Federal Thrift Savings Plan

The Thrift Savings Plan gives you two savings options: the traditional TSP and the Roth TSP. Understanding the difference between these two plan options can help you decide which is the best investment strategy for you.

• Traditional TSP — Your contributions are pre-tax, meaning you don’t pay taxes on them or on any earnings from them until you withdraw them, usually after age 59 ½. Traditional pre-tax contributions give you a tax break today by lowering your current taxable income.

• Roth TSP — Your contributions are made after you pay taxes on the money, so you won’t owe any further taxes when you withdraw funds, and the earnings are tax-free if you meet the IRS requirements.

Here are some things to consider when choosing a plan:

• Your current and future tax rate — Since you’ll have to pay taxes eventually, it all comes down to whether you think you’ll be better off paying your taxes now or later. Think about your current income level and tax rate and what you expect they might be when you retire. For example, if you’re in a low-income tax bracket now, but think your tax rate could be higher in retirement, the Roth TSP may be a good option.

• Your career path — If you’re in the early years of your career and you expect your future income to increase considerably, paying the taxes now on your TSP contributions might make sense.

• Government match — The Department of Defense will contribute 1 percent of your basic pay to your Thrift Savings Plan after 60 days of entering service and will begin to match your contributions (up to an additional 4 percent when you contribute at least 5 percent), at the start of your third year of service.
• Notable — The government’s matching contributions can only be made into a traditional TSP. You can have both a traditional and Roth TSP at the same time, and both contributions will be added together to determine the government’s total match. Even if you only contribute to a Roth TSP, you will still have both types of accounts.

Remember, this isn’t a one-way-or-the-other decision. You can contribute to both your Roth and traditional Thrift Savings Plan.

The Thrift Savings Plan is a retirement savings plan, so loans or withdrawals before separation or retirement are restricted.

• Loans — Loans are available to members who are still in pay status. You can borrow from your contributions and earnings for a small processing fee, and pay back the loan, with interest, through payroll deductions.
• In-service withdrawals — Hardship withdrawals are available to members under specific, limited conditions. Also, members age 59 ½ or older (still in pay status) can make a one-time, age-based in-service withdrawal.

After you separate from the military, you have several withdrawal options.

• Partial withdrawal — Make a one-time request to withdraw a portion of the money in your account. The balance will continue to accrue earnings for later withdrawals.
• Lump-sum payment — Receive a single payment of your entire TSP account all at once.
• Monthly payments — Specify a dollar amount to be sent to you each month, or the TSP will calculate your monthly payments based on your life expectancy. Payment amounts can be changed once a year.
• Life annuity purchase — Use all or a portion of your account to buy an annuity, which is paid to you (or your survivor) every month for life.

You can choose any one of these options or choose a combination of these options as well. For example, you can specify an amount you’d like as a lump-sum payment and use the balance in your account for monthly payments. Visit the Thrift Savings Plan website to learn more.

Visit the TSP website to learn more about TSP options. Read a detailed explanation of the TSP program in the publication Summary of the Thrift Savings Plan. Meet with a personal financial manager through your installation. Remember, the more you learn about your retirement investment options now, the more prepared you’ll be when retirement finally arrives.