or taxed at the time it is contributed. So the way your contributions have been treated makes perfect sense in the wacky world of tax. The main thing is to make sure you get the match not so much when it is taxed. JMHO