TSP now offers Roth TSP option

Good morning.  The federal government's popular defined contribution retirement plan, the Thrift Savings Plan (TSP), recently began to offer a "Roth TSP" option.  Federal employees should figure out whether or not to use it.

Current TSP participants should contact their tax advisor about whether or not the Roth TSP is a good choice (and I'll join the call with you, if you want).

I do not provide formal tax advice—taxes are not my area of professional expertise.  That said, I have some thoughts and info to share:

1. Roth TSP contributions are from already-taxed money, instead of being tax-deductible like normal TSP contributions.
2. Roth TSP withdrawals in retirement, however, are tax-free (with some exceptions), while normal TSP withdrawals in retirement are taxable.
3. Tax rates are now pretty low by historical standards.  They might increase in the coming decades.  If they do, it is likely that "the better deal" is to give up the tax-deduction now in favor of the tax-free withdrawals later.
4. Many tax professionals I have read or heard from favor Roth anyway, even if income tax rates do not change.
5. This article provides a good overview, as well as some helpful details:  http://www.fedsmith.com/article/3408/unraveling-mysteries-roth-tsp.html

I generally favor Roth TSP over TSP, but each federal employee should consult their own tax advisor on this matter.

FYI, and please contact me with any questions or if you want my list of recommended tax professionals.

--Gary


Garo Linck Partoyan
Financial Advisor
Potomac Wealth Strategies, LLC
(703) 746-8195
(855) 347-9483 fax
Garo.Partoyan@PotomacWealthStrategies.com
www.PotomacWealthStrategies.com