Page 101 - The Informed Fed--Hearn Wealth Management

the immediate tax liability resulting from contributing to the Roth TSP
and transferring traditional TSP funds to a Roth IRA.

For those employees who in the past were able to contribute to
deductible traditional IRAs and who have, throughout their federal
careers, been contributing to the traditional TSP; the Roth TSP and Roth

IRA are a mirror image of the traditional TSP and the deductible
traditional IRA respectively. Contributions to deductible traditional

IRAs are an adjustment to income on on

to current year tax savings while the earnings and contributions grow

tax-deferred.
salary resulting in a lower AGI and current year tax savings. Distributions
from the deductible traditional IRA and traditional TSP are fully taxable

at ordinary tax rates. With the Roth TSP and Roth IRA, it is the opposite
with contributions; always nondeductible but qualified distributions are
tax-free.

The general tax rule is that if an individual expects to remain in the
same marginal tax bracket throughout his or her life; then contributing

to a traditional retirement account or traditional IRA, or to a Roth
retirement account or Roth IRA, will in the end lead to the same after-
tax result. However, the fact is that most individuals likely do not remain

in the same marginal tax bracket throughout their lives. Individuals tend
to be in lower tax brackets early in their working careers and in higher

tax brackets later in their working careers. Even in retirement, many
federal annuitants end up in higher tax brackets compared to their tax
brackets while working because of the amount of their retirement
income. Retirement income includes CSRS or FERS annuities, TSP

withdrawals, Social Security, and perhaps other pensions/IRAs such as
a military pension.

One of the most overlooked advantages to the Roth IRA is that it is
the only type of retirement account that an individual is not required to
take Required Minimum Distribution (RMD) once he/she reaches age

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