TSP to ROTH TSP

[craigerv]

Wouldn't it be better to pay taxes later than now...the whole compounding thing

When you put 5% of your income in the tsp, roth or standard, the same amount of money goes in. If you deposit into Roth TSP you just have to pay tax on it, so your take-home pay is less. So your gains will be the same because you're depositing the same amount. You will compound the same amount. The difference is that your gains will not be taxed when you withdraw from the Roth portion. If you are young, and you contribute to Roth TSP, and you stay in the same tax bracket when you retire, you will earn just a bit more in your TSP and will pay quite a bit less tax. However, if you retire in a higher tax bracket, you could earn a lot more and be taxed a lot less. Nobody can say for certain what their taxes will be like in 35-40 years but I fully expect to be in a higher bracket at retirement, so the potential is certainly there to save a lot of $$$.

 

[Frixxxx]

See Tax Table below

Remember also that this is TAXABLE income. After Deductions.

I explained this to my son once. He is 25 and has $0.00 taxable income. I suggested the Roth because he doesn't have the need for the tax-deferrment on $0.00 dollars to invest in something that will be taxed later (401K). When he gets older and has a more established career and starts to see TAXABLE income, then he should balance it out between the two.

 

[Viva_La_Migra]

Wouldn't it be better to pay taxes later than now...the whole compounding thing

For me, I want at least one source of tax free income when I retire. I'll take the tax hit now and hope my Roth investments earn enough to not miss social security when it collapses.:blink:

 

[Viva_La_Migra]

Remember also that this is TAXABLE income. After Deductions.

I explained this to my son once. He is 25 and has $0.00 taxable income. I suggested the Roth because he doesn't have the need for the tax-deferrment on $0.00 dollars to invest in something that will be taxed later (401K). When he gets older and has a more established career and starts to see TAXABLE income, then he should balance it out between the two.

My kids are nearing working age. When/if they get a job, I intend to help them open a Roth IRA and max out their contributions. Maybe get family to contribute their birthday money to the cause, rather than buy them more video games! They'll thank me later.:nuts:

 

[wvango]

Tax Consequences of Roth TSP Withdrawals

Tax Consequences of Roth TSP Withdrawals