What You Need to Know About the Roth Thrift Savings Plan (TSP)

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to help educate uniformed services members about the Roth Thrift Savings Plan.

What is the TSP?

The Thrift Savings Plan (TSP) is a federal government-sponsored retirement savings and investment plan. It offers the same type of savings and tax benefits that many private corporations offer their employees under 401(k) plans. Like a 401(k) plan, the TSP is a defined contribution plan, meaning that the employer (in this case the Department of Defense (DoD)), employee (uniformed services member), or both can make regular contributions into the plan. (Currently, the DoD does not make contributions to uniformed services members’ TSP accounts).

The employer makes no guarantees as to future account value, benefits, or income from the plan. The ultimate account value and benefits derived from the plan are based solely on the amounts contributed, expenses, and any gains and losses in the underlying investments. Unlike the Uniformed Services Retirement System, which is based on years of service and the rank held at the time of retirement, the TSP account is portable, meaning that the account holder retains ownership whether or not he or she separates from the uniformed services prior to being eligible for retirement. 

What is the Roth TSP and how does it compare to the traditional TSP?

The Roth TSP, introduced in 2012, allows you to contribute after tax income to the TSP. This allows the withdrawal of tax-free savings during retirement. The traditional TSP allows you to contribute income from your paycheck before it is adjusted for taxes. Therefore, no federal taxes are paid on current contributions to the traditional TSP. However, you will pay taxes on your traditional TSP contributions and earnings when you withdraw the funds in retirement.

There is another difference regarding taxes on a Roth TSP and traditional TSP unique to uniformed services members. Uniformed services members who make contributions to their Roth TSP from tax-exempt combat zone pay never have to pay taxes on those contributions or the investment earnings from those contributions if the withdrawals are qualified. Uniformed services members who make contributions of tax-exempt combat zone pay into a traditional TSP also will not have to pay taxes on such contributions, but they will have to pay taxes on the earnings of those contributions upon retirement. Social Security taxes are paid on both Roth TSP contributions and traditional TSP contributions. 

Earnings on Roth TSP contributions are tax-free when a qualified withdrawal is made. To make a qualified withdrawal, the withdrawal must be made at least five years after the start of the year in which you made your first Roth TSP contribution and you must be at least age 59½, permanently disabled or deceased

For more information about the Roth TSP for uniformed services members, read the complete Investor BulletinFor additional educational information for investors, see the SEC’s Office of Investor Education and Advocacy’s homepage and the SEC’s Investor.gov.

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