Put Your Money To Work with the TSP

So you are on Active Duty, and you have a Thrift Saving Plan.  Have you given it very much thought as to what you want to do with those funds when you leave the Military?  That is something that financial managers and planners work with a great deal with Veterans as they approach discharge or separation.  It is something that you and your financial planner should take a hard look at.  Before you take any action its important to know what the positives and negatives of each choice are.

The current Thrift Savings Plan is one that was set up by the Federal Government, and is a retirement and savings investment plan that is sponsored by the government. It was created as part of the 1986 Federal Retirement system for Federal Employees.  Its purpose was to create and protect retirement income.  As it is currently set up, the TSP is a contribution plan that is defined.  It is directly linked with how much you put into the account during your working years, the more you contributed and the earnings gained from those contributions the more money you will have. The plan offered under TSP is very similar to private companies and their “401 (K) savings plans.  There are other investment options that are available for Service members besides the TSP plan, but the current TSP is very attractive to most people serving in the military.

“About half of the current Active and Reserve Military participate in the TSP right now.” said Major John Johnson, in an interview.  Army Major Johnson is director of the Tax Council The Armed Forces. “We would definitely like to see the level or participation go up as it is a great benefit available to Servicemembers,” remarked Major Johnson.  The benefits of having a Thrift Savings Plan in place is that it has tax-deferred status.  That means that the funds that you contribute to the fund now is taken out before taxes. And the money contributed is not taxes until it is withdrawn down the road at retirement.  This can be a huge savings over the life of the plan.

The savings over the life of a tax differed fund such as the Thrift Savings Plan can be huge.  Over the life of a typical plan, you can sometimes save in the hundreds of thousands of dollars in taxes in savings of this type.  Servicemembers can as of 2008 put as much money as they choose to, up to the fifteen thousand dollar limit a year set by the IRS, into the Thrift Savings Plan.  When the plan began in 2000 there were lower limits imposed, but no longer.