Q. Could you please explain the difference between the traditional Thrift Savings Plan and Roth TSP? I was told that the traditional TSP is taxed when you begin withdrawing it at retirement. And that only the government’s contribution to your retirement (let’s say they matched my 5 percent) is the only portion that is taxable when withdrawn; my contribution is not taxed at withdrawal. Is this correct?
A. Basically, you fund the Traditional TSP with pretax deferrals from your paycheck and pay tax on money as it is distributed to you later. You fund the Roth TSP with post-tax deferrals from your paycheck and pay no tax on money as it is distributed to you later. Every dollar you withdraw from the Traditional TSP will be taxed as ordinary income. There are other differences to consider, as well, and you should review the information available at www.tsp.gov to gain a better understanding.
