Thrift Savings Plan (TSP)

Roth TSP: With the introduction of Roth TSP, Soldiers have the potential for two types of balances in the TSP account: TSP and Roth TSP. The Soldier's own contributions can be designated as traditional TSP or Roth TSP. Roth contributions are taken out of the paycheck after income is taxed. When Roth funds are withdrawn, they are tax-free. Additionally, there are no taxes on the earnings as long as the Soldier is at least age 59 ½ (or disabled) AND the withdrawal is made at least 5 years after the beginning of the year in which the first Roth contribution was made. Roth TSP is currently available to Active Duty Soldiers only. It will be available to Reserve Component personnel in mid to late 2013.

The table below compares the treatment of traditional and Roth TSP contributions: The table below compares the treatment of the two different types of contributions.

¹ Roth contributions are subject to Federal (and, where applicable, state and local) income taxes, while traditional contributions are not taxed until withdrawn. However, both Roth contributions and traditional contributions are included in the amount of wages used to calculate payroll taxes (e.g., Social Security taxes).
² You would have to pay taxes on any pre-tax amount transferred to a Roth IRA. 
³ Transfers to a Roth IRA from a Roth TSP are not subject to the income restrictions that apply to Roth IRA contributions.

How to Contribute: Soldiers are eligible for this benefit as soon as they join the uniformed service.  Participation in the TSP is optional.  To start contributing to the TSP, complete the TSP Election Form (TSP-U-1).  The form can be downloaded from https://www.tsp.gov/. On this form, indicate the percentage of basic pay, incentive pay, special pay, or bonus pay to be contributed. Soldiers may also contribute to the TSP by signing up through the MyPay website (https://mypay.dfas.mil/).  Some percentage of basic pay must be contributed in order to contribute from incentive or special pay.

Tax Benefits: TSP contributions are "tax-deferred" from taxable pay, meaning that they are deducted before Federal and, in almost all cases, state income taxes are withheld.  Therefore, taxable income is smaller and less is paid in taxes.  In addition, Federal taxes are not paid on the money contributed until it is withdrawn from the TSP account.  Any money earned over the years is also tax-deferred.  This means that no income taxes are paid on TSP account contributions and earnings until the money is received - usually after retirement.  The longer money is invested, the greater the benefit of tax-deferred earnings will be.

Flexibility: TSP offers a choice of funds in which to invest.  For a description of these funds, including key features, historical returns, and a detailed description, please see https://www.tsp.gov/. The TSP allows the investor to allocate contributions among the different funds based on the investor's personal preferences.  It also allows the investor to change contribution allocations and transfer money between funds on a daily basis.

Withdrawing Funds: Soldiers are eligible, but not required, to withdraw from the TSP account as soon as they separate from the uniformed services.  However, a certain portion of the account balance must be withdrawn beginning with the year in which the Soldier becomes age 70½.  This portion of the balance, known as a "required minimum distribution," is based on life expectancy.  If a full or partial withdrawal is not made, or if monthly payments do not begin, the TSP must make the required distribution before April 1 of the following year.  Active Soldiers are not required to make withdrawals, regardless of age.  Payments can be deposited directly into checking or savings accounts.  The TSP can also transfer all or part of any single payment or, in some cases, a series of monthly payments, to a traditional IRA or eligible employer plan.

Regulations: TSP regulations are published in title 5 of the Code of Federal Regulations, Parts 1600 - 1690, and are periodically supplemented and amended in the Federal Register.