Military Pay

THRIFT SAVINGS PLAN
Portioning Out Your Military Pay

On October 30, 2000, the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398) was signed into law, with a provision that extended the Thrift Savings Plan, originally designed for Federal civilian employees only, to members of the uniformed services.

Thus was the start of a whole new way to expand on creating retirement savings from your military pay.

The Thrift Savings Plan (TSP), a Federal Government-sponsored retirement savings and investment plan, was first established in the Federal Employees' Retirement System Act of 1986, as a way to provide retirement income. Now, the benefits of TSP are available to both military and civilian employees.

Should you be putting a portion of your military pay into taking advantage of the Thrift Savings Plan? Let's see how it adds up.

You can choose as much or as little of your military pay to contribute, as the Thrift Savings Plan is a defined contribution plan. The retirement income you gain from your TSP account will depend on how much you have contributed during your military working years, and the earnings on those contributions.

The beauty of the Thrift Savings Plan is that it offers the same type of savings and tax benefits that many private corporations offer their employees under 401(k) plans. And that's good news for securing your military retirement.

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 earnings, which is the case with the Thrift Savings Plan. You can choose to put more or less of your military pay into your Thrift Savings Plan, as your military career and military pay scale progresses.

To participate in the TSP, you must sign up with your service. You contribute to the TSP from your own military pay; the amount you contribute and the earnings attributable to your contributions belong to you. They are yours to keep even if you do not serve the 20 or more years ordinarily necessary to receive uniformed services retired pay.

When it comes to making contributions to your Thrift Savings Plan, the sky's the limit: you can contribute any percentage (1 to 100) of your basic military pay. However, your annual dollar total cannot exceed the Internal Revenue Code limit, which varies each year. If you contribute to the TSP from your basic military pay, you may also contribute from any percentage of any incentive pay or special pay (including bonus pay) you receive, up to the limits established by the Internal Revenue Code.

THE THRIFT SAVINGS PLAN AT A GLANCE

• Immediate member contributions
• Before-tax savings and tax-deferred investment earnings
• Daily valuation of accounts
• Low administrative and investment expenses
• Transfers into the Thrift Savings Plan from other eligible retirement plans or traditional IRAs and eligible employer plans
• Ability to make contribution allocations daily
• Ability to make interfund transfers daily
• Loans from your own contributions and military earnings while you are in service
• Catch-up contributions for participants age 50 or older
• In-service withdrawals for financial hardship or after you reach age 59½
• Portable benefits and a choice of withdrawal options after you separate from service
• Ability to designate beneficiaries for your account balance
• Spouses' rights protection for loans and withdrawals and recognition of qualifying court orders
• A website with general account information, capability for requesting contribution allocations and interfund transfers, the option of initiating (and possibly completing) loan and withdrawal requests on-line, up-to-date TSP materials and information, on-line participant statements, and calculators to estimate account growth, loan payments, and annuity amounts, as well as an elective deferral calculator
• An automated telephone service (the ThriftLine) for account information and certain transactions