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Financial Planning Retirement Planning

Year in Review: How Did the TSP Options Perform in 2019?

Year in Review: How Did the TSP Options Perform in 2019?

Do you contribute to the thrift savings plan (TSP)? For government workers, the TSP is a powerful savings vehicle. You benefit not only from agency contributions but also from tax-deferred growth. That means you don’t pay taxes on growth as long as the money stays inside the plan. Tax-deferral may help your assets compound at a faster rate than they would in a taxable account.

When you make a contribution to the TSP, you have the ability to allocate the funds across a range of investment options. They include the:1

  • G Fund: Government Securities Investment Fund
  • F Fund: Fixed Income Index Investment Fund
  • C Fund: Common Stock Index Investment Fund
  • S Fund: Small Cap Stock Index Investment Fund
  • I Fund: International Stock Index Investment Fund
  • Lifecycle Funds

The “alphabet funds” generally invest in the types of securities included in their respective name. For example, the G fund invests in government treasuries. The S Fund invests in small cap stocks.

The lifecycle funds invest in the other funds. However, the allocation of each lifecycle fund is automatically set to align with a future retirement date. For example, the L 2050 fund is for those who will retire in or near 2050, and invests more heavily in stocks because of the longer time horizon. The L 2020 fund is for those who are retiring in the near future, and it has a much more conservative allocation. Lifecycle funds are a convenient way to make sure you maintain an appropriate allocation at all times.

Through October 31, 2019, the TSP funds have the following year-to-date returns:2

  • G Fund: 1.93%
  • F Fund: 8.82%
  • C Fund: 23.14%
  • S Fund: 19.83%
  • I Fund: 17.28%
  • L Income: 6.06%
  • L 2020: 7.55%
  • L 2030: 13.47%
  • L 2040: 15.72%
  • L 2050: 17.61%

How will the TSP funds perform in 2020?

It’s impossible to predict future returns, especially in the short-term. However, there are steps you can take to minimize your exposure to risk and improve your odds for a successful outcome. Below are a couple steps you may want to take as you head into the new year:

Reassess your risk tolerance. What is your tolerance for risk and volatility? Do you know? If the answer is no, you’re not alone. Many investors haven’t really analyzed their feelings and comfort level with risk. As a result, they have an allocation that isn’t appropriate for their goals and needs.

A financial professional can use a variety of tools to determine your unique level of risk tolerance. They can then help you find the allocation that is likely to provide the best mix of risk and return for your needs.

Increase your contributions. In 2020, you can contribute up to $19,500 to the TSP. If you are age 50 and older, you can contribute an additional $6,500, for a total maximum contribution of $26,000.3

Of course, that limit doesn’t even include the agency automatic and matching contributions. If you contribute more than 5% of your income to the TSP, you get your contribution plus an additional 5% from your agency.4 Those contributions could help offset any investment downturns and keep your nest egg moving in the right direction.

Ready to get your retirement on track in 2020? Let’s talk about it. Contact us today at Benefit Resource Partners. We can help you analyze your needs and implement a strategy.

1 https://www.tsp.gov/InvestmentFunds/FundOptions/index.html

2 https://www.tsp.gov/InvestmentFunds/FundPerformance/monthlyReturns.html

3 https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/contributionLimits.html

4 https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/typesOfContributions.html

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.  19522 – 2019/11/27

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Financial Planning Retirement Planning

Give Yourself These 3 Retirement Planning Gifts This Holiday Season

Give Yourself These 3 Retirement Planning Gifts This Holiday Season

Have you finished your holiday shopping? It’s that time of year again. It’s the season to buy gifts for spouses, children, and all the other friends and family who play a meaningful role in your life.

This isn’t just the season for giving to others, though. You may also want to think about a gift for yourself. You could splurge on an expensive item you’ve had your eye on. Or you could give yourself a financial gift that will pay benefits long into the future.

This holiday season consider giving yourself the gift of a stronger financial future. Below are three retirement planning steps you can take to improve your finances today and in the future. If you aren’t currently implementing these steps, now may be the time to do so.

Increase your TSP contributions.

In 2020, you can contribute up to $19,500 to the thrift savings plan (TSP). If you are age 50 and older, you can contribute an additional $6,500, for a total maximum contribution of $26,000.1

Of course, that limit doesn’t even include the agency automatic and matching contributions. If you contribute more than 5% of your income to the TSP, you get your contribution plus an additional 5% from your agency.2 Those contributions could help offset any investment downturns and keep your nest egg moving in the right direction.

You may not be able to contribute the maximum amount of $19,500. However, any increase is helpful. You may want to gradually increase your contribution over time. For example, you could increase your contribution rate by 1% every few months. By doing it gradually, you may not feel a crunch in your budget.

Contribute to an IRA.

One of the biggest benefits to a career in government is the retirement plan. You can contribute to the TSP, earn annuity credits, and even participate in Social Security. You aren’t limited to those options, though. You can also contribute to an individual retirement account (IRA).

In 2020, you can contribute up to $6,000 to an IRA and an additional $1,000 if you are 50 or older.There are a few different types of IRAs but the most commonly used are the traditional and the Roth. With a traditional IRA you may be able to make tax-deductible contributions. Your contributions grow tax-deferred and then you can take taxable withdrawals in retirement.

In a Roth IRA, your contributions aren’t deductible. However, your withdrawals in retirement are tax-free. There are income limitations that restrict who can use a Roth. A financial professional can help you determine which type of IRA is right for you.

Contribute to an HSA.

In retirement, you’ll likely have the option of either enrolling in Medicare or staying in the Federal Employees Health Benefits (FEHB) system. Either way, you’ll likely have out-of-pocket health care costs above and beyond what is covered by insurance. In fact, Fidelity estimates the average retired couple will spend $285,000 out-of-pocket on health care in retirement.

You can start planning for those expenses today by contributing to a health savings account (HSA). With an HSA, you make a pre-tax contribution and allocate the funds according to your goals and risk tolerance. The money then grows on a tax-deferred basis. In the future, you can take tax-free withdrawals to pay for qualified health care expenses. It’s a tax-efficient way to pay for future medical costs.

Ready to take control of your retirement in 2020? Let’s talk about it. Contact us today at Benefit Resource Partners. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

1 https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/contributionLimits.html

2 https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.  19521 – 2019/11/27

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Financial Planning Retirement Planning Tax Planning

Are TSP Distributions Taxable?

Are TSP Distributions Taxable?

Do you contribute to the thrift savings plan (TSP)? It’s one of the most powerful retirement savings vehicles you have available. You receive an automatic 1% agency contribution in the plan, regardless of whether or not you contribute. You can also receive matching contributions on up to the first 5% of your compensation that you contribute.1

However, it’s not just matching contributions that make the TSP such an effective savings tool. Your TSP savings also benefit from tax-deferral. You don’t pay annual taxes on growth as long as the funds stay in the TSP. That allows your savings to compound at a faster rate than they might in a comparable taxable account.

While tax-deferral is helpful, it isn’t the same as tax-free. In most cases, you have to pay taxes on your savings at some point. By understanding the taxability of your TSP balance, you can more effectively plan for retirement. Below are the four types of income you could take from your TSP and how they’re taxed in retirement:

Traditional Contributions

Most TSP contributions are what is known as traditional, or pre-tax, contributions. For example, your contributions are likely deducted from your paycheck on a pre-tax basis. Matching contributions aren’t taxed at the time they’re made. These pre-tax contributions go into your TSP and grow on a tax-deferred basis.

However, they don’t go untaxed forever. When you withdraw those funds in retirement, they’re taxed as ordinary income. This is also true if you roll your contributions to an IRA after you separate from government employment. Withdrawals from a traditional IRA are also taxed as income.

Roth Contributions

It’s possible that you may have the opportunity to make Roth contributions to your IRA. Roth contributions are made with post-tax dollars. The contributions are made after taxes are withheld from your paycheck.

Once in the TSP, the Roth contributions grow tax-deferred, just like traditional contributions. However, the difference, in this case, is that distributions are not taxed. Since you paid taxes on the dollars upfront, you don’t pay taxes on the distributions.

Tax-Exempt Contributions

You may have some tax-exempt contributions from work performed in combat zones. These dollars go into the TSP pre-tax. They grow on a tax-deferred basis just like other contributions. However, when you withdraw these dollars, you only pay taxes on the growth, not the original contribution. The contribution dollars are tax-exempt forever.

Annuity

You also have the option of converting your TSP balance into an annuity when you retire. The benefit of this option is that your income is guaranteed* for life. There’s no risk of outliving your assets.

If you choose the annuity option, a portion of your payment will likely be taxable. The taxable portion is based on the mix of traditional and Roth contributions in your TSP. Your annuity provider will calculate an estimate of your payment and the taxable portion so you can plan accordingly.

Ready to plan your retirement income strategy? Let’s talk about it. Contact us today at Benefit Resource Partners. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

1 https://www.tsp.gov/

*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.  19447 – 2019/10/30