To our future AF self-made millionaires
By Lt. Col. Nicholas Bell, 354th Comptroller Squadron commander
/ Published June 06, 2012
EIELSON AIR FORCE BASE, Alaska -- I'd like to introduce to you the Thrift Savings Plan Roth. First the good news: the Thrift Savings Plan, our Government's version of a company sponsored 401K retirement program, will soon be making a Roth option available to you for future investment. The bad news is that your fellow Airmen don't seem to care; or perhaps even worse, don't know what they are about to miss out on.
As it stands right now, only a minority of Airmen -- roughly 40 percent -- have any money set aside in the TSP. Of those who do, many are found to be stocking the majority of their contributions into the ultra conservative/low earnings G Fund. The fiscal consequence of this data indicates that, despite the pride our Airmen hold for their service, many are falling short of one of our most instilled service ideologies -- an Airman's responsibility to manage his personal affairs.
In defiance of this are you few who are affirmatively on track to your millions, and most likely to be continuing to read this article. You already know that the TSP is less an "optional military entitlement thing," and more a very personal post-military financial independence opportunity. You already know that to this point, every dollar you've put into your TSP account has been saving you in annual taxes owed April 15th every year. More so, you are well aware that your commission-free invested dollars have gone to automatically accumulate not just by compound interest alone, but also with super-charged corporate dividends. A toast to you who have capitalized on the largest, truly inexpensive, well-diversified and perhaps most revered employer-sponsored retirement program this nation has ever witnessed.
Your victories as the military's most savvy investors aren't over yet. As mentioned, coming this summer, you will be able to make your TSP deposits with post-taxed dollars via the Roth option. The significance of this comes with a reminder: that we live with a progressive income tax system. This simply means the more your income increases, the greater the percentage of income taxes you are required to pay. This fact is crucial for your understanding that the answer to this escalating tax handicap is met in full balance by the newly unveiled TSP Roth. Pay the taxes on your income now in 2012 and contribute the after tax dollars to the TSP Roth. When you go to pull the money out after age 59½, the money will be tax free, potentially earning you tens if not hundreds of thousands of dollars more than the traditional TSP method!
Know that the prospective benefit of switching to the Roth option comes along with an assumption -- that you are presently in the lowest tax bracket that you will be for the majority of your on-going life. Keep this in mind as you begin to make your future income projections. Answer these questions for yourself honestly, with the weighed probabilities of finding yourself in a higher tax bracket due to future military promotions, your prospects for affluent post-military employment and the threat of upward shifts in the structural marginal tax rates as our Government goes to reduce our nation's debt.
If you find yourself likely to be paying more in income taxes in each one of these scenarios, the TSP Roth (mathematically) can soon become your greatest ally. While there is no crystal ball for you to know for sure where you may end up in the years to come, what you do have, is the expert financial advice made free to you at the Airmen & Family Readiness Center, which can be reached at 377-2178. And while their financial advisors can easily boil all of this down for you, my guess is that you will be singing the praises of the TSP Roth not only this summer but fifty years from now as well.
Happy investing to you, our future Air Force self-made millionaires!