Roth TSP vs Trad TSP + Roth IRA

[REatc]

I’ve been thinking lately about Roth. Currently I and my soon to be wifey are doing traditional only on our tsp/401k. We max those then everything else I invest in my taxable account. We don’t have IRAs, I’ve always thought of them as slightly insignificant in the grand scheme of accounts.
I make 160k, she makes 60k. Since we do traditional now our AGI is 182k making us eligible for a Roth IRA. If we stopped the traditional tsp/401k and switched to roth that would make us ineligible for the Roth IRA. Would this we wide of us or not? I’m been mathing all morning and trying to calculate everything, and trying to predict the future tax brackets for a break even point, but my head hurts.

Anyone have an opinion? Sometimes I like the thought of paying taxes now and you know never again to pay taxes.

[bacchi]

You're earning $182k AGI now. What do you expect to withdraw when you retire?

Forget about future taxes. It's pointless to speculate past the current Congress/WH.

[REatc]

The most we’ve ever spent was last year, ironically, which was 40k. I like to think my withdrawal number would be 60k, to build a buffer and to have slightly more luxuries. I have a pension what would be about 48k pretax as well.

[MDM]

Traditional versus Roth - Bogleheads is the most comprehensive (sometimes too comprehensive...) article on the subject.

See also the Backdoor Roth process.  As it says there, "If you cannot contribute to a Roth IRA because your income exceeds the income eligibility limit, you can still choose to contribute indirectly through a two step process known informally as the backdoor Roth."

With a $48K/yr pension (in today's dollars), it would take a little over $1.4 million in traditional accounts, being withdrawn at a 4% withdrawal ratio, to reach the 22% bracket in retirement.  If you switch to all Roth now, what do you expect for your traditional balance at retirement?

[REatc]

If I switched to roth now, traditional balance would be 500k. If it kept traditional it would be 1.2M. If I keep traditional I can fund both Roth IRAs basically to the max each year just by the tax savings.

[MDM]

If I switched to roth now, traditional balance would be 500k. If it kept traditional it would be 1.2M. If I keep traditional I can fund both Roth IRAs basically to the max each year just by the tax savings.

Based on that, continuing traditional contributions seems best.  Is that also how it looks to you?

[REatc]

Yea seems to me if I can max traditional tsp plus max Roth IRA with the same amount of money it’s better then max Roth tsp and not be eligible for Roth IRA then.?

[MDM]

Yea seems to me if I can max traditional tsp plus max Roth IRA with the same amount of money it’s better then max Roth tsp and not be eligible for Roth IRA then.?

You would still be eligible for a Roth IRA by using the backdoor process.

The reason to expect traditional will work better in the long run for you is that you will save 22% on those contributions now, but pay only 12% (maybe 15%) when you withdraw later.  That is, based on what you know now.  It's a good idea to re-evaluate every year or so, as your personal situation and tax laws change.

[REatc]

Yes that is what I’m told myself to rationalize my approach for now. I guess I was just thinking about slightly hedging with a Roth IRA. I like the idea of never paying taxes again.

[Beach_Stache]

I maxed 401k & TSP every year since I started, convinced DW to max 401k after a few years to transition to that mindset, and I also maxed my Roth IRA each year.  Now we're in that phase out limit, but the last few years I switched mine to mostly a Roth TSP, but that puts us in the phase out limit, so we can only contribute maybe 30% each to our Roth IRA at tax time each year.  For us the decision was to have multiple buckets, but mostly b/c if I work another 17 years until pension (which I'm planning to do), we'll have so much in traditional that it could be a tax problem.  So with multiple buckets, at retirement time, we'll get my pension, then can tap traditional and use that for expenses as well as conversions to Roth IRA (after we move from TSP to rollover's) and can let the Roth grow tax free while we live off of pension at traditional. In the end it may balance out most likely b/c I can't fully fund Roth IRA anymore now that AGI is higher, but I do like having more money in Roth accounts as it gives a bit of flexibility.

For you though, if you will end up projected at $1.2M Traditional, I would just keep it at that, as once you retire you'll have your pension, but still a big gap from what you normally make pre-retirement, so you can use your traditional and be at a lower tax bracket still (at least up until SS kicks in).