Tiffany Raiford
The Thrift Savings Plan in one that’s garnering a lot of attention these days, and for good reason. Designed specifically for the men and women in the Armed Forces, this savings plan is one that allows military families to save money very much in the same manner as those with a 401k. Simple and very easy to understand, the Thrift Savings Plan is a United States government-sponsored savings plan open to those in the Armed Forces as well as civil service employees eligible for the plan. It takes only about five minutes to sign up for this type of savings plan, and it begins within a month. What we love about the Thrift Savings Plan for military families is that it’s foolproof; you invest five minutes of your time setting up the plan and there is nothing more for you to do after that.
Even if you know very little to nothing about investments and where to put your money, the Thrift Savings Plan is set up so that you don’t have to. All you need to know is that it’s set up into two different categories; stocks and bonds. Additionally, there are only five LifeCycle Funds and five index funds to choose from, and that means you don’t need to spend much time at all focusing on anything but signing up, earning money when you’re doing other things and basically not bothering at all with this simple savings plan.
There are other benefits to the Thrift Savings Plan, too, and we’ve broken them down for you so that you can see where you want to put your money, why it’s great to invest in this type of plan and how you can do it without making it seem as if you’re investing more of your hard-earned money that’s likely already tight.
Tax Free Withdrawals
For anyone with any knowledge of stocks, bonds and investments, you know that there are very few that allow you to withdraw your funds without paying hefty fees and taxes to the government. Many people feel that they should not be forced to pay taxes on their own money, but that’s the way the government works. As this is a government sponsored plan, it’s a bit surprising to realize that there is a way you can remove funds from your Thrift Savings Plan without paying any withdrawal penalties. Here’s how it works; with any retirement plan, you contribute money to the plan prior to taxes being removed, and that money counts as tax-free money. You will then pay taxes on the funds when you retire.
What this means is taking out money before retirement means you still have to pay taxes on the funds since taxes are not yet paid on the money. However, since this is a plan that is designed for military members, it’s not uncommon that many of the contributions into a Thrift Savings Account are paid into the account from money that is not taxable. What does this mean? Contributions you make from income earned in a Tax Free Zone is never taxed as it is tax exempt. This money can be taken as you see fit, without the worry that you will then have to consider it income on your income tax return, costing you heavily.
Small Fees
Most investments come with hefty fees. When you pay someone to invest your money and manage your portfolio, you’re paying them a significant amount of money every year, but not with the Thrift Savings Plan. With this plan, you’re actually paying a very small fee; but it’s very small. In fact, it’s only .05%. As far as fees are concerned with investing and retirement accounts, this is considered as low as it gets. That’s one of the most important reasons we believe that the Thrift Savings Account is actually one of the most profitable and prominent accounts available at the moment.
Roth Thrift Savings Plans
What’s nice about the Thrift Savings Plan is that you have the option of choosing the Roth version. What this means for you and your investments is that you can make completely tax free contributions to the account when you are in tax free zones. Provided you add money to this savings plan from your tax free pay when you are overseas or in dangerous zones, you’re looking at a completely tax free contribution that will become a part of your retirement at no cost to you at any point. It’s a very simple solution to your investment plans, and it’s one that should not be overlooked. Many forget that saving money is more than just putting it away for retirement; it’s about finding ways to make your dollar stretch as far as possible, and investing tax free money into a tax free account is one way to do that with ease. Consider it, and sign up.
Civil Service Employee Matching
The bad news for those in the military with a Thrift Savings Account is that it’s unlikely the military will ever match your contributions. However, if you are an eligible civil service employee with a Thrift Savings Plan, you can opt to have your employer match your contributions up to 5%. It’s a very simple method, and it’s one that all members of the civil service industry should take advantage of. After all, it’s free money being given to you by your employer simply because you choose to invest some of your income into a Thrift Savings Account that will only benefit you when you retire.
Investment Options for Bonuses
Many of the men and women in the military are offered bonuses throughout the year, and this income is also eligible to be paid into your Thrift Savings Plan at your choosing. You don’t have to allocate any of your bonus money to your TSP, of course, but it always helps to put in as much as possible. If you are given special duty, Hazardous Duty or Hostile Fire pay for any reason, you can contribute a portion of that to your Thrift Savings Account with ease.
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