ROTH TSP

[Spaf]

Well lets see here now.. 1 we do keep track of everything, especially medical, but nowhere near enough to itemize, but we try every year...

7. Working for Post Office and being FERs what does maxing out leave do for me?

1. My 2nd biggest expenses are medical (hospitals, doctors and prescriptions). It comes with age, same, same dearh and taxes....

7. FERS; you retire at the end of the month. Your next checks (FERS/SSA) could be +/- 45 days. Govt will send you a check for unused leave that can tide you over....:nuts:

 

[ChemEng]

I would even suggest when you retire that you develope a monthly withdrawl from TSP into a Roth IRA - you will be taxed of course, but if you live off savings for a year and postpone your annuity until you are ready your taxes will be minimal - you won't have an AGI.

I didnt think that you could contribute to a Roth if you didnt have an income?

 

[Show-me]

I didnt think that you could contribute to a Roth if you didnt have an income?

No minimum income just maximum income limits. I believe.

Sidebar I will move the A/L discussion to a thread of its own this evening. Sorry for hijacking the ROTH thread.

 

[Warrenlm]

I bellieve you can only contribute EARNED income.

 

[offtrack]

I didnt think that you could contribute to a Roth if you didnt have an income?

Birchtree is talking partial payment rollovers to a Roth I believe. After this year you will be able to rollover all or part of your tsp to a Roth but will owe taxes on the portion rolled.You would elect a series of partial payments spread over 10 years of which a certain percentage would roll into a roth. Your tax rate would be based on your total AGI. For this year:

• 10% on the first $7,825
• then 15% up to $31,850
• then 25% up to $77,100
• then 28% up to $160,850
• then 33% up to $349,700
• then 35% on the rest

The lower you keep other sources of income the less you would pay in taxes on the amount rolled into a Roth. Hopefully laws may change that may benefit you in the future on these rollovers but I wouldn't hold my breath. Things might easily go the other way. I do think the withdrwal options need to be improved. The benefits of the Roth are more measurable when you look at historical tax rate charts.

http://www.irs.gov/pub/irs-soi/02inpetr.pdf

Things can change and we are not in a period of high taxes on income. It is good to look at your retirement plans and run expectations using a variety of criteria that could affect those plans like tax rate changes (and not only Federal rates), health changes, family changes, etc.. FWIW, my retirement plans totally changed after I failed to anticipate the bubble in real estate prices, but things turned out quite well since I had so much more flexibility in my life options. I just moved.

 

[weatherweenie]

http://biz.yahoo.com/cbsm/070404/9d5e5d651d1d4c91bddec37fcfba4e78.html?.v=1&.pf=oneclick

Meet one dissenter from Roth 401 (k) rah-rah chorus

BOSTON (MarketWatch) -- To many, the newly introduced Roth 401(k) is the greatest retirement account (along with the Roth IRA) ever created. With a Roth 401(k), one contributes after-tax dollars into an employer-sponsored retirement account in which the money grows (as it does in a traditional IRA) tax-free and (unlike a traditional IRA) is distributed tax-free too.
But while many experts praise the benefits of Roth 401(k)s, there's a lone wolf out there with a contrary point of view, penning articles under such headlines as "Roth 401(k): Dumb and Dumber" and "Roth 401(k): Still Dumber."

 

[Birchtree]

Be aware of this IRS trap regarding a Roth IRA. To ensure a lifetime income stream from a Roth, heirs must make the first withdrawal by Dec. '31 of the year following the IRA owner's death. If they don't, they must cash out the account by the end of the fifth year following the year of death. Leaving a Roth for grandchildren can be particularly effective, because they would get tax-free compounding for many decades.

 

[Show-me]

I bellieve you can only contribute EARNED income.

You are correct! I stand corrected.

http://www.bankrate.com/brm/itax/tips/20010328a.asp

Contribution limits
In general, Roth contributions are the same as traditional IRAs. Last year, you were able to contribute up to $4,000. The maximum annual contribution stays at that amount this year.
If you were 50-years old or older last year, you could have contributed in an extra $1,000. That catch-up contribution amount remains the same for 2007.
However, you can't put more money than you make in any IRA. So if your income is only $1,500, then $1,500 is the most you can contribute to a Roth.
Income
Speaking of income, you must earn money to open any IRA. That means your only income can't be from unearned sources, such as investments. You must get paid wages, a salary, tips, professional fees or bonuses.
There is an exception that allows Roth accounts for nonworking spouses. If you and your spouse file a joint return but one does not work, the employed spouse can open and contribute to a Roth IRA for the unemployed partner.
Generally, the contribution limits for a spousal IRA are the same as for the account held by the working wife or husband. Check Chapter 2 of IRS Publication 590, Individual Retirement Arrangements for complete guidelines on opening a Roth spousal IRA.
But if you make too much money, you're not eligible to open a Roth or to contribute to the account you opened when you were earning less. For a Roth, your earned income (with some deductions you might have taken, such as for student loan interest, added back in), must be less than:

• <LI class=body>$160,000 if you're married filing jointly <LI class=body>$110,000 if you file as single, head of household, or married filing separately and did not live with your spouse during the year
• $10,000 if you lived with your spouse at any time during the tax year but decide to file separately.

And even if you're not quite at the top of these pay ranges, your Roth contribution could be limited if your modified adjusted gross income falls within these limits:

• <LI class=body>$150,000 to $160,000 for married couples filing jointly <LI class=body>$95,000 to $110,000 for single or head-of-household taxpayers or married couples filing separately and who did not live with their spouse
• $0 to $10,000 for married couples filing separately who lived together at any time during the tax year.

You still can add to your Roth in these cases, but not the full allowable amount. Publication 590 contains work sheets and examples to help you determine your reduced Roth IRA contribution amount.

 

[roskopfm]

Birchtree is talking partial payment rollovers to a Roth I believe. After this year you will be able to rollover all or part of your tsp to a Roth but will owe taxes on the portion rolled.You would elect a series of partial payments spread over 10 years of which a certain percentage would roll into a roth. Your tax rate would be based on your total AGI. For this year:

• 10% on the first $7,825
• then 15% up to $31,850
• then 25% up to $77,100
• then 28% up to $160,850
• then 33% up to $349,700
• then 35% on the rest

The lower you keep other sources of income the less you would pay in taxes on the amount rolled into a Roth. Hopefully laws may change that may benefit you in the future on these rollovers but I wouldn't hold my breath. Things might easily go the other way. I do think the withdrwal options need to be improved. The benefits of the Roth are more measurable when you look at historical tax rate charts.

http://www.irs.gov/pub/irs-soi/02inpetr.pdf

Things can change and we are not in a period of high taxes on income. It is good to look at your retirement plans and run expectations using a variety of criteria that could affect those plans like tax rate changes (and not only Federal rates), health changes, family changes, etc.. FWIW, my retirement plans totally changed after I failed to anticipate the bubble in real estate prices, but things turned out quite well since I had so much more flexibility in my life options. I just moved.

If your in the 15% tax bracket right now, a roth is much better than investing in the tsp (beyond the govt match amount). If for example you invest 10,000 in 2007 in the tsp at 8%. THis would grow to $21589 in ten years. Say you pull it out while still in the 15% tax braket, this would be worth $18351.
Now instead say you invest the 10,000 after tax in a roth. So you would have the $8500 after tax to invest (10,000 less 15% tax). $8500 at the same 8% rate for 10 years. THis would be worth $18351 after taxes. So if you retire in the same tax braket as you are now there is no difference between a roth and TSP. But instead say you retire and are in a higher tax bracket . Then the 21589 pretax would be worth $16195 (in the 25% bracket) after tax. So you would get $16185 after tax in the TSP but $18365 in a Roth. This would be a win/win for anyone that is in the early years in their career and expect to make more money down the road.

 

[roskopfm]

Re: Roth Tsp?

The TSP board doesnt think people will use the ROTH TSP since only 20% of respondence say they have a ROTH outside of the TSP. But the thing they are missing is that you cant have a roth if your income is above 95,000 single or 150,000 married. So any higher paid employees cant contribute to a roth even if they wanted to. BUt if the TPS had a roth they could.

 

[IllinifanMichael]

If your in the 15% tax bracket right now, a roth is much better than investing in the tsp (beyond the govt match amount). If for example you invest 10,000 in 2007 in the tsp at 8%. THis would grow to $21589 in ten years. Say you pull it out while still in the 15% tax braket, this would be worth $18351.
Now instead say you invest the 10,000 after tax in a roth. So you would have the $8500 after tax to invest (10,000 less 15% tax). $8500 at the same 8% rate for 10 years. THis would be worth $18351 after taxes. So if you retire in the same tax braket as you are now there is no difference between a roth and TSP. But instead say you retire and are in a higher tax bracket . Then the 21589 pretax would be worth $16195 (in the 25% bracket) after tax. So you would get $16185 after tax in the TSP but $18365 in a Roth. This would be a win/win for anyone that is in the early years in their career and expect to make more money down the road.

Okay now I am confused... sorry for my ignorance.. I am planning on 15 more years of working is a roth worth it at this time?? I have almost 27 years in at post office...also if you die on december 30th my heirs must withdrawl on dec 31????

 

[IllinifanMichael]

Re: Roth Tsp?

The TSP board doesnt think people will use the ROTH TSP since only 20% of respondence say they have a ROTH outside of the TSP. But the thing they are missing is that you cant have a roth if your income is above 95,000 single or 150,000 married. So any higher paid employees cant contribute to a roth even if they wanted to. BUt if the TPS had a roth they could.

does this change in 2008?? I work for USPS, my wife is private sector and we are above 150, but not 160 though.........

 

[EW_ret]

Re: Roth Tsp?

When figuring your modified adjusted gross income for 2007 you need to use the new income limits which were increased to $156,000 - $166,000 for married jointly, and $99,000 - $114,000 for single and head of household. These income limits are now adjusted yearly for cost of living increases. Secondly, any money you put aside in your flexible spending accounts, health insurance premium, and TSP/401k reduces your gross income reposted on your W2. This money is not added back in when calculating your modified adjusted gross income. Therefore, when you increase your TSP/401k contributions you may be able to reduce your modified adjusted gross income enough to fall below $156,000.

does this change in 2008?? I work for USPS, my wife is private sector and we are above 150, but not 160 though.........

 

[IllinifanMichael]

I see where you are headed about more into tsp to lower AGI to get to level ( I already have 15% going there) .. Thats why I don't work holidays nor OT and my wife has turned down numerous pay increases/job promotions. BUT in talking to my wife about this it turns out we have, well she has, a Franklin Templeton Investment account with both a Tax free Income Fund and a Value Fund... I have no idea what this means though :nuts: Will have to check into it and talk to one of their representatives I guess. My head is spinning trying to get a handle on everything...

 

[Birchtree]

That value fund has been rolling down the track at a good clip for the last eight years. That game is about to gently change to large cap growth. I'm sure your account will have eligible large caps funds waiting for purchase. If you don't mind being one of the few that may own large caps you would be buying on the cheap.

 

[IllinifanMichael]

Well... I don't think a Roth is the way to go for me. Our AGI I'm thinking will be well above maximum allowed for 2007 and beyond. Have to go to plan B (birchtree??? ) of course I don't really have a plan B as of yet, but I did stay at a holiday inn last night and joined sharebuilders.com this morning :laugh:

 

[roskopfm]

Looks like the Feds are serious about adding a roth

http://www.govexec.com/story_page.cfm?articleid=36996&dcn=todaysnews

 

[SkyPilot]

Looks like the Feds are serious about adding a roth

http://www.govexec.com/story_page.cfm?articleid=36996&dcn=todaysnews

I think it will be a mistake to duplicate what is already availabe.

I suspect that it will raise the cost of adminstering TSP without creating an advantage.

 

[Callme_CO]

My plan in the next year is to start a Roth IRA. I like that my earning will be tax free. I would like the TSP board to bring that option to the table more for the simple fact that it would be convient for me to watch and manage with it in the same place. i'm lazy what can i say.

 

[offtrack]

Personally I think Roth is one of the greatest opportunities I have seen. The chance to receive lifrtime tax free compounded interest on initial investment---gimmme gimme gimme!!!!!! :nuts:

The upside of a TSP ROTH would be that:
Those that are disallowed an individual ROTH cause of a high AGI would now be able to contribute.
Allowable after tax contributions would be at the employer ROTH level, presently $15k + and rising compared to 1/3 of that for the individual ROTH
The downside is that the more money pumped into ROTH plans the more attention those plans are going to get from the government and the more chance of the government changing the rules.
Also a possibility of added costs in maintenance to our retirement accounts and with any major revamp there is also a possibility of a change in the frequency we make moves. Don't forget the luxury we have of moving money between funds is not one granted to all. My daughter's 401k frowns on prohibits such changes even at a monthly frequency.

I dropped a couple of links that might be of use.The 1st illustrates some of the details of a emplyer ROTH. The other 2nd is a calculator comparing investment realizations in ROTH vs Traditional plans. 3rd, a calculator to show the difference if one rolled over their traditional account to a ROTH.

http://www.rothira-advisor.com/roth401k.htm

http://www.youngmoney.com/calculators/retirement_planning/roth_vs_ira

http://www.planningtips.com/cgi-bin/roth.pl