Indeed, Apple has been falling behind in its protection racket payments to Congress members: It reported only $9,000 in political contributions at the corporate level for 2012 – and that was only a grant to Cupertino-area schools serving the families of Apple headquarters employees.

Naturally, delinquency like that from a FORTUNE 500 company and the largest company in the world as measured by market capitalization is going to result in some Congressional scrutiny.

And so the heat is coming to Cupertino. The Democrat-led Senate Permanent Committee on Investigations is going after Apple for, apparently, complying with the law.

Background 

The United States currently has the highest statutory corporate tax rates in the developed world, with C-corporations paying up to 35 percent of their profits. Furthermore, any dividends paid to shareholders are subject to double-taxation; Corporations don’t get to deduct dividends paid to shareholders.

Naturally, other countries try to attract capital in a competitive global economy by offering a much more favorable tax environment. And U.S. corporations – acting generally rationally – respond to these incentives. Specifically, some of them station subsidiaries in Ireland, which has a top corporate income tax rate of 12 percent – and occasionally makes a better deal with some corporations, in exchange for their capital.

This, of course, helps their local economies: When a corporation deposits funds in an Irish bank, for example, the bank is able to then lend that money back out into the local economy several times over. The Irish use this to help fund ridiculous house prices in Galway.

This is an established part of the tax landscape in the United States. U.S. Corporations have a mountain of capital “parked” offshore. They’d love to bring it home, but as soon as they do, 35 percent of it disappears. It simply doesn’t make sense to repatriate this capital to a very sluggish U.S. growth rate and pay a punitive U.S. tax rate when they can keep it invested offshore, in economies with much faster growth rates (not you, Ireland!)

This occasionally results in some huffing and puffing from the very same members of Congress who wrote the U.S. tax code in the first place.

The Residency Question

According to the Senate committee, chaired by Michigan Democrat Carl Levin (with John McCain of Arizona as the ranking Republican), Apple’s practices go beyond simply parking assets in Ireland: The Senate report contends that Apple has actually gone as far as claiming that the assets in two of their subsidiaries are parked nowhere at all.

How does that work? Apple’s tax planners have discovered a quirk in the way the two countries define what corporations are subject to their tax codes. The U.S. asserts jurisdiction over any corporation formed within American borders; The Irish assert jurisdiction over funds and operations that take place within Ireland, regardless of where the company was formed.

Apple’s answer: Form a corporation in Ireland, but maintain bank accounts in the U.S. and hold board meetings in California. Voila! An instant tax orphan: The company does not fall under IRS jurisdiction because it’s an Irish company. It doesn’t fall under Irish jurisdiction because it doesn’t do anything in Ireland. This measure, according to Sen. Levin, allowed Apple’s subsidiaries, Apple Operations International, Apple Operations Europe and Apple Sales International to go years without filing a tax return in any jurisdiction, while shielding tens of billions of dollars from any kind of tax burden whatsoever.

Avoidance versus Evasion

The Senate report is extremely careful to use the term “avoidance” and its variations, rather than the terms “evade” or “evasion.” There is an important reason for this: Tax avoidance is perfectly legal. Indeed, it’s a fiduciary obligation of any CEO and CFO, acting on behalf of their shareholders, to minimize taxes paid out.

As far as we know, Apple has broken no U.S. laws in structuring its finances in this fashion. Even the Senate report concluded that what Apple was doing was not illegal.

That, however, did not stop Senator McCain from describing Apple as the country’s “most egregious offender,” among U.S. corporations seeking to minimize their tax liability.

Apple Bites Back

Apple isn’t taking the Senatorial assault lying down. CEO John Cook is testifying before the Senate Committee even as I write this. Apple’s prepared written testimony is here.

It its own defense, Apple points out that it employs tens of thousands of workers and pays billions dollars annually into the Treasury – accounting for 1 of every 40 dollars the Treasury collected in 2012.

Amusingly, Apple’s vigorous counterattack is also not-so-subtly throwing some of its competitors under the bus. From Apple’s testimony:

Apple does not use tax gimmicks. Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands.

The dig on intellectual property is a direct slap at Microsoft and Starbucks. The bit on revolving loans is a shot at competitor Hewlett-Packard, as well as the politically-connected General Electric. And the smack on bank accounts in the Cayman Islands puts crosshairs on many prominent Congressional representatives, as well as Treasury Secretary Jacob Lew.

What is unclear, of course, is by what measure the straightforward jurisdiction-shifting of intellectual property and licensing to push profits to lower-tax countries count as “gimmicks,” while Apple’s own creative use of inter-jurisdictional arbitrage to create tax orphan entities do not.

This Congressional hearing, however, has nothing to do with reasoned or rational inquiry. It’s a kangaroo court – and the legal truth of the matter is quite irrelevant to the Senate’s aims. These hearings are a political exercise, not a policy-making inquiry. Apple is simply there to serve as a whipping boy for Congressmen to pound their podiums for more money for the Treasury, for them to bestow favor on their most generous or supportive constituencies.

This explains the attempts at conflating tax avoidance with evasion, and with characterizing Apple as an “offender,” even when the committee’s own inquiry concluded that they acted within the law.

Read More From NerdWallet:

• The Best Online Brokers for Stock Trading
• Study: 81% of Americans Don’t Know How to Open an Online Brokerage Account
• How to be a Trader: Steps For New Investors

This submission is part of the NerdWallet 2013 Roth IRA writing contest. The views and recommendations presented in this piece are held by the individual contest participant and do not represent those of NerdWallet.

By Anita Baekey

What a great ability-vehicle for saving and growing savings! As an 85-year-old senior, I just love the “ROTH WAY” to increase my savings. Once you make that initial deposit; paying tax on that amount at time of deposit; and wait five years before withdrawing any funds, all monies are TAX-FREE upon withdrawal!

Wait, it gets even better! You can contribute annual deposits up to allowable limits for single persons or couples; purchase stockes, stock options, even real estate to name a few vehicles, should you so desire. No matter how much you make on any such vehicle, you pay NO TAX UPON WITHDRAWAL!

The IRS treats a withdrawal made more than five years after the first tax year in which you made any contribution (including earnings) to your ROTH, as a qualified distribution, which means it is not taxable or subject to a penalty, as long as you are either 59-1/2 years of age; disabled; or making a first-time home purchase. You can even withdraw monies tax-free during the five-year holding period, under certain conditions.

Another bonus: You are not required to make any withdrawals during youur lifetime, even after 70 1/2, as in a Traditional IRA. However, once you’ve reached age 59 1/2, you may take qualified distributions from your ROTH IRA, as long as you’ve held the IRA for at least five years.

Should you wish, you can do a ROTH conversion from your other IRA”s – i.e. Traditional/Sep/Simple, as well as from your 401(k) savings. Whether thhis strategy works for you depends on your financial situation and personal goals.

THERE IS A DOWNSIDE TO OPENING A ROTH – YOU CANNOT OPEN ONE IF YOU’RE TOO RICH! Eligibility requirements change every year, but for 2013, you can only open a ROTH IRA if your AGI (adjusted gross income) is less than $127,000 (individual) or $188.000 (couples). Here’s an upside to not being rich!

So age and adjusted gross income will determine if a ROTH IRA is good for you. All I know is, it’s great for me – I can make as much money as I like, from my investments; may contribute to it annually; and the withdrawals are all TAX-FREE!

WHERE CAN YOU GET A BETTER SAVINGS VEHICLE THAN THAT?

This submission won first place in the NerdWallet 2013 Roth IRA writing contest. The views and recommendations presented in this piece are held by the individual contest participant and do not represent those of NerdWallet.

By Stephanie Halligan

Check me out: college grad with a kick-ass degree

Trading in those exams for a nice salary.

I’ve got my first job, and it’s paying the rent.

When I get this month’s check, just as quickly it’s spent.

It’s a YOLO-type life, I just live for today

But there’s a voice in my head that just won’t go away.

“If I spend all my money while I earn a good wage,

What will happen to me at retirement age?”

So not wanting to grow old and in poverty

I decide to start saving for that “future me.”

I research an account, a retirement plan

And there’s more account types than I could possibly scan.

There’s 403(b)s and 401(k)s

And Individual Retirement Arrangements (IRAs).

But one catches my eye, and I hear myself say,

“Just what in the heck is a Roth IRA?”

It’s a retirement plan, but compared to the rest

It has special features that make it the best.

Yes, it’s made for retirement and still involves stocks

But it’s different in ways, and I see why it rocks:

You can withdraw your money whenever you choose

For a house or more college – you really can’t loose.

The withdrawals on your contributions all come tax-free;

You can take money out without penalty.

It’s easy to open at any ol’ age

(Just make sure that you’re earning some kind of wage).

As long as you bring home the bacon (or cash)

A Roth can serve as your retirement stash.

More than anything else, if you’re early career

The Roth IRA benefits seem quite clear.

Your money is taxed before it goes in

At rates that are low, where your tax bracket begins.

Your salary will grow when you’re older and gray

Which means that you pay less on taxes today.

Paying taxes right now is the best strategy

And later your money will come out tax-free.

In conclusion, if the choice wasn’t already clear,

You can contribute up to fifty-five hundred per year,

Which means if you start in your twenties today,

You’ll have over a million on retirement day!

For a youngin’ like me who’s just starting to work

A Roth IRA has the combo of perks

That make sense for me now and make sense for me later

And will make life as an old fart all the greater.

So if you’re thinking of how to put money away,

Don’t hesitate long: pick a Roth IRA!

This submission is part of the NerdWallet 2013 Roth IRA writing contest. The views and recommendations presented in this piece are held by the individual contest participant and do not represent those of NerdWallet.

By Christine Layton

In 2007 I was fresh out of college and ready for a high power career with a high paying salary. So of course I found myself working in a pet store for minimum wage. Like so many college graduates, I was clueless about the job market and struggled to make ends meet. “Financial Investing” for me meant buying discount groceries and clearance rack clothes; I could “invest” the rest of my meager paycheck in paying the rent and bills. On the months when I broke even, I patted myself on the back.

I wasn’t expecting to begin investing until I had my financial feet firmly on the ground. Who thinks about saving for retirement before they’ve even launched their career? As is always the case, my mother knew better than I did. My mother, who is a seasoned investor and a conscientious saver, knew a good match when she saw it. This was a fix-up from the start.  She insisted I begin putting aside some money into a Roth IRA every month. I balked at first. I’m not ready for that serious of a commitment, I whined. I can’t spare extra money each month for this. Retirement is sooo far away. Of course my mother didn’t listen to any of this. She went ahead and opened a Roth IRA account with her mutual fund company in my name and very generously got me started with the first payment. With my reluctant consent, $50 would be automatically shifted from my paycheck each month and into the Roth IRA.

It’s true that the first few months were hard. Although $50 is a relatively low minimum requirement for an investment, at the time it was difficult for me to pay, but with automatic investment I didn’t have a choice. The investment grew and I scrimped and saved to get by without the $50. Fortunately, over the course of the next few years my career finally started. I moved into a better apartment, bought better quality food and clothing, and still had money left over to add to a savings account. And throughout the years, through the good times and bad, my Roth IRA had been quietly growing.

Without even realizing it, my Roth IRA had become my first long term relationship. And it’s a relationship that pays. When I earned a promotion at work last year, and a raise to match, I thought of my Roth IRA and everything it was doing for me. I made the choice to increase my monthly contribution. This year, I maxed out my Roth IRA’s yearly allowable payment for the first time and instead of feeling deprived, I felt elated.  Six years ago, as a college graduate, I thought that paying into an IRA would mean having less money. Now I know that it’s just the opposite. I have more saved for retirement now than I ever could have accrued in a regular savings account on my own.

I’m older and wiser now. I’ve begun investing in mutual funds, individual stocks, and property. However, my Roth IRA is still the solid core of my investment portfolio. I owe my mother a huge thank you for fixing me up with my Roth IRA. Her advice is applicable to almost everyone out there: don’t wait until you think you’re ready— start investing as early as possible. Use automatic deductions to spare yourself the pain of parting with cash. Take the long term approach, because slow and steady wins the race when it comes to investing for your retirement. And lastly, listen to the advice of a more experienced investor, or at least listen to your mother.

This submission is part of the NerdWallet 2013 Roth IRA writing contest. The views and recommendations presented in this piece are held by the individual contest participant and do not represent those of NerdWallet.

By Greg Beatty

            Democrats criticize Republicans for being willing to consider cuts to Social Security. Progressives criticize President Obama for proposing to use the chained CPI (consumer price index) to calculate Social Security benefits, because while chained CPI might be more accurate when calculating inflation, it too would reduce benefits. However, as unpleasant and unpopular as both proposals are, both are attempts to address the collision of demographics and economics that will in part define the financial future of America.

            To put it more simply, the American population is aging. As it does, the ratio of employed to retired is shifting. Fewer workers will be supporting more retirees.

            For the country to stay solvent, national policies must shift to address this reality. I predict several changes will come. Some, like changes in the immigration policy to bring in more younger workers, are not relevant to discussions of Roth IRAs. Others are, though. The retirement age will be nudged upward, and benefits will be nudged downward, a little at a time. Those steps are certain. I suspect that taxes will also be nudged upwards, not because anyone wants higher taxes, but because no one wants to see their grandparents choose between heating their homes and buying groceries, and so they’ll subsidize the social safety network.

            What this will mean is that when you retire, you’ll need more money, and it will be better for you if you don’t have to pay taxes on it when you get it. The Roth IRA is the best choice for producing this result. You’ll have paid taxes on the money already, and taxing income twice is unlikely for the foreseeable future. Because you’ll have paid taxes now, rather than later, you’ll pay taxes at a lower rate than those people taking money out of a traditional IRA.

            If you don’t believe me, you can always hedge your bets, and split your investments between a traditional and a Roth IRA…but do bet that demographics and economics will collide, and that you’ll be better off if you have some tax-free income when that happens. Hence, a Roth.

]]> http://www.nerdwallet.com/blog/investing/2013/demographics-economics-collide/feed/ 0 http://www.nerdwallet.com/blog/investing/2013/roth-ira-nobrainer-investing-twentysomethings/ http://www.nerdwallet.com/blog/investing/2013/roth-ira-nobrainer-investing-twentysomethings/#comments Fri, 17 May 2013 23:08:29 +0000 nerdwallet http://www.nerdwallet.com/blog/investing/?p=8356
READ MORE]]>

This submission is part of the NerdWallet 2013 Roth IRA writing contest. The views and recommendations presented in this piece are held by the individual contest participant and do not represent those of NerdWallet.

By Todd Phillips

Like many twenty-somethings in the US workforce, I find investing to be complicated and risky. I know I need to save, but it is impossible to know just how much to save or when to start. When I might earn much more in the middle of my career as I do now, do I really need to forsake a new pair of shoes in order to invest in my future when that $60 might seem insignificant 20 years from now?

Thanks to Roth IRAs, that decision has been made easier. The answer to the Great Shoe Quandry becomes a resounding “Yes! I really should forsake up to $5,500 worth of shoes or other great stuff each year in order to save for my retirement and make my golden years truly golden.”

The Roth Individual Retirement Arrangement (IRA), created by the Taxpayer Relief Act of 1997[1] and named after the legislation’s chief sponsor, Senator William Roth,[2] allows young workers in the lower tax brackets to save money for retirement easily and inexpensively.

Under the “traditional IRA,” workers make retirement contributions tax free, paying taxes on the earnings when the money is withdrawn after age 59½.[3] As long as withdrawals are made when the worker is in a lower tax bracket than when the income was earned, the investor has made a sound decision. However, if the income is withdrawn in a higher tax bracket (as we who are now in our 20s hope to be as we age), the investment will be taxed at a higher rate.

Roth IRAs, on the other hand, tax retirement contributions in the year the money is invested, rather than in the year it is withdrawn. A young investor can contribute up to $5,500 each year, paying their current low tax rate, watch the IRA grow until they are 59½ or older, and then withdraw $5,500 plus 40 years of accumulated interest tax free.

For example, take a 25 year old in a low tax bracket who invests $5,500 in 2013 and withdraws it 40 years later.[4] A traditional IRA will be worth $70,901 in today’s dollars.[5] If that money is withdrawn in a single year, at 2013 tax rates the investor will owe $11,318 in taxes.[6] A Roth IRA will also be worth $70,901 in today’s dollars, but the investor will only have paid $825 in taxes.[7] Even accounting for non-IRA investments that could have been made over 40 years with that $825, the worker would still be ahead after investing in a Roth IRA.[8]

Of course there is much uncertainty in investing. One cannot know how the stock market will perform in the future, what inflation or tax rates will be, and so forth. But given historical data and an assumption that the future will be similar to the past, a Roth IRA is an easy investment for a twenty-something who wants to plan for the future, but does not know how to start.

This submission is part of the NerdWallet 2013 Roth IRA writing contest. The views and recommendations presented in this piece are held by the individual contest participant and do not represent those of NerdWallet.

By Barbara Lee

When I get older losing my hair,

Many years from now,

Will you still be sending me a valentine

Birthday greetings bottle of wine?

-from When I’m Sixty-Four

I’m a professional social worker. You know, sensible shoes, earnest, and I like to make lists. Actually, I adore making lists. I also enjoy neatly crossing an item off a list when it’s been completed. Sometimes I put something unnecessary on a list just to have the satisfaction of drawing that straight, neat line through it.

You might think that I’m the type of person who sits down with a cup of tea to plan my retirement finances; carefully and regularly reviewing everything, and keeping well informed. This is absolutely not the case.

For me, the perfect retirement plan is like a car that runs great without fuss and worry on my part. I’m happy to put fuel in the tank, but I don’t want to have to keep checking under the hood. That’s why I really love how a Roth IRA works.

Each year, I add funds to my Roth IRA knowing that tax benefits will occur and that, happily, I don’t need to study, assess, adjust, or otherwise think about it. The simplicity and clarity of a Roth IRA translate to more time enjoying life and less time spent with my head under the hood.

I’m now sixty-four years old, and like Paul McCartney in the old Beatles song, I’m asking myself how the rest of my life will unfold. I can’t tell you how good it feels to have a healthy Roth IRA in place as I drive on down the highway.

This submission is part of the NerdWallet 2013 Roth IRA writing contest. The views and recommendations presented in this piece are held by the individual contest participant and do not represent those of NerdWallet.

By Karla Stover

     According to Bloomberg’s Kathy Warbelow and Frank Bass, approximately 25% of Americans between 18 and 30 still live, or have returned home to live with their parents. Their needs are reducing the amount of money available for any savings account, let along the tricky tax advantages of a Roth IRA.

A Roth IRA account allows individuals to invest a yearly specified amount of after- tax income. Unlike in a traditional Ira, funds invested in a Roth Ira are not tax deductible. Nearly every advantage is based on the individual’s future income tax bracket. Consider the following:

Will your combined retirement income, i.e. savings interest, 401K earnings, pension, social security, etc. put you in such a high tax bracket that at the time of withdrawal you will need a tax deduction?  You cannot deduct contributions to a Roth IRA. Do you need or want the deduction. If you do, better to reduce your current tax obligation by investing in a traditional Ira and pay the taxes later, when your bracket is low.

Is it important to leave funds to heirs? There are no mandatory withdrawal amounts from Roth IRAs. However, the funds will be taxable to beneficiaries (other than surviving spouses) if the amount is part of a decedent’s estate, and the estate is valued at more than the taxable inheritance minimum.

Also, current IRS regulations may tax distributions made by heirs if the initial account was less than five years old.

If income taxes are higher when the contribution was made than at the time of a withdrawal, you have inadvertently elected to pay the higher rate.

Individuals living in states with income taxes have to pay state income taxes on the amount contributed in the year the money is earned.

The funds cannot be used as loan collateral.

Your current lifestyle should not suffer by investing funds in a Roth IRA.

This is an anti-Roth checklist. Obviously, they are appropriate accounts for some individuals. However, one more fact to consider: According to the U.S. census department, only 19.9% of households make $100,000 or more, and only 8% of non-family households earn over $100,000 per year Unless your current income is high and your savings robust, your tax bracket will be probably be lower on retirement than it currently is, thus withdrawing from a traditional IRA as opposed to a Roth IRA won’t be a problem. And in the meantime, you will have been able to take advantage of the traditional IRA deposit’s tax deduction.

This submission won the 3rd place prize in the NerdWallet 2013 Roth IRA writing contest. The views and recommendations presented in this piece are held by the individual contest participant and do not represent those of NerdWallet.

 By Diane M. Aksten, CPA

Americans are failures when it comes to planning and saving for retirement.

According to an Employee Benefit Research Institute 2012 survey, 23% of American workers are not confident that they will have enough money saved for a comfortable retirement, down from 27% in 2011.

Clearly, as a nation, we’re moving in the wrong direction.

Chances are, if you fall into the “baby boomer” group (born between 1946 and 1964), your parents worked for a company that provided them with a pension.  However, companies started to phase out these plans (referred to as defined benefit plans) because they became prohibitively expensive to maintain and fund for employers.

Enter Our Knight in Shining Armor:  Our Government

In an attempt to shift the burden of retirement planning and funding from employer to employee (and save us from ourselves), the Roth IRA was established by the Taxpayer Relief Act of 1997.

Roth IRAs Do Have Some Advantages

• Probably the biggest advantage is that the contributions and earnings can be withdrawn tax and penalty free, with one caveat:  the account holder must be at least 59-1/2 years old and the account must be in existence for at least five years before any withdrawals can be made. Otherwise, a 10% penalty on early withdrawals will be imposed.
• Another advantage is that a Roth IRA does not require distributions, so any money the account holder doesn’t use during his lifetime can be left to his heirs (a very effective way to accumulate tax-free income).

But the “Cons” Outweigh the “Pros”

• Due to their tax-free nature, contributions are not tax deductible.
• The ability to participate in a Roth IRA disappears when earnings reach certain income levels.
• If eligible, yearly contributions for 2013 are limited to the lesser of $5,500 or taxable compensation for the year.  For those age 50 and over, an additional $1,000 in “catch up” contributions can be made for a total of $6,500.
• It’s entirely possible that Congress could change the rules regarding tax-free withdrawals at some point in the future.  If this were to happen, Roth IRAs would lose most (if not all) of their appeal as a retirement vehicle.

Roth IRAs Are Useless For Most Americans

In my opinion, Roth IRAs are inadequate for providing most Americans with the type of retirement income they’ll need to live comfortably.  While they work best for young people in their 20s and 30s just starting out in their professional careers, as their earnings continue to increase and the income limitations are reached, a Roth IRA will no longer be an option for them.

And for those “starting over” in their 50s and 60s?

With the ability to put away only $6,500 per year currently, a Roth IRA alone isn’t going to allow this group to retire in the lap of luxury either.

Is it better than not saving at all? Sure…

But with our national debt spiraling out of control, forcing our government to look for alternatives to bail itself out, I firmly believe that Roth IRAs will lose their biggest advantage…the ability to withdraw funds tax-free.

It’s not a question of if that will happen, but when.

This submission is part of the NerdWallet 2013 Roth IRA writing contest. The views and recommendations presented in this piece are held by the individual contest participant and do not represent those of NerdWallet.

By Sarah Heller

The TSP program is the only way for military members to save for their retirement through their employer.  After reviewing the options in these plans, however, many people wonder if they can do better by saving in a Roth IRA.

The main benefits of a TSP plan are that they allow an account holder to make contributions to the account tax-free.  While this seems like a big advantage of these types of accounts, Roth IRAs will probably save a servicemember a lot more money over their lifetime.  Because the withdrawals from a Roth IRA are tax free, a slightly larger investment on the front end can pay off a lot down the road.

For many young families, the tax deductions they get from having dependent children, working in a combat zone, paying a mortgage, and paying for childcare put them in the position where they pay relatively little or no federal tax.  Because of this, tax free contributions are not nearly as valuable as they think.  As an investor gets closer to retirement, their children move out and they often lose a lot of deductions, forcing them into a higher tax bracket.

Of course, the exception to this is money that is saved while a servicemember is deployed to a combat zone.  In this case, the servicemember pays no taxes on the money that he or she earns, and also will pay no taxes when it’s time to withdraw the money from a TSP or a Roth IRA.

Of course, the next thing to look at is the types of investments that are allowed in each type of account.  For a TSP, there are basically five different options allowing military members to invest in stocks, bonds, or cash.  For a beginning investor, this lack of choices can make it very easy to pick an investment strategy.  Within a Roth IRA, however, there are millions of possible investment options.  In addition to the standard stock and bond funds, money can also be invested in anything from gold to farm commodities.  In fact, the only investments that are prohibited are annuities and certain types of collectibles and antiques.  For more sophisticated investors, this means that a Roth IRA can be a good way to add diversify to a retirement portfolio.

Finally, many military members like the fact that they can withdraw their original contributions to the account at any time without penalty.  Money deposited into a TSP can only be withdrawn by paying a tax penalty.  For people who are just starting their financial lives, this means that they can put money into the account and start building towards their retirement while still having some access to their money.  Many people choose to use a Roth IRA as both retirement savings and an emergency fund until they’re in a position to put aside money for each of these purposes separately.