I think you need professional advice. Traditional vs Roth is a decision unique to each person's circumstances, and we don't know all of yours. The decision hinges on where you live now and will live in retirement, current income, guaranteed retirement income, and the uncertainties of tax law down the road.
Let's take two examples where a married couple has the same retirement income, but one couple should have contributed to a Roth and the other to a traditional TSP.
Couple A: Married filing jointly. Lives in NV with a combined income of $90k in their working years and an expected income of $80k in retirement (including SS, pension, and TSP required minimum distributions). They plan to stay in NV when they retire. Their marginal rate in taxes in both their working years and in retirement is 12%. There is no state income tax in NV. So this is pretty simple. They should go with a Roth since they will never pay less tax than they do right now. They will avoid the risk of paying higher taxes later if the current law expires and taxes reset to 15 percent.
Couple B: Married Filing jointly. Lives over the border in CA with a combined income of $130k. They were lousy retirement savers and expect the same retirement income of $80k as Couple A. Their CA taxes are currently about 9% and their federal marginal rate is 22%. What should they do with their TSP contributions? Even if they don't leave CA, they should contribute to traditional since they will pay less in federal taxes even if rates reset to 15%. If this couple puts money in Roth, it will cost them.
If Couple B then decides to move to NV, even better for their choice of traditional. Not only will they save on federal taxes, they will pay no state income tax. So defer, defer, defer. If they have the resources, they could add a Roth IRA on top of the max TSP contribution, but they should max out the TSP traditional first. They will also be able to save a lot by deferring since they can do Roth conversions once they move to NV.
There are a lot of factors that figure in to these decisions for each of us. There is no single rule on what is best. You have ten work years left? I would get professional financial advice even if it costs money.
On Wed, Apr 24, 2019 at 10:54 AM elstaub@yahoo.com [TSP_Strategy] <TSP_Strategy@yahoogroups.com> wrote:
I am a fan of %100 of YOUR contributions going to ROTH TSP. As mentioned earlier and I concur, I don't believe my taxes will be going down in the future and so I want to pay at a lower rate right now and enjoy tax free distributions on the earnings later. If you're not confidant in that tax strategy then feel balanced by the fact that %100 of the Gov't contribution are still %100 Traditional. So you are putting your eggs in multiple tax-strategy baskets. Anyone please correct my thinking...I'll give you a big thank you if it turns out I'm misguided!
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Posted by: Thomas Wellock <thomas.wellock@gmail.com>
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Neither the TSP Strategy group, nor individual members, are licensed or authorized to provide investment advice. Any statements made herein merely reflect the personal opinions of the individual group member. Please make your own investment decisions based upon your personal circumstances.
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