![]() This sets you up for the possibility of triple tax savings. When deployed in a combat zone or other select duty stations, service members receive tax-exempt pay. Conversely, if you believe you’ll be in a higher tax bracket in retirement, paying taxes now and withdrawing them tax-free later likely makes more sense. If you believe you’ll be in a lower tax bracket in retirement, taking the tax savings of a traditional TSP now may make more sense. traditional TSP decision largely depends on your thoughts on future taxes. This includes both the original contributions and the earnings on those contributions. ![]() But, every dollar you withdraw after retirement age (59 ½) comes out tax-free. You don’t reduce your current taxable income with contributions. Conversely, Roth TSPs provide a tax benefit later. Every dollar you contribute to a traditional TSP reduces your current taxable income. With a traditional TSP, individuals get a tax benefit now. With respect to tax-advantaged treatment, the TSP offers two options: traditional or Roth. » MORE: Veterans Can Buy a Home with $0 Downĭifferent TSP Tax Strategies: Traditional vs. ![]() Additionally, you can select an option to contribute between 1 to 100% of any incentive, special, or bonus pay, even if you’re not currently receiving them (though BAH and subsistence allowance contributions are prohibited). Service members choose a percentage or flat amount of their paycheck, and that amount will automatically transfer into your TSP each pay period. Simply put, this means that the TSP: A) provides tax benefits for retirement savings and B) has a guaranteed government contribution on top of member contributions – on up to the first 5% of the pay you contribute each period (conversely, a pension has a guaranteed benefit).Īnd, like 401(k) plans, the TSP allows account holders to set up an automatic contribution for each paycheck, meaning you don’t need to think about retirement contributions – they just happen. More precisely, the TSP acts as a tax-advantaged, defined-contribution retirement plan. As a result, the TSP is loosely equivalent to the 401(k) plans offered by many civilian employers. The Thrift Savings Program, or TSP, provides military members and eligible federal employees an employer-sponsored retirement savings account. Rothīefore discussing particular strategies, we need to first provide an overview of this retirement option. Different TSP Tax Strategies: Traditional vs.Specifically, we’ll discuss the following: As such, we’ll use this article to provide an overview of some great Thrift Savings Plan strategies. This tax-advantaged retirement account provides service members an incredible savings opportunity. While military members may not have access to an employer’s 401(k) plan, they do have an outstanding alternative – the Thrift Savings Plan. Veterans ID on Driver’s License or ID Card by State. ![]()
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