Roth Thrift Savings Plan and Roth IRAs (Roth TSP IRA) both fall under the Roth wrapper. This means that they are funded with after-tax dollars and the interest grows tax-free with no taxes owed upon withdrawal, as long as certain requirements are met.
There are different rules governing these two programs. They have different contribution limits, income limitations, withdrawal options, and more.
There are many reasons an individual might consider a Roth account. Five of the most common reasons are listed below.
- You think taxes will be going up in the future.
- You anticipate your being in a higher tax bracket at the passing of your spouse.
- You are worried about taking Required Minimum Distributions (RMDs) at age 70 1/2.
- You plan to move to state with higher state taxes in the future.
- Great for college savings.
While the TSP is great for accumulation while working, there are some drawbacks when the time for withdrawals rolls around. There are four main reasons people decide to transfer their TSP to IRA(s).
- Advice – Planning advice from a qualified financial planner.
- Withdrawals – Greater flexibility on withdrawals.
- Access as needed.
- Eliminates Roth TSP pro-rata withdrawal requirement.
- Taxes – Tax timing, control, and RMD planning.
- Investments – More investment options.
To see examples of how Roth IRAs can be used, read our articles.
Roth-When Paying Taxes Now Makes Sense
For information on Roth conversion rules, see the following articles.
Roth IRA Conversion Rules
Please see our articles on withdrawal options for Roth TSP and Roth IRAs.
TSP Withdrawal Techniques: Under Age 59.5
Should I Reallocate My TSP?
For more information on Roth TSP Contributions, see the articles below.
Managing Your Thrift Savings Plan In Your Retirement
How Are You Managing Your Thrift Savings Plan?
Maximize Your Thrift Savings Investment Options
TSP Contribution FAQs
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