Author Topic: Tax planning for 2015 (Traditional or Roth TSP?)  (Read 1731 times)

Travis

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Tax planning for 2015 (Traditional or Roth TSP?)
« on: December 19, 2014, 07:16:22 AM »
I'm trying to figure out if I should go traditional or Roth for my TSP for next year.  Roth TSP became available a couple years ago and I'm taking a close look at it, but it's a bit of a guessing game as to whether I should lower my taxable income now or if I should be worried about my taxable income down the road.

Married with one child (age 4)
Projected taxable income for 2015: $88,000

If I retire from the Army at 20 years (I'm about to hit 12) I will have a pension of $52k/year in current dollars. 
If I continue with traditional TSP my working age tax rate will stay in the 15% bracket, and without it I go up to 25%.  I think I'll move up to the 25% bracket for the last few years of my career due to raises even after TSP deductions.  If I did the math right and FIRE right after I retire from the Army, I'll start out with a taxable income lower than what I'm making now, but at age 60 I can start withdrawing TSP and I'll jump to equal to what I'm making now.  Does it make sense to continue with traditional contributions and keep myself in the 15% bracket or bite that bullet now to lower my tax rate later?

kendallf

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Re: Tax planning for 2015 (Traditional or Roth TSP?)
« Reply #1 on: December 19, 2014, 07:40:40 AM »
I think if you are able to lower yourself down a bracket now, I would keep it in Traditional.  It's hard to predict exactly where you'll fall on the bracket lines in retirement, but at least initially you might be able to do some Roth pipelining while keeping yourself in the 15% bracket to minimize taxes then. 

I was stationed at McChord AFB in the late 80s.  Worked on C-141s and left to go to WSU, where I graduated.  I loved that area.  :-)

MDM

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Re: Tax planning for 2015 (Traditional or Roth TSP?)
« Reply #2 on: December 19, 2014, 02:21:51 PM »
I think if you are able to lower yourself down a bracket now, I would keep it in Traditional.  It's hard to predict exactly where you'll fall on the bracket lines in retirement, but at least initially you might be able to do some Roth pipelining while keeping yourself in the 15% bracket to minimize taxes then. 

+1

Almost exactly what I was going to say.  If you want to play it really fine you could do traditional until you drop your taxable income to the 15% upper limit and Roth for everything more up to the TSP limit.