Roth TSP vs. Roth IRA Showdown

By on January 7, 2016 in Retirement with 32 Comments

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The Roth TSP and the Roth IRA share many similarities.

However, although many are unaware, they are not the same thing.

In fact, they are so different that the Executive Director of the Federal Retirement Thrift Investment Board, Greg Long stated this:

The Roth IRA and the Roth TSP are two very, very different things. – Greg Long

This is an idea that is not talked about enough, but truly is important to understand. When you are contributing to the Roth TSP, it does not mean you are contributing to a Roth IRA. They may have a similar name, but they are not the same.

What are the similarities?

First, I want to look at the things that are similar between a Roth TSP and a Roth IRA because they do share some characteristics. In reality, the Roth TSP is much more like a Roth 401(k), but the majority of people know of the Roth IRA more than they do the Roth 401(k) so that is what I use for this comparison.

1. Both the Roth TSP and the Roth IRA are both “After-Tax” Retirement Accounts

This is the largest benefit of a Roth IRA that was added into the Roth TSP that so many people appreciate.

What this means is you pay taxes on your contributions as you make them (unless you are making tax-exempt contributions), and your earnings are tax-free at withdrawal as long as you meet certain IRS requirements.

The advantage here is rather than taking your withdrawal in retirement and having to pay tax each time you withdrawal, with the Roth TSP and Roth IRA you pay no taxes on the amount. The reason is because the taxes were paid when you contributed the money into the account.

This can be VERY advantageous for some people, however it’s not for everybody. It all depends on your current tax bracket and what you believe will happen to tax rates in the future.

2. Both the Roth TSP and Roth IRA require the account be open for 5 years before any withdrawals are taken.

The Roth TSP and the Roth IRA both require what’s known as a 5 year seasoning period. As I will explain later in this article, you can withdraw your contributions from a Roth IRA after the account has been open for 5 years.

In order to make a withdrawal when you’ve reached age 59 1/2 or have a permanent disability or in the case of your death you must have had your Roth TSP account open for at least 5 years as well.

What are the differences?

So now that we know the Roth TSP and the Roth IRA are different things and even the Executive Director of the Federal Retirement Thrift Investment Board agrees, let’s look at the differences.


1. With a Roth IRA you have the ability to withdraw your contributions without tax or penalty anytime

With a Roth IRA, you can begin withdrawing your contributions at ANY TIME.

This is a HUGE benefit. Rather than having to take a loan out for some unexpected expense, you can simply take out the contributions you put into your Roth IRA.

Also, something to be aware of, you can withdraw the interest earned on the account after what’s known as a 5 year “seasoning” period. In order to withdraw your earnings from a Roth IRA tax and penalty free, not only must you be over 59 ½ years-old but your initial contributions must also have been made to your Roth IRA five years before the date when you start withdrawing funds. Just remember that you have to have the account open for 5 years first.

Here’s another benefit of a Roth IRA, if you become disabled or are buying your first home ($10,000 max) you can take out the earnings penalty and tax free.

These benefits are not available with the Roth TSP, only the Roth IRA.

2. The Roth IRA has no Required Minimum Distribution (RMD)

With Traditional IRA’s as well as Roth TSP’s there is this little thing called an RMD.

An RMD is a Required Minimum Distribution in which the IRS requires you to begin withdrawing at least a minimum amount of money no later than the April after you turn 70 1/2 whether you want to or not. AND, if you decide not to take the withdrawal you will be hit with a 50% penalty on the amount you were supposed to withdraw.


A Roth IRA however, has no such requirement. There is no Required Minimum Distribution (RMD) which allows you to keep your money in the account as long as you’d like reaping any growth it can accrue.

Although you would guess that the Roth TSP, bearing the same name as the Roth IRA would not have an RMD, it however does.

This means at age 70 1/2 you will be required to withdraw an RMD whether you like it or not.

3. The Roth TSP is included in the Provisional Income Threshold (PIT) calculation

This may sound unimportant but it’s not.

The Provisional Income Threshold (PIT) calculation determines how much tax you pay on your Social Securiy Benefits. Many people aren’t aware of this, but as much as 85% of Social Security Benefits become taxable if your income exceeds certain thresholds.

One reason for investing in a Roth IRA is the withdrawals are not included in the calculation to determine how much tax will be paid on your social security benefits.

The Roth TSP, however, is INCLUDED in the Provisional Income Threshold calculation and thus could cause you to pay tax on your Social Security Benefits.

4. The Roth TSP requires proportional withdrawals

On the surface, this seems like a non-issue. However, when you did a bit deeper you realize that you could be required to pay  federal income tax on withdrawals from your Roth balance if you have had the account open for less than five years and/or are under the age of 59 ½ at the time of the withdrawal.

This is very important to remember for any federal employee who has a Roth balance in their TSP and is planning to retire and begin withdrawals from the TSP before they reach 59.5 years old or before they have had the Roth balance for the 5 year seasoning period.  The reason is because the withdrawals will need to be made proportionally from both Roth and Traditional balances.

To avoid this, John Grobe has a great article on this exact subject (see Taxes and Your Roth TSP Account).

Final Thoughts

The Roth TSP can be an absolutely wonderful savings tool, however, I wish they would have named it something else to keep people from getting confused.

It’s also important to note that any agency match you receive is automatically contributed to the Traditional TSP and not the Roth TSP. This is often forgotten but is an important thing to note when planning.

As with any part of the federal benefits system it’s important to know to ins and outs and how one choice can affect many others.

© 2016 Cooper Mitchell. All rights reserved. This article may not be reproduced without express written consent from Cooper Mitchell.


About the Author

Cooper Mitchell is an Investment Advisor Representative for Dane Financial, LLC, a Registered Investment Advisor, as well as a licensed insurance agent for Dane Advisory Group, LLC. He welcomes questions from federal employees on retirement matters. You can find out more about him and his company at his website, Dane Financial, LLC and Dane Advisory Group, LLC are affiliated companies.