After three years of planning, the Thrift Savings Plan will unveil its new Roth investment option on May 7. The much-anticipated program will allow already-taxed investments to create future earnings without any tax liability. The original plan allowed before-tax earnings to be invested but taxed upon withdrawal.
The new option is meant to allow flexibility with taxes. Service members or federal civilian employees weighing their options regarding retirement can leverage the two investment options to see which provides a greater gain. If an employee pays lower taxes while working, the new Roth option can be a great route.
Service members may receive greater tax benefits while serving and therefore consider more strongly the new plan. Often times service members also receive annual bonuses that can be taxed and invested with the new Roth plan rather than taxed when a service member presumably moves ups in the ranks and retires with a higher salary.
While the plan gets implemented next month, the complexity of certain payroll systems may delay the actual offering to military branches. Due to the testing required to ensure there are no issues with two payroll options, it is expected service members will receive the Roth option between June and October. Marine Corps members should receive the option in June while those in the Army, Navy and Air Force should expect Roth options in October.
Service members should consider speaking with a financial advisor to learn more about which investment plan best meets their needs and longterm goals.
Photo courtesy of Official U.S. Navy Imagery