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Traditional vs ROTH TSP Planning

ByJames Hutchens

Traditional TSP contributions are made pre-tax, reducing current taxable income but taxing withdrawals, while Roth TSP uses after-tax dollars for tax-free retirement withdrawals. Traditional is ideal for high earners wanting immediate tax breaks, whereas Roth benefits those in lower tax brackets now or anticipating higher taxes later.

Key Comparisons

  • Taxes: Traditional is taxed upon withdrawal (deferred); Roth is taxed upfront.
  • Growth: Both grow tax-deferred, but Roth earnings are tax-free upon qualified withdrawal.
  • Matching: Agency matching contributions always go into the Traditional TSP, regardless of whether you contribute to Traditional or Roth.
  • RMDs: Roth TSP has no Required Minimum Distributions (RMDs), allowing funds to stay in longer.
  • Withdrawal Rules: Roth withdrawals are tax-free if you are at least 59 ½ and it has been 5+ years since the first contribution. 

Strategic Planning

  • Early Career: Roth is often better due to lower current tax brackets and longer growth time.
  • Late Career: Traditional provides valuable tax deductions when in a high-income bracket.
  • Tax Hedging: Contributing to both allows for tax flexibility in retirement. YouTube +2

Both options have the same contribution limits ($23,500 in 2025, or $31,000 if 50+). The decision hinges on whether you expect to pay a higher tax rate now or in the future.

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