You have two different tax treatment options for your employee contributions. You can determine if one or both of them offer you the greatest advantage to maximize your retirement savings.


Traditional (pre-tax) Contributions

When you make traditional contributions to your TSP account:

  • You make your contributions before taxes are taken out of your pay. This reduces your taxable pay and your current overall tax bill.
  • Your contributions grow tax-deferred. You will owe taxes on those contributions and their earnings when you withdraw them. If you are member of the uniformed services and have contributed tax-exempt combat pay to your account, only the earnings on those contributions are taxable when withdrawn.

Roth (after-tax) Contributions

When you make Roth contributions to your TSP account:

  • You make contributions after taxes are taken out of your pay.
  • Your contributions, once in the TSP, will never be taxed again. And the earnings on those contributions will be tax-free when withdrawn as long as you meet the Internal Revenue Service (IRS) rules for qualified earnings.

A Few Things to Think About

The following might help you decide whether you want to make traditional contributions, Roth contributions, or both:

  • Consider your tax rate now and what you think it might be in the future--do you think you'll be better off paying taxes on your contributions now (Roth) or on both your contributions and your earning later (traditional)?
  • If you are in the early years of your career and you expect your future income to increase, paying taxes on your contributions now (Roth) might make sense. If you are in your peak earning years, traditional contributions may be the better option.
  • Do you expect tax rates to increase in general, or do you think your own tax rate will be higher when you are in retirement? If so, prepaying your taxes now (Roth) might be worth considering.
  • Are you a member of the uniformed services making TSP contributions from tax-exempt pay? Think about Roth because you won't pay any upfront taxes on your contributions and the earnings will be tax-free when withdrawn as long as you meet the IRS requirements.
Everyone's financial situation is different, and it can change over time. To ensure that you've considered all the issues that might affect you, consult a qualified financial planner or tax advisor as you decide which type of contribution is best for you.