Will the pension put you at exactly the same marginal rate for withdrawals in retirement as the marginal rate at which you would save on traditional contributions this year?
Hi MDM, thanks for the quick response!
If you could tell me the marginal rates and tax brackets in effect when we retire and when we must take RMDs, as well as the stock market returns during the intervening years, that would really help us calculate what we should do! ;-)
With my spouse working, we're currently solidly in the 22% marginal bracket.
I'd qualify for a pension in 2026, and my pension in current dollars would fall into the current 12% (but after the TCJA sunsets, in 2026, reverting to 15%) bracket, more than halfway to the lower boundary of the current 22% (post-TCJA-sunset reverting to 25%) bracket. That would leave only a little room to build a Roth pipeline for 10>x>20 years before RMDs from our deductible TSPs and TIRAs commence. However, our balances are way too large to exhaust via the Roth pipeline, and (as I mentioned before) the agency matching contributions would continue to build the deductible TSP balance before retirement.
Once the RMDs begin, and since we'd have also by then started taking Social Security Benefits, we'll almost certainly exceed the current lower boundary of the current 22% (in 2026 reverting to 25%) bracket, meaning our capital gains would also result in non-zero CG taxes.
By switching our TSP contributions to Roth now, we'd pay 22% now to avoid paying 25% (under current law) in retirement; if the Congress raises marginal tax rates in the future, which I expect, we'd avoid paying an even higher rate.
Consequently, I believe it makes the most sense to switch to Roth TSP contributions now.