money. For younger investors, the mix is equity or stock weighted, while for older investors, the allocation is weighted toward bonds and other fixed income securities. b. Government Securities Investment Fund — G Fund. Investment focus is on short term U.S. Treasury securities. c. Fixed Income Index Investment Fund — F Fund. Investment focus is on government and corporate bonds and mortgage backed securities. d. Common Stock Index Investment Fund — C Fund. Investment focus is on the stocks of large and medium size companies included in the S&P 500 Index. e. Small Capitalization Stock Index Investment Fund — S Fund. Investment focus is on the stocks of medium and small companies that are not included in the C Fund. f. International Stock Index Investment Fund — I Fund. Investment focus is on international stocks of 22 developed countries. All new money coming into your TSP account is automatically invested in the L Fund unless you request a contribution allocation. You may make the allocation online, by phone, or mail. Loans. If the need arises, the TSP loan program gives you access to the money in your account. There are two types of loans — a general purpose loan and a loan for the purchase of your primary residence. Repayment periods are one to five years for a general purpose loan and one to fifteen years for a home loan. The interest rate charged is the G Fund rate at the time the loan is initiated. Interest and principal repayments are credited back to your account.
Withdrawal. Since the TSP is designed to be a long-term retirement savings program, withdrawals made before 59 1/2 years of age may be subject to a 10% early withdrawal tax. The simplest rule to get around the 10% penalty before 59 and 1/2 is if you retire in the year you turn age 55 or later. For example, if you turn 55 in December of this year and you retire this year as well then you’d be able to access your TSP without the 10% penalty. In addition, there are special rules covering a financial hardship withdrawal for members who are still in–service. Tax Implications. The TSP program allows contributions to be made on either a pre-tax (Traditional TSP) basis or an after tax (Roth TSP) basis. a. Traditional. Contributions that you make today are deducted from your pay before taxes are computed, meaning that you pay less taxes now. The payment of taxes on this income is deferred until you actually withdraw the money from your account. Additionally, taxes on fund earnings are not paid until the money is withdrawn. b. Roth. Taxes on contributions are paid up front. Consequently, contributions are not taxed at the time of withdrawal as long as five years have passed since 1 January of the year you made your first Roth contribution and you are 59 1/2 or older.
CHAPTER 1 | MILITARY PAY & ALLOWANCES
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