Financial planners have long referred to the three most
common sources of retirement incomes – Social Security, employee pensions and
personal savings – as the “three-legged stool.”
For Department of Defense civilians and active-duty military
members, the Thrift Savings Plan can be one of the legs of that stool – or even
an additional leg.
Established by Congress in 1986 for federal civilian
employees and later opened to active-duty military members, the TSP is an
optional retirement savings and investment plan similar to a 401(k).
“It’s a fantastic
program – a great way to prepare yourself for tomorrow,” said Bobby Williams,
Joint Base San Antonio-Randolph Military & Family Readiness Center
community readiness consultant. “A little becomes a lot when you contribute on
a regular basis.”
The TSP will be the subject of a special in-depth
presentation from 10-11:30 a.m. May 20 at the JBSA-Randolph M&FRC, Williams
said. Representatives from Broadway Bank branches at JBSA-Randolph and
JBSA-Fort Sam Houston will discuss the TSP and field questions from class
participants.
M&FRC community readiness consultants also present
classes on the TSP throughout the year and are available for one-on-one
counseling, he said.
A defined contribution plan, the TSP is administered by the
Federal Retirement Thrift Investment Board. It contrasts with the uniformed
services retirement system, which is a defined benefit program.
One of the advantages of the TSP is the amount of money a
person can contribute to it, Williams said.
“The amount you put into the TSP can be greater than
contributions to other retirement plans,” he said. “If you’re under 50 years
old, you can contribute up to $18,000 per year; if you’re 50 or older, the
maximum amount is $24,000.”
Service members may also contribute bonus pay, incentive pay
and hazardous-duty pay to their TSP. When service members leave the military,
they can no longer contribute to their TSP, but they can roll money from it
into a 401(k) or a traditional individual retirement account, or IRA.
A bonus for DOD civilians is that they receive a matching
amount from the government, Williams said.
“If you put in 5 percent of your base pay, the government
will match that 5 percent, but it goes no higher than that,” he said.
Another advantage is that money invested comes from pre-tax
dollars, which lowers taxable income: Earnings are not taxed until they’re
withdrawn during retirement.
TSP investors may also borrow from $1,000 to $50,000 against
their TSP, but are subject to taxation unless they pay the loan amount back to
their retirement account.
TSP investors have five basic funds they can choose from and
manage themselves, ranging from lowest to highest risk, as well as the
“L-Fund,” which is a professionally determined investment mix of the five other
funds that is reviewed and adjusted periodically, Williams said.
“Most young Airmen choose the L-Fund, but as they get older
and more astute with their finances, they may begin to look at managing their
funds themselves,” he said.
Another option is the Roth TSP, Williams said. Taxes are
deferred in a traditional TSP, but paid up front in a Roth TSP.
“But everything in that account is tax-free forever as long
as five years have passed since Jan. 1 of the year you made your first Roth
contribution and you are at least 59½ years old, permanently disabled or
deceased,” he said.
The TSP is especially beneficial to young investors.
“The younger the person is, the better, because they have
the longevity to make more money because of compound interest,” Williams said.
For more information on the TSP and the May 20 presentation,
call the M&FRC at 652-5321.