Thrift Savings Plan: Benefit Basics
The most asked question about the Blended Retirement System that the Defense Department normally gets is about when a recipient will I receive their matching contributions in their Thrift Savings Plan.
The value of the Thrift Savings Plan (TSP) to the new Blended Retirement System (BRS) is known by most service members. Their retirement investment will increase much faster by contributing as much of their basic pay as they possibly can as early as they possibly, all the while getting the government to match it up to 5 percent.
On (or after) the day that the service member opts into the Blended Retirement System is the day that matching contributions in that pay period also begin. Department of Defense spokesman Navy Cmdr. Michael Cody says that if contributions to this fund begin the middle of the month, they should be visible in the Leave and Earnings Statement by the end of the month.
The biggest question of them all, of course, is what exactly is the TSP?
Comparable to the 401(k) plan offered to civilian employees, the Thrift Savings Plan is a retirement account. You decide how to invest your funds and what you’d like to contribute.
Blended Retirement System members who are unable to choose a fund for whatever reason will have their money funneled into an age-appropriate Lifecycle Fund (L Fund). TSP.gov is where you can go to talk to a financial adviser and change your allocation, or you can find one on your installation using MilitaryOneSource.mil
Under BRS a1 percent contribution of your base pay to your TSP will match up to an additional 4 percent automatically by the government. This means that if you put in 5 percent, the government will contribute an additional 5 percent.
The 1 percent government contributions commence on the first pay period after 60 days from the pay entry base date, if you’ve been automatically enrolled in the BRS, and you entered the service in 2018 or later. The 25th month of service is when you should expect matching contributions.
There’s no vesting period here. The basic automatic 1% contribution and earnings from the government’s is yours permanently after 24 months of service. Additionally, they’re yours immediately if you’ve already served at least two years before opting into BRS. The TSP are always yours to keep, as are 4 percent matching government contributions.
But hold up: that isn’t to say you can immediately empty your account. There is a withdrawal penalty of 10% on any taxable part of the funds that didn’t get transferred over to a qualified retirement account (in addition to any taxes on the withdrawal you may already owe) if you opt to take that money out before age 59.5.
Less of your funds are withheld from your pay if your contributions are made prior to federal income taxes being calculated. A traditional TSP account would allow you to put off what you owe on taxes on contributions and earnings until retirement when you withdraw.
You can also decide that you’d like to pay taxes on contributions as you make them, and if certain IRS requisites are met, you can withdraw those funds tax-free, if you opt for a Roth IRA.
For 2018 the IRS set the contribution limit at $18,500. This could potentially be a problem if the service member has put in all of their special pay and bonuses, or for Reserve and Guard member currently under civilian employment. However, this limit is not applicable to traditional contributions that one might have made through the tax-exempt pay gathered while in a combat zone.
Cody says that troops who surpass this limit must cease TSP contributions for the remainder of the year, or matching contributions would be lost over the span of that time.
The TSP program has been trending upward for all service members.
