Compare the effects of traditional and Roth contributions.
| The Treatment of… | Traditional TSP | Roth TSP |
|---|---|---|
| Contributions | Pre-tax | After-tax1 |
| Your Paycheck | Taxes are deferred*, so less money is taken out of your paycheck. | Taxes are paid up front*, so more money comes out of your paycheck. |
| Transfers In | Transfers allowed from eligible employer plans and traditional IRAs | Transfers allowed from Roth 401(k)s, Roth 403(b)s, and Roth 457(b)s |
| Transfers Out | Transfers allowed to eligible employer plans, traditional IRAs, and Roth IRAs2 | Transfers allowed to Roth 401(k)s, Roth 403(b)s, Roth 457(b)s, and Roth IRAs3 |
| Withdrawals | Taxable when withdrawn | Tax-free earnings if five years have passed since January 1 of the year you made your first Roth contribution, AND you are age 59½ or older, permanently disabled, or deceased |
The TSP will keep your traditional balance and your Roth balance in separate “buckets” in your TSP account for the purposes of tracking contributions and transfers into your account. However, you cannot just tap one or the other balance when you request transactions such as contribution allocation changes, interfund transfers, loans, and withdrawals. All transactions will include a proportional amount from each balance.
* If you are a member of the uniformed services receiving tax-exempt pay (i.e., pay that is subject to the combat zone tax exclusion), your contributions from that pay will also be tax-exempt.
1 Roth contributions are subject to Federal (and, where applicable, state and local) income taxes, while traditional contributions are not taxed until withdrawn. However, both Roth contributions and traditional contributions are included in the amount of wages used to calculate payroll taxes (e.g., Social Security taxes).
2 You would have to pay taxes on any pre-tax amount transferred to a Roth IRA.
3 Transfers to a Roth IRA from a Roth TSP are not subject to the income restrictions that apply to Roth IRA contributions.
