Switch to Roth TSP?

Jeremy asks if he should consider switching from his Thrift Savings Plan (TSP) to a Roth Thrift Savings Plan.

QUESTION: Jeremy on Twitter asks if he should consider switching from his Thrift Savings Plan (TSP) to a Roth Thrift Savings Plan.

ANSWER: In most retirement accounts—unless you’re starting in your 60s—the vast majority—90%-plus of the money in the account when you reach retirement is growth. Ten percent or less is the money you put in to the account. So the growth being tax-free by it being in a Roth TSP is excellent.

In other words, if you’ve got $1 million in there and $900,000 of it is growth and you get taxed on that, the taxes are $300,000. If it’s in a Roth, there’s no taxes. It just saved you $300,000 out of every $1 million—give or take. That’s what you’re facing here.

So yeah, I’m going with a Roth. Now if you’re starting very, very late and there’s not going to be much in there except what you put in there, the math might work the other way, but most of the time, if you’ve got several years to invest, the Roth IRA or Roth TSP or Roth 401(k) where it grows tax-free is going to be the best.