Thrift Savings Plan (TSP): Everything You Need to Know
The Thrift Savings Plan (TSP) is a retirement savings and investment plan for federal employees. The plan is also available for members of the uniformed services, including the Ready Reserve.
Congress established the Thrift Savings Plan in the Federal Employees’ Retirement System Act of 1986. The TSP offers savings and tax benefits that private corporations may provide their employees under their 401-K plans.
Thrift Savings Plan (TSP)
The retirement income that you will receive from your TSP depends on how much you can put into your account during your working years and earnings over time. TSP is a supplement to your retired military pay.
Who Administers the Thrift Savings Plan?
The Federal Retirement Thrift Investment Board administers the TSP.
How Much Can You Contribute?
- Uniformed service members elect a percentage of their pay up to the Internal Revenue Code (IRC). Once this is set up, it renews every year at the same percentage until the service member elects otherwise.
- If the uniformed service member is 50 years old or older, they can pay a “catch-up” contribution up to the code limitation, which was $6,000 for 2018. These are tax-deferred and allowed eligible participants to defer up to $24,500 for 2018 in their TSP accounts. These do not automatically renew every year. Amounts are subject to change.
- Service members are allowed to contribute from basic pay as well as incentive, special, or bonus pay but are subject to regular contribution limits.
- If the service member is deployed to a designated combat zone, they are subject to the combat zone tax exclusion. That means those payments made to the TSP while deployed are tax-exempt and accrue tax-deferred earnings. These TSP payments will not be subject to the IRC elective deferral limit but they are combined with tax-deferred contributions that are made and are subject to the IRC section 415 (c ) annual additions limit.
- If a service member is also a civilian federal employee, they will have two separate TSP accounts, but they can not exceed the IRC elective deferral or catch-up limits.
Withdrawing From Your Thrift Savings Plan
A partial withdrawal allows service members to make a one-time only withdrawal and leave the rest of the money in the TSP until a later date.
You can do so if:
- You have not made a prior partial withdrawal or have one that is currently pending and
- You did not make an age-based in-service withdrawal while you were still in the uniform services and
- You request $1,000 or more from your account.
A full withdrawal is where you can take your money out at once, over a period of time, or purchase an annuity that will give you payments for the rest of your life. If you are a uniformed service member, you might also have tax-exempt contributions in your traditional balance if you had served in a combat zone. Those contributions, not the earnings from them, may be exempt from federal income taxes when distributed. There will be a tax on the earnings.
In-service withdrawals are when you withdraw from your TSP account while you are still actively serving. There are two types, financial hardship and age-based.
- You can’t return or repay the money you remove from your TSP account.
- You are subject to income taxes on the withdrawal except on any tax-exempt portion, Roth contributions, or qualified Roth earnings. With a hardship withdrawal, you may be subject to the IRS 10% early withdrawal penalty tax.
- If you have a financial hardship withdrawal, you will not be able to make contributions for six months.
- If you are married service member, your spouse must sign a consent waiver before you can do an in-service withdrawal.
TSP loans will allow you to borrow money from your account while in the service.
You can get a general one for any purpose that you will need to pay back within 1-5 years.
You can also get a resident loan used for the purchase or construction of a home that will be your primary residence.
You will need to pay back between 1-15 years.
How To Set Up Your TSP Accounts
BRS Members of the Uniformed Services
For those who began serving on or after January 1st, 2018, your service automatically enrolled you. You are enrolled once you serve for 60 days.
3% of your basic pay is deducted each pay period and deposited in the traditional balance of your TSP account. You can elect to change or stop your contributions.
Non-BRS Members of the Uniformed Services
If you are not covered by the Blended Retirement System (BRS), your service establishes your account.
This occurs after you make a contribution election using your service’s automated system (for example, My Pay).
If you were previously in the BRS plan before you left the service, you would be automatically re-enrolled when you re-enter the military.
If you were not in the BRS plan, and you served fewer than 12 years when you left, your service may give you the opportunity to opt-in when you reenter.
If neither of these situations applies to you, you can still start a TSP account or resume as a non-BRS service member.
The Individual Funds
The Thrift Savings Plan has five individual investment funds –
- The Government Securities Investment (G) Fund
- The Fixed Income Index Investment (F) Fund
- The Common Stock Index Investment (C) Fund
- The Small Capitalization Stock Index (S) Fund
- International Stock Index Investment (I) Fund
There is a lot of information when it comes to having a Thrift Savings Plan. Contributing to yours over the years can help you immensely once you are retired from the military.
Make sure to take advantage of what the TSP can offer you for your financial future.