To elect Roth TSP or not to elect Roth TSP, that is the question

TSP stands for Thrift Savings Plan, the federal government’s version of a 401k.  Starting as early as this Spring, federal employers will have the opportunity to elect to contribute some or all of their retirement funds into the Roth TSP.

The traditional TSP is pre-tax contributions.  Like a Roth IRA, the Roth TSP will be after tax contributions.

There are factors which may weigh in favor of or against the Roth TSP.  When I read the news that the Roth TSP will be available soon, I was excited and told a friend I plan to divide my retirement contributions equally between the traditional TSP and the Roth TSP.

Yesterday evening I received in the mail a brochure about the new Roth TSP.  One factor caught my attention

Agency contributions will always be part of your traditional (non-Roth) balance.

What a minute.  If I read this correctly, for the Roth TSP there will be no agency contributions.  But for the traditional TSP  agency contributions shall continue.  If my interpretation of the bullet above is correct, the decision is simple: continue to contribute to the traditional TSP.  I need all the contributions I can get (presently contributing 10% of pay).  Even though retirement is more than 20 years away, the way the economy is, I’ll need as much money as possible .

I await additional information.  For the moment, the future of no payment of taxes upon distributions from Roth TSP is not enticing enough for me to elect to contribute retirement funds to the Roth TSP [especially, since there is no guarantee that politicians won’t change the rules in the future] if there are no agency contributions.


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