Thrift Savings Plan Options: Making Your Retirement Dollars Work for You

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It’s never too early to start saving for retirement. The best way to get started is the Thrift Savings Plan, or TSP, a retirement savings plan for federal employees and members of the military that gives you two ways to sock away some cash.

The TSP gives you a simple retirement strategy that makes saving money easier. Like the 401(k) plans offered by many private employers, TSP saves a percentage of your pay – you decide how much – through payroll deductions. Any contributions you make are yours to keep, whether you leave the military or stay in until retirement. It’s a good deal any way you look at it.

How the traditional TSP differs from the Roth TSP

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The Thrift Savings Plan gives you two savings options: the traditional TSP and the Roth TSP. Understanding the difference between these two plan options can help you decide which is the best investment strategy for you.

  • Traditional TSP — Your contributions are pre-tax, meaning you don’t pay taxes on them or on any earnings from them until you withdraw them, usually after age 59 ½. Traditional pre-tax contributions give you a tax break today by lowering your current taxable income.
  • Roth TSP — Your contributions are made after you pay taxes on the money, so you won’t owe any further taxes when you withdraw funds, and the earnings are tax-free if you meet the IRS requirements.

Which Thrift Savings Plan should you choose?

Here are some things to consider when choosing a plan:

  • Your current and future tax rate — Since you’ll have to pay taxes eventually, it all comes down to whether you think you’ll be better off paying your taxes now or later. Think about your current income level and tax rate and what you expect they might be when you retire. For example, if you’re in a low-income tax bracket now, but think your tax rate could be higher in retirement, the Roth TSP may be a good option.
  • Your career path — If you’re in the early years of your career and you expect your future income to increase considerably, paying the taxes now on your TSP contributions might make sense.
  • Government match — The Department of Defense will contribute 1 percent of your basic pay to your Thrift Savings Plan after 60 days of entering service and will begin to match your contributions (up to an additional 4 percent when you contribute at least 5 percent), at the start of your third year of service.
  • Notable — The government’s matching contributions can only be made into a traditional TSP. You can have both a traditional and Roth TSP at the same time, and both contributions will be added together to determine the government’s total match. Even if you only contribute to a Roth TSP, you will still have both types of accounts.

Remember, this isn’t a one-way-or-the-other decision. You can contribute to both your Roth and traditional Thrift Savings Plan.

How to enroll in the Thrift Savings Plan

Service members who joined after Jan. 1, 2018 and those in the Blended Retirement System are automatically enrolled in Thrift Savings Plan. For other service members, enrolling through MyPay is the easiest way to go. You can also enroll through your installation’s finance office.

How to contribute to your Thrift Savings Plan

You can fund your Thrift Savings Plan with a percentage of your basic pay, incentive pay or bonuses. The Internal Revenue Service puts limits on your TSP contributions, which change each year. Visit the TSP website to see the current IRS limits.

Once your account is established, you can access it on the TSP website or by using the TSP ThriftLine (877-968-3778), where you can pick your investment options or make changes to your account.

Note that service members who were automatically enrolled in the Blended Retirement System and did not specify a contribution level are automatically contributing 3 percent of their current pay into a traditional TSP account.

Loans and withdrawals from your Thrift Savings Plan

The Thrift Savings Plan is a retirement savings plan, so loans or withdrawals before separation or retirement are restricted.

  • Loans — Loans are available to members who are still in pay status. You can borrow from your contributions and earnings for a small processing fee, and pay back the loan, with interest, through payroll deductions.
  • In-service withdrawals — Hardship withdrawals are available to members under specific, limited conditions. Also, members age 59 ½ or older (still in pay status) can make a one-time, age-based in-service withdrawal.

Post-separation withdrawals from your Thrift Savings Plan

After you separate from the military, you have several withdrawal options.

  • Partial withdrawal — Make a one-time request to withdraw a portion of the money in your account. The balance will continue to accrue earnings for later withdrawals.
  • Lump-sum payment — Receive a single payment of your entire TSP account all at once.
  • Monthly payments — Specify a dollar amount to be sent to you each month, or the TSP will calculate your monthly payments based on your life expectancy. Payment amounts can be changed once a year.
  • Life annuity purchase — Use all or a portion of your account to buy an annuity, which is paid to you (or your survivor) every month for life.

You can choose any one of these options, or choose a combination of these options as well. For example, you can specify an amount you’d like as a lump-sum payment and use the balance in your account for monthly payments. Visit the Thrift Savings Plan website to learn more.

More information on the Thrift Savings Plan

Visit the TSP website to learn more about both TSP options. Read a detailed explanation of the TSP program in the publication Summary of the Thrift Savings Plan, and watch an easy-to-follow introduction video. You can also meet with a personal financial manager through your installation. The more you learn about your retirement investment options now, the more prepared you’ll be when retirement finally arrives.

Deductions, Allotments and What Comes Out of Your Military Pay

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Like a coin, there are two sides of your military paycheck. There’s what goes into your paycheck – basic pay, allowances and special and incentive pays – and there is what comes out. You can see your deductions and allotments listed on your Leave and Earnings Statement, or LES. Here are some of the more common items you’ll see listed on your LES.

Military pay deductions: Taxes, SGLI, TSP and more

Everyone has deductions for taxes, including Social Security and Medicare. You probably have a federal tax deduction, and you may have a state tax deduction, depending on your state of legal residence.

Your federal and state taxes will be withheld based on the instructions you provided on your W-4, Employees Withholding Allowance Certificate. You can make updates to your withholding using MyPay. Here are other deductions you may notice:

  • Social Security deductions are 6.2% of your taxable military pays. Medicare taxes are 1.45% of your taxable military pays.
  • The Servicemembers Group Life Insurance program provides low-cost life insurance to military members. Every service member is automatically signed up for the maximum amount of SGLI coverage, but can elect a lower amount if so desired. In addition, members with SGLI coverage also have coverage under the SGLI Traumatic Injury Protection program.
  • Every active-duty enlisted and warrant officer in the Army, Marine Corps, Navy and Air Force has an automatic, non-voluntary deduction of 50 cents per month designated to fund the Armed Forces Retirement Homes.
  • The Family Servicemembers Group Life Insurance program offers low-cost life insurance to spouses and children of service members. Once registered in the Defense Enrollment Eligibility Reporting System, spouses and eligible children members are automatically enrolled in FSGLI. If coverage is not wanted, the service member may reduce or decline coverage using the SGLI Online Enrollment System. You can access the SOES through the MilConnect portal.
  • Thrift Savings Plan contributions are listed as a deduction on your LES. The contribution is forwarded to the TSP board at the beginning of the following month, and credited to your TSP account once it has been processed by the TSP agency.
  • Various types of government debts are listed on your LES. This may include debt from an overpayment, advance pay or advance BAH loans.

Military pay allotments

Meanwhile, any active-duty service member can set up allotments, or payroll deductions, from their paycheck to pay or repay certain expenses. There are two types of allotments: discretionary and non-discretionary.

Discretionary allotments include FEDVIP vision and dental premiums, commercial life insurance premiums, payments to dependents or other relatives, deposits to banks, credit unions, or investment companies, the payment of mortgage or rent, and deposits into the Department of Defense Savings Deposit Program.

Non-discretionary allotments include the purchase of savings bonds, repayments to military relief societies, charitable contributions to eligible organizations, court-ordered involuntary child and/or spousal support payments, government indebtedness, commercial debt, garnishments, and delinquent Government Travel Card balances.

How do military pay allotments work? With an allotment, half of the allotted amount is deducted from your mid-month pay, and that amount remains in the system until the other half is deducted from your end-of-month pay. At that time, the entire amount is submitted to the designated recipient.

How to set up a military pay allotment

Allotments may be set up through MyPay or by using DD Form 2558.

When you set up an allotment through MyPay, you will see a “no later than” date listed before and after you set up the allotment. This lets you know whether the allotment will start this month or next month. It is important to watch your LES carefully until you see that an allotment has been successfully started. Do not assume that any bill is being paid by a new allotment until you have verified that the payment is received.

Limits on military pay allotments

You can have up to six discretionary allotments per month, and any number of non-discretionary allotments, but you may not have more than 15 allotments per month.

You may not use allotments to purchase, lease or rent personal property. For example, you may not use an allotment for a car payment or for rental on furniture or appliances.

Members of the National Guard and reserves may set up allotments when they are called to active duty, active duty for training, or full-time training duty under orders specifying extended active duty for more than 180 days. Guards or reservists not on extended active duty may set up one allotment for insurance premiums, paid to a group life insurance program sponsored by their state Guard or the State Associations of the National Guard.

If you have questions about your pay and allowances, deductions and allotments, or any other questions about your military paycheck, you can check with the personal financial educators at your installation’s family service center, Or contact Military OneSource for a free session with a financial counselor – in-person, by phone or video.