Bear in mind that teflon tape is an insulator and may affect the electrolytic action needed to prevent tank damage. I suggest you clean the threads with steel wool and a bit of oil and then put a new rod in. If you think that seepage into the threads is causing the rust, then instead of teflon tape, use a liquid pipe compound (available in plumbing supply stores). I use one that has teflon in it. the advantage is that the compound only goes into gaps in the threads. There is metal-to-metal contact on the threads themselves.