Considering a ROTH IRA or ROTH TSP…
Updated: Mar 22
Here’s the Highlights
A Roth or TSP ROTH grows without any taxes and all amounts withdrawn are tax-free.
You do have to pay taxes today on the amount you choose convert from a regular IRA.
The taxes are due in the year you convert at your regular income-tax rate. If you move a large sum all at once that can bump you into a higher tax bracket. “Ouch!”
Converting in smaller amounts for several years is a wise move. Here is the ‘BUT’…even then your income will be higher every year.
Because taxes are progressive, you end up paying your highest personal tax rate on those converted IRA dollars.
The historical tax chart below reveals your future tax rate is uncertain so playing around with online Roth IRA calculator…well it may be of little use.
Conversion from regular IRA to ROTH or from TSP to ROTH TSP should be completed before age 70.
At 70 ½ …the government forces us to take money out of traditional IRAs and 401(k) plans and pay income taxes on those withdrawals. The IRS smiles and calls this a required minimum distribution (RMD).
But…we can smile back. After 70 ½, owners of Roth IRAs are not required to make yearly RMDs on those contributions, unlike with a traditional IRA. This mean the ROTH IRA money is literally tax-free forever, will grow tax-free forever, and which is not subject to IRS distribution rules.
Get the details on ROTH TSPs at https://www.back2civilian.com/tsp-roth