What is the Military Thrift Savings Plan and Can it Help You?

Military members and federal employees do not have access to a traditional 401(k) plan like many civilian employees are offered when they join a company. However, they do have access to something that might be equal and in some cases better: the Thrift Savings Plan. How does the Thrift Savings Plan work?

Who is Eligible?

Basically, anyone employed by the U.S. Government is eligible for enrollment, as long as they are working either full or part time on an ongoing basis. This includes all military members, active and reserve, and all federal civilian employees. If an individual quits and is rehired, their TSP eligibility is resumed. Beneficiaries of deceased military members will receive their own TSP account if they have a share of $200 or more in the original account savings.

While military members currently receive no funds match, federal employees receive up to 5% match on funds invested from their pay. The first 3% contributed is matched dollar for dollar and the second 2% is matched at 50 cents on the dollar. They also receive an agency automatic contribution of 1% of their pay every period. These funds are not matching, they are extra deposits as another benefit to complement the total salary package.

How Do You Invest?

Depending on the specific agency, each will have its own process for employee enrollment in the TSP. For some federal employees, enrollment is automatic. For military members, they can set up automatic paycheck deductions through their branch’s online pay portal. The funds enter the account and the employee can decide if they want to contribute to a Roth plan or a Traditional plan. Roth contributions are made post-tax, so they can be withdrawn tax-free at retirement, within certain limits. Traditional contributions lower the employee’s overall tax burden from year to year, since they are untaxable at the time of contribution. However, the employee must pay taxes at withdrawal at retirement age instead.

The funds can be attributed to many different investments, as the TSP offers a wide range of diversification depending on when you would like to retire and the overall risk burden you are willing to take. They will report projected return rates to help make the decision and charge very little administrative fees, unlike some other 401(k) or investment plans.

Can You Withdraw Money Before Retirement?

There are two cases in which participants can make early withdrawals before cashing out their TSP. If the employee is going through a financial hardship, they can request an amount of $1,000 or more, but nothing more than they need to take care of the expenses that have come upon them. They must swear under penalty of perjury regarding the reason why they need the withdrawal and only request the money they have contributed along with earnings from that money specifically.

Besides a hardship, employees can request one age-based withdrawal while still employed and in-service, but it must be after they reach the age of 59 1/2. They can withdraw their entire account balance or an amount over $1,000, but they are only allowed to do this once while still in service.

Just like a 401(k), the Thrift Savings Plan should be taken advantage of by every federal employee. Otherwise, you’re neglecting

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