Q: I'm a 44 year-old Lieutenant Commander in the Coast Guard, with about eight years until retirement from the service. My primary retirement savings is Thrift Savings Plan and I'm thinking about switching some of the retirement savings to a Roth IRA. In your estimation, does a Roth make more sense than a traditional IRA? Is there a situation where a traditional IRA becomes a better investment than a Roth IRA? Thanks!
-Michael, San Francisco, Calif.
In my mind, for someone in your situation, the Roth IRA is one of the top retirement savings vehicles (assuming you meet the income eligibility requirements). Yes, the Thrift Savings Plan helps reduce your current income tax bill and is an excellent retirement tool. However, the tax-free potential offered by the Roth IRA makes it very attractive as well. If you make the assumption that your tax rate in retirement would be similar to or greater than your current tax rate, then you should consider contributing up to the maximum amount allowed in your Roth IRA now and direct any "excess" to the Thrift Savings Plan. Since a traditional IRA may not provide you any current tax advantage, I would forego it for the more attractive Roth IRA. With a TSP/Roth combination you'll get a triple set of benefits - current income tax benefits (TSP), tax-deferred growth (both) and potential tax-free withdrawals (Roth). If you plan on being fully retired at age 52, you should also consider starting a "nest egg" of non-retirement funds. For example, a portfolio of mutual funds owned in your own name or jointly with your spouse. This could provide an important source of funds without any restrictions as to the timing of your withdrawals.
The preceding discussion is not tax or legal advice. Consult your tax or legal professional regarding your specific situation.
