Thrift Savings Plan (TSP)

Army National Guard: Drilling

Benefit Fact Sheet

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Summary:

The Thrift Savings Plan (TSP) is a Federal Government-sponsored retirement savings and investment plan. It offers the same type of savings and tax benefits that many private corporations offer their employees under "401(k)" plans.

Eligibility:

Army National Guard Soldiers on drill status may contribute to the TSP.

Benefit Highlights:

Basics: The TSP is a defined contribution plan. This means that the income Soldiers receive from a TSP account depends on the amount contributed and the earnings on those contributions. This is unlike the Uniformed Services Retirement System in which the income received is based on years of service and the rank held at the time of retirement. Up to 10 percent of basic pay may be contributed to the TSP each pay period. If contributions from basic pay are made, one to 100 percent of any incentive pay or special pay (including bonus pay) may also be contributed, up to the limits established by the Internal Revenue Code (In 2014, that amount is $17,500). In addition to that amount, "Catch-up contributions" of up to $5,500 for 2014, may be made by eligible Soldiers (age 50 or older or turning 50 that year). All funds contributed belong to the beneficiary, even if they do not serve the 20 or more years ordinarily necessary to receive uniformed services retired pay.

Roth TSP: With the introduction of Roth TSP, Soldiers have the potential for two types of balances in the TSP account: TSP and Roth TSP. The Soldier's own contributions can be designated as traditional TSP or Roth TSP. Roth contributions are taken out of the paycheck after income is taxed. When Roth funds are withdrawn, they are tax-free. Additionally, there are no taxes on the earnings as long as the Soldier is at least age 59 ½ (or disabled) AND the withdrawal is made at least 5 years after the beginning of the year in which the first Roth contribution was made. The table below compares the treatment of traditional and Roth TSP contributions: The table below compares the treatment of the two different types of contributions.

The Treatment of...

Traditional TSP

Roth TSP

Contributions

Pre-tax

After-tax1

Your Paycheck

Taxes are deferred, so less money is taken out of your paycheck.

Taxes are paid up front, so more money comes out of your paycheck.

Transfers In

Transfers allowed from eligible employer plans and traditional IRAs

Transfers allowed from Roth 401(k)s, Roth 403(b)s, and Roth 457(b)s

Transfers Out

Transfers allowed to eligible employer plans, traditional IRAs, and Roth IRAs2

Transfers allowed to Roth 401(k)s, Roth 403(b)s, Roth 457(b)s, and Roth IRAs3

Withdrawals

Taxable when withdrawn

Tax-free earnings if five years have passed since January 1 of the year you made your first Roth contribution, AND you are age 59½ or older, permanently disabled, or deceased

1 Roth contributions are subject to Federal (and, where applicable, state and local) income taxes, while traditional contributions are not taxed until withdrawn. However, both Roth contributions and traditional contributions are included in the amount of wages used to calculate payroll taxes (e.g., Social Security taxes).
2 You would have to pay taxes on any pre-tax amount transferred to a Roth IRA.
3 Transfers to a Roth IRA from a Roth TSP are not subject to the income restrictions that apply to Roth IRA contributions.

How to Contribute: Soldiers are eligible for this benefit as soon as they join the uniformed service. Participation in the TSP is optional. To start contributing to the TSP, complete the TSP Election Form (TSP-U-1). The form can be downloaded from https://www.tsp.gov/index.shtml. On this form, indicate the percentage of basic pay, incentive pay, special pay, or bonus pay to be contributed. Soldiers may also contribute to the TSP by signing up through the MyPay website (https://mypay.dfas.mil/). Some percentage of basic pay must be contributed in order to contribute from incentive or special pay.

Tax Benefits: TSP contributions are "tax-deferred" from taxable pay, meaning that they are deducted before Federal and, in almost all cases, state income taxes are withheld. Therefore, taxable income is smaller and less is paid in taxes. In addition, Federal taxes are not paid on the money contributed until it is withdrawn from the TSP account. Any money earned over the years is also tax-deferred. This means that no income taxes are paid on TSP account contributions and earnings until the money is received - usually after retirement. The longer money is invested, the greater the benefit of tax-deferred earnings will be.

Flexibility: TSP offers a choice of funds in which to invest. For a description of these funds, including key features, historical returns, and a detailed description, please see https://www.tsp.gov/index.shtml. The TSP allows the investor to allocate contributions among the different funds based on the investor's personal preferences. It also allows the investor to change contribution allocations and transfer money between funds on a daily basis.

Withdrawing Funds: Soldiers are eligible, but not required, to withdraw from the TSP account as soon as they separate from the uniformed services. However, a certain portion of the account balance must be withdrawn beginning with the year in which the Soldier becomes age 70½. This portion of the balance, known as a "required minimum distribution," is based on life expectancy. If a full or partial withdrawal is not made, or if monthly payments do not begin, the TSP must make the required distribution before April 1 of the following year. Active Soldiers are not required to make withdrawals, regardless of age. Payments can be deposited directly into checking or savings accounts. The TSP can also transfer all or part of any single payment or, in some cases, a series of monthly payments, to a traditional IRA or eligible employer plan.

Regulations: TSP regulations are published in title 5 of the Code of Federal Regulations, Parts 1600 - 1690, and are periodically supplemented and amended in the Federal Register.

Additional Information:

For more information, please visit the Thrift Savings Plan webpage maintained by the Federal Retirement Thrift Investment Board:
https://www.tsp.gov/index.shtml

Thrift Savings Plan Calculators:
https://www.tsp.gov/planningtools/retirementplanning/howMuchToSave.shtml

MyPay Web site:
https://mypay.dfas.mil/mypay.aspx

Office of the Secretary of Defense, Military Compensation website:
http://militarypay.defense.gov/

Document Review Date: 24 January 2014