Military Saves Blog
Tips, advice, and the latest news from the savings world.
Thrift Savings Plan (TSP) Roth Option
November 28, 2012
Originally published on SaveandInvest.org
An increasing number of employers—including the federal government—now offer employees a relatively new workplace savings choice—a Roth retirement savings option. With a Roth, employees are able to make after-tax contributions to their retirement savings account that will be tax-free when withdrawn.
The TSP began making the Roth option available in May 2012. Agencies and service branches have been phasing in the Roth option over time, as they modify payroll systems to accommodate contributions. As of October 1, 2012, the following groups are able to participate in the Roth TSP:
· active military members of the Army, Navy and Air Force;
· active duty and Reserve members of the Marine Corps; and
· federal civilian employees.
In 2013, reserve members of the Army, Navy and Air Force, and National Guard members of the Army and Air Force also will be able to participate.
In the words of Greg Long, TSP's Executive Director, "the Roth TSP option offers an important new tool for federal civilian employees and uniformed servicemembers in managing their retirement income by providing greater flexibility in the tax treatment of contributions now and in the future."
According to the TSP, with the introduction of Roth, employees will potentially have two types of balances in their TSP account: a traditional TSP balance and a Roth TSP balance. Money already in your account when you begin making Roth contributions may not be converted to a Roth and will remain part of your traditional balance. Matching contributions, which are not currently offered by any of the services but are available to DoD civilian employees, go into and will always be a part of your traditional balance. However, you may designate your own contributions any way you like—to Roth TSP, traditional TSP or a combination of the two—and participate in any TSP investment option, regardless of how you chose to allocate your savings.
How to Avoid Post-Holiday Headaches
November 27, 2012
By Lila Quintiliani, AFC®
Military Saves Assistant Coordinator
This past weekend as I sat at home watching scenes of Black Friday shopping mayhem unfold on television in between endless commercials; I couldn’t help but think of a routine the late comedian George Carlin used to do called “Stuff.” In it he used to poke fun at Americans and their obsession with acquiring things. According to Carlin, our homes are just piles of stuff with covers on them. Houses, he claimed, are places to keep your stuff while you go out and get even more stuff. But as I watched all the ads encouraging me to rush out and buy “stuff,” I actually got the urge to do the opposite.
We are a military family, so we move a lot. In fact, we are awaiting orders to move yet again. Every time I have to unpack, I curse all the “stuff” we have accumulated and I say that next time I will do better. Yet each time we move we have ended up with a larger house, in part because we have so much STUFF.
But I don’t know if this is a natural human instinct so much as a retailer-created need. Holidays should be about something other than buying things. Yes, I have young kids, and yes, they will get something from us. But this year I didn’t do any Black Friday shopping. I am stepping back, giving less “junk” and concentrating more on the holiday experience. I would rather decorate cookies with the girls than wrap a bunch of presents they don’t truly need. I would rather drink hot chocolate and watch a holiday movie next to the fireplace than wait in a line at the mall.
So here’s my holiday-themed savings advice:
By Nadjha Johnson, America Saves Intern
Maintaining an emergency savings account should be a top priority for every individual and family, especially during these tough economic times. The most comforting part about starting an emergency fund is that it is not a complicated effort.
A great way to start is setting up an automatic transfer from your checking account to your savings account for every time you get paid. The amount of money you decide to transfer is exclusively based on your income and expenses. As soon as you create a savings account it begins to build on its own. Remember: Having an emergency saving fund is possible for all Americans no matter what your income is.
Don't wait until it is too late! Here are five reasons why you should start saving now:
1. Emergencies tend to be expensive.
For some odd and unfortunate reason it seems that emergencies of every degree usually cost way more than what we can afford. In addition, Americans who have established a budget, but do not have an emergency fund, would need to break their budget for the month - or probably longer - if an emergency were to occur.
2. Emergencies interfere with normal financial obligations.
Every month when we receive those statements in the mail, we feel a little bent out of shape. But let's face it, our bills aren't going anywhere! However, nothing is worse than coughing up the money for your bills and then having to pay a ridiculous medical note, car repair fees, or even a speeding ticket on top of it. All of these obligations are mandatory, so what are you going to do? Having an emergency fund will prevent you from neglecting one of your monthly responsibilities and keep you above water.
Saving Matters: How Behaviors Can Lead to Financial Success
It is certainly no secret that the economic climate of the last several years has highlighted the importance of prudent personal financial management. But what may surprise you is that how we cope with our finances is not just a product of the economy, but may also be the direct result of societal, behavioral and even familial influences.
Many factors can influence our approach to finances and impact the savings choices we make in both the short- and long-term such as:
- Cultural aspects
- Parental and societal impacts related to our upbringing
- Possibly even birth order
One study discovered that a successful saver’s profile is likely to have the following attributes:
- Positive early memories of money and saving
- Saving viewed as an identity, rather than an action
- Independent, optimistic, realistic and in charge of their future
Roth TSP Adds a Tool to Your Savings Kit
November 14, 2012
By J.J. Montanaro, CERTIFIED FINANCIAL PLANNER™
As a financial planner, I've told countless folks there's no silver bullet to fix their financial ailments. But the Roth Thrift Savings Plan introduced this year could be a cure to one of my recurring headaches.
You see, every time I see the percentage of military service members who don't take advantage of the TSP, I start to develop one of those skull knockers. I'm hoping the arrival of the Roth TSP will send those participation numbers into the stratosphere. You may not realize it yet, but this could be an exciting new addition to your retirement toolkit.
In fact, it could be a compelling reason to start saving, or saving more, for retirement.
For those reading "TSP" and asking, "TSP who?" I'll start with a quick refresher. The TSP is the Federal Government's version of a 401(k) available to Federal employees and members of the uniformed services. It allows military members, through payroll deduction, to invest money for retirement. Contributions to the original, traditional version of the plan are made on a pretax basis (your contributions reduce the amount of income upon which you are taxed), grow tax-deferred and withdrawals are taxed as ordinary income in retirement.
All active-duty members of the Army, Navy and Air Force became eligible to contribute to the Roth TSP on Oct. 1. Active-duty Marines, Coast Guard, reservists and Defense Department civilians became eligible for the Roth TSP this summer.
What's so exciting about a Roth TSP is it allows you the potential to create a tax-free stream of income in retirement. In my mind, tax and free are two very cool words — when said in one breath. Unlike the original TSP, contributions to the Roth version do not reduce your tax bill now. However, those contributions and all of their earnings over the years will potentially be available to you tax-free once you're 59½ and have had the account for at least five years.
Not excited yet? Here are four good reasons to get you so fired up about "tax-free" that you'll visit myPay and sign up or fill out the Form TSP-U-1 to get things going: