Tax – Deferred Advantages

What do tax-deferred instruments like the Thrift Savings Plan do for federal and postal employees?  Most importantly, the instrument can give the employee a larger amount of money to take home.  Taxes are calculated against your earnings on a pre-tax basis.  For example, if you earned $1,000 and placed $200 in your Thrift Savings Plan (TSP) account, instead of paying taxes on $1,000, you would only pay taxes on $800 and the $200 would be deposited into your account for later use.  This scenario would give you more because less money is being deducted from your earnings today and your $200 would be invested for later use.

Is a tax deferment election the best choice for every federal employee?  This is a situation that requires evaluation of one’s individual circumstances.  Prior to the expansion of the TSP’s structure, a tax deferred program was the only option available.  Now participants in the Thrift Savings Plan can decide to defer their taxes via the Traditional TSP or pay taxes up front via the Roth TSP.

The Traditional Thrift Savings Plan allows you to defer taxes and only pay the taxes when the funds are withdrawn.  The Roth TSP requires paying the taxes up front which eliminates having to pay taxes when the funds are withdrawn.  The Roth TSP also allows for tax-free earnings when certain conditions are met.

Employees can now see if the Traditional TSP or the Roth TSP or both fit into their plans to retire well and meet their individual needs.  Visit your TSP.gov Account to review the information on the TSP and how it helps in planning your retirement future.

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It is also important to review your TSP fund selections and make sure that your reaching your retirement goals