Roth TSP vs TSP

[obr943]

I am 58 and I WANT to retire (more like praying) at 62. I have a TSP account and have recently heard that I should move my TSP to a Roth TSP but that should be done 5 yrs prior to retiring (I am 1 yr short). My question is: is a Roth TSP account better then regular TSP account, should I change and since I am short 1 yr can I? I also have an outstanding loan from my TSP account and would that affect the move to Roth? Thank you.

 

[Frixxxx]

I am 58 and I WANT to retire (more like praying) at 62. I have a TSP account and have recently heard that I should move my TSP to a Roth TSP but that should be done 5 yrs prior to retiring (I am 1 yr short). My question is: is a Roth TSP account better then regular TSP account, should I change and since I am short 1 yr can I? I also have an outstanding loan from my TSP account and would that affect the move to Roth? Thank you.

It's been presented many times before, but your tax footprint should determine your course of action. If you have no need to save on your taxes for the next few years and want to have tax-free returns on your current investments when you retire, then yes, go for it. But if you are just trying to go with the crowd, make sure it is the right decision. You should be on a first name basis with a tax person by now. They can show the differences in your approach, fairly easy.

 

[Cactus]

The 5 year thing is just like an IRA where you have to have it for 5 years before you can withdraw from it or you pay a penalty. That's why they say you have to open it at least 5 years before retirement. The other thing to be aware of if you are going to leave your money in the TSP and withdraw it from there in retirement is you have no control of the amounts withdrawn from the traditional TSP vs. Roth TSP. It will be withdrawn from both in proportion to their relative amounts. That's why you can't leave a Roth TSP untouched the first year while you only withdraw from the traditional TSP.

 

[uscfanhawaii]

It's been presented many times before, but your tax footprint should determine your course of action....

What Frixxxx said. Search "Roth vs Traditional IRA' on the boards.
Also there is a tsp.gov link to 'Is a Roth TSP right for you?' on the TSPTalk Home page.

If you see my previous posts, I and many others, are not big fans of Roth TSP. My recommendation, and also what I have done personally, is open a Roth IRA on the outside. Leave TSP as traditional. This gives you more options in retirement to do 'tax diversification'.

 

[uscfanhawaii]

Tax Consequences of TSP Withdrawals: Traditional and Roth

Here is a good review of FERS TSP WITHDRAWAL options and tax implications. For those of you looking at retirement and have at least some Roth TSP.

By the way, if you haven't looked at this site (myfederalretirement.com) before, it has LOTS of good info.

 

[Maricar19]

Hi USC,

I read a TSP publication before (which I can't find now) that if you have both taditional and Roth Tsp, you can rollover your Roth Tsp to a Roth IRA in order to avoid 10% penalty.

In my case, I am not 59.5 yrs. old yet and I have mix TSP. If I opt to have my monthly distribution, I will be penalized for the Roth portion dustribution. I am trying to find a way to avoid the penalty.

Tax Consequences of TSP Withdrawals: Traditional and Roth

Here is a good review of FERS TSP WITHDRAWAL options and tax implications. For those of you looking at retirement and have at least some Roth TSP.

By the way, if you haven't looked at this site (myfederalretirement.com) before, it has LOTS of good info.

 

[Bullitt]

Luckily this shouldn't be a problem anymore as you can now designate where your withdrawals come from.

 

[Wildzeke]

I have seen calculations that show that it may take 30 years to break even if you contribute to Roth vs. Traditional. But this does not take in account of what happens at 72 when min distributions kick in. My personal recommendation (and I am far from being a financial person) is to go into retirement with 5%-10% Roth TSP. Start yanking traditional as soon as you can, being mindful of staying in your tax bracket. When you turn 72, you can now mix in some Roth withdrawals and hopefully keep your tax and Medicare down.

 

[Bullitt]

Probably good advice there. I'm for tax diversification. Unless a crystal ball can tell us what our highest tax rate in working years will be, and what our tax rates in retirement will be, the best thing you can do is diversify your options.