Pension - Roth TSP vs Traditional TSP

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Topic Author
ks1773
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Joined: Sun Aug 19, 2012 7:17 am

Pension - Roth TSP vs Traditional TSP

Post by ks1773 »

Hello!

I have been contributing the max for my traditional TSP (17.5k) which brings down my federal tax from 28% to 25%; however, recently, I realized that social security can be taxed per SSA's website (http://www.ssa.gov/planners/taxes.htm). I currently have a pension plan through work which will give me 33% of the average income of my three highest paid years. I am expecting ~33k upon retirement.

I was wondering if I should continue to contribute fully to my traditional TSP to bring down my federal tax or switch to roth TSP to avoid future taxes esp on SS?

Thank you so much for your help.
Last edited by ks1773 on Mon Jan 05, 2015 11:35 pm, edited 1 time in total.
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baw703916
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Re: Pension - Roth TSP vs Traditional TSP

Post by baw703916 »

Which retirement plan are you on, CSRS or FERS?
Most of my posts assume no behavioral errors.
Topic Author
ks1773
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Re: Pension - Roth TSP vs Traditional TSP

Post by ks1773 »

baw703916 wrote:Which retirement plan are you on, CSRS or FERS?
I am on the FERS retirement plan
Zedon
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Re: Pension - Roth TSP vs Traditional TSP

Post by Zedon »

That's a good question, I am struggling with the best answer for that, I am in a similar situation with a slightly bigger pension.

Some of the things I have found say if you can max out the roth version then to go that route since you will most likely be in the same tax bracket. There are fewer deductions once you retire especially if you don't work.

Do you have a state tax where you are or where you will retire to? Are you filing as an individual taxpayer?
SJCX
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Re: Pension - Roth TSP vs Traditional TSP

Post by SJCX »

I have wrestled in the same situation

Me and my wife both get FERs retirements and we live in a no state income state.

I think I prefer to get the tax deductions now vs. the Roth TSP discount later on.
Topic Author
ks1773
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Re: Pension - Roth TSP vs Traditional TSP

Post by ks1773 »

Zedon wrote:That's a good question, I am struggling with the best answer for that, I am in a similar situation with a slightly bigger pension.

Some of the things I have found say if you can max out the roth version then to go that route since you will most likely be in the same tax bracket. There are fewer deductions once you retire especially if you don't work.

Do you have a state tax where you are or where you will retire to? Are you filing as an individual taxpayer?
I am currently filing as single and I live in California right now. I am not sure where I am retiring to yet.. but I see where you are coming from. I have to pay an extra 9.30% on the income right now.
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hoppy08520
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Re: Pension - Roth TSP vs Traditional TSP

Post by hoppy08520 »

I don't know the answer, but this might be some good reading: Most TSP Participants Should Switch To the Roth TSP.
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Ketawa
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Re: Pension - Roth TSP vs Traditional TSP

Post by Ketawa »

The standard deduction + personal exemption for a single person at retirement age in 2015 is $11,850 and will rise with inflation. With a $33k pension, you essentially have $21k (or less) of taxable income baked in. There is another $70k of room before you are at the top of the 25% bracket.

Any income that you contribute at 25% and ends up taxed in the 15% bracket is a win, and if it is taxed at 25% it's a break-even. The amount of SS that is taxed is relatively small in comparison. I think a better plan would be to stick with the Traditional TSP, convert to Roth during years with low income or if you retire early, and delay SS to 70.
nanoanalyzer
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Re: Pension - Roth TSP vs Traditional TSP

Post by nanoanalyzer »

hoppy08520 wrote:I don't know the answer, but this might be some good reading: Most TSP Participants Should Switch To the Roth TSP.
+1

also read this one: http://thefinancebuff.com/case-against-roth-401k.html

and this one: http://thefinancebuff.com/roth-401k-for ... e-max.html

These 3 articles have convinced me to do traditional even in the 25% bracket.
"If you think stocks are like physics, you believe there must be smart people who can measure exactly where the Dow Jones Industrial Average will be in five months." -Morgan Housel
Laura
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Re: Pension - Roth TSP vs Traditional TSP

Post by Laura »

I also use traditional because it keeps me roth eligible for a while longer. The lower tax bracket is an added advantage.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
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baw703916
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Re: Pension - Roth TSP vs Traditional TSP

Post by baw703916 »

Laura wrote:I also use traditional because it keeps me roth eligible for a while longer. The lower tax bracket is an added advantage.

Laura
This is an important point which is often missed when just considering tax brackets.
Most of my posts assume no behavioral errors.
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