Page 94 - The Informed Fed--Hearn (edited 10.29.20)

First, the regular TSP, like the Roth TSP, is funded via payroll
deduction. The money going into a regular TSP account is tax deferred.
As Mr. Long says, it’s a “pay me later” deal for Uncle Sam. The Roth
TSP is totally different because it’s funded with after-tax money. In other
words, you pay the taxes on it before you invest. So, when it comes out,
it is all yours!
Secondly, and this is very important, there are no income limits on
Roth TSP contributions. With a Roth IRA, if you make more than a
certain amount, you cannot contribute. But with the Roth TSP you can
contribute after-tax money. So, you could have a regular TSP account
and a Roth TSP account at the same time; the only limit is the IRS limit
on the amount an individual can contribute in one year. Mr. Long says
he gets nervous when people fixate on the term “tax-free” with the Roth
TSP. He said they need to study the option carefully and people “need
to think long and hard” before choosing one option or the other.
Roth contributions are taken out of your paycheck after your income
is taxed. When you withdraw funds from your Roth balance, you will
receive your Roth contributions tax free since you have already paid taxes
on the contributions. You also won’t pay taxes on any earnings, as long
as you’re at least age 59½ or disabled, and your withdrawal is made at
least 5 years after the beginning of the year in which you made your first
Roth contribution.
Traditional (pre-tax) contributions, which lower your current taxable
income, give you a tax break today. They grow in your account tax-
deferred, but when you withdraw your money, you pay taxes on both the
contributions and their earnings. Here are some additional facts that you
need to know: 1) The 1% agency contribution does not vest for three
years. 2) new employees are automatically enrolled with a 3% Roth
contribution, 3) Congress may require force enrollment, and 4) unlike
the traditional Roth, the Roth TSP has RMD at age 72. Traditional Roth
IRAs cannot be transferred to the Roth TSP.

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