New Contribution Limits Of The Thrift Savings Plan

 

Military personnel and federal employees can put hundreds of dollars more toward their retirement thanks to the rise in contribution Thrift Savings Plan limits.

 

The most that can be contributed to a TSP account is $18,500, which is a rise in $500 from 2017. People 50 and older may be eligible to contribute another $6,000 in catch-up contributions, which brings the amount to $24,500.

 

Active military members deployed in combat zones are eligible for tax-free income that adds even more to their TSP in 2018 – up to $55,000.

 

TSP Retirement Benefits

 

The TSP’s pretax contributions are similar to a 401(k) retirement savings plan in that it reduces your taxable income.  Earnings and contributions are also tax-sheltered until withdrawn, which are then taxed as typical income. If you withdrawal the money before you turn 59 1/2, you will be subjected to 10 percent withdrawal penalty as well as taxes.

After-tax Roth contributions is another TSP option, which doesn’t provide any tax breaks but the money is tax-free when you withdraw it at retirement. For earnings to be tax-free in the contribution, the contributions to the Roth must have been made for a minimum of five years, and you need to be 59 1/2.

 

The government retirement plan size ensures that extremely low fees are charged. In 2017, there was a 0.033 percent cost in managing the TSP. In simple terms – that’s 33 cents for every $1,000 invested. Compare this to the 401(k) plans, which has a $4.30 charge for every $1,000 that was invested.

There are six investment options for the TSP that includes the lifecycle fund series:

 

• C Fund – Large company stocks
• F Fund – Mainly bonds
• G Fund – Government Securities
• I Fund – International investments
• S Fund – Small company stocks

 

The L Funds (or lifecycle funds) are comparable to the target date funds of traditional 401(k) accounts.  Investments are made in the other funds but become conservative as people get closer to retirement.

If you can handle positive and negative issues and retirement is some time away, you could put more money into your C Fund – such as the Standard & Poor’s 500 stock index. If you want a create and forget it method, go with the lifecycle fund with a name that is close to the year you plan on retiring.

 

It’s important for civilian federal employees to take advantage of the TSP match. There is already a one percent contribution from the government. Three percent of the pay contributed is matched by the government dollar-for-dollar.  Another two percent of their salary is matched50 cents on the dollar.

 

A Change Comes To Military Pensions

 

Service members who signed up for the military between 2006 and 2017 have an important pension decision they need to make before year’s end.

 

• They can choose to stay with their old retirement system, which gives them a pension that’s worth half the base pay if they’re in the service for 20 years.
• They can choose the smaller pension or 40 percent the base pay if they stay 20 years and get a government match of at least five percent in TSP accounts.

 

People who join the military this year are registered automatically in the blended retirement system.

 

This system is advantageous so to people who have no plans in staying in the military for 20 years. If you don’t know if you should make the switch, the USAA has a useful comparison tool. Visit USAA.com and input military retirement system. Or, go to the Department of Defense Military Compensation website.

 

The TSP is a good way to be financially sound right off the bat. It doesn’t cost much to set up and easy to do. Military members are urged to contribution 10 percent of the pay into TSP accounts. However, if they can’t do this, they can make small contributions, steadily increasing them as they get a pay raise.

 

The TSP is an enhancement of any government pension you can get along with Social Security. The more money saved now, the more money a person will have in retirement. A TSP savings calculator will help you to know how much money you need to save to be comfortable during retirement.