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It's Your Money: New year brings big changes to the Thrift Savings Plan

ROBINS AIR FORCE BASE, Ga. -- Having for retirement is a challenge for nearly everyone. As a certified financial planner in my civilian life, I’ve heard lots of reasons for lack of action. There’s the “I don’t know anything about investing” excuse. Another popular one is “I heard you can lose all of your money” And then there’s the “Saving small amounts of money isn’t worth the time” excuse. They go on and on.

Of course, we Reservists don’t have these excuses because we have the “new and improved” Thrift Savings Plan. The TSP, while not perfect, is a pretty darn good place for your retirement money.

I’ll admit, the plan in effect prior to this year, with its 10-percent limit on contributions, wasn’t a tremendous benefit for Reservists. However, the 2006 plan changes all that. Your 2006 TSP offers all eligible participants the ability to contribute 100 percent of pay, up to the allowable dollar limit of $15,000. This is huge!

Think about it. Whatever percentage of your Reserve pay that you don’t need — or, more appropriately, excess cash flow that you can afford to save for retirement — can be contributed to your private TSP account pre-tax. Yes, pre-tax!

Before I go any further, if you have revolving credit balances, credit cards or purchase plans, please clip this article and set it aside until these balances are paid off. Mortgages, car loans and home equity lines of credit are OK, but everything else is bad stuff. Pay it off ASAP.

Back to the TSP. If you are eligible, I’d recommend you contribute for the same reasons I have contributed for years:

* An active retirement is going to be terribly expensive. Last time I checked, leisure activities and trips require lots of cash. Most people aren’t going to win the lottery or inherit millions, so if you want something, you have to save for it.

* Money that you put into the TSP plan is “pre-tax,” and growth is “tax deferred.” Not paying taxes now allows for bigger balances later.

* Saving and investing on a regular basis, i.e. every paycheck via payroll deduction into the TSP, also called dollar cost averaging, works.

* The TSP plan is a lean machine. Management fees and administrative expenses are minimal, and there are no sales commissions.

So, the TSP is a good thing that got better in 2006 because of higher contribution percentages and deferral limits. Note that contribution limits apply to all employer-sponsored qualified retirement plans. So if you have a 401(k) as a civilian, your contribution to the TSP and your 401(k) cannot exceed the 2006 $15,000 deferral limit.

For more information, I recommend you log onto www.TSP.gov as well as your “my pay” account. «

(Editor’s note: "It’s Your Money" is a new Citizen Airman magazine feature designed to provide financial advice of a general nature. Individuals should conduct their own research and consult their own financial adviser before making any financial decisions. Based in Cleveland, Ohio, Colonel Lunt is the reserve forces director for the Great Lakes region of the Air Force Civil Air Patrol advisors program. He is also a certified financial planner and vice president of a financial planning and consulting firm. In addition, he is the creator and commentator for the Pentagon Channel’s “Military Money Matters.”)

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