You may not realize it yet, but the long-delayed Roth alternative to the Thrift Savings Plan could be an exciting new addition to your retirement toolkit.
I'm actually grinning ear to ear as I consider the possibilities the new Roth TSP offers. I periodically bemoan the fact that participation in the TSP among military service members hovers somewhere south of a paltry 40%, so I regularly encourage readers to sign up and jump-start their retirement savings. Now with the addition of a Roth TSP, there's another compelling reason for service members to start or increase what they're saving for retirement.
The TSP is the federal government's version of a 401(k). It allows participants to invest money for retirement through payroll deductions. Contributions to the original, traditional version of the plan are made on a pretax basis (your contributions reduce the amount of income upon which you are taxed), grow tax-deferred and withdrawals are taxed as ordinary income in retirement.
It allows you the potential to create a tax-free stream of income in retirement. In my mind, tax and free are two very cool words — when said in one breath. Unlike the original TSP, contributions to the Roth version do not reduce your tax bill now; however, those contributions and all of their earnings over the years will potentially be available to you tax-free once you're 59½ and have had the account for at least five years.
Not excited yet? Here are four good reasons to get you so fired up about "tax-free" you'll sign up for the TSP or bump-up what you're saving:
Now that the Roth TSP is here, consider signing up and taking control of your financial future.
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I regularly receiving letters from family members who are worried about their current or former servicemember. The military is confusing enough if you are in it, and it is more confusing for people who don’t have experience. Today’s letter is fairly typical: Perhaps you can help me. My son spent 6 years in the military [...]