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TSP Questions and Answers
TSP What is It? Find the Answers You Need
Defined Contribution Plan
TSP is a defined contribution plan. This means you can put a certain amount into your account each year, and the amount has to be under the yearly contribution limit.
The contribution limit is currently $19,000. If you’re 50 years or older, your contribution limit is stretched to $26,000 (allowing for a “catch-up” contribution like most other retirement plans have).
You can invest TSP funds using several predefined investment vehicles (i.e., index funds), and most TSP holders are eligible for contribution-matching.
Should You Choose a Roth or Conventional TSP?
Both TSPs operate primarily the same way. The only difference is the timing of your taxes.
Most people prefer to go with the conventional TSP because they’ll be in a lower tax bracket when they retire. So, the amount you receive at retirement will be taxed a lot less than it will be now.
But with Roth TSP, the advantage is that, since you contribute after-tax dollars, the interest and profits you earn from your investments will also be tax-free. So, you don’t pay any taxes on the withdrawals or profits you’ve made within your Roth TSP (unless they don’t comply with IRS regulations, of course).
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