What is the difference between Traditional TSP & ROTH TSP? - United Benefits


Although the ROTH option has been available in the Thrift Savings Plan since 2012, I’ve found that most federal employees do not understand how it differs from Traditional TSP and if it could be a part of their retirement plan.  In today’s article, we’ll look at the differences between the two and help you determine which is the best option for your retirement dollars.

Traditional TSP contributions are made before taxes are taken out and, unlike other investment accounts, you do not pay capital gains taxes either. This means you can let your savings grow and delay paying taxes until you withdraw your money. ROTH contributions are instead taxed up-front, but this allows you to receive qualified distributions tax-free. For the withdrawal to be a qualified distribution, you must have had the ROTH account for at least five years, and you must be age 59 ½ or older.

Matching contributions are among the most valuable retirement benefits available under the Federal Retirement System (FERS.) Eligible participants automatically receive 1% of their pay deposited into their TSP account, but by also contributing 5% yourself, you can receive another 4% in matching funds. You can split your 5% between Traditional and ROTH any way you wish; however, all matching agency contributions will be deposited into your Traditional account.

So which strategy is right for you? No one can predict the future or how tax rates may change over time, so there is no right or wrong method for allocating your funds between the two.

You will want to take into account:

  • Your Age
  • How Many Years Until Withdrawals Begin
  • Your Current Tax Rate
  • Your Expected Tax Rate in Retirement.


For most of my retirement clients who have at least 5 years until expected withdrawals, I prefer a “blended” approach. For example, if you contribute 5% of your pay into the ROTH account, your agency match of 5% will be deposited into your Traditional account. This approach will give you two places to withdraw from in retirement, depending on your tax situation.


If you would like a personalized retirement and TSP review, fill out the form below and one of our retirement specialists will contact you.


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