The Thrift Savings Plan (TSP) for Service Members

Written by: Sarah Brady

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It’s not often that you can get free money, but with the Thrift Savings Plan (TSP) you can bring in free cash with no extra labor or effort on your part.

For service members, having a TSP can give you a chance to claim money for your retirement savings, plus the opportunity to reduce your annual tax bill. Depending on when you enrolled in the service, you may already be benefitting from one of these plans.

How Does the Thrift Savings Plan Work?

The Federal Thrift Savings Plan is an investment account that helps you save money for retirement. Similar to a 401(k), you can make automatic deposits to your TSP directly from your basic pay, and your employer can make contributions, too.

These are the main benefits of using a TSP:

  • Double your retirement savings: The Defense Department matches the amount you contribute to your TSP dollar for dollar, up to 5% of your pay. That means you can automatically double your contribution and get an unbeatable return of 100% on your investment. For example, if you contribute $50, and the DoD matches that with another $50, you now have $100 in your TSP.
  • Reduce your tax bill: If you choose a traditional option for your TSP, the income you contribute will not be taxed. That means you can reduce your income tax bill by adding money to your TSP. Just note that the money will be taxed when you withdraw it. Alternatively, you could choose to make a Roth contribution to your TSP, which will be taxed up-front but not when you withdraw it. You can also choose traditional or Roth contributions.

It’s important to note that a TSP is an investment account, and you can choose which types of investment funds your savings are placed into. If you don’t, the choice will automatically be made for you. You can learn more or get advice from your unit’s financial specialist.

How Much Can I Contribute to a Thrift Savings Plan?

As of 2022, the maximum annual amount you can put into your TSP, if you’re under 50 years old, is $20,500. For someone who has 26 pay periods in a year, that comes out to $789 per pay period.

If you’re over 50, you can make an additional “catch up” contribution of $65,00 per year, for a total of $27,000.

You can also contribute up to 100% of any incentive pay, special pay, or bonus pay to your TSP, as long as you contribute at least 1% of your basic pay.

Thrift Savings and the Blended Retirement System (BRS)

If you joined the service after Jan. 1, 2018, you were automatically enrolled in the Blended Retirement System (BRS).

As a BRS enrollee, you automatically have 5% of your basic pay deducted from each paycheck to go into a TSP account. You also get a “continuation pay” bonus after 12 years of service, if you choose to reenlist, and an annuity payment.

Thrift Savings and Non-Blended Retirement System

If you joined the service before 2006 and you didn’t opt into the BRS, you’re in the legacy “High-3” retirement system.

You can still use a TSP with the legacy system, but unfortunately you won’t receive matching contributions from the DoD, and don’t have automatic TSP contributions coming out of your pay.

If you would like to set up a TSP account and arrange to make regular contributions, you can do that through your service’s electronic payroll system:

Thrift Savings and Reentering Service Members

Service members who were in the BRS before they left the service will automatically be reenrolled in the BRS plan when they reenter. Along with that comes enrollment in a TSP.

If you weren’t in BRS  but you had fewer than 12 years of service before you left, you may be able to opt into a TSP. You can follow the instructions to start or change TSP contributions to set up an account or continue contributing to your existing account.

Thrift Savings Plan Withdrawal

If you need to withdraw money from your Thrift Savings Plan, there are several ways to do it. Some can be very expensive, so making a withdrawal before retirement might not be the best financial choice for you.

Here are your options for TSP withdrawal, and the costs involved:

  • Loans: When you borrow from your TSP, you’ll pay a loan fee of either $50 or $100, depending on the purpose for the loan. Plus, you’ll pay an interest rate of 3.375% and you’ll lose out on the compound interest that you could have earned on that money before retirement.
  • In-service Withdrawal: If you make a TSP withdrawal during your service, the DoD will withhold a 10% tax. The IRS may also charge an early withdrawal penalty of 10% if you’re under the age of 59½. Additionally, you may have to pay income taxes and other penalties.
  • Distribution: Once you retire you can arrange to get penalty-free distributions, or payments from your TSP, as frequently as once every 30 days, or in one lump-sum payment. You can also choose to put your TSP funds toward the purchase of an annuity, which can give you monthly income for your lifetime.

Thrift Savings Plan Resources

If you have questions about TSPs, there are several ways to contact the Thriftline Service Center for information:

  • Phone: 1-877-968-3778 (Monday-Friday 7:00 a.m. to 9:00 p.m., Eastern)
  • Email: [email protected]
  • Fax: 1-276-926-8948
  • Mail: Thriftline Service Center

C/O Broadridge Processing
P.O. Box 1600
Newark, NJ 07101-1600

You can also access and manage your TSP account by logging in at TSP.Gov.

About The Author

Sarah Brady

Sarah Brady is a Personal Finance Writer and educator who's been helping people improve their financial wellness since 2013. Sarah writes for Experian, Investopedia and more, and she's been syndicated by Yahoo! News and MSN. She is a workshop facilitator and former consultant for the City of San Francisco's Affordable Home Buyer Programs, as well as a former Certified Housing & Credit Counselor (HUD, NFCC). 


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