Money Matters: Are you confused when it comes to TSP?

  • Published
  • By Second Lt. Joseph Watts
  • 78th Comptroller Squadron
ROBINS AIR FORCE BASE, Ga. --  Planning for retirement is a daunting task as there are numerous variables that must be considered. 


Luckily, both military and civilian members have the benefit of the Thrift Savings Plan.

The TSP program provides eligible members a way to save for retirement regardless of financial knowledge and is similar to 401(k) plans available to private sector employees. Following are a few frequently asked questions. 

Who's eligible?
All uniformed service members, Federal Employees Retirement System and Civil Service Retirement System civilian employees. 

What are the two types of TSP?
Traditional and ROTH.  

How do I start or change contributions?
Contributing to TSP is easy. Simply log into your MyPay account, choose "Traditional TSP and ROTH TSP" option, and allocate an allowable percentage of your pay to the Traditional or ROTH TSP. 

What investment options are available?
Regardless if you choose traditional, ROTH, or a combination of both, the same investment fund options are available. If you don't specify an investment fund for your TSP contributions, your contribution automatically goes into the Government fund (G). The G fund is the only fund you can't lose money in, but gains are usually small. For more risk and potential gains, members can choose between the F, C, S and I funds, which attempt to match the index of various markets. With index funds, the potential for gains is greater, but so is the potential for loss. Lastly, a member can choose a lifecycle fund that moves from high to low risk as the target retirement year group nears. 

Can you redistribute contributions? If so how? 
Yes, you can redistribute or change your allocations to different funds by logging into your TSP.gov account. 

What is the main difference between traditional and Roth TSP?
The tax treatment is the main difference between the two options. Under traditional TSP, your contribution is not taxed as earnings in your paycheck. That lowers your annual taxable income. However, you'll pay taxes when you withdraw those funds in retirement. Under ROTH TSP, your allocation is taxed as earnings in your current paycheck. Your annual taxable income is not affected by your contribution. As funds are withdrawn in retirement, they're not taxed. Simply put, traditional TSP pays taxes in retirement and ROTH TSP pays taxes when earned in employment.
 
How are gains taxed?
Under Traditional TSP, all gains are taxed when they are withdrawn. Under ROTH TSP, since you already paid taxes on your contribution, the gains aren't taxed (as long as you meet certain Internal Revenue Service requirements).   

Which should I choose Traditional or ROTH?
That's not a simple answer, and you should discuss it with a financial advisor. There are a few guidelines to consider - Is your tax bracket higher or lower now than when you plan to retire? How much do you project in gain earnings? Do you need to lower your current tax bracket?   

Are there any commonly unknown benefits?
For military, when you're serving in a tax-exempt zone you should contribute the maximum ROTH option. The contribution and gains will never be taxed.  For FERS Civilians, the government contributes 1 percent to your TSP even if you donate nothing. Additionally the government matches your contributions dollar for dollar up to 3 percent and 50 cents to the dollar up to 5 percent. For CSRS civilians, the government does not match any contributions, and the employee can contribute up to 3 percent of their basic pay. 

What are the contribution limits?
A member can contribute a maximum of monthly base pay of 89 percent for traditional and 51 percent for ROTH up to the below annual contribution limits. For 2015 IRS limits are $18,000 for regular contributions, $6,000 for catch-up contributions and $24,000 for total contributions. The above limits are a total of Traditional and ROTH contributions.
 
Where can I find out more?
Go to www.TSP.gov; call the toll-free ThriftLine at 1-877-968-3778 and speak to a participant service representative or visit your local finance office located in Bldg. 301.