Everything you need to know about the Thrift Savings Plan
Staff Sgt. Gregory George, 20th Logistics Readiness Squadron allied trade technician, speaks to Senior Airman Ryan Brooks, 20th Comptroller Squadron costumer service technician, at Shaw Air Force Base, S.C., Oct. 15, 2012. Finance personnel are available for questions about Thrift Saving Plan and the new Roth program. For additional information about TSP and Roth, go to http://www.TSP.gov.
SUMMARY
The Thrift Savings Plan (TSP) is a 401k retirement plan for federal and government employees. There are two types of 401k plans, the traditional and the Roth. With the traditional 401k, you pay taxes only when you withdraw the money. However, at withdrawal, this money will be taxed as ordinary income. With the Roth, you only pay taxes right away when you contribute. It’s better to go with the Roth if you expect to be earning more money at retirement than you are now.
So how does TSP work?
The government matches contributions up to five percent. If you contribute at least five percent and only stay in the military for four years, you’ll have at least a few hundred thousand dollars in your retirement fund (much more if you placed the money in a more aggressive fund). If you stay in the military for a 20-year career, that amount will be significantly higher. The best option is to contribute as much as possible in your first four years (at least 10%). This method can easily lead to millions of dollars in retirement funds.
And how can you make it work for you?
Make sure you allocate your contributions to a lucrative fund. If you’re not savvy about investing, go with the Lifecycle Fund. The Lifecycle Fund shifts automatically over the years based on your retirement age to provide the best return and least risk.
Find out more about David and his mission
David Pere is an active-duty Marine who is on a mission to educate the military community about financial readiness. Most people hear that term and roll their eyes, but Pere wants everyone to know that readiness can be achieved – without a lot of effort. He teaches personal finance and real estate investing to service members to help increase savings and increase their chances of achieving financial freedom.
Want to learn more about Pere? Check out the Military to Millionaire website, and connect with him on Instagram or Facebook. Subscribe to his YouTube channel here! Take a look at David's book – The No B.S. Guide to Military Life here.
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