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What’s Next for a COVID-19 Economy?

What's Next for a COVID-19 Economy?

The economic fallout from the coronavirus pandemic continues, even as states start to reopen restaurants, retail stores, and other businesses. The crisis brought an end to the bull market that started in 2009 and threatens to usher in a recession.1

What does the future hold for the stock market and the economy? When will the economy recover? And how will this crisis impact your retirement and your financial future?

It’s impossible to definitively answer those questions. In many ways, this event is unprecedented. We don’t know how long the virus will present a threat, so it’s impossible to predict how or when the economy may recover.

However, it is possible to make adjustments to your strategy to minimize risk and take advantage of potential opportunities. It’s also helpful to keep in mind the long-term nature of the economy and the financial markets. Nothing lasts forever, including recessions and bear markets.

Stock Market Performance

The financial markets have been a rollercoaster since the onset of the pandemic. On February 19, the S&P 500 closed at 3386. On March 23, it closed at 2237, a drop of 33.93%. Since that time, the market S&P has climbed to 2863 as of May 15.2

It’s important to remember that the stock market isn’t the same as the economy. A drop in the stock market doesn’t necessarily signal a recession, just like a rise doesn’t necessarily spell an economic recovery.

It’s also helpful to remember that bear markets are a natural part of investing. They aren’t always caused by global pandemics, but they do happen. There have been 16 bear markets since 1926. On average, they last 22 months and are followed by a 47% gain in the year following the market’s lowpoint.3 We can’t predict when the market will hit its low point, or if it already has, but if history is any guide, the market will recover at some point.

Economic News

While the stock market has bounced back somewhat since its March decline, the overall economic news continues to be negative. More than 36 million people have filed for unemployment since late March. In 11 states, more than a quarter of the workforce is unemployed.4

In the first quarter, the economy contracted for the first time since the 2008 financial crisis. GDP declined by an annualized rate of 4.8%. That’s not as steep as the GDP decline of 8.4% annualized decline in 2008. However, it’s possible the economy could face a greater decline in the second quarter. Consumer spending, which accounts for 70% of GDP, fell by an annualized rate of 7.6% in the first quarter. That’s the steepest drop for that metric since 1980.5

While states may be starting the reopen process, there is still significant uncertainty surrounding the crisis and the economy’s future. The good news is you can take action to minimize risk. Contact us today at Benefit Resource Partners. We can help you analyze your goals and needs and implement a strategy. Let’s connect today and start the conversation.

1https://www.cnn.com/2020/03/11/investing/bear-market-stocks-recession/index.html

2https://www.google.com/search?safe=off&tbm=fin&sxsrf=ALeKk01UjyvpIcf62vDAgyulZ3dZuL1GWg:1589832165005&q=INDEXSP:+.INX&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyevq5uEYEB1gp6Hn6RQAAItD1MEkAAAA&sa=X&ved=2ahUKEwikycWrmr7pAhWWU80KHfhUBrcQlq4CMAB6BAgBEAE&biw=1536&bih=754&dpr=1.25#scso=_JerCXv0o9o70_A-NwLLYBg1:0

3https://www.fidelity.com/

4https://www.nytimes.com/2020/05/14/business/economy/coronavirus-unemployment-claims.html

5https://www.npr.org/sections/coronavirus-live-updates/2020/04/29/847468328/tip-of-the-iceberg-economy-likely-shrank-but-worst-to-come

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. 20093 – 2020/5/19

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Financial Planning Retirement Planning

Should You Leave Money in Your 401(k)?

Should You Leave Money in Your 401(k)?

There’s a growing trend among new retirees. With increasing frequency, Americans are choosing to leave their retirement savings. According to data from Fidelity, 55% of workers leave their retirement savings in their former employer’s 401(k) plan for a full year after retirement. That’s up from 45% just four years ago.1

Why are retirees leaving their assets in their old 401(k) rather than rolling those funds to an IRA? There could be a variety of reasons. Workers may be happy with the plan’s investment options and administration. They may feel comfortable with the plan’s online access and other management tools. They might not need the money immediately, so they don’t have urgency to do anything with it. It’s also possible that some retirees may not be aware that they can roll their funds into an IRA tax-free.

While there are certainly benefits to keeping your assets in your employer’s 401(k), there are also good reasons to roll the assets into an IRA. If you’re approaching retirement, now is the time to consider your options for your 401(k), which may be your largest retirement asset. Below are a few factors to consider:

Investment Options

If you’ve been in your 401(k) plan for a significant amount of time, you are likely familiar with the plan’s investment options. You may feel comfortable with your allocation and perhaps you even like the plan’s fee structure and performance.

However, your goals and risk tolerance won’t always be the same as they are today. Just as your investment strategy has evolved through your career, it will likely continue to evolve through retirement. What you’re comfortable with today may not be something you’re comfortable with in the future.

Generally, IRAs offer significantly more investment options than most 401(k) plans. That’s not necessarily true with every IRA and 401(k), but it is often the case. While a 401(k) plan may offer dozens of options from select providers, an IRA will often allow you to choose from a wide universe of stocks, bonds, mutual funds, ETFs, annuities, and more. That greater diversity of options can help you develop an allocation that is just right for your goals and risk tolerance, no matter how it changes in the future.

Management and Administration

You also may be comfortable with your 401(k) plan’s management and administration tools. Perhaps the website is easy to use. Maybe you have a dedicated support person within the plan administrator’s office. You know how to make changes and review your account, and you may not want to make changes at this time.

Again, though, consider whether it will still be convenient in the future to keep your assets in your old 401(k). If you’re like many retirees, you may have multiple 401(k) plans from old employers. You also might have IRAs and other investment accounts. It’s difficult to manage and adjust your strategy when you have accounts spread across multiple custodians and institutions. You could simplify the process by consolidating your qualified retirement assets into one IRA.

Also, when you reach 72, you’ll have to take required minimum distributions (RMDs) from your 401(k) and IRA. Again, that process may be inconvenient if you have to pull distributions from multiple accounts. If you consolidate your qualified assets into one IRA, you simply have to make withdrawals from one account to satisfy your RMD each year.

Income Protection

While you may not need to tap into your 401(k) assets today, it’s possible that at some point in the future you will need to take withdrawals from your retirement savings. Of course, it’s difficult to know how much you can safely take in a withdrawal each year. What if you live longer than you anticipate? What if the market takes a downward turn? How can you be sure your assets and income will last for life?

In most IRAs, you can use financial vehicles like annuities to convert a portion of your savings into guaranteed* income. You receive a regular consistent check that is guaranteed* for life, no matter how long you live or how the markets perform.

Historically, annuities with guaranteed income benefits have been more available in IRAs than in 401(k) plans. However, the passage of a new law, called the SECURE Act, creates the possibility for 401(k) plans to start offering these vehicles. Whether it’s through your IRA or 401(k), guaranteed income could give you a base level of financial stability confidence in retirement.

Ready to implement a plan for your 401(k) assets? Let’s talk about it. Contact us today at Benefit Resource Partners. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.

1https://www.marketwatch.com/story/more-americans-are-leaving-their-money-in-401k-plans-after-retirement-should-you-2019-10-31

*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.

19563 – 2019/12/16

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What in the World is an Investment Policy Statement?

What in the World is an Investment Policy Statement?

For decades, some of the world’s largest institutional investors have used one tool to guide their decision-making. Mutual funds, educational endowments, defined benefit pensions, and more all use this document to focus on their long-term goals and select only the investments that meet their specific criteria. It’s an investment policy statement (IPS).

An IPS isn’t just for institutional investors though. Individuals are now often using their own IPS to set long-term strategy and develop a formal process for choosing investments. While the format of an IPS can vary, most involve the following elements:1

  • Goals – A description of the purpose of the investment and the investor’s specific objectives.
  • Risks – The various risks that may threaten the strategy and a statement about the maximum acceptable risk that the investor is willing to accept.
  • Strategy – A description of the portfolio strategy and target allocation.
  • Current Investments – A list of all current assets and investments that are covered by the IPS.
  • Selection Criteria – The criteria that an investment must meet to be included in the strategy. The criteria could be based on past return, volatility, expense ratios, and more.
  • Monitoring Policy – A description of how the strategy will be monitored. When will reviews take place? When will the portfolio be rebalanced? What would need to happen to trigger a change in policy?

Do you need an IPS? It could be a valuable tool to help you maintain a long-term strategy and stick with a consistent investment approach. Below are a few ways in which you might benefit from an IPS:

It helps you avoid emotional decisions.

The average equity investor routinely underperforms the S&P 500 index. In fact, over the past 30 years, the average investor has had a 3.98% average annual return. The S&P 500 has averaged more than 10% annually over that same period.2

Why do investors underperform the market? There are many reasons but one of the biggest is that investors change their strategy based on emotional decisions and short-term impulses.

For example, you may get out of the equity markets if they take a downward turn. However, by the time the market has improved, you’ve already missed much of the recovery. These kinds of decisions cost investors return over the long-term.

An IPS helps you avoid short-term impulse decisions because all of your actions are guided by the document. If a change or adjustment isn’t specified in the IPS, you don’t make it. In many ways, an IPS protects you from yourself.

It clarifies risk.

What is your risk tolerance? Don’t know? You’re not alone. Unfortunately, many investors jump right into their strategy without considering their own tolerance for risk. That often leads to an allocation that isn’t right for their needs and goals.

Risk tolerance is an important component in IPS. Before you can establish your long-term strategy, you have to define the specific levels of risk that are or are not acceptable to you. You then develop an allocation that aligns with your acceptable level of risk. Without an IPS, you might choose an allocation that has far more potential for risk than is right for you.

Ready to create your own IPS? We can help. Contact us today at Benefit Resource Partners. We can help you document your goals, clarify your risk tolerance, and create a comprehensive policy that keeps you focused on the long-term.

1 https://www.morningstar.com/articles/808692/how-to-create-an-investment-policy-statement

2 https://www.marketwatch.com/story/americans-are-still-terrible-at-investing-annual-study-once-again-shows-2017-10-19

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.  19564 – 2019/12/16

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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.3 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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Retirement Planning

You’ll Be Thankful You Made These Retirement Decisions

You'll Be Thankful You Made These Retirement Decisions

What are you thankful for this holiday season? Family and friends? A few days off work? Perhaps your health? Good fortune in your career? You may have many blessings for which you’re thankful.

Many of our blessings and fortunate circumstances are determined by choices we made earlier in life. Your good health may be a result of your healthy lifestyle. Your financial stability is likely a result of your career choices and your savings habits.

What decisions can you make today that you will be thankful for in the future? Below are three actions your retired self may appreciate. If you’re approaching retirement and haven’t taken these steps, now may be the time to do so.

Adjust your allocation and minimize risk.

Are you feeling less comfortable with market volatility as you approach retirement? That’s normal. Most people become more risk-averse as they get older. When you’re young, you have a long time horizon. You have plenty of time to recover from a loss in the market, so you can afford to take some risk.

However, as you get closer to retirement, your time horizon shortens. You don’t have as much time to recover from a loss, so a market downturn may cause more anxiety and stress than it did in the past.

This may be a good time to review your overall allocation and possibly adjust to a more conservative strategy. Look for ways to pursue growth without exposure to high levels of risk. In addition to adjusting your allocation, you may want to explore retirement vehicles that offer growth potential without market risk. Your risk tolerance changes over time, so your allocation should change as well.

Maximizing tax-deferred savings.

If you’re like most Americans, you probably use some kind of tax-deferred vehicle to save for retirement. Accounts like IRAs and 401(k) plans are tax-deferred. You contribute money and then allocate your funds according to your goals.

In a tax-deferred account, you don’t pay taxes on your growth as long as the funds stay inside the account. Depending on which account you’re using, you may pay taxes on distributions in the future. However, the deferral of taxes inside the account may help your assets compound at a faster rate than they would in a comparable taxable account.

In 2019, you can contribute up to $19,000 to a 401(k), plus another $6,000 if you are age 50 or old. You can also contribute up to $6,000 to an IRA, with an additional $1,000 if you are 50 or older.1 Look for ways to trim your budget so you can put more money in your retirement accounts. Your future self will thank you.

Work with a professional.

Have you resisted using a financial professional for retirement income advice? Now may be the time to change your thinking, especially if you’re nearing retirement. A financial professional can help you adjust your allocations, plan your retirement income, develop a savings strategy, and even implement a personalized plan so you stay on track to hit your retirement goals. If you haven’t consulted with a financial professional about your retirement, now may be the right time to do so.

Ready to nail down your retirement strategy and make decisions you’ll be thankful for in the future? Let’s talk about it. Contact us today at Benefit Resource Partners. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

1 https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000

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.  19446 – 2019/10/30

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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

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Benefit Resource Partners Est 1976
101 N. Bridge St. | Chippewa Falls, WI 54729
800.905.8576
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Benefit Resource Partners is not affiliated with a government agency.

Investment advisory services offered by duly registered individuals on behalf of CreativeOne Wealth, LLC a Registered Investment Adviser. CreativeOne Wealth, LLC and Benefit Resource Partners are unaffiliated entities.