The Thrift Savings Plan (TSP) is a crucial part of your Federal benefits package regardless if you are a civilian employee or a member of the military. But the bigger question is, how do you manage it?
Here are 5 Things You Need to Know About a TSP:
Consider it your 401K: A TSP is a government sponsored retirement income stream for federal workers who are enrolled in the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS). Just like how private sectors offer a 401K, your TSP is considered to be your retirement fund, which is why our federal benefits specialists advise that you begin to contribute to it early.
There are two types of Employee Contributions: You can choose between a regular employee contribution or a catch-up contribution. Employees can start regular employee contributions at any time. Catch-up contributions are made in addition to your regular contributions. The big key with catch-up contributions is that you must contribute the maximum amount of regular employee contributions for the year. before making these additional contributions. Your benefits specialist can advise you on what to do.
You can chose between Traditional and Roth: Like other 401K plans, you can either choose to defer paying taxes on your contributions and earnings until after you withdraw them (Traditional) or you can pay taxes on your contributions as you make them (Roth). The advantage of the Roth is that future withdrawals are tax free.
Tax Liabilities: If you opt for a traditional plan as mentioned above, you can continue to defer taxes by rolling over your payment to a traditional IRA or employer plan. Because Roth plan contributions come back to you tax free, there is no tax liability. However, it is still advantageous to roll those contributions to a civilian plan. Ask us how you can do that.
Contribution Limits Change Annually: The Internal Revenue Code (IRC) does place limits on the dollar amount of contributions you can make to the TSP, so it’s important to be aware that they change annually. Your benefits specialist can work with you to ensure you are contributing the appropriate amount each year.
Planning for retirement can be an overwhelming process, especially if you are not sure where to start. We offer a free benefits workbook which is an overview on what to expect when you are planning to retire. Whether you are 35 or 65, it’s never too soon to begin thinking about your retirement.
Want to get in touch with a benefits specialist in your area? Contact us today.