ROTH contributions - advice please

[epidural man]

You guys seem smart - what do you think?

I am a government employee -

Thus, I can contribute to ROTH TSP. This is different than a ROTH IRA for a few reasons, but the main one to talk about is the fact that there is no income max with a ROTH TSP. AND there is not contribution limit up to the max IRA contribution.

What that means is if I wanted to, I could contribute (as far as I understand) up to $27000 of ROTH money (for 2022).

Issue: I am in a high tax bracket currently. I will be in a much LOWER tax bracket (probably) when I retire.

So, do I take the tax hit now and put it all in ROTH TSP? Or take the that tax break now while I am in the higher bracket? Split the difference?

Some notes: I have some 1099 income as well, and have a defined benefit plan from that so can contribute tax free money if I want. There is agency matching for the $20,500. The catch-up $6,500 is not matched.

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[med2010]

I think most people would advise you to take the tax deduction now, if you’re in a high tax bracket. If you invest the tax savings in a taxable account, you will likely come out ahead.

 

[narcotics999]

Why not all of them? 65K 401k (403b?), 27K 457, 27K Roth TSP?

 

[epidural man]

Why not all of them? 65K 401k (403b?), 27K 457, 27K Roth TSP?

umm....did you see the first line? I work for the government. I also have a mortgage.

 

[doctalaughs]

You guys seem smart - what do you think?

I am a government employee -

Thus, I can contribute to ROTH TSP. This is different than a ROTH IRA for a few reasons, but the main one to talk about is the fact that there is no income max with a ROTH TSP. AND there is not contribution limit up to the max IRA contribution.

What that means is if I wanted to, I could contribute (as far as I understand) up to $27000 of ROTH money (for 2022).

Issue: I am in a high tax bracket currently. I will be in a much LOWER tax bracket (probably) when I retire.

So, do I take the tax hit now and put it all in ROTH TSP? Or take the that tax break now while I am in the higher bracket? Split the difference?

Some notes: I have some 1099 income as well, and have a defined benefit plan from that so can contribute tax free money if I want. There is agency matching for the $20,500. The catch-up $6,500 is not matched.

What makes you think you’ll be in a much lower tax bracket in retirement?

Are you planning on living very frugally? Remember, pensions, SS and withdrawals from most accounts is considered income.

That being said, maximizing pre-tax shelters first is still the answer. ROTH would be next before taxable accounts in most cases.

 

[anonperson]

You guys seem smart - what do you think?

I am a government employee -

Thus, I can contribute to ROTH TSP. This is different than a ROTH IRA for a few reasons, but the main one to talk about is the fact that there is no income max with a ROTH TSP. AND there is not contribution limit up to the max IRA contribution.

What that means is if I wanted to, I could contribute (as far as I understand) up to $27000 of ROTH money (for 2022).

Issue: I am in a high tax bracket currently. I will be in a much LOWER tax bracket (probably) when I retire.

So, do I take the tax hit now and put it all in ROTH TSP? Or take the that tax break now while I am in the higher bracket? Split the difference?

Some notes: I have some 1099 income as well, and have a defined benefit plan from that so can contribute tax free money if I want. There is agency matching for the $20,500. The catch-up $6,500 is not matched.

Are you asking if it is better to contribute to a Roth TSP versus a traditional TSP? Or are you asking Roth TSP versus Roth IRA?

For physicians, the typical advice is to lower your taxable burden now, but ideally you would contribute in non Roth and Roth accounts.

For example, I max my traditional 401k/403b and I do a backdoor roth IRA every year.

 

[epidural man]

Are you asking if it is better to contribute to a Roth TSP versus a traditional TSP? Or are you asking Roth TSP versus Roth IRA?

For physicians, the typical advice is to lower your taxable burden now, but ideally you would contribute in non Roth and Roth accounts.

For example, I max my traditional 401k/403b and I do a backdoor roth IRA every year.

Roth TSP vs Traditional TSP

 

[pgg]

Why not all of them? 65K 401k (403b?), 27K 457, 27K Roth TSP?

TSP and 401(k) are the same bucket as far as limits are concerned. If you use all your 401(k) space at job #1, you can't use any TSP space at job #2. It's the same elective contrib + employer contrib bucket.

457 is another bucket, but there are some downsides to using a nongovernmental 457.


@epidural man - as a fellow government employee with a lot of 1099 and a little bit of W-2 income from outside jobs, I max the traditional TSP from the .mil job, max SEP-IRA from the 1099 jobs, and tried to max the non-gov 457 from the not-.mil W-2 job. I didn't get there on the 457 this year because I didn't do many hours there in 2021, but I'm OK with that ... because in retrospect the non-gov 457 was a bad idea. Since I'm quitting that job in a few months and moving to a full-time civilian job that doesn't have a 457, I have no rollover options for that money. And I can't leave it there. So I have to take a distribution from it and it'll count as current tax year income. (No penalties though for 457 withdrawals.)

All of it is pre-tax, except the backdoor Roth for me+spouse to the limit of $12K.

(Every November 100% of the SEP-IRA gets rolled into TSP to zero tIRA balances by Dec 31st, to avoid the pro-rata rule for the backdoor Roths.)

The only times I've ever done Roth TSP were years ago during residency when my total income was low, and during years when I was deployed to combat zone tax exclusion (CZTE) areas. In those years I had very low off-duty employment income, AND a very large tax break to the tune of (MCPON pay) x (# of months deployed). I also took the opportunity to roll my SEP-IRAs into Roths instead of trad-TSP those years, and just paid the taxes - again because my taxable income was so, so low.

If that's not you, then odds are the correct choice is traditional TSP all the way - take the tax break now.