A choice of tax treatments
Your decision about Roth and traditional TSP is a choice of when you pay income tax on your TSP contributions and earnings. You can pay taxes either when you earn and contribute the money or when you take it out. There isn’t a set formula to determine which choice is best for everyone, and your decision may change as your income and needs change over time. Here are a few questions you’ll want to ask yourself to get started:
- Do I expect a higher or lower income tax rate in retirement?
- How much money do I need in my paycheck right now?
- Will my choice of tax treatment affect how much income tax I need to pay?
You can change your contribution type through your agency or service payroll system.
Roth TSP
With Roth TSP, your contributions go into the TSP after tax withholding. That means you pay taxes on your contributions at your current income tax rate. The advantage of the Roth TSP is that you won’t pay taxes later when you take out your contributions and any qualified earnings. Earnings are considered qualified after both of these Internal Revenue Code (IRC) requirements are met: 5 years have passed since January 1 of the calendar year when you made your first Roth TSP contribution and you are at least age 59½, permanently disabled, or deceased.
Also, your Roth balance isn’t subject to IRS required minimum distributions (RMDs), which means you can keep your Roth contributions and earnings in your TSP account as long as you want.
Traditional TSP
With traditional TSP, your contributions go into the TSP before tax withholding, which can potentially lower your current income tax rate. But when you take money from your traditional TSP, you’ll pay taxes on both your contributions and earnings at the income tax rate of the year you make the withdrawal.
A mix of both Roth and traditional TSP
You may consider splitting your contributions between Roth and traditional. Note that if you receive automatic or matching contributions from your agency or service, those contributions will always go into your traditional TSP balance and cannot be converted to Roth within your TSP account.
How loans and withdrawals affect your Roth and traditional balances
When you take a loan from your account or do a fund transfer or reallocation, the transaction will include a proportional amount from each balance (traditional and Roth). For example, if 80% of your account is in your traditional balance and 20% is in your Roth balance, and you take a TSP loan, then 80% of the amount you borrow will be from your traditional balance and 20% will be from your Roth.
When you take withdrawals or distributions from your account, however, you can choose that same proportional method, or you can choose to have the money come from your traditional balance only or from your Roth balance only.
Read booklet Summary of the Thrift Savings Plan (461kb) to learn more about your choice tax treatments for your contributions.
FAQs
You may consider splitting your contributions between Roth and traditional. Note that if you receive automatic or matching contributions from your agency or service, those contributions will always go into your traditional TSP balance and cannot be converted to Roth within your TSP account.
Do I still get the 5% match if I contribute all to the Roth TSP? ›
Contributing the max into the Roth TSP will result in losing the 5% government match. At least 5% must be going to traditional TSP to receive the match. You may contribute the max into Roth TSP and still receive the 5% TSP match. The government will not place your match into Roth.
Can I have TSP and Roth IRA at the same time? ›
For authoritative tax advice, you should contact a tax advisor or the Internal Revenue Service. Can I contribute to both my TSP account and an IRA? Yes.
How much can I contribute to my TSP and Roth IRA? ›
Elective Deferral Limit (Internal Revenue Code (IRC) Section 402(g)) The IRC § 402(g) elective deferral limit for 2024 is $23,000. This limit applies to the traditional (tax-deferred) and Roth contributions made by an employee during the calendar year.
Should I contribute to both Roth and traditional? ›
It may be appropriate to contribute to both a traditional and a Roth IRA—if you can. Doing so will give you taxable and tax-free withdrawal options in retirement. Financial planners call this tax diversification, and it's generally a smart strategy when you're unsure what your tax picture will look like in retirement.
What are the disadvantages of Roth TSP? ›
The Upfront Tax Burden is Too Much
Using a Roth means that you owe the taxes immediately. This is true when making Roth TSP contributions or doing a Roth conversion. If you make a $1,000 Roth TSP contribution, your taxes will be $200-$300 higher than if you had made a Traditional TSP contribution.
What happens if I put too much in my Roth TSP? ›
If you over contribute, you may request a refund of the excess amount from the TSP. For a limited in January each year, we make the Refund Request Form available. You can get the form by calling the ThriftLine or logging in to My Account.
Can you move money from traditional TSP to Roth TSP? ›
The thrift savings plan allows you to modify the tax status of your contributions from a traditional to a Roth thrift savings plan. Unfortunately, the thrift savings plan Roth conversion does not permit retroactive modifications.
How to max out TSP contributions? ›
To contribute the 2024 maximum annual amount for both regular TSP and TSP Catch-up for a combined total of $30,500, you should enter one election amount of $1,174 into myPay during December 3 – 9, 2023, and your election should be effective on December 17, 2023, the first pay period for 2024.
What is the maximum Roth TSP contribution for 2024? ›
The Internal Revenue Service has announced the Thrift Savings Plan (TSP) elective deferral limit for 2024 will increase to $23,000 per year.
For your awareness, the employer matching contribution to the TSP is currently always made to the Traditional TSP, even if you contribute to the Roth TSP (but it's not deductible, because you don't include the employer contribution as income in the first place).
Can I contribute 100% of my pay to TSP? ›
You can elect to contribute from 1 to 100 percent of any incentive pay, special pay, or bonus pay (even if you're not currently receiving them)—as long as you elect to contribute at least 1% from your basic pay. You cannot contribute from sources such as housing or subsistence allowances.
What is the largest TSP balance? ›
The largest TSP account as of year-end 2023 was just above $8 million; the largest account as of year-end 2022—presumably, but not necessarily, the same person—had been just under $6.9 million. Is 100 Percent in the C Fund a Good Idea? Calculator: See Your Annuity Estimate!
How much should I have in my TSP at 40? ›
Fidelity recommends age-based milestones between ages 30 to 67. Based on these guidelines, you should aim to save 1x your income by age 30, 3x by age 40, 6x by 50, 8x by 60, and 10x by age 67. However, these milestones may vary depending on the age when you plan to retire and the desired lifestyle in retirement.
How do I maximize my TSP growth? ›
By starting early, contributing regularly, investing in a diversified portfolio, taking advantage of catch-up contributions, and considering the impact of taxes, you can maximize your retirement savings and enjoy a comfortable retirement.
What is a good percentage to contribute to TSP? ›
Although, you will reach the regular TSP limit before the end of the year, you will continue to receive the Agency Matching contributions for the remainder of the year to which you are entitled, as long as you are contributing at least 5% of your bi-weekly gross pay each pay period.
Should you max out TSP? ›
For example, if you don't have an emergency fund in place, you'll want to get that built up (6-12 months of expenses) before you max out the TSP. Note: You will always want to contribute at least 5% of your salary into the TSP to get the match even when you are doing things like building your emergency fund.
