TSP Withdrawal Making the Most of Your THRIFT SAVINGS PLAN (TSP)
If you’re a federal employee nearing retirement and you have the opportunity to start investing in a Thrift Savings Plan (TSP), you should jump at it. Like the 401(k) that many private corporations offer their employees, your TSP is tax-deferred, meaning you can make contributions to the account using pre-tax dollars. Unfortunately, many federal employees fail to take full advantage of the TSP’s tremendous retirement savings opportunity. Each month that passes and you aren’t participating in the TSP is another month of lost tax-favored savings and earnings. To make the most of your TSP, follow these simple steps. 2 Making the Most of Your TSP TSP202012MAKINGTHEMOST
1. CONTRIBUTE AS MUCH AS POSSIBLE Putting money away for retirement is different for everyone – every person’s investment needs and ability to contribute vary depending on their circumstances. However, when it comes to your TSP, you should seriously consider contributing as much as you can afford. Why? The retirement income you receive from your TSP account depends on how much you have contributed to your account and the earnings on those contributions. You can contribute any percentage of your basic pay. However, your annual dollar total cannot exceed the Internal Revenue Code limit. 3 Making the Most of Your TSP TSP202012MAKINGTHEMOST
2. CONSIDER THE ROTH OPTION Thrift Savings Plan contributions traditionally are made before taxes are withheld from your paycheck. However, when you choose the Roth option for your TSP, you can contribute money to your account after payroll taxes have been paid. With Roth TSP, the advantage is that – since you contribute after-tax dollars – the interest and profits you earn from your investments will also be tax-free. So, when you eventually withdraw funds from your Roth balance, you will receive your contributions tax-free since you already paid taxes on them. 4 Making the Most of Your TSP TSP202012MAKINGTHEMOST
3. DON’T WITHDRAW EARLY TSP participants are allowed to withdraw money or obtain loans from their accounts under certain circumstances. However – to put it simply ¬– you should never borrow from your TSP. When you withdraw funds early or take loans from your TSP account, you are essentially borrowing from the future because you forego the interest earned on the money borrowed. Basically, your money is no longer working for you, which completely defeats the purpose of retirement savings. That’s why participants are encouraged to exhaust all other options before tapping into their TSP account. 5 Making the Most of Your TSP TSP202012MAKINGTHEMOST
4. UNDERSTAND YOUR MATCHING If you’re enrolled in the Federal Employees Retirement System (FERS), the first 3% of pay you contribute to your TSP will be matched dollar-fordollar by your agency. The next 2% will be matched at 50 cents on the dollar. It’s important to note that the total contribution matching can’t exceed 5%. If you’re putting more than 5% of your income into your TSP, you won’t be getting more than 5% from your employer’s match. Also, if you stop making regular employee contributions, your matching contributions will stop. 6 Making the Most of Your TSP TSP202012MAKINGTHEMOST
5. INCREASE YOUR CONTRIBUTIONS… IF YOU CAN When you started your job as a federal employee, chances are you didn’t start contributing the maximum amount to your TSP on Day One. However, it would be best if you considered increasing your contributions as you make more money. A good rule of thumb is to increase your contributions by 1% a year until you max it out. This means you should give serious thought to how much money you will need in retirement and contribute to your TSP accordingly. 7 Making the Most of Your TSP TSP202012MAKINGTHEMOST
6. START EARLY One of the best ways to increase your retirement income is to not only participate in the TSP, but to start as early as possible. By contributing early, you are giving the money in your account more time to increase in value through the compounding of earnings. Don’t give up the advantage that comes with the many years of compound growth available to you, and don’t pass up the opportunity to improve on the less-generous basic retirement benefits you would otherwise receive. 8 Making the Most of Your TSP TSP202012MAKINGTHEMOST
7. TAKE ADVANTAGE OF AUTOMATIC ENROLLMENT Many people in both the public and private sectors believe that retirement plans are a great idea, but employees don’t always take the time to sign up for the benefits. If your federal agency offers automatic enrollment in the TSP, it helps take indecisiveness and procrastination out of the picture and puts you on the path to retirement readiness as soon as you are eligible to join the plan. This is an excellent idea because it encourages you to save by making a salary deferral the default, rather than requiring you to request enrollment. 9 Making the Most of Your TSP TSP202012MAKINGTHEMOST
8. HIRE A PROFESSIONAL It’s not easy to know exactly how much money you will need in retirement, and even harder to know how you should save to get there. There is a lot to take in. However, a great place to start is to find a trusted financial professional who can help you figure out how much fixed income you’ll have in retirement and how much you’ll need from your investments to fill any gap. BWM Advisory, LLC dba Bedrock Investment Advisors (collectively, the “Firm”) is a Registered Investment Adviser located in Scottsdale Arizona. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Questions? Contact us! (480) 448-9834 or [email protected] 10 Making the Most of Your TSP TSP202012MAKINGTHEMOST
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