Troops can start doing their research this year, but those who are eligible to make a choice have a full year before they can opt in to the new plan. That window will last from Jan. 1, 2018, through Dec. 31, 2018. Everyone who joins the military on or after Jan. 1, 2018, will be automatically enrolled in the new plan.
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In the months to come, the Defense Department will roll out an expansive education program to ensure all troops understand the difference between the two benefits and are prepared to make such a critical personal financial decision. There will be classes, online educational tools and a calculator that will enable military personnel and their families to compare the two options based on their current career status and plans for the future.
It will be similar to 401(k) contributions for private sector employees, and mark the first time the military offers some limited retirement benefit to troops who separate before reaching 20 years of service. Historically, noncareer service members — more than 80 percent of the force — have received no retirement benefit.
The new system will make individual retirement account contributions equal to at least one percent of basic pay. Beyond that, the government will provide matching funds to troops who contribute their own cash. The maximum is 5 percent, meaning if troops agree to contribute 5 percent of their own pay to the individual retirement account, the government will also contribute 5 percent.
Individual contributions are tax-deferred, meaning the tax is payable upon withdrawal. But money deposited into these retirement accounts, known as a Thrift Savings Plan, is generally not available for withdrawal before the owner reaches age 59½. Early withdrawal comes with significant tax penalties.
Personal finance experts say the most important factor in the decision will be whether an individual service member plans to stay for a 20-year military career. For those who expect to reach the 20-year mark, the traditional pension system is probably a better deal.
Yet for young troops who are unsure about their career plans, the new system promises some retirement benefit for those who might leave after long before 20 years of service.