Traditional TSP vs. Roth TSP – A Comparison

The Thrift Savings Plan is an excellent way for federal employees and military personnel to save for retirement. It provides two excellent options for its beneficiaries , lets have a look on Traditional TSP vs. Roth TSP

Deciding where to invest in between these plans is not a complicated feat, as it is merely an indicator of which tax bracket you will be in when you make withdrawals. Although there is a lot of debate regarding which is better, there is ultimately no real benefit to Roth TSP or Traditional TSP in terms of how much growth you will get from your TSP investment through the period of your employment.Traditional TSP vs. Roth TSP

Difference Between Roth TSP and Traditional TSP

Members who have applied and successfully enrolled for the Traditional TSP can easily switch to Roth TSP with the help of a simple online process that takes less than 5 minutes. Upon the switch from Traditional to Roth TSP, you’ll have to access two different balances in your TSP account; one of which has a tax liability, the other does not.

If you’re indecisive and on the fence, because you don’t know whether to switch to Roth or not, consider making the most of both by having both a Traditional TSP account and a Roth TSP account. If you’re strategic regarding your allocation of assets in your separate Roth TSP and Traditional TSP accounts, you may even avail a tax break. The hedging method gives you two options for accounts that you may draw from and it is smart to make the best use of it.


Choosing between Roth and Traditional TSP will have a far-reaching impact on the value of your savings. Given below is an in-depth comparative analysis between them to help you make the best decision.

TSP Tax Contributions

Traditional TSP Contributions are pretax and are only charged federal and state tax upon withdrawal. On the other hand, Roth TSP Contributions are after-tax and go through all taxation before being deposited. None of these apply to military personnel making tax free contributions such as combat zone exclusion pay, in which case you are neither taxed during contribution nor withdrawal.

TSP Paychecks

For Traditional TSP accounts, fewer amounts are deducted from your paycheck. On the other hand, a greater amount is deductible from Roth TSP because taxes are to be paid upfront. This evaluation is the fundamental difference between Traditional TSP and Roth TSP.

Transferring In

For Traditional TSP accounts, transfer-ins are permitted from traditional IRAs and eligible employer plans. On the other hand, transfer-ins are also allowed from Roth 401(k), 403(b), and 457(b) – plans which will require effort and patience to attain. Use Form TSP60 and TSP60R to avail of this benefit.

Transferring Out

In the case of traditional TSP, transfer-outs are allowed to in traditional IRAs, Roth IRAs and plans for eligible employers. For Roth TSP, transfer-outs are accessible under Roth 401(k), 403(b), 457(b), and Roth IRAs. Similar to transferring-in, you must use Form TSP60 and TSP60R to avail this.

Withdrawing from TSP

Traditional TSP withdrawals are taxable when withdrawn after retirement while Roth TSP withdrawals are tax-free because they had already been taxed beforehand. The conditions for this is as follows:

  1. You have been making Roth contributions for at least 5 years and running – having proved your credibility.
  2. You are at least 59.5 years old, any less will require you to incur a 10% tax penalty unless exempted.
  3. You are permanently disabled/handicapped and require this due to financial hardship
  4. If the owner is a deceased individual and you are withdrawing as a beneficiary.

Deciding which option to go for – Roth TSP or Roth TSP

To get a clear understanding of what both options i.e. Roth TSP and Traditional TSP entail, we need a descriptive comparison between both. The most important scenario, that stands out among the rest is your tax bracket in retirement. Three diverse scenarios may apply:

  1. The tax bracket is similar to what it will be like in retirement. Despite being highly unlikely, it must be taken into consideration. If this were to happen, you would get the same amount in retirement for both traditional and Roth TSP
  2. If the tax bracket is lower now than it will be in retirement, having a traditional TSP is pointless as they are more efficient during employment. In this case, you should opt for Roth Contributions.
  3. The tax bracket during employment is higher than it will be during retirement, in which case having a Roth TSP is pointless. Hence, you should move towards traditional contribution.

Key takeaway

Traditional Thrift Savings Plans appeal to those wishing to lower their current taxable income, as this has a low tax rate on contributing income but rather a larger one on withdrawals. This essentially means, if you’re certain that you would be in a lower tax bracket upon retirement, you should opt for traditional contributions.

However, since Roth Thrift Savings Plans are after-tax, the contributions are tax-free and you will not have to pay additional taxes and subsequent penalties upon withdrawal after retirement either.

Taking these factors into account, one must decide what is more suitable for their sustainability. This may involve a lot of calculations and predictions, and perhaps one may feel like they require a combination of traditional TSP vs. roth TSP to feel like they’ve maximized their potential. Upon doing the math, you will recognize that your gross earnings are ultimately the same and the only question that requires an answer is whether you want to pay a higher tax rate now or upon retirement. In addition to all that has been said before, if you think that the tax rate will plummet – go for the Traditional TSP. Whereas if you think it will increase, you’re better off with Roth TSP.

The only thing we can suggest with full certainty is that TSP is a very meaningful government provision that has proved to be useful for many federal and uniformed officers and should not be ignored.

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