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What do you think about the military's Thrift Saving Plan (TSP) program? Is it worth the investment and can you roll it over to an IRA or ROTH IRA when a person retires from the military? Also, why doesn't your magazine ever talk about military retirement planning? Yes, our retirement system is different from the civilian sector, but we do have soldiers in the military who can retire from the service at the age of 38 if they enlisted at the age of 18 and completed 20 years of active service. I have talked to many of my comrades who are about to retire from the military at a young age of 38 to 48 but don't really know what to do with that retirement check. Can you address these issues in future magazine articles? Thanks for your support.
Thank you for sending your question to Kiplinger's. We hear from so many members of the military who would like us to write more articles about their unique retirement and financial-planning needs. I think that's a great idea. I'd love to write more military-focused articles to answer our readers' questions and because I personally know about these special issues as the wife of an Army doctor.
The thrift savings plan is a wonderful way to save for retirement. Like a 401(k), your contributions are taken out of your paycheck before taxes and the money grows tax-deferred through the years. The TSP includes several good low-fee investment choices -- including life-cycle funds, which have diversified portfolios that automatically become more conservative as your retirement date gets closer.
You can invest up to $15,500 in the thrift savings plan in 2008, and you can add all of your tax-exempt pay while serving in a combat zone. Total contributions can't exceed $46,000 in 2008. When you withdraw the money, you won't be taxed on contributions from tax-exempt pay. For more information, see the TSP Web site.
After you leave the service, you can roll the TSP money over into an IRA. You can get more information about the rollover rules from the TSP Web site.
It's a good idea, though, to invest in an IRA while you're contributing to a TSP, especially if you qualify for a Roth. You can invest up to $5,000 in an IRA in 2008, even if all of your income is tax-exempt pay from a combat zone.
See At Your Service for more information about thrift savings plan investing options and IRA rules for members of the military. Also see Assets Deployed, which goes into more detail about financial planning for members of the military.
I also wrote an article for the August issue of Kiplinger's Personal Finance magazine about financial scams targeting members of the military. I went into detail about TSPs and other savings options that are much better than some of the high-fee investments often targeted toward members of the military. Subscribers are receiving the issue now, and the article should appear on Kiplinger.com within the next week.
And we're working on an article about the new GI Bill for the 21st Century. If you have any questions about the new GI bill or would be interested in being included in the article, please e-mail me at askkim@kiplinger.com.
POSTED BY: W. Vito Zambelli (July 07, 2008 09:09 AM)
I have frequently found very useful information in your columns which I read almost daily. However I am surprised that you did not mention the most important advantages about the value of TSP to the military -- especially because the usual age of an enlistment is 18 to 25--best time to begin saving for retirement. The seven most important advantages: 1) each of the 5 basic funds are INDEX funds and over a thirty year period, it is extremely unlikely that any collection of NON-INDEX funds could exceed the growth of a comparable collection of the those TSP funds. 2)COST: the management expense for TSP funds is THREE BASIS POINTS! There is not any mutual fund available for individual investers that matches that 00.03% expense ratio! 3) The LIFE CYCLE funds balance DAILY! Over a 30 year period that is an extroadinary additional advantage to the LIFE CYCLE funds. (Refer to the David Swensen's study on this point if you think that the young enlistees maybe confused by the constant chatter on the value of rebancing.) 4)One does not have to choose the LIFE CYCLE fund recomended by TSP based on the individual's EXPECTED retirement age. The individual can choose the LIFE CYCLE fund closest to his own sense of risk and assent class balance, or he could overweight or underweight the closest LIFE CYCLE fund and augment it with some allocation to the TSP's 5 basic funds. 6) The TSP's "G" fund is the only place where an individual can invest in a 100% ultrasafe Federal Treasury Intermediate Bond fund without the problem of duration -- a liability in every bond fund. The "G" is the only truly free lunch out there in the entire investment world. 7) The TSP's very small choice of funds (5 basic funds and a choice of several combinations of those 5 basic funds which rebalance DAILY -- all at a cost of 00.00%, all INDEX funds) makes is very hard to fiddle with one's retirement portfolio, which as you know is why the average investor usually does not match the markets long term growth...
POSTED BY: Former TSP briefer (July 07, 2008 03:52 PM)
Readers also need to know that former military members can leave their TSP accounts right in the TSP to save on IRA annual fees. They can no longer contribute to it. But they still have the ability to move their funds around, within the new limits for interfund transfers, and will save a lot of money they would have to spend on IRA accounts. It doesn't make sense to take it out and put it in substantially similar funds at a much higher investment cost.
POSTED BY: CivilianEmployee (July 08, 2008 07:49 PM)
Good postings and article--just a few more things to think about re your TSP account: (1) Check your state laws about possible state tax exclusions on TSP withdrawals after retirement--my state, NC, issued a decision (Bailey) that allows certain federal retirees to take withdrawals free of state tax--as long as their account remains in TSP. However, if those funds are rolled over into an IRA or annuity, withdrawals appear to lose their state tax free status! (2) Check with TSP on when withdrawal eligibility without penalty begins--in many cases one can begin withdrawing without penalty at retirement, as opposed to waiting until age 59 1/2. (3) The posting recommending the TSP for low transaction costs is so true...there just isn't a better deal anywhere! Since you can leave your funds in TSP at retirement and take monthly distributions (which can be changed yearly)...and can continue to rebalance your account among many different options...seems there would be few reasons why a rollover into another investment vehicle would make sense under normal circumstances!
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