Your Money Matters
Understanding the thrift savings plan
The Thrift Savings Plan is an optional governmentsponsored program providing retirement income
for military service members. Although contributing
to the TSP is optional, many take advantage of
it, because, depending on whether the traditional
TSP or the TSP ROTH option are selected, their
contributions are either tax deferred or are tax free
if withdrawn under specific circumstances. Also,
your contributions and earnings in the TSP are
yours to keep, whether you leave the military or
stay in until retirement.
Contributing to the Thrift Savings Plan
When you enroll in the TSP, you allocate a
percentage of your pay to be contributed through
payroll deductions. You can select from two
different tax options: traditional or ROTH TSPs. With
a traditional TSP, your contributions are pre-tax,
meaning you do not pay taxes on them - or any
earnings - until you withdraw them, usually after
age 59 ½. With a ROTH TSP, your contributions are
made after you have paid tax on the money, but the
earnings are tax free. As with the traditional TSP,
the minimum age for penalty-free withdrawals is at
age 59 ½, if you satisfy the IRS requirements.
•Enrollment. The easiest way to enroll in the TSP is
through MyPay. You may also enroll through your
installation’s finance office. Once enrolled, be sure
to compare your TSP statement with your Leave
and Earnings Statement to ensure the contribution
amounts are correct.
•Tax-deferred contributions. Your traditional
contributions to the TSP are taken before federal
taxes are calculated. Therefore, you won’t pay taxes
on your contributions until you withdraw them.
•Tax-exempt earnings. Your ROTH contributions
are taken out of your paycheck after your income
is taxed Contributions and earnings from ROTH
accounts are tax free. As with the traditional, the
minimum withdrawal age is 59 ½.
•Contribution amounts. You can choose to
contribute a percentage of your basic pay, incentive
pay or bonuses to the TSP. However, you must
elect a portion of your basic pay in order to elect to
contribute any amount from your incentive, special
or bonus pay. The Internal Revenue Service places
limits on your TSP contributions, which change each
year. For current IRS limits, visit the TSP website.
Your contributions will, by law, be invested in the
Government Securities Investment Fund. Once
you have a pin number, you can change where
your contributions are invested by choosing your
investment funds. You may choose just one fund or
a combination of funds. Your options include:
•Individual funds.
•Government Securities Investment Fund
•Fixed Income Index Investment Fund
•Common Stock Index Investment Fund
•Small Capitalization Stock Index Fund
•International Stock Index Investment Fund
Loans and withdrawals
Because the TSP is a retirement savings plan, loans
or withdrawals before separation or retirement are
restricted.
•Loans. Loans are available to members who are
still in pay status. With a $50 processing fee, you
can borrow from your contributions and earnings.
You pay back the loan, with interest, through
payroll deductions.
•In-service withdrawals. Hardship withdrawals
are available to members under certain, limited
conditions. Also, members age 59 ½ or older (who
are still in pay status) may make a one-time, agebased in-service withdrawal.
Post-separation withdrawals
After you separate from the military, you have
several withdrawal options.
•Partial withdrawal. You may make a one-time
request to withdraw part of your account, leaving
the balance to continue to accrue earnings for later
withdrawals.
•Lump sum payment. You may receive a single
payment of your entire TSP account, or you can
request a portion of your balance paid as single
payment and a designation of the remaining options
on the rest of your balance.
•Monthly payments. You specify a dollar amount to
be sent each month, or the TSP will calculate your
monthly payments based on your life expectancy.
Again, you can request that a percentage of your
balance be held in the TSP to make monthly
payments (which continue to grow based on your
investments) with the rest designated to the other
options. Payment amounts can be changed once a
year.
•Life annuity purchase. You can choose all or a
portion of your account to go to an annuity, which is
paid to you (or your survivor) every month for life.
When you withdraw your money from TSP, you will
owe taxes on any traditional contributions (except
the portion of the balance made from tax-exempt
pay) and the earnings they have accrued. You
can continue to defer these taxes by transferring
or rolling over your TSP withdrawal payment to
a traditional individual retirement account or an
eligible employer plan.
You can also transfer or roll over your traditional
funds to a ROTH IRA, but you will have to pay taxes
on the full amount in the year of the transfer. If
you have ROTH contributions in your account, you
have already paid taxes on them. You will not owe
any further taxes on your ROTH contributions, and
you will not owe taxes on their earnings if your
withdrawal payment meets IRA requirements.
Requirements state that five years must have
passed since January 1 of the calendar year when
you made your first ROTH TSP contribution and
you have reached age 59 ½ or have a permanent
disability. For more specific information on
withdrawals, visit the TSP website.
Military OneSource
Consultants provide
information and make
referrals on a wide
range of issues, including personal financial management. Free
face-to-face counseling sessions (and their
equivalent by phone or
online) are also available. Call 1-800-3429647 or go to
www.militaryonesource.
mil to learn more.
VeteransPlus provides
free, confidential financial education
counseling to service
members and veterans.
Their resources can
help you better manage
your finances, get control of any debt that
you may have and learn
how to save and invest
for your future. For
m ore information: www.
veteransplus.org or
call 888-488-8767.