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Shows & Panels
Tax-free investment option — R U ready?
Wednesday - 2/29/2012, 2:00am EST
For many people, the Roth is almost too good to be true.
With a traditional IRA or 401(k) plan (like the TSP), people invest with each paycheck and get a tax break on the amount they invest. When they begin withdrawing their money from the TSP, the entire amount is taxable at their current tax rate. For a quick tutorial on Roths, click here.
With the Roth option (named after the late Sen. William Roth of Delaware) only after-tax money is invested. That means that when the individual takes withdrawals from his or her account, the entire amount is TAX FREE. If you invest $10,000 and wind up with $1 million in your Roth account it is all yours.
Many people believe that, despite the political rhetoric from both parties, tax rates for most people have nowhere to go but up. Which makes the Roth option even better, especially for long-term investors. That's where younger feds and members of the military come in.
The military services (especially the Navy) have done a great job of selling the TSP to service personnel even though they don't get the same 5 percent government match that goes to FERS investors. In an interview last week on our Your Turn radio show, the TSP's Tom Trabucco pointed out that the vast majority of people who serve in the military do so for relatively short periods of time. You can listen to that interview on the state of the TSP by clicking here.
Since the Roth and other TSP investments are portable they are ideal for people — military or civilian — who spend time with Uncle Sam but don't make government service a career. Relatively few people who serve in the military stay in long enough to qualify for retired pay (a pension). So, for them, starting an early nest egg with a tax-free Roth is ideal.
Today at 10 a.m., on the Your Turn radio show, we'll talk with Federal Times senior writer Stephen Losey about an upcoming Roth option education campaign for federal civilian and military personnel, an update on downsizing in the U.S. Postal Service and the prospects of an extended pay freeze. At 10:30 a.m. Jessica Klement, legislative director of the Federal Managers Association looks at the package of anti-fed proposals in the House and Senate.
NEARLY USELESS FACTOID
By Jack Moore
The world's first horse, Sifrhippus, was already a wee little thing, compared to a modern-day Mustang, The New York Times reports. But starting 56 million years ago, the horse began getting even smaller — shrinking from an average of 12 pounds to about eight and a half, as the climate warmed.
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