To make the math simple, here is an example with TSP: A civil servant who makes $100,000 per year activates as a reservist for a year. The Thrift Savings Plan (TSP) is a Federal Government-sponsored retirement savings and investment plan. Note: The following example was originally published in 2018. However, the Federal Retirement Thrift Investment . However, while you were in the combat zone you did your best to reach the annual additions limit. Remember to stay below the Roth TSP contribution limit, as I mentioned up in the BRS section. The previous retirement plans are what most people think about when they think about the military retirement system. However, if they contributed $5,000 to their Reserve military TSP account for the year, they could report those contributions to the TSP for them to put the full match right into the members civilian TSP account. (This applies to the Active Component Service as well as the Reserve Component Services (National Guard and Reserves). In that case, there is $17,500 left towards the elective deferral limit ($18,500 minus the $1,000 contributed in the months while not in a combat zone). But you can serve over 20 years and you will still earn an additional 2.5% for each year served. Lets be clear: I would not volunteer to deploy to a combat zone just for the tax-free pay (and the special pays) and the higher contribution limits to retirement accounts. This has changed for those who participate in the Blended Retirement System. This example is how the system is supposed to work. References to third-party products, rates and offers may change without notice. Primarily because each reduction makes it easier to repeat in the future. The Military Wallet is a property of Three Creeks Media. The content on The Military Wallet is produced by Three Creeks Media, its partners, affiliates and contractors, any opinions or statements on The Military Wallet should not be attributed to the Dept. Each service can determine the specific reenlistment requirement, but it will be a minimum of 3 years (some services require 4 years). The REDUX pension plan is slightly different. For consistency, we have left these numbers as they were in the example provided by correspondence with TSP officials. The Military Wallet and CardRatings may receive a commission from card issuers. Failing to reach the required 20 years of service nets servicemembers zero retirement benefits (except for early military retirees and medical retirees, which is out of the scope of this article). The TSP is one of several investing answers, but it should be a big part of every military familys asset allocation plan. Your contributions can go into your Roth TSP or your traditional TSP (or in any combination of the two up to a total of $20,500 in 2022). [12 November 2021 update: This post has a minor (but important) revision after further confirmation with the TSP staff.]. I hate to use that term here because everyone currently in the previous system is grandfathered in. If a ranking or list has a company noted to be a partner the indicated company is a corporate affiliate of The Military Wallet. See all of your accounts in one secure place, including your Thrift Savings Plan. This appears to be a similar issue with the TSP computer system.]. Here are the 2023 military TSP BRS matching contribution maximizing charts, based on the 2023 military pay raise and TSP contribution limit moving up to $22,500. Heres another good deal: by the definition of the combat zone. When the matching TSP contributions do take place, they will only happen for contributions going forward, and will not be retroactive to previous TSP contributions. No worries, this post includes a detailed year-round example. The answer is no, this individual already met their 402(g) elective deferral limit, and therefore would no longer be allowed to make contributions to their TSP (contributions that apply to the 415(c) limit and NOT the 402(g) limit are only CZTE pay contributions, so therefore if you are no longer receiving CZTE pay, any contributions apply to the 402(g) limit, which again, was already met).. Editorial Disclosure: Editorial content on The Military Wallet may include opinions. Retirees under the Blended Retirement System can choose one of three methods for receiving their retirement benefits. The Uniformed Servicemembers Employment and Reemployment Rights Act, or USERRA, and a matching statute governing the TSP provide these rights. That ensures youll have 12 months of Roth TSP contributions and 12 months of DoD BRS matching contributions. So the only people who will be affected are those who havent joined yet or those who elect to transfer into this system. Ryan Guina is The Military Wallets founder. Pamela, Im way outside my circle of competence with 403(b) plans. Where can I find out which jobs MOSs in the ARMY are receiving the match contributions? Active Duty Less than 12 Years Service: If you are an active-duty Servicemember with fewer than 12 years of service as of Dec. 31, 2017, you are grandfathered under the legacy retirement system, but may choose to opt into the BRS. If have been in the military for more than a few years, you are probably wondering why you dont get matching TSP contributions. I also have a spreadsheet for you to edit with your own numbers. Spencer over at MilitaryMoneyManual also has more suggestions about documentation and tracking the deployment dates. My other question was what enlisted traditional reservist that does 12 drills and 15 days of annual tour could possibly contribute $18,500 a year when they dont make that in a year? This is a loaded question. Thanks in advance. We are here to help members of the military with their personal finance questions. Contributions of $2,600 for 10 pay periods would be matched by $331 in agency funds each period ($66 due to automatic agency contributions of 1% of . Members will receive the following matching contributions: This chart shows how this works in practice: Being vested means having ownership. Lets take a look at agency matching contributions, then dive into why military members dont get them. The current military retirement system is a cliff-vesting retirement plan, which basically means its all or nothing. Similar to a civilian 401(k), the TSP offers the opportunity for Soldiers to save and invest for retirement. There is also a Cost of Living Adjustment (COLA) each year based on the Consumer Price Index (CPI), the same measurement used for Social Security benefits and other government pensions. (Some might decide its the best part.) Some retirees may also end up as winners, depending on how their investments do and how they take their pension payments. Unlike Agency/Service Automatic (1%) Contributions, Matching Contributions are not subject to vesting requirements. If a ranking or list has a company noted to be a partner the indicated company is a corporate affiliate of The Military Wallet. And Active Duty service members with more than 12 years of service are ineligible to opt into the BRS. Let's see just how much that would add up to. Why is this?. And while the TSP doesnt offer too many investment options, it offers among the lowest cost investment funds. Choose the chart matching your situation: Have Traditional TSP and adding Roth TSP or Have Roth TSP and additing Traditional TSP. Members of the Guard or Reserves will receive their retirement pay at age 60 or earlierif they qualify based on active duty service mobilizations. This example comes from a series of e-mails with the Federal Retirement Thrift Investment Board (the government agency which runs the TSP) and the DoD BRS office. They will save money on their fixed pension expenses, but much of those savings will be redirected to other servicemembers through the TSP and Continuation Pay Bonuses. The content on The Military Wallet is produced by Three Creeks Media, its partners, affiliates and contractors, any opinions or statements on The Military Wallet should not be attributed to the Dept. The biggest question mark around this new plan surrounds the variable nature of the benefit. We personal-finance bloggers talk boldly about frugality versus deprivation and work-life balance, but lets not kid ourselves: this deployment will be more work than life, and a lot more deprivation. [12 November 2021 update: This post has a minor (but important) revision after further confirmation with the TSP staff.] That means roughly 83%, or about 5 out of every 6 servicemembers, dont receive any long-term retirement benefit from their military service. Yeah, you worked hard and you deserve a nice reward. You dont even have to wait until age 59.5 to tap your TSP. This letter is automatically generated by an IRS computer which tries to match the tax return to some sort of report that the servicemember has deployed to a combat zone. If you contributed $18,500 to the TSP before deploying then youd already hit the elective deferral limit ($18,500 in 2018) before arriving in the combat zone. The maximum DoD contribution is 5% if the service member is contributing 5% of their basic pay. As soon as your Roth TSP contributions hit $20,500 in 2022, no matter where you are or when it is during the year, the TSP computer system will cut you off. References to third-party products, rates and offers may change without notice. Three Creeks Media, LLC 2023. During my research for this post, I learned that you may even be able to contribute to last years IRA. The question is, should you Opt-in to the BRS? It is not the bank advertisers responsibility to ensure all posts and/or questions are answered. We apologize for any inconvenience we have caused you and sincerely thank you for helping us clean up our records. Comment * document.getElementById("comment").setAttribute( "id", "a91d86fe5bd891b9315933a75210ff1a" );document.getElementById("e335739449").setAttribute( "id", "comment" ); document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); These responses are not provided or commissioned by the bank advertiser. You can contribute up to $61,000 to the TSP if you serve in a combat zone. of Defense or any governmental entity. This means that your overall annual additions limit is going to stay just under the elective deferral limit in the Roth TSP (with your last contribution of the year coming in December) and the rest of your contributions will go into the traditional TSP. The BRS software implementation in the DFAS and TSP computer networks has hopefully fixed any glitches from 2017 or earlier. Active duty: At retirement after 20 or more YOS. The current investment fee for a Military TSP is set to increase by .076% between 2021 and 2022. Since you had already reached your annual contribution limit (and they had to turn it back on) for some reason the TSP system wouldnt accept new contributions to the Roth TSP. Neither The Military Wallet nor Three Creeks Media are associated with or endorsed by the U.S. The military does not currently offer matching contributions like many civilian companies. The good news is that DFAS already knows the bonus contract is tax-free and will reflect it on your W-2.]. This system worked well for a couple of decades. What does that limit look like? To become vested in the Service Automatic (1%) Contribution, you must have completed two years of service. Topics include: Doug Nordman is a United States Navy submarine force veteran with 20 years of service. The Military Wallet and CardRatings may receive a commission from card issuers. I have been contributing 10% of my basic pay from July 2020. when will I start seeing my 5% matching contribution? The DoD is also supposed to send us a spousal indicator if the military member is married. They should be able to provide that information or at least point you in the right direction. Even if youre still paying off debt, it makes sense to contribute to your TSP to at least get DoDs free money in your TSP. This article may contain links from our advertisers. https://www.tsp.gov/agency-service-reps/tsp-educational-resources/ The TSP has a team of trainers who offer presentations to financial advisors: Reddit, Inc. 2023. Both the DoD automatic 1 percent and the matching contributions continue through the end of the pay period during which the service member attains 26 years of service. Additionally, you would need to opt in to the new retirement system to be eligible to receive matching contributions. Military.com | By Jim Absher. Itd be great if you had the income or assets to reach the annual additions limit, but do the best you can. For those employed as federal civil servants, you are entitled to have your TSP matching percentage applied upon return to your federal civilian position. There is no right or wrong answer here. Members who joined after January 1, 2018, are automatically enrolled in the BRS. However if youre familiar with the differences between 401(k)s and 403(b)s then this post might help: Compare the rates, fees, and rewards of top credit cards for military servicemembers and veterans, including cards with waived annual fees under the SCRA. References to third-party products, rates and offers may change without notice. In fact, matching contributions are automatic for new employees. Each Service determines and publishes its own guidance oncontinuation pay rates. You may make your address change through myPay if you are currently contributing to TSP. *, [* Note: That last sentence means your higher limits are still available if your deployment is less than the full calendar year. But they will only receive a match on the first 5% they contribute. Because so many military families have learned the basics of contributing to the TSP, were getting a lot of questions about maximizing those contributions during deployments to combat zones. [See the bottom of this post for the verbatim details of the TSP staffs interpretation of the tax law.]. No Income Limit With the Roth TSP, there is no income limit imposed on you. So 20 years is 50%, 25 years is62.5%, 30 years is 75%, etc. Take advantage of it. Thoughts? Under the BRS, you may receive up to 4% in Service matching contributions, on top of the automatic 1% contribution into your TSP. Advertising Notice: The Military Wallet and Three Creeks Media, its parent and affiliate companies, may receive compensation through advertising placements on The Military Wallet; For any rankings or lists on this site, The Military Wallet may receive compensation from the companies being ranked and this compensation may affect how, where and in what order products and companies appear in the rankings and lists. Any excess contributions from your pay will be used to reach the limit but the TSP will kick the rest of the excess back to DFAS. Could they contribute the next few years installments of that CZTE pay to their traditional TSP up to the annual additions limit? Older employees can pay an additional $6,000 as a catch-up contribution. The National Defense Authorization Act for Fiscal Year 2001 extended participation in the. That said, certain current servicemembers who had less than a given service time were allowed to opt into the Blended Retirement System. This brings the total contribution to the TSP to $20,900 meaning the service member can contribute an additional $34,100 of tax-exempt money to their traditional account. He is a writer, small business owner, and entrepreneur. Failure to submit the correct percentage in each pay category will cause your contribution elections for unmarked categories to be recorded as zero percent. You are always vested in (entitled to) your contributions and earnings. If you enter the Uniformed Services on or after Jan. 1, 2018, you are automatically enrolled in the BRS. The minimum initial transfer is $10,000. (Pro tip: this report to the IRS does not seem to come from DoD.) The Blended Retirement System (BRS) is the new military retirement plan, which went into effect on January 1, 2018. Use the worksheet for Roth contributions from basic pay, special pay and incentive pay and a separate worksheet for Roth contributions from bonuses and one-time special pay. My Jan 21 LES shows that "Agency contribution match" and "TSP YTD Agency Match" are 0.00, despite the fact that I contributed well over 5% during that period. Next question: where are these combat zones? Those who choose to pay into the TSP will receive a matching contribution by the government, up to a maximum tsp contribution of 5% of their basic salaries. You wont be moved to BRS unless you make this choice. Youre contributing tax-free pay when youre in the combat zone, yet you can continue to contribute taxable pay to the TSP after you leave the combat zone. Or the TSPs guidance on the annual additions limit was ambiguous. When I arrived I was unable to make any more contributions to Roth, but I was able to contribute to Traditional. Giving everyone a matching contribution would mean cutting force strength numbers, which would leave the services shorthanded. However, if the service member reaches the elective deferral limit before they leave the combat zone, they will not be permitted to make any contributions when they return. That way you have some retirement benefits, even if you dont earn the military pension. The maximum amount of catch-up contributions that can be contributed in a given year by participants age 50 and older. Depending on how the markets perform, the compounding effects of time may help erase the gap between the two pension plans. Editorial Disclosure: Editorial content on The Military Wallet may include opinions. This book provides servicemembers, veterans, and their families with a critical roadmap for becoming financially independent. The purpose of the TSP is to provide retirement . The good news is that the TSP training team has taken aboard our feedback and is updating their Blended Retirement System training materials. Find out how much home you can afford today. The Thrift Savings Plan (TSP) is a federal government-sponsored retirement savings and investment plan. of Veterans Affairs, the Dept. The content offered on The Military Wallet is for general informational purposes only and may not be relevant to any consumers specific situation, this content should not be construed as legal or financial advice. This article may contain links from our advertisers. Additional Information on the Thrift Savings Plan The rules are still the same for your combat zone contributions, only you dont have to worry about DoDs BRS agency or matching contributions. Any explanation as to what I am seeing would be welcome. For 415(c) purposes, working for multiple federal agencies or services in the same year is considered having one employer. Active Duty More than 12 Years Service:If you are an Active Component Service member with 12 years (or more) of service prior to Dec. 31, 2017, you are grandfathered under the legacy retirement system (High Pay, High 3, or REDUX). Its a great opportunity, with or without a matching contribution. Servicemembers whove opted into the new Blended Retirement System are advised not to front-load their TSP contributions so that they can receive the monthly DoD BRS match all year long. The servicemember could take the payment in a lump sum, or as annual payments during their reenlistment. Current service members who opt into the new Blended Retirement System between January 1, 2018 and December 31, 2018, will receive DoD automatic 1 percent contribution and up to 4 percent. All eligible employees are automatically enrolled in TSP at a five percent contribution rate. It is important to use these tools to avoid having insufficient net pay to cover the contributions. You can not exceed $20,500 of contributions in the Roth TSP at any time during 2022. The distinction is not whether youre shooting but rather whether you could be shooting or whether youre helping other people shoot. The Internal Revenue Service is tasked with keeping accurate records for all taxpayers. The Continuation Pay Bonus would also be an incentive to remain in the service and would be a nice bonus for those already planning on staying in the military. Trading a fixed monthly payment for a lower fixed payment and some money in your Thrift Savings Plan is risky because we cant predict future returns. This is a situation where it pays to run the numbers and fully understand how much taking the lump sum will cost (taxes, opportunity cost, decreased pension, etc.). All employers who offer match and offer a Roth option must place matching funds into a traditional 401k or in this case traditional TSP. These matching contributions are generally given as incentives to servicemembers who agree to serve 6 years on active duty in those specialties. ($61,000 in 2022.) I ran into an issue earlier in 2018. Ill stay in touch with the TSP and with the DoD BRS office. The Blended Retirement System (BRS) is the new Military Retirement Plan with matching Thrift Savings Plan contributions and lower pension. Advertising Notice: The Military Wallet and Three Creeks Media, its parent and affiliate companies, may receive compensation through advertising placements on The Military Wallet; For any rankings or lists on this site, The Military Wallet may receive compensation from the companies being ranked and this compensation may affect how, where and in what order products and companies appear in the rankings and lists. Members will begin receiving an automatic contribution of 1% of their base pay from the DoDbeginning 60 days after entering the military. But they will join the military with that plan in place, so they arent losing out they will receive what they signed up to receive. Advertiser Disclosure: Opinions, reviews, analyses & recommendations are the authors alone. In general, REDUX is not a good deal for military members. This is the amount that you pay for someone to manage your investments. You will need to update this example with your current situation to maximize your contributions. The Senate Armed Services Committee passed the BRS as part of the FY 2016 National Defense Authorization Act (NDAA). Active duty: Lump sum election must be made no less than 90 days before retirement. The rule of thumb most people use when thinking about the previous military retirement plans is 50% of base pay at 20 years of service. How much is the Continuation Pay Bonus? If you have questions about Veteran programs offered through or by the Dept. With a Roth IRA, you would open an account and contribute to it directly. The Thrift Savings Plan is a great investment opportunity for military service members and eligible civil service members working for the US government. Disclaimer: this is not advice and merely an example of one service member making contributions while in a combat zone. We knew theyd followed the rules on their Roth TSP limits. The Military Wallet is a property of Three Creeks Media. Withdrawing Money For members of the uniformed services, it includes all traditional and Roth contributions from taxable basic pay, incentive pay, special pay and bonus pay, but does not apply to traditional contributions made from tax-exempt pay earned in a combat zone. Even if you just have a series of short deployments to combat zones during the years, the IRS is still going to let you use the annual additions limit all year long. Here is a basic overview of the military retirement pension plans available before the creation of the BRS: These three systems all reward retirees with an immediate pension once they reach 20 full years of service. If youre locked out of TSP contributions before the end of the year, then youre going to lose your DoD BRS matching contributions for the rest of the year. Departments of Defense or Veterans Affairs. Compare the rates, fees, and rewards of top credit cards for military servicemembers and veterans, including cards with waived annual fees under the SCRA. When you return home, youll probably be shut off from more contributions to your traditional TSP. After that, the formula is similar to to the civil service formula. Further information on TSP as well as election forms may be obtained at www.tsp.gov. Save big with our most popular military and veteran discounts on travel, retail, cell phones, and more! contributions of 1 percent of basic pay and government matching contributions of up to an additional 4 percent of basic pay to a service member's TSP account. The Thrift Savings Plan is a great investment opportunity for military service members and eligible civil service members working for the US government. Youre not actually contributing all of that limit from your own pay. Traditional TSP contributions are deducted pre-tax; taxes are deferred until you withdraw your contributions. This not only offers a huge compounding advantage but also means that you have more money to contribute to your TSP account instead of contributing it to the U.S. Treasurys income-tax fund via withholding and tax returns. In other words, that $61,000 limit now includes your DoD BRS agency/matching contributions. One more special note: an extended deadline to contribute to your IRA, Military pay in a combat zone is exempt from federal and state taxes, volunteer to deploy to a combat zone just for the tax-free pay, You dont even have to wait until age 59.5 to tap your TSP, We personal-finance bloggers talk boldly about frugality versus deprivation. The losers? As he suggests, save copies of your Leave and Earnings Statements which cover the duration of the deployment. You will happy with yourself 20 or 30 years from now when you see a 5 or 6 figure balance in your TSP account. Im going to let the FRTIB and the BRS office clarify those interpretations of the tax code. 1. Roth TSP contributions are taken after-tax. Alert readers will note that the servicemember in the contribution spreadsheet example received a $30K retention bonus while in the combat zone. Featured In: Ryans writing has been featured in the following publications: Forbes, Military.com, US News & World Report, Yahoo Finance, Reserve & National Guard Magazine (print and online editions), Military Influencer Magazine, Cash Money Life, The Military Guide, USAA, Go Banking Rates, and many other publications. My answer: I dont know. The approved training materials can be found here: .
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