One of the most common questions service members ask about the Thrift Savings Plan (TSP) is: Should I contribute to Roth TSP or Traditional TSP?
The right choice depends on your income, tax bracket, career stage, and long-term goals. Choosing the wrong option, or never revisiting your decision, can cost you thousands in unnecessary taxes over time.
This guide breaks down Roth vs. Traditional TSP, explains how each works, and helps you understand which option may make the most sense for your career.
What Is Roth TSP?
Roth TSP contributions are made with after-tax dollars, meaning you pay taxes now.
Key Features:
- Contributions are taxed upfront
- Qualified withdrawals in retirement are tax-free
- Earnings grow tax-free
- No Required Minimum Distributions (RMDs) during your lifetime
- Government matching contributions (under the Blended Retirement System, BRS) go into Traditional TSP, even if your contributions are Roth
Roth TSP is often ideal for service members who expect to be in a higher tax bracket in retirement or who want tax-free income later in life.
What Is Traditional TSP?
Traditional TSP contributions are made with pre-tax dollars, meaning you defer taxes until retirement.
Key Features:
- Contributions reduce your taxable income today
- Withdrawals in retirement are taxed as ordinary income
- Earnings grow tax-deferred
- Required Minimum Distributions (RMDs) apply later in life
- Government matching contributions are always Traditional
Traditional TSP works well for service members in higher current tax brackets or those seeking immediate tax relief.
How to Decide: Roth vs. Traditional TSP by Career Stage
Early Career (Lower Income Years)
- Roth TSP is often the preferred choice because of lower current tax rates
- Tax-free growth over decades can be powerful
- Common for junior enlisted and early officers
Mid-Career (Rising Income)
- A blend of Roth and Traditional contributions often makes sense
- Tax diversification provides flexibility later
- Promotions and bonuses may push you into higher tax brackets
Late Career / Pre-Retirement
- Traditional TSP may help manage current tax exposure
- Roth contributions can still be valuable for tax-free income in retirement
- Planning around pensions, VA benefits, and future RMDs becomes critical
Common TSP Mistakes to Avoid
- Choosing Roth or Traditional once and never reviewing it
- Ignoring how tax brackets change over time
- Assuming Roth is always better (or always worse)
- Forgetting that government matching is always Traditional
- Not planning for Required Minimum Distributions
Why Tax Diversification Matters
Many financial planners recommend holding both Roth and Traditional balances. Tax diversification helps you:
- Control taxable income in retirement
- Reduce the impact of RMDs
- Manage Medicare premiums and Social Security taxation
- Adapt to future tax law changes
Tax diversification is often more important than trying to predict future tax rates.
How Walters Financial Wellness Helps Clients
Walters Financial Wellness, helps service members and military families:
- Decide between Roth vs. Traditional TSP
- Build custom TSP contribution strategies based on rank and years of service
- Coordinate TSP with IRAs, pensions, and spouse benefits
- Plan for military retirement, separation, or transition
- Reduce long-term tax exposure and avoid costly mistakes
If you want a TSP strategy tailored to your career, income, and goals we can help. Contact us [here].
Disclaimer
This article is for educational purposes only and does not constitute tax, legal, or investment advice. TSP rules, IRS contribution limits, and tax laws may change. Consult a qualified professional for guidance specific to your situation.