If you've contributed money to your thrift savings plan, you are entitled to some tax breaks. Traditional TSP accounts offer pretax savings while Roth TSP accounts offer after-tax savings. However, the tax reporting for TSP plan contributions mirrors those of 401(k) and 403(b) plans because you don't claim the deduction on your tax return.
No Tax Deduction
You can't deduct contributions to traditional TSPs because they're deducted directly from paychecks. When your employer sends you your W-2, your taxable income won't include your TSP contributions. For example, assume your salary is $68,000, and you contribute $6,000 to your traditional TSP. You'll only see $62,000 of taxable income in box 1 of the W-2. Claiming that deduction would count the same TSP contribution twice, which wouldn't make the IRS very happy.
Traditional TSPs do have pretax retirement savings, which means the money doesn't count toward your taxable income. You also don't have to pay taxes on money the agency contributes to the TSP for you.
Roth TSP Contributions
Roth TSP contributions don't lower your taxable income, but that doesn't mean you can deduct them on your income taxes. Roth TSPs are after-tax accounts, so you don't get a tax break when you put money into them. However, your qualified distributions from the Roth TSP aren't taxable. These tax-free distributions include accumulated earnings. This makes a Roth TSP appealing if you anticipate paying a higher tax rate in retirement.
Retirement Savings Credit
Even though you can't deduct the TSP, you might be able to claim a tax credit. The retirement savings credit can be up to $1,000 per person for contributions you make to qualified retirement plans, including TSPs. The credit amount ranges from 10 to 50 percent of your contribution. You can only get the credit if your income is within the limits of your filing status. In addition, you have to be over 18 and not be a full-time student.
- After-Tax IRA Vs. Pretax IRA
- Do I Report a Roth IRA Contribution on a 1040?
- Can a Traditional IRA Increase My Refund?
- Can You Have a 401(k) and a TSP?
- Tax Advantage to Putting More Into a Roth IRA
- IRS Federal Tax Withholding Requirements From a Qualified Retirement Plan
- Tax Breaks for Middle Income Families
- Tax Handling of a Non-Deductible IRA