Tax bracket / Roth TSP question

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Tax bracket / Roth TSP question

Postby levendis » Tue Jul 16, 2013 9:18 am

As a federal employee firmly within the 25% tax bracket, I haven't bothered with the new Roth TSP option since it didn't seem to be worthwhile. However, next May I'll be getting married, and my lovely bride-to-be will be a med student with no income for all of 2014. As I figure it, filing as married filing jointly will put the top dollars of my taxable income within the 15% bracket, making the Roth TSP much more attractive. Can you tell me if I'm doing this math correctly?

(Tax deductions are based on 2013 rates, so they'll probably all be a little higher for 2014, as might the bracket line between 15% and 25%.)

2014 expected income = $90,064 (or less if we have a lot of furlough days)
- $12,200 standard deduction for a married couple
- $7,800 personal exemptions
- $2500 HSA contribution
= $67,564 taxable income

Under $72,501, money is taxed at 15% for a married couple. Also, our joint income is probably going to be higher in retirement (I expect to have a pension in addition to TSP and Roth savings, she'll be working as a doctor for years after I retire). Given those factors, it seems to me that my best move is to put all of my TSP money for 2014 into a Roth TSP. Do you agree? I'm also maxing out both a Roth IRA and HSA.

Thanks!
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Re: Tax bracket / Roth TSP question

Postby livesoft » Tue Jul 16, 2013 9:46 am

I'd let Taxcaster do the math for me.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Tax bracket / Roth TSP question

Postby FNK » Tue Jul 16, 2013 10:48 am

Looks like you've got your math right.
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Re: Tax bracket / Roth TSP question

Postby JW Nearly Retired » Tue Jul 16, 2013 10:49 am

levendis wrote:..... it seems to me that my best move is to put all of my TSP money for 2014 into a Roth TSP. Do you agree? I'm also maxing out both a Roth IRA and HSA.

Yes.
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Re: Tax bracket / Roth TSP question

Postby Bob's not my name » Tue Jul 16, 2013 10:51 am

Your headroom should be even greater, since you're using the 2013 brackets. You are well positioned for time travel.

http://thefinancebuff.com/how-to-build- ... art-1.html
http://thefinancebuff.com/how-to-build- ... art-2.html

Your state tax treatment of IRAs may be important to the decision. See viewtopic.php?f=10&t=86262

Your marginal bracket can actually be excruciatingly high if you're in an education credit phaseout. You should be fine, but see: http://thefinancebuff.com/how-to-save-4 ... taxes.html (the article is written for singles, but it will get you started and might be useful to your fiancee for 2013).
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Re: Tax bracket / Roth TSP question

Postby levendis » Tue Jul 16, 2013 11:02 am

Excellent, thanks all!
Bob's not my name, those financebuff articles are great...

As a follow-up question, withdrawals from the TSP and Roth TSP in retirement have to be proportional (If you had $150,000 in TSP and $50,000 in Roth TSP upon taking a withdrawal of $1,000, $750 would come from TSP and $250 from the Roth TSP). Does this affect using the regular TSP to fill out the low tax brackets, and does that make the Roth TSP not as valuable as it would otherwise be?

Edit: Actually, it seems that after retirement I can roll my entire Roth TSP proportion into an IRA, so the proportional withdrawals shouldn't be a problem. Let me know if you think that's incorrect.
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