Tax Benefits of the Thrift Savings Plan

If you are eligible for a thrift savings plan, you will be able to take advantage of some nice tax benefits. This is a type of retirement account that is available for certain government employees. Here are some of the basics of the thrift savings plan and how it can benefit your tax situation.

Tax-Deferred Contributions

The first way that the thrift savings plan can help you with your taxes is by allowing you to make tax-deferred contributions. You are able to deduct a certain percentage of your paycheck to be automatically deposited into your thrift savings account. The amount that is deducted will not count against your taxable income. Each year, you can contribute as much as $16,500 to your thrift savings plan. This means that when you file your taxes, your taxable income will be reduced by $16,500.

Tax-Deferred Growth

Once you deposit money into your thrift savings account, you will be able to invest the money into different securities. When those securities bring you a return on your investment, you will not have to pay taxes on the gains. You will not have to pay taxes on the money until you start taking withdrawals once you reach retirement age.

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