ROTH TSP thread..who is it right for...me??

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wldlndfirefghtr
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ROTH TSP thread..who is it right for...me??

Post by wldlndfirefghtr »

Hello All,

With the ROTH TSP comming out soon, I've kept the option on the back burner, trying to decide if it is right for me. Just getting done with taxes, my wife (age 31) and I (age 34) are pretty squarely placed in the 25% tax bracket (AGI of 86k this year). Trying to look ahead to the future, our incomes will only grow, possible eventually bumping us up to the next bracket (albiet it's down the line by 5 to 8 years). My wife gets her match in her Simple IRA (trying to get her to bump it up to atleast 10%, but don't want to leave ourselves short). We both Max out out ROTH IRA, and this year will be the 1st I'll max out my TSP (I usually try to get up to 75% in). I did shuffle/rebalance my accounts this year; both trying to be more tax effecient, consolidate accounts, and meet my target AA. Therefore I'll have close to 15k in gains, (almost all being long term). We have 1 child with one on the way. The 1st Child has a UTMA (planning moving that over to a 529 this year).

My thinking is that; getting back to the 15% tax bracket probably won't happen again, our income will only rise and it may or may not bumb us up to the next tax bracket. So I'm thinking about a 75/25 deposit in to my TSP/Roth TSP.

Thoughts???

Thanks in advance!
DSInvestor
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Re: ROTH TSP thread..who is it right for...me??

Post by DSInvestor »

I'd be surprised if 86K AGI puts you in the 25% tax bracket if married filing jointly.
For 2012:
15% bracket applies for taxable income between $17,400 to $70,700.
25% bracket applies for taxable income between $70,700 to $142,700

Taxable Income = AGI minus deductions and exemptions.
Standard deduction is $11,900
Each exemption is $3,800

If your 2012 AGI will be 86K and you claim the standard exemption and 2 exemptions, your taxable income would be:
Taxable Income = 86,000 - 11,900 - 7,600 = $66,500 <- 15% tax bracket.

If you itemize deductions or have dependents, your taxable income will be even lower.
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White Coat Investor
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Re: ROTH TSP thread..who is it right for...me??

Post by White Coat Investor »

I think most military should do the Roth TSP, as should most who expect a pension. Everyone else should be pretty cautious about it. TFB has a good piece on not jumping on the Roth 401K bandwagon.

http://thefinancebuff.com/case-against-roth-401k.html
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retiredjg
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Re: ROTH TSP thread..who is it right for...me??

Post by retiredjg »

Thefinancebuff also has a page about using Roth TSP - he's in favor for most people. http://thefinancebuff.com/most-tsp-part ... h-tsp.html In some ways, I agree. In other ways, not so much.

For many single retired feds, the pension will fill up the lower tax brackets, putting withdrawals from the TSP or IRAs mostly in the top of the 15% bracket or in the 25% bracket. So it may end up being a wash - paying one rate now to get money into Roth TSP or paying the same rate coming out of the TSP or IRA. So if a person is only putting money away in the TSP, I agree that some should be in Roth Status.

However, for people who are using both TSP and Roth IRA, I'm less in favor or Roth TSP and certainly not in favor of using all Roth TSP.

For a 1 federal pension couple (as opposed to a single person), there is a good chance the pension will not completely fill the 15% bracket and that at least some of the money coming out of TSP or IRA in retirement will be at the 15% rate. It would not be smart to pay 25% now when they could pay 15% later.

I'm rambling a bit here it seems. The bottom line is I think everybody needs some traditional and some Roth. Whether that is TSP or IRA probably does not matter. I would hesitate to use all Roth TSP, especially if Roth IRA is getting money too. In the 15% bracket, I'd probably use some Roth TSP. In the 25% bracket, I'm not so sure I'd use any. If I used some, it would not be a great deal.
ABQ4804
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Re: ROTH TSP thread..who is it right for...me??

Post by ABQ4804 »

I've seen some dialog that the Roth TSP will still require RMDs (Required Minimum Distributions) starting after age 70 1/2, unlike Roth IRAs (not sure about Roth 401ks). The Roth TSP is not a Roth 401k. The RMD information may be a decision point for TSP investors. There is still not enough detailed information on the TSP website whether RMDs will be required for the Roth TSP, as they are for regular TSP - so don't really have all the info for a good decision on the Roth TSP yet.

Edited trying to attach link to article stating RMDs will be required from the new Roth TSPs. Link didn't attach correctly, but you can search for it: the article is on the National Institute of Transition Planning website, March 12th "In the Know" column. Again, this is not official from TSP website, but another columnist. Hope this is helpful.
Last edited by ABQ4804 on Tue Mar 27, 2012 2:34 pm, edited 2 times in total.
stan1
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Re: ROTH TSP thread..who is it right for...me??

Post by stan1 »

alisa4804 wrote:I've seen some dialog that the Roth TSP will still require RMDs (Required Minimum Distributions) starting after age 70 1/2, unlike Roth IRAs (not sure about Roth 401ks). The Roth TSP is not a Roth 401k. The RMD information may be a decision point for TSP investors. There is still not enough detailed information on the TSP website whether RMDs will be required for the Roth TSP, as they are for regular TSP - so don't really have all the info for a good decision on the Roth TSP yet.
Very much so, and related is how rollovers will be handled. If Roth TSP does require RMDs, will we be able to selectively roll over the Roth TSP balance to a Roth IRA without touching the Traditional TSP balance? Will this count as the one-time rollover opportunity?
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tfb
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Re: ROTH TSP thread..who is it right for...me??

Post by tfb »

EmergDoc wrote:I think most military should do the Roth TSP, as should most who expect a pension.
Do you know how many participants are in TSP and how many are military vs civilian? I looked for such stats on tsp.gov but I haven't found them yet.

EDIT: Found here: http://www.bogleheads.org/forum/viewtop ... 10&t=91365

4.5 million participants
- 1.2 million former employees (excluded from calculation because it's not possible to switch existing balance to Roth)
= 3.3 million active participants

- 0.2 million civilian employees under CSRS (should probably use Roth)
- 0.7 million military (low pay or good pension, should probably use Roth)
- 2.4 million civilian employees under FERS

Are there stats on the breakdown of pay grades among civilian federal employees?
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Topic Author
wldlndfirefghtr
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Re: ROTH TSP thread..who is it right for...me??

Post by wldlndfirefghtr »

All good points to ponder!!

DSI - You are correct, I looked at my taxes again, and do fall in the 15%. Just need to make sure I do the same next year ;-)
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