TSP to ROTH TSP

[roskopfm]

Will the TSP board in 2012 allow us to roll part of the existing TSP into the ROTH TSP. It woudl be nice to pay the taxes in 2012 and let it grow tax free.

[domingo3]

I think it's highly doubtful. I am not aware of any 401k programs that allow you to roll over to Roth 401k.
At this point, I'd just be happy if they actually allow me to contribute to Roth TSP in 2012. Their website still says it will be offered in 2011. I'm afraid they're going to come back and say they haven't had enough opportunity to education TSP participants on the Roth, and they need to push it back yet another year.

[jpcavin]

Maybe? A new law may allow you to move into a Roth 401(k)

http://www.kiplinger.com/magazine/archives/a-new-way-to-move-into-a-roth-401k.html?si=1

[RealMoneyIssues]

ROTH option delayed...

http://www.navytimes.com/news/2011/03/military-tsp-roth-option-032911w/

[James48843]

We try to avoid links to "Times" here- the Times papers have repeatedly tried to claim copyright issues where "fair use" clearly applied.

Here is another source for your Roth story:

ROTH TSP DELAYED

http://www.govexec.com/story_page.cfm?articleid=47435&oref=todaysnews

[domingo3]

I'm not happy about the news, but thanks for the links.

I had a sneaking suspicion that it was going to be delayed. At this point, I am placing my bets that it does not get implemented until 2013.

[domingo3]

Delayed even more...

http://www.govexec.com/dailyfed/0311/032811l1.htm

[SkyPilot]

The TSP board will likely find it necessary to spend a few million to "educate" us... Maybe mail us all a DVD again.

[Aviator_Guy]

The TSP board will likely find it necessary to spend a few million to "educate" us... Maybe mail us all a DVD again.


LOL... I’m still waiting to see all the money the TSP Board saved by limiting our IFT’s... They aren’t in our corner, thats for sure!!:cool::cool:

[PessOptimist]

I never got that DVD I hear about. What year did they send it out?

[SkyPilot]

That was when they introduced the "L" funds (2005-2006)...

I would like to see the cost/benefit analysis related to how much the "L" combos of funds we already have is used.

I think the FTRIB is pi$$ed off because so many people refuse to use them as designed...

http://www.tsptalk.com/mb/showthread.php?p=23371&highlight=fund+dvd

http://www.highbeam.com/doc/1P2-39271.html





http://www.govexec.com/dailyfed/1205/122005r1.htm

TSP life-cycle investors won't let go of other funds
By Karen Rutzick December 20, 2005

Many investors in the Thrift Savings Plan's life-cycle funds are tempering their effectiveness by continuing to invest in traditional stand-alone funds too, officials said at a board meeting Monday.

[James48843]

Not a happy camper today.

Called FAA Human resources to try and ask what the plan was for how to begin making contributions in ROTH.

As you know, TSP begins ROTH on Monday. This comes FOUR YEARS after autorization to start a ROTH plan was passed by Congress and put into law, and a DECADE since the subject of ROTH for the TSP was first debated in Congress. Twice delayed by the TSP board while they go their software ready, I figured I'd call FAA Human Resources and see if they were going to be able to start on Monday, since the TSP said not all agencies were ready yet, but they DID mention that Department of Interior (Who handles FAA payroll functions now) would be one of the lead agencies starting next week. I figured FAA would have to roll in either right this week, or perhaps I thought maybe in the pay period following. I figured it couldn't take much, now that they've been working on this stuff for four years.

The first two human resource people at FAA that I talked to didn't have a clue what I was talking about.

Finally got a supervisor, who promised to call HR in Washington, and get the story on when we would be able to "turn it on", and he promised to call me back.

Four hours later on Friday, got a call back.

Said FAA HQ's didn't know anything about it, they just learned of this "TSP ROTH" thing in the last few days, and said they had no idea what they needed to do to adapt the payroll system to handle ROTH information. Said it may be months to possibly years before we would be able to do anything as an Agency. Nobody in Human Resources had any idea what a ROTH was, or how to implement it.




-------------------------


On a side note- I see once again the FAA's ratings are out in the annual 'Best Places to Work" competition. FAA ranked 200th of 229 agencies for 2011. Best Places to Work > Department of Transportation - Partnership for Public Service (http://bestplacestowork.org/BPTW/rankings/detail/TD03)


Enough said.

[James48843]

This was posted this morning on our parent agency's web page:



Roth TSP Allows Flexibility In Taxes Now And Later
By Sharon Dobson
Posted: May 8, 2012

On May 7, the Thrift Savings Plan (TSP) (https://www.tsp.gov/index.shtml) gave Federal employees the option to treat some or all of their TSP contributions as Roth contributions. Participants now have flexibility in the tax treatment of their contributions today and in the future.

In a traditional TSP, employee contributions are considered pre-tax income, which lowers the amount of your current taxable income and gives you a tax break today. TSP contributions and earnings are tax-deferred while growing in your account, but when you withdraw your money, you pay taxes on both the contributions and their earnings.

In contrast, Roth contributions are taken out of your paycheck after your income is taxed. However, when you withdraw funds from your Roth balance, you will receive your Roth contributions tax-free since you have already paid taxes on the contributions. You also won’t pay taxes on any earnings, as long as you’re at least age 59½ (or disabled) and your withdrawal is made at least 5 years after the beginning of the year in which you made your first Roth contribution. Upon your death, no part of the Roth IRA will be subject to income tax to your beneficiaries, though the Roth IRA will be subject to estate taxes.

Employee Express (https://www.employeeexpress.gov/DefaultLogin.aspx) will begin accepting Roth contribution elections on May 20 effective on June 3. A TSP representative will answer questions at the 2012 DOT Health and Fitness Expo on May 16th from 11 a.m. to 2 p.m. in the DOT HQ West Atrium.

When making TSP elections, keep in mind that the combined total of your Roth and tax-deferred traditional contributions in 2012 cannot exceed the elective deferral limit of $17,000, or if you are age 50 or older the catch-up contribution limit of $5,500. In addition any agency contributions you receive will always be treated as a part of your traditional (non-Roth) balance. Employees may want to consult a qualified tax or financial advisor to help decide if Roth is the right choice for them.

A few facts about the Roth TSP:



There are only two ways to put Roth money into your account: (1) From you future pay; and/or (2) Transfer Roth money into your account directly from eligible plans (Roth 401(k)s, Roth 403(b)s, or Roth 457(b)s only).
You cannot transfer money into the TSP from Roth IRAs.
You cannot convert money that is already in your TSP account into Roth money.
You cannot convert any agency traditional contributions into Roth contributions.
Agency automatic and matching contributions will always be traditional, tax-deferred contributions, even if your own contributions are only Roth.


All employee contributions, whether traditional or Roth, are added together to determine if the elective deferral maximum amount has been reached. The maximum contribution is the sum of the elective deferral and catch-up contribution limits.

A TSP participant may contribute:


Up to $17,000.00 in combined traditional and Roth contributions.
If age 50 or older, up to $5,500.00 in combined traditional and Roth catch-up contributions.
For a combined total of up to $22,500.00. TSP-eligible participants age 50 or over may elect Roth catch-up contributions.

Please refer to the information displayed in the chart below.








Roth IRA



Roth TSP





Income Limits



Not available to taxpayers with income above certain limits:
Married Filing Jointly - $173,000 to $183,000
Married Filing Single - $0 to $10,000
All others – 110,000 to 125,000



Available to all participants regardless of income





Contribution limits



$5,000
($6,000 if at least 50 years of age)*



$17,000
(plus an additional $5,500 if at least 50 years of age)*





Required Minimum Distributions (RMD)



Not subject to RMDs until the IRA owner dies



RMDs apply to both Roth and traditional balance
(April 1st after you turn 70 ½)





Rollover rules



May NOT be rolled into a Roth 401(k); a Roth can only be rolled into another Roth IRA



Can be rolled into another
Roth 401(k) or a Roth IRA



*2012 limit

The Leave and Earnings Statement will list the basic information as to the distribution elected (Roth amount contributed or percent elected). The deductions will display both Roth and Roth Catch-Up as separate line items.
If you have additional questions regarding the Roth TSP plan, please contact TSP directly at 1-877-968-3778 and hit prompt “3” to speak with a representative.

Visit the TSP website to view a short video (https://www.tsp.gov/whatsnew/roth/index.shtml) about the Roth TSP, or check out the April 2012 Thrift Savings Plan Highlights (https://www.tsp.gov/PDF/formspubs/high12b.pdf) bulletin for more information.
TSP is one of three components of the Federal Employees Retirement System (http://en.wikipedia.org/wiki/Federal_Employees_Retirement_System) (FERS). The others the FERS annuity (http://www.opm.gov/retire/pre/fers/annuitysupp.asp) and Social Security (http://en.wikipedia.org/wiki/Social_Security_(United_States)). Together, the three components are designed to closely resemble the dynamics of private sector 401(k) (http://en.wikipedia.org/wiki/401(k)) plans. TSP Roth is also open to Federal employees covered under the older Civil Service Retirement System (http://en.wikipedia.org/wiki/Civil_Service_Retirement_System) (CSRS).

[FAAM]

Jamesxxxxx: Thx for posting the FAA Roth info (My top-rated agency too). Sounds like we can use EmpExpress later this month to start RothTSP contribs. I hadn't checked with HR or links yet... they got it going faster than we might have guessed.

[James48843]

I'll believe it when I see it.

[seven]

Am I reading that chart right that says we I can only put in $5,000 to the Roth TSP? I thought it was going to be the same $17,000 contribution limit regardless of whether you used Roth or not.

[pmcint01]

I think you are reading it wrong. To me it looks like you can put in the full $17,000 into the Roth.


Am I reading that chart right that says we I can only put in $5,000 to the Roth TSP? I thought it was going to be the same $17,000 contribution limit regardless of whether you used Roth or not.

[James48843]

Am I reading that chart right that says we I can only put in $5,000 to the Roth TSP? I thought it was going to be the same $17,000 contribution limit regardless of whether you used Roth or not.

You are reading it wrong.

The chart says you are limited to $5,000 for a ROTH IRA.

The chart says you are limied to $17,000 for the ROTH TSP, unless you are over age 50, in which case you would get an additional $5,500 added to your limit.


As to me- it doesn't matter, I can't afford $17,000 anyway. My ROTH contributoin will be lower. :-(

[seven]

Wow, I just scrolled down & re-read the chart & have no idea what was wrong with me on that day. LOL

[Sensei]

Seven,

I read in your thread that you are contributing to both traditional and Roth TSP. How were you able to sign up? I looked all through tsp.gov and didn't see a way. I'm guessing for me I'll have to go through EBIS. I can't access it from home, so will have to wait to get back to work on Monday to find out.

[Intrepid_Timer]

Seven,

I read in your thread that you are contributing to both traditional and Roth TSP. How were you able to sign up? I looked all through tsp.gov and didn't see a way. I'm guessing for me I'll have to go through EBIS. I can't access it from home, so will have to wait to get back to work on Monday to find out.

From what I understand, if you sign up for the Roth option, your own contributions go into the Roth and the government's matching automatically goes into your regular account. Also, when you do an IFT in one account, the other gets moved automatically also.

[seven]

Seven,

I read in your thread that you are contributing to both traditional and Roth TSP. How were you able to sign up? I looked all through tsp.gov and didn't see a way. I'm guessing for me I'll have to go through EBIS. I can't access it from home, so will have to wait to get back to work on Monday to find out.

You don't do it through TSP.gov, but whatever payroll system your dept. uses. We use Employee Express so that is where I set my contribution amounts to each of the Roth & Traditional TSP. You only go to TSP.gov if you want to change what funds your contributions go to. It doesn't seem to be possible to have separate funding instructions for Traditional & Roth. Whatever you set on TSP.gov seems to get applied to both.

[pmcint01]

Does anyone have any advice on how to determine if the ROTH TSP is right for me? It is available at my agency now. I've searched on line and all I can find is about being in a higher tax bracket later in life. I have no idea if that will be the case.

Thanks

[ILoveTDs]

Does anyone have any advice on how to determine if the ROTH TSP is right for me? It is available at my agency now. I've searched on line and all I can find is about being in a higher tax bracket later in life. I have no idea if that will be the case.

Thanks

If your a young pup with kids at home, that should be the case (higher tax bracket). Even if you salary stays the same, you won't have the child tax credit forever, eventual you'll pay off the mortgage (hopefully) that just about kills most people itemized deduction, these just to name a few and more will lead to more income being taxed. So even if by chance you don't go into a higher tax bracket your effective tax rate will be higher.

[ILoveTDs]

If your a young pup with kids at home, that should be the case (higher tax bracket). Even if you salary stays the same, you won't have the child tax credit forever, eventual you'll pay off the mortgage (hopefully) that just about kills most people itemized deduction, these just to name a few and more will lead to more income being taxed. So even if by chance you don't go into a higher tax bracket your effective tax rate will be higher.

Weather to go Roth TSP is a personal choice and I have not fully looked into, so I'm not endorsing it one way or another. I'm just say I would assume you will be in a higher effective tax rate down the road if you are in the think of it with family right now. If that helps you with your choice.

[Viva_La_Migra]

Does anyone have any advice on how to determine if the ROTH TSP is right for me? It is available at my agency now. I've searched on line and all I can find is about being in a higher tax bracket later in life. I have no idea if that will be the case.

Thanks
I signed up for the ROTH option, because I want at least one source of income that will be untaxed when I retire. I don't really care what my tax rate will be in the future. If you can do both a ROTH IRA and the ROTH TSP option, I say go for it.

[wvango]

From what I am hearing, the Marine Corps they can go and set up TSP roth through their Admin Office 1 June. This is due to MyPay not being ready yet, but should be around Julyish. Governemnt Employees EBIS i am hearing around July as well.

[domingo3]

Does anyone have any advice on how to determine if the ROTH TSP is right for me? It is available at my agency now. I've searched on line and all I can find is about being in a higher tax bracket later in life. I have no idea if that will be the case.

Thanks

You can play around with a calculator like this one (Traditional vs. Roth 401(k) Calculator (http://scrs.schwab.com/tools/schwab_roth_401k_calc.htm)), but it still comes down to what your tax brackets are going to be. The truth is, none of us know what our future tax rates will be, so we're all in the same boat.
I would say that if you're in the 15% tax bracket, it's almost a sure thing to choose the Roth TSP. If you're in 25% or higher, you may want to put some more thought into it.
Regardless, there's a concept called "tax diversification" where you choose some of each because you don't know what the future will bring. If you think you'll be getting a pension, then you already know that you'll have some taxable income. It would be good to have some money in a tax-free vehicle, so you have some more options when the time comes to withdraw.
The general consensus is that tax rates will be going up. They're pretty low right now. Of course, radical changes to tax could happen (like a consumption tax) which would take away advantages of Roth, but most scenarious would point to it being good, or at least break-even to put some money into a Roth.

[malyla]

I'm I right in thinking that I will get the government matching (5%) in my traditional TSP account even if I have all my contributions going to the ROTH TSP account?

[pmcint01]

I'm 36 years old with 2 kids 3 and 6 years old. I have at least 21 years until retirement. Currently in the 25% tax bracket. I own 1 rental property that gives me a lot of deductions. I usually get a good sized tax refund each year although this year was a lot less because my I actually turned a profit on the rental property. According to that calculator it says I will make out better with a Roth. Just have decide if I can live with less take home pay since we may not get another raise for 5 years at the rate we are going.

[domingo3]

Yes


I'm I right in thinking that I will get the government matching (5%) in my traditional TSP account even if I have all my contributions going to the ROTH TSP account?

[MrBowl]

I got an email last week stating that the Roth is now available to DOI folks. Unfortunately, the login rules for Employee Express changed and I'm locked out until I can call them!

Anyway, I've always heard that the order of priority is 1) Do what it takes to get the full matching from your company - in our case that's 5% in the traditional pre-tax TSP. 2) Maximize your Roth contribution. 3) Batck to traditional IRAs or TSP or any other investment vehicle.

Is that still good advice?

[Bullitt]

@MrBowl: Yes. It's still good advice.

I plugged in the numbers to the Schwab calculator and it says I'll make 33% more with a Roth 401K but will have to do so with 5% less take home pay. That 5% would severely limit contributions to the Roth IRA and any other potential after-tax investment vehicles (529, savings, etc). Roth 401K is certainly a good choice to consider if your only tax break is the 401K. I'm thinking down the road I will contribute, but for now I'm sticking with the tax break up front. (Actually our contri's, along with other items, lowered our tax rate on 2011's taxes.)

[Boghie]

Concur with Bullitt. Good to see him again!!!

Anyway, for me, I still have space to discount my contributions by 33% (Fed @ 25%, My Full Retard State of Kalefornea @ 8%) by investing in the traditional TSP account. That means, it will cost me $67 take home to invest $100 in my TSP account.

That, to me, looks to be a better deal. The investment advice seems to put the fulcrum at the Federal marginal tax rate of 25%. Seems to work...

[domingo3]

I got an email last week stating that the Roth is now available to DOI folks. Unfortunately, the login rules for Employee Express changed and I'm locked out until I can call them!

Anyway, I've always heard that the order of priority is 1) Do what it takes to get the full matching from your company - in our case that's 5% in the traditional pre-tax TSP. 2) Maximize your Roth contribution. 3) Batck to traditional IRAs or TSP or any other investment vehicle.

Is that still good advice?

This is still good advice, but you can accomplish #1 by contributing %5 to Traditional or Roth TSP. For #2, you're missing the important distinction that the advice was specifically for Roth IRA.

To clarify:

1) Do what it takes to get the full matching from your company - in our case that's 5% in the traditional or Roth TSP. 2) Maximize your Roth IRA contribution. 3) Back to traditional IRAs or TSP or Roth TSP any other investment vehicle.

The water is murkier now because where before your hand was forced to do some tax deferred investing if you had a match offered, now you don't have to do any tax deferred. You have to make decisions based on current and unknown future tax circumstances.

[Frixxxx]

Concur with Bullitt. Good to see him again!!!

Yes, Great to see you Bullitt!

[Skooby]

We all know that it would beneficial to get a ROTH (IRA or TSP) if you think you'll be in a higher tax bracket when you retire. My question is...is that referring to pre or post retirement?

I'm currently in the 25% bracket (35, single, no kids, GS-9). I do expect to be in the 28% bracket when I retire.

[nnuut]

We all know that it would beneficial to get a ROTH (IRA or TSP) if you think you'll be in a higher tax bracket when you retire. My question is...is that referring to pre or post retirement?

I'm currently in the 25% bracket (35, single, no kids, GS-9). I do expect to be in the 28% bracket when I retire.
Just get married and buy a house then you'll be fine!

[rcknfrewld]

Wouldn't it be better to pay taxes later than now...the whole compounding thing

[travelingman]

We all know that it would beneficial to get a ROTH (IRA or TSP) if you think you'll be in a higher tax bracket when you retire. My question is...is that referring to pre or post retirement?

I'm currently in the 25% bracket (35, single, no kids, GS-9). I do expect to be in the 28% bracket when I retire.
.................................................. .................................................. .................................................. ......................

Just remember,only part of your annual salary is in the 25% bracket. Some of it is in the 10% bracket and some of it is in the 15% bracket as well. How could TAXES not be higher in 5, 10, 20, 30 years.. The U.S debt has to be paid some how..History has shown ( under Pres Carter) that TAXES were once 100% higher (double) at one time... Food for thought...

Federal Income Tax Brackets for 2012Here’s a quick rundown of what the Federal income tax brackets are expected to look like in 2012:


Tax Bracket
Married Filing Jointly
Single


10% Bracket
$0 – $17,400
$0 – $8,700


15% Bracket
$17,400 – $70,700
$8,700 – $35,350


25% Bracket
$70,700 – $142,700
$35,350 – $85,650


28% Bracket
$142,700 – $217,450
$85,650 – $178,650


33% Bracket
$217,450 – $388,350
$178,650 – $388,350


35% Bracket
Over $388,350
Over $388,350

[craigerv]

Wouldn't it be better to pay taxes later than now...the whole compounding thing

When you put 5% of your income in the tsp, roth or standard, the same amount of money goes in. If you deposit into Roth TSP you just have to pay tax on it, so your take-home pay is less. So your gains will be the same because you're depositing the same amount. You will compound the same amount. The difference is that your gains will not be taxed when you withdraw from the Roth portion. If you are young, and you contribute to Roth TSP, and you stay in the same tax bracket when you retire, you will earn just a bit more in your TSP and will pay quite a bit less tax. However, if you retire in a higher tax bracket, you could earn a lot more and be taxed a lot less. Nobody can say for certain what their taxes will be like in 35-40 years but I fully expect to be in a higher bracket at retirement, so the potential is certainly there to save a lot of $$$.

[Frixxxx]

See Tax Table below
Remember also that this is TAXABLE income. After Deductions.

I explained this to my son once. He is 25 and has $0.00 taxable income. I suggested the Roth because he doesn't have the need for the tax-deferrment on $0.00 dollars to invest in something that will be taxed later (401K). When he gets older and has a more established career and starts to see TAXABLE income, then he should balance it out between the two.

[Viva_La_Migra]

Wouldn't it be better to pay taxes later than now...the whole compounding thing
For me, I want at least one source of tax free income when I retire. I'll take the tax hit now and hope my Roth investments earn enough to not miss social security when it collapses.:blink:

[Viva_La_Migra]

Remember also that this is TAXABLE income. After Deductions.

I explained this to my son once. He is 25 and has $0.00 taxable income. I suggested the Roth because he doesn't have the need for the tax-deferrment on $0.00 dollars to invest in something that will be taxed later (401K). When he gets older and has a more established career and starts to see TAXABLE income, then he should balance it out between the two.
My kids are nearing working age. When/if they get a job, I intend to help them open a Roth IRA and max out their contributions. Maybe get family to contribute their birthday money to the cause, rather than buy them more video games! They'll thank me later.:nuts:

[wvango]

Tax Consequences of Roth TSP Withdrawals

Tax Consequences of Roth TSP Withdrawals (http://www.myfederalretirement.com/public/1066.cfm)