Tax Free Zones

[shiftomnimega]

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I'm a reservist and have been enrolled in TSP for about a year now. I have 9 percent of my basic pay and 100 percent of my bonus pay being deposited in TSP.

Now one of the benefits of TSP is to shelter one's income from taxes, right? What if one is in a tax free zone (I'm currently deployed in Kosovo)? What benefit does depositing any money into TSP have? Wouldn't it be wiser to deposit the same money into my mutual funds?

The reason I ask is because I know upon my separation from military service I will be taxed on any gains I made on my TSP account. Isn't that like taxing tax free money?

 

[Show-me]

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Wow that sound like you are going to be taxed when you withdrawl from your TSP unless there is a provision for military in combat zones.Iwould to fully fund a ROTH IRA with tax free zone money first. Bullion is sold without paying taxes on the salebut you are suppose to claim any gains for tax purposes. (Buy and sell small quanities because no transaction records are kept for sums less than, I believe, $10,000.) Also, gold may be at a peak.?

 

[Show-me]

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I'm sure more will chime in later in the day. It's 0300 central time here, were asleep.

 

[Birchtree]

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Shiftmnimega,

You are on the right track with your contributions. Hope you are in C fund for fun.

You may possibly end up in the reserves for many decades - think long term.

There will only be a tax when you pull money from your account - let the funds grow.

The tax deferral benefit becomes more important as your salary increases - like in 5 more years the benefits will become more apparent. Next year you can make even larger contributions to TSP account - up to full $15,000 plus any match. Go fot it.

Hooah!

 

[pyriel]

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If you are using TSP to lower down your income for tax purposes then it won't help you. I'd tell you to open up a ROTH IRA but that should already be a given for those who are setting aside for retirement. One should always max tsp and ROTH if they can. Now, next year, try putting in $15K if you are still in a tax free zone. When you get home (for next year), and you can afford it, put in all of your drill and AT payto TSP. Yup, I mean all. All of it will be tax free since there is no more caps for TSP contribution except for the IRA cap of $15K. If I am IDT, and I can afford it, I would definitely do that. Then again that is just me... just my .02.

Pyriel

 

[shiftomnimega]

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Thanks for the input guys.

I was actually advised to not open an IRA at my young age (just recently 22) since a rainy day may occur. The mutual funds I hold now are pretty easily liquidable.

 

[pyriel]

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shiftomnimega wrote:

Thanks for the input guys.

I was actually advised to not open an IRA at my young age (just recently 22) since a rainy day may occur. The mutual funds I hold now are pretty easily liquidable.

Hmmm... That is a very funny advice especially when everyone advocates opening one up as early as possible. Have you ever done the number crunching to validate his advice? However, I am also glad that you are also thinking about rainy days. would you mind clarifying what they are? Reason why I am asking is because IRA or TSP may be utilized for some rainy days. P.

 

[shiftomnimega]

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When I say "rainy days" I'm talking about a random crappy financial occurance when I'll need emergency money immediately.

For example, somebody's funeral, my aunt's house overseas gets burned down, or something like that.

Maybe I will put money into a Roth IRA in addition to the TSP. It's just that when I get back to the states I will have bills again and I just won't have the money to continue contributions into all thesethings.

 

[mlk_man]

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shiftomnimega wrote:

When I say "rainy days" I'm talking about a random crappy financial occurance when I'll need emergency money immediately.

For example, somebody's funeral, my aunt's house overseas gets burned down, or something like that.

Maybe I will put money into a Roth IRA in addition to the TSP. It's just that when I get back to the states I will have bills again and I just won't have the money to continue contributions into all thesethings.

I'd go ahead and open that Roth. Any you money you contribute is after tax money and can be withdrawn at anytime for any reason. With a bank wire transfer, only takes about a week to get your money. Any money you earn will be taxed and penalized 10% if you withdraw it before you're 59 and a half. So if you have an emergency, you're contributions are readily available. Sure beats putting money a savings account!!

Read this: http://www.fool.com/news/commentary/2003/commentary030416.htm



Good luck,

M_M

 

[Poker Face]

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All the money that you are put in to the TSP in a TAX Free zone will be Tax Free when you take it out, I don't know how they figure it out, but just look on your End of month LES as exempt and on your TSP web page asYour tax exempt balance is.

I hope this helps

 

[James]

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Poker Face is correct. Any contribution that you make in a tax free zone is Tax Exempt, while contributions you make while not in a tax free zone is Tax Deferred. Meaning that you will not pay taxes on your contributions you make while you are in a tax zone. This amount is tracked on your LES and on your account balance page on www.tsp.gov.

 

[TSP@ti2de]

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I am in the same situation as you.

If you are following some of my other posts, it sounds like a good idea to:

- max TSP to include 100% hostile fire pay

- come up with $10K to put into the Soldier Savings Plan (10% return guaranteed)

- if you have debt, last time I deployed I went and got a 0% Discover card and threw EVERYTHING at it: student loans, wife's car, other credit cards, and came home clean.

Max those benefit contributions and don't look back on it. Think about tax-deferred gains over the number of years that money sits... WOW! I am also federal back home and was trying to figure out how to get matching funds next year, fugget about dat, let's go for the tax-free dividends! Good luck and stay safe.

 

[James]

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TSP@ti2de, how did you get the 0% Discover Card? I am deployed and very interested.