Thrift Savings Plan explained. Should you chose the Roth TSP or Traditional TSP? Roth TSP is typically better for those who start investing early and often. Traditional TSP is better for those that are older or closer to retirement and have not invested at all. This is because there is one deciding factor that makes Roth or Traditional better than the other: income tax. Roth means you pay taxes now and don't owe any taxes later. Traditional means you defer paying taxes now and pay them when you withdraw from your TSP. You're going to take a tax hit now or later... so will your income tax bracket be lower now or later? If you think you're going to retire "better off" and generate more income in retirement then you do now, then do Roth TSP. If you only plan on collecting social security and maybe a small pension, therefore, you're retirement income will be less than it is now, do Traditional TSP. As a loose rule of thumb I would say if you are within 15 years of retirement or only plan on investing 5% or less of your salary then do traditional. For everyone else Roth is probably a better option. There are a few additional bonuses for doing the Roth TSP. The biggest advantage is when you leave federal employment you can transfer your Roth TSP to a Roth IRA. A Roth IRA has the most benefits out of any retirement account. Inside a Roth IRA there are no Required Minimum Distributions (RMDs). Another benefit is when you pass away whoever inherits the Roth IRA won't have to worry about paying any taxes. Last benefit is you take out the risk that income tax rates could possibly get higher years from now when you go to retire. The United States is in 28 trillion dollars of debt and counting. Tax rates may go up. Q&A -You can still get the government match whether you do Roth or Traditional. The government match has to go into Traditional. But you can do all Roth with your entire contribution. -The max you can contribute is $19,500 (can be a mix of Roth and Traditional) and that doesn't include the government match. -You will NOT get the match if you did not opt into the BRS. But you can still contribute to the TSP. 🎒FINANCIAL BOOKS I HIGHLY RECOMMEND: 1. Rich Dad Poor Dad: What the Rich teach their kids about money that the poor and middle class do not. 2. Everyday Millionaires: How Ordinary People Built Extraordinary Wealth. 3. The 4-Hour Workweek: Escape 9-5, Live Anywhere, And Join the New Rich. 🙋♂️1 on 1 Sessions Available @ This video is not sponsored. Some product links are affiliate links which means if you buy something I may receive a small commission at no extra cost to you. #timwolffe #personalfinance 00:00 Intro 00:38 Roth vs Traditional 02:22 The Numbers Breakdown 04:58 Bonuses for Roth TSP 06:30 Q&A...(read more)
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Roth TSP vs Traditional TSP (TSP Explained) The Thrift Savings Plan (TSP) is a retirement savings and investment plan for federal employees and military personnel. It offers two options for contributions: Roth TSP and Traditional TSP. Understanding the differences between the two can help you make informed decisions about your retirement savings. The primary distinction between Roth TSP and Traditional TSP lies in how contributions and withdrawals are taxed. Traditional TSP contributions are made with pre-tax dollars, which means that your taxable income is reduced by the amount you contribute. On the other hand, Roth TSP contributions are made with after-tax dollars, so you do not receive a tax deduction for contributions. When it comes to withdrawals, Traditional TSP distributions are subject to federal income tax. The tax is applied to the entire amount withdrawn, including both contributions and earnings. Conversely, Roth TSP withdrawals are tax-free, provided certain requirements are met. To qualify for tax-free withdrawals from Roth TSP, you must have had the account open for at least five years, and you must be at least 59 ½ years old or meet other specific criteria. So, which option is right for you? Here are a few factors to consider: 1. Current and Future Tax Rates: If you anticipate being in a higher tax bracket during retirement, contributing to a Roth TSP may be advantageous. Paying taxes now at a lower rate can save you money in the long run. Conversely, if you expect to be in a lower tax bracket in retirement, Traditional TSP contributions may provide immediate tax savings. 2. Time Horizon: The longer you have until retirement, the more time your investments have to grow. Roth TSP contributions are made with after-tax dollars, allowing your contributions and earnings to grow tax-free. This can be especially beneficial for individuals with many years until retirement. 3. Income: Roth TSP contributions have income limitations, unlike Traditional TSP. If your income exceeds the thresholds set by the IRS, you may not be eligible to contribute to a Roth TSP. However, there are no income restrictions for Traditional TSP contributions. 4. Estate Planning: Roth TSP can offer estate planning benefits. Since Roth TSP withdrawals are tax-free, they are not subject to income tax for your beneficiaries. This can provide a significant advantage if you wish to leave a tax-free inheritance. It's important to note that you can contribute to both Roth TSP and Traditional TSP simultaneously. This allows you to diversify your retirement savings and potentially mitigate future tax risks. In conclusion, Roth TSP and Traditional TSP provide different tax advantages and considerations. Analyzing your current financial situation, expected future tax rates, and retirement goals can help you determine which option best suits your needs. Consulting with a financial advisor can also provide valuable guidance in making this decision. Whichever option you choose, saving for retirement through TSP is a wise step towards securing your financial future. https://inflationprotection.org/comparing-roth-tsp-and-traditional-tsp-a-comprehensive-explanation-of-tsp/?feed_id=119813&_unique_id=64bb8ac4a4097 #Inflation #Retirement #GoldIRA #Wealth #Investing #howtoinvestinthethriftsavingsplan #howtoinvestinthetsp #militaryretirement #militaryretirementplanning #rothortraditionaltsp #rothortraditionalwhichisbetter #roththriftsavingsplan #rothtsp #rothtspvstraditionaltsp #rothvstraditional #thriftsavingsplan #thriftsavingsplanexplained #traditionalorroth #TraditionalThriftSavingsPlan #traditionaltsp #traditionaltspvsrothtsp #traditionalvsrothtsp #tsp #tsphelp #TSPretirement #ThriftSavingsPlan #howtoinvestinthethriftsavingsplan #howtoinvestinthetsp #militaryretirement #militaryretirementplanning #rothortraditionaltsp #rothortraditionalwhichisbetter #roththriftsavingsplan #rothtsp #rothtspvstraditionaltsp #rothvstraditional #thriftsavingsplan #thriftsavingsplanexplained #traditionalorroth #TraditionalThriftSavingsPlan #traditionaltsp #traditionaltspvsrothtsp #traditionalvsrothtsp #tsp #tsphelp #TSPretirement
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