Maxing Out Your Thrift Savings Plan

If you are eligible to contribute to the thrift savings plan, you have a great opportunity in front of you to save for retirement. When you can contribute to the plan, you need to focus on maxing out your contribution. Here are a few things to consider about maxing out your thrift savings plan.

Contribution Limits

You need to do your best to reach the annual contribution limit for your thrift savings plan. Currently, you can contribute as much as $16,500 per year to your thrift savings plan. If you are over the age of 50, you can contribute as much as $22,000 per year.

Advantages of Maxing Out the Plan

If you max out your contribution to the plan, you will be able to take advantage of several benefits. One of the biggest benefits of doing this is that you will be sure to get the maximum matching contribution from your employer. You can get as much as 4 percent worth of your annual income contributed into your plan by your employer through matching contributions.

By contributing the maximum amount to your plan, you will also give yourself the best chance of living a comfortable life upon retirement. Many people do not save as much as they can while they are working, and that hurts them when they retire.

Are thrift savings plan contributions tax deductible?

When you make thrift savings plan contributions, one of the big benefits of this process is that they are tax deductible. Every year, you are eligible to contribute as much as $16,500 on a pretax basis. If you are over the age of 50, this number jumps up to $22,000 per year. (These figures are current in 2010.) The money that you contribute will be deducted from your taxable income at the end of the year. In addition to that, the money that is earned from investments in your thrift savings plan also accumulates on a tax deferred basis. You will pay taxes once you withdraw the money during retirement.

Is there a thrift savings plan early withdrawal penalty?

If you are taking a thrift savings plan early withdrawal, you may be subject to a penalty. With the thrift savings plan, you do have the option to take one in-service withdrawal. This withdrawal has to be over $1000, and you can take it without incurring any penalties. If you have to take a financial hardship withdrawal other than the in-service withdrawal, you will have to pay a 10 percent early withdrawal penalty. In addition to that, you will not be able to contribute to the thrift savings plan for the next six months after it is processed.