Should you invest in the Traditional or Roth TSP?

2018-06-24T10:45:14-04:00

Well, I’m glad you asked because I guarantee you that you are not the only one. Many service members have no idea what the key differences are. They simply stick with the default option (Traditional) and hope for the best. However, the fact that you are even asking the question is a great sign! It means that you likely have a basic understanding of the Thrift Savings Plan, have already started contributing at least 5-10% of your base pay, and know which Funds you want to invest in.

This article is the next step in the progression for understanding how the Thrift Savings Plan works and will help you understand the key differences between the two systems.

This decision is important! You could potentially pay THOUSANDS of dollars in extra taxes if you pick the wrong option for your situation.

For tonight’s match-up, I give you “Ole Faithful” (Traditional TSP) vs the “New Hotness” (Roth TSP)! Two men will enter, one man will leave!

http://www.yourewelcome.blog/2018/06/24/traditional-vs-roth-tsp/

Welcome to Thunderdome: Traditional vs Roth TSP - You're Welcome.blog

The difference between the Traditional and Roth TSP is WHEN you pay taxes on your money. Uncle Sam will always get his cut; you just have to decide when.

Response by LTC Private RallyPoint Member made Jun 24 at 2018 10:57 AM

2018-06-24T10:57:18-04:00

MAJ Private RallyPoint Member That is a mountain of information. I had never heard of the Roth TSP. Thanks

Response by Maj Marty Hogan made Jun 24 at 2018 11:08 AM

2018-06-24T11:08:22-04:00

Great information. Passing along

Response by GySgt Private RallyPoint Member made Jun 24 at 2018 11:44 AM

2018-06-24T11:44:23-04:00

The fact that you’re investing early is really important! There are advantages to both methods. Definitely research. I enjoy investing pre-tax now because it lowers the out of pocket tax impact today, but will have to be careful in the future as it’s withdrawn. Investing in Roth today means that you’re paying taxes at today’s rate, with no federal tax impact as you withdraw in the future. I guess what we are gambling with is balancing how much taxes and at what rate today against the future. Long story short, I recommend jamming as much as you can afford in both and balance the tax impact. What’s more important is having enough savings to cover the lifestyle you want in retirement.

Response by MAJ Ken Landgren made Jun 24 at 2018 3:16 PM

2018-06-24T15:16:04-04:00

It will take a complicated cash flow analysis to quantify the two methods.

Response by MCPO Roger Collins made Jun 24 at 2018 3:50 PM

2018-06-24T15:50:32-04:00

Too many future unknowns. When you are investing and your income today are the only known. I have been investing heavily since my military retirement and over a few decades, with about a 30% cash and 60% mutual funds. For years I wasn’t aware of Roth and its value later in life. Today, my income, primarily due to the RMD tax provision, is the highest ever. I can only imagine how my taxes would have improved with all Roth’s.