What is TSP?
When it comes to the Blended Retirement System (BRS), one of the most frequently asked questions received by Defense Department officials is “When can I expect to get my matching contributions to the TSP?”
These questions are generated by service members that have a true understanding of the value of the Thrift Savings Plan to the new BRS. They understand that they can grow their retirement much faster by contributing as much of their basic pay as they can as early as possible while receiving a government match of up to 5%.
The quick answer is that matching contributions begin in the pay period that starts on (or after) the date the service member has opted into BRS. According to DoD spokesman Navy Cmdr. Michael Cody, if that date of opt-in is in the middle of a month, then contributions should appear in the Leave and Earnings Statement at the end of the following month.
Now for an even bigger question: What is the TSP?
The best way to put it in perspective is to think of it like the 401K retirement plan for civilian employees; you decide what and how much to contribute as well as how to invest your money.
Members of the BRS that do not choose an investment fund will automatically have their money put into an age-appropriate Lifecycle Fund (or L Fund). If you need to change your allocation, it is recommended that you talk to a financial advisor.
The government automatically contributes 1 percent of your base pay to your TSP under your BRS, and up to an additional 4% is matched. For example, if you provide 5%, then the government adds in an additional 5%.
For service members joining in 2018 or later, enrollment in BRS is automatic. The first pay period after 60 days from the pay entry base date is when the automatic government contributions begin (the matching contributions beginning in the 25th month of service).
Any of your contributions to the TSP are yours to keep, including the matched contributions of up to 4% as well as the earnings. There is no vesting period! After two years of service (or if you have at least two years of service before your BRS opt-in), the government’s basic automatic 1% contribution is yours to keep as well.
However, don’t jump at the thought of cashing it all in. There are penalties if you withdraw money before age 59 ½. You could be subject to paying a 10 percent withdrawal penalty tax on any taxable part of your money that wasn’t transferred to a qualified retirement account, paired with any additional taxes owed as a result of the withdrawal.
With a traditional Thrift Savings Plan, you are allowed to defer taxes on contributions and earnings until withdrawal at retirement.
Less money is held from your pay because your contribution is made before the calculation of federal income taxes.
Another retirement option is a Roth TSP. With this plan, you pay taxes on contributions as you make them, but you can also withdraw funds tax-free as long as you meet specific IRS requirements.
The IRS sets the contribution limit annually. For 2018 the contribution limit is $18,500.
The limit can potentially pose an issue if a service member contributes all or part of special pays or bonuses. It could also cause problems for Guard and Reserve members with civilian employment.
Traditional contributions made from tax-exempt pay earned in a combat zone is an exception because the limit does not apply in that case.
TSP contributions made by troops who exceed the limit must be ceased for the remainder of the year; otherwise, they could lose out on matching contributions at that time.
Overall, the participation rate in the TSP program by service members has seen an upward trend, which means that more are beginning to see the true value in this retirement program option.
Contact Public Sector Retirement Educators
www.PSREducators.com for assistance with your federal retirement questions.