Traditional Vs. Roth

[kroberts2131]

I'm starting to pay alot more attention to my TSP (.gov version of a 401k). When I took this job I thought I could count on my .gov pension to offset my lack of knowledge on my retirement savings but I'm pretty sure I'll never see that one. I am debating switching to a Roth IRA instead of the traditional. I get the jist, pay taxes now or later. I I'm just not sure which is really better in the long run. I know that my income level is going to increase quite a bit in the next few years (as long as I keep doing what i'm supposed to do at work). So what do you guys use? and what do you think are the benefits of each? I've read a few books here and there but none of them really make much sense to me.

 

[SPCAS]

I used the Pension plan until my Company dropped it. at the time they didn't do 401k matching so it really was the better of the 2. They have since dropped Pension so I went Roth 401k.

 

[vvvvvvv]

The answer is... it depends... and part of it depends on if you're going to let "max contribution" be your max contribution for retirement.

For me, the numbers are basically a wash unless I retire in a higher tax bracket if I limit myself to a max contribution of $5K/yr and assume an average 8% return. If I remain in my current bracket, they come out even. If my tax burden drops in retirement, then the Traditional works out better. If my tax burden goes up, then the Roth works out better. (These are just from various online calculators where some yield slightly different results, but the overall trend remains.)

I've heard a lot of people that I respect for their financial opinions recommend maxxing the Roth first and then hitting the next most beneficial type of retirement account, with the idea being that the Roth is a sort of minimizing hedge against tax increases. Basically, the Roth is their "living" retirement fund and the rest is for R&R (or passing down to any deserving offspring).

 

[steelhorse]

I'm not a financial advisor but it makes sense to me to put enough in your TSP/401K to receive the company match then max out the Roth with a combination of Bonds, mutual or index funds, ETFs, etc.

 

[mach1soldier]

Seems to me that the roth is better if you expect taxes to go up as mentioned. Traditional in case you expect them to go down in retirement. I'm not much of a gambler so I use both. I'm becoming more Roth focused lately since it looks like taxes will keep going up for me regardless of my income due to the government spending.

 

[TurboFinger]

I'm starting to pay alot more attention to my TSP (.gov version of a 401k). When I took this job I thought I could count on my .gov pension to offset my lack of knowledge on my retirement savings but I'm pretty sure I'll never see that one. I am debating switching to a Roth IRA instead of the traditional. I get the jist, pay taxes now or later. I I'm just not sure which is really better in the long run. I know that my income level is going to increase quite a bit in the next few years (as long as I keep doing what i'm supposed to do at work). So what do you guys use? and what do you think are the benefits of each? I've read a few books here and there but none of them really make much sense to me.

i wouldn't do it unless you are planning on spending it very soon.

it's a way for the government to take some of your retirement money now and there's no guarantee they won't change the rules later to take more of it. i think they are offering conversions to raise short term revenue and when they need more revenue later, you'll get hit again. don't trust these crooks.

 

[Road Runner]

Take advantage of the Roth option while you can, before your income increases and while your tax rate is lower. Once your income increases beyond a certain amount, you will be ineligible to contribute to a Roth. Here is a link to income and contribution limits: http://www.rothira.com/roth-ira-limits

 

[1shott]

My company does a match for both the 401 and roth...right now I am just in 401k and also in a employee stock purchase plan.