Allowances: Thrift Savings Plan - Military Pay & Allowances - Military Times

Allowances: Thrift Savings Plan

The federal Thrift Savings Plan allows participants to place a portion of their monthly pay into an account similar to a private-sector 401(k) investment plan. The contributions are pretax dollars and thus reduce the amount of income subject to tax, and the accounts grow tax free.

There is no limit to the percentage of income that can be invested in the accounts, but the Internal Revenue Service sets a dollar limit for how much can be invested each year; in 2010, that limit is $16,500. Anyone age 50 or older who makes the maximum $16,500 contribution in 2010 can contribute another $5,500 as a “catch-up” payment.

Members may enroll when they first join the military or any time thereafter.

Unlike traditional military retirement, which requires a commitment of at least 20 years of active duty, money invested in the TSP belongs to individual members no matter how many years they serve.

Taxes

TSP contributions are not taxed until withdrawn from the account. Withdrawal before age 59½ may incur a penalty; however, a TSP account can be rolled over into an Individual Retirement Account or another employer’s retirement account, or the money can stay in the TSP after a member leaves the military.