What Factors Should I Consider Before Contributing to a Roth TSP?

Before considering anything, it is important to know what a Roth TSP is. A Roth TSP, or Thrift Savings Plan, is a tax-deferred retirement savings and investment plan specifically for federal employees and members of the uniformed services. A Thrift Savings Plan is similar to a 401(k) plan, which is a retirement savings plan offered by employers of private-sector corporations. Those who take part in utilizing a TSP can save for retirement, as well as potentially receiving matching contributions made by their employer and receive reductions on their current income taxes.

Determining if a Roth TSP is right for you is a daunting task, and there are several factors to take into account when making this decision. Typically, Roth TSPs are a good match for individuals who anticipate their tax rate to be higher once they are in retirement than it is now. However, when you make contributions to your Roth TSP, there will be no reduction in your adjusted gross income like there is when you choose the traditional route. This is one of the key factors to think about when making the decision of which type of plan to choose.

Another factor to consider when deciding if a Roth TSP is right for you is the fact that your take-home pay will be reduced by more than it would if you choose the traditional option. Traditional 401(k) plans are created using pre-tax dollars and allow you to take home as much money as possible (not including taxes), whereas Roth contributions do not. Traditional TSPs will enable you to make contributions before taxes are taken out of your paycheck, which you then pay taxes on future withdrawals. Roth TSP contributions mean that taxes are paid up front, and your contributions are made with after-tax income.  You may contribute up to $19,000 to your Roth TSP for 2019 ($19,500 in 2020) and if you are over age 50 you may also make an additional $6,000 catch-up contribution ($6,500 in 2020).  This is considerably more than you may be able to contribute to a Roth IRA, which is $6,000 plus a $1,000 catch-up contribution if you are over age 50.  That said, if you want to contribute to a Roth IRA outside of your TSP and your income is over $206,000 (married filing jointly) or over $139,000 (filing single) you may not be eligible to contribute directly to a Roth IRA.  If your income is below these limits we recommend speaking to a CPA or financial advisor to determine if you are eligible for a full or partial contribution.

Roth TSP withdrawals do not require you to pay state or federal income taxes, which means if you have a higher tax bracket in retirement, the stronger your Roth account will be in the long run. Roth TSPs are great for those who are good savers because they are more likely to benefit from the tax-free withdrawals that come with choosing a Roth account.  Furthermore, Roth TSP’s are not subject to required minimum distributions (RMD’s).  This gives the account owner the added flexibility to only take withdrawals on cash flow needed as opposed to a mandated withdrawal percentage set by the IRS.  Given that many federal government retirees have a taxable pension and social security, the Roth TSP is an option to have a tax-free resource for later in retirement.  For additional information on required minimum distributions you may visit the IRS’s website: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions      

As more and more employers offer their employees a choice between traditional or Roth retirement savings accounts, it is important to take these factors into account when determining if a Roth TSP is a good fit for you. It is important to think about what your tax rate is now, and what you think it will be in the future in order to properly decide if a Roth TSP or traditional TSP is right for you.

When making decisions like this, it may be helpful to speak with a financial advisor to make sure you understand all your options. Plotkin Financial Advisors is here to help you understand the options available to you, especially when it comes to making decisions for your financial future. Contact us to learn how we can serve you today!

Securities offered through Independent Financial Group, LLC (IFG) a registered broker dealer and Member FINRA/SIPC. Advisory services offered through Plotkin Financial Advisors, LLC, a registered investment adviser. Plotkin Financial Advisors, LLC and IFG are unaffiliated entities.

References:

https://www.tsp.gov/PDF/formspubs/tspbk08.pdf

https://www.myfederalretirement.com/thrift-savings-plan/

https://www.tsp.gov/PlanningTools/InvestmentStrategy/retirementsavings/taxAdvantages.html

Getting Started with Estate Planning

It’s never too early to start estate planning. Having a plan in place at an early age is always preferable to finding you don’t have one when you really need it. If you’re a little lost on what you should be doing first start with these few steps:

 

Make a Comprehensive List of All Finances
One of your first steps to estate planning will be to sit down and figure out exactly what it is that you have. Make a list of everything major that you own, including obscure things which you might not think of but that have value, such as a stamp collection or antique furniture. Next make a list of what funds you have, whether it be savings, retirement funds, or investments. Finally make sure you note what debts you currently have as well, so you know the exact value of your assets and how much money you truly have.

 

Make a Plan for Your Inheritance
Deciding who gets what is a tough but important part to your estate planning. Of course, you will want to make sure that your assets and money will go to exactly who you hope to receive it. It’s also important to make note of how and when you want those people to receive things. If you’re leaving a large sum of money to a minor you might want to arrange circumstances where they cannot access that money until a reasonable age. Or if you are intending to leave money specifically for someone’s education look into a 529 plan which you could start using now.

 

Understand what passes through Probate

Generally, any investment account, life insurance or savings and checking accounts may pass directly to your beneficiaries by listing them as such on the accounts.  If you do not list a beneficiary on your accounts, these accounts will be subject to the probate process.  Furthermore, other items like your house, vehicles and personal items are passed through your state and county of residence through probate court.  Having a Will ensures these items are passed to your intended heirs through the probate process.  However, if you would like to avoid probate and bequeath items to your beneficiaries directly, it may be recommended to consider a trust such as a revocable trust.

 

Consider Who Should Be Making Important Decisions for You
Should the time come where you cannot make decisions for yourself regarding your own healthcare you will want to know that the right person is making them for you. Also consider who you would want to be in control of your finances or legal matters and create a power of attorney that can be as limited as you want it to be. These are good ways to maintain some sort of control over what happens to you.

 

Don’t Forget the Lawyer
Hiring a lawyer is important if you want to be sure you’ve completed all the paperwork correctly and you haven’t left room for any small mistakes. If your estate is quite sizable checking everything over with a lawyer will ensure your wishes will be fulfilled exactly how you imagine.

These are just the basics to get you started with planning what will happen to your estate after your passing. Be sure to remember to check in on these plans frequently as your circumstances and relationships will probably change which could lead to you needing to make updates.

 

Signature Services Program
Plotkin Financial Advisors’ (PFA) Signature Services program offers complimentary and comprehensive income tax and estate planning services to eligible clients. Our team can help coordinate annual income tax preparation and address estate planning needs. We understand that premium financial planning requires ongoing monitoring of our clients’ entire financial situation. PFA’s Signature Services complements our holistic financial planning approach.  Truly unique, this service speaks to our commitment to meeting the financial planning needs of our clientele. If you would like to learn more about our Signature Services and Plotkin Financial Advisors, LLC, please feel free to contact us today!

Securities offered through Independent Financial Group, LLC (IFG) a registered broker dealer and Member FINRA/SIPC. Advisory services offered through Plotkin Financial Advisors, LLC, a registered investment adviser. Plotkin Financial Advisors, LLC and IFG are unaffiliated entities.

Retirement Travel: A Time to Travel Like Never Before

What do you look forward to the most when you retire? Is it perfecting your golf game, or having the time to take the grandkids to Disney World? Your time opens up when you retire – how do you want to spend it? For those of you who want to travel the world, we couldn’t agree more! What better time to see the world than during your retirement?

Retirement brings about many perks, one of the best being the freedom from a full-time job. Now that you get to decide what to do with your time, traveling sounds like a great way to spend it. You’ve worked hard to build your assets and your nest egg – now it’s time to reward yourself with the trip of a lifetime!

Here are 3 trip ideas we highly recommend putting on your retirement bucket list. Say goodbye to your 9-5 with an incredible adventure!

Live Like Royalty

Celebrate your retirement freedom by spending a week in a privately-owned castle. Drummond Castle in Drogheda, Ireland and Kilcolgan Castle near Galway offer rooms for rent, some with rooftop patios. If you want to rent an entire castle, travel to Tudor Manor House in Somerset, England. You can’t get much more luxurious than that! Thinking about renting a castle? Airbnb makes it easy.

Toast Your Retirement

Toast your retirement with a tour through a breathtaking wine country at home or abroad. Whether you are a wine connoisseur or you’re thinking about taking your first wine tour – there’s a trip out there for everyone. For those of you who are true wine geeks, Georgia is your destination. Known as the “cradle of wine,” Georgia’s winemaking heritage traces way back in time. If you’re really looking to spend the big bucks, travel to Champagne for the wine tour of your dreams. The most luxurious wines are crafted here, and the city offers luxury hotel lodgings close by. If you’re looking for a little history with your wine, Virginia is a great place to start. Jefferson Vineyards is a short drive away from the 48-room Keswick Hall and Golf Club. Sip on wine and history by day and stay in the 1912 Italianate mansion at night. For more information about the world’s best wine tours, click here.

Discover Your Heritage

It’s natural to get a little nostalgic as we grow older. Instead of flipping through old family albums on the couch, embrace your heritage and visit your family’s country of origin! Now that you have the time, why not do a little research and find out where your roots really began? There’s nothing quite as awe-inspiring as walking down the streets where your ancestors grew up. If you’re not sure where to start, you can go to FamilySearch.org and type in your country of origin and family name.

 

Traveling in retirement can be everything you’ve envisioned it to be. Plotkin Financial Advisors is here to help you succeed in all your financial endeavors. Contact us to learn how we can serve you today!

Securities offered through Independent Financial Group, LLC (IFG) a registered broker dealer and Member FINRA/SIPC. Advisory services offered through Plotkin Financial Advisors, LLC, a registered investment adviser. Plotkin Financial Advisors, LLC and IFG are unaffiliated entities.