March 10, 2016

Benefits of TSP outweigh savings sacrifice

by Senior Airman CORY GOSSETT
The Thrift Savings Plan provides military members a 401k-like savings plan, which allows members to contribute to it pre-tax dollars thereby reducing taxes and accumulating long-term, tax-deferred savings and earnings, which can supplement future retirement income. The tax-deferred amount that can be contributed changes annually. You may elect to contribute any dollar amount or percentage of basic pay.

Planning for retirement can be an intimidating task as there are many variables to consider. Luckily, both military and civilian government employees have the benefit of starting a Thrift Savings Plan.

“The TSP is a federal retirement savings and investment plan similar to a 401k plan found in the private sector,” said Cory Carmichael, 56th Force Support Squadron Airman and Family Readiness Center community readiness specialist. “The TSP even allows federal and military employees to automatically allocate money to their retirement plan directly from their paycheck.”

The TSP has many advantages including some control on how the income contribution is invested. TSP contributions can be placed into different funds that vary in risk depending on what the individual wants.

Investors not only have the choice in what funds to invest in but how they want their investment to be taxed.

“With the TSP, taxes are deferred until withdrawal,” Carmichael said. “This means you will pay a larger percentage of tax on each withdrawal when the time comes.”

Another plan available to federal and military members is the Roth TSP.

“With Roth TSP, the taxes are paid now but the funds and earnings will be tax-free upon qualified withdrawals,” said Robert Griffin, 56th FSS community readiness specialist. “This is especially beneficial for those who are young and in lower tax brackets.”

Another benefit of a Roth TSP occurs when a military member is deployed in a combat zone. Military pay is not taxed and therefore any money contributed to the Roth TSP during the deployment is also not taxed.

While Roth TSP has many benefits, it also has some drawbacks.

Paying for the taxes upfront means your ‘take-home’ pay will be lower than it would be under a regular TSP. For low-income individuals, this could create a financial burden or might discourage them from starting a savings plan.

While many may have trouble choosing between Roth TSP and TSP, Carmichael stresses the importance of starting to save as soon as possible.

“Both plans have many advantages,” Carmichael said. “They both have very low fees, but it’s up to the individual to decide what’s best for them, whether they want their contributions taxed now or deferred until it’s time to withdraw.”

TSP plans also give federal employees five percent fund matching for every contribution made. Military members do not receive any fund matching at this time. When military members leave the service there are many options available for transferring funds into different retirement plans such as a 401k, but it depends on the employer. There’s also the possibility of an employer charging fees to have the money transferred into the company 401k plan.

“When leaving the service you don’t lose the money you contributed,” Griffin said. “You will still have your TSP or Roth TSP and can always transfer the money to another plan without suffering additional taxes for doing so.”

Regardless of what plan you choose, starting a retirement plan brings many benefits.

“I’ve never heard of an elderly person saying, ‘I’ve saved too much money’ or, ‘I started saving too early in life’,” Carmichael said. “With a little planning and the discipline of contributing steadily to their plan, retirement should be much easier for our military and government employees.”

For more financial savings information on TSP plans and retirement services, call the A&FRC at 623-865-6650.

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