Traditional vs. Roth TSP–What are the Differences?

by | Nov 13, 2017

Last Updated October 11, 2022

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Previous posts in this series have looked at the basics of the TSP and employee contributions and agency contributions. Now, we’ll compare and contrast the Traditional and Roth TSP.

Traditional vs. Roth TSP

Here we’ll look at the differences between a Traditional and Roth TSP.

Traditional TSP

A Traditional TSP is one where you defer paying taxes on your contributions and earnings until you withdraw them. If you’re a member of the uniformed services and making tax-exempt contributions, your contributions will be tax-free, only your earnings will be subject to tax at withdrawal.

Roth TSP

Here, you pay taxes when you make your contributions and get your earnings tax-free at withdrawal if you meet the requirements to qualify.

Note: When you are automatically enrolled in TSP, you begin making Traditional contributions. If you want to make Roth contributions, you must elect to do so.

Below is a table comparing Traditional and Roth contributions.

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*Image courtesy of tsp.gov

**If your earnings aren’t qualified, you can defer paying taxes on them in many cases by transferring your payment to a Roth IRA or Roth account maintained by an eligible employer plan.

Retirement Age and Penalty Tax

If you receive a TSP withdrawal payment before you reach 59 ½, you may have to pay a 10% early withdrawal penalty tax on any taxable part your distribution not transferred or rolled over. This penalty is in addition to regular income tax you owe. However, there are exceptions:

  • If you leave federal service during or after the year you reach 55 (or the year you reach 50 if you’re a public safety employee), the 10% penalty tax doesn’t apply to any withdrawal you make that year or later.
  • Note: Disability retirement from OPM may not exempt you from the early withdrawal penalty tax. The IRS requirement is stricter, and you must substantiate your claim with the IRS.

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