Roth TSP May Be Further Off Than Anticipated

Military and government officials have been discussing adding a Roth Option for the TSP to try and bring the Thrift Savings Plan more in line with its civilian counterpart – the 401(k) plan. The benefit of offering a Roth TSP option is that Roth contributions are made with post tax salary, and withdrawals are tax free in retirement. This allows money invested in a Roth account to grow without the drag of taxes until the account holder reaches retirement age – potentially several decades.

Roth TSP plan may be several years off

The House recently approved a measure that will make the Roth TSP a reality for military and government Thrift Savings Plan holders, but it appears as though it may still take a couple years to toll the Roth TSP plan out to participating members, even if a bill is signed into law. The reason for the delay is that it will take TSP officials, military pay officials, and other federal agencies time to make the necessary changes in the payroll and accounting systems.

Additionally, a change such as adding a Roth option is a substantial enough change that the TSP Board will want to ensure that people are informed about the Roth option and will need to offer enough information to TSP participants to make sure they can make an informed decision regarding whether or not the Roth option would be better for them, or whether they should stick with the traditional offering.

Which is better – Roth or Traditional? The Roth and Traditional TSP plans would function in a similar manner as Roth and Traditional IRAs. I recommend reading on the pros and cons of investing in the IRAs to get a better idea of how it would differ with the TSP. Both options are good, but one may be better for you than the other, depending on your current and potential future income, and your current and potential future tax levels. You should make your decision based on those and other factors.

Disabled Veterans to Receive $250 Stimulus Checks

UPDATE: The first stimulus payments were sent Monday, June 22. All payments will be distributed by June 30.

Disabled military veterans currently receiving VA Disability Benefits are eligible to receive a one-time $250 Economic-Recovery Check from the US government. This is part of the American Recovery and Reinvestment Act that President Obama signed into law this past February.

Who is eligible for the $250 Stimulus Payment?

The $250 government stimulus check is for:

  • Retirees, disabled individuals and Supplemental Security Income (SSI) recipients receiving benefits from the Social Security Administration.
  • Disabled veterans receiving benefits from the U.S. Department of Veterans Affairs.
  • Railroad Retirement beneficiaries.

This is a one time check that will be sent out in 2009. As of this writing, there are no plans to make this check available in 2010 or beyond.

VA Disability Beneficiaries stimulus check information

If you receive disability benefits from the VA, you will be among the thousands of individuals receiving this $250 stimulus check. Here is the information you need to know:

  • You will receive a one time $250 check.
  • You will receive the payment in the same method you receive your regular disability payment (direct deposit or physical check).
  • Your $250 stimulus payment will not be included in your regular VA disability payment.
  • The $250 stimulus check is not considered taxable income.
  • The $250 stimulus check will not affect your disability rating or benefits.
  • Your check may be used to offset debts owed to federal or state agencies (back taxes, child support, etc.).
  • You can only receive one $250 stimulus payment, even if you are eligible for more than one payment, such as from Social Security, Supplemental Security Income (SSI)m or the Railroad Retirement Board. If you receive more than one check you will need to return it, or it will be taken from your account at a later date.
  • The stimulus check should show up in your bank account as an electronic transfer from the “US Treasury 220 VA ERP.”

When will you receive your $250 stimulus check?

Disabled veterans should receive their payment by July 10, 2009. If you do not receive it by then, you should contact the Veterans Affairs Administration by e-mail, letter, or phone. Be sure to include your VA file number (usually SSN) when you contact them. Here is the contact information:

  • Internet: https://iris.va.gov
  • Phone: 1-800-827-1000, or 1-800-829-4833 (TDD)
  • Mail: Department of Veterans Affairs, 1240 E 9th St, Cleveland OH, 44199

For more information about the $250 stimulus payment, check out the following websites:

Tax Advantages of 529 Plans

Saving money for your child’s education is an important thing to do, especially with tuition costs rising each year. Two of the most popular educational savings plans are the 529 College Savings Plan and the Coverdell Educational Savings Account (ESA).

Both college savings plans offer tax advantages and may be good options depending on your needs. This article compares Coverdell ESA and 529 Plans.

The 529 College Savings Plan offers a more flexible plan for many people, so I thought I would share some of the tax advantages of saving for your child’s college education with a 529 College Savings Plan.

Tax Advantages of the 529 Plan

There are several major advantages to using a 529 College Savings Plan as a college savings vehicle.

  • Tax exempt earnings. 529 earnings grow free from federal income tax as long as your withdrawals are used to pay for college expenses.
  • Tax exempt withdrawals. Withdrawals from a 529 Savings plan are exempt from income taxes when used for qualified higher education expenses.
  • Tax deductions and/or credits. Some states offer a state tax deduction or credit for contributions made to9 a 529 Savings Plan. Here is a list of states that offer this benefit.

Tax Disadvantages of a 529 Savings Plan

If you decide to make withdrawals from your 529 Savings Plan for something other than higher education expenses, you may be hit with penalties and taxes. In fact, the penalties are similar to the early withdrawal penalties for retirement fund. Any accumulated earnings are taxed, and you must pay an additional 10% penalty on your earnings.

Check with your 529 plan for more details

This article only includes a brief overview of the advantages and disadvantages of 529 plans. For more information, I recommend checking with the IRS or your individual plan.

Recommended articles about 529 plans:

Each state can offer their own 529 college savings plan and there may be differences among plans offered.