May 8, 2015 at 1:27 pm #16484
Been a federal employee for 1 year and have been contributing more and more to my traditional TSP account but have not touches the Roth option because of what I have read on here and fedsmith.com. Been looking into the Vanguard Roth option which seems to be recommended more than others. I am only contributing 8% to my traditional TSP because infant twins are expensive, go figure. So: 1) would it be wise to open up a Vanguard Roth to diversify, and 2) should I scale back on my traditional to 5% and put the remaining 3% in the Vanguard Roth when ever I pull the trigger on that?
Thanks for the advice.May 24, 2015 at 1:14 pm #16531
The question you need to ask yourself is do you need to take tax advantage of the traditional TSP to reduce your taxable income to a lower tax bracket? If you only need to reduce your taxable income by a couple thousand to do that then do that and then switch over to investing in the Roth till that is maxed out.May 26, 2015 at 2:38 am #16558
If you have only been a fed for one year, I’m assuming you are in a relatively low tax bracket and so might well be in a higher bracket when it comes time to withdraw from your retirement accounts. New employees are usually the ones for whom the Roth accounts make the most sense, so certainly something to consider when you look at where you are now and are likely to wind up.
There are advantages and disadvantages to the non-TSP Roth accounts. On the plus side, you can always pull out the principal which you invested with no penalty and no taxes due (because you already paid the taxes) But then you can’t put that money back in – once it is out, it is out for good. Compare that to a TSP Roth from which you can take a loan (and the only interest you pay is to yourself), and in which you then return the borrowed money so you don’t lose those contribution’s future gains.
The TSP Allocation Guide www.TSPallocation.com
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