Federal employees and military members struggling to fund their retirement now have a new way to line their nest eggs. On May 7, 2012, the U.S. government added a Roth option to its Thrift Savings Plan (TSP).
Traditional TSP vs. Roth TSP
There are a couple of key differences between a Traditional TSP and a Roth TSP. With the Traditional TSP, you don't pay taxes on your contributions, which leaves more money in your paycheck. However, when you retire and start drawing from that account, you will be taxed on your contributions and earnings.
With the Roth TSP, contributions are taxed up front. When you retire and start tapping into the account, nothing is taxed, not even the earnings. Of course, there are a few stipulations. You must wait to withdraw your money five years after January 1st of the year you made your first Roth contribution, you must be 59 1/2 or older or become permanently disabled.
Is the Roth TSP right for me?
If you're wondering whether to invest in the Roth TSP, it all comes down to taxes. For instance, consider what tax bracket you'll be in when you reach retirement age. Not sure? CDC FCU Investment and Retirement Services Advisor, Howie Brown, can help you find out, then guide you toward the TSP option that's best for you. Contact us for a no-cost, no-obligation consultation at 678-553-5328.
No matter what options you choose, you have plenty of time. The government is currently updating payroll systems to accommodate the changes, so the Roth option won't be available to the majority of federal employees or military members until the end of the year.
More information about the Roth TSP.