Military members not enrolled in the Thrift Savings Plan are missing out on a golden opportunity to supplement their retirement program.
That’s according to Patsy Piggott, the Army Community Service financial readiness program coordinator.
“When you get out of the military – it doesn’t matter if it is four years or 20 years – your income will decrease by half,” she said. “If you have not saved money for retirement or a rainy day, where are you going to get the money?”
That is a question that Military members must seriously consider as they go about their careers.
One possible solution is TSP. It is a savings plan designed to supplement retirement income.
The most noteworthy feature of TSP is its tax-deferred savings. When contributions are made to a tax-deferred account, they are taken out of Military members’ pay before federal and most state taxes are withheld. The Military member pays less tax because tax is calculated on a smaller amount of money.
Savings accounts don’t offer such a feature.
The TSP.gov Web site uses this example to illustrate the impact of tax-deferred savings or “before tax” contributions:
If a Military member earns $30,000 a year and in the 15 percent tax bracket and contributes five percent each month or $1,500 each year to a TSP account, the member will save $225 in federal taxes.
If the Military member deposited the $1,500 into a savings account, $225 would be owed in federal taxes.
Over a 20-year career in the Military or otherwise, this amounts to thousands of dollars in savings.
That’s just one of features that appealed to Pfc. Eliyahu Kassorla, a 23-year-old advanced individual training student and National Guardsman from Maine, who enrolled three years ago.
“I have it because I believe in retirement savings,” he said. “My father had his Roth IRA and 401K, so I thought this would be of great benefit.”
In addition to tax-deferment, TSP offers contributors six funds with varying degrees of returns and risk in which to choose. The conservative G Fund has returned 4.92 percent in the past 12 months and the higher risk I fund has returned 26.92 percent.
Considering what TSP offers, Sgt. 1st Class Roland Irions said it is a sound investment choice for any Soldier, whether they want to stay in the Army or not.
“I recommend it because you can start out at the lowest percentage ($49 a month),” said the Noncommissioned Officer Academy-assigned Soldier. “Most Soldiers will never even miss that amount. And it’s beneficial for the long term because you’ll have money set aside.”
Irions has been enrolled for six years.
TSP contributions and earnings are eligible for withdrawal without penalty at age 59 and half or later. At that time, the account will be taxed.
If withdrawals are made before 59 and a half, the contributor will be penalized. Contributors may borrow against the account at any time and pay it back at a fluctuating interest rate which is currently 5 percent.
Convenience is another attractive feature of TSP. Enrollees can put away as little as $49 a month through pay allotment or no more than $15,500 per year (for 2007). There are no management fees or other costs to enroll.
Regular mutual funds may cost as much as $3,000 to start. Management fees are additional.
For more information, visit the www.tsp.gov Web site or call Patsy Piggott at (804)734-7952.