The 2012 contribution limits for the Thrift Savings Plan (TSP) have been released, and they’ve gone up just a bit. Individuals may contribute up to $17,000 in regular, pre-tax compensation. In addition, individuals over the age of 50 may add an addition $5,500 each year, and you may contribute up to $50,000 per year while you are in a tax-free combat zone.
Why should you contribute to the Thrift Savings Plan?
- It is easy to set up and manage. No poring over prospectus trying to decide which company to go with and never making any progress. You can be set up with a TSP account today, and contributions will occur automatically.
- Low fees mean that more of your money stays in your account. TSP consistently has exceptionally low management fees.
- Regular contributions come from pre-tax money, meaning that your total tax liability will be less for the current year.
- Contributions made while in a combat zone are totally tax free: they go in tax-free and come out tax-free.
- You get to decide what to do with the money when you leave the service. You can leave the balance in your TSP account to continue to grow, you may roll it into an Individual Retirement Account, you may roll it into a new employers 401k plan, you may cash it out, or you may transfer it to a qualified annuity.
- It is possible to take a loan against your TSP account for certain purposes. It isn’t always a great choice, but the option is available if you have the need. The interest is paid back to your account.
- It is easy at tax time. Your W-2 already includes the necessary information to make sure that you aren’t taxed on TSP contributions.
- There are a variety of simple funds from which to choose – there is something for every investment style. I love the targeted retirement date funds because they automatically adjust their asset allocation as you near retirement. There are also five basic index funds that track certain sectors of the economy.
- Some states offer preferential tax treatment on TSP distributions taken during retirement.
- You can direct a portion of regular pays, special pays, and bonuses to your TSP account. It is easy to divert a small part of each pay raise to your account, making it painless to increase your contributions regularly.
This is the best time of year to start or increase your TSP contributions. Changes made today and through early January will be effective in January, when you are already getting a raise. You will never notice the difference until you check your TSP balance and see how much it has increased! My husband has just increased his TSP contribution to take effect next year. I encourage you to do the same. I promise you will be glad that you did!