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With all the benefits of the TSP, participation is a no brainer for a lot of servicemembers. But there are a couple of things to think about before you dive in.
First, make sure you know the difference between the Traditional and Roth TSP accounts. Why? Because they have different tax impacts on contribution and on withdrawal.
Contributing will decrease your taxes today — but you’ll have to pay those taxes (hopefully at a lower rate) when you take money out later in retirement.
You get no tax savings today, but you do get to take money out tax-free in retirement (as long as a few criteria are met). And unlike with the Roth IRA, there are no income restrictions with the Roth TSP. Cool!
Second, before you contribute to any kind of TSP account, be sure you are in a good position to leave retirement savings alone until retirement. Why? Because the TSP is set up as a long-term plan.
Unless you qualify for an exception — and there aren’t many — withdrawals from a TSP before age 59 1/2 usually means paying taxes plus a 10% penalty on top. Not cool.
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