What Your Service Member Should Know About the Thrift Saving Plan

Military Saves week

The recently announced changes to the military retirement system have drawn increased attention to the military’s Thrift Savings Plan (TSP). While the TSP is an important element of retirement planning – and will be even more so when the new “blended” retirement system is implemented in 2018 – many military families aren’t familiar with the plan or how it works. What is the TSP and what can it do for your military family? Read on to learn more.

The Thrift Savings Plan is a government-sponsored program providing retirement income for military service members and federal civilian employees.  Participants contribute a percentage of their basic pay into an investment account which they can draw on when they reach age 59 ½. Service members can sign up for a TSP account via myPay. When they sign up, service members set the amount they wish to contribute (a minimum of 1% of basic pay). They can also choose to contribute a portion of certain special types of pay such as incentive or bonus pays. Currently, service members do NOT receive matching employer TSP contributions. However this will change in 2018 for new recruits and those who opt-in to the blended retirement.

The military TSP program offers two types of retirement accounts: traditional and Roth TSP. Traditional TSP contributions are deducted pre-tax, meaning taxes are deferred until you withdraw your contributions. Roth TSP contributions are taken after-tax which means when you are eligible, you’ll have tax-free withdraws from a Roth account. You can use the TSP contribution comparison calculator to help you decide if a traditional or Roth account is best for your family. Remember to consult with a tax advisor and financial counselor for a customized financial plan.

As an added bonus, any money earned while in a combat zone is tax-exempt. If a deployed service member contributes combat zone pay to the TSP’s Roth option, you will never pay income taxes on those contributions, and your earnings can also be tax-free.

Why should your service member care about a TSP account?

  • Only 17% of those who join the military serve for 20 years. A TSP account is a plan you can take with you to your next employer. It’s yours to keep.

  • Even if your service member does serve for 20 years, the retirement benefit is only 50% of basic pay (or less).

How much savings will your family need for retirement?

Most financial experts estimate you’ll need 70% – 80% of your pre-retirement income. The TSP website has several calculators to help you plan. AARP also has a free calculator to help you estimate if you are saving enough. Military families can find a personal financial counselor at many locations, including your local military installation, through one of the aid societies, a military bank, or even by calling Military OneSource.

Don’t be in the dark about TSP options. Encourage your service member to explore this retirement savings vehicle today. Make a commitment to save for your family’s future. Take the Saver’s Pledge.

Posted February 23, 2016

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