The Thrift Savings Plan (TSP) is a contribution-based retirement plan for servicemembers and federal employees. Similar to a 401(k), the TSP allows participants to contribute to an affordable retirement savings and investment account and to receive automatic and matching contributions from the government.
To continually build your retirement savings, it is essential to contribute to your TSP account consistently. The total value of your TSP account when you reach retirement age will be determined by the number of contributions you made during your career, as well as the growth of the investments within the account.
Using the TSP for Military Retirement
Before diving into what happens to your TSP when you retire from the military, let’s go over some of the basics. Knowing how your contributions work before retirement will answer several frequently asked questions that you may be curious about.
Do I Automatically Receive a TSP Account?
If you’re covered by the military’s Blended Retirement System, you’re automatically enrolled in a TSP account after you’ve completed 60 days of service. All servicemembers who joined on or after January 1, 2018, are covered by the Blended Retirement System.
You’re also covered if you chose to opt into Blended Retirement between January 1, 2018, and December 31, 2018. Otherwise, you need to make a contribution through your service to establish your account.
How Do TSP Contributions Work?
You’ll determine how much is deducted from each paycheck when you make your TSP contribution election, which is done through your service. This is also how you:
- Start your contributions if you were not automatically enrolled.
- Increase or decrease your contributions if you were automatically enrolled.
- Change your employee contribution amount or their tax treatment — traditional or Roth.
- Stop your contributions.
Once enrolled, you’ll begin receiving employer contributions into the TSP account. If you joined the armed services between 2010 and September 2020, the contribution percentage of your pay added to your TSP account was set at 3%. However, if you joined after October 1, 2020, your contribution amount was automatically based on 5%.
Can I Continue to Contribute to My TSP After I Retire?
No, you cannot contribute to your TSP once you retire. The Thrift Savings Plan is for servicemembers and can only receive contributions from government paychecks, meaning any retirement pay you receive will not qualify. However, that does not mean your TSP account cannot continue to grow.
After retirement, the owner of a TSP account can transfer retirement assets from other existing accounts (civilian career 401(k)s or IRAs) into the account because transfers are different than contributions. Once you transfer the retirement assets from your other accounts into your TSP account, you will have the great benefit of paying the TSPs very low management fees.
TSP Cost vs. Other Retirement Accounts
The majority of TSP accounts only charge $0.38 per every $1,000 invested, which is far less than other retirement options.
Retirement accounts outside of a TSP can range wildly in price. On the more affordable side of things, they may charge between $2 to $7.50 per $1,000 invested, whereas more expensive accounts can charge between $10 to $25 per $1,000.
While the cost of a retirement account is an important factor to consider, there is something to be said about the convenience and simplicity that comes with a TSP account. Once you retire from the military, you may hold several civilian jobs before you retire from working altogether. Each job will likely offer a benefits package, and you may find yourself collecting 401(k)s or other retirement accounts along the way.
What Do I Do with My TSP After I Retire?
The answer is, it’s up to you! Here are some of your options:
Begin Monthly Payments
You can begin taking set withdrawals without penalty if you retire from government service at age 55 or older and you enter directly into retirement. Keep in mind that there could be tax consequences that come with withdrawing. This will depend on if you contributed to your TSP with a Roth (which should be tax-free) or traditionally (pre-tax dollars).
Purchase an Annuity
Using your TSP money to buy an annuity — like AAFMAA’s ANNUITYLifeⓇ policy — is also an attractive choice. Annuities offer the security of regular payments for the rest of your life.
Leave the Money in
Like most retirement plans, you don’t have to begin minimum withdrawals until age 72. That means, depending on how old you are when you retire, you can choose to leave the money in the TSP. There, it will have the opportunity to grow until you need to begin withdrawing.
Transfer the TSP to an IRA
This option gives you the most control over the money in your TSP and the investments made to grow it. While this option is a good one, it’s crucial to consult with a professional beforehand. Otherwise, you may face tax consequences.
Planning for Retirement with AAFMAA Wealth Management & Trust
Planning for your retirement is essential to living comfortably after a lifetime of service. You don’t have to figure out the best course of action alone — lean on AAFMAA Wealth Management & Trust (AWM&T). Using our industry expertise, we’ll help you create the best financial plan for your unique financial situation and goals. It’s never too early to plan for retirement. Contact us online or at 910-390-1933 to get started today.