Comparing TSP and Roth: A Side by Side Analysis of Math Calculations

Retirement Benefits Institute has trained thousands of federal employees as they make plans for federal retirement. For more information about your federal retirement benefits, go to our website at to get support. The information contained in this video should not be used in any actual transaction without the advice and guidance of a tax or financial professional who is familiar with all the relevant facts. The information contained here is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals’ specific circumstances or needs and may require consideration of other matters. RBI is not a broker-dealer, investment advisory firm, insurance company, or agency and does not provide investment or insurance-related advice or recommendations. Brandon Christy, President of RBI, is also president of Christy Capital Management, Inc. (CCM), a registered investment advisor....(read more)

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TSP Vs ROTH: Side by Side Math Calculations One of the most common dilemmas when it comes to retirement planning is deciding between contributing to a Thrift Savings Plan (TSP) or a Roth account. Both options have their benefits and drawbacks, but ultimately understanding the side by side math calculations can help you make an informed decision. First, let's take a closer look at each retirement savings account: 1. TSP (Traditional): The TSP is a tax-deferred retirement savings plan available to federal employees and members of the uniformed services. Contributions are made pre-tax, meaning they reduce your taxable income in the year they are made. However, withdrawals during retirement are taxed at your ordinary income tax rate. 2. Roth IRA: Roth accounts are available to individuals regardless of their employment status and are funded with after-tax dollars. This means contributions are made with money that has already been taxed. The main advantage of a Roth IRA is that qualified distributions are tax-free in retirement. Now, let's break down the math calculations for each retirement account, assuming you are considering contributing $6,000 annually for 30 years: 1. TSP (Traditional): - Initial Contribution: $6,000 - Annual Tax Savings (Assuming 22% tax bracket): $1,320 (=$6,000 x 0.22) - Net Cost of Contribution: $4,680 (=$6,000 - $1,320) - Earnings Growth (Assuming 7% annual return): $361,802 (=(($6,000 - $1,320) x (1+0.07)^30) - $6,000) 2. Roth IRA: - Initial Contribution: $6,000 - Earnings Growth (Assuming 7% annual return): $503,056 (= $6,000 x (1+0.07)^30) Looking at the calculations above, it appears that the Roth IRA comes out ahead in terms of total earnings. However, it is important to consider the tax implications in retirement. In the case of the TSP, withdrawals are subject to ordinary income tax rates. Assuming you withdraw the funds at a 22% tax bracket in retirement, the final after-tax value of your TSP balance would be $282,216 (= $361,802 x (1-0.22)). On the other hand, if you plan strategically and withdraw funds from your Roth account, you won't have any tax consequences. In this case, the total after-tax value of your Roth IRA balance remains unchanged at $503,056. Based on these calculations, the Roth IRA seems to be the clear winner in terms of total after-tax value. However, it's important to note that the TSP may be more advantageous for individuals in higher tax brackets during their earning years, as it allows for immediate tax savings. Additionally, consider your current and future tax situations. If you believe your tax rate will be lower in retirement, the TSP may be a better option. Conversely, if you anticipate being in a higher tax bracket during retirement, the Roth IRA may offer more benefits. Ultimately, the decision between TSP and Roth IRA depends on your individual circumstances and financial goals. It is recommended to consult with a financial advisor who can help you evaluate your specific situation and make the most beneficial choice for your retirement savings. https://inflationprotection.org/comparing-tsp-and-roth-a-side-by-side-analysis-of-math-calculations/?feed_id=120282&_unique_id=64bd85e413836 #Inflation #Retirement #GoldIRA #Wealth #Investing #BrandonChristy #federalbenefitstraining #federalretirement #federalretirementtraining #fersplanning #fersretirement #FERStraining #RBI #RetirementBenefitsInstitute #retirementplanning #ThriftSavingsPlan #BrandonChristy #federalbenefitstraining #federalretirement #federalretirementtraining #fersplanning #fersretirement #FERStraining #RBI #RetirementBenefitsInstitute #retirementplanning