Retire Rich: Why Soldiers should take advantage of the Thrift Savings Plan (2024)

FAQs

Is TSP worth it for military? ›

Your TSP is a Military Thrift Savings Plan, and it's very similar to a civilian's 401(k). You don't have to pay any taxes on your TSP as you're investing, so it's a much better option than some other investment plans. A TSP is offered not only to military members but also to all other federal employees.

Once you leave the uniformed services, you'll no longer be able to make contributions to your account. However, you can keep more of what you save thanks to our low costs, change your investment mix, and transfer eligible money into your account — all while your account continues to accrue earnings.

The Thrift Savings Plan differs from the uniformed services retirement system in that the uniformed services retirement system is a defined benefit program; the benefit (retired pay) is based on your years of military service and rank held at the time of retirement, rather than on the amount of your contributions and ...

Tax Benefits: TSP contributions are "tax-deferred" from taxable pay, meaning that they are deducted before Federal and, in almost all cases, state income taxes are withheld. Therefore, taxable income is smaller and less is paid in taxes.

Average TSP account balances for Uniformed Service Members crested over $40,000 by the end of 2021, while balances for new 'Blended Retirement System' (BRS) participants reached close to $10,000 in just four years since the BRS became operational.

In a nutshell, Ramsey advises federal employees to invest at least 5% in a Roth TSP, then invest the rest in a Roth IRA. He also recommends investing in a handful of TSP funds -- funds C,S, and I -- with a higher percent in the C Fund (at least 60 to 80%).

While they may not have as many funds to choose from, TSP participants do have one big advantage over most 401(k) investors: lower fees. The total expense ratio, which covers both investment and administrative fees, is 0.066% for individual TSP funds.

Pros – You get a guaranteed monthly income for the rest of your life. Cons – This may not be best value for your money. You may get more money by buying an annuity from a different company, or get the same amount per month, but not give up your entire TSP.

Depending on when you begin retirement, you can simply leave the money in the TSP let it continue to grow. If you do not need to access it yet, it might be wise to let it be. Similar to other retirement accounts, you will need to begin minimum withdrawals at age 72. This is called a Required Minimum Distribution (RMD).

Is TSP the best retirement plan? ›

A TSP and 401K are similar, but they have their distinct differences, too. If you are a Federal Government employee, a TSP is the better choice. It has lower fees, higher matching, and there are still many ways to customize it how you'd like with investments and withdrawal options.

Withdrawing Funds: Soldiers are eligible, but not required, to withdraw from the TSP account as soon as they separate from the uniformed services. Service members should be aware that there may be tax penalties for withdrawing funds prior to age 59½.

Once you leave the uniformed services, you'll no longer be able to make contributions. However, you can still change your investment mix, transfer eligible money into your account, and enjoy our low costs—all while your account continues to accrue earnings.

With traditional TSP, your contributions go into the TSP before tax withholding, which can potentially lower your current income tax rate. But when you take money from your traditional TSP, you'll pay taxes on both your contributions and earnings at the income tax rate of the year you make the withdrawal.

If you can, make Roth TSP contributions while you're deployed. By contributing to a Roth TSP while you're deployed, you won't pay taxes when you contribute or when you withdraw your earnings in retirement. Tax-free TSP contributions are one of the best investment benefits available to military members.

The largest TSP account balance the end of March 2021 was an astounding $9,318,238, which is up from “just” $6.3 million March 2020.

Your catch-up contributions will be in addition to the 2023 TSP regular contribution limit, which means employees can contribute up to $30,000 in 2023. To maximize the catch-up contribution amount of $7,500 for 2023, employees will need to contribute an additional $288 per pay period ($7,500/26 = $288.46).

If you're a FERS or eligible BRS participant, you receive Agency/Service Matching Contributions on the first 5% of pay you contribute every pay period. The first 3% is matched dollar-for-dollar by your agency or service; the next 2% is matched at 50 cents on the dollar.

Yes, you can retire at 62 with four hundred thousand dollars. At age 62, an annuity will provide a guaranteed level income of $25,400 annually starting immediately for the rest of the insured's lifetime. The income will stay the same and never decrease.

Employees should invest at least 5% in the TSP; that is the percentage needed to obtain the maximum available matching funds. Beyond that, Employees need to balance long-term investment needs against other needs.

What percentage of American retirees have a million dollars? ›

In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved. If you're looking to be in the minority but aren't sure how to get started on that savings goal, consider working with a financial advisor.

Federal employees who are members of the Thrift Savings Plan (TSP) have the potential of becoming a TSP millionaire, with a fat nest egg in addition to their CSRS or FERS annuity. As of November 2022, there are 65,000 TSP millionaires.

Overall, TSP millionaires now make up just shy of 1% of all TSP accounts.

By this measure, the I Fund is the riskiest, with a maximum drawdown of -60.89%, which occurred during the 2008-2009 global financial crisis.

The Aggressive Funds

The C, S, and I funds are the more aggressive of the funds in the TSP. The reason they are called “aggressive” is because they have a much higher chance of sustaining major growth over time. But because of this, they can also be much more volatile than the G and F funds.

Is Roth IRA or Roth TSP Better? It depends, but most people should contribute to their TSP at least up to the matching funds limit (3% of your salary). Beyond this, the TSP is better if your taxes are high today and you expect them to be much lower in retirement.

Limited tracking in money software.

You can manually input your data into these programs, but there is no automatic download feature. So you must manually change it every time you invest, rebalance your portfolio, etc.

Consider leaving your funds in the TSP unless you don't want to deal with extra paper work or you want more investment options. Otherwise, consider rolling your TSP account assets into your new 401(k) plan if you have one, or one of the other following options.

Eligible rollover distributions of your traditional balance may be rolled over to a traditional IRA, an eligible employer plan, or a Roth IRA. taxed in the current year, and no income tax will be withheld. You won't be taxed on this money until you withdraw it from the traditional IRA or the eligible employer plan.

Should I withdraw my TSP to pay off my house? ›

By using a TSP to pay off a mortgage, you will lose the mortgage-interest deduction that reduces your AGI, or adjusted gross income. Further, because tax-deferred assets are being used to pay off the mortgage, the tax consequences are compounded¹.

An IRA has one major advantage over the TSP. Flexibility. As long as you meet some basic criteria, you can withdraw money out of your IRA however you'd like. With the TSP however, there are a number of rules that control how and when you can take money out.

Most of our experts agree that one of the safest places to keep your money is in a savings account insured by the Federal Deposit Insurance Corporation (FDIC). “High-yield savings accounts are an excellent option for those looking to keep their retirement savings safe.

Lump-sum withdrawal

When you are ready to withdraw your money from your TSP account, you can do it all at once (commonly referred to as a lump-sum payment) or over a period of time. Or you can purchase an annuity that will make payments to you for life.

If you decide to roll over your TSP assets to an IRA, you can choose either a traditional IRA or Roth IRA. No taxes are due if you roll over assets from a traditional TSP account to a traditional IRA, or if you roll over your contributions and earnings from a Roth TSP account to a Roth IRA.

Therefore, all funds withdrawn from the traditional TSP account are treated as ordinary income for federal (and state, if applicable) income tax purposes.

Having the option of taking an in-service withdrawal from your TSP account can be a lifesaver when you're facing a financial hardship. But before you do, evaluate your options carefully and know the consequences. It's a permanent withdrawal from your TSP account. You can't put the money back.

Age-59 ½ in-service withdrawals are withdrawals that you can make from your TSP account when you're age 59½ or older. We determine your age based on the date of birth reported by your employing agency or service. If that date is incorrect, you must ask your agency or service to change it.

You may have seen planners cite one of the reasons that you should not do a TSP loan is that you will pay income tax twice on the amount that you borrow. First, the loan repayments are made with after-tax income (that's once).

Should I convert TSP to Roth? ›

These lower tax rates may make it more attractive for federal retirees to consider converting their existing TSP account or IRA to a Roth IRA, because all things being equal, the tax consequences of doing so now are lower than they were previously.

Average TSP account balances for Uniformed Service Members crested over $40,000 by the end of 2021, while balances for new 'Blended Retirement System' (BRS) participants reached close to $10,000 in just four years since the BRS became operational.

TSP Performance for All Funds Positive in 2023

It is also up 2.63% for the year. The G Fund has returned 0.92% for the year-to-date. So far in 2023, the I Fund is ahead of any other TSP Fund with a return of 5.15%. For all of 2022, the I Fund dropped -13.94%.

One nice thing about the TSP is that once you're in, you can stay in, even after you leave the service. You can also contribute money from other qualifying retirement plans and your own IRAs into your TSP account. Conversely, if you get a job that has a good 401(k) plan, you can roll your TSP money into that plan.

Pros – Your money can continue to be invested and may grow in value over time. Cons – You are limited in your investment choices – you can only invest in the specific funds in the TSP.

1. You don't have to do anything with your uniformed services TSP account right now. The great news is that you don't have to do anything with your TSP account when you separate from uniformed services. This is true whether you transition to federal civilian service, choose another career, or fully retire.

When you separate, you can leave your entire account balance in the TSP if it is $200 or more. Your account will continue to accrue earnings and you can continue to change the way your money is invested in the five TSP investment funds by making interfund transfers. You can make an interfund transfer at any time.

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.

Participants may roll over eligible rollover distributions from their TSP accounts to a qualified trust or an eligible retirement plan (as defined in IRC § 402(c)(8)). (See 5 USC § 8433(c)(2).) An eligible retirement plan can be either an IRA or an eligible employer plan.

Your current or former spouse, or your dependents, could be awarded a portion of your TSP account if a valid Retirement Benefits Court Order (RBCO) to divide your account is issued. The RBCO can be issued at any time in the divorce, annulment, and separation proceedings.

Is TSP or IRA better? ›

Is Roth IRA or Roth TSP Better? It depends, but most people should contribute to their TSP at least up to the matching funds limit (3% of your salary). Beyond this, the TSP is better if your taxes are high today and you expect them to be much lower in retirement.