So my wife and I have an upcoming deployment for 90 days. We have been looking into the tsp contributions (I am legacy, she is BRS) and how you can contribute up to 69k while deployed with 23k going to the Roth. We already max both of our Roth TSP annually.
What I am trying to figure out is what is the benefit of contributing excess to the traditional tsp as it’s all tax exempt money anyway?
Ive gotten an answer here before that said you essentially lose the tax exempt status because traditional tsp contributions are tax exempt anyway and we would be just as fine taking that money and investing it in brokerage account (planning on low cost index funds with vanguard or fidelity where I already have most of our savings) which is kind of where we are leaning as expense ratios look to be similar.
Just wondering if anyone else has thoughts on this or another way of thinking about it that I’m missing…
Posted by Neon_sanders
5 Comments
It gives you the option to roll it into an IRA when you get out, which would then allow it to grow tax free
Other little tidbits in this slideshow, but if you’re thinking this far ahead already, you might know it all
https://youtu.be/NKlA6Oeka-E
The only benefit I can see to ever contributing to the traditional side of TSP is to lower your current year income and pay less taxes now, but since this income is already tax exempt….I see no benefit either. On another note, with only 90 days in the zone, are you going to be able to get over the annual limit anyway? I believe there is a issue trying to select 100% contribution. I would recommend talking with finance, but i’ve found they are more often unclear on these type of issues. You may just take the SDP route, get your 10% and continue your normal or slightly increased TSP contributions. Good Luck!
My recommendation is to max your ROTH TSP and then put the rest into a taxable brokerage account (money is going in untaxed so huge benefit there) and if you hold the assets for long-term capital gains the most you will pay (unless you are uber high-earner) is 15% tax. That is hard to beat!!!
You still get benefit of tax differed growth. The alternative of investing in a taxable brokerage you will have tax drag on and dividends, distributions from mutual funds, trades to rebalance etc… along the way.
After separating, you can rollover the tax free contributions to a Roth IRA and start growing them tax free. I’ve been meaning to do this myself but dont want to get it wrong. I maxed TSP contributions while deployed back in the day. Thanks for remind ing me to get on this.
Definitely do it!! You can roll over tax exempt contributions into a personal Roth IRA. And since you did not pay tax on it to begin with there is no tax burden to roll over into a Roth like how it is normally. With some paper work and a few hours of wasting your time talking to DFAS Uncle Sam will NEVER be able to tax that money. That’s huge. It’s really so simple that you’ll be saving tens of thousands in the long run in retirement. This is what I’m planning on doing I have a CZTE deployment coming up next year.