Should you invest in Traditional TSP or Roth TSP? Let’s go through the breakdown of the age-old question about your Thrift Savings Plan.

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⏰ Table of Contents ⏰
0:00 Tax Deductions
4:07 Traditional TSP for Working Singles
6:14 Traditional TSP for Retired Singles
9:31 Traditional TSP for Married Couples

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Disclaimer: This video is not in any form of personalized financial advice. I am solely sharing my personal experience and opinions. All Strategies, tips, suggestions, and recommendations shared are solely for entertainment and educational purposes only. There are financial risks associated with investing. You must conduct your own research and due diligence or seek the advice of a licensed advisor if necessary.

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LEARN MORE ABOUT: Thrift Savings Plans

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How Traditional TSP Can Save you Taxes Now & Later (Full Breakdown)

If you’re a federal employee or member of the uniformed services, chances are you’re familiar with the Thrift Savings Plan (TSP) as a retirement savings option. While the TSP offers both traditional and Roth options, in this article we’ll be focusing on how the traditional TSP can save you taxes now and later.

The traditional TSP allows you to make contributions on a pre-tax basis, meaning the money you contribute is deducted from your taxable income in the year that you make the contribution. This can result in a lower tax bill for the year of contribution, as your taxable income is reduced by the amount you contribute to the TSP.

In addition to the immediate tax savings, the traditional TSP can also save you taxes in the long run. The money in your traditional TSP account grows tax-deferred, meaning you don’t have to pay taxes on the gains or earnings in the account each year. This can allow your money to grow faster than it would in a taxable account, as you’re not losing a portion of your earnings to taxes each year.

When you retire and start withdrawing money from your traditional TSP account, you will pay taxes on the withdrawals at your ordinary income tax rate. However, many people find themselves in a lower tax bracket in retirement, as they no longer have a steady income from work. This can result in paying a lower tax rate on the withdrawals from your traditional TSP account than you would have paid on the income when you made the contributions.

It’s important to note that while the traditional TSP can provide tax savings now and later, there are also limits to how much you can contribute each year. For 2021, the elective deferral limit for the TSP is $19,500, with an additional catch-up contribution limit of $6,500 for those age 50 and older.

In summary, the traditional TSP can provide immediate tax savings by allowing you to reduce your taxable income in the year of contribution. It can also provide long-term tax savings by allowing your contributions to grow tax-deferred and potentially be withdrawn at a lower tax rate in retirement. If you’re a federal employee or member of the uniformed services, the traditional TSP can be a powerful tool for saving on taxes both now and in the future.