TSP Contributions

[BurghGuy]

Ok. I've recently started investing in TSP, and I only have one question which I can't seem to find anywhere else, and I know theres alot of savvy military investors on here.
So, TSP is tax-deffered, meaning you don't pay taxes on anything until you take it out. But what if the money you put in isn't taxable, like say, flight pay? Will it then become taxed in 35 years when I go to retrieve it? Or will I just be taxed on the interest it accrued. Am I making a mistake and should I just use an equal amount allocated from my base pay?

Edit: yes, I know the advantages of having a Roth IRA over TSP.

 

[zippy]

Flight pay is taxed...

but here is your answer from their website.
http://www.tsp.gov/uniserv/features/chapter03.html#sub4


http://www.tsp.gov

Take some time clicking around the different links of the website. Although some of the stuff may not apply to you, It will give you a better understanding of investment options, and how the program works.

 

[BurghGuy]

For some reason I thought it wasn't. I guess it's kind of a moot point now. The TSP website was the first place I looked, but all it did was explain how the tax-defferment works.

 

[Brett327]

Ok. I've recently started investing in TSP, and I only have one question which I can't seem to find anywhere else, and I know theres alot of savvy military investors on here.
So, TSP is tax-deffered, meaning you don't pay taxes on anything until you take it out. But what if the money you put in isn't taxable, like say, flight pay? Will it then become taxed in 35 years when I go to retrieve it? Or will I just be taxed on the interest it accrued. Am I making a mistake and should I just use an equal amount allocated from my base pay?

Edit: yes, I know the advantages of having a Roth IRA over TSP.

Flight pay is taxable. Things labeled "pay" are taxable, things labeled "allowance" aren't. That said, the maximum contributions you can make to TSP are essentially based on a percentage of your base pay/bonuses, etc. As you know, it works like a traditional IRA and that contributed portion is deducted from your adjusted gross income at tax time. You can't really say, "Hey I want to contribute from my flight pay, or BAH, etc." Make sense?

Brett

 

[zippy]

Hmph, for some resaon the first link kicks you back to the tsp page

Go to "TSP features" under uniformed services,
-"tax advantagess of tsp"
-"tax exempt contributions"

Heres what it says:


"When you serve in a combat zone or qualified hazardous duty area, most compensation you receive for active service is excluded from your gross income on your IRS Form W-2, regardless of whether you contribute any of it to the TSP. All of an enlisted member's and warrant officer's compensation is eligible for the combat zone tax exclusion. Officers, however, may exclude no more than the highest rate of basic pay paid to each service's senior enlisted member (and any hostile fire/imminent danger pay received by the officer).

In some cases, members who are serving outside a combat zone or qualified hazardous duty area but are directly supporting operations in such a zone or area can also qualify for the combat zone tax exclusion.

You receive no direct tax benefit from contributing pay to the TSP which has been excluded from gross income; however, the earnings on those contributions are tax-deferred.

When you make a withdrawal, money is taken from your total account balance proportionally from your taxable funds and your tax-exempt funds. The amount attributable to tax-exempt contributions will not be taxable.

Your service will notify the TSP whenever your contributions are from tax-exempt money. The TSP will then account for your tax-exempt contributions and, as indicated above, will ensure that these amounts are not reported to the IRS as taxable income. Consequently, those contributions will not be subject to taxation when you withdraw them. Your quarterly participant statement will show your tax-exempt balance separately.

Your service can tell you more about combat zone/qualified hazardous duty area service and whether you qualify for the tax exclusion. (See also IRS Publication 3, Armed Forces' Tax Guide.)"

 

[Purdue]

Good Find Zippy, I was wondering about this myself!

 

[BurghGuy]

Thanks Brett and Zippy. That's what I thought would happen. I initially tried finding your original link to no avail, thanks for the directions, good find.

 

[Brett327]

Alright, I feel compelled to put this out there, disclaimer from the original poster notwithstanding: With the possible exception of bonus money contributions, one can generally get better performing investment vehicles than TSP. Don't do TSP just because it's easy, or relatively free from having to monitor it. Do your homework and find the best investment that suits your needs. Also, you should only contribute to TSP after having made the maximum allowable annual contribution to a Roth type IRA.

Brett

 

[HighDimension]

Alright, I feel compelled to put this out there...

Brett cares.

 

[snake020]

Don't worry about TSP or Roth IRAs. Enjoy your money while you're young and Social Security & Medicare will take care of you just fine when the time comes.

 

[KSUFLY]

If tax-exempt funds will be separate from the taxable funds in the TSP account. Does that mean that if all my contributions come from my BAH or BAS that it won't be taxed when I make a withdrawal?

 

[snake020]

You can't contribute allowances to TSP, only base pay and special pay. Key word is pay vs allowance.

 

[BurghGuy]

It's amazing how people don't trust the government and then they rely on it for retirement.

 

[Fly Navy]

Don't worry about TSP or Roth IRAs. Enjoy your money while you're young and Social Security & Medicare will take care of you just fine when the time comes.

I'm gonna take a wild guess and say this is a joke...

 

[snake020]

I'm gonna take a wild guess and say this is a joke...

I'm quite serious - if he spends money on a few iPods I'll see even more impressive gains in my Roth IRA for the year.