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Please note before comparing Roth to Regular TSP you should know EXACTLY how the state you work in now taxes the pension of a federal civil servant. Approx. 9 states that normally have income taxes (e.g. NY) consider the TSP "part of" their civil servants pension and DO NOT tax it on withdrawal in retirement. This is significant because if you work in one of these states (and assuming you will retire there) and contribute to the regular TSP - you can escape state taxes altogether (which are not insignificant in states like NY) by contributing to the regular TSP. As unbelievable as it seems the money is not state taxed going into the regular TSP AND it is not state taxed when withdrawn as it is considered "part of" the civil servants pension in these states. However - if you contribute to the Roth TSP - you will pay state taxes on the money going in. Everything else being equal - you are actually losing money by contributing to the Roth TSP instead of the regular TSP in a state like NY.
This is a really great point, thanks for sharing it. If one is certain they'll be living in a tax-free state then it definitely makes sense to consider the deduction on the way in (Trad) and then no tax if in the right state.
@@TheFedCornerThanks. I have the 3 tax adversaries from the NY State Tax court dealing with the TSP if anyone is interested. Please keep in mind this same principle (escaping state taxes by investing in the regular TSP and not the Roth) also applies to the tens of thousands annually who retire from Northeast states and move to tax free states (like Florida) when they retire. If you plan on moving to a tax-free state when you retire (e.g. Florida) and you now work in a state with an income tax this is another way you can escape state taxes altogether on your TSP - simply contribute to the regular TSP instead of the Roth TSP.
Started a traditional TSP when it rolled out in 2001 for the military. Never started the Roth TSP since already maxing out ours at VG since 1998. As soon as I retired in 2015 I rolled the TSP into an IRA and started backdoor Roth conversions up to the max 12% bracket. Some years I could only convert 5-10k to fit into the 12% bracket, will finish conversions in 2027.
I just turned 62 and retiring in Sept. I plan on doing conversions over the next 10-12 years before RMDs are due. I will pay the taxes out of a brokerage account I have just as you suggested in this video. Thanks for the confirmation.
At 1:50, it seems like you are saying that a beneficiary has to pay taxes on an inherited Roth IRA. I read elsewhere that an inherited Roth needs to be emptied by the beneficiary in 10 years, but that the withdrawals are tax free. Am I missing something?
Once dollars are inside Roth (inherited or otherwise), there are never taxes anymore, even if it grows. Inherited Traditional IRAs have taxes just like regular TSP/401k/IRA/etc. Hope this helps.
I rewatched the section and I do think he said children getting the inherited Roth IRA have to pay taxes from it when they withdraw it over 10 years. At 2:09, he said those money are fully taxed. But ChatGPT said those distributions are tax free.
Excellent video. First time seeing your content. I'm 56 (fed accountant) and retiring this year after 30.5 years of service. Very few financial advisors address your first point of the "cost" of investing in the roth tsp meaning less income now plus paying taxing now resulting in a lower standard of living now. I plan on converting my 7 figure traditional tsp to my non-government held roth ira starting this year but I am concerned about irrma costs at 65 if I'm still make roth conversions while staying in the 24% tax bracket (may revert to the 28% tax bracket in 2026). I may have a to schedule a consultation just to ensure I have appropriate guard rails in place in my financial plan.
I appreciate the kind words! Certainly, be in touch if we can be helpful. IRMAA can be tricky when doing conversions to be aware of brackets when doing tax planning! -TG
I've been doing Roth conv. for several years now. The quick study says if you can stay in the 12% bracket and pay for it out of a taxable account, its a safe play. You should do that forward looking tax plan (FLTP)and see if you should be converting in even the higher brackets or not at all. You should optimize on post taxed value of your accounts instead of just looking at minimizing your total tax payments because if you pay the same rate on your tax conversion vs just taking it out as RMD you just break even - even though you will on paper save potentially millions of dollars in tax payments and that is because you already owe the government a percentage of the tax deferred account and if you just wait, that percentage grows in value just like the percentages you own. You can do your own FLTP but it is the most complicated financial analysis that I've done for myself.
All great points, thanks for sharing! It's one reason we tell people to consider investing more aggressively in the Roth. Growth = taxes, so why not get the most growth in the tax-free account? Food for thought.
First time in this channel, glad that I stumble into it, I have Roth TSP already for many years but I decide to stop contributing and instead put the funds in a brokerage Roth IRA, the reason is for the flexibility I will have once I retire, luckily the Roth IRA is having much better performance than the Roth TSP also. I'm maximizing the traditional TSP with good results.
If using a Roth makes sense for your circumstance, then you can put much more into the Roth TSP than you can into a Roth IRA. Plus you get your agency match, so make sure you don’t miss out on that!
Becoming a millionaire through a Roth IRA or a 401(k) involves different strategies for maximizing profits. A Roth IRA offers tax-free withdrawals in retirement, which can be advantageous if you expect to be in a higher tax bracket later in life. On the other hand, a 401(k) provides tax-deferred growth and potential employer contributions, boosting your savings. The optimal choice depends on factors like your current and future tax situation, employer match, and investment options. Consulting a financial advisor can help tailor a strategy that aligns with your financial goals and circumstances.
Prioritizing effective personal finance management holds greater significance than the sheer amount saved, irrespective of income source. Consulting a certified financial advisor can offer tailored strategies to optimize financial results by reducing expenses and enhancing income, regardless of whether it's earned through employment or investments.
I wholeheartedly concur. At 60 years old and newly retired, my external retirement funds total around One million two hundred fifty thousand dollars.. With no debt and minimal retirement fund allocation relative to my portfolio's value over the last three years, I recognize the importance of a financial advisor. Neglecting them isn't an option; however, thorough research is vital to find a trustworthy fiduciary advisor.
@TheFedCorner - - the beginning of the video discusses the 10yr rule for inherited Trad TSP. You noted a yearly 10% (minimum) withdrawal requirment, to fully liquidate the account ( aka "to fully satisfy the rule" ). However, my understanding - - if the deceased was not 73 (RBD) ... then the surviving beneficiary can elect not to withdraw in years 1 thru 9 ... and fully liquidate in year 10. (steep tax of course), but ultimately there is not a yearly requirement. Please correct me, if I am mistaken! - - great video!
The 10% annual was just an example of distributions. It’s the most commonly selected to spread out the taxes as much as possible. Although with impending tax change in 2026, many are accelerating distributions over next two years. Thanks for tuning in!
Best advice I ever got from a financal advisor: "If you don't work with me, please get advice from a good CPA. Because I plan to move my TSP I'm glad I did. No regrets.
Thank you so much for these videos. They aren't long but long enough. The information is very helpful. I like how you explain the tax planning window, basically the time where FERS and SS are primary sources of income. And then explaining about Medicare part B implications for conversions. Since my wife was out of the work force for 20 years (raised and home schooled our children) and currently works part time, our situation may be a little different than other joint high wage earners. When she turns 62 next year, she could draw her SS when I retire FERS in 1 year 7 months (I'm counting). My FERS pension plus her SS to start and supplement as needed. Later, when I'm older, I can draw SS at a much higher amount (this benefits my wife long term if I die before her). We have a lot of tax deferred retirement to draw from. I'm hesitant to do a lot of ROTH conversions, or maybe none at all. I really like keeping things simple even though it might not be the most tax efficient. Your videos help me understand all those various elements.
You're welcome! I'm happy to hear you've found our content helpful, and I'm glad you're keeping an open mind to new strategies--especially as tax laws are regularly changing. -TG
Is the host saying that Roth rules for TSP accounts do not follow all other Roth accounts? The inheritance example here is not how inherited Roth funds work ANYWHERE ELSE! There are NO TAXES DUE WHEN ROTH ACCOUNTS ARE INHERITED! None, zip, zilch, nada, NONE! Only pretax accounts pay income taxes upon inheritance over a ten year period! WOW! This is one of the most MISLEADING WHOPPERS I’VE EVER SEEN!
@@eugenecanzano1531 No, we did not say taxes are owed on Roth. Inh Roth has a liquidation date, but no taxes. The inheritance example was on Traditional assets, not Roth.
Great video, I only seen one video that actually showed putting less in Roth then you would a traditional IRA to get the same withdrawal rate when you retire. Love to see one from you as well.
I'm 33 this year. I opened an HSA this year. What would the best/optimal way. Get 5% match, then max out roth ira on the side, then max out hsa, then come back to tsp? Get 5% match, then max out hsa, then roth ira, then come back to tsp? All tsp %'s will be roth tsp. My current salary is 56,327.
It's hard for me to say without looking at all of the variables in your life, but generally speaking you should stick with putting as much as you can in your TSP before looking elsewhere. If you have an HSA, that's important too because you can use it for medical, and it can eventually be moved into a Trad IRA. It's also generally important to have a cash emergency fund in a bank before building up a portfolio. Hope this helps.
@TheFedCorner interesting. No debt, emergency fund/other short term stuff is building up slowly. I only make 56,327 lol there's not much to go around. I'm gonna shoot for 5% match, roth tsp, max out hsa, max out roth ira. If I can do that (counting the match) my savings rate is 25%, I can live with that. Then any overtime I work will go to tsp or emergency fund. And yes, it did help. All your videos and responses help. Thank you.
You may want to consider the HSA before the Roth IRA. Remember to keep ALL your health care receipts so if you are in a pinch, you can get access to the money. Take pictures of the receipts and email them to yourself for safe keeping. Set up folders in your email to store them. Organized by year/month. If you need to cash in a receipt, do so and then delete the photo. After you have a sizable amount in the HSA, be sure to transfer some of it to a stock mutual fund so that it grows like your TSP/IRA.
If you believe you'll be earning more in the future than you are today (probable), then you can consider a Roth since you're in a lower tax bracket today. I can't comment too much without it counting as advice, but consider the general principles of when to Roth vs when to use Trad. Hope this helps. -TG
I appreciate the help. All financial decisions are made on my own, so no worries about me considering it advice. Haha just genuinely curious because the TSP can be pretty intimidating.@@TheFedCorner
If you have 20 or more years till retirement and you are in a low tax bracket, I would recommend Roth because the money grows tax free. As your pay increases keep balancing between traditional and Roth. You have to evaluate how comfortable you are with your salary today and decide what's best.
If your agency has matching contributions, ‘my understanding’ is those matching contributions will go into the traditional TSP. Probably most important is that you have perhaps 30 years til retirement and so you should be almost all stocks. The C Fund mirrors the S&P 500 and has excellent ‘long term’ results. As a young man of your age, I contributed just enough to get all the matching funds because I was saving my pennies to buy my first house. After that, when I got my my raises I raised my contributions until they were maxed out. Best of Luck!
I have 2 major issues with a ROTH: First - You tend to retire with lower "income" thus lower taxes. (so contribute ROTH in your early low paying career then leave it alone) then shift to traditional TSP during high income years. Second - there are 12 states that DO NOT tax your TSP, FERS, nor SS. So may want to plan to relocate for retirement. Especially if retiring from high value state (CA, NY, etc) to one of these twelve, then home ownership is a huge bonus.
@@TheFedCorner The only time to be contributing 100% ROTH is while your earnings are in the first two tiers before the 10% jump in taxes (12-22%) thereafter then 100% traditional. Then when you retire, typically one can live back in the first two tiers again if debt free and house is paid off. 😉 As for RMDs, that is all timing and there are options to still keep yourself in the first two tiers.
@@russthompson4296 maybe if you plan on having pathetic earnings over time, and having a limited lower income in retirement. one of the best ways to stay in that lwoer tear is a truly healthy nontaxable ROTH income.
The main reason i am doing Roth is to qualify for cheap/free healthcare in early retirement, on top of being in a low tax bracket. Im still a few years out, but if 60+ % of my income is roth ill qualify for free or at least heavily subsidized healthcare.
@@TheFedCorner Yes, but I won't qualify for pension until 60. Current goal is 60k retirement income from annuity or 72T(~20k traditional ~40k Roth) at 50 to 60, then add on ~26k fers pension at 60, then around 67 or 70 add on another ~34k social security. Tax laws will likely change a lot by then, but I hope to not jump above the 12% tax bracket since these dollars will be future inflated numbers. I am still a decade out, but as long as we manage 7% returns in the s&p , I'm on track for retiring at 50 with these numbers, and hoping for more. Worst case I can always delay, but have a 36% savings rate to try and buy back a few extra years of my life.
@@35goingon90 Sounds like you've thought this out, hope everything works out for you! Some unsolicited tips that came to mind, hopefully they're helpful to you: 1) remember if you move your TSP to an IRA you subject those dollars to 59.5 rules, whereas retired feds can access TSP at 55 (or 50 with spec prov). 2) try to save as much after-tax dollars (non-retirement) as you can, this is huge in helping keep taxes low. 3) Also, make sure you monitor your risk as you near retirement--S&P annualized returns are exactly that--annualized over decades. When you don't need your money yet, it's great. But in the short term (retirement), S&P (C fund) volatility can be crippling and present significant sequence of returns risk. There's more info about that in articles on our website. Good luck, Andrew! -TG
Does TSP ROTH fall under the IRS cap limit? For example for 2024 IRS caps the ROTh at 7k that means your TSP ROTH limit is $7k also if that is the only Roth IRA account you have ❓
@@TheFedCorner Thank you for taking the time to reply. I am very confused on this matter given I tried to file my taxes for the year (2023) and told I am over the 2023 Roth limit and need to withdraw the excess (excess contribution over the 6500 Roth limit for2023) . Any video and/or links I’d appreciate. Or if you have further info to share too. I did check Tsp online and it’s not clear (for me) your response was a little more clear but still brown off given at filing I am being told to withdraw the excess over the 6500❓ The way the w-2 is make it says it’s a 401 ROTH (yes only one employer- Fed) Thank you❗️
@@suzp8627 In 2023 your TSP contribution limit was $22,500 and IRA limit was $6,500. If you contribute more than $6,500 to your 2023 Roth IRA ask your IRA custodian for guidance on how to remove the excess contribution.
If I'm contributing $1,200 a month to my traditional TSP and decide to stop traditional TSP contributions and switch to $1,200 contributions to Roth TSP, how much will I pay in taxes the following year? I'm a GS-12 making $103,000. Single (not married) and I also have a Roth IRA.
$103k - $14,600 (standard federal deduction) = $88,400 middle of 22% Federal Tax Bracket and $14,501 2024 federal tax. Consider as default $7,000 to Roth IRA and as much as you can afford up to $23,000 to traditional TSP.
All dollars going into Roth TSP will add to your taxable income, so your marginal tax rate will apply to those dollars. See the IRS tax tables to find your number.
Super helpful video; just discovered your channel; grateful I did. Will be retiring sometime in next 5-7 years and am doing research on Roth conversions and timing and found this video quite valuable. I've subscribed and am looking forward to more videos from you.
Hi there Im 43 i just started with the post office i signed to the tsp im putting 15% down should i do traditional or roth right now i have it in roth.
Hello! It's hard for us to tell without knowing more details about your specific financial situation, but here are some general guidelines: if you think you're in a lower tax bracket now than you will be when you'll take out the money later in life, then you can consider the Roth now. If you think your income may be lower when you retire (and need the TSP), then perhaps a Roth later may be better. It's a matter of picking the best time to pay the taxes. Hope this helps, and make sure to get professional advice before doing anything we discuss in our videos. Hope this helps!
No, most people's taxes do not go down when they retire, and we will likely be taxed at a much higher rate when we with draw from our regular TSP. Pay the lower rate now, while I'm still working, and get the Roth or wait till my income is lower and pay the higher tax rate that is coming with 100% certainty. No brainer.
Thanks for tuning in. A lot of feds are in a similar position. People don't generally spend less in retirement, with the common exception of a possible mortgage going away, so I'd agree with you there. If families are able to save after-tax dollars, that can support their early retirement years and allow them to fall within lower tax brackets for several years. Roth conversions during those years can make a lot of sense. That said, the TCJA has a sunset provision allowing tax rates to reset to higher amounts, jumping by 3-4% if no tax law changes are made. Lots to consider! -TG
Most people are in the 22-24% bracket and cannot possibly get by on less than $44,726, even with no mortgage. With today's inflation, that is a de facto poverty rate. @@TheFedCorner
My base pay is $71k per year. My wife only makes around $19k per year, so combined, we found around $96k per year. That changed dramatically when I do OT, which would put us at around $119k per year. I decided to start dozing Roth TSP, but I'm not sure if it even makes sense anymore because there was already $60k in my TSP the traditional way. I doubt that anyone's takes would be lower 15 years from now, which I'll be 62, and I'll probably have enough to retire. Paying all those taxes later on? I don't like the idea. I want to move my money out of the TSP once I hit 62 or 59 because the TSP is too restricted and even the Roth has minimum distributions after like 70 or 72? Subscribed
Thanks for tuning in and for subscribing! The Roth TSP RMD factor was changed, it’s no longer in the calculation for RMD. Roth planning is very specific to your income levels, so try to do some projections to see if you’d be in higher or lower income levels.
@@TheFedCorner Yeah I just found out that you will no longer have to take RMD from the Roth TSP, so I'm very happy about that. I'm afraid that between social security, and my pention, I might just end up in the same tax bracket that I'm in right now. I don't like the idea of RMD on the traditional TSP either. And I'm almost certain that some of my TSP would be left for my wife and my two kids (if they behave). I don't want my kids to be paying for any of the taxes that didn't pay. Thanks
@@joseCalderon1976 With standard federal deduction MFJ, you're just above 12% Federal Tax Bracket so most of your Roth TSP will be taxed at 12% FTB. Favor Roth TSP before current FTB expire. Regardless of whether you decide traditional/Roth TSP, remember $6,500 to his and $6,500 to her Roth IRAs.
No, Roths are tax-free. Simply that if someone is considering Roth conversions and they have several children inheriting, perhaps the inherited splits requires smaller annual payments at a lower bracket than doing Roth conversions now. This is dependent on account size and how many people will be inheriting, but we've seen this be the case before.
I used to think Roth was best for almost everyone. Lately not so sure, and your presentation has me leaning to traditional even more. I think HSA is in best interest. Paying off debt prior to retirement should be a focus. Uncertainty about future tax rules too-do they change Roth benefits? Maybe having some of each is a decent plan. I think most folks need financial and life advisers, thanks
Diversifying not just your investments, but the TAXABILITY of your wealth is indeed important. Having some after-tax (brokerage), pre-tax (Traditional), and tax-free (Roth) are all generally good. The combination therein, and whether an HSA is appropriate, is a question answered only within the context of an individual's specific plan. Regarding changing Roth benefits, it's highly unlikely that they would change the current tax-free benefit of the Roth, as taxes have already been paid on those dollars. Hope this helps!
@@jmclay4317 If you are still working, you can choose to which part of the TSP you wish to contribute, whether Trad or Roth. As a 61 year old, you are also able to withdraw from either.
@@jmclay4317 At 61 you're likely to at your highest working tax bracket and generally should favor traditional TSP. As default and for tax diversification contribute $7,500 to Roth IRA and as much as your income and budget allows up to $30,000 to traditional TSP.
Inherited Roth IRAs: Withdrawals of contributions from an inherited Roth are tax free. Most withdrawals of earnings from an inherited Roth IRA account are also tax-free. However, withdrawals of earnings may be subject to income tax if the Roth account is less than 5-years old at the time of the withdrawal. The second point only makes sense if you pass away before the account reaches 5 years.
The only difference between Traditional and Roth is how taxes are applied. The rate of return will depend on how you’re invested, so what you’re looking for would be the rates on the C, S, I, F, and G funds. They’ll be the same whether Trad or Roth. Hope this helps.
Great video. My wife (66) and I (67) recently FERS retired (FEB and April 2023 respectively). I called TSP and customer rep told me that we can't directly transfer / rollover TSP to ROTH IRA. If I transfer my uniform and FERS TSP to traditional IRA it will be subject to at least 20% tax withhold. My wife and I are currently in a 24% tax tax bracket. Are we subject to tax distribution (1099-R) if and when we convert / rollover traditional IRA to ROTH IRA due to increased AGI? Should we transfer our TSP to IRA and then convert/rollover to ROTH? I'm not sure it makes sense in our situation.
Thanks for your note. This is a matter of technicalities. If you are performing a direct rollover to an IRA, there SHOULD NOT be any tax withholding NOR tax consequences. If the representative told you otherwise, they are mistaken. HOWEVER, you must make sure that they are not doing a distribution of your TSP, in where it is not considered a rollover. In that case, you would receive a 1099R. When you perform a Roth Conversion, that is also technically a distribution (assets leaving) from a Traditional (pre-tax) retirement account, so you would also receive a 1099R, and subsequently it would increase your AGI. Whether a Roth conversion makes sense is not a question answered only by your current tax bracket. Understanding projections for your tax brackets in the future--as well as details of your other assets--are also important to give context. Hope this helps!
I’m funding my TSP Roth 100%last 6 years of retirement. I hope to get it to 1/3 of my balance. probably paying too much for it tax wise but I don’t qualify for Roth IRA. I plan to transfer it when I stop working to brokerage and use it for high growth aggressive investments. For the last bucket.
So this guy is suggesting that you avoid $300 in taxes by putting $1000 in a traditional IRA. 😅 Most people investing in a TSP are not in a thirty percent federal tax bracket. And if you're income is SO high that you are paying 30% of every dollar to the federal government, then you are probably not concerned one way or the other over whether or not a 1000 goes into a Roth or a traditional TSP.
Thanks for tuning in. Remember that most states also tax income, so 30% is not an unreasonable amount of "all in" taxes. Dual-income families are frequently in the 22/24% federal bracket, plus SALT (state and local). Not to mention, current rates are lower and set to increase in 2026 if the law doesn't change. Even for higher earners, that's when Roth vs not makes even more sense to assess. The more money one has, the more potential tax liabilities come with that, especially in the long term and in retirement. Hope this offers some clarity. -TG
I'm super confused looking at my tsp online. It looks like my Roth contribution isn't taxed but the match and gains are taxable? Can someone clarify? I want the whole tsp account to be Roth so I don't have any taxable retirement funds when I do retire.
@@memorablerides6807 You already paid tax when you made your Roth TSP contribution. The gov match goes toward your traditional TSP balance. If TSP decides to let the match go toward your Roth TSP balance you will owe tax on that match.
@@memorablerides6807 All matching funds always go to the Traditional account (not to the Roth). You pay income tax on money in the Traditional account when you withdraw it. You pay income tax on Roth contributions right before you deposit them. There are no taxes on capital gains withdrawn from the Roth.
Yeah I think the OP of this comment was not fully on board with this. I have looked into this and I am sticking with traditional TSP. The immediate tax break I receive now are more than worth it. I would rather plan for taxes in the future and pay taxes when I am making less money in retirement and paying less bills in retirement.
Like you said, with all the MONEY that is being printed out of thin air, something and someone has to pay for that. Future tax liabilities ARE NEVER GOING TO BECOME LESS. Pay the taxes now and get your earnings tax free.
We all know Taxes are going to INCREASE for us and our kids, Pay the taxes now. Also, See if you can use a HDHP with a HSA then invest the HSA funds with a HSBA. When you turn 65 it essentially becomes another Roth bucket.
Keep saving as best as you can! Make use of payroll deductions for TSP contributions, and every time you get a raise, increase your TSP contribution by at least half of your raise if you can. The longer you have until you need to access the money, the more growth oriented you can consider being with your allocation. -TG
I do think Roth TSP / IRAs are worth it. I feel like we have until 2025 to convert to Roth IRAs (especially since the market is down) and benefit from the slight decrease in certain individual tax rates. Starting in 2026, tax rates revert to the pre-2018 rates, I believe. It isn't a big change for the higher tax brackets, but everything helps.
That's right, there's a high probability of taxes going up, so if you're not in the categories in this video, then you can consider doing conversions while rates are still lower. Just make sure you're certain you won't have lower rates in the future if you're income will drop.
Depends on your income. I’d pay an extra $21,600 in taxes per year if I used a roth. It makes more sense for me to wait until retiring and convert it over to my roth account over the course of a few years before collecting social security. The tax hit is cut in half that way. (Paid 12% instead of +24%)
@@misternobody9801 That's right! Excellent point; we all owe taxes at some point, but it's a matter of targeting which time is most efficient for your circumstance.
A very good one, at that. The answer reveals itself in your planning. We have clients for whom the Roth is an incredible tool, while for others it’s not the best thing for them. Your specific financial circumstance now and in the future should determine whether “To Roth or Not to Roth”. Thanks for tuning in!
I've been trying to change my TSP future contributions from Roth to Traditional and can't seem to figure out how to make the change. I've looked on the TSP site and only see how to change funds.
I believe there is an option within the TSP login to so do, but if you're having trouble you can always give the TSP hotline a call. Thiago tells clients to call the TSP on Fridays at 8am EST for the least wait time!
We are at the lowest taxed times of our generation, including even the top tax rate. 95+% of feds are in 24% tax bracket or lower and they'll end up in higher brackets after they retire due to social security, pensions and RMDs if they chose regular RMD. Your advice is suitable for a very small subset
Yes, the same point Thiago makes in several other videos. You should check out the others where he discusses when Roth and Roth conversions may be a great idea. Thanks for tuning in!
And how do weekly know that anyone's taxes are going to be lower in the future? I have about 15 more years to go to contribute into the TSP. My problem is that I already contributed around $60k in the traditional TSP and just recently started Roth TSP. I only have like $1k so far in my Roth. But it all gets combined together. Not ideal. I'm just scared that I'll be paying much higher taxes when I'm 62 than right now 🤔. I'll be taking all my TSP out into Fidelity (roll over the Roth and Traditional) then I can transfer the traditional part slowly into a Roth IRA withing Fidelity so that I don't have to deal with that dumb minimum yearly distributions. I hate that.
And how do we know that anyone's taxes are going to be lower in the future? I have about 15 more years to go to contribute into the TSP. My problem is that I already contributed around $60k in the traditional TSP and just recently started Roth TSP. I only have like $1k so far in my Roth. But it all gets combined together. Not ideal. I'm just scared that I'll be paying much higher taxes when I'm 62 than right now 🤔. I'll be taking all my TSP out and transfer it to Fidelity (roll over the Roth and Traditional) then I can transfer the traditional part slowly into a Roth IRA withing Fidelity so that I don't have to deal with that dumb minimum yearly distributions. I hate that.
Too late. I am already happily retired under CSRS. The worst financial advice that I ever followed was "do not open a Roth. Put all of the contributions in a traditional account and get the deduction now because you will be in a lower tax bracket when you need the money". Now I have a huge tax tumor. Am paying much more in taxes from distributions now than that meager deduction I had when working.
Not all hope is lost. We do lots of tax planning with clients who have done the same and there can still be benefits. Neither Traditional nor Roth are the “best” answer, the question is WHEN is each best? Tax can’t be fully avoided, but it sure can be greatly reduced.
Retired from DOD in '20. I never put any of my TSP into the Roth option. I simply didn't trust congress to not change the rules eventually. Just like I don't trust they wont reduce or even eliminate Federal pensions and Social Security.
The only counterargument/counterpoint I have is that Congress is unlikely to change the rules on something they actively use and benefit from. I've only recently started a small contribution to the Roth TSP, but I'm going to keep it small and treat it more as an experiment and keep traditional as my primary retirement workhorse. Hope you're enjoying your retirement!
Great points. Check out Thiago’s recent video on why pre-tax accounts may do more harm than good: th-cam.com/video/DBF1JIzmviU/w-d-xo.htmlsi=_uIU-tr8m9WgOEXS
I really don't think a Roth conversion is the way to go in most cases. If you're not retired it makes no sense and if you are retired and have multiple income sources you can hold the acct until 75 and then take your minimum RMDs between 5% to 10% annually and the balance continues to grow probably faster then your withdrawals. At 85-95 or so you can pass the deferred acct it to your kids and or Grand kids at probably a lower tax rate compared to yours. Take more than the minimums if it looks like your heirs will be in a higher bracket than you
I know kids and they most likely won’t wait 10 years to get that money. Remember, we’re not going to be here to tell them what’s best so keep that in mind. I think Roth is a better bet for that. 😅
You can consider moving it to the TSP so that it's consolidated with your new retirement savings. Having accounts in multiple places creates inefficiencies and makes it harder to manage. Then later once you fully retire you can figure out which custodian is best for your retirement needs. Hope this helps. -TG
@@TheFedCorner I figured I’d move it to the TSP…but I’m assuming I should keep it as a traditional 401k separate from my new Roth? At least they would be together in the same place. I have another Roth with Edward Jones. I need to get it out of there because their fees are too high. 🫣
@@angiehh516 Pre-tax dollars (traditional) must stay with pre-tax dollars. Only post-tax (Roth) dollars can be combined into your Roth TSP. As for fees at Ed J., costs are completely relative. If you're receiving massive value, advice, and ongoing financial planning for what you're paying, then perhaps your costs are worth it. If you're paying advisory fees and all you receive is an investment allocation, then perhaps you can consider if it's worth it for you or not.
Is the host saying that Roth rules for TSP accounts do not follow all other Roth accounts? The inheritance example here is not how inherited Roth funds work ANYWHERE ELSE! There are NO TAXES DUE WHEN ROTH ACCOUNTS ARE INHERITED! None, zip, zilch, nada, NONE! Only pretax accounts pay income taxes upon inheritance over a ten year period! WOW! This is one of the most MISLEADING WHOPPERS I’VE EVER SEEN!
@eugenecanzano1531 No, we did not say taxes are owed on Roth. Inh Roth has a liquidation date, but no taxes. The inheritance example was on Traditional assets, not Roth.
Check your transcript starting at 2:05. You say the taxes must be paid at the INHERITORS TAX RATE. You said it and the transcript reflects it. The point you made is exactly why you should have Roth vs. pretax. Let me know if I have it wrong. I’m guessing in the heat of the moment you slipped into the pretax rule by accident.
@@eugenecanzano1531 I can see how it was a bit confusing. About 20 seconds prior to that, Thiago switched from discussing the Roth and moved to the next point. The inheritance example was referring to Traditional assets, where splitting traditional assets over multiple children may spread out the taxes, versus one person paying most of it in their own bracket. Hopefully this helps clarify. -RMG
Well if you're 25 and just getting started you can't possibly know what kind of situation your heirs will be you might not even be married. Regardless of how you do it the point is try to save 15% of your gross income I am agnostic between Roth and traditional IRA. If you are in a hot startup company and you get stuck options make sure you put those in a Roth. They could grow to millions and when you get old enough you can withdraw the money without paying a dime.
Good points, it is hard to know. However, financial models can help determine which scenario would be better for you in the long run. Yes, some assumptions have to be made, but all things equal you can still make a good decision.
Investing traditional only comes out ahead even in the scenario of a current high tax bracket if you are still investing the tax savings. No one I know does that, and even if they are “saving money on taxes” they just spend those savings anyways. From a math perspective I get that traditional can be beneficial in some cases, but in practicality, I feel like it just tricks people into thinking they are saving more than they are.
"Investing traditional only comes out ahead...if you are still investing the tax savings." Investing in traditional already invests the "tax savings" as those "tax savings" is already inside and part of the traditional contribution. Assume $10,000 income and 20% tax: $10,000 pretax income = ($10,000 * 0.80 =) $8,000 spendable income + $2,000 tax $10,000 pretax income = ($10,000 * 0.80 =) $8,000 Roth 401(k) + $2,000 tax $10,000 pretax income = $10,000 traditional 401(k) + $0.00 tax $10,000 pretax income = $8,000 t-401(k) + $2,000 t-401(k) + $0.00 tax
This depends, sometimes someone intends to leave pre-tax assets to more than a few heirs--this spreads out the taxes over lower rates and maybe doing a Roth isn't worth it. For others, a Roth is a slam dunk and incredible beneficial.
I recently adjusted my Roth IRA to 50% in SCHD, 25% in SCHX, and 25% in SCHG. For my Roth 401k, I went with 70% in Vanguard's S&P 500 Index, 20% in the Vanguard Growth Index, and 10% in the Vanguard International Index. My goal is to grow my $350k to over $1 million within the next three years.
if your state is hitting you for 8 % in addition to the Feds bending u over for 22% is just plain wrong. Very few are in that position. I am. I still do Roth since I doubt the Feds/state will lube me up when I hit retirement age. The truth is they will have to raise taxes to pay for the 70% of leaches who think the rich don’t pay their own “fair” share yet they can’t tell you what their effective tax rate is. Stupid DEMONRATS want to tax everyone but themselves. No clue how it works. In spite of my federal / state income tax rate, 12.4 SS tax, 3% Medicare tax, an 8% sales tax, property tax, forced insurance requirements, forced participation in scam after scam. How about you give me a 1 price covers the gambit.
Tax brackets yes, but sometimes people may have less taxable income in the future which could mean they'll be in a lower bracket. But you're correct in that we are currently in a historically low tax environment right now. Thanks for tuning in!
That's right, but you should consider if the Roth is right or not. Some years it may make sense, others it may not and someone can overpay in taxes as a result. Thanks for tuning in!
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Please note before comparing Roth to Regular TSP you should know EXACTLY how the state you work in now taxes the pension of a federal civil servant. Approx. 9 states that normally have income taxes (e.g. NY) consider the TSP "part of" their civil servants pension and DO NOT tax it on withdrawal in retirement. This is significant because if you work in one of these states (and assuming you will retire there) and contribute to the regular TSP - you can escape state taxes altogether (which are not insignificant in states like NY) by contributing to the regular TSP. As unbelievable as it seems the money is not state taxed going into the regular TSP AND it is not state taxed when withdrawn as it is considered "part of" the civil servants pension in these states. However - if you contribute to the Roth TSP - you will pay state taxes on the money going in. Everything else being equal - you are actually losing money by contributing to the Roth TSP instead of the regular TSP in a state like NY.
This is a really great point, thanks for sharing it. If one is certain they'll be living in a tax-free state then it definitely makes sense to consider the deduction on the way in (Trad) and then no tax if in the right state.
@@TheFedCornerThanks. I have the 3 tax adversaries from the NY State Tax court dealing with the TSP if anyone is interested. Please keep in mind this same principle (escaping state taxes by investing in the regular TSP and not the Roth) also applies to the tens of thousands annually who retire from Northeast states and move to tax free states (like Florida) when they retire. If you plan on moving to a tax-free state when you retire (e.g. Florida) and you now work in a state with an income tax this is another way you can escape state taxes altogether on your TSP - simply contribute to the regular TSP instead of the Roth TSP.
What are the 9 states and where can I find more info on this? I'm on Active Duty Army and paying NYS tax.
@@ggggfield NY State DOES NOT TSP withdrawals for FERS employees (assuming you are over 59.5 and have min 20 years of service).
Forget NY and move to either of these states and pay no taxes at all
Alaska
Florida
South Dakota
Tennessee
Texas
Wyoming
New Hampshire
Started a traditional TSP when it rolled out in 2001 for the military. Never started the Roth TSP since already maxing out ours at VG since 1998. As soon as I retired in 2015 I rolled the TSP into an IRA and started backdoor Roth conversions up to the max 12% bracket. Some years I could only convert 5-10k to fit into the 12% bracket, will finish conversions in 2027.
I just turned 62 and retiring in Sept. I plan on doing conversions over the next 10-12 years before RMDs are due. I will pay the taxes out of a brokerage account I have just as you suggested in this video. Thanks for the confirmation.
Glad you found it helpful!
At 1:50, it seems like you are saying that a beneficiary has to pay taxes on an inherited Roth IRA. I read elsewhere that an inherited Roth needs to be emptied by the beneficiary in 10 years, but that the withdrawals are tax free. Am I missing something?
Once dollars are inside Roth (inherited or otherwise), there are never taxes anymore, even if it grows. Inherited Traditional IRAs have taxes just like regular TSP/401k/IRA/etc. Hope this helps.
I rewatched the section and I do think he said children getting the inherited Roth IRA have to pay taxes from it when they withdraw it over 10 years. At 2:09, he said those money are fully taxed. But ChatGPT said those distributions are tax free.
Excellent video. First time seeing your content. I'm 56 (fed accountant) and retiring this year after 30.5 years of service. Very few financial advisors address your first point of the "cost" of investing in the roth tsp meaning less income now plus paying taxing now resulting in a lower standard of living now. I plan on converting my 7 figure traditional tsp to my non-government held roth ira starting this year but I am concerned about irrma costs at 65 if I'm still make roth conversions while staying in the 24% tax bracket (may revert to the 28% tax bracket in 2026). I may have a to schedule a consultation just to ensure I have appropriate guard rails in place in my financial plan.
I appreciate the kind words! Certainly, be in touch if we can be helpful. IRMAA can be tricky when doing conversions to be aware of brackets when doing tax planning! -TG
I've been doing Roth conv. for several years now. The quick study says if you can stay in the 12% bracket and pay for it out of a taxable account, its a safe play. You should do that forward looking tax plan (FLTP)and see if you should be converting in even the higher brackets or not at all. You should optimize on post taxed value of your accounts instead of just looking at minimizing your total tax payments because if you pay the same rate on your tax conversion vs just taking it out as RMD you just break even - even though you will on paper save potentially millions of dollars in tax payments and that is because you already owe the government a percentage of the tax deferred account and if you just wait, that percentage grows in value just like the percentages you own. You can do your own FLTP but it is the most complicated financial analysis that I've done for myself.
All great points, thanks for sharing! It's one reason we tell people to consider investing more aggressively in the Roth. Growth = taxes, so why not get the most growth in the tax-free account? Food for thought.
I’ll take Roth any day. When I retire I don’t want to be messing with RMDs and taxes, I just want my money and to be free to do what I want with it
Wise words.
First time in this channel, glad that I stumble into it, I have Roth TSP already for many years but I decide to stop contributing and instead put the funds in a brokerage Roth IRA, the reason is for the flexibility I will have once I retire, luckily the Roth IRA is having much better performance than the Roth TSP also. I'm maximizing the traditional TSP with good results.
Don't stop, keep it at the same amount that is matched at bare minimum
If using a Roth makes sense for your circumstance, then you can put much more into the Roth TSP than you can into a Roth IRA. Plus you get your agency match, so make sure you don’t miss out on that!
Becoming a millionaire through a Roth IRA or a 401(k) involves different strategies for maximizing profits. A Roth IRA offers tax-free withdrawals in retirement, which can be advantageous if you expect to be in a higher tax bracket later in life. On the other hand, a 401(k) provides tax-deferred growth and potential employer contributions, boosting your savings. The optimal choice depends on factors like your current and future tax situation, employer match, and investment options. Consulting a financial advisor can help tailor a strategy that aligns with your financial goals and circumstances.
Prioritizing effective personal finance management holds greater significance than the sheer amount saved, irrespective of income source. Consulting a certified financial advisor can offer tailored strategies to optimize financial results by reducing expenses and enhancing income, regardless of whether it's earned through employment or investments.
I wholeheartedly concur. At 60 years old and newly retired, my external retirement funds total around One million two hundred fifty thousand dollars.. With no debt and minimal retirement fund allocation relative to my portfolio's value over the last three years, I recognize the importance of a financial advisor. Neglecting them isn't an option; however, thorough research is vital to find a trustworthy fiduciary advisor.
@TheFedCorner - - the beginning of the video discusses the 10yr rule for inherited Trad TSP.
You noted a yearly 10% (minimum) withdrawal requirment, to fully liquidate the account ( aka "to fully satisfy the rule" ).
However, my understanding - - if the deceased was not 73 (RBD) ... then the surviving beneficiary can elect not to withdraw in years 1 thru 9 ... and fully liquidate in year 10.
(steep tax of course), but ultimately there is not a yearly requirement.
Please correct me, if I am mistaken! - - great video!
The 10% annual was just an example of distributions. It’s the most commonly selected to spread out the taxes as much as possible. Although with impending tax change in 2026, many are accelerating distributions over next two years. Thanks for tuning in!
Best advice I ever got from a financal advisor: "If you don't work with me, please get advice from a good CPA. Because I plan to move my TSP I'm glad I did. No regrets.
Love it, I'm a big advocate of the planner/accountant combo. Thanks for tuning in!
The cutoff for me is effective tax rate above or below 15%. If current taxes are above 15%, go traditional.
Thank you so much for these videos. They aren't long but long enough. The information is very helpful. I like how you explain the tax planning window, basically the time where FERS and SS are primary sources of income. And then explaining about Medicare part B implications for conversions. Since my wife was out of the work force for 20 years (raised and home schooled our children) and currently works part time, our situation may be a little different than other joint high wage earners. When she turns 62 next year, she could draw her SS when I retire FERS in 1 year 7 months (I'm counting). My FERS pension plus her SS to start and supplement as needed. Later, when I'm older, I can draw SS at a much higher amount (this benefits my wife long term if I die before her). We have a lot of tax deferred retirement to draw from. I'm hesitant to do a lot of ROTH conversions, or maybe none at all. I really like keeping things simple even though it might not be the most tax efficient. Your videos help me understand all those various elements.
You're welcome! I'm happy to hear you've found our content helpful, and I'm glad you're keeping an open mind to new strategies--especially as tax laws are regularly changing. -TG
Is the host saying that Roth rules for TSP accounts do not follow all other Roth accounts?
The inheritance example here is not how inherited Roth funds work ANYWHERE ELSE! There are NO TAXES DUE WHEN ROTH ACCOUNTS ARE INHERITED! None, zip, zilch, nada, NONE! Only pretax accounts pay income taxes upon inheritance over a ten year period!
WOW! This is one of the most MISLEADING WHOPPERS I’VE EVER SEEN!
@@eugenecanzano1531 No, we did not say taxes are owed on Roth. Inh Roth has a liquidation date, but no taxes. The inheritance example was on Traditional assets, not Roth.
Great video, I only seen one video that actually showed putting less in Roth then you would a traditional IRA to get the same withdrawal rate when you retire. Love to see one from you as well.
We'll add this to Thiago's list! Thanks for tuning in!
I'm 33 this year. I opened an HSA this year. What would the best/optimal way.
Get 5% match, then max out roth ira on the side, then max out hsa, then come back to tsp?
Get 5% match, then max out hsa, then roth ira, then come back to tsp?
All tsp %'s will be roth tsp. My current salary is 56,327.
It's hard for me to say without looking at all of the variables in your life, but generally speaking you should stick with putting as much as you can in your TSP before looking elsewhere. If you have an HSA, that's important too because you can use it for medical, and it can eventually be moved into a Trad IRA. It's also generally important to have a cash emergency fund in a bank before building up a portfolio. Hope this helps.
@TheFedCorner interesting. No debt, emergency fund/other short term stuff is building up slowly. I only make 56,327 lol there's not much to go around. I'm gonna shoot for 5% match, roth tsp, max out hsa, max out roth ira. If I can do that (counting the match) my savings rate is 25%, I can live with that. Then any overtime I work will go to tsp or emergency fund. And yes, it did help. All your videos and responses help. Thank you.
@@Kep19901 $56,327 - $13,850 (S federal deduction) = $42,477 or 12% Federal Tax Bracket. You should favor Roth TSP & Roth IRA.
You may want to consider the HSA before the Roth IRA. Remember to keep ALL your health care receipts so if you are in a pinch, you can get access to the money. Take pictures of the receipts and email them to yourself for safe keeping. Set up folders in your email to store them. Organized by year/month. If you need to cash in a receipt, do so and then delete the photo.
After you have a sizable amount in the HSA, be sure to transfer some of it to a stock mutual fund so that it grows like your TSP/IRA.
@@rogerdoger9939 Great suggestions. -TG
So as a 27 year old about to enter a job with a TSP and with looming tax hikes, wouldn't it make the most sense to do a Roth TSP now?
If making less than $47k or 12% Federal Tax Bracket, prefer Roth TSP.
If you believe you'll be earning more in the future than you are today (probable), then you can consider a Roth since you're in a lower tax bracket today. I can't comment too much without it counting as advice, but consider the general principles of when to Roth vs when to use Trad. Hope this helps. -TG
I appreciate the help. All financial decisions are made on my own, so no worries about me considering it advice. Haha just genuinely curious because the TSP can be pretty intimidating.@@TheFedCorner
If you have 20 or more years till retirement and you are in a low tax bracket, I would recommend Roth because the money grows tax free. As your pay increases keep balancing between traditional and Roth. You have to evaluate how comfortable you are with your salary today and decide what's best.
If your agency has matching contributions, ‘my understanding’ is those matching contributions will go into the traditional TSP. Probably most important is that you have perhaps 30 years til retirement and so you should be almost all stocks. The C Fund mirrors the S&P 500 and has excellent ‘long term’ results. As a young man of your age, I contributed just enough to get all the matching funds because I was saving my pennies to buy my first house. After that, when I got my my raises I raised my contributions until they were maxed out. Best of Luck!
I have 2 major issues with a ROTH:
First - You tend to retire with lower "income" thus lower taxes. (so contribute ROTH in your early low paying career then leave it alone) then shift to traditional TSP during high income years.
Second - there are 12 states that DO NOT tax your TSP, FERS, nor SS. So may want to plan to relocate for retirement. Especially if retiring from high value state (CA, NY, etc) to one of these twelve, then home ownership is a huge bonus.
Federal taxes are the bigger problem. Also, our clients generally do not have that much lower income in retirement, especially when projecting RMDs.
@@TheFedCorner The only time to be contributing 100% ROTH is while your earnings are in the first two tiers before the 10% jump in taxes (12-22%) thereafter then 100% traditional. Then when you retire, typically one can live back in the first two tiers again if debt free and house is paid off. 😉 As for RMDs, that is all timing and there are options to still keep yourself in the first two tiers.
@@russthompson4296 maybe if you plan on having pathetic earnings over time, and having a limited lower income in retirement. one of the best ways to stay in that lwoer tear is a truly healthy nontaxable ROTH income.
I have been retired for almost 5 years, I have all of my savings in the G Fund, is it too late to convert a portion to a Roth IRA.
Many factors go into this, I suggest consulting with appropriate advisors.
If your federal pension and G Fund represents all the money you're going to retire on, consider L Income Fund instead or ~20% in C Fund.
The main reason i am doing Roth is to qualify for cheap/free healthcare in early retirement, on top of being in a low tax bracket. Im still a few years out, but if 60+ % of my income is roth ill qualify for free or at least heavily subsidized healthcare.
The Roth will certainly help reduce costs. Just remember that if you qualify for a FERS pension that it will be taxed at ordinary income rates. -TG
@@TheFedCorner Yes, but I won't qualify for pension until 60. Current goal is 60k retirement income from annuity or 72T(~20k traditional ~40k Roth) at 50 to 60, then add on ~26k fers pension at 60, then around 67 or 70 add on another ~34k social security. Tax laws will likely change a lot by then, but I hope to not jump above the 12% tax bracket since these dollars will be future inflated numbers.
I am still a decade out, but as long as we manage 7% returns in the s&p , I'm on track for retiring at 50 with these numbers, and hoping for more. Worst case I can always delay, but have a 36% savings rate to try and buy back a few extra years of my life.
@@35goingon90 Sounds like you've thought this out, hope everything works out for you! Some unsolicited tips that came to mind, hopefully they're helpful to you: 1) remember if you move your TSP to an IRA you subject those dollars to 59.5 rules, whereas retired feds can access TSP at 55 (or 50 with spec prov). 2) try to save as much after-tax dollars (non-retirement) as you can, this is huge in helping keep taxes low. 3) Also, make sure you monitor your risk as you near retirement--S&P annualized returns are exactly that--annualized over decades. When you don't need your money yet, it's great. But in the short term (retirement), S&P (C fund) volatility can be crippling and present significant sequence of returns risk. There's more info about that in articles on our website. Good luck, Andrew! -TG
Does TSP ROTH fall under the IRS cap limit? For example for 2024 IRS caps the ROTh at 7k that means your TSP ROTH limit is $7k also if that is the only Roth IRA account you have ❓
The TSP has much higher annual contribution limits. IRAs (Traditional or Roth) have a separate and lower annual contribution limit.
@@TheFedCorner Thank you for taking the time to reply. I am very confused on this matter given I tried to file my taxes for the year (2023) and told I am over the 2023 Roth limit and need to withdraw the excess (excess contribution over the 6500 Roth limit for2023) . Any video and/or links I’d appreciate. Or if you have further info to share too. I did check Tsp online and it’s not clear (for me) your response was a little more clear but still brown off given at filing I am being told to withdraw the excess over the 6500❓ The way the w-2 is make it says it’s a 401 ROTH (yes only one employer- Fed) Thank you❗️
@@suzp8627 In 2023 your TSP contribution limit was $22,500 and IRA limit was $6,500. If you contribute more than $6,500 to your 2023 Roth IRA ask your IRA custodian for guidance on how to remove the excess contribution.
If I'm contributing $1,200 a month to my traditional TSP and decide to stop traditional TSP contributions and switch to $1,200 contributions to Roth TSP, how much will I pay in taxes the following year?
I'm a GS-12 making $103,000. Single (not married) and I also have a Roth IRA.
$103k - $14,600 (standard federal deduction) = $88,400 middle of 22% Federal Tax Bracket and $14,501 2024 federal tax. Consider as default $7,000 to Roth IRA and as much as you can afford up to $23,000 to traditional TSP.
All dollars going into Roth TSP will add to your taxable income, so your marginal tax rate will apply to those dollars. See the IRS tax tables to find your number.
Super helpful video; just discovered your channel; grateful I did. Will be retiring sometime in next 5-7 years and
am doing research on Roth conversions and timing and found this video quite valuable. I've subscribed and am looking forward to more videos from you.
Glad it was helpful, and thanks for subscribing!
Hi there Im 43 i just started with the
post office i signed to the tsp im putting 15% down should i do traditional or roth right now i have it in roth.
Hello! It's hard for us to tell without knowing more details about your specific financial situation, but here are some general guidelines: if you think you're in a lower tax bracket now than you will be when you'll take out the money later in life, then you can consider the Roth now. If you think your income may be lower when you retire (and need the TSP), then perhaps a Roth later may be better. It's a matter of picking the best time to pay the taxes. Hope this helps, and make sure to get professional advice before doing anything we discuss in our videos. Hope this helps!
Less than $45k = 12% Federal Tax Bracket, $45k to $95k = 22% FTB. If in 12% FTB and expect to reach 22% FTB, favor Roth TSP now.
No, most people's taxes do not go down when they retire, and we will likely be taxed at a much higher rate when we with draw from our regular TSP. Pay the lower rate now, while I'm still working, and get the Roth or wait till my income is lower and pay the higher tax rate that is coming with 100% certainty. No brainer.
Thanks for tuning in. A lot of feds are in a similar position. People don't generally spend less in retirement, with the common exception of a possible mortgage going away, so I'd agree with you there. If families are able to save after-tax dollars, that can support their early retirement years and allow them to fall within lower tax brackets for several years. Roth conversions during those years can make a lot of sense. That said, the TCJA has a sunset provision allowing tax rates to reset to higher amounts, jumping by 3-4% if no tax law changes are made. Lots to consider! -TG
Most people are in the 22-24% bracket and cannot possibly get by on less than $44,726, even with no mortgage. With today's inflation, that is a de facto poverty rate. @@TheFedCorner
My base pay is $71k per year. My wife only makes around $19k per year, so combined, we found around $96k per year. That changed dramatically when I do OT, which would put us at around $119k per year. I decided to start dozing Roth TSP, but I'm not sure if it even makes sense anymore because there was already $60k in my TSP the traditional way. I doubt that anyone's takes would be lower 15 years from now, which I'll be 62, and I'll probably have enough to retire. Paying all those taxes later on? I don't like the idea. I want to move my money out of the TSP once I hit 62 or 59 because the TSP is too restricted and even the Roth has minimum distributions after like 70 or 72? Subscribed
Thanks for tuning in and for subscribing! The Roth TSP RMD factor was changed, it’s no longer in the calculation for RMD. Roth planning is very specific to your income levels, so try to do some projections to see if you’d be in higher or lower income levels.
@@TheFedCorner Yeah I just found out that you will no longer have to take RMD from the Roth TSP, so I'm very happy about that. I'm afraid that between social security, and my pention, I might just end up in the same tax bracket that I'm in right now. I don't like the idea of RMD on the traditional TSP either. And I'm almost certain that some of my TSP would be left for my wife and my two kids (if they behave). I don't want my kids to be paying for any of the taxes that didn't pay. Thanks
@@joseCalderon1976 With standard federal deduction MFJ, you're just above 12% Federal Tax Bracket so most of your Roth TSP will be taxed at 12% FTB. Favor Roth TSP before current FTB expire. Regardless of whether you decide traditional/Roth TSP, remember $6,500 to his and $6,500 to her Roth IRAs.
@@alrocky Cool. Sounds good. Thanks for taking the time to give some good advice 👍
I hope since you are 15 years out, you are heavy into the C Fund or one of the other equity funds!
Nice, thanks!
I'm definitely making an appointment with you all as my MRA nears. Thanks for the excellent advice 🙏
Glad it was helpful!
Are you implying that an inherited Roth is fully tax?
No, Roths are tax-free. Simply that if someone is considering Roth conversions and they have several children inheriting, perhaps the inherited splits requires smaller annual payments at a lower bracket than doing Roth conversions now. This is dependent on account size and how many people will be inheriting, but we've seen this be the case before.
I used to think Roth was best for almost everyone. Lately not so sure, and your presentation has me leaning to traditional even more. I think HSA is in best interest. Paying off debt prior to retirement should be a focus. Uncertainty about future tax rules too-do they change Roth benefits? Maybe having some of each is a decent plan. I think most folks need financial and life advisers, thanks
Diversifying not just your investments, but the TAXABILITY of your wealth is indeed important. Having some after-tax (brokerage), pre-tax (Traditional), and tax-free (Roth) are all generally good. The combination therein, and whether an HSA is appropriate, is a question answered only within the context of an individual's specific plan. Regarding changing Roth benefits, it's highly unlikely that they would change the current tax-free benefit of the Roth, as taxes have already been paid on those dollars. Hope this helps!
I’m 61 and on traditional TSP. Can I start on ROTH TSP now or how does it work? Thank you.
@@jmclay4317 If you are still working, you can choose to which part of the TSP you wish to contribute, whether Trad or Roth. As a 61 year old, you are also able to withdraw from either.
@@jmclay4317 At 61 you're likely to at your highest working tax bracket and generally should favor traditional TSP. As default and for tax diversification contribute $7,500 to Roth IRA and as much as your income and budget allows up to $30,000 to traditional TSP.
Inherited Roth IRAs:
Withdrawals of contributions from an inherited Roth are tax free. Most withdrawals of earnings from an inherited Roth IRA account are also tax-free. However, withdrawals of earnings may be subject to income tax if the Roth account is less than 5-years old at the time of the withdrawal. The second point only makes sense if you pass away before the account reaches 5 years.
Thanks for adding additional details!
I can’t find the Roth TSP average rates of return anywhere.
The only difference between Traditional and Roth is how taxes are applied. The rate of return will depend on how you’re invested, so what you’re looking for would be the rates on the C, S, I, F, and G funds. They’ll be the same whether Trad or Roth. Hope this helps.
Very helpful, thank you.
Glad it was helpful!
Great video. My wife (66) and I (67) recently FERS retired (FEB and April 2023 respectively). I called TSP and customer rep told me that we can't directly transfer / rollover TSP to ROTH IRA. If I transfer my uniform and FERS TSP to traditional IRA it will be subject to at least 20% tax withhold. My wife and I are currently in a 24% tax tax bracket. Are we subject to tax distribution (1099-R) if and when we convert / rollover traditional IRA to ROTH IRA due to increased AGI? Should we transfer our TSP to IRA and then convert/rollover to ROTH? I'm not sure it makes sense in our situation.
Thanks for your note. This is a matter of technicalities. If you are performing a direct rollover to an IRA, there SHOULD NOT be any tax withholding NOR tax consequences. If the representative told you otherwise, they are mistaken.
HOWEVER, you must make sure that they are not doing a distribution of your TSP, in where it is not considered a rollover. In that case, you would receive a 1099R. When you perform a Roth Conversion, that is also technically a distribution (assets leaving) from a Traditional (pre-tax) retirement account, so you would also receive a 1099R, and subsequently it would increase your AGI.
Whether a Roth conversion makes sense is not a question answered only by your current tax bracket. Understanding projections for your tax brackets in the future--as well as details of your other assets--are also important to give context. Hope this helps!
I’m funding my TSP Roth 100%last 6 years of retirement. I hope to get it to 1/3 of my balance. probably paying too much for it tax wise but I don’t qualify for Roth IRA. I plan to transfer it when I stop working to brokerage and use it for high growth aggressive investments. For the last bucket.
Consider using backdoor Roth IRA process.
Medicare AB kicks up at $103K/$206K (S/M).
So this guy is suggesting that you avoid $300 in taxes by putting $1000 in a traditional IRA. 😅 Most people investing in a TSP are not in a thirty percent federal tax bracket. And if you're income is SO high that you are paying 30% of every dollar to the federal government, then you are probably not concerned one way or the other over whether or not a 1000 goes into a Roth or a traditional TSP.
Thanks for tuning in. Remember that most states also tax income, so 30% is not an unreasonable amount of "all in" taxes. Dual-income families are frequently in the 22/24% federal bracket, plus SALT (state and local). Not to mention, current rates are lower and set to increase in 2026 if the law doesn't change. Even for higher earners, that's when Roth vs not makes even more sense to assess. The more money one has, the more potential tax liabilities come with that, especially in the long term and in retirement. Hope this offers some clarity. -TG
I'm super confused looking at my tsp online. It looks like my Roth contribution isn't taxed but the match and gains are taxable? Can someone clarify? I want the whole tsp account to be Roth so I don't have any taxable retirement funds when I do retire.
@@memorablerides6807 You already paid tax when you made your Roth TSP contribution. The gov match goes toward your traditional TSP balance. If TSP decides to let the match go toward your Roth TSP balance you will owe tax on that match.
@@memorablerides6807 All matching funds always go to the Traditional account (not to the Roth). You pay income tax on money in the Traditional account when you withdraw it. You pay income tax on Roth contributions right before you deposit them. There are no taxes on capital gains withdrawn from the Roth.
Yeah I think the OP of this comment was not fully on board with this. I have looked into this and I am sticking with traditional TSP. The immediate tax break I receive now are more than worth it.
I would rather plan for taxes in the future and pay taxes when I am making less money in retirement and paying less bills in retirement.
Like you said, with all the MONEY that is being printed out of thin air, something and someone has to pay for that. Future tax liabilities ARE NEVER GOING TO BECOME LESS. Pay the taxes now and get your earnings tax free.
Taxes are always the biggest solution.
We all know Taxes are going to INCREASE for us and our kids, Pay the taxes now. Also, See if you can use a HDHP with a HSA then invest the HSA funds with a HSBA. When you turn 65 it essentially becomes another Roth bucket.
How about for a 43 year old with less in retirement funds than most 23 year olds?
Keep saving as best as you can! Make use of payroll deductions for TSP contributions, and every time you get a raise, increase your TSP contribution by at least half of your raise if you can. The longer you have until you need to access the money, the more growth oriented you can consider being with your allocation. -TG
I do think Roth TSP / IRAs are worth it.
I feel like we have until 2025 to convert to Roth IRAs (especially since the market is down) and benefit from the slight decrease in certain individual tax rates. Starting in 2026, tax rates revert to the pre-2018 rates, I believe.
It isn't a big change for the higher tax brackets, but everything helps.
If a conservative Republican is elected in 2024, they may extend the lower tax rates for another few years. Fingers crossed.
That's right, there's a high probability of taxes going up, so if you're not in the categories in this video, then you can consider doing conversions while rates are still lower. Just make sure you're certain you won't have lower rates in the future if you're income will drop.
Depends on your income. I’d pay an extra $21,600 in taxes per year if I used a roth. It makes more sense for me to wait until retiring and convert it over to my roth account over the course of a few years before collecting social security. The tax hit is cut in half that way. (Paid 12% instead of +24%)
@@misternobody9801 That's right! Excellent point; we all owe taxes at some point, but it's a matter of targeting which time is most efficient for your circumstance.
@@Gzluweez Yep! As with virtually everything in retirement planning, a great strategy for one family can be a terrible strategy for another!
$1000 in Trad TSP or $700 in a Roth TSP, that is the question!
A very good one, at that. The answer reveals itself in your planning. We have clients for whom the Roth is an incredible tool, while for others it’s not the best thing for them. Your specific financial circumstance now and in the future should determine whether “To Roth or Not to Roth”. Thanks for tuning in!
I've been trying to change my TSP future contributions from Roth to Traditional and can't seem to figure out how to make the change. I've looked on the TSP site and only see how to change funds.
I believe there is an option within the TSP login to so do, but if you're having trouble you can always give the TSP hotline a call. Thiago tells clients to call the TSP on Fridays at 8am EST for the least wait time!
That is typically done in your pay system. If you have MyPay..it is done there.
We are at the lowest taxed times of our generation, including even the top tax rate. 95+% of feds are in 24% tax bracket or lower and they'll end up in higher brackets after they retire due to social security, pensions and RMDs if they chose regular RMD. Your advice is suitable for a very small subset
Yes, the same point Thiago makes in several other videos. You should check out the others where he discusses when Roth and Roth conversions may be a great idea. Thanks for tuning in!
And how do weekly know that anyone's taxes are going to be lower in the future? I have about 15 more years to go to contribute into the TSP. My problem is that I already contributed around $60k in the traditional TSP and just recently started Roth TSP. I only have like $1k so far in my Roth. But it all gets combined together. Not ideal. I'm just scared that I'll be paying much higher taxes when I'm 62 than right now 🤔. I'll be taking all my TSP out into Fidelity (roll over the Roth and Traditional) then I can transfer the traditional part slowly into a Roth IRA withing Fidelity so that I don't have to deal with that dumb minimum yearly distributions. I hate that.
And how do we know that anyone's taxes are going to be lower in the future? I have about 15 more years to go to contribute into the TSP. My problem is that I already contributed around $60k in the traditional TSP and just recently started Roth TSP. I only have like $1k so far in my Roth. But it all gets combined together. Not ideal. I'm just scared that I'll be paying much higher taxes when I'm 62 than right now 🤔. I'll be taking all my TSP out and transfer it to Fidelity (roll over the Roth and Traditional) then I can transfer the traditional part slowly into a Roth IRA withing Fidelity so that I don't have to deal with that dumb minimum yearly distributions. I hate that.
Too late. I am already happily retired under CSRS.
The worst financial advice that I ever followed was "do not open a Roth. Put all of the contributions in a traditional account and get the deduction now because you will be in a lower tax bracket when you need the money".
Now I have a huge tax tumor. Am paying much more in taxes from distributions now than that meager deduction I had when working.
Not all hope is lost. We do lots of tax planning with clients who have done the same and there can still be benefits. Neither Traditional nor Roth are the “best” answer, the question is WHEN is each best? Tax can’t be fully avoided, but it sure can be greatly reduced.
Retired from DOD in '20. I never put any of my TSP into the Roth option. I simply didn't trust congress to not change the rules eventually. Just like I don't trust they wont reduce or even eliminate Federal pensions and Social Security.
The only counterargument/counterpoint I have is that Congress is unlikely to change the rules on something they actively use and benefit from. I've only recently started a small contribution to the Roth TSP, but I'm going to keep it small and treat it more as an experiment and keep traditional as my primary retirement workhorse.
Hope you're enjoying your retirement!
Great points. Check out Thiago’s recent video on why pre-tax accounts may do more harm than good: th-cam.com/video/DBF1JIzmviU/w-d-xo.htmlsi=_uIU-tr8m9WgOEXS
I really don't think a Roth conversion is the way to go in most cases. If you're not retired it makes no sense and if you are retired and have multiple income sources you can hold the acct until 75 and then take your minimum RMDs between 5% to 10% annually and the balance continues to grow probably faster then your withdrawals. At 85-95 or so you can pass the deferred acct it to your kids and or Grand kids at probably a lower tax rate compared to yours. Take more than the minimums if it looks like your heirs will be in a higher bracket than you
I contribute $450 in each per pay period. Which is very close to the max for this year.
I know kids and they most likely won’t wait 10 years to get that money. Remember, we’re not going to be here to tell them what’s best so keep that in mind. I think Roth is a better bet for that. 😅
Great point! Hopefully they inherit after you’ve had a long life and they’re old enough to make good decisions! Thanks for tuning in.
I am a new VA employee and I started a Roth when I was hired. I now need to figure out what to do with 300k from a prior 401k. 🤦♀️
You can consider moving it to the TSP so that it's consolidated with your new retirement savings. Having accounts in multiple places creates inefficiencies and makes it harder to manage. Then later once you fully retire you can figure out which custodian is best for your retirement needs. Hope this helps. -TG
@@TheFedCorner I figured I’d move it to the TSP…but I’m assuming I should keep it as a traditional 401k separate from my new Roth? At least they would be together in the same place. I have another Roth with Edward Jones. I need to get it out of there because their fees are too high. 🫣
@@angiehh516 Pre-tax dollars (traditional) must stay with pre-tax dollars. Only post-tax (Roth) dollars can be combined into your Roth TSP. As for fees at Ed J., costs are completely relative. If you're receiving massive value, advice, and ongoing financial planning for what you're paying, then perhaps your costs are worth it. If you're paying advisory fees and all you receive is an investment allocation, then perhaps you can consider if it's worth it for you or not.
Is the host saying that Roth rules for TSP accounts do not follow all other Roth accounts?
The inheritance example here is not how inherited Roth funds work ANYWHERE ELSE! There are NO TAXES DUE WHEN ROTH ACCOUNTS ARE INHERITED! None, zip, zilch, nada, NONE! Only pretax accounts pay income taxes upon inheritance over a ten year period!
WOW! This is one of the most MISLEADING WHOPPERS I’VE EVER SEEN!
@eugenecanzano1531 No, we did not say taxes are owed on Roth. Inh Roth has a liquidation date, but no taxes. The inheritance example was on Traditional assets, not Roth.
Check your transcript starting at 2:05. You say the taxes must be paid at the INHERITORS TAX RATE. You said it and the transcript reflects it. The point you made is exactly why you should have Roth vs. pretax. Let me know if I have it wrong.
I’m guessing in the heat of the moment you slipped into the pretax rule by accident.
@@eugenecanzano1531 I can see how it was a bit confusing. About 20 seconds prior to that, Thiago switched from discussing the Roth and moved to the next point. The inheritance example was referring to Traditional assets, where splitting traditional assets over multiple children may spread out the taxes, versus one person paying most of it in their own bracket. Hopefully this helps clarify. -RMG
Thanks so much for listening and comprehending what I was saying!😎@@TheFedCorner
Just found this page...
Will need help soon...
Welcome! Glad you found us!
Well if you're 25 and just getting started you can't possibly know what kind of situation your heirs will be you might not even be married. Regardless of how you do it the point is try to save 15% of your gross income I am agnostic between Roth and traditional IRA. If you are in a hot startup company and you get stuck options make sure you put those in a Roth. They could grow to millions and when you get old enough you can withdraw the money without paying a dime.
Good points, it is hard to know. However, financial models can help determine which scenario would be better for you in the long run. Yes, some assumptions have to be made, but all things equal you can still make a good decision.
Investing traditional only comes out ahead even in the scenario of a current high tax bracket if you are still investing the tax savings. No one I know does that, and even if they are “saving money on taxes” they just spend those savings anyways. From a math perspective I get that traditional can be beneficial in some cases, but in practicality, I feel like it just tricks people into thinking they are saving more than they are.
"Investing traditional only comes out ahead...if you are still investing the tax savings." Investing in traditional already invests the "tax savings" as those "tax savings" is already inside and part of the traditional contribution. Assume $10,000 income and 20% tax:
$10,000 pretax income = ($10,000 * 0.80 =) $8,000 spendable income + $2,000 tax
$10,000 pretax income = ($10,000 * 0.80 =) $8,000 Roth 401(k) + $2,000 tax
$10,000 pretax income = $10,000 traditional 401(k) + $0.00 tax
$10,000 pretax income = $8,000 t-401(k) + $2,000 t-401(k) + $0.00 tax
This depends, sometimes someone intends to leave pre-tax assets to more than a few heirs--this spreads out the taxes over lower rates and maybe doing a Roth isn't worth it. For others, a Roth is a slam dunk and incredible beneficial.
I recently adjusted my Roth IRA to 50% in SCHD, 25% in SCHX, and 25% in SCHG. For my Roth 401k, I went with 70% in Vanguard's S&P 500 Index, 20% in the Vanguard Growth Index, and 10% in the Vanguard International Index. My goal is to grow my $350k to over $1 million within the next three years.
Those 3 Schwab funds and first 2 Vanguard funds are "kissing cousins" not offering much in diversification
1000 + 300 taxes is a 30% tax rate. Who pays 30%.
Many people. Anyone in the 22/24% bracket who also has state income tax.
if your state is hitting you for 8 % in addition to the Feds bending u over for 22% is just plain wrong. Very few are in that position. I am. I still do Roth since I doubt the Feds/state will lube me up when I hit retirement age. The truth is they will have to raise taxes to pay for the 70% of leaches who think the rich don’t pay their own “fair” share yet they can’t tell you what their effective tax rate is. Stupid DEMONRATS want to tax everyone but themselves. No clue how it works. In spite of my federal / state income tax rate, 12.4 SS tax, 3% Medicare tax, an 8% sales tax, property tax, forced insurance requirements, forced participation in scam after scam. How about you give me a 1 price covers the gambit.
Worst Financial advice. Did you work at Wells Fargo?
Taxes will be WAYYYY HIGHER over time... ROTH 1000% and pay taxes now!!! Thank me later
Tax brackets yes, but sometimes people may have less taxable income in the future which could mean they'll be in a lower bracket. But you're correct in that we are currently in a historically low tax environment right now. Thanks for tuning in!
Incredibly horrible advice
This all or none philosophy is nothing but semantics. Do a little of each
That's right, but you should consider if the Roth is right or not. Some years it may make sense, others it may not and someone can overpay in taxes as a result. Thanks for tuning in!
So confusing! Not you, just all of this. 🥲
I know it can be a lot, but keep watching videos and things will start making sense over time. Thanks for tuning in.