Thrift Savings Plan
The federal government’s Thrift Savings Plan, or TSP, is a retirement plan much like civilian and corporate 401(k) retirement plans. The plan allows federal employees and military personnel to contribute a portion of their salary for retirement. Contributions can be a set amount or a percentage of pre-tax income.
Since the money contributed to your TSP is transferred from your income before taxes are taken out, the IRS has set rules on the contributions and withdrawals. In 2011, the maximum annual contribution to a person’s TSP is $16,500. Also, any pre-retirement withdrawals from your TSP are penalized at a much higher tax rate than other types of income.
Since the contributions to your TSP occur before taxes are deducted from your paycheck, your tax liability is less than if you made no contributions. The more you contribute to your TSP, the less in taxes you pay each year. Once you reach retirement age and can start withdrawing from your plan, you will most likely be in a lower tax bracket and, therefore, pay less in taxes on the income you receive from your TSP retirement funds.
For more information on the Thrift Savings Plan, visit: